<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AMERICAN DENTAL PARTNERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8099 04-3297858
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
--------------
301 EDGEWATER PLACE, SUITE 320
WAKEFIELD, MASSACHUSETTS 01880
(781) 224-0880
(781) 224-4216 (FAX)
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
GREGORY A. SERRAO
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN DENTAL PARTNERS, INC.
301 EDGEWATER PLACE, SUITE 320
WAKEFIELD, MASSACHUSETTS 01880
(781) 224-0880
(781) 224-4216 (FAX)
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
GARY A. WADMAN, ESQ. KEITH F. HIGGINS, ESQ.
BAKER & HOSTETLER LLP ROPES & GRAY
65 EAST STATE STREET ONE INTERNATIONAL PLACE
COLUMBUS, OHIO 43215 BOSTON, MASSACHUSETTS 02110-2624
(614) 228-1541 (617) 951-7000
(614) 462-2616 (FAX) (617) 951-7050 (FAX)
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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,
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 of 1933, 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(d)
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,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par value........ 2,300,000 shares $17.00 $39,100,000 $11,849
</TABLE>
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(1) Includes 300,000 shares of Common Stock that the Underwriters have the
option to purchase solely to cover over-allotments, if any.
(2) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457 (a) under the Securities Act of 1933.
--------------
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
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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
NOVEMBER 12, 1997
2,000,000 Shares
[AMERICAN DENTAL PARTNERS LOGO]
Common Stock
--------
All of the shares of Common Stock offered hereby are being sold by American
Dental Partners, Inc. ("ADP" or 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 $15.00 and
$17.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. Application will
be made to have the Common Stock approved for quotation on the Nasdaq National
Market under the symbol "ADPI."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
--------
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.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share............. $ $ $
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Total(3).............. $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $1,000,000, payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 300,000 additional shares of Common Stock solely to cover over-
allotments, if any. To the extent the option is exercised, the Underwriters
will offer the shares at the Price to Public shown above. If all such
shares are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered and accepted by them,
and subject to their right to reject orders in whole or in part. It is expected
that delivery of certificates for such shares of Common Stock will be made at
the offices of BT Alex. Brown Incorporated in Baltimore, Maryland on or about
, 1998.
BT ALEX. BROWN
BANCAMERICA ROBERTSON STEPHENS
PIPER JAFFRAY INC.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
SINCE ITS INCEPTION, THE COMPANY HAS COMPLETED AFFILIATIONS WITH NINE DENTAL
GROUP PRACTICES AND CURRENTLY OPERATES 76 DENTAL FACILITIES WITH 549
OPERATORIES IN FIVE STATES.
[A two-colored map of the United States displaying by separate color the states
in which the Company has dental facilities and in which the Company has its
corporate offices, and indicating within each state the metropolitan statistical
areas in which the Company operates, as well as the Company's corporate office,
along with a textual identification of each.]
The Company's corporate office is located at 301 Edgewater Place, Suite 320,
Wakefield, Massachusetts, 01880. Its telephone number is (781) 224-0880.
THE UNDERWRITERS AND CERTAIN OTHER PERSONS PARTICIPATING IN THIS OFFERING MAY
ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET
PRICE OF THE COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-
COVERING TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus.
THE COMPANY
American Dental Partners, Inc. is a leading provider of dental practice
management services to multi-disciplinary dental group practices in attractive
markets in the United States. The Company seeks to affiliate with leading
dental groups that provide a comprehensive range of dental care services, have
outstanding reputations for quality and have proven records of financial
performance. Since its inception, the Company has successfully completed
affiliations with nine dental group practices and currently operates 76 dental
facilities with 549 operatories in five states.
The United States Health Care Financing Administration estimates that
expenditures for dental care were approximately $45.8 billion in 1995 and will
reach approximately $79.1 billion by 2005, representing a compound annual
growth rate of approximately 5.6%. The Company believes that the growth in
expenditures for dental care will continue to be driven by: (i) improved dental
benefits offered by employers; (ii) increased availability and use of dental
insurance, including preferred provider organization ("PPO") plans and
capitated managed care plans; (iii) increased demand for dental care from an
aging population; and (iv) increased demand for cosmetic and preventative
procedures.
The delivery of dental care in the United States is highly fragmented. Unlike
many other sectors of the health care services industry, the dental care
industry is in the early stages of consolidation. Although dental care is
typically offered by solo practioners, the trend toward group practice is
growing. According to the American Dental Association, in 1995, 11.8% of the
approximately 153,300 dentists in the United States were practicing in groups
of three or more, up from 4.1% in 1991. The Company believes that this
consolidation trend will continue and that dental group practices will seek to
affiliate with entities, such as the Company, that: (i) allow dentists to focus
on the clinical aspects of dentistry by providing management resources to
conduct the business and administrative aspects of dentistry; (ii) provide
information and operating systems that are required to effectively operate in
an increasingly complex reimbursement environment; (iii) assist with third-
party contracting; (iv) realize economies of scale in purchasing and provide
access to capital; and (v) provide dentists the opportunity to realize value
for their practices.
The Company's affiliation model is designed to create a partnership in
management between the Company and the affiliated dental group practice that
allows each party to maximize its strengths and retain its autonomy. When
affiliating with a dental group practice, the Company acquires substantially
all of its assets and enters into a long-term service agreement to manage the
non-clinical aspects of the dental operations. The Company supports its
affiliated dental group practices with a broad range of services designed to
enhance practice revenue, improve operating efficiencies and expand operating
margins. The Company shares the best practices of its network with each
affiliate and provides assistance with information systems, budgeting,
financial reporting, facilities management, third-party payor contracting,
supplies and equipment procurement, quality assurance initiatives, billing and
collecting accounts receivable, marketing and recruiting, hiring and training
support staff.
The Company's objective is to be the leading dental practice management
company in the United States. The Company's strategy for achieving this
objective is to: (i) expand into carefully selected and diverse geographic
markets which have favorable demographics and projected economic growth; (ii)
affiliate with leading dental group practices which have reputations for
quality care and proven records of financial performance; (iii) increase market
penetration in each of its markets through additional affiliations, recruitment
of dentists and new facility development; (iv) add value to each affiliated
dental group practice by assisting the practice in improving operating
performance; and (v) pursue various initiatives to help its affiliates provide
the highest quality of care and service.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company................ 2,000,000 shares
Common Stock to be outstanding after the offering.. 6,794,217 shares(1)
Use of proceeds.................................... To redeem the Company's Series B Redeemable
Preferred Stock, to repay certain indebtedness
and for general corporate purposes, including
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol............. ADPI
</TABLE>
- --------
(1) Based on shares outstanding at October 31, 1997. Does not include 1,118,166
shares of Common Stock issuable upon the exercise of outstanding options
issued pursuant to the Company's stock option plans, at a weighted average
exercise price of $8.70.
Unless otherwise indicated, the term "Company" includes American Dental
Partners, Inc. and (i) its management service organization ("MSO") subsidiaries
PDHC, Ltd. ("Park"), Texas Dental Partners, Inc., Smileage Dental Care, Inc.,
American Dental Partners of Louisiana, Inc., Soster Dental, Inc., American
Dental Partners of Wisconsin, Inc., Apple Park Associates, Inc. and (ii) its
wholly-owned subsidiary Orthocare, Ltd. The term "PC" means the dental
professional corporation or other professional entity formed by the dentists of
the affiliating dental group practice. The Company does not own or control the
PCs and, accordingly, does not consolidate the financial statements of the PCs
with those of the Company.
Unless otherwise indicated, all references in this Prospectus: (i) assume no
exercise of the Underwriters' over-allotment option; (ii) assume conversion of
the Company's outstanding shares of Series A Convertible Preferred Stock, $0.01
par value (the "Series A Convertible Preferred Stock"), into 2,400,000 shares
of Common Stock upon completion of this offering; (iii) assume redemption of
the Company's outstanding Series B Redeemable Preferred Stock, $0.01 par value
(the "Series B Redeemable Preferred Stock"), upon completion of this offering;
and (iv) give effect to the 6-for-1 stock split effected in the form of a stock
dividend on November 7, 1997.
4
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
PRO FORMA PRO FORMA
ACTUAL AS ADJUSTED ACTUAL AS ADJUSTED
----------- ----------------------------------- ---------------------
1996 1996(1)(2) 1996 1997 1996(1)(2) 1997(2)(3)
----------- --------------------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............ $ 3,933 $ 54,924 $ -- $36,620 $40,390 $46,862
Operating expenses..... 6,414 53,476 1,528 35,590 39,336 44,028
Earnings (loss) from
operations............ (2,481) 1,488 (1,528) 1,030 1,054 2,834
Interest expense
(income), net......... (38) 543 (14) 195 407 366
Earnings (loss) before
income taxes.......... (2,443) 905 (1,514) 835 647 2,468
Income taxes........... -- 367 -- 81 262 1,000
Net earnings (loss).... (2,443) 538 (1,514) 754 385 1,468
Net earnings (loss) per
common share.......... $ (0.55) (/4/) $ 0.08 $(0.33)(/4/) $ 0.07(/4/) $ 0.06 $ 0.22
Weighted average common
shares outstanding ... 4,606 6,567 4,606 4,852 6,553 6,606
STATISTICAL DATA (END OF
PERIOD):
Number of dental
facilities............ 42 71 -- 59 71 76
Number of
operatories(/5/)...... 331 523 -- 471 523 549
Number of affiliated
dentists(/6/)......... 128 n/a -- 148 n/a 165
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA(7) AS ADJUSTED(8)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 2,459 $ 1,853 $9,467
Working capital........................... 743 (1,362) 6,181
Total assets.............................. 28,293 44,383 51,926
Long-term debt, excluding current
maturities............................... 5,490 18,790 5,090
Redeemable and convertible preferred
stock.................................... 16,000 16,000 --
Total stockholders' equity................ 213 1,201 38,444
</TABLE>
- --------
The following footnotes should be read in conjunction with the information
under "The Company," "Use of Proceeds," "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Unaudited Pro Forma Consolidated Financial Information.
(1) Gives effect to (i) the 1996 Transactions and (ii) the 1997 Transactions,
including those transactions completed subsequent to September 30, 1997, as
if they had been completed on January 1, 1996.
(2) Gives effect to the sale of 1,506,000 shares of Common Stock as if it had
been completed on January 1, 1996, at an assumed initial public offering
price of $16.00 per share and the application of the estimated net proceeds
therefrom to redeem the Series B Redeemable Preferred Stock, to reduce debt
and the associated interest expense and to adjust taxes.
(3) Gives effect to the 1997 Transactions, including those transactions
completed subsequent to September 30, 1997, as if they had been completed
on January 1, 1997.
(4) Computed on the basis described in Note 2 to the Company's Consolidated
Financial Statements.
(5) An operatory is an area where dental care is performed and generally
contains a dental chair, a hand piece delivery system and other essential
dental equipment.
(6) Includes full-time general dentists employed by the PCs and full-time
specialists, some of whom are independent contractors to the PCs.
(7) Gives effect to the 1997 Transactions completed subsequent to September 30,
1997, as if they occurred on September 30, 1997.
(8) Gives effect to the conversion of the Series A Convertible Preferred Stock
into 2,400,000 shares of Common Stock and the completion of this offering
at an assumed initial public offering price of $16.00 per share and the
receipt and application of the estimated net proceeds therefrom, as if such
events occurred on September 30, 1997.
5
<PAGE>
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 other information contained in this Prospectus, before
purchasing the securities offered hereby. This Prospectus contains forward-
looking statements. Prospective investors are cautioned that any such forward-
looking statements are not guarantees of future performance and involve risks
and uncertainties. Actual events or results may differ materially from those
discussed in the forward-looking statements, including the risk factors set
forth below and the matters set forth in this Prospectus generally.
LIMITED OPERATING HISTORY; 1996 OPERATING LOSS
The Company was formed in December 1995, commenced operations in January
1996 and began engaging in dental practice management operations in November
1996, concurrent with the completion of its first dental practice affiliation.
The Company experienced an operating loss in 1996. Although the Company was
profitable for the first three quarters of 1997, there can be no assurance
that the Company will be able to sustain profitable operations.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company's strategy includes expansion through affiliations with dental
practices in new and existing markets and the expansion of such affiliated
practices. Affiliations involve numerous risks, including failure to retain
key personnel and contracts of the affiliated practices, inability to
integrate businesses without material disruption and amortization of acquired
intangible assets. In addition, the Company competes with other dental
practice management companies which have a similar strategy, some of which may
have greater financial resources and a longer operating history than the
Company. Competition for affiliations may intensify due to ongoing
consolidation in the dental care services industry, which may substantially
increase the costs associated with completing affiliation transactions. There
can be no assurance that any future affiliations will be successfully
integrated into the Company's operations, that competition for affiliations
will not intensify or that the Company will be able to complete such
affiliations on acceptable terms and conditions. In addition, the costs of
unsuccessful affiliation efforts may adversely affect the Company's business,
financial condition or results of operations.
The Company devotes substantial time and resources to affiliation-related
activities. Identifying appropriate affiliation candidates and negotiating and
consummating affiliations with dental practices can be a lengthy, complex and
costly process. The success of the Company's expansion strategy will depend on
a number of factors, including the Company's ability to identify and affiliate
with quality dental practices in suitable markets and regulatory constraints.
There can be no assurance that the Company's affiliation strategy will be
successful or that modifications to its strategy will not be required.
MANAGEMENT OF GROWTH
The Company has experienced substantial growth in a relatively short period
of time, primarily because of affiliations with existing dental practices.
This growth has placed, and will continue to place, significant demands upon
the Company's management, operations and systems. The Company's ability to
manage its growth effectively will depend upon its ability to hire, train and
assimilate additional management and other employees and its ability to
expand, improve and effectively utilize its accounting and finance, management
and operating systems in order to accommodate its expanded operations. A
failure by the Company's management to anticipate, implement and manage
effectively the changes required to sustain the Company's growth could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE UPON AFFILIATED DENTAL GROUP PRACTICES
The Company's revenue will depend on revenue generated by dental group
practices with which the Company has service agreements. The Company does not
employ dentists or control the clinical practices of the
6
<PAGE>
dental groups with which it affiliates. There can be no assurance that dental
group practices with which the Company affiliates will maintain successful
dental practices, that the service agreements with the affiliated dental
groups will not be terminated or that any of the key members of a particular
dental group practice will continue practicing with that group. A shortage of
available dentists could have a material adverse effect on the Company's
expansion opportunities. To the extent permitted by state law, each PC has
entered into non-competition agreements and other restrictive covenants with
the dentists employed by the PC. There can be no assurance that these
restrictive covenants are or will be sufficient to protect the interests of
the Company or the PC or that a court would enforce such agreements. Any
material loss of revenue by the affiliated dental group practices, whether
through the loss of existing dentists, the inability to attract new dentists
or otherwise, would have a material adverse effect on the Company's business,
financial condition and results of operations.
GOVERNMENT REGULATION
The dental industry and dental practices are regulated extensively at the
state and federal levels. The laws of many states, including states where the
Company operates and anticipates operating, prohibit entities not wholly owned
or controlled by dentists from practicing dentistry (which in certain states
includes owning, managing or controlling the assets, equipment or offices used
in a dental practice), employing dentists and, in certain circumstances,
dental assistants and dental hygienists, or exercising control over the
provision of dental services. These laws also often regulate the content of
advertisements of dental services. The Company and its affiliated dental
practices are also subject to state and/or federal licensure, fraud and abuse,
anti-kickback, false claims, fee splitting, self-referral, antitrust and
safety and health laws and regulations. At the state level, these laws and
regulations vary widely. In addition, these laws and regulations are enforced
by federal and state regulatory authorities with broad discretion. The Company
does not, and does not intend to, control the practice of dentistry by the
affiliated dental group practices or their compliance with the regulatory
requirements directly applicable to dentists or the practice of dentistry.
However, there can be no assurance that any review of the Company's business
relationships, including the relationships of the Company with affiliated
dental group practices, by courts or other regulatory authorities, will not
result in determinations that could adversely affect the operations of the
Company, or that the laws and regulatory environment will not change to
restrict or limit the enforceability of the Company's service agreements. The
laws and regulations of certain states in which the Company may seek to expand
may require the Company to change its contractual relationships with dental
practices in a manner that may restrict the Company's operations in those
states or may prevent the Company from affiliating with dental practices or
providing comprehensive services to dental practices in those states. To the
extent that the Company or any affiliated dental group practice contracts with
third party payors, including self-insured plans, on a capitated or other
basis which causes the Company or such affiliated dental group practice to
assume a portion of the financial risk of providing dental care, the Company
or such affiliated dental group practice may become subject to state insurance
laws, in which case the Company may be required to change the method of
payment from third party payors or seek appropriate licensure. Any regulation
of the Company or its affiliated dental group practices under insurance laws
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Government Regulation."
NEED FOR ADDITIONAL FINANCING
The Company's ability to execute its business strategy depends to a
significant degree on its ability to obtain substantial capital to finance
future affiliations. To date, the Company has obtained financing through
private sales of Preferred and Common Stock and through its $30 million
revolving credit facility. The Company has historically used a combination of
cash, Common Stock and subordinated promissory notes as consideration in
affiliations with dental practices and intends to continue this practice.
However, the Company's ability to use its Common Stock and subordinated
promissory notes as consideration for future affiliations may be adversely
affected if the Common Stock fails to maintain a sufficient market value or if
the affiliation candidates are unwilling to accept the Company's subordinated
promissory notes. Furthermore, while funds are currently available under the
Company's revolving credit facility, the Company's ability to draw such funds
is subject to
7
<PAGE>
certain terms and conditions, and there can be no assurance that the Company
will be able to satisfy such terms and conditions. There can be no assurance
that any other financing will be available to the Company, or if available,
that such financing would be on terms favorable to the Company.
DEPENDENCE UPON AND REDUCTIONS IN THIRD PARTY PAYMENTS
A significant portion of the payments for dental care is paid or reimbursed
under insurance programs ("third party payors"). These third party payors are
continually negotiating the prices charged for dental care, with a goal of
lowering reimbursement and utilization rates. Third party payors can also deny
reimbursement for dental care if they determine that a treatment was not
performed in accordance with treatment protocols established by such third
party payors or for other reasons. Loss of revenue by the Company's affiliated
dental group practices caused by cost containment efforts could have a
material adverse effect on the Company. Additionally, some third-party payor
contracts are capitated arrangements. Under such contracts, the affiliated
dental group practice receives a capitated payment, calculated on a per member
per month basis, to provide care to the covered enrollees and generally
receives a co-payment at the time care is provided. Such payment methods shift
a portion of the risk of high costs of over-utilization from the third party
payor to the affiliated dental group practice and indirectly to the Company.
To the extent that patients or enrollees covered by certain third-party payor
contracts require more frequent or extensive care than is anticipated by the
affiliated dental group practices, the revenue to the affiliated dental group
practices derived from such contracts may be insufficient to cover the costs
of the services provided. Insufficient revenue under capitated contracts or
other agreements with third party payors could have a material adverse effect
on the Company's business, financial condition and results of operations.
POSSIBLE EXPOSURE TO PROFESSIONAL LIABILITY
The Company's affiliated dental practices provide dental care to the public
and could be exposed to the risk of professional liability and other claims.
Such claims, if successful, could result in substantial damages which could
exceed the limits of any applicable insurance coverage. It is possible that
such claims could be asserted against the Company as well as the affiliated
dental practices, that a claim brought against an affiliated dental group
practice or dentist could materially increase professional liability insurance
premiums of the affiliated dental group practice, or that fees to the Company
from a dental group practice could be adversely affected, if damages payable
by that practice exceed insurance coverage limits. The Company's service
agreements require that it be named as an additional insured party under the
liability insurance policy that each affiliated dental group is required to
maintain. In addition, the Company requires each affiliated dental group
practice to indemnify the Company for actions or omissions related to the
delivery of dental care by such affiliated dental group practice. However, a
successful professional liability claim against the Company or an affiliated
dental group practice could have a material adverse effect on the Company's
business, financial condition and results of operations.
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from quarter
to quarter or year to year. Results may fluctuate due to a number of factors,
including the timing of future affiliations, seasonal fluctuations in the
demand for dental care and competitive factors. Accordingly, quarterly
comparisons of the Company's revenues and operating results should not be
relied on as an indication of future performance, and the results of any
quarterly period may not be indicative of results to be expected for a full
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
COMPETITION
The business of providing practice management services is highly
competitive. The Company is aware of a number of competitors specializing in
the business of providing comprehensive management services to dental
practices and there are other companies with substantial resources that may
decide to enter the dental practice management business. In addition, the
Company's revenue depends on the success of its affiliated dental groups
8
<PAGE>
and those groups face competition from several sources, including solo
practitioners and single and multi-disciplinary groups, many of which may have
more established practices. See "Business--Competition."
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of this offering, Summit Partners, executive officers of the
Company and dentists affiliated with the Company's affiliated dental group
practices will beneficially own an aggregate of approximately 35.0%, 10.1% and
21.0%, respectively, of the outstanding shares of Common Stock. If these
groups were to act together, they would be able to elect all of the Company's
directors and determine the outcome of all corporate actions requiring
approval of stockholders, and thus control the business affairs and policies
of the Company. Such control could also have the effect of delaying or
preventing a change in control of the Company and consequently may adversely
affect the market price of the Common Stock. See "Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, 4,621,328 shares of Common Stock,
representing approximately 68.0% of the outstanding shares of Common Stock,
will be eligible for sale in the public market under Rule 144 beginning 90
days after the date of this Prospectus, of which shares are subject to
lock-up agreements for a period of 180 days from the date of this Prospectus.
Sales of substantial amounts of Common Stock in the public market following
the offering, or the perception that such sales could occur, could adversely
affect prevailing market prices of the Common Stock and could impair the
future ability of the Company to raise capital through the sale of its equity
securities. The Company is unable to predict 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 have the right to require the Company to register their
Common Stock from time to time. See "Description of Capital Stock" and "Shares
Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. The Company intends to apply for quotation on the Nasdaq National
Market, however, there can be no assurance that an active trading market will
develop or be sustained upon completion of this offering or that the market
price of the Common Stock will not decline below the initial public offering
price. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Representatives of the
Underwriters and may not be indicative of the prices that will prevail in the
public market. The trading prices of the Company's Common Stock could be
subject to wide fluctuations in response to quarter-to-quarter variations in
the Company's operating results, material announcements by the Company,
governmental regulatory action, general conditions in the health care
industry, or other events or factors, many of which are beyond the Company's
control. In addition, 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
the future 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."
DIVIDEND POLICY AND PROHIBITIONS
The Company does not intend to pay cash dividends on the Common Stock in the
foreseeable future and anticipates that future earnings will be retained to
finance future operations and expansion. In addition, the terms of Company's
revolving credit facility prohibit the Company from paying dividends or making
other payments with respect to its Common Stock without the consent of the
lender. See "Dividend Policy."
9
<PAGE>
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Second Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation") and Amended and Restated
By-laws (the "By-laws") and of Delaware law could, together or separately,
discourage potential acquisition proposals, delay or prevent a change in
control of the Company or limit the price that certain investors might be
willing to pay in the future for shares of the Common Stock. Among other
matters, the Certificate of Incorporation provides for "blank check" preferred
stock, which may be issued without stockholder approval, and requires all
actions by stockholders to be taken at meetings of stockholders. The By-laws
provide for a classified Board of Directors. The Company also is subject to
Section 203 of the Delaware General Corporation Law ("DGCL"), which, subject
to certain exceptions, prohibits a Delaware corporation from engaging in any
of a broad range of business acquisitions with an "interested stockholder" for
a period of three years following the date such stockholder became an
interested stockholder. See "Description of Capital Stock."
DILUTION
Purchasers of the Common Stock offered hereby will incur immediate and
substantial dilution in net tangible book value per share from this offering.
In addition, shares of Common Stock issued in connection with future
acquisitions will result in ownership dilution to investors in this offering.
See "Dilution."
10
<PAGE>
THE COMPANY
Overview
American Dental Partners, Inc. was formed as a Delaware corporation on
December 22, 1995, commenced operations in January 1996 and began engaging in
dental practice management operations in November 1996, concurrent with the
completion of its first dental group practice affiliation. The Company
acquires substantially all the assets of the dental practices with which it
affiliates, except those required by law to be owned or maintained by
dentists, and enters into long-term service agreements with the affiliated
dental practices. The Company provides all services necessary for the
administration of the non-clinical aspects of the dental operations. Services
provided to affiliated dental practices include assistance with information
systems, budgeting, financial reporting, facilities management, third-party
payor contracting, supplies and equipment procurement, billing and collecting
accounts receivable, marketing and recruiting, hiring and training support
staff. The Company does not employ dentists or control the clinical aspects of
dentistry.
1996 Transactions
During 1996, the Company acquired substantially all the assets of three
dental group practices and simultaneously entered into a 40-year service
agreement with each of the affiliated dental groups. These affiliated dental
groups and their respective dates of affiliation are: PDG, P.A. ("Park
Dental") on November 12, 1996; L. Crane & Associates, P.C. ("Longhorn Dental")
on December 13, 1996; and the Wisconsin Dental Group, S.C. ("Smileage Dental
Care") on December 23, 1996. These transactions are referred to as the "1996
Transactions."
1997 Transactions
During 1997, the Company acquired substantially all the assets of six dental
group practices and simultaneously entered into 40-year service agreements
with four of the affiliated dental groups (two practices joined existing
affiliates). These dental group practices and their respective dates of
affiliation are: Lakeside Dental Group professional corporation ("Lakeside
Dental Care") on March 31, 1997; Malcolm R. Scott, D.D.S. on March 31, 1997;
AJS Associates, P.C. ("Soster Dental Group") on May 22, 1997; Wisconsin Dental
Professionals, S.C. ("Northpoint Dental Group") on July 1, 1997; the four
professional corporations owned by Dr. Terrance R. Wilkens (the "Wilkens
Dental Group") on October 1, 1997; and OCG, Ltd. (the "Orthocare Group") on
October 1, 1997. As part of the Orthocare Group transaction, the Company
acquired a related entity that contracts with third party payors and
orthodontic providers to arrange for the provision of orthodontic care to
patients insured by such third party payors in Minneapolis/St. Paul and
Wisconsin. These transactions are referred to as the "1997 Transactions."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $16.00 per
share are estimated to be $28.8 million ($33.2 million if the Underwriters'
over-allotment option is exercised in full). The Company will use the net
proceeds as follows: (i) approximately $7.7 million will be used to redeem all
the Series B Redeemable Preferred Stock, including unpaid dividends; (ii)
approximately $13.7 million will be used to repay outstanding indebtedness
under the Company's revolving credit facility; and (iii) the balance of
approximately $7.4 million will be used for general corporate purposes,
including affiliations with additional dental group practices. The Company's
$30 million revolving credit facility bears interest at either prime- or
LIBOR-based rates, at the Company's option, plus a margin based upon the
Company's debt coverage ratio, which ranges up to 0.50% for prime-based loans
and up to 2.125% for LIBOR-based loans. At October 31, 1997, $13.7 million was
outstanding under this credit facility at a LIBOR-based rate of approximately
7.5%. The facility matures April 2000. To date, the proceeds from this
revolving credit facility have been used for affiliations with dental
practices. Pending the foregoing uses, the balance of the net proceeds will be
invested in short-term, investment grade, interest bearing obligations.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock in the past
and does not plan to pay any cash dividends on its Common Stock in the
foreseeable future. In addition, the terms of the Company's revolving credit
facility prohibit it from paying dividends or making other payments with
respect to its Common Stock without the lender's consent. The Company's Board
of Directors intends, for the foreseeable future, to retain earnings to
finance the continued operation and expansion of the Company's business.
12
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1997: (i) the
capitalization of the Company; (ii) the capitalization of the Company on a pro
forma basis to reflect the 1997 Transactions completed subsequent to September
30, 1997; and (iii) the pro forma capitalization of the Company as adjusted to
reflect the sale of the shares of Common Stock offered hereby (based on an
assumed offering price of $16.00 per share) and the application of the
estimated net proceeds, all as if such events occurred on September 30, 1997.
See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------------
PRO PRO FORMA
ACTUAL FORMA(1) AS ADJUSTED
----------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents........... $ 2,459 $ 1,853 $ 9,467
=========== =========== ===========
Current maturities of debt.......... $ 534 $ 534 $ 534
=========== =========== ===========
Long-term debt, less current
maturities(2)...................... $ 5,490 $ 18,790 $ 5,090
----------- ----------- -----------
Series A convertible preferred
stock, par value $0.01 per share,
400,000 shares authorized, issued
and outstanding; no shares
authorized, issued or outstanding
pro forma as adjusted(3)........... 8,483 8,483 --
Series B redeemable preferred stock,
par value $0.01 per share, 70,000
shares authorized, issued and
outstanding; no shares authorized,
issued or outstanding pro forma as
adjusted(4)........................ 7,517 7,517 --
Stockholders' equity:
Preferred stock, par value $0.01
per share, 530,000 shares
authorized, no shares issued or
outstanding; 1,000,000 shares
authorized, no shares issued or
outstanding pro forma as
adjusted(5)...................... -- -- --
Common stock, par value $0.01 per
share, 25,000,000 shares
authorized, 2,254,736 shares
issued and outstanding; 2,394,217
shares pro forma; 6,794,217
shares pro forma as
adjusted(5)(6)................... 23 24 68
Additional paid-in capital........ 1,936 2,923 40,122
Unearned compensation............. (57) (57) (57)
Accumulated deficit............... (1,689) (1,689) (1,689)
----------- ----------- -----------
Total stockholders' equity...... 213 1,201 38,444
----------- ----------- -----------
Total capitalization.......... $ 21,703 $ 35,991 $ 43,534
=========== =========== ===========
</TABLE>
- --------
(1) To reflect the 1997 Transactions completed subsequent to September 30,
1997. See "The Company."
(2) See Note 7 to the Company's Consolidated Financial Statements.
(3) Upon completion of this offering, all of the Series A Convertible
Preferred Stock will be converted into 2,400,000 shares of Common Stock.
(4) Upon completion of this offering, all of the Series B Redeemable Preferred
Stock will be redeemed for approximately $7.7 million in cash, which
includes unpaid dividends through the anticipated completion date of this
offering.
(5) Reflects the additional 530,000 shares of undesignated Preferred Stock and
22,500,000 shares of Common Stock authorized on October 31, 1997. See Note
13 to the Company's Consolidated Financial Statements.
(6) Excludes 1,118,166 shares of Common Stock issuable upon the exercise of
outstanding options issued pursuant to the Company's stock option plans at
a weighted average price of $8.70 per share, as of October 31, 1997. See
"Management--Stock Plans."
13
<PAGE>
DILUTION
As of September 30, 1997, after giving effect to (i) the conversion of the
Series A Convertible Preferred Stock into 2,400,000 shares of Common Stock and
(ii) the 1997 Transactions completed subsequent to September 30, 1997, the
Company had a pro forma net tangible book value (deficit) of approximately
$(19,316,000) or $(4.03) per share of Common Stock. The pro forma net tangible
book value (deficit) per share represents the amount of total tangible assets
less total liabilities and the Series B Redeemable Preferred Stock, divided by
the number of shares of Common Stock outstanding. After giving effect, as of
such date, to the sale of 2,000,000 shares of Common Stock at an assumed
initial public offering price of $16.00 per share and the application of the
net proceeds, the pro forma net tangible book value of the Company as of
September 30, 1997 would have been approximately $9,444,000 or $1.39 per
share. This represents an immediate increase in net tangible book value of
$5.42 per share to existing stockholders and an immediate dilution of net
tangible book value of $14.61 per share to new investors purchasing Common
Stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $16.00
Pro forma net tangible book value (deficit) per share before
the offering(1)............................................... $(4.03)
Increase per share attributable to new investors............... 5.42
------
Pro forma net tangible book value per share after the offering.. 1.39
------
Dilution in net tangible book value per share to new
investors(2)................................................... $14.61
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997, the differences between existing stockholders (including 2,400,000
shares of Common Stock to be issued upon conversion of the Series A
Convertible Preferred Stock) and the new investors with respect to the number
of shares of Common Stock purchased from the Company, the total consideration
paid and the average price per share paid to the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)...... 4,794,217 70.6% $ 17,862,000 35.8% $ 3.73
New investors................. 2,000,000 29.4 32,000,000 64.2 16.00
--------- ----- ------------ -----
Total....................... 6,794,217 100.0% $ 49,862,000 100.0%
========= ===== ============ =====
</TABLE>
- --------
(1) Excludes Common Stock issuable upon the exercise of outstanding options to
purchase 1,118,166 shares of Common Stock at a weighted average exercise
price of $8.70 per share at October 31, 1997. To the extent these options
are exercised or additional shares of Common Stock are issued in
connection with future transactions, there will be further dilution to new
investors. See "Risk Factors--Dilution" and "Management--Stock Plans."
(2) Dilution is determined by subtracting pro forma net tangible book value
per share after giving effect to this offering at the initial public
offering price per share. Dilution to new investors will be $14.04 if the
Underwriters' over-allotment option is exercised in full.
14
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
The selected consolidated statement of operations data for the year ended
December 31, 1996 and the nine months ended September 30, 1997, and the
selected consolidated balance sheet data at December 31, 1996 and September
30, 1997, have been derived from the Consolidated Financial Statements of the
Company which have been audited by KPMG Peat Marwick LLP, Independent
Certified Public Accountants, and which are included elsewhere in this
Prospectus. The selected consolidated statement of operations data for the
nine months ended September 30, 1996, have been derived from unaudited
financial statements of the Company which, in the opinion of management,
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the results of operations of the Company. The
selected pro forma financial data set forth below as of and for the nine-month
period ended September 30, 1997, for the nine-month period ended September 30,
1996 and for the year ended December 31, 1996, have been derived from the
Unaudited Pro Forma Consolidated Financial Information of the Company which is
included elsewhere in this Prospectus. The selected pro forma financial data
are not necessarily indicative of the actual results of operations or
financial position that would have been achieved had such transactions and
this offering been completed at the dates specified, nor are the statements
necessarily indicative of the Company's future results of operations or
financial position. The selected historical and pro forma financial data
provided below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," Unaudited Pro
Forma Consolidated Financial Information, Consolidated Financial Statements
and the related notes thereto of the Company and other financial information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------- --------------------------------------------
PRO FORMA PRO FORMA
ACTUAL AS ADJUSTED ACTUAL AS ADJUSTED
----------- --------------------------------- ---------------------
1996 1996(1)(2) 1996 1997 1996(1)(2) 1997(2)(3)
----------- --------------------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenue............ $ 3,933 $ 54,924 $ -- $36,620 $40,390 $46,862
----------- ----------- ------- ------- ------- -------
Operating expenses:
Salaries and
benefits.............. 2,098 29,302 -- 19,625 21,543 24,503
Lab fees and dental
supplies.............. 534 6,596 -- 4,491 4,850 5,566
Office occupancy...... 389 5,153 -- 3,368 3,789 4,236
Other operating
expenses.............. 773 7,384 -- 4,433 5,406 5,465
General corporate
expenses.............. 2,395 2,395 1,521 2,260 1,797 2,260
Depreciation.......... 177 1,708 7 1,154 1,251 1,298
Amortization of
intangibles........... 48 938 -- 259 700 700
----------- ----------- ------- ------- ------- -------
Total operating
expenses.............. 6,414 53,476 1,528 35,590 39,336 44,028
----------- ----------- ------- ------- ------- -------
Earnings (loss) from
operations............ (2,481) 1,448 (1,528) 1,030 1,054 2,834
Interest expense
(income), net......... (38) 543 (14) 195 407 366
----------- ----------- ------- ------- ------- -------
Earnings (loss) before
income taxes.......... (2,443) 905 (1,514) 835 647 2,468
Income taxes........... -- 367 -- 81 262 1,000
----------- ----------- ------- ------- ------- -------
Net earnings (loss).... $ (2,443) $ 5,385 $(1,514) $ 754 $ 385 $ 1,468
=========== =========== ======= ======= ======= =======
Net earnings (loss) per
common share.......... $ (0.55)(4) $ 0.08 $ (0.33)(4) $ 0.07(4) $ 0.06 $ 0.22
Weighted average common
shares outstanding.... 4,606 6,567 4,606 4,852 6,553 6,606
STATISTICAL DATA (END OF
PERIOD):
Number of dental
facilities............ 42 71 -- 59 71 76
Number of
operatories(5)........ 331 523 -- 471 523 549
Number of affiliated
dentists(6)........... 128 n/a -- 148 n/a 165
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- -----------------------------------
PRO FORMA
ACTUAL ACTUAL PRO FORMA(7) AS ADJUSTED(8)
----------------- ------- ------------ --------------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents............ $ 5,836 $ 2,459 $ 1,853 $9,467
Working capital......... 3,189 743 (1,362) 6,181
Total assets............ 25,294 28,293 44,383 51,926
Long-term debt,
excluding current
maturities............. 3,063 5,490 18,790 5,090
Redeemable and
convertible preferred
stock.................. 15,105 16,000 16,000 --
Total stockholders'
equity................. 164 213 1,201 38,444
</TABLE>
See accompanying footnotes on following page.
15
<PAGE>
- --------
The following footnotes should be read in conjunction with the information
under "The Company," "Use of Proceeds," "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Unaudited Pro Forma Consolidated Financial Information.
(1) Gives effect to (i) the 1996 Transactions and (ii) the 1997 Transactions,
including those transactions completed subsequent to September 30, 1997,
as if they had been completed on January 1, 1996.
(2) Gives effect to the sale of 1,506,000 shares of Common Stock as if it had
been completed on January 1, 1996, at an assumed initial public offering
price of $16.00 per share and the application of the estimated net
proceeds therefrom to redeem the Series B Redeemable Preferred Stock, to
reduce debt and the associated interest expense and to adjust taxes.
(3) Gives effect to the 1997 Transactions, including those transactions
completed subsequent to September 30, 1997, as if they had been completed
on January 1, 1997.
(4) Computed on the basis described in Note 2 to the Company's Consolidated
Financial Statements.
(5) An operatory is an area where dental care is performed and generally
contains a dental chair, a hand piece delivery system and other essential
dental equipment.
(6) Includes full-time general dentists employed by the PCs and full-time
specialists, some of whom are independent contractors to the PCs.
(7) Gives effect to the 1997 Transactions completed subsequent to September
30, 1997, as if they occurred on September 30, 1997.
(8) Gives effect to the conversion of the Series A Convertible Preferred Stock
into 2,400,000 shares of Common Stock and the completion of this offering
at an assumed initial public offering price of $16.00 per share and the
receipt and application of the estimated net proceeds therefrom, as if
such events occurred on September 30, 1997.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the Unaudited Pro Forma Consolidated Financial
Information and the notes thereto of the Company included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
events or results may differ materially from those discussed in the forward-
looking statements as a result of various factors, including the risk factors
set forth under "Risk Factors" and the matters set forth in this Prospectus
generally.
OVERVIEW
American Dental Partners, Inc. is a leading provider of dental practice
management services to multi-disciplinary dental group practices in attractive
markets in the United States. The Company was formed in December 1995,
commenced operations in January 1996 and began engaging in dental practice
management operations in November 1996, concurrent with the completion of its
first dental group practice affiliation. The Company's rapid growth has
resulted primarily from the Company's affiliations with dental group
practices. Since its inception, the Company has successfully completed
affiliations with nine dental group practices and currently operates 76 dental
facilities with 549 operatories in five states.
An integral part of the Company's strategy is to affiliate with dental group
practices. Because of the financial impact of the Company's recent
affiliations, it is difficult to make meaningful comparisons between the
Company's actual financial statements for the periods presented. In addition,
due to the relatively small number of affiliated dental group practices, each
affiliation can impact the overall operating results of the Company. After
affiliating with a dental group practice, the Company typically takes a number
of steps designed to enhance the dental group's practice revenue, improve
practice operating efficiencies and expand practice operating margins. The
benefits of these actions generally do not occur immediately. Consequently,
the financial performance of a newly-affiliated dental group practice could
negatively affect overall operating margins in the near term. As the Company
grows, it expects that the effect of adding a new dental group practice
affiliation will be mitigated by the expanded financial base of the existing
affiliations. See "Business--Business Strategy."
AFFILIATION SUMMARY
When affiliating with a dental group practice, the Company acquires
substantially all its assets except those required by law to be owned or
maintained by dentists, and enters into a long-term service agreement with the
affiliated dental practice to manage the non-clinical aspects of its dental
operations. The Company does not own or control the affiliated dental
practices and, accordingly, does not consolidate the financial statements of
the PCs with those of the Company.
1996 Transactions
During 1996, the Company acquired substantially all the assets of three
dental group practices and simultaneously entered into a 40-year service
agreement with each of the affiliated dental groups. These affiliated dental
groups are: Park Dental in Minneapolis; Longhorn Dental in Austin; and
Smileage Dental Care in Milwaukee. These transactions resulted in the addition
of 42 dental facilities with 331 operatories. The aggregate consideration for
the 1996 Transactions consisted of approximately $7.3 million in cash, $2.2
million in subordinated promissory notes and 1,613,400 shares of Common Stock.
17
<PAGE>
1997 Transactions
During the nine months ended September 30, 1997, the Company acquired
substantially all the assets of four dental group practices and simultaneously
entered into 40-year service agreements with three of these affiliated dental
groups (one practice joined an existing affiliate). These four dental group
practices are: Lakeside Dental Care in New Orleans; Malcolm R. Scott, D.D.S.
in San Marcos, Texas; Soster Dental Group in Pittsburgh; and Northpoint Dental
Group in Milwaukee. The Lakeside Dental Care and Soster Dental Group
affiliations represented the entry into two new markets by the Company. The
affiliation with Malcolm R. Scott, D.D.S. expanded the Company's market
presence in Austin by adding one dental facility with five operatories. The
affiliation with Northpoint Dental group expanded the Company's market
presence in Milwaukee by adding two dental facilities with 23 operatories. In
total, these transactions resulted in the addition of eight dental facilities
with 84 operatories. The aggregate consideration for the above transactions
consisted of approximately $3.6 million in cash, $0.5 million in subordinated
promissory notes and 41,352 shares of Common Stock.
Subsequent to September 30, 1997, the Company acquired substantially all the
assets of two dental group practices and a related entity associated with one
of these practices and simultaneously entered into a 40-year service agreement
with one of these affiliated dental groups (one practice joined an existing
affiliate). These two dental group practices are the Wilkens Dental Group and
the Orthocare Group. In total, these affiliations resulted in the addition of
21 dental facilities with 108 operatories. The aggregate consideration for
these transactions consisted of approximately $13.2 million in cash, $1.9
million in subordinated promissory notes and 139,482 shares of Common Stock.
Pending Transactions
The Company currently is in discussions with a number of dentists and owners
of dental group practices about possible affiliations with the Company. The
Company currently has two letters of intent signed with potential affiliates.
Completion of these transactions is subject to due diligence review and
completion of final agreements. The aggregate purchase price under these
letters of intent consists of approximately $5.9 million in cash, $0.8 million
in subordinated promissory notes and 82,236 shares of Common Stock. There can
be no assurance that the Company will consummate these or any future
transactions.
COMPONENTS OF REVENUE AND EXPENSES
Affiliate Adjusted Gross Revenue and Payor Mix. The Company's affiliated
dental group practices generate revenue from patients and third party payors
under fee-for-service, PPO plans and capitated managed care plans. The
affiliated dental group practices record revenue at established rates reduced
by contractual adjustments and allowances for doubtful accounts to arrive at
adjusted gross revenue. Contractual adjustments represent the difference
between gross billable charges at established rates and the portion of those
charges allowable by third party payors pursuant to certain reimbursement and
managed care contracts. While payor mix varies from market to market, the
aggregate payor mix percentage of the Company's affiliated practices is
approximately 36% fee-for-service, 13% PPO plans and 51% capitated managed
care plans for the nine months ended September 30, 1997.
The PC reimburses the Company for expenses incurred on its behalf in
connection with the operation and administration of the dental facilities and
pays fees to the Company for management services. The PC is also responsible
for provider expenses, which generally consist of the salaries, benefits and
certain other expenses of the dentists.
Net Revenue. Net revenue for the Company represents the aggregate fees
charged to the affiliated dental practices pursuant to the terms of the long-
term service agreements under which the Company agrees to manage the non-
clinical aspects of the dental practice. Under such agreements, the affiliated
dental group practices reimburse the Company for expenses incurred in
connection with the operation and administration of the dental facilities and
pay fees to the Company for its management services.
Operating Expenses. Operating expenses (excluding general corporate
expenses, depreciation and amortization of intangibles) consist of the
expenses incurred by the Company in fulfilling its obligations under the
service agreements. These expenses are operating costs and expenses that would
have been incurred by the affiliated dental groups had they not affiliated
with the Company and include non-dentist
18
<PAGE>
salaries and benefits, lab fees and dental supplies, office occupancy cost and
other expenses related to operations. Salaries and benefits expense are for
personnel working for the Company at the dental facilities, as well as the
local operating management. At the facility level, the Company generally
employs the dental hygienists, dental assistants and administrative staff. The
local operating management team supervises and supports the staff at the
dental facilities. Office occupancy includes rent expense and certain other
operating costs such as utilities associated with dental facilities and the
local administrative offices. Such costs vary based on the size of each
facility and the market rental rate for dental office space in the particular
geographic market. Other expenses consist of professional fees, marketing
costs and other general and administrative expenses.
General Corporate Expenses. General corporate expenses consist of
compensation expenses for the Company's corporate personnel and administrative
staff, as well as facility and other administrative costs of the Company's
corporate offices. The Company provides management, administrative, third
party contracting and other services to the affiliated groups. The Company has
built its management infrastructure in anticipation of rapid growth. The level
of general corporate expenses will likely continue to increase in the future
as the Company continues to expand its management infrastructure. However, it
is anticipated that these expenses will decline as a percentage of net revenue
as the Company achieves its growth objectives.
Depreciation; Amortization of Intangibles. Depreciation expense includes
depreciation charges related to leasehold improvements and furniture, fixtures
and equipment used to operate the dental facilities. Depending on the amount
and timing of future capital expenditures, depreciation expense will likely
increase. Amortization of intangibles relates to intangible assets incurred in
connection with the 1996 and 1997 Transactions. The Company expects that
amortization of intangibles will increase in the future as a result of
intangibles recorded in connection with affiliations.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Overview
The Company conducted no significant operations from January 1996 until
November 1996, when it completed its first affiliation and, accordingly, it
generated no revenue during this period. However, the general corporate
expenses incurred during the nine months ended September 30, 1996 resulted in
a net loss of $1,514,000. During the nine-month period ended September 30,
1997, revenue generated from completed affiliations reduced the impact of
general corporate expenses on the Company's statement of operations resulting
in net income of $754,000. As a result of the Company's recent rapid
expansion, the Company does not believe that a period-to-period comparison and
the percentage relationships of the nine months ended September 30, 1996 as
compared with the nine months ended September 30, 1997 are meaningful.
Results of Operations
Net revenue amounted to $0 for 1996 as compared with $36,620,000 for 1997.
The 1997 period includes revenue derived from service agreements entered into
in connection with the 1996 Transactions for all nine months of 1997, plus
revenue derived from the service agreements entered into in connection with
the 1997 Transactions completed through September 30, 1997.
Operating expenses for 1996 were $0 as compared with $31,917,000 or 87.2% of
net revenue for 1997.
General corporate expenses were $1,521,000 for 1996, as compared with
$2,260,000 or 6.2% of net revenue for 1997. The increase resulted primarily
from the impact of additional corporate personnel hired in finance,
information systems and operations in late 1996 and early 1997 to build
infrastructure in anticipation of the Company's growth.
Depreciation expense was $7,000 for 1996, as compared with $1,154,000 or
3.2% of net revenue for 1997. Depreciation expense for 1996 resulted from
costs incurred in connection with the purchase of furniture, fixtures
19
<PAGE>
and equipment for the corporate office. Depreciation expense for 1997 included
depreciation related primarily to the assets acquired and capital expenditures
incurred in connection with the Company's completed affiliations.
Amortization of intangibles was $259,000 or 0.7% of net revenue for 1997.
Amortization resulted from intangibles recorded in connection with the
Company's seven affiliations completed through September 30, 1997.
Net interest income was $14,000 for 1996, as compared with net interest
expense of $195,000 for 1997. Interest income for 1996 resulted from earnings
on proceeds received from the Company's private sales of equity securities.
Interest expense for 1997 resulted from borrowings under the Company's credit
facility, the issuance of subordinated notes and the assumption of certain
other debt in connection with completed affiliations.
The Company incurred no income tax expense for 1996, as compared with
$81,000 for 1997. The net loss incurred for 1996 resulted in the Company
creating a net operating loss carryforward for financial statement purposes.
For 1997, the Company utilized a portion of its net operating loss
carryforward which resulted in only $81,000 of income tax expense.
PRO FORMA--NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Overview
The following discussion compares on a pro forma basis the Company's results
of operations for the nine month periods ended September 30, 1996 and 1997.
The unaudited pro forma financial information for the 1996 period includes the
1996 and 1997 Transactions as if they were all completed on January 1, 1996.
The unaudited pro forma financial information for the 1997 period includes the
1997 Transactions as if they were all completed on January 1, 1997. This
information does not purport to represent what the Company's results of
operations would actually have been if such transactions had in fact occurred
on this date or to project the Company's results of operations for any future
period. This information is based on certain assumptions and adjustments and
should be read in conjunction with the Unaudited Pro Forma Consolidated
Financial Information included elsewhere in this Prospectus.
The following table sets forth the percentage of net revenue (consisting of
fees earned pursuant to the terms of the Company's service agreements) of
certain items reflected in the Company's unaudited pro forma consolidated
statements of operations.
<TABLE>
<CAPTION>
PRO FORMA
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Net revenue............................................. 100.0% 100.0%
-------- --------
Operating expenses:
Salaries and benefits................................. 53.3 52.3
Lab fees and dental supplies.......................... 12.0 11.9
Office occupancy...................................... 9.4 9.0
Other operating expenses.............................. 13.4 11.7
General corporate expenses............................ 4.5 4.8
Depreciation.......................................... 3.1 2.8
Amortization of intangibles........................... 1.7 1.5
-------- --------
Total operating expenses................................ 97.4 94.0
-------- --------
Earnings from operations................................ 2.6 6.0
Interest expense (income), net.......................... 3.3 2.7
-------- --------
Earnings (loss) before income taxes..................... (0.7) 3.3
Income taxes............................................ -- 1.3
-------- --------
Net earnings (loss)..................................... (0.7)% 2.0%
======== ========
</TABLE>
20
<PAGE>
Results of Operations
Pro forma net revenue increased from $40,390,000 to $46,862,000, or 16.0%,
from 1996 to 1997. This revenue represents what the Company would have earned
under its service agreements had such agreements commenced January 1, 1996.
The majority of this increase came from the Company's affiliations in the
Minneapolis and Austin markets which had same market net revenue growth of
18.1% and 41.6%, respectively. The increase in revenue from the Company's
affiliate in the Minneapolis market resulted from a combination of increases
in fees, the addition of ten new dentists and the addition of a new facility
which opened in July 1997. The increase in revenue from the Company's
affiliate in the Austin market resulted primarily from the addition of two new
facilities which opened in January and February 1997.
Pro forma salaries and benefits amounted to $21,543,000 or 53.3% of net
revenue for 1996, as compared with $24,503,000 or 52.3% of net revenue for
1997. The decrease in salaries and benefits expense as a percentage of net
revenue resulted primarily from the Company's modification to staffing levels
at several of the Company's facilities.
Pro forma lab fees and dental supplies expense amounted to $4,850,000 or
12.0% of net revenue for 1996 as compared with $5,566,000 or 11.9% of net
revenue for 1997. Lab fees and dental supplies expense varies from affiliate
to affiliate and is affected by the volume and type of procedures performed.
On a pro forma basis, these costs remained constant as a percentage of net
revenue.
Pro forma office occupancy expense amounted to $3,789,000 or 9.4% of net
revenue for 1996, as compared with $4,236,000 or 9.0% of net revenue for 1997.
These costs vary based on the size of each facility and the market rental rate
for dental office space in the particular geographic market. The Company
generally assumes existing lease obligations of the affiliated dental group
practice upon completion of an affiliation.
Pro forma other operating expense amounted to $5,406,000 or 13.4% of net
revenue for 1996, as compared with $5,465,000 or 11.7% of net revenue for
1997. Other expenses decreased as a percentage of net revenue because certain
expenses, such as professional fees and other costs associated with operating
a stand alone dental group practice, have been included in general corporate
expenses after the date of affiliation.
General corporate expenses amounted to $1,797,000 or 4.5% of net revenue for
1996, as compared with $2,260,000 or 4.8% of net revenue for 1997. The
increase resulted primarily from the impact of additional corporate personnel
hired in finance, information systems and operations in late 1996 and early
1997 to build infrastructure to support the Company's growth.
Pro forma depreciation expense amounted to $1,251,000 or 3.1% of net revenue
for 1996, as compared with $1,298,000 or 2.8% of net revenue for 1997. Pro
forma amortization of intangibles decreased from 1.7% of net revenue for 1996
to 1.5% of net revenue for 1997. The dollar amount of amortization, however,
remained constant at $700,000. The decrease as a percentage of net revenue
resulted from the growth in net revenue.
Pro forma net interest expense amounted to $1,332,000 or 3.3% of net revenue
for 1996, as compared with $1,291,000 or 2.7% of net revenue for 1997.
Interest expense for both periods resulted from borrowings under the Company's
credit facility, the issuance of subordinated notes and the assumption of
certain other debt in connection with affiliations.
Pro forma income tax expense amounted to $0 in 1996 as compared with
$625,000 or 1.3% of net revenue for 1997. The Company calculated its pro forma
income tax expense utilizing a combined federal and state statutory rate of
40.5%.
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth unaudited quarterly results of operations of
the Company for each of the quarters in the nine-month period ended September
30, 1997. This information has been prepared on the same
21
<PAGE>
basis as the Consolidated Financial Statements and, in the opinion of the
Company's management, reflects all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information
for the periods presented. The quarterly operating results are not necessarily
indicative of future results of operations. This data should be read in
conjunction with the Consolidated Financial Statements included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
MARCH 31, 1997 JUNE 30, 1997 SEPTEMBER 30, 1997
----------------- ------------- --------------------
$ % $ % $ %
-------- ------- ------- ----- ---------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net revenue............. $ 11,226 100.0% $12,076 100.0% $ 13,318 100.0%
-------- ------ ------- ----- ---------- --------
Operating expenses:
Salaries and
benefits.............. 6,189 55.1 6,339 52.5 7,097 53.3
Lab fees and dental
supplies.............. 1,334 11.9 1,505 12.5 1,652 12.4
Office occupancy....... 1,008 9.0 1,113 9.2 1,247 9.3
Other operating
expenses.............. 1,366 12.2 1,581 13.1 1,486 11.1
General corporate
expenses.............. 735 6.5 689 5.7 836 6.3
Depreciation........... 356 3.2 403 3.3 395 3.0
Amortization of
intangibles........... 64 0.5 94 0.8 101 0.8
-------- ------ ------- ----- ---------- --------
Total operating
expenses............ 11,052 98.4 11,724 97.1 12,814 96.2
-------- ------ ------- ----- ---------- --------
Earnings from
operations............. 174 1.6 352 2.9 504 3.8
Interest expense
(income), net......... (27) (0.2) 107 0.9 115 0.9
-------- ------ ------- ----- ---------- --------
Earnings before income
taxes.................. 201 1.8 245 2.0 389 2.9
Income taxes........... -- -- 7 -- 74 0.5
-------- ------ ------- ----- ---------- --------
Net earnings............ $ 201 1.8% $ 238 2.0% $ 315 2.4%
======== ====== ======= ===== ========== ========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operating and capital needs, including cash
used for acquisitions, capital expenditures and working capital, from its
private sales of equity securities, borrowings under its revolving line of
credit and cash generated from operations. To date, the Company has completed
nine acquisitions and affiliations for aggregate consideration of $24,100,000
in cash, $4,600,000 in subordinated promissory notes and 1,794,234 shares of
Common Stock.
For the year ended December 31, 1996 and the nine months ended September 30,
1997, cash provided by (used for) operating activities amounted to
($1,539,000) and $633,000, respectively. Cash used for operating activities
during 1996 resulted primarily from the Company's start-up activities prior to
the completion of its first affiliation.
For the year ended December 31, 1996 and the nine months ended September 30,
1997, cash used in investing activities amounted to $6,878,000 and $5,360,000,
respectively. For 1996, this included $6,632,000 in cash used for
acquisitions, net of cash acquired, and $386,000 in capital expenditures.
Capital expenditures in 1996 included costs associated with the opening of
dental facilities in Austin and in Milwaukee. For the nine months ended
September 30, 1997, cash used for acquisitions amounted to $3,337,000, net of
cash acquired, and capital expenditures amounted to $2,102,000. Capital
expenditures for 1997 included costs associated with the opening of one new
facility in Minneapolis and two new facilities in Milwaukee. The establishment
of new dental facilities and the expansion of existing dental facilities in
the future will require ongoing capital expenditures.
For the year ended December 31, 1996 and the nine months ended September 30,
1997, cash provided from financing activities amounted to $14,253,000 and
$1,350,000, respectively. Cash provided by financing activities during 1996
resulted primarily from the Company's private sales of Preferred and Common
Stock,
22
<PAGE>
which included $7,900,000 in proceeds from the issuance of Series A
Convertible Preferred Stock, $7,000,000 in proceeds from the issuance of
Series B Redeemable Preferred Stock and $100,000 in proceeds from the issuance
of Common Stock. Cash provided from financing activities for the nine months
ended September 30, 1997 resulted primarily from borrowings under the
Company's revolving credit facility.
In April 1997, the Company entered into a $30 million revolving line of
credit agreement with Fleet National Bank. The credit facility is being used
for general corporate purposes, including acquisitions. Borrowings under this
line of credit bear interest at either prime- or LIBOR-based rates, at the
Company's option, plus a margin based upon the Company's debt coverage ratio,
which ranges up to 0.50% for prime-based loans and up to 2.125% for LIBOR-
based loans. In addition, the Company pays a commitment fee of 0.25% of the
average daily balance of the unused line. Borrowings are limited to an
availability formula based on adjusted EBITDA. The credit facility is secured
by a first lien on substantially all of the Company's assets, including a
pledge of the stock of the Company's subsidiaries. The Company is also
required to comply with certain financial and other covenants. The line of
credit matures in April 2000. At October 31, 1997, $13,700,000 was outstanding
under this line.
The Company will use a portion of the net proceeds from this offering to
redeem the Series B Redeemable Preferred Stock, including unpaid dividends,
and to repay outstanding balances under its revolving credit facility. The
Company believes that the remaining net proceeds from this offering, cash
generated from operations and amounts available under its revolving credit
facility will be sufficient to fund its anticipated cash needs for working
capital, capital expenditures and acquisitions for at least the next 12
months.
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 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
potentially dilutive 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.
23
<PAGE>
BUSINESS
OVERVIEW
American Dental Partners, Inc. is a leading provider of dental practice
management services to multi-disciplinary dental group practices in attractive
markets in the United States. The Company seeks to affiliate with leading
dental groups that provide a comprehensive range of dental care services, have
outstanding reputations for quality and have proven records of financial
performance. Since its inception, the Company has successfully completed
affiliations with nine dental group practices and currently operates 76 dental
facilities with 549 operatories in five states.
The Company's affiliation model is designed to create a partnership in
management between the Company and the affiliated dental group practice that
allows each party to maximize its strengths and retain its autonomy. When
affiliating with a dental group practice, the Company acquires substantially
all of its assets and enters into a long-term service agreement to manage the
non-clinical aspects of the dental operations. The Company supports its
affiliated dental group practices with a broad range of services designed to
enhance practice revenue, improve operating efficiencies and expand operating
margins. The Company shares the best practices of its network with each
affiliate and provides assistance with information systems, budgeting,
financial reporting, facilities management, third-party payor contracting,
supplies and equipment procurement, quality assurance initiatives, billing and
collecting accounts receivable, marketing and recruiting, hiring and training
support staff.
The Company's objective is to be the leading dental practice management
company in the United States. The Company's strategy for achieving this
objective is to: (i) expand into carefully selected and diverse geographic
markets which have favorable demographics and projected economic growth; (ii)
affiliate with leading dental group practices which have reputations for
quality care and proven records of financial performance; (iii) increase
market penetration in each of its markets through additional affiliations,
recruitment of dentists and new facility development; (iv) add value to each
affiliated dental group practice by assisting the practice in improving
operating performance; and (v) pursue various initiatives to ensure the
highest quality of care and service.
DENTAL CARE INDUSTRY
The market for dental care is large, growing and highly fragmented. The
United States Health Care Financing Administration estimates that expenditures
for dental care were approximately $45.8 billion in 1995 and will reach
approximately $79.1 billion by 2005, representing a compound annual growth
rate of approximately 5.6%. The Company believes that the growth in
expenditures for dental care will continue to be driven by: (i) improved
dental benefits offered by employers; (ii) increased availability and use of
dental insurance, including preferred provider organization ("PPO") plans and
capitated managed care plans; (iii) increased demand for dental care from an
aging population; and (iv) increased demand for cosmetic and preventative
procedures.
Unlike many other sectors of the health care services industry, the dental
care industry is in the early stages of consolidation. Although dental care is
typically offered by solo practitioners, the trend towards group practice is
growing. According to the American Dental Association ("ADA"), in 1995, 11.8%
of the approximately 153,300 dentists in the United States were practicing in
groups of three or more, up from 4.1% in 1991. The Company believes this
consolidation trend will continue.
Most dental care performed in the United States is categorized as general
dentistry. Based upon a 1990 survey by the ADA, general dentistry was
estimated to represent approximately 83% of all dental services performed in
the United States. General dentistry includes preventative care, diagnosis and
treatment planning, as well as procedures such as fillings, crowns, bridges,
dentures and extractions. Specialty dentistry, which includes orthodontics,
periodontics, endodontics, prosthodontics and pediatric dentistry, represented
the remaining 17% of dental care services.
24
<PAGE>
Historically, dental care was not covered by insurers and consequently was
paid for by patients on a fee-for-service basis. An increasing number of
employers have responded to the desire of employees for enhanced benefits by
providing coverage from third party payors for dental care. These third party
payors offer indemnity insurance, PPO plans and capitated managed care plans.
Under an indemnity insurance plan, the dental provider charges a fee for each
service provided to the insured patient, which is typically the same as that
charged to a patient not covered by any type of dental insurance. The Company
categorizes indemnity insurance plans as fee-for-service plans. Under a PPO
plan, the dentist charges a discounted fee for each service provided based on
a schedule negotiated with the PPO. Under a capitated managed care plan, the
dentist receives a fixed monthly fee from the managed care organization for
each member covered under the plan who selects that dentist as his or her
provider. Capitated managed care plans also typically require a co-payment by
the patient.
The National Association of Dental Plans estimated that approximately 117
million individuals, or 45.7% of the population of the United States, were
covered by some form of dental care plan in 1995. This compares to
approximately 96 million individuals, or 40.5% of the population of the United
States, in 1990. Of the 117 million individuals with coverage, 70.3% were
covered by indemnity insurance, 17.7% were covered by capitated managed care
plans and 12.0% were covered by PPO plans. The remaining 139 million
individuals, or 54.3% of the population of the United States in 1995, did not
have dental benefit coverage. The Company believes that the number of
individuals with dental benefits will continue to increase and that the
majority of this growth will be in PPO and capitated managed care plans. For
instance, according to the National Association of Dental Plans, the number of
individuals covered by capitated managed care plans increased from 7.8 million
in 1990 to 20.7 million in 1995, representing a 21.6% compound annual growth
rate.
The Company believes that the increased prevalence of dental benefits and
the shift of those benefits from traditional fee-for-service to non-fee-for-
service plans has increased the complexity of operating a dental practice and
has led dental practices to begin to affiliate or consolidate with entities,
such as the Company, that: (i) allow dentists to focus on the clinical aspects
of dentistry by providing management resources to conduct the business and
administrative aspects of dentistry; (ii) provide information and operating
systems that are required to effectively manage in an increasingly complex
reimbursement environment; (iii) assist with third-party payor contracting;
(iv) realize economies of scale in purchasing and provide access to capital;
and (v) provide dentists the opportunity to realize value for their practices.
BUSINESS STRATEGY
The Company's objective is to be the leading dental practice management
company in the United States. In order to achieve this objective, the
Company's business strategy is to:
Expand into carefully selected markets. The Company plans to expand its
network of affiliated dental group practices into carefully selected and
diverse geographic markets. The Company focuses on markets that: (i) offer
the opportunity to gain market share leadership; (ii) have a prevalence of
dental group practices; (iii) have favorable demographics and projected
economic growth; and (iv) have access to dental schools. To date, the
Company has identified approximately 125 markets that currently meet its
market selection criteria. The Company believes that operating in multiple
markets increases the attractiveness of the Company and its affiliated
dental group practices to third party payors who seek to contract with
dental providers that are strategically located in attractive markets and
that offer a comprehensive range of multi-disciplinary dental care
services.
Affiliate with leading dental group practices. In entering a new market,
the Company seeks to affiliate with a leading dental group practice in that
market as a platform for expansion. A "platform" dental group practice is
one which has a reputation for quality care, provides a comprehensive range
of dental services, has a significant market presence and has a proven
record of financial performance. The Company believes
25
<PAGE>
that by affiliating with leading dental group practices it will become more
attractive to other practices, dentists and payors.
Increase market penetration. The Company seeks to be the market share
leader in each market in which it operates. After affiliating with a
leading dental group practice, the Company seeks to increase its market
share by assisting the affiliate in recruiting new general and specialty
dentists, expanding its patient base and opening new facilities.
Additionally, the Company may affiliate with other dental practices or with
specialty group practices that complement the platform dental group
practice.
Add value to each affiliated dental group practice. The Company supports
its affiliated dental group practices with a broad range of services
designed to enhance their practice revenue, improve operating efficiencies
and expand operating margins. The Company shares the best practices of its
network with each affiliate and assists each affiliate with an analysis of
its revenue and payor mix, capacity, utilization, staffing, scheduling and
productivity. The Company also provides its affiliates assistance with
information systems, budgeting, financial reporting, facilities management,
third-party payor contracting, supplies and equipment procurement, quality
assurance initiatives, billing and collecting accounts receivable,
marketing and recruiting, hiring and training support staff.
Focus on quality care. The Company pursues various initiatives to help
its affiliates provide the highest quality of care and service. The
Company's goal is to have each affiliated dental group practice become
accredited by the Accreditation Association of Ambulatory Health Care, Inc.
("AAAHC"). Through its National Professional Advisory Forum, the Company
provides its affiliated dental group practices with the opportunity to
share clinical knowledge and best clinical practices. The Company also
implements comprehensive patient satisfaction surveys administered by
independent third parties. The Company believes that its focus on quality
care enhances: (i) its affiliates' relationships with patients; (ii) its
affiliates' ability to recruit dentists; (iii) the Company's ability to
attract new dental groups as affiliates; and (iv) the Company's
attractiveness to third party payors.
AFFILIATION PHILOSOPHY
The Company believes that dental care is an important part of an
individual's overall health care. Because the practitioner is best qualified
to manage the clinical aspects of dentistry, the provision of dental care must
be centered around the dentist. However, current market trends in health care
are increasing the complexity of operating a dental practice. Consequently,
dentists are affiliating with professional practice managers who can manage
the non-clinical aspects of dentistry and provide the business skills that can
improve practice operating performance.
The Company believes that, similar to other sectors of the health care
delivery system, the delivery of dental care is fundamentally a local
business. Therefore, the Company operates its business in a decentralized
manner and maintains the identity of the local affiliated practice. In each
affiliation, the Company strives to maintain the local culture of the
affiliated group and encourages it to retain the name of the practice,
continue its presence in community events, maintain its relationship with
patients and local third party payors and, to the extent possible, maintain
the existing management organization.
The Company's affiliation model is designed to create a partnership in
management between the Company and the affiliated dental group practice that
allows each party to maximize its strengths and retain its autonomy. Under the
Company's affiliation model, the affiliated dental group continues to own its
practice and has sole purview over the clinical aspects of the practice while
the Company manages the business aspects of the practice. The Company's method
of affiliation is consistent across practices and, even where permitted by
law, the Company does not employ dentists.
The Company believes that the core values of a business partnership are
shared governance and shared financial objectives and has structured its
affiliation model to achieve these goals. Shared governance is achieved by the
formation of a joint policy board for each affiliated dental group practice
which is comprised of an equal number of representatives from the Company and
the affiliated dental group practice. Together, members of the
26
<PAGE>
policy board develop strategies and decide on major business initiatives for
the practice. Shared financial objectives are achieved through the joint
implementation of a budgeting process that establishes the financial
performance standards for the dental practice.
The organizational structure of a dental group practice before and after its
affiliation with ADP is as follows:
ADP's AFFILIATION MODEL
[A two-column flow chart. The first column is entitled Before Affiliation, under
which is a box which contains the words Dental Group. The second column is
entitled After Affiliation, under which is a circle which contains the words
Joint Policy Board. Under such circle are three boxes which contain the words
Dentist-owned Professional Corporation (PC), Service Agreement, and ADP-Owned
Management Service Organization (MSO), respectively. Arrows point from each box
to the circle, and two-way arrows point from the Service Agreement box to the
other two boxes.]
MARKET AND GROUP SELECTION
Market Selection
The Company has well-defined market selection criteria. The Company defines
potential markets with reference to one or more Metropolitan Statistical Areas
("MSAs"). An MSA is generally a geographic area consisting of a city of at
least 50,000 people, together with adjacent communities that have a high
degree of economic and social integration with the population center. In 1996,
there were 316 MSAs in the United States. The Company typically focuses on
markets with a population of at least 250,000 people that: (i) offer the
opportunity to gain market share leadership; (ii) have a prevalence of dental
group practices; (iii) have favorable demographics and projected economic
growth; and (iv) have access to dental schools. The Company has identified
approximately 125 MSAs that currently meet its market selection criteria.
Group Selection
The Company seeks to affiliate with leading dental group practices in each
selected market. The Company focuses on group practices because they have
greater potential to be market share leaders. Group practices are also more
likely to have implemented quality assurance and peer review policies and
procedures and are better positioned to operate in an increasingly complex
reimbursement environment. When entering a new market, the Company seeks to
affiliate with a platform dental group with a: (i) reputation for quality
care; (ii) comprehensive range of dental care services; (iii) significant
market presence; and (iv) proven record of financial performance. The Company
believes that, although a limited number of platform dental group practices
exist within any given market, there are a significant number of such groups
nationwide.
Affiliation Process
Once the Company has identified a potential affiliate within a market, the
Company's management seeks to determine whether the group practice and the
Company share a common philosophy about the dental industry and common
strategic goals and objectives. To this end, the Company conducts a series of
meetings, site visits
27
<PAGE>
and presentations with the potential affiliate about the industry, the Company
and its affiliation model. The Company believes that the existence of shared
philosophical values is a critical element of the affiliation's ultimate
success.
If the Company and a potential affiliate determine that they share common
values, goals and objectives, the Company then undertakes a preliminary due
diligence review of clinical, operating and financial information. Based upon
this review, the Company formulates an offer outlining the basic terms and
conditions of the affiliation which, if accepted by the dental group practice,
is embodied in a letter of intent between the parties.
Upon signing a letter of intent, the Company and its representatives begin a
thorough review of the potential affiliate's clinical systems, processes,
facilities and compliance with licensing and credentialing requirements, as
well as performing legal and accounting due diligence. Acquisition, service
and other agreements are then prepared and the transaction is closed.
Generally, the process of identifying an acceptable affiliation candidate to
closing the transaction takes approximately six to nine months.
Potential Affiliations
The Company is constantly discussing potential affiliations with dental
group practices that meet the Company's group selection criteria, which may be
at various stages at any point in time. The Company currently has two letters
of intent signed with potential affiliates. Completion of these transactions
is subject to due diligence review and completion of final agreements. There
can be no assurance that the Company will consummate these or any future
transactions.
AFFILIATED NETWORK
Since inception, the Company has successfully affiliated with nine dental
practices in five states consisting of ten selected MSAs. The following table
lists the affiliations completed by the Company as of the date of this
Prospectus:
<TABLE>
<CAPTION>
DENTAL
MARKET FACILITIES OPERATORIES(1) MSA AFFILIATION DATE
------ ---------- -------------- --- ----------------
<S> <C> <C> <C> <C>
AUSTIN, TX
Longhorn Dental....... 8 40 Austin and Killeen December 1996
Malcolm R. Scott,
D.D.S................ 1 6 San Marcos March 1997
MILWAUKEE, WI
Smileage Dental Care.. 13 125 Appleton, Green Bay, December 1996
Kenosha, Madison and
Milwaukee
Northpoint Dental
Group................ 2 23 Milwaukee July 1997
Wilkens Dental Group.. 4 30 Milwaukee October 1997
MINNEAPOLIS, MN
Park Dental........... 26 191 Minneapolis/St. Paul November 1996
Orthocare Group....... 17 78 Minneapolis/St. Paul October 1997
NEW ORLEANS, LA
Lakeside Dental Care.. 1 28 Metairie March 1997
PITTSBURGH, PA
Soster Dental Group... 4 28 Pittsburgh May 1997
--- ---
Total............... 76 549
=== ===
</TABLE>
- --------
(1) An operatory is an area where dental care is performed and generally
contains a dental chair, a hand piece delivery system and other
essential dental equipment.
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<PAGE>
MARKET PENETRATION
After affiliating with a platform dental group practice, the Company's
strategy is to increase its market penetration by increasing the market share
of its existing affiliated dental group and by affiliating with other leading
dental groups that complement or add to the dental care provided by its
existing affiliate.
Increase Existing Groups' Market Share
Upon completing an affiliation, the Company prepares a thorough operating
evaluation of the affiliate which builds upon its operational due diligence.
Based on this evaluation, the Company prepares a plan for increasing the
affiliate's market penetration. This plan may include one or more of the
following methods: (i) opening new facilities that are conveniently located in
highly populated areas within the MSA or in contiguous MSAs; (ii) recruiting
additional general and specialty dentists that will complement or enhance the
dental care provided by each affiliated dental group; (iii) expanding physical
capacity by adding new operatories at existing facilities; (iv) increasing the
utilization of existing physical capacity by expanding hours of operation; and
(v) growing its affiliate's patient base through increased marketing efforts
and expanded relationships with third party payors.
Opening New Facilities. The Company has successfully demonstrated its
ability to open new facilities in several of the markets in which it operates.
Since its affiliation with Park Dental in Minneapolis/St. Paul, the Company
has opened one new facility with three operatories and currently has a second
facility with five operatories under construction. Additionally, since its
affiliation with Longhorn Dental in Austin, the Company has opened two new
facilities with a total of nine operatories. Finally, in Wisconsin, the
Company has opened two new facilities with a total of 11 operatories in
Appleton and Madison, two MSAs contiguous to Milwaukee.
Recruiting Dentists. In markets where the Company has available physical
capacity and where the opportunity exists to attract new patients, the Company
assists its affiliates in recruiting new general and/or specialty dentists.
The Company assists its affiliates in recruiting dentists through a variety of
methods including recommendations from existing affiliated dentists,
participating in dental school activities, attending state dental association
meetings and advertisements in dental publications. In 1997, the Company has
assisted in the recruitment of 16 additional dentists for its affiliates.
Expanding Physical Capacity. In some cases, to facilitate an affiliate's
need for additional physical capacity, the Company adds new operatories to an
existing facility. In 1997, the Company added operatories to several of its
facilities located in San Marcos and Minneapolis/St. Paul. The Company
currently expects that in 1998 it will continue to expand capacity at selected
facilities.
Expanding Hours of Operations. The hours of operation at each of the
Company's facilities vary widely depending on patient needs and staffing
availability. In each of the Company's markets, the Company's facilities
operate on an expanded hours basis (i.e., before 8:00 a.m. and after 5:00
p.m.). Additionally, many of the Company's facilities are open on Saturdays.
In cases where the Company and its affiliated dental groups believe they can
enhance patient service and satisfaction by expanding the hours of operation,
a plan is developed to staff the facilities and implement an expanded hours
program.
Growing Patient Base. Although the Company believes that the greatest source
of new patients is referrals from existing patients, the Company proactively
assists each of its affiliates in growing their patient base through local
marketing efforts and by expanding relationships with third party payors. The
Company and its affiliates attend health fairs, sponsor community activities,
educate elementary school children on the merits of good oral health and
sponsor public awareness programs. In addition, the Company actively develops
new relationships with third party payors at the local, regional and national
level, which increases patient flow at its affiliated practices.
29
<PAGE>
Affiliations in Existing Markets
The Company also increases its market penetration by affiliating with other
leading general dentistry group practices and specialty dental group practices
that complement the platform dental group practice in a given market. These
practices are selected in much the same manner as the platform dental group
practice. The Company identifies those practices which have an outstanding
reputation for quality and provide the type of dental care which will
complement or add to the dental care offered by the platform dental group in
that market.
The Company has demonstrated its ability to affiliate with other leading
dental groups in existing markets. For example, following its affiliation with
Park Dental in Minneapolis/St. Paul, the Company affiliated with the Orthocare
Group in October 1997. The Orthocare Group is a leading provider of
orthodontic care in Minneapolis/St. Paul, operating 17 facilities with 78
operatories. In Milwaukee, the Company expanded its market penetration through
two affiliations with leading dental groups. In July 1997, the Company
affiliated with Northpoint Dental Group, adding two facilities with 23
operatories, and in October 1997, the Company affiliated with the Wilkens
Dental Group, adding four facilities with 30 operatories. In the Austin
market, the Company affiliated with Malcolm R. Scott, D.D.S., and the
principal dentists joined Longhorn Dental. This affiliation expanded the
Company's physical capacity and geographic reach by adding a facility in San
Marcos.
OPERATIONS
Operating Structure
The Company operates under a decentralized organizational structure. At the
facility level, the Company generally employs the dental hygienists, dental
assistants and administrative staff. At each facility, a practice manager
typically oversees the day-to-day business operations. The practice manager
and administrative staff are responsible for, among other things, facility
staffing, patient scheduling, on-site patient invoicing and ordering office
and dental supplies. The Company believes local office scheduling is crucial
because it allows each practice to accommodate the needs of its patients and
increase the productivity of its dentists.
In each market, the Company has a local management team that supervises the
operations of one or more affiliates. This team provides support in areas such
as recruiting, hiring and training facility staff, developing and implementing
quality assurance programs, developing and implementing operating policies and
procedures, billing and collecting accounts receivable, processing payroll,
information systems, accounting, marketing and facilities development and
management.
Each local management team reports to one of the Company's operating vice
presidents. An operating vice president is responsible for monitoring the
operating performance of multiple affiliated dental groups in multiple
markets. Each operating vice president participates as a member of the policy
board of the affiliated dental groups for which he or she has management
oversight responsibilities. The operating vice presidents are responsible for
overseeing the development of operating plans and annual budgets and
monitoring actual results. Additionally, the Company supports each of its
dental group practices with analysis of the capacity, utilization and
productivity of each dental facility. This analysis assists each practice in
improving its operating performance from both a clinical and financial
perspective.
On a national level, the Company supports its affiliated network in several
ways. The Company assists its affiliates with: (i) sharing best clinical
practices through its National Professional Advisory Forum; (ii) evaluating
and negotiating third party contracts; (iii) designing, locating and leasing
new facilities; (iv) developing budgets and implementing accounting and
financial systems; and (v) developing and implementing practice management and
other information systems. The Company also takes advantage of economies of
scale by contracting for various goods and services. For example, the Company
has arranged for national contracts for the purchase of dental supplies and
equipment, professional, casualty, and general liability insurance and payroll
processing.
30
<PAGE>
National Professional Advisory Forum
The Company has organized the National Professional Advisory Forum ("NPAF")
to provide guidance to its affiliated dental group practices with respect to
the clinical aspects of dentistry. Leading dentists from the Company's
affiliated dental groups are selected to participate in the NPAF. The NPAF
meets quarterly and provides a forum for dentists to share the best clinical
practices of their respective dental groups and an opportunity for them to
build professional relationships with other dentists affiliated with the
Company. These dentists, as a result of their affiliation with the Company,
share common long-term goals. This enables the discussion at the NPAF to be
more open than it may be in other professional settings. While the primary
emphasis of the NPAF is on the clinical aspects of dentistry, it also provides
the Company's management an opportunity to communicate with affiliated
dentists. This enables the Company to continue to build strong, mutually
beneficial partner relationships with its affiliated dental groups.
Payor Relationships and Reimbursement Mix
The Company and its affiliates believe that clinical and economic decisions
should be made separately. However, the Company recognizes that the source of
payment for services affects operating and financial performance. The Company
assists its affiliates in analyzing their revenue and payor mix on an ongoing
basis and recommends methods by which the affiliated dental group practices
can improve operating efficiency by improving their revenue and payor mix. As
a general rule, the Company believes that growth in a market is best
facilitated where the payor mix of its affiliates mirrors the payor mix for
that market. The Company assists each of its affiliated dental groups in
evaluating and negotiating third-party payor contracts on a local, regional
and national level. The aggregate payor mix percentage of the Company's
affiliated practices was approximately 36% fee-for-service, 13% PPO plans and
51% capitated managed care plans for the nine month period ended September 30,
1997.
The Company believes it is advantageous to be affiliated with dental groups
that have successfully provided care to patients under all reimbursement
methodologies. Since a shift is taking place in the dental benefits market
from traditional fee-for-service to PPO and capitated managed care dental
plans, the Company believes that its affiliates' experience in operating under
all of these plans provides them with a competitive advantage. All of the
Company's affiliated dental groups have provided care under traditional fee-
for-service plans and non-fee-for-service plans. Several of the Company's
affiliated dental groups have been providing care to patients with capitated
managed care dental benefits for more than 20 years.
Facilities Development and Management
The Company believes an inviting professional environment is a critical
aspect of overall patient satisfaction. Each of the Company's facilities is
constructed to be warm, attractive and inviting to the patients in addition to
being highly functional. The Company's dental facilities have from three to 28
operatories, and typically accommodate general and specialty dentists, dental
hygienists and dental assistants, a business manager and a receptionist.
Generally the Company's facilities are either stand alone or located within a
professional office building or medical facility and range in size from
approximately 1,500 to 10,000 square feet.
The Company works with each of its affiliated dental groups in analyzing
utilization of existing capacity and identifying facility upgrade and
expansion priorities. The Company also provides its affiliates guidance in the
site selection process. The Company initially constructs each facility as
appropriate for the market and adds and equips additional operatories as
necessary through a capacity and utilization analysis.
The Company uses architectural design services to improve the facility
design process and to further ensure that all facilities are properly
constructed and meet the standards set forth by the AAAHC. To this end, the
Company works with each affiliated dental group to establish a defined set of
standards for each facility, such as operatory design and dental equipment,
which are consistent with the desires of the dental group. The Company
believes such facility standards are necessary to speed the site development
process and create consistency across newly developed facilities, leading to
enhanced staff and provider productivity.
31
<PAGE>
Budgeting and Planning; Financial Information Systems
The Company assists each affiliate with budgeting and planning. The Company
and each affiliate develop a strategic plan for increased market penetration
on an annual basis. The Company and each affiliated dental group then jointly
develop a budget which sets specific goals for revenue growth, operating
expenses and capital expenditures. Once a budget has been approved, the
Company measures the financial performance of each affiliated dental group on
a monthly basis and compares actual performance to budget.
The Company's financial information system enables it to measure, monitor
and compare the financial performance of affiliated dental groups on a
standardized basis across its entire network. The system also allows the
Company to track and control costs and facilitates the accounting and
financial reporting process. This financial system is installed in all
affiliated dental group practices. Historically, the Company has converted all
affiliates to its system within 90 days of affiliation and intends to continue
this practice with new affiliates.
Practice Management Systems
The Company uses various dental practice management software systems to
facilitate patient scheduling, to invoice patients and insurance companies, to
assist with facility staffing and for other practice related activities. In
connection with its affiliation with Park Dental, the Company acquired the
rights to Comdent, a proprietary practice management software system which has
been used and continuously enhanced at Park Dental since 1987. The Company
believes that Comdent's scheduling, electronic data interchange and data
management features are superior to others that are commercially available. In
addition, Comdent is scalable and capable of accommodating large multi-site
dental group practices. The Company intends, when appropriate, to convert its
affiliated dental group practices to the Comdent practice management software
system. The Company is also developing a data warehouse and decision support
system to analyze information across its entire network.
AFFILIATION STRUCTURE
Service Agreement
The Company has entered into a service agreement with each of its affiliated
PCs pursuant to which the Company performs all administrative, non-clinical
aspects of such PC's dental practice. The Company expects that each new
affiliated PC will enter into a similar service agreement or become a party to
an existing service agreement at the time of its affiliation. The Company is
dependent on its service agreements for all of its operating revenue. The
termination of one or more of these service agreements could have a material
adverse effect on the Company. See "Risk Factors--Dependence Upon Affiliated
Dental Group Practices."
The Company is responsible for providing all services necessary for the
administration of the non-clinical aspects of the dental operations. These
services include assisting its affiliates with information systems, budgeting
and financial reporting, facilities management, third-party contracting,
supplies and equipment procurement, quality assurance initiatives, billing and
collecting accounts receivable, marketing and recruiting, hiring and training
support staff.
The PC is responsible for recruiting and hiring all of the dentists
necessary to provide dental care. The Company does not assume any authority,
responsibility, supervision or control over the provision of dental care to
patients. The service agreement requires the PC to enter into employment or
independent contractor agreements with each dentist retained by the PC. The
service agreement also requires the PC to implement and maintain quality
assurance and peer review programs, maintain professional and comprehensive
general liability insurance covering the PC and each of its dentists and abide
by non-competition and confidentiality provisions.
The Company and each PC establish a joint policy board which is responsible
for developing and implementing management and administrative policies for the
dental operation. The policy board consists of an equal number of
representatives designated by the Company and the PC. The policy board members
designated by the PC must be licensed dentists employed by the PC. The policy
board's responsibilities include the review
32
<PAGE>
and approval of all renovation and expansion plans and capital equipment
expenditures with respect to the dental facilities affiliated with the PC, all
annual capital and operating budgets, all advertising and marketing services,
the long-term strategic and short-term operational goals, objectives, and
plans for the dental facilities and staffing plans regarding provider and
support personnel for the dental facilities. The policy board also reviews and
monitors the financial performance of the PC with respect to the attainment of
the PC's budgeted goals. The policy board also has the authority to approve or
disapprove any merger or combination with, or acquisition of, any dental
practice by the PC. Finally, the policy board reviews and makes
recommendations with respect to contractual relationships between the PC and
third-party payors. However, the PCs have final approval over matters relating
to dental care including all third-party payor contracts and fee practices and
schedules.
The PC reimburses the Company for expenses incurred on its behalf in
connection with the operation and administration of the dental facilities and
pays fees to the Company for management services. The PC is also responsible
for provider expenses, which generally consist of the salaries, benefits, and
certain other expenses of the dentist. The fees payable to the Company are
determined prior to each affiliation and annually thereafter based on a formal
budgeting process.
Each of the Company's current service agreements is for an initial term of
40 years and automatically renews for successive five-year terms, unless
terminated by notice given at least 120 days prior to the end of the initial
term or any renewal term. In addition, the service agreement may be terminated
earlier by either party upon the occurrence of certain events involving the
other party, such as its dissolution, bankruptcy, liquidation, or its failure
to perform its material duties and obligations under the service agreement.
Employment Agreements with Dentists
All dentists practicing at the dental facilities have entered into
employment agreements or independent contractor agreements with their
respective PCs. Such agreements typically contain a non-competition agreement
within a specified geographic area following their termination.
COMPETITION
The dental practice management industry, currently in its formative stage,
is highly competitive and is expected to become more competitive. The Company
competes with other dental practice management companies which seek to
affiliate with existing dental practices. The Company believes that the
principal factors of competition between dental practice management companies
are their affiliation methods and models, the reputation of their existing
affiliates, the scope of their dental care networks, their management
expertise and experience, the sophistication of their management information,
accounting, finance and other systems and their operating methods. The Company
believes that it competes effectively with other dental practice management
companies with respect to these factors. See "Risk Factors--Competition."
GOVERNMENT REGULATION
General
The practice of dentistry is highly regulated, and the operations of the
Company and its affiliated dental practices are subject to numerous state and
federal laws and regulations. Furthermore, the Company may become subject to
additional laws and regulations as it expands into new markets. There can be
no assurance that the regulatory environment in which the Company and its
affiliated dental group practices operate will not change significantly in the
future. The ability of the Company to operate profitably will depend, in part,
upon the Company and its affiliated dental group practices obtaining and
maintaining all necessary licenses, certifications and other approvals and
operating in compliance with applicable laws.
33
<PAGE>
State Regulation
Every state imposes licensing and other requirements on individual dentists
and dental facilities and services. Except for Wisconsin, the laws of the
states in which the Company currently operates prohibit, either by specific
statutes, case law or as a matter of general public policy, entities not
wholly owned or controlled by dentists, such as the Company, from practicing
dentistry, from employing dentists and, in certain circumstances, dental
assistants and dental hygienists, or from exercising control over the
provision of dental services. Many states prohibit or restrict the ability of
a person other than a licensed dentist to own, manage or control the assets,
equipment or offices used in a dental practice. The laws of some states
prohibit the advertising of dental services under a trade or corporate name
and require all advertisements to be in the name of the dentist. A number of
states also regulate the content of advertisements of dental services and the
use of promotional gift items. These laws and their interpretation vary from
state to state and are enforced by regulatory authorities with broad
discretion.
There are certain regulatory issues associated with the Company's role in
negotiating and administering managed care contracts. To the extent that the
Company or any affiliated dental group practice contracts with third party
payors, including self-insured plans, under a capitated or other arrangement
which causes the Company or such affiliated dental group practice to assume a
portion of the financial risk of providing dental care, the Company or such
affiliated dental group practice may become subject to state insurance laws.
If the Company or any affiliated dental group practice is determined to be
engaged in the business of insurance, the Company may be required to change
the method of payment from third party payors or to seek appropriate
licensure. Any regulation of the Company or its affiliated dental group
practices under insurance laws could have a material adverse effect on the
Company's business, financial condition and results of operations.
Many states have fraud and abuse laws, including anti-kickback laws, which
are similar to the federal laws, discussed below, and in many cases these laws
apply to all referrals for items or services reimbursable by any payor. A
number of states also impose significant criminal and civil penalties for
false claims, false or improper billings, or inappropriate coding for dental
services. Many states either prohibit or require disclosure of self-referral
arrangements and impose criminal and civil penalties for violations of these
laws.
Many states also prohibit a dentist from paying a portion of fees received
for dental services to another person or entity. In some states, this "fee-
splitting" prohibition applies only to payments in exchange for referrals.
Other states flatly prohibit any rebates or split fees regardless of whether
referrals are involved. There can be no assurance that management fees paid to
the Company, to the extent based on a percentage of dental service revenues or
profits, will not be deemed to violate such laws.
Many states have antitrust laws which prohibit agreements in restraint of
trade, the exercise of monopoly power and other practices that are considered
to be anti-competitive, including cooperation by separate economic entities to
fix the prices of services. Dental practices are also subject to compliance
with state and local regulatory standards in the areas of safety and health.
Federal Regulation
The dental industry is also regulated at the federal level to the extent
that dental services are reimbursed under federal programs. Participation by
the affiliated dental group practices and their dentists in such programs
subject them, and potentially the Company, to significant regulation regarding
the provision of services to beneficiaries, submission of claims and related
matters, including the types of regulations discussed below. Violation of
these laws or regulations can result in civil and criminal penalties,
including possible exclusion of individuals and entities from participation in
federal payment programs.
The federal anti-kickback statutes prohibit, in part, and subject to certain
safe harbors, the payment or receipt of remuneration in return for, or in
order to induce, referrals, or arranging for referrals, for items or services
which are reimbursable under federal payment programs. Other federal laws
impose significant penalties for false or improper billings or inappropriate
coding for dental services regardless of the payor source. The
34
<PAGE>
federal self-referral law, or "Stark law," prohibits dentists from making
referrals for certain designated health services reimbursable under federal
payment programs to entities with which they have financial relationships
unless a specific exception applies. The Stark law also prohibits the entity
receiving such referrals from submitting a claim for services provided
pursuant to such referral. The Company may be subject to federal payor rules
prohibiting the assignment of the right to receive payment for services
rendered unless certain conditions are met. These rules prohibit a billing
agent from receiving a fee based on a percentage of collections and may
require payments for the services of the dentists to be made directly to the
dentist providing the services or to a lock-box account held in the name of
the dentist or his or her dental group. In addition, these rules provide that
accounts receivables from federal payors are not saleable or assignable.
Federal antitrust laws prohibit agreements in restraint of trade, the
exercise of monopoly power and other practices that are considered to be anti-
competitive, including cooperation by separate economic entities to fix the
prices of services. Finally, dental practices are also subject to compliance
with federal regulatory standards in the areas of safety and health.
INSURANCE
The Company maintains property-casualty insurance covering its corporate
offices and dental facilities. Each affiliated PC maintains, or causes to be
maintained, professional liability insurance covering itself and its employees
and contractors, including the dentists, hygienists and dental assistants
employed by, or contracted by such affiliated PC. The Company generally is a
named insured under such policies. The Company also maintains umbrella
liability coverage for its property-casualty policies. Certain types of risks
and liabilities may not be covered by insurance, however, and there can be no
assurance that coverage will continue to be available upon terms satisfactory
to the Company or that the coverage will be adequate to cover losses.
Malpractice insurance, moreover, can be expensive and varies from state to
state. Successful malpractice claims asserted against the dentists, the PCs or
the Company may have a material adverse effect on the Company's business,
financial condition and operating results. While the Company believes its
insurance policies are adequate in amount and coverage for its current
operations, there can be no assurance that the coverage maintained by the
Company will be sufficient to cover all future claims or will continue to be
available in adequate amounts or at a reasonable cost.
LEGAL PROCEEDINGS
From time to time, the Company may be subject to litigation incidental to
its business. The Company is not presently a party to any material litigation.
The dentists employed by, or independent contractors of, the Company's
affiliated PCs are from time to time subject to malpractice claims. Such
claims, if successful, could result in damage awards exceeding applicable
insurance coverage.
FACILITIES AND EMPLOYEES
The Company's corporate office is located at 301 Edgewater Place, Suite 320,
Wakefield, Massachusetts, in approximately 5,300 square feet occupied under a
lease which expires in June 1999. The Company leases most of its dental
facilities. Typically, each acquired dental facility is located at the site
used by the dental group practice prior to affiliating with the Company.
As of October 31, 1997, the Company had approximately 818 employees,
including 426 hygienists and dental assistants, 376 administrative and
management employees located at the Company's 76 dental facilities and local
management offices. In addition, the Company was affiliated with 165 dentists,
as well as six hygienists and ten dental assistants located in Louisiana, all
of whom were employees or independent contractors of their respective
affiliated PCs. The Company considers its relations with its employees to be
good.
35
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning each of the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Gregory A. Serrao....... 34 Chairman, President and Chief Executive Officer
Ronald M. Levenson...... 41 Senior Vice President, Chief Financial Officer
and Treasurer
George W. Robinson...... 60 Senior Vice President--Operations
William H. Bottlinger... 53 Vice President--Regional Operations and Chief
Information Officer
Forrest M. Flint........ 45 Vice President--Business Development
Michael F. Frisch....... 39 Vice President--Regional Operations
Kathryn A. Russell...... 45 Vice President--Finance
Dr. Gregory T. Swenson.. 63 President of PDHC, Ltd. and Director
James T. Kelly (1)...... 50 Director
Martin J. Mannion 38
(1)(2)................. Director
Derril W. Reeves 54
(1)(2)................. Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Serrao, the founder of the Company, has served as President, Chief
Executive Officer and a Director of the Company since December 1995 and as
Chairman since October 1997. From 1992 through December 1995, Mr. Serrao
served as the President of National Specialty Services, Inc., a subsidiary of
Cardinal Health, Inc. ("Cardinal Health"). From 1991 to 1992, Mr. Serrao
served as Vice President--Corporate Development of Cardinal Health. Before
joining Cardinal Health, Mr. Serrao was an investment banker at Dean Witter
Reynolds Inc. where he co-founded its health care investment banking group and
specialized in mergers, acquisitions and public equity offerings.
Mr. Levenson has served as Senior Vice President, Chief Financial Officer
and Treasurer of the Company since April 1996. Prior to joining the Company,
Mr. Levenson was employed by American Medical Response, Inc. ("AMR"), a
national provider of ambulance services, where he served as Senior Vice
President and Chief Accounting Officer from October 1992 through April 1996
and also served as Treasurer from August 1995 through April 1996. Prior to
joining AMR, Mr. Levenson was a Senior Manager at KPMG Peat Marwick LLP, a
public accounting firm, where he was employed from 1979 through 1992.
Mr. Robinson has served as Senior Vice President--Operations of the Company
since May 1996. From 1994 through May 1996, Mr. Robinson served as the
President of Nanston Dental Group, a dental provider network located in
Georgia and North Carolina. From 1979 to 1994, Mr. Robinson served as an
Administrator of Kaiser Permanente's Dental Division, which was affiliated
with over 200 providers in two states and provided dental care to over 140,000
members.
Mr. Bottlinger has served as Vice President and Chief Information Officer of
the Company since January 1997 and as Vice President--Regional Operations
since November 1997. From 1985 through 1996, Mr. Bottlinger served as Senior
Vice President and Chief Information Officer for Cardinal Health and Senior
Vice President and General Manager of CORD Logistics, Inc., a Cardinal Health
subsidiary which provided pharmaceutical distribution and information
technology services for emerging biotechnical manufacturing companies. During
his career, Mr. Bottlinger has initiated the use of state of the art
information system technology in a variety of businesses engaged in retailing,
food wholesaling, pharmaceutical manufacturing and distribution, pharmacy
operations and financial services.
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<PAGE>
Mr. Flint has served as Vice President--Business Development of the Company
since November 1996. From 1985 through November 1996, Mr. Flint served as the
Executive Director of Park, prior to its affiliation with the Company. At
Park, Mr. Flint was responsible for managing all external relationships and
contracting with third party payors. From 1984 to 1985, Mr. Flint was an
investment banker in the health care finance group of Dain Bosworth, Inc. From
1977 to 1984, Mr. Flint was the Director of the South Dakota Division of
Health Services. Mr. Flint is a past Board Member of the Accreditation
Association for Ambulatory Health Care, Inc.
Mr. Frisch has served as Vice President--Regional Operations of the Company
since June 1997. From January 1997 to June 1997, Mr. Frisch served as the
Company's Director-National Support Initiatives. From July 1996 to January
1997, Mr. Frisch was an independent consultant to the Company. From June 1993
to July 1996, Mr. Frisch served as Vice President and General Manager of
National Specialty Services, Inc., a subsidiary of Cardinal Health. From July
1986 to June 1993, Mr. Frisch was employed by VHA, Inc., a national health
care alliance, in a variety of marketing, business development and management
positions.
Ms. Russell has served as Vice President--Finance of the Company since
December 1996. Prior to joining the Company, Ms. Russell was employed by
Heartland Foods Systems, Inc., a multi-concept food retailer with 230
locations, where she served as Vice President and Assistant Secretary from
1993 through 1995. From 1991 to 1992, Ms. Russell was Manager of Sales Audit
for The Limited, Inc., a publicly-held retailer. From 1983 to 1991, Ms.
Russell held management positions with publicly held financial services
companies. Prior to 1983, Ms. Russell was a Senior Manager at Deloitte &
Touche, a public accounting firm, where she was employed from 1974 through
1983.
Dr. Swenson has served as President of PDHC, Ltd., President of Park Dental
and a Director of the Company since November 1996. From 1983, when he co-
founded Park, to November 1996, Dr. Swenson served as Chairman and Chief
Executive Officer of Park. Dr. Swenson was a member of the American Academy of
Dental Group Practices ("AADGP") from 1980 until 1995, serving on many
occasions as a practice auditor in the AADGP's accreditation program. In 1978,
Park's predecessor was the second group practice to receive AADGP's
accreditation certificate. In 1973, a national referee committee selected Dr.
Swenson to the American Association of Endodontics, a society with which he
maintained a membership until 1989. In 1972, after practicing solo dentistry
for ten years, he formed a partnership with colleagues and helped build Park's
predecessor group practice. Dr. Swenson is a member of the Minnesota State
Dental Association, the American Dental Association, and Federation Dentaire
Internationale. From 1980 to 1996, Dr. Swenson served on the Board of
Directors of Marquette Bank Brookdale.
Mr. Kelly has served as a Director of the Company since February 1997. Mr.
Kelly has served as Chairman of the Board of Lincare Holdings Inc., a provider
of home respiratory therapy services, since April 1994. Mr. Kelly served as
the Chief Executive Officer of Lincare from June 1986 through December 1996.
Prior to 1986, Mr. Kelly served in a number of capacities within the Mining
and Metals Division of Union Carbide Corporation over a 19-year period.
Mr. Mannion has served as a Director of the Company since January 1996 and
served as Chairman from January 1996 to October 1997. Mr. Mannion is a general
partner with Summit Partners, a private equity capital firm, where he has been
employed since 1985. Through his work with Summit Partners, Mr. Mannion
currently serves as a director of Suburban Ostomy Supply Company and numerous
private companies.
Mr. Reeves has served as a Director of the Company since February 1997. Mr.
Reeves is a founder, Executive Vice President for Development and Director of
PhyCor, Inc. and has served in various positions with PhyCor since 1987. From
1974 to 1976, Mr. Reeves was with Hospital Affiliates International ("HAI")
where he served as Vice President of Hospital Management Corporation, the
hospital management subsidiary of HAI. In 1977, he joined Hospital Corporation
of America ("HCA") to head the growth function for HCA's management company.
Mr. Reeves was a Vice President of HCA and also Vice President of Development
for HCA Management Company until 1985. In 1985, he moved to HCA Health Plans
as Vice President of Sales and Marketing and was instrumental in the creation
of Equicor where was Senior Vice President, National Sales.
37
<PAGE>
BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes, with each
class elected to serve a staggered three-year term. The Class I director,
whose term will expire at the 1998 annual meeting of stockholders, is Dr.
Swenson. The Class II directors, whose terms will expire at the 1999 annual
meeting of stockholders, are Messrs. Mannion and Kelly. The Class III
directors, whose terms will expire at the 2000 annual meeting of stockholders,
are Messrs. Serrao and Reeves. The classified Board of Directors may increase
the difficulty of consummating or discourage a business combination or an
attempt to gain control of the Company that is not approved by the Board of
Directors. The Company's executive officers are elected annually by and serve
at the discretion of the Board of Directors. See "--Employment Agreements."
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company or one of its subsidiaries
do not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries receives a
fee of $1,000 for attending each Board of Directors' meeting and $500 for
attending each committee meeting. In addition, each non-employee director who
is not an officer of the Company is eligible to receive options under the
Company's 1996 Amended and Restated Directors Stock Plan. These options are
issued at such times and in such amounts as may be determined by the Directors
Stock Option Plan Committee, at their discretion. See "Stock Plans--1996
Directors Stock Option Plan." Directors are also reimbursed for out-of-pocket
expenses incurred in attending meetings of the Board of Directors or
committees thereof.
38
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information with respect to compensation paid
to or accrued on behalf of (i) the Chief Executive Officer and (ii) the other
most highly compensated executive officers of the Company whose aggregate base
salary and bonus exceeded $100,000 (the "Named Executive Officers") in 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM AWARDS
----------------------------------------- ------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
YEAR SALARY ($)(1) BONUS ($) COMPENSATION STOCK OPTIONS (#) COMPENSATION(5)
---- ------------- --------- ------------ ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gregory A. Serrao....... 1996 $144,000 $90,000 $136,461(2) $99,500(4) 270,270 $519
Chairman, President and
Chief Executive Officer
Ronald M. Levenson...... 1996 $103,000 $41,600 $ 23,000(3) -- 81,000 --
Senior Vice President,
Chief Financial Officer
and Treasurer
George W. Robinson...... 1996 $ 72,000 $43,750 $ 41,000(3) -- 60,000 $433
Senior Vice President--
Operations
</TABLE>
- --------
(1) Represents less than one full year's compensation.
(2) Consists of a tax offset bonus in the amount of $84,461 paid with respect
to the restricted Common Stock issued to Mr. Serrao in January 1996, and
moving and relocation expenses in the amount of $52,000.
(3) Consists of moving and relocation expenses.
(4) Represents the dollar value (net of consideration paid) of 300,000 shares
of restricted Common Stock issued to Mr. Serrao in January 1996, based
upon the fair market value of such shares on the date of issuance. Such
shares are subject to repurchase rights in favor of the Company upon the
occurrence of certain events, including the termination of Mr. Serrao's
employment. Such repurchase rights lapse ratably during the first four
years of Mr. Serrao's employment and upon the occurrence of certain other
events. As of December 31, 1996, 231,228 shares of restricted Common Stock
with a fair market value on such date of $2,890,350 were held by Mr.
Serrao. Dividends, if declared and paid upon the Common Stock, will be
paid on such restricted stock.
(5) Represents matching contributions under the Company's 401(k) plan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information about options to purchase
Common Stock which were granted during the year ended December 31, 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZEABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
---------------------------------------------------- ----------------------
NUMBER OF SECURITIES EXERCISE
UNDERLYING OPTIONS % OF TOTAL PRICE EXPIRATION
GRANTED (#) OPTIONS ($/SHARE) DATE 5% ($) 10% ($)
-------------------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gregory A. Serrao....... 270,270(1) 47% $0.33 07/08/05 $ 52,632 $ 131,629
Ronald M. Levenson...... 60,000(2) 11% $0.33 04/22/06 $ 12,452 $ 31,556
21,000(1) 4% $0.33 10/22/05 $ 4,089 $ 10,228
George W. Robinson...... 43,800(2) 8% $8.33 06/03/06 $ 229,455 $ 581,483
16,200(1) 3% $8.33 12/03/05 $ 79,633 $199,159
</TABLE>
- --------
(1) Options issued under the 1996 Time Accelerated Restricted Stock Option
Plan. The exercise price of the options is equal to the fair market value
of the Company's Common Stock on the date of grant. These options will
become exercisable upon completion of this offering.
(2) Options issued under the 1996 Stock Option Plan. The exercise price of the
options is equal to the fair market value of the Company's Common Stock on
the date of grant. Options become exercisable in equal annual installments
over a four-year period.
39
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table presents information about the value of options
outstanding for each of the Named Executive Officers as of December 31, 1996.
No options were exercised during the year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1996 (#) AT DECEMBER 31, 1996 ($)
------------------------------------ ----------------------------
EXERCISABLE(1) UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE
---------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Gregory A. Serrao....... 270,270 -- $3,289,186 --
Ronald M. Levenson...... 21,000 60,000 $ 255,575 $730,200
George W. Robinson...... 16,200 43,800 $ 67,540 $182,646
</TABLE>
- --------
(1) Although not exercisable at December 31, 1996, these options will become
exercisable upon the completion of this offering.
EMPLOYMENT AGREEMENTS
The Company has a five-year employment agreement with Mr. Serrao which
terminates in January 2001. Under his employment agreement, Mr. Serrao
receives an annual base salary of $150,000 (subject to potential annual salary
increases) and a bonus in an amount up to 60% of his then current base salary.
Mr. Serrao is also subject to non-competition and confidentiality provisions
in the employment agreement. If Mr. Serrao's employment is terminated prior to
the end of the five-year term by the Company without cause or by Mr. Serrao
for "good reason" (as defined in the employment agreement) he is entitled to
receive severance benefits which include severance payments in an amount equal
to his then current annual base salary and health care benefits for one year
after termination.
The Company has a three-year employment agreement with Mr. Levenson which
terminates in April 1999. Under his employment agreement, Mr. Levenson
receives an annual base salary of $150,000 (subject to potential annual salary
increases) and a bonus in an amount up to 40% of his then current base salary.
Mr. Levenson is also subject to non-competition and confidentiality provisions
in the employment agreement. If Mr. Levenson's employment is terminated prior
to the end of the three-year term by the Company without cause or by Mr.
Levenson for "good reason" (as defined in the employment agreement) he is
entitled to receive severance benefits which include severance payments in an
amount equal to his then current annual base salary and health care benefits
for one year after termination.
The Company has a three-year employment agreement with Mr. Robinson which
terminates in May 1999. Under his employment agreement, Mr. Robinson receives
an annual base salary of $125,000 and a bonus in an amount up to $75,000. Mr.
Robinson is also subject to non-competition and confidentiality provisions in
the employment agreement. If Mr. Robinson's employment is terminated prior to
the end of the three-year term by the Company without cause, he is entitled to
receive severance benefits which include severance payments in an amount equal
to his base salary for the shorter of one year or the remainder of the term of
the agreement.
STOCK PLANS
1996 Stock Option Plan
The 1996 Stock Option Plan, as amended (the "1996 Plan"), was originally
adopted in January 1996. The purpose of the 1996 Plan is to provide options to
officers and key employees of the Company and its subsidiaries. Options are
granted at a price per share which is equal to the fair market value of the
Common Stock at the time of the grant. Options granted pursuant to the 1996
Plan expire ten years from the date of grant, or may expire earlier upon
termination of the grantee's employment with the Company. The total number of
shares of Common Stock subject to the 1996 Plan is 873,246, of which options
for 648,420 shares were outstanding at October 31, 1997.
40
<PAGE>
1996 Time Accelerated Restricted Stock Option Plan
The 1996 Time Accelerated Restricted Stock Option Plan, as amended (the
"TARSOP"), was originally adopted in January 1996. The total number of shares
subject to the TARSOP is 360,360. Options to purchase all such shares have
been granted and will become exercisable upon completion of this offering.
1996 Affiliate Stock Option Plan
The Amended and Restated 1996 Affiliate Stock Option Plan (the "Affiliate
Plan") was originally adopted in September 1996. The purpose of the Affiliate
Plan is to provide options to certain persons associated with the affiliated
dental practices. Options are granted at a price per share which is equal to
the fair market value of Common Stock at the time of grant. The total number
of shares of Common Stock subject to the Affiliate Plan is 210,000, of which
options for 89,586 shares were outstanding at October 31, 1997.
1996 Directors Stock Option Plan
The 1996 Amended and Restated Directors Stock Option Plan, as amended (the
"Directors Plan"), was originally adopted in September 1996. The purpose of
the Directors Plan is to grant options to those directors of the Company who
are not employees or officers of the Company or any subsidiary of the Company.
Options are granted at a price per share which is equal to the fair market
value of Common Stock at the date of the time of grant. The total number of
shares of Common Stock subject to the Directors Plan is 60,000, of which
options for 19,800 shares were outstanding at October 31, 1997.
1997 Employee Stock Purchase Plan
On October 27, 1997, the Company approved the 1997 Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan"), effective December 1, 1997. The
Employee Stock Purchase Plan is designed to enable eligible employees to
purchase shares of Common Stock at a discount on a periodic basis through
payroll deductions and is intended to meet the requirements of Section 423 of
the Internal Revenue Code. Purchases will occur at the end of option periods,
each of six months' duration, except that the first such option period will
begin concurrent with the commencement of this offering and end on June 30,
1998. The purchase price of Common Stock under the Employee Stock Purchase
Plan will be 85% of the lesser of the value of the Common Stock at the
beginning of an option period and the value of the Common Stock at the end of
the option period. Participants may elect under the Employee Stock Purchase
Plan, prior to each option period, to have from 2% to 10% of their pay
withheld and applied to the purchase of shares at the end of the option
period. However, the Employee Stock Purchase Plan imposes a maximum of $10,000
on the amount that may be withheld from any participant in any option period.
A total of 200,000 shares of Common Stock has been reserved for issuance under
the Employee Stock Purchase Plan.
41
<PAGE>
CERTAIN TRANSACTIONS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to October 27, 1997, the Company did not have a separate Compensation
Committee or other committee performing equivalent functions. As a result,
compensation decisions prior to that time were made by the Company's Board of
Directors consisting of Messrs. Serrao, Kelly, Mannion, Reeves and Dr.
Swenson. Messrs. Mannion and Reeves serve as the current members of the
Company's Compensation Committee. There are no interlocking relationships
between any executive officers of the Company and any entity whose directors
or executive officers serve on the Company's Board of Directors or
Compensation Committee.
The Company and a group of investors (collectively, the "Purchasers") are
parties to various agreements and transactions which were entered into in
connection with the initial capitalization of the Company. The Purchasers
include, among others, Mr. Serrao and certain limited partnerships which are
affiliated with Summit Partners. Mr. Mannion, a Director of the Company, is a
general partner of Summit Partners. Summit Partners and its affiliated limited
partnerships are hereinafter collectively referred to as "Summit Partners."
The Company and the Purchasers are parties to a Series A and Series B
Preferred Stock Purchase Agreement dated January 8, 1996, as amended (the
"Preferred Stock Purchase Agreement"), pursuant to which the Purchasers
purchased, in the aggregate, 400,000 shares of Series A Convertible Preferred
Stock at a price of $19.75 per share and 70,000 shares of Series B Redeemable
Preferred Stock at a price of $100 per share. In addition, in connection with
entering into the Preferred Stock Purchase Agreement, the Purchasers purchased
an aggregate of 300,000 shares of Common Stock at $0.33 per share. The
aggregate purchase price for all Preferred and Common Stock purchased by the
Purchasers was $15,000,000. The proceeds from the sale of such shares were
used by the Company for the acquisition of dental practices and for general
working capital purposes. The following table describes the number of shares
of Series A and Series B Preferred Stock and Common Stock purchased by Mr.
Serrao and Summit Partners:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------------------------------
SERIES A CONVERTIBLE SERIES B REDEEMABLE COMMON
PREFERRED STOCK PREFERRED STOCK STOCK
-------------------- ------------------- -------
<S> <C> <C> <C>
Gregory A. Serrao........... 2,667 467 2,000
Summit Partners............. 349,600 61,180 278,564
</TABLE>
The Series A Convertible Stock will convert into 16,000 and 2,097,600 shares
of Common Stock for Mr. Serrao and Summit Partners, respectively, upon
completion of this offering. Approximately $7.7 million of the proceeds of
this offering will be used to redeem all of the Series B Preferred Stock,
including unpaid dividends. See "Use of Proceeds." In connection with such
redemption, Mr. Serrao and Summit Partners will receive $51,363 and
$6,733,704, respectively. The Preferred Stock Purchase Agreement also grants
to the Purchasers preemptive rights with respect to the Company's issuance of
certain securities, which rights will expire immediately prior to, and will
not apply in connection with, this offering.
The Company and Summit Partners are parties to a Subordinated Debenture
Purchase Agreement dated January 8, 1996, as amended, pursuant to which Summit
Partners has committed to purchase up to $15,000,000 of 12% subordinated
debentures of the Company (the "Debentures") upon the Company's request. To
date, the Company has not requested that Summit Partners purchase any of the
Debentures, and the Company does not anticipate that any such request will be
made. Furthermore, the obligations of Summit Partners to purchase the
Debentures will automatically terminate upon the completion of this offering.
The Company and the Purchasers are parties to a Registration Rights
Agreement dated January 8, 1996, as amended (the "Purchasers Registration
Rights Agreement"), pursuant to which the Purchasers have the right, subject
to certain restrictions, to cause the Company to effect a registration of
their shares of Common Stock under the Securities Act of 1933, as amended (the
"Securities Act"). The Purchasers also have certain "piggy back" registration
rights in the event the Company registers any of its securities for either
itself or for security holders exercising their registration rights. The
Purchasers have waived their piggy back registration rights in connection with
this offering.
42
<PAGE>
The Company and the Purchasers are parties to a Shareholders' Agreement
dated January 8, 1996, as amended (the "Shareholders' Agreement"). The
Shareholders' Agreement contains provisions granting the non-management
Purchasers (the "Investors") a right of first refusal with respect to stock
sales by management Purchasers, including Messrs. Serrao and Levenson, as well
as granting the Purchasers "drag-along" and "tag-along" rights under certain
circumstances with respect to stock sales to third parties by other
Purchasers. Finally, the Shareholders' Agreement contains provisions regarding
the composition of the Company's Board of Directors and the rights of Mr.
Serrao and Summit Partners to designate certain members to the Board of
Directors. The Shareholders' Agreement will terminate immediately prior to the
completion of this offering.
The Company acquired Park pursuant to the terms of an Acquisition and
Exchange Agreement effective November 12, 1996 (the "Acquisition Agreement"),
among the Company, Park, and all of the shareholders of Park, including Dr.
Swenson. Under the Acquisition Agreement, the shareholders of Park received an
aggregate of $3.3 million in cash, $1.5 million principal amount of
subordinated promissory notes of the Company and 1,260,000 shares of Common
Stock in consideration for the exchange of all of their Park shares. The
consideration received by Dr. Swenson for the exchange of his Park shares was
on a pro rata basis with all other shareholders of Park. The terms and
conditions of the acquisition of Park, including the consideration received
for the exchange of the Park shares, were based upon arms-length negotiations
between representatives of the Company and representatives of Park, including
Dr. Swenson. Dr. Swenson was elected as a member of the Company's Board of
Directors pursuant to the terms of the Acquisition Agreement.
The Company entered into a registration rights agreement with the former
shareholders of Park. This registration rights agreement contains provisions
which grant the former shareholders of Park piggy back registration rights,
exercisable only after an initial public offering by the Company, in the event
the Company registers any of its securities for either itself or for security
holders exercising their registration rights. In addition, this registration
rights agreement contains a provision under which the former Park shareholders
may require registration of their shares of Common Stock (subject to the other
general applicable limitations on the Company's registration obligations) on
one occasion if and to the extent that they have not otherwise had the
opportunity to register their shares during the three-year period following
the completion of an initial public offering by the Company.
The Company entered into a shareholders' agreement with the former
shareholders of Park. This agreement provides a right of first refusal in
favor of the Company or its assignee with respect to stock sales by such
shareholders. This agreement also contains drag-along rights in favor of the
Investors with respect to any stock sales by such shareholders to third
parties. Finally, so long as the Investors own a majority of the shares of
voting stock of the Company or have the right to control the vote of a
majority of the shares of such voting stock with respect to the election of
the directors of the Company, the former Park shareholders are required to
vote all of their Common Stock for the election of the directors of the
Company in such manner as may be designated by Investors holding not less than
a majority of the shares of such voting stock then owned by all Investors.
This shareholders' agreement will terminate immediately prior to the
completion of this offering.
The Company entered into a service agreement with the professional
corporation formed by the former dentist shareholders of Park, including Dr.
Swenson. This service agreement is on substantially the same terms and
conditions as all of the Company's other service agreements. See "Business--
Affiliation Structure--Service Agreement."
INITIAL CAPITALIZATION ARRANGEMENTS
Mr. Serrao and Summit Partners, of which Mr. Mannion is a general partner,
were parties to various agreements and transactions which were entered into in
connection with the initial capitalization of the Company. In addition, Mr.
Levenson, the Company's Senior Vice President and Chief Financial Officer, was
a party to such agreements and transactions. Pursuant to the Preferred Stock
Purchase Agreement, Mr. Levenson purchased 5,333 shares of Series A
Convertible Preferred Stock at a price of $19.75 per share and 933 shares of
Series B Redeemable Preferred Stock at a price of $100 per share. In addition,
in connection with entering into the
43
<PAGE>
Preferred Stock Purchase Agreement, Mr. Levenson purchased 4,000 shares of
Common Stock at $0.33 per share. The Series A Convertible Stock will convert
into 31,999 shares of Common Stock upon completion of this offering. As part
of the redemption of the Series B Redeemable Preferred Stock with a portion of
the proceeds of this offering, Mr. Levenson will receive $102,468. See "Use of
Proceeds." Mr. Levenson is also a party to the Purchasers Registration Rights
Agreement and the Shareholders' Agreement, and he is a management Purchaser
under the Shareholders' Agreement. Mr. Levenson has waived his piggy back
registration rights in connection with this offering. See "--Compensation
Committee Interlocks and Insider Participation."
AFFILIATION WITH PARK DENTAL
Dr. Swenson was a party to various agreements and transactions which were
entered into in connection with the Company's affiliation with Park. In
addition to Dr. Swenson, Delta Associates, Ltd. ("DAL"), a greater than 5%
stockholder of the Company, was a stockholder of Park and received its pro
rata share of the consideration paid by the Company for the exchange of its
Park stock. DAL is also a party to the registration rights agreement and the
shareholders' agreement with the former shareholders of Park. See "--
Compensation Committee Interlocks and Insider Participation."
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of October 31, 1997, and as adjusted to reflect
the sale of Common Stock offered hereby, by: (i) each person who is known to
the Company to own beneficially more than 5% of the outstanding shares of
Common Stock; (ii) each director; (iii) the Named Executive Officers; and (iv)
all directors and executive officers as a group. Under the rules of the
Securities and Exchange Commission, a person is deemed to be a "beneficial
owner" of a security if he or she has or shares the power to vote or direct
the voting of such security, has or shares the power to dispose of or direct
the disposition of such security, or has the right to acquire the security
within 60 days. Accordingly, more than one person may be deemed to be the
beneficial owner of the same security. All persons listed have sole voting and
investment power with respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
----------------------------------
PERCENTAGE OWNED
---------------------
BEFORE AFTER
NUMBER OFFERING OFFERING
------------ ---------- ----------
<S> <C> <C> <C>
Summit Ventures(2).......................... 2,376,163 49.6% 35.0%
Martin J. Mannion(2)........................ 2,376,163 49.6% 35.0%
Gregory A. Serrao(3)(6)..................... 601,080 12.5% 8.8%
Delta Associates, Ltd.(4)................... 378,001 7.9% 5.6%
Dr. Gregory T. Swenson(5)(6)................ 342,885 7.2% 5.0%
Ronald M. Levenson(6)....................... 83,909 1.8% 1.2%
George W. Robinson(6)....................... 28,020 * *
James T. Kelly.............................. 1,725 * *
Derril W. Reeves............................ 1,725 * *
All executive officers and directors as a
group (11 persons)(7)....... .............. 3,441,447 71.8% 50.7%
</TABLE>
- --------
* less than 1%
(1) This table includes for each person or group of persons shares of Common
Stock that may be purchased by such person or group pursuant to options
which will become exercisable upon the completion of this offering or
within 60 days of the estimated effective date of this offering. As of
October 31, 1997, a total of 4,794,217 shares of Common Stock were issued
and outstanding and options for 404,256 shares were exercisable.
(2) Represents 2,285,869 and 90,294 shares of Common Stock owned by Summit
Ventures IV, L.P. and Summit Investors II, L.P., respectively. Summit
Partners is affiliated with both limited partnerships. Mr. Mannion, a
Director of the Company, is a general partner of Summit Partners. The
address of Summit Partners is 600 Atlantic Avenue, Suite 2800, Boston,
Massachusetts 02110.
(3) The address for Mr. Serrao is American Dental Partners, Inc. 301 Edgewater
Place, Suite 320, Wakefield, Massachusetts 01880.
(4) Represents shares received by Delta Associates, Ltd. in connection with
the Company's affiliation with PDHC, Ltd. The address of Delta Associates,
Ltd. is 7807 Creekridge Circle, Minneapolis, Minnesota 55439.
(5) The address for Dr. Swenson is PDHC, Ltd., 6415 Brooklyn Blvd.,
Minneapolis, Minnesota 55429.
(6) Includes options for 283,808 shares for Mr. Serrao, 4,050 shares for Dr.
Swenson, 47,910 shares for Mr. Levenson and 28,020 shares for Mr.
Robinson, respectively, which will become exerciseable upon the completion
of this offering or within 60 days of the estimated effective date of this
offering.
(7) Includes options for 372,450 shares for all executive officers and
directors as a group which will become exerciseable upon the completion of
this offering or within 60 days of the estimated effective date of this
offering.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 26,000,000 shares of capital stock,
consisting of 25,000,000 shares of Common Stock, $0.01 par value (the "Common
Stock"), and 1,000,000 shares of Preferred Stock, $0.01 par value (the
"Preferred Stock"). Of the Preferred Stock, 400,000 shares have been
designated Series A Convertible Preferred Stock, all of which are currently
outstanding and will be converted into an aggregate of 2,400,000 shares of
Common Stock upon completion of this offering, and 70,000 shares have been
designated Series B Redeemable Preferred Stock, all of which are currently
outstanding and will be redeemed upon completion of this offering. Upon the
closing of this offering, the Series A Convertible Preferred Stock and the
Series B Redeemable Preferred Stock will be restored to the status of
undesignated preferred stock available for issuance. As of the date hereof,
there were 4,794,217 shares of Common Stock outstanding, which assumes
conversion of the Series A Convertible Preferred Stock, and as of the
completion of this offering there will be 6,794,217 shares of Common Stock
outstanding.
Common Stock
The holders of shares of Common Stock are entitled to one vote per share for
the election of directors and on all other matters submitted to a vote of
stockholders. Holders of shares of Common Stock are not entitled to preemptive
rights or to cumulative voting for the election of directors. Subject to any
senior rights of the Preferred Stock which may from time to time be
outstanding, holders of the Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." Upon dissolution and liquidation of
the Company, holders of the Common Stock are entitled to a ratable share of
the net assets of the Company remaining after payments to creditors of the
Company and to the holders of the Preferred Stock of the full preferential
amounts to which they may be entitled. All outstanding shares of Common Stock
are, and the shares of Common Stock offered hereby will be, validly issued,
fully paid and nonassessable.
Preferred Stock
The Preferred Stock may be issued in one or more series as determined by the
Board of Directors without further stockholder approval, and the Board of
Directors is authorized to fix and determine the terms, limitations, and
relative rights and preferences of the Preferred Stock, and to fix and
determine the variations among series of the Preferred Stock. If any Preferred
Stock is issued following this offering, such Preferred Stock would have
priority over the Common Stock with respect to dividends and to other
distributions, including the distribution of assets upon liquidation and
dissolution. The Preferred Stock may be subject to repurchase or redemption by
the Company. The Board of Directors, without stockholder approval, could issue
Preferred Stock with voting and conversion rights that could adversely affect
the voting power of the holders of Common Stock and the issuance of which
could be used by the Board of Directors in defense of a hostile takeover of
the Company.
Certain Provisions of Certificate of Incorporation and By-laws
The Certificate of Incorporation and By-laws provide that directors may not
be removed from office by the stockholders except by the affirmative vote of
stockholders exercising at least two-thirds of the voting power in the
election of directors; provided that if two-thirds of the entire Board of
Directors recommend to the stockholders that a director be removed, then such
director may be removed by the stockholders exercising at least a majority of
the voting power in the election of directors. The Certificate of
Incorporation requires all actions by stockholders to be taken at annual or
special meetings. The By-laws divide the Board of Directors into three
classes, each with a term of three years, with the term of one class expiring
each year. No provision of the Certificate of Incorporation nor certain
provisions of the By-laws, including those relating to indemnification and
election and removal of directors, may be altered, amended or repealed nor may
any inconsistent provision be adopted except by the affirmative vote of
stockholders exercising at least two-thirds of the voting power of the
Company; provided that if any such action was previously approved by at least
two-thirds of the directors, then such action may be taken by the stockholders
exercising a majority of the voting power. The By-laws also provide than any
vacancy on the Board of Directors may be filled by a majority of the directors
than in office even though less than a quorum exits. The foregoing provisions
could have an anti-takeover effect by delaying, averting or preventing a
change in control or management of the Company.
46
<PAGE>
Statutory Business Combination Provision
The Company is subject to Section 203 of the DGCL which, with certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period
of three years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and officers
and (b) by employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer; or (iii) on or after such date, the
business combination is approved by the Board of Directors and authorized at
an annual or special meeting of stockholders by the affirmative vote of at
least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder. An "interested stockholder" is defined as any person
that is (a) the owner of 15% or more of the outstanding voting stock of the
corporation or (b) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
Transfer Agent and Registrar
The Company has selected BankBoston, N.A. as the transfer agent and
registrar for its Common Stock.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts
of such shares in the public market, or the perception that such sales could
occur, could materially and adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities. See "Risk Factors--Shares Eligible for
Future Sale."
SALES OF RESTRICTED SHARES
Upon completion of the offering, the Company will have a total of 6,794,217
shares of Common Stock outstanding. Of these shares, the 2,000,000 shares of
Common Stock offered hereby will be freely tradable without restriction or
registration under the Securities Act by persons other than "affiliates" of
the Company, as defined in the Securities Act, who would be required to sell
such shares under Rule 144 under the Securities Act. The remaining 4,794,217
shares of Common Stock outstanding will be "restricted securities" as that
term is defined by Rule 144 (the "Restricted Shares"). The Restricted Shares
were issued and sold by the Company in private transactions in reliance upon
exemptions from registration under the Securities Act.
Of the Restricted Shares, 4,621,328 Restricted Shares will be eligible for
sale in the public market pursuant to Rule 144 beginning 90 days after the
date of this Prospectus. Substantially all such shares are subject to the
lock-up agreements described below. In general, under Rule 144 as currently in
effect, a person (or persons whose shares are aggregated) who has beneficially
owned restricted securities for at least one year (including the holding
period of any prior owner except an affiliate), including persons who may be
deemed "affiliates" of the Company, would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of (i)
one percent of the number of shares of Common Stock then outstanding
(approximately 67,942 shares upon completion of the offering) or (ii) the
average weekly trading volume of the Common Stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales
under Rule 144 are also subject to certain manner-of-sale provisions and
notice requirements, and to the availability of current public information
about the Company. In addition, a person who is not deemed to have been an
affiliate of the Company at the time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except an affiliate),
would be entitled to sell such shares under Rule 144 (k) without regard to the
requirements described above. Rule 144 also provides that affiliates who are
selling shares that are not Restricted Shares must nonetheless comply with the
same restrictions applicable to Restricted Shares with the exception of the
holding period requirement.
Upon completion of this offering, the Company will have options for 404,256
shares of Common Stock outstanding and exercisable. Under Rule 701 promulgated
under the Securities Act, shares of Common Stock acquired pursuant to the
exercise of these options may be resold by persons other than affiliates
beginning 90 days after the date of this Prospectus, subject only to the
manner of sale provisions of Rule 144, and by affiliates, beginning 90 days
after the date of this Prospectus, subject to all provisions of Rule 144
except its one-year minimum holding period requirements.
LOCK-UP AGREEMENTS
Certain stockholders of the Company, including the executive officers and
directors, who will own in the aggregate shares of Common Stock after the
offering, have agreed that they will not, directly or indirectly, sell, offer,
contract to sell, transfer the economic risk of ownership in, make any short
sale, pledge or otherwise dispose of any shares of Common Stock of any
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire Common Stock beneficially owned by them during
the 180-day period following the date of this Prospectus, except for certain
permitted transfers or with the prior written consent of BT Alex. Brown
Incorporated.
48
<PAGE>
STOCK OPTION AND PURCHASE PLANS
As of October 31, 1997, 1,503,606 shares of Common Stock were reserved for
issuance under the Company's stock plans, of which 1,118,166 shares were
issuable upon the exercise of outstanding stock options, and 200,000 shares of
Common Stock were reserved for issuance under the Employee Stock Purchase
Plan. See "Management--Stock Plans." The Company intends to file registration
statements on Form S-8 under the Securities Act to register all shares of
Common Stock issuable pursuant to its stock option and stock purchase plans.
The Company expects to file these registration statements within approximately
90 days following the date of this Prospectus and such registration statements
will become effective upon filing. Shares covered by these registration
statements will thereupon be eligible for sale in the public markets, subject
to Rule 144 limitations applicable to affiliates and the lock-up agreements
described above.
REGISTRATION RIGHTS
The holders of 3,959,987 shares of Common Stock have the right under certain
circumstances to require the Company to register their shares under the
Securities Act for resale to the public, and holders of approximately
4,794,217 shares have the right to include their shares in a registration
statement filed by the Company. See "Certain Transactions."
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their representatives, BT Alex. Brown
Incorporated, BancAmerica Robertson Stephens and Piper Jaffray Inc. (the
"Representatives"), have severally agreed to purchase from the Company the
following respective number of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C>
BT Alex. Brown Incorporated.......................................
BancAmerica Robertson Stephens....................................
Piper Jaffray Inc.................................................
---------
Total.......................................................... 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the shares of Common Stock offered hereby if any of such
shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per share to certain other dealers. After commencement
of this offering, the offering price and other selling terms may be changed by
the Representatives.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the initial public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it in the above table bears to 2,000,000, and the Company will be
obligated, pursuant to the option to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,000,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company regarding certain liabilities,
including liabilities under the Securities Act.
To facilitate the offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price
of the Common Stock. Specifically, the Underwriters may over-allot shares of
the Common Stock in connection with this offering, thereby creating a short
position in the Underwriters' syndicate account. Additionally, to cover such
over-allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common Stock in the open
market. Any of these activities may maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the Underwriters, also may reclaim selling
concessions allowed to an Underwriter or dealer, if the syndicate repurchases
shares distributed by that Underwriter or dealer.
The Company has agreed that it will not sell or offer any shares of Common
Stock or options, rights or warrants to acquire any Common Stock for a period
of 180 days after the date of this Prospectus without the prior written
consent of BT Alex. Brown Incorporated, except for shares issued: (i) in
connection with acquisitions, provided that the recipients agree not to sell
or dispose of such shares during the 180-day period;
50
<PAGE>
(ii) pursuant to the exercise of options granted under the Company's stock
plans; and (iii) upon conversion of shares of Series A Convertible Preferred
Stock. Further, the Company's directors, officers, and certain stockholders,
who beneficially own shares in the aggregate, have agreed not to directly
or indirectly sell or offer for sale or otherwise dispose of any Common Stock
for a period of 180 days after the date of this Prospectus, except for certain
permitted transfers or with the prior written consent of BT Alex. Brown
Incorporated.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
PRICE OF THIS OFFERING
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock
will be determined by negotiations between the Company and the
Representatives. Among the factors to be considered in such negotiations are
prevailing market conditions, the results of operations of the Company in
recent periods, the market capitalization and stages of development of other
companies which the Company and the Representatives believe to be comparable
to the Company, estimates of the business potential of the Company, the
present state of the Company's development and other factors deemed relevant
by the Company and the Representatives.
51
<PAGE>
VALIDITY OF COMMON STOCK
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Baker & Hostetler LLP, Columbus, Ohio. Certain legal
matters related to the offering will be passed upon for the Underwriters by
Ropes & Gray, Boston, Massachusetts. Gary A. Wadman, a partner of Baker &
Hostetler LLP, is the Secretary of the Company.
EXPERTS
The consolidated financial statements of American Dental Partners, Inc. as
of December 31, 1996 and September 30, 1997 and for the year ended December
31, 1996 and the nine months ended September 30, 1997, and the financial
statements of PDHC, Ltd. as of November 12, 1996 and for the period from
January 1, 1996 to November 12, 1996 have been included herein and in the
registration statement in reliance upon the reports 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 PDHC, Ltd. as of December 31, 1995 and for the
years ended December 31, 1994 and 1995 included herein and in the registration
statement in reliance upon the report of Stirtz Bernards Boyden Surdel &
Larter, P.A., independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission ("SEC") a
Registration Statement (which term shall encompass any and all amendments
thereto) on Form S-1 (the "Registration Statement") under the Securities Act
with respect to the Common Stock offered hereby. This Prospectus, which is
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and
regulations of the SEC. Statements made in this Prospectus as to the contents
of any contact, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is hereby made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
For further information with respect to the Company, reference is hereby made
to the Registration Statement and such exhibits and schedules filed as a part
thereof, which may be inspected, without charge, at the Public Reference
Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The SEC
maintains a web site that contains reports, proxy and information statements
regarding registrants that file electronically with the SEC. The address of
this web site is (http://www.sec.gov). Copies of all or any portion of the
Registration Statement may be obtained from the Public Reference Section of
the SEC, upon payment of the prescribed fees.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AMERICAN DENTAL PARTNERS, INC. AND SUBSIDIARIES--UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
Introduction to Unaudited Pro Forma Consolidated Financial
Information........................................................... F-2
Unaudited Pro Forma Consolidated Balance Sheet at September 30, 1997... F-3
Unaudited Pro Forma Consolidated Statement of Operations for the Year
Ended December 31, 1996............................................... F-4
Unaudited Pro Forma Consolidated Statement of Operations for the Nine
Months Ended September 30, 1996....................................... F-5
Unaudited Pro Forma Consolidated Statement of Operations for the Nine
Months Ended September 30, 1997....................................... F-6
Notes to Unaudited Pro Forma Consolidated Financial Information........ F-7
AMERICAN DENTAL PARTNERS, INC. AND SUBSIDIARIES--CONSOLIDATED FINANCIAL
STATEMENTS
Independent Auditors' Report........................................... F-9
Consolidated Balance Sheets as of December 31, 1996 and September 30,
1997.................................................................. F-10
Consolidated Statements of Operations for the Year Ended December 31,
1996 and the Nine Months Ended September 30, 1997 and the Nine Months
Ended September 30, 1996 (unaudited).................................. F-11
Consolidated Statements of Stockholders' Equity for the Year Ended
December 31, 1996 and the Nine Months Ended September 30, 1997........ F-12
Consolidated Statements of Cash Flows for the Year Ended December 31,
1996 and the Nine Months Ended September 30, 1997 and the Nine Months
Ended September 30, 1996 (unaudited).................................. F-13
Notes to Consolidated Financial Statements............................. F-14
AMERICAN DENTAL PARTNERS, INC. AND SUBSIDIARIES--ACQUISITIONS
The combined financial information presented for PDHC, Ltd. presents
the financial position and results of operations of the dental group
practice prior to its affiliation with the Company. Prior to its
affiliation with the Company, PDHC, Ltd. existed as a dental group
practice. After its affiliation, the dentist employees formed a new PC
and PDHC, Ltd. became a MSO. These financial statements are presented for
information purposes only and are not necessarily indicative of the
results of operations or financial position that would have been achieved
by PDHC, Ltd. pursuant to the service agreement with the Company, had
such service agreement been in place during the periods presented. The
information should be read in conjunction with "The Company,"
"Management's Discussion and Analysis of Financial Condition and Results
of Operations," Unaudited Pro Forma Consolidated Financial Information
and the Consolidated Financial Statements of the Company.
PDHC, Ltd. ("Park")
Independent Auditors' Report........................................... F-29
Independent Auditors' Report........................................... F-30
Combined Balance Sheets as of December 31, 1995 and November 12, 1996.. F-31
Combined Statements of Operations for the Years Ended December 31, 1994
and 1995 and the Period Ended November 12, 1996....................... F-32
Combined Statements of Stockholders' Equity for the Years Ended
December 31, 1994 and 1995 and the Period Ended November 12, 1996..... F-33
Combined Statements of Cash Flows for the Years Ended December 31, 1994
and 1995 and the Period Ended November 12, 1996....................... F-34
Notes to Combined Financial Statements................................. F-35
</TABLE>
F-1
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
Basis of Presentation
During 1996, the Company acquired substantially all the assets of three
dental practices and simultaneously entered into 40-year service agreements
with the affiliated dental groups. These transactions are referred to as the
"1996 Transactions." For the nine-month period ended September 30, 1997, the
Company acquired substantially all the assets of four dental practices and
simultaneously entered into 40-year service agreements with three of the
affiliated dental groups (one practice joined an existing affiliate). In
October 1997, the Company acquired substantially all the assets of two dental
practices and a related entity associated with one of these practices and
simultaneously entered into a 40-year service agreement with one of the
affiliated dental groups (one practice joined an existing affiliate). These
transactions are referred to as the "1997 Transactions."
The unaudited pro forma consolidated balance sheet at September 30, 1997
gives effect to (i) the 1997 Transactions completed subsequent to September
30, 1997, as if these transactions occurred on September 30, 1997 and (ii)
this offering and the application of the estimated net proceeds therefrom as
set forth in "Use of Proceeds," as if completed on September 30, 1997.
The unaudited pro forma consolidated statements of operations for the nine
months ended September 30, 1996 and for the year ended December 31, 1996 give
effect to the 1996 and 1997 Transactions and the effect of this offering and
the application of the estimated net proceeds therefrom, as if all of these
events had occurred on January 1, 1996. The unaudited pro forma consolidated
statement of operations for the nine months ended September 30, 1997 gives
effect to the 1997 Transactions, including the transactions which occurred
subsequent to September 30, 1997, and the effect of this offering and the
application of the estimated net proceeds therefrom as set forth in "Use of
Proceeds" as if completed on January 1, 1997.
The unaudited pro forma consolidated financial information does not purport
to represent what the Company's financial position or results of operations
would actually have been if such transactions had in fact occurred on those
dates or to project the Company's financial position or results of operations
for any future period. The unaudited pro forma consolidated financial
information is based on certain assumptions and adjustments described in the
notes hereto and should be read in conjunction therewith. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related notes thereto for American
Dental Partners, Inc. and the Combined Financial Statements for PDHC, Ltd.
included elsewhere in this Prospectus.
F-2
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION PRO OFFERING PRO FORMA
ACTUAL ADJUSTMENTS(1) FORMA ADJUSTMENTS(2) AS ADJUSTED
------- -------------- ------- -------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 2,459 $ (606) $ 1,853 $ 7,614 $ 9,467
Accounts receivable... 24 202 226 -- 226
Receivables due from
affiliated
practices............ 3,186 -- 3,186 -- 3,186
Inventories........... 324 58 382 -- 382
Prepaid expenses and
other receivables.... 1,313 27 1,340 (71) 1,269
------- ------- ------- -------- -------
Total current
assets............. 7,306 (319) 6,987 7,543 14,530
------- ------- ------- -------- -------
Property and equipment,
net.................... 7,683 486 8,169 -- 8,169
------- ------- ------- -------- -------
Non-current assets:
Intangible assets,
net.................. 13,091 15,909 29,000 -- 29,000
Other assets.......... 213 14 227 -- 227
------- ------- ------- -------- -------
Total non-current
assets............. 13,304 15,923 29,227 -- 29,227
------- ------- ------- -------- -------
Total assets........ $28,293 $16,090 $44,383 $ 7,543 $51,926
======= ======= ======= ======== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 1,945 $ 623 $ 2,568 $ -- $ 2,568
Accrued compensation,
benefits and taxes... 2,269 508 2,777 -- 2,777
Accrued expenses...... 1,815 655 2,470 -- 2,470
Current maturities of
debt................. 534 -- 534 -- 534
------- ------- ------- -------- -------
Total current
liabilities........ 6,563 1,786 8,349 -- 8,349
------- ------- ------- -------- -------
Non-current liabilities:
Long-term debt........ 5,490 13,300 18,790 (13,700) 5,090
Other liabilities..... 27 16 43 -- 43
------- ------- ------- -------- -------
Total non-current
liabilities........ 5,517 13,316 18,833 (13,700) 5,133
------- ------- ------- -------- -------
Total liabilities... 12,080 15,102 27,182 (13,700) 13,482
------- ------- ------- -------- -------
Series A convertible
preferred stock........ 8,483 -- 8,483 (8,483)(3) --
Series B redeemable
preferred stock........ 7,517 -- 7,517 (7,517) --
Stockholders' equity:
Common stock.......... 23 1 24 44 (3) 68
Additional paid-in
capital.............. 1,936 987 2,923 37,199 (3) 40,122
Unearned
compensation......... (57) -- (57) -- (57)
Accumulated deficit... (1,689) -- (1,689) -- (1,689)
------- ------- ------- -------- -------
Total stockholders'
equity............. 213 988 1,201 37,243 38,444
------- ------- ------- -------- -------
Total liabilities
and stockholders'
equity............. $28,293 $16,090 $44,383 $ 7,543 $51,926
======= ======= ======= ======== =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
F-3
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACQUISITION PRO OFFERING PRO FORMA
ACTUAL ADJUSTMENTS(4) FORMA ADJUSTMENTS(5) AS ADJUSTED
------- -------------- ------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Net revenue............. $ 3,933 $50,991 $54,924 $ -- $54,924
------- ------- ------- ------- -------
Operating expenses:
Salaries and
benefits............. 2,098 27,204 29,302 -- 29,302
Lab fees and dental
supplies............. 534 6,062 6,596 -- 6,596
Office occupancy...... 389 4,764 5,153 -- 5,153
Other operating
expenses............. 773 6,611 7,384 -- 7,384
General corporate
expenses............. 2,395 -- 2,395 -- 2,395
Depreciation.......... 177 1,531 1,708 -- 1,708
Amortization of
intangibles.......... 48 890 938 -- 938
------- ------- ------- ------- -------
Total operating
expenses........... 6,414 47,062 53,476 -- 53,476
------- ------- ------- ------- -------
Earnings (loss) from
operations............. (2,481) 3,929 1,448 -- 1,448
Interest expense
(income), net........ (38) 1,814 1,776 (1,233) 543
------- ------- ------- ------- -------
Earnings (loss) before
income taxes........... (2,443) 2,115 (328) 1,233 905
Income taxes.......... -- -- -- 367 367
------- ------- ------- ------- -------
Net earnings (loss)..... $(2,443) $ 2,115 (328) $ 866 $ 538
======= ======= ======= ======= =======
Net earnings (loss) per
common share........... $ (0.55) $ (0.09) $ 0.08
Weighted average common
shares outstanding..... 4,606 4,606(6) 6,567(7)
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
F-4
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACQUISITION PRO OFFERING PRO FORMA
ACTUAL ADJUSTMENTS(8) FORMA ADJUSTMENTS(9) AS ADJUSTED
------- -------------- ------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Net revenue............. $ -- $40,390 $40,390 $ -- $40,390
------- ------- ------- ----- -------
Operating expenses:
Salaries and
benefits............. -- 21,543 21,543 -- 21,543
Lab fees and dental
supplies............. -- 4,850 4,850 -- 4,850
Office occupancy...... -- 3,789 3,789 -- 3,789
Other operating
expenses............. -- 5,406 5,406 -- 5,406
General corporate
expenses............. 1,521 276 1,797 -- 1,797
Depreciation.......... 7 1,244 1,251 -- 1,251
Amortization of
intangibles.......... -- 700 700 -- 700
------- ------- ------- ----- -------
Total operating
expenses........... 1,528 37,808 39,336 -- 39,336
------- ------- ------- ----- -------
Earnings (loss) from
operations............. (1,528) 2,582 1,054 -- 1,054
Interest expense
(income), net........ (14) 1,346 1,332 (925) 407
------- ------- ------- ----- -------
Earnings (loss) before
income taxes........... (1,514) 1,236 (278) 925 647
Income taxes.......... -- -- -- 262 262
------- ------- ------- ----- -------
Net earnings (loss)..... $(1,514) $ 1,236 $ (278) $ 663 $ 385
======= ======= ======= ===== =======
Net earnings (loss) per
common share........... $ (0.33) $ (0.07) $ 0.06
Weighted average common
shares outstanding..... 4,606 4,606(10) 6,553(11)
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
F-5
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACQUISITION PRO OFFERING PRO FORMA
ACTUAL ADJUSTMENTS(12) FORMA ADJUSTMENTS(13) AS ADJUSTED
------- --------------- ------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Net revenue............. $36,620 $10,242 $46,862 $ -- $46,862
------- ------- ------- ----- -------
Operating expenses:
Salaries and
benefits............. 19,625 4,878 24,503 -- 24,503
Lab fees and dental
supplies............. 4,491 1,075 5,566 -- 5,566
Office occupancy...... 3,368 868 4,236 -- 4,236
Other operating
expenses............. 4,433 1,032 5,465 -- 5,465
General corporate
expenses............. 2,260 -- 2,260 -- 2,260
Depreciation.......... 1,154 144 1,298 -- 1,298
Amortization of
intangibles.......... 259 441 700 -- 700
------- ------- ------- ----- -------
Total operating
expenses........... 35,590 8,438 44,028 -- 44,028
------- ------- ------- ----- -------
Earnings from
operations............. 1,030 1,804 2,834 -- 2,834
Interest expense
(income), net........ 195 1,096 1,291 (925) 366
------- ------- ------- ----- -------
Earnings before income
taxes.................. 835 708 1,543 925 2,468
Income taxes.......... 81 544 625 375 1,000
------- ------- ------- ----- -------
Net earnings............ $ 754 $ 164 $ 918 $ 550 $ 1,468
======= ======= ======= ===== =======
Net earnings per common
share.................. $ 0.07 $ 0.10 $ 0.22
Weighted average common
shares outstanding..... 4,852 4,852(14) 6,606(15)
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
F-6
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997
(1) To include the 1997 Transactions which occurred subsequent to September
30, 1997. The aggregate consideration for these transactions consisted of
approximately $13.2 million in cash, $1.9 million in subordinated promissory
notes and 139,482 shares of the Company's Common Stock.
(2) Gives effect to the sale of 2,000,000 shares of Common Stock at an
assumed initial public offering price of $16.00 per share and receipt and
application of the net proceeds therefrom, estimated to be approximately
$28,760,000 after deducting underwriters discounts and commissions and
offering expenses, to (i) redeem the Series B Redeemable Preferred Stock in
the amount of $7,517,000 and (ii) repay indebtedness of $13,700,000 under the
revolving credit facility.
(3) Gives effect to the conversion of 400,000 shares Series A Convertible
Preferred Stock into 2,400,000 shares of Common Stock.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1996
(4) To include the effects of the 1996 and 1997 Transactions as if such
transactions occurred at the beginning of 1996, including: (i) the impact of
applying the Company's service fee to the historical adjusted gross revenue of
each dental practice in accordance with the service agreements entered into
between the Company and the affiliated dental practices, as if such service
agreements were in place at the beginning of the periods presented; (ii) the
following significant adjustments made to the operating results of Park for
periods prior to its acquisition on November 12, 1996: (a) reduction of salary
and bonus expense of $2,275,000; (b) the elimination of costs of $320,000
incurred in connection with the transaction; and (c) the write-off of
leasehold improvements of $1,199,000; (iii) increased interest expense
associated with additional borrowings; (iv) increased amortization of
intangibles; and (v) increased income tax expense.
(5) Gives effect to the offering of 1,506,000 shares which would have
necessary to redeem the Series B Redeemable Preferred Stock of $7,706,000, to
pay the $13,700,000 in outstanding indebtedness under the Company's revolving
credit facility and to pay approximately $1,000,000 of offering costs. Also
includes an increase in income tax expense as a result of the increase in
earnings before income taxes to arrive at an effective rate of 40.6% on a pro
forma as adjusted basis.
(6) Reflects an increase in weighted average shares of 1,611,000 resulting
from the issuance of shares issued in connection with the 1996 and 1997
Transactions to arrive at pro forma earnings per share.
(7) Pro forma as adjusted earnings per share includes the issuance of an
additional 1,506,000 shares which would have necessary to redeem the Series B
Redeemable Preferred Stock of $7,706,000, to pay the $13,700,000 in
outstanding indebtedness under the Company's revolving credit facility and to
pay approximately $1,000,000 of offering costs.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996
(8) To include the effects of the 1996 and 1997 Transactions as if such
transactions occurred at the beginning of 1996, including: (i) the impact of
applying the Company's service fee to the historical adjusted gross revenue of
each dental practice in accordance with the service agreements entered into
between the Company and the affiliated dental practices, as if such service
agreements were in place at the beginning of the periods presented; (ii) the
following significant adjustments made to the operating results of Park for
periods prior to its acquisition on November 12, 1996: (a) reduction of salary
and bonus expense of $2,275,000; (b) the elimination of costs of $320,000
incurred in connection with the transaction and (c) the write-off of leasehold
improvements of $1,199,000; (iii) increased interest expense; (iv) increased
amortization of intangibles; and (v) increased tax expense associated with
these transactions.
F-7
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION--(CONTINUED)
(9) Gives effect to the offering of 1,506,000 shares which would have
necessary to redeem the Series B Redeemable Preferred Stock of $7,706,000, to
pay the $13,700,000 in outstanding indebtedness under the Company's revolving
credit facility and to pay approximately $1,000,000 of offering costs. Also
includes an increase in income tax expense as a result of the increase in
earnings before income taxes to arrive at an effective rate of 40.6% on a pro
forma as adjusted basis.
(10) Reflects actual weighted average shares and an increase in weighted
average shares of 1,794,000 resulting from the shares issued in connection
with the 1996 and 1997 Transactions to arrive at pro forma earnings per share.
(11) Pro forma as adjusted earnings per share includes the issuance of an
additional 1,506,000 shares which would have necessary to redeem the Series B
Redeemable Preferred Stock of $7,706,000, to pay the $13,700,000 in
outstanding indebtedness under the Company's revolving credit facility and to
pay approximately $1,000,000 of offering costs.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997
(12) To include the effects of the 1997 Transactions as if such transactions
occurred at the beginning of 1997, including: (i) the impact of applying the
Company's service fee to the historical adjusted gross revenue of each dental
practice in accordance with the service agreements entered into between the
Company and the affiliated dental practices, as if such service agreements
were in place at the beginning of the periods presented; (ii) the following
significant adjustments made to the operating results of Park for periods
prior to its acquisition on November 12, 1996: (a) reduction of salary and
bonus expense of $2,275,000; (b) the elimination of costs of $320,000 incurred
in connection with the transaction; and (c) the write-off of leasehold
improvements of $1,199,000; (iii) increased interest expense; (iv) increased
amortization of intangibles; and (v) increased tax expense associated with
these transactions.
(13) Gives effect to the offering of 1,506,000 shares which would have
necessary to redeem the Series B Redeemable Preferred Stock of $7,706,000, to
pay the $13,700,000 in outstanding indebtedness under the Company's revolving
credit facility and to pay approximately $1,000,000 of offering costs. Also
includes an increase in income tax expense as a result of the increase in
earnings before income taxes to arrive at an effective rate of 40.6% on a pro
forma as adjusted basis.
(14) Reflects actual weighted average shares and an increase in weighted
average shares of 163,000 to reflect the shares issued in connection with the
1996 and 1997 Transactions to arrive at pro forma earnings per share.
(15) Pro forma as adjusted earnings per share includes the issuance of an
additional 1,506,000 shares which would have necessary to redeem the Series B
Redeemable Preferred Stock of $7,706,000, to pay the $13,700,000 in
outstanding indebtedness under the Company's revolving credit facility and to
pay approximately $1,000,000 of offering costs.
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Dental Partners, Inc.:
We have audited the accompanying consolidated balance sheets of American
Dental Partners, Inc. and subsidiaries (the "Company") as of December 31, 1996
and September 30, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1996 and
the nine months ended September 30, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of American Dental Partners, Inc. and subsidiaries as of December 31, 1996 and
September 30, 1997, and the results of their operations and their cash flows
for the year ended December 31, 1996 and the nine months ended September 30,
1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
October 27, 1997, except for Note 13
as to which date is November 7, 1997
F-9
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 5,836 $ 2,459
Accounts receivable............................... 996 24
Receivables due from affiliated practices......... 1,595 3,186
Inventories....................................... 174 324
Prepaid expenses and other receivables............ 1,405 1,313
------- -------
Total current assets............................ 10,006 7,306
------- -------
Property and equipment, net......................... 5,943 7,683
------- -------
Non-current assets:
Intangible assets, net............................ 9,173 13,091
Other assets...................................... 172 213
------- -------
Total non-current assets........................ 9,345 13,304
------- -------
Total assets.................................... $25,294 $28,293
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 1,730 $ 1,945
Accrued compensation, benefits and taxes.......... 2,154 2,269
Accrued expenses.................................. 2,396 1,815
Current maturities of debt........................ 537 534
------- -------
Total current liabilities....................... 6,817 6,563
------- -------
Non-current liabilities:
Long-term debt.................................... 3,063 5,490
Other liabilities................................. 145 27
------- -------
Total non-current liabilities................... 3,208 5,517
------- -------
Total liabilities............................... 10,025 12,080
------- -------
Series A convertible preferred stock, par value
$0.01 per share, 400,000 shares authorized, issued
and outstanding.................................... 8,009 8,483
Series B redeemable preferred stock, par value $0.01
per share, 70,000 shares authorized, issued and
outstanding........................................ 7,096 7,517
Stockholders' equity:
Common stock, par value $0.01 per share,
25,000,000 shares authorized, 2,213,384 and
2,254,736 shares issued and outstanding at
December 31, 1996 and September 30, 1997,
respectively..................................... 22 23
Additional paid-in capital........................ 2,659 1,936
Unearned compensation............................. (74) (57)
Accumulated deficit............................... (2,443) (1,689)
------- -------
Total stockholders' equity...................... 164 213
------- -------
Commitments and contingencies
Total liabilities and stockholders' equity...... $25,294 $28,293
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -------------------
1996 1996 1997
------------ ----------- -------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue................................... $ 3,933 $ -- $36,620
------- ------- -------
Operating expenses:
Salaries and benefits....................... 2,098 -- 19,625
Lab fees and dental supplies................ 534 -- 4,491
Office occupancy............................ 389 -- 3,368
Other operating expenses.................... 773 -- 4,433
General corporate expenses.................. 2,395 1,521 2,260
Depreciation................................ 177 7 1,154
Amortization of intangibles................. 48 -- 259
------- ------- -------
Total operating expenses.................. 6,414 1,528 35,590
------- ------- -------
Earnings (loss) from operations............... (2,481) (1,528) 1,030
Interest expense (income), net.............. (38) (14) 195
------- ------- -------
Earnings (loss) before income taxes........... (2,443) (1,514) 835
Income taxes................................ -- -- 81
------- ------- -------
Net earnings (loss)........................... $(2,443) $(1,514) $ 754
======= ======= =======
Net earnings (loss) per common share.......... $ (0.55) $ (0.33) $ 0.07
Weighted average common shares outstanding.... 4,606 4,606 4,852
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------- PAID-IN UNEARNED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY
------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... -- $-- $ -- $-- $ -- $ --
Issuance of common
stock for
acquisitions......... 1,613 16 2,673 -- -- 2,689
Sale of common stock.. 600 6 191 (97) -- 100
Amortization of
unearned
compensation......... -- -- -- 23 -- 23
Dividends on Series A
convertible preferred
stock................ -- -- (109) -- -- (109)
Dividends on Series B
redeemable preferred
stock................ -- -- (96) -- -- (96)
Net loss.............. -- -- -- -- (2,443) (2,443)
----- ---- ------ ---- ------- -------
Balance at December 31,
1996................... 2,213 22 2,659 (74) (2,443) 164
Issuance of common
stock for
acquisitions......... 42 1 171 -- -- 172
Amortization of
unearned
compensation......... -- -- -- 17 -- 17
Dividends on Series A
convertible preferred
stock................ -- -- (474) -- -- (474)
Dividends on Series B
redeemable preferred
stock................ -- -- (420) -- -- (420)
Net earnings.......... -- -- -- -- 754 754
----- ---- ------ ---- ------- -------
Balance at September 30,
1997................... 2,255 $ 23 $1,936 $(57) $(1,689) $ 213
===== ==== ====== ==== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -------------------
1996 1996 1997
------------ ----------- -------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................ $ (2,443) $(1,514) $ 754
Adjustments to reconcile net earnings
(loss) to net cash provided by (used for)
operating activities:
Depreciation............................. 177 7 1,154
Amortization of intangible assets........ 48 -- 259
Other amortization....................... 23 18 49
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable.................... 1,417 -- 1,778
Receivables due from affiliated
practices............................. (1,707) -- (1,820)
Other current assets................... 237 (7) 56
Accounts payable and accrued expenses.. 941 199 (1,431)
Accrued compensation, benefits and
taxes................................. (232) 169 (166)
-------- ------- -------
Net cash provided by (used for)
operating activities................ (1,539) (1,128) 633
-------- ------- -------
Cash flows from investing activities:
Acquisitions, net of cash acquired......... (6,632) -- (3,337)
Capital expenditures, net.................. (386) (139) (2,102)
Other assets............................... 140 (14) 79
-------- ------- -------
Net cash used for investing
activities.......................... (6,878) (153) (5,360)
-------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of Series A
convertible preferred stock............... 7,900 1,023 --
Proceeds from issuance of Series B
redeemable preferred stock................ 7,000 907 --
Proceeds from issuance of common stock..... 100 100 --
Borrowings under revolving line of credit,
net....................................... -- -- 2,300
Repayment of borrowings.................... (747) -- (708)
Payment of debt issuance costs............. -- -- (242)
-------- ------- -------
Net cash provided by financing
activities.......................... 14,253 2,030 1,350
-------- ------- -------
Increase (decrease) in cash and cash
equivalents................................. 5,836 749 (3,377)
Cash and cash equivalents at beginning of
period...................................... -- -- 5,836
-------- ------- -------
Cash and cash equivalents at end of period... $ 5,836 $ 749 $ 2,459
======== ======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest... $ 3 $ -- $ 112
======== ======= =======
Cash paid during the period for income
taxes..................................... $ -- $ -- $ 60
======== ======= =======
Acquisitions:
Assets acquired............................ $ 20,099 $ -- $ 5,816
Liabilities assumed and issued............. (10,063) -- (2,061)
Common stock issued........................ (2,689) -- (172)
-------- ------- -------
Cash paid.................................. 7,347 -- 3,583
Less cash acquired......................... (715) -- (246)
-------- ------- -------
Net cash paid for acquisitions....... $ 6,632 $ -- $ 3,337
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(1) DESCRIPTION OF BUSINESS
American Dental Partners, Inc. (the "Company") was formed in December 1995
to provide management services to dental practices and commenced operations in
January 1996. The Company acquires substantially all the assets of the dental
practices with which it affiliates, except those required by law to be owned
or maintained by dentists, and enters into long-term service agreements with
these affiliated dental practices. The Company provides all services necessary
for the administration of the non-clinical aspects of the dental operations.
Services provided to the affiliated dental practices include assistance with
information systems, budgeting, financial reporting, facilities management,
third-party payor contracting, supplies and equipment procurement, billing and
collecting accounts receivable, marketing and recruiting, hiring and training
support staff.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared on the
accrual basis of accounting. The Company does not own any interests in or
control the activities of the affiliated dental practices. Accordingly, the
consolidated financial statements of the affiliated dental practices are not
consolidated with those of the Company.
The consolidated statements of operations and cash flows for the nine months
ended September 30, 1996 are unaudited, but in the opinion of management
include all adjustments, which consist only of normal and recurring
adjustments, necessary for a fair presentation of the unaudited interim
financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany balances and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of these consolidated 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 at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments with an original maturity of three months or less to
be cash equivalents.
Fair Value of Financial Instruments
The Company believes the carrying amount of cash and cash equivalents,
accounts receivable, receivables due from affiliated practices, accounts
payable and accrued expenses approximate fair value because of the short-term
nature of these items. The carrying amount of long-term debt approximates fair
value because the interest rates approximate rates at which similar types of
borrowing arrangements could be obtained by the Company.
F-14
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
Inventories
Inventories consist primarily of dental supplies and are stated at the lower
of cost or market.
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 30-40 years for buildings, 3-7 years for equipment
and 3-7 years for furniture and fixtures.
Property and equipment under capital leases are stated at the present value
of minimum lease payments at 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.
Intangible Assets
Identifiable intangible assets consist of the goodwill derived from the
management service agreements with affiliated dental groups and goodwill
associated with the Company's acquisitions. The estimated fair value of the
management service agreements is the excess of the purchase price over the
estimated fair value of the tangible assets acquired and liabilities assumed
of dental practices. Amounts paid for the Company's acquisitions in excess of
the net assets acquired are treated as goodwill. Intangible assets associated
with management service agreements and goodwill are generally amortized over
the period of expected benefit, which ranges from 25 to 40 years. Accumulated
amortization amounted to $48,000 and $282,000 at December 31, 1996 and
September 30, 1997, respectively.
The Company reviews the carrying value of intangible assets on an entity by
entity basis to determine if facts and circumstances exist which would suggest
that the intangible assets may be impaired or that the amortization period
needs to be modified. Among the factors the Company considers in making the
evaluation are changes in the practices' market position, reputation,
profitability and geographical penetration. If conditions are present which
indicate impairment is probable, the Company will prepare a projection of the
undiscounted cash flows of the specific practice and determine if the
intangible assets are recoverable based on these undiscounted cash flows. If
impairment is indicated, then an adjustment will be made to reduce the
carrying amount of the intangible assets to their fair value.
Income Taxes
Deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. The effect on deferred taxes of
changes in the tax rate is recognized in operations in the period that
includes the enactment date.
Stock Option Plans
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting
for Stock-Based Compensation, allows companies to recognize expense for the
fair value of stock-based awards or to continue to apply the provisions of APB
Opinion No. 25, Accounting for Stock Issued to Employees, and disclose the
effects of SFAS 123 as if the fair-value-based method defined in SFAS No. 123
had been applied. Under APB Opinion No. 25, compensation expense is recognized
only if on the measurement date the fair value of the underlying
F-15
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
stock exceeds the exercise price. The Company has elected to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS 123.
Earnings Per Share
Earnings per share are computed based on the weighted average number of
shares outstanding during the period plus common stock equivalents related to
stock options, if such common stock equivalents cause dilution in earnings per
share in excess of 3% and if their inclusion is not anti-dilutive. In
accordance with Securities and Exchange Commission Staff Accounting Bulletin
No. 83, Common Stock issued and stock options granted at prices lower than the
assumed initial public offering price within a one-year period prior to the
initial filing date of the offering have been included in the earnings per
share calculation (using the treasury stock method) as if they were
outstanding for all periods presented. The number of shares outstanding for
all periods presented have been retroactively adjusted to reflect the issuance
of Common Stock upon the contemplated conversion of Series A Convertible
Preferred Stock in connection with the planned public offering (see Note 13).
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 arrangements). SFAS 128 also requires
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. The
statement 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.
(3) ACCOUNTS RECEIVABLE AND NET REVENUE
Accounts Receivable
Accounts receivable represent amounts due from patients and third party
payors for dental services provided by affiliated dental practices that were
outstanding at the time the Company acquired the assets of the practice.
Receivables Due From Affiliated Dental Practices
Receivables due from affiliated practices represent amounts due pursuant to
the terms of the service agreements as described below.
Net Revenue--Management Services
The Company's net revenue represents the aggregate fees charged to
affiliated dental practices pursuant to the terms of the service agreements.
Under such agreements, the affiliated dental practices reimburse the Company
for expenses incurred on their behalf in connection with the operation and
administration of the dental facilities and pay fees to the Company for its
management services.
F-16
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
Revenue--Affiliated Dental Practices
The affiliated dental practices record revenue at established rates reduced
by contractual adjustments and allowances for doubtful accounts to arrive at
adjusted gross revenue. Contractual adjustments represent the difference
between gross billable charges at established rates and the portion of those
charges allowable by third party payors pursuant to certain reimbursement and
managed care contracts.
The Company does not consolidate the financial statements of its affiliated
dental practices with those of the Company. The adjusted gross revenue and
amounts retained by the affiliated dental practices are presented below for
illustrative purposes only:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Adjusted gross revenue--affiliated dental
practices.................................. $4,958 $47,521
Amounts retained by affiliated dental
practices.................................. 1,025 10,901
------ -------
Net revenue (amounts earned by the Company
under service agreements).................. $3,933 $36,620
====== =======
</TABLE>
(4) ACQUISITIONS
During the year ended December 31, 1996, the Company acquired substantially
all the assets of three dental practices and simultaneously entered into 40-
year service agreements with the affiliated dental groups. The aggregate
purchase price paid in connection with these transactions (the "1996
Transactions") consisted of approximately $7.3 million in cash, $2.2 million
in subordinated promissory notes and 1,613,400 shares of Common Stock.
During the nine months ended September 30, 1997, the Company acquired
substantially all the assets of four dental practices and simultaneously
entered into 40-year service agreements with three of the affiliated dental
groups (one practice joined an existing affiliate). The aggregate purchase
price paid in connection with these transactions consisted of approximately
$3.6 million in cash, $0.5 million in subordinated promissory notes and 41,352
shares of Common Stock.
Subsequent to September 30, 1997, the Company acquired substantially all the
assets of two dental practices and a related entity associated with one of
these practices and simultaneously entered into a 40-year service agreement
with one of the affiliated dental groups (one practice joined an existing
affiliate). The aggregate purchase price paid in connection with these
transactions consisted of $13.2 million in cash, $1.9 million in subordinated
promissory notes and 139,482 shares of Common Stock. All transactions
completed in 1997 are referred to as the "1997 Transactions."
The 1996 and 1997 Transactions have been accounted for as purchases and,
accordingly, the accompanying consolidated financial statements include the
results of operations under the service agreements from the date of
acquisition.
The following unaudited pro forma results of operations give effect to the
1996 and 1997 Transactions, including those which occurred subsequent to
September 30, 1997, all of which have been accounted for as if these
transactions had occurred at the beginning of 1996. Such pro forma financial
information reflects certain adjustments, including amortization of
intangibles, income tax effects and an increase in the weighted average
F-17
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
shares outstanding. This unaudited pro forma information does not necessarily
reflect the results of operations that would have occurred had these
transactions taken place at the beginning of 1996 and is not necessarily
indicative of results that may be obtained in the future (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Adjusted gross revenue--affiliated dental
practices...................................... $71,249 $61,371
Amounts retained by affiliated dental
practices...................................... 16,325 14,509
------- -------
Net revenue (amounts earned by the Company under
service agreements)............................ $54,924 $46,862
======= =======
Pro forma net earnings (loss)................... $ (328) $ 1,918
Pro forma net earnings (loss) per share ........ $ (0.09) $ 0.10
Weighted average common shares outstanding...... 4,606 4,852
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and Equipment
Property and equipment consisted of the following at December 31, 1996 and
September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Land, buildings and leasehold improvements....... $ 3,938 $ 5,403
Equipment........................................ 3,768 5,982
Furniture and fixtures........................... 1,450 2,595
------- -------
Total property and equipment..................... 9,156 13,980
Less accumulated depreciation.................... (3,213) (6,297)
------- -------
Property and equipment, net...................... $ 5,943 $ 7,683
======= =======
</TABLE>
Operating Leases
The Company is obligated under non-cancelable operating leases for premises
and equipment expiring in various years through the year 2009. Rent expense
for the year ended December 31, 1996 and nine months ended September 30, 1997
amounted to $319,000 and $2,751,000, respectively, of which $267,000 and
$2,416,000 were reimbursed under service agreements. The Company has several
leases with stockholders that were assumed in connection with its 1996 and
1997 Transactions. Such amounts are generally reimbursed pursuant to the terms
of the service agreements.
F-18
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
Minimum future rental payments and amounts to be reimbursed under service
agreements under non-cancelable operating leases as of September 30, 1997 are
as follows:
<TABLE>
<CAPTION>
AMOUNT TO BE
TOTAL REIMBURSED
AMOUNT UNDER SERVICE NET
DUE AGREEMENTS AMOUNT
------- ------------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Quarter ending December 31, 1997................ $ 774 $ 725 $ 49
Fiscal year ending:
1998.......................................... 2,965 2,801 164
1999.......................................... 2,721 2,618 103
2000.......................................... 2,274 2,211 63
2001.......................................... 1,608 1,540 68
2002.......................................... 1,373 1,373 --
Thereafter.................................... 4,648 4,648 --
------- ------- ----
Total minimum lease payments................ $16,363 $15,916 $447
======= ======= ====
</TABLE>
(6) INCOME TAXES
Income tax expense attributable to income from continuing operations consists
of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Year ended December 31, 1996:
Federal............................................ $ -- $ -- $ --
State.............................................. -- -- --
----- ----- -----
$ -- $ -- $ --
===== ===== =====
Nine months ended September 30, 1997:
Federal............................................ $ -- $ -- $ --
State.............................................. 81 -- 81
----- ----- -----
$ 81 $ -- $ 81
===== ===== =====
</TABLE>
F-19
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of December
31, 1996 and September 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Operating loss carryforward........... $ 1,882 $ 1,824
Property and equipment................ 366 418
Organization and start-up costs....... 251 195
Accrued expenses and other
liabilities.......................... 831 148
Other................................. 168 --
------- -------
Total gross deferred tax assets....... 3,498 2,585
Valuation allowance................... (3,498) (2,398)
------- -------
Net deferred tax asset................ $ -- $ 187
------- -------
Deferred tax liabilities:
Goodwill.............................. $ -- $ (184)
Other................................. -- (3)
------- -------
Total gross deferred tax liabilities.. $ -- $ (187)
------- -------
Net deferred tax asset.................. $ -- $ --
======= =======
</TABLE>
The valuation allowance for deferred tax assets was $3,498,000 and
$2,398,000 as of December 31, 1996 and September 30, 1997, respectively. The
net change in the total valuation allowance for the year ended December 31,
1996 and the nine months ended September 30, 1997 was an increase of
$3,498,000 and a decrease of $1,100,000, respectively.
Subsequent recognized tax benefits relating to the valuation allowance for
deferred tax assets as of December 31, 1996 and September 30, 1997 will be
allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Income tax benefit to be reported in
the consolidated statement of
operations............................ $2,185 $1,666
Intangibles............................ 1,313 732
------ ------
$3,498 $2,398
====== ======
</TABLE>
F-20
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
At December 31, 1996 and September 30, 1997, the net deferred tax asset
consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------------- -----------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL
------- ----- ------- ------- ----- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Deferred tax liability:
Current..................... $ -- $ -- $ -- $ -- $ -- $ --
Non-current................. -- -- -- (158) (29) (187)
------- ----- ------- ------- ----- -------
$ -- $ -- $ -- $ (158) $ (29) $ (187)
------- ----- ------- ------- ----- -------
Deferred tax asset:
Current..................... $ 240 $ 46 $ 286 $ 978 $ 177 $ 1,155
Non-current................. 2,712 500 3,212 1,049 194 1,243
Valuation allowance......... (2,952) (546) (3,498) (2,027) (371) (2,398)
------- ----- ------- ------- ----- -------
Net deferred tax asset.... $ -- $ -- $ -- $ -- $ -- $ --
======= ===== ======= ======= ===== =======
</TABLE>
At December 31, 1996 and September 30, 1997, the Company has net operating
loss carryforwards for Federal income tax purposes of approximately $4,706,000
and $4,561,000, respectively which are available to offset future Federal
taxable income. The net operating loss carryforward begins to expire in the
year 2012 unless utilized.
The following table reconciles the Federal statutory income tax rate and the
Company's effective income tax rate for the year ended December 31, 1996 and
nine months ended September 30, 1997:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -----------------
<S> <C> <C>
Income taxes at Federal statutory rate...... (34.0)% 34.0%
State taxes, net of Federal benefit......... (6.0) 6.0
Valuation reserve and other changes......... 33.0 (36.0)
Intangible assets and other permanent
differences................................ 7.0 6.0
----- -----
Effective income tax rate................... -- % 10.0%
===== =====
</TABLE>
F-21
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(7) DEBT
Long-term debt and capital lease obligations consist of the following at
December 31, 1996 and September 30, 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Revolving line of credit advances, collaterized
by substantially all assets of the Company..... $ -- $2,300
Mortgages payable, secured, interest rates
ranging from 8.6% to 8.8% payable in
installments through 2015...................... 788 741
Notes payable, unsecured, interest rates ranging
from 8.0% to 8.9% payable in installments,
maturing in 2004............................... 524 48
Subordinated notes payable to stockholders and
former owners, bearing interest at 7%, maturing
through 2003................................... 2,182 2,673
Capital lease obligations....................... 106 262
------ ------
Total long-term debt and capital lease
obligations.................................... 3,600 6,024
Less current maturities......................... 537 534
------ ------
Long-term debt and capital lease obligations,
excluding current maturities................... $3,063 $5,490
====== ======
</TABLE>
Annual maturities of long-term debt and future minimum lease payments under
capital leases as of September 30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES
--------- -------
<S> <C> <C>
Quarter Ending December 31, 1997........................... $ 328 $ 20
Fiscal Year Ending:
1998..................................................... 453 103
1999..................................................... 459 66
2000..................................................... 2,767 50
2001..................................................... 474 50
2002..................................................... 483 33
Thereafter............................................... 798 --
------ ----
Total payments......................................... $5,762 322
======
Less amounts representing interest....................... 60
----
Total obligations under capital leases................. $262
====
</TABLE>
Revolving Line of Credit
In April 1997, the Company entered into a $30 million revolving line of
credit agreement with a bank. The credit facility is being used for general
corporate purposes including acquisitions. Borrowings under this line of
credit bear interest at either prime- or LIBOR-based rates, at the Company's
option, plus a margin based upon the Company's debt coverage ratio, which
ranges up to 0.50% for prime-based loans and up to 2.125% for LIBOR-based
loans. In addition, the Company pays a commitment fee of 0.25% of the average
daily balance of the unused line. Borrowings are limited to an availability
formula based on adjusted EBITDA. The credit facility
F-22
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
is secured by a first lien on substantially all of the Company's assets,
including a pledge of the stock of the Company's subsidiaries. The Company is
also required to comply with certain financial and other covenants. The line
of credit matures in April 2000.
Subordinated Debentures
The Company is a party to a Subordinated Debenture Purchase Agreement dated
January 8, 1996 pursuant to which it has received a commitment from a
principal stockholder for the purchase of up to $15,000,000 of 12%
subordinated debentures. The purchase of such debentures is contingent upon
the satisfaction of certain conditions. For each debenture issued, the Company
is also obligated to issue Common Stock at a purchase price equal to the $0.01
per share par value of the Company's Common Stock. The number of shares of
Common Stock to be issued is subject to a predetermined formula.
The principal amount of the debentures, if issued, will be payable in three
equal installments due in the years 2002, 2003 and 2004 or upon the occurrence
of a Liquidity Event, as defined. Any debentures outstanding are subordinated
to any indebtedness owed to any bank. The Company is not obligated to issue
any debentures and has not issued any debentures through December 31, 1996 and
September 30, 1997. The obligation to purchase any debentures will
automatically terminate upon completion of an initial public offering.
(8) CONVERTIBLE AND REDEEMABLE PREFERRED STOCK
Series A Convertible Preferred Stock
The Company is authorized to issue up to 400,000 shares of Series A
convertible preferred stock, $0.01 par value, all of which were issued and
outstanding at December 31, 1996 and September 30, 1997.
Holders of Series A convertible preferred stock have the same number of
votes as the shares of Common Stock into which their Series A convertible
preferred stock could be converted. The Series A convertible preferred stock
is entitled to receive dividends at a cumulative rate of $1.58 per share,
compounded annually ($109,000 and $474,000 for the year ended December 31,
1996 and nine months ended September 30, 1997, respectively) which have not
been declared. Such dividends will be paid when, as and if declared by the
Board of Directors. In the event of liquidation, dissolution, or winding up of
the Company, holders of the Series A convertible preferred stock will be
entitled to receive, prior to any distribution to holders of Common Stock, all
accumulated unpaid dividends plus $19.75 per share. However, if holders of the
Series A convertible preferred stock would, receive a greater amount if their
stock had been converted to Common Stock immediately prior to such
liquidation, dissolution, or winding up, then they will be entitled to receive
such greater amount. The Series A convertible preferred stock is recorded at
$8,009,000 and $8,483,000 at December 31, 1996 and September 30, 1997,
respectively, and includes accrued but unpaid dividends.
The Series A convertible preferred stock may be converted into shares of
Common Stock at any time at the option of the holder. The 400,000 shares of
Series A convertible preferred stock will convert to 2,400,000 shares of
Common Stock upon completion of the Company's initial public offering and all
accrued dividends will be canceled.
If not previously converted, the Series A convertible preferred stock will
be subject to redemption at the option of the Company or a majority of the
holders of the Series A convertible preferred stock in three equal
installments in the years 2002, 2003 and 2004.
F-23
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
Series B Redeemable Preferred Stock
The Company is authorized to issue 70,000 shares of Series B redeemable
preferred stock, par value $0.01 per share, all of which were issued and
outstanding at December 31, 1996 and September 30, 1997.
Holders of Series B redeemable preferred stock have no voting rights. The
Series B redeemable preferred stock is entitled to receive dividends at a
cumulative rate of $8.00 per share, compounded annually ($96,000 and $421,000
for the year ended December 31, 1996 and nine months ended September 30, 1997,
respectively) which have not been declared. Such dividends will be paid when,
as and if declared by the Board of Directors. In the event of liquidation,
dissolution, or winding up of the Company, holders of the Series B redeemable
preferred stock will be entitled to receive, prior to any distributions to
holders of Common Stock, all accumulated unpaid dividends plus $100 per share.
The Series B redeemable preferred stock is recorded at $7,096,000 and
$7,517,000 at December 31, 1996 and September 30, 1997, respectively and
includes accrued but unpaid dividends.
The Series B redeemable preferred stock will be redeemed concurrently, or
within 90 days thereafter, of the consummation of the first sale of securities
by the Company pursuant to a registration statement filed under the Securities
Act of 1933, as amended. If not previously redeemed, the Series B redeemable
preferred stock will be subject to redemption at the option of the Company or
of holders of a majority of the Series B redeemable preferred stock in three
equal installments in the years 2002, 2003 and 2004.
(9) STOCKHOLDERS' EQUITY
Common Stock
The Company is authorized to issue up to 25,000,000 shares of Common Stock,
$0.01 par value, of which 2,213,384 and 2,254,736 shares were issued and
outstanding at December 31, 1996 and September 30, 1997, respectively. In
January and February of 1996, the Company sold 300,000 shares of its Common
Stock for $100,000. Additionally, in January 1996, the Company sold 300,000
shares of its Common Stock, which were subject to certain restrictions, for
$500. In connection with this transaction, the Company is recording
compensation expense ratably as the restrictions lapse.
Dividend Restriction
The Company has not paid any cash dividends on its Common Stock and does not
plan to pay any cash dividends on its Common Stock in the foreseeable future.
Additionally, no dividends may be paid on the Common Stock (other than
dividends paid solely in Common Stock) without the consent of at least 51% of
the then current holders of the Series A convertible and Series B redeemable
preferred stock.
(10) COMMITMENTS AND CONTINGENCIES
Letters of Credit
At December 31, 1996 and September 30, 1997, the Company had an outstanding
letter of credit in the amount of $75,000 which expires on November 15, 1999.
F-24
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(11) STOCK OPTION PLANS
1996 Stock Option Plan
The Company's 1996 Stock Option Plan (the "1996 Plan") provides for the
grant of stock options to key employees. The 1996 Plan permits the granting of
options that qualify as incentive stock options and non-qualified options. The
exercise price of such options is the fair market value of the Common Stock at
the time of grant. Options granted pursuant to the 1996 Plan expire ten years
after the date of grant. At September 30, 1997, options for a total of 873,246
shares were reserved for issuance under the 1996 Plan. At September 30, 1997,
options for 627,420 shares were outstanding under the 1996 Plan.
1996 Time Accelerated Restricted Stock Option Plan
The Company's 1996 Time Accelerated Restricted Stock Option Plan ("TARSOP
Plan") provides for the grant of stock options to key employees. Only non-
qualified options may be granted pursuant to the TARSOP Plan. The exercise
price of such options is the fair market value of the Common Stock at the time
of grant. These options vest at the end of the ninth year, but are subject to
accelerated vesting based on achievement of certain performance measures.
Options granted pursuant to the TARSOP Plan expire nine and one-half years
after the date of grant. At September 30, 1997, options for a total of 360,360
shares were reserved for issuance under the TARSOP Plan, all of which have
been issued.
1996 Affiliate Stock Option Plan
The Company's 1996 Affiliate Stock Option Plan (the "Affiliate Plan")
provides for the grant of stock options to certain persons associated with the
affiliated dental practices. Only non-qualified options may be granted
pursuant to the Affiliate Plan. The exercise price of such options is the fair
market value of the Common Stock at the time of grant. Options granted
pursuant to the Affiliate Plan expire ten years after the date of grant. At
September 30, 1997, options for a total of 210,000 shares were reserved for
issuance under the Affiliate Plan. At September 30, 1997, options for 87,186
shares were outstanding under the Affiliate Plan.
1996 Directors Stock Option Plan
The Company's 1996 Directors Stock Option Plan (the "Directors Plan")
provides for the granting of options to outside directors. Only non-qualified
options may be granted pursuant to the Directors Plan. The exercise price of
such options is the fair market value of the Common Stock at the time of
grant. Options granted pursuant to the Directors Plan expire ten years after
the date of grant. At September 30, 1997, options for a total of 60,000 shares
were reserved for issuance under the Directors Plan. At September 30, 1997,
options for 19,800 shares were outstanding under the Directors Plan.
F-25
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
Stock Option Activity
A summary of stock option activity under all the Company's stock option
plans for the year ended December 31, 1996 and the nine months ended September
30, 1997 follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
Outstanding at January 1, 1996.................. -- --
Granted......................................... 571,170 $ 3.50
Cancelled....................................... (4,500) 0.33
--------- ------
Outstanding at December 31, 1996................ 566,670 $ 3.50
Granted......................................... 528,696 14.03
Cancelled....................................... (600) 14.17
--------- ------
Outstanding at September 30, 1997............... 1,094,766 $ 8.58
========= ======
Options exercisable at:
December 31, 1996............................. 16,320
=========
September 30, 1997............................ 42,798
=========
Weighted average fair value of options granted
during the period:
December 31, 1996............................. $3.50
=====
September 30, 1997............................ $8.58
=====
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for stock options
issued. Had compensation cost been determined based on the fair value at the
grant date for stock options issued during 1997 and 1996 in accordance with
the provisions of SFAS No. 123, the Company's net loss and loss per share
would have been increased to the pro forma amounts indicated below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
--------------------- ---------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net earnings (loss)............. $(2,443) $(2,479) $ 754 $ 580
Earnings (loss) per share....... $ (0.55) $ (0.56) $0.07 $0.03
</TABLE>
The fair values of stock options granted during 1996 and 1997 were estimated
on the date of grant using the minimum value method with the following
assumptions: risk-free interest rate of 6.7%, expected life of four years, and
no dividends.
F-26
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
The following table summarizes information about stock options outstanding
at December 31, 1996 and September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Range of Exercise Prices.............. $0.33-$12.50 $0.33-$14.17
OPTIONS OUTSTANDING:
Number Outstanding.................... 566,670 1,094,766
Weighted Average Remaining Contractual
Life (in years)...................... 8.3-9.9 7.5-9.8
Weighted Average Exercise Price....... $0.33-$12.50 $0.33-$14.17
OPTIONS EXERCISABLE:
Number Exercisable.................... 16,320 42,798
Weighted Average Exercise Price....... $0.33-$8.33 $0.33-$8.33
</TABLE>
(12) EMPLOYEE BENEFIT PLANS
Retirement Plans
The Company has a Savings and Retirement Plan (401(k) Plan), adopted October
1, 1996, which is the Company's principal defined contribution retirement
plan, which provides for a match of up to 3% of an employee's compensation.
Additionally, at September 30, 1997, the Company had three other defined
contribution retirement plans. Total plan expense for the year ended December
31, 1996 and the nine months ended September 30, 1997 was $20,000 and
$136,000, respectively.
(13) SUBSEQUENT EVENTS
Letters of Intent
At October 31, 1997, the Company had two letters of intent signed with
potential affiliates to acquire substantially all the assets and enter into
long-term service agreements with these dental practices. The aggregate
purchase price under these letters of intent consists of approximately $5.9
million in cash, $0.8 million in subordinated promissory notes and 82,236
shares of Common Stock. Completion of these transactions is subject to due
diligence review and completion of final agreements. There can be no assurance
that the Company will consummate these transactions.
Initial Public Offering
Effective October 27, 1997, the Company authorized the filing of a
registration statement for an initial public offering of the Company's Common
Stock.
Stock Split and Authorized Shares
Effective October 31, 1997, the Company increased its authorized shares of
Common Stock from 2,500,000 to 25,000,000 shares. The increase in authorized
shares has been reflected retroactively in the accompanying consolidated
financial statements.
Additionally, effective October 31, 1997, the Company increased its
authorized shares of Preferred Stock from 470,000 to 1,000,000 shares. The
additional 530,000 shares are undesignated Preferred Stock which can be issued
in one or more series.
F-27
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 UNAUDITED
On November 7, 1997, the Company approved a 6-for-1 split of the Company's
Common Stock effected in the form of a stock dividend. All share and per share
amounts in the accompanying consolidated financial statements have been
retroactively restated to reflect this split.
1997 Employee Stock Purchase Plan
On October 27, 1997, the Company approved the 1997 Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan"), effective December 1, 1997. The
Employee Stock Purchase Plan is designed to enable eligible employees to
purchase shares of Common Stock at a discount on a periodic basis through
payroll deductions and is intended to meet the requirements of Section 423 of
the Internal Revenue Code. Purchases will occur at the end of option periods,
each of six months' duration, except that the first such option period will
begin concurrent with the commencement of the Company's initial public
offering and end on June 30, 1998. The purchase price of Common Stock under
the Employee Stock Purchase Plan will be 85% of the lesser of the value of the
Common Stock at the beginning of an option period and the value of the Common
Stock at the end of the option period. Participants may elect under the
Employee Stock Purchase Plan, prior to each option period, to have from 2% to
10% of their pay withheld and applied to the purchase of shares at the end of
the option period. However, the Employee Stock Purchase Plan imposes a maximum
of $10,000 on the amount that may be withheld from any participant in any
option period. A total of 200,000 shares of Common Stock has been reserved for
issuance under the Employee Stock Purchase Plan.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
PDHC, Ltd.:
We have audited the accompanying balance sheet of PDHC, Ltd. as of November
12, 1996 and the related statements of operations, stockholders' equity and
cash flows for the period from January 1, 1996 to November 12, 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 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 PDHC, Ltd. and the results
of its operations and its cash flows for the period January 1, 1996 to
November 12, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 26, 1997
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
PDHC, Ltd.:
We have audited the accompanying balance sheet of PDHC, Ltd. as of December
31, 1995, and the related statements of operations, stockholders' equity and
cash flows for the years ended December 31, 1994 and 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 PDHC, Ltd. as of December
31, 1995, and the results of its operations and its cash flows for the years
ended December 31, 1994 and 1995, in conformity with generally accepted
accounting principles.
Stirtz Bernards Boyden
Surdel & Larter, P.A.
Edina, Minnesota
October 16, 1997
F-30
<PAGE>
PDHC, LTD.
BALANCE SHEETS
DECEMBER 31, 1995 AND NOVEMBER 12, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 12,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 3,034 $ 8
Accounts receivable, net of allowances for doubtful
accounts and contractual adjustments of $250 in
1995 and $702 in 1996............................. 1,817 2,345
Refundable income taxes............................ -- 1,000
Supplies........................................... 113 111
Prepaid expenses and other receivables............. 294 234
Deferred income taxes.............................. 210 430
------- ------
Total current assets............................. 5,468 4,128
------- ------
Property and equipment, net.......................... 5,144 4,045
------- ------
Non-current assets:
Deferred income taxes.............................. 420 600
Other assets....................................... 98 97
------- ------
Total non-current assets......................... 518 697
------- ------
Total assets..................................... $11,130 $8,870
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 705 $ 532
Income taxes payable............................... 737 --
Accrued compensation, benefits and taxes........... 1,205 1,568
Accrued expenses................................... 321 543
Customer prepayments............................... -- 540
Current maturities of long-term debt............... 536 158
------- ------
Total current liabilities........................ 3,504 3,341
------- ------
Non-current liabilities:
Long-term debt, less current maturities............ 601 721
Other liabilities.................................. 68 118
------- ------
Total non-current liabilities.................... 669 839
------- ------
Total liabilities................................ 4,173 4,180
------- ------
Stockholders' equity:
Common stock, par value $1 per share, 50,000 shares
authorized, 12,057 shares issued and outstanding.. 12 12
Additional paid-in capital......................... 3,648 3,415
Notes receivable from stock sales.................. -- (155)
Retained earnings.................................. 3,297 1,418
------- ------
Total stockholders' equity....................... 6,957 4,690
------- ------
Commitments and contingencies
Total liabilities and stockholders' equity....... $11,130 $8,870
======= ======
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
PDHC, LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE PERIOD ENDED NOVEMBER 12, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD ENDED
--------------- NOVEMBER 12,
1994 1995 1996
------- ------- ------------
<S> <C> <C> <C>
Net revenue........................................ $26,139 $30,211 $27,680
------- ------- -------
Operating expenses:
Salaries and benefits............................ 13,457 17,117 16,731
Special bonuses.................................. -- -- 2,000
Lab fees and dental supplies..................... 2,444 2,642 2,771
Office occupancy................................. 2,149 2,185 2,120
Other expenses................................... 6,247 5,877 5,738
Depreciation..................................... 1,106 1,265 1,124
Amortization of intangibles...................... 10 18 26
------- ------- -------
Total operating expenses....................... 25,413 29,104 30,510
------- ------- -------
Earnings (loss) from operations.................... 726 1,107 (2,830)
Interest expense (income), net................... 228 67 (31)
------- ------- -------
Earnings (loss) before income taxes................ 498 1,040 (2,799)
Income taxes expense (benefit)................... 210 460 (920)
------- ------- -------
Net earnings (loss)................................ $ 288 $ 580 $(1,879)
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
PDHC, LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE PERIOD ENDED NOVEMBER 12, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
$1 PAR VALUE ADDITIONAL NOTE
------------- PAID-IN RECEIVABLE RETAINED
SHARES AMOUNT CAPITAL STOCK SALES EARNINGS TOTAL
------ ------ ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993, as previously
stated................. 6 $ 6 $ 118 $ -- $ 1,766 $ 1,890
Pooling of interests
with Brookpark Dental
Center, P.A.......... 3 3 (1) -- 744 746
--- ---- ------ ----- ------- -------
Balance at December 31,
1993, as restated...... 9 9 117 -- 2,510 2,636
Issuance of common
stock................ -- -- 105 -- -- 105
Purchase of common
stock................ -- -- (106) -- (81) (187)
Net earnings.......... -- -- -- -- 288 288
--- ---- ------ ----- ------- -------
Balance at December 31,
1994................... 9 9 116 -- 2,717 2,842
Issuance of common
stock................ 3 3 3,616 -- -- 3,619
Purchase of common
stock................ -- -- (84) -- -- (84)
Net earnings.......... -- -- -- -- 580 580
--- ---- ------ ----- ------- -------
Balance at December 31,
1995................... 12 12 3,648 -- 3,297 6,957
Issuance of common
stock................ 1 1 185 (155) -- 31
Purchase of common
stock................ (1) (1) (418) -- -- (419)
Net loss.............. -- -- -- -- (1,879) (1,879)
--- ---- ------ ----- ------- -------
Balance at November 12,
1996................... 12 $ 12 $3,415 $(155) $ 1,418 $ 4,690
=== ==== ====== ===== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
PDHC, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE PERIOD ENDED NOVEMBER 12, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD ENDED
---------------- NOVEMBER 12,
1994 1995 1996
------- ------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)............................ $ 288 $ 580 $(1,879)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used for) operating
activities:
Depreciation and amortization................ 1,116 1,283 1,150
Deferred income taxes........................ (50) (430) (400)
Loss on disposition of assets................ -- -- 924
Accounts receivable.......................... (133) (335) (528)
Other current assets......................... (50) 85 62
Other assets................................. (11) (40) 1
Accounts payable and accrued expenses........ 682 353 (785)
Other........................................ -- 68 63
------- ------- -------
Net cash provided by (used for) operating
activities................................ 1,842 1,564 (1,392)
------- ------- -------
Cash flows used for investing activities:
Capital expenditures, net...................... (1,793) (1,162) (988)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock......... 105 3,619 31
Issuance of subordinated debenture............. -- 10 (35)
Net change in note payable--bank............... 360 (460) --
Purchase of common stock....................... (45) -- (419)
Repayment of borrowings........................ (557) (474) (223)
Repayment of capital lease obligations......... (172) (199) --
------- ------- -------
Net cash provided by (used for) financing
activities................................ (309) 2,496 (646)
------- ------- -------
Net change in cash and cash equivalents.......... (260) 2,898 (3,026)
Cash and cash equivalents at beginning of
period.......................................... 396 136 3,034
------- ------- -------
Cash and cash equivalents at end of period....... $ 136 $ 3,034 $ 8
======= ======= =======
Cash paid during the period for:
Interest....................................... $ 149 $ 157 $ 78
======= ======= =======
Income taxes................................... $ 338 $ 199 $ 1,214
======= ======= =======
Non-cash investing and financing activities:
Purchase of common stock with note payable..... $ 142 $ 84 $ --
======= ======= =======
Purchase of equipment with capital lease
obligation.................................... $ -- $ 5 $ --
======= ======= =======
Issuance of common stock for note receivable... $ -- $ -- $ 155
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
PDHC, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE PERIOD ENDED NOVEMBER 12, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company provides dental services to patients throughout the greater
Minneapolis/St. Paul, Minnesota area.
Estimates and Assumptions
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 period. Actual results could differ from those estimates.
Net Patient Service Revenue
The Company generates its revenue from patients and third party payors under
fee for service, preferred provider and capitation arrangements. The Company's
preferred provider agreements and capitation agreements with health
maintenance organizations are generally on a yearly basis subject to
cancellation by either party upon advance written notice.
Preferred provider revenue is recognized when the service is provided based
on predetermined rates for the respective service. Capitation revenue is due
monthly and recognized as revenue in the month the Company is obligated to
provide service to the patients under the capitation agreement.
Cash Equivalents
The Company considers all highly liquid instruments purchased with a
maturity of less than three months to be cash equivalents.
Supplies
Supplies consist of dental supplies and are stated at the lower of cost or
market. Cost is determined by the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which
are 31 years for buildings, 5 years for equipment and 7 years for furniture
and fixtures and leasehold improvements. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is recognized. The cost of
maintenance and repairs is expensed as incurred and significant renewals and
betterments are capitalized.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs (including
yellow pages) charged to operations were $265,000 in 1994, $336,000 in 1995
and $455,000 in 1996.
F-35
<PAGE>
PDHC, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE PERIOD ENDED NOVEMBER 12, 1996
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of income taxes currently due plus
deferred income taxes. Deferred income taxes relate to differences between the
financial and tax bases of certain assets and liabilities. Temporary
differences that result in significant deferred income taxes are allowance for
doubtful accounts, accrual for vacation pay and book accumulated depreciation
in excess of tax accumulated depreciation.
Concentrations of Credit Risk
The Company has cash and cash equivalents which exceed the federally insured
limit. These consist principally of demand deposits and money market funds.
These deposits generally have maturities of three months or less. The Company
has not experienced any losses on its cash deposits.
The Company grants credit to patients and third party payors without
collateral. Net patient service revenue from patients and third party payors
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER
31, PERIOD ENDED
------------ NOVEMBER 12,
1994 1995 1996
----- ----- ------------
<S> <C> <C> <C>
Fee-for-service plans............................. 37.3% 40.6% 43.8%
Preferred provider organization plans............. 13.6 12.2 12.4
Capitated managed care plans...................... 49.1 47.2 43.8
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Net patient service revenue from patients under a major dental benefit
carrier and affiliated entities' plan was 21.1% in 1994, 22.9% in 1995 and
20.2% in 1996. The major dental benefit carrier became a stockholder of the
Company in 1995.
(2) MERGER
On March 31, 1995, the Company completed a merger with Brookpark Dental
Center, P.A. whereby Brookpark was merged directly into PDHC, Ltd. Under the
terms of the agreement, Brookpark stockholders received 0.158 of a share of
the Company's common stock for each Brookpark share. Accordingly, the Company
issued 2,733 shares of its common stock for all the outstanding common stock
of Brookpark. In addition, outstanding employee stock options to purchase
Brookpark common stock were converted into options to purchase 58 shares of
the Company's common stock. Prior to the merger, certain stockholders of the
Company were also stockholders of Brookpark.
F-36
<PAGE>
PDHC, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE PERIOD ENDED NOVEMBER 12, 1996
The transaction has been accounted for as pooling of interests and therefore
the financial statements are presented as if the merger took place at the
beginning of 1994. Separate and combined results of PHDC, Ltd. and Brookpark
during the year ended December 31, 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C>
Net revenue:
PDHC, Ltd.............................................. $21,828
Brookpark Dental Center, P.A........................... 4,714
Less intercompany sales................................ (403)
-------
$26,139
=======
Net earnings:
PDHC, Ltd.............................................. $ 164
Brookpark Dental Center, P.A........................... 124
-------
$ 288
=======
</TABLE>
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 12,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land, buildings and leasehold improvements......... $ 5,376 $ 5,773
Equipment.......................................... 4,497 3,661
Furniture and fixtures............................. 1,443 2,775
------- -------
Total property and equipment....................... 11,316 12,209
Less accumulated depreciation...................... (6,172) (8,164)
------- -------
Property and equipment, net........................ $ 5,144 $ 4,045
======= =======
</TABLE>
(4) NOTE PAYABLE--BANK
The Company had a $1.2 million line of credit with interest payable monthly
at 1% above the prime rate. The Company paid off the note in 1995 and elected
not to renew the note. The note was secured by the assets of the Company.
F-37
<PAGE>
PDHC, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE PERIOD ENDED NOVEMBER 12, 1996
(5) LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 12,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Note payable to bank bears interest at 8.63%. The
note is payable in monthly installments of $6,684,
including principal and interest due March, 2003.
The note is secured by property.................... $ 429 $ 392
Note payable to bank bears interest at 7.36%. The
note is payable in monthly installments of $3,617,
including principal and interest due March, 1997.
The note is secured by property.................... 49 14
Note payable to bank bears interest at 9.75%. The
note is payable in monthly installments of $21,436,
including principal and interest due November,
1996. The note is secured by the assets of the
Company............................................ 214 --
Notes payable to related parties bear interest at 8%
to 9%. The notes are payable in monthly
installments through October, 2004. The notes are
unsecured.......................................... 271 473
Capital lease obligations (Note 6).................. 132 --
Subordinated debentures to three employees bear
interest at 8%. The debentures are payable over
five to ten years after the employees' termination.
(Note 8)........................................... 35 --
Covenant not to compete, payable in monthly
installments of $683 through October, 1996......... 7 --
------ -----
1,137 879
Less current maturities............................. (536) (158)
------ -----
$ 601 $ 721
====== =====
</TABLE>
Future maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Years Ending December 31:
1997..................................................... $158
1998..................................................... 119
1999..................................................... 129
2000..................................................... 141
2001..................................................... 154
Thereafter............................................... 178
----
$879
====
</TABLE>
(6) LEASE COMMITMENTS
The Company leases its facilities under non-cancelable long-term operating
lease agreements ranging from one to fourteen years with certain leases
containing renewal options exercisable at the end of the lease term. Certain
lease agreements provide for the Company to pay their proportionate share of
real estate taxes, insurance and other operating costs. In addition, parts of
the leased facilities have been subleased with one-year terms. Rent expense
under facility leases was $1,282,000 in 1994, $1,044,000 in 1995 and $956,000
in 1996, which is net of sublease income of $32,000 in 1994, $72,000 in 1995
and $123,000 in 1996.
F-38
<PAGE>
PDHC, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE PERIOD ENDED NOVEMBER 12, 1996
The Company leases copiers, fax machines and various other equipment under
non-cancelable operating lease agreements. Rent expense for equipment under
operating leases was $97,000 in 1994, $111,000 in 1995 and $32,000 in 1996.
Future minimum lease payments for operating leases as of November 12, 1996
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Years Ending December 31:
1997..................................................... $1,340
1998..................................................... 1,186
1999..................................................... 994
2000..................................................... 751
2001..................................................... 619
Thereafter............................................... 3,006
------
$7,896
======
</TABLE>
Future minimum rentals to be received under subleases in the remainder of
1996 was $11,000. The subleases expired as of December 31, 1996.
The Company leased computer equipment and software under a capital lease
that required monthly payments of $13,772 including interest through August,
1996. The Company had an option to purchase the equipment and software at fair
market value at the end of the lease term. The Company leased telephone
equipment under a capital lease that required monthly payments of $2,036
through May, 1996.
Assets recorded under capital leases consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Computer equipment and software............................. $ 515
Telephone equipment......................................... 63
-----
578
(156)
-----
Less accumulated depreciation............................... $ 422
=====
</TABLE>
F-39
<PAGE>
PDHC, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE PERIOD ENDED NOVEMBER 12, 1996
(7) INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER
31, PERIOD ENDED
----------- NOVEMBER 12,
1994 1995 1996
---- ----- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................ $190 $ 670 $(467)
State.......................................... 70 220 (53)
---- ----- -----
260 890 (520)
---- ----- -----
Deferred:
Federal........................................ (38) (330) (260)
State.......................................... (12) (100) (140)
---- ----- -----
(50) (430) (400)
---- ----- -----
$210 $ 460 $(920)
==== ===== =====
</TABLE>
Deferred income taxes reflect temporary differences in the recognition of
revenue and expense for tax reporting and financial statement purposes.
Deferred tax assets were comprised of the following at December 31, 1994,
1995, and November 12, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 12,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Depreciation and amortization.................... $392 $ 485
Reserves deductible in future years.............. 101 199
Accrued expenses................................. 109 172
Other............................................ 28 174
---- ------
Total deferred tax asset....................... $630 $1,030
==== ======
</TABLE>
A reconciliation between the federal statutory tax rate and the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 12,
1994 1995 1996
-------------- -------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income taxes at federal
statutory tax rate............ $174 35.0% $364 35.0% $(898) (34.0)%
Acquisition costs.............. -- -- -- -- 82 3.0
Officers' life insurance....... 9 1.6 22 2.1 24 1.0
Meals and entertainment........ 7 1.4 27 2.6 2 0.0
State income taxes, net of
federal tax benefit........... 20 4.2 47 4.5 (130) (5.0)
---- ---- ---- ---- ----- -----
$210 42.2% $460 44.2% $(920) (35.0)%
==== ==== ==== ==== ===== =====
</TABLE>
F-40
<PAGE>
PDHC, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE PERIOD ENDED NOVEMBER 12, 1996
(8) SUBORDINATED DEBENTURES
The Company had issued $35,000 of subordinated debentures to three
employees. The debentures accrued interest at 8% and were to be redeemed by
the Company at the employee's termination of employment. The debentures were
payable over either a five or ten-year period with interest at 8%, as
determined under the agreements. The Company had also issued options to three
employees and a consultant to the Company to purchase a total of $374,000 of
additional subordinated debentures. Employees had committed to purchase
$58,000 of these debentures.
The subordinated debentures carried with them stock appreciation rights.
Under the agreements, the debenture holders participated in the common stock
appreciation over a base price per share as determined in each of the
respective agreements. The number of shares available for appreciation rights
were determined by the amount of debentures purchased divided by the base
price per share. The rights vested over periods ranging from six to ten years
and were payable when services were no longer performed for the company or
employment was terminated. The amount payable to the debenture holders would
have been equal to the value of such specific number of shares less the amount
of the debentures which would have been paid less accrued and paid interest on
the debentures. The amounts were payable over a five or ten-year period with
interest at 8%, as determined under the agreements. Compensation expense
charged to operations related to these stock appreciation rights was $0 in
1994, $18,000 in 1995 and $0 in 1996. These agreements were terminated
November 11, 1996.
(9) STOCKHOLDERS' EQUITY
Stock Options
The Company has granted nonqualified stock options to key employees at an
exercise price not less than market price as of the date of grant. Each grant
awarded specifies the period for which the stock options are exercisable and
provides that the stock options shall expire at the end of such period. Option
transactions for the years ended December 31, 1994 and 1995 and period ended
November 12, 1996 are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
SHARES PRICES
--------- --------
<S> <C> <C>
Outstanding at December 31, 1993......................... -- $ --
Granted.................................................. 332 255
---- --------
Outstanding at December 31, 1994......................... 332 255
Brookpark options converted to Company options........... 58 350
Granted.................................................. 69 291
---- --------
Outstanding at December 31, 1995......................... 459 255-350
Granted.................................................. 69 350
Cancelled................................................ (528) 255-350
---- --------
Outstanding at November 12, 1996......................... -- $ --
==== ========
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123, and
applies APB Opinion 25 and related interpretations in accounting for its plan.
Under APB Opinion 25, when the exercise price of employee stock options equals
the market price of the underlying stock on the date of the grant, no
compensation expense is recognized.
F-41
<PAGE>
PDHC, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE PERIOD ENDED NOVEMBER 12, 1996
The effect of applying SFAS No. 123's fair value method to the Company's
stock-based awards results in net income that is not materially different from
amounts reported.
Stock Redemption Agreement
The Company has a stock redemption agreement with its individual
stockholders. The agreement requires the Company to purchase the stockholders'
share upon termination of employment, in the event of death or total
disability. The stockholders will receive payment for their stock from life
insurance proceeds and/or in 120 monthly installments, including interest at
9%. The Company has approximately $5,990,000 of life insurance on its
individual stockholders at December 31, 1995 and at November 12, 1996 to
provide partial, and in some cases full, funding for this agreement.
Stock Redemption Commitment
The Company has an agreement to purchase 788 shares of common stock at
November 12, 1996 from a current stockholder as follows:
<TABLE>
<CAPTION>
PRICE
NUMBER PER AGGREGATE
OF SHARES SHARE PRICE PAYMENT TERMS
--------- ------- --------- -------------
<S> <C> <C> <C>
50 $556.80 $ 27,840 12 monthly installments with interest at 9% beginning
December 1, 1996
100 $560.00 $ 56,000 12 monthly installments with interest at 9% beginning
December 1, 1996
638 $569.76 $363,510 60 monthly installments with interest at 9% beginning
December 1, 1997
</TABLE>
(10) DEFERRED COMPENSATION AGREEMENT
In August, 1995, the Company entered into an agreement with an officer of
the Company which calls for the officer to be credited with $50,000 of
deferred compensation on August 17, 1995, and an additional $50,000 on each
anniversary date up to and including the tenth anniversary date. The deferred
compensation becomes fully vested upon the earlier of termination of
employment or August, 2005. Amounts payable under the agreement are to be paid
in a lump sum in cash, as soon as administratively practicable. Compensation
expense charged to operations under this agreement was $0 in 1994, $50,000 in
1995 and 1996.
(11) BENEFIT PLANS
Defined Benefit Pension Plan
The Company had a defined benefit pension plan which covered substantially
all employees after certain age and service requirements were met. In July,
1994, the plan was terminated effective September 30, 1994. Participants
became 100% vested in their accrued benefits through the date of termination
and were paid the value of those benefits in September, 1995. Plan expenses
charged to operations were $696,000 in 1994 and $533,000 in 1995.
F-42
<PAGE>
PDHC, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE PERIOD ENDED NOVEMBER 12, 1996
Profit Sharing Plan
The Company had a profit sharing plan which covered employees who had
attained the age of 21 and completed 12 months of service. No contributions
had been made to the plan since July, 1984 and no contributions were permitted
by the participants. The plan was terminated effective June 30, 1995 and
participants became 100% vested in their account balances. All participant
balances were paid out in 1995.
401(k) Profit Sharing Plan
The Company has a 401(k) profit sharing plan that covers employees who have
attained the age of 21 and completed 6 months of service. Eligible employees
can contribute up to 15% of their compensation. The Company makes matching
contributions of 30% on the first 6% of employee deferrals. The Company can
also make discretionary contributions to the plan as determined by the Board
of Directors. Contributions to the plan were $36,000 in 1994, $60,000 in 1995
and $133,000 in 1996.
(12) OTHER RELATED PARTY TRANSACTION
The Company paid provider fees of $173,000 in 1994, $82,000 in 1995 and
$11,000 in 1996 to a related entity. Provider fees payable to the related
entity were $5,000 at December 31, 1995 and $0 at November 12, 1996. Certain
stockholders of the Company are also stockholders in the related entity and
the related entity is a stockholder of the Company.
(13) FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at December
31, 1995 and November 12, 1996, and the methods and assumptions used to
estimate such fair values, are as follows:
The fair values of cash and cash equivalents, accounts receivable and
accounts payable approximate the carrying amounts because of the short
maturity of those financial instruments.
The fair values of long-term obligations, long-term capital lease
obligations and subordinated debentures approximate the carrying amounts, as
their interest rates approximate current interest rates.
(14) RECLASSIFICATIONS
Certain reclassifications were made to the 1995 statement of operations to
conform with the 1994 and 1996 presentations which had no effect on net
earnings.
(15) SUBSEQUENT EVENTS
Effective November 12, 1996, substantially all the assets and liabilities of
PDHC, Ltd. were acquired by American Dental Partners, Inc. In connection with
this transaction (i) the dentists employees formed a new professional
corporation, PDG, P.A. and (ii) PDHC, Ltd. simultaneously entered into a 40-
year service agreement with PDG, P.A. Immediately prior to the completion of
this transaction, PDHC, Ltd. paid special bonuses of $2,000,000 to
shareholders and certain employees which are recorded as expense in the
accompanying statement of operations.
F-43
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PRO-
SPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 11
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Historical and Pro Forma Consolidated Financial Data............ 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 24
Management............................................................... 36
Certain Transactions..................................................... 42
Principal Stockholders................................................... 45
Description of Capital Stock............................................. 46
Shares Eligible for Future Sale.......................................... 48
Underwriting............................................................. 50
Validity of Common Stock................................................. 52
Experts.................................................................. 52
Additional Information................................................... 52
Index to Financial Statements............................................ F-1
</TABLE>
-----------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE SECURITIES OFFERED HEREBY, WHETHER OR NOT PARTICI-
PATING 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 Shares
[AMERICAN DENTAL PARTNERS LOGO]
Common Stock
-----------
PROSPECTUS
-----------
BT ALEX. BROWN
BANCAMERICA ROBERTSON STEPHENS
PIPER JAFFRAY INC.
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
compensation expected to be incurred) in connection with the offering
described in this Registration Statement. All of such amounts (except the SEC
Registration Fee, NASD Filing Fee and Nasdaq National Market Listing Fee) are
estimated.
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 11,849
NASD Filing Fee................................................ 4,410
Nasdaq National Market Listing Fee............................. 40,500
Blue Sky Fees and Expenses.....................................
Printing and Engraving Costs...................................
Legal Fees and Expenses........................................
Accounting Fees and Expenses...................................
Transfer Agent and Registrar Fees and Expenses.................
Miscellaneous..................................................
----------
Total........................................................ $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended (the
"DGCL"), provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amount paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Section 145 further provides that a corporation similarly may
indemnify any such person serving in any such capacity who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor, against expenses actually and reasonably incurred in connection
with the defense or settlement of such action or suit if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Delaware Court of Chancery or such other court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Article 6 of the Amended and Restated By-Laws of the Company, a copy of
which is filed as Exhibit 3(b), contains certain indemnification provisions
adopted pursuant to authority contained in Section 145 of the DGCL. The By-
Laws provide for the indemnification of its officers, directors, employees,
and agents against all expenses with respect to any judgments, fines, and
amounts paid in settlement, or with respect to any threatened, pending, or
completed action, suit, or proceeding to which they were or are parties or are
threatened to be made parties by reason of acting in such capacities, provided
that it is determined, either by a majority vote of a quorum of disinterested
directors of the Company or by the stockholders of the Company or otherwise as
provided in Section 6.4 of Article 6 of the By-Laws, that: (i) they acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the Company; (ii) in any action, suit, or proceeding by
or in the right of the Company, they were not, and have not been adjudicated
to have been liable to the Company;
II-1
<PAGE>
and (iii) with respect to any criminal action or proceeding, that they had no
reasonable cause to believe that their conduct was unlawful. Section 6.3 of
Article 6 of the By-Laws provides that to the extent a director, officer,
employee, or agent has been successful on the merits or otherwise in defense
of any such action, suit, or proceeding, he shall be indemnified against
expenses actually and reasonably incurred in connection therewith. At present,
there are no claims, actions, suits, or proceedings pending where
indemnification would be required under these provisions, and the Company does
not know of any threatened claims, actions, suits, or proceedings which may
result in a request for such indemnification.
Under Section 145 of the Delaware Law and Section 6.7 of the By-Laws, the
Company may purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee, or agent of the Company, or who, while
serving in such capacity, is or was at the request of the Company, a director,
officer, employee or agent of another corporation or legal entity or of an
employee benefit plan, against liability asserted against or incurred by such
person in any such capacity whether or not the corporation would have the
power to provide indemnity under Section 145 or the By-Laws. The Company has
purchased a liability policy to indemnify its officers and directors against
loss arising from claims by reason of their legal liability for acts as
officers and directors, subject to limitations and conditions set forth in the
policy.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL (relating to unlawful payment of dividends and unlawful stock
purchase and redemption) or (iv) for any transaction from which the director
derived an improper personal benefit.
Article Ninth of the Second Amended and Restated Certificate of
Incorporation of the Company, a copy of which is filed as Exhibit 3(a),
eliminates personal liability of a director to the Company and its
stockholders for monetary damages for breach of fiduciary as a director to the
maximum extent permitted by Section 102(b)(7) of the DGCL.
The Underwriting Agreement (a form of which appears as Exhibit 1 hereto)
provides for indemnification of the Registrant's directors and officers in
certain circumstances. The indemnification provided for by the Underwriters is
limited to matters arising in connection with this Registration Statement.
Reference is made to paragraph eight of the Underwriting Agreement for
information concerning indemnification undertaken among the Company and the
Underwriters.
The above discussion of the Company's Certificate of Incorporation and By-
Laws and of Section 145 of the DGCL is not intended to be exhaustive and is
respectively qualified in its entirety by such Certificate of Incorporation,
By-Laws and statutes.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since the Company's formation in December 1995, the Company has issued the
following securities that were not registered under the Securities Act of
1933, as amended (the "Securities Act"). The following numbers give effect to
the 6-to-1 stock split effected in the form of a stock dividend on November 7,
1997. No underwriters were engaged in connection with any of the following
transactions, and accordingly, no underwriting discounts or commissions were
paid. The shares of capital stock and other securities issued in the following
transactions were offered and sold in reliance upon the following exemptions:
(i) in the case of the transactions described in (a), below, Section 4(2) of
the Securities Act or Regulation D promulgated thereunder relative to sales by
an issuer not involving a public offering; and (ii) in the case of the
transactions described in (b), below, Section 3(b) of the Securities Act and
Rule 701 promulgated thereunder relative to sales pursuant to certain
compensatory benefits plans.
II-2
<PAGE>
(a) Issuances of Capital Stock
(i) On January 8, 1996, the Company issued 300,000 shares of Common Stock to
Mr. Serrao for a cash purchase price of $500; (ii) pursuant to and in
connection with the Preferred Stock Purchase Agreement, between January 12,
1996 and December 11, 1996, the Company issued to the Purchasers a total of
300,000 shares of Common Stock for a total purchase price of $100,000, 400,000
shares of Series A Convertible Preferred Stock for a total purchase price of
$7,900,000, and 70,000 shares of Series B Redeemable Preferred Stock for a
total purchase price of $7,000,000; (iii) on November 12, 1996, the Company
issued 1,260,000 shares of Common Stock to the stockholders of Park as part of
the consideration (along with subordinated promissory notes in the aggregate
original principal amount of $1,500,000 and cash) paid by the Company in
exchange for all of the outstanding capital stock of Park; (iv) on December
13, 1996, the Company issued 49,200 shares of Common Stock to the sole
stockholder of Les L. Crane, D.D.S., P.C. as part of the consideration (along
with a subordinated promissory note in the original principal amount of
$435,000 and cash) paid by the Company in connection with the purchase of the
allowable assets of Les L. Crane, D.D.S., P.C.; (v) on December 23, 1996, the
Company issued 304,200 shares of Common Stock to the stockholders of Smileage
Dental Care, Inc. as part of the consideration (along with subordinated
promissory notes in the aggregate original principal amount of $247,500 and
cash) paid by the Company in exchange for all of the outstanding capital stock
of Smileage Dental Care, Inc.; (vi) on March 31, 1997, the Company issued
7,944 shares of Common Stock to Lakeside Dental Group as part of the
consideration (along with a subordinated promissory note in the original
principal amount of $225,000 and cash) paid by the Company in connection with
the purchase of the allowable assets of Lakeside Dental Group; (vii) on May
22, 1997, the Company issued 14,118 shares of Common Stock to the sole
stockholder of Soster Dental, Inc. as part of the consideration (along with a
subordinated promissory note in the original principal amount of $200,000 and
cash) paid by the Company in exchange for all of the outstanding capital stock
of Soster Dental, Inc.; (viii) on July 1, 1997, the Company issued 19,290
shares of Common Stock to the stockholders of Northpoint Dental Group, Ltd. as
part of the consideration (along with subordinated promissory notes in the
aggregate original principal amount of $65,000 and cash) paid by the Company
in connection with the purchase of the allowable assets of Northpoint Dental
Group, Ltd. and the performance of other obligations by the selling
stockholders; (ix) on October 1, 1997, the Company issued 83,010 shares of
Common Stock to the stockholders of Apple Park Associates, Inc. and
Orthodontic Care Specialists, Ltd. as part of the consideration (along with
subordinated promissory notes in the aggregate original principal amount of
$900,000 and cash) paid by the Company in connection with the purchase of the
allowable assets of Apple Park Associates, Inc. and Orthodontic Care
Specialists, Ltd.; and (x) on October 1, 1997, the Company issued 56,472
shares of Common Stock to the stockholders of Dental Specialty Management,
Ltd., Orthocare, Ltd., and two 80%-owned subsidiaries of Orthocare, Ltd. as
part of the consideration (along with subordinated promissory notes in the
aggregate original principal amount of $600,000 and cash) paid by the Company
in exchange for all of the outstanding capital stock of those companies.
(b) Grants of Stock Options
(i) As of October 31, 1997, options to purchase 648,420 shares of Common
Stock were outstanding under the Company's 1996 Stock Option Plan, as amended,
of which options to purchase 43,896 shares were then exercisable. None of the
outstanding options had been exercised. All such options were granted between
January 8, 1996 and October 15, 1997 to executive officers and other key
employees of the Company and its subsidiaries in connection with their
employment; (ii) as of October 31, 1997, options to purchase 360,360 shares of
Common Stock were outstanding under the Company's 1996 Time Accelerated
Restricted Stock Option Plan, as amended, none of which were then exercisable.
All such options were granted between January 8, 1996 and August 1, 1997 to
executive officers and other key employees of the Company and its subsidiaries
in connection with their employment; (iii) as of October 31, 1997, options to
purchase 89,586 shares of Common Stock were outstanding under the Company's
Amended and Restated 1996 Affiliate Stock Option Plan, none of which were
exercisable. All such options were granted between November 12, 1996 and
October 1, 1997 to advisors and consultants of the Company and its
subsidiaries; (iv) as of October 31, 1997, options to purchase 19,800 shares
of Common Stock were outstanding under the Company's Amended and Restated 1996
Directors Stock Option Plan, none of which were exercisable. All such options
were granted between February 17, 1997 and August 1, 1997 to directors of the
Company.
II-3
<PAGE>
(c) Other Transactions
On October 1, 1997, the Company issued a subordinated promissory note in the
aggregate original principal amount of $400,000 to the sole stockholder of
Terrance R. Wilkens, D.D.S., SC, Brookfield Dental Center, SC, Waukesha Dental
Center, SC, Hales Corner Dental Center, SC, and West Allis Dental Center, SC
(the "Wilkens Dental Group") as part of the consideration (along with cash)
paid by the Company in connection with the purchase of the allowable assets of
the Wilkens Dental Group. The Company does not believe that the promissory
notes issued in this or the other transactions described in (a), above,
constitute "securities" as defined in Section 2(1) of the Securities Act;
however, in the event the promissory notes are deemed to be securities, these
transactions were exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) or Regulation D thereunder relative to sales by
an issuer not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1 Form of Underwriting Agreement
* 3(a) Second Amended and Restated Certificate of Incorporation of American
Dental Partners, Inc.
3(b) Amended and Restated By-laws of American Dental Partners, Inc.
* 4 Form of Stock Certificate
* 5 Opinion of Baker & Hostetler LLP
10(a) American Dental Partners, Inc. Series A and Series B Preferred Stock
Purchase Agreement dated January 8, 1996, among American Dental
Partners, Inc., Summit Ventures IV, L.P., Summit Investors, III,
L.P., and Gregory A. Serrao, as amended by First Amendment to Series
A and Series B Preferred Stock Purchase Agreement dated February 19,
1996, Second Amendment to Series A and Series B Preferred Stock
Purchase Agreement dated May 1, 1996, and Third Amendment to Series
A and Series B Preferred Stock Purchase Agreement dated November 1,
1996.
10(b) American Dental Partners, Inc. Subordinated Debenture Purchase
Agreement dated January 8, 1996, among American Dental Partners,
Inc., Summit Subordinated Debt Fund, L.P., and Summit Investors III,
L.P., as amended by First Amendment to Subordinated Debenture
Purchase Agreement dated May 1, 1996, and Second Amendment to
Subordinated Debenture Purchase Agreement dated November 1, 1996.
10(c) Registration Rights Agreement dated January 8, 1996, among American
Dental Partners, Inc., Summit Venture IV, L.P., Summit Investors
III, L.P., Gregory A. Serrao, and others, as amended by Amendment to
Registration Rights Agreement dated November 1, 1996.
10(d) Reformation Agreement dated December 23, 1996, among American Dental
Partners, Inc., Summit Ventures IV, L.P., Summit Investors III,
L.P., Summit Investors II, L.P., and Gregory A. Serrao.
10(e) American Dental Partners, Inc. Amended and Restated 1996 Stock
Option Plan.
10(f) American Dental Partners, Inc. 1996 Time Accelerated Stock Option
Plan, as amended by Amendment No. 1
10(g) American Dental Partners, Inc. Amended and Restated 1996 Affiliate
Stock Option Plan.
10(h) American Dental Partners, Inc. Amended and Restated 1996 Directors
Stock Option Plan, as amended by Amendment No. 1
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10(i) Employment and Non-Competition Agreement dated January 8, 1996,
between American Dental Partners, Inc. and Gregory A. Serrao.
10(j) Employment Agreement dated April 22, 1996, between American Dental
Partners, Inc. and Ronald M. Levenson.
10(k) Employment Agreement dated May 31, 1996, between American Dental
Partners, Inc. and George W. Robinson, as amended by Amendment to
Employment Agreement dated August 27, 1997.
10(l) Employment and Noncompetition Agreement dated November 12, 1996,
between PDHC, Ltd. and Gregory T. Swenson, D.D.S.
10(m) Registration Rights Agreement dated November 11, 1996, among
American Dental Partners, Inc. and certain of its stockholders (the
former stockholders of PDHC, Ltd.).
10(n) Registration Rights Agreement dated December 13, 1996, between
American Dental Partners, Inc. and Les L. Crane, D.D.S.
10(o) Registration Rights Agreement dated December 23, 1996, among
American Dental Partners, Inc. and certain of its stockholders (the
former stockholders of Smileage Dental Care, Inc.)
10(p) Registration Rights Agreement dated March 31, 1997, between American
Dental Partners, Inc. and Lakeside Dental Group.
10(q) Registration Rights Agreement dated May 22, 1997, between American
Dental Partners, Inc. and Abel J. Soster, DMD.
**10(r) Service Agreement dated November 12, 1996, between PDHC, Ltd. and
PDG, P.A., as amended by First Amendment to Service Agreement dated
January 1, 1997.
**10(s) Services Agreement dated December 23, 1996, between Smileage Dental
Care, Inc. and Wisconsin Dental Group, S.C., as amended by First
Amendment to Services Agreement dated January 1, 1997.
10(t) Revolving Credit Agreement dated April 24, 1997, between Fleet
National Bank, as Agent, and American Dental Partners, Inc.
10(u) Acquisition and Exchange Agreement dated November 11, 1996, among
American Dental Partners, Inc., PDHC, Ltd., and the Shareholders of
PDHC, Ltd.
10(v) Asset Purchase Agreement dated December 13, 1996, among American
Dental Partners, Inc., Texas Dental Partners, Inc., Les L. Crane,
D.D.S., P.C., and Les L. Crane, D.D.S.
10(w) Agreement and Plan of Merger and Reorganization dated December 23,
1996, among American Dental Partners, Inc., American Dental Partners
of Wisconsin, Inc., Smileage Dental Care, Inc., and the Shareholders
of Smileage Dental Care, Inc.
10(x) Registration Rights Agreement dated July 1, 1997, among American
Dental Partners, Inc. and John M. Werwie, D.D.S., James F. Ruzicka,
D.D.S., and Jon J. Pagenkopf, D.D.S.
10(y) Registration Rights Agreement dated October 1, 1997, among American
Dental Partners, Inc. and Karl H. Biewald, D.D.S., J.E. Cutliffe,
D.D.S., Timothy J. Montgomery, D.D.S., Curtis R. Dunn, D.D.S., and
Christopher S. Hipp, D.D.S.
10(z) Registration Rights Agreement dated October 1, 1997, among American
Dental Partners, Inc. and Karl H. Biewald, D.D.S. and Terri M.
Lawler.
11 Computation of Earnings Per Share
21 Subsidiaries of American Dental Partners, Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*23(a) Consent of Baker & Hostetler LLP
23(b) Consent of KPMG Peat Marwick LLP
23(c) Consent of Stirtz Bernards Boyden Sturdel & Larter, P.A.
24 Powers of Attorney (included on signature page)
27 Financial Data Schedule
- --------
* To be filed by amendment.
** Certain portions of this exhibit have been omitted pursuant to a request
for confidential treatment.
(B) FINANCIAL STATEMENT SCHEDULES
Not applicable
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(1) The undersigned will 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) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance on Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it is declared effective.
(3) 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 the initial bona fide offering thereof.
(4) 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 provisions described
in Item 14, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWN OF WAKEFIELD, COMMONWEALTH
OF MASSACHUSETTS, OF THE 12TH DAY OF NOVEMBER, 1997.
American Dental Partners, Inc.
/s/ Gregory A. Serrao
By: _________________________________
GREGORY A. SERRAO Chairman,
President and Chief Executive
Officer
POWER OF ATTORNEY
Know all men by these presents that each person whose signature appears
below constitutes and appoints Gregory A. Serrao and Ronald M. Levenson, and
each of them (with full power to each of them to act alone), his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement (or any other registration
statement for the same offering that is to be effective upon filing pursuant
to rule 462(b) under the Securities Act), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENT OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
/s/ Gregory A. Serrao Chairman, President November 12,
- ------------------------------------- and Chief Executive 1997
GREGORY A. SERRAO Officer and
Director (principal
executive officer)
/s/ Ronald M. Levenson Senior Vice November 12,
- ------------------------------------- President, Chief 1997
RONALD M. LEVENSON Financial Officer
and Treasurer
(principal
financial officer)
/s/ Kathryn A. Russell Vice President November 12,
- ------------------------------------- Finance (principal 1997
KATHRYN A. RUSSELL accounting officer)
II-7
<PAGE>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
/s/ Dr. Gregory T. Swenson Director November 12,
- ------------------------------------- 1997
DR. GREGORY T. SWENSON
/s/ Martin J. Mannion Director November 12,
- ------------------------------------- 1997
MARTIN J. MANNION
/s/ James T. Kelly Director November 12,
- ------------------------------------- 1997
JAMES T. KELLY
/s/ Derril W. Reeves Director November 12,
- ------------------------------------- 1997
DERRIL W. REEVES
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1 Form of Underwriting Agreement
*3(a) Second Amended and Restated Certificate of Incorporation of American
Dental Partners, Inc.
3(b) Amended and Restated By-laws of American Dental Partners, Inc.
*4 Form of Stock Certificate
*5 Opinion of Baker & Hostetler LLP
10(a) American Dental Partners, Inc. Series A and Series B Preferred Stock
Purchase Agreement dated January 8, 1996, among American Dental
Partners, Inc., Summit Ventures IV, L.P., Summit Investors, III,
L.P., and Gregory A. Serrao, as amended by First Amendment to Series
A and Series B Preferred Stock Purchase Agreement dated February 19,
1996, Second Amendment to Series A and Series B Preferred Stock
Purchase Agreement dated May 1, 1996, and Third Amendment to Series
A and Series B Preferred Stock Purchase Agreement dated November 1,
1996.
10(b) American Dental Partners, Inc. Subordinated Debenture Purchase
Agreement dated January 8, 1996, among American Dental Partners,
Inc., Summit Subordinated Debt Fund, L.P., and Summit Investors III,
L.P., as amended by First Amendment to Subordinated Debenture
Purchase Agreement dated May 1, 1996, and Second Amendment to
Subordinated Debenture Purchase Agreement dated November 1, 1996.
10(c) Registration Rights Agreement dated January 8, 1996, among American
Dental Partners, Inc., Summit Venture IV, L.P., Summit Investors
III, L.P., Gregory A. Serrao, and others, as amended by Amendment to
Registration Rights Agreement dated November 1, 1996.
10(d) Reformation Agreement dated December 23, 1996, among American Dental
Partners, Inc., Summit Ventures IV, L.P., Summit Investors III,
L.P., Summit Investors II, L.P., and Gregory A. Serrao.
10(e) American Dental Partners, Inc. Amended and Restated 1996 Stock
Option Plan.
10(f) American Dental Partners, Inc. 1996 Time Accelerated Stock Option
Plan, as amended by Amendment No. 1
10(g) American Dental Partners, Inc. Amended and Restated 1996 Affiliate
Stock Option Plan.
10(h) American Dental Partners, Inc. Amended and Restated 1996 Directors
Stock Option Plan, as amended by Amendment No. 1
10(i) Employment and Non-Competition Agreement dated January 8, 1996,
between American Dental Partners, Inc. and Gregory A. Serrao.
10(j) Employment Agreement dated April 22, 1996, between American Dental
Partners, Inc. and Ronald M. Levenson.
10(k) Employment Agreement dated May 31, 1996, between American Dental
Partners, Inc. and George W. Robinson, as amended by Amendment to
Employment Agreement dated August 27, 1997.
10(l) Employment and Noncompetition Agreement dated November 12, 1996,
between PDHC, Ltd. and Gregory T. Swenson, D.D.S.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10(m) Registration Rights Agreement dated November 11, 1996, among
American Dental Partners, Inc. and certain of its stockholders (the
former stockholders of PDHC, Ltd.).
10(n) Registration Rights Agreement dated December 13, 1996, between
American Dental Partners, Inc. and Les L. Crane, D.D.S.
10(o) Registration Rights Agreement dated December 23, 1996, among
American Dental Partners, Inc. and certain of its stockholders (the
former stockholders of Smileage Dental Care, Inc.)
10(p) Registration Rights Agreement dated March 31, 1997, between American
Dental Partners, Inc. and Lakeside Dental Group.
10(q) Registration Rights Agreement dated May 22, 1997, between American
Dental Partners, Inc. and Abel J. Soster, DMD.
**10(r) Service Agreement dated November 12, 1996, between PDHC, Ltd. and
PDG, P.A., as amended by First Amendment to Service Agreement dated
January 1, 1997.
**10(s) Services Agreement dated December 23, 1996, between Smileage Dental
Care, Inc. and Wisconsin Dental Group, S.C., as amended by First
Amendment to Services Agreement dated January 1, 1997.
10(t) Revolving Credit Agreement dated April 24, 1997, between Fleet
National Bank, as Agent, and American Dental Partners, Inc.
10(u) Acquisition and Exchange Agreement dated November 11, 1996, among
American Dental Partners, Inc., PDHC, Ltd., and the Shareholders of
PDHC, Ltd.
10(v) Asset Purchase Agreement dated December 13, 1996, among American
Dental Partners, Inc., Texas Dental Partners, Inc., Les L. Crane,
D.D.S., P.C., and Les L. Crane, D.D.S.
10(w) Agreement and Plan of Merger and Reorganization dated December 23,
1996, among American Dental Partners, Inc., American Dental Partners
of Wisconsin, Inc., Smileage Dental Care, Inc., and the Shareholders
of Smileage Dental Care, Inc.
10(x) Registration Rights Agreement dated July 1, 1997, among American
Dental Partners, Inc. and John M. Werwie, D.D.S., James F. Ruzicka,
D.D.S., and Jon J. Pagenkopf, D.D.S.
10(y) Registration Rights Agreement dated October 1, 1997, among American
Dental Partners, Inc. and Karl H. Biewald, D.D.S., J.E. Cutliffe,
D.D.S., Timothy J. Montgomery, D.D.S., Curtis R. Dunn, D.D.S., and
Christopher S. Hipp, D.D.S.
10(z) Registration Rights Agreement dated October 1, 1997, among American
Dental Partners, Inc. and Karl H. Biewald, D.D.S. and Terri M.
Lawler.
11 Computation of Earnings Per Share
21 Subsidiaries of American Dental Partners, Inc.
*23(a) Consent of Baker & Hostetler LLP
23(b) Consent of KPMG Peat Marwick LLP
23(c) Consent of Stirtz Bernards Boyden Sturdel & Larter, P.A.
24 Powers of Attorney (included on signature page)
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Certain portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
<PAGE>
_________ Shares
AMERICAN DENTAL PARTNERS, INC.
Common Stock
($0.01 Par Value)
UNDERWRITING AGREEMENT
----------------------
__________, 1998
BT Alex. Brown Incorporated
BancAmerica Robertson Stephens
Piper Jaffray Inc.
As Representatives of the Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
American Dental Partners, Inc., a Delaware corporation (the "Company"),
proposes to sell to the several underwriters (the "Underwriters") named in
Schedule I hereto for whom you are acting as representatives (the
"Representatives") an aggregate of _________ shares of Common Stock, $0.01 par
value, of the Company (the "Common Stock") in the respective amounts set forth
in Schedule I hereto (the "Firm Shares"). The Company also proposes to sell at
the Underwriters' option an aggregate of up to _______ additional shares of
Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Underwriting Agreement (this "Agreement") on
behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I, plus their pro
rata portion of the Option Shares if you elect to exercise the over-allotment
option in whole or in part
<PAGE>
for the accounts of the several Underwriters. The Firm Shares and the Option
Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants to each of the Underwriters as follows:
(a) A registration statement on Form S-1 (File No. 333-_____) with
respect to the Shares has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder and
has been filed with the Commission under the Act. Copies of such
registration statement, including any amendments thereto, the preliminary
prospectuses (meeting the requirements of Rule 430(a) of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered
by the Company to you and, to the extent applicable, were identical to the
electronically transmitted copies thereof filed with the Commission on the
Commission's Electronic Data Gathering, Analysis and Retrieval System
("EDGAR"), except to the extent permitted by Regulation S-T. Such
registration statement, together with any registration statement filed by
the Company pursuant to Rule 462(b) under the Act, herein referred to as
the "Registration Statement," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of
the date of this Agreement. "Prospectus" means (a) the form of prospectus
first filed with the Commission pursuant to Rule 424(b) under the Act, (b)
if no filing pursuant to Rule 424(b) is required and a term sheet in
accordance with Rules 434 and 424(b)(7) is not used, the form of prospectus
included in the Registration Statement at the time of effectiveness or (c)
if a term sheet is used, the form of preliminary prospectus included in the
Registration Statement at the time of effectiveness that is delivered by
the Company to the Underwriters for delivery to purchasers of the Shares,
together with the term sheet or abbreviated term sheet filed with the
Commission in accordance with the provisions of Rule 434 and Rule 424(b)(7)
under the Act. Each preliminary prospectus included in the Registration
Statement prior to the time it becomes effective is herein referred to as a
"Preliminary Prospectus." Any reference herein to the Registration
Statement, any Preliminary Prospectus or the Prospectus shall be deemed to
include any supplements or amendments thereto filed with the Commission
after the date of filing of the Prospectus under Rules 424(b) or 430A, and
prior to the termination of the offering of the Shares by the Underwriters.
Any reference herein to the Registration Statement, any Preliminary
Prospectus, the Prospectus or any
-2-
<PAGE>
amendment or supplement to any of the foregoing, shall be deemed to include
the respective copies thereof filed with the Commission on EDGAR.
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct
its business as described in the Registration Statement. Each of the
subsidiaries of the Company as listed in Exhibit 21 to Item 16(a) of the
Registration Statement (collectively, the "Subsidiaries") has been duly
organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as
described in the Registration Statement. The Subsidiaries are the only
subsidiaries, direct or indirect, of the Company. The Company and each of
the Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification. The outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid
and non-assessable and are owned by the Company or another Subsidiary free
and clear of all liens, encumbrances and equities and claims except as
described in the Prospectus; and no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligations into shares of capital stock or ownership interests
in the Subsidiaries are outstanding except as described in the Prospectus.
(c) The outstanding shares of Common Stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable;
the Shares to be issued and sold by the Company have been duly authorized
and when issued and paid for as contemplated herein will be validly issued,
fully paid and non-assessable; and no preemptive rights of stockholders
exist with respect to any of the Shares or the issue and sale thereof.
Neither the filing of the Registration Statement nor the offering or sale
of the Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to
the registration of any shares of Common Stock, except as described in the
Prospectus.
(d) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct in all material respects as of the dates
set forth therein. All of the Shares conform to the description thereof
contained in the Registration Statement. The form of certificates for the
Shares conforms in all material respects to the corporate law of the
jurisdiction of the Company's incorporation.
(e) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares
nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any
-3-
<PAGE>
amendments or supplements thereto will contain, all statements which are
required to be stated therein by, and will conform to, the requirements of
the Act and the Rules and Regulations. The Registration Statement and any
amendment thereto do not contain, and will not contain, any untrue
statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue
statement of material fact and do not omit, and will not omit, to state any
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; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives, specifically for use in the preparation thereof.
(f) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the financial position and the
results of operations and cash flows of the Company and the Subsidiaries on
a consolidated basis, at the indicated dates and for the indicated periods.
Such financial statements and related schedules have been prepared in
accordance with generally accepted accounting principles ("GAAP"),
consistently applied throughout the periods involved, except as disclosed
therein, and all adjustments necessary for a fair presentation of results
for such periods have been made. The summary financial data included in
the Registration Statement presents fairly the information shown therein
and such data has been compiled on a basis consistent with the financial
statements presented therein and the books and records of the Company. The
pro forma financial statements and other pro forma financial information
included in the Registration Statement and the Prospectus present fairly
the information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma bases described
therein, and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(g) Each of KPMG Peat Marwick LLP and Stirtz Bernards Boyden Surdel &
Larter, P.A., who have certified certain of the financial statements filed
with the Commission as part of the Registration Statement, are independent
public accountants as required by the Act and the Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened or contemplated against the Company or
any of the Subsidiaries before any court or administrative agency or
otherwise which, if determined
-4-
<PAGE>
adversely to the Company or any of its Subsidiaries, would be reasonably
likely to result in a material adverse change in the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a
whole or prevent the consummation of the transactions contemplated hereby,
except as set forth in the Registration Statement.
(i) The Company and the Subsidiaries have good and marketable title to
all of the properties and assets reflected in the financial statements (or
as described in the Registration Statement) hereinabove described, subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except
those reflected in such financial statements (or as described in the
Registration Statement) or which are not material in amount. The Company
and the Subsidiaries occupy their leased properties under valid and binding
leases.
(j) The Company and the Subsidiaries have filed all Federal, state,
local and foreign income tax returns which have been required to be filed
and have paid all taxes indicated by said returns and all assessments
received by them or any of them to the extent that such taxes have become
due and are not being contested in good faith. All material tax liabilities
have been adequately provided for in the financial statements of the
Company.
(k) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise),
or prospects of the Company and the Subsidiaries taken as a whole, whether
or not occurring in the ordinary course of business, and there has not been
any material transaction entered into or any material transaction that is
probable of being entered into by the Company or the Subsidiaries, other
than transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be amended
or supplemented. The Company and the Subsidiaries have no material
contingent obligations which are not disclosed in the Company's financial
statements which are included in the Registration Statement.
(l) Neither the Company nor any of the Subsidiaries is or with the
giving of notice or lapse of time or both, will be, in violation of or in
default under its certificate of incorporation or other organizational
document (each, a "Charter") or by-laws or equivalent documents ("By-Laws")
or under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its properties,
is bound and which default is of material significance in respect of the
business, management, properties, assets, rights, operations, condition
(financial or otherwise) of the Company and the Subsidiaries taken as a
whole. The execution and delivery of this Agreement and the
-5-
<PAGE>
consummation of the transactions herein contemplated and the fulfillment of
the terms hereof will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party, or of the Charter or By-laws of the
Company or any Subsidiary or any order, rule or regulation applicable to
the Company or any Subsidiary of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and the consummation of the transactions
herein contemplated (except such additional steps as may be required by the
Commission, the National Association of Securities Dealers, Inc. (the
"NASD") or such additional steps as may be necessary to qualify the Shares
for public offering by the Underwriters under state securities or Blue Sky
laws) has been obtained or made and is in full force and effect.
(n) The Company and the Subsidiaries possess such permits, licenses,
approvals, consents and other authorizations (collectively, "Governmental
Licenses") issued by the appropriate Federal, state, local or foreign
regulatory agencies or bodies necessary to the conduct of their business,
and are in compliance in all material respects with the terms and
conditions of all such Governmental Licenses, except where the failure to
possess or comply with such Governmental Licenses would not, singly or in
the aggregate, have a material adverse effect on the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as whole;
neither the Company nor any Subsidiary has received any written notice of
proceedings relating to or is otherwise aware of a revocation or
modification of any Governmental License which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or funding, would have a
material adverse effect on the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects
of the Company and the Subsidiaries taken as whole.
(o) The Company and the Subsidiaries own or possess adequate licenses
or other rights to use the patents, patent rights, inventions, copyrights,
trademarks, service marks, trade names, know-how (including trade secrets
and other unpatented or unpatentable proprietary or confidential
information, formulae, systems or procedures) or other intellectual
property (collectively, "Intellectual Property") described in the
Prospectus as owned or used by them or which is necessary to the conduct of
their business as currently conducted and as proposed to be conducted. To
the knowledge of the Company, none of the Intellectual Property rights
owned or licensed by the Company are unenforceable or invalid. Neither the
Company nor any Subsidiary is aware of any infringement of or conflict with
asserted rights or claims of others with respect to any of
-6-
<PAGE>
the Company's products or Intellectual Property which, if the subject of
any unfavorable decision, ruling or funding, could have a material adverse
effect on the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company
and the Subsidiaries taken as whole. Neither the Company nor any Subsidiary
is aware of any infringement of any of the Intellectual Property rights by
any third party that could have a material adverse effect on the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and the Subsidiaries
taken as whole.
(p) Neither the Company, nor to the Company's knowledge, any of its
affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale or resale of
the Shares.
(q) Neither the Company nor any Subsidiary is an "investment company"
within the meaning of such term under the Investment Company Act of 1940,
as amended, and the rules and regulations of the Commission thereunder (the
"1940 Act").
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain accountability
for assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(s) The Company and each of its Subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
(t) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan
-7-
<PAGE>
for which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification.
(u) Except as would not, singly or in the aggregate, have a material
adverse effect on the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of the
Company and the Subsidiaries taken as whole, (A) neither the Company nor
any Subsidiary is in violation of any Federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating to
the protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), (B) the Company and the Subsidiaries have all permits,
authorizations and approvals required under any applicable Environmental
Laws and are each in compliance with their requirements, (C) there are no
pending or, to the Company's knowledge, threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any Subsidiary and
(D) there are no events or circumstances of which the Company is aware that
might reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any
Subsidiary relating to any Environmental Laws.
(v) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, An Act Relating to Disclosure of doing Business with Cuba, and the
Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after
the date the Registration Statement becomes or has become effective with
the Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the
Company's business with Cuba or with any person or affiliate located in
Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to
the Department.
(w) No contract or document of a character required to be described in
the Registration Statement or the Prospectus or to be filed as an exhibit
to the Registration Statement is not so described or filed as required.
-8-
<PAGE>
2. Purchase, Sale and Delivery of the Firm Shares.
----------------------------------------------
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the
Company agrees to sell to the Underwriters and each Underwriter agrees,
severally and not jointly, to purchase, at a price of $___ per share, the
number of Firm Shares set forth opposite the name of each Underwriter in
Schedule I hereof, subject to adjustments in accordance with Section 9
hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made by
wire transfer of same-day funds to an account of the Company against
delivery of certificates therefor to the Representatives for the several
accounts of the Underwriters. Such payment and delivery are to be made at
the offices of BT Alex. Brown Incorporated, One South Street, Baltimore,
Maryland, at 10:00 a.m., Baltimore time, on the third business day after
the date of this Agreement or at such other time and date not later than
five business days thereafter as you and the Company shall agree upon, such
time and date being herein referred to as the "Closing Date." (As used
herein, "business day" means a day on which the New York Stock Exchange is
open for trading and on which banks in New York are open for business and
not permitted by law or executive order to be closed.) The certificates
for the Firm Shares will be delivered in such denominations and in such
registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made
available for inspection by the Representatives at least one business day
prior to the Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth,
the Company hereby grants an option to the several Underwriters to purchase
the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in
whole or in part by giving written notice (i) at any time before the
Closing Date and (ii) only once thereafter within 30 days after the date of
this Agreement, by you, as Representatives of the several Underwriters, to
the Company setting forth the number of Option Shares as to which the
several Underwriters are exercising the option, the names and denominations
in which the Option Shares are to be registered and the time and date at
which such certificates are to be delivered. The time and date at which
certificates for Option Shares are to be delivered shall be determined by
the Representatives but shall not be earlier than three nor later than 10
full business days after the exercise of such option, nor in any event
prior to the Closing Date (such time and date being herein referred to as
the "Option Closing Date"). If the date of exercise of the option is three
or more days before the Closing Date, the notice of exercise shall set the
Closing Date as the Option Closing Date. The number of Option Shares to be
purchased by each Underwriter shall be in the same proportion to the total
number of Option Shares being purchased as the number of Firm Shares being
purchased by such Underwriter bears to the total number of
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Firm Shares, adjusted by you in such manner as to avoid fractional shares.
The option with respect to the Option Shares granted hereunder may be
exercised only to cover over-allotments in the sale of the Firm Shares by
the Underwriters. You, as Representatives of the several Underwriters, may
cancel such option at any time prior to its expiration by giving written
notice of such cancellation to the Company. To the extent, if any, that the
option is exercised, payment for the Option Shares shall be made on the
Option Closing Date by wire transfer of same-day funds to an account of the
Company against delivery of certificates therefor at the offices of BT
Alex. Brown Incorporated, One South Street, Baltimore, Maryland.
3. Offering by the Underwriters.
----------------------------
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the Company.
------------------------
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (i) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely file
with the Commission under Rule 424(b) of the Rules and Regulations a
Prospectus in a form approved by the Representatives containing information
previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rule 430A of the Rules and Regulations, and (ii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been
advised and furnished with a copy or to which the Representatives shall
have reasonably objected in writing or which is not in compliance with the
Rules and Regulations. To the extent applicable, the copies of the
Registration Statement (including all exhibits filed therewith), any
Preliminary Prospectus or Prospectus furnished to the Underwriters shall be
identical to the copies thereof electronically filed with the Commission on
EDGAR, except to the extent permitted by Regulation S-T.
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(b) The Company will advise the Representatives promptly (i) when the
Registration Statement or any post-effective amendment thereto shall have
become effective, (ii) of receipt of any comments from the Commission,
(iii) of any request of the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of
the Prospectus or of the institution of any proceedings for that purpose.
The Company will use its best efforts to prevent the issuance of any such
stop order preventing or suspending the use of the Prospectus and to obtain
as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in attempting
to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in
writing and will make such applications, file such documents, and furnish
such information as may be reasonably required for that purpose, provided
the Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction where it
is not now so qualified or required to file such a consent. The Company
will, from time to time, prepare and file such statements, reports, and
other documents, as are or may be required to continue such qualifications
in effect for so long a period as the Representatives may reasonably
request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the Representatives during the period
when delivery of a Prospectus is required under the Act, as many copies of
the Prospectus in final form, or as thereafter amended or supplemented, as
the Representatives may reasonably request. The Company will deliver to
the Representatives, at or before the Closing Date, four signed copies of
the Registration Statement and all amendments thereto including all
exhibits filed therewith, and will deliver to the Representatives such
number of copies of the Registration Statement (including such number of
copies of the exhibits filed therewith that may reasonably be requested),
and of all amendments thereto, as the Representatives may reasonably
request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934 (the "Exchange Act"),
and the rules and regulations of the Commission thereunder, so as to permit
the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus
is required by law to be delivered by an Underwriter or dealer, any event
shall occur as a result of which, in the judgment of the Company or in the
reasonable opinion of the Underwriters, it becomes necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances existing at the time the Prospectus is delivered
to a purchaser, not misleading, or, if it is necessary at any
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time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus so
that the Prospectus as so amended or supplemented will not, in the light of
the circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with the law.
(f) The Company will make generally available to its security holders,
as soon as it is practicable to do so, but in any event not later than 15
months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a
period of at least 12 consecutive months beginning after the effective date
of the Registration Statement, which earning statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise you in writing when such statement has been so
made available.
(g) The Company will, for a period of five years from the Closing
Date, deliver to the Representatives copies of annual reports and copies of
all other documents, reports and information furnished by the Company to
its stockholders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act or
the Securities Exchange Act of 1934, as amended. The Company will deliver
to the Representatives similar reports with respect to significant
subsidiaries, as that term is defined in the Rules and Regulations, which
are not consolidated in the Company's financial statements. To the extent
applicable, such reports and documents shall be identical to the copies
thereof electronically filed with the Commission on EDGAR, except to the
extent permitted by Regulation S-T.
(h) The Company will not issue, sell or otherwise dispose of, directly
or indirectly, any shares of Common Stock or other securities convertible
into or exchangeable or exercisable for shares of Common Stock or
derivative of Common Stock (or enter into any agreement for such) for a
period of 180 days after the date of this Agreement otherwise than
hereunder or with the prior written consent of BT Alex. Brown Incorporated
except that the Company may, without such consent, (i) issue shares upon
the exercise of options outstanding on the date of this Agreement issued
pursuant to its 1996 Stock Option Plan, 1996 Affiliate Stock Option Plan or
Amended and Restated 1996 Directors Stock Option Plan, (ii) issue shares
pursuant to its 1997 Employee Stock Purchase Plan, (iii) grant options and
offer to sell shares of Common Stock to its employees, consultants,
advisors and directors pursuant to the plans listed in clauses (i) and
(ii), (iv) issue shares upon the conversion of the Company's Series A
Convertible Preferred Stock, and (v) issue Common Stock in connection with
affiliations or acquisitions provided that the recipient thereof agrees to
execute a lock-up agreement referred to in paragraph (j) below. The
Company will not file a registration statement on Form S-8 under the Act
until 90 days after the date of this Agreement.
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<PAGE>
(i) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the Nasdaq National Market.
(j) The Company has caused each officer and director and each
shareholder of the Company listed on Schedule II attached hereto to furnish
to you, on or prior to the date of this agreement, a letter or letters,
substantially in the form of Annex I attached hereto ("Lockup Agreements").
(k) The Company shall apply the net proceeds of its sale of the Shares
as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of
the proceeds therefrom as may be required in accordance with Rule 463 under
the Act.
(l) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as
would require the Company or any of the Subsidiaries to register as an
investment company under the 1940 Act.
(m) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably
be expected to constitute, the stabilization or manipulation of the price
of any securities of the Company.
5. COSTS AND EXPENSES.
------------------
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting
fees of the Company; the fees and disbursements of counsel for the Company; the
cost of printing and delivering to, or as requested by, the Underwriters copies
of the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' invitation letter, the listing application, the
Blue Sky survey and any supplements or amendments thereto; the filing fees of
the Commission; the filing fees incident to securing any required review by NASD
Regulation, Inc. (the "NASD") of the terms of the sale of the Shares; the
listing fee of the Nasdaq National Market; and the expenses, including the fees
and disbursements of counsel for the Underwriters, incurred in connection with
the qualification of the Shares under State securities or Blue Sky laws. The
Company shall not, however, be required to pay for any of the Underwriters
expenses (other than those related to qualification under NASD regulations and
State securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to Section
11 hereof, or by reason of any
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<PAGE>
failure, refusal or inability on the part of the Company to perform any
undertaking or satisfy any condition of this Agreement or to comply with any of
the terms hereof on their part to be performed, unless such failure to satisfy
said condition or to comply with said terms be due to the default or omission of
any Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
---------------------------------------------
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company contained
herein, and to the performance by the Company of its covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by
Rule 424 and Rule 430A of the Rules and Regulations shall have been made,
and any request of the Commission for additional information (to be
included in the Registration Statement or otherwise) shall have been
disclosed to the Representatives and complied with to their reasonable
satisfaction. No stop order suspending the effectiveness of the
Registration Statement, as amended from time to time, shall have been
issued and no proceedings for that purpose shall have been taken or, to the
knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing
Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Baker & Hostetler
LLP, counsel for the Company, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters to the effect that:
(i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with corporate power and corporate authority to own or lease
its properties and conduct its business as described in the
Registration Statement; each of the Subsidiaries has been duly
organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with
corporate power and corporate authority
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<PAGE>
to own or lease its properties and conduct its business as described
in the Registration Statement; the Company and each of the
Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification, except where the failure to so qualify would have a
material adverse effect upon the business of the Company and the
Subsidiaries taken as a whole; and the outstanding shares of capital
stock of each of the Subsidiaries have been duly authorized and
validly issued and are fully paid and non-assessable and are owned by
the Company or a Subsidiary; to such counsel's knowledge, the
outstanding shares of capital stock of each of the Subsidiaries is
owned free and clear of all liens, encumbrances and equities and
claims, except as described in the Prospectus; and, to such counsel's
knowledge, no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert
any obligations into any shares of capital stock or of ownership
interests in the Subsidiaries are outstanding, except as described in
or contemplated by the Registration Statement or the Prospectus.
(ii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly
authorized; the outstanding shares of the Company's Common Stock have
been duly authorized and validly issued and are fully paid and non-
assessable; all of the Shares conform to the description thereof
contained under the caption "Description of Capital Stock" in the
Prospectus; the certificates for the Shares, assuming they are in the
form filed with the Commission, conform to the requirements of the
Delaware General Corporation Law; the shares of Common Stock,
including the Option Shares, if any, to be sold by the Company
pursuant to this Agreement have been duly authorized and will be
validly issued, fully paid and non-assessable when issued and paid for
as contemplated by this Agreement; and no preemptive rights of
stockholders exist with respect to any of the Shares or the issue or
sale thereof.
(iii) Except as described in or contemplated by the Registration
Statement or the Prospectus, to the knowledge of such counsel, (A)
there are no outstanding securities of the Company convertible or
exchangeable into or evidencing the right to purchase or subscribe for
any shares of capital stock of the Company and (B) there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible into or exchangeable for or evidencing the
right to purchase or subscribe for any shares of such stock; and
except as described in the Prospectus, to the knowledge of such
counsel, no holder of any securities of the Company or any other
person has the right, contractual or otherwise, which has not been
satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of,
any of the Shares or the right to
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<PAGE>
have any Common Shares or other securities of the Company included in
the Registration Statement or the right, as a result of the filing of
the Registration Statement, to require registration under the Act of
any shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened
under the Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the applicable rules and
regulations thereunder (except that such counsel need express no
opinion as to the financial statements (historical or pro forma) and
related schedules or other financial data therein).
(vi) The statements under the captions
in the Prospectus, insofar as such statements constitute a summary of
documents referred to therein or matters of law, fairly summarize in
all material respects the information called for with respect to such
documents and matters.
(vii) Such counsel does not know of any contracts or documents
that are of a character required to be filed as exhibits to the
Registration Statement or described in the Registration Statement or
the Prospectus which are not so filed or described as required; the
description of the Company's form of service agreement under the
caption "Business -- Service Agreement" fairly summarizes such
agreements in all material respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the
Subsidiaries except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will
not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Charter or By-laws
of the Company, or any agreement known to such counsel to which the
Company or any of the Subsidiaries is a party or by which the Company
or any of the Subsidiaries may be bound.
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<PAGE>
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is required in connection with the execution
and delivery of this Agreement and the consummation of the
transactions herein contemplated (other than as may be required by the
NASD or as required by State securities and Blue Sky laws as to which
such counsel need express no opinion) except such as have been
obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the
Prospectus, required to register as an investment company under the
1940 Act.
In rendering such opinion, Baker & Hostetler LLP may rely as to
matters governed by the laws of states other than the Delaware General
Corporation Law or Federal laws on local counsel in such jurisdictions,
which opinions shall be addressed to the Underwriters, provided that in
each case Baker & Hostetler LLP shall state that they believe that they and
the Underwriters are justified in relying on such other counsel. In
addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, at
the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and
as of the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the
light of the circumstances under which they are made, not misleading
(except that such counsel need express no view as to financial statements
(historical or pro forma), schedules or other financial data therein). With
respect to such statement, Baker & Hostetler LLP may state that their
belief is based upon the procedures set forth therein, but is without
independent check and verification.
(c) The Representatives shall have received from Ropes & Gray, counsel
for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, substantially to the effect specified in
subparagraphs (ii) (as to the Shares), (iv), (v), and (x) of Paragraph (b)
of this Section 6, and that the Company is a duly organized and validly
existing corporation under the laws of the State of Delaware. In rendering
such opinion Ropes & Gray may rely as to all matters governed other than by
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the laws of the Commonwealth of Massachusetts, the Delaware General
Corporation Law or Federal laws on the opinion of counsel referred to in
Paragraph (b) of this Section 6. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that
nothing that has come to the attention of such counsel has caused them to
believe that (i) the Registration Statement, or any amendment thereto, as
of the time it became effective under the Act (but after giving effect to
any modifications incorporated therein pursuant to Rule 430A under the Act)
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to
make the statements, in the light of the circumstances under which they are
made, not misleading (except that such counsel need express no view as to
financial statements (historical or pro forma), schedules or other
financial data therein). With respect to such statement, Ropes & Gray may
state that their belief is based upon the procedures set forth therein, but
is without independent check and verification.
(d) The Representatives shall have received at or prior to the Closing
Date from Ropes & Gray a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the State
securities or Blue Sky laws of such jurisdictions as the Representatives
may reasonably have designated to the Company.
(e) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may
be, in form and substance satisfactory to you, of each of KPMG Peat Marwick
LLP and Stirtz Bernards Boyden Surdel & Larter, P.A., confirming that they
are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in
their opinion the financial statements and schedules examined by them and
included in the Registration Statement comply in form in all material
respects with the applicable accounting requirements of the Act and the
related published Rules and Regulations; and containing such other
statements and information as is ordinarily included in accountants'
"comfort letters" to Underwriters with respect to the financial statements
and certain financial and statistical information contained in the
Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company
to the effect that, as of the Closing Date or the Option Closing Date, as
the case may be, each of them severally represents as follows:
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(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration
Statement has been issued, and, to his knowledge, no proceedings for
such purpose have been taken or are contemplated by the Commission;
(ii) The representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and the
Prospectus and, in his opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration
Statement were true and correct in all material respects, and such
Registration Statement and Prospectus did not omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which
has not been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and the
Subsidiaries taken as a whole, whether or not arising in the ordinary
course of business.
(g) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters
as the Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, shall have been
approved for designation upon notice of issuance on the Nasdaq National
Market.
(i) The Lockup Agreements shall be in full force and effect.
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The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Ropes & Gray, counsel for
the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
--------------------------------------------
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the condition that at the Closing Date or the Option Closing Date, as
the case may be, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and in effect or proceedings therefor initiated
or threatened.
8. INDEMNIFICATION.
---------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
the Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (ii) the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and
will reimburse each Underwriter and each such controlling person upon
demand for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or proceeding
or in responding to a subpoena or governmental inquiry related to the
offering of the Shares, whether or not such Underwriter or controlling
person is a party to any action or proceeding; provided, however, that the
Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made
in the Registration Statement, any Preliminary Prospectus, the Prospectus,
or such amendment or supplement, in reliance upon and in
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<PAGE>
conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which the Company
may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, each of its directors, each of its officers
who have signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities to which the Company or any such director,
officer, or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (ii) the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and will reimburse
upon demand any legal or other expenses reasonably incurred by the Company
or any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action
or proceeding; provided, however, that each Underwriter will be liable in
each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission has been made
in the Registration Statement, any Preliminary Prospectus, the Prospectus
or such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may
be sought pursuant to this Section 8, such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought
(the "indemnifying party") in writing. No indemnification provided for in
Section 8(a) or (b) shall be available to any party who shall fail to give
notice as provided in this Section 8(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related
and was materially prejudiced by the failure to give such notice, but the
failure to give such notice shall not relieve the indemnifying party or
parties from any liability which it or they may have to the indemnified
party for contribution or otherwise than on account of the provisions of
Section 8(a) or (b). In case any such proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party and shall
pay as incurred the reasonable fees and disbursements of such counsel
related to such proceeding.
-21-
<PAGE>
In any such proceeding, any indemnified party shall have the right to
retain its own counsel at its own expense. Notwithstanding the foregoing,
the indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them
or (iii) the indemnifying party shall have failed to assume the defense and
employ counsel acceptable to the indemnified party within a reasonable
period of time after notice of commencement of the action. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable
fees and expenses of more than one separate firm for all such indemnified
parties. Such firm shall be designated in writing by you in the case of
parties indemnified pursuant to Section 8(a) and by the Company in the case
of parties indemnified pursuant to Section 8(b). The indemnifying party
shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. In addition, the indemnifying party will not,
without the prior written consent of the indemnified party, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding of which indemnification may be
sought hereunder (whether or not any indemnified party is an actual or
potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) in
such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by
the Company on
-22-
<PAGE>
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(e) The Company and the Underwriters agree that it would not be just
and equitable if contributions pursuant to Section 8(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in Section 8(d).
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to above in Section 8(d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of Section 8(d), (i) no Underwriter
shall be required to contribute any amount in excess of the underwriting
discounts and commissions applicable to the Shares purchased by such
Underwriter, and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any court having
jurisdiction over any other contributing party, agrees that process issuing
from such court may be served upon him or it by any other contributing
party and consents to the service of such process and agrees that any other
contributing party may join him or it as an additional defendant in any
such proceeding in which such other contributing party is a party.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement
shall remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any
-23-
<PAGE>
Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this
Section 8.
9. Default by Underwriters.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Shares which
such Underwriter has agreed to purchase and pay for on such date (otherwise than
by reason of any default on the part of the Company), you, as Representatives of
the Underwriters, shall use your reasonable efforts to procure within 36 hours
thereafter one or more of the other Underwriters, or any others, to purchase
from the Company such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or the Company except to the extent provided in Section 8 hereof.
In the event of a default by any Underwriter or Underwriters, as set forth in
this Section 9, the Closing Date or Option Closing Date, as the case may be, may
be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. Notices.
-------
All communications hereunder shall be in writing and, except as otherwise
provided herein, will be mailed, delivered, telecopied or telegraphed and
confirmed as follows: if to the
-24-
<PAGE>
Underwriters, to BT Alex. Brown Incorporated, One South Street, Baltimore,
Maryland 21202, Attention: Syndicate, with a copy to BT Alex. Brown
Incorporated, One South Street, Baltimore, Maryland 21202, Attention: General
Counsel and a copy to Ropes & Gray, One International Place, Boston,
Massachusetts 02110, Attention: Keith F. Higgins, Esq.; if to the Company, to
American Dental Partners, Inc., 301 Edgewater Place, Suite 320, Wakefield,
Massachusetts 01880, Attention: Chief Executive Officer, with a copy to Baker &
Hostetler LLP, 65 East State Street, Columbus, Ohio 43215, Attention: Gary A.
Wadman, Esq.
11. Termination.
-----------
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m.
on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change
in or affecting the condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise)
or prospects of the Company and its Subsidiaries taken as a whole, whether
or not arising in the ordinary course of business, (ii) any outbreak or
escalation of hostilities or declaration of war or national emergency or
other national or international calamity or crisis or change in economic or
political conditions if the effect of such outbreak, escalation,
declaration, emergency, calamity, crisis or change on the financial markets
of the United States would, in your reasonable judgment, make it
impracticable to market the Shares or to enforce contracts for the sale of
the Shares, or (iii) suspension of trading in securities generally on the
New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree
or other promulgation of any statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects or may materially and adversely affect the business or
operations of the Company, (v) declaration of a banking moratorium by
United States or New York State authorities, (vi) any downgrading in the
rating of the Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g)
under the Exchange Act); (vii) the suspension of trading of the Company's
common stock by the Commission on the Nasdaq National Market or (viii) the
taking of any action by any governmental body or agency in respect of its
monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States; or
-25-
<PAGE>
(c) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. Information Provided by Underwriters.
------------------------------------
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
14. Miscellaneous.
-------------
The reimbursement, indemnification and contribution agreements contained in
this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of
any Underwriter or controlling person thereof, or by or on behalf of the Company
or its directors or officers and (c) delivery of and payment for the Shares
under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
-26-
<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms. It is understood that your
acceptance of this letter on behalf of each of the Underwriters is pursuant to
the authority set forth in a Master Agreement among Underwriters, the form of
which shall upon request be submitted to the Company for examination.
Very truly yours,
AMERICAN DENTAL PARTNERS, INC.
By:
---------------------------
Name:
Title:
-27-
<PAGE>
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
BT ALEX. BROWN INCORPORATED
BANCAMERICA ROBERTSON STEPHENS
PIPER JAFFRAY INC.
As Representatives of the several
Underwriters listed on Schedule I
----------
By: BT Alex. Brown Incorporated
By:
----------------------------
Name:
Title:
-28-
<PAGE>
Schedule I
----------
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares
to be Purchased
<S> <C>
BT Alex. Brown Incorporated
BancAmerica Robertson Stephens
Piper Jaffray Inc.
---------------
TOTAL ??
</TABLE>
<PAGE>
Schedule II
-------------
Schedule of Stockholders executing lock-up agreements
<PAGE>
Annex I
---------
Form of lock-up agreement
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
AMERICAN DENTAL PARTNERS, INC.
Adopted: October 27, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
----------------- Page
----
<S> <C> <C>
ARTICLE 1 Meetings of Stockholders 1
(S)1.1 Annual Meeting 1
(S)1.2 Special Meetings 1
(S)1.3 Place of Meetings 1
(S)1.4 Notice of Meetings 1
(S)1.5 Waiver of Notice 2
(S)1.6 Quorum 2
(S)1.7 Organization 2
(S)1.8 Order of Business 3
(S)1.9 Voting 3
(S)1.10 Proxies 3
(S)1.11 Inspectors of Elections 4
(S)1.12 Record Date 4
(S)1.13 List of Stockholders at Meeting 4
(S)1.14 Written Consent of Stockholders in Lieu of Meeting 5
ARTICLE 2 Board of Directors 5
(S)2.1 General Powers of Board 5
(S)2.2 Number and Class of Directors 5
(S)2.3 Compensation and Expenses 6
(S)2.4 Election of Directors 7
(S)2.5 Resignations 7
(S)2.6 Removal of Directors 7
(S)2.7 Vacancies 7
(S)2.8 Organization of Meetings 7
(S)2.9 Place of Meetings 7
(S)2.10 Regular Meetings 7
(S)2.11 Special Meetings 8
(S)2.12 Notices of Meetings 8
(S)2.13 Notice of Adjournment of Meeting 9
(S)2.14 Quorum and Manner of Acting 9
(S)2.15 Order of Business 9
(S)2.16 Written Consent of Directors in Lieu of
Meeting 9
(S)2.17 Executive and Other Committees 9
ARTICLE 3 Officers 10
(S)3.1 Number and Titles 10
(S)3.2 Election, Terms of Office, Qualifications,
and Compensation 10
(S)3.3 Additional Officers, Agents, Etc. 11
(S)3.4 Removal 11
(S)3.5 Resignations 11
(S)3.6 Vacancies 11
</TABLE>
i
<PAGE>
<TABLE>
Page
----
<S> <C> <C>
ARTICLE 4 Duties of Officers 12
(S)4.1 Chairman of the Board 12
(S)4.2 President 12
(S)4.3 Chief Executive Officer 12
(S)4.4 Vice Presidents 12
(S)4.5 Secretary 13
(S)4.6 Treasurer 13
ARTICLE 5 Shares of Stock and Their Transfer 13
(S)5.1 Certificates for Shares of Stock 13
(S)5.2 Transfer of Shares of Stock 14
(S)5.3 Regulations 14
(S)5.4 Lost, Destroyed, or Stolen Certificates 15
ARTICLE 6 Indemnification and Insurance 15
(S)6.1 Indemnification in Nonderivative Actions 15
(S)6.2 Indemnification in Derivative Actions 16
(S)6.3 Indemnification as Matter of Right 16
(S)6.4 Determination of Conduct 16
(S)6.5 Advance Payment of Expenses 16
(S)6.6 Nonexclusivity 17
(S)6.7 Liability Insurance 17
(S)6.8 Consolidations or Mergers 17
(S)6.9 Meaning of Certain Terms 17
(S)6.10 Successors 18
ARTICLE 7 Miscellaneous 18
(S)7.1 Examination of Books by Stockholders 18
(S)7.2 Seal 18
(S)7.3 Fiscal Year 18
(S)7.4 Amendment of By-Laws 18
(S)7.5 Inconsistent Provisions 19
(S)7.5 Conflict With Shareholders' Agreement 19
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
AMERICAN DENTAL PARTNERS, INC.
ARTICLE 1
Meetings of Stockholders
------------------------
(S)1.1 Annual Meeting. The annual meeting of the stockholders, for the
--------------
purpose of electing directors and transacting such other business as may come
before the meeting, shall be held on such date and at such time during the first
six months of each fiscal year of the Corporation as may be fixed by the board
of directors and stated in the notice of the meeting.
(S)1.2 Special Meetings. A special meeting of the stockholders may be
----------------
called by the chairman of the board, the president, a majority of the directors
acting with or without a meeting, or the holders of shares of stock entitling
them to exercise at least 50% of the voting power of the Corporation entitled to
be voted at the meeting. Upon delivery to the chairman, president, or secretary
of the Corporation a request in writing for a special meeting of the
stockholders by any persons entitled to call such meeting, the officer to whom
the request is delivered shall give notice to the stockholders of such meeting.
Any such request shall specify the purposes and the date and hour for such
meeting. The date shall be at least 15 and not more than 65 days after delivery
of the request. If such officer does not call the meeting within five days
after any such request, the persons making the request may call the meeting by
giving notice as provided in (S)1.4 or by causing it to be given by their
designated representative. Only business specified in the notice of the meeting
shall be considered at any special meeting.
(S)1.3 Place of Meetings. All meetings of stockholders shall be held at
-----------------
such place or places, within or without the State of Delaware, as may be fixed
by the board of directors or, if not so fixed, as shall be specified in the
notice of the meeting.
(S)1.4 Notice of Meetings. Every stockholder shall furnish the secretary
------------------
of the Corporation with an address at which notices of meetings and all other
corporate notices may be served on or mailed to each such stockholder. Except
as otherwise expressly required by law, unless waived, written notice of each
stockholders' meeting, whether annual or special, shall be given not less than
10 nor more than 60 days before the date specified for the meeting, by the
chairman of the board, president, or secretary or, in case of their refusal or
failure to do so, by the person or persons entitled to call such meeting. Such
notice shall be given to each
1
<PAGE>
stockholder entitled to notice of the meeting, by personally delivering a
written or printed notice or by mailing the notice in a postage-prepaid envelope
addressed to each stockholder at the address furnished as above provided, or, if
a stockholder has not furnished such address, at the post office address of such
stockholder last known to the sender. If mailed, the notice is deemed to be
given when deposited in the United States mail in the manner set forth above.
Except when expressly required by law, no publication of any notice of a
stockholders' meeting shall be required. If shares of stock are transferred
after notice has been given, notice need not be given to the transferee. A
record date may be fixed for determining the stockholders entitled to notice of
any meeting of stockholders, in accordance with the provisions of (S)1.12.
Every notice of a stockholders' meeting shall state the date, place, and hour of
the meeting, and in the case of a special meeting, shall state briefly the
purpose or purposes of the meeting as may be specified by the person or persons
requesting or calling the meeting. Notice of the adjournment of a meeting need
not be given if the time and place to which it is adjourned are fixed and
announced at the meeting and the adjournment is for not more than 30 days. If
the adjournment is for more than 30 days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
(S)1.5 Waiver of Notice. Any stockholder, either before or after any
----------------
meeting, may waive any notice required by law, the certificate of incorporation,
or these by-laws. Waivers must be in writing and filed with or entered upon the
records of the meeting. Notice of a meeting will be deemed to have been waived
by any stockholder who attends the meeting, either in person or by proxy, and
who does not, before or at the commencement of the meeting, protest the lack of
proper notice.
(S)1.6 Quorum. The holders of shares of stock entitling them to exercise
------
a majority of the voting power of the Corporation entitled to vote at a meeting,
present in person or by proxy, shall constitute a quorum for the transaction of
business, except when a greater number is required by law, the certificate of
incorporation, or these by-laws. In the absence of a quorum at any meeting, or
at any adjournment of the meeting, the holders of shares of stock entitling them
to exercise a majority of the voting power of the stockholders present, either
in person or by proxy, and entitled to vote may adjourn the meeting from time to
time. At any adjourned meeting at which a quorum is present, any business may
be transacted which might have been transacted at the meeting as originally
called.
(S)1.7 Organization. At each stockholders' meeting the chairman of the
------------
board, or, in his absence or at his discretion, the
2
<PAGE>
president, or, in the absence of both of them, a chairman chosen by the holders
of shares of stock entitling them to exercise a majority of the voting power of
the stockholders present either in person or by proxy shall act as chairman, and
the secretary of the Corporation, or, in his absence, any assistant secretary,
or, in the absence of all of them, any person whom the chairman of the meeting
appoints, shall act as secretary of the meeting.
(S)1.8 Order of Business. The order of business at each meeting of the
-----------------
stockholders shall be fixed by the chairman of the meeting at the beginning of
the meeting, but may be changed by the vote of the holders of shares of stock
entitling them to exercise a majority of the voting power of the stockholders
present in person or by proxy and entitled to vote.
(S)1.9 Voting. Unless otherwise provided by law or the amended and
------
restated certificate of incorporation, each holder of a share or shares of stock
of the class or classes entitled to vote shall be entitled to one vote, either
in person or by proxy, for each such share of stock registered in his name on
the books of the Corporation. As provided in (S)1.12, a record date for
determining which stockholders are entitled to vote at any meeting may be fixed.
Shares of its own stock belonging to the Corporation shall not be voted directly
or indirectly, provided that the Corporation may vote shares of stock held by it
in a fiduciary capacity, including without limitation its own stock. Persons
whose shares of stock are pledged shall be entitled to vote, unless in the
transfer by the pledgor on the Corporation's books such pledgor has expressly
empowered the pledgee to vote such shares of stock, in which case either the
pledgee, or its proxy, may represent and vote such shares of stock. All
elections of directors shall be by written ballot. Upon a demand by any
stockholder present, either in person or by proxy, at any meeting and entitled
to vote, any other vote shall be by written ballot. Each written ballot shall
be signed by the stockholder or his proxy and shall state the number of shares
of stock voted by him. Otherwise, votes shall be made orally.
(S)1.10 Proxies. Any stockholder who is entitled to attend or vote at a
-------
stockholders' meeting or to express consent or dissent to corporate action in
writing without a meeting, may be represented at such meeting or vote thereat or
execute consents or dissents and exercise any of his other rights by a proxy or
proxies appointed in a manner permitted by (S)212 of the Delaware General
Corporation Law, or any similar statute which may hereafter be enacted. Except
as otherwise specifically provided in these By-Laws, actions taken by proxy
shall be governed by the provisions of (S)212 of the Delaware General
Corporation Law, or any similar statute which may hereafter be enacted.
3
<PAGE>
(S)1.11 Inspectors of Elections. Inspectors of elections shall be
-----------------------
appointed and act as provided in (S)231 of the Delaware General Corporation Law,
or any similar statute which may hereafter be enacted.
(S)1.12 Record Date. The board of directors may fix a record date for any
-----------
lawful purpose, including without limitation the determination of stockholders
entitled to: (a) notice of or to vote at any meeting of stockholders or any
adjournment thereof; (b) consent to corporate action in writing without a
meeting; (c) receive payment of any dividend or other distribution or allotment
of any rights; or (d) exercise any rights in respect of any change, conversion,
or exchange of stock. Such record date shall not precede the date upon which
the resolution fixing the record date is adopted. A record date established
under subsection (a) shall not be more than 60 nor less than 10 days before such
meeting. If no such record date is established, then the record date for such
purposes shall be deemed to be at the close of business on the date preceding
the date upon which notice is given. A record date established under subsection
(b) shall not be more than 10 days after the date upon which the resolution
fixing the record date is adopted. If no such record date is established, then
the record date for such purposes, provided that no prior action of the board of
directors is otherwise required by law, shall be the first date upon which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation. If prior action of the board of directors is
required and no record date is established, then the record date for such
purposes shall be the date upon which the board of directors adopts the
resolution taking such prior action. A record date established under subsection
(c) or (d), or for any other lawful action, shall not be more than 60 days prior
to such action. If no such record date is established, then the record date for
such purposes shall be the date upon which the board of directors adopts the
resolution relating to such action.
(S)1.13 List of Stockholders at Meeting. The officer having charge of the
-------------------------------
Corporation's stock ledger shall prepare and make, or cause to be prepared and
made, at least 10 days before every meeting of the stockholders, a complete list
of the stockholders entitled to vote at such meeting. Such list shall be
arranged in alphabetical order showing the address of each stockholder and the
number of shares of stock registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time
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and place of the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
(S)1.14 Written Consent of Stockholders in Lieu of Meeting. Unless
--------------------------------------------------
otherwise provided by law or the amended and restated certificate of
incorporation, any action required to or which may be taken at any annual or
special meeting of stockholders may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken and bearing the dates of signature of the stockholders who
signed the consent or consents, shall be signed by the holders of shares of
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares of stock
entitled to vote thereon were present and voted. All consents shall be
delivered to the Corporation by delivery to its registered office in the State
of Delaware, or the Corporation's principal place of business, or an officer or
agent of the Corporation having custody of the book or books in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested, provided that no consent or consents delivered
by certified or registered mail shall be deemed delivered until such consent or
consents are actually received at the registered office. All consents properly
delivered shall be deemed to be recorded when so delivered. No written consent
shall be effective to take the corporate action referred to in such consent
unless, within 60 days of the earliest dated consent delivered to the
Corporation, written consents signed by the holders of a sufficient number of
shares of stock to take such corporate action are so delivered. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
ARTICLE 2
Board of Directors
------------------
(S)2.1 General Powers of Board. The business and affairs of the
-----------------------
Corporation shall be managed by or under the direction of the board of
directors, except as otherwise provided by laws of the State of Delaware, the
amended and restated certificate of incorporation, or these by-laws.
(S)2.2 Number and Class of Directors. The number of directors of the
-----------------------------
Corporation shall not be less than three nor more than fifteen. The number of
directors shall, at the date of adoption of these Amended and Restated By-Laws,
initially be fixed at five, and hereafter, such number of directors may be fixed
or changed (a) at
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any annual meeting of the stockholders, or at any special meeting of the
stockholders called for that purpose, by the affirmative vote of the holders of
shares of stock entitling them to exercise at least two-thirds of the voting
power of the Corporation on such proposal, or (b) by a resolution duly adopted
by at least two-thirds of the directors of the Corporation then in office,
provided that no decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. Directors need not be
stockholders.
The directors shall be divided into three classes, designated Class I,
Class II and Class III. Each class shall consist, as nearly as possible, of
one-third of the total number of directors constituting the entire board of
directors. Each director shall serve for a term ending on the date of the third
annual meeting of the stockholders next following the annual meeting at which
such director was elected, provided that directors initially designated as Class
I directors shall serve for a term ending on the date of the first annual
meeting following the effective date of these Amended and Restated By-Laws,
directors initially designated as Class II directors shall serve for a term
ending on the date of the second annual meeting following the effective date of
these Amended and Restated By-Laws, and directors initially designated as Class
III directors shall serve for a term ending on the date of the third annual
meeting following the effective date of these Amended and Restated By-Laws.
Notwithstanding the foregoing, each director shall hold office until such
director's successor shall have been duly elected and qualified or until such
director's earlier death, resignation or removal. In the event of any change in
the number of directors, the board of directors shall apportion any newly
created directorships among, or reduce the number of directorships in, such
class or classes as shall equalize, as nearly as possible, the number of
directors in each class.
(S)2.3 Compensation and Expenses. The directors shall be entitled to such
-------------------------
compensation, on a monthly or annual basis, or on the basis of meetings
attended, or on both bases, as the board of directors may from time to time
determine and establish. No director shall be precluded from serving the
Corporation as an officer or in any other capacity, or from receiving
compensation for so serving. Directors may be reimbursed for their reasonable
expenses incurred in the performance of their duties, including the expense of
traveling to and from meetings of the board, provided that such reimbursement is
authorized by the board of directors. Such reimbursement may be authorized by
the board by either a general resolution specifying the general type and nature
of expenses to be reimbursed or by resolution setting forth specific expenses to
be reimbursed.
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(S)2.4 Election of Directors. At each meeting of the stockholders for the
---------------------
election of directors at which a quorum is present, directors shall be elected
by a plurality of the votes of the holders of shares of stock present in person
or represented by proxy at the meeting and entitled to vote on the election of
directors.
(S)2.5 Resignations. Any director may resign by giving written notice to
------------
the chairman of the board, the president, or the secretary of the Corporation.
Such resignation shall take effect at the time specified therein and unless
otherwise specified, the acceptance of a resignation shall not be necessary to
make it effective.
(S)2.6 Removal of Directors. Any director or the entire board of
--------------------
directors of the Corporation may be removed, with or without cause, by the
affirmative vote of the holders of at least two-thirds of the shares of stock
then entitled to vote in the election of directors; provided that if at least
two-thirds of the directors then in office recommend to the stockholders that a
director be removed, then such director may be removed, with or without cause,
by the affirmative vote of the holders of at least a majority of the shares of
stock then entitled to vote in the election of directors.
(S)2.7 Vacancies. Vacancies on the board of directors caused by death,
---------
resignation, removal, or other cause and newly-created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Each director so chosen shall hold office until the
next election of the class of directors for which such director was chosen and
until a successor is duly elected and qualified.
(S)2.8 Organization of Meetings. At each meeting of the board of
------------------------
directors, the chairman of the board, or, in his absence, the president, or, in
his absence, a chairman chosen by a majority of the directors present, shall act
as chairman. The secretary of the Corporation, or, if the secretary shall not
be present, any person whom the chairman of the meeting shall appoint, shall act
as secretary of the meeting.
(S)2.9 Place of Meetings. Meetings of the board shall be held at such
-----------------
place or places, within or without the State of Delaware, as may from time to
time be fixed by the board of directors or as shall be specified or fixed in the
notice of the meeting.
(S)2.10 Regular Meetings. Regular meetings of the board of directors may
----------------
be held, without notice, at such times and places, within or without the State
of Delaware, as the board of directors may from time to time determine.
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(S)2.11 Special Meetings. Special meetings of the board of directors
----------------
shall be held whenever called by the chairman of the board, or by the president,
or by any two directors.
(S)2.12 Notices of Meetings. Every director shall furnish the secretary
-------------------
of the Corporation with an address at which notices of meetings and all other
corporate notices may be served on or mailed to such director. Unless waived
before, at, or after the meeting as hereinafter provided, and except as provided
in (S)2.10, notice of each board meeting shall be given by the chairman of the
board, the president, the secretary, an assistant secretary, or the persons
calling such meeting, to each director in any of the following ways:
(a) By orally informing such director of the meeting in person
or by telephone not later than two days before the date of the
meeting.
(b) By delivering written notice to such director not later than
two days before the date of the meeting.
(c) By mailing written notice to such director, or by sending
notice to such director by facsimile telecommunication, telegram,
cablegram, or radiogram, postage or other costs prepaid, addressed to
such director at the address furnished by such director to the
secretary of the Corporation, or to such other address as the person
sending the notice shall know to be correct or, in the case of a
facsimile telecommunication, to the telephone number furnished by the
director to the Corporation for such purpose or to the facsimile
telephone number at which the director is known to be present. Such
notice shall be posted or dispatched a sufficient length of time
before the meeting so that in the ordinary course of the mail or the
transmission of facsimiles, telegrams, cablegrams, or radiograms,
delivery would normally be made to such director not later than two
days before the date of the meeting.
Unless otherwise required by the certificate of incorporation, the
laws of the State of Delaware, or these by-laws, the notice of any meeting need
not specify the purposes of the meeting. Notice of any meeting of the board may
be waived by any director, either before, at, or after the meeting, in writing,
or by facsimile telecommunication, telegram, cablegram, or radiogram. In
addition, notice of a meeting will be deemed to have been waived by any director
who attends the meeting and who does not, before or at the commencement of the
meeting, protest the lack of proper notice.
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(S)2.13 Notice of Adjournment of Meeting. Notice of adjournment of a
--------------------------------
meeting need not be given if the time and place to which it is adjourned are
fixed and announced at the meeting.
(S)2.14 Quorum and Manner of Acting. A majority of the total number of
---------------------------
directors fixed or established pursuant to (S)2.2 as of the time of any meeting
of the board of directors must be present at such meeting in order to constitute
a quorum for the transaction of business, provided that meetings of the
directors may include participation by directors through any conference
telephone or similar communications equipment if all directors participating can
hear each other, and such participation in a meeting shall constitute presence
at such meeting. Unless otherwise required by the certificate of incorporation,
the laws of the State of Delaware, or these By-Laws, the act of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the board of directors. In the absence of a quorum, a majority of those
present may adjourn a meeting from time to time until a quorum is present.
Notice of an adjourned meeting need not be given.
(S)2.15 Order of Business. The order of business at meetings of the board
-----------------
shall be such as the chairman of the meeting may prescribe or follow, subject,
however, to his being overruled with respect thereto by a majority of the
members of the board present.
(S)2.16 Written Consent of Directors in Lieu of Meeting. Any action
-----------------------------------------------
required or permitted to be taken at any meeting of the board of directors or
any committee of the board may be taken without a meeting if all members of the
board or committee, as the case may be, consent to such action in writing, and
the writing or writings are filed with the minutes of proceedings of the board
or committee.
(S)2.17 Executive and Other Committees. The board of directors may, by
------------------------------
resolution passed by a majority of the whole board, designate an executive
committee and any other committee or committees of directors each to consist of
one or more directors of the Corporation. Any such committee, to the extent
provided in the resolution of the board of directors, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the Corporation, other than that of
filling vacancies in the board of directors or in any committee of directors;
provided that no such committee shall have any power or authority in reference
to amending the certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease, or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending these By-Laws.
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Unless the directors' resolution establishing a committee expressly provides, no
committee shall have the power or authority to declare a dividend, to authorize
the issuance of shares of stock, or to adopt a certificate of ownership and
merger. Each committee shall serve at the pleasure of the directors, shall act
only in the intervals between meetings of the board of directors, and shall be
subject to the control and direction of the board of directors. The directors
may adopt or authorize the committees to adopt provisions with respect to the
government of any such committee or committees which are not inconsistent with
applicable law, the certificate of incorporation or these By-Laws. An act or
authorization of any act by any such committee within the authority properly
delegated to it by the directors shall be as effective for all purposes as the
act or authorization of the directors. Any right, power, or authority conferred
in these By-Laws to the "directors" or to the "board of directors" shall also be
deemed conferred upon each committee or committees of directors to which any
such right, power, or authority is delegated (expressly, or by general
delegation, or by necessary implication) by the board of directors.
ARTICLE 3
Officers
--------
(S)3.1 Number and Titles. The officers of the Corporation shall be a
-----------------
chairman of the board, if elected, a chief executive officer, if elected, a
president, one or more vice presidents, if elected, a secretary, one or more
assistant secretaries, if elected, a treasurer, and one or more assistant
treasurers, if elected. If there is more than one vice president, the board
may, in its discretion, establish designations for the vice presidencies so as
to distinguish among them as to their functions or their order, or both. Any
two or more offices may be held by the same person, but no officer shall
execute, acknowledge, or verify any instrument in more than one capacity if such
instrument is required by law, the certificate of incorporation, or these by-
laws to be executed, acknowledged, or verified by two or more officers.
(S)3.2 Election, Terms of Office, Qualifications, and Compensation. The
-----------------------------------------------------------
officers shall be elected by the board of directors. Each officer shall be
elected for an indeterminate term and shall hold office during the pleasure of
the board of directors. The board of directors may hold annual elections of
officers; in that event, each such officer shall hold office until a successor
is elected and qualified or until such officer's earlier resignation or removal.
The chairman of the board, if one is elected, shall be a director, but no other
officer need be a director. The other qualifications of all officers shall be
such as the board of
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directors may establish from time to time. The board of directors or a
committee appointed by it shall fix the compensation, if any, of each officer;
provided, however, that subject to the right of the board of directors to modify
or rescind such action, the chief executive officer of the Corporation may fix
the compensation of all officers subordinate to him.
(S)3.3 Additional Officers, Agents, Etc. In addition to the officers
---------------------------------
designated in (S)3.1, the Corporation may have such other officers, agents, and
committees as the board of directors may deem necessary and may appoint, each of
whom or each member of which shall hold office for such period, have such
authority, and perform such duties as may be provided in these By-Laws or as may
be determined by the board from time to time. The board of directors may
delegate to any officer or committee the power to appoint any subordinate
officer, agents, or committees. In the absence of any officer, or for any other
reason the board of directors may deem sufficient, the board of directors may
delegate, for a designated period, the powers and duties, or any of them, of
such officer to any other officer, or to any director.
(S)3.4 Removal. Any officer may be removed, either with or without cause,
-------
at any time, by the board of directors at any meeting, the notices (or waivers
of notices) of which shall have specified that such removal action was to be
considered. Any officer appointed by an officer or committee to which the board
shall have delegated the power of appointment may be removed, either with or
without cause, by the committee or superior officer (including successors) who
made the appointment, or by any committee or officer upon whom such power of
removal may be conferred by the board of directors. In addition, subject to the
right of the board of directors to modify or rescind such action, the chief
executive officer of the Corporation shall have the authority to remove officers
of the Corporation who are subordinate to him.
(S)3.5 Resignations. Any officer may resign at any time by giving written
------------
notice to the board of directors, the chairman of the board, the chief executive
officer, the president, or the secretary. Any such resignation shall take
effect at the time specified in such notice and, unless otherwise specified, the
acceptance of such resignation shall not be necessary to make it effective.
(S)3.6 Vacancies. A vacancy in any office because of death, resignation,
---------
removal, disqualification, or otherwise, shall be filled in the manner
prescribed for regular appointments or elections to such office.
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ARTICLE 4
Duties of Officers
------------------
(S)4.1 Chairman of the Board. The chairman of the board, if one be
---------------------
elected, shall preside at all meetings of the stockholders and of the board of
directors and shall have such other powers and duties as may be prescribed by
the board of directors.
(S)4.2 President. The president shall, subject to the powers of the board
---------
of directors and the chief executive officer (provided he is not the chief
executive officer), exercise supervision over the business of the Corporation
and over its several officers, agents, and employees and shall see that all
orders and resolutions of the board of directors and the chief executive officer
(provided he is not the chief executive officer) are carried into effect. The
president shall have authority to execute bonds, mortgages, notes, agreements,
deeds, certificates for shares, and other instruments requiring the president's
signature on behalf of the Corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to some
other officer or agent of the Corporation. The president shall have such other
powers and perform such other duties as the board of directors, the chief
executive officer (provided he is not the chief executive officer), or these By-
Laws may, from time to time, prescribe.
(S)4.3 Chief Executive Officer. The board of directors may designate the
-----------------------
chairman of the board or the president as chief executive officer. The chief
executive officer shall have, subject to the powers of the board of directors,
charge of the overall general direction of the business and affairs of the
Corporation, control of the general policies relating to all aspects of the
Corporation's business operations, and the power to fix the compensation of and
remove subordinate officers as provided in (S)(S)3.2 and 3.4, respectively. The
chief executive officer may appoint and discharge agents and employees and
perform such other duties as are incident to such office. The chief executive
officer shall have such other powers and perform such other duties as may be
prescribed by the board of directors or as may be provided in these By-Laws. In
the absence or disability of the officer designated as chief executive officer,
the other aforementioned officer (chairman of the board or president) shall
perform any and all duties of the chief executive officer.
(S)4.4 Vice Presidents. The vice presidents, if they are elected, shall
---------------
have such powers and duties as may from time to time be assigned to them by the
board of directors, the chief executive officer, or the president. At the
request of the president, or in
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the case of his absence or disability, the vice president designated by the
president or, in the absence of such designation, the vice president designated
by the board of directors or the chief executive officer, shall perform all the
duties of the president and, when so acting, shall have all the powers of the
president. The authority of vice presidents to execute bonds, mortgages, notes,
agreements, deeds, certificates for shares, and other instruments shall be
coordinated with like authority of the president.
(S)4.5 Secretary. The secretary shall keep minutes of all the proceedings
---------
of the stockholders and board of directors and shall make proper record of the
same, which shall be attested by him; shall have authority to execute and
deliver certificates as to any of such proceedings and any other records of the
Corporation; shall have authority to sign all certificates for shares and all
deeds, mortgages, bonds, agreements, notes and other instruments to be executed
by the Corporation which require his signature; shall give notice of meetings of
stockholders and directors; shall produce on request at each meeting of
stockholders a certified list of stockholders arranged in alphabetical order in
accordance with (S)1.13; shall keep such books and records as may be required by
law or by the board of directors; and, in general, shall perform all duties
incident to the office of secretary and such other duties as may from time to
time be assigned to him by the board of directors, the chief executive officer,
or the president.
(S)4.6 Treasurer. The treasurer shall have general supervision of all
---------
finances; he shall receive and have in charge all money, bills, notes, deeds,
leases, mortgages, and similar property belonging to the Corporation and shall
do with the same as may from time to time be required by the board of directors.
He shall cause to be kept adequate and correct accounts of the business
transactions of the Corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, stated capital, and shares of stock,
together with such other accounts as may be required, and upon the expiration of
his term of office shall turn over to his successor or to the board of directors
all property, books, papers, and money of the Corporation in his hands; and
shall have such other powers and duties as may from time to time be assigned to
him by the board of directors, the chief executive officer, or the president.
ARTICLE 5
Shares of Stock and Their Transfer
----------------------------------
(S)5.1 Certificates for Shares of Stock. Every owner of one or more
--------------------------------
shares of stock in the Corporation shall be entitled to a
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certificate or certificates, which shall be in such form as may be approved by
the board of directors, certifying the number and class of shares of stock in
the Corporation owned by him. The certificates for the respective classes of
such shares of stock shall be numbered in the order in which they are issued and
shall be signed in the name of the Corporation by the chairman of the board, the
president, or a vice president and by the secretary, an assistant secretary, the
treasurer, or assistant treasurer. All or any of the signatures on a
certificate may be facsimile. Even though any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, the certificate may be issued by the
Corporation with the same effect as if such person was still such officer,
transfer agent, or registrar at the date of issue. A record shall be kept of
the name of the owner or owners of the shares of stock represented by each such
certificate and the number of shares of stock represented thereby, the date
thereof, and in case of cancellation, the date of cancellation. Every
certificate surrendered to the Corporation for exchange or transfer shall be
cancelled and no new certificate or certificates shall be issued in exchange for
any existing certificates until such existing certificates shall have been so
cancelled, except in cases provided for in (S)5.4.
(S)5.2 Transfer of Shares of Stock. Any certificate for shares of stock
---------------------------
of the Corporation shall be transferable in person or by attorney upon the
surrender of the certificate to the Corporation or any transfer agent for the
Corporation (for the class of shares represented by the certificate surrendered)
properly endorsed for transfer and accompanied by such assurances as the
Corporation or its transfer agent may require as to the genuineness and
effectiveness of each necessary endorsement. The person in whose name any
shares stand on the books of the Corporation shall, to the fullest extent
permitted by law, be conclusively deemed to be the unqualified owner and holder
of the shares and entitled to exercise all rights of ownership, for all purposes
relating to the Corporation. Neither the Corporation nor any transfer agent of
the Corporation shall be required to recognize any equitable interest in, or any
claim to, any such shares on the part of any other person, whether disclosed on
the certificate or any other way, nor shall they be required to see to the
performance of any trust or other obligation.
(S)5.3 Regulations. The board of directors may make such rules and
-----------
regulations as it may deem expedient or advisable, not inconsistent with these
by-laws concerning the issue, transfer, and registration of certificates for
shares of stock. It may appoint one or more transfer agents or one or more
registrars, or both, and
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may require all certificates for shares to bear the signature of either or both.
(S)5.4 Lost, Destroyed, or Stolen Certificates. A new certificate or
---------------------------------------
certificates may be issued in place of any certificate theretofore issued by the
Corporation which is alleged to have been lost, destroyed, or wrongfully taken
upon: (a) the execution and delivery to the Corporation by the person claiming
the certificate to have been lost, destroyed, or wrongfully taken of an
affidavit of that fact in form satisfactory to the Corporation, specifying
whether or not the certificate was endorsed at the time of such alleged loss,
destruction or taking, and (b) the receipt by the Corporation of a surety bond,
indemnity agreement, or any other assurances satisfactory to the Corporation and
to all transfer agents and registrars of the class of shares of stock
represented by the certificate against any and all losses, damages, costs,
expenses, liabilities, or claims to which they or any of them may be subjected
by reason of the issue and delivery of such new certificate or certificates or
with respect to the original certificate.
ARTICLE 6
Indemnification and Insurance
-----------------------------
(S)6.1 Indemnification in Nonderivative Actions. The Corporation shall
----------------------------------------
indemnify any person who was or is a party or is threatened to be made a party,
to any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, other than an action by or in
the right of the Corporation, by reason of the fact that he is or was a
director, officer, employee, or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
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(S)6.2 Indemnification in Derivative Actions. The Corporation shall
-------------------------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action or suit by or in the right of
the Corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee, or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or other
enterprise against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless, and only to the extent that, the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to be indemnified for such
expenses as the Court of Chancery or such other court shall deem proper.
(S)6.3 Indemnification as Matter of Right. To the extent that a director,
----------------------------------
officer, employee, or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit, or proceeding referred to in
(S)(S)6.1 and 6.2, or in defense of any claim, issue, or matter therein, he
shall be indemnified against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection therewith.
(S)6.4 Determination of Conduct. Any indemnification under (S)(S)6.1 and
------------------------
6.2, unless ordered by a court, shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in (S)(S)6.1 and 6.2. Such
determination shall be made (a) by the board of directors by a majority vote of
a quorum consisting of directors of the Corporation who were not parties to such
action, suit, or proceeding, or (b) if such a quorum is not obtainable, or even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (c) by the stockholders.
(S)6.5 Advance Payment of Expenses. Expenses, including attorneys' fees,
---------------------------
incurred by an officer or director in defending any civil, criminal,
administrative, or investigative action, suit, or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit, or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay
- 16 -
<PAGE>
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article 6. Such expenses,
including attorneys' fees, incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the board of directors deems
appropriate.
(S)6.6 Nonexclusivity. The indemnification and advancement of expenses
--------------
provided by or granted pursuant to this Article 6 shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
(S)6.7 Liability Insurance. The Corporation may purchase and maintain
-------------------
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article 6 or
of (S)145 of the Delaware General Corporation Law.
(S)6.8 Consolidations or Mergers. For purposes of this Article 6,
-------------------------
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, or agents, so that any person who is or was a
director, officer, employee, or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise shall stand in the same position under this Article 6
with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had continued.
(S)6.9 Meaning of Certain Terms. For purposes of this Article 6,
------------------------
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee,
or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an
- 17 -
<PAGE>
employee benefit plan, its participants or beneficiaries; and a person who acted
in good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the Corporation"
as referred to in this Article 6.
(S)6.10 Successors. The indemnification and advancement of expenses
----------
provided by or granted pursuant to this Article 6 shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such person.
ARTICLE 7
Miscellaneous
-------------
(S)7.1 Examination of Books by Stockholders. Any stockholder, in person
------------------------------------
or by attorney or other agent, shall, upon written demand under oath stating the
purpose thereof, have the right during the usual hours for business to inspect
for any proper purpose the Corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or
other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the Corporation at its
registered office in the State of Delaware or at its principal place of
business.
(S)7.2 Seal. The board of directors may adopt and alter a corporate seal
----
and use the same or a facsimile thereof, but failure to affix the corporate
seal, if any, shall not affect the validity of any instrument.
(S)7.3 Fiscal Year. The fiscal year of the Corporation shall be fixed and
-----------
may be changed from time to time by the board of directors.
(S)7.4 Amendment of By-Laws. These by-laws may be amended or repealed and
--------------------
new by-laws adopted at any meeting of the board of directors; provided that
notwithstanding anything in these by-laws to the contrary, the provisions set
forth in this section, Article 6, and (S)(S)2.2 and 2.6 may not be amended or
repealed in any respect, except as follows: (a) by the affirmative vote of the
- 18 -
<PAGE>
holders of shares of stock entitling them to exercise a majority of the voting
power on such proposal, if such proposal was previously approved by at least
two-thirds of the directors; or (b) by the affirmative vote of the holders of
shares of stock entitling them to exercise at least two-thirds of the voting
power on such proposal. If any amendment or new by-laws are adopted without a
meeting of the stockholders, the secretary shall mail a copy of the amendment or
new by-laws to each stockholder who would have been entitled to vote on the
proposal but who did not participate in the adoption of the amendment or new by-
laws.
(S)7.5 Inconsistent Provisions. In the event that any provision of these
-----------------------
by-laws is or becomes inconsistent with any provision of the certificate of
incorporation, the Delaware General Corporation Law, or any other applicable
law, the provision of these by-laws shall not be given any effect to the extent
of such inconsistency, but shall otherwise be given full force and effect.
(S)7.5 Conflict With Shareholders' Agreement. If any provision of these
-------------------------------------
Amended and Restated By-Laws is or becomes inconsistent with any provision of
the Shareholders' Agreement dated as of January 4, 1996, by and among the
Corporation, Summit Subordinated Debt Fund, L.P., Summit Investors II, L.P.,
Summit Ventures IV, L.P., and Gregory A. Serrao, as amended (the "Shareholders'
Agreement"), then the provision of the Shareholders' Agreement shall be
controlling, and the provision of these Amended and Restated By-Laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
- 19 -
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
SERIES A AND SERIES B PREFERRED STOCK PURCHASE AGREEMENT
Dated as of January 8, 1996
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
SERIES A AND SERIES B PREFERRED
STOCK PURCHASE AGREEMENT
Dated as of January 8, 1996
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
- ---------
Purchase and Sale of Shares..................................... 1
---------------------------
1.1 Purchase and Sale of Series A Convertible Preferred
Stock................................................... 1
1.2 Purchase and Sale of Series B Redeemable Preferred
Stock................................................... 1
1.3 The Conversion Shares.................................... 2
1.4 Closings................................................. 2
1.5 Use of Proceeds.......................................... 3
1.6 Termination of Commitment; Right to Repurchase........... 4
1.7 Additional Purchasers.................................... 5
ARTICLE II
- ----------
Representations and Warranties of the Company................... 5
---------------------------------------------
2.1 Organization and Corporate Power......................... 5
2.2 Authorization............................................ 6
2.3 Government Approvals..................................... 6
2.4 Authorized and Outstanding Stock......................... 6
2.5 Subsidiaries............................................. 7
2.6 Financial Information.................................... 7
2.7 Intentionally Omitted.................................... 7
2.8 Litigation............................................... 7
2.9 Compliance with Laws and Other Instruments............... 8
2.10 Taxes.................................................... 8
2.11 Real Property............................................ 9
2.12 Personal Property........................................ 9
2.13 Patents, Trademarks, etc................................. 9
2.14 Agreements of Directors Officers and Employees........... 10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2.15 Governmental and Industrial Approvals.................... 10
2.16 Registration Rights...................................... 10
2.17 Insurance Coverage....................................... 11
2.18 Employee Matters......................................... 11
2.19 No Brokers or Finders.................................... 11
2.20 Transactions with Affiliates............................. 12
2.21 Assumptions, Guarantees, etc. of Indebtedness of Other
Persons................................................. 12
2.22 Restrictions on Subsidiaries............................. 12
2.23 Disclosures.............................................. 12
ARTICLE III
- -----------
Affirmative Covenants of the Company............................ 12
------------------------------------
3.1 Accounts and Reports..................................... 12
3.2 Payment of Taxes......................................... 14
3.3 Maintenance of Key Man Insurance......................... 14
3.4 Compliance with Laws, etc................................ 14
3.5 Inspection............................................... 14
3.6 Corporate Existence; Ownership of Subsidiaries........... 15
3.7 Compliance with ERISA.................................... 15
3.8 Board Approval........................................... 16
3.9 Financings............................................... 16
3.10 Meetings of the Board of Directors....................... 16
3.11 Rule 144A Information.................................... 16
ARTICLE IV
- ----------
Negative Covenants of the Company and the Summit Entities....... 16
---------------------------------------------------------
4.1 Investments in Other Persons............................. 16
4.2 Distributions............................................ 17
4.3 Dealings with Affiliates................................. 18
4.4 Merger................................................... 18
4.5 Option Shares............................................ 18
4.6 No Conflicting Agreements................................ 18
4.7 Restriction of Investments............................... 19
ARTICLE V
- ---------
Preemptive Right................................................ 19
----------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.1 Right of Purchase........................................ 19
5.2 Definition of New Securities............................. 19
5.3 Notice from the Company.................................. 20
5.4 Sale by the Company...................................... 20
5.5 Termination of Rights.................................... 20
ARTICLE VI
- ----------
Investment Representations...................................... 20
--------------------------
6.1 Representation and Warranties............................ 20
6.2 Permitted Sales; Legends................................. 21
ARTICLE VII
- -----------
Conditions of Purchasers' Obligation............................ 22
------------------------------------
7.1 Effect of Conditions..................................... 22
7.2 Representations and Warranties........................... 22
7.3 Performance.............................................. 22
7.4 Certified Documents, etc................................. 22
7.5 Shareholders' Agreement.................................. 22
7.6 Registration Rights Agreement............................ 23
7.7 Employment Agreement..................................... 23
7.8 Stock Option Agreements.................................. 23
ARTICLE VIII
- ------------
Conditions of The Company's Obligation.......................... 23
--------------------------------------
ARTICLE IX
- ----------
Certain Definitions............................................. 23
-------------------
ARTICLE X
- ---------
Termination..................................................... 25
-----------
10.1 Termination by Mutual Written Consent.................... 25
10.2 Termination for Breach................................... 25
10.3 Rights After Termination................................. 25
ARTICLE XI
- ----------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Miscellaneous................................................... 25
-------------
11.1 Survival of Representations.............................. 26
11.2 Parties in Interest...................................... 26
11.3 Shares Owned by Affiliates............................... 26
11.4 Amendments and Waivers................................... 26
11.5 Notices.................................................. 26
11.6 Expenses................................................. 27
11.7 Counterparts............................................. 27
11.8 Effect of Headings....................................... 27
11.9 Adjustments.............................................. 27
11.10 Governing Law............................................ 27
</TABLE>
EXHIBITS
- --------
A Description of Preferred Stock
B Shareholders' Agreement
C Registration Rights Agreement
D Employment Agreement
E Stock Option Agreement
<PAGE>
January 8, 1996
To: The Persons listed on
Schedule 1.1 attached hereto:
------------
Re: Series A and Series B Preferred Stock
-------------------------------------
Gentlemen:
American Dental Partners, Inc., a Delaware corporation (the "Company")
hereby agrees with you as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
---------------------------
1.1 Purchase and Sale of Series A Convertible Preferred Stock. From time
---------------------------------------------------------
to time after the date hereof, at one or more Closings (as herein defined), the
Company will sell to you (the "Purchasers"), and the Purchasers shall purchase
from the Company, up to an aggregate of 400,000 shares of the Company's Series A
Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred
Stock"), at a price of $19.75 per share, for an aggregate purchase price of up
to $7,900,000 payable as provided in Section 1.4. The Series A Preferred Stock
shall have the rights, terms and privileges set forth on Exhibit A attached
---------
hereto. The shares of Series A Preferred Stock purchased pursuant to this
Section 1.1, together with the shares of Series B Redeemable Preferred Stock,
par value $.01 per share (the "Series B Preferred Stock" and, together with the
Series A Preferred Stock, the "Preferred Stock") purchased pursuant to Section
1.2 are referred to herein as the "Purchased Shares." The initial number of
Purchased Shares to be sold by the Company to each Purchaser is set forth on
Schedule 1.1.
- ------------
1.2 Purchase and Sale of Series B Redeemable Preferred Stock. From time
--------------------------------------------------------
to time after the Closing the Company will sell to the Purchasers up to an
aggregate of 70,000 shares of the Company's Series B Preferred Stock at a price
of $100 per share, for an aggregate purchase price of up to $7,000,000, payable
as provided in Section 1.4. The Series B Preferred Stock shall have the rights,
terms and privileges set forth on Exhibit A attached hereto.
---------
1.3 The Conversion Shares. The Company has authorized and reserved and
---------------------
hereby
<PAGE>
covenants that it will continue to reserve, free of any preemptive rights or
encumbrances, a sufficient number of its authorized but previously unissued
shares of common stock, par value $.01 per share (the "Common Stock"), to
satisfy the rights of conversion of the holders of the Series A Preferred Stock
Shares. The shares of Common Stock issued or issuable upon conversion of the
Series A Preferred Stock are referred to herein as the "Conversion Shares".
1.4 Closings. The Purchased Shares shall be sold to the Purchasers at one
--------
or more closings (individually a "Closing" and collectively the "Closings") to
be held at the offices of Hutchins, Wheeler & Dittmar, A Professional
Corporation, 101 Federal Street, Boston, Massachusetts. Each Closing shall be
held not later than three Business Days after written notice (a "Purchase
Notice") shall be given by the Company to the Purchasers as herein provided.
Each Purchase Notice shall specify the following:
(i) the aggregate consideration to be paid by the Purchasers for the
Purchased Shares to be sold at such Closing;
(ii) the number of shares of Series A Preferred Stock and Series B
Preferred Stock to be purchased and sold at such Closing (it being
understood and agreed that 53.02% of the consideration to be paid at
each Closing shall be used to purchase Series A Preferred Stock and
46.98% of such consideration shall be used to purchase Series B
Preferred Stock);
(iii) the dollar amount to be paid for the Series A and Series B Preferred
Stock by each Purchaser at such Closing, and the number of shares of
each such series to be issued to each; and
(iv) the date on which such Closing shall occur.
Each Purchase Notice shall be accompanied by an Officer's Financing Certificate
(as defined in Section 1.5). The obligation of the Purchasers to purchase
Purchased Shares at each closing shall be subject to satisfaction to conditions
set forth in Articles VII and VIII hereof at each such closing. Prior to the
first sale of Purchased Shares for the purpose of funding the purchase of a
Clinic (as provided in Section 1.5), an aggregate minimum of $250,000 of
Preferred Stock shall be purchased at each Closing (provided that a lesser
amount may be purchased at the second Closing), and the purchase price of the
Preferred Stock purchased by Summit Ventures IV, L.P. and its affiliates at all
Closings, when added to the purchase price of the Common Stock purchased by such
persons, shall not exceed $1,000,000. Thereafter, an aggregate minimum of
$1,000,000 of Preferred Stock shall be purchased at each Closing. Payment at
each Closing for the Purchased Shares shall be by wire transfer payable in
immediately available federal funds. Each Purchaser shall pay that amount for
the Purchased Shares being acquired by it at the Closing as described in the
Purchase Notice. At each Closing, the Company will deliver to each Purchaser one
or more certificates representing the Purchased Shares purchased by such
Purchaser, in such denominations as may be requested by such Purchaser.
2
<PAGE>
1.5 Use of Proceeds. Proceeds from the purchase of Purchased Shares shall
---------------
be used as follows:
(a) Proceeds of the Purchased Shares shall be used to fund the
acquisition, consolidation, management and operation of dental
clinics and related professional services (collectively "Clinics"),
and for general working capital, including without limitation
building the Company's management and operational infrastructures.
(b) The cumulative proceeds from the sale of Purchased Shares used to
provide working capital for the Company or for any Clinic (including
working capital received prior to the acquisition of the first
Clinic) shall not exceed $3,000,000.
(c) The Company shall be entitled to pursue acquisitions of Clinics on
such terms and conditions as the Board of Directors of the Company
shall, from time to time deem necessary or desirable; provided,
however, no such Clinic may be acquired without the consent of the
Purchasers who have purchased or committed to purchase a majority of
the Purchased Shares unless each of the following conditions (the
"Financing Conditions") shall have been satisfied:
(i) the total purchase price of such Clinic (including cash and
other property and the present value of any notes or contingent
payments to be made) shall not exceed six times such Clinic's
annualized EBITDA, which annualized figure shall be determined
based upon the Clinic's EBITDA for the six months ended
immediately prior to the date of the proposed acquisition;
(ii) at the time of the request for the financing for such
acquisition, the Company shall not be in default under the
terms of any indebtedness for borrowed money owed to any bank
or other financial institution (excluding the subordinated
indebtedness which may be owed from time to time by the Company
to Summit Subordinated Debt Fund L.P. (the "Summit Debt Fund");
and
(iii) for the twelve months ended as of the last day of the month
immediately preceding the month in which such acquisition is
scheduled to close, the Company and its Subsidiaries shall have
had EBITDA in excess of $1; provided, however, that with
respect to any sale of Purchased Shares during the period of
twelve months commencing on execution of this Agreement, the
condition set forth in this clause (iii) shall be deemed to
have been satisfied if the historical EBITDA of a Clinic which
the Company proposes to purchase, measured for the twelve
months ending as of the month immediately preceding the month
in which the acquisition is
3
<PAGE>
proposed to be completed and excluding any expenses associated
with the prior shareholders of the Clinic which will not
continue after the acquisition, exceeds $1.
(d) In connection with each Purchase Notice, the President and Chief
Financial Officer of the Company shall deliver to the Purchasers an
Officer's Certificate ("Officer's Financing Certificate") confirming
that the conditions set forth in Sections 1.5 (including in the event
proceeds will be used to fund the acquisition of one or more Clinics,
those specified in Section 1.5(c)) shall have been satisfied with
respect to such acquisition.
(e) The Company may finance the purchase of Clinics through secured
indebtedness received from one or more banks or other financial
institutions, and through debt financing supplied by the owner of
such a Clinic; provided, however, that in no event shall the Company
be entitled to fund any such acquisition using the proceeds of
capital stock other than the Purchased Shares unless and until all
such Purchased Shares shall have been purchased or commitments to
purchase the Purchased Shares have been terminated as herein
provided.
(f) In addition to the circumstances set forth in Section 1.6, the
Investors' commitments to acquire Purchased Shares shall terminate on
the first to occur of (i) the fourth anniversary of the execution of
this Agreement, (ii) the date on which Gregory A. Serrao ceases to
serve as President and Chief Executive Officer of the Company, (iii)
consummation by the Company of the first Qualified Public Offering,
and (iv) sale of all or substantially all of the assets of the
Company or all of the capital stock of the Company to a third party.
1.6 Termination of Commitment; Right to Repurchase. If the Company has
----------------------------------------------
sold to Summit Ventures IV, L.P. and its affiliates an aggregate of $1,000,000
of Preferred Stock and Common Stock to raise working capital and has not
purchased a Clinic before the Company has spent such $1,000,000, then, at any
time after the Company has spent such $1,000,000 and has sent an additional
Purchase Notice to the Purchasers, Purchasers who have committed to purchase a
majority of the Purchased Shares may, by notice to the Company, elect on behalf
of all Purchasers to terminate any further obligation to purchase Purchased
Shares. If such an election is made, Gregory A. Serrao may, at his election,
purchase, or cause the Company to purchase, all capital stock of the Company
owned by the Purchasers (other than himself) at the original purchase price paid
therefor, payable in cash. If Mr. Serrao wishes to exercise such purchase option
he shall give written notice to such effect to all Purchasers within sixty (60)
days after receipt by the Company of the Purchasers' notice of termination of
their purchase commitments, and shall consummate such purchase within sixty (60)
days after he gives notice to the Purchasers of his election to purchase from
them their capital stock of the Company.
4
<PAGE>
1.7 Additional Purchasers. On or before February 19, 1996, one or more
---------------------
persons reasonably acceptable to the Company and those Purchasers who have
committed to purchase a majority of the Purchased Shares (the "Additional
Purchasers") may become Purchasers for the purpose of this Agreement by
executing a counterpart of this Agreement pursuant to which they commit to
purchase up to an aggregate of $1,100,000 of the Purchased Shares and Common
Stock. In such event, the Additional Purchasers shall be deemed to be Purchasers
for all purposes of this Agreement, Schedule 1.1 shall be amended to include
------------
their names, addresses and purchase commitments, the purchase commitments of
Summit Ventures IV, L.P. and its affiliates shall be reduced proportionately to
reflect the purchase commitments of the Additional Purchasers, and the
Additional Purchasers shall pay to the Company their pro rata share of any
--- ----
purchase commitments which have been called prior to their execution of this
Agreement. If and to the extent that the Additional Purchasers do not purchase
an aggregate of $1,100,000 of Purchased Shares and Common Stock on or before
February 19, 1996, Summit Ventures IV, L.P. and Summit Investors III, L.P. shall
on that date purchase the number of such additional Purchased Shares and Common
Stock which were not purchased by the Additional Purchasers, and Schedule 1.1
------------
shall be amended so as to increase the purchase commitments of each such Summit
entity accordingly.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
---------------------------------
THE COMPANY.
-----------
In order to induce the Purchasers to purchase the Purchased Shares, the
Company, makes the following representations and warranties which shall be true,
correct and complete in all respects on the date hereof and shall be true,
correct and complete in all respects as of the date of each Closing, except to
the extent that such representation or warranty expressly refers to an earlier
date or the disclosure schedules hereto have been updated to reflect any
exception thereto attributable to an action of the Company not prohibited
hereunder, including without limitation the consummation of the acquisition of
one or more Clinics:
2.1 Organization and Corporate Power. The Company and each of its
--------------------------------
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own its properties and to carry on
its business as presently conducted. The Company and each of its Subsidiaries is
duly licensed or qualified to do business as a foreign corporation in each
jurisdiction wherein the character of its property, or the nature of the
activities presently conducted by it, makes such qualification necessary, except
where the failure so to qualify would not have a material adverse effect on the
Company and its Subsidiaries, taken as a whole.
2.2 Authorization. The Company has all necessary corporate power and has
-------------
taken all necessary corporate action required for the due authorization,
execution, delivery and
5
<PAGE>
performance by the Company of this Agreement, the Shareholders' Agreement
referenced in Section 7.5, the Registration Rights Agreement referenced in
Section 7.6, the Employment and Non-Competition Agreement referenced in Section
7.7 and the Stock Option Agreement referenced in Section 7.8 (collectively, the
"Related Agreements"), and the consummation of the transactions contemplated
herein or therein, and for the due authorization, issuance and delivery of the
Purchased Shares, and the Conversion Shares issuable upon conversion of the
Series A Preferred Stock. Sufficient shares of authorized but unissued Common
Stock have been reserved for issuance upon exercise of the Series A Preferred
Stock. The issuance of the Purchased Shares does not, and the issuance of the
Conversion Shares upon conversion of the Series A Preferred Stock will not,
require any further corporate action and is not and will not be subject to any
preemptive right, right of first refusal or the like. This Agreement and the
Related Agreements will each be a valid and binding obligation of the Company
enforceable in accordance with its respective terms.
2.3 Government Approvals. No consent, approval, license or authorization
--------------------
of, or designation, declaration or filing with, any court or governmental
authority is or will be required on the part of the Company in connection with
the execution, delivery and performance by the Company of this Agreement or any
of the Related Agreements, or in connection with the issuance of the Purchased
Shares or the issuance of the Conversion Shares upon conversion of the Series A
Preferred Stock, except for (i) those which have already been made or
granted,(ii) the filing of registration statements with the Securities and
Exchange Commission (the "Commission") and any applicable state securities
commission as provided for in Registration Rights Agreement, and (iii) other
filings relating to qualifications, exceptions from registration, and related
matters contemplated by the Registration Rights Agreement.
2.4 Authorized and Outstanding Stock. On the date hereof, before giving
--------------------------------
effect to the first Closing, the authorized capital stock of the Company will
consist of (i) 1,000,000 shares of Common Stock, of which 50,000 shares are
validly issued and outstanding and held of record and owned beneficially as set
forth in Schedule 2.4 attached hereto; and (ii) 470,000 shares of Preferred
------------
Stock, of which (x) 400,000 shares will have been designated as Series A
Preferred Stock with the rights, terms and privileges set forth in Exhibit A,
---------
and of which no shares will be issued or outstanding; and (y) 70,000 shares will
have been designated as Series B Preferred Stock with the rights, terms and
privileges set forth in Exhibit A, and of which no shares will be issued or
---------
outstanding. There are no treasury shares held by the Company. All issued and
outstanding shares of capital stock are, and when issued in accordance with the
terms hereof, all Purchased Shares and Conversion Shares issued upon conversion
of the Purchased Shares will be, duly and validly authorized, validly issued and
fully paid and non-assessable and free from any restrictions on transfer, except
for restrictions imposed by federal or state securities or "blue-sky" laws and
except for those imposed pursuant to this Agreement or any Related Agreement.
Except pursuant to this Agreement or the Related Agreements or as set forth on
Schedule 2.4, there are no outstanding warrants, options, commitments,
- ------------
preemptive rights, rights to acquire or purchase, conversion rights or demands
6
<PAGE>
of any character relating to the capital stock or other securities of the
Company. All issued and outstanding shares of capital stock of the Company were
issued (i) in transactions exempt from the registration provisions of the Act,
and (ii) in compliance with or in transactions exempt from the registration
provisions of applicable state securities or "blue-sky" laws.
2.5 Subsidiaries. Except as set forth in Schedule 2.5, the Company has no
------------ ------------
Subsidiaries nor any investment or other interest in, or any outstanding loan or
advance to or from, any Person, including, without limitation, any officer,
director or shareholder. Except as set forth on Schedule 2.5, the Company owns
------------
of record and beneficially, free and clear of all liens, charges, restrictions,
claims and encumbrances of any nature, all of the issued and outstanding capital
stock of each of its Subsidiaries.
2.6 Financial Information. As of the date hereof: (a) the Company has
---------------------
been newly formed for the purpose of exploring acquisition opportunities
relating to dental clinics and other specialty practice groups; and (b) the
Company has no assets or liabilities other than those associated with its
formation, the negotiation herein contemplated, and the consideration of
selected acquisitions.
2.7 [Intentionally Omitted]
2.8 Litigation. Except as otherwise set forth on Schedule 2.8, there is
---------- ------------
no litigation or governmental proceeding or investigation pending or, to the
knowledge of the Company, threatened, against the Company or any Subsidiary or
affecting any of the Company's or such Subsidiary's properties or assets, or
against any officer, key employee or shareholder of the Company or any
Subsidiary in his capacity as such, which litigation, proceeding, or
investigation is reasonably likely to have a material adverse effect on the
Company and its Subsidiaries, taken as a whole, nor, to the knowledge of the
Company, has there occurred any event or does there exist any condition on the
basis of which any litigation, proceeding or investigation is reasonably likely
to be properly instituted with any substantial chance of recovery where such
recovery would likely have a material adverse effect on the Company and its
Subsidiaries, taken as a whole. Neither the Company nor any Subsidiary, nor any
officer, key employee or shareholder of the Company or any Subsidiary in his
capacity as such is, to the knowledge of the Company, in default with respect to
any order, writ, injunction, decree, ruling or decision of any court,
commission, board or other government agency which may materially and adversely
affect the business or assets of the Company and its Subsidiaries, taken as a
whole.
2.9 Compliance with Laws and Other Instruments. The Company and its
------------------------------------------
Subsidiaries are in compliance with all of the provisions of this Agreement and
of its charter and by-laws, and in all material respects with the provisions of
each mortgage, indenture, lease, license, other agreement or instrument,
judgment, decree, judicial order, statute, and regulation by which any of them
is bound or to which any of them or any of their respective properties are
subject, except, in any such case, where noncompliance would not have a
7
<PAGE>
material adverse effect on the Company and its Subsidiaries, taken as a whole.
Neither the execution, delivery or performance of this Agreement and the Related
Agreements, nor the offer, issuance, sale or delivery of the Purchased Shares,
or the Conversion Shares upon conversion of the Purchased Shares, on the terms
of this Agreement will violate, or result in any breach of, or constitute a
default under, or result in the imposition of any encumbrance upon any asset of
the Company or any Subsidiary pursuant to any provision of the Company's or such
Subsidiary's charter or by-laws, or any statute, rule or regulation, contract,
lease, judgment, decree or other document or instrument by which the Company or
any Subsidiary is bound or to which the Company or any Subsidiary or any of
their respective properties are subject, which violation, breach, default, or
imposition would have a material adverse effect on the Company and its
Subsidiaries, taken as a whole, or, to the knowledge of the Company, will cause
the Company or any Subsidiary to lose the benefit of any material right or
privilege it presently enjoys or cause any Person who is expected to normally do
business with the Company or any Subsidiary to discontinue to do so on the same
basis, which discontinuation would have a material adverse effect on the Company
and its Subsidiaries, taken as a whole.
2.10 Taxes. The Company and each of its Subsidiaries has filed all tax
-----
returns (including statements of estimated taxes owed) required to be filed
within the applicable periods for such filings and has paid all taxes required
to be paid, and has established adequate reserves (net of estimated tax payments
already made) for the payment of all taxes payable in respect to the period
subsequent to the last periods covered by such returns, except for any failure
to file or establish reserves which would not have a material adverse effect on
the Company and its Subsidiaries, taken as a whole. No deficiencies for any tax
are currently assessed against the Company or any Subsidiary, which deficiencies
are material to the Company and its Subsidiaries, taken as a whole, and except
as set forth on Schedule 2.10, no tax returns of the Company or any Subsidiary
have ever been audited, and, to the knowledge of the Company, there is no such
audit pending or contemplated. There is no tax lien, whether imposed by any
federal, state or local taxing authority, outstanding against the material
assets, properties or business of the Company. For the purposes of this
Agreement, the term "tax" shall include all federal, state and local taxes,
including income, franchise, property, sales, withholding, payroll and
employment taxes.
2.11 Real Property.
-------------
(a) Schedule 2.11 sets forth the addresses and uses of all real
-------------
property that the Company or any Subsidiary owns, leases or subleases, and any
material lien or encumbrance on any such owned real property or the Company's or
Subsidiary's leasehold interest therein, specifying in the case of each such
lease or sublease, the name of the lessor or sublessor, as the case may be, and
the lease term.
(b) Except as set forth on Schedule 2.11, the Company or its
-------------
Subsidiary, as the case may be, has good and marketable title to, and owns free
and clear of all material liens and encumbrances, all property listed as owned
by the Company or any Subsidiary on
8
<PAGE>
Schedule 2.11, and there is no violation of any law, regulation or ordinance
- -------------
(including without limitation laws, regulations or ordinances relating to
zoning, environmental, city planning or similar matters) relating to any real
property owned, leased or subleased by the Company or any Subsidiary, which
violation would have a material adverse effect on the Company and its
Subsidiaries, taken as a whole.
(c) There are no defaults by the Company or any Subsidiary which are
reasonably likely to curtail in any material respect the present use of the
Company's or such Subsidiary's property listed on Schedule 2.11. The
-------------
performance by the Company of this Agreement and the Related Agreements will not
result in the termination of, or in any increase of any amounts payable under,
any lease listed on Schedule 2.11.
-------------
2.12 Personal Property. Except as set forth on Schedule 2.12 and except
----------------- -------------
for property sold or otherwise disposed of in the ordinary course of business,
the Company and its Subsidiaries own free and clear of any material liens or
encumbrances, all of the personal property reflected as owned by the Company and
its Subsidiaries in the balance sheet contained in the Unaudited Financial
Statements, and all other material items of personal property acquired by the
Company and its Subsidiaries through the date hereof. All material items of such
personal property are in good operating condition, normal wear and tear
excepted.
2.13 Patents, Trademarks, etc. Set forth on Schedule 2.13 is a list and
------------------------- -------------
brief description of all material patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications
trade names and copyrights owned by or registered in the name of the Company or
any Subsidiary, or of which the Company or any Subsidiary is a licensor or
licensee or in which the Company or any Subsidiary has any material right, and
in each case a brief description of the nature of such right. The Company and
its Subsidiaries own or possess adequate licenses or other rights to use all
patents, patent applications, trademarks, trademark applications, service marks,
service mark applications, trade names, copyrights, manufacturing processes,
formulae, trade secrets and know how (collectively, "Intellectual Property")
necessary to the conduct of their business as conducted, and no claim is pending
or, to the knowledge of the Company, threatened to the effect that the
operations of the Company infringe upon or conflict with the asserted rights of
any other person under any Intellectual Property, and there is no known basis
for any such claim (whether or not pending or threatened), which would have a
material adverse effect on the Company and its Subsidiaries, taken as a whole.
No claim is pending or, to the knowledge of the Company, threatened to the
effect that any such Intellectual Property owned or licensed by the Company, or
which the Company or any Subsidiary otherwise has the right to use, is invalid
or unenforceable by the Company or such Subsidiary, and there is no known basis
for any such claim (whether, or not pending or threatened) which would have a
material adverse effect on the Company and its Subsidiaries, taken as a whole.
To the knowledge of the Company, all technical information developed by and
belonging to the Company and its Subsidiaries which has not been patented or
copywritten has been kept confidential, except for
9
<PAGE>
any such information the disclosure of which would not have a material adverse
effect on the Company and its Subsidiaries, taken as a whole.
2.14 Agreements of Directors, Officers and Employees. To the knowledge of
-----------------------------------------------
the Company, no director, officer or employee of or consultant to the Company or
any Subsidiary is in violation of any material terms of any written employment
contract, non-competition agreement, non-disclosure agreement, patent disclosure
or assignment agreement or other written contract or agreement containing
restrictive covenants relating to the right of any such director, officer,
employee or consultant to be employed or engaged by the Company or such
Subsidiary because of the nature of the business conducted by the Company or
such Subsidiary, or relating to the use of trade secrets or proprietary
information of others.
2.15 Governmental and Industrial Approvals. The Company and each of its
-------------------------------------
Subsidiaries has all the material permits, licenses, orders, franchises and
other rights and privileges of all federal, state, local or foreign governmental
or regulatory bodies necessary for the Company and such Subsidiaries to conduct
their respective businesses as presently conducted, except to the extent the
failure to acquire same would not have a material adverse effect on the Company
and its Subsidiaries, taken as a whole. All such permits, licenses, orders,
franchises and other rights and privileges are in full force and effect and, to
the knowledge of the Company, no suspension or cancellation of any of them is
threatened, except to the extent the failure of same to be in full force and
effect would not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole, and none of such permits, licenses, orders,
franchises or other rights and privileges will be materially and adversely
affected by the consummation of the transactions contemplated in this Agreement
and the Related Agreements.
2.16 Registration Rights. The Company has not granted any rights relating
-------------------
to registration of its capital stock under the Act or state securities laws
other than those contained in this Agreement, or the Registration Rights
Agreement.
2.17 Insurance Coverage. Schedule 2.17 hereto contains an accurate list of
------------------ -------------
the insurance policies currently maintained by the Company and its Subsidiaries.
Except as described on Schedule 2.17, there are currently no claims pending
-------------
against the Company or any Subsidiary under any insurance policies currently in
effect and covering the property, business or employees of the Company and its
Subsidiaries, except for any claims which would not have a material adverse
effect on the Company and its Subsidiaries, taken as a whole, and all premiums
due and payable with respect to the policies maintained by the Company and its
Subsidiaries has been paid to date.
2.18 Employee Matters. Except as set forth on Schedule 2.18, neither the
---------------- -------------
Company nor any Subsidiary has in effect any material written employment
agreements, consulting agreements, deferred compensation, pension or retirement
agreements or arrangements, bonus, incentive or profit-sharing plans or
arrangements, or labor or collective bargaining
10
<PAGE>
agreements. Except as set forth on Schedule 2.18, the Company has no knowledge
that any of the officers or other key employees of the Company or any Subsidiary
presently intends to terminate his employment. The Company and its Subsidiaries
are in compliance in all material respects with all applicable laws and
regulations relating to labor, employment, fair employment practices, terms and
conditions of employment, and wages and hours. The Company and each Subsidiary
is in material compliance with the terms of all plans, programs and agreements
listed on Schedule 2.18, and each such plan, program or agreement is in
-------------
compliance in all material respects with all of the requirements and provisions
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Except as set forth on Schedule 2.18, no such plan or program has engaged in any
"prohibited transaction" as defined in Section 4975 of the Internal Revenue Code
of 1986 (the "Code"), or has incurred any "accumulated funding deficiency" as
defined in Section 302 of ERISA, nor has any reportable event as defined in
Section 4043(b) of ERISA occurred with respect to any such plan or program, and
neither the Company nor any Subsidiary has or has maintained any group health
plan subject to Section 4980B of the Code or Section 162(i) or (k) of the Code
as amended by the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended by the Technical and Miscellaneous Revenue Act of 1988. With respect to
each plan listed on Schedule 2.18, all required filings, including all filings
-------------
required to be made with the United States Department of Labor and Internal
Revenue Service, have been timely filed, except to the extent the failure to so
file would not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole.
2.19 No Brokers or Finders. No person has or will have, as a result of the
---------------------
transactions contemplated by this Agreement, any right, interest or claim
against or upon the Company or any of its Subsidiaries for any commission, fee
or other compensation as a finder or broker because of any act or omission by
the Company or any of its Subsidiaries.
2.20 Transactions with Affiliates. Except as contemplated by this
----------------------------
Agreement or the Related Agreements or as set forth on Schedule 2.20, there are
-------------
no loans, leases or other continuing transactions between the Company or any
Subsidiary on the one hand, and any officer or director of the Company or any
Subsidiary or any person owning five percent (5%) or more of the Common Stock of
the Company or any respective family member or affiliate of such officer,
director or shareholder on the other hand.
2.21 Assumptions, Guarantees, etc. of Indebtedness of Other Persons.
--------------------------------------------------------------
Except as set forth on Schedule 2.21, neither the Company nor any Subsidiary has
-------------
assumed, guaranteed, endorsed or otherwise become directly or contingently
liable on or for any indebtedness of any other Person, except guarantees by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business.
2.22 Restrictions on Subsidiaries. Except as set forth on Schedule 2.22,
---------------------------- -------------
there are no restrictions on the Company or any of its Subsidiaries which
prohibit or otherwise restrict the transfer of cash or other assets between the
Company and any of its Subsidiaries or between
11
<PAGE>
any Subsidiaries of the Company.
2.23 Disclosures. Neither this Agreement, any Schedule or Exhibit to this
-----------
Agreement, nor the Related Agreements, nor any other agreement, document or
written statement made by the Company and furnished by the Company to the
Purchasers in connection with the transactions contemplated hereby, contains any
untrue statement of material fact or omits to state any material fact necessary
to make the statements contained herein or therein not misleading.
ARTICLE III
AFFIRMATIVE COVENANTS OF THE COMPANY
------------------------------------
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that unless otherwise permitted, approved, or waived by
Purchasers then owing or having the right to acquire a majority of the
Conversion Shares, it will observe the following covenants on and after the date
hereof and until the consummation of the first public offering of its securities
pursuant to a registration statement filed under the Securities Act of 1933, as
amended:
3.1 Accounts and Reports. The Company will, and will cause each of its
--------------------
Subsidiaries to, maintain a standard system of accounts in accordance with
generally accepted accounting principles consistently applied and the Company
will, and will cause each of its Subsidiaries to, keep full and complete
financial records. The Company will furnish to each Purchaser the information
set forth in this Section 3.1.
(a) Within ninety (90) days after the end of each fiscal year, a
copy of the consolidated and consolidating balance sheet of the Company and its
Subsidiaries as at the end of such year, together with consolidated and
consolidating 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 corresponding figures for the preceding fiscal year, all in
reasonable detail and duly certified by an independent public accountant of
national recognition selected by the Board of Directors of the Company and
reasonably acceptable to Purchasers.
(b) Within thirty (30) days after the end of each calendar month, a
preliminary consolidated and consolidating balance sheet of the Company and its
Subsidiaries as of the end of such month and preliminary consolidated and
consolidating statements of income, shareholders' equity and cash flow for such
month and for the period commencing at the end of the previous fiscal year and
ending with the end of such month, setting forth in each case in comparative
form the corresponding figures for the corresponding period of the preceding
fiscal year, all in reasonable detail.
12
<PAGE>
(c) At the time of delivery of each monthly and annual statement, a
certificate, executed by the either the president or chief financial officer of
the Company stating (i) that such officer has caused this Agreement and the
terms of the Preferred Stock to be reviewed and has no knowledge of any default
by the Company or any Subsidiary in the performance or observance of any of the
provisions of this Agreement or such Preferred Stock or, if such officer has
such knowledge, specifying such default, and (ii) with respect to the delivery
of annual statements, a statement as to the then Applicable Conversion Value of
the Series A Preferred Stock and the number of Conversion Shares into which each
share of Series A Preferred Stock may then be converted.
(d) Prior to the end of each fiscal year, a copy of the operating
plan and budget for the next fiscal year required under Section 3.8, in form
consistent with good business practice.
(e) Promptly upon receipt thereof, any written report, so called
"management letter", and any other communication submitted to the Company or any
Subsidiary by its independent public accountants relating to the business,
prospects or financial condition of the Company and its Subsidiaries;
(f) Promptly after the commencement thereof, notice of (i) all
actions, suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
affecting the Company (or any Subsidiary) which, if successful, could have a
material adverse effect on the Company and its Subsidiaries, taken as a whole;
and (ii) all material defaults by the Company or any Subsidiary (whether or not
declared) under any agreement for money borrowed (unless waived or cured within
applicable grace periods);
(g) Promptly upon sending, making available, or filing the same, all
reports and financial statements as the Company (or any Subsidiary) shall send
or make available generally to the shareholders of the Company as such or to the
Commission; and
(h) Such other information with regard to the business, properties
or the condition or operations, financial or otherwise, of the Company or its
Subsidiaries as the Purchaser may from time to time reasonably request.
3.2 Payment of Taxes. The Company will pay and discharge (and cause any
----------------
Subsidiary to pay and discharge) all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profits, or upon any properties
belonging to it, prior to the date on which penalties attach thereto, and all
lawful claims which, if unpaid, might become a lien or charge upon any
properties of the Company (or any Subsidiary), provided that neither the Company
nor any Subsidiary shall be required to pay any such tax, assessment, charge,
levy or claim which is being contested in good faith and by proper proceedings
if the Company or such Subsidiary shall have set aside on its books adequate
13
<PAGE>
reserves with respect thereto.
3.3 Maintenance of Key Man Insurance. The Company will, at its expense,
--------------------------------
use all reasonable efforts to obtain within thirty (30) days of the date hereof
and thereafter maintain a life insurance policy with a responsible and reputable
insurance company payable to the Company on the life of Gregory A. Serrao in the
face amount of $1,000,000. The Company will maintain such policy and will not
cause or permit any assignment of the proceeds of such policy and will not
borrow against such policy. The Company will add one designee of the Purchasers
as a notice party to such policy, and will request that the issuer of such
policy provide such designee with ten (10) days' notice before such policy is
terminated (for failure to pay premium or otherwise) or assigned, or before any
change is made in the designation of the beneficiary thereof.
3.4 Compliance with Laws, etc. The Company will comply (and cause each of
--------------------------
its Subsidiaries to comply) with all applicable laws, rules, regulations and
orders of any governmental authority, the noncompliance with which could
materially adversely affect the business or condition, financial or otherwise,
of the Company and its Subsidiaries, taken as a whole.
3.5 Inspection. At any reasonable time during normal business hours and
----------
from time to time, but not more frequently than once every six months for all
Purchasers and transferees of Purchasers as a group, upon five (5) days prior
written notice, the Company (and each of its Subsidiaries) will permit any one
or more of the Purchasers who then own, of record or beneficially, or have the
right to acquire, any of the Conversion Shares, or any transferee of a Purchaser
who owns, of record or beneficially, or has the right to acquire, at least five
percent (5%) of the then outstanding Common Stock, or any of the agents or
representatives of the foregoing Persons, to examine and make copies of and
extracts from the records and books of account of and visit the properties of
the Company (and any of its Subsidiaries) and to discuss the Company's affairs,
finances and accounts with any of its officers or directors; provided that any
Person or Persons exercising rights under this Section 3.5 shall (i) use all
reasonable efforts to ensure that any such examination or visit results in a
minimum of disruption to the operations of the Company and (ii) shall agree in
writing to keep any confidential or proprietary information of the Company or
any of its Subsidiaries disclosed to him in the course of such inspection
confidential in a manner consistent with prudent business practices and
treatment of such Person's or Persons' own confidential information and not use
such proprietary information for any purpose other than reviewing or analyzing
the operations, results of operation, or condition of the Company or its
Subsidiaries. The rights granted under this Section 3.5 shall be in addition to
any rights which any Purchaser may have under applicable law in its capacity as
a shareholder of the Company.
3.6 Corporate Existence; Ownership of Subsidiaries. The Company will, and
----------------------------------------------
will cause its Subsidiaries to, at all times preserve and keep in full force and
effect their corporate existence, and rights and franchises material to the
business of the Company and its
14
<PAGE>
Subsidiaries, taken as a whole, and will qualify, and will cause each of its
Subsidiaries to qualify, to do business as a foreign corporation in any
jurisdiction where the failure to do so would have a material adverse effect on
the business, condition (financial or other), assets, properties or operations
of the Company and its Subsidiaries, taken as a whole. The Company shall at all
times own of record and beneficially, free and clear of all liens, charges,
restrictions, claims and encumbrances of any nature, all of the issued and
outstanding capital stock of each of its Subsidiaries.
3.7 Compliance with ERISA. The Company will comply, (and cause each of
---------------------
its Subsidiaries to comply) in all material respects with all minimum funding
requirements applicable to any pension or other employee benefit plans which are
subject to ERISA or to the Code, and comply in all other material respects with
the provisions of ERISA and the Code, and the rules and regulations thereunder,
which are applicable to any such plan. Neither the Company nor any of its
Subsidiaries will permit any event or condition to exist which could permit any
such plan to be terminated under circumstances which cause the lien provided for
in Section 3068 of ERISA to attach to the assets of the Company or any of its
Subsidiaries if the lien would be material to the Company and its Subsidiaries,
taken as a whole.
3.8 Board Approval. Prior to the end of each fiscal year, the Company
--------------
will prepare and submit to its Board of Directors for its approval prior to such
year end an operating plan and budget, cash flow projections and profit and loss
projections, all itemized in reasonable detail for the immediately following
year.
3.9 Financings. The Company will promptly provide to the Board of
----------
Directors the details and terms of, and any brochures or investment memoranda
prepared by the Company related to, any proposed financing of any nature for the
Company (or any of its Subsidiaries), whether initiated by the Company or any
other Person.
3.10 Meetings of the Board of Directors. The Directors shall schedule
----------------------------------
regular meetings not less frequently than once every calendar quarter. The
Company shall reimburse the Purchasers for all direct out-of-pocket expenses
incurred by any director designee of the Purchasers in attending such meetings.
3.11 Rule 144A Information. Subject to the Related Agreements, the
---------------------
Company shall, upon the written request of any Purchaser, provide to such
Purchaser and to any prospective institutional transferee of the Purchased
Shares or Conversion Shares designated by such Purchaser, such financial and
other information as is available to the Company or can be obtained by the
Company without material expense and as such Purchaser may reasonably determine
is required to permit such transfer to comply with the requirements of Rule 144A
promulgated under the Act.
ARTICLE IV
15
<PAGE>
NEGATIVE COVENANTS OF THE COMPANY AND SUMMIT ENTITIES
-----------------------------------------------------
Without limiting any other covenants and provisions hereof, unless
otherwise permitted, approved or waived by Purchasers then owning or having the
right to acquire a majority of the Conversion Shares the Company, covenants and
agrees that it will comply (and will cause each of their respective Subsidiaries
and affiliates to comply) with each of the provisions of this Article IV that
applies to them, as the case may be, on and after the date hereof and until the
consummation of the first public offering of its securities pursuant to a
registration statement filed under the Securities Act of 1933, as amended.
4.1 Investments in Other Persons. The Company will not make or permit any
----------------------------
Subsidiary to make any loan or advance to any Person, or purchase, otherwise
acquire, or permit any Subsidiary to purchase or otherwise acquire, the capital
stock, assets comprising the business of, obligations of, or any interest in,
any Person, except:
------
(i) investments by the Company or a Subsidiary in evidences of
indebtedness issued or fully guaranteed by the United States of America and
having a maturity of not more than one year from the date of acquisition;
(ii) investments by the Company or a Subsidiary in certificates of
deposit, notes, acceptances and repurchase agreements having a maturity of
not more than one year from the date of acquisition issued by a bank
organized in the United States having capital, surplus and undivided
profits of at least $50,000,000;
(iii) loans or advances from a Subsidiary to the Company or from a
Subsidiary to another Subsidiary;
(iv) investments by the Company or a Subsidiary in A-rated or better
commercial paper having a maturity of not more than one year from the date
of acquisition;
(v) investments by the Company or a Subsidiary in "money market"
fund shares, or in "money market" accounts fully insured by the Federal
Deposit Insurance Corporation and sponsored by banks and other financial
institutions, provided that such "money market" fund or "money market"
accounts invest principally in investments of the types described in
clauses (i), (ii) or (iv) of this subsection 4.1; and
(vi) investments by the Company or a Subsidiary constituting an
acquisition of a Clinic to the extent permitted under Section 1.5.
4.2 Distributions. The Company will not declare or pay any dividends,
-------------
except dividends payable with respect to the Preferred Stock in accordance with
Exhibit A, purchase, redeem, retire, or otherwise acquire for value any of its
- ---------
capital stock (or rights, options or
16
<PAGE>
warrants to purchase such shares) now or hereafter outstanding, return any
capital to its shareholders as such, or make any distribution of assets to its
shareholders as such, or permit any Subsidiary to do any of the foregoing,
except that the Subsidiaries may declare and make payment of cash and stock
dividends, return capital and make distributions of assets to the Company and
except that nothing herein contained shall prevent the Company from:
(i) effecting a stock split or declaring or paying any dividend
consisting of shares of any class of capital stock to the holders of shares
of such class of capital stock;
(ii) complying with any terms of the Preferred Stock as contained in
Exhibit A attached hereto relating to the payment of dividends, liquidation
---------
preferences or redemption payments on or with respect to the Preferred
Stock or redemption of the Preferred Stock; or
(iii) repurchase of shares from Mr. Serrao pursuant to the terms of
his Employment Agreement of even date.
4.3 Dealings with Affiliates. Except for this Agreement and the Related
------------------------
Agreements, the Company will not enter into any transaction including, without
limitation, any loans or extensions of credit or royalty agreements with any
officer or director of the Company or any Subsidiary or holder of any class of
capital stock of the Company, or any member of their respective immediate
families or any corporation or other entity directly or indirectly controlled by
one or more of such officers, directors or shareholders or members of their
immediate families, except for advances in reasonable amounts made to employees
of the Company or any Subsidiary for valid business purposes.
4.4 Merger. The Company shall not, and shall not permit any Subsidiary to
------
merge or consolidate with any other corporation, or sell, assign, lease or
otherwise dispose of or voluntarily part with the control of (whether in one
transaction or in a series of transactions) all, or substantially all, of its
assets (whether now owned or hereinafter acquired) or sell, assign or otherwise
dispose of (whether in one transaction or in a series of transactions) any of
its material accounts receivable (whether now in existence or hereinafter
created) at a discount or with recourse, to any Person, or permit any Subsidiary
to do any of the foregoing, (i) except for sales or other dispositions of assets
------
in the ordinary course of business, and (ii) except that (a) any wholly owned
Subsidiary may merge into or consolidate with or transfer assets to any other
wholly owned Subsidiary, (b) any wholly owned Subsidiary may merge into or
transfer assets to the Company, and (c) the foregoing shall not prohibit, to the
extent commercially reasonable, (i) the settlement of accounts which are not
reasonably collectible in full at less than the full amount of such accounts, or
(ii) the assignment of such accounts to a third party under terms which allow
such third party to retain a portion of the amount collected.
17
<PAGE>
4.5 Option Shares. The Company will not issue shares of its capital stock
-------------
and will not grant any options, rights or warrants to acquire its capital stock,
except up to an aggregate of 100,601 shares of Common Stock may be issued to
employees of the Company pursuant to the Related Agreements or options granted
under a stock option plan approved by the Compensation Committee of the
Company's Board of Directors, which number shall include options for not in
excess of 45,045 shares of Common Stock which may be issued to Mr. Serrao;
provided that all such options shall have an exercise price per share that is
not less than $2.00. The numbers of shares and exercise price set forth in this
Section shall be proportionately adjusted to reflect any stock dividend, stock
split or other form of recapitalization occurring after the date hereof.
4.6 No Conflicting Agreements. The Company agrees that neither it nor any
-------------------------
Subsidiary will, without the consent of the Purchasers, enter into or amend any
agreement, contract, commitment or understanding which would restrict or
prohibit the exercise by the Purchasers of any of their rights under this
Agreement or any of the Related Agreements.
4.7 Restriction of Investments. Summit Ventures IV, L.P., Summit Ventures
--------------------------
III, L.P. and Summit Investors II, L.P. each agree that as long as they
collectively hold at least 20% of the issued and outstanding stock of the
Company on a fully diluted basis they will not, nor permit their affiliates to,
acquire an interest in any company, entity, or venture more than one third of
the revenues of which the preceding twelve months were derived from the
ownership, operation or management of dental service providers or providers of
services in the related specialty practices of orthodontics, periodontics,
endodontics, pedidontics or oral surgery. The restriction set forth in this
Section shall not apply to any investment in a portfolio company which exists as
of the date hereof, or to any follow-on investment in such a portfolio company.
If the Purchasers terminate their commitment to purchase Purchased Shares in
accordance with Section 1.6 of this Agreement, the restrictions in this Section
4.7 shall terminate.
ARTICLE V
PREEMPTIVE RIGHT
----------------
5.1 Right of Purchase. The Company hereby grants to each Purchaser so
-----------------
long as it or he shall own, of record or beneficially, or have the right to
acquire from the Company, any Purchased Shares, Conversion Shares or Common
Stock, the right to purchase all or part of its or his pro rata share of New
--- ----
Securities (as defined in Section 5.2) which the Company, from time to time,
proposes to sell and issue. A Purchaser's pro rata share, for purposes of this
--- ----
preemptive right, is the ratio of the number (without duplication) of Purchased
Shares, Conversion Shares and shares of Common Stock which such Purchaser owns
or has the right to acquire from the Company to the total number (without
duplication) of Purchased Shares, Conversion Shares and shares of Common Stock
then outstanding. The Purchasers shall have
18
<PAGE>
a right of over-allotment pursuant to this Article V such that to the extent a
Purchaser does not exercise its or his preemptive right in full hereunder, such
additional shares of New Securities which such Purchaser did not purchase may be
purchased by the other Purchasers in proportion to the total number (without
duplication) of Purchased Shares, Conversion Shares or other shares of Common
Stock which each such other Purchaser owns or has the right to acquire from the
Company compared to the total number (without duplication) of Purchased Shares,
Conversion Shares or other shares of Common Stock which all such other
Purchasers own or have the right to acquire from the Company.
5.2 Definition of New Securities. "New Securities" shall mean any capital
----------------------------
stock of the Company whether now authorized or not, and rights, options or
warrants to purchase capital stock, and securities of any type whatsoever that
are, or may become convertible into or exchangeable for capital stock, issued on
or after the date hereof; provided that the term "New Securities" does not
--------
include (i) securities purchased under this Agreement or Conversion Shares
issuable upon conversion of the Series A Preferred Stock, (ii) Common Stock
issued as a stock dividend to holders of Common Stock or upon any stock split,
subdivision or combination of shares of Common Stock, (iii) Preferred Stock
issued as a dividend to holders of Preferred Stock or upon any stock split,
subdivision or combination of Preferred Stock, (iv) the aggregate number of
shares of Common Stock issuable upon exercise of options permitted under Section
4.5 hereof, (v) securities issued in connection with the acquisition of a Clinic
authorized under Section 1.5; and (vi) issuance of securities in connection with
borrowing of subordinated indebtedness from Summit Subordinated Debt Fund, L.P.
5.3 Notice from the Company. In the event the Company proposes to
-----------------------
undertake an issuance of New Securities, it shall give each Purchaser written
notice of its intention, describing the type of New Securities and the price and
the terms upon which the Company proposes to issue the same. Each Purchaser
shall have 20 calendar days from the date of receipt of any such notice to agree
to purchase up to the Purchaser's pro rata share of such New Securities (and any
--- ----
over-allotment amount pursuant to the operation of Section 5.1 hereof) for the
price and upon the terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased.
5.4 Sale by the Company. In the event any Purchaser fails to exercise in
-------------------
full its preemptive right (after giving effect to the over-allotment provision
of Section 5.1 hereof), the Company shall have 90 days thereafter to sell the
New Securities with respect to which the Purchaser's option was not exercised,
at a price and upon terms no more favorable to the purchasers thereof than
specified in the Company's notice. To the extent the Company does not sell all
the New Securities offered within said 90 day period, the Company shall not
thereafter issue or sell such New Securities without first again offering such
securities to the Purchasers in the manner provided above.
5.5 Termination of Rights. The rights granted to the Purchasers under
---------------------
this Article V shall expire immediately prior to, and shall not apply in
connection with, the consummation
19
<PAGE>
of the first Qualified Public Offering.
ARTICLE VI
INVESTMENT REPRESENTATIONS
--------------------------
6.1 Representations and Warranties. Each Purchaser hereby represents and
------------------------------
warrants to the Company as follows:
(a) Assuming due execution and delivery by the Company of the
Agreement and the Related Agreements, this Agreement and the Related Agreements
to which such Purchaser is a party constitute legal, valid and binding
obligations of such Purchaser, enforceable against such Purchaser in accordance
with their respective terms;
(b) Such Purchaser has been advised and understands that the
Purchased Shares have not been registered under the Act, on the grounds that no
distribution or public offering of the Purchased Shares is to be effected, and
that in this connection, the Company is relying in part on the representations
of such Purchasers set forth in this Article VI;
(c) Such Purchaser has been further advised and understands that no
public market now exists for any of the securities issued by the Company and
that a public market may never exist for the Purchased Shares or Conversion
Shares;
(d) Such Purchaser is purchasing the Purchased Shares for investment
purposes, for its own account and not with a view to, or for sale in connection
with, any distribution thereof in violation of Federal or state securities laws;
(e) By reason of its business or financial experience, such
Purchaser has the capacity to protect its own interest in connection with the
transactions contemplated hereunder;
(f) Such Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Purchased Shares;
provided, however, that nothing in this Section 6.1 shall be deemed to vitiate
or limit the representations, warranties and covenants of the Company contained
in this Agreement; and
(g) No person has or will have, as a result of the transaction
contemplated by this Agreement, any right, interest or claim against or upon the
Company or any of its Subsidiaries for any commission, fee or other compensation
as a finder or broker because of any act or omission by such Purchaser.
6.2 Permitted Sales; Legends. Notwithstanding the foregoing
------------------------
representations, so
20
<PAGE>
long as there is full compliance with all applicable federal and state
securities laws, and subject to the Shareholders Agreement, the Company agrees
that it will permit (i) a distribution of Purchased Shares or Conversion Shares
by a partnership to one or more of its partners, where no consideration is
exchanged therefor by such partners, or to a retired or withdrawn partner who
retires or withdraws after the date hereof in full or partial distribution of
his interest in such partnership, or to the estate of any such partner or the
transfer by gift, will or intestate succession of any partner to his spouse or
to the siblings, lineal descendants or ancestors of such partner or his spouse,
or to a trust created for the benefit of one or more of the foregoing, if the
transferee agrees in writing to be subject to the terms hereof to the same
extent as if it were an original Purchaser hereunder and (ii) a sale or other
transfer of any of the Purchased Shares, or Conversion Shares upon obtaining
assurance satisfactory to the Company that such transaction is exempt from the
registration requirements of, or is covered by an effective registration
statement under, the Act and applicable state securities or "blue-sky" laws,
including, without limitation, receipt of an unqualified opinion to such effect
of counsel reasonably satisfactory to the Company. The certificates representing
the Purchased Shares and any Conversion Shares thereof shall bear a legend
evidencing such restriction on transfer substantially in the following form:
"The shares represented by this certificate have been
acquired for investment and have not been registered
under the Securities Act of 1933 (the "Act") or the
securities laws of any state. The shares may not be
transferred by sale, assignment, pledge or otherwise
unless (i) a registration statement for the shares
under the Act is in effect or (ii) the corporation has
received an opinion of counsel, which opinion is
reasonably satisfactory to the corporation, to the
effect that such registration is not required under
the Act."
ARTICLE VII
CONDITIONS OF PURCHASERS' OBLIGATION
------------------------------------
7.1 Effect of Conditions. The obligation of the Purchasers to purchase
--------------------
and pay for the Purchased Shares at any Closing shall be subject at their
election to the satisfaction of each of the conditions stated in the following
Sections of this Article.
7.2 Representations and Warranties. The representations and warranties of
------------------------------
the Company contained in this Agreement shall be true and correct on the date of
such Closing with the same effect as though made on and as of that date, except
to the extent that such representations and warranties expressly relate to a
prior date.
7.3 Performance. The Company shall have performed and complied in all
-----------
21
<PAGE>
material respects with all of the agreements, covenants and conditions
contained in this Agreement required to be performed or complied with by it and
him at or prior to such Closing.
7.4 Certified Documents, etc. The Certificate of Incorporation
------------------------
of the Company shall have been amended to include the provisions of Exhibit A
---------
attached hereto.
7.5 Shareholders' Agreement. A Shareholders' Agreement in the form of
-----------------------
Exhibit B attached hereto shall have been executed by each Purchaser and the
- ---------
Company.
7.6 Registration Rights Agreement. A Registration Rights Agreement in the
-----------------------------
form of Exhibit C shall have been executed by the Company and the other parties
---------
thereto.
7.7 Employment Agreement. Mr. Serrao shall have executed an Employment
--------------------
and Non-Competition Agreement in the form of Exhibit D attached hereto.
---------
7.8 Stock Option Agreements. The Company and Mr. Serrao shall have
-----------------------
executed a stock option agreement in the form of Exhibit E attached hereto (the
---------
"Stock Option Agreements") pursuant to which the Company grants to Mr. Serrao
options to purchase up to an aggregate of 45,045 shares of Common Stock (subject
to adjustment to reflect any stock split, stock dividend or the like occurring
after the date hereof).
ARTICLE VIII
CONDITIONS OF THE COMPANY'S OBLIGATION
--------------------------------------
The Company's obligation to sell the Purchased Shares shall be subject to
the accuracy on the date of the applicable Closing of the representations and
warranties of the Purchasers contained in this Agreement, and the performance by
the Purchasers of all agreements, covenants, and conditions contained in this
Agreement required to be performed by them at or prior to such Closing.
ARTICLE IX
CERTAIN DEFINITIONS
-------------------
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Agreement" means this Series A and Series B Preferred Stock Purchase
Agreement as from time to time amended and in effect between the parties.
22
<PAGE>
"Applicable Conversion Value" shall mean the Applicable Conversion Value of
the Preferred Stock under Section 5(c) of Exhibit A.
---------
"Business Day" shall mean a day which is not a legal holiday in the City of
Boston, Massachusetts.
"Closing" shall have the meaning set forth in Section 1.4.
"Common Stock" will include (a) the Company's Common Stock as authorized on
the date of this Agreement, (b) any other capital stock of any class or classes
of the Company authorized on or after the date hereof, the holders of which
shall 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, and
(c) any other securities of the Company into which or for which any of the
securities described in (a) or (b) may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise.
"Company" means and shall include American Dental Partners, Inc., a
Delaware corporation, and its successors and assigns.
"Conversion Shares" shall have the meaning set forth in Section 1.3.
"EBITDA" shall mean the consolidated earnings before interest, taxes,
depreciation and amortization, as determined in accordance with generally
accepted accounting principles, consistently applied.
"Holders" shall have the meaning set forth in Section 7.1.
"New Securities" shall have the meaning set forth in Section 5.2.
"Person" means an individual, corporation, partnership, joint venture,
trust or unincorporated organization or a government or agency or political
subdivision thereof.
"Preferred Stock" shall have the meaning set forth in Section 1.2.
"Purchased Shares" shall have the meaning set forth in Section 1.2.
"Purchaser" shall have the meaning set forth in Section 1.1.
"Qualified Public Offering" means the closing of an underwritten public
offering by the Company pursuant to a registration statement filed and declared
effective under the Act covering the offer and sale of Common Stock for the
account of the Company in which the aggregate net proceeds to the Company equal
at least $20,000,000 and in which the price per
23
<PAGE>
share of Common Stock equals or exceeds two (2) times the then Applicable
Conversion Value of the Series A Preferred Stock under Section 5(c) of Exhibit
-------
A.
- -
"Related Agreements" shall have the meaning set forth in Section 2.2.
"Series A Preferred Stock" shall have the meaning set forth in Section 1.1.
"Series B Preferred Stock" shall have the meaning set forth in Section 1.2.
"Subsidiary" or "Subsidiaries" means any corporation, association or other
business entity of which the Company and/or any of its other Subsidiaries (as
herein defined) directly or indirectly owns at the time more than fifty percent
(50%) of the outstanding voting shares of every class of such corporation or
trust other than directors' qualifying shares.
ARTICLE X
TERMINATION
10.1 Termination by Mutual Written Consent. This Agreement may be
-------------------------------------
terminated, and the transactions contemplated hereby abandoned, at any time
prior to any Closing by the written agreement of the Company and the Purchasers;
provided however, that except as set forth in Section 10.2, the Purchasers may
not terminate this Agreement without the consent of Mr. Serrao so long as he
shall serve as President of the Company.
10.2 Termination for Breach. This Agreement may be terminated and the
----------------------
transactions contemplated hereby may be abandoned at any time before the Closing
(or any date to which the Closing may have been extended by the written
agreement of the parties obligated to perform on such Closing) by any party
obligated to perform on the Closing if the conditions for its benefit set forth
in Article VII or VIII, as the case may be, have not been satisfied on or prior
to the Closing and remain unsatisfied for at least 10 days after notice thereof
from such party to the other parties and if the conditions for the benefit of
the other parties have been satisfied or waived, and if such performing party
shall have given written notice of termination to the non-performing party.
10.3 Rights After Termination. Upon termination of this Agreement under
------------------------
this Article X, the parties shall be released from all obligations arising
hereunder.
ARTICLE XI
MISCELLANEOUS
24
<PAGE>
11.1 Survival of Representations. The representations, warranties,
---------------------------
covenants and agreements made herein or in any certificates or documents
executed in connection herewith shall survive the execution and delivery hereof
and the closing of the transaction contemplated hereby.
11.2 Parties in Interest. Except as otherwise set forth herein, all
-------------------
covenants, agreements, representations, warranties and undertakings contained in
this Agreement shall be binding on and shall inure to the benefit of the
respective successors and assigns of the parties hereto (including transferees
of any of the Purchased Shares or Conversion Shares).
11.3 Shares Owned by Affiliates. For the purposes of applying all
--------------------------
provisions of this Agreement which condition the receipt of information or
access to information or exercise of any rights upon ownership of a specified
number or percentage of shares, the shares owned of record by any affiliate of a
Purchaser shall be deemed to be owned by such Purchaser. For the purpose of this
Agreement, the term "affiliate" shall mean any Person controlling, controlled by
or under common control with, a Purchaser and any general or limited partner of
a Purchaser.
11.4 Amendments and Waivers. Amendments or additions to this Agreement may
----------------------
be made, agreements with any decision of the Company may be made, and compliance
with any term, covenant, agreement, condition or provision set forth herein may
be omitted or waived (either generally or in a particular instance and either
retroactively or prospectively) upon the written consent of the Company and the
holders of a majority of the issued and issuable Conversion Shares; provided,
however, that no such amendment may be made without the consent of Mr. Serrao so
long as he shall continue to serve as President of the Company. Prompt notice of
any such amendment or waiver shall be given to any Person who did not consent
thereto. This Agreement (including the Schedules and Exhibits annexed hereto,
which are an integral part of this Agreement) constitutes the full and complete
agreement of the parties with respect to the subject matter hereof.
11.5 Notices. All notices, requests, consents, reports and demands shall
-------
be in writing and shall be hand delivered, sent by facsimile or other electronic
medium, or mailed, postage prepaid, to the Company or to the Purchasers at the
address set forth below or to such other address as may be furnished in writing
to the other parties hereto:
The Company: American Dental Partners, Inc.
c/o Summit Partners, L.P.
600 Atlantic Avenue
Suite 2800
Boston, MA 02210-2227
Attn. Gregory A. Serrao, President
The Purchasers: The address set forth opposite the Purchaser's name on
25
<PAGE>
Schedule 1.1 attached hereto.
------------
with copy to: Hutchins, Wheeler & Dittmar
A Professional Corporation
101 Federal Street
Boston, MA 02110
Attention: James Westra
and in the case of notice of Gregory A. Serrao, with copy to:
Baker & Hostetler
Capitol Square
65 East Street
Columbus, OH 43215
Attention: Gary A. Wadman
11.6 Expenses. Each party hereto will pay its own expenses in connection
--------
with the transactions contemplated hereby, provided, however, that the Company
-------- -------
shall pay all reasonable costs and expenses of the Purchasers in connection with
the investigation, preparation, execution and delivery of this Agreement and the
other instruments and documents to be delivered hereunder and the transactions
contemplated hereby and thereby, including, the reasonable fees and
disbursements of Hutchins, Wheeler & Dittmar, A Professional Corporation,
special counsel to the Purchasers.
11.7 Counterparts. This Agreement and any exhibit hereto may be executed
------------
in multiple counterparts, each of which shall constitute an original but all of
which shall constitute but one and the same instrument. One or more counterparts
of this Agreement or any exhibit hereto may be delivered via telecopier, with
the intention that they shall have the same effect as an original counterpart
hereof.
11.8 Effect of Headings. The article and section headings herein are for
------------------
convenience only and shall not affect the construction hereof.
11.9 Adjustments. All provisions of this Agreement shall be automatically
-----------
adjusted to reflect any stock dividend, stock split or other such form of
recapitalization.
11.10 Governing Law. This Agreement shall be deemed a contract made under
-------------
the laws of the State of Delaware and together with the rights and obligations
of the parties hereunder, shall be construed under and governed by the laws of
such State.
[Rest of Page Intentionally Left Blank]
26
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon, this letter shall become a binding agreement among us.
Very truly yours,
AMERICAN DENTAL PARTNERS, INC.
By: /s/ Gregory A. Serrao
------------------------------------
Name: Gregory A. Serrao
Title: President
PURCHASERS:
SUMMIT VENTURES IV, L.P.
By: Summit Partners, IV, L.P.,
Its General Partner
By: Stamps, Woodsum & Co. IV,
Its General Partner
By: /s/ Martin J. Mannion
------------------------------------
General Partner
SUMMIT INVESTORS III, L.P.
By: /s/ Martin J. Mannion
------------------------------------
General Partner
/s/ Gregory A. Serrao
---------------------------------------
Gregory A. Serrao
27
<PAGE>
FIRST AMENDMENT TO SERIES A AND SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
This amendment is made effective February 19, 1996, among American Dental
Partners, Inc., a Delaware corporation (the "Company"), and Summit Ventures IV,
L.P., Summit Investors III, L.P., and Gregory A. Serrao (collectively, the
"Original Purchasers").
Background Information
----------------------
A. The Company and the Original Purchasers are all of the parties (the
"Parties") to the Series A and Series B Preferred Stock Purchase Agreement dated
January 8, 1996 (the "Agreement").
B. Pursuant to (S)1.7 of the Agreement, certain third parties may, upon
execution of a counterpart to the Agreement on or before February 19, 1996 (the
"Investment Deadline"), become parties to the Agreement and thereby purchase
shares of Preferred Stock of the Company, and commit to purchase additional
shares of Preferred Stock, on the same terms as the Original Purchasers.
C. A number of third parties have expressed an interest in purchasing
Preferred Shares in this manner. However, it will be impractical for the
closing of such purchases to be consummated by the Investment Deadline.
Accordingly, the Parties desire to amend the Agreement in order to extend the
Investment Deadline.
Statement of Agreement
----------------------
The Parties hereby acknowledge the accuracy of the foregoing Background
Information and agree as follows:
(S)1. Definitions. All capitalized terms used in this amendment which
-----------
are not otherwise defined herein shall have the respective meanings given those
terms in the Agreement.
(S)2. Additional Purchasers. Each reference in (S)1.7 of the Agreement
---------------------
to "February 19, 1996" is hereby changed to "April 30, 1996."
(S)3. Construction. In the event of any inconsistency between the
------------
provisions of this amendment and the provisions of the Agreement, the provisions
of this amendment shall control. Except as modified in this amendment, the
Agreement shall continue in full force and effect without change. This
amendment shall be binding upon, inure to the benefit of, and be enforceable by
and against the respective successors and assigns of each Party.
<PAGE>
(S)4. Counterparts. This amendment may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same amendment.
SUMMIT VENTURES IV, L.P. SUMMIT INVESTORS III, L.P.
By: Summit Partners IV, L.P. By /s/ Martin J. Mannion
----------------------------
General Partner Its General Partner
By /s/ Martin J. Mannion
-------------------------
General Partner
By: Stamps, Woodsum & Co. IV
General Partner
By /s/ Martin J. Mannion
-------------------------
General Partner
AMERICAN DENTAL PARTNERS, INC.
By /s/ Gregory A. Serrao /s/ Gregory A. Serrao
---------------------------- -----------------------------
Gregory A. Serrao GREGORY A. SERRAO
President
<PAGE>
SECOND AMENDMENT TO SERIES A AND SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
This amendment is made effective May 1, 1996, among American Dental
Partners, Inc., a Delaware corporation (the "Company"), and those Persons listed
on the Schedule of Purchasers attached hereto (the "Purchasers").
Background Information
----------------------
A. The Company and the Purchasers are all of the parties (the "Parties")
to a Series A and Series B Preferred Stock Purchase Agreement dated January 8,
1996, as previously amended (the "Agreement").
B. The Company desires and intends to request additional funds from the
Purchasers pursuant to (S)1.4 of the Agreement.
C. The Parties desire to amend the Agreement in order to: (i) expand the
right of the Company to request additional funds prior to closing an acquisition
of a Clinic; and (ii) clarify certain other provisions contained in the
Agreement.
Statement of Agreement
----------------------
The Parties hereby acknowledge the accuracy of the foregoing Background
Information and agree as follows:
(S)1. Definitions. All capitalized terms used in this amendment which
-----------
are not otherwise defined herein shall have the respective meanings given those
terms in the Agreement.
(S)2. Closings. The first two sentences of the first paragraph of
--------
(S)1.4 of the Agreement are hereby replaced by the following:
The Purchased Shares shall be sold to the Purchasers at one or
more closings (individually a "Closing" and collectively the
"Closings") to be held at the offices of the Company or at such
other location as may be set forth in the Purchase Notice
(defined below). Each Closing shall be held no sooner than two
Business Days and no later than 10 Business Days after written
notice (a "Purchase Notice") shall be given by the Company to the
Purchasers as herein provided.
(S)3. Commitment Prior to Initial Acquisition. The reference to
---------------------------------------
"$1,000,000" at the end of the third sentence in the last paragraph of (S)1.4 of
the Agreement is hereby changed to "$2,000,000".
<PAGE>
Each reference in (S)1.6 of the Agreement to "$1,000,000" is
hereby changed to "$2,000,000".
(S)4. Subsequent Investment. The last sentence of Section 1.7 of the
---------------------
Agreement is hereby replaced in its entirety by the following:
If and to the extent that the Additional Purchasers do not commit to
purchase an aggregate of $1,100,000 of Purchased Shares and Common Stock on
or before April 30, 1996: (a) Summit Ventures IV, L.P. and Summit Investors
III, L.P. shall on that date (i) commit to purchase that number of such
additional Purchased Shares and Common Shares which the Additional
Purchasers did not commit to purchase (the "Additional Commitment"), and
(ii) pay to the Company the pro rata share of the Additional Commitment
which has been called prior to such date; and (b) Schedule 1.1 shall be
amended so as to increase the purchase commitments of each such Summit
entity accordingly. Notwithstanding the foregoing, Mazza & Riley, Inc.:
(a) has already purchased all of the shares of Preferred Stock which may be
purchased by it under this Agreement and paid the full consideration
therefor; and (b) shall have neither the right nor the obligation to
purchase additional shares of Preferred Stock under this Agreement or
otherwise participate in Closings pursuant to (S)1.4 of this Agreement.
(S)5. Issuances. Section 4.5 of the Agreement is hereby replaced in
---------
its entirety by the following:
Option Shares. The Company will not issue shares of its
-------------
capital stock, except for issuances which would not constitute an
issuance of New Securities (as defined in (S)5.2, below), and
will not grant any options, rights or warrants to acquire its
capital stock, except up to an aggregate of 100,601 shares of
Common Stock may be issued to employees of the Company pursuant
to the Related Agreements or options granted under a stock option
plan approved by the Compensation Committee of the Company's
Board of Directors, which number shall include options for not in
excess of 45,045 shares of Common Stock which may be issued to
Mr. Serrao; provided that all such options shall have an exercise
price per share that is not less than $2.00. The numbers of
shares and exercise price set forth in this Section shall be
proportionately adjusted to reflect any stock dividend, stock
split or other form of recapitalization occurring after the date
hereof.
(S)6. Preemptive Rights. Section 5.2 of the Agreement is hereby
-----------------
replaced in its entirety by the following:
<PAGE>
Definition of New Securities. "New Securities" shall
----------------------------
mean any capital stock of the Company whether now authorized or
not, and rights, options or warrants to purchase capital stock,
and securities of any type whatsoever that are, or may become
convertible into or exchangeable for capital stock, issued on or
after the date hereof; provided that the term "New Securities"
does not include (i) securities purchased under this Agreement or
Conversion Shares issuable upon conversion of the Series A
Preferred Stock, (ii) Common Stock issued as a stock dividend to
holders of Common Stock or upon any stock split, subdivision or
combination of shares of Common Stock, (iii) Preferred Stock
issued as a dividend to holders of Preferred Stock or upon any
stock split, subdivision or combination of Preferred Stock, (iv)
the aggregate number of shares of Common Stock issuable upon
exercise of options permitted under Section 4.5 hereof, (v)
securities issued in connection with the acquisition of a Clinic
authorized under Section 1.5 or otherwise approved by the board
of directors of the Company; (vi) issuance of securities in
connection with borrowing of subordinated indebtedness from
Summit Subordinated Debt Fund, L.P; and (vii) securities issued
pursuant to the Subscription Agreement and Investment
Representation dated January 11, 1996, among the Company and the
Purchasers, as amended.
(S)7. Revised Schedule. Schedule 1.1 of the Agreement is hereby
----------------
replaced in its entirety with the attached Schedule of Purchasers, and all
references in the Agreement to "Schedule 1.1" shall hereafter be deemed to be
references to the attached Schedule of Purchasers.
(S)8. Effectiveness. Pursuant to (S)11.4 of the Agreement, this
-------------
amendment shall become effective upon its execution by the Company, Gregory A.
Serrao, and the holders of a majority of the issued and issuable Conversion
Shares.
(S)9. Construction. In the event of any inconsistency between the
------------
provisions of this amendment and the provisions of the Agreement, the provisions
of this amendment shall control. Except as modified in this amendment, the
Agreement shall continue in full force and effect without change. This
amendment shall be binding upon, inure to the benefit of, and be enforceable by
and against the respective successors and assigns of each Party.
<PAGE>
(S)10. Counterparts. This amendment may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same amendment.
SUMMIT VENTURES IV, L.P. SUMMIT INVESTORS III, L.P.
By: Summit Partners IV, L.P. By /s/ Martin J. Mannion
General Partner -----------------------------
Its General Partner
----------------------------
By /s/ Martin J. Mannion
------------------------
General Partner
By: Stamps, Woodsum & Co. IV
General Partner
By /s/ Martin J. Mannion
------------------------
General Partner
AMERICAN DENTAL PARTNERS, INC.
By /s/ Gregory A. Serrao /s/ Gregory A. Serrao
---------------------------- --------------------------------
Gregory A. Serrao GREGORY A. SERRAO
President
/s/ Robert D. Walter /s/ Donald Vasti
- ------------------------------- -------------------------------
ROBERT D. WALTER DONALD VASTI
/s/ M. Robert DiGia /s/ Celeste Vasti
- ------------------------------- -------------------------------
M. ROBERT DiGIA CELESTE VASTI
/s/ George Bennett /s/ Stephen Corrou
- ------------------------------- -------------------------------
GEORGE BENNETT STEPHEN CORROU
[Signatures continued on following page]
<PAGE>
/s/ Gary A. Wadman /s/ Ronald M. Levenson
- ----------------------------- ------------------------------
GARY A. WADMAN RONALD M. LEVENSON
F & F, L.L.C. MAZZA & RILEY, INC.
By By
--------------------------- --------------------------
Its Its
--------------------------- --------------------------
NORO-MOSELEY PARTNERS
By
---------------------------
General Partner
<PAGE>
THIRD AMENDMENT TO SERIES A AND SERIES B
PREFERRED STOCK PURCHASE AGREEMENT
This amendment is made effective November 1, 1996, among American Dental
Partners, Inc., a Delaware corporation (the "Company"), and those Persons listed
on the Schedule of Purchasers attached hereto (collectively, the "Purchasers").
Background Information
----------------------
A. The Company and the Purchasers are all of the parties (the "Parties")
to a Series A and Series B Preferred Stock Purchase Agreement dated January 8,
1996, as previously amended February 19, 1996, and May 1, 1996 (the
"Agreement").
B. The Company desires and intends to request additional funds from the
Purchasers pursuant to (S)1.4 of the Agreement. In connection with such
request, the Company and the Purchasers desire to amend the Agreement for the
purpose of clarifying, updating, and amending certain provisions and information
contained in the Agreement.
Statement of Agreement
----------------------
The Parties hereby acknowledge the accuracy of the foregoing Background
Information and agree as follows:
(S)1. Definitions. All capitalized terms used in this amendment which
-----------
are not otherwise defined herein shall have the respective meanings given those
terms in the Agreement.
(S)2. Acquisition of Park. The Purchasers hereby consent to the
-------------------
Company's acquisition of PDHC, Ltd., a Minnesota professional corporation, dba
"Park Dental," and the use by the Company of up to $6,200,000 of proceeds from
the sale of Purchased Shares for such acquisition.
(S)3. Schedules. Schedules 2.4, 2.11, 2.17, and 2.18 of the Agreement
---------
are hereby replaced in their entirety with the attached updated Schedules 2.4,
2.11, 2.17, and 2.18, respectively, and any reference in the Agreement to any
such Schedule shall hereafter be deemed to be a reference to the corresponding
attached Schedule.
(S)4. Accounts and Reports. Section 3.1(b) of the Agreement is hereby
--------------------
replaced in its entirety with the following:
(b) Within 45 days after the end of each (i) calendar
month with respect to Summit Ventures IV, L.P., Summit
Investors III, L.P., and Noro-Moseley Partners III,
L.P., and (ii) calendar quarter with
<PAGE>
respect to all other Purchasers, a preliminary
consolidated balance sheet of the Company and its
Subsidiaries as of the end of such quarter and
preliminary consolidated statements of income,
shareholders' equity, and cash flows for such quarter
and for the period commencing at the end of the
previous fiscal year and ending with the end of such
quarter, setting forth in each case in comparative form
the corresponding figures for the corresponding period
of the preceding fiscal year, all in reasonable detail.
Immediately following the word "monthly" in the first sentence of Section
3.1(c), the following is hereby inserted ", quarterly,". The Purchasers hereby
waive any non-compliance by the Company with Section 3.1(b) of the Agreement
prior to the date of this amendment.
(S)5. Merger. Clause (ii)(a) of Section 4.4 of the Agreement is hereby
------
replaced in its entirety with the following:
(a) any wholly owned Subsidiary may merge with or into
or consolidate with or transfer assets to any other
entity which is or becomes a wholly owned Subsidiary,
(S)6. Option Shares. The aggregate share limitation contained in the
-------------
first sentence of Section 4.5 of the Agreement is hereby increased from 100,601
to 150,601.
(S)7. Effectiveness. Pursuant to (S)11.4 of the Agreement, this
-------------
amendment is effective upon its execution by the Company, the holders of a
majority of the issued and issuable Conversion Shares, and Gregory A. Serrao.
(S)8. Construction. In the event of any inconsistency between the
------------
provisions of this amendment and the provisions of the Agreement, the provisions
of this amendment shall control. Except as modified in this amendment, the
Agreement shall continue in full force and effect without change. This
amendment shall be binding upon, inure to the benefit of, and be enforceable by
and against the respective successors and assigns of each Party.
<PAGE>
(S)9. Counterparts. This amendment may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same amendment.
SUMMIT VENTURES IV, L.P. SUMMIT INVESTORS III, L.P.
By: Summit Partners IV, L.P. By /s/ Martin J. Mannion
----------------------------
General Partner Its General Partner
---------------------------
By /s/ Martin J. Mannion
-------------------------
General Partner
By: Stamps, Woodsum & Co. IV
General Partner
By /s/ Martin J. Mannion
-------------------------
General Partner
AMERICAN DENTAL PARTNERS, INC.
By /s/ Gregory A. Serrao /s/ Gregory A. Serrao
----------------------------- -----------------------------
Gregory A. Serrao GREGORY A. SERRAO
President
/s/ Robert D. Walter /s/ Donald Vasti
- ------------------------------- -----------------------------
ROBERT D. WALTER DONALD VASTI
/s/ M. Robert DiGia /s/ Celeste Vasti
- ------------------------------- -----------------------------
M. ROBERT DiGIA CELESTE VASTI
/s/ George Bennett /s/ Stephen Corrou
- ------------------------------- -----------------------------
GEORGE BENNETT STEPHEN CORROU
[Signatures continued on following page]
<PAGE>
/s/ Gary A. Wadman /s/ Ronald M. Levenson
- ------------------------------- ------------------------------
GARY A. WADMAN RONALD M. LEVENSON
F & F, L.L.C. MAZZA & RILEY, INC.
By By
---------------------------- ----------------------------
Its Its
--------------------------- ---------------------------
NORO-MOSELEY PARTNERS III, L.P.
By: Moseley & Company III, L.L.C.
General Partner
By
-----------------------
Member
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
SUBORDINATED DEBENTURE PURCHASE AGREEMENT
Dated as of January 8, 1996
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
SUBORDINATED DEBENTURE PURCHASE AGREEMENT
Dated as of January 8, 1996
INDEX
-----
Page
----
<TABLE>
<CAPTION>
ARTICLE I
- ---------
<S> <C>
Purchase and Sale of Debentures.............................. 1
-------------------------------
1.1 Purchase and Sale of Subordinated Debentures........ 1
1.2 Availability of Debentures.......................... 1
1.3 Closing............................................. 2
1.4 Use of Proceeds..................................... 3
1.5 Description of Debentures........................... 4
ARTICLE II
- ----------
Representations and Warranties of the Company................ 5
---------------------------------------------
2.1 Organization and Corporate Power.................... 5
2.2 Authorization....................................... 6
2.3 Government Approvals................................ 6
2.4 Authorized and Outstanding Stock.................... 6
2.5 Subsidiaries........................................ 6
2.6 Financial Information............................... 7
2.7 [Intentionally Omitted]............................. 7
2.8 Litigation.......................................... 7
2.9 Compliance with Laws and Other Instruments.......... 7
2.10 Taxes............................................... 8
2.11 Real Property....................................... 8
2.12 Personal Property................................... 9
2.13 Patents, Trademarks, etc............................ 9
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
2.14 Agreements of Directors,
Officers and Employees.............................. 10
2.15 Governmental and Industrial Approvals............... 10
2.16 Federal Reserve Regulations......................... 10
2.17 Contracts and Commitments........................... 10
2.18 Intentionally Omitted............................... 11
2.19 Registration Rights................................. 11
2.20 Insurance Coverage.................................. 11
2.21 Employee Matters.................................... 11
2.22 No Brokers or Finders............................... 12
2.23 Transactions with Affiliates........................ 12
2.24 Assumptions, Guarantees, etc. of Indebtedness
of Other Persons.................................... 12
2.25 Restrictions on Subsidiaries........................ 12
2.26 Disclosures......................................... 12
ARTICLE III
- -----------
Affirmative Covenants of the Company......................... 13
------------------------------------
3.1 Accounts and Reports................................ 13
3.2 Payment of Taxes.................................... 14
3.3 Maintenance of Key Man Insurance.................... 14
3.4 Compliance with Laws, etc........................... 15
3.5 Inspection.......................................... 15
3.6 Corporate Existence; Ownership of
Subsidiaries........................................ 15
3.7 Compliance with ERISA............................... 16
3.8 Board Approval...................................... 16
3.9 Financings.......................................... 16
3.10 Meetings of the Board of Directors.................. 16
3.11 Rule 144A Information............................... 16
</TABLE>
-ii-
<PAGE>
<TABLE>
ARTICLE IV
- ----------
<S> <C>
Negative Covenants of the Company............................ 16
---------------------------------
4.1 Investments in Other Persons........................ 16
4.2 Distributions....................................... 17
4.3 Dealings with Affiliates............................ 18
4.4 Merger.............................................. 18
4.5 Option Shares....................................... 18
4.6 No Conflicting Agreements........................... 19
4.7 Restriction of Investments.......................... 19
4.8 Financial Covenants................................. 19
ARTICLE V
- ---------
Investment Representations................................... 19
--------------------------
5.1 Representations and Warranties...................... 19
ARTICLE VI
- ----------
Subordination of Debentures.................................. 21
---------------------------
6.1 Agreement to Subordinate............................ 21
6.2 The Company's Obligations Unconditional............. 21
ARTICLE VII
- -----------
Conditions of Purchasers' Obligation......................... 22
------------------------------------
7.1 Effect of Conditions................................ 22
7.2 Representations and Warranties...................... 22
7.3 Performance......................................... 22
7.4 No Material Adverse Change.......................... 22
7.5 Equity Financing.................................... 22
</TABLE>
-iii-
<PAGE>
<TABLE>
ARTICLE VIII
- ------------
<S> <C>
Conditions of the Company's Obligation....................... 22
--------------------------------------
ARTICLE IX
- --------------------
Defaults and Remedies........................................ 23
---------------------
9.1 Events of Default; Acceleration..................... 23
9.2 Recision of Acceleration............................ 25
ARTICLE X
- ---------
Certain Definitions.......................................... 25
-------------------
ARTICLE XI
- ----------
Miscellaneous................................................ 29
-------------
11.1 Debenture Payments.................................. 29
11.2 Form, Registration, Transfer and
Exchange of Debentures............................. 29
11.3 Survival of Representations......................... 30
11.4 Parties in Interest................................. 30
11.5 Debentures Owned by Affiliates...................... 30
11.6 Amendments and Waivers.............................. 30
11.7 Notices............................................. 31
11.8 Expenses............................................ 31
11.9 Counterparts........................................ 32
11.10 Effect of Headings.................................. 32
11.11 Adjustments......................................... 32
11.12 Governing Law....................................... 32
</TABLE>
-iv-
<PAGE>
EXHIBITS
- --------
A Form of Subordinated Debenture
-v-
<PAGE>
January 8, 1996
To: Summit Subordinated Debt Fund, L.P.
Summit Investors III, L.P.
600 Atlantic Avenue, Suite 2800
Boston, Massachusetts 02210-2227
Re: Subordinated Debentures
-----------------------
Gentlemen:
American Dental Partners, Inc., a Delaware corporation (the "Company"),
hereby agrees with you as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES
-------------------------------
1.1 Purchase and Sale of Subordinated Debentures. From time to time
--------------------------------------------
hereafter, at one or more Closings (as herein defined), the Company will sell to
you (the "Purchasers"), and the Purchaser shall purchase from the Company, up to
an aggregate principal amount of $15,000,000 of 12% Subordinated Debentures of
the Company (the "Debentures"). The Debentures shall be in the form of Exhibit A
---------
attached hereto. Each Purchaser commits to purchase Debentures in the aggregate
principal amount set forth on Schedule 1.1 hereto.
------------
1.2 Availability of Debentures. In addition to the other terms and
--------------------------
conditions set forth herein, the obligation of the Purchasers to purchase the
Debentures shall be subject to the following understandings and agreements:
(a) Pursuant to the terms of a certain Series A and Series B
Preferred Stock Purchase Agreement of even date (the "Preferred Stock Purchase
Agreement") the Purchasers named therein have agreed to purchase up to
$7,900,000 of the Company's Series A Convertible Preferred Stock and $7,000,000
of the Company's Series B Preferred Stock
<PAGE>
(together with the Series A Convertible Preferred Stock, the "Preferred Stock").
The Purchasers shall have no obligation to purchase any Debentures hereunder
unless and until all of the Preferred Stock has been purchased in accordance
with the terms of the Preferred Stock Purchase Agreement.
(b) For each Debenture purchased by the Purchasers, the Company shall
issue to the Purchasers, for no additional consideration in excess of par value,
shares of Common Stock of the Company, par value $.01 per share ("Common
Stock"). The number of shares so issued shall be determined in accordance with
the formula set forth in the partnership agreement of Summit Subordinated Debt
Fund, L.P. as it exists on the date hereof.
(c) The Company shall be under no obligation to issue any Debentures,
but the Company may not issue subordinated indebtedness to any other Person on
terms less favorable to the Company than those upon which the Purchasers are
willing to purchase Debentures.
(d) The obligation of the Purchasers to purchase Debentures shall
terminate automatically, without any action on the part of the Purchasers or the
Company, in the event of termination of the obligation of the investors named in
Preferred Stock Purchase Agreement to purchase Preferred Stock.
1.3 Closing. Subject to the satisfaction or waiver of the conditions set
-------
forth in Articles VII and VIII hereof, the Debentures shall be sold at one or
more closings (individually, a "Closing" and collectively the "Closings") to be
held at the offices of Hutchins, Wheeler & Dittmar, A Professional Corporation,
101 Federal Street, Boston, Massachusetts 02110. Each Closing shall be held not
later than three (3) Business Days after written notice (a "Purchase Notice")
shall be given by the Company to the Purchasers as herein provided. Each
Purchase Notice shall specify the following:
(i) The aggregate consideration to be paid by the Purchasers for
the Debentures to be sold at such Closing;
(ii) The equity interest in the Company, if any, to be issued to the
Purchasers at such Closing in connection with the purchase by the Purchasers of
the Debentures, and the consideration, if any, to be paid for such equity;
(iii) The date on which such Closing shall occur.
Each Purchase Notice shall be accompanied by an Officer's Financing Certificate
(as defined in Section 1.4). In no event shall the Purchasers be required to
purchase less than an
2
<PAGE>
aggregate of $1,000,00 in principal amount of Debentures, and there shall be no
more than five Closings in total. In no event shall the Purchasers be obligated
to purchase any Debenture after the fifth anniversary of the execution of this
Agreement. Payment at each Closing for the Debentures shall be by wire transfer
payable in immediately available federal funds. Each Purchaser shall pay that
amount for the Debentures to be acquired by it at the Closing as is described in
the Purchase Notice. At each Closing, the Company will deliver to each
Purchaser one or more certificates representing the Debentures purchased by such
Purchaser, in such denominations as may be requested by such Purchaser.
1.4 Use of Proceeds. Proceeds from the purchase of Debentures shall be
---------------
used as follows:
(a) Proceeds of the Debentures shall be used to fund the acquisition,
consolidation, management and operation of dental clinics and related
professional services (collectively "Clinics"), and for general working capital.
(b) The Company shall be entitled to pursue acquisitions of Clinics
on such terms and conditions as the Board of Directors of the Company shall,
from time to time deem necessary or desirable; provided, however, no such Clinic
may be acquired without the consent of the Purchasers who have purchased or
committed to purchase Debentures representing a majority of the principal amount
of all Debentures unless each of the following conditions (the "Financing
Conditions") shall have been satisfied:
(i) the total purchase price of such Clinic (including cash and
other property and the present value of any notes or contingent
payments to be made) shall not exceed six times such Clinic's
annualized EBITDA, which annualized figure shall be determined based
upon the Clinic's EBITDA for the six months ended immediately prior to
the date of the proposed acquisition; and
(ii) at the time of the request for the financing for such
acquisition, the Company shall not be in default under the terms of
any indebtedness for borrowed money owed to any bank or other
financial institution and shall not be in default under the terms of
this Agreement; and
(iii) for the twelve months ended as of the last day of the month
immediately preceding the month in which such acquisition is scheduled
to close, the Company and its Subsidiaries shall have had EBITDA in
excess of $1; provided, however, that with respect to any sale of
Debentures during the period of twelve months commencing on execution
of this Agreement, the condition set
3
<PAGE>
forth in this clause (iii) shall be deemed to have been satisfied if
the historical EBITDA of the Clinic which the Company proposes to
purchase, measured for the twelve months ending as of the month
immediately preceding the month in which the acquisition is proposed
to be completed and excluding any expenses associated with the prior
shareholders of the Clinic which will not continue after the
acquisition, exceeds $1.
(c) In connection with each Purchase Notice, the President and Chief
Financial Officer of the Company shall deliver to the Purchasers an Officer's
Certificate ("Officer's Financing Certificate") confirming that the conditions
set forth in Section 1.4 (including in the event proceeds will be used to fund
the acquisition of one or more clinics, as specified in Section 1.4(b)) shall
have been satisfied with respect to such acquisition.
(d) The Company may finance the purchase of Clinics through secured
indebtedness received from one or more banks or other financial institutions,
and through debt financing supplied by the owner of such a Clinic; provided,
however, that in no event shall the Company be entitled to fund any such
acquisition using subordinated indebtedness from any third party (other than the
owner of a Clinic) unless such indebtedness is made available to the Company on
terms more favorable to the Company than those on which the Purchasers are
willing to Purchase the Debentures.
1.5 Description of Debentures. The Debentures shall have the following
-------------------------
terms, and shall be entitled to the following rights and benefits:
(a) The principal amount of the Debenture shall be payable in three
equal installments on the sixth, seventh and eighth anniversaries of the date of
execution of this Agreement. The Debentures shall be prepaid in full upon
consummation of a Liquidity Event (as herein defined). The Company may prepay
the Debentures from time to time in whole or in installments of $500,000,
without premium or penalty. Each such prepayment shall be preceded by two
Business Days' notice. Any partial prepayment of the Debentures shall be
allocated among all holders of Debentures pro rata in proportion to the
--- ----
principal amount of the Debentures held by each. Any prepayment shall be
applied against installments of principal in inverse order of maturity.
(b) The Debentures shall bear interest on the outstanding principal
balance from the date of issuance until the date of payment of principal in
full. Interest shall be computed on the basis of a 365-day year and the actual
number of days elapsed, on the unpaid principal amount of the Debentures at the
rate of twelve percent (12%) per annum. Interest shall be payable on each March
31, June 30, September 30, and December 31 for the
4
<PAGE>
respective three month period ending on such date, commencing with the first
such date following issuance of Debentures.
(c) In the event that the principal amount of the Debentures is not
paid when due and payable (whether at stated maturity, by acceleration or
otherwise), the interest on such principal amount shall thereafter be increased
to fourteen percent (14%) per annum.
(d) All payments of principal and interest on the Debentures shall be
made by the Company in lawful money of the United States of America in
immediately available funds (or at the request of the holder of a Debenture, by
certified or bank check or wire transfer) on the date such payment is due.
(e) The indebtedness evidenced by the Debentures shall be junior and
subordinate in right of payment to all Senior Debt, as that term is defined in
Article X hereof, as set forth in Article VI and in any Subordination Agreement
entered into in accordance with that Article.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
In order to induce the Purchaser to purchase the Debentures, the Company
makes the following representations and warranties which shall be true, correct
and complete in all respects on the date hereof and shall be true, correct and
complete in all respects as of the date of each Closing, except to the extent
such representation or warranty expressly refers to an earlier date or the
disclosure schedules hereto have been updated to reflect any exception thereto
attributable to an action of the Company not prohibited hereunder, including
without limitation the consummation of the acquisition of one or more Clinics:
2.1 Organization and Corporate Power. The Company and each of its
--------------------------------
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own its properties and to carry on
its business as presently conducted. The Company and each of its Subsidiaries is
duly licensed or qualified to do business as a foreign corporation in each
jurisdiction wherein the character of its property, or the nature of the
activities presently conducted by it, makes such qualification necessary except
where the failure so to qualify would not have a material adverse effect on the
Company and its Subsidiaries taken as a whole.
5
<PAGE>
2.2 Authorization. The Company has all necessary corporate power and has
-------------
taken all necessary corporate action required for the due authorization,
execution, delivery and performance by the Company of this Agreement, and any
other agreements or instruments executed by the Company in connection herewith
or therewith and the consummation of the transactions contemplated herein or
therein, and for the due authorization, issuance and delivery of the Debentures.
The issuance of the Debentures will not require any further corporate action and
is not and will not be subject to any preemptive right, right of first refusal
or the like. This Agreement and the other agreements and instruments executed by
the Company in connection herewith or therewith will each be a valid and binding
obligation of the Company enforceable in accordance with its respective terms.
2.3 Government Approvals. No consent, approval, license or authorization
--------------------
of, or designation, declaration or filing with, any court or governmental
authority is or will be required on the part of the Company in connection with
the execution, delivery and performance by the Company of this Agreement and any
other agreements or instruments executed by the Company in connection herewith
or therewith, or in connection with the issuance of the Debentures, except for
those which have already been made or granted.
2.4 Authorized and Outstanding Stock. On the date hereof, before giving
--------------------------------
effect to the first Closing, the authorized capital stock of the Company will
consist of (i) 1,000,000 shares of Common Stock, of which 50,000 shares are
validly issued and outstanding and held of record and owned beneficially as set
forth in Schedule 2.4 attached hereto; and (ii) 470,000 shares of Preferred
------------
Stock, of which (x) 400,000 shares will have been designated as Series A
Preferred Stock with the rights, terms and privileges set forth in Exhibit A to
---------
the Preferred Stock Purchase Agreement, and of which no shares will be issued or
outstanding; and (y) 70,000 shares will have been designated as Series B
Preferred Stock with the rights, terms and privileges set forth in Exhibit A to
---------
the Preferred Stock Purchase Agreement, and of which no shares will be issued or
outstanding. There are no treasury shares held by the Company. All issued and
outstanding shares of capital stock are, and when issued in accordance with the
terms hereof, all Purchased Shares and Conversion Shares issued when issued in
accordance with the Preferred Stock Purchase Agreement will be, duly and validly
authorized, validly issued and fully paid and non-assessable and free from any
restrictions on transfer, except for restrictions imposed by federal or state
securities or "blue-sky" laws and except for those imposed pursuant to this
Agreement or any Related Agreement.
2.5 Subsidiaries. Except as set forth in Schedule 2.5, the Company has no
------------ ------------
Subsidiaries nor any investment or other interest in, or any outstanding loan or
advance to or from, any Person, including, without limitation, any officer,
director or shareholder. Except as set forth on Schedule 2.5, the Company owns
------------
of record and beneficially, free and clear of
6
<PAGE>
all liens, charges, restrictions, claims and encumbrances of any nature, all of
the issued and outstanding capital stock of each of its Subsidiaries.
2.6 Financial Information. As of the date hereof: (a) the Company has been
---------------------
newly formed for the purpose of exploring acquisition opportunities relating to
dental clinics and other specialty practice groups; and (b) the Company has no
assets or liabilities other than those associated with its formation, the
negotiation herein contemplated, and the consideration of selected acquisitions.
2.7 [Intentionally Omitted]
2.8 Litigation. Except as otherwise set forth on Schedule 2.8, there is
---------- ------------
no litigation or governmental proceeding or investigation pending or, to the
knowledge of the Company, threatened, against the Company or any Subsidiary or
affecting any of the Company's or such Subsidiary's properties or assets, or
against any officer, key employee or shareholder of the Company or any
Subsidiary in his capacity as such, which litigation, proceeding, or
investigation is reasonably likely to have a material adverse effect on the
Company and its Subsidiaries, taken as a whole, nor, to the knowledge of the
Company, has there occurred any event or does there exist any condition on the
basis of which any litigation, proceeding or investigation is reasonably likely
to be properly instituted with any substantial chance of recovery where such
recovery would likely have a material adverse effect on the Company and its
Subsidiaries, taken as a whole. Neither the Company nor any Subsidiary, nor any
officer, key employee or shareholder of the Company or any Subsidiary in his
capacity as such is, to the knowledge of the Company, in default with respect to
any order, writ, injunction, decree, ruling or decision of any court,
commission, board or other government agency which may materially and adversely
affect the business or assets of the Company and its Subsidiaries, taken as a
whole.
2.9 Compliance with Laws and Other Instruments. The Company and its
------------------------------------------
Subsidiaries are in compliance with all of the provisions of this Agreement and
of its charter and by-laws, and in all material respects with the provisions of
each mortgage, indenture, lease, license, other agreement or instrument,
judgment, decree, judicial order, statute, and regulation by which any of them
is bound or to which any of them or any of their respective properties are
subject, except in any case, where noncompliance would not have a material
adverse effect on the Company and its Subsidiaries, taken as a whole. Neither
the execution, delivery or performance of this Agreement, nor the offer,
issuance, sale or delivery of the Debentures on the terms of this Agreement,
with or without the giving of notice or passage of time, or both, will violate,
or result in any breach of, or constitute a default under, or result in the
imposition of any encumbrance upon any asset of the Company or any Subsidiary
pursuant to any provision of the Company's or such Subsidiary's charter or by-
laws, or any statute, rule
7
<PAGE>
or regulation, contract, lease, judgment, decree or other document or instrument
by which the Company or any Subsidiary is bound or to which the Company or any
Subsidiary or any of their respective properties are subject, which violation,
breach, default or imposition would have a material adverse effect on the
Company and its Subsidiaries, taken as a whole, or, to the knowledge of the
Company, will cause the Company or any Subsidiary to lose the benefit of any
material right or privilege it presently enjoys or cause any Person who is
expected to normally do business with the Company or any Subsidiary to
discontinue to do so on the same basis, which discontinuation would have a
material adverse effect on the Company and its Subsidiaries, taken as a whole.
2.10 Taxes. The Company and each of its Subsidiaries has filed all tax
-----
returns (including statements of estimated taxes owed) required to be filed
within the applicable periods for such filings and has paid all taxes required
to be paid, and has established adequate reserves (net of estimated tax payments
already made) for the payment of all taxes payable in respect to the period
subsequent to the last periods covered by such returns, except for any failure
to file or establish reserves which would not have a material adverse effect on
the Company and its Subsidiaries, taken as a whole. No deficiencies for any tax
are currently assessed against the Company or any Subsidiary, which deficiencies
are material to the Company and its Subsidiaries, taken as a whole, and except
as set forth on Schedule 2.10, no tax returns of the Company or any Subsidiary
have ever been audited, and, to the knowledge of the Company, there is no such
audit pending or contemplated. There is no tax lien, whether imposed by any
federal, state or local taxing authority, outstanding against the material
assets, properties or business of the Company. For the purposes of this
Agreement, the term "tax" shall include all federal, state and local taxes,
including income, franchise, property, sales, withholding, payroll and
employment taxes.
2.11 Real Property.
-------------
(a) Schedule 2.11 sets forth the addresses and uses of all real
-------------
property that the Company or any Subsidiary owns, leases or subleases, and any
material lien or encumbrance on any such owned real property or the Company's or
Subsidiary's leasehold interest therein, specifying in the case of each such
lease or sublease, the name of the lessor or sublessor, as the case may be, and
the lease term.
(b) Except as set forth on Schedule 2.11, the Company or its
-------------
Subsidiary, as the case may be, has good and marketable title to, and owns free
and clear of all material liens and encumbrances, all property listed as owned
by the Company or any Subsidiary on Schedule 2.11, and there is no violation of
-------------
any law, regulation or ordinance (including without limitation laws, regulations
or ordinances relating to zoning, environmental, city planning or similar
matters) relating to any real property owned, leased or subleased by the Company
or
8
<PAGE>
any Subsidiary, which violation would have a material adverse effect on the
Company and its Subsidiaries, taken as a whole.
(c) There are no defaults by the Company or any Subsidiary which are
reasonably likely to curtail in any material respect the present use of the
Company's or such Subsidiary's property listed on Schedule 2.11. The
-------------
performance by the Company of this Agreement and the Related Agreements will not
result in the termination of, or in any increase of any amounts payable under,
any lease listed on Schedule 2.11.
-------------
2.12 Personal Property. Except as set forth on Schedule 2.12 and except
----------------- -------------
for property sold or otherwise disposed of in the ordinary course of business,
the Company and its Subsidiaries own free and clear of any material liens or
encumbrances, all of the personal property reflected as owned by the Company and
its Subsidiaries in the balance sheet contained in the Unaudited Financial
Statements, and all other material items of personal property acquired by the
Company and its Subsidiaries through the date hereof. All material items of such
personal property are in good operating condition, normal wear and tear
excepted.
2.13 Patents, Trademarks, etc. Set forth on Schedule 2.13 is a list and
------------------------- -------------
brief description of all material patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications
trade names and copyrights owned by or registered in the name of the Company or
any Subsidiary, or of which the Company or any Subsidiary is a licensor or
licensee or in which the Company or any Subsidiary has any material right, and
in each case a brief description of the nature of such right. The Company and
its Subsidiaries own or possess adequate licenses or other rights to use all
patents, patent applications, trademarks, trademark applications, service marks,
service mark applications, trade names, copyrights, manufacturing processes,
formulae, trade secrets and know how (collectively, "Intellectual Property")
necessary to the conduct of their business as conducted, and no claim is pending
or, to the knowledge of the Company, threatened to the effect that the
operations of the Company infringe upon or conflict with the asserted rights of
any other person under any Intellectual Property, and there is no known basis
for any such claim (whether or not pending or threatened), which would have a
material adverse effect on the Company and its Subsidiaries, taken as a whole.
No claim is pending or, to the knowledge of the Company, threatened to the
effect that any such Intellectual Property owned or licensed by the Company, or
which the Company or any Subsidiary otherwise has the right to use, is invalid
or unenforceable by the Company or such Subsidiary, and there is no known basis
for any such claim (whether, or not pending or threatened), which would have a
material adverse effect on the Company and its Subsidiaries, taken as a whole.
To the knowledge of the Company, all technical information developed by and
belonging to the Company and its Subsidiaries which has not been patented or
copywritten has been kept confidential, except for
9
<PAGE>
any such information the disclosure of which would not have a material adverse
effect on the Company and its Subsidiaries, taken as a whole.
2.14 Agreements of Directors, Officers and Employees. To the knowledge of
-----------------------------------------------
the Company, no director, officer or employee of or consultant to the Company or
any Subsidiary is in violation of any material terms of any written employment
contract, non-competition agreement, non-disclosure agreement, patent disclosure
or assignment agreement or other written contract or agreement containing
restrictive covenants relating to the right of any such director, officer,
employee or consultant to be employed or engaged by the Company or such
Subsidiary because of the nature of the business conducted by the Company or
such Subsidiary, or relating to the use of trade secrets or proprietary
information of others.
2.15 Governmental and Industrial Approvals. The Company and each of its
-------------------------------------
Subsidiaries has all the material permits, licenses, orders, franchises and
other rights and privileges of all federal, state, local or foreign governmental
or regulatory bodies necessary for the Company and such Subsidiaries to conduct
their respective businesses as presently conducted, except to the extent the
failure to acquire same would not have a material adverse effect on the Company
and its Subsidiaries, taken as a whole. All such permits, licenses, orders,
franchises and other rights and privileges are in full force and effect and, to
the knowledge of the Company, no suspension or cancellation of any of them is
threatened, except to the extent the failure of same to be in full force and
effect would not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole, and none of such permits, licenses, orders,
franchises or other rights and privileges will be materially and adversely
affected by the consummation of the transactions contemplated in this Agreement
and the Related Agreements.
2.16 Federal Reserve Regulations. Neither the Company nor any of its
---------------------------
Subsidiaries has engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation G of the
Board of Governors of the Federal Reserve System), and no part of the proceeds
of the sale of the Purchased Shares and Warrants will be used to purchase or
carry any margin security or to extend credit to others for the purpose of
purchasing or carrying any margin security or in any other manner which would
involve a violation of any of the regulations of the Board of Governors of the
Federal Reserve System.
2.17 Contracts and Commitments. Except as set forth on Schedule 2.17
------------------------- -------------
attached hereto or in the Related Agreements, neither the Company nor any
Subsidiary has any contract, obligation or commitment which is material or which
involves a potential material commitment or any stock redemption or stock
purchase agreement, financing agreement, license, lease, or stock option plan.
For purposes of this Section 2.17, a contract, obligation
10
<PAGE>
or commitment shall be deemed material if it requires future expenditures by the
Company or any Subsidiary in excess of $50,000 or might result in payments to
the Company or any Subsidiary in excess of $50,000.
2.18 [INTENTIONALLY OMITTED]
2.19 Registration Rights. The Company has not granted any rights relating
-------------------
to registration of its capital stock under the Act or state securities laws
other than those contained in this Agreement or the Registration Rights
Agreement of even date.
2.20 Insurance Coverage. Schedule 2.20 hereto contains an accurate list
------------------ -------------
of the insurance policies currently maintained by the Company and its
Subsidiaries. Except as described on Schedule 2.20, there are currently no
-------------
claims pending against the Company or any Subsidiary under any insurance
policies currently in effect and covering the property, business or employees of
the Company and its Subsidiaries, except for any claims which would not have a
material adverse effect on the Company and its Subsidiaries, taken as a whole,
and all premiums due and payable with respect to the policies maintained by the
Company and its Subsidiaries has been paid to date.
2.21 Employee Matters. Except as set forth on Schedule 2.21, neither the
---------------- -------------
Company nor any Subsidiary has in effect any material written employment
agreements, consulting agreements, deferred compensation, pension or retirement
agreements or arrangements, bonus, incentive or profit-sharing plans or
arrangements, or labor or collective bargaining agreements. Except as set forth
on Schedule 2.21, the Company has no knowledge that any of the officers or other
-------------
key employees of the Company or any Subsidiary presently intends to terminate
his employment. The Company and its Subsidiaries are in compliance in all
material respects with all applicable laws and regulations relating to labor,
employment, fair employment practices, terms and conditions of employment, and
wages and hours. The Company and each Subsidiary is in material compliance with
the terms of all plans, programs and agreements listed on Schedule 2.21, and
-------------
each such plan, program or agreement is in compliance in all material respects
with all of the requirements and provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Except as set forth on Schedule
2.21, no such plan or program has engaged in any "prohibited transaction" as
defined in Section 4975 of the Internal Revenue Code of 1986 (the "Code"), or
has incurred any "accumulated funding deficiency" as defined in Section 302 of
ERISA, nor has any reportable event as defined in Section 4043(b) of ERISA
occurred with respect to any such plan or program, and neither the Company nor
any Subsidiary has or has maintained any group health plan subject to Section
4980B of the Code or Section 162(i) or (k) of the Code as amended by the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended by the
Technical and Miscellaneous Revenue Act of 1988. With respect to each plan
listed on
11
<PAGE>
Schedule 2.21, all required filings, including all filings required to be made
- -------------
with the United States Department of Labor and Internal Revenue Service, have
been timely filed, except to the extent the failure to so file would not have a
material adverse effect on the Company and its Subsidiaries, taken as a whole.
2.22 No Brokers or Finders. No person has or will have, as a result of
---------------------
the transactions contemplated by this Agreement, any right, interest or claim
against or upon the Company or any of its Subsidiaries for any commission, fee
or other compensation as a finder or broker because of any act or omission by
the Company or any of its Subsidiaries.
2.23 Transactions with Affiliates. Except as contemplated by this
----------------------------
Agreement or the Related Agreements or as set forth on Schedule 2.23, there are
-------------
no loans, leases or other continuing transactions between the Company or any
Subsidiary on the one hand, and any officer or director of the Company or any
Subsidiary or any person owning five percent (5%) or more of the Common Stock of
the Company or any respective family member or affiliate of such officer,
director or shareholder on the other hand.
2.24 Assumptions, Guarantees, etc. of Indebtedness of Other Persons.
--------------------------------------------------------------
Except as set forth on Schedule 2.24, neither the Company nor any Subsidiary has
assumed, guaranteed, endorsed or otherwise become directly or contingently
liable on or for any indebtedness of any other Person, except guarantees by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business.
2.25 Restrictions on Subsidiaries. Except as set forth on Schedule 2.25,
----------------------------
there are no restrictions on the Company or any of its Subsidiaries which
prohibit or otherwise restrict the transfer of cash or other assets between the
Company and any of its Subsidiaries or between any Subsidiaries of the Company.
2.26 Disclosures. Neither this Agreement, any Schedule or Exhibit to this
-----------
Agreement, nor any other agreement, document or written statement made by the
Company and furnished by the Company to the Purchasers in connection with the
transactions contemplated hereby, contains any untrue statement of material fact
or omits to state any material fact necessary to make the statements contained
herein or therein not misleading.
12
<PAGE>
ARTICLE III
AFFIRMATIVE COVENANTS OF THE COMPANY
------------------------------------
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that it will observe the following covenants on and after
the date hereof and until the Debentures have been paid in full:
3.1 Accounts and Reports. The Company will, and will cause each of its
--------------------
Subsidiaries to, maintain a standard system of accounts in accordance with
generally accepted accounting principles consistently applied and the Company
will, and will cause each of its Subsidiaries to, keep full and complete
financial records. The Company will furnish to each Purchaser the information
set forth in this Section 3.1.
(a) Within ninety (90) days after the end of each fiscal year, a copy
of the consolidated and consolidating balance sheet of the Company and its
Subsidiaries as at the end of such year, together with consolidated and
consolidating 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 corresponding figures for the preceding fiscal year, all in
reasonable detail and duly certified by an independent public accountant of
national recognition selected by the Board of Directors of the Company and
reasonably acceptable to Purchasers.
(b) Within thirty (30) days after the end of each calendar month, a
preliminary consolidated and consolidating balance sheet of the Company and its
Subsidiaries as of the end of such month and preliminary consolidated and
consolidating statements of income, shareholders' equity and cash flow for such
month and for the period commencing at the end of the previous fiscal year and
ending with the end of such month, setting forth in each case in comparative
form the corresponding figures for the corresponding period of the preceding
fiscal year, all in reasonable detail.
(c) At the time of delivery of each monthly and annual statement, a
certificate, executed by the either the president or chief financial officer of
the Company stating that such officer has caused this Agreement to be reviewed
and has no knowledge of any default by the Company or any Subsidiary in the
performance or observance of any of the provisions of this Agreement or, if such
officer has such knowledge, specifying such default.
(d) Prior to the end of each fiscal year, a copy of the operating
plan and budget for the next fiscal year required under Section 3.8, in form
consistent with good business practice.
13
<PAGE>
(e) Promptly upon receipt thereof, any written report, so called
"management letter", and any other communication submitted to the Company or any
Subsidiary by its independent public accountants relating to the business,
prospects or financial condition of the Company and its Subsidiaries;
(f) Promptly after the commencement thereof, notice of (i) all
actions, suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
affecting the Company (or any Subsidiary) which, if successful, could have a
material adverse effect on the Company and its Subsidiaries, taken as a whole;
and (ii) all material defaults by the Company or any Subsidiary (whether or not
declared) under any agreement for money borrowed (unless waived or cured within
applicable grace periods);
(g) Promptly upon sending, making available, or filing the same, all
reports and financial statements as the Company (or any Subsidiary) shall send
or make available generally to the shareholders of the Company as such or to the
Commission; and
(h) Such other information with regard to the business, properties or
the condition or operations, financial or otherwise, of the Company or its
Subsidiaries as the Purchaser may from time to time reasonably request.
3.2 Payment of Taxes. The Company will pay and discharge (and cause any
----------------
Subsidiary to pay and discharge) all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profits, or upon any properties
belonging to it, prior to the date on which penalties attach thereto, and all
lawful claims which, if unpaid, might become a lien or charge upon any
properties of the Company (or any Subsidiary), provided that neither the Company
nor any Subsidiary shall be required to pay any such tax, assessment, charge,
levy or claim which is being contested in good faith and by proper proceedings
if the Company or such Subsidiary shall have set aside on its books adequate
reserves with respect thereto.
3.3 Maintenance of Key Man Insurance. The Company will, at its expense,
--------------------------------
use all reasonable efforts to obtain within thirty (30) days of the date hereof
and thereafter maintain a life insurance policy with a responsible and reputable
insurance company payable to the Company on the life of Gregory A. Serrao in the
face amount of $1,000,000. The Company will maintain such policy and will not
cause or permit any assignment of the proceeds of such policy and will not
borrow against such policy. The Company will add one designee of the Purchasers
as a notice party to such policy, and will request that the issuer of such
policy provide such designee with ten (10) days' notice before such policy is
terminated
14
<PAGE>
(for failure to pay premium or otherwise) or assigned, or before any change is
made in the designation of the beneficiary thereof.
3.4 Compliance with Laws, etc. The Company will comply (and cause each of
-------------------------
its Subsidiaries to comply) with all applicable laws, rules, regulations and
orders of any governmental authority, the noncompliance with which could
materially adversely affect the business or condition, financial or otherwise,
of the Company and its Subsidiaries, taken as a whole.
3.5 Inspection. At any reasonable time during normal business hours and
----------
from time to time, but not more frequently than once every six months for all
Purchasers and transferees of Purchasers as a group, upon five (5) days prior
written notice, the Company (and each of its Subsidiaries) will permit any one
or more of the Purchasers who then own, of record or beneficially, or have the
right to acquire, any of the Conversion Shares, or any transferee of a Purchaser
who owns, of record or beneficially, or has the right to acquire, at least five
percent (5%) of the then outstanding Common Stock, or any of the agents or
representatives of the foregoing Persons, to examine and make copies of and
extracts from the records and books of account of and visit the properties of
the Company (and any of its Subsidiaries) and to discuss the Company's affairs,
finances and accounts with any of its officers or directors; provided that any
Person or Persons exercising rights under this Section 3.5 shall (i) use all
reasonable efforts to ensure that any such examination or visit results in a
minimum of disruption to the operations of the Company and (ii) shall agree in
writing to keep any confidential or proprietary information of the Company or
any of its Subsidiaries disclosed to him in the course of such inspection
confidential in a manner consistent with prudent business practices and
treatment of such Person's or Persons' own confidential information and not use
such proprietary information for any purpose other than reviewing and analyzing
the operations, or condition of the Company or its Subsidiaries. The rights
granted under this Section 3.5 shall be in addition to any rights which any
Purchaser may have under applicable law in its capacity as a shareholder of the
Company.
3.6 Corporate Existence; Ownership of Subsidiaries. The Company will, and
----------------------------------------------
will cause its Subsidiaries to, at all times preserve and keep in full force and
effect their corporate existence, and rights and franchises material to the
business of the Company and its Subsidiaries, taken as a whole, and will
qualify, and will cause each of its Subsidiaries to qualify, to do business as a
foreign corporation in any jurisdiction where the failure to do so would have a
material adverse effect on the business, condition (financial or other), assets,
properties or operations of the Company and its Subsidiaries, taken as a whole.
The Company shall at all times own of record and beneficially, free and clear of
all liens, charges, restrictions, claims and encumbrances of any nature, all of
the issued and outstanding capital stock of each of its Subsidiaries.
15
<PAGE>
3.7 Compliance with ERISA. The Company will comply, (and cause each of
---------------------
its Subsidiaries to comply) in all material respects with all minimum funding
requirements applicable to any pension or other employee benefit plans which are
subject to ERISA or to the Code, and comply in all other material respects with
the provisions of ERISA and the Code, and the rules and regulations thereunder,
which are applicable to any such plan. Neither the Company nor any of its
Subsidiaries will permit any event or condition to exist which could permit any
such plan to be terminated under circumstances which cause the lien provided for
in Section 3068 of ERISA to attach to the assets of the Company or any of its
Subsidiaries if the lien would be material to the Company or its Subsidiaries,
taken as a whole.
3.8 Board Approval. Prior to the end of each fiscal year, the Company
--------------
will prepare and submit to its Board of Directors for its approval prior to such
year end an operating plan and budget, cash flow projections and profit and loss
projections, all itemized in reasonable detail for the immediately following
year.
3.9 Financings. The Company will promptly provide to the Board of
----------
Directors the details and terms of, and any brochures or investment memoranda
prepared by the Company related to, any proposed financing of any nature for the
Company (or any of its Subsidiaries), whether initiated by the Company or any
other Person.
3.10 Meetings of the Board of Directors. The Directors shall schedule
----------------------------------
regular meetings not less frequently than once every calendar quarter. The
Company shall reimburse the Purchasers for all direct out-of-pocket expenses
incurred by any director designee of the Purchasers in attending such meetings.
3.11 Rule 144A Information. Subject to the Related Agreements, the
---------------------
Company shall, upon the written request of any Purchaser, provide to such
Purchaser and to any prospective institutional transferee of the Purchased
Shares or Conversion Shares designated by such Purchaser, such financial and
other information as is available to the Company or can be obtained by the
Company without material expense and as such Purchaser may reasonably determine
is required to permit such transfer to comply with the requirements of Rule 144A
promulgated under the Act.
ARTICLE IV
NEGATIVE COVENANTS OF THE COMPANY AND SUMMIT ENTITIES
-----------------------------------------------------
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that it will comply (and will cause each Subsidiary to
comply) with each of the
16
<PAGE>
provisions of this Article IV on and after the date hereof and until the payment
of the Debentures in full.
4.1 Investments in Other Persons. The Company will not make or permit any
----------------------------
Subsidiary to make any loan or advance to any Person, or purchase, otherwise
acquire, or permit any Subsidiary to purchase or otherwise acquire, the capital
stock, assets comprising the business of, obligations of, or any interest in,
any Person, except:
------
(i) investments by the Company or a Subsidiary in evidences of
indebtedness issued or fully guaranteed by the United States of America and
having a maturity of not more than one year from the date of acquisition;
(ii) investments by the Company or a Subsidiary in certificates of
deposit, notes, acceptances and repurchase agreements having a maturity of
not more than one year from the date of acquisition issued by a bank
organized in the United States having capital, surplus and undivided
profits of at least $50,000,000;
(iii) loans or advances from a Subsidiary to the Company or from a
Subsidiary to another Subsidiary;
(iv) investments by the Company or a Subsidiary in A-rated or better
commercial paper having a maturity of not more than one year from the date
of acquisition;
(v) investments by the Company or a Subsidiary in "money market"
fund shares, or in "money market" accounts fully insured by the Federal
Deposit Insurance Corporation and sponsored by banks and other financial
institutions, provided that such "money market" fund or "money market"
accounts invest principally in investments of the types described in
clauses (i), (ii) or (iv) of this subsection 4.1; and
(vi) investments by the Company or a Subsidiary constituting an
acquisition of a Clinic to the extent permitted under Section 1.4.
4.2 Distributions. The Company will not declare or pay any dividends,
-------------
except dividends payable with respect to the Preferred Stock in accordance with
Exhibit A attached to the Preferred Stock Purchase Agreement, purchase, redeem,
- ---------
retire, or otherwise acquire for value any of its capital stock (or rights,
options or warrants to purchase such shares) now or hereafter outstanding,
return any capital to its shareholders as such, or make any distribution of
assets to its shareholders as such, or permit any Subsidiary to do any of the
foregoing, except that the Subsidiaries may declare and make payment of cash and
stock dividends, return
17
<PAGE>
capital and make distributions of assets to the Company and except that nothing
herein contained shall prevent the Company from:
(i) effecting a stock split or declaring or paying any dividend
consisting of shares of any class of capital stock to the holders of shares
of such class of capital stock;
(ii) complying with any terms of the Preferred Stock as contained in
Exhibit A attached to the Preferred Stock Purchase Agreement relating to
---------
the payment of dividends, liquidation preferences or redemption payments on
or with respect to the Preferred Stock or redemption of the Preferred
Stock; or
(iii) repurchase of shares from Mr. Serrao pursuant to the terms of
his employment agreement with the Company of even date.
4.3 Dealings with Affiliates. Except for this Agreement and the Related
------------------------
Agreements, the Company will not enter into any transaction including, without
limitation, any loans or extensions of credit or royalty agreements with any
officer or director of the Company or any Subsidiary or holder of any class of
capital stock of the Company, or any member of their respective immediate
families or any corporation or other entity directly or indirectly controlled by
one or more of such officers, directors or shareholders or members of their
immediate families, except for advances in reasonable amounts made to employees
of the Company or any Subsidiary for valid business purposes.
4.4 Merger. The Company shall not, and shall not permit any Subsidiary to
------
merge or consolidate with any other corporation, or sell, assign, lease or
otherwise dispose of or voluntarily part with the control of (whether in one
transaction or in a series of transactions) all, or substantially all, of its
assets (whether now owned or hereinafter acquired) or sell, assign or otherwise
dispose of (whether in one transaction or in a series of transactions) any of
its material accounts receivable (whether now in existence or hereinafter
created) at a discount or with recourse, to any Person, or permit any Subsidiary
to do any of the foregoing, (i) except for sales or other dispositions of assets
------
in the ordinary course of business, and (ii) except that (a) any wholly owned
Subsidiary may merge into or consolidate with or transfer assets to any other
wholly owned Subsidiary, (b) any wholly owned Subsidiary may merge into or
transfer assets to the Company and (c) the foregoing shall not prohibit, to the
extent commercially reasonable, (i) the settlement of accounts which are not
reasonably collectible in full at less than the full amount of such accounts, or
(ii) the assignment of such accounts to a third party under terms which allow
such third party to retain a portion of the amount collected.
18
<PAGE>
4.5 Option Shares. The Company will not issue shares of its capital stock
-------------
and will not grant any options, rights or warrants to acquire its capital stock,
except up to an aggregate of 100,601 shares of Common Stock may be issued to
employees of the Company pursuant to the Related Agreements or options granted
under a stock option plan approved by the Compensation Committee of the
Company's Board of Directors; provided that options for not in excess of 45,045
shares of Common Stock may be issued to Mr. Serrao, and provided further that
such options have an exercise price per share that is not less than $2.00. The
numbers of shares and exercise price set forth in this Section shall be
proportionately adjusted to reflect any stock dividend, stock split or other
form of recapitalization occurring after the date hereof.
4.6 No Conflicting Agreements. The Company agrees that neither it nor any
-------------------------
Subsidiary will, without the consent of the Purchasers, enter into or amend any
agreement, contract, commitment or understanding which would restrict or
prohibit the exercise by the Purchasers of any of their rights under this
Agreement or any of the Related Agreements.
4.7 Restriction of Investments. The Purchasers each agree that as long as
--------------------------
they and Summit Ventures IV, L.P. and Summit Investors III, L.P. collectively
hold at least 20% of the issued and outstanding stock of the Company on a fully
diluted basis they will not, nor permit their affiliates to, acquire an interest
in any company, entity, or venture more than one third of the revenues of which
for the preceding twelve months were derived from the ownership, operation or
management of providers of dental services or services in the related specialty
practices of orthodontics, periodontics, endodontics, pedidontics or oral
surgery. The restriction set forth in this Section shall not apply to any
investment in a portfolio company which exists as of the date hereof, or to any
follow-on investment in such a portfolio company. If the Purchasers under the
Preferred Stock Purchase Agreement terminate their commitment to purchase
Purchased Shares in accordance with Section 1.6 of that Agreement, the
restrictions under this Section 4.7 shall terminate.
4.8 Financial Covenants. At such time as the Company incurs Senior Debt
-------------------
this Agreement shall be amended to include financial covenants with respect to
(i) required EBITDA, (ii) minimum Fixed Charge Coverage Ratios (applying to the
ratio of EBITDA to Consolidated Fixed Charges), and (iii) Minimum Debt to Net
Worth Ratios (applying to the ratio of Total Liabilities to Net Worth). In the
case of each such ratio, the covenants in this Agreement, as amended, shall be
at 85% of the levels contained in the corresponding covenants included in the
agreement governing the Senior Debt.
ARTICLE V
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<PAGE>
INVESTMENT REPRESENTATIONS
--------------------------
5.1 Representations and Warranties. Each Purchaser hereby represents and
------------------------------
warrants to the Company as follows:
(a) Assuming due execution and delivery by the Company of the
Agreement, this Agreement constitutes a legal, valid and binding obligation of
such Purchaser, enforceable against such Purchaser in accordance with its
respective terms;
(b) Such Purchaser has been advised and understands that the
Debentures have not been registered under the Act, on the grounds that no
distribution or public offering of the Debentures is to be effected, and that in
this connection, the Company is relying in part on the representations of such
Purchasers set forth in this Article V;
(c) Such Purchaser has been further advised and understands that no
public market now exists for any of the securities issued by the Company and
that a public market may never exist for the Debentures;
(d) Such Purchaser is purchasing the Debentures for investment
purposes, for its own account and not with a view to, or for sale in connection
with, any distribution thereof in violation of Federal or state securities laws;
(e) By reason of its business or financial experience, such Purchaser
has the capacity to protect its own interest in connection with the transactions
contemplated hereunder;
(f) Such Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Debentures;
provided, however, that nothing in this Section 5.1 shall be deemed to vitiate
or limit the representations, warranties and covenants of the Company contained
in this Agreement; and
(g) No person has or will have, as a result of the transaction
contemplated by this Agreement, any right, interest or claim against or upon the
Company or any of its Subsidiaries for any commission, fee or other compensation
as a finder or broker because of any act or omission by such Purchaser.
20
<PAGE>
ARTICLE VI
SUBORDINATION OF DEBENTURES
---------------------------
6.1 Agreement to Subordinate. The Company agrees, and each holder of the
------------------------
Debentures by its acceptance thereof agrees, that the Debentures shall be
subordinate and junior in right of payment, to the prior payment in full of all
Senior Debt. Each Purchaser agrees that upon the request of a holder of Senior
Debt, such Purchaser shall enter into such subordination agreement (a
"Subordination Agreement") as such holder may reasonably request to evidence the
subordination of the Debentures; provided, however, that in no event shall such
Subordination Agreement prohibit or limit scheduled payments of principal of or
interest on the Debentures unless the Senior Debt is in default, and provided
further that such Subordination Agreement shall provide that in the event of a
non-payment default under the Senior Debt, holders of Debentures may take action
to collect amounts owed under the Debentures, after a commercially appropriate
stand down period, and subject to the obligation to pay to the holders of Senior
Debt all amounts received until the Senior Debt has been paid in full.
6.2. The Company's Obligations Unconditional. The provisions of this
---------------------------------------
Article VI and any Subordination Agreement are for the purpose of defining the
relative rights of holders of Senior Debt on the one hand, and the holders of
Debentures on the other hand, against the Company and its property. Nothing
herein or in any Subordination Agreement shall impair, as between the Company,
its creditors other than the holders of Senior Debt, and the holders of
Debentures, the obligation of the Company, which is unconditional and absolute,
to pay to the holders thereof the full amount of the principal and interest on
the Debentures, in accordance with the terms thereof and the provisions hereof,
and to comply with all of its covenants and agreements contained herein; nor
shall anything herein prevent the holder of any Debentures from exercising all
remedies otherwise permitted by applicable law or hereunder upon default
hereunder or under any Debenture, subject to any stand down period in
Subordination Agreement, and subject to the rights, if any, under any
Subordination Agreement of holders of Senior Debt to receive payments and
distributions otherwise payable to the holders of Debentures.
21
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ARTICLE VII
CONDITIONS OF PURCHASERS' OBLIGATION
------------------------------------
7.1 Effect of Conditions. The obligation of the Purchasers to purchase
--------------------
and pay for the Debentures at each Closing shall be subject at their election to
the satisfaction of each of the conditions stated in the following Sections of
this Article.
7.2 Representations and Warranties. The representations and warranties of
------------------------------
the Company contained in this Agreement shall be true and correct in all
material respects on the date of such Closing with the same effect as though
made on and as of that date, except to the extent that such representations and
warranties expressly relate to an earlier date, and the Purchasers shall have
received a certificate dated as of such Closing and signed on behalf of the
Company to that effect.
7.3 Performance. The Company shall have performed and complied in all
-----------
material respects with all of the agreements, covenants and conditions contained
in this Agreement required to be performed or complied with by it at or prior to
such Closing, and the Purchasers shall have received a certificate dated as of
such Closing and signed on behalf of the Company to that effect.
7.4 No Material Adverse Change. The business, properties, assets or
--------------------------
condition (financial or otherwise) of the Company shall not have been materially
adversely affected since the date of this Agreement, whether by fire, casualty,
act of God or otherwise, and there shall have been no other changes in the
business, properties, assets, condition (financial or otherwise), management or
prospects of the Company that would have a material adverse effect the business,
condition or results of operations of the Company.
7.5 Equity Financing. The Purchasers named in the Preferred Stock
----------------
Purchase Agreement shall have purchased all of the Preferred Stock available for
purchase thereunder.
ARTICLE VIII
CONDITIONS OF THE COMPANY'S OBLIGATION
--------------------------------------
The Company's obligation to sell the Debentures at each of the Closings
shall be subject to the accuracy on the date of the applicable Closing of the
representations and warranties of the Purchasers contained in this Agreement and
the performance by the Purchasers of all
22
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agreements, covenants and conditions contained in this Agreement required to be
performed by them at or prior to such Closing.
ARTICLE IX
Defaults and Remedies
---------------------
9.1 Events of Default; Acceleration
-------------------------------
An "Event of Default" occurs if:
(1) The Company defaults in the payment of any principal of any Debenture
when the same shall become due, either by the terms thereof or otherwise as
herein provided; or
(2) The Company defaults in the payment of interest on any Debenture when
the same becomes due and payable and the default continues for a period of ten
days after the Company receives notice thereof from the holder of such
Debenture; or
(3) The Company or any Subsidiary shall fail to perform or observe any
covenant contained in Article IV of this Agreement and such default shall not
have been remedied within 30 days after written notice thereof shall have been
received by the Company from a Purchaser; or
(4) The Company or any of its Subsidiaries defaults in the performance or
observance of any other agreement, term or condition contained in the Debentures
or this Agreement and such default shall not have been remedied within 30 days
after written notice thereof shall have been received by the Company from a
Purchaser; or
(5) The Company or any Subsidiary shall be in default (after the
expiration of any applicable grace or cure period) in the payment of any
principal of or premium, if any, or interest on any other Indebtedness or
obligation with respect to borrowed money the outstanding principal of which is
in an aggregate amount greater than $500,000 or shall be in default (after the
expiration of any applicable grace or cure period) in the performance of any
material term of any instrument evidencing such Indebtedness or of any mortgage,
indenture or agreement relating thereto, and the effect of such default is to
cause, or to permit the holder or holders of such obligation to cause, such
Indebtedness or obligation to become due and payable prior to its stated
maturity, unless such failure to pay or perform shall have been waived in
writing by the requisite holders of such indebtedness or other obligation; or
23
<PAGE>
(6) The Company or any Subsidiary pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case against itself,
(B) consents to the entry of an order for relief against it in an
involuntary case,
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(D) makes a general assignment for the benefit of its creditors, or
(E) is the debtor in an involuntary case which is not dismissed
within 60 days of the commencement thereof, or
(7) A court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) provides for relief for the Company or any Subsidiary in an
involuntary case,
(B) appoints a Custodian of the Company or any Subsidiary for all or
substantially all of its property, or
(C) orders the liquidation of the Company or any Subsidiary,
(8) A final judgment for the payment of money in an amount in excess of
$500,000 shall be rendered against the Company or any of its Subsidiaries (other
than any judgment as to which a reputable insurance company shall have accepted
full liability in writing) and shall remain undischarged for a period (during
which execution shall nor be effectively stayed) of 30 days after the date on
which the right to appeal has expired; or
(9) Any representation or warranty made by the Company in this Agreement
or in any other document or instrument furnished in connection with the
transactions contemplated hereby shall prove to be materially false or incorrect
on the date as of which made.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal
or state law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
24
<PAGE>
then and in any such case (a) upon the occurrence of any Event of Default
described in clause (6) or (7) above, the unpaid principal amount of and accrued
interest on the Debentures shall automatically become due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Company, and (b) upon the occurrence of any other Event of Default
(after the applicable grace or cure period), in addition to any other rights,
powers and remedies permitted by law or in equity, the holder or holders of
greater than 50% in principal amount of the Debentures then outstanding may, at
its or their option, by notice in writing to the Company, declare all of the
Debentures to be, and all of the Debentures shall thereupon be and become,
immediately due and payable together with interest accrued thereon and all other
sums due hereunder, without presentment, demand, protest or other notice of any
kind, all of which are waived by the Company.
Upon the occurrence of any such Event of Default, the holders of Debentures
may proceed to protect and enforce their rights by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or in the Debentures held by them, for an
injunction against a violation of any of the terms hereof or thereof, or for the
pursuit of any other remedy which it may have by virtue of this Agreement or
pursuant to applicable law. The Company shall pay to the holders of Debentures
upon demand the costs and expenses of collection, including without limitation
reasonable attorneys' fees, expenses and disbursements.
No course of dealing and no delay on the part of the holders of Debentures
in exercising any of their rights shall operate as a waiver thereof or otherwise
prejudice the rights of any holder of the Debentures, nor shall any single or
partial exercise of any right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
No right, power or remedy conferred hereby or by the Debentures on the holders
thereof 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.
9.2 Rescission of Acceleration. At any time after any declaration of
--------------------------
acceleration of all the Debentures shall have been made pursuant to Section 9.1
by any holder or holders of the Debentures and before a judgment or decree for
the payment of money due has been obtained by such holder or holders, the holder
or holders of at least a majority in aggregate principal amount of the
Debentures at the time outstanding may, by written notice to the Company and to
the other holders of the Debentures rescind and annul such declaration and its
consequences, provided that (i) the principal of and interest on the Debentures
--------
which shall have become due otherwise than by such declaration of acceleration
shall have been duly paid, and (ii) all Events of Default other than the
nonpayment of principal of and Interest on the Debentures which have become due
solely by such declaration of acceleration shall have been cured or waived by
the holders of a majority in aggregate principal amount of the Debentures
25
<PAGE>
at the time outstanding. No rescission or annulment referred to above shall
affect any subsequent Default or any right, power or remedy arising out of such
subsequent Default.
ARTICLE X
CERTAIN DEFINITIONS
-------------------
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Act" means the Securities Act of 1933, as amended.
"Agreement" means this Subordinated Debenture Purchase Agreement as from
time to time amended and in effect between the parties.
"Business Day" shall mean day which is not a legal holiday in the
Commonwealth of Massachusetts or the City of Boston.
"Capital Lease" shall mean any lease property, real or personal, in respect
of which the present value of the minimum rental commitment would have been
required to be capitalized on a balance sheet of the lessee (in accordance with
generally accepted accounting principles as then in effect) at the time of the
inception thereof.
"Closing" shall have the meaning set forth in Section 1.3.
"Consolidated Adjusted Interest Expense" for any period shall mean all
interest expense (excluding the portion of any amount payable under Capital
Leases that is, in accordance with generally accepted accounting principles,
allocable to interest expense and the amortization of deferred debt discount and
deferred debt expense) and other amounts which would, in conformity with
generally accepted accounting principles, be set forth opposite the caption
"interest expense" (or any like caption) on a consolidated income statement of
the Company for such period, less consolidated interest income of the Company
and its Subsidiaries for such period.
"Consolidated Fixed Charges" shall mean, for any period, the sum of (i)
Consolidated Adjusted Interest Expense for such period and (ii) Consolidated
Lease Obligations for such period.
26
<PAGE>
"Consolidated Lease Obligations" for any period shall mean the aggregate
cash payments under all operating and capitalized leases of real and personal
property (but excluding any lease which is cancelable without penalty upon less
than 31 days notice).
"Consolidated Net Income" for any period shall mean the consolidated net
income (or the net deficit) of the Company and its Subsidiaries for such period
(taken as one accounting period), after deducting therefrom any extraordinary
gains.
"Company" means and shall include American Dental Partners, Inc. a Delaware
corporation and its successors and assigns.
"Default" shall mean an Event of Default or any event with notice or lapse
of time or both would become an Event of Default.
"EBITDA" shall mean the consolidated earnings before interest, taxes,
depreciation and amortization, as determined in accordance with generally
accepted accounting principles, consistently applied.
"Event of Default" shall have the meaning set forth in Section 9.1.
"Indebtedness" means all obligations, contingent or otherwise, whether
current or long-term, which in accordance with generally accepted accounting
principles would be classified upon the obligor's balance sheet as liabilities
(other than deferred taxes) and shall also include capitalized leases,
guarantees, endorsements (other than for collection in the ordinary course of
business) or other arrangements whereby responsibility is assumed for the
obligations of others, including any agreement to purchase or otherwise acquire
the obligations of others or any agreement, contingent or otherwise, to furnish
funds for the purchase of goods, supplies or services for the purpose of payment
of the obligations of others.
"Lien" shall mean any mortgage, deed of trust, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, and the
filing of or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction).
"Liquidity Event" shall mean any one or more of the following: (i) the sale
of all of substantially all of the assets of the Company and its Subsidiaries on
a consolidated basis, (ii) merger or consolidation of the Company with or into
another Person or any transaction or series of related transactions as a result
of which those Persons who held all of the capital stock of the Company
immediately prior to such transaction failed to hold at least a majority of the
voting capital stock of the surviving or resulting corporation immediately after
giving
27
<PAGE>
effect thereto, (iii) liquidation, dissolution or winding up of the Company or
(iv) consummation of the sale by the Company of securities pursuant to an
effective registration statement filed under the Act.
"Net Worth" shall mean, at any date as of which the amount thereof shall be
determined, Total Assets of the Company less Total Liabilities of the Company.
----
"Pension Reform Act" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"Permitted Liens" shall mean: (i) Liens for taxes not yet due or payable
under law or being contested in good faith by appropriate proceedings and for
which adequate reserves have been provided; (ii) carriers', warehouseman's,
mechanics, materialmen's, repairmen's and similar Liens arising in the ordinary
course of business to secure amounts owing for the provision of goods or
services; (iii) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation; (iv) easements,
rights of way and similar encumbrances incurred in the ordinary course of
business which do not, individually or in the aggregate, materially detract from
the value of the property subject thereto or interfere with the ordinary course
of business of the Company or any Subsidiary; (v) Liens on goods to secure the
payment of the purchase price of such goods; and (vi) Liens existing on the date
hereof on equipment used in the ordinary course of business to secure the
payment of the cost of acquisition or leasing thereof.
"Person" means an individual, corporation, partnership, joint venture,
trust or unincorporated organization or a government or agency or political
subdivision thereof.
"Purchaser" shall have the meaning set forth in Section 1.1.
"Related Agreement" shall mean the Series A and Series B Preferred Stock
Purchase Agreement, the Shareholders' Agreement, the Registration Rights
Agreement, the Employment and Non-Competition Agreement, and the Non-Qualified
Performance Stock Option Agreement, all of even date, among the Company and the
other parties thereto.
"Senior Debt" shall mean any Indebtedness for borrowed money owed from time
to time by the Company to any bank or other financial institution unless such
Indebtedness is by its terms expressly subordinate to the Debentures.
"Subordinated Debt" means all Indebtedness for borrowed money of the
Company which by its terms or by law is subordinated in right of payment to the
Senior Debt.
28
<PAGE>
"Subsidiary" or "Subsidiaries" means any corporation, association or other
business entity of which the Company and/or any of its other Subsidiaries (as
herein defined).
"Total Assets" shall mean, at any particular date, all items which, in
accordance with GAAP, would be included in determining total assets as shown on
the asset side of a balance sheet of the Company (including long term deferred
tax benefits) at the date which Total Assets is to be determined, excluding,
however, from the determination thereof (a) all loans to any stockholder,
employee or officer of the Company, and all amounts payable to the Company from
any of the aforesaid persons, (b) treasury stock and minority interests in other
corporations or business organizations, and (c) cash set apart and held in a
sinking or other analogous fund established for the purpose of redemption or
other retirement of capital stock.
"Total Liabilities" shall mean, at any particular date, without limitation,
(a) all items (except items of capital stock, partnership interests, capital and
capital accounts or paid-in surplus or of retained earnings or prepaid items or
deposits) which, in accordance with GAAP, would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of the Company
at the date as of which Total Liabilities is to be determined, including,
without limitation, all Indebtedness for borrowed money and any lease which in
accordance with GAAP would constitute Indebtedness, (b) all Indebtedness at such
date secured by any mortgage, pledge, lien or conditional sale or other title
retention agreement to which any property or asset owned or held by the Company
is subject, whether or not the indebtedness secured thereby shall have been
assumed, (c) all outstanding reimbursement obligations at such date of the
Company in respect of amounts drawn or available to be drawn on letters of
credit, acceptances or similar obligations issued or created for the account of
the Company, (d) any withdrawal liability of the Company at such date, whether
direct or indirect, absolute or contingent, to a Multi-employer Plan, as that
term is defined in the Pension Reform Act and (e) all Indebtedness of others
which the Company has directly or indirectly guaranteed, endorsed (otherwise
than for collection or deposit in the ordinary course of business), discounted
or sold with recourse or agreed (contingently or otherwise) to purchase or
repurchase or otherwise acquire, or in respect of which the Company has agreed
to supply or advance funds (whether by way of loan, stock or equity purchase,
capital contribution or otherwise) or otherwise to become directly or indirectly
liable.
ARTICLE XI
MISCELLANEOUS
11.1. Debenture Payments. The Company agrees that, so long as a Purchaser
------------------
shall hold any Debentures, it will make payments of principal and interest on
any Debenture held by
29
<PAGE>
such Purchaser not later than 2:00 p.m., Boston time, on the date such payment
is due, in immediately available funds, by credit to the Purchaser's account, as
specified in Schedule 1.1 hereto, or such other account or accounts as the
------------
Purchaser may designate in writing, notwithstanding any contrary provision
contained herein or any Debenture with respect to the place of payment. Each
Purchaser agrees that, before disposing of any Debenture, it or its nominee will
make a notation thereon of all principal payments previously paid thereon and of
the date to which interest thereon has been paid, and will notify the Company of
the name and address of the transferee of such Debenture. At the election of
any subsequent holder of any Debenture which has made the same agreements
relating to such Debenture as the Purchaser has made in this paragraph 11.1, the
Company will make payments of principal and interest to the account of such
successor holder in the same manner as set forth above.
11.2 Form, Registration, Transfer and Exchange of Debentures. The
-------------------------------------------------------
Debentures are issuable as registered notes and in denominations of not less
than $10,000 or any integral multiple thereof, all at the election of a
Purchaser. The Company shall keep at its principal office the register in which
the Company shall provide for the registration of the Debentures and for
transfers of the Debentures. Upon surrender for registration of transfer of any
Debenture at such office, the Company shall execute and deliver, at its expense,
one or more new such Debenture or Debentures of like tenor and of like aggregate
principal amount, which new Debenture or Debentures shall each be a registered
Debenture. At the option of the holder of any Debenture, such Debenture may be
exchanged for other Debentures, of any authorized denominations, of a like
aggregate principal amount, upon surrender of the Debenture to be exchanged at
the office of the Company. Whenever any Debenture is so surrendered for
exchange, the Company shall execute and deliver, at its expense, the Debentures
which the holder thereof making the exchange is entitled to receive. Every
Debenture presented or surrendered for registration of transfer shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed by
the holder of such Debenture or such holder's attorney duly authorized in
writing. Any Debenture issued in exchange for any Debenture or upon transfer
thereof shall carry the rights to unpaid Interest and Interest to accrue which
were carried by the Debenture so exchanged or transferred, and neither gain nor
loss of Interest shall result from any such transfer or exchange. Upon receipt
by the Company of an affidavit of the treasurer, assistant treasurer, or other
responsible official of a Purchaser (or, in the case of holders of Debentures
other than a Purchaser, evidence reasonably satisfactory to the Company) of the
ownership of and the loss, theft, destruction or mutilation of a Debenture and
(i) in case of loss, theft or destruction of a Debenture by a holder other than
a Purchaser, of indemnity reasonably satisfactory to it or (ii) in the case of
the mutilation of any Debenture, upon surrender and cancellation thereof, the
Company, at its expense, shall execute and deliver in lieu thereof a new
Debenture of like tenor and of a like principal amount and dated and bearing
interest from the date to which interest has been paid on such lost, stolen,
destroyed or mutilated Debenture.
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<PAGE>
11.3 Survival of Representations. The representations, warranties,
---------------------------
covenants and agreements made herein or in any certificates or documents
executed in connection herewith shall survive the execution and delivery hereof
and the closing of the transaction contemplated hereby.
11.4 Parties in Interest. Except as otherwise set forth herein, all
-------------------
covenants, agreements, representations, warranties and undertakings contained in
this Agreement shall be binding on and shall inure to the benefit of the
respective successors and assigns of the parties hereto (including transferees
of any of the Debentures). The parties agree to maintain in confidence the terms
of the purchase of the Debentures hereunder, except that a Purchaser may
disclose such terms to its investors in the ordinary course and except that the
Company may disclose such terms to its shareholders in the ordinary course.
11.5 Debentures Owned by Affiliates. For the purposes of applying all
------------------------------
provisions of this Agreement which condition the receipt of information or
access to information or exercise of any rights upon ownership of a specified
principal amount of Debentures, the Debentures or shares owned of record by any
affiliate of a Purchaser shall be deemed to be owned by such Purchaser. For the
purpose of this Agreement, the term "affiliate" shall mean any Person
controlling, controlled by or under common control with, the Purchaser and any
general or limited partner of the Purchaser.
11.6 Amendments and Waivers. This Agreement may be amended and the
----------------------
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of not less than a majority in aggregate principal amount of the
Debentures at the time outstanding and each holder of any Debenture at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 11.6, whether or not such Debenture shall have been marked to indicate
such consent, but any Debenture issued thereafter shall contain a reference or
bear a notation referring to any such consent; provided that notwithstanding
--------
anything in this Section 11.6 to the contrary, without the written consent of
(a) the holder or holders of all Debentures at the time outstanding, no consent,
amendment or waiver to or under this Agreement shall extend or reduce the
maturity of any Debenture, or reduce the rate or affect the time of payment of
interest with respect to any Debenture, or affect the time, amount or allocation
of any required prepayments, or reduce the proportion of the principal amount of
the Debentures required with respect to any consent, amendment or waiver, and
(b) the holder or holders of all Debentures at the time outstanding, no
amendment to this Agreement shall affect the provisions of Article VI. The
Company shall promptly send copies of any amendment, consent or waiver (and any
requests for any such amendment, consent or waiver) relating to this Agreement
or the Debentures to each holder of the Debentures and, to the extent
practicable, shall consult with
31
<PAGE>
holder of the Debentures, in connection with each such amendment, consent and
waiver. No course of dealing between the Company and the holder of any of the
Debentures nor any delay in exercise any rights hereunder or any of the
Debentures shall operate as a waiver of any rights of any holder of such
Debentures. The Company will reimburse the Purchaser for the reasonable fees
and expenses of counsel incurred in connection with any amendment or
modification of this Agreement or any of the Related Agreements or any waiver
hereof or thereof.
11.7 Notices. All notices, requests, consents, reports and demands shall
-------
be in writing and shall be hand delivered, sent by facsimile or other electronic
medium, or mailed, postage prepaid, to the Company or to the Purchasers at the
address set forth below or to such other address as may be furnished in writing
to the other parties hereto:
The Company: American Dental Partners, Inc.
c/o Summit Partners, L.P.
600 Atlantic Avenue
Suite 2800
Boston, MA 02210-2227
Attn. Gregory A. Serrao, President
The Purchasers: The address set forth opposite the Purchaser's name
on Schedule 1.1 attached hereto.
------------
with copy to: Hutchins, Wheeler & Dittmar
A Professional Corporation
101 Federal Street
Boston, MA 02110
Attention: James Westra
11.8 Expenses. Each party hereto will pay its own expenses in connection
--------
with the transactions contemplated hereby, provided, however, that the Company
-------- -------
shall pay all reasonable costs and expenses of the Purchasers in connection with
the investigation, preparation, execution and delivery of this Agreement and the
other instruments and documents to be delivered hereunder and the transactions
contemplated hereby and thereby, including, the reasonable fees and
disbursements of Hutchins, Wheeler & Dittmar, A Professional Corporation,
special counsel to the Purchasers.
11.9 Counterparts. This Agreement and any exhibit hereto may be executed
------------
in multiple counterparts, each of which shall constitute an original but all of
which shall constitute but one and the same instrument. One or more counterparts
of this Agreement or
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<PAGE>
any exhibit hereto may be delivered via telecopier, with the intention that they
shall have the same effect as an original counterpart hereof.
11.10 Effect of Headings. The article and section headings herein are for
------------------
convenience only and shall not affect the construction hereof.
11.11 Adjustments. All provisions of this Agreement shall be
-----------
automatically adjusted to reflect any stock dividend, stock split or other such
form of recapitalization.
11.12 Governing Law. This Agreement shall be deemed a contract made under
-------------
the laws of the Commonwealth of Massachusetts and together with the rights and
obligations of the parties hereunder, shall be construed under and governed by
the laws of such Commonwealth.
[Rest of Page Intentionally Left Blank]
33
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon, this letter shall become a binding agreement among us.
Very truly yours,
AMERICAN DENTAL PARTNERS, INC.
By: /s/ Gregory A. Serrao
------------------------------------
Name: Gregory A. Serrao
Title: President
PURCHASERS:
SUMMIT SUBORDINATED DEBT FUND, L. P.
By: Summit Partners Subordinated Fund,
L.P.,
Its General Partner
By: Stamps, Woodsum & Co. III,
Its General Partner
By: /s/ Martin J. Mannion
------------------------------------
General Partner
SUMMIT INVESTORS III, L.P.
By: /s/ Martin J. Mannion
------------------------------------
Authorized Signatory
34
<PAGE>
FIRST AMENDMENT TO SUBORDINATED
DEBENTURE PURCHASE AGREEMENT
This is an amendment made effective May 1, 1996, to the Subordinated
Debenture Purchase Agreement dated January 8, 1996 (the "Agreement"), among
American Dental Partners, Inc., a Delaware corporation (the "Company"), Summit
Subordinated Debt Fund, L.P., and Summit Investors III, L.P., who hereby agree
as follows:
(S)1. Definitions. All capitalized terms used in this amendment which
-----------
are not otherwise defined herein shall have the respective meanings given those
terms in the Agreement.
(S)2. Issuances. The text of Section 4.5 of the Agreement is hereby
---------
replaced in its entirety by the following:
The Company will not issue shares of its capital stock, except
for issuances which would not constitute an issuance of New
Securities (as defined in (S)5.2 of the Preferred Stock Purchase
Agreement), and will not grant any options, rights or warrants to
acquire its capital stock, except up to an aggregate of 100,601
shares of Common Stock may be issued to employees of the Company
pursuant to the Related Agreements or options granted under a
stock option plan approved by the Compensation Committee of the
Company's Board of Directors; provided that options for not in
excess of 45,045 shares of Common Stock may be issued to Mr.
Serrao, and provided further that such options have an exercise
price per share that is not less than $2.00. The numbers of
shares and exercise price set forth in this Section shall be
proportionately adjusted to reflect any stock dividend, stock
split or other form of recapitalization occurring after the date
hereof.
(S)3. Construction. In the event of any inconsistency between the
------------
provisions of this amendment and the provisions of the Agreement, the provisions
of this amendment shall control. Except as modified in this amendment, the
Agreement shall continue in full force and effect without change. This
amendment shall be binding upon, inure to the benefit of, and be enforceable by
and against the respective successors and assigns of each Party.
(S)4. Counterparts. This amendment may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but
<PAGE>
all of which taken together shall constitute one and the same amendment.
SUMMIT VENTURES IV, L.P. SUMMIT INVESTORS III, L.P.
By: Summit Partners IV, L.P. By /s/ Martin J. Mannion
General Partner ------------------------------
Its General Partner
-----------------------------
By /s/ Martin J. Mannion
--------------------------
General Partner
By: Stamps, Woodsum & Co. IV
General Partner
By /s/ Martin J. Mannion
--------------------------
General Partner
AMERICAN DENTAL PARTNERS, INC.
By /s/ Gregory A. Serrao
-------------------------------
Gregory A. Serrao
President
<PAGE>
SECOND AMENDMENT TO SUBORDINATED
DEBENTURE PURCHASE AGREEMENT
This is an amendment made effective November 1, 1996, to the Subordinated
Debenture Purchase Agreement dated January 8, 1996, as amended May 1, 1996 (the
"Agreement"), among American Dental Partners, Inc., a Delaware corporation (the
"Company"), Summit Subordinated Debt Fund, L.P., and Summit Investors III, L.P.,
who hereby agree as follows:
(S)1. Definitions. All capitalized terms used in this amendment which
-----------
are not otherwise defined herein shall have the respective meanings given those
terms in the Agreement.
(S)2. Accounts and Reports. The Purchasers hereby waive any non-
--------------------
compliance by the Company with Section 3.1(b) of the Agreement prior to the date
of this amendment.
(S)3. Merger. Clause (ii)(a) of Section 4.4 of the Agreement is hereby
------
replaced in its entirety with the following:
(a) any wholly owned Subsidiary may merge with or into
or consolidate with or transfer assets to any other
entity which is or becomes a wholly owned Subsidiary,
(S)4. Option Shares. The aggregate share limitation continued in the
-------------
first sentence of Section 4.5 of the Agreement is hereby increased from 100,601
to 150,601.
(S)5. Construction. In the event of any inconsistency between the
------------
provisions of this amendment and the provisions of the Agreement, the provisions
of this amendment shall control. Except as modified in this amendment, the
Agreement shall continue in full force and effect without change. This
amendment shall be binding upon, inure to the benefit of, and be enforceable by
and against the respective successors and assigns of each Party.
<PAGE>
(S)6. Counterparts. This amendment may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same amendment.
SUMMIT SUBORDINATED DEBT SUMMIT INVESTORS III, L.P.
DEBT FUND, L.P.
By: Summit Partners Subordinated By /s/ Martin J. Mannion
Fund, L.P. ------------------------------
General Partner Its General Partner
-----------------------------
By: Stamps, Woodsum & Co. IV
General Partner
By /s/ Martin J. Mannion
--------------------------
General Partner
AMERICAN DENTAL PARTNERS, INC.
By /s/ Gregory A. Serrao
-----------------------------
Gregory A. Serrao
President
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, made as of the eighth day of January, 1996,
by and among AMERICAN DENTAL PARTNERS, INC., a Delaware corporation (the
"Company"), and those persons set forth on Schedule 1 as Investors (each an
----------
"Investor" and collectively the "Investors").
WHEREAS, the Investors have acquired or pursuant to Subscription Agreements
of even date are acquiring shares of common stock, par $.01 per share ("Common
Stock") of the Company, and pursuant to a certain Series A and Series B
Preferred Stock Agreement of even date, may acquire up to four hundred thousand
shares of Series A Convertible Preferred Stock which are convertible into shares
of Common Stock; and
WHEREAS, it is a condition to the obligations of the Investors to purchase
the Common Stock and Series A Convertible Preferred Stock that this Agreement be
executed by the parties hereto in order to provide the Investors with certain
registration rights with respect to the shares of Common Stock being purchased
by the Investors and the shares of Common Stock issuable upon conversion of the
Series A Convertible Preferred Stock to be purchased by the Investors, and the
parties are willing to execute this Agreement and to be bound by the provisions
hereof;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. Certain Definitions. Capitalized terms used in this Agreement without
-------------------
definition shall have the meaning given to those terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following respective meanings:
"Act" means the Securities Act of 1933, as amended, 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.
"Commission" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, 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.
"Holder" means the person who is then the record owner of Registrable
Securities which have not been sold to the public.
<PAGE>
"IPO Date" means the date on which shares of Common Stock shall have been
sold pursuant to a public offering (including without limitation one for the
assets or securities of other companies) pursuant to a registration statement
under the Act.
"Registrable Securities" means all shares of Common Stock now owned or
hereafter acquired by any Investor, including without limitation those issuable
upon conversion of Series A Convertible Preferred Stock.
The term "register" means to register under the Act and applicable state
securities laws for the purpose of effecting a public sale of securities.
"Registration Expenses" means all expenses incurred by the Company in
compliance with Sections 2, 3 or 5 hereof, including, without limitation, all
registration and filing fees, printing expenses, transfer taxes, fees and
disbursements of counsel for the Company, blue-sky fees and expenses, fees of
transfer agents and registrars, reasonable fees and disbursements of one counsel
for all the selling Holders, and the expense of any special audits incident to
or required by any such registration.
"Selling Expenses" means all underwriting discounts and selling commissions
applicable to the sale of Registrable Securities and any transfer taxes
applicable to such sales.
2. Requested Registrations
-----------------------
(a) If (i) on any two occasions at any time after the date hereof,
the Company shall receive from one or more Investors a written request that the
Company effect the registration of Registrable Securities with a reasonably
anticipated aggregate price to the public of at least $20,000,000, and an
anticipated offering price to the public of at least twice the then Applicable
Conversion Value of the Series A Convertible Preferred Stock, which Investors
must, prior to consummation of the first registration of securities of the
Company under the Act, include Summit Ventures IV, L.P., or (ii) on any one
occasion during each calendar year which the Company is eligible to register the
sale of shares of Common Stock to the public under the Act on Form S-3, the
Company shall receive from one or more Holders of Registrable Securities a
written request that the Company effect the registration of Registrable
Securities held by such Holders having a fair market value as of the date of
such request of $1,000,000, the Company will:
(A) promptly give written notice of the proposed registration to
all other Holders; and
2
<PAGE>
(B) as soon as reasonably practicable, use all commercially
reasonable efforts to effect such registration as may be so requested and
as would permit or facilitate the sale and distribution of such portion of
such Registrable Securities as are specified in such request, together with
such portion of the Registrable Securities of any Holder or Holders joining
in such request as are specified in a written request given within twenty
(20) days after receipt of such written notice from the Company. If the
underwriter managing the offering advises the Holders who have requested
inclusion of their Registrable Securities in such registration that
marketing considerations require a limitation on the number of shares
offered, such limitation shall be imposed pro rata among such Holders who
--------
requested inclusion of Registrable Securities in such registration pursuant
to this Section 2 or Section 3 below according to the number of Registrable
Securities requested to be registered by such Holders. No registration
initiated by the Holders hereunder shall count as a registration under this
Section 2 unless and until it shall have been declared effective and the
Holders shall have sold all of the Registrable Securities included in such
registration.
(b) Selection of Underwriter. The underwriter of any underwriting
------------------------
requested under this Section 2 shall be selected by the Company.
3. "Piggy Back" Registrations.
-------------------------
(a) If the Company shall determine to register any of its securities,
either for its own account or the account of a security holder or holders
exercising registration rights or otherwise (other than a registration relating
solely to a merger, acquisition of assets or securities or tender or exchange
offer, or 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), the Company will:
(i) Promptly give to each Holder of Registrable Securities written
notice thereof (which shall include the number of shares the Company or
other security holder proposes to register and, if known, the name of the
proposed underwriter).
(ii) Use all commercially reasonable efforts to include in such
registration all the Registrable Securities specified in a written request
or requests made by any Holder within fifteen (15) days after the date of
delivery of the written notice from the Company described in clause (i)
above. If the underwriter advises the Company that marketing considerations
require a limitation on the number of shares offered pursuant to any
registration statement, then the Company may offer all of the securities it
proposes to register for its own account and such limitation on any
remaining securities that may, in the opinion of the underwriter, be sold
will be imposed pro rata among the Holders who
--------
3
<PAGE>
requested inclusion of Registrable Securities in such registration
according to the number of Registrable Securities requested to be
registered by each of them.
(b) The Company shall select the underwriter for an offering
made pursuant to this Section 3.
4. Expenses of Registration. All Registration Expenses incurred
------------------------
in connection with any registration, qualification or compliance pursuant to
Section 2, 3, or 5 shall be paid by the Company. All Selling Expenses incurred
in connection with any such registration, qualification or compliance shall be
borne by the holders of the Registrable Securities registered, pro rata on the
basis of the number of their Registrable Securities so registered.
5. Listing Application. If shares of any class of stock of the Company
-------------------
shall be listed on a national securities exchange or approved for quotation on
any over-the-counter market system, the Company shall, at its expense, include
in its listing application all of the shares of the listed class then owned by
any Holder.
6. Registration Procedures. In the case of each registration effected by
-----------------------
the Company pursuant to this Agreement, the Company will keep each Holder of
Registrable Securities included in such registration advised in writing as to
the initiation of each registration and as to the completion thereof. At its
expense, the Company will do the following for the benefit of such Holders:
(a) Keep such registration effective for a period of one hundred
twenty days (120) or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs, and amend or supplement such registration statement and the prospectus
contained therein from time to time to the extent necessary to comply with the
Act and applicable state securities laws;
(b) Use all commercially reasonable efforts to register or qualify
the Registrable Securities covered by such registration under the applicable
securities or "blue sky" laws of such jurisdictions as the selling Holders may
reasonably request; provided, that the Company shall not be obligated to qualify
to do business in any jurisdiction where it is not then so qualified or
otherwise required to be so qualified or to take any action which would subject
it to the service of process in suits other than those arising out of such
registration or which would subject it to taxation in such jurisdiction;
(c) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request;
4
<PAGE>
(d) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 2 hereof, the Company will
enter into an underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and is entered into by the Holders and
provided further that, if the underwriter so requests, the underwriting
agreement will contain customary indemnification and contribution provisions on
the part of the Company and the Holders;
(e) To the extent then permitted under applicable professional
guidelines and standards, use all reasonable efforts to obtain a comfort letter
from the Company's independent public accountants in customary form and covering
such matters of the type customarily covered by comfort letters and an opinion
from the Company's counsel in customary form and covering such matters of the
type customarily covered in a public issuance of securities and provide copies
thereof to the Holders; and
(f) Permit the counsel to the selling Holders whose expenses are
being paid pursuant to Section 4 hereof to participate in the registration
statement preparation process and to inspect and copy such corporate documents
as he may reasonably request.
7. Indemnification.
---------------
(a) The Company will, and hereby does, indemnify each Holder, each of
its officers, directors and partners, and each person controlling such Holder
within the meaning of the Act, with respect to which registration, qualification
or compliance has been effected pursuant to this Agreement, and each
underwriter, if any, and each person who controls such underwriter within the
meaning of the Act, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) prepared by the Company incident to any
such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein (in light of the circumstances under
which they were made, in the case of any prospectus) not misleading, or any
violation by the Company of the Act or the Exchange Act or securities act of any
state 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, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, whether or not resulting in any liability, provided that
the Company
5
<PAGE>
will not be liable in any such case to the extent that: (i) any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement (or alleged untrue statement) or omission (or alleged omission) based
upon written information furnished to the Company by such Holder or underwriter
expressly for use therein; or (ii) in the case of a sale directly by a Holder
(including without limitation a sale through any underwriter retained by such
Holder), it arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission that was contained in a preliminary
prospectus or other preliminary document and corrected in a final or amended
prospectus or other document and such Holder failed to deliver a copy of the
final or amended document at or prior to the confirmation of the sale of the
applicable securities to the person asserting such claim, loss, damage,
liability, or action.
(b) Each Holder will, if Registrable Securities held by him are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company or such
underwriter within the meaning of the Act and the rules and regulations
thereunder, each other such Holder and each of their officers, directors and
partners, and each person controlling such Holder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, 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 (in light of the circumstances under which they were made, in the
case of any prospectus) misleading, and will reimburse the Company and such
Holder's directors, officers, partners, persons, underwriters or control persons
for any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
whether or not resulting in liability, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by such Holder and stated to be
specifically for use therein; provided, however, that the obligations of each
Holder hereunder shall be limited to an amount equal to the net proceeds
received by such Holder upon sale of his securities.
(c) Each party entitled to indemnification under this Section 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, but the
failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations under this Section 7 (except and to the
extent the Indemnifying Party has been prejudiced as a consequence thereof).
The Indemnifying Party will be entitled to participate in, and to the extent
that it may elect by written
6
<PAGE>
notice delivered to the Indemnified Party promptly after receiving the aforesaid
notice from such Indemnified Party, at its expense to assume, the defense of any
such claim or any litigation resulting therefrom, with counsel reasonably
satisfactory to such Indemnified Party, provided that the Indemnified Party may
participate in such defense at its expense, notwithstanding the assumption of
such defense by the Indemnifying Party, and provided, further, that if the
defendants in any such action shall include both the Indemnified Party and the
Indemnifying Party and the Indemnified Party shall have reasonably concluded
that there may be legal defenses available to it and/or other Indemnified
Parties which are different from or additional to those available to the
Indemnifying Party, the Indemnified Party or Parties shall have the right to
select separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such Indemnified Party or
Parties and the fees and expenses of such counsel shall be paid by the
Indemnifying Party. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party (which
consent shall not be unreasonably withheld, delayed or conditioned), consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall (i) furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom and (ii) shall reasonably assist
the Indemnifying Party in any such defense, provided that the Indemnified Party
shall not be required to expend its funds in connection with such assistance.
(d) No Holder shall be required to participate in a registration
pursuant to which it would be required to execute an underwriting agreement in
connection with a registration effected under Section 2 or 3 which imposes
indemnification obligations on such Holder more onerous than those imposed
hereunder; provided, however, that the Company shall not be deemed to breach the
provisions of Section 2 or 3 if a Holder is not permitted to participate in a
registration on account of his refusal to execute an underwriting agreement on
the basis of this subsection (d).
8. Information by Holder. Each Holder of Registrable Securities included
---------------------
in any registration shall furnish to the Company such information regarding such
Holder and the distribution proposed by such Holder as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this Agreement
or otherwise required by applicable state or federal securities laws.
9. Limitations on Registration Rights. From and after the date of this
----------------------------------
Agreement, the Company shall not, without the prior written consent of the
Holders of a majority of the outstanding Registrable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
which would give any such holder or prospective holder
7
<PAGE>
(a) the right to require the Company, upon any registration of any of its
securities, to include, among the securities which the Company is then
registering, securities owned by such holder, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of its securities will
not limit the number of Registrable Securities sought to be included by the
Holders of Registrable Securities or reduce the offering price thereof; or (b)
the right to require the Company to initiate any registration of any securities
of the Company.
10. Exception to Registration. The Company shall not be required to
-------------------------
effect a registration under this Agreement if (i) in the written opinion of
counsel for the Company, which counsel and the opinion so rendered shall be
reasonably acceptable to the Holders of Registrable Securities, such Holders may
sell without registration under the Act all Registrable Securities for which
they requested registration under the provisions of the Act and in the manner
and in the quantity in which the Registrable Securities were proposed to be
sold, or (ii) the Company shall have obtained from the Commission a "no-action"
letter to that effect; provided that this Section 10 shall not apply to sales
made under Rule 144(k) or any successor rule promulgated by the Commission until
after the effective date of the Company's initial registration of shares under
the Act. Notwithstanding the foregoing, in no event shall the provisions of
this Section 10 be construed to preclude a Holder of Registrable Securities from
exercising rights under Section 3 for a period of three years after the
effective date of the Company's initial registration of shares under the Act.
11. Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may permit the sale of
restricted securities (as that term is used in Rule 144 under the Act) to the
public without registration, the Company agrees to:
(a) make and keep public information available as those terms are
understood and defined in Rule 144 under the Act, at all times from and after
ninety days following the effective date of the first registration under the Act
filed by the Company for an offering of its securities to the general public;
(b) use all commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Act and the Exchange Act at any time after it has become
subject to such reporting requirements; and
(c) so long as a Holder owns any restricted securities, furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety days following the effective date of the first registration
statement filed by the Company for an offering of its
8
<PAGE>
securities to the general public), and of the Act and Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as a Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
12. Damages. The Company and the Investors recognize and agree that they
-------
may not have an adequate remedy if any of them fails to comply with the
provisions of this Agreement, and that damages will not be readily
ascertainable, and each of them expressly agrees that in the event of such
failure the other parties shall be entitled to seek specific performance of the
defaulting party's obligations hereunder.
13. Restrictions on Transfer. Each Holder of Registrable Securities who
------------------------
seeks to include such Registrable Securities in a registration pursuant to this
Agreement shall, if so requested by the underwriters who are managing such
offering, as a condition precedent to including Registrable Securities in such
offering, execute an agreement on usual and customary terms pursuant to which
such Holder agrees not to sell or otherwise transfer Registrable Securities
(except pursuant to such offering) for such period of time following the
consummation of such offering as such underwriters may reasonably request;
provided, however that such period shall not exceed 120 days in the case of the
first offering of securities of the Company or 90 days in the case of any
subsequent offering of such securities.
14. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to the Investors as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and does not
violate any provision of law applicable to the Company, any order of any court
or other agency of government applicable to the Company, the Articles of
Organization or By-laws of the Company or any provision of any indenture,
agreement or other instrument to which it or any or its properties or assets is
bound, conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any such indenture, agreement or other
instrument or result in the creation, except for any such violation, conflict,
breach, or default which would not have a material adverse effect on the
Company, or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the material properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as (A) the enforceability
thereof may be limited by bankruptcy, reorganization, insolvency, moratorium,
fraudulent conveyance or other laws of general
9
<PAGE>
applicability affecting the enforcement of creditors' or secured parties' rights
or debtors' obligations generally, (B) the availability of specific performance
or other equitable remedies may be limited by equitable principles of general
applicability (whether such matter is considered in a proceeding at law or in
equity); and (C) the indemnification and contribution provisions with respect to
securities law matters may be limited by applicable securities laws or
principles of public policy.
15. Miscellaneous.
-------------
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including without
limitation transferees of any Registrable Securities), whether or not so
expressed.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be mailed by certified or registered mail, return
receipt requested, postage prepaid, or telecopied or sent by other facsimile
method addressed as follows:
If to the Company or any Investor, at the address of such party set
forth on Schedule I hereto or the most recent address as is shown on the
stock records of the Company; and
If to any subsequent Holder of Registrable Securities, to it at such
address as may have been furnished to the Company in writing by such
Holder; or, in any case, at such other address or addresses as shall have
been furnished in writing to the Company (in the case of a Holder of
Registrable Securities) or to the Holders of Registrable Securities (in the
case of the Company) in accordance with the provisions of this paragraph.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the conflict of laws
provisions thereof.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and the holders
of at least a majority of the outstanding Registrable Securities; provided,
however that if any amendment adversely affects any Investor, such amendment
shall also require the consent of all Holders.
(e) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
10
<PAGE>
(f) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
(g) One or more persons who acquire shares of Common Stock after the
date hereof may become parties to this Agreement by executing a counterpart of
this Agreement, in which case the name and address of each such person shall be
added to Schedule 1.
----------
(h) If pursuant to Section 1.6 of the Series A and Series B Preferred
Stock Purchase Agreement of even date among the parties to this Agreement (the
"Stock Purchase Agreement"), Purchasers (as defined in the Stock Purchase
Agreement) terminate their commitment to purchase Purchased Shares (as defined
in the Stock Purchase Agreement), and Gregory A. Serrao purchases, or causes the
Company to purchase, all capital stock of the Company owned by Purchasers other
than himself, then the Company may terminate this Agreement at any time
thereafter upon notice to the other parties.
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
COMPANY:
AMERICAN DENTAL PARTNERS, INC.
By: /s/ Gregory A. Serrao
--------------------------------
Name: Gregory A. Serrao
Title: President
INVESTORS:
SUMMIT VENTURES IV, L.P.
By: Summit Partners, IV,
L.P.,
Its General Partner
11
<PAGE>
By: Stamps, Woodsum & Co. IV,
Its General Partner
By: /s/ Martin J. Mannion
-------------------------------
General Partner
SUMMIT INVESTORS III, L.P.
By: /s/ Martin J. Mannion
-------------------------------
Authorized Signatory
/s/ Gregory A. Serrao
----------------------------------
Gregory A. Serrao
12
<PAGE>
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
------------------------------------------
This is an amendment made effective November 1, 1996, to the Registration
Rights Agreement dated January 8, 1996 (the "Agreement"), among American Dental
Partners, Inc., a Delaware corporation (the "Company"), and Summit Ventures, IV,
L.P., Summit Investors III, L.P., Noro-Moseley Partners III, L.P., Gregory A.
Serrao ("Mr. Serrao"), Robert D. Walter, Donald Vasti, Celeste Vasti, M. Robert
DiGia, George Bennett, Stephen Corrou, F&F L.L.C., Ronald M. Levenson, Gary A.
Wadman, and Mazza & Riley, Inc. (the "Investors").
Background Information
----------------------
The Company anticipates that it will agree to provide certain registration
rights to persons who are issued Common Stock (as defined in the Agreement) in
connection with acquisitions the Company completes from time to time.
Notwithstanding the Agreement, the Company may agree to provide registration
rights to other persons, provided that such agreement does not violate Section 9
of the Agreement or is approved by Investors who hold a majority of the
outstanding Registrable Securities, as that term is defined in the Agreement (an
"Investor Majority"). In addition, Section 15(g) of the Agreement provides that
persons who acquire shares of Common Stock (as defined in the Agreement) after
the date of the Agreement can become parties to the Agreement by executing a
counterpart of the Agreement. However, the registration rights which the Company
agrees to provide to others are likely to be less extensive or otherwise
different than the rights of the Investors, and the Company believes that it may
not be in the best interests of the Company or the Investors to permit such
other persons to become parties to the Agreement. Accordingly, the Parties
desire to amend the Agreement to coordinate more effectively the Investors'
registration rights with registration rights which the Company may hereafter
agree to provide, consistent with the Agreement, as amended by this amendment.
Statement of Agreement
----------------------
The Parties hereby acknowledge the foregoing Background Information and
agree as follows:
1. For purposes of the Agreement and this amendment: (a) the term
"Holder" shall mean a person who is then a record owner of Registrable
Securities; and (b) the term "Registrable Securities" shall mean shares of
Common Stock which have not been previously registered for sale under the Act,
including without limitation those issuable upon conversion of the Company's
Series A Convertible Preferred Stock. Such definitions shall supersede the
definitions of such terms contained in the Agreement.
All other capitalized terms used in this amendment which are not otherwise
defined herein shall have the respective meanings given those terms in the
Agreement.
<PAGE>
2. The Company may hereafter grant registration rights relating to
Common Stock pursuant to any agreement approved by an Investor Majority (an
"Approved Agreement"). The approval of an Investor Majority under the preceding
sentence may be evidenced (i) by one or more documents executed by the Investor
Majority, (ii) by the affirmative vote, consent, or approval of the members of
the Company's board of directors (the "Board") who are Investors or who are
appointed by the Investors pursuant to Section 6(a) of the Shareholders'
Agreement dated January 8, 1996, among the Company and the Investors, whether
such vote, consent, or approval is taken or given at a meeting of the Board or
in written action taken by the Board, or (iii) some combination of the
foregoing. The provisions of Sections 2(a)(ii)(B) and 3(a)(ii) of the Agreement
relating to limitations on the number of shares offered pursuant to a
registration will be imposed pro rata among all Holders who request inclusion of
Registrable Securities in such registration under the Agreement or an Approved
Agreement, in proportion to the number of Registrable Securities so requested to
be registered by such Holders, respectively.
3. Pursuant to Section 15(d) of the Agreement, this amendment shall be
effective when executed by the Company and by Parties constituting an Investor
Majority.
4. This is an amendment to and a part of the Agreement. In the event of
any inconsistencies between provisions of the Agreement and this amendment, the
provisions of this amendment shall control. Except as modified by this
amendment, the Agreement shall continue in full force and effect without change.
5. This amendment shall be binding upon, inure to the benefit of, and be
enforceable by and against the respective heirs, personal representatives,
successors, and assigns of each Party.
6. This amendment may be executed in multiple counterparts, each of which
shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.
AMERICAN DENTAL PARTNERS, INC. SUMMIT VENTURES IV, L.P.
By Summit Partners IV., L.P.,
General Partner
By /s/ Gregory A. Serrao By /s/ Martin J. Mannion
------------------------------ --------------------------------
Gregory A. Serrao, President Printed Name Martin J. Mannion
----------------------
Title General Partner
-----------------------------
SUMMIT INVESTORS III, L.P. By Stamps, Woodsum & Co. IV,
General Partner
By /s/ Martin J. Mannion By /s/ Martin J. Mannion
------------------------------ --------------------------------
Printed Name Martin J. Mannion Printed Name Martin J. Mannion
-------------------- ----------------------
Title General Partner Title General Partner
--------------------------- -----------------------------
[Signatures continued on next page]
<PAGE>
NORO-MOSELEY PARTNERS, III, L.P. F&F, L.L.C.
By Moseley & Company, III,
L.L.C., General Partner By
----------------------------------
Printed Name
------------------------
By Title
---------------------------- --------------------------------
Printed Name
-------------------
Title
--------------------------
MAZZA & RILEY, INC. /s/ Gregory A. Serrao
--------------------------------------
By GREGORY A. SERRAO
----------------------------
Printed Name /s/ Robert D. Walter
------------------- --------------------------------------
Title ROBERT D. WALTER
--------------------------
/s/ M. Robert DiGia /s/ Donald Vasti
- -------------------------------- --------------------------------------
M. ROBERT DiGIA DONALD VASTI
/s/ George Bennett /s/ Celeste Vasti
- -------------------------------- --------------------------------------
GEORGE BENNETT CELESTE VASTI
/s/ Stephen Corrou /s/ Ronald M. Levenson
- -------------------------------- --------------------------------------
STEPHEN CORROU RONALD M. LEVENSON
/s/ Gary A. Wadman
--------------------------------------
GARY A. WADMAN
<PAGE>
REFORMATION AGREEMENT
---------------------
This agreement is made December 23, 1996, among American Dental Partners,
Inc., a Delaware corporation (the "Company"), Summit Ventures IV, L.P. ("Summit
IV"), Summit Investors III, L.P. ("Summit III"), Summit Investors II, L.P.
("Summit II", and collectively with Summit IV and Summit III, "Summit"), and
Gregory A. Serrao ("Mr. Serrao").
Background Information
----------------------
A. The Company, Summit IV, Summit III, Mr. Serrao, and certain
investors in the Company are parties to: (i) a Series A and Series B Preferred
Stock Purchase Agreement dated January 8, 1996, as amended February 19, 1996,
May 1, 1996, and November 1, 1996 (the "Purchase Agreement"); (ii) a
Shareholders' Agreement dated January 8, 1996, as amended November 1, 1996 (the
"Shareholders' Agreement"); (iii) a Registration Rights Agreement dated January
8, 1996, as amended November 1, 1996 (the "Registration Rights Agreement"); and
(iv) a Subscription Agreement and Investment Representation dated January 8,
1996, as amended February 19, 1996 (the "Subscription Agreement", and
collectively with the Purchase Agreement, the Shareholders' Agreement, and the
Registration Rights Agreement, the "Agreements").
B. The original intent of the parties to this agreement (the "Parties")
was to have Summit II, and not Summit III, as a party to the Agreements with
respect to the interests currently indicated as being those of Summit III under
the Agreements. Accordingly, the Parties desire to reform the Agreements in
order to serve the original intent of the Parties.
C. Concurrently with the execution of this agreement, Summit III and
the Company are causing the shares of outstanding capital stock of the Company
currently registered in the Company's stock records in the name of Summit III to
be re-registered in the name of Summit II.
Statement of Agreement
----------------------
The Parties hereby acknowledge the accuracy of the foregoing Background
Information and agree as follows:
(S)1. Effective as of January 8, 1996, each reference to Summit III
contained in the Agreements, and in all other documents and instruments relating
to or executed in connection with the Agreements (which hereafter shall be
deemed included within the definition of "Agreements"), is hereby replaced with,
and shall be deemed to be a reference to, Summit II.
(S)2. Summit II hereby agrees to be bound by the Agreements and assumes
all obligations of Summit III under the Agreements as of
<PAGE>
January 8, 1996, and all representations and warranties of Summit III contained
in each Agreement shall be deemed to be a representation and warranty of Summit
II as of the date of such Agreement.
(S)3. Summit III shall have no obligations under the Agreements.
(S)4. For purposes of clarity, Summit IV hereby reaffirms all of its
obligations under all Agreements executed by, on behalf of, or in the name of
Summit IV.
(S)5. In the event of any inconsistency between the provisions of this
agreement and any Agreement, the provisions of this agreement shall control.
Except as modified by this agreement, the Agreements shall remain in full force
and effect without change.
(S)6. This agreement shall be binding upon, inure to the benefit of and be
enforceable by and against the Parties and their respective heirs, personal
representatives, successors, and assigns.
(S)7. This agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.
SUMMIT INVESTORS III, L.P. SUMMIT INVESTORS II, L.P.
By /s/ Martin J. Mannion By /s/ Martin J. Mannion
---------------------------- ----------------------------
Its General Partner Its General Partner
---------------------------- ----------------------------
AMERICAN DENTAL PARTNERS, INC.
By /s/ Gregory A. Serrao /s/ Gregory A. Serrao
---------------------------- -----------------------------
Gregory A. Serrao GREGORY A. SERRAO
President
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.
General Partner
By: Stamps, Woodsum & Co. IV
General Partner
By /s/ Martin J. Mannion
----------------------------
General Partner
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
-------------------------------------------
1. Purpose of the Plan.
-------------------
This stock option plan (the "Plan") is intended to encourage ownership
of the stock of American Dental Partners, Inc. (the "Company") by employees and
advisors of the Company and its subsidiaries, to induce qualified personnel to
enter and remain in the employ of the Company or its subsidiaries and otherwise
to provide additional incentive for optionees to promote the success of its
business.
2. Stock Subject to the Plan.
-------------------------
(a) The total number of shares of the authorized but unissued
or Treasury shares of the common stock, $.01 par value, of the Company
("Common Stock") for which options may be granted under the Plan shall
not exceed One Hundred Forty-Five Thousand Five Hundred Forty One
(145,541) shares, subject to adjustment as provided in Section 12
hereof.
(b) If an option granted hereunder shall expire or terminate
for any reason without having vested fully or having been exercised in
full, the unvested and/or unpurchased shares subject thereto shall
again be available for subsequent option grants under the Plan.
(c) Stock issuable upon exercise of an option granted under
the Plan may be subject to such restrictions on transfer, repurchase
rights or other restrictions as shall be determined by the Board of
Directors or Committee.
3. Administration of the Plan.
--------------------------
The Plan shall be administered by the Company's board of directors (the
"Board"). The Board shall have the power and authority to: (a) approve eligible
persons as recipients of options; (b) approve the grant of options; (c) approve
the terms and conditions, not inconsistent with the terms hereof, of any option,
including without limitation time and performance restrictions, and approve the
form of Agreement (as defined in Section 6, below); (d) adopt, alter, and repeal
such administrative rules, guidelines, and practices governing the Plan as it
shall, from time to time, deem advisable; (e) interpret the terms and provisions
of the Plan and any option granted and any agreements relating thereto; and (f)
take any other actions the Board considers appropriate in connection with, and
otherwise supervise the administration of, the Plan, all in a manner consistent
with the other provisions of the Plan. All decisions made by the Board pursuant
to the provisions hereof, including without limitation decisions with respect to
eligible persons to be granted options and the number of options, shall be made
in the Board's sole discretion and shall be final and binding on all persons.
<PAGE>
The Board may, in its discretion at any time or from time to time,
appoint a committee (the "Committee") of not less than one director to
administer the Plan, in which event the Committee shall have such of the powers
and duties of the Board under the Plan as the Board shall delegate to the
Committee. The member or members of the Committee shall serve at the pleasure of
the Board, which may remove members from the Committee or appoint new members to
the Committee from time to time, and members of the Committee may resign by
written notice to the Chairman of the Board or the Secretary of the Company.
Notwithstanding the foregoing to the contrary, beginning at such time
as the Company has completed an initial public offering (an "IPO") for its
common stock pursuant to a registration statement filed under the Securities Act
of 1933, as amended (the "1933 Act"), including registration of the Shares under
Section 12 of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
any option granted to a person who, because of his relationship with the
Company, is subject to the reporting requirements of Section 16(a) of the 1934
Act, shall not be effective unless (a) the grant of such option is approved by
either the Board or a committee consisting solely of two or more "Non-Employee
Directors" (as defined in Rule 16b- 3(b)(3) promulgated under the 1934 Act), (b)
the grant of such option is approved or ratified by the stockholders of the
Company, in compliance with Section 14 of the 1934 Act, not later than the date
of the annual meeting of the Company's stockholders next following the date of
such grant, or (c) such option, by its terms, provides that shares of Common
Stock received upon exercise of the option may not be disposed of before at
least six months have elapsed from the date the option was granted.
4. Type of Options.
---------------
Options granted pursuant to the Plan shall be authorized by action of
the Board of Directors and may be designated as either incentive stock options
meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or non-qualified options which are not intended to meet
the requirements of such Section 422 of the Code, the designation to be in the
sole discretion of the Board of Directors. The Plan shall be administered by the
Board of Directors in such manner as to permit options to qualify as incentive
stock options under the Code.
5. Eligibility.
-----------
Options designated as incentive stock options shall be granted only to
key employees (including officers and directors who are also employees) of the
Company and its subsidiaries. Options designated as non-qualified options may be
granted to officers, key employees and, consultants and advisors of the Company
or of any of its subsidiaries. "Subsidiary" or "subsidiaries" shall be as
defined in Section 424 of the Code and the Treasury Regulations promulgated
thereunder (the "Regulations").
Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted an option pursuant to the Plan.
2
<PAGE>
The Board shall, from time to time, at its sole discretion, select from
such eligible persons those to whom options shall be granted and shall determine
the number of shares to be subject to each option. In determining the
eligibility of an individual or person to be granted an option, as well as in
determining the number of shares to be granted to any individual or person, the
Board of Directors in its sole discretion shall take into account the position
and responsibilities of the individual or person being considered, the nature
and value to the Company or its subsidiaries of his or her or its service and
accomplishments, his or her or its present and potential contribution to the
success of the Company or its subsidiaries, and such other factors as the Board
of Directors may deem relevant.
No option designated as an incentive stock option shall be granted to
any employee of the Company or any subsidiary if such employee owns, immediately
prior to the grant of an option, stock representing more than 10% of the voting
power or more than 10% of the value of all classes of stock of the Company or a
parent or a subsidiary, unless the purchase price for the stock under such
option shall be at least 110% of its fair market value at the time such option
is granted and the option, by its terms, shall not be exercisable more than five
years from the date it is granted. In determining the stock ownership under this
paragraph, the provisions of Section 424(d) of the Code shall be controlling. In
determining the fair market value under this paragraph, the provisions of
Section 7 hereof shall apply.
6. Option Agreement.
----------------
Each option shall be evidenced by an option agreement (the "Agreement")
duly executed on behalf of the Company and by the optionee to whom such option
is granted, which Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Agreement may contain such other terms, provisions
and conditions which are not inconsistent with the Plan as may be determined by
the Board of Directors, provided that options designated as incentive stock
options shall meet all of the conditions for incentive stock options as defined
in Section 422 of the Code. The date of grant of an option shall be as
determined by the Board of Directors. More than one option may be granted to an
individual.
7. Option Price.
------------
The exercise price per share of Common Stock issuable upon exercise of
an option shall be determined by the Board at the time of grant and set forth in
the applicable Agreement; provided that such exercise price shall not be less
than the fair market value per share on the date the option is granted. For
purposes of the Plan, the fair market value of the Common Stock shall mean, as
of any given date, the (i) last reported sale price on the New York Stock
Exchange on the most recent previous trading day, (ii) last reported sale price
on the NASDAQ National Market System on the most recent previous trading day,
(iii) mean between the high and low bid and ask prices, as reported by the
National Association of Securities Dealers, Inc. on the most recent previous
trading day, or (iv) last reported sale price on any other stock exchange on
which the Common Stock is listed on the most recent previous trading day,
whichever is applicable; provided that if none of the foregoing is applicable,
then the fair market
3
<PAGE>
value of the Common Stock shall be the value determined by the Board, in its
sole discretion.
8. Manner of Payment; Manner of Exercise.
-------------------------------------
(a) Options granted under the Plan may provide for the payment
of the exercise price, as determined by the Board of Directors, by
delivery of (i) cash or a check payable to the order of the Company in
an amount equal to the exercise price of such options, (ii) shares of
Common Stock of the Company owned by the optionee having a fair market
value equal in amount to the exercise price of the options being
exercised, (iii) cancellation of shares otherwise issuable upon
exercise of an option, or (iv) any combination of (i), (ii) and (iii),
provided, however, that payment of the exercise price by delivery of
shares of Common Stock of the Company owned by such optionee may be
made only if such payment does not result in a charge to earnings for
financial accounting purposes as determined by the Board of Directors.
(b) To the extent that the right to purchase shares under an
option has accrued and is in effect, options may be exercised in full
at one time or in part from time to time, by giving written notice,
signed by the person or persons exercising the option, to the Company,
stating the number of shares with respect to which the option is being
exercised, accompanied by payment in full for such shares as provided
in subparagraph (a) above. Upon such exercise, delivery of a
certificate for paid-up non-assessable shares shall be made at the
principal office of the Company to the person or persons exercising the
option at such time, during ordinary business hours, after seven (7)
but not more than thirty (30) days from the date of receipt of the
notice by the Company, as shall be designated in such notice, or at
such time, place and manner as may be agreed upon by the Company and
the person or persons exercising the option. Upon exercise of the
option and payment as provided above, the optionee shall become a
shareholder of the Company as to the Shares acquired upon such
exercise.
9. Exercise of Options.
-------------------
Each option granted under the Plan shall, subject to Section 10(b) and
Section 13 hereof, be exercisable at such time or times and during such period
as determined by the Board of Directors which shall be set forth in the
Agreement; provided, however, that no option granted under the Plan shall have a
term in excess of ten (10) years from the date of grant.
To the extent that an option to purchase shares is not exercised by an
optionee when it becomes initially exercisable, it shall not expire but shall be
carried forward and shall be exercisable, on a cumulative basis, until the
expiration of the exercise period. No partial exercise may be made for less than
one hundred (100) full shares of Common Stock or such lesser number of shares as
are then issuable upon exercise of an option.
Notwithstanding the foregoing, the Board of Directors may in its
discretion (i) specifically provide for another time or times of exercise or
(ii) accelerate the exercisability of
4
<PAGE>
any option subject to such terms and conditions as the Board of Directors deems
necessary and appropriate.
10. Term of Options; Exercisability.
-------------------------------
(a) Term.
----
(1) Each option shall expire not more than ten (10)
years from the date of the granting thereof, but shall be
subject to earlier termination as herein provided.
(2) Except as otherwise provided in this Section 10,
an option granted to any employee optionee who ceases to be an
employee of the Company or one of its subsidiaries shall
terminate, in the case of both non-qualified and incentive
stock options, ninety (90) days after the date such optionee
ceases to be an employee of the Company or one of its
subsidiaries, or on the date on which the option expires by
its terms, whichever occurs first.
(3) If an optionee's employment terminates because
the optionee has become permanently disabled (within the
meaning of (S)22(e)(3) of the Code), or because of the death
of the optionee, then such option shall terminate one year
after the date such optionee ceases to be an employee of the
Company or one of its subsidiaries or on the date on which the
option expires by its terms, whichever occurs first.
(4) Notwithstanding subparagraph (2) above, the Board
shall have the authority to extend the expiration date of any
outstanding option in circumstances in which it deems such
action to be appropriate, provided that no such extension
shall extend the term of an option beyond the date on which
the option would have expired if no termination of the
optionee's employment had occurred.
(b) Exercisability.
--------------
An option granted to an employee optionee who ceases
to be an employee of the Company or one of its subsidiaries
shall be exercisable only to the extent that the right to
purchase shares under such option has accrued and is in effect
on the date such optionee ceases to be an employee of the
Company or one of its subsidiaries.
11. Options Not Transferable.
------------------------
The right of any optionee to exercise any option granted to him or her
shall not be assignable or transferable by such optionee otherwise than by will
or the laws of descent and distribution or (solely with respect to non-qualified
stock options) pursuant to a qualified
5
<PAGE>
domestic relations order, as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder, and any such option
shall be exercisable during the lifetime of such optionee only by him. Any
option granted under the Plan shall be null and void and without effect upon the
bankruptcy of the optionee to whom the option is granted, or upon any attempted
assignment or transfer, except as herein provided, including without limitation
any purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, attachment, divorce, except as provided
above with respect to non-qualified stock options, trustee process or similar
process, whether legal or equitable, upon such option. Notwithstanding the
foregoing to the contrary, the Board may, in its sole discretion and in the
manner established by the Board, provide for the irrevocable transfer, without
payment of consideration, of any non-qualified stock option by an optionee to
such optionee's spouse, children, grandchildren, nieces, or nephews or to the
trustee of any trust for the principal benefit of one or more such persons or to
a partnership whose only partners are one or more such persons. In the case of
such a permitted transfer, the option shall be exercisable only by the
transferee or such transferee's legal representative.
12. Recapitalizations, Reorganizations and the Like.
-----------------------------------------------
(a) In the event that the outstanding shares of the Common
Stock of the Company are changed into or exchanged for a different
number or kind of shares or other securities of the Company or of
another corporation by reason of any reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up,
combination of shares, or dividends payable in capital stock,
appropriate adjustment shall be made in the number and kind of shares
as to which options may be granted under the Plan and as to which
outstanding options or portions thereof then unexercised shall be
exercisable, to the end that the proportionate interest of the optionee
shall be maintained as before the occurrence of such event; such
adjustment in outstanding options shall be made without change in the
total price applicable to the unexercised portion of such options and
with a corresponding adjustment in the option price per share.
(b) Upon dissolution or liquidation of the Company, all
options granted under this Plan shall terminate, but each optionee (if
at such time in the employ of or otherwise associated with the Company
or any of its subsidiaries) shall have the right, immediately prior to
such dissolution or liquidation, to exercise his or her option to the
extent then exercisable.
(c) No fraction of a share shall be purchasable or deliverable
upon the exercise of any option, but in the event any adjustment
hereunder of the number of shares covered by the option shall cause
such number to include a fraction of a share, such fraction shall be
adjusted to the nearest smaller whole number of shares.
6
<PAGE>
13. Change in Control.
-----------------
(a) Accelerated Vesting and Company Purchase Option.
-----------------------------------------------
Notwithstanding any provision of this Plan or any Agreement to the
contrary (unless such Agreement contains a provision referring
specifically to this Section 13 and stating that this Section 13 shall
not be applicable to the Option evidenced by such Agreement), if a
Change in Control or a Potential Change in Control (each as defined
below) occurs, then:
(i) At the Company's option, any and all options
theretofore granted and not fully vested shall thereupon
become vested and exercisable in full and shall remain so
exercisable in accordance with their terms; provided that no
option which has previously been exercised or otherwise
terminated shall become exercisable; and
(ii) The Company may, at its option, terminate any or
all unexercised options and portions thereof not more than 30
days after such Change in Control or Potential Change in
Control; provided that the Company shall, upon such
termination and with respect to each option so terminated, pay
to the optionee (or such optionee's transferee, if applicable)
theretofore holding such option cash in an amount equal to the
difference between the fair market value (as defined in
Section 7, above) of the shares of Common Stock subject to the
option at the time the Company exercises its option under this
Section 13(a)(ii) and the exercise price of the option, less
applicable withholding taxes; and provided further that if
such fair market value is less than such exercise price, then
the Board may, in its sole discretion, terminate such option
without any payment.
(b) Definition of Change in Control. For purposes of the Plan,
-------------------------------
a "Change in Control" means the happening of any of the following:
(i) When any "person" as defined in (S)3(a)(9) of the
1934 Act and as used in (S)(S)13(d) and 14(d) thereof,
including a "group" as defined in (S)13(d) of the 1934 Act,
but excluding the Company, any subsidiary of the Company, any
employee benefit plan sponsored or maintained by the Company
or any subsidiary of the Company (including any trustee of
such plan acting as trustee), any person who is a stockholder
of the Company on the effective date of the Plan (an "Existing
Stockholder"), and any affiliate of an Existing Stockholder,
directly or indirectly, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the 1934 Act) of securities of the
Company representing 20% or more of the combined voting power
of the Company's then outstanding securities;
(ii) When, during any period of 24 consecutive months
during the existence of the Plan, the individuals who, at the
beginning of such period, constitute the Board (the "Incumbent
Directors") cease for any reason other than death to
constitute at least a majority of the Board; provided,
however, that a
7
<PAGE>
director who was not a director at the beginning of such
24-month period shall be deemed to have satisfied such
24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors either actually (because they
were directors at the beginning of such 24-month period) or by
prior operation of this Section 13(b)(ii); or
(iii) The occurrence of a transaction requiring
stockholder approval for the acquisition of the Company by an
entity other than the Company or a subsidiary of the Company
through purchase of assets, by merger, or otherwise.
Provided that neither an initial nor any secondary public
offering of common stock of the Company pursuant to a
registration statement under the 1933 Act nor any issuance of
securities of the Company or any subsidiary of the Company in
connection with an acquisition of a dental practice or other
business entity by the Company or any subsidiary of the
Company shall constitute a Change in Control; and provided
further that a change in control shall not be deemed to be a
Change in Control for purposes of this Plan if the Board had
approved such change prior to either (A) the commencement of
any of the events described in Sections 13(b)(i), (ii), (iii),
or 13(c)(i) of this Plan, or (B) the commencement by any
person other than the Company of a tender offer for shares of
Common Stock.
(c) Definition of Potential Change in Control. For purposes of
-----------------------------------------
the Plan, a "Potential Change in Control" means the happening of any
one of the following:
(i) The approval by the stockholders of the Company
of an agreement by the Company, the consummation of which
would result in a Change in Control of the Company as defined
in Section 13(b), above; or
(ii) The acquisition of beneficial ownership of the
Company, directly or indirectly, by any entity, person, or
group (other than the Company, a subsidiary of the Company,
any Company employee benefit plan (including any trustee of
such plan acting as such trustee), an Existing Stockholder, or
an affiliate of an Existing Stockholder) representing 5% or
more of the combined voting power of the Company's outstanding
securities and the adoption by the Board of a resolution to
the effect that a Potential Change in Control of the Company
has occurred for purposes of the Plan.
14. No Special Employment Rights.
----------------------------
Nothing contained in the Plan or in any option granted under the Plan
shall confer upon any option holder any right with respect to the continuation
of his or her employment by the Company (or any subsidiary) or interfere in any
way with the right of the Company (or any subsidiary), subject to the terms of
any separate employment agreement to the contrary, at any
8
<PAGE>
time to terminate such employment or to increase or decrease the compensation of
the option holder from the rate in existence at the time of the grant of an
option. Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Board of Directors at the time.
15. Withholding.
-----------
The Company's obligation to deliver shares upon the exercise of any
option granted under the Plan shall be subject to the option holder's
satisfaction of all applicable Federal, state and local income, excise,
employment and any other tax withholding requirements. On or after the date of
the first registration of an equity security of the Company under Section 12 of
the 1934 Act, if an optionee is an officer of the Company within the meaning of
Section 16 of the 1934 Act, he may elect to pay such withholding tax obligations
in accordance with rules prescribed by the Board by having the Company withhold
shares of Common Stock having a value equal to the amount required to be
withheld. The value of the shares to be withheld shall equal the fair market
value of the shares on the day the option is exercised as determined by the
Board.
16. Restrictions on Issue of Shares.
-------------------------------
(a) Notwithstanding the provisions of Section 8, the Company
may delay the issuance of shares covered by the exercise of an option
and the delivery of a certificate for such shares until one of the
following conditions shall be satisfied:
(i) The shares with respect to which such option has
been exercised are at the time of the issue of such shares
effectively registered or qualified under applicable Federal
and state securities acts now in force or as hereafter
amended; or
(ii) Counsel for the Company shall have given an
opinion, which opinion shall not be unreasonably conditioned
or withheld, that such shares are exempt from registration and
qualification under applicable Federal and state securities
acts now in force or as hereafter amended.
(b) It is intended that all exercises of options shall be
effective, and the Company shall use its best efforts to bring about
compliance with the above conditions within a reasonable time, except
that the Company shall be under no obligation to qualify shares or to
cause a registration statement or a post-effective amendment to any
registration statement to be prepared for the purpose of covering the
issue of shares in respect of which any option may be exercised, except
as otherwise agreed to by the Company in writing.
17. Purchase for Investment; Rights of Holder on Subsequent Registration.
--------------------------------------------------------------------
Unless the shares to be issued upon exercise of an option granted under the
Plan have
9
<PAGE>
been effectively registered under the Securities Act of 1933, as now in force or
hereafter amended, the Company shall be under no obligation to issue any shares
covered by any option unless the person who exercises such option, in whole or
in part, shall give a written representation and undertaking to the Company
which is satisfactory in form and scope to counsel for the Company and upon
which, in the opinion of such counsel, the Company may reasonably rely, that he
or she is acquiring the shares issued pursuant to such exercise of the option
for his or her own account as an investment and not with a view to, or for sale
in connection with, the distribution of any such shares, and that he or she will
make no transfer of the same except in compliance with any rules and regulations
in force at the time of such transfer under the Securities Act of 1933, or any
other applicable law, and that if shares are issued without such registration, a
legend to this effect may be endorsed upon the securities so issued. In the
event that the Company shall, nevertheless, deem it necessary or desirable to
register under the Securities Act of 1933 or other applicable statutes any
shares with respect to which an option shall have been exercised, or to qualify
any such shares for exemption from the Securities Act of 1933 or other
applicable statutes, then the Company may take such action and may require from
each optionee such information in writing for use in any registration statement,
supplementary registration statement, prospectus, preliminary prospectus or
offering circular as is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors and
controlling persons from such holder against all losses, claims, damages and
liabilities arising from such use of the information so furnished and caused by
any untrue statement of any material fact therein or caused by the omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made.
18. Loans.
-----
The Company may make loans to optionees to permit them to exercise
options. If loans are made, the requirements of all applicable Federal and state
laws and regulations regarding such loans must be met.
19. Modification of Outstanding Options.
-----------------------------------
The Board of Directors may authorize the amendment of any outstanding
option with the consent of the optionee when and subject to such conditions as
are deemed to be in the best interests of the Company and in accordance with the
purposes of this Plan.
20. Approval of Stockholders.
------------------------
The Plan shall be subject to approval by the vote of stockholders
holding at least a majority of the voting stock of the Company present, or
represented, and entitled to vote at a duly held stockholders' meeting, or by
written consent of the stockholders as provided for under applicable state law,
within twelve (12) months after the adoption of the Plan by the Board of
Directors and shall take effect as of the date of adoption by the Board of
Directors upon such approval. The Board of Directors may grant options under the
Plan prior to such approval, but
10
<PAGE>
any such option shall become effective as of the date of grant only upon such
approval and, accordingly, no such option may be exercisable prior to such
approval.
21. Termination and Amendment.
-------------------------
Unless sooner terminated as herein provided, the Plan shall terminate
ten (10) years from the date upon which the Plan was duly adopted by the Board
of Directors of the Company. The Board of Directors may at any time terminate
the Plan or make such modification or amendment thereof as it deems advisable;
provided, however, that except as provided in this Section 21, the Board of
Directors may not, without the approval of the stockholders of the Company
obtained in the manner stated in Section 20, increase the maximum number of
shares for which options may be granted or change the designation of the class
of persons eligible to receive options under the Plan, or make any other change
in the Plan which requires stockholder approval under applicable law or
regulations, including any approval requirement which is a prerequisite for
exemptive relief under Section 16 of the Securities Exchange Act of 1934. The
Board of Directors may terminate, amend or modify any outstanding option without
the consent of the option holder, provided, however, that, except as provided in
Section 12, without the consent of the optionee, the Board of Directors shall
not change the number of shares subject to an option, nor the exercise price
thereof, nor extend the term of such option.
22. Compliance with Rule 16b-3.
--------------------------
It is intended that the provisions of the Plan and any option granted
thereunder to a person subject to the reporting requirements of Section 16(a) of
the Act shall comply in all respects with the terms and conditions of Rule 16b-3
under the Securities Exchange Act of 1934 (the "Act"), or any successor
provisions. Any agreement granting options shall contain such provisions as are
necessary or appropriate to assure such compliance. To the extent that any
provision hereof is found not to be in compliance with such Rule, such provision
shall be deemed to be modified so as to be in compliance with such Rule, or if
such modification is not possible, shall be deemed to be null and void, as it
relates to a recipient subject to Section 16(a) of the Act.
23. Reservation of Stock.
--------------------
The Company shall at all times during the term of the Plan reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of the Plan and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.
24. Limitation of Rights in the Option Shares.
-----------------------------------------
An optionee shall not be deemed for any purpose to be a stockholder of
the Company with respect to any of the options except to the extent that the
option shall have been exercised with respect thereto and, in addition, a
certificate shall have been issued theretofore and delivered to the optionee.
11
<PAGE>
25. Notices.
-------
Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.
26. Effective Date.
--------------
The Plan is effective October 27, 1997.
27. Term of Plan.
------------
No option shall be granted pursuant to the Plan on or after January 11,
2006 (the tenth anniversary of the effective date of the 1996 Stock Option
Plan), but options granted prior to such date may extend beyond that date.
28. Savings Clause.
--------------
In case any one or more of the provisions of this Plan shall be held
invalid, illegal, or unenforceable in any respect, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and the invalid, illegal, or unenforceable provision shall be
deemed null and void; however, to the extent permissible by law, any provision
which could be deemed null and void shall first be construed, interpreted, or
revised retroactively to permit this Plan to be construed so as to foster the
intent of this Plan. This Plan is intended to comply in all respects with
applicable law and regulation, including (S)422 of the Code and, with respect to
persons subject to (S)16 of the 1934 Act ("Reporting Persons"), Rule 16b-3 under
the 1934 Act. In case any one or more of the provisions of this Plan shall be
held to violate or be unenforceable in any respect under (S)422 or Rule 16b-3,
then, to the extent permissible by law, any provision which could be deemed to
violate or be unenforceable under (S)422 or Rule 16b-3 shall first be construed,
interpreted, or revised retroactively to permit the Plan to be in compliance
with (S)422 and Rule 16b-3. Notwithstanding anything in this Plan to the
contrary, the Board in its sole discretion, may bifurcate the Plan so as to
restrict, limit, or condition the use of any provision of this Plan to optionees
who are Reporting Persons or covered employees as defined under (S)162(m) of the
Code without so restricting, limiting, or conditioning this Plan with respect to
other optionees.
12
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
1996 TIME ACCLERATED RESTRICTED STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
-------------------
This stock option plan (the "Plan") is intended to encourage ownership of
the common stock of American Dental Partners, Inc., a Delaware corporation (the
"Company"), by employees of the Company and its subsidiaries, to induce
qualified personnel to enter and remain in the employ of the Company or its
subsidiaries and otherwise to provide additional incentive for optionees to
promote the success of its business.
2. STOCK SUBJECT TO THE PLAN.
-------------------------
(a) The total number of shares of the authorized but unissued or Treasury
shares of the common stock, $.01 par value per share, of the Company ("Common
Stock") for which options may be granted under the Plan shall not exceed Sixty
Thousand Sixty (60,060) shares, subject to adjustment as provided in Section 12
hereof.
(b) If an option granted or assumed hereunder shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
subject thereto shall again be available for subsequent option grants under the
Plan at the election of the Board of Directors of the Company (the "Board of
Directors").
(c) Stock issuable upon exercise of an option granted under the Plan shall
be subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors and set forth in
the Agreement (as defined in Section 6).
3. ADMINISTRATION OF THE PLAN.
--------------------------
(a) The Plan shall be administered by the Board of Directors. No member of
the Board of Directors shall act upon any matter exclusively affecting any
option granted or to be granted to himself or herself under the Plan. A majority
of the members of the Board of Directors shall constitute a quorum, and any
action may be taken by a majority of those present and voting at any meeting.
The decision of the Board of Directors as to all questions of interpretation and
application of the Plan shall be final, binding and conclusive on all persons.
The Board of Directors may, in its sole discretion, grant options to purchase
shares of the Company's Common Stock and issue shares upon exercise of such
options as provided in the Plan. The Board shall have authority, subject to the
express provisions of the Plan and any agreement evidencing an option (an
"Option Agreement"), to construe the respective option agreements and the Plan,
to prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the respective option agreements, which
may but need not be identical, and to make all other determinations in the
judgment of the Board necessary or desirable for the
<PAGE>
administration of the Plan. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any option agreement
in the manner and to the extent it shall deem expedient to carry the Plan into
effect and shall be the sole and final judge of such expediency. No director
shall be liable for any action or determination made in good faith.
(b) The Board of Directors may, in its discretion, delegate its powers,
duties and responsibilities to a committee (the "Committee") consisting of two
or more directors, each of whom is a disinterested person (as defined from time
to time in Rule 16b-3 promulgated under the Securities Exchange Act of 1934).
The Board may at any time and from time to time appoint a member or members of
the Committee in substitution for or in addition to the member or members then
in office and may fill vacancies on the Committee however caused. The Committee
shall choose one of its members as Chairman and shall hold meetings at such
times and places as it shall deem advisable. A majority of the members of the
Committee shall constitute a quorum and any action may be taken by a majority of
those present and voting at any meeting. Any action may also be taken without
the necessity of a meeting by a written instrument signed by a majority of the
Committee. If a committee is so appointed, all references to the Board of
Directors herein shall mean and relate to such committee, unless the context
otherwise requires.
(c) With respect to the participation of any officer or director in the
Plan, his or her selection as an optionee and the number of option shares to be
allocated to such officer or director shall be determined either (i) by the
Board of Directors, all of the members of which shall be "disinterested persons"
(as defined from time to time in Rule 16b-3 promulgated under the Securities
Exchange Act of 1934) or (ii) by, or only in accordance with, the
recommendations of a Committee, as defined in Section 3(b) above. The provisions
of this Section 3(c) shall not apply with respect to any option granted prior to
the date of the first registration of an equity security of the Company under
Section 12 of the Securities and Exchange Act of 1934.
4. TYPE OF OPTIONS.
---------------
Options granted pursuant to the Plan shall be authorized by action of the
Board of Directors of the Company and shall be non-qualified options which are
not intended to meet the requirements of such Section 422 of the Internal
Revenue Code of 1986 (the "Code").
5. ELIGIBILITY.
-----------
(a) Options may be granted to officers and key employees of the
Company or of any of its subsidiaries.
(b) Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted an option pursuant to the Plan.
-2-
<PAGE>
(c) In determining the eligibility of an individual to be granted an
option, as well as in determining the number of shares to be optioned to any
individual, the Board of Directors shall take into account the position and
responsibilities of the individual being considered, the nature and value to the
Company or its subsidiaries of his or her service and accomplishments, his or
her present and potential contribution to the success of the Company or its
subsidiaries, and such other factors as the Board of Directors may deem
relevant.
6. OPTION AGREEMENT.
----------------
Each option shall be evidenced by an Option Agreement duly executed
on behalf of the Company and by the optionee to whom such option is granted,
which Option Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Option Agreement may contain such other terms,
provisions and conditions which are not inconsistent with the Plan as may be
determined by the Board of Directors. No option shall be deemed to have been
granted within the meaning of the Plan and no purported grant of any option
shall be effective until the Option Agreement shall have been duly executed on
behalf of the Company and the optionee. More than one option may be granted to
an individual. The terms of any Option Agreement, including the terms relating
to the vesting of options covered thereby, may be modified or amended from time
to time with the consent of the Board of Directors and the holder of such
options. The Option Agreement may contain restrictions on transfer of the
shares issuable upon exercise thereof.
7. OPTION PRICE.
------------
(a) The option price of shares of the Company's Common Stock for
options granted hereunder shall be the fair market value of such Common Stock on
the date of such grant.
(b) If such shares are then listed on any national securities
exchange or on Nasdaq Stock Market, Inc. National Market System, the fair market
value shall be the mean between the high and low sales prices, if any, on the
largest such exchange on the date of the grant of the option or, if none, shall
be the closing sales prices on the nearest date before the date of grant. If the
shares are not then listed on any such exchange, the fair market value of such
shares shall be the mean between the closing "Bid" and the closing "Ask" prices,
if any, as reported in the National Association of Securities Dealers Automated
Quotation System other than the National Market System ("NASDAQ") for the date
of the grant of the option, or, if none, shall be determined by taking a
weighted average of the means between the highest and lowest sales prices on the
nearest date before the date of grant. If the shares are not then either listed
on any such exchange or quoted in NASDAQ, the fair market value shall be the
mean between the average of the "Bid" and the average of the "Ask" prices, if
any, as reported in the National Daily Quotation Service for the date of the
grant of the option, or, if none, shall be determined by taking a weighted
average of the means between the highest and lowest sales on the nearest date
-3-
<PAGE>
before the date of grant. If the fair market value cannot be determined under
the preceding three sentences, it shall be determined in good faith by the Board
of Directors.
8. MANNER OF PAYMENT; MANNER OF EXERCISE.
-------------------------------------
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of: (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such options; (ii) shares of
Common Stock of the Company owned by the optionee having a fair market value
equal in amount to the exercise price of the options being exercised; (iii)
cancellation of the Option with respect to shares as to which it is then
exercisable where the aggregate fair market value of such shares less the
aggregate exercise price thereof equals the exercise price of the options being
exercised; or (iv) any combination of (i), (ii) and (iii); provided that payment
of the exercise price in whole or in part by delivery of shares of Common Stock
of the Company owned by such optionees or cancellation of shares may be made
only with the consent of the Company if any such action would have an adverse
accounting or tax consequence for the Company. The fair market value of any
shares of the Company's Common Stock which may be delivered upon exercise of an
option shall be determined by the Board of Directors in accordance with Section
7 hereof.
(b) To the extent that the right to purchase shares under an option
has accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares as provided in subparagraph (a) above. Upon such exercise,
delivery of a certificate for paid-up non-assessable shares shall be made at the
principal office of the Company to the person or persons exercising the option
at such time, during ordinary business hours, within thirty (30) days from the
date of receipt of the notice by the Company, as shall be designated in such
notice, or at such time, place and manner as may be agreed upon by the Company
and the person or persons exercising the option.
9. EXERCISE OF OPTIONS.
-------------------
(a) Each option granted under the Plan shall, subject to Section 10
and Section 12 hereof, be exercisable on the ninth anniversary of the date of
grant thereof; provided, however, that the exercisability of such options may be
accelerated on such terms as may be set forth in the agreement evidencing such
options; provided, further however, that no option granted under the Plan shall
have a term in excess of nine (9) years and six (6) months from the date of
grant.
(b) Subject to the provisions of any agreement governing an option, to
the extent that an option to purchase shares is not exercised by an optionee
when it becomes initially
-4-
<PAGE>
exercisable, it shall not expire but shall be carried forward and shall be
exercisable, on a cumulative basis, until the expiration of the exercise period.
10. TERM OF OPTIONS; EXERCISABILITY.
-------------------------------
(a) TERM.
----
(1) Each option shall expire not more than nine (9) years and six
(6) months from the date of the granting thereof, but shall be subject to
earlier termination as herein provided.
(2) Except as otherwise provided in this Section 10, or as may be
provided in an agreement evidencing options granted hereunder, an option granted
to any employee optionee who ceases to be an employee of the Company or one of
its subsidiaries shall terminate as of the close of business ninety (90)
calendar days after the date such optionee ceases to be an employee of the
Company or one of its subsidiaries, or on the date on which the option expires
by its terms, whichever occurs first.
(3) Except as may be otherwise provided in an Option Agreement, if
such termination of employment is because the optionee has become permanently
disabled (within the meaning of Section 22(e)(3) of the Code), such option shall
terminate as of the close of business on the last day of the sixth month from
the date such optionee ceases to be an employee, or on the date on which the
option expires by its terms, whichever occurs first.
(4) Except as may be otherwise provided in an Option Agreement, in
the event of the death of any optionee, any option granted to such optionee
shall terminate as of the close of business on the last day of the twelfth month
from the date of death, or on the date on which the option expires by its terms,
whichever occurs first.
(5) To the extent an option lapses or terminates without having been
exercised, any shares covered thereby shall be reserved for issuance upon
exercise of future options.
(b) EXERCISABILITY.
--------------
An option that is subject to early termination due to Section
10(a)(2), 10(a)(3) or 10(a)(4) (subject to any contrary provision of an Option
Agreement) shall be exercisable only to the extent that the right to purchase
shares under such option has accrued and is in effect on the date of
termination.
-5-
<PAGE>
11. OPTIONS NOT TRANSFERABLE.
------------------------
The right of any optionee to exercise any option granted to him or her
shall not be assignable or transferable by such optionee otherwise than by will
or the laws of descent and distribution, and any such option shall be
exercisable during the lifetime of such optionee only by him or, in the event of
the permanent disability of the optionee, by his personal representative or the
person who acquired the rights of the optionee with respect to the option as a
result of the optionee's disability. Any option granted under the Plan shall be
null and void and without effect upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition, attachment, trustee process or similar process, whether legal
or equitable, upon such option.
12. RECAPITALIZATIONS, REORGANIZATIONS AND THE LIKE.
-----------------------------------------------
(a) In the event that the outstanding shares of the Common Stock of the
Company are changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, combination of shares, or dividends payable in capital stock,
appropriate adjustment shall be made in the number and kind of shares as to
which options may be granted under the Plan and as to which outstanding options
or portions thereof then unexercised shall be exercisable, to the end that the
proportionate interest of the optionee shall be maintained as before the
occurrence of such event; such adjustment in outstanding options shall be made
without change in the total price applicable to the unexercised portion of such
options and with a corresponding adjustment in the option price per share.
(b) In addition, unless otherwise determined by the Board of Directors
in its sole discretion, in the case of any (i) sale or conveyance to another
entity of all or substantially all of the property and assets of the Company or
(ii) Change in Control (as hereinafter defined) of the Company, the purchaser(s)
of the Company's assets or stock may, in his, her or its discretion, deliver to
the optionee the same kind of consideration that is delivered to the
shareholders of the Company as a result of such sale, conveyance or Change in
Control, or the Board of Directors, in its sole discretion, may cancel all
outstanding options in exchange for consideration in cash or in kind which
consideration in both cases shall be equal in value to the value of those shares
of stock or other securities the optionee would have received had the option
been exercised (to the extent then exercisable) and no disposition of the shares
acquired upon such exercise been made prior to such sale, conveyance or Change
in Control, less the option price therefor. Upon receipt of such consideration
by the optionee, his or her option shall immediately terminate and be of no
further force and effect. The value of the stock or other securities the
optionee would have received if the option had been exercised shall be
determined in good faith by the Board of Directors of the Company, and in the
case of shares of the Common Stock of the Company, in accordance with the
provisions of Section 7 hereof. The Board of Directors shall also have the
-6-
<PAGE>
power and right to, but shall be under no obligation to, accelerate the
exercisability of any options, notwithstanding any limitations in this Plan or
in the Agreement upon such a sale, conveyance or Change in Control. Unless the
Board of Directors elects to accelerate the exercisability of options, upon the
sale or conveyance to another entity of all or substantially all of the property
or assets of the Company or a Change of Control, all unvested options shall
terminate. A "Change in Control" shall be deemed to have occurred if any
person, or any two or more persons acting as a group, and all affiliates of such
person or persons, who prior to such time owned less than ten percent (10%) of
the then outstanding Common Stock of the Company, shall acquire such additional
shares of the Company's Common Stock in one or more transactions, or series of
transactions, such that following such transaction or transactions, such person
or group and affiliates beneficially own at least fifty percent (50%) or more
of the Company's Common Stock outstanding.
(c) Upon dissolution or liquidation of the Company, all options granted
under this Plan shall terminate, but each optionee (if at such time in the
employ of or otherwise associated with the Company or any of its subsidiaries)
shall have the right, immediately prior to such dissolution or liquidation, to
exercise his or her option to the extent then exercisable.
(d) If by reason of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, the Board of
Directors shall authorize the issuance or assumption of a stock option or stock
options in a transaction to which Section 424(a) of the Code applies, then,
notwithstanding any other provision of the Plan, the Board of Directors may
grant an option or options upon such terms and conditions as it may deem
appropriate for the purpose of assumption of the old option, or substitution of
a new option for the old option, in conformity with the provisions of such
Section 424(a) of the Code and the Regulations thereunder, and any such option
shall not reduce the number of shares otherwise available for issuance under the
Plan.
(e) No fraction of a share shall be purchasable or deliverable upon
the exercise of any option, but in the event any adjustment hereunder of the
number of shares covered by the option shall cause such number to include a
fraction of a share, such fraction shall be adjusted to the nearest smaller
whole number of shares.
13. NO SPECIAL EMPLOYMENT RIGHTS.
----------------------------
Nothing contained in the Plan or in any option granted under the Plan shall
confer upon any option holder any right with respect to the continuation of his
or her employment by the Company (or any subsidiary) or interfere in any way
with the right of the Company (or any subsidiary), subject to the terms of any
separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the option holder from
the rate in existence at the time of the grant of an option. Subject to the
provisions of any separate employment agreement, whether an authorized leave of
absence, or absence in
-7-
<PAGE>
military or government service, shall constitute termination of employment shall
be determined by the Board of Directors at the time.
14. WITHHOLDING.
-----------
The Company's obligation to deliver shares upon the exercise of any option
granted under the Plan shall be subject to the option holder's satisfaction of
all applicable Federal, state and local income, excise employment and any other
tax withholding requirements.
15. RESTRICTIONS ON ISSUE OF SHARES.
-------------------------------
(a) Notwithstanding the provisions of Section 8, the Company may delay the
issuance of shares covered by the exercise of an option and the delivery of a
certificate for such shares until one of the following conditions shall be
satisfied:
(i) The shares with respect to which such option has been
exercised are at the time of the issue of such shares effectively registered or
qualified under applicable Federal and state securities acts now in force or as
hereafter amended; or
(ii) Counsel for or reasonably satisfactory to, the Company
shall have given an opinion, which opinion shall not be unreasonably conditioned
or withheld, that such shares are exempt from registration and qualification
under applicable Federal and state securities acts now in force or as hereafter
amended.
(b) It is intended that all exercises of options shall be effective, and
the Company shall use its best efforts to bring about compliance with the above
conditions within a reasonable time, except that the Company shall be under no
obligation to qualify shares or to cause a registration statement or a post-
effective amendment to any registration statement to be prepared for the purpose
of covering the issue of shares in respect of which any option may be exercised,
except as otherwise agreed to by the Company in writing.
16. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT REGISTRATION.
---------------------------------------------------------------------
Unless the shares to be issued upon exercise of an option granted under the
Plan have been effectively registered under the Securities Act of 1933, as now
in force or hereafter amended, the Company shall be under no obligation to issue
any shares covered by any option unless the person who exercises such option, in
whole or in part, shall give a written representation and undertaking to the
Company which is satisfactory in form and scope to counsel for the Company and
upon which, in the opinion of such counsel, the Company may reasonably rely,
that he or she is acquiring the shares issued pursuant to such exercise of the
option for his or her own account
-8-
<PAGE>
as an investment and not with a view to, or for sale in connection with, the
distribution of any such shares, and that he or she will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the Securities Act of 1933, or any other applicable law, and
that if shares are issued without such registration, a legend to this effect may
be endorsed upon the securities so issued. In the event that the Company shall,
nevertheless, deem it necessary or desirable to register under the Securities
Act of 1933 or other applicable statutes any shares with respect to which an
option shall have been exercised, or to qualify any such shares for exemption
from the Securities Act of 1933 or other applicable statutes, then the Company
may take such action and may require from each optionee such information in
writing for use in any registration statement, supplementary registration
statement, prospectus, preliminary prospectus or offering circular as is
reasonably necessary for such purpose and may require reasonable indemnity to
the Company and its officers and directors from such holder against all losses,
claims, damages and liabilities arising from such use of the information so
furnished and caused by any untrue statement of any material fact therein or
caused by the omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made.
17. LOANS.
-----
The Company may make loans to optionees to permit them to exercise options.
If loans are made, the requirements of all applicable Federal and state laws and
regulations regarding such loans must be met.
18. MODIFICATION OF OUTSTANDING OPTIONS.
-----------------------------------
The Board of Directors may authorize the amendment of any outstanding
option with the consent of the optionee when and subject to such conditions as
are deemed to be in the best interests of the Company and in accordance with the
purposes of the Plan.
19. APPROVAL OF STOCKHOLDERS.
------------------------
The Plan shall be subject to approval by the vote of stockholders holding
at least a majority of the voting stock of the Company present, or represented,
and entitled to vote at a duly held stockholders' meeting, or by written consent
of all of the stockholders, within twelve (12) months after the adoption of the
Plan by the Board of Directors and shall take effect as of the date of adoption
by the Board upon such approval. The Board of Directors may grant options under
the Plan prior to such approval, but any such option shall become effective as
of the date of grant only upon such approval and, accordingly, no such option
may be exercisable prior to such approval.
-9-
<PAGE>
20. TERMINATION AND AMENDMENT OF PLAN.
---------------------------------
Unless sooner terminated as herein provided, the Plan shall terminate
fifteen (15) years and six (6) months from the date upon which the Plan was duly
adopted by the Board of Directors of the Company. The Board of Directors may at
any time terminate the Plan or make such modification or amendment thereof as it
deems advisable; provided, however, that except as provided in Section 19, the
Board of Directors may not, without the approval of the stockholders of the
Company obtained in the manner stated in Section 19, increase the maximum number
of shares for which options may be granted or change the designation of the
class of persons eligible to receive options under the Plan or make any other
change in the Plan which requires stockholder approval under applicable law or
regulations. Termination or any modification or amendment of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
theretofore granted to him or her.
21. RESERVATION OF STOCK.
--------------------
The Company shall at all times during the term of the Plan reserve and keep
available such number of shares of stock as will be sufficient to satisfy the
requirements of the Plan and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.
22. LIMITATION OF RIGHTS IN THE OPTION SHARES.
-----------------------------------------
An optionee shall not be deemed for any purpose to be a stockholder of the
Company with respect to any of the options except to the extent that the option
shall have been exercised with respect thereto and, in addition, a certificate
shall have been issued theretofore and delivered to the optionee.
23. NOTICES.
-------
Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on
the records of the Company.
Approved by Shareholders: January 11, 1996
-10-
<PAGE>
AMENDMENT NO. 1
TO
AMERICAN DENTAL PARTNER, INC.
1996 TIME ACCELERATED RESTRICTED STOCK OPTION PLAN
--------------------------------------------------
The American Dental Partners, Inc. 1996 Time Accelerated Restricted Stock
Option Plan (the "Plan") is hereby amended pursuant to the following provisions:
1. Definitions
-----------
All capitalized terms used in this amendment which are not otherwise
defined herein shall have the respective meanings given such terms in the Plan.
2. Transferability
---------------
The following provision is hereby added to the end of Section 11 of the
Plan:
Notwithstanding the foregoing to the contrary, the Board of Directors
may, in its sole discretion and in the manner established by the Board
of Directors, provide for the irrevocable transfer, without payment of
consideration, of any option by an optionee to such optionee's spouse,
children, grandchildren, nieces, or nephews or to the trustee of any
trust for the principal benefit of one or more such persons or to a
partnership whose only partners are one or more such persons. In the
case of such a permitted transfer, the option shall be exercisable
only by the transferee or such transferee's legal representative.
3. Effective Date; Construction
----------------------------
The effective date of this amendment is October 27, 1997, and this
amendment shall be deemed to be a part of the Plan as of such date. In the
event of any inconsistencies between the provisions of the Plan and this
amendment, the provisions of this amendment shall control. Except as modified
by this amendment, the Plan shall continue in full force and effect without
change.
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
AMENDED AND RESTATED 1996 AFFILIATE STOCK OPTION PLAN
-----------------------------------------------------
(S)1. Purposes of Plan.
----------------
The purpose of this Amended and Restated 1996 Affiliate Stock Option Plan
(the "Plan") of American Dental Partners, Inc., a Delaware corporation (the
"Company"), is to advance the interests of the Company and its stockholders by
providing Affiliates (as defined in (S)3, below) with an opportunity to
participate in the Company's future prosperity and growth and an incentive to
increase the value of the Company based on the Company's performance,
development, and financial success. These objectives will be promoted by
granting to certain Affiliates options (the "Options"), which are not intended
to qualify as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), to purchase shares of the Company's
common stock, $.01 par value (the "Shares").
(S)2. Administration of Plan.
----------------------
The Plan shall be administered by the Company's board of directors (the
"Board"). The Board shall have the power and authority to: (a) approve
Affiliates as recipients of Options (such recipients, "Participants"); (b)
approve the grant of Options; (c) approve the terms and conditions, not
inconsistent with the terms hereof, of any Option, including without limitation
time and performance restrictions, and approve the form of Stock Option
Agreement (as defined in (S)5, below); (d) adopt, alter, and repeal such
administrative rules, guidelines, and practices governing the Plan as it shall,
from time to time, deem advisable; (e) interpret the terms and provisions of the
Plan and any Option granted and any agreements relating thereto; and (f) take
any other actions the Board considers appropriate in connection with, and
otherwise supervise the administration of, the Plan, all in a manner consistent
with the other provisions of the Plan. All decisions made by the Board pursuant
to the provisions hereof, including without limitation decisions with respect to
Affiliates to be granted Options and the number of Options, shall be made in the
Board's sole discretion and shall be final and binding on all persons.
The Board may, in its discretion at any time or from time to time,
appoint a committee (the "Committee") of not less than one director to
administer the Plan, in which event the Committee shall have such of the powers
and duties of the Board under the Plan as the Board shall delegate to the
Committee. The member or members of the Committee shall serve at the pleasure
of the Board, which may remove members from the Committee or appoint new members
to the Committee from time to time, and members of the Committee may resign by
written notice to the Chairman of the Board or the Secretary of the Company.
Notwithstanding the foregoing to the contrary, beginning at such time
as the Company has completed an initial public offering (an "IPO") for its
common stock pursuant to a registration statement filed under the Securities Act
of 1933, as amended (the "1933 Act"), including registration of the Shares under
Section 12 of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
any Option granted to a person who, because of his relationship
<PAGE>
with the Company, is subject to the reporting requirements of Section 16(a) of
the 1934 Act, shall not be effective unless (a) the grant of such Option is
approved by either the Board or a committee consisting solely of two or more
"Non-Employee Directors" (as defined in Rule 16b-3(b)(3) promulgated under the
1934 Act), (b) the grant of such Option is approved or ratified by the
stockholders of the Company, in compliance with Section 14 of the 1934 Act, not
later than the date of the annual meeting of the Company's stockholders next
following the date of such grant, or (c) such Option, by its terms, provides
that Shares received upon exercise of the Option may not be disposed of before
at least six months have elapsed from the date the Option was granted.
(S)3. Participants in Plan.
--------------------
The persons eligible to receive Options under the Plan shall be those
consultants and advisors of the Company who are not employees or officers of the
Company or any subsidiary of the Company and who are determined by the Board, in
its sole discretion, to be key contributors to the financial success of, or the
successful operation, administration, or management of, the Company or any
subsidiary of the Company, including without limitation owners, officers,
directors, and employees of dental practices to which the Company or any
subsidiary of the Company provides services; provided that directors of the
Company shall not be eligible to receive Options under the Plan (any such
eligible person, an "Affiliate").
(S)4. Shares Subject to Plan.
----------------------
The maximum aggregate number of Shares which may be issued under the
Plan shall be 35,000 Shares. The Shares which may be issued under the Plan may
be authorized but unissued Shares or issued Shares reacquired by the Company and
held as Treasury Shares.
If any Shares that have previously been the subject of an Option cease
to be the subject of an Option (other than by reason of exercise), or if any
Shares previously distributed under the Plan are returned to the Company in
connection with the exercise of an Option (including without limitation in
payment of the exercise price or tax withholding), such Shares shall again be
available for distribution in connection with future grants under the Plan.
(S)5. Grant of Options.
----------------
Each Option granted under the Plan shall be authorized by the Board
and shall be evidenced by a written agreement (the "Stock Option Agreement"), in
form approved by the Board from time to time, which shall be dated as of the
date on which the Option is granted, signed by an officer of the Company
authorized by the Board, and signed by the Participant, and which shall describe
the Option and state that the Option is subject to all the terms and provisions
of the Plan and such other terms and provisions, not inconsistent with the Plan,
as the Board may approve. The date on which the Board approves the granting of
an Option shall be deemed to be the date on which the Option is granted for all
purposes, unless the Board otherwise specifies in its approval. However, the
granting of an Option under the Plan shall be
-2-
<PAGE>
effective only if a written Stock Option Agreement is duly executed and
delivered by or on behalf of the Company and the Participant.
In addition to the foregoing, all Stock Option Agreements shall include
without limitation the following provisions:
(a) Exercise Price.
--------------
The exercise price per Share issuable upon exercise of an Option
shall be determined by the Board at the time of grant and set forth in
the applicable Stock Option Agreement; provided that such exercise price
shall not be less than the fair market value per Share on the date the
Option is granted. For purposes of the Plan, the fair market value of the
Shares shall mean, as of any given date, the (i) last reported sale price
on the New York Stock Exchange on the most recent previous trading day,
(ii) last reported sale price on the NASDAQ National Market System on the
most recent previous trading day, (iii) mean between the high and low bid
and ask prices, as reported by the National Association of Securities
Dealers, Inc. on the most recent previous trading day, or (iv) last
reported sale price on any other stock exchange on which the Shares are
listed on the most recent previous trading day, whichever is applicable;
provided that if none of the foregoing is applicable, then the fair
market value of the Shares shall be the value determined by the Board, in
its sole discretion.
(b) Vesting and Exercise of Options.
-------------------------------
An Option shall be exercisable only with respect to the Shares which
have become vested pursuant to the terms of that Option. Each Option
shall become vested with respect to Shares subject to that Option on such
date or dates and on the basis of such other criteria, including without
limitation the performance of the Company, as the Board may determine, in
its sole discretion, and as shall be specified in the applicable Stock
Option Agreement. The Board shall have the authority, in its sole
discretion, to accelerate the time at which an Option shall be
exercisable whenever it may determine that such action is appropriate by
reason of changes in applicable tax or other laws or other changes in
circumstances occurring after the award of such Option.
(c) Term.
----
No Option shall be exercisable after the expiration of 10 years from
the date on which that Option is granted.
(d) Method of Exercise.
------------------
An Option may be exercised, in whole or in part, by giving written
notice to the Company stating the number of Shares (which must be a whole
number) to be purchased. Upon receipt of payment of the full purchase
price for such Shares, plus applicable
-3-
<PAGE>
withholding taxes, by certified or bank cashier's check or other form of
payment acceptable to the Company, or, if approved by the Board, by (i)
delivery of unrestricted Shares having a fair market value on the date of
such delivery equal to the total exercise price, (ii) surrender of Shares
subject to the Option which have a fair market value equal to the total
exercise price at the time of exercise, or (iii) a combination of the
preceding methods, and subject to compliance with all other terms and
conditions of the Plan and the Stock Option Agreement relating to such
Option, the Company shall issue, as soon as reasonably practicable after
receipt of such payment, such Shares to the person entitled to receive
such Shares, or such person's designated representative. Such Shares may
be issued in the form of a certificate, by book entry, or otherwise, in
the Company's sole discretion.
(e) Restrictions on Shares Subject to Options.
-----------------------------------------
Shares issued upon the exercise of any Option may be made subject to
such transferability or other restrictions or conditions as the Board may
determine, in its sole discretion, and as shall be set forth in the
applicable Stock Option Agreement.
(f) Transferability.
---------------
Options shall not be transferable. Any attempted transfer shall be
null and void. All Options shall be exercisable during a Participant's
lifetime only by the Participant or the Participant's legal
representative. Notwithstanding the foregoing to the contrary: (i)
Options may be transferred by a Participant by will or the laws of
descent and distribution or pursuant to a domestic relations order (as
defined in the Code); and (ii) the Board may, in its sole discretion and
in the manner established by the Board, provide for the irrevocable
transfer, without payment of consideration, of any Option by a
Participant to such Participant's spouse, children, grandchildren,
nieces, or nephews or to the trustee of any trust for the principal
benefit of one or more such persons or to a partnership whose only
partners are one or more such persons. In the case of such a permitted
transfer, the Option shall be exercisable only by the transferee or such
transferee's legal representative.
(g) Termination of Status as an Affiliate by Reason of Death or
-----------------------------------------------------------
Disability.
----------
If a Participant's status as an Affiliate terminates by reason of
the Participant's death or disability (as defined by the Board from time
to time in its sole discretion and set forth in or incorporated into the
Stock Option Agreement), then (i) unless otherwise determined by the
Board within 90 days of such termination, to the extent an Option held by
such Participant is not vested as of the date of such termination, such
Option shall automatically terminate on such date; and (ii) to the extent
an Option held by such Participant is vested (whether pursuant to its
terms, a determination of the Board under the preceding clause (i), or
otherwise) as of the date of such termination, such Option may thereafter
be exercised by the Participant, the legal representative of the
-4-
<PAGE>
Participant's estate, the legatee of the Participant under the will of
the Participant, or the distributee of the Participant's estate, or the
Participant's other successor in interest, whichever is applicable (A) if
such termination results from the Participant's death, for a period of
one year from the date of death or, if sooner, until the expiration of
the stated term of the Option, (B) if such termination results from the
Participant's disability, for one year from the date of termination of
the Participant's status as an Affiliate or, if sooner, until the
expiration of the stated term of the Option, or (C) for such other period
as the Board may specify at or after grant or the Participant's death or
disability.
(h) Other Termination of Status as an Affiliate.
-------------------------------------------
If a Participant's status as an Affiliate terminates for any reason
other than death or disability, then (i) to the extent any Option held by
such Participant is not vested as of the date of termination, such Option
shall automatically terminate on such date; and (ii) unless otherwise
determined by the Board at or after grant or termination, to the extent
any Option held by such Participant is vested as of the date of such
termination, such Option may thereafter be exercised for a period of 90
days from the date of termination or, if sooner, until the expiration of
the stated term of the Option; provided that, if the Participant's status
as an Affiliate is terminated for Cause, any and all unexercised Options
held by such Participant shall immediately lapse and be of no further
force or effect. For purposes of the Plan, whether termination of a
Participant's status as an Affiliate is for "Cause" shall be determined
by the Board, in its sole discretion.
(i) Effect of Termination of Participant's Status as an Affiliate on
----------------------------------------------------------------
Transferee.
----------
Except as otherwise permitted by the Board, in its sole discretion,
no Option held by a transferee of a Participant pursuant to (S)5(f),
above, shall remain exercisable for any period of time longer than would
otherwise be permitted under (S)(S)5(g) and 5(h) without specification of
other periods by the Board as provided therein.
(S)6. Restriction on Exercise After Termination.
------------------------------------------
Notwithstanding any provision of this Plan to the contrary, no
unexercised right created under this Plan (an "Unexercised Right") shall be
exercisable if, prior to such exercise, the Participant violates any non-
competition, confidentiality, conflict of interest, or similar provision set
forth in the Stock Option Agreement pursuant to which such Unexercised Right was
awarded or otherwise conducts himself in a manner adversely affecting the
Company or any subsidiary of the Company, as determined by the Board, in its
sole discretion.
(S)7. Withholding Tax.
----------------
The Company, at its option, shall have the right to require the
Participant or any other person receiving Shares under the Plan to pay the
Company the amount of any taxes which the Company is required to withhold with
respect to such Shares or, in lieu of such payment, to
-5-
<PAGE>
retain or sell without notice a number of such Shares sufficient to cover the
amount required to be so withheld. The Company, at its option, shall have the
right to deduct from all dividends paid with respect to Shares the amount of any
taxes which the Company is required to withhold with respect to such dividend
payments. The obligations of the Company under the Plan shall be conditional on
such payment or other arrangements acceptable to the Company.
(S)8. Securities Law Restrictions.
---------------------------
No right under the Plan shall be exercisable and no Share shall be
delivered under the Plan except in compliance with all applicable federal and
state securities laws and regulations. The Company shall not be required to
deliver any Shares or other securities under the Plan prior to such registration
or other qualification of such Shares or other securities under any state or
federal law, rule, or regulation as the Board shall determine to be necessary or
advisable, in its sole discretion.
The Board may require each person acquiring Shares under the Plan (a) to
represent and warrant to and agree with the Company in writing that such person
is acquiring the Shares without a view to the distribution thereof, and (b) to
make such additional representations, warranties, and agreements with respect to
the investment intent of such person or persons as the Board may reasonably
request. Any certificates for such Shares may include any legend which the
Board deems appropriate to reflect any restrictions on transfer.
All Shares or other securities delivered under the Plan shall be subject
to such stop-transfer orders and other restrictions as the Board may deem
advisable under the rules, regulations, and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Shares are then
listed, and any applicable federal or state securities law, and the Board may
cause a legend or legends to be put on any certificates evidencing such Shares
to make appropriate reference to such restrictions.
(S)9. Change in Capital Structure.
---------------------------
In the event the Company changes its outstanding Shares by reason of
stock splits, stock dividends, or any other increase or reduction of the number
of outstanding Shares without receiving consideration in the form of money,
services, or property deemed appropriate by the Board, in its sole discretion,
the aggregate number of Shares subject to the Plan shall be proportionately
adjusted and the number of Shares and the exercise price for each Share subject
to the unexercised portion of any then-outstanding Option shall be
proportionately adjusted with the objective that the Participant's proportionate
interest in the Company shall remain the same as before the change without any
change in the total exercise price applicable to the unexercised portion of any
then-outstanding Options, as determined by the Board in its sole discretion.
In the event of any other recapitalization or any merger, consolidation,
or other reorganization of the Company, the Board shall make such adjustment, if
any, as it may deem appropriate to accurately reflect the number and kind of
shares deliverable, and the exercise
-6-
<PAGE>
prices payable, upon subsequent exercise of any then-outstanding Options, all as
determined by the Board in its sole discretion.
The Board's determination of the adjustments appropriate to be made under
this (S)9 shall be conclusive upon all Participants under the Plan.
(S)10. Change in Control.
-----------------
(a) Accelerated Vesting and Company Purchase Option.
-----------------------------------------------
Notwithstanding any provision of this Plan or any Stock Option
Agreement to the contrary (unless such Stock Option Agreement contains a
provision referring specifically to this (S)10 and stating that this
(S)10 shall not be applicable to the Option evidenced by such Stock
Option Agreement), if a Change in Control or a Potential Change in
Control (each as defined below) occurs, then:
(i) At the Company's option, any and all Options theretofore
granted and not fully vested shall thereupon become vested
and exercisable in full and shall remain so exercisable in
accordance with their terms; provided that no Option which
has previously been exercised or otherwise terminated shall
become exercisable; and
(ii) The Company may, at its option, terminate any or all
unexercised Options and portions thereof not more than 30
days after such Change in Control or Potential Change in
Control; provided that the Company shall, upon such
termination and with respect to each Option so terminated,
pay to the Participant (or such Participant's transferee, if
applicable) theretofore holding such Option cash in an amount
equal to the difference between the fair market value (as
defined in (S)5(a), above) of the Shares subject to the
Option at the time the Company exercises its option under
this (S)10(a)(ii) and the exercise price of the Option, less
applicable withholding taxes; and provided further that if
such fair market value is less than such exercise price, then
the Board may, in its sole discretion, terminate such Option
without any payment.
(b) Definition of Change in Control.
-------------------------------
For purposes of the Plan, a "Change in Control" means the happening
of any of the following:
(i) When any "person" as defined in (S)3(a)(9) of the 1934 Act
and as used in (S)(S)13(d) and 14(d) thereof, including a
"group" as defined in (S)13(d) of the 1934 Act, but excluding
the Company, any subsidiary of the Company,
-7-
<PAGE>
any employee benefit plan sponsored or maintained by the
Company or any subsidiary of the Company (including any
trustee of such plan acting as trustee), any person who is a
stockholder of the Company on the effective date of the Plan
(an "Existing Stockholder"), and any affiliate of an Existing
Stockholder, directly or indirectly, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the 1934 Act) of
securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding
securities;
(ii) When, during any period of 24 consecutive months during the
existence of the Plan, the individuals who, at the beginning
of such period, constitute the Board (the "Incumbent
Directors") cease for any reason other than death to
constitute at least a majority of the Board; provided,
however, that a director who was not a director at the
beginning of such 24-month period shall be deemed to have
satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the
recommendation of or with the approval of, at least two-
thirds of the directors who then qualified as Incumbent
Directors either actually (because they were directors at the
beginning of such 24-month period) or by prior operation of
this (S)10(b)(ii); or
(iii) The occurrence of a transaction requiring stockholder
approval for the acquisition of the Company by an entity
other than the Company or a subsidiary of the Company through
purchase of assets, by merger, or otherwise.
Provided that neither an initial or any secondary public offering of
common stock of the Company pursuant to a registration statement
under the 1933 Act nor any issuance of securities of the Company or
any subsidiary of the Company in connection with an acquisition of a
dental practice or other business entity by the Company or any
subsidiary of the Company shall constitute a Change in Control; and
provided further that a change in control shall not be deemed to be
a Change in Control for purposes of this Plan if the Board had
approved such change prior to either (A) the commencement of any of
the events described in (S)(S)10(b)(i), (ii), (iii), or 10(c)(i) of
this Plan, or (B) the commencement by any person other than the
Company of a tender offer for Shares.
(c) Definition of Potential Change in Control.
-----------------------------------------
For purposes of the Plan, a "Potential Change in Control" means the
happening of any one of the following:
-8-
<PAGE>
(i) The approval by the stockholders of the Company of an
agreement by the Company, the consummation of which would
result in a Change in Control of the Company as defined in
(S)10(b), above; or
(ii) The acquisition of beneficial ownership of the Company,
directly or indirectly, by any entity, person, or group
(other than the Company, a subsidiary of the Company, any
Company employee benefit plan (including any trustee of such
plan acting as such trustee), an Existing Stockholder, or an
affiliate of an Existing Stockholder) representing 5% or more
of the combined voting power of the Company's outstanding
securities and the adoption by the Board of a resolution to
the effect that a Potential Change in Control of the Company
has occurred for purposes of the Plan.
(S)11. No Enlargement of Rights.
------------------------
The adoption of this Plan and the grant of one or more Options to an
Affiliate shall not confer any right to the Affiliate to continue in the status
of Affiliate and shall not restrict or interfere in any way with the right of
the Company or any subsidiary of the Company to terminate such Affiliate's
status as such at any time, with or without cause.
(S)12. Rights as Stockholder.
---------------------
No Participant or his executor or administrator or other transferee
shall have any rights of a stockholder in the Company with respect to the Shares
covered by an Option unless and until a certificate representing such Shares has
been duly issued and delivered to him under the Plan.
(S)13. Acceleration of Rights.
----------------------
The Board shall have the authority, in its sole discretion, to
accelerate the time at which an Option shall be exercisable whenever it may
determine that such action is appropriate by reason of changes in applicable tax
or other laws or other changes in circumstances occurring after the award of
such Option.
(S)14. Definition of Subsidiary.
------------------------
The terms "subsidiary" and "subsidiary corporation" when used in the
Plan or any Stock Option Agreement made pursuant to the Plan mean a subsidiary
corporation as defined in (S)424(f) of the Code.
-9-
<PAGE>
(S)15. Interpretation, Amendment or Termination of Plan.
------------------------------------------------
The interpretation by the Board of any provision of the Plan or of any
Stock Option Agreement executed pursuant to the grant of an Option under the
Plan shall be final and conclusive upon all Participants or transferees under
the Plan. The Board, without further action on the part of the stockholders of
the Company, may from time to time alter, amend, or suspend the Plan or may at
any time terminate the Plan; provided that no such action shall adversely affect
any Participant's rights with respect to outstanding Options then held by such
Participant without such Participant's consent.
(S)16. Protection of Board and Committee.
---------------------------------
No member of the Board or the Committee shall have any liability for any
determination or other action made or taken in good faith with respect to the
Plan or any Option granted under the Plan.
(S)17. Government Regulations.
----------------------
Notwithstanding any provision of the Plan or any Stock Option Agreement
executed pursuant to the Plan, the Company's obligations under the Plan and such
Agreement shall be subject to all applicable laws, rules, and regulations and to
such approvals as may be required by any governmental or regulatory agencies,
including without limitation any stock exchange on which the Shares may then be
listed.
(S)18. Governing Law.
-------------
The Plan is construed and governed by the laws of the State of Delaware.
(S)19. Genders and Numbers.
-------------------
When permitted by the context, each pronoun used in the Plan shall
include the same pronoun in other genders and numbers.
(S)20. Captions.
--------
The captions of the various sections of the Plan are not part of the
context of the Plan, but are only labels to assist in locating those sections,
and shall be ignored in construing the Plan.
(S)21. Effective Date.
--------------
The Plan is effective October 27, 1997 (the "Effective Date").
-10-
<PAGE>
(S)22. Term of Plan.
------------
No Option shall be granted pursuant to the Plan on or after September
27, 2006 (the tenth anniversary of the effective date of the 1996 Affiliate
Stock Option Plan), but Options granted prior to such date may extend beyond
that date.
(S)23. Private Company Provisions.
--------------------------
Notwithstanding any of the foregoing provisions of the Plan to the
contrary, unless and until such time as the Company has completed an IPO, the
following provisions shall apply:
(a) Restrictive Legend.
------------------
If one or more Options or other rights under the Plan are exercised
pursuant to exemptions from the federal and state securities laws: (a)
any Shares issued upon exercise of those Options or rights may not be
sold or otherwise transferred, and the Company shall not be required to
transfer any such Shares, unless they have been registered under the
federal and state securities laws or a valid exemption from such
registration is available; and (b) the Company may cause each
certificate evidencing the ownership of any Shares issued upon exercise
of those Options or rights to be imprinted with a legend in the
following form:
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or any state
securities law and may not be sold or otherwise transferred without
such registration unless a valid exemption from such registration
is available and the corporation has received an opinion of, or
satisfactory to, its counsel that such transfer would not violate
any Federal or state securities laws.
(b) Purchase Option.
---------------
If the Participant ceases to be an Affiliate due to such
Participant's resignation, replacement, discharge, or any other reason
other than such Participant's death, disability, or retirement, then the
Company shall have the exclusive right and option to purchase from the
Participant, the executor or administrator of the Participant's estate,
or the Participant's other successor in interest, as the case may be
(for purposes of this subsection, the "Selling Stockholder"), any or all
of the Shares which may have been purchased by the Participant under the
Plan (including without limitation any Shares purchased upon exercise of
an Option after termination of the Participant's employment and any
additional Shares which the Participant may have received as a result of
any stock splits, stock dividends, or similar sources as a result of
receiving Shares under the Plan).
-11-
<PAGE>
In order to exercise its purchase option under this subsection, the
Company shall give written notice to the Selling Stockholder, stating that
the Company thereby exercises its option under this subsection, at any time
after termination of the Participant's status as an Affiliate. The
purchase price per Share for the Shares under this subsection shall be
equal to: (i) the fair market value of the total stockholders' equity of
the Company, as determined by an appraisal which shall be made by an
independent firm of certified public accountants selected by the Board and
which shall be approved by the Board, if such appraisal was so made and
approved not earlier than 15 months prior to the termination of the
Participant's status as an Affiliate or, if not, a new appraisal made by
such an independent firm and approved by the Board, plus or minus any
increases or decreases in the book value of the total stockholders' equity
of the Company from the effective date of such appraisal to the last day of
the calendar month of termination of the Participant's status as an
Affiliate (whether such termination was before or after the effective date
of such appraisal), divided by (ii) the total outstanding shares of common
stock of the Company as of the last day of that calendar month, calculated
on a fully diluted basis under generally accepted accounting principles.
In the event of any disagreement between the Selling Stockholder and the
Company concerning calculation of the purchase price for the Shares under
this subsection, the calculation shall be made by any independent firm of
certified public accountants selected by the Board, whose determination
shall be final and conclusive on all interested parties. All costs of any
such appraisal shall be borne by the Company, and all costs of any
calculation of the purchase price by an independent firm of certified
public accountants to resolve any such disagreement shall be borne equally
by the Selling Stockholder and the Company.
If the Company exercises its option under this subsection, the
purchase and sale of the Shares shall be closed within 20 business days
after determination of the purchase price, at a time and place reasonably
specified by the Company. At the closing, the Selling Stockholder shall
assign and transfer the Shares to the Company free and clear of all
encumbrances or other claims, and the Company shall execute and deliver to
the Selling Shareholder the Company's promissory note: (i) dated as of the
closing date, (ii) payable to the order of the Selling Shareholder, (iii)
in a principal amount equal to the full purchase price, (iv) payable on or
before the fourth anniversary of the closing date, (v) with interest
payable at maturity calculated on the unpaid principal amount from the
closing date to the payment date at a rate per annum equal to the then-
applicable federal rate, determined in good faith by the Company. The
Company may elect, in its sole discretion, to pay all or any part of the
purchase price by good and sufficient check at the closing, in which event
the Company's promissory note shall be eliminated or reduced by that
amount, as the case may be. The Company may prepay its promissory note at
any time without penalty.
-12-
<PAGE>
(c) Restriction on Transfers.
------------------------
No Shares issued upon exercise of an Option may be sold or otherwise
transferred while the holder of those Shares is an Affiliate without the
prior written consent of the Company.
(d) First-Refusal Option.
--------------------
If the holder of any Shares issued upon exercise of one or more
Options desires to sell, and receives a bona fide written offer to buy, all
or any part of his Shares, for a price computed and payable in dollars, and
if such holder is not an Affiliate, such holder may sell such Shares, but
only pursuant to the following provisions of this subsection. Such holder
shall obtain from the person or persons who propose to buy such Shares
(collectively, the "Buyer") a written offer to buy such Shares (the
"Offer") which shall include the following provisions: (i) the number of
Shares to be purchased, the price, the terms of payment, and the other
terms and conditions of the proposal; (ii) agreement by the Buyer that the
Offer shall be irrevocable for a specified period of time expiring not
earlier than 20 business days after the date that notice of the Offer is
given to the Company; and (iii) the consideration received from such holder
for the Buyer's agreement that the Offer shall be irrevocable for the
specified period of time. At the time of obtaining the Offer, such holder
shall part with adequate consideration to bind the Buyer to his agreement
that the Offer shall be irrevocable for the specified period of time.
Upon obtaining an Offer that such holder desires to accept, such
holder shall give written notice of the Offer and its acceptability to the
Company, enclosing a photocopy of the Offer, and shall make the signed
original of the Offer available to the Company for examination upon
request. The Company shall have the exclusive right and option to purchase
all, but only all, of the Shares described in the Offer under whichever of
the following three sets of price and terms and conditions that it elects,
in its sole discretion: (i) for the purchase price and upon the other
terms and conditions specified in the Offer, or (ii) for the purchase price
and upon the other terms and conditions which would be applicable under
(S)23(b), above, if such holder's status as an Affiliate had terminated on
the date when such holder gave written notice of the Offer, or (iii) for
the purchase price specified in the Offer and upon the other terms and
conditions which would be applicable under (S)23(b), above, if such
holder's status as an Affiliate had terminated on the date when such holder
gave written notice of the Offer (including without limitation execution
and delivery of the Company's promissory note meeting the requirements of
(S)23(b), above).
In order to exercise its purchase option under this subsection, the
Company shall give written notice to such holder, stating that the Company
thereby exercises its option under this subsection, at any time not later
than 10 business days after the Company receives the written notice from
such holder. If the Company exercises its option under
-13-
<PAGE>
this subsection, the purchase and sale of such shares shall be closed,
at a time and place reasonably specified by the Company, within 20
business days after the later of: (i) the date when the Company
exercises its option under this subsection, or (ii) the date when the
purchase price has been determined. In that event, the terms for payment
of the purchase price and the other terms and conditions for purchase
shall be not less favorable to the Company that those specified in the
Offer.
If the Company fails to exercise its purchase option under this
subsection, such holder may sell the Shares specified in the Offer to
the Buyer at the price and on the terms and conditions of the Offer,
subject to compliance with all other requirements in the Plan. Upon
completion of the sale of the Shares pursuant to the preceding sentence,
the Shares shall remain subject to all requirements and restrictions of
the Plan, including without limitation the Company's option to purchase
the Shares in the event of any subsequent sale or other transfer, as
described in this (S)23(d).
(S)24. Savings Clause.
--------------
In case any one or more of the provisions of this Plan shall be held
invalid, illegal, or unenforceable in any respect, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and the invalid, illegal, or unenforceable provision shall be
deemed null and void; however, to the extent permissible by law, any provision
which could be deemed null and void shall first be construed, interpreted, or
revised retroactively to permit this Plan to be construed so as to foster the
intent of this Plan. This Plan and all transactions pursuant to this Plan are
intended to comply in all respects with applicable law and regulation,
including, with respect to persons subject to Section 16 of the 1934 Act
("Reporting Persons"), Rule 16b-3 under the 1934 Act. In case any one or more
of the provisions of this Plan or any transaction pursuant to this Plan shall be
held to violate or be unenforceable in any respect under Rule 16b-3, then, to
the extent permissible by law, any provision which could be deemed to violate or
be unenforceable under Rule 16b-3 shall first be construed, interpreted, or
revised retroactively to permit the Plan or transaction to be in compliance with
Rule 16b-3.
-14-
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
AMENDED AND RESTATED 1996 DIRECTORS STOCK OPTION PLAN
-----------------------------------------------------
(S)1. Purposes Of Plan.
----------------
The purpose of this Amended and Restated 1996 Directors Stock Option
Plan (the "Plan") of American Dental Partners, Inc., a Delaware corporation (the
"Company"), is to advance the interests of the Company and its stockholders by
providing Eligible Directors (as defined in (S)3, below) with an opportunity to
participate in the Company's future prosperity and growth and an incentive to
increase the value of the Company based on the Company's performance,
development, and financial success. These objectives will be promoted by
granting to Eligible Directors options (the "Options"), which are not intended
to qualify as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), to purchase shares of the Company's
common stock, $.01 par value (the "Shares").
(S)2. Administration of Plan.
----------------------
The Plan shall be administered by a committee (the "Committee") of not
less than two directors, none of whom shall be an Eligible Director. The member
or members of the Committee shall serve at the pleasure of the Company's board
of directors (the "Board"), which may remove members from the Committee or
appoint new members to the Committee from time to time, and members of the
Committee may resign by written notice to the Chairman of the Board or the
Secretary of the Company. The Committee shall have the power and authority to:
(a) approve the grant of Options to Eligible Directors (such Eligible Directors,
"Participants"); (b) approve the terms and conditions, not inconsistent with the
terms hereof, of any Option, including without limitation time and performance
restrictions, and approve the form of Stock Option Agreement (as defined in
(S)5, below); (c) adopt, alter, and repeal such administrative rules,
guidelines, and practices governing the Plan as it shall, from time to time,
deem advisable; (d) interpret the terms and provisions of the Plan and any
Option granted and any agreements relating thereto; and (e) take any other
actions the Committee considers appropriate in connection with, and otherwise
supervise the administration of, the Plan, all in a manner consistent with the
other provisions of the Plan. All decisions made by the Committee pursuant to
the provisions hereof shall be made in the Committee's sole discretion and shall
be final and binding on all persons.
(S)3. Participants in Plan.
--------------------
The persons eligible to receive Options under the Plan shall be those
directors of the Company who are not employees or officers of the Company or any
subsidiary of the Company (any such person, an "Eligible Director").
<PAGE>
(S)4. Shares Subject to Plan.
----------------------
The maximum aggregate number of Shares which may be issued under the
Plan shall be 10,000 Shares. The Shares which may be issued under the Plan may
be authorized but unissued Shares or issued Shares reacquired by the Company and
held as Treasury Shares.
If any Shares that have previously been the subject of an Option cease
to be the subject of an Option (other than by reason of exercise), or if any
Shares previously distributed under the Plan are returned to the Company in
connection with the exercise of an Option (including without limitation in
payment of the exercise price or tax withholding), such Shares shall again be
available for distribution in connection with future grants under the Plan.
(S)5. Grant of Options.
----------------
Each Option granted under the Plan shall be authorized by the
Committee and shall be evidenced by a written agreement (the "Stock Option
Agreement") in form approved by the Committee from time to time, which shall be
dated as of the date on which the Option is granted, signed by an officer of the
Company authorized by the Committee, and signed by the Participant, and which
shall describe the Option and state that the Option is subject to all the terms
and provisions of the Plan and such other terms and provisions, not inconsistent
with the Plan, as the Committee may approve. The date on which the Committee
approves the granting of an Option shall be deemed to be the date on which the
Option is granted for all purposes, unless the Committee otherwise specifies in
its approval. However, the granting of an Option under the Plan shall be
effective only if a written Stock Option Agreement is duly executed and
delivered by or on behalf of the Company and the Participant.
In addition to the foregoing, all Stock Option Agreements shall
include without limitation the following provisions:
(a) Vesting.
-------
Each Option shall be exercisable only with respect to the Shares
which have become vested pursuant to the terms of that Option. Each
Option shall become vested with respect to Shares subject to that
Option on such date or dates and on the basis of such other criteria,
including without limitation performance of the Company, as the
Committee may determine, in its discretion, and shall be specified in
the applicable Stock Option Agreement. The Committee shall have the
authority, in its discretion, to accelerate the time at which an
Option shall be exercisable whenever it may determine that such action
is appropriate by reason of changes in applicable tax or other laws or
other changes in circumstances occurring after the grant of such
Option.
-2-
<PAGE>
(b) Exercise price.
--------------
The exercise price per Share issuable upon exercise of an Option
shall be determined by the Committee at the time of grant and set
forth in the applicable Stock Option Agreement; provided that such
exercise price shall not be less than the fair market value per Share
on date the Option is granted. For purposes of the Plan, the fair
market value of the Shares shall mean, as of any given date, the (i)
last reported sale price on the New York Stock Exchange on the most
recent previous trading day, (ii) last reported sale price on the
NASDAQ National Market System on the most recent previous trading day,
(iii) mean between the high and low bid and ask prices, as reported by
the National Association of Securities Dealers, Inc. on the most
recent previous trading day, or (iv) last reported sale price on any
other stock exchange on which the Shares are listed on the most recent
previous trading day, whichever is applicable; provided that if none
of the foregoing is applicable, then the fair market value of the
Shares shall be the value determined by the Committee, in its sole
discretion.
(c) Term.
----
No Option shall be exercisable after the expiration of 10 years
from the date on which that Option is granted.
(d) Method of exercise.
------------------
An Option may be exercised, in whole or in part, by giving
written notice to the Company stating the number of Shares (which must
be a whole number) to be purchased. Upon receipt of payment of the
full purchase price for such Shares, plus applicable withholding
taxes, by certified or bank cashier's check or other form of payment
acceptable to the Company, or, if approved by the Committee, by (i)
delivery of unrestricted Shares having a fair market value on the date
of such delivery equal to the total exercise price, (ii) surrender of
Shares subject to the Option which have a fair market value equal to
the total exercise price at the time of exercise, or (iii) a
combination of the preceding methods, and subject to compliance with
all other terms and conditions of the Plan and the Stock Option
Agreement relating to such Option, the Company shall issue, as soon as
reasonably practicable after receipt of such payment, such Shares to
the person entitled to receive such Shares, or such person's
designated representative. Such Shares may be issued in the form of a
certificate, by book entry, or otherwise, in the Company's sole
discretion.
(e) Restrictions on shares subject to options.
-----------------------------------------
Shares issued upon the exercise of any Option may be made
subject to such transferability or other restrictions or conditions as
the Committee may determine, in its discretion, and as shall be set
forth in the applicable Stock Option Agreement.
-3-
<PAGE>
(f) Transferability.
---------------
Options shall not be transferable. Any attempted transfer shall
be null and void. All Options shall be exercisable during a
Participant's lifetime only by the Participant or the Participant's
legal representative. Notwithstanding the foregoing to the contrary:
(i) Options may be transferred by a Participant by will or the laws of
descent and distribution or pursuant to a domestic relations order (as
defined in the Code); and (ii) the Committee may, in its sole
discretion and in the manner established by the Committee, provide for
the irrevocable transfer, without payment of consideration, of any
Option by a Participant to such Participant's spouse, children,
grandchildren, nieces, or nephews or to the trustee of any trust for
the principal benefit of one or more such persons or to a partnership
whose only partners are one or more such persons. In the case of such
a permitted transfer, the Option shall be exercisable only by the
transferee or such transferee's legal representative.
(g) Termination of Status as an Eligible Director by Reason of Death
----------------------------------------------------------------
or Disability.
-------------
If a Participant's status as an Eligible Director terminates by
reason of the Participant's death or disability (as defined by the
Committee from time to time, in its sole discretion), then (i) unless
otherwise determined by the Committee within 90 days of such
termination, to the extent an Option held by such Participant is not
vested as of the date of such termination, such Option shall
automatically terminate on such date; and (ii) to the extent an Option
held by such Participant is vested (whether pursuant to its terms, a
determination of the Committee under the preceding clause (i), or
otherwise) as of the date of such termination, such Option may
thereafter be exercised by the Participant, the legal representative
of the Participant's estate, the legatee of the Participant under the
will of the Participant, the distributee of the Participant's estate,
or the Participant's other successor in interest, whichever is
applicable (A) if such termination results from the Participant's
death, for a period of one year from the date of death or, if sooner,
until the expiration of the stated term of the Option, (B) if such
termination results from the Participant's disability, for one year
from the date of termination of the Participant's status as an
Eligible Director or, if sooner, until the expiration of the stated
term of the Option, or (C) for such other period as the Committee may
specify at or after grant or the Participant's death or disability.
(h) Other Termination of Status as an Eligible Director.
---------------------------------------------------
If a Participant's status as an Eligible Director terminates for
any reason other than death or disability, then (i) to the extent any
Option held by such Participant is not vested as of the date of
termination, such Option shall automatically terminate on such date;
and (ii) unless otherwise determined by the Committee at or after
grant or termination, to the extent any Option held by such
Participant is vested as of the date of such termination, such Option
may thereafter be exercised for a period of 90 days from
-4-
<PAGE>
the date of termination or, if sooner, until the expiration of the
stated term of the Option; provided that, if the Participant's status
as an Eligible Director is terminated for Cause, any and all
unexercised Options held by such Participant shall immediately lapse
and be of no further force or effect. For purposes of the Plan,
whether termination of a Participant's status as an Eligible Director
is for "Cause" shall be determined by the Committee, in its sole
discretion.
(i) Effect of Termination of Participant's Status as an Eligible
------------------------------------------------------------
Director on Transferee.
----------------------
Except as otherwise permitted by the Committee, in its sole
discretion, no Option held by a transferee of a Participant pursuant
to (S)5(f), above, shall remain exercisable for any period of time
longer than would otherwise be permitted under (S)(S)5(g) and 5(h)
without specification of other periods by the Committee as provided
therein.
(S)6. Restriction on Exercise After Termination.
------------------------------------------
Notwithstanding any provision of this Plan to the contrary, no
unexercised right created under this Plan (an "Unexercised Right") shall be
exercisable if, prior to such exercise, the Participant violates any non-
competition, confidentiality, conflict of interest, or similar provision set
forth in the Stock Option Agreement pursuant to which such Unexercised Right was
awarded or otherwise conducts himself in a manner adversely affecting the
Company or any subsidiary of the Company, as determined by the Committee, in its
sole discretion .
(S)7. Withholding Tax.
----------------
The Company, at its option, shall have the right to require the
Participant or any other person receiving Shares under the Plan to pay the
Company the amount of any taxes which the Company is required to withhold with
respect to such Shares or, in lieu of such payment, to retain or sell without
notice a number of such Shares sufficient to cover the amount required to be so
withheld. The Company, at its option, shall have the right to deduct from all
dividends paid with respect to Shares the amount of any taxes which the Company
is required to withhold with respect to such dividend payments. The obligations
of the Company under the Plan shall be conditional on such payment or other
arrangements acceptable to the Company.
(S)8. Securities Law Restrictions.
---------------------------
No right under the Plan shall be exercisable and no Share shall be
delivered under the Plan except in compliance with all applicable federal and
state securities laws and regulations. The Company shall not be required to
deliver any Shares or other securities under the Plan prior to such registration
or other qualification of such Shares or other securities under any state or
federal law, rule, or regulation as the Committee shall determine to be
necessary or advisable, in its sole discretion.
-5-
<PAGE>
The Committee may require each person acquiring Shares under the Plan
(a) to represent and warrant to and agree with the Company in writing that such
person is acquiring the Shares without a view to the distribution thereof, and
(b) to make such additional representations, warranties, and agreements with
respect to the investment intent of such person or persons as the Committee may
reasonably request. Any certificates for such Shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
All Shares or other securities delivered under the Plan shall be
subject to such stop-transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Shares are
then listed, and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be put on any certificates evidencing
such Shares to make appropriate reference to such restrictions.
(S)9. Change in Capital Structure.
---------------------------
In the event the Company changes its outstanding Shares by reason of
stock splits, stock dividends, or any other increase or reduction of the number
of outstanding Shares without receiving consideration in the form of money,
services, or property deemed appropriate by the Board, in its sole discretion,
the aggregate number of Shares subject to the Plan shall be proportionately
adjusted and the number of Shares and the exercise price for each Share subject
to the unexercised portion of any then-outstanding Option shall be
proportionately adjusted with the objective that the Participant's proportionate
interest in the Company shall remain the same as before the change without any
change in the total exercise price applicable to the unexercised portion of any
then-outstanding Options, all as determined by the Committee in its sole
discretion.
In the event of any other recapitalization or any merger,
consolidation, or other reorganization of the Company, the Committee shall make
such adjustment, if any, as it may deem appropriate to accurately reflect the
number and kind of shares deliverable, and the exercise prices payable, upon
subsequent exercise of any then-outstanding Options, as determined by the
Committee in its sole discretion.
The Committee's determination of the adjustments appropriate to be
made under this (S)9 shall be conclusive upon all Participants under the Plan.
(S)10. Change in Control.
-----------------
(a) Accelerated Vesting and Company Purchase Option.
-----------------------------------------------
Notwithstanding any provision of this Plan or any Stock Option
Agreement to the contrary (unless such Stock Option Agreement contains
a provision referring specifically to this (S)10 and stating that this
(S)10 shall not be applicable to the Option evidenced by
-6-
<PAGE>
such Stock Option Agreement), if a Change in Control or a Potential Change
in Control (each as defined below) occurs, then:
(i) Any and all Options theretofore granted and not fully vested
shall thereupon become vested and exercisable in full and shall
remain so exercisable in accordance with their terms; provided
that no Option which has previously been exercised or otherwise
terminated shall become exercisable; and
(ii) The Company may, at its option, terminate any or all unexercised
Options and portions thereof not more than 30 days after such
Change in Control or Potential Change in Control; provided that
the Company shall, upon such termination and with respect to
each Option so terminated, pay to the Participant (or such
Participant's transferee, if applicable) theretofore holding
such Option cash in an amount equal to the difference between
the fair market value (as defined in (S)5(a), above) of the
Shares subject to the Option at the time the Company exercises
its option under this (S)10(a)(ii) and the exercise price of the
Option, less applicable withholding taxes; and provided further
that if such fair market value is less than such exercise price,
then the Committee may, in its discretion, terminate such Option
without any payment.
(b) Definition of Change in Control.
-------------------------------
For purposes of the Plan, a "Change in Control" means the happening of
any of the following:
(i) When any "person" as defined in (S)3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and as used
in (S)(S)13(d) and 14(d) thereof, including a "group" as defined
in (S)13(d) of the 1934 Act, but excluding the Company, any
subsidiary of the Company, any employee benefit plan sponsored
or maintained by the Company or any subsidiary of the Company
(including any trustee of such plan acting as trustee), any
person who is a stockholder of the Company on the effective date
of this Plan (an "Existing Stockholder"), and any affiliate of
an Existing Stockholder, directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the 1934 Act)
of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding
securities;
(ii) When, during any period of 24 consecutive months during the
existence of the Plan, the individuals who, at the beginning of
such period, constitute the Board (the "Incumbent Directors")
cease for any reason other than death to constitute at least a
majority of the Board; provided,
-7-
<PAGE>
however, that a director who was not a director at the beginning
of such 24-month period shall be deemed to have satisfied such
24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with the
approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors either actually (because they
were directors at the beginning of such 24-month period) or by
prior operation of this (S)10(b)(ii); or
(iii) The occurrence of a transaction requiring stockholder approval
for the acquisition of the Company by an entity other than the
Company or a subsidiary of the Company through purchase of
assets, by merger, or otherwise.
Provided that neither an initial or any secondary public offering of
common stock of the Company pursuant to a registration statement under
the Securities Act of 1933, as amended (the "1933 Act"), nor any
issuance of securities of the Company or any subsidiary of the Company
in connection with an acquisition of a dental practice or other
business entity by the Company or any subsidiary of the Company shall
constitute a Change in Control; and provided further that a change in
control shall not be deemed to be a Change in Control for purposes of
this Plan if the Board had approved such change prior to either (A)
the commencement of any of the events described in (S)(S)10(b)(i),
(ii), (iii), or 10(c)(i) of this Plan, or (B) the commencement by any
person other than the Company of a tender offer for Shares.
(c) Definition of Potential Change in Control.
-----------------------------------------
For purposes of the Plan, a "Potential Change in Control" means the
happening of any one of the following:
(i) The approval by the stockholders of the Company of an agreement
by the Company, the consummation of which would result in a
Change in Control of the Company as defined in (S)10(b), above;
or
(ii) The acquisition of beneficial ownership of the Company, directly
or indirectly, by any entity, person, or group (other than the
Company, a subsidiary of the Company, any Company employee
benefit plan (including any trustee of such plan acting as such
trustee), an Existing Stockholder, or an affiliate of an
Existing Stockholder) representing 5% or more of the combined
voting power of the Company's outstanding securities and the
adoption by the Board of a resolution to the effect that a
Potential Change in Control of the Company has occurred for
purposes of the Plan.
-8-
<PAGE>
(S)11. Six-Month Holding Period.
------------------------
Shares purchased upon exercise of an Option may not be sold before at
least six months have elapsed from the date the Option was granted.
(S)12. No Enlargement of Rights.
------------------------
The adoption of this Plan and the grant of one or more Options to an
Eligible Director shall not confer any right to the Eligible Director to
continue in the status of Eligible Director and shall not restrict or interfere
in any way with the right of the Company to terminate such Eligible Director's
status as such at any time, with or without cause.
(S)13. Rights as Stockholder.
---------------------
No Participant or his executor or administrator or other transferee
shall have any rights of a stockholder in the Company with respect to the Shares
covered by an Option unless and until a certificate representing such Shares has
been duly issued and delivered to him under the Plan.
(S)14. Acceleration of Rights.
----------------------
The Committee shall have the authority, in its discretion, to
accelerate the time at which an Option shall be exercisable whenever it may
determine that such action is appropriate by reason of changes in applicable tax
or other laws or other changes in circumstances occurring after the award of
such Option.
(S)15. Definition of Subsidiary.
------------------------
The terms "subsidiary" and "subsidiary corporation" when used in the
Plan or any Stock Option Agreement made pursuant to the Plan mean a subsidiary
corporation as defined in (S)424(f) of the Code.
(S)16. Interpretation, Amendment or Termination of Plan.
------------------------------------------------
The interpretation by the Committee of any provision of the Plan or of
any Stock Option Agreement executed pursuant to the grant of an Option under the
Plan shall be final and conclusive upon all Participants or transferees under
the Plan. The Board, without further action on the part of the stockholders of
the Company, may from time to time alter, amend, or suspend the Plan or may at
any time terminate the Plan; provided that no such action shall adversely affect
any Participant's rights with respect to outstanding Options then held by such
Participant without such Participant's consent.
-9-
<PAGE>
(S)17. Protection of Board and Committee.
---------------------------------
No member of the Board or the Committee shall have any liability for
any determination or other action made or taken in good faith with respect to
the Plan or any Option granted under the Plan.
(S)18. Government Regulations.
----------------------
Notwithstanding any provision of the Plan or any Stock Option
Agreement executed pursuant to the Plan, the Company's obligations under the
Plan and such Agreement shall be subject to all applicable laws, rules, and
regulations and to such approvals as may be required by any governmental or
regulatory agencies, including without limitation any stock exchange on which
the Shares may then be listed.
(S)19. Governing Law.
-------------
The Plan shall be construed and governed by the laws of the State of
Delaware.
(S)20. Genders and Numbers.
-------------------
When permitted by the context, each pronoun used in the Plan shall
include the same pronoun in other genders and numbers.
(S)21. Captions.
--------
The captions of the various sections of the Plan are not part of the
context of the Plan, but are only labels to assist in locating those sections,
and shall be ignored in construing the Plan.
(S)22. Effective Date; Effect on Original Plan.
---------------------------------------
The Plan is effective February 17, 1997 (the "Effective Date"). The
Plan is an amendment and restatement of the Company's 1996 Directors Stock
Option Plan dated September 27, 1996 (the "Original Plan"), and supersedes the
Original Plan in its entirety.
(S)23. Term of Plan.
------------
No Option shall be granted pursuant to the Plan on or after the tenth
anniversary of the Effective Date, but Options granted prior to such tenth
anniversary may extend beyond that date.
-10-
<PAGE>
(S)24. Private Company Provisions.
--------------------------
Notwithstanding any of the foregoing provisions of the Plan to the
contrary, unless and until such time as the Company has completed an initial
public offering for its common stock pursuant to a registration statement filed
under the 1933 Act, the following provisions shall apply:
(a) Restrictive Legend.
------------------
If one or more Options or other rights under the Plan are exercised
pursuant to exemptions from the federal and state securities laws: (a) any
Shares issued upon exercise of those Options or rights may not be sold or
otherwise transferred, and the Company shall not be required to transfer
any such Shares, unless they have been registered under the federal and
state securities laws or a valid exemption from such registration is
available; and (b) the Company may cause each certificate evidencing the
ownership of any Shares issued upon exercise of those Options or rights to
be imprinted with a legend in the following form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any state securities law and may not be sold or otherwise
transferred without such registration unless a valid
exemption from such registration is available and the
corporation has received an opinion of, or satisfactory to,
its counsel that such transfer would not violate any Federal
or state securities laws.
(b) Purchase Option.
---------------
If the Participant ceases to be an Eligible Director due to such
Participant's resignation, replacement, discharge, or any other reason
other than such Participant's death, disability, or retirement, then the
Company shall have the exclusive right and option to purchase from the
Participant, the executor or administrator of the Participant's estate, or
the Participant's other successor in interest, as the case may be (for
purposes of this subsection, the "Selling Stockholder"), any or all of the
Shares which may have been purchased by the Participant under the Plan
(including without limitation any Shares purchased upon exercise of an
Option after termination of the Participant's employment and any additional
Shares which the Participant may have received as a result of any stock
splits, stock dividends, or similar sources as a result of receiving Shares
under the Plan).
In order to exercise its purchase option under this subsection, the
Company shall give written notice to the Selling Stockholder, stating that
the Company thereby exercises its option under this subsection, at any time
after termination of the Participant's status as an Eligible Director. The
purchase price per Share for the Shares under this
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<PAGE>
subsection shall be equal to: (i) the fair market value of the total
stockholders' equity of the Company, as determined by an appraisal which
shall be made by an independent firm of certified public accountants
selected by the Board and which shall be approved by the Board, if such
appraisal was so made and approved not earlier than 15 months prior to the
termination of the Participant's status as an Eligible Director or, if not,
a new appraisal made by such an independent firm and approved by the Board,
plus or minus any increases or decreases in the book value of the total
stockholders' equity of the Company from the effective date of such
appraisal to the last day of the calendar month of termination of the
Participant's status as an Eligible Director (whether such termination was
before or after the effective date of such appraisal), divided by (ii) the
total outstanding shares of common stock of the Company as of the last day
of that calendar month, calculated on a fully diluted basis under generally
accepted accounting principles. In the event of any disagreement between
the Selling Stockholder and the Company concerning calculation of the
purchase price for the Shares under this subsection, the calculation shall
be made by any independent firm of certified public accountants selected by
the Board, whose determination shall be final and conclusive on all
interested parties. All costs of any such appraisal shall be borne by the
Company, and all costs of any calculation of the purchase price by an
independent firm of certified public accountants to resolve any such
disagreement shall be borne equally by the Selling Stockholder and the
Company.
If the Company exercises its option under this subsection, the
purchase and sale of the Shares shall be closed within 20 business days
after determination of the purchase price, at a time and place reasonably
specified by the Company. At the closing, the Selling Stockholder shall
assign and transfer the Shares to the Company free and clear of all
encumbrances or other claims, and the Company shall execute and deliver to
the Selling Shareholder the Company's promissory note: (i) dated as of the
closing date, (ii) payable to the order of the Selling Shareholder, (iii)
in a principal amount equal to the full purchase price, (iv) payable on or
before the fourth anniversary of the closing date, (v) with interest
payable at maturity calculated on the unpaid principal amount from the
closing date to the payment date at a rate per annum equal to the then-
applicable federal rate, determined in good faith by the Company. The
Company may elect, in its discretion, to pay all or any part of the
purchase price by good and sufficient check at the closing, in which event
the Company's promissory note shall be eliminated or reduced by that
amount, as the case may be. The Company may prepay its promissory note at
any time without penalty.
(c) Restriction on Transfers.
------------------------
No Shares issued upon exercise of an Option may be sold or otherwise
transferred while the holder of those Shares is an Eligible Director
without the prior written consent of the Company.
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<PAGE>
(d) First-refusal Option.
--------------------
If the holder of any Shares issued upon exercise of one or more
Options desires to sell, and receives a bona fide written offer to buy, all
or any part of his Shares, for a price computed and payable in dollars, and
if such holder is not an Eligible Director, such holder may sell such
Shares, but only pursuant to the following provisions of this subsection.
Such holder shall obtain from the person or persons who propose to buy such
Shares (collectively, the "Buyer") a written offer to buy such Shares (the
"Offer") which shall include the following provisions: (i) the number of
Shares to be purchased, the price, the terms of payment, and the other
terms and conditions of the proposal; (ii) agreement by the Buyer that the
Offer shall be irrevocable for a specified period of time expiring not
earlier than 20 business days after the date that notice of the Offer is
given to the Company; and (iii) the consideration received from such holder
for the Buyer's agreement that the Offer shall be irrevocable for the
specified period of time. At the time of obtaining the Offer, such holder
shall part with adequate consideration to bind the Buyer to his agreement
that the Offer shall be irrevocable for the specified period of time.
Upon obtaining an Offer that such holder desires to accept, such
holder shall give written notice of the Offer and its acceptability to the
Company, enclosing a photocopy of the Offer, and shall make the signed
original of the Offer available to the Company for examination upon
request. The Company shall have the exclusive right and option to purchase
all, but only all, of the Shares described in the Offer under whichever of
the following three sets of price and terms and conditions that it elects,
in its discretion: (i) for the purchase price and upon the other terms and
conditions specified in the Offer, or (ii) for the purchase price and upon
the other terms and conditions which would be applicable under (S)23(b),
above, if such holder's status as an Eligible Director had terminated on
the date when such holder gave written notice of the Offer, or (iii) for
the purchase price specified in the Offer and upon the other terms and
conditions which would be applicable under (S)23(b), above, if such
holder's status as an Eligible Director had terminated on the date when
such holder gave written notice of the Offer (including without limitation
execution and delivery of the Company's promissory note meeting the
requirements of (S)23(b), above).
In order to exercise its purchase option under this subsection, the
Company shall give written notice to such holder, stating that the Company
thereby exercises its option under this subsection, at any time not later
than 10 business days after the Company receives the written notice from
such holder. If the Company exercises its option under this subsection,
the purchase and sale of such shares shall be closed, at a time and place
reasonably specified by the Company, within 20 business days after the
later of: (i) the date when the Company exercises its option under this
subsection, or (ii) the date when the purchase price has been determined.
In that event, the terms for payment of the purchase price and the other
terms and conditions for purchase shall be not less favorable to the
Company that those specified in the Offer.
-13-
<PAGE>
If the Company fails to exercise its purchase option under this
subsection, such holder may sell the Shares specified in the Offer to the
Buyer at the price and on the terms and conditions of the Offer, subject to
compliance with all other requirements in the Plan. Upon completion of the
sale of the Shares pursuant to the preceding sentence, the Shares shall
remain subject to all requirements and restrictions of the Plan, including
without limitation the Company's option to purchase the Shares in the event
of any subsequent sale or other transfer, as described in this (S)23(d).
(S)25. Savings Clause.
--------------
In case any one or more of the provisions of this Plan shall be held
invalid, illegal, or unenforceable in any respect, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and the invalid, illegal, or unenforceable provision shall be
deemed null and void; however, to the extent permissible by law, any provision
which could be deemed null and void shall first be construed, interpreted, or
revised retroactively to permit this Plan to be construed so as to foster the
intent of this Plan. This Plan and all transactions pursuant to this Plan are
intended to comply in all respects with applicable law and regulation,
including, with respect to persons subject to Section 16 of the 1934 Act
("Reporting Persons"), Rule 16b-3 under the 1934 Act. In case any one or more of
the provisions of this Plan or any transaction pursuant to this Plan shall be
held to violate or be unenforceable in any respect under Rule 16b-3, then, to
the extent permissible by law, any provision which could be deemed to violate or
be unenforceable under Rule 16b-3 shall first be construed, interpreted, or
revised retroactively to permit the Plan or transaction to be in compliance with
Rule 16b-3.
-14-
<PAGE>
AMENDMENT NO. 1
TO
AMERICAN DENTAL PARTNER, INC.
AMENDED AND RESTATED 1996 DIRECTORS STOCK OPTION PLAN
-----------------------------------------------------
The American Dental Partners, Inc. Amended and Restated 1996 Directors
Stock Option Plan (the "Plan") is hereby amended pursuant to the following
provisions:
1. Definitions
-----------
All capitalized terms used in this amendment which are not otherwise
defined herein shall have the respective meanings given such terms in the Plan.
2. Administration
--------------
Section 2 of the Plan is hereby amended by deleting the first sentence
thereof in its entirety and replacing it with the following:
The Plan shall be administered by a committee (the "Committee")
of one or more directors, none of whom shall be an Eligible Director.
3. Effective Date; Construction
----------------------------
The effective date of this amendment is October 27, 1997, and this
amendment shall be deemed to be a part of the Plan as of such date. In the
event of any inconsistencies between the provisions of the Plan and this
amendment, the provisions of this amendment shall control. Except as modified
by this amendment, the Plan shall continue in full force and effect without
change.
<PAGE>
EMPLOYMENT AND NON-COMPETITION AGREEMENT
AGREEMENT, dated and entered into as of the eighth day of January,
1996, by and between American Dental Partners, Inc., a Delaware corporation (the
"Company"), and Gregory A. Serrao, a resident of Ohio (the "Executive").
WHEREAS, the Company desires to engage the full-time services of the
Executive;
WHEREAS, the Executive desires to be so employed by the Company;
WHEREAS, the Company desires to be assured that the unique and expert
services of the Executive will be available solely to the Company on such full-
time basis, and that the Executive is willing and able to render such services
on the terms and conditions hereinafter set forth;
WHEREAS, the Company desires to be assured that the confidential
information and good will of the Company will be preserved for the exclusive
benefit of the Company; and
NOW, THEREFORE, in consideration of such employment and the mutual
covenants and promises herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and the Executive agree as follows:
Section 1. Employment. The Company hereby employs the Executive as
----------
its President and Chief Executive Officer, and the Executive hereby accepts such
employment, under and subject to the terms and conditions hereinafter set forth.
Section 2. Term. Unless sooner terminated as provided in Section 7,
----
the term of employment under this Agreement shall begin on the date hereof, and
shall conclude on the fifth anniversary of such commencement (the "Initial
Term", whether the full term or the term ending pursuant to a termination under
Section 7). This Agreement shall be renewed for additional consecutive one year
terms ("Renewal Terms") unless either party shall give to the other written
notice not less than thirty (30) days prior to the end of the Initial Term or
any Renewal Term that it or he does not wish to renew this Agreement. The
Initial Term, as it may be so extended, is referred to herein as the "Term".
Section 3. Duties. The Executive shall serve as President and Chief
------
Executive Officer of the Company, reporting only to the Board of Directors of
the Company (the "Board"). As President and Chief Executive Officer, the
Executive shall have the responsibility and broad authority to manage and direct
the affairs and operations of the Company, subject only to the reasonable
authority and control of the Board and such reasonable guidelines and policies
as the Board may from time to time approve. Such responsibility and authority
shall include, without
<PAGE>
limitation, recruiting, hiring, and firing senior management personnel,
consultants, accountants, attorneys, and other professionals and agents of the
Company, establishing the terms and conditions of their employment or retainer,
preparation of an annual budget and operating plan for review by the Board,
establishing operating strategies, policies, and objectives of the Company,
identifying and negotiating with on behalf of the Company appropriate
acquisition candidates and performing such additional duties, consistent with
the foregoing, as the Board may reasonably assign to the Executive from time to
time. The Executive hereby agrees to devote his full business time and best
efforts to the performance of such duties and to the promotion and forwarding of
the business and affairs of the Company during the Term; provided that the
Executive shall be entitled (i) to devote time to professional activities,
including without limitation attendance at business and trade conventions and
meetings of other professional associations, (ii) to devote time and attention
to his personal investments, (iii) to provide transitional assistance to
Cardinal Health, Inc. and its subsidiaries ("Cardinal") through January 31,
1996 and to remain as an employee of Cardinal through March 19, 1996 and to
(iv) take periodic vacations and sick leaves as may be provided generally to the
Company's executive personnel or provided in this agreement, in each case so
long as such other matters do not interfere materially with the performance of
the Executive's duties and obligations hereunder.
Section 4. Salary Compensation. In consideration of the services
-------------------
rendered by the Executive under this Agreement, the Company shall pay the
Executive a base salary (the "Base Salary") at the initial annualized rate of
One Hundred Fifty Thousand Dollars ($150,000). The Base Salary shall be paid in
such installments and at such times as the Company pays its regularly salaried
executive employees, and the Board shall review on an annual basis the Base
Salary from time to time in its sole discretion; provided, however, that in no
event shall the Base Salary be reduced as the result of any such review or
otherwise.
Section 5. Bonus Compensation. Promptly after the commencement of
------------------
the Term, with respect to the first fiscal year of the Company, and on an annual
basis thereafter with respect to each succeeding fiscal year, the Company shall
adopt a bonus plan for management personnel with respect to each such fiscal
year (the "Bonus Plan"). The Bonus Plan shall be based upon objectives, and
bonus percentages tied to the extent of achievement of those objectives, which
the Executive shall prepare and submit to the Board for its approval, which
approval shall not be unreasonably withheld or delayed. The Bonus Plan shall
provide that the Executive shall be entitled to earn a bonus each year in an
amount equal to a percentage, up to sixty percent (60%), of his Base Salary for
that year, determined based upon the extent of achievement of the Bonus Plan
objectives approved by the Board relating to the Executive for that year. Each
bonus payable to the Executive under the Bonus Plan shall be paid not later than
the first to occur of (i) ten days after receipt of financial statements for the
applicable fiscal year or (ii) the date which is 100 days after the end of such
fiscal year.
-2-
<PAGE>
Section 6. Benefits. In addition to the compensation detailed in
--------
Sections 4 and 5 of this Agreement, the Executive shall be entitled to the
following additional benefits:
Section 6.01. Paid Vacation. The Executive shall be entitled to four
-------------
(4) weeks paid vacation per calendar year, such vacation to extend for such
periods and to be taken at such intervals as shall be appropriate and consistent
with the proper performance of the Executive's duties hereunder. The Executive
shall also be entitled to such paid holidays and other time off as may be
provided to the Company's executive personnel.
Section 6.02 Insurance Coverage. As soon as reasonably practicable
------------------
after the commencement of the Term, the Company shall adopt, and shall provide
to the Executive during the Term, group health, life and disability insurance
plans for its executive employees. Such plans shall be proposed by the
Executive for the Board's approval, which approval shall not be unreasonably
withheld or delayed, and such plans shall provide coverage substantially
comparable to that set forth on Schedule 1 attached hereto. Until such group
----------
plans can be put in place, the Company shall fund interim insurance coverage
substantially comparable to that set forth on Schedule 1 attached hereto;
----------
provided that it shall be Executive's responsibility to implement such coverage.
Section 6.03. Reimbursement of Expenses. The Company shall reimburse
-------------------------
the Executive for all reasonable expenses actually incurred by the Executive in
connection with the business affairs of the Company and the performance of his
duties hereunder, including without limitation those incurred prior to the
execution of this Agreement or commencement of the Term. The Executive shall
comply with such reasonable limitations and reporting requirements with respect
to such expenses as the Board may establish from time to time.
Section 6.04. Options. The Company shall provide the Executive with
-------
options (the "Stock Options") to acquire 45,045 shares (subject to adjustment in
the event of a stock split, stock dividend or the like) of common stock, par
value $.01 per share (the "Common Stock"), of the Company pursuant to a separate
stock option plan and agreement of even date (the "Initial Option Plan")
pursuant to which there shall be reserved for issuance 60,060 shares of Common
Stock outstanding on a fully diluted basis. The Executive also shall be
entitled to participate in such additional stock option or equity-based
incentive plans adopted by the Company from time to time for its executive
personnel but unless otherwise approved by the Board of Directors, the Executive
shall not be entitled to further participation in the Initial Option Plan.
Section 6.05. Relocation Expenses. The Company shall pay the
-------------------
Executive the following reasonable fees and expenses associated with his
relocation to the Boston, Massachusetts metropolitan area or any other area in
which the Company has operations or completes an acquisition and to which the
Board requests that the Executive relocate, it being understood that
-3-
<PAGE>
the Company may not require the Executive to further relocate after his
relocation to the Boston metropolitan area (in any event, the "New Location"):
(i) brokerage fees and reasonable and customary legal fees and closing costs
incurred with respect to the sale of the Executive's home in Dublin, Ohio and
his purchase of a home in the New Location, and (ii) moving and storage
expenses, including without limitation (i) charges for packing, crating,
loading, van transportation, and unloading of household furnishings, clothing,
and other property, all insured at full replacement value, and shipment of up to
two automobiles, (ii) travel expenses during the relocation, including without
limitation up to two (2) trips by the Executive's family to the New Location,
(iii) temporary living expenses in the New Location for up to two (2) months,
including without limitation lodging, meals and local transportation prior to
delivery of a personal vehicle, (iv) costs incurred in connection with the
search for a new residence, including without limitation expenses of the
Executive and his family for up to two (2) trips to the New Location, lodging,
and meals, and (v) telephone, fax, and other miscellaneous costs and expenses
associated with such relocation.
Section 6.06. Indemnification. The Company shall indemnify the
---------------
Executive, to the fullest extent permitted under applicable law, against any and
all liabilities, claims, judgments, fines, expenses (including without
limitation reasonable attorney's fees and court costs), and amounts paid in
settlement (collectively "Claims") incurred by the Executive in connection with
any threatened, pending or completed action, suit, claim, or proceeding (whether
civil, criminal, administrative or investigative, and including without
limitation any actions by or in the right of the Company) to which the Executive
is, was, or at any time becomes a party, or is threatened to be made a party as
a result, directly or indirectly, of serving as a director, officer, employee,
or agent of the Company or at the request of the Company as a director, officer,
employee, or agent of another corporation, partnership, trust, or other
enterprise or entity; provided, however, that the Executive shall not be
entitled to indemnification with respect to any claim to the extent that such
Claim is attributable to the Executive's gross negligence or willful
misconduct. Such indemnification shall include, without limitation, to the
fullest extent permitted by applicable law, payment as incurred of related
expenses and costs upon receipt by the Company of an undertaking from the
Executive to the effect that he will repay all such payments if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to
indemnification. The rights of the Executive under this section shall be in
addition to any other rights to indemnification which the Executive may have
under the organizational documents of the Company or applicable law.
Section 6.07. Tax Offset Bonuses. In addition to the bonuses
------------------
provided for in Section 5, the Company shall pay to the Executive additional
bonuses in an amount equal to the result obtained when (i) all income earned or
deemed earned by the Executive in connection with the issuance or release from
restrictions of the shares of Common Stock described in Section 12 is divided by
the difference between one and the then-applicable Aggregate Tax Rate (defined
-4-
<PAGE>
below), and (ii) the resulting quotient is reduced by the amount of such income.
Each such bonus shall be paid not later than fifteen (15) calendar days prior to
the date on which the related tax becomes payable by the Executive (including
without limitation tax resulting from any adjustments as a result of an audit).
The Executive shall file on a timely basis an election under Section 83(b) of
the Internal Revenue Code with respect to the shares of Common Stock subject to
repurchase under Section 12.
For purposes of this Agreement, the "Aggregate Tax Rate" shall mean, at any
time, the sum of the maximum individual income tax rates then in effect, using
for this purpose the highest tax rates then in effect, using for this purpose
the highest tax rates applicable to individuals under the federal laws and the
laws of all states, counties, cities, and other municipalities or governmental
jurisdictions to which the Executive is then required to pay taxes with respect
to the income described in the preceding paragraph, including without limitation
any surtaxes but excluding consideration of any so-called alternative minimum
tax. For purposes of the calculations under the preceding paragraph, the
Aggregate Tax Rate shall be expressed as the decimal equivalent of the aggregate
applicable tax rate percentages.
Section 6.08. Other Benefits. The Executive shall be entitled to
--------------
participate in all other benefit programs made available to senior executives of
the Company (subject to the limitation set forth in Section 6.04 with respect to
participation in the Initial Option Plan) and such other benefits as may be
agreed upon by the parties from time to time. The Executive's benefits and
perquisites under this Agreement shall be reviewed by the Board not less often
than annually for appropriate increases, if any, and shall not be decreased
during the Term without the Executive's consent; provided that the Company may
replace a benefit with another benefit of equivalent value.
Section 7. Termination. This Agreement shall be terminated at the
-----------
end of the Initial Term or any Renewal Term (in each case if not renewed as
herein provided), or earlier as follows:
Section 7.01. Death. This Agreement shall terminate upon the death
-----
of the Executive, except that the compensation provided in Section 4 shall
continue through the end of the month in which the Executive's death occurs.
Section 7.02. Permanent Disability. In the event of any physical or
--------------------
mental disability of the Executive rendering the Executive unable to perform his
duties hereunder for a period of at least one hundred twenty (120) consecutive
days or one hundred eighty (180) days within any three hundred and sixty (360)
consecutive days, the Company may terminate this Agreement upon notice to the
Executive following the end of such period. Any determination of disability
shall be made by a qualified independent physician or physicians selected by the
Board, the fees and expenses of which will be paid by the Company. The failure
of the Executive to submit to a
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<PAGE>
reasonable examination by such physician or physicians, at a reasonable time and
location and following reasonable notice, shall serve to bar the Executive from
objecting to any determination of disability by the Board.
Section 7.03. By The Company For Cause. The employment of the
------------------------
Executive may be terminated by the Company for Cause (as defined below) at any
time effective upon written notice to the Executive, subject to the following
provisions of this section. The Company shall provide the Executive with at
least ten (10 ) days' prior written notice of a Board meeting at which a
termination for Cause will be considered and the Executive will have an
opportunity to attend and participate in that meeting. If the Company elects to
terminate the Executive's employment under this Agreement for Cause, then Cause
must be determined to exist by the Board by the adoption by the affirmative vote
of not less than a majority of the entire membership of the Board (which
majority for purposes of this Section must include at least two of the Directors
designated pursuant to Section 6(c) of the Shareholders' Agreement of even date)
of one or more resolutions containing a finding that the Executive was guilty of
the conduct constituting Cause and specifying such conduct, a copy of which
resolution shall be furnished to the Executive along with the notice of
termination of his employment for Cause. For purposes hereof, the term "Cause"
shall mean only any one or more of the following has occurred:
(a) The Executive shall have been convicted of, or shall have
pleaded guilty or nolo contendere to, any felony;
---------------
(b) The Executive shall have wilfully failed or refused to
perform his duties hereunder in carrying out the lawful and
reasonable directives of the Board which are consistent with
this Agreement and such willful failure or refusal shall have
continued for a period of fifteen (15) days following written
notice from the Board specifying such willful failure or refusal
in reasonable detail;
(c) the Executive shall have breached any provision of Section
9 hereof which shall have resulted in a material and adverse
effect on the business or financial condition of the Company;
(d) The Executive shall have breached any provision of Section
10 hereof and such breach shall have continued for a period of
ten (10) days following written notice from the Board specifying
such breach in reasonable detail; or
(e) the Executive shall have committed any (i) fraud or
embezzlement, or (ii) any other act of dishonesty against the
Company which has a material and adverse effect on the Company.
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Section 7.04. By the Company without Cause. At any time after the
----------------------------
date which is eighteen (18) months after commencement of the Term, the Company
may terminate the Executive's employment without Cause effective upon not less
than 90 days' prior written notice to the Executive.
Section 7.05. By the Executive Without Good Reason. The Executive
------------------------------------
may terminate this Agreement at any time during the Term without Good Reason (as
defined below) effective upon at least ninety (90) days' prior written notice to
the Company.
Section 7.06. By the Executive for Good Reason. The Executive may
--------------------------------
terminate this Agreement at any time upon written notice to the Company for
"Good Reason", which term shall mean only one or more of the following:
(a) The Company shall have failed to provide the Executive with
the compensation payable hereunder or shall have reduced such
compensation payable hereunder, or shall have materially reduced
the other benefits to which the Executive is entitled hereunder,
and such failure shall have continued for fifteen (15) days
after notice from the Executive to the Board of Directors,
specifying such failure or reduction in reasonable detail;
(b) The Company shall have (i) effected any material diminution
or reduction in the Executive's responsibilities, authority,
title or position with respect to his employment by the Company
or (ii) assigned to the Executive responsibilities or duties
inconsistent with his position as President and Chief Executive
Officer or this Agreement, and such diminution, reduction or
assignment shall have continued for ten (10) days after notice
from the Executive to the Board, specifying such diminution,
reduction or assignment in reasonable detail;:
(c) The Company shall have failed to fulfill any of its other
obligations under this Agreement, and such failure shall have
continued for thirty (30) days after notice thereof to the
Board, specifying such failure in reasonable detail;
(d) A Change of Control (as herein defined) shall have
occurred; provided, however, that if in connection with such
Change of Control the Executive shall be afforded the
opportunity to continue in his position as President and Chief
Executive Officer, with responsibilities, authority, Base Salary
and other benefits and terms no less favorable to the Executive
than those enjoyed by the Executive prior to the transaction
which resulted in such Change of Control (provided that while
the Executive may exercise any rights which he may have under
options granted pursuant to the Initial Option Plan, he shall
not be entitled to receive new
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<PAGE>
comparable option benefits following such Change of Control),
then the Executive's termination of this Agreement for Good
Reason may not be effective earlier than the first anniversary
of such Change of Control transaction. For purposes of this
Agreement, a Change of Control shall occur if (x) from and after
the date the Company has consummated its first public offering
of securities, as a result of one or more transactions (other
than public offerings of securities by the Company) a person or
group of persons acting in concert, other than Summit Ventures
IV, L.P. and the Executive and their respective affiliates,
shall own collectively a majority of the voting securities of
the Company or shall have the right to elect a majority of the
Board; or (y) prior to consummation by the Company of its first
public offering, Summit Ventures IV, L.P. and the Executive and
their respective affiliates shall cease to own a majority of the
voting securities of the Company; provided that in making such
determination there shall be excluded any voting securities
issued pursuant to an acquisition recommended to the Board by
the Executive; or
(e) The Company shall issue voting securities, and as a result
of such issuance, the Executive (together with any person to
whom he Shares after the date hereof) shall cease to own at
least ten percent (10%) of the voting securities of the Company
(calculated on a fully diluted basis, including, without
limitation after giving effect to the conversion of the
Company's Series A Preferred Stock and the exercise of any
option or warrant then outstanding, regardless of whether then
exercisable); provided, however, that this Section 7.06(e) shall
not apply to, and there shall be disregarded in making any
calculations under this Section 7.06(e), any voting securities
issued (i) pursuant to an acquisition recommended to the Board
by the Executive; or (ii) pursuant to a public offering which
constitutes a Qualified Public Offering, as defined in Article
IX of a certain Series A and Series B Preferred Stock Purchase
Agreement of even date among the Company, the Executive and
others (the "Stock Purchase Agreement").
Section 7.07 Termination of Financing Commitment. If pursuant to
-----------------------------------
Section 1.6 of the Stock Purchase Agreement Purchasers (as defined in the Stock
Purchase Agreement) terminate their commitment to purchase Purchased Shares (as
defined in the Stock Purchase Agreement), then the Executive may terminate this
Agreement at any time thereafter upon notice to the Company.
Section 8. Termination Payments and Benefits.
---------------------------------
Section 8.01. Voluntary Termination; Election Not to Renew;
---------------------------------------------
Termination For Cause; Death or Disability. Upon any termination of this
- ------------------------------------------
Agreement: (a) voluntarily by the Executive
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<PAGE>
without Good Reason as defined in Section 7.06; (b) upon the election by the
Executive or the Company not to renew this Agreement at the end of the Term or
any Renewal Term pursuant to Section 2; (c) by the Company for Cause pursuant to
Section 7.03; (d) upon the death of the Executive as provided in Section 7.01;
(e) upon the disability of the Executive as defined in Section 7.02; or (f) by
the Executive pursuant to Section 7.07, all payments, salary and other benefits
hereunder shall cease at the effective date of termination, and the Executive
shall be entitled to receive only (i) Base Salary accrued through the date of
termination, or in the case of death, through the end of the month in which
death occurs; (ii) reimbursement under Section 6.03 for expenses incurred
through the date of termination; (iii) to the extent required under applicable
law, continued participation, at the Executive's expense, in the health,
disability, and other insurance benefit programs of the Company; and (iv) unless
the termination is by the Company for Cause pursuant to Section 7.03 or by the
Executive without Good Reason pursuant to Section 7.06, , his pro rata share of
--- ----
any bonus which otherwise would have been payable under Section 5 with respect
to the year in which termination of employment occurs. The Executive's pro rata
--- ----
share of any such bonus shall be equal to the amount of any bonus payable with
respect to such year times a fraction, the numerator of which is the number of
days of such year during which the Executive was employed by the Company, and
the denominator of which is 365. Any such pro rata bonus shall be paid at such
--- ----
time as such bonus would otherwise have been paid.
Section 8.02. Termination without Cause; Termination for Good Reason.
------------------------------------------------------
In the event that this Agreement is terminated (a) by the Company without Cause
(as defined in 7.03); or (b) by the Executive for Good Reason (as defined in
Section 7.06), the Executive shall receive as a termination settlement an amount
equal to twelve (12) month's Base Salary at the level in effect at the
effective date of termination (the "Termination Payment"). The Termination
Payment shall be paid in twelve (12) consecutive monthly installments on the
first business day of each month, commencing on the first such day of the month
immediately following the month in which termination occurs. The Executive
shall also continue to receive during such twelve (12) month period, at the
Company's cost, health, disability, and other insurance benefits of the type
required under Section 6.02. In addition, the Executive shall be entitled to
receive (i) Base Salary accrued through the date of termination; (ii)
reimbursement under Section 6.03 for expenses incurred through the date of
termination; (iii) to the extent required under applicable law, continued
participation, at the Executive's expense, in the health, disability, and other
insurance benefit programs of the Company after the 12-month continuation period
described in the preceding sentence; and (iv) his pro rata share of any bonus
--- ----
which otherwise would have been payable under Section 5 with respect to the year
in which termination of employment occurs, calculated and paid in the manner
described in Section 8.01.
Section 8.03. No Other Benefits. Except as specifically provided in
-----------------
Sections 8.01 and 8.02, the Executive shall not be entitled to any compensation,
severance or other benefits from the Company or any of its subsidiaries or
affiliates upon the termination of this Agreement for
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<PAGE>
any reason whatsoever, and the Executive agrees that he will accept such
payments in full and complete satisfaction of any obligations owed to him
hereunder.
Section 8.04. Survival. Notwithstanding any other provisions of this
--------
Agreement to the contrary, the termination of this Agreement shall not relieve
either party of any liabilities or obligations existing at or arising as a
result of the termination or any breach of this Agreement. Without limiting the
preceding sentence, the provisions of Sections 8.01, 8.02, and 9 through 16,
inclusive, shall survive the termination of this Agreement.
Section 9. Proprietary Information; Inventions in the Field.
------------------------------------------------
Section 9.01. Proprietary Information. In the course of his service
-----------------------
to the Company, the Executive will have access to confidential strategic or
technical data, marketing research data, sources of supply and trade secrets,
which are confidential and proprietary and are owned or used by the Company, or
any of its subsidiaries or affiliates. Such information shall hereinafter be
called "Proprietary Information" and shall include any and all items enumerated
in the preceding sentence and coming within the scope of the business of the
Company or any of its subsidiaries or affiliates as to which the Executive may
have access, whether conceived or developed by others or by the Executive alone
or with others during the period of his service to the Company, whether or not
conceived or developed during regular working hours (if conceived or developed
within the scope of the Executive's employment). Proprietary Information shall
not include any data or information which: (a) is now or hereafter in the
public domain, provided the same are not in the public domain, as a consequence
of disclosure directly or indirectly by the Executive in violation of this
Agreement, (b) is in the Executive's possession prior to its disclosure to him
as an employee of the Company, or (c) is lawfully acquired by the Executive from
a third party.
Section 9.02. Non-Use and Non-Disclosure. The Executive shall not
--------------------------
during the Term or at any time thereafter (a) disclose, directly or indirectly,
any Proprietary Information to any person other than the Company or its
Subsidiaries or affiliates or authorized employees thereof at the time of such
disclosure, or such other persons to whom the Executive has been specifically
instructed or permitted to make disclosure by the Board or its authorized
representative or (b) use any Proprietary Information, directly or indirectly,
for his own benefit or for the benefit of any other person or entity. At the
termination of his employment, the Executive shall deliver to the Company all
notes, letters, documents and records which contain Proprietary Information
which are then in his possession or reasonable control and shall destroy any and
all copies and summaries thereof. Notwithstanding the foregoing, the Executive
may make disclosure (i) to the extent required by law, as reasonably determined
by the Executive or his legal counsel, and (ii) on a confidential basis to the
Executive's lawyers, accountants, and other professional advisors.
Section 10. Restrictions on Activities of the Executive.
-------------------------------------------
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<PAGE>
Section 10.01. Acknowledgments. The Executive agrees that he is being
---------------
employed hereunder in a key executive capacity with the Company and that the
Company is engaged in a highly competitive business and that the success of the
Company's business in the marketplace will depend upon its goodwill and
reputation for quality and dependability. The Executive further agrees that
reasonable limits may be placed on his ability to compete against the Company
under certain circumstances as provided herein so as to protect and preserve the
legitimate business interests and good will of the Company.
Section 10.02. General Restrictions.
--------------------
(a) During the Term and, if applicable, for the Non-Competition
Period (as defined below), the Executive will not anywhere in the United States
engage or participate in, directly or indirectly, as principal, agent, employee,
employer, consultant, investor or partner, or assist in the management of, or
own any stock or any other ownership interest in, any business which is
Competitive with the Company (as defined below). For purposes of this Agreement,
a business shall be considered "Competitive with the Company" only if it relates
to the acquisition, ownership, operation or management of dental practices or
any one or more of the related specialty practices of orthodontics,
periodontics, endodontics, pedodontics or oral surgery. Notwithstanding the
foregoing, the Executive may own, directly or indirectly, less than 1% of the
capital stock of any public corporation.
(b) For purposes of this Agreement, the "Non-Competition
Period" shall mean the period of twelve (12) consecutive months after the
Executive's employment terminates for any reason; provided however, that in the
event of termination under Section 7.02 or 7.07, there shall be no Non-
Competition Period; and provided further, however, that in the event the
Executive's employment terminates as a result of either party's decision not to
renew this Agreement at the end of the Initial Term or any Renewal Term, then
the Executive shall not be bound by the provisions of this Section 11.02 after
termination of the Agreement unless the Company elects, by notice to the
Executive not less than thirty (30) days prior to such termination, to make (A)
payments to the Executive, at the level of the Base Salary then in effect, and
(B) provide the benefits described in Section 8.02, both for the period of
twelve months after such termination, in which case the Non-Competition Period
shall continue for such twelve (12) month period; and provided further than in
the event the Company terminates the Executive other than for Cause pursuant to
Section 7.03, or the Executive terminates his employment for Good Reason
pursuant to Section 7.06, then the Executive shall be bound by the provisions of
this Section 10 only if the Company pays the compensation and provides the
benefits required under Section 8.02..
Section 10.03. Employees, Customers and Suppliers. During the Term
----------------------------------
and, if applicable, the Non-Competition Period, the Executive will not solicit,
or attempt to solicit, any officer, director, consultant, executive or employee
of the Company or any of its subsidiaries or affiliates
-11-
<PAGE>
to leave his or her engagement with the Company or such subsidiary or affiliate
nor will he call upon, solicit, divert or attempt to divert from the Company or
any of its affiliates or subsidiaries any of their customers or suppliers, of
whose names he was aware during the term of his employment with the Company;
provided, however, that nothing in this Section 10.03 shall be deemed to
prohibit the Executive from calling upon or soliciting a customer or supplier
during the Non-Competition Period if such action relates solely to a business
which is not Competitive with the Company.
Section 10.04. Termination of Restrictions. Notwithstanding the
---------------------------
foregoing, any restrictions under Sections 10.02 and 10.03 which are applicable
during the Non-Competition Period (if applicable) shall terminate automatically,
without terminating or modifying any obligations of the Company, if the Company
fails to make any payment, or fails to perform any of its other obligations,
during the Non-Competition Period and such failure continues for 10 days after
notice of such failure from the Executive.
Section 10.05. Acknowledgment. THE EXECUTIVE REPRESENTS AND WARRANTS
--------------
THAT HE HAS READ CAREFULLY THE PROVISIONS OF THIS AGREEMENT AND HAS REVIEWED THE
SAME WITH HIS COUNSEL, AND ACKNOWLEDGES THAT THE RESTRICTIONS CONTAINED IN
SECTION 9 AND 10 HEREOF ARE REASONABLE IN BUSINESS AND GEOGRAPHIC SCOPE, ARE
REASONABLE IN DURATION, AND ARE IMPORTANT TO THE PROTECTION OF THE COMPANY'S
GOODWILL AND ITS COMPETITIVE POSITION IN THE MARKETPLACE.
Section 11. Remedies. It is specifically understood and agreed that
--------
any breach of the provisions of Section 9 or 10 of this Agreement is likely to
result in irreparable injury to the Company and that the remedy at law alone may
be an inadequate remedy for such breach, and that in addition to any other
remedy it may have, the Company shall be entitled to seek the specific
performance of this Agreement by the Executive and to seek both temporary and
permanent injunctive relief (to the extent permitted by law) without the
necessity of proving actual damages. All rights and remedies of each party
under this Agreement are cumulative and in addition to all other rights and
remedies which may be available to that party from time to time, whether under
this Agreement, at law, in equity, or otherwise.
Section 12. Shares Subject to Repurchase. Prior to commencement of
----------------------------
the Term, the Company has sold to the Executive 50,000 shares of Common Stock
(the "Shares"). Such shares are fully paid and nonassessable but shall be
subject to repurchase by the Company in certain events, as follows:
(a) Initially, all 50,000 Shares issued to the Executive shall be
subject to repurchase by the Company, as its option, in the event of termination
of his employment, subject
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<PAGE>
to the following provisions of this Section 12. On the last day of each
calendar month, commencing with January 31, 1996, and continuing on the last day
of each calendar month thereafter through and including January 31, 2000, 1,042
Shares shall be automatically released from such repurchase restriction, and
after January 31, 2000, no Shares shall remain subject to such repurchase right.
(b) In the event of a Change of Control, all repurchase rights of
the Company with respect to the Shares shall terminate.
(c) In the event of termination of the Executive's employment by the
Company without Cause as (defined in Section 7.03) and other than upon death or
disability, or in the event the Executive terminates his employment under
Section 7.06 or Section 7.07, then in addition to the Shares released from the
Company's repurchase rights under Section 12(a), there shall be automatically
released from such repurchase right an additional 12,504 Shares, effective as of
the date of such termination.
(d) In the event that the Executive's employment with the Company
terminates prior to January 31, 2000 as a result of his death, his termination
by the Company under Section 7.02 or by the Company without Cause (as defined in
Section 7.03), or termination by the Executive for Good Reason under Section
7.06, then those Shares which then remain subject to repurchase may, at the
option of the Company, be repurchased at the greater of $100,000 or the fair
market value thereof, which fair market value shall be determined as provided in
Section 13, and in the event of termination under Section 7.07 those shares
which remain unvested may, at the option of the Company, be repurchased at the
fair market value thereof as so determined. In the event that prior to January
31, 2000 the Executive's employment terminates for any other reason, those
Shares which then remain subject to repurchase may be repurchased by the Company
for a purchase price equal to $100,000 multiplied by a fraction having as its
numerator the number of Shares which then remain subject to such repurchase and
having 50,000 as its denominator.
(e) In the event that the Company wishes to exercise its right under
Section 12(d) to repurchase shares from the Executive or his estate or other
successor in interest, as the case may be, it shall give written notice to the
Executive or his estate or other successor as applicable, to such effect within
60 days following termination of his employment, specifying the number of Shares
to be repurchased, and the price to be paid therefor (consistent with Section
12(d)). Such repurchase shall be accomplished within 30 days after the date of
such notice, and payment for the Shares repurchased shall be made in cash.
(f) In addition to the foregoing, if (i) the Company exercises its
repurchase option under any of the circumstances described in the first sentence
of Section 12(d), (ii) a
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<PAGE>
Liquidity Event (as defined below) occurs within six months after the
termination of the Employee's employment, and (iii) the net proceeds per share
payable to the shareholders of the Company (in the event of a Liquidity Event
comprised of a sale of stock or assets), or the offering price to the public of
shares of Common Stock (in the event of a Liquidity Event comprised of a public
offering) exceeds the amount paid to the Executive under Section 12(e), then the
Company shall pay to the Executive, in cash, not later than 30 days after such
Liquidity Event, an amount equal to the difference between such net proceeds per
share or offering price and such amount paid per share under Section 12(e). The
term Liquidity Event shall mean the merger or consolidation of the Company
pursuant to which those persons who held all of the voting securities of the
Company immediately prior to such transaction fail to hold at least a majority
of the voting securities of the resulting or surviving corporation, the sale of
all or substantially all of the stock or assets of the Company or the
consummation of the sale of stock of the Company to the public pursuant to a
registration statement filed under the Securities Act of 1933, as amended.
Section 13. Determination of Value. For the purposes of Section 13,
----------------------
fair market value of the shares shall be determined as follows:
(a) Fair market value thereof, as of the date of such proposed
repurchase, shall be agreed upon in good faith by the Company and the Executive
(or his estate or other successor in interest, as the case may be), taking into
account, in valuing such Shares, all relevant facts and circumstances; provided,
however, that there shall be no discount to reflect the fact that the Shares are
illiquid or that they represent a minority interest in the Company . If no such
agreement is reached within sixty (60) days after termination of employment, the
fair market value shall be determined by appraisal as set forth below.
(b) All appraisals shall be undertaken by two appraisers, one
selected by the Board and one selected by the Executive (or his estate or other
successor in interest, as the case may be). No Director whose Shares are being
appraised shall vote on the selection of the appraiser chosen by the Company.
The Company and the Executive shall use all reasonable efforts to cause such
appraisers to determine the fair market value of the shares within thirty (30)
days following the appointment of the last appraiser to be appointed. In the
event that the two appraisers agree in good faith on such fair market value,
such agreed value shall be used for these purposes. If the appraisers cannot
agree but their valuations are within 10% of each other, the fair market value
shall be the mean of the two valuations. If the appraisers cannot agree and the
differences in the valuations are greater than 10%, the appraisers shall select
a third appraiser who will calculate fair market value independently, and,
except as provided in the next sentence, the fair market value of the Shares
shall be the average of the two fair market values arrived at by the appraisers
who are closest in amount. If one appraiser's valuation is the mean of the other
two valuations, such mean valuation shall be the fair market value. In the event
that the two
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<PAGE>
original appraisers cannot agree upon the fair market value of the Shares within
the 30-day period referred to above and cannot agree upon a third appraiser
within ten (10) days following the end of the thirty (30) day period referred to
above, then the third appraiser shall be appointed by the American Arbitration
Association in Boston, Massachusetts. The expenses of the appraiser chosen by
the Company will be borne by it, the expenses of the appraiser chosen by the
Executive (or his estate or guardian) will be borne by him, and the expenses of
the third appraiser, if applicable, will be borne 50% by the Company and 50% by
the Executive (or his estate or guardian).
Section 14. Severable Provisions. The provisions of this Agreement
--------------------
are severable and the invalidity of any one or more provisions shall not affect
the validity of any other provision. In the event that a court of competent
jurisdiction shall determine that any provision of this Agreement or the
application thereof is unenforceable in whole or in part because of the duration
or scope thereof, the parties hereto agree that said court in making such
determination shall have the power to reduce the duration and scope of such
provision to the extent necessary to make it enforceable, and that the Agreement
in its reduced form shall be valid and enforceable to the full extent permitted
by law.
Section 15. Notices. All notices hereunder, to be effective, shall
-------
be in writing and shall be delivered by hand or mailed by certified mail,
postage and fees prepaid, as follows:
If to the Company: American Dental Partners, Inc.
c/o Summit Partners, L.P.
28th Floor
600 Atlantic Avenue
Boston, MA 02210
Attn: Chairman
If to the Executive: Gregory A. Serrao
c/o American Dental Partners, Inc.
c/o Summit Partners, L.P.
28th Floor
600 Atlantic Avenue
Boston, MA 02210
or to such other address as a party may notify the other pursuant to a notice
given in accordance with this Section 15.
Section 16. Miscellaneous.
-------------
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<PAGE>
Section 16.01. Modification. This Agreement constitutes the entire
------------
Agreement between the parties hereto with regard to the subject matter hereof,
superseding all prior understandings and agreements, whether written or oral.
This Agreement may not be amended or revised except by a writing signed by the
parties.
Section 16.02. Assignment and Transfer. This Agreement shall not be
-----------------------
terminated by the merger or consolidation of the Company with any corporate or
other entity or by the transfer of all or substantially all of the assets of the
Company to any other person, corporation, firm or entity. The provisions of
this Agreement shall be binding on and shall inure to the benefit of any
successor in interest to either party. Neither this Agreement nor any of the
rights, duties or obligations of the Executive shall be assignable by the
Executive.
Section 16.03. Captions. Captions herein have been inserted solely
--------
for convenience of reference and in no way define, limit or describe the scope
or substance of any provision of this Agreement.
Section 16.04 Expenses. The parties will bear their own costs and
--------
expenses incurred in connection with the negotiation and execution of this
Agreement; provided that the Company will pay the reasonable fees and expenses
(not to exceed $20,000) through the date hereof of counsel for the Executive in
connection with the negotiation, preparation and execution of this Agreement and
all other agreements relating to the formation, organization, capitalization, or
initial financing of the Company.
Section 16.05 Governing Law. This Agreement shall be construed
-------------
under and enforced in accordance with the laws of the Commonwealth of
Massachusetts.
[The Rest of This page intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
a sealed instrument as of the day and year first above written.
AMERICAN DENTAL PARTNERS, INC.
By: /s/ Martin J. Mannion
---------------------------
Name: Martin J. Mannion
Title: Chairman
EXECUTIVE
/s/ Gregory A. Serrao
------------------------------
Gregory A. Serrao
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<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This agreement is made effective April 22, 1996, between American Dental
Partners, Inc., a Delaware corporation (the "Company"), and Ronald M. Levenson
(the "Employee"), who hereby agree as follows:
(S)1. Employment. Upon the terms and subject to the conditions described
----------
in this agreement, the Company hereby employs the Employee and the Employee
hereby accepts employment by the Company.
(S)2. Term. Employee's employment with the Company pursuant to this
----
agreement shall begin on April 22, 1996 (the "Commencement Date") and shall end
on the third anniversary of the Commencement Date (the "Initial Term"), unless
or until sooner terminated pursuant to (S)8 of this agreement. This agreement
may be extended or renewed after the expiration of the Initial Term, but only by
mutual written agreement of the Parties. When permitted by the context, any
reference in this agreement to the "term of this agreement" shall include the
Initial Term and the period of any such extensions or renewals.
(S)3. Services. The Employee shall serve as the Senior Vice President-
--------
Finance, Chief Financial Officer, and Treasurer of the Company and shall devote
his full business and professional time, attention, energy, loyalty, and skill
to the business affairs of the Company, performing such executive and
administrative tasks and having such responsibilities consistent with his
offices held with the Company as set forth above as may be assigned to him from
time to time by the President and Chief Executive Officer of the Company (the
"CEO") or the board of directors of the Company (the "Board").
(S)4. Compensation. As compensation for his services under this agreement,
------------
the Company shall pay the Employee a base salary at the annual rate of $150,000
(the "Base Salary"), payable in biweekly installments, in arrears, and in
accordance with the Company's general policies and procedures for payment of
salaries to its executive personnel. The Employee's Base Salary shall be
reviewed by the Company not less often than once annually for possible
increases, but the Company shall not be obligated to make any such increases.
In addition, each year during the term of his employment with the Company,
the Employee will be eligible to earn a bonus in an amount up to 40% of the
Employee's base salary for that year, which will be based upon and tied to the
achievement of various objectives to be prepared annually by the CEO and
submitted to the Board for approval; provided that with respect to the fiscal
year of the Company ending December 31, 1996, the potential amount of such bonus
shall be pro rated over the period beginning on the date of this agreement and
ending on the last day of such fiscal year.
(S)5. Fringe Benefits and Perquisites. During the term of this agreement,
-------------------------------
the Employee shall be entitled to the following fringe
<PAGE>
benefits and perquisites:
(a) Group health and welfare benefits comparable to those offered
generally to the Company's executive personnel from time to time;
(b) Three weeks paid vacation during each year of the agreement,
provided that for the fiscal year ending December 31, 1996, the Employee
shall be entitled to only two weeks of paid vacation which may be taken
during such year any time after September 30, 1996;
(c) Such other benefits and perquisites as may be offered generally to
the Company's executive personnel from time to time pursuant to such terms,
conditions, and policies as may be approved by the Board.
The parties acknowledge that the Company has yet to complete the
implementation of its group health benefit plan. Accordingly, the Company shall
reimburse the Employee for all costs (not to exceed $450 per month) incurred by
the Employee related to the maintenance of health insurance coverage for the
Employee and his immediate family with respect to the period beginning on the
date of this agreement and ending on the date upon which the Employee becomes
eligible under such plan. Such reimbursable costs shall include without
limitation any expenses incurred by the Employee for health insurance coverage
purchased pursuant to the Consolidated Omnibus Budget Reconciliation Act of
1986.
(S)6. Stock Option. As additional consideration for the Employee's
------------
covenants contained in this agreement, the Company will grant to the Employee,
effective the Commencement Date, options (the "Options") to purchase a total of
up to 13,500 shares of common stock, par value $.01 a share, of the Company (the
"Shares"), consisting of an Option to purchase up to 10,000 Shares pursuant to
the Company's 1996 Stock Option Plan and an Option to purchase up to 3,500
Shares pursuant to the Company's 1996 Time Accelerated Restricted Stock Option
Plan. The Options shall be evidenced by separate agreements, the form of which
are attached hereto as Exhibits A and B.
(S)7. Confidentiality; Noncompetition. The Employee shall not,
-------------------------------
directly or indirectly, at any time (whether during the term of this agreement
or thereafter), disclose any Confidential Information (defined below) to any
person, association, or other entity (other than the Affiliated Companies, as
defined below), or use, or assist any person or entity (other than the
Affiliated Companies) to use, any Confidential Information, excepting only (1)
Confidential Information which is then generally available to or obtainable by
the public and which did not become so available or obtainable through the
breach of any provision of this agreement by the Employee and (2) disclosures
required by applicable law.
-2-
<PAGE>
Upon termination of his employment with the Company (for any reason) (the
"Termination Date"), the Employee shall immediately deliver to the Company all
documents and other materials containing any Confidential Information which are
in his possession or under his control.
During the Restricted Period (defined below), the Employee shall not
directly or indirectly (whether individually or as a shareholder or other owner,
partner, member, director, officer, employee, consultant, creditor or agent of
any person, association, or other entity):
(a) Enter into, engage in, or promote or assist (financially or
otherwise), whether directly or indirectly, any business which competes
with the business of any Affiliated Company (the "Business") anywhere in
the Restricted Territory (defined below), provided that the foregoing shall
not preclude the Employee from owning less than 1% of the outstanding
capital stock of any corporation whose shares are publicly traded on a
national securities exchange or system;
(b) Solicit or attempt to solicit business which is competitive with
the Business from any provider of dental services to which any Affiliated
Company provides management, consulting, or other services (a "Provider"),
or interfere or attempt to interfere with any relationship of any
Affiliated Company with any Provider anywhere in the Restricted Territory;
(c) Induce or encourage any employee, officer, director, agent,
supplier, or independent contractor of any Affiliated Company or Provider
to terminate its relationship with such Affiliated Company or Provider, or
otherwise interfere or attempt to interfere in any way with any Affiliated
Company or Provider's relationships with its employees, officers,
directors, agents, suppliers, independent contractors, or others;
(d) Employ or engage any person who, at any time within the one-year
period immediately preceding such employment or engagement, was an
employee, officer, or director of any Affiliated Company or Provider; or
(e) Make any statement (oral or written) or take any other action
which would tend to disparage or diminish the reputation of any Affiliated
Company.
For purposes of this agreement: (i) "Affiliated Companies" shall mean the
Company, all subsidiaries of the Company (the "Subsidiaries"), and all other
affiliates of the Company other than Summit Ventures IV, L.P., and its
affiliates, and any other shareholder of the Company, which is not engaged in a
business
-3-
<PAGE>
similar to the business of the Company, any Subsidiary, or any Provider; (ii)
"Confidential Information" shall mean all trade secrets, proprietary data, and
other confidential information of any Affiliated Company, including without
limitation financial information, information relating to business operations,
services, promotional practices, and relationships with Providers, suppliers,
employees, independent contractors, or other parties, and any information which
any Affiliated Company is obligated to treat as confidential pursuant to any
course of dealing or any agreement to which it is a party or otherwise bound;
(iii) the "Restricted Period" shall mean the period of the Employee's employment
with the Company (whether pursuant to this agreement or otherwise) and (A) if
the Employee's employment with the Company terminates after the expiration of
the Initial Term, the one-year period following the date of such termination, or
(B) if the Employee's employment with the Company terminates during the Initial
Term, the two-year period following the date of such termination; and (iv) the
"Restricted Territory" shall mean all cities and metropolitan statistical areas
in which any Affiliated Company has owned, leased, or operated an office or
other facility at any time during the 12-month period immediately preceding the
Termination Date. Notwithstanding the foregoing, if the Employee's employment
with the Company is terminated by the Employee for Good Reason or by the Company
without Cause (both as defined in (S)8, below), whether before or after the
Initial Term, then the Restricted Period shall end on the date of such
termination.
The Employee acknowledges that (A) the provisions of this section are
fundamental and essential for the protection of the Company's legitimate
business and proprietary interests, (B) such provisions are reasonable and
appropriate in all respects, and (C) in the event of any violation by the
Employee of any of such provisions, the Company would suffer irreparable harm
and its remedies at law would be inadequate. In the event of any violation or
attempted violation of such provisions by the Employee, the Company shall be
entitled to a temporary restraining order, temporary and permanent injunctions,
specific performance, and other equitable relief, without any showing of
irreparable harm or damage or the posting of any bond, in addition to any other
rights or remedies which may then be available to the Company.
(S)8. Termination. The Employee's employment with the Company (a)
-----------
shall terminate automatically upon the death of the Employee, (b) may be
terminated by the Employee immediately upon notice to the Company for Good
Reason (defined below), and (c) may be terminated by the Company, without any
further obligation on the part of the Company (except as otherwise provided in
this section), immediately upon notice to the Employee under any of the
following circumstances:
(i) At any time for Cause (defined below);
-4-
<PAGE>
(ii) At any time if the Employee is under a Long-Term Disability (defined
below); or
(iii) At any time without Cause.
If, during the Initial Term, the Company terminates the Employee's
employment solely pursuant to clause (c)(iii), above, or the Employee terminates
his employment pursuant to (S)8(b), above, then the Employee shall be entitled
to the Severance Benefits (defined below) for the one-year period following the
date of such termination, so long as the Employee is in full compliance with the
provisions of (S)7 of this agreement. If, during the Initial Term, the Company
terminates the Employee's employment solely pursuant to clause (c)(ii), above,
then the Employee shall be entitled to the Severance Benefits for the shorter of
180 days or until any disability benefit plan under which the Employee is
afforded coverage begins paying disability benefits to the Employee.
For purposes of this agreement:
(A) "Good Reason" shall mean the occurrence of any one or more of the
following:
(1) any substantial diminution by action of the Company in the
nature and scope of the Employee's responsibilities, duties, or
authority and the continuation of such circumstance for 30 days after
the Employee gives the Company reasonably detailed notice of such
diminution;
(2) removal by the Company of the Employee as the Chief Financial
Officer of the Company;
(3) any material failure of the Company to provide to the
Employee the salary and benefits required under this agreement and the
failure of the Company to cure such default within 30 days after
receiving reasonably detailed notice of same from the Employee;
(4) relocation by the Company of its principal corporate offices
outside of the Boston metropolitan statistical area; and
(5) a Change of Control. A "Change of Control" shall be deemed
to have occurred if: (A) any person (defined below) becomes a
beneficial owner (within the meaning of Rule 13d-3 as promulgated
under the Securities Exchange Acts of 1934, as then in effect),
directly or indirectly, of securities representing more than 50% of
the total number of votes then outstanding that may be cast for the
election of directors of the Company without the obligation to vote
such shares in an election for
-5-
<PAGE>
directors of the Company in the manner designated by Summit (defined
below) or any current shareholder of the Company at the time the
Employee signs this agreement; or (B) any merger or consolidation
involving the Company or any sale of all or substantially all of the
assets of the Company has occurred and, as a result, individuals who
immediately prior to such transaction constituted the Board of
Directors of the Company cease to constitute at least 50% of the Board
of Directors of the Company immediately following such transaction.
For purposes of this (S)8(A)(5) only, the term "person" shall mean (1)
any person or entity other than Summit Ventures IV, L.P., Summit
Investors III, L.P., and their respective affiliates (collectively,
"Summit"), the Employee, and any other person or entity which is a
shareholder of the Company at the time the Employee signs this
agreement, and (2) any group within the meaning of (S)13(d)(3) or
(S)14(d)(2) of the Securities Exchange Act of 1934, as then in effect,
provided that for purposes of calculating the ownership interests of
any such group, the ownership interests of the persons or entities
identified in the preceding clause (1) shall be ignored.
(B) "Cause" shall mean any one or more of the following:
(1) any act constituting (a) a felony under the laws of the
Commonwealth of Massachusetts, the federal laws of the United States,
or any other applicable law, (b) fraud, embezzlement, misappropriation
of assets, willful misfeasance, or dishonesty, or (c) other criminal
conduct which in any way materially and adversely affects the
reputation, goodwill, or business position of the Company,
(2) the failure of the Employee to perform and observe all
material obligations and conditions to be performed and observed by
the Employee under this agreement, or to perform his material duties
in accordance with the policies, programs, budgets, procedures, and
directions established from time to time by the CEO or the Board (any
such event, a "Performance Failure"), and to correct such Performance
Failure promptly following notice from the Company to do so, or
(3) having corrected a Performance Failure, the occurrence of any
subsequent Performance Failure; and
(C) "Severance Benefits" with respect to a period shall mean payments
during such period at a rate equal to the rate at which the Base Salary
then in effect (payable periodically in the same manner as the base salary)
together with such group health and welfare benefits during such period as
are
-6-
<PAGE>
then being provided to the Employee pursuant to (S)5, above;
(D) "Long-Term Disability" shall mean that, because of physical or
mental incapacity, it is more likely than not that the Employee will be
unable, within 180 days after his disability commenced, to engage actively
in business and financial activities. In the event of any disagreement
about whether or when the Employee is under a Long-Term Disability, the
question shall be determined: (1) by a physician selected by agreement
between the Employee and the Company if such a physician is selected within
the 10 days after either of them requests the other to so agree, or, if
not, (2) by two physicians, the first of whom shall be selected by the
Employee and the second of whom shall be selected by the Company or, if the
Employee fails to make a selection within 10 days after being requested to
do so by the Company, the second physician shall be selected by the first
physician, and (3) if the two physicians fail to agree, by a third
physician selected by the first two physicians. The Employee shall submit
to all reasonable examinations requested by any such physicians.
If the Company elects to terminate the Employee's employment with the
Company for Cause, then such action must be approved or ratified by the
affirmative vote of not less than a majority of the Board.
(S)9. Relocation Expenses. The Company shall reimburse the Employee,
-------------------
in accordance with and subject to the Company's policy concerning reimbursement
of employee expenses, for all reasonable costs and expenses incurred by the
Employee in connection with his relocation from Colorado to Massachusetts.
(S)10. Professional Fees. The Company shall reimburse the Employee, in
-----------------
accordance with and subject to the Company's policy concerning reimbursement of
employee expenses, for all reasonable costs and expenses incurred by the
Employee in connection with the maintenance of the Employee's status as a
Certified Public Accountant, including without limitation reasonable costs and
expenses incurred for continuing education and maintaining memberships in
appropriate professional organizations.
(S)11. Capacity. The Employee represents and warrants to the Company
--------
that he has the capacity and right to enter into this agreement and perform all
of his obligations under this agreement without any restriction.
(S)12. Remedies. All rights and remedies of the Company under this
--------
agreement are cumulative and in addition to all other rights and remedies which
may be available to the Company from time to time, whether under any other
agreement, at law, or in equity.
-7-
<PAGE>
(S)13. Survival. The termination of the Employee's employment by the
--------
Company (for any reason) shall not relieve the Employee of any of his
obligations to the Company existing at, arising as a result of, or relating to
acts or omissions occurring prior to, such termination. Without limiting the
generality of the preceding sentence, in no event shall the termination of such
employment modify or affect any obligations of the Employee or rights of the
Company under (S)7 of this agreement, all of which shall survive the termination
of such employment.
(S)14. Notices. All notices and other communications under this
-------
agreement to any Party shall be in writing and shall be deemed given when
delivered personally, telecopied (which is confirmed) to that Party at the
telecopy number for that Party set forth below, mailed by certified mail (return
receipt requested) to that Party at the address for that Party (or at such other
address for such Party as such Party shall have specified in notice to the other
Party) or delivered to Federal Express, UPS, or any similar express delivery
service for delivery to that Party at that address:
(a) If to the Company:
American Dental Partners, Inc.
301 Edgewater Place
Suite 320
Wakefield, Massachusetts 01880-1249
Attention: Gregory A. Serrao
Telecopy No.: (617) 224-4216
with a copy to
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
Attention: Gary A. Wadman, Esq.
Telecopy No.: (614) 462-2616
(b) If to the Employee:
Ronald M. Levenson
301 Edgewater Place
Suite 320
Wakefield, Massachusetts 01880-1249
Telecopy No.: (617) 224-4216
(S)15. Severability. The intention of the Parties is to comply fully
------------
with all rules, laws, and public policies to the extent possible. If and to the
extent that any court of competent jurisdiction is unable to so construe any
provision of this agreement and holds that provision to be invalid, such
invalidity shall not affect the remaining provisions of this agreement, which
shall remain in full force and effect. With respect to any
-8-
<PAGE>
provision in this agreement finally determined by such a court to be invalid or
unenforceable, such court shall have jurisdiction to reform this agreement to
the extent necessary to make such provision valid and enforceable, and, as
reformed, such provision shall be binding on the Parties.
(S)16. Non-Waiver. No failure by either Party to insist upon strict
----------
compliance with any term of this agreement, to exercise any option, to enforce
any right, or to seek any remedy upon any default of the other Party shall
affect, or constitute a waiver of, the other Party's right to insist upon such
strict compliance, exercise that option, enforce that right, or seek that remedy
with respect to that default or any prior, contemporaneous, or subsequent
default. No custom or practice of the Parties at variance with any provision of
this agreement shall affect or constitute a waiver of, either Party's right to
demand strict compliance with all provisions of this agreement.
(S)17. Complete Agreement. This agreement and all documents referred to
------------------
in this agreement, all of which are hereby incorporated herein by reference,
contain the entire agreement between the Parties and supersede all other
agreements and understandings between the Parties with respect to the subject
matter of this agreement. No alterations, additions, or other changes to this
agreement shall be made or be binding unless made in writing and signed by both
Parties.
(S)18. Governing Law. This agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Massachusetts without regard to
principles of conflicts of law.
(S)19. Captions. The captions of the various sections of this
--------
agreement are not part of the context of this agreement, are only guides to
assist in locating those sections, and shall be ignored in construing this
agreement.
(S)20. Genders and Numbers. Where permitted by the context, each
-------------------
pronoun used in this agreement includes the same pronoun in other genders and
numbers, and each noun used in this agreement includes the same noun in other
numbers.
(S)21. Successors. This agreement shall be personal to the Employee and
----------
no rights or obligations of the Employee under this agreement may be assigned by
the Employee to any third party. Any assignment or attempted assignment by the
Employee in violation of the preceding sentence shall be null and void. Subject
to the
-9-
<PAGE>
foregoing, this agreement shall be binding upon, inure to the benefit of, and be
enforceable by and against the successors and assigns of each Party.
AMERICAN DENTAL PARTNERS, INC.
By /s/ Gregory A. Serrao /s/ Ronald M. Levenson
---------------------------- ------------------------------
Gregory A. Serrao, President RONALD M. LEVENSON
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<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This agreement is made effective May 31, 1996, between American Dental
Partners, Inc., a Delaware corporation (the "Company"), and George W. Robinson
(the "Employee"), who hereby agree as follows:
(S)1. Employment. Upon the terms and subject to the conditions described
----------
in this agreement, the Company hereby employs the Employee and the Employee
hereby accepts employment by the Company.
(S)2. Term. Employee's employment with the Company shall begin on June 3,
----
1996 (the "Commencement Date") and shall end on the third anniversary of the
Commencement Date (the "Initial Term"), unless or until sooner terminated
pursuant to (S)8 of this agreement. This agreement may be extended or renewed
after the expiration of the Initial Term, but only by mutual written agreement
of the Parties. When permitted by the context, any reference in this agreement
to the "term of this agreement" shall include the Initial Term and the period of
any such extensions or renewals.
(S)3. Services. The Employee shall serve as the Senior Vice President-
--------
Operations and Chief Operating Officer of the Company and shall devote his full
business and professional time, attention, energy, loyalty, and skill to the
business affairs of the Company, performing such executive and administrative
tasks and having such responsibilities as may be assigned to him from time to
time by the President and Chief Executive Officer of the Company (the "CEO") or
the board of directors of the Company (the "Board").
(S)4. Compensation. As compensation for his services under this
------------
agreement, the Company shall pay the Employee a base salary at the annual rate
of $125,000 (the "Base Rate"), payable in biweekly installments, in arrears, in
accordance with the Company's general policies and procedures for payment of
salaries to its executive personnel. In addition, each year during the term of
his employment with the Company, the Employee will be eligible to earn a bonus
in an amount up to $75,000, which will be based upon and tied to the achievement
of management objectives to be prepared annually by the CEO and submitted to the
Board for approval; provided that with respect to the fiscal year of the Company
ending December 31, 1996, the potential amount of such bonus shall be pro rated
over the period beginning on the Commencement Date and ending on the last day of
such fiscal year.
(S)5. Fringe Benefits and Perquisites. During the term of this agreement,
-------------------------------
the Employee shall be entitled to the following fringe benefits and perquisites:
(a) Group health and welfare benefits comparable to those offered
generally to the Company's executive employees from time to time;
(b) Three weeks paid vacation during each year of the
<PAGE>
agreement, provided that for the fiscal year ending December 31, 1996, the
amount of such vacation shall be pro rated over the period beginning on the
Commencement Date and ending on the last day of such fiscal year, which
vacation may be taken during such year any time after September 30, 1996;
(c) Such other benefits and perquisites as may be offered generally
to the Company's executive personnel from time to time pursuant to such
terms, conditions, and policies as may be approved by the Board.
The parties acknowledge that the Company has yet to complete the
implementation of its group health benefit plan. Accordingly, the Company shall
reimburse the Employee for all costs (not to exceed $450 per month) incurred by
the Employee related to the maintenance of health insurance coverage for the
Employee and his immediate family with respect to the period beginning on the
date of this agreement and ending on the date upon which the Company completes
the implementation of such plan. Such reimbursable costs shall include without
limitation any expenses incurred by the Employee for health insurance coverage
purchased pursuant to the Consolidated Omnibus Budget Reconciliation Act of
1986.
(S)6. Stock Option. As additional consideration for the Employee's
------------
covenants contained in this agreement, the Company will grant to the Employee,
effective the Commencement Date, options (the "Options") to purchase a total of
up to 10,000 shares of common stock, par value $.01 a share, of the Company (the
"Shares"), consisting of an Option to purchase up to 7,300 Shares pursuant to
the Company's 1996 Stock Option Plan and an Option to purchase up to 2,700
Shares pursuant to the Company's 1996 Time Accelerated Restricted Stock Option
Plan, each at an exercise price to be determined pursuant to such plans. The
Options shall be evidenced by separate agreements, the form of which are
attached hereto as Exhibits A and B.
(S)7. Confidentiality; Noncompetition. The Employee shall not, directly
-------------------------------
or indirectly, at any time (whether during the term of this agreement or
thereafter), disclose any Confidential Information (defined below) to any
person, association, organization, or entity (other than the Affiliated
Companies, as defined below), or use, or permit or assist any person,
association, organization, or entity (other than the Affiliated Companies) to
use, any Confidential Information, excepting only Confidential Information which
is then generally available to or obtainable by the public and which did not
become so available or obtainable through the breach of any provision of this
agreement by the Employee.
Upon termination of his employment with the Company (for any reason) (the
"Termination Date"), the Employee shall immediately deliver to the Company all
documents and other materials containing
-2-
<PAGE>
any Confidential Information which are in his possession or under his control.
During the Restricted Period (defined below), the Employee shall not
directly or indirectly (whether individually or as a shareholder or other owner,
partner, member, director, officer, employee, consultant, creditor or agent of
any person, association, or other entity):
(a) Enter into, engage in, or promote or assist (financially or
otherwise) any business which competes with the business of any Affiliated
Company (the "Business") anywhere in the Restricted Territory (defined
below);
(b) Solicit or attempt to solicit business from any providers of
dental services to which any Affiliated Company provides management,
consulting, or other services (a "Provider"), or interfere or attempt to
interfere with any relationship of any Affiliated Company with any Provider
anywhere in the Restricted Territory;
(c) Induce or encourage any employee, officer, director, agent,
supplier, or independent contractor of any Affiliated Company to terminate
its relationship with such Affiliated Company, or otherwise interfere or
attempt to interfere in any way with any Affiliated Company's relationships
with its employees, officers, directors, agents, suppliers, independent
contractors, or others;
(d) Employ or engage any person who, at any time within the one-
year period immediately preceding such employment or engagement, was an
employee, officer, director, agent, supplier, or independent contractor of
any Affiliated Company; or
(e) Take any other action which would impair the value of the
Business or the assets of any Affiliated Company, including without
limitation any action which would tend to disparage or diminish the
reputation of any Affiliated Company.
For purposes of this agreement: (i) "Affiliated Companies" shall include
the Company and all subsidiaries or affiliates of the Company (other than Summit
Ventures IV, L.P., and its affiliates which are not engaged in a business
similar to the Company or its subsidiaries), (ii) "Confidential Information"
shall mean all trade secrets, proprietary data, and other confidential
information of any Affiliated Company, including without limitation financial
information, information relating to business operations, services, promotional
practices, and relationships with Providers, suppliers, employees, independent
contractors, or other parties, and any information which any Affiliated Company
is obligated to treat as
-3-
<PAGE>
confidential pursuant to any course of dealing or any agreement to which it is a
party or otherwise bound; (iii) the "Restricted Period" shall mean the two-year
period following the date of termination (for any reason) of Employee's
employment with the Company (whether pursuant to this agreement or otherwise);
and (iv) the "Restricted Territory" shall mean all geographic areas in which the
Company has engaged in any business activity during the 12-month period
immediately preceding the Termination Date.
The Employee acknowledges that (A) the provisions of this section are
fundamental and essential for the protection of the Company's legitimate
business and proprietary interests, (B) such provisions are reasonable and
appropriate in all respects, and (C) in the event of any violation by the
Employee of any of such provisions, the Company would suffer irreparable harm
and its remedies at law would be inadequate. In the event of any violation or
attempted violation of such provisions by the Employee, the Company shall be
entitled to a temporary restraining order, temporary and permanent injunctions,
specific performance, and other equitable relief, without any showing of
irreparable harm or damage or the posting of any bond, in addition to any other
rights or remedies which may then be available to the Company.
(S)8. Termination. The Employee's employment with the Company shall
-----------
terminate automatically upon the death of the Employee and may be terminated by
the Company, without any further obligation on the part of the Company (except
as provided in clause (c), below), immediately upon notice to the Employee under
any of the following circumstances:
(a) At any time for Cause (defined below);
(b) At any time if the Employee is under a Long-Term Disability (defined
below); or
(c) At any time without Cause; provided that if the Company terminates
the Employee's employment solely pursuant to this clause (c), then the Company
shall pay to the Employee severance pay in an amount equal to the Base Rate for
a period equal to the shorter of one year or the remainder of the Initial Term
as of the date of such termination.
For purposes of this agreement:
(i) "Cause" shall mean
(A) any act constituting (1) a felony under the laws of the
State of Massachusetts, the federal laws of the United States, or any other
applicable law, (2) fraud, embezzlement, misappropriation of assets, willful
misfeasance, or dishonesty, or (3) other criminal conduct which in any way
materially and adversely affects the reputation, goodwill, or business position
of
-4-
<PAGE>
the Company,
(B) the failure of the Employee to perform and observe all
obligations and conditions to be performed and observed by the Employee under
this agreement, or to perform his duties in accordance with the policies,
programs, budgets, procedures, and directions established from time to time by
the CEO or the Board (any such event, a "Performance Failure"), and to correct
any such Performance Failure promptly following notice from the Company to do
so, or
(C) having corrected a Performance Failure, the occurrence of
any subsequent Performance Failure; and
(ii) "Long-Term Disability" shall mean that, because of physical or
mental incapacity, it is more likely than not that the Employee will be unable,
within 180 days after his disability commenced, to engage actively in business
and financial activities. In the event of any disagreement about whether or
when the Employee is under a Long-Term Disability, the question shall be
determined: (A) by a physician selected by agreement between the Employee and
the Company if such a physician is selected within the 10 days after either of
them requests the other to so agree, or, if not, (B) by two physicians, the
first of whom shall be selected by the Employee and the second of whom shall be
selected by the Company or, if the Employee fails to make a selection within 10
days after being requested to do so by the Company, the second physician shall
be selected by the first physician, and (B) if the two physicians fail to agree,
by a third physician selected by the first two physicians. The Employee shall
submit to all reasonable examinations requested by any such physicians.
(S)9. Relocation Expenses. The Company shall reimburse the Employee,
-------------------
in accordance with and subject to the Company's policy concerning reimbursement
of employee expenses, for all reasonable costs and expenses incurred by the
Employee (except for any real estate commissions or fees incurred by the
Employee in connection with the sale of his principal residence in Georgia) in
connection with his relocation from Georgia to Massachusetts.
(S)10. Capacity. The Employee represents and warrants to the Company that
--------
the has the capacity and right to enter into this agreement and perform all
of his obligations under this agreement without any restriction.
(S)11. Remedies. All rights and remedies of the Company under this
--------
agreement are cumulative and in addition to all other rights and remedies which
may be available to the Company from time to time, whether under any other
agreement, at law, or in equity.
(S)12. Survival. The termination of the Employee's employment by the
--------
Company (for any reason) shall not relieve the Employee of
-5-
<PAGE>
any of his obligations to the Company existing at, arising as a result of, or
relating to acts or omissions occurring prior to, such termination. Without
limiting the generality of the preceding sentence, in no event shall the
termination of such employment modify or affect any obligations of the Employee
or rights of the Company under (S)7 of this agreement, all of which shall
survive the termination of such employment.
(S)13. Notices. All notices and other communications under this agreement
-------
to any Party shall be in writing and shall be deemed given when delivered
personally, telecopied (which is confirmed) to that Party at the telecopy number
for that Party set forth below, mailed by certified mail (return receipt
requested) to that Party at the address for that Party (or at such other address
for such Party as such Party shall have specified in notice to the other Party)
or delivered to Federal Express, UPS, or any similar express delivery service
for delivery to that Party at that address:
(a) If to the Company:
American Dental Partners, Inc.
c/o Summit Partners, L.P.
Suite 2800
600 Atlantic Avenue
Boston, Massachusetts 02210-2227
Attention: Gregory A. Serrao
Telecopy No.: (617) 824-1100
with a copy to
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
Attention: Gary A. Wadman, Esq.
Telecopy No.: (614) 462-2616
(b) If to the Employee:
George W. Robinson
1878 Breckenridge Dr. NE
Atlanta, Georgia 30345-4006
(S)14. Severability. The intention of the Parties is to comply fully
------------
with all rules, laws, and public policies to the extent possible. If and to the
extent that any court of competent jurisdiction is unable to so construe any
provision of this agreement and holds that provision to be invalid, such
invalidity shall not affect the remaining provisions of this agreement, which
shall remain in full force and effect. With respect to any provision in this
agreement finally determined by such a court to be invalid or unenforceable,
such court shall have jurisdiction to reform this agreement to the extent
necessary to make such
-6-
<PAGE>
provision valid and enforceable, and, as reformed, such provision shall be
binding on the Parties.
(S)15. Non-Waiver. No failure by either Party to insist upon strict
----------
compliance with any term of this agreement, to exercise any option, to enforce
any right, or to seek any remedy upon any default of the other Party shall
affect, or constitute a waiver of, the other Party's right to insist upon such
strict compliance, exercise that option, enforce that right, or seek that remedy
with respect to that default or any prior, contemporaneous, or subsequent
default. No custom or practice of the Parties at variance with any provision of
this agreement shall affect or constitute a waiver of, either Party's right to
demand strict compliance with all provisions of this agreement.
(S)16. Complete Agreement. This agreement and all exhibits attached
------------------
hereto, all of which are hereby incorporated herein by reference, contain the
entire agreement between the Parties and supersede all other agreements and
understandings between the Parties with respect to the subject matter of this
agreement. No alterations, additions, or other changes to this agreement shall
be made or be binding unless made in writing and signed by both Parties.
(S)17. Governing Law. This agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Massachusetts without regard to
principles of conflicts of law.
(S)18. Captions. The captions of the various sections of this
--------
agreement are not part of the context of this agreement, are only guides to
assist in locating those sections, and shall be ignored in construing this
agreement.
(S)19. Genders and Numbers. Where permitted by the context, each
-------------------
pronoun used in this agreement includes the same pronoun in other genders and
numbers, and each noun used in this agreement includes the same noun in other
numbers.
(S)20. Successors. This agreement shall be personal to the Employee and
----------
no rights or obligations of the Employee under this agreement may be assigned by
the Employee to any third party. Any assignment or attempted assignment by the
Employee in violation of the preceding sentence shall be null and void. Subject
to the
-7-
<PAGE>
foregoing, this agreement shall be binding upon, inure to the benefit of, and be
enforceable by and against the successors and assigns of each Party.
AMERICAN DENTAL PARTNERS, INC.
By /s/ Gregory A. Serrao /s/ George W. Robinson
---------------------------- ------------------------------
Gregory A. Serrao, President GEORGE W. ROBINSON
-8-
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
This agreement (the "Amendment") is made effective August 27, 1997, between
American Dental Partners, Inc., a Delaware corporation (the "Company"), and
George W. Robinson (the "Employee").
Background Information
----------------------
The Company and the Employee (the "Parties") are the parties to an
Employment Agreement dated May 31, 1996 (the "Agreement"). The Parties desire to
amend the Agreement as it relates to the Employee's services to the Company and
are entering into this Amendment for that purpose.
Statement of Agreement
----------------------
The Parties hereby acknowledge the accuracy of the foregoing Background
Information and agree as follows:
(S)1. Services. Section 3 of the Agreement is hereby amended and restated
--------
to read in its entirety as follows:
(S)3. Services. The Employee shall serve as the Senior Vice
--------
President - Operations of the Company and shall devote his full business
and professional time, intention, energy, loyalty, and skill to the
business affairs of the Company, performing such executive and
administrative tasks and having such responsibilities as may be assigned
to him from time to time by the President and Chief Executive Officer of
the Company (the "CEO") or the Board of Directors of the company (the
"Board").
(S)2. Construction. In the event of any inconsistency between the
------------
provisions of the Agreement and the provisions of this Amendment, the provisions
of this Amendment shall control. Except as modified by this Amendment, the
Agreement shall remain in full force and effect without change. This Amendment
shall be binding upon, inure to the benefit of, and be enforceable by and
against the heirs, personal representatives, successors, and assigns of each
Party.
AMERICAN DENTAL PARTNERS, INC.
BY /s/ Gregory A. Serrao
----------------------------
Gregory A. Serrao, Chief
Executive Officer
/s/ George W. Robinson
------------------------------
GEORGE W. ROBINSON
<PAGE>
EMPLOYMENT AND NONCOMPETITION AGREEMENT
---------------------------------------
This agreement is made effective November 12, 1996 (the "Commencement
Date"), between PDHC, Ltd., a Minnesota corporation (the "Company"), and Gregory
T. Swenson, D.D.S. (the "Employee").
Background Information
----------------------
A. Concurrently with the execution of this agreement, American Dental
Partners, Inc., a Delaware corporation ("ADP"), is acquiring the Company
pursuant to an Acquisition and Exchange Agreement dated November 11, 1996 (the
"Acquisition"). The execution of this agreement is a condition to ADP's
obligations to complete the Acquisition.
B. Prior to the Acquisition, (i) the Company was in the business of
providing professional dental care services to the public, and (ii) the Employee
was employed by the Company as its President, having certain executive and
administrative responsibilities for and general supervisory authority over the
day-to-day operation of the Company.
C. Immediately prior to the Acquisition, the professional dental care
practice of the Company will be assumed by PDG, P.A., a Minnesota professional
association (the "PA"), and, thereafter, the Company will no longer provide
professional dental care services. However, the Company will be providing
certain administrative and other support services to the PA in connection with
its professional dental care practice pursuant to a Services Agreement dated
November 12, 1996.
Statement of Agreement
----------------------
The Company and the Employee (the "Parties") hereby acknowledge the
accuracy of the above Background Information and agree as follows:
(S)1. Termination of Prior Employment Agreement. In consideration of
-----------------------------------------
this agreement, and for other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Employee hereby releases the
Affiliated Companies (defined in (S)8 below) and all of their respective
affiliates, predecessors, successors, and assigns from all obligations and
liabilities under any and all employment agreements or understandings, deferred
compensation arrangements, employee benefit obligations, and all other
employment and compensation arrangements, whether oral or written, between the
Company,or any of its affiliates and the Employee, excepting only the
obligations of the Company under this agreement.
(S)2. Employment. Upon the terms and subject to the conditions
----------
described in this agreement, the Company hereby employs the Employee and the
Employee hereby accepts employment by the Company.
(S)3. Term. Employee's employment with the Company pursuant to this
----
agreement shall be for a five-year term beginning on the Commencement Date and
ending on the fifth
<PAGE>
anniversary of the Commencement Date (the "Initial Term"), unless or until
sooner terminated pursuant to (S)9 of this agreement. This agreement may be
extended or renewed after the expiration of the Initial Term, but only by mutual
written agreement of the Parties. When permitted by the context, any reference
in this agreement to the "term of this agreement" shall include the Initial Term
and the period of any such extensions or renewals.
(S)4. Services. The Employee shall serve as the President of the
--------
Company, devoting such time, attention, energy, loyalty, and skill to the
Company's business as is necessary and appropriate to perform his tasks for and
fulfill his responsibilities to the Company. The Employee shall: (a) be
generally responsible for and have general supervisory authority over the
Company's day-to-day activities and operations, including without limitation
hiring, retaining, and discharging personnel, and preparing budgets, strategic
plans, and management reports, subject in all cases to the business policies and
operating programs, budgets procedures, and directions established from time to
time by the board of directors of the Company (the "Board"); and (b) perform
such related or other executive and administrative tasks as may be reasonably
assigned to him from time to time by the Board or the Chairman of the Board of
the Company (the "Chairman").
The Employee shall not be required to relocate his home from the Twin
Cities Metropolitan Area during the term of this agreement.
The Parties hereby acknowledge that the Employee is being employed
concurrently by the PA. It is the intent of the Parties that the Employee
divide his full business and professional time, energy, attention, and skill
between the Company and the PA such that, collectively, the Employee's tasks,
duties, and responsibilities following the Acquisition are similar to those
which were performed by the Employee for the Company prior to the Acquisition.
The Company agrees that any conflicts of interest may as a result of the
Employee's concurrent employment by the Company and the PA shall not be a basis
for the Company's termination of the Employee's employment under this agreement.
(S)5. Compensation. As compensation for his services under this
------------
agreement, the Company shall pay the Employee a base salary at the annual rate
of $200,000 (the "Base Salary"), payable in accordance with the Company's
general policies and procedures for payment of salaries to its executive
personnel. The Employee's performance shall be reviewed annually for the purpose
of considering potential increases in the Base Salary. In addition, the Company
shall pay the Employee an annual bonus in an amount of up to 20% of the Base
Salary (as in effect from time to time) for each calendar year during the term
of this agreement, prorated on a daily basis for any partial calendar year,
which bonus shall be based upon and tied to the achievement of various
reasonable objectives established annually by the Board after consultation with
the Employee and shall be paid no later than 100 days following the end of any
such calendar year or partial calendar year, provided that such bonus shall not
be less than $40,000 for any year during the Initial Term (the "Minimum Bonus").
If the Parties mutually agree to extend or renew the Initial Term pursuant to
(S)3 of this agreement, the Company agrees that the compensation applicable to
such extension or renewal period shall be at a rate not less than the
-2-
<PAGE>
Base Salary in effect during the final year of the Initial Term, provided the
Parties agree that the Employee will be performing substantially similar
services for the Company during such extension or renewal period.
(S)6. Fringe Benefits and Perquisites. During the term of this
-------------------------------
agreement, the Employee shall be entitled to the following fringe benefits and
perquisites:
(a) Group health and welfare benefits comparable to those offered
generally to the Company's executive personnel from time to time;
(b) Three weeks paid vacation during each year of the agreement;
(c) Participation in such stock option plans as may be designated from
time to time by the Board (or a duly authorized committee of the Board), in
its discretion, subject to all terms and conditions of such plans;
(d) An annual automobile allowance in an amount equal to $750, payable
in accordance with the Company's general policies and procedures for
payment of such allowances to its executive personnel established or
approved from time to time by the Board;
(e) The Company shall pay to the Employee an annual bonus (which shall
be in addition to the Minimum Bonus) for each calendar year during the term
of this agreement until May 15, 1999, prorated on a daily basis for any
partial calendar year, in an amount equal to $19,866 per calendar year,
which bonus shall be paid periodically at the same time as the Minimum
Bonus is paid;
(f) The Company shall reimburse the Employee for all reasonable
expenses incurred by the Employee in connection with the performance of his
services under this agreement (including without limitation reasonable
gasoline expenditures), subject to such recordkeeping, reporting, and other
reasonable requirements of the Company as may be in effect from time to
time.
(g) Such other benefits and perquisites as may be offered generally to
the Company's executive personnel from time to time pursuant to such terms,
conditions, and policies as may be approved by the Board.
(S)7. Stock Options. As additional consideration for the Employee's
-------------
covenants contained in this agreement, concurrently with the execution of this
agreement, the Company shall grant to the Employee, as of the Commencement Date,
options (the "Options") to purchase up to 1,500 shares of common stock, par
value $.01, of the Company (the "Shares"), consisting of an Option to purchase
up to 1,100 Shares pursuant to the Company's 1996 Stock Option Plan and an
Option to purchase up to 400 Shares pursuant to the Company's 1996 Time
Accelerated Restricted Stock Option Plan. The Options shall be evidenced by
separate agreements containing
-3-
<PAGE>
terms consistent with such stock option plans and which the Board deems
necessary or appropriate, in its discretion, including without limitation an
exercise price of $50 per Share and, with respect to the Option granted under
the Company's 1996 Stock Option Plan, a vesting schedule under which, on each of
the first four anniversaries of the Commencement Date, such Option will vest
with respect to 25% of the Shares subject to such option.
(S)8. Confidentiality; Noncompetition. The Employee shall not, directly
-------------------------------
or indirectly, at any time (whether during the term of this agreement or
thereafter), disclose any Confidential Information (defined below) to any
person, association, or other entity (other than the Affiliated Companies, as
defined below), or use, or permit or assist any person, association, or other
entity (other than the Affiliated Companies) to use, any Confidential
Information, excepting only Confidential Information which (i) is then generally
available to or obtainable by the public and which did not become so available
or obtainable through the breach of any provision of this agreement by the
Employee, or (ii) is obtained by the Employee on a non-confidential basis from a
source other than an Affiliated Company or any agent or other representative of
an Affiliated Company and such source had the right to disclose such
Confidential Information to the Employee without violating any legal,
contractual, fiduciary, or other obligation.
Upon termination of his employment by the Company (for any reason), the
Employee shall immediately deliver to the Company all documents and other
materials containing any Confidential Information which are in his possession or
under his control.
During the term of the Employee's employment with the Company or any
Affiliated Company (whether pursuant to this agreement or otherwise) and during
the Restricted Period (defined below), the Employee shall not, other than on
behalf of the Company, directly or indirectly (whether individually or as a
shareholder or other owner, partner, member, director, officer, employee,
consultant, creditor or agent of any person, association, or other entity):
(a) Enter into, engage in, or promote or assist (financially or
otherwise), whether directly or indirectly, any business which competes
with the business of any Affiliated Company (the "Business"); provided that
the foregoing shall not prohibit the Employee from (i) being employed by
the PA during or following the Employee's employment with the Company, (ii)
owning not more than 1% of the outstanding capital stock of any corporation
whose shares are publicly traded on a national securities exchange or
system, or (iii) becoming an employee of, or otherwise performing services
for, after the termination of the Employee's employment with the Company
and any Affiliated Companies, a professional corporation or association or
other person or entity which provides professional dental care services to
the public (a "Dental Care Provider"), so long as such Dental Care Provider
is not an ADP Provider (as defined below) and was not an ADP Provider at
any time during the one-year period immediately preceding such Dental Care
Provider's employment or other engagement of the Employee;
(b) Solicit or attempt to solicit business from any Dental Care
Provider to which any Affiliated Company provides management, consulting,
or other services (an
-4-
<PAGE>
"ADP Provider"), or interfere or attempt to interfere with any relationship
of any Affiliated Company with any ADP Provider;
(c) Induce or encourage any employee, officer, director, agent,
supplier, or independent contractor of any Affiliated Company to terminate
its relationship with such Affiliated Company, or otherwise interfere or
attempt to interfere in any way with any Affiliated Company's relationships
with its employees, officers, directors, agents, suppliers, independent
contractors, or others;
(d) Employ or engage any person who, at any time within the one-year
period immediately preceding such employment or engagement, was an
employee, officer, or director of any Affiliated Company; or
(e) Make any statement (oral or written) or take any other action
which would tend to disparage or diminish the reputation of any Affiliated
Company.
For purposes of this agreement: (i) "Affiliated Companies" shall include
the Company and all subsidiaries or affiliates of the Company other than Summit
Ventures IV, L.P., Noro-Moseley Partners, and any of their respective affiliates
which are not engaged in a business similar to the Company or its subsidiaries,
(ii) "Confidential Information" shall mean all trade secrets, proprietary data,
and other confidential information of any Affiliated Company, including without
limitation financial information, information relating to business operations,
services, promotional practices, and relationships with ADP Providers,
suppliers, employees, independent contractors, or other parties, and any
information which any Affiliated Company is obligated to treat as confidential
pursuant to any course of dealing or any agreement to which it is a party or
otherwise bound; and (iii) the "Restricted Period" shall mean the two-year
period following the date of termination (for any reason) of Employee's
employment with the Company and any Affiliated Companies (whether pursuant to
this agreement or otherwise).
The Employee acknowledges that (A) the provisions of this section are
fundamental and essential for the protection of the Company's legitimate
business and proprietary interests, (B) such provisions are reasonable and
appropriate in all respects, and (C) in the event of any violation by the
Employee of any of such provisions, the Company would suffer irreparable harm
and its remedies at law would be inadequate. In the event of any violation or
attempted violation of such provisions by the Employee, the Company shall be
entitled to a temporary restraining order, temporary and permanent injunctions,
specific performance, and other equitable relief, without any showing of
irreparable harm or damage or the posting of any bond, in addition to any other
rights or remedies which may then be available to the Company.
(S)9. Termination. The Employee's employment with the Company shall
-----------
terminate automatically upon the death of the Employee and may be terminated by
the Company, without any further obligation on the part of the Company (except
as provided in clause (c), below), immediately upon notice to the Employee under
any of the following circumstances:
-5-
<PAGE>
(a) At any time for Cause (defined below);
(b) At any time if the Employee is under a Long-Term Disability (defined
below); or
(c) At any time without Cause; provided that if the Company terminates the
Employee's employment effective prior to the end of the Initial Term pursuant to
this clause (c), and no other basis for termination exists under this agreement,
then the Employee shall be entitled to: (i) severance payments in an aggregate
amount equal to (A) the Base Salary for the remainder of the Initial Term, plus
(B) any amounts which remain unpaid with respect to the Minimum Bonus payable
for the Initial Term; and (ii) substantially the same health benefits for the
remainder of the Initial Term as were being provided by the Company to the
Employee at the time of such termination, which benefits shall, at the option of
the Company, be provided either under the Company's existing plans or under
comparable coverage obtained by the Employee with reimbursement to the Employee
for the expenses of obtaining and maintaining such coverage. Any such severance
payments shall be payable periodically in the same manner as the Base Salary
and, if applicable, the Minimum Bonus are payable under (S)5 of this agreement,
and, notwithstanding any other provisions of this agreement to the contrary,
such severance payments and shall be payable and provided only so long as the
Employee is in full compliance with the provisions of (S)8 of this agreement.
For purposes of this agreement:
(i) "Cause" shall mean:
(A) any act constituting (1) a felony under the federal laws of
the United States, the laws of any state, or any other applicable law, (2)
fraud, embezzlement, misappropriation of assets, willful misfeasance, or
dishonesty, or (3) other criminal conduct which in any way materially and
adversely affects the reputation, goodwill, or business position of the Company;
(B) the failure of the Employee to perform and observe all
obligations and conditions to be performed and observed by the Employee under
this agreement, or to perform his duties in accordance with the policies,
programs, budgets, procedures, and directions established from time to time by
the Board (any such failure, a "Performance Failure"), and to correct such
Performance Failure promptly following notice from the Company to do so; or
(C) having corrected (or the Company having waived the correction
of two Performance Failures, the occurrence of any subsequent Performance
Failure; and
(ii) "Long-Term Disability" shall mean that, because of physical or
mental incapacity, it is more likely than not that the Employee will be unable,
within, 180 days after such incapacity commenced, to perform the essential
functions of his position with the Company,
-6-
<PAGE>
with or without reasonable accommodation. In the event of any disagreement about
whether or when the Employee is under a Long-Term Disability, the question shall
be determined: (A) by a physician selected by agreement between the Employee
and the Company if such a physician is selected within 10 days after either of
them requests the other so to agree; or, if not, (B) by two physicians, the
first of whom shall be selected by the Employee and the second of whom shall be
selected by the Company or, if the Employee fails to make a selection within 10
days after being requested to do so by the Company, the second physician shall
be selected by the first physician; or, if the two physicians fail to agree, (C)
by a third physician selected by the first two physicians. The Employee shall
submit to all reasonable examinations requested by any such physicians.
(S)10. Capacity. The Employee represents and warrants to the Company that
--------
he has the capacity and right to enter into this agreement and perform all of
his obligations under this agreement without any restriction.
(S)11. Remedies. All rights and remedies of either Party under this
--------
agreement are cumulative and in addition to all other rights and remedies which
may be available to that Party from time to time, whether under any other
agreement, at law, or in equity.
(S)12. Survival. The termination of the Employee's employment with the
--------
Company (for any reason) shall not relieve either Party of any of that Party's
obligations under this agreement existing at, arising as a result of, or
relating to acts or omissions occurring prior to, such termination. Without
limiting the generality of the preceding sentence, in no event shall the
termination of such employment modify or affect any obligations of the Employee
or rights of the Company under (S)8 of this agreement or the Company's
obligations, if any, under (S)9(c) of this agreement, all of which shall survive
the termination of such employment.
(S)13. Notices. All notices and other communications under this agreement
-------
to any Party shall be in writing and shall be deemed given when delivered
personally, telecopied (which is confirmed) to that Party at the telecopy number
for that Party set forth below, mailed by certified mail (return receipt
requested) to that Party at the address for that Party (or at such other address
for such Party as such Party shall have specified in notice to the other Party)
or delivered to Federal Express, UPS, or any similar express delivery service
for delivery to that Party at that address:
(a) If to the Company:
PDHC, Inc.
c/o American Dental Partners, Inc.
301 Edgewater Place
Suite 320
Wakefield, Massachusetts 01880-1249
Attention: Gregory A. Serrao
Telecopy No.: (617) 224-4216
-7-
<PAGE>
with a copy to
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
Attention: Gary A. Wadman, Esq.
Telecopy No.: (614) 462-2616
(b) If to the Employee:
Gregory T. Swenson, D.D.S.
8 Island View Lane
North Oaks, MN 55127
Telecopy No.: (612) 482-0024
(S)14. Severability. The intention of the Parties is to comply fully with
------------
all rules, laws, and public policies to the extent possible. If and to the
extent that any court of competent jurisdiction is unable so to construe any
provision of this agreement and holds that provision to be invalid, such
invalidity shall not affect the remaining provisions of this agreement, which
shall remain in full force and effect. With respect to any provision in this
agreement finally determined by such a court to be invalid or unenforceable,
such court shall have jurisdiction to reform this agreement to the extent
necessary to make such provision valid and enforceable, and, as reformed, such
provision shall be binding on the Parties.
(S)15. Non-Waiver. No failure by either Party to insist upon strict
----------
compliance with any term of this agreement, to exercise any option, to enforce
any right, or to seek any remedy upon any default of the other Party shall
affect, or constitute a waiver of, the other Party's right to insist upon such
strict compliance, exercise that option, enforce that right, or seek that remedy
with respect to that default or any prior, contemporaneous, or subsequent
default. No custom or practice of the Parties at variance with any provision of
this agreement shall affect, or constitute a waiver of, either Party's right to
demand strict compliance with all provisions of this agreement.
(S)16. Complete Agreement. This agreement and all documents referred to
------------------
in this agreement, all of which are hereby incorporated herein by reference,
contain the entire agreement between the Parties and supersede all other
agreements and understandings between the Parties with respect to the subject
matter of this agreement. No alterations, additions, or other changes to this
agreement shall be made or be binding unless made in writing and signed by both
Parties.
(S)17. Governing Law; Venue. This agreement shall be governed by and
--------------------
construed in accordance with the laws of the State of Minnesota without regard
to principles of conflicts of law.
-8-
<PAGE>
(S)18. Captions. The captions of the various sections of this agreement
--------
are not part of the context of this agreement, are only guides to assist in
locating those sections, and shall be ignored in construing this agreement.
(S)19. Genders and Numbers. Where permitted by the context, each pronoun
-------------------
used in this agreement includes the same pronoun in other genders and numbers,
and each noun used in this agreement includes the same noun in other numbers.
(S)20. Successors. This agreement shall be personal to the Employee and
----------
no rights or obligations of the Employee under this agreement may be assigned by
the Employee to any third party. Any assignment or attempted assignment by the
Employee in violation of the preceding sentence shall be null and void. Subject
to the foregoing, this agreement shall be binding upon, inure to the benefit of,
and be enforceable by and against the successors and assigns of each Party.
PDHC, INC.
By /s/ Gregory A. Serrao /s/ Gregory T. Swenson
---------------------------- ----------------------
Gregory A. Serrao, President GREGORY T. SWENSON, D.D.S.
-9-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This agreement is made effective November 11, 1996, among American
Dental Partners, Inc., a Delaware corporation (the "Company"), and the
individuals and entities identified on the Schedule of Shareholders attached to
this agreement as Exhibit A (the "Shareholders").
Background Information
----------------------
A. Concurrently with the execution of this agreement, the Company is
acquiring PDHC, Ltd., a Minnesota corporation ("PDHC"), pursuant to an
Acquisition and Exchange Agreement having the same date as this agreement among
the Company, PDHC, and the Shareholders (the "Acquisition Agreement"). Under
the Acquisition Agreement, the Shareholders are exchanging their capital stock
in PDHC for, among other things, a total of 210,000 shares of common stock, par
value $.01 per share, in the Company (the "ADP Shares").
B. This agreement is being entered into as a condition to the
completion of such acquisition.
Statement of Agreement
----------------------
The parties to this agreement (the "Parties") hereby acknowledge the
foregoing Background Information and agree as follows:
(S)1. Definitions. In addition to other terms defined in other
-----------
provisions of this agreement, as used in this agreement, the following terms
shall have the following meanings, respectively:
(a) "Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to
time.
(b) "Commission" means the Securities and Exchange Commission,
or any other federal agency at the time administering the Act.
(c) "Common Stock" means shares of common stock, par value $.01
per share, of the Company.
(d) "Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
(e) "Holder" means a person who is then a record owner of
Registrable Securities.
<PAGE>
(f) "IPO" means the first sale of Common Stock pursuant to a
public offering (including without limitation one for the assets or
securities of other companies) pursuant to a registration statement
under the Act, and "IPO Date" means the date on which the IPO is
completed.
(g) "Registrable Securities" means shares of Common Stock which
have not been previously registered for sale under the Act, including
without limitation those issuable upon conversion of the Company's
Series A Convertible Preferred Stock; provided that, with respect to
the Shareholders (i) Registrable Securities shall include only the ADP
Shares and any other shares of Common Stock hereafter acquired by any
Shareholder as a result of a stock dividend, stock split, or other
similar transaction affecting the ADP Shares; and (ii) notwithstanding
any other provisions of this agreement to the contrary, at any given
time, Registrable Securities shall not include any shares of Common
Stock then subject to the Escrow and Security Agreement having the
same date as this agreement among ADP, the Shareholders, and the
Escrow Agent identified in such agreement.
(h) The term "register" means to register under the Act and
applicable state securities laws for the purpose of effecting a public
sale of securities, and the term "registration" means a registration
of securities under the Act and applicable state securities laws for
the purpose of effecting a sale of securities.
(i) "Registration Expenses" means all expenses incurred by the
Company in compliance with (S)2, 3, or 5 of this agreement, including
without limitation all registration and filing fees, printing
expenses, transfer taxes, fees and disbursements of counsel for the
Company, blue-sky fees and expenses, fees of transfer agents and
registrars, reasonable fees and disbursements of one counsel for all
selling Holders (selected by Holders owning a majority of all
Registrable Securities then owned by all such Holders), and the
expense of any special audits incident to or required by any such
registration.
(j) "Rule 144" means Rule 144 promulgated by the Commission under
the Act.
(k) "Selling Expenses" means all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities
and any transfer taxes applicable to such sales.
(l) "Selling Shareholder" means all Holders who are participating
in a registration.
-2-
<PAGE>
(S)2. Piggy Back Registrations.
------------------------
(a) If, after the IPO Date, the Company decides to register any
Registrable Securities, either for its own account or the account of any
Holder exercising registration rights or otherwise (other than a
registration relating solely to a merger, acquisition of assets or
securities or tender or exchange offer, or 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), the Company shall:
(i) Promptly give notice thereof to each Shareholder (which
notice shall include the number of shares the Company or other
Holder proposes to register and, if known, the name of the proposed
underwriter); and
(ii) Use all commercially reasonable efforts to include in such
registration all the Registrable Securities specified in a request
made by any Shareholder within 15 days after the date of delivery of
the notice from the Company described in clause (i) above. If the
underwriter advises the Company that marketing considerations
require a limitation on the number of Registrable Securities offered
pursuant to any related registration statement, then the Company may
offer all of the Registrable Securities it proposes to register for
its own account and such limitation on any remaining Registrable
Securities that may, in the opinion of the underwriter, be sold will
be imposed pro rata among all Holders who requested inclusion of
Registrable Securities in such registration (whether under this
agreement, any other similar agreement, or otherwise) in proportion
to the number of Registrable Securities requested to be registered
by each of them, respectively.
(b) The Company shall select the underwriter for any offering made
pursuant to this (S)2.
(S)3. Requested Registration. If (a) during the three-year period
----------------------
following an IPO, the Shareholders have not had the opportunity to sell their
Registrable Securities as part of a registration, whether pursuant to (S)2,
above, or otherwise, (b) the Company receives from Shareholders then owning a
majority of all Registrable Securities then owned by all Shareholders a request
that the Company register their Registrable Securities, and (c) such request is
given during the period beginning on the last day of such three-year period and
ending 90 days thereafter, then the Company shall:
-3-
<PAGE>
(i) Promptly give notice of such request to all Shareholders
(other than those making such request); and
(ii) As soon as reasonably practicable, use all commercially
reasonable efforts to effect such registration as may be so requested
and as would permit or facilitate the sale and distribution of such
portion of such Registrable Securities as are specified in such
request, together with such portion of the Registrable Securities of
any Shareholders joining in such request as are specified in a request
given within 20 days after receipt of such notice from the Company,
together with the Registrable Securities held by any other Holders who
are included in such registration. If the underwriter managing the
offering advises the Holders who have requested inclusion of their
Registrable Securities in such registration that marketing
considerations require a limitation on the number of shares offered,
such limitation shall be imposed pro rata among such Holders who
requested inclusion of Registrable Securities in such registration
(whether pursuant to this agreement, any other similar agreement, or
otherwise), in proportion to the number of Registrable Securities
requested to be registered by them, respectively.
(iii) The underwriter of any underwriting requested under this
(S)3 shall be selected by the Company.
(S)4. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to (S)2,
3, or 5 shall be paid by the Company. All Selling Expenses incurred in
connection with any such registration, qualification or compliance shall be
borne by the Holders of the Registrable Securities registered, pro rata on the
basis of the number of their Registrable Securities so registered.
(S)5. Listing Application. If shares of Common Stock are listed on a
-------------------
national securities exchange or approved for quotation on any over-the-counter
market system, the Company shall, at its expense, include in its listing
application all of the Shares of Common Stock of the listed class then owned by
any Shareholder.
(S)6. Registration Procedures. In the case of each registration effected
-----------------------
by the Company pursuant to this agreement, the Company shall keep each
Shareholder with Registrable Securities included in any such registration
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company shall do the following for the
benefit of such Shareholders:
(a) Keep such registration effective for a period of 120 days or until
such Shareholders have completed the
-4-
<PAGE>
distribution described in the registration statement relating thereto,
whichever first occurs, and amend or supplement such registration statement
and the prospectus contained therein from time to time to the extent
necessary to comply with the Act and applicable state securities laws;
(b) Use all commercially reasonable efforts to register or qualify the
Registrable Securities covered by such registration under the applicable
securities or "blue sky" laws of such jurisdictions as such Shareholders
may reasonably request; provided that the Company shall not be obligated to
qualify to do business in any jurisdiction where it is not then so
qualified or otherwise required to be so qualified or to take any action
which would subject it to the service of process in suits other than those
arising out of such registration or which would subject it to taxation in
such jurisdiction;
(c) Furnish such number of prospectuses and other documents incident
thereto as such Shareholders from time to time may reasonably request;
(d) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to (S)3 hereof, the Company shall
enter into an underwriting agreement reasonably necessary to effect the
offer and sale of Registrable Securities, provided such underwriting
agreement contains customary underwriting provisions and is entered into by
such Shareholders, and provided further that, if the underwriter so
requests, the underwriting agreement will contain customary indemnification
and contribution provisions on the part of the Company and such
Shareholders;
(e) To the extent then permitted under applicable professional
guidelines and standards, use all reasonable efforts to obtain a comfort
letter from the Company's independent public accountants in customary form
and covering such matters of the type customarily covered by comfort
letters and an opinion from the Company's counsel in customary form and
covering such matters of the type customarily covered in a public issuance
of securities and provide copies thereof the Shareholders; and
(f) Permit the counsel to the selling Holders whose expenses are being
paid pursuant to (S)4 hereof to participate in the registration statement
preparation process and to inspect and copy such corporate documents as he
may reasonably request.
-5-
<PAGE>
(S)7. Indemnification.
---------------
(a) The Company shall indemnify each Shareholder with respect to
which registration, qualification or compliance has been effected pursuant
to this agreement against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any related
registration statement, notification or the like) prepared by the Company
incident to any such registration, qualification or compliance, or based on
any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein
(in light of the circumstances under which they were made, in the case of
any prospectus) not misleading, or any violation by the Company of the Act
or the Exchange Act or securities act of any state 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,
qualification or compliance, and shall reimburse each such Shareholder for
any legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or
action, whether or not resulting in any liability, provided that the
Company shall not be liable in any such case to the extent that: (i) any
such claim, loss, liability or expense arises out of or is based on any
untrue statement (or alleged untrue statement) or omission (or alleged
omission) based upon written information furnished to the Company by such
Shareholder or any underwriter expressly for use therein; or (ii) in the
case of a sale directly by a Shareholder (including without limitation a
sale through any underwriter retained by such Shareholder), it arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission that was contained in a preliminary prospectus
or other preliminary document and corrected in a final or amended
prospectus or other document and such Shareholder failed to deliver a copy
of the final or amended document at or prior to the confirmation of the
sale of the applicable securities to the person asserting such claim, loss,
damage, liability, or action.
(b) Each Shareholder shall, if Registrable Securities held by him
are included in the securities as to which such registration, qualification
or compliance is being effected, indemnify the Company, each of its
directors and officers and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of the Act and
the rules and regulations thereunder, each other Holder and each of their
officers, directors and partners, and each
-6-
<PAGE>
person controlling such Holder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein (in light of the circumstances under which they were made, in the
case of any prospectus) not misleading, and will reimburse the Company and
each such Holder's directors, officers, partners, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, whether or not resulting in liability, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Shareholder; provided, however, that the obligations of
each Shareholder hereunder shall be limited to an amount equal to the net
proceeds received by such Shareholder upon sale of his securities.
(c) Each party entitled to indemnification under this (S)7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, but the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations under this (S)7
(except and to the extent the Indemnifying Party has been prejudiced as a
consequence thereof). The Indemnifying Party will be entitled to
participate in, and to the extent that it may elect by written notice
delivered to the Indemnified Party promptly after receiving the aforesaid
notice from such Indemnified Party, at its expense to assume, the defense
of any such claim or any litigation resulting therefrom, with counsel
reasonably satisfactory to such Indemnified Party; provided that the
Indemnified Party may participate in such defense at its expense,
notwithstanding the assumption of such defense by the Indemnifying Party;
and provided, further, that if the defendants in any such action shall
include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be legal
defenses available to it and/or other Indemnified Parties which are
different from or additional to those available to the Indemnifying Party,
the Indemnified Party shall have the right to select separate counsel to
assert such legal defenses and to otherwise participate in the defense of
such action on behalf of such Indemnified Party or Parties and
-7-
<PAGE>
the fees and expenses of such counsel shall be paid by the Indemnifying
Party. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party (which
consent shall not be unreasonably withheld, delayed or conditioned),
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. Each Indemnified Party shall (i)
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with defense of such claim and litigation
resulting therefrom and (ii) reasonably assist the Indemnifying Party in
any such defense, provided that the Indemnified Party shall not be required
to expend its funds in connection with such assistance.
(d) No Shareholder shall be required to participate in a
registration pursuant to which it would be required to execute an
underwriting agreement in connection with a registration effected by (S)2
or 3 which imposes indemnification obligations on such Shareholder more
onerous than those imposed hereunder; provided, however the Company shall
not be deemed to breach the provisions of (S)2 or 3 if a Shareholder is not
permitted to participate in a registration on account of his refusal to
execute an underwriting agreement on the basis of this subsection (d).
(S)8. Shareholder Information; Further Assurances. Each Shareholder
-------------------------------------------
with Registrable Securities included in any registration, or requesting
inclusion in any registration, shall furnish to the Company such information
regarding such Shareholder and the distribution proposed by such Shareholder as
the Company may reasonably request and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this agreement, or in connection with an opinion or "no-action" letter of the
type described in (S)9, below, or otherwise required by applicable state or
federal securities laws. Each Shareholder shall execute such documents and take
such other actions consistent with this agreement which may be reasonably
requested by the Company.
(S)9. Exception to Registration Obligation. Notwithstanding any other
------------------------------------
provisions of this agreement to the contrary, the Company shall not be required
to effect a registration under this agreement with respect to Registrable
Securities held by any Shareholder if: (i) in the written opinion of counsel
for the Company, which counsel and the opinion so rendered shall be reasonably
acceptable to such Shareholder, such Shareholder may sell without registration
all Registrable Securities for which such Shareholder requested registration
under the provisions of this agreement, in the
-8-
<PAGE>
quantity in which the Registrable Securities were proposed to be sold (whether
under Rule 144 or otherwise); or (ii) the Company shall have obtained from the
Commission a "no-action" letter to that effect.
(S)10. Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may permit the sale of
restricted securities (as that term is used in Rule 144) to the public without
registration, the Company shall:
(a) Make and keep public information available as those terms are
defined in Rule 144, at all times from and after 90 days following the IPO
Date;
(b) Use all commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of
the Company under the Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(c) So long as a Shareholder owns any restricted securities, furnish
to that Shareholder upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time
from and after ninety days following the IPO Date) and of the Act and
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as that Shareholder
may reasonably request in availing itself of any rules or regulation of the
Commission allowing a Shareholder to sell any such securities without
registration.
(S)11. Remedies. The Company and the Shareholder recognize and agree
--------
that they may not have an adequate remedy if any of them fails to comply with
the provisions of this agreement, and that damages will not be readily
ascertainable, and each of them expressly agrees that in the event of such
failure the other parties shall be entitled to seek specific performance of the
defaulting party's obligations hereunder.
(S)12. Restrictions on Transfer. Each Shareholder who seeks to include
------------------------
Registrable Securities in a registration pursuant to this agreement shall, if so
requested by the underwriters who are managing such offering, as a condition
precedent to including Registrable Securities in such offering, execute an
agreement on usual and customary terms pursuant to which such Shareholder agrees
not to sell or otherwise transfer any Common Stock (except pursuant to such
offering) for such period of time following the consummation of such offering as
such underwriters may reasonably request; provided that such period shall not
exceed 180 days.
-9-
<PAGE>
(S)13. Miscellaneous.
-------------
(a) Any notice, request, or other communication desired or
required to be given to any Party under this agreement shall be in writing
and shall be deemed given when delivered personally to that Party,
telecopied (which is confirmed) to that Party at the telecopy number for
that Party set forth below, mailed by certified mail (return receipt
requested) to that Party at the address for that Party (or at such other
address for such Party as such Party shall have specified in notice to the
other Parties) or delivered to Federal Express or any similar express
delivery service for delivery to that Party at that address:
(i) If to the Company:
American Dental Partners, Inc.
301 Edgewater Place
Suite 320
Wakefield, Massachusetts 01880-1249
ATTN: Gregory A. Serrao, President
Telecopy No.: 617/224-4216
With a copy to:
Baker & Hostetler
65 East Street
Suite 2100
Columbus, Ohio 43215
ATTN: Gary A. Wadman, Esq.
Telecopy No.: 614/462-2616
(ii) If to any Shareholder, to that Shareholder or his agent at the
address or telecopy number (as the case may be) for that
Shareholder or his agent then contained in the Company's
records.
(b) The headings of the various sections of this agreement are for
convenience of reference only and shall not limit, alter or otherwise
affect the meaning hereof. Where permitted by the context, each pronoun
used in this agreement shall include the same pronoun in other genders and
numbers and each noun used in this agreement shall include the same noun in
other numbers. This agreement constitutes the entire understanding of the
parties with respect to the subject matter hereof and supersedes all prior
and current understandings and agreements, whether written or oral.
(c) This agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to the
conflict of laws provisions thereof.
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<PAGE>
(d) This agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and
Shareholders owning at least a majority of the Registrable Securities then
owned by all Shareholders.
(e) This agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) This agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without regard to principles of
conflicts of law. If any provisions of this agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any
manner affect or render illegal, invalid or unenforceable or any provision
of this agreement, and this agreement shall be carried out as if any such
illegal, invalid, or unenforceable provision were not contained herein.
(g) This agreement shall be binding upon, inure to the benefit of, and
be enforceable by and against the heirs, personal representatives,
successors, and assigns of each Party.
[Remainder of page intentionally left blank.]
-11-
<PAGE>
The undersigned are executing this Registration Rights Agreement effective as of
the date set forth at the beginning hereof.
AMERICAN DENTAL PARTNERS, INC.
By /s/ Gregory A. Serrao /s/ Mark Anderson, DDS
----------------------------- ------------------------------
Gregory A. Serrao, President MARK ANDERSON, DDS
/s/ James Benson, DDS
------------------------------
JAMES BENSON, DDS
/s/ Elena Dinca, DDS
------------------------------
ELENA DINCA, DDS
/s/ Michael Dowdall, DDS
------------------------------
MICHAEL DOWDALL, DDS
/s/ Megan Eakins, DDS
------------------------------
MEGAN EAKINS, DDS
/s/ Robert Grady, DDS
------------------------------
ROBERT GRADY, DDS
/s/ John Gulon, DDS
------------------------------
JOHN GULON, DDS
/s/ Clarice Hermunslie, DDS
------------------------------
CLARICE HERMUNSLIE, DDS
/s/ Robert Hoover, DDS
------------------------------
ROBERT HOOVER, DDS
/s/ Karen Kohler, DDS
------------------------------
KAREN KOHLER, DDS
/s/ Lee Lutterman, DDS
------------------------------
LEE LUTTERMAN, DDS
/s/ Todd Marshall, DDS
------------------------------
TODD MARSHALL, DDS
[Signatures continued on following page]
-12-
<PAGE>
/s/ Daniel Marvin, DDS
-------------------------------------
DANIEL MARVIN, DDS
/s/ Hugh Norsted, DDS
-------------------------------------
HUGH NORSTED, DDS
/s/ Ira Rabinowitz, DDS
-------------------------------------
IRA RABINOWITZ, DMD
/s/ Larry Slepica, DDS
-------------------------------------
LARRY SLEPICA, DDS
/s/ Christopher Steele, DDS
-------------------------------------
CHRISTOPHER STEELE, DDS
/s/ Gregory T. Swenson, DDS
-------------------------------------
GREGORY T. SWENSON, DDS
/s/ Peter Thompson, DDS
-------------------------------------
PETER THOMPSON, DDS
DELTA ASSOCIATES, LTD.
By /s/ William J. Dresser, DDS
-----------------------------------
Printed Name William J. Dresser, DDS
-------------------------
Its President
----------------------------------
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This agreement is made effective December 13, 1996, among American Dental
Partners, Inc., a Delaware corporation (the "Company") and Les L. Crane, D.D.S.
(the "Shareholder").
Background Information
----------------------
A. Concurrently with the execution of this agreement, the Company is
causing its wholly-owned subsidiary, Texas Dental Partners, Inc., a Texas
corporation ("American"), to acquire substantially all of the assets (the
"Assets") of Les L. Crane, D.D.S., P.C., a Texas corporation, dba Longhorn
Dental Associates ("Longhorn"), pursuant to an Asset Purchase Agreement among
the Company, American, Longhorn, and the Shareholder, dated December __, 1996
(the "Asset Purchase Agreement"). Under the Asset Purchase Agreement, the
consideration being paid to Longhorn consists in part of 8,200 shares of common
stock, par value $.01 per share, in the Company (the "ADP Shares"). Immediately
thereafter Longhorn is distributing the ADP Shares to the Shareholder. For
purposes of convenience the original certificate evidencing the ADP Shares has
been prepared in the name of the Shareholder to avoid the necessity of the
Company having to issue such certificate in the name of Longhorn, Longhorn
having to execute an assignment of the ADP Shares to the Shareholder, and the
Company having to transfer the ADP Shares on its books and reissue a new
certificate for the ADP Shares in the name of the Shareholder.
B. This agreement is being entered into as a condition to the completion
of such acquisition.
Statement of Agreement
----------------------
The parties to this agreement (the "Parties") hereby acknowledge the
foregoing Background Information and agree as follows:
(S)1. Definitions. In addition to other terms defined in other provisions
-----------
of this agreement, as used in this agreement, the following terms shall have the
following meanings, respectively:
(a) "Act" means the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
(b) "Commission" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Act.
<PAGE>
(c) "Common Stock" means shares of common stock, par value $.01 per
share, of the Company.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to
time.
(e) "Holder" means a person who is then a record owner of Registrable
Securities.
(f) "IPO" means the first sale of Common Stock pursuant to a public
offering (including without limitation one for the assets or securities of
other companies) pursuant to a registration statement under the Act, and
"IPO Date" means the date on which the IPO is completed.
(g) "Registrable Securities" means shares of Common Stock which have
not been previously registered for sale under the Act, including without
limitation those issuable upon conversion of the Company's Series A
Convertible Preferred Stock; provided that, with respect to the Shareholder
(i) Registrable Securities shall include only the ADP Shares and any other
shares of Common Stock hereafter acquired by the Shareholder as a result of
a stock dividend, stock split, or other similar transaction affecting the
ADP Shares; and (ii) notwithstanding any other provisions of this agreement
to the contrary, at any given time, Registrable Securities shall not
include any shares of Common Stock then subject to the Pledge Agreement
having the same date as this agreement among ADP and the Shareholder.
(h) The term "register" means to register under the Act and applicable
state securities laws for the purpose of effecting a public sale of
securities, and the term "registration" means a registration of securities
under the Act and applicable state securities laws for the purpose of
effecting a sale of securities.
(i) "Registration Expenses" means all expenses incurred by the Company
in compliance with (S)(S)2 or 4 of this agreement, including without
limitation all registration and filing fees, printing expenses, transfer
taxes, fees and disbursements of counsel for the Company, blue-sky fees and
expenses, fees of transfer agents and registrars, reasonable fees and
disbursements of one counsel for all selling Holders (selected by Holders
owning a majority of all Registrable Securities then owned by all such
Holders), and the expense of any special audits incident to or required by
any such registration.
(j) "Rule 144" means Rule 144 promulgated by the Commission under the
Act.
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<PAGE>
(k) "Selling Expenses" means all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and any
transfer taxes applicable to such sales.
(l) "Selling Shareholder" means all Holders who are participating in a
registration.
(S)2. Piggy Back Registrations.
------------------------
(a) If, after the IPO Date, the Company decides to register any
Registrable Securities, either for its own account or the account of any
Holder exercising registration rights or otherwise (other than a
registration relating solely to a merger, acquisition of assets or
securities or tender or exchange offer, or 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), the Company shall:
(i) Promptly give notice thereof to the Shareholder (which notice
shall include the number of shares the Company or other Holder
proposes to register and, if known, the name of the proposed
underwriter); and
(ii) Use all commercially reasonable efforts to include in such
registration all the Registrable Securities specified in a request
made by the Shareholder within 15 days after the date of delivery of
the notice from the Company described in clause (i) above. If the
underwriter advises the Company that marketing considerations require
a limitation on the number of Registrable Securities offered pursuant
to any related registration statement, then the Company may offer all
of the Registrable Securities it proposes to register for its own
account and such limitation on any remaining Registrable Securities
that may, in the opinion of the underwriter, be sold will be imposed
pro rata among all Holders who requested inclusion of Registrable
Securities in such registration (whether under this agreement, any
other similar agreement, or otherwise) in proportion to the number of
Registrable Securities requested to be registered by each of them,
respectively.
(b) The Company shall select the underwriter for any offering made
pursuant to this (S)2.
(S)3. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to
(S)(S)2 or 4 shall be paid by the Company. All Selling Expenses incurred in
connection with any such registration,
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<PAGE>
qualification or compliance shall be borne by the Holders of the Registrable
Securities registered, pro rata on the basis of the number of their Registrable
Securities so registered.
(S)4. Listing Application. If shares of Common Stock are listed on a
-------------------
national securities exchange or approved for quotation on any over-the-counter
market system, the Company shall, at its expense, include in its listing
application all of the shares of Common Stock of the listed class then owned by
the Shareholder.
(S)5. Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this agreement, the Company shall keep the
Shareholder, if it has Registrable Securities included in any such registration,
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company shall do the following for the
benefit of the Shareholder:
(a) Keep such registration effective for a period of 120 days or
until the Shareholder has completed the distribution described in the
registration statement relating thereto, whichever first occurs, and amend
or supplement such registration statement and the prospectus contained
therein from time to time to the extent necessary to comply with the Act
and applicable state securities laws;
(b) Use all commercially reasonable efforts to register or qualify
the Registrable Securities covered by such registration under the
applicable securities or "blue sky" laws of such jurisdictions as the
Shareholder may reasonably request; provided that the Company shall not be
obligated to qualify to do business in any jurisdiction where it is not
then so qualified or otherwise required to be so qualified or to take any
action which would subject it to the service of process in suits other than
those arising out of such registration or which would subject it to
taxation in such jurisdiction;
(c) Furnish such number of prospectuses and other documents incident
thereto as the Shareholder from time to time may reasonably request;
(d) [Intentionally left blank.]
(e) To the extent then permitted under applicable professional
guidelines and standards, use all reasonable efforts to obtain a comfort
letter from the Company's independent public accountants in customary form
and covering such matters of the type customarily covered by comfort
letters and an opinion from the Company's counsel in customary form and
covering such matters of the type customarily covered
-4-
<PAGE>
in a public issuance of securities and provide copies thereof the
Shareholder; and
(f) Permit the counsel to the selling Holders whose expenses are
being paid pursuant to (S)3 hereof to participate in the registration
statement preparation process and to inspect and copy such corporate
documents as he may reasonably request.
(S)6. Indemnification.
---------------
(a) The Company shall indemnify the Shareholder with respect to
registration, qualification or compliance effected pursuant to this
agreement against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) prepared by the Company incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein (in light of
the circumstances under which they were made, in the case of any
prospectus) not misleading, or any violation by the Company of the Act or
the Exchange Act or securities act of any state 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,
qualification or compliance, and shall reimburse the Shareholder for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or
action, whether or not resulting in any liability, provided that the
Company shall not be liable in any such case to the extent that: (i) any
such claim, loss, liability or expense arises out of or is based on any
untrue statement (or alleged untrue statement) or omission (or alleged
omission) based upon written information furnished to the Company by the
Shareholder or any underwriter expressly for use therein; or (ii) in the
case of a sale directly by the Shareholder (including without limitation a
sale through any underwriter retained by the Shareholder), it arises out of
or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission that was contained in a preliminary prospectus
or other preliminary document and corrected in a final or amended
prospectus or other document and the Shareholder failed to deliver a copy
of the final or amended document at or prior to the confirmation of the
sale of the applicable securities to the person asserting such claim, loss,
damage, liability, or action.
-5-
<PAGE>
(b) The Shareholder shall, if Registrable Securities held by it are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors
and officers and each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the
Company or such underwriter within the meaning of the Act and the rules and
regulations thereunder, each other Holder and each of their officers,
directors and partners, and each person controlling such Holder, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein (in light of the
circumstances under which they were made, in the case of any prospectus)
not misleading, and will reimburse the Company and each such Holder's
directors, officers, partners, persons, underwriters or control persons for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, whether or not resulting in liability, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon
and in conformity with written information furnished to the Company by the
Shareholder; provided, however, that the obligations of the Shareholder
hereunder shall be limited to an amount equal to the net proceeds received
by the Shareholder upon sale of its securities.
(c) Each party entitled to indemnification under this (S)6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, but the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations under this (S)6
(except and to the extent the Indemnifying Party has been prejudiced as a
consequence thereof). The Indemnifying Party will be entitled to
participate in, and to the extent that it may elect by written notice
delivered to the Indemnified Party promptly after receiving the aforesaid
notice from such Indemnified Party, at its expense to assume, the defense
of any such claim or any litigation resulting therefrom, with counsel
reasonably satisfactory to such Indemnified Party; provided that the
Indemnified Party may participate in such defense at its expense,
notwithstanding the assumption of such defense by the Indemnifying Party;
and provided, further, that
-6-
<PAGE>
if the defendants in any such action shall include both the Indemnified
Party and the Indemnifying Party and the Indemnified Party shall have
reasonably concluded that there may be legal defenses available to it
and/or other Indemnified Parties which are different from or additional to
those available to the Indemnifying Party, the Indemnified Party shall have
the right to select separate counsel to assert such legal defenses and to
otherwise participate in the defense of such action on behalf of such
Indemnified Party or Parties and the fees and expenses of such counsel
shall be paid by the Indemnifying Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party (which consent shall not be unreasonably withheld,
delayed or conditioned), consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation. Each
Indemnified Party shall (i) furnish such information regarding itself or
the claim in question as an Indemnifying Party may reasonably request in
writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom and (ii) reasonably assist
the Indemnifying Party in any such defense, provided that the Indemnified
Party shall not be required to expend its funds in connection with such
assistance.
(d) The Shareholder shall not be required to participate in a
registration pursuant to which it would be required to execute an
underwriting agreement in connection with a registration effected by (S)2
which imposes indemnification obligations on the Shareholder more onerous
than those imposed hereunder; provided, however the Company shall not be
deemed to breach the provisions of (S)2 if the Shareholder is not permitted
to participate in a registration on account of its refusal to execute an
underwriting agreement on the basis of this subsection (d).
(S)7. Shareholder Information; Further Assurances. If the Shareholder
-------------------------------------------
has Registrable Securities included in any registration, or requests inclusion
in any registration, the Shareholder shall furnish to the Company such
information regarding the Shareholder and the distribution proposed by the
Shareholder as the Company may reasonably request and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this agreement, or in connection with an opinion or "no-action"
letter of the type described in (S)8, below, or otherwise required by applicable
state or federal securities laws. The Shareholder shall execute such documents
and take such other actions consistent with this agreement which may be
reasonably requested by the Company.
-7-
<PAGE>
(S)8. Exception to Registration Obligation. Notwithstanding any other
------------------------------------
provisions of this agreement to the contrary, the Company shall not be required
to effect a registration under this agreement with respect to Registrable
Securities held by the Shareholder if: (i) in the written opinion of counsel
for the Company, which counsel and the opinion so rendered shall be reasonably
acceptable to the Shareholder, the Shareholder may sell without registration all
Registrable Securities for which the Shareholder requested registration under
the provisions of this agreement, in the quantity in which the Registrable
Securities were proposed to be sold (whether under Rule 144 or otherwise); or
(ii) the Company shall have obtained from the Commission a "no-action" letter to
that effect.
(S)9. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may permit the sale of
restricted securities (as that term is used in Rule 144) to the public without
registration, the Company shall:
(a) Make and keep public information available as those terms are
defined in Rule 144, at all times from and after 90 days following the IPO
Date;
(b) Use all commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of
the Company under the Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(c) So long as the Shareholder owns any restricted securities,
furnish to the Shareholder upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any
time from and after ninety days following the IPO Date) and of the Act and
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as the Shareholder
may reasonably request in availing itself of any rules or regulations of
the Commission allowing the Shareholder to sell any such securities without
registration.
(S)10. Remedies. The Company and the Shareholder recognize and agree
--------
that they may not have an adequate remedy if either of them fails to comply with
the provisions of this agreement, and that damages will not be readily
ascertainable, and each of them expressly agrees that in the event of such
failure the other parties shall be entitled to seek specific performance of the
defaulting party's obligations hereunder.
(S)11. Restrictions on Transfer. If the Shareholder seeks to include
------------------------
Registrable Securities in a registration pursuant to this
-8-
<PAGE>
agreement, the Shareholder shall, if so requested by the underwriters who are
managing such offering, as a condition precedent to including Registrable
Securities in such offering, execute an agreement on usual and customary terms
pursuant to which the Shareholder agrees not to sell or otherwise transfer any
Common Stock (except pursuant to such offering) for such period of time
following the consummation of such offering as such underwriters may reasonably
request; provided that such period shall not exceed 180 days.
(S)12. Miscellaneous.
-------------
(a) Any notice, request, or other communication desired or required to
be given to any Party under this agreement shall be in writing and shall be
deemed given when delivered personally to that Party, telecopied (which is
confirmed) to that Party at the telecopy number for that Party set forth
below, mailed by certified mail (return receipt requested) to that Party at
the address for that Party (or at such other address for such Party as such
Party shall have specified in notice to the other Parties) or delivered to
Federal Express or any similar express delivery service for delivery to
that Party at that address:
(i) If to the Company:
American Dental Partners, Inc.
301 Edgewater Place
Suite 320
Wakefield, Massachusetts 01880-1249
ATTN: Gregory A. Serrao, President
Telecopy No.: 617/224-4216
With a copy to:
Baker & Hostetler
65 East Street
Suite 2100
Columbus, Ohio 43215
ATTN: Gary A. Wadman, Esq.
Telecopy No.: 614/462-2616
(ii) If to the Shareholder:
Dr. Les L. Crane, D.D.S.
2604 Guadalupe
Austin, Texas 78705
Telecopy No.: 512/847-1236
With a copy to:
Richie & Gueringer, P.C.
-9-
<PAGE>
111 Congress Avenue
Suite 2020
Austin, Texas 78701
ATTN: Sheldon E. Richie, Esq.
Telecopy No.: 512/320-7230
(b) The headings of the various sections of this agreement are for
convenience of reference only and shall not limit, alter or otherwise
affect the meaning hereof. Where permitted by the context, each pronoun
used in this agreement shall include the same pronoun in other genders and
numbers and each noun used in this agreement shall include the same noun in
other numbers. This agreement constitutes the entire understanding of the
parties with respect to the subject matter hereof and supersedes all prior
and current understandings and agreements, whether written or oral.
(c) This agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the conflict of
laws provisions thereof.
(d) This agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and
Shareholders owning at least a majority of the Registrable Securities then
owned by all Shareholders.
(e) This agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) This agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without regard to principles of
conflicts of law. If any provisions of this agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any
manner affect or render illegal, invalid or unenforceable or any provision
of this agreement, and this agreement shall be carried out as if any such
illegal, invalid, or unenforceable provision were not contained herein.
(g) This agreement shall be binding upon, inure to the benefit of, and
be enforceable by and against the heirs, personal representatives,
successors, and assigns of each Party.
AMERICAN DENTAL PARTNERS, INC.
By /s/ Gregory A. Serrao /s/ Les L. Crane, D.D.S.
----------------------------- ------------------------------
Gregory A. Serrao, President LES L. CRANE, D.D.S.
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This agreement is made effective December 23, 1996, among American Dental
Partners, Inc., a Delaware corporation (the "Company"), and the individuals and
entities identified on the Schedule of Shareholders attached to this agreement
as Exhibit A (the "Shareholders").
Background Information
----------------------
A. Concurrently with the execution of this agreement, the Company is
acquiring Smileage Dental Care, Inc., a Wisconsin corporation ("SDC"), pursuant
to the Agreement and Plan of Merger and Reorganization dated December 23, 1996
among the Company, SDC, and the Shareholders (the "Acquisition Agreement").
Under the Acquisition Agreement, the Shareholders are exchanging their capital
stock in SDC for, among other things, a total of 50,700 shares of common stock,
par value $.01 per share, in the Company (the "ADP Shares").
B. This agreement is being entered into as a condition to the completion
of such acquisition.
Statement of Agreement
----------------------
The parties to this agreement (the "Parties") hereby acknowledge the
foregoing Background Information and agree as follows:
(S)1. Definitions. In addition to other terms defined in other provisions
-----------
of this agreement, as used in this agreement, the following terms shall have the
following meanings, respectively:
(a) "Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
(b) "Commission" means the Securities and Exchange Commission, or
any other federal agency at the time administering the Act.
(c) "Common Stock" means shares of common stock, par value $.01 per
share, of the Company.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to
time.
<PAGE>
(e) "Holder" means a person who is then a record owner of Registrable
Securities.
(f) "IPO" means the first sale of Common Stock pursuant to a public
offering (including without limitation one for the assets or securities of
other companies) pursuant to a registration statement under the Act, and
"IPO Date" means the date on which the IPO is completed.
(g) "Registrable Securities" means shares of Common Stock which have
not been previously registered for sale under the Act, including without
limitation those issuable upon conversion of the Company's Series A
Convertible Preferred Stock; provided that, with respect to the
Shareholders (i) Registrable Securities shall include only the ADP Shares
and any other shares of Common Stock hereafter acquired by any Shareholder
as a result of a stock dividend, stock split, or other similar transaction
affecting the ADP Shares; and (ii) notwithstanding any other provisions of
this agreement to the contrary, at any given time, Registrable Securities
shall not include any shares of Common Stock then subject to the Escrow
Agreement having the same date as this agreement among ADP, the
Shareholders, and the Escrow Agent identified in such agreement.
(h) The term "register" means to register under the Act and applicable
state securities laws for the purpose of effecting a public sale of
securities, and the term "registration" means a registration of securities
under the Act and applicable state securities laws for the purpose of
effecting a sale of securities.
(i) "Registration Expenses" means all expenses incurred by the Company
in compliance with (S)2 or 4 of this agreement, including without
limitation all registration and filing fees, printing expenses, transfer
taxes, fees and disbursements of counsel for the Company, blue-sky fees and
expenses, fees of transfer agents and registrars, reasonable fees and
disbursements of one counsel for all selling Holders (selected by Holders
owning a majority of all Registrable Securities then owned by all such
Holders), and the expense of any special audits incident to or required by
any such registration.
(j) "Rule 144" means Rule 144 promulgated by the Commission under the
Act.
(k) "Selling Expenses" means all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and any
transfer taxes applicable to such sales.
-2-
<PAGE>
(l) "Selling Shareholder" means all Holders who are participating in a
registration.
(S)2. Piggy-Back Registrations.
------------------------
(a) If, after the IPO Date, the Company decides to register any
Registrable Securities, either for its own account or the account of any
Holder exercising registration rights or otherwise (other than a
registration relating solely to a merger, acquisition of assets or
securities or tender or exchange offer, or 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), the Company shall:
(i) Promptly give notice thereof to each Shareholder (which
notice shall include the number of shares the Company or other Holder
proposes to register and, if known, the name of the proposed
underwriter); and
(ii) Use all commercially reasonable efforts to include in such
registration all the Registrable Securities specified in a request
made by any Shareholder within 15 days after the date of delivery of
the notice from the Company described in clause (i) above. If the
underwriter advises the Company that marketing considerations require
a limitation on the number of Registrable Securities offered pursuant
to any related registration statement, then the Company may offer all
of the Registrable Securities it proposes to register for its own
account and such limitation on any remaining Registrable Securities
that may, in the opinion of the underwriter, be sold will be imposed
pro rata among all Holders who requested inclusion of Registrable
Securities in such registration (whether under this agreement, any
other similar agreement, or otherwise) in proportion to the number of
Registrable Securities requested to be registered by each of them,
respectively.
(b) The Company shall select the underwriter for any offering made
pursuant to this (S)2.
(S)3. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to (S)2
or 4 shall be paid by the Company. All Selling Expenses incurred in connection
with any such registration, qualification or compliance shall be borne by the
Holders of the Registrable Securities registered, pro rata on the basis of the
number of their Registrable Securities so registered.
-3-
<PAGE>
(S)4. Listing Application. If shares of Common Stock are listed on a
-------------------
national securities exchange or approved for quotation on any over-the-counter
market system, the Company shall, at its expense, include in its listing
application all of the Shares of Common Stock of the listed class then owned by
any Shareholder.
(S)5. Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this agreement, the Company shall keep each
Shareholder with Registrable Securities included in any such registration
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company shall do the following for the
benefit of such Shareholders:
(a) Keep such registration effective for a period of 120 days or until
such Shareholders have completed the distribution described in the
registration statement relating thereto, whichever first occurs, and amend
or supplement such registration statement and the prospectus contained
therein from time to time to the extent necessary to comply with the Act
and applicable state securities laws;
(b) Use all commercially reasonable efforts to register or qualify the
Registrable Securities covered by such registration under the applicable
securities or "blue sky" laws of such jurisdictions as such Shareholders
may reasonably request; provided that the Company shall not be obligated to
qualify to do business in any jurisdiction where it is not then so
qualified or otherwise required to be so qualified or to take any action
which would subject it to the service of process in suits other than those
arising out of such registration or which would subject it to taxation in
such jurisdiction;
(c) Furnish such number of prospectuses and other documents incident
thereto as such Shareholders from time to time may reasonably request;
(d) To the extent then permitted under applicable professional
guidelines and standards, use all reasonable efforts to obtain a comfort
letter from the Company's independent public accountants in customary form
and covering such matters of the type customarily covered by comfort
letters and an opinion from the Company's counsel in customary form and
covering such matters of the type customarily covered in a public issuance
of securities and provide copies thereof the Shareholders; and
(e) Permit the counsel to the selling Holders whose expenses are being
paid pursuant to (S)3 hereof to participate in the registration statement
preparation process and to
4
<PAGE>
inspect and copy such corporate documents as he may reasonably request.
(S)6. Indemnification.
---------------
(a) The Company shall indemnify each Shareholder with respect to
which registration, qualification or compliance has been effected pursuant
to this agreement against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any related
registration statement, notification or the like) prepared by the Company
incident to any such registration, qualification or compliance, or based on
any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein
(in light of the circumstances under which they were made, in the case of
any prospectus) not misleading, or any violation by the Company of the Act
or the Exchange Act or securities act of any state 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,
qualification or compliance, and shall reimburse each such Shareholder for
any legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or
action, whether or not resulting in any liability, provided that the
Company shall not be liable in any such case to the extent that: (i) any
such claim, loss, liability or expense arises out of or is based on any
untrue statement (or alleged untrue statement) or omission (or alleged
omission) based upon written information furnished to the Company by such
Shareholder or any underwriter expressly for use therein; or (ii) in the
case of a sale directly by a Shareholder (including without limitation a
sale through any underwriter retained by such Shareholder), it arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission that was contained in a preliminary prospectus
or other preliminary document and corrected in a final or amended
prospectus or other document and such Shareholder failed to deliver a copy
of the final or amended document at or prior to the confirmation of the
sale of the applicable securities to the person asserting such claim, loss,
damage, liability, or action.
(b) Each Shareholder shall, if Registrable Securities held by him are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors
and officers and each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the
5
<PAGE>
Company or such underwriter within the meaning of the Act and the rules and
regulations thereunder, each other Holder and each of their officers,
directors and partners, and each person controlling such Holder, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein (in light of the
circumstances under which they were made, in the case of any prospectus)
not misleading, and will reimburse the Company and each such Holder's
directors, officers, partners, persons, underwriters or control persons for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, whether or not resulting in liability, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon
and in conformity with written information furnished to the Company by such
Shareholder; provided, however, that the obligations of each Shareholder
hereunder shall be limited to an amount equal to the net proceeds received
by such Shareholder upon sale of his securities.
(c) Each party entitled to indemnification under this (S)6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, but the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations under this (S)6
(except and to the extent the Indemnifying Party has been prejudiced as a
consequence thereof). The Indemnifying Party will be entitled to
participate in, and to the extent that it may elect by written notice
delivered to the Indemnified Party promptly after receiving the aforesaid
notice from such Indemnified Party, at its expense to assume, the defense
of any such claim or any litigation resulting therefrom, with counsel
reasonably satisfactory to such Indemnified Party; provided that the
Indemnified Party may participate in such defense at its expense,
notwithstanding the assumption of such defense by the Indemnifying Party;
and provided, further, that if the defendants in any such action shall
include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be legal
defenses available to it and/or other Indemnified Parties which are
different from or additional to those available to the Indemnifying Party,
the Indemnified Party
6
<PAGE>
shall have the right to select separate counsel to assert such legal
defenses and to otherwise participate in the defense of such action on
behalf of such Indemnified Party or Parties and the fees and expenses of
such counsel shall be paid by the Indemnifying Party. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with
the consent of each Indemnified Party (which consent shall not be
unreasonably withheld, delayed or conditioned), consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim
or litigation. Each Indemnified Party shall (i) furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom
and (ii) reasonably assist the Indemnifying Party in any such defense,
provided that the Indemnified Party shall not be required to expend its
funds in connection with such assistance.
(d) No Shareholder shall be required to participate in a registration
pursuant to which it would be required to execute an underwriting agreement
in connection with a registration effected by (S)2 which imposes
indemnification obligations on such Shareholder more onerous than those
imposed hereunder; provided, however the Company shall not be deemed to
breach the provisions of (S)2 if a Shareholder is not permitted to
participate in a registration on account of his refusal to execute an
underwriting agreement on the basis of this subsection (d).
(S)7. Shareholder Information; Further Assurances. Each Shareholder
-------------------------------------------
with Registrable Securities included in any registration, or requesting
inclusion in any registration, shall furnish to the Company such information
regarding such Shareholder and the distribution proposed by such Shareholder as
the Company may reasonably request and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this agreement, or in connection with an opinion or "no-action" letter of the
type described in (S)8, below, or otherwise required by applicable state or
federal securities laws. Each Shareholder shall execute such documents and take
such other actions consistent with this agreement which may be reasonably
requested by the Company.
(S)8. Exception to Registration Obligation. Notwithstanding any other
------------------------------------
provisions of this agreement to the contrary, the Company shall not be required
to effect a registration under this agreement with respect to Registrable
Securities held by any Shareholder if: (i) in the written opinion of counsel
for the Company, which counsel and the opinion so rendered shall be reasonably
acceptable
7
<PAGE>
to such Shareholder, such Shareholder may sell without registration all
Registrable Securities for which such Shareholder requested registration under
the provisions of this agreement, in the quantity in which the Registrable
Securities were proposed to be sold (whether under Rule 144 or otherwise); or
(ii) the Company shall have obtained from the Commission a "no-action" letter to
that effect.
(S)9. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may permit the sale of
restricted securities (as that term is used in Rule 144) to the public without
registration, the Company shall:
(a) Make and keep public information available as those terms are
defined in Rule 144, at all times from and after 90 days following the IPO
Date;
(b) Use all commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of
the Company under the Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(c) So long as a Shareholder owns any restricted securities, furnish
to that Shareholder upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time
from and after ninety days following the IPO Date) and of the Act and
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as that Shareholder
may reasonably request in availing itself of any rules or regulation of the
Commission allowing a Shareholder to sell any such securities without
registration.
(S)10. Remedies. The Company and the Shareholder recognize and agree
--------
that they may not have an adequate remedy if any of them fails to comply with
the provisions of this agreement, and that damages will not be readily
ascertainable, and each of them expressly agrees that in the event of such
failure the other parties shall be entitled to seek specific performance of the
defaulting party's obligations hereunder.
(S)11. Restrictions on Transfer. Each Shareholder who seeks to include
------------------------
Registrable Securities in a registration pursuant to this agreement shall, if so
requested by the underwriters who are managing such offering, as a condition
precedent to including Registrable Securities in such offering, execute an
agreement on usual and customary terms pursuant to which such Shareholder agrees
not to sell or otherwise transfer any Common Stock (except pursuant to such
offering) for such period of time following the
8
<PAGE>
consummation of such offering as such underwriters may reasonably request;
provided that such period shall not exceed 180 days.
(S)12. Miscellaneous.
-------------
(a) Any notice, request, or other communication desired or required
to be given to any Party under this agreement shall be in writing and shall
be deemed given when delivered personally to that Party, telecopied (which
is confirmed) to that Party at the telecopy number for that Party set forth
below, mailed by certified mail (return receipt requested) to that Party at
the address for that Party (or at such other address for such Party as such
Party shall have specified in notice to the other Parties) or delivered to
Federal Express or any similar express delivery service for delivery to
that Party at that address:
(i) If to the Company:
American Dental Partners, Inc.
301 Edgewater Place
Suite 320
Wakefield, Massachusetts 01880-1249
ATTN: Gregory A. Serrao, President
Telecopy No.: 617/224-4216
With a copy to:
Baker & Hostetler
65 East Street
Suite 2100
Columbus, Ohio 43215
ATTN: Gary A. Wadman, Esq.
Telecopy No.: 614/462-2616
(ii) If to any Shareholder, to that Shareholder or his agent at the
address or telecopy number (as the case may be) for that
Shareholder or his agent then contained in the Company's records.
(b) The headings of the various sections of this agreement are for
convenience of reference only and shall not limit, alter or otherwise
affect the meaning hereof. Where permitted by the context, each pronoun
used in this agreement shall include the same pronoun in other genders and
numbers and each noun used in this agreement shall include the same noun in
other numbers. This agreement constitutes the entire understanding of the
parties with respect to the subject matter hereof and supersedes all prior
and current understandings and agreements, whether written or oral.
9
<PAGE>
(c) This agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the conflict of
laws provisions thereof.
(d) This agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and
Shareholders owning at least a majority of the Registrable Securities then
owned by all Shareholders.
(e) This agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) This agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without regard to principles of
conflicts of law. If any provisions of this agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any
manner affect or render illegal, invalid or unenforceable or any provision
of this agreement, and this agreement shall be carried out as if any such
illegal, invalid, or unenforceable provision were not contained herein.
(g) This agreement shall be binding upon, inure to the benefit of, and
be enforceable by and against the heirs, personal representatives,
successors, and assigns of each Party.
AMERICAN DENTAL PARTNERS, INC.
By /s/ Gregory A. Serrao
-------------------------------
Gregory A. Serrao, President
[signature lines for Shareholders]
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
10
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This agreement is made effective March 31, 1997, among American Dental
Partners, Inc., a Delaware corporation (the "Company"), and Lakeside Dental
Group, a Louisiana general partnership ("Lakeside").
Background Information
----------------------
A. Concurrently with the execution of this agreement, the Company is
causing its wholly-owned subsidiary, American Dental Partners of Louisiana,
Inc., a Delaware corporation ("American"), to acquire substantially all of the
assets (the "Assets") of Lakeside, pursuant to an Asset Purchase Agreement among
the Company, American, Lakeside, Donald E. Strain, D.D.S., James D. Kiser, Sr.,
D.D.S., Francis T. Giacona, D.D.S., and Anthony Indovina, D.D.S. dated March 31,
1997 (the "Asset Purchase Agreement"). Under the Asset Purchase Agreement, the
consideration being paid to Lakeside consists, in part, of 1,324 shares of
common stock, par value $.01 per share, in the Company (the "ADP Shares").
B. This agreement is being entered into as a condition to the
completion of such acquisition.
Statement of Agreement
----------------------
The parties to this agreement (the "Parties") hereby acknowledge the
foregoing Background Information and agree as follows:
(S)1. Definitions. In addition to other terms defined in other provisions
-----------
of this agreement, as used in this agreement, the following terms shall have the
following meanings, respectively:
(a) "Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
(b) "Commission" means the Securities and Exchange Commission, or
any other federal agency from time to time administering the Act.
(c) "Common Stock" means shares of common stock, par value $.01 per
share, of the Company.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the
<PAGE>
rules and regulations of the Commission thereunder, all as the same shall
be in effect from time to time.
(e) "Holder" means a person who is then a record owner of
Registrable Securities.
(f) "IPO" means the first sale of Common Stock pursuant to a public
offering (including without limitation one for the assets or securities of
other companies) pursuant to a registration statement under the Act, and
"IPO Date" means the date on which the IPO is completed.
(g) "Registrable Securities" means shares of Common Stock which have
not been previously registered for sale under the Act, including without
limitation those issuable upon conversion of the Company's Series A
Convertible Preferred Stock and any securities issued or issuable with
respect to any such shares of Common Stock (i) upon any conversion or
exchange thereof, (ii) by way of stock split or stock dividend, or (iii) in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
(h) The term "register" means to register under the Act and
applicable state securities laws for the purpose of effecting a public sale
of securities, and the term "registration" means a registration of
securities under the Act and applicable state securities laws for the
purpose of effecting a sale of securities.
(i) "Registration Expenses" means all expenses incurred by the
Company in compliance with (S)(S)2 or 4 of this agreement, including
without limitation all registration and filing fees, printing expenses,
transfer taxes, fees and disbursements of accountants and counsel for the
Company, blue-sky fees and expenses (including fees and disbursements of
counsel for the underwriter(s)), fees of transfer agents and registrars,
reasonable fees and disbursements of one counsel for all selling Holders
(selected by Holders owning a majority of all Registrable Securities then
owned by all such Holders), and the expense of any special audits incident
to or required by any such registration.
(j) "Rule 144" means Rule 144 promulgated by the Commission under
the Act.
(k) "Selling Expenses" means all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and any
transfer taxes applicable to such sales.
(l) "Selling Shareholder" means all Holders who are participating in
a registration.
-2-
<PAGE>
(S)2. Piggy Back Registrations.
------------------------
(a) If, after the IPO Date, the Company decides to register any
Registrable Securities, either for its own account or the account of any
Holder exercising registration rights or otherwise (other than a
registration relating solely to a merger, acquisition of assets or
securities or tender or exchange offer, or 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), the Company shall:
(i) Promptly give notice thereof to Lakeside (which notice
shall include the number of shares the Company or other Holder
proposes to register and, if known, the name of the proposed
underwriter and the estimated date of such registration); and
(ii) Use all commercially reasonable efforts to include in
such registration all the Registrable Securities specified in a
request made by Lakeside within 15 days after the date of delivery
of the notice from the Company described in clause (i) above. If the
underwriter advises the Company that marketing considerations
require a limitation on the number of Registrable Securities offered
pursuant to any related registration statement, then the Company may
offer all of the Registrable Securities it proposes to register for
its own account and such limitation on any remaining Registrable
Securities that may, in the opinion of the underwriter, be sold will
be imposed pro rata among all Holders who requested inclusion of
Registrable Securities in such registration (whether under this
agreement, any other similar agreement, or otherwise) in proportion
to the number of Registrable Securities requested to be registered
by each of them, respectively.
(b) The Company shall select the underwriter for any offering made
pursuant to this (S)2.
(S)3. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to
(S)(S)2 or 4 shall be paid by the Company. All Selling Expenses incurred in
connection with any such registration, qualification or compliance shall be
borne by the Holders of the Registrable Securities registered, pro rata on the
basis of the number of their Registrable Securities sold pursuant to such
registration.
-3-
<PAGE>
(S)4. Listing Application. If shares of Common Stock are listed on a
-------------------
national securities exchange or approved for quotation on any over-the-counter
market system, the Company shall, at its expense, include in its listing
application all of the shares of Common Stock of the listed class then owned by
Lakeside.
(S)5. Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this agreement, the Company shall keep
Lakeside, if it has Registrable Securities included in any such registration,
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company shall as promptly as
practicable do the following for the benefit of Lakeside:
(a) Keep such registration effective for a period of 120 days or
until Lakeside has completed the distribution described in the registration
statement relating thereto, whichever first occurs, and amend or supplement
such registration statement and the prospectus contained therein from time
to time to the extent necessary to comply with the Act and applicable state
securities laws;
(b) Use all commercially reasonable efforts to register or qualify
the Registrable Securities covered by such registration under the
applicable securities or "blue sky" laws of such jurisdictions as Lakeside
may reasonably request; provided that the Company shall not be obligated to
qualify to do business in any jurisdiction where it is not then so
qualified or otherwise required to be so qualified or to take any action
which would subject it to the service of process in suits other than those
arising out of such registration or which would subject it to taxation in
such jurisdiction;
(c) Furnish such number of conformed copies of such registration
statement and of each amendment or supplement thereto (in each case
including all exhibits and documents filed therewith), such number of
copies of the prospectus included in such registration statements
(including each preliminary prospectus and summary prospectus), such
documents incorporated by reference in such registration statement or
prospectus and such other documents incident thereto as Lakeside from time
to time may reasonably request;
(d) To the extent then permitted under applicable professional
guidelines and standards, use all reasonable efforts to obtain a comfort
letter from the Company's independent public accountants in customary form
and covering such matters of the type customarily covered by comfort
letters and an opinion from the Company's counsel in customary form and
covering such matters of the type customarily covered in a public issuance
of securities and provide copies thereof to Lakeside; and
-4-
<PAGE>
(e) Permit the counsel to the selling Holders whose expenses are
being paid pursuant to (S)3 hereof to participate in the registration
statement preparation process and to inspect and copy such corporate
documents as he may reasonably request.
(S)6. Indemnification.
---------------
(a) The Company shall indemnify Lakeside with respect to
registration, qualification or compliance effected pursuant to this
agreement against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) prepared by the Company incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein (in light of
the circumstances under which they were made, in the case of any
prospectus) not misleading, or any violation by the Company of the Act or
the Exchange Act or securities act of any state 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,
qualification or compliance, and shall reimburse Lakeside for any legal and
any other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, whether or not
resulting in any liability, provided that the Company shall not be liable
in any such case to the extent that: (i) any such claim, loss, liability or
expense arises out of or is based on any untrue statement (or alleged
untrue statement) or omission (or alleged omission) made in such
prospectus, offering circular or other document in reliance upon and in
conformity with any written information furnished to the Company by
Lakeside or any underwriter expressly for use therein; or (ii) in the case
of a sale directly by Lakeside (including without limitation a sale through
any underwriter retained by Lakeside), it arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission that was contained in a preliminary prospectus or other
preliminary document and corrected in a final or amended prospectus or
other document and Lakeside failed to deliver a copy of the final or
amended document at or prior to the confirmation of the sale of the
applicable securities to the person asserting such claim, loss, damage,
liability, or action.
(b) Lakeside shall, if Registrable Securities held by it are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the
-5-
<PAGE>
Company, each of its directors and officers and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
the Act and the rules and regulations thereunder, each other Holder and
each of their officers, directors and partners, and each person controlling
such Holder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or
any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein
(in light of the circumstances under which they were made, in the case of
any prospectus) not misleading, and will reimburse the Company and each
such Holder's directors, officers, partners, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, whether or not resulting in liability, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by Lakeside; provided, however, that the obligations of Lakeside
hereunder shall be limited to an amount equal to the net proceeds received
by Lakeside upon sale of its securities.
(c) Each party entitled to indemnification under this (S)6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, but the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations under this (S)6
(except and to the extent the Indemnifying Party has been prejudiced as a
consequence thereof). The Indemnifying Party will be entitled to
participate in, and to the extent that it may elect by written notice
delivered to the Indemnified Party promptly after receiving the aforesaid
notice from such Indemnified Party, at its expense to assume, the defense
of any such claim or any litigation resulting therefrom, with counsel
reasonably satisfactory to such Indemnified Party; provided that the
Indemnified Party may participate in such defense at its expense,
notwithstanding the assumption of such defense by the Indemnifying Party;
and provided, further, that if the defendants in any such action shall
include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be legal
defenses available to it and/or other Indemnified
-6-
<PAGE>
Parties which are different from or additional to those available to the
Indemnifying Party, the Indemnified Party shall have the right to select
separate counsel to assert such legal defenses and to otherwise participate
in the defense of such action on behalf of such Indemnified Party or
Parties and the fees and expenses of such counsel shall be paid by the
Indemnifying Party. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified
Party (which consent shall not be unreasonably withheld, delayed or
conditioned), consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party
shall (i) furnish such information regarding itself or the claim in
question as an Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom and (ii) reasonably assist the Indemnifying
Party in any such defense, provided that the Indemnified Party shall not be
required to expend its funds in connection with such assistance.
(d) Lakeside shall not be required to participate in a registration
pursuant to which it would be required to execute an underwriting agreement
in connection with a registration effected by (S)2 which imposes
indemnification obligations on Lakeside more onerous than those imposed
hereunder; provided, however the Company shall not be deemed to breach the
provisions of (S)2 if Lakeside is not permitted to participate in a
registration on account of its refusal to execute an underwriting agreement
on the basis of this subsection (d).
(S)7. Lakeside Information; Further Assurances. If Lakeside has
----------------------------------------
Registrable Securities included in any registration, or requests inclusion in
any registration, Lakeside shall furnish to the Company such information
regarding Lakeside and the distribution proposed by Lakeside as the Company may
reasonably request and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this agreement, or in
connection with an opinion or "no-action" letter of the type described in (S)8,
below, or otherwise required by applicable state or federal securities laws.
Lakeside shall execute such documents and take such other actions consistent
with this agreement which may be reasonably requested by the Company.
(S)8. Exception to Registration Obligation. Notwithstanding any other
------------------------------------
provisions of this agreement to the contrary, the Company shall not be required
to effect a registration under this agreement with respect to Registrable
Securities held by Lakeside if: (i) in the written opinion of counsel for the
Company, which counsel and the opinion so rendered shall be reasonably
acceptable to Lakeside,
-7-
<PAGE>
Lakeside may sell without registration all Registrable Securities for which
Lakeside requested registration under the provisions of this agreement, in the
quantity in which the Registrable Securities were proposed to be sold (whether
under Rule 144 or otherwise); or (ii) the Company shall have obtained from the
Commission a "no-action" letter to that effect.
(S)9. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may permit the sale of
restricted securities (as that term is used in Rule 144) to the public without
registration, the Company shall:
(a) Make and keep public information available as those terms are
defined in Rule 144, at all times from and after 90 days following the IPO
Date;
(b) Use all commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of
the Company under the Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(c) So long as Lakeside owns any restricted securities, furnish to
Lakeside upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from
and after 90 days following the IPO Date) and of the Act and Exchange Act
(at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed as Lakeside may reasonably request in
availing itself of any rules or regulations of the Commission allowing
Lakeside to sell any such securities without registration.
(S)10. Remedies. The Company and Lakeside recognize and agree that they
--------
may not have an adequate remedy if either of them fails to comply with the
provisions of this agreement, and that damages will not be readily
ascertainable, and each of them expressly agrees that in the event of such
failure the other parties shall be entitled to seek specific performance of the
defaulting party's obligations hereunder.
(S)11. Restrictions on Transfer. If Lakeside seeks to include Registrable
------------------------
Securities in a registration pursuant to this agreement, Lakeside shall, if so
requested by the underwriters who are managing such offering, as a condition
precedent to including Registrable Securities in such offering, execute an
agreement on usual and customary terms pursuant to which Lakeside agrees not to
sell or otherwise transfer any Common Stock (except pursuant to such offering)
for such period of time following the consummation of such offering as such
underwriters may reasonably request; provided that such period shall not exceed
180 days.
-8-
<PAGE>
(S)12. Miscellaneous.
-------------
(a) All notices and other communications required or desired to be
given to any Party under this agreement shall be in writing and shall be
deemed given when delivered personally, telecopied (which is confirmed) to
that Party at the telecopy number for that Party set forth below, three
days after having been mailed by certified mail (return receipt requested)
to that Party at the address for that Party (or at such other address for
such Party as such Party shall have specified in notice to the other
Parties) or one day after having been delivered to Federal Express, UPS, or
any similar express delivery service for delivery to that Party at that
address:
(i) If to the Company:
American Dental Partners, Inc.
301 Edgewater Place
Suite 320
Wakefield, Massachusetts 01880-1249
ATTN: Gregory A. Serrao, President
Telecopy No.: 617/224-4216
With a copy to:
Baker & Hostetler
65 East Street
Suite 2100
Columbus, Ohio 43215
ATTN: Gary A. Wadman, Esq.
Telecopy No.: 614/462-2616
(ii) If to Lakeside:
Lakeside Dental Group
3000 West Esplanade Avenue
Metairie, Louisiana 70002
ATTN: Nancy J. Meek
Telecopy No.: 504/833-0813
With a copy to:
Locke Purnell Rain Harrell
Pan American Life Center
601 Poydras Street
Suite 2400
New Orleans, Louisiana 70130
ATTN: Donna D. Fraiche, Esq.
Telecopy No.: 504/558-5200
-9-
<PAGE>
(b) The headings of the various sections of this agreement are for
convenience of reference only and shall not limit, alter or otherwise
affect the meaning hereof. Where permitted by the context, each pronoun
used in this agreement shall include the same pronoun in other genders and
numbers and each noun used in this agreement shall include the same noun in
other numbers. This agreement constitutes the entire understanding of the
Parties with respect to the subject matter hereof and supersedes all prior
and current understandings and agreements, whether written or oral.
(c) This agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to the
conflict of laws provisions thereof.
(d) This agreement may not be amended or modified, and no
provision hereof may be waived, without the written consent of the Company
and Lakeside.
(e) This agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) If any provisions of this agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any
manner affect or render illegal, invalid or unenforceable any other
provision of this agreement, and this agreement shall be carried out as if
any such illegal, invalid, or unenforceable provision were not contained
herein.
(g) This agreement shall be binding upon, inure to the benefit of,
and be enforceable by and against the heirs, personal representatives,
successors, and assigns of each Party.
AMERICAN DENTAL PARTNERS, INC. LAKESIDE DENTAL GROUP
By /s/ Gregory A. Serrao By /s/ Donald E. Strain
---------------------------- ----------------------------
Gregory A. Serrao, President Printed Name Donald E. Strain
------------------
Its General Partner
---------------------------
-10-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This agreement is made effective May 22, 1997, between American Dental
Partners, Inc., a Delaware corporation (the "Company"), and Abel J. Soster, DMD
("Dr. Soster").
Background Information
----------------------
A. Concurrently with the execution of this agreement, the Company is
acquiring from Dr. Soster all of the outstanding capital stock of Soster Dental,
Inc., a Pennsylvania corporation, fka Soster Dental Association, P.A.
("Soster"), pursuant to a Stock Purchase Agreement dated May 22, 1997, among the
Company, Dr. Soster, and Soster (the "Purchase Agreement"). Under the Purchase
Agreement, the consideration being paid to Dr. Soster consists, in part, of
2,353 shares of common stock, par value $.01 per share, in the Company (the "ADP
Shares").
B. This agreement is being entered into as a condition to the completion
of such acquisition.
Statement of Agreement
----------------------
The parties to this agreement (the "Parties") hereby acknowledge the
foregoing Background Information and agree as follows:
(S)1. Definitions. In addition to other terms defined in other provisions
-----------
of this agreement, as used in this agreement, the following terms shall have the
following meanings, respectively:
(a) "Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
(b) "Commission" means the Securities and Exchange Commission, or
any other federal agency from time to time administering the Act.
(c) "Common Stock" means shares of common stock, par value $.01 per
share, of the Company.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to
time.
(e) "Holder" means a person who is then a record owner of
Registrable Securities.
<PAGE>
(f) "IPO" means the first sale of Common Stock pursuant to a public
offering (including without limitation one for the assets or securities of
other companies) pursuant to a registration statement under the Act, and
"IPO Date" means the date on which the IPO is completed.
(g) "Registrable Securities" means shares of Common Stock which
have not been previously registered for sale under the Act, including
without limitation those issuable upon conversion of the Company's Series A
Convertible Preferred Stock and any securities issued or issuable with
respect to any such shares of Common Stock (i) upon any conversion or
exchange thereof, (ii) by way of stock split or stock dividend, or (iii) in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
(h) The term "register" means to register under the Act and
applicable state securities laws for the purpose of effecting a public sale
of securities, and the term "registration" means a registration of
securities under the Act and applicable state securities laws for the
purpose of effecting a sale of securities.
(i) "Registration Expenses" means all expenses incurred by the
Company in compliance with (S)(S)2 or 4 of this agreement, including
without limitation all registration and filing fees, printing expenses,
transfer taxes, fees and disbursements of accountants and counsel for the
Company, blue-sky fees and expenses (including fees and disbursements of
counsel for the underwriter(s)), fees of transfer agents and registrars,
reasonable fees and disbursements of one counsel for all selling Holders
(selected by Holders owning a majority of all Registrable Securities then
owned by all such Holders), and the expense of any special audits incident
to or required by any such registration.
(j) "Rule 144" means Rule 144 promulgated by the Commission under
the Act.
(k) "Selling Expenses" means all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and any
transfer taxes applicable to such sales.
(l) "Selling Shareholder" means all Holders who are participating
in a registration.
(S)2. Piggy Back Registrations.
------------------------
(a) If, after the IPO Date, the Company decides to register any
Registrable Securities, either for its own account or the account of any
Holder exercising registration
-2-
<PAGE>
rights or otherwise (other than a registration relating solely to a merger,
acquisition of assets or securities or tender or exchange offer, or 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), the Company shall:
(i) Promptly give notice thereof to Dr. Soster (which notice
shall include the number of shares the Company or other Holder
proposes to register and, if known, the name of the proposed
underwriter); and
(ii) Use all commercially reasonable efforts to include in
such registration all the Registrable Securities specified in a
request made by Dr. Soster within 15 days after the date of delivery
of the notice from the Company described in clause (i) above. If the
underwriter advises the Company that marketing considerations require
a limitation on the number of Registrable Securities offered pursuant
to any related registration statement, then the Company may offer all
of the Registrable Securities it proposes to register for its own
account and such limitation on any remaining Registrable Securities
that may, in the opinion of the underwriter, be sold will be imposed
pro rata among all Holders who requested inclusion of Registrable
Securities in such registration (whether under this agreement, any
other similar agreement, or otherwise) in proportion to the number of
Registrable Securities requested to be registered by each of them,
respectively.
(b) The Company shall select the underwriter for any offering made
pursuant to this (S)2.
(S)3. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to
(S)(S)2 or 4 shall be paid by the Company. All Selling Expenses incurred in
connection with any such registration, qualification or compliance shall be
borne by the Holders of the Registrable Securities registered, pro rata on the
basis of the number of their Registrable Securities so registered.
(S)4. Listing Application. If shares of Common Stock are listed on a
-------------------
national securities exchange or approved for quotation on any over-the-counter
market system, the Company shall, at its expense, include in its listing
application all of the shares of Common Stock of the listed class then owned by
Dr. Soster.
(S)5. Registration Procedures. In the case of each registration effected
-----------------------
by the Company pursuant to this agreement,
-3-
<PAGE>
the Company shall keep Dr. Soster, if he has Registrable Securities included in
any such registration, advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense, the Company
shall as promptly as practicable do the following for the benefit of Dr. Soster:
(a) Keep such registration effective for a period of 120 days or
until Dr. Soster has completed the distribution described in the
registration statement relating thereto, whichever first occurs, and amend
or supplement such registration statement and the prospectus contained
therein from time to time to the extent necessary to comply with the Act
and applicable state securities laws;
(b) Use all commercially reasonable efforts to register or qualify
the Registrable Securities covered by such registration under the
applicable securities or "blue sky" laws of such jurisdictions as Dr.
Soster may reasonably request; provided that the Company shall not be
obligated to qualify to do business in any jurisdiction where it is not
then so qualified or otherwise required to be so qualified or to take any
action which would subject it to the service of process in suits other than
those arising out of such registration or which would subject it to
taxation in such jurisdiction;
(c) Furnish such number of conformed copies of such registration
statement and of each amendment or supplement thereto (in each case
including all exhibits and documents filed therewith), such number of
copies of the prospectus included in such registration statements
(including each preliminary prospectus and summary prospectus), such
documents incorporated by reference in such registration statement or
prospectus and such other documents incident thereto as Dr. Soster from
time to time may reasonably request;
(d) To the extent then permitted under applicable professional
guidelines and standards, use all reasonable efforts to obtain a comfort
letter from the Company's independent public accountants in customary form
and covering such matters of the type customarily covered by comfort
letters and an opinion from the Company's counsel in customary form and
covering such matters of the type customarily covered in a public issuance
of securities and provide copies thereof to Dr. Soster; and
(e) Permit the counsel to the selling Holders whose expenses are
being paid pursuant to (S)3 hereof to participate in the registration
statement preparation process and to inspect and copy such corporate
documents as he may reasonably request.
-4-
<PAGE>
(S)6. Indemnification.
---------------
(a) The Company shall indemnify Dr. Soster with respect to
registration, qualification or compliance effected pursuant to this
agreement against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) prepared by the Company incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein (in light of
the circumstances under which they were made, in the case of any
prospectus) not misleading, or any violation by the Company of the Act or
the Exchange Act or securities act of any state 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,
qualification or compliance, and shall reimburse Dr. Soster for any legal
and any other expenses reasonably incurred in connection with investigating
and defending any such claim, loss, damage, liability or action, whether or
not resulting in any liability, provided that the Company shall not be
liable in any such case to the extent that: (i) any such claim, loss,
liability or expense arises out of or is based on any untrue statement (or
alleged untrue statement) or omission (or alleged omission) made in such
prospectus, offering circular or other document in reliance upon any
written information furnished to the Company by Dr. Soster or any
underwriter expressly for use therein; or (ii) in the case of a sale
directly by Dr. Soster (including without limitation a sale through any
underwriter retained by Dr. Soster), it arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission that was contained in a preliminary prospectus or other
preliminary document and corrected in a final or amended prospectus or
other document and Dr. Soster failed to deliver a copy of the final or
amended document at or prior to the confirmation of the sale of the
applicable securities to the person asserting such claim, loss, damage,
liability, or action.
(b) Dr. Soster shall, if Registrable Securities held by it are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors
and officers and each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the
Company or such underwriter within the meaning of the Act and the rules and
regulations thereunder, each other Holder and each of their officers,
directors and partners, and each
-5-
<PAGE>
person controlling such Holder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein (in light of the circumstances under which they were made, in the
case of any prospectus) not misleading, and will reimburse the Company and
each such Holder's directors, officers, partners, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, whether or not resulting in liability, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by Dr. Soster; provided, however, that the obligations of Dr.
Soster hereunder shall be limited to an amount equal to the net proceeds
received by Dr. Soster upon sale of his securities.
(c) Each party entitled to indemnification under this (S)6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, but the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations under this (S)6
(except and to the extent the Indemnifying Party has been prejudiced as a
consequence thereof). The Indemnifying Party will be entitled to
participate in, and to the extent that it may elect by written notice
delivered to the Indemnified Party promptly after receiving the aforesaid
notice from such Indemnified Party, at its expense to assume, the defense
of any such claim or any litigation resulting therefrom, with counsel
reasonably satisfactory to such Indemnified Party; provided that the
Indemnified Party may participate in such defense at its expense,
notwithstanding the assumption of such defense by the Indemnifying Party;
and provided, further, that if the defendants in any such action shall
include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be legal
defenses available to it and/or other Indemnified Parties which are
different from or additional to those available to the Indemnifying Party,
the Indemnified Party shall have the right to select separate counsel to
assert such legal defenses and to otherwise participate in the defense of
such action on behalf of such Indemnified Party or Parties and
-6-
<PAGE>
the fees and expenses of such counsel shall be paid by the Indemnifying
Party. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party (which
consent shall not be unreasonably withheld, delayed or conditioned),
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. Each Indemnified Party shall (i)
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with defense of such claim and litigation
resulting therefrom and (ii) reasonably assist the Indemnifying Party in
any such defense, provided that the Indemnified Party shall not be required
to expend its funds in connection with such assistance.
(d) Dr. Soster shall not be required to participate in a
registration pursuant to which he would be required to execute an
underwriting agreement in connection with a registration effected by (S)2
which imposes indemnification obligations on Dr. Soster more onerous than
those imposed hereunder; provided, however the Company shall not be deemed
to breach the provisions of (S)2 if Dr. Soster is not permitted to
participate in a registration on account of his refusal to execute an
underwriting agreement on the basis of this subsection (d).
(S)7. Dr. Soster Information; Further Assurances. If Dr. Soster has
------------------------------------------
Registrable Securities included in any registration, or requests inclusion in
any registration, Dr. Soster shall furnish to the Company such information
regarding Dr. Soster and the distribution proposed by Dr. Soster as the Company
may reasonably request and as shall be reasonably required in connection with
any registration, qualification or compliance referred to in this agreement, or
in connection with an opinion or "no-action" letter of the type described in
(S)8, below, or otherwise required by applicable state or federal securities
laws. Dr. Soster shall execute such documents and take such other actions
consistent with this agreement which may be reasonably requested by the Company.
(S)8. Exception to Registration Obligation. Notwithstanding any other
------------------------------------
provisions of this agreement to the contrary, the Company shall not be required
to effect a registration under this agreement with respect to Registrable
Securities held by Dr. Soster if: (i) in the written opinion of counsel for the
Company, which counsel and the opinion so rendered shall be reasonably
acceptable to Dr. Soster, Dr. Soster may sell without registration all
Registrable Securities for which Dr. Soster requested registration under the
provisions of this agreement, in the quantity in which the Registrable
Securities were proposed to be sold (whether under Rule
-7-
<PAGE>
144 or otherwise); or (ii) the Company shall have obtained from the Commission a
"no-action" letter to that effect.
(S)9. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may permit the sale of
restricted securities (as that term is used in Rule 144) to the public without
registration, the Company shall:
(a) Make and keep public information available as those terms are
defined in Rule 144, at all times from and after 90 days following the IPO
Date;
(b) Use all commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of
the Company under the Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(c) So long as Dr. Soster owns any restricted securities, furnish
to Dr. Soster upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from
and after 90 days following the IPO Date) and of the Act and Exchange Act
(at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed as Dr. Soster may reasonably request
in availing itself of any rules or regulations of the Commission allowing
Dr. Soster to sell any such securities without registration.
(S)10. Remedies. The Company and Dr. Soster recognize and agree that they
--------
may not have an adequate remedy if either of them fails to comply with the
provisions of this agreement, and that damages will not be readily
ascertainable, and each of them expressly agrees that in the event of such
failure the other parties shall be entitled to seek specific performance of the
defaulting party's obligations hereunder.
(S)11. Restrictions on Transfer. If Dr. Soster seeks to include
------------------------
Registrable Securities in a registration pursuant to this agreement, Dr. Soster
shall, if so requested by the underwriters who are managing such offering, as a
condition precedent to including Registrable Securities in such offering,
execute an agreement on usual and customary terms pursuant to which Dr. Soster
agrees not to sell or otherwise transfer any Common Stock (except pursuant to
such offering) for such period of time following the consummation of such
offering as such underwriters may reasonably request; provided that such period
shall not exceed 180 days.
-8-
<PAGE>
(S)12. Miscellaneous.
-------------
(a) All notices and other communications required or desired to be
given to any Party under this agreement shall be in writing and shall be
deemed given when delivered personally, telecopied (which is confirmed) to
that Party at the telecopy number for that Party set forth below, mailed by
certified mail (return receipt requested) to that Party at the address for
that Party (or at such other address for such Party as such Party shall
have specified in notice to the other Parties) or being delivered to
Federal Express, UPS, or any similar express delivery service for delivery
to that Party at that address:
(i) If to the Company:
American Dental Partners, Inc.
301 Edgewater Place
Suite 320
Wakefield, Massachusetts 01880-1249
ATTN: Gregory A. Serrao, President
Telecopy No.: (617) 224-4216
With a copy to:
Baker & Hostetler
65 East State Street
Suite 2100
Columbus, Ohio 43215
ATTN: Gary A. Wadman, Esq.
Telecopy No.: (614) 462-2616
(ii) If to Dr. Soster:
Soster Dental Association, P.A.
320 Center Road
Monroeville, Pennsylvania 15146
Attention: Abel J. Soster, DMD, Chairman
Telecopy No.: (412) 372-1931
with a copy to:
Bradley J. Franc, Esq.
Houston Harbaugh
12th Floor, Two Chatham Center
Pittsburgh, PA 15219
Telecopy No.: (412) 281-4499
(b) The headings of the various sections of this agreement are for
convenience of reference only and shall not limit, alter or otherwise
affect the meaning hereof. Where permitted by the context, each pronoun
used in this agreement
-9-
<PAGE>
shall include the same pronoun in other genders and numbers and each noun
used in this agreement shall include the same noun in other numbers. This
agreement constitutes the entire understanding of the Parties with respect
to the subject matter hereof and supersedes all prior and current
understandings and agreements, whether written or oral.
(c) This agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the conflict of
laws provisions thereof.
(d) This agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and Dr.
Soster.
(e) This agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) If any provisions of this agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any
manner affect or render illegal, invalid or unenforceable any other
provision of this agreement, and this agreement shall be carried out as if
any such illegal, invalid, or unenforceable provision were not contained
herein.
(g) This agreement shall be binding upon, inure to the benefit of,
and be enforceable by and against the heirs, personal representatives,
successors, and assigns of each Party.
AMERICAN DENTAL PARTNERS, INC.
By /s/ Ronald M. Levenson /s/ Abel J. Soster, DMD
---------------------------- ----------------------------------------
Ronald M. Levenson, Chief ABEL J. SOSTER, DMD
Financial Officer
-10-
<PAGE>
SERVICE AGREEMENT
BETWEEN
PDHC, INC.
and
PDG, P.A.
November 12, 1996
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
ARTICLE I. DEFINITIONS..................................................... 1
-----------
ARTICLE II. APPOINTMENT AND AUTHORITY OF SERVICE COMPANY.................... 1
--------------------------------------------
(S)2.1 Appointment..................................................... 1
-----------
(S)2.2 Authority....................................................... 2
---------
(S)2.3 Patient Referrals............................................... 2
-----------------
(S)2.4 Internal Management of Provider................................. 2
-------------------------------
(S)2.5 Practice of Dentistry........................................... 2
---------------------
ARTICLE III. POLICY BOARD.................................................... 2
------------
(S)3.1 Formation and Operation of Policy Board......................... 3
---------------------------------------
(S)3.2 Responsibilities of the Policy Board............................ 3
------------------------------------
(a) Capital Improvements and Expansion......................... 3
----------------------------------
(b) Budgeting.................................................. 3
---------
(i) Annual Budgets....................................... 3
--------------
(ii) Effect of Certain Changes............................ 4
-------------------------
(iii) Variances............................................ 4
---------
(c) Marketing and Advertising.................................. 4
-------------------------
(d) Patient Fees; Collection Policies.......................... 4
---------------------------------
(e) Provider and Payor Relationships........................... 4
--------------------------------
(f) Strategic and Operational Planning......................... 4
----------------------------------
(g) Capital Expenditures....................................... 4
--------------------
(h) Personnel Planning......................................... 4
------------------
(i) Grievance Referrals........................................ 5
-------------------
(j) Patient Concerns and Claims................................ 5
---------------------------
(k) Environmental Health and Safety............................ 5
-------------------------------
(l) Emergency Care Services.................................... 5
-----------------------
(m) Financial Review........................................... 5
----------------
(n) Provider Acquisitions...................................... 5
---------------------
(o) Other...................................................... 5
-----
(S)3.3 Dental Decisions................................................ 5
----------------
ARTICLE IV. RESPONSIBILITIES OF SERVICE COMPANY............................. 6
-----------------------------------
(S)4.1 Clinics......................................................... 6
-------
(S)4.2 Equipment....................................................... 6
---------
(S)4.4 Supplies........................................................ 7
--------
(S)4.5 Capital Investment.............................................. 7
------------------
(S)4.6 Support Services................................................ 7
----------------
(S)4.7 Quality Assurance, Risk Management, and Utilization Review...... 7
----------------------------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
(S)4.8 Licenses and Permits........................................... 8
--------------------
(S)4.9 Personnel...................................................... 8
---------
(S)4.10 Contract Negotiations.......................................... 8
---------------------
(S)4.11 Billing and Collection......................................... 8
----------------------
(S)4.12 Provider Account............................................... 10
----------------
(a) Power of Attorney......................................... 10
-----------------
(b) Priority of Payments...................................... 10
--------------------
(c) Further Assurances........................................ 10
------------------
(S)4.13 Financial Matters.............................................. 10
-----------------
(a) Annual Budget............................................. 10
-------------
(b) Accounting and Financial Records.......................... 11
--------------------------------
(c) Review of Expenditures.................................... 11
----------------------
(d) Tax Matters............................................... 11
-----------
(i) General............................................. 11
-------
(ii) Sales and Use Taxes................................. 11
-------------------
(S)4.14 Reports and Records............................................ 12
-------------------
(a) Dental Records............................................ 12
--------------
(b) Other Reports and Records................................. 12
-------------------------
(S)4.15 Recruitment of Provider Dentists............................... 12
--------------------------------
(S)4.16 Service Company's Insurance.................................... 12
---------------------------
(S)4.17 License of Name and Marks...................................... 13
-------------------------
(S)4.18 No Warranty.................................................... 13
-----------
ARTICLE V. RESPONSIBILITIES OF PROVIDER................................... 13
----------------------------
(S)5.1 Organization and Operations.................................... 13
---------------------------
(S)5.2 Provider Personnel............................................. 13
------------------
(a) Dentist Personnel......................................... 13
-----------------
(b) Provider and Patient Scheduling........................... 14
-------------------------------
(c) Paid Hours Reporting...................................... 14
--------------------
(d) Non-Dentist Dental Care Personnel......................... 14
---------------------------------
(S)5.3 Professional Standards......................................... 14
----------------------
(S)5.4 Dental Care.................................................... 15
-----------
(S)5.5 Peer Review and Quality Assurance.............................. 15
---------------------------------
(S)5.6 Provider's Insurance........................................... 16
--------------------
(S)5.7 Noncompetition................................................. 16
--------------
(S)5.8 Use of Name.................................................... 17
-----------
ARTICLE VI. CONFIDENTIALITY................................................ 17
---------------
(S)6.1 Confidential and Proprietary Information....................... 17
----------------------------------------
(S)6.2 Use of Practice Statistics..................................... 18
--------------------------
ARTICLE VII. FINANCIAL ARRANGEMENTS......................................... 18
----------------------
(S)7.1 Clinic Expense Reimbursement................................... 18
----------------------------
(S)7.2 Repayment of Advances.......................................... 18
---------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
(S)7.3 Fees........................................................... 18
----
(a) Service Fee............................................... 18
-----------
(b) Performance Fee........................................... 19
---------------
(S)7.4 Adjustments to Fees............................................ 19
-------------------
(S)7.5 Reasonable Value............................................... 19
----------------
(S)7.6 Payment........................................................ 19
-------
(S)7.7 Accounts Receivable............................................ 20
-------------------
ARTICLE VIII. TERM AND TERMINATION........................................... 20
--------------------
(S)8.1 Initial and Renewal Term....................................... 20
------------------------
(S)8.2 Termination.................................................... 20
-----------
(a) Termination By Service Company............................ 20
------------------------------
(b) Termination By Provider................................... 21
-----------------------
(c) Termination by Agreement.................................. 22
------------------------
(d) Legislative, Regulatory or Administrative Change.......... 22
------------------------------------------------
(S)8.3 Effects of Termination......................................... 22
----------------------
(S)8.4 Purchase Obligation............................................ 23
-------------------
(S)8.5 Closing of Purchase............................................ 24
-------------------
ARTICLE IX. GENERAL........................................................ 25
-------
(S)9.1 Administrative Services Only................................... 25
----------------------------
(S)9.2 Relationship of Parties........................................ 25
-----------------------
(S)9.3 Notices........................................................ 26
-------
(S)9.4 Execution of Documents......................................... 26
----------------------
(S)9.5 Governing Law.................................................. 27
-------------
(S)9.6 Severability................................................... 27
------------
(S)9.7 Setoff......................................................... 27
------
(S)9.8 Remedies....................................................... 27
--------
(S)9.9 Non-waiver..................................................... 27
----------
(S)9.10 Indemnification................................................ 28
---------------
(S)9.11 No Third Party Benefit......................................... 28
----------------------
(S)9.12 Captions....................................................... 28
--------
(S)9.13 Genders and Numbers............................................ 28
-------------------
(S)9.14 Complete Agreement............................................. 28
------------------
(S)9.15 Counterparts................................................... 28
------------
(S)9.16 Assignment..................................................... 28
----------
(S)9.17 Successors..................................................... 29
----------
(S)9.18 Force Majeure.................................................. 29
-------------
INDEX TO EXHIBITS............................................................ 30
- -----------------
DEFINITIONS.................................................................. i
- -----------
</TABLE>
iii
<PAGE>
SERVICE AGREEMENT
This agreement is made effective November 12, 1996, between PDHC, Inc., a
Minnesota corporation ("Service Company"), and PDG, P.A., a Minnesota
professional association ("Provider").
Background Information
----------------------
A. Provider operates as a dental practice providing dental services to the
general public in and around the Minneapolis-St. Paul area through individual
dentists who are licensed to practice dentistry in the state of Minnesota and
who are employed or otherwise retained by Provider.
B. Service Company is engaged in the business of providing assets,
personnel, and services to dental practices other than such services as are
directly related to the provision of dental care or the practice of dentistry.
Service Company's services are intended to improve the efficiency and
profitability of dental practices and permit the dentists in such practices to
focus their efforts solely on rendering quality dental care.
C. Provider desires to focus its energies, expertise and time on the
practice of dentistry and on the delivery of dental services to patients. To
accomplish this goal, Provider desires to engage Service Company to provide such
services as are necessary and appropriate for the day-to-day administration of
the non-dental aspects of Provider's dental practice, and Service Company
desires to provide such services to Provider, all upon the terms and subject to
the conditions set forth in this agreement.
Statement of Agreement
----------------------
Service Company and Provider (the "Parties") hereby acknowledge the
accuracy of the foregoing Background Information and agree as follows:
ARTICLE I. DEFINITIONS
-----------
Capitalized terms used in this agreement but not otherwise defined herein
shall have the respective meanings given those terms in the attached Exhibit A.
ARTICLE II. APPOINTMENT AND AUTHORITY OF SERVICE COMPANY
--------------------------------------------
(S)2.1 Appointment. Provider hereby appoints Service Company as its sole
-----------
and exclusive agent for the performance of the Services, and Service Company
hereby accepts such appointment, subject at all times to the provisions of this
agreement.
<PAGE>
(S)2.2 Authority. Service Company shall have all power, authority, and
---------
responsibility reasonably necessary to provide the Services and carry out
Service Company's other obligations under this agreement. Without limiting the
foregoing, Service Company shall have the authority to provide the Services in
any reasonable manner Service Company deems appropriate to meet the day-to-day
requirements of the business functions of Provider. Subject to Article III of
this agreement, Service Company is also expressly authorized to negotiate and
execute on behalf of Provider contracts that do not relate to the provision of
Dental Care. Provider shall give Service Company 30 days prior written notice
of Provider's intent to execute any agreement obligating Provider to perform
Dental Care or otherwise creating a binding legal obligation on Provider.
Unless an expense is expressly designated as a Service Company Expense in this
agreement, all expenses incurred by Service Company in providing services
pursuant to this agreement shall be Clinic Expenses.
(S)2.3 Patient Referrals. The Parties agree that the benefits to Provider
-----------------
hereunder do not require, are not payment for, and are not in any way contingent
upon the referral, admission, treatment, or any other arrangement for the
provision of any item or service offered by Service Company to patients of
Provider in any facility, laboratory, or dental care operation controlled,
managed, or operated by Service Company.
(S)2.4 Internal Management of Provider. Matters involving the tax
-------------------------------
planning, investment planning, and internal management, control, or finances of
Provider, including without limitation the compensation of dentist employees of
Provider, shall remain the sole and exclusive responsibility of Provider and its
shareholders.
(S)2.5 Practice of Dentistry. The Parties acknowledge and agree that: (a)
---------------------
Service Company is not authorized or qualified to engage in any activity that
may be construed or deemed to constitute the practice of dentistry; and (b)
notwithstanding anything in this agreement to the contrary (i) Provider, through
its dentists, shall be solely responsible for and shall have complete authority,
responsibility, supervision, and control over the provision of all Dental Care
and that all Dental Care shall be provided and performed exclusively by or under
the supervision of dentists as such dentists, in their sole discretion, deem
appropriate, (ii) Service Company shall not have or exercise any control or
supervision over the provision of Dental Care, and (iii) to the extent any act
or service required of Service Company under this agreement is reasonably likely
to be construed by a court of competent jurisdiction or by any applicable
governmental agency to constitute the practice of dentistry, the requirement to
perform that act or service by Service Company shall be deemed waived and
unenforceable. For purposes of this agreement and as the context permits, the
term "dentist" shall be deemed to include those individuals licensed by the
State of Minnesota to practice general dentistry or a dental care specialty such
as orthodontics, endodontics, periodontics, prosthodontics, pediatric dentistry,
oral surgery, and oral medicine.
ARTICLE III. POLICY BOARD
------------
2
<PAGE>
(S)3.1 Formation and Operation of Policy Board. The Parties hereby
---------------------------------------
establish a policy board (the "Policy Board") which shall be responsible for
developing and implementing management and administrative policies for the
overall operation of Clinics. The Policy Board shall consist of six members, of
which three members shall be designated by Service Company, in its sole
discretion, and three members shall be designated by Provider; provided that,
unless otherwise agreed by the Parties, the Policy Board members designated by
Provider shall be licensed dentists employed by Provider. Each Party shall have
the right to designate, remove, and replace its Policy Board designees at any
time and from time to time upon notice to the other Party.
Except as may otherwise be expressly provided in this agreement or
any rules, bylaws, or regulations adopted by the Policy Board, the act of a
majority of the members of the Policy Board shall be the act of the Policy
Board. The Policy Board's decisions may be evidenced by either minutes of a
Policy Board meeting or written action taken by the Policy Board members making
the decision; provided that no written action signed by less than all of the
Policy Board members shall be effective unless notice of such action is given to
the Policy Board member who is not signing such action at least two business
days prior to the effective date of such action. The decisions, resolutions, and
actions of the Policy Board shall be binding on both Parties and, together with
the recommendations of the Policy Board, shall be implemented by the Parties, as
appropriate.
The Policy Board shall hold regular meetings at such places and at
such times (not less often than quarterly) as the Policy Board may determine
from time to time. Special Policy Board meetings may be called by either Party
or any two Policy Board members; provided that notice of any meeting which is
not a regularly scheduled meeting shall be given to all Policy Board members at
least five business days prior to the meeting, unless such notice is waived by
the Policy Board members. Policy Board meetings may be held through the use of
telecommunications equipment so long as all members can hear each other clearly.
(S)3.2 Responsibilities of the Policy Board. The Policy Board shall have
------------------------------------
the following duties, responsibilities, and authority:
(a) Capital Improvements and Expansion. Any renovation and expansion
----------------------------------
plans and capital equipment expenditures with respect to Clinics shall be
reviewed and approved by the Policy Board and shall be based upon economic
feasibility, dentist support, productivity, and then-current market conditions.
(b) Budgeting.
---------
(i) Annual Budgets. All annual capital and operating budgets
--------------
prepared in accordance with (S)4.13(a) by Service Company (in consultation with
Provider) shall be subject to the review, comment, and approval of the Policy
Board. Notwithstanding the foregoing sentence, such budgets shall be subject to
the review, comment, and approval of Parent. The
3
<PAGE>
Policy Board shall, upon approving any budget pursuant to this section, deliver
a copy of such approved budget to the Chief Financial Officer of Parent for
Parent's approval.
(ii) [*]
(iii) [*]
(c) Marketing and Advertising. All advertising and other marketing of
-------------------------
the dental services performed at any Clinic shall be subject to the prior review
and approval of the Policy Board.
(d) Patient Fees; Collection Policies. Subject to (S)3.3, as a part of
---------------------------------
the annual operating budget, in consultation with Provider and Service Company,
the Policy Board shall review and make recommendations concerning the fee
schedules and collection policies for all dental and ancillary services rendered
by Provider. Approval of the fee schedules shall be a Dental Decision.
(e) Provider and Payor Relationships. Subject to (S)3.3, decisions
--------------------------------
regarding the establishment or maintenance of contractual relationships between
Provider and outside or institutional dental care providers and third-party
payors shall be subject to the review and recommendations of the Policy Board.
Subject to (S)3.3, all discounted fee practices and schedules, including
individual provider or specialty discount arrangements, preferred provider
organization discounts and capitated fee arrangements, shall be subject to the
review and recommendations of the Policy Board. Where there is no clear
methodology for the allocation of capitated fees among Provider's Dental Care
Professionals, the Policy Board shall recommend the methodology intended to
result in the equitable and appropriate allocation of all related fees
consistent with the type and utilization of Dental Care covered under the
capitation arrangement.
(f) Strategic and Operational Planning. The Policy Board shall review
----------------------------------
and approve the long-term strategic and short-term operational goals, objectives
and plans developed by Service Company.
(g) Capital Expenditures. The Policy Board shall determine the priority
--------------------
of major capital expenditures.
(h) Personnel Planning. The Policy Board shall review and approve
------------------
Provider and support personnel manpower plans developed by Service Company. The
Policy Board shall
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
4
<PAGE>
review and approve any variations to the restrictive covenants in the dentists'
employment or other agreements.
(i) Grievance Referrals. The Policy Board shall consider and make
-------------------
recommendations to the Parties regarding grievances pertaining to matters not
specifically addressed in this agreement as referred to it by key Provider or
Service Company management and supervisory personnel.
(j) Patient Concerns and Claims. The Policy Board shall review, approve
---------------------------
and monitor a patient claims tracking, monitoring and recovery procedure which
shall provide, without limitation, for (i) the timely and appropriate resolution
of all claims and related patient and Provider reimbursement decisions, and (ii)
the distribution of a summary report setting forth the status and proposed
actions with respect to each such claim to Provider and Service Company on a
regular basis. All Dental Care related patient concerns and claims reimbursement
decisions shall be a Provider Expense.
(k) Environmental Health and Safety. The Policy Board shall review,
-------------------------------
approve and monitor environmental and workplace health and safety guidelines,
the goal of which is to achieve compliance with current national, state and
local laws and regulations regarding environmental and workplace health and
safety.
(l) Emergency Care Services. The Policy Board shall review, approve and
-----------------------
periodically make suggestions for improving (i) the organization and delivery of
emergency Dental Care by Provider, and (ii) the process and guidelines for
ensuring an appropriate response by Provider to dental and in-Clinic medical
emergencies as they may occur from time to time.
(m) Financial Review. The Policy Board shall review and monitor the
----------------
financial performance of Provider with respect to the attainment of its budgeted
goals.
(n) Provider Acquisitions. The Policy Board shall have the authority to
---------------------
approve or disapprove any merger or combination with or acquisition of any
dental practice by Provider.
(o) Other. The Policy Board shall have such other duties,
-----
responsibilities, and authority as may be set forth in this agreement or agreed
upon by the Parties from time to time.
(S)3.3 Dental Decisions. Notwithstanding the preceding section or any
----------------
other provisions of this agreement to the contrary, all Dental Decisions
(defined below) will be made solely by the dentist members of the Policy Board;
provided that non-dentist members of the Policy Board may participate in the
analysis and discussion process. For purposes of this agreement, "Dental
Decisions" shall mean decisions relating directly to: (a) types and levels of
Dental Care to be provided; (b) recruitment of dentists for Provider, including
the evaluation of the background, experience, qualifications, specialties, and
other credentials of recruited dentists; (c) fee schedules for Provider's
services, including without limitation Provider's usual and customary
5
<PAGE>
fee schedule; and (d) any other Dental Care related functions or decisions
agreed upon by the Parties.
ARTICLE IV. RESPONSIBILITIES OF SERVICE COMPANY
-----------------------------------
During the Term, Service Company shall provide all such Services as are
necessary and appropriate for the day-to-day administration of the business
aspects of Provider's operations, including without limitation those services
set forth in this Article, provided that all such services shall be subject to
the applicable Budget.
(S)4.1 Clinics
-------
(a) Service Company shall lease, acquire or otherwise procure a Clinic
in such locations as are approved by the Policy Board, taking into consideration
the professional concerns of Provider. The expenses associated with any such
leasing, acquisition, or procurement shall be Clinic Expenses. Any Clinic
procured by Service Company for use by Provider shall be procured at
commercially reasonable rates. Any move from a present Provider practice
location shall be made only after Service Company has received Provider Consent.
(b) In the event Provider is the lessee of a Clinic under a lease with
an unrelated and nonaffiliated lessor, Service Company may require Provider to
assign such lease to Service Company upon receipt of consent from the lessor.
Provider shall exercise all reasonable efforts to assist in obtaining the
lessor's consent to the assignment. Any expenses incurred in the assignment
shall be Clinic Expenses.
(c) Service Company shall be responsible for the repair and maintenance
of each Clinic, in a manner consistent with Service Company's responsibilities
under the terms of any lease or other use arrangement relating to that Clinic,
the costs and expenses of which shall be a Clinic Expense; provided that the
costs and expenses of any repairs or maintenance necessitated by the negligence
or willful misconduct of Provider or its dentists, other personnel, agents, or
invitees shall be a Provider Expense.
(S)4.2 Equipment.
---------
(a) Service Company shall provide all non-dental equipment, fixtures,
office supplies, furniture and furnishings deemed reasonably necessary by
Service Company for the operation of each Clinic and reasonably necessary for
the provision of Dental Care.
(b) Service Company shall provide, finance, or cause to be provided or
financed such dental related equipment as is reasonably required by Provider.
Subject to economic feasibility as set forth in the budgets approved pursuant to
this agreement, Provider shall have final authority in all dental equipment
selections. Service Company may, however, advise Provider on the relationship
between its dental equipment decisions and the overall administrative and
6
<PAGE>
financial operations of the Clinics. Except for Special Dental Supplies
(defined in (S) 4.3, below), all dental and non-dental equipment acquired for
the use of Provider shall be owned by Service Company.
(c) Service Company shall be responsible for repairing, maintaining,
and keeping in reasonably good condition (ordinary wear and tear excepted), and
replacing (as necessary) all equipment provided by Service Company under this
agreement, the cost and expense of which shall be a Clinic Expense; and provided
that the cost and expense for any repairs, maintenance and replacement
necessitated by the negligence or willful misconduct of Provider or its
dentists, other personnel, or agents shall be a Provider Expense.
(S)4.3 Laboratory Services. Service Company shall arrange for laboratory
-------------------
services, including without limitation dental appliance laboratory service,
pathology laboratory service, medical laboratory service, and such other
laboratory services as are reasonably necessary and appropriate for the
operation of each Clinic and the provision of Dental Care therein.
(S)4.4 Supplies. Service Company shall order, procure, purchase, own, and
--------
provide to Provider a reasonable inventory of Ordinary Dental Supplies and
office supplies as are reasonably necessary and appropriate for the operation of
each Clinic and the provision of Dental Care therein. Unless otherwise
prohibited by federal and/or state law, Service Company shall also order,
procure, purchase and provide on behalf of and as agent for Provider all
reasonable Special Dental Supplies required by Provider to provide Dental Care,
the cost of which shall be a Clinic Expense. Service Company shall ensure that
each Clinic is at all times adequately stocked with all such supplies. The
ultimate oversight, supervision and ownership of (a) all office and Ordinary
Dental Supplies is and shall remain the sole responsibility of Service Company,
and (b) all Special Dental Supplies is and shall remain the sole responsibility
of Provider.
(S)4.5 Capital Investment. Access to all needed working capital and
------------------
capital expenditures approved by the Policy Board will be provided by Service
Company. Service Company shall determine the source of capital to be invested,
which may include (a) intracompany borrowings from Parent (at the rate set forth
in clause (j) in the definition of "Clinic Expenses"), and (b) borrowings,
leases, or other financing methods through independent third-party financial
institutions.
(S)4.6 Support Services. Service Company shall provide or arrange for all
----------------
printing, stationery, forms, postage, duplication, facsimile, photocopying, and
data transmission and processing services, information services (including
providing a computer system for clinic functions, billing, communications, and
management), and other support services as are reasonably necessary and
appropriate for the operation of each Clinic and the provision of Dental Care
therein.
(S)4.7 Quality Assurance, Risk Management, and Utilization Review.
----------------------------------------------------------
Service Company shall assist Provider in Provider's establishment and
implementation of procedures to ensure the
7
<PAGE>
consistency, quality, appropriateness, and necessity of Dental Care provided by
Provider, and shall provide administrative support for Provider's overall
quality assurance, risk management, and utilization review programs. Service
Company shall have the authority to monitor Provider's level of conformance with
such procedures and to report its findings to Provider.
(S)4.8 Licenses and Permits. Although Provider shall be solely
--------------------
responsible for obtaining and maintaining all federal, state, and local licenses
and regulatory permits required for or in connection with the operation of
Provider and in connection with the operation of all dental equipment located in
each Clinic, Service Company shall assist Provider with the implementation of a
plan designed to ensure that all such licenses and permits are obtained and
shall provide reasonable assistance to Provider in obtaining the same. Service
Company also shall maintain all licenses and permits required for all equipment
(existing and future) located at each Clinic.
(S)4.9 Personnel. Except as provided in (S)5.2(d) of this agreement and
---------
subject to (S)3.3, Service Company shall employ or otherwise retain and shall be
responsible for recruiting, hiring, and terminating all management,
administrative, supervisory, clerical, secretarial, bookkeeping, accounting,
payroll, dental assistants, hygienists, laboratory technicians and personnel,
and other non-dentist personnel as Service Company deems necessary and
appropriate for Service Company's performance of its duties and obligations
under this agreement. The selection, training, and supervision of: (a) dental
assistants, hygienists, and other clinical personnel to be employed by Service
Company shall be the responsibility of Provider; and (b) all other personnel to
be employed by Service Company shall be the responsibility of Service Company.
Consistent with reasonably prudent personnel management policies, Service
Company shall seek and consider the advice, input, and requests of Provider in
regard to personnel matters. Service Company shall have sole responsibility for
determining the salaries and fringe benefits of such non-professional personnel,
and for withholding all appropriate amounts for income taxes, unemployment
insurance, social security, workers' compensation, and any other withholding
required by applicable law.
(S)4.10 Contract Negotiations. Service Company shall advise Provider with
---------------------
respect to and negotiate, either directly or on Provider's behalf, as
appropriate, such contractual arrangements with third parties as are reasonably
necessary and appropriate for Provider's provision of Dental Care, including
without limitation negotiated price agreements with third party payors,
alternative delivery systems, or other purchasers of group dental care services;
provided that no contract or arrangement regarding the provision of Dental Care
shall be entered into without Provider Consent.
(S)4.11 Billing and Collection. On behalf of and for the account of
----------------------
Provider, Service Company shall establish and maintain credit and billing and
collection policies and procedures, and shall exercise reasonable efforts to
bill and collect in a timely manner all professional and other fees for all
billable Dental Care provided by Dental Care Professionals. Service Company
shall advise and consult with Provider regarding the fees for Dental Care
provided by Provider (including any related discounting policy), it being
understood, however, that Provider shall establish the fees (subject to
(S)3.2(d), above) to be charged for Dental Care and that Service
8
<PAGE>
Company shall have no authority whatsoever with respect to the establishment of
such fees. In connection with the billing and collection services to be
provided hereunder, Provider hereby grants to Service Company, throughout the
Term (and thereafter as provided in (S)8.3), an exclusive special power of
attorney and appoints Service Company as Provider's exclusive true and lawful
agent and attorney-in-fact, and Service Company hereby accepts such special
power of attorney and appointment, for the following purposes:
(a) To bill Provider's patients, in Provider's name and on Provider's
behalf, for all billable Dental Care provided by or on behalf of Provider to
patients.
(b) To bill, in Provider's name and on Provider's behalf, all claims
for reimbursement or indemnification from insurance companies and plans, all
state or federally funded dental benefit plans, and all other third party payors
or fiscal intermediaries for all covered billable Dental Care provided by or on
behalf of Provider to patients.
(c) To collect and receive, in Provider's name and on Provider's
behalf, all accounts receivable generated by such billings and claims for
reimbursement, to administer such accounts including, but not limited to,
extending the time of payment of any such accounts for cash, credit or
otherwise; discharging or releasing the obligors of any such accounts; suing,
assigning or selling at a discount such accounts to collection agencies; or
taking other measures to require the payment of any such accounts; provided,
however, that extraordinary collection measures, such as filing lawsuits,
discharging or releasing obligors, or assigning or selling accounts at a
discount to collection agencies shall not be undertaken without Provider
Consent.
(d) To deposit all amounts collected into the Provider Account which
shall be and at all times remain in Provider's name. Provider shall transfer and
deliver to Service Company all funds received by Provider from patients or third
party payors for Dental Care. Upon receipt by Service Company of any funds from
patients or third party payors or from Provider for Dental Care pursuant to this
agreement, Service Company shall promptly deposit the same into the Provider
Account.
(e) To take possession of, endorse in the name of Provider, and deposit
into the Provider Account any notes, checks, money orders, insurance payments,
and any other instruments received in payment of accounts receivable for Dental
Care.
(f) To sign checks, drafts, bank notes or other instruments on behalf
of Provider, and to make withdrawals from the Provider Account for payments
specified in this agreement and as requested from time to time by Provider.
Upon request of Service Company, Provider shall execute and deliver to the
financial institution at which the Provider Account is maintained such
additional documents or instruments as Service Company may reasonably request to
evidence or effect the special power of attorney granted to Service Company by
Provider pursuant to this section and (S)4.12. The special power of attorney
granted herein is coupled with an interest and shall be irrevocable except with
9
<PAGE>
Service Company's written consent. The irrevocable power of attorney shall
expire when this agreement has been terminated, all accounts receivable
purchased by Service Company pursuant to (S)7.7, if any, have been collected,
and all amounts due to Service Company as described in Article VII have been
paid.
(S)4.12 Provider Account.
----------------
(a) Power of Attorney. Service Company shall have access to the
-----------------
Provider Account solely for the purposes stated herein and shall use all funds
on deposit therein to pay all Clinic Expenses in accordance with the terms of
this agreement. Provider hereby grants to Service Company an exclusive special
power of attorney and appoints Service Company as Provider's true and lawful
agent and attorney-in-fact, throughout the Term (and thereafter as provided in
(S)8.3), and Service Company hereby accepts such special power of attorney and
appointment, to make withdrawals from Provider Account for payments specified in
this agreement and as requested from time-to-time by Provider. Notwithstanding
this exclusive special power of attorney, Provider may, upon reasonable advance
notice to Service Company, request that Service Company draw checks on the
Provider Account for Provider Expenses and such other amounts as may be due to
Provider under this agreement, subject to (S)4.12(b) of this agreement.
Disbursements shall be related to and in such amount so as to ensure that
disbursements made without prior Provider Consent are consistent with the
expenditures authorized by the Budget.
(b) [*]
(c) Further Assurances. Promptly upon request by Service Company,
------------------
Provider shall execute a separate power of attorney in form reasonably
satisfactory to Service Company for the purpose of further confirming or
evidencing the rights granted to Service Company under (S)(S)4.11 and 4.12.
(S)4.13 Financial Matters.
-----------------
(a) Annual Budget. At least 30 days prior to the commencement of each
-------------
calendar year, Service Company, in consultation with Provider, shall prepare and
deliver to the Policy Board for its approval a proposed Budget, setting forth an
estimate of Provider's revenue and expenses for the upcoming calendar year
(including without limitation the Service and Performance Fees associated with
the services provided by Service Company hereunder). The Budget with respect to
the remainder of calendar year 1996 will allocate to Provider Expenses
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
10
<PAGE>
an amount necessary to cover Provider's current obligations to its professional
personnel and its other obligations identified herein, all of which shall be
consistent with such similar expenditures as were incurred by Service Company
prior to the acquisition of Service Company by Parent. [*]
In the event a proposed Budget is disapproved by either the Policy Board or
Parent (pursuant to (S)3.2(b)(i)) or the Policy Board recommends revisions to
the then-current Budget (pursuant to (S)3.2(b)(ii)), Service Company, in
consultation with Provider, shall promptly revise such Budget, taking into
consideration the comments of the Policy Board or Parent, as applicable, and
shall deliver such revised Budget to the Policy Board for approval. In the
event that a proposed Budget has not been approved by both the Policy Board and
Parent by the beginning of the calendar year, the Budget for the prior year
shall be deemed to be adopted as the Budget for the current year until a new
Budget has been approved by both the Policy Board and Parent.
(b) Accounting and Financial Records. Service Company shall establish
--------------------------------
and administer accounting policies and procedures, internal controls, and
systems for the development, preparation, and safekeeping of administrative or
financial records and books of account relating to the business and financial
affairs of Provider, all of which shall be prepared and maintained in accordance
with GAAP. Service Company shall prepare and deliver to Provider, within 90 days
of the end of each calendar year, a balance sheet and an income statement
reflecting the financial status of Provider in regard to the provision of Dental
Care as of the end of such calendar year, all of which shall be prepared in
accordance with GAAP. In addition, Service Company shall prepare or assist in
the preparation of any other financial statements or records as Provider may
reasonably request.
(c) Review of Expenditures. One of Provider's representatives to the
----------------------
Policy Board shall review all expenditures related to the operation of Provider,
but such representative shall not have the power to prohibit or invalidate any
expenditure.
(d) Tax Matters.
-----------
(i) General. Service Company shall prepare or arrange for the
-------
preparation of all tax returns and reports of Provider required by applicable
law, which returns and reports shall be prepared by an accountant reasonably
acceptable to Provider.
(ii) Sales and Use Taxes. Service Company and Provider acknowledge
-------------------
and agree that to the extent that any of the services to be provided by Service
Company hereunder may be subject to any state sales and use taxes, Service
Company may have a legal obligation to collect such taxes from Provider and to
remit the same to the appropriate tax collection authorities. Provider agrees to
pay any and all applicable state sales, use, gross receipts, and
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
11
<PAGE>
other similar taxes and charges (other than taxes on Service Company's net
income) with respect to any amount paid to Service Company hereunder and that
such amounts shall be a Provider Expense.
(S)4.14 Reports and Records.
-------------------
(a) Dental Records. Service Company shall establish, monitor, and
--------------
maintain procedures and policies for the timely creation, preparation, filing
and retrieval of all dental records generated by Provider in connection with
Provider's provision of Dental Care; and, subject to applicable law, shall
ensure that dental records are promptly available to dentists and any other
appropriate persons. All such dental records shall be retained and maintained in
accordance with all applicable state and federal laws relating to the
confidentiality and retention thereof. All dental records shall be and remain
the property of Provider.
(b) Other Reports and Records. Service Company shall timely create,
-------------------------
prepare, and file such additional reports and records as are reasonably
necessary and appropriate for Provider's provision of Dental Care, and shall be
prepared to analyze and interpret such reports and records upon the request of
Provider.
(S)4.15 Recruitment of Provider Dentists. Upon Provider's request,
--------------------------------
Service Company shall perform all services reasonably necessary and appropriate
in connection with the recruitment of professional dental personnel. Service
Company shall provide Provider with model agreements to document Provider's
employment, retention or other service arrangements with such individuals.
However, it shall be and remain the sole and complete responsibility of Provider
to interview, select, contract with (subject to (S)5.2, below), supervise,
control and terminate all dentists performing Dental Care or other professional
services, and Service Company shall have no authority whatsoever with respect to
such activities.
(S)4.16 Service Company's Insurance. Throughout the Term, Service
---------------------------
Company shall, as a Clinic Expense, obtain and maintain with commercial
carriers, or through self-insurance, or some combination thereof: (a)
appropriate worker's compensation coverage for the employees of Service Company
provided pursuant to this agreement; and (b) professional and comprehensive
general liability insurance covering Service Company, Service Company's
personnel, and all of Service Company's equipment in such amounts and on such
terms and conditions as Service Company deems appropriate. Service Company
shall cause Provider to be named as an additional insured on Service Company's
property and casualty insurance policies. Upon the request of Provider, Service
Company shall provide Provider with a certificate evidencing such insurance
coverage. Service Company may also carry, at Service Company's option and as a
Clinic Expense, key person life and disability insurance on any shareholder or
dentist employee of Provider in amounts determined as reasonable and sufficient
by Service Company. Service Company shall be the owner and beneficiary of any
such insurance.
12
<PAGE>
(S)4.17 License of Name and Marks. Service Company hereby grants to
-------------------------
Provider, for the Term, a non-exclusive royalty-free license to use the name
"Park Dental" and all related marks and logos owned by Service Company for the
purpose of fulfilling its obligations hereunder, including without limitation
providing Dental Care to its patients.
(S)4.18 No Warranty. Provider acknowledges that Service Company has not
-----------
made and will not make any representations or warranties, express or implied,
regarding Service Company's services under this agreement or the results of
those services, including without limitation any representations or warranties
that the services provided by Service Company will result in any particular
amount or level of dental practice or income to Provider.
ARTICLE V. RESPONSIBILITIES OF PROVIDER
----------------------------
(S)5.1 Organization and Operations. As a continuing condition of
---------------------------
Service Company's obligations under this agreement, Provider shall at all times
during the Term: (a) be and remain legally organized and operated to provide
Dental Care in a manner consistent with all state and federal laws; (b) operate
and maintain within the Practice Territory a full time practice of dentistry
providing Dental Care in compliance with all applicable federal, state, and
local laws, rules, regulations, ordinances, and orders; (c) maintain and use its
best efforts to enforce its articles or certificate of incorporation (or other
instrument of organization), bylaws, shareholder agreements, and other
organizational documents (hereafter in this (S)5.1 simply "organizational
documents") in the respective forms provided to Service Company prior to
execution of this agreement; (d) have at least three executive officers at the
level of vice president or above who are also dentist employees of Provider; (e)
maintain and use its best efforts to enforce the written employment agreements
and independent contractor agreements described in (S)5.2(a), below; and (f)
not, without Service Company Consent, (i) amend any of its employment agreements
or organizational documents in any material respect or waive any material rights
thereunder, or (ii) engage in any transaction constituting a merger,
consolidation, reorganization, sale or purchase of assets outside of the
ordinary course of business, liquidation, or dissolution. Provider hereby
acknowledges that Service Company would not have entered into this agreement but
for Provider's covenant to maintain such organizational documents and employment
agreements, and Provider shall pay to Service Company, in addition to the
amounts set forth in Article VII, any damages, compensation, payment, or
settlement amounts received by Provider from a dentist who terminates his
employment agreement without cause or whose employment agreement is terminated
by Provider for cause.
(S)5.2 Provider Personnel.
------------------
(a) Dentist Personnel. Provider shall retain, as a Provider Expense
-----------------
and not as a Clinic Expense, that number of dentists during the Term which are
necessary and appropriate, in Provider's sole discretion, to provide Dental Care
to reasonably meet the demand therefor. Provider shall cause each dentist
retained by Provider to hold and maintain a valid and unrestricted license to
practice dentistry in the State of Minnesota, including without limitation any
licenses required for the provision of any specialty dental services, together
with all
13
<PAGE>
necessary or appropriate board or other certifications. Throughout the Term,
Provider shall enter into and maintain a written employment agreement
substantially in the form of Exhibit D for all dentists now and hereafter
employed by Provider; provided that: (i) Provider shall not be obligated to
enter into an employment agreement in the form of Exhibit D with any dentist
whose employment agreement was assigned by Service Company to Provider
contemporaneous with the execution of this agreement, so long as such dentist's
employment agreement remains in effect; (ii) Provider shall, throughout the
Term, enter into and maintain a written employment agreement substantially in
the form of Exhibit C with each dentist of Provider who now or hereafter is
either an executive officer (at a level of vice president or above) of, or
Policy Board member designated by, Provider; and (iii) Provider shall,
immediately upon execution of this agreement, enter into and maintain a written
employment agreement substantially in the form of Exhibit C with each of the
dentists set forth in Exhibit E. Throughout the Term, Provider shall enter into
and maintain a written agreement with each independent contractor retained by
Provider, which agreements shall contain confidentiality provisions
substantially similar to those contained in the employment agreement in the form
of Exhibit D. Provider shall be responsible for paying the compensation and
benefits as applicable, for all dentists and any other dentist personnel or
other contracted or affiliated dentists, and for withholding all sums for income
tax, unemployment insurance, social security, or any other withholding required
by applicable law. Service Company may, on behalf of Provider, administer the
compensation and benefits with respect to such individuals in accordance with
the written agreement between Provider and each dentist. Service Company shall
neither control nor direct any dentist in the performance of Dental Care for
patients. Provider shall provide to Service Company evidence of such licensing,
certifications, and other credentials of the dentists retained by Provider as
Service Company may request from time to time.
(b) Provider and Patient Scheduling. Provider shall, with the
-------------------------------
reasonable assistance of Service Company, (i) develop a set of Provider and
patient scheduling guidelines and a corresponding scheduling system, and (ii)
support Service Company in the implementation of such guidelines and effective
operation of such system.
(c) Paid Hours Reporting. Provider shall support the development and
--------------------
effective operation by Service Company of a dentist paid hours reporting and
monitoring system.
(d) Non-Dentist Dental Care Personnel. All non-dentist personnel who
---------------------------------
provide Dental Care, including without limitation dental hygienists, denturists,
dental assistants, and other licensed or certified personnel shall be under such
control, supervision and direction of Provider and the dentists retained by
Provider in the performance of or in connection with Dental Care for patients as
is required under applicable state law and regulations.
(S)5.3 Professional Standards. As a continuing condition of Service
----------------------
Company's obligations hereunder, each dentist retained by Provider to provide
Dental Care must: (i) have and maintain a valid and unrestricted license to
practice dentistry in the state; and (ii) comply with, be controlled and
governed by, and otherwise provide Dental Care in accordance with
14
<PAGE>
applicable federal, state and municipal laws, rules, regulations, ordinances and
orders, and the ethics and standard of care of the dental profession.
(S)5.4 Dental Care. Provider shall ensure that dentists and non-dentist
-----------
dental care personnel are available in sufficient numbers as are necessary or
appropriate to provide Dental Care to reasonably meet the demand for such Dental
Care. In the event that dentists employed by, or shareholders of, Provider are
not available to provide Dental Care coverage, Provider shall engage and retain
dentists on a temporary coverage basis, which dentists shall meet or exceed the
qualifications required for Provider's Dental Care Professionals under this
agreement. All costs and expenses associated with the retention of such
temporary coverage shall be Provider Expenses. With the assistance of the
Service Company, Provider and the dentists shall be responsible for scheduling
dentist and non-dentist dental care personnel coverage of all dental procedures.
Provider shall cause all dentists to exert their best efforts to develop and
promote Provider in such a manner as to ensure Provider is able to serve the
diverse needs of the community. Provider shall organize and maintain a high
quality, cost-effective process for ensuring that patients will have timely
access to emergency Dental Care on a 24-hour, seven day per week basis.
(S)5.5 Peer Review and Quality Assurance. Provider shall conduct its peer
---------------------------------
review and quality assurance activities in a manner that is consistent with
maintaining the confidentiality of the related processes, actions, and
documentation.
(a) Provider shall designate a committee of dentists to function as a
dental peer review committee to review credentials of potential dentist
recruits, periodically review the credentials of Provider's existing dentists,
determine the practice privileges of the dentists retained by Provider, perform
quality assurance, utilization review, and Provider profiling functions, and
otherwise resolve dental competency issues. The dental peer review committee
shall function pursuant to formal written policies and procedures established by
Provider upon consultation with and the assistance of Service Company.
(b) Provider also shall adopt a quality assurance program to monitor
and evaluate the quality and cost-effectiveness of the Dental Care provided by
the dentist personnel of Provider and other non-dentist personnel providing
Dental Care under the supervision of Provider's dentists. Upon request of
Provider, Service Company shall provide administrative assistance to Provider in
performing its quality assurance activities.
(c) Provider shall cooperate fully with Service Company in an effort to
achieve and maintain full accreditation status for Provider. For purposes of
facilitating accreditation and other related processes and without limiting
Provider's responsibilities under the preceding sentence, Provider shall develop
and maintain a philosophy of practice and a set of practice guidelines which are
acceptable to the Policy Board. Provider shall cause all personnel retained by
it to abide by such philosophy and guidelines at all times.
15
<PAGE>
(d) Provider shall, at the direction of the Policy Board, support the
development, maintenance, and operation of a patient concerns and claims
recording, reporting, review, resolution, and tracking process which is
acceptable to the Policy Board. Provider shall cause all personnel retained by
it to comply fully with such process at all times.
(e) Provider shall, with the assistance of Service Company, develop a set
of quality standards and utilization, process monitoring, and reporting
guidelines. Provider shall cause all personnel retained by it to comply with
such standards and guidelines.
(S)5.6 Provider's Insurance. Provider shall, obtain and maintain with
--------------------
commercial carriers reasonably acceptable to Service Company or through self
insurance or some combination thereof (reasonably acceptable to Service Company)
appropriate workers' compensation coverage for Provider's employed personnel
(which shall be a Provider Expense) and professional and comprehensive general
liability insurance covering Provider and each of the dentists Provider retains
to provide Dental Care (which shall be a Clinic Expense). All costs, expenses,
and liabilities incurred by Provider or Service Company in excess of the limits
of such policies shall be a Provider Expense. Provider shall actively support
the participation of all dentists retained by Provider in training and
continuing education programs in order to reduce the risk of exposure to and the
related cost of obtaining and maintaining such coverage. The comprehensive
general liability coverage and professional liability coverage shall be in such
minimum amounts as Service Company may establish from time to time. In
addition, Provider shall cause each dentist retained by Provider as an
independent contractor to obtain comparable professional and comprehensive
general liability insurance coverage. All such insurance policies shall name
Service Company as an additional insured and provide for at least 30 days
advance written notice to Provider and Service Company from the insurer with
respect to any alteration of coverage, cancellation, or proposed cancellation
for any reason. Provider shall cause to be issued to Service Company by such
insurer or insurers a certificate reflecting such coverage. Upon the
termination of this agreement for any reason, Provider shall continue to carry
professional liability insurance in the amounts specified in this section for 10
years after termination, or if Provider dissolves or ceases to practice
dentistry, Provider shall obtain and maintain as a Provider Expense "tail"
professional liability coverage, in the amounts specified in this section for an
extended reporting period of 10 years. Provider shall be responsible for paying
all premiums for "tail" insurance coverage. In no event shall the professional
liability insurance carrier be replaced or changed without Service Company
Consent. Service Company shall provide reasonable assistance to Provider to
obtain such coverage.
(S)5.7 Noncompetition. Provider acknowledges that Service Company will
--------------
incur substantial costs in providing the equipment, support services, personnel,
and other items and services that are the subject matter of this agreement and
that in the process of providing services under this agreement, Provider will
learn or have access to financial and other Confidential Information of Service
Company to which Provider would not otherwise be exposed. Provider also
recognizes that the services to be provided by Service Company will be feasible
only if Provider operates an active practice to which the dentists associated
with Provider devote their full time and attention. Accordingly, Provider
further agrees as follows:
16
<PAGE>
(a) During the Term, except for its obligations under this agreement,
Provider shall not establish, operate, or provide Dental Care at any dental
office, clinic or other dental care facility anywhere within the Practice
Territory nor have an ownership interest, direct or indirect, in any entity, or
participate in any joint venture, which operates any such office, clinic, or
facility; and
(b) Except as specifically approved by Service Company in writing, during
the Term and for a period of five years immediately following the date this
agreement is terminated for any reason, Provider shall not directly or
indirectly own (excluding ownership of less than five percent (5%) of the equity
of any publicly traded entity), manage, operate, control, lend funds to, lend
its name to, or maintain any interest in any entity, business, or enterprise
which (i) provides, distributes, or promotes any type of management or
administrative services or products to third parties in competition with Service
Company in the Practice Territory or (ii) offers any type of service or product
to third parties substantially similar to those offered by Service Company to
Provider in the Practice Territory. Notwithstanding the above restriction,
nothing herein shall prohibit Provider or any of its shareholders from providing
management and administrative services to its or their own dental practices
after the termination of this agreement, and nothing herein shall prohibit
Provider or its shareholders from contracting with a third party manager to
provide administrative or management services for its or their dental practices
after termination of this agreement as long as such relationship complies with
the provisions of this section.
(S)5.8 Use of Name. At all times during the Term, Provider shall, unless
-----------
otherwise directed by the Policy Board pursuant to (S)3.2(c), operate its dental
practice under the name "Park Dental", including without limitation using all
related marks and logos as are licensed to Provider pursuant to (S)4.17, above,
and filing an assumed or fictitious name application with the Minnesota
Secretary of State or other appropriate governmental agency; provided that
Provider shall, immediately upon the expiration of the Term, abstain from using
such name, marks, and logos and shall take such steps as are necessary to
terminate such applications and Provider's rights thereunder.
ARTICLE VI. CONFIDENTIALITY
---------------
(S)6.1 Confidential and Proprietary Information. Neither Party shall, in
----------------------------------------
any manner or at any time, directly or indirectly, disclose any of the
Confidential Information of the other Party to any person, firm, association,
organization, or entity, or use, or permit or assist any person, firm,
association, organization, or entity to use any such Confidential Information,
excepting only: (a) disclosures (i) required by law, as reasonably determined by
the disclosing Party or its legal counsel, or (ii) made on a confidential basis
to the disclosing Party's shareholders, directors, officers, employees (limited
to those who need to know such Confidential Information), and legal, accounting,
and other professional advisors (collectively, the "Permitted Recipients"); or
(b) use of such Confidential Information by Permitted Recipients in connection
with this agreement; provided that each Party shall (i) make its Permitted
Recipients aware of the requirements of this agreement, (ii) take reasonable
steps to prohibit disclosure of such
17
<PAGE>
Confidential Information by any Permitted Recipient to any other person or
entity except another Permitted Recipient, including without limitation taking
such steps as that Party customarily takes to protect its own Confidential
Information, and (iii) be responsible and liable for any disclosure or use of
such Confidential Information by any of its Permitted Recipients, except
disclosures or uses permitted by this agreement.
(S)6.2 Use of Practice Statistics. Notwithstanding (S)6.1, above, but
--------------------------
subject to the restrictions of this section and applicable law, Service Company
may: (a) share with other professional corporations, associations, dental
practices, or dental care delivery entities the practice statistics of Provider,
including utilization review data, quality assurance data, cost data, outcomes
data, or other practice data, provided that such information shall only be
disclosed to (i) affiliates of Service Company, (ii) other dental groups with
whom Service Company has a management relationship, (iii) managed care dental
benefit providers and other third party payors for the purpose of obtaining or
maintaining third party payor contracts, (iv) financial analysts and
underwriters, (v) employers and employee benefit associations, (vi) quality
assurance and accrediting organizations, or (vii) financial institutions; and
(b) disclose all practice-related information necessary or desirable in
connection with any public or private offering of any security of Service
Company. In addition, Service Company may disclose practice-related information
and data in connection with any survey, presentation, published material, study,
or research project which Service Company deems appropriate for the purpose of
gaining insight into existing and changing patterns in the organization and
delivery of Dental Care and related issues. In no event will any such data
disclose or divulge the identity of any patient or, to the extent reasonably
practicable, any dentist.
(S) 7.1 [*]
(S) 7.2 [*]
(S) 7.3 [*]
(a) [*]
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
18
<PAGE>
(b) [*]
(S)7.4 [*]
(a) [*]
(b) [*]
(S)7.5 Reasonable Value. Payment of the Service Fee or Performance Fee is
----------------
not intended to be and shall not be interpreted or applied as permitting Service
Company to share in Provider's fee for Dental Care or any other services, but is
acknowledged as the Parties' negotiated agreement as to the reasonable fair
market value of the equipment, contract analysis and support, other support
services, purchasing, personnel, office space, management, administration,
strategic management, and other items and services furnished by Service Company
pursuant to this agreement, considering the nature and volume of the services
required and the risks assumed by Service Company. Provider and Service Company
acknowledge that: (a) Service Company's administrative expertise will
contribute great value to Provider's performance; (b) Service Company will incur
substantial costs and business risks in arranging for Provider's use of each
Clinic and in providing the equipment, support services, personnel, marketing,
office space, management, administration, and other items and services that are
the subject matter of this agreement; and (c) certain of such costs and expenses
can vary to a considerable degree according to the extent of Provider's business
and services. It is the intent of the Parties that the Service Fee and
Performance Fee reasonably compensate Service Company for the value to Provider
of Service Company's administrative expertise, given the considerable business
risk to Service Company in providing the items and services that are the subject
of this agreement.
(S)7.6 Payment. The amounts to be paid to Service Company under this
-------
Article shall be calculated by Service Company on the accrual basis of
accounting and paid monthly. To facilitate the payments due to Service Company
under this Article, Provider hereby expressly
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
19
<PAGE>
authorizes Service Company to make withdrawals of such amounts from the Provider
Account during the Term in accordance with (S)4.12(b), and after termination as
provided in (S)8.3.
(S)7.7 Accounts Receivable. To assure that Provider receives the entire
-------------------
amount of professional fees for its services and to assist Provider in
maintaining reasonable cash flow for the payment of Clinic Expenses, Service
Company may, during the Term, purchase, with recourse to Provider for the amount
of the purchase, the accounts receivable of Provider arising during the previous
month by transferring the amount set forth below into the Provider Account. The
consideration for the purchase shall be an amount equal to the Adjusted Gross
Revenue recorded each month. Service Company shall be entitled to offset Clinic
Expense reimbursement plus all fees and advances due to Service Company under
this Article against the amount payable for the accounts receivable. Although
it is the intention of the Parties that Service Company purchase and thereby
become the owner of the accounts receivable of Provider, in the event such
purchase shall be ineffective for any reason, Provider hereby grants to Service
Company a security interest in the accounts receivable, and Provider shall
cooperate with Service Company and execute all documents which may be reasonably
requested by Service Company in connection with such security interest. All
collections in respect of such accounts receivable purchased by Service Company
shall be received by Provider as the agent of Service Company and shall be
endorsed to Service Company and deposited in a bank account at a bank designated
by Service Company. To the extent Provider comes into possession of any
payments in respect of such accounts receivable, Provider shall direct such
payments to Service Company for deposit in bank accounts designated by Service
Company.
ARTICLE VIII. TERM AND TERMINATION
--------------------
(S)8.1 Initial and Renewal Term. The Term of this agreement shall be for
------------------------
an initial period of 40 years beginning on the date of this agreement, and shall
renew automatically for successive five-year periods thereafter unless and until
either Party gives notice to the other Party at least 120 days prior to the
expiration of the then-current term of its intent to terminate this agreement at
the end of the then-current term or unless otherwise terminated as provided in
(S)8.2 of this agreement.
(S)8.2 Termination.
-----------
(a) Termination By Service Company. Service Company may terminate this
------------------------------
agreement immediately upon notice to Provider upon the occurrence of any one of
the following events:
(i) The dissolution of Provider;
(ii) Provider admits in writing its inability to pay generally its
debts as they become due or makes an assignment for the benefit of creditors;
20
<PAGE>
(iii) A receiver, trustee, liquidator, or conservator is appointed
for Provider or to take possession of all or substantially all of Provider's
property or a petition for insolvency, dissolution, liquidation, or
reorganization, or order for relief in which Provider is named as debtor, is
filed by, against, or with respect to Provider pursuant to any federal or state
statute, regulation, or law for the protection of debtors, and, with respect to
any such appointment or filing, Provider fails to secure a stay or discharge
thereof within 45 days after such appointment or filing;
(iv) Provider fails to pay when due any payment to be made by
Provider under this agreement, which failure continues for 10 days after notice
is given by Service Company to Provider thereof, provided that such failure is
not directly attributable to Service Company's failure to apply available funds
in the Provider Account according to (S)4.12(b); or
(v) Provider fails to comply with or perform any of its other
material duties or obligations under this agreement, which failure continues for
30 days after notice is given by Service Company to Provider thereof, or if
because of the nature of such failure it cannot reasonably be corrected within
such 30 day period, failure by Provider to commence such correction promptly
following its receipt of notice from Service Company and thereafter to
expeditiously and continuously prosecute the correction to completion.
(b) Termination By Provider. Provider may terminate this agreement
-----------------------
immediately upon notice to Service Company upon the occurrence of any of the
following events:
(i) A receiver, trustee, liquidator, or conservator is appointed for
Service Company or to take possession of all or substantially all of Service
Company's property or a petition for insolvency, dissolution, liquidation, or
reorganization, or order for relief in which Service Company is named as debtor,
is filed by, against, or with respect to Service Company pursuant to any federal
or state statute, regulation, or law for the protection of debtors, and, with
respect to any such appointment or filing, Service Company fails to secure a
stay or discharge thereof within 45 days after such appointment or filing;
(ii) Service Company fails to comply with or perform any of its
material duties or obligations under this agreement, which failure continues for
30 days after notice is given by Provider to Service Company thereof, or if
because of the nature of such failure it cannot reasonably be corrected within
such 30 day period, failure by Service Company to commence such correction
promptly following its receipt of notice from Provider and thereafter to
expeditiously and continuously prosecute the correction to completion; or
(iii) A court of competent jurisdiction makes a final determination
that Service Company has materially breached a fiduciary duty owed to Provider.
Notwithstanding the foregoing, any termination by Provider under this
section shall require the affirmative vote of three-fourths of the then-
outstanding shares of Provider entitled
21
<PAGE>
to vote on such a matter and Provider shall, upon request by Service Company,
provide evidence reasonably satisfactory to Service Company of such vote.
(c) Termination by Agreement. Provider and Service Company may mutually
------------------------
agree to terminate this agreement at any time, such agreement to be in writing
and signed by both Parties.
(d) Legislative, Regulatory or Administrative Change. In the event
------------------------------------------------
there is a change in any federal, state, or local statute, law, regulation,
legislation, rule, policy, or general instruction, a change in any third party
reimbursement system, or a ruling, judgment, or decree by any court, agency, or
other governing body having jurisdiction over either Party (hereafter in this
clause (d), a "ruling") which materially and adversely affects, or is reasonably
likely to affect, the manner in which either Party is to perform or be
compensated for its services under this agreement or which shall make this
agreement unlawful, the Parties shall immediately use their best efforts to
enter into a new service arrangement or basis for compensation for the services
furnished pursuant to this agreement that complies with that change or ruling
and approximates as closely as possible the economic position of the Parties
prior to such change or ruling.
If the Parties are unable to reach a new agreement within a
reasonable period of time following the date upon which it becomes reasonably
certain that such change will arise or ruling will be given, then either Party
may submit the issue to arbitration which shall be binding on the parties and
subject to the then-applicable Commercial Arbitration Rules of the American
Arbitration Association. In any such arbitration, the arbitrators shall be
consist of a panel of three arbitrators, which shall act by majority vote and
which shall consist of one arbitrator selected by the Party on one side of the
issue subject to the arbitration, one arbitrator selected by the Party on the
other side of the issue, and a third arbitrator selected by the two arbitrators
so selected, who shall be either a certified public accountant or an attorney at
law licensed to practice in the State of Minnesota and who shall act as chairman
of the arbitration panel; provided that if the Party on one side of the issue
selects its arbitrator for the panel and the other Party fails to so select its
arbitrator within 10 business days after being requested by the first Party to
do so, then the sole arbitrator shall be the arbitrator selected by the first
Party.
All costs and expenses of arbitration shall be borne by the Parties
as determined by the arbitrator or arbitration panel, except that the fees of
any arbitrator on an arbitration panel who is selected individually by a Party
shall be borne separately by the Party appointing him; provided that if one
Party fails to select an arbitrator for a panel, and the sole arbitrator is the
arbitrator selected by the other Party, then the fees of that arbitrator shall
be borne by the Parties as determined by that arbitrator.
(S)8.3 Effects of Termination. Upon termination of this agreement as
----------------------
herein provided, neither Party shall have any further obligations under this
agreement, except for: (a) obligations accruing prior to the date of
termination, including without limitation payment of the amounts set forth in
Article VII relating to services provided prior to the termination of this
agreement;
22
<PAGE>
(b) obligations set forth in this agreement that expressly extend beyond the
Term, including without limitation indemnities and noncompetition provisions,
which provisions shall survive the expiration or termination of this agreement;
(c) the obligations of each party set forth in Article VI; and (d) the
obligation of Provider described in (S)8.4. Provider specifically acknowledges
and agrees that Service Company shall continue to collect and receive on behalf
of Provider all cash collections from accounts receivable in existence at the
time this agreement is terminated (which have not otherwise been purchased by
Service Company pursuant to (S)7.7), it being understood that such cash
collections will be applied in accordance with (S)4.12(b), above, until Service
Company is compensated for the services rendered and reimbursed for the
expenditures made by it under this agreement up to the date of such termination.
Upon the expiration or termination of this agreement for any reason or cause
whatsoever, Service Company shall surrender to Provider all books and records
pertaining to Provider's dental practice; provided that Service Company may
retain copies of such documents to the extent reasonably necessary for Service
Company to complete its post-termination obligations and activities under this
agreement.
(S)8.4 Purchase Obligation. Upon termination of this agreement for any
-------------------
reason, Provider shall, at Service Company's option:
(a) Purchase from Service Company at book value the intangible assets,
deferred charges, goodwill, and all other amounts on the books of the Service
Company relating to this agreement or the items or services provided by Service
Company pursuant to this agreement, including without limitation the amount, if
any, for the covenants described in (S)5.7, above, as adjusted through the last
day of the month most recently ended prior to the date of such termination in
accordance with GAAP to reflect amortization or depreciation of all such
amounts;
(b) Purchase from Service Company any real estate owned by Service
Company and used as a Clinic at the greater of the appraised fair market value
thereof or the then book value thereof;
(c) Purchase, at the greater of the appraised fair market value or the
then book value, all improvements, additions, or leasehold improvements that
have been made by Service Company at any Clinic and that relate to the
performance of Service Company's obligations under this agreement;
(d) Assume all debt, and all contracts, payables, and leases that are
obligations of Service Company and that relate to the performance of Service
Company's obligations under this agreement or the properties leased or subleased
by Service Company in connection with its obligations under this agreement; and
(e) Purchase from Service Company, at the greater of the appraised fair
market value or the then book value, all of the equipment then being supplied by
Service Company pursuant to Service Company's obligations under this agreement,
and all other assets, including inventory
23
<PAGE>
and supplies, tangibles and intangibles, set forth on the books of Service
Company as adjusted through the last day of the month most recently ended prior
to the date of such termination in accordance with GAAP to reflect operations of
each Clinic, depreciation, amortization, and other adjustments of assets shown
on the books of the Service Company.
For purposes of subsection (b), above, the appraised value shall be
determined by an appraiser mutually agreed upon by the Parties. In the event
the Parties are unable to agree upon an appraiser within 10 days following the
date upon which either Party requests the other Party to agree to an appraiser,
then each Party shall appoint an appraiser, who shall in turn select a third
appraiser who shall serve as the appraiser hereunder. In the event either Party
fails to select an appraiser within 15 days of the selection of an appraiser by
the other Party, the appraiser selected by the other Party shall serve as the
appraiser hereunder. The determination of the appraised value of the assets
identified in subsection (b), above, by the appraiser selected hereunder shall
be binding on both Parties.
(S)8.5 Closing of Purchase. If Provider purchases assets pursuant to
-------------------
(S)8.4, Provider shall pay cash for the purchased assets; provided that the
amount of the purchase price allocable to an asset shall be reduced by the
amount of debt and liabilities of Service Company, if any, relating directly to
that asset which are assumed by Provider in connection with such purchase.
Provider and any dentist associated with Provider shall execute such documents
as may be required to assume the liabilities set forth in (S)8.4(d) and to
remove Service Company from any liability with respect to such purchased asset
and with respect to any property leased or subleased by Service Company. The
closing date for the purchase shall be determined by the Parties, but shall in
no event occur later than 180 days from the date of the notice of termination.
Provider shall be released from the covenants described in (S)5.7, above, upon
the successful consummation of such closing.
Notwithstanding the foregoing, Provider may, at its option, pay all or a
portion of the purchase price at the closing in shares of common stock of Parent
("Shares") for which Provider shall receive, as a credit to the purchase price,
an amount equal to the number of Shares transferred to Service Company by
Provider at the closing multiplied by the per Share fair market value (defined
below); provided that each Share transferred to Service Company is free and
clear of all liens, security interests, encumbrances, pledges, charges, claims,
voting trusts and restrictions on transfer of any nature whatsoever, except
restrictions on transfer imposed by or pursuant to federal and state securities
laws and such other restrictions as were expressly required by Parent in
connection with the acquisition of Service Company by Parent concurrently with
the execution of this agreement. For purposes of this section, the "per Share
fair market value" shall mean, as of any given date, the (i) last reported sale
price on the New York Stock Exchange on the most recent previous trading day,
(ii) last reported sale price on the NASDAQ National Market System on the most
recent previous trading day, (iii) mean between the high and low bid and ask
prices, as reported by the National Association of Securities Dealers, Inc. on
the most recent previous trading day, (iv) last reported sale price on any other
stock exchange on which the Shares are listed on the most recent previous
trading day, whichever is applicable, or (v) if none of the foregoing is
applicable, then the per Share fair market value of the Shares
24
<PAGE>
shall be the value determined by the Board of Directors of Parent, in its
discretion, based upon the then-current Share value assigned by the Board of
Directors of Parent in connection with Parent's other activities; provided that,
if Provider disagrees with the determination of Parent's Board of Directors as
to such value, the per Share fair market value shall be determined by:
(A) Agreement between Service Company and Provider, if they are able
to agree upon a value within ten business days after being requested to so
agree; or, if not,
(B) An appraiser selected by agreement between Service Company and
Provider, if they are able to agree upon an appraiser within ten business
days after requested to so agree; or, if not,
(C) The majority vote by an appraisal board consisting of three
appraisers, one member appointed by each of Service Company and Provider
and the third member appointed by the first two members so appointed who
shall act as chairman of the appraisal board, provided that in the event
either Party fails to so appoint its appointee to the appraisal board
within ten business days after being requested to do so by the other Party,
then the appraiser appointed by the requesting Party shall be the sole
appraiser.
ARTICLE IX. GENERAL
-------
(S)9.1 Administrative Services Only. Nothing in this agreement is
------ ----------------------------
intended or shall be construed to allow Service Company to exercise control or
direction over the manner or method by which Provider and its dentists perform
Dental Care or other professional dental care services. The rendition of all
Dental Care shall be the sole responsibility of Provider and its dentists, and
Service Company shall not interfere in any manner or to any extent therewith.
Nothing contained in this agreement shall be construed to permit Service Company
to engage in the practice of dentistry, it being the sole intention of the
Parties hereto that the services to be rendered to Provider by Service Company
are solely for the purpose of providing non-dental administrative services to
Provider so as to enable Provider to devote its full time and energies to the
professional conduct of its dental practice and provision of Dental Care to its
patients and not to administration, or practice management.
(S)9.2 Relationship of Parties. The relationship of the Parties is and
-----------------------
shall be that of independent contractors, and nothing in this agreement is
intended, and nothing shall be construed to create an employer/employee,
partnership, or joint venture relationship between the Parties, or to allow
either to exercise control or direction over the manner or method by which the
other performs the services that are the subject matter of this agreement;
provided always that the services to be provided hereunder shall be furnished in
a manner consistent with the standards governing such services and the
provisions of this agreement.
25
<PAGE>
(S)9.3 Notices. Any notice or other communication required or desired to
-------
be given to either Party shall be in writing and shall be deemed given when
deposited in the United States mail, first-class postage prepaid, addressed:
(a) If to Service Company
PDHC, Ltd.
c/o American Dental Partners, Inc.
301 Edgewater Place, Suite 320
Wakefield, Massachusetts 01880-1249
Attention: Gregory A. Serrao, President
and Chief Executive Officer
and
Baker & Hostetler
65 East State Street
Suite 2100
Columbus, Ohio 43215
Attention: Gary A. Wadman, Esq.
(b) If to Provider
PDG, P.A.
6415 Brooklyn Blvd.
Minneapolis, MN 55429-2181
Attention: President
With a copy to:
Fredrikson & Byron, P.A.
1100 International Center
900 Second Avenue South
Minneapolis, Minnesota 55402
Attention: Neil A. Weikart, Esq.
Any Party may change the address to which notices and other communications
are to be given by giving the other Parties notice of such change.
(S)9.4 Execution of Documents. Each Party shall execute, acknowledge or
----------------------
verify, and deliver any and all documents, and take any and all other actions,
which from time to time may be reasonably requested by any other Party to carry
out the purposes and intent of this agreement.
26
<PAGE>
(S)9.5 Governing Law. All questions concerning the validity, intention,
-------------
or meaning of this agreement or relating to the rights and obligations of the
Parties with respect to performance under this agreement shall be construed and
resolved under the laws of Minnesota, without reference to conflict of law
principles.
(S)9.6 Severability. The intention of the Parties is to comply fully with
------------
all applicable laws and public policies, and this agreement shall be construed
consistently with all laws and public policies to the extent possible. If and
to the extent that any court of competent jurisdiction determines that it is
impossible to construe any provision of this agreement consistently with any law
or public policy and consequently holds that provision is invalid, such holding
shall in no way affect the validity of the other provisions of this agreement,
which shall remain in full force and effect. With respect to any provision in
this agreement finally determined by such a court to be invalid or
unenforceable, such court shall have jurisdiction to reform this agreement
(consistent with the intent of the Parties) to the extent necessary to make such
provision valid and enforceable, and, as reformed, such provision shall be
binding on the Parties.
(S)9.7 Setoff. Notwithstanding any provision of this agreement to the
------
contrary, Service Company shall have the right from time to time to setoff any
amounts owed by Service Company to Provider under this agreement against any
amounts owed by Provider to Service Company, whether pursuant to this agreement
or otherwise.
(S)9.8 Remedies. All rights and remedies of each Party under this
--------
agreement are cumulative and in addition to all other rights and remedies which
may be available to that Party from time to time, whether under any other
agreement, at law, or in equity.
Each Party hereby acknowledges that: (a) the provisions of (S)(S)5.7 and
6.1 of this agreement are fundamental for the protection of the other Party's
legitimate business interests; (b) such provisions are reasonable and
appropriate in all respects; and (c) in the event it violates any such
provisions, the other Party would suffer irreparable harm and its remedies at
law would be inadequate. Accordingly, in the event either Party violates or
attempts to violate any such provisions, the other Party shall be entitled to a
temporary restraining order, temporary and permanent injunctions, specific
performance, and other equitable relief without any showing of irreparable harm
or damage or the posting of any bond, in addition to any other rights or
remedies which may then be available to the other Party.
(S)9.9 Non-waiver. No failure by any Party to insist upon strict
----------
compliance with any term of this agreement, to exercise any option, enforce any
right, or seek any remedy upon any default of any other Party shall affect, or
constitute a waiver of, the first Party's right to insist upon such strict
compliance, exercise that option, enforce that right, or seek that remedy with
respect to that default or any prior, contemporaneous, or subsequent default;
nor shall any custom or practice of the Parties at variance with any provision
of this agreement affect or constitute a waiver of, any Party's right to demand
strict compliance with all provisions of this agreement.
27
<PAGE>
(S)9.10 Indemnification. Each Party (the "Indemnifying Party") shall
---------------
indemnify and hold harmless the other Party and its shareholders, directors,
officers, employees, agents, representatives, and affiliates (the "Indemnified
Parties") from and against any and all losses, liabilities, damages, demands,
claims, suits, actions, judgments, assessments, costs and expenses, including
without limitation interest, penalties, attorneys' fees, any and all expenses
incurred in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts paid
in settlement of any claim or litigation (collectively, "Damages"), asserted
against, imposed upon, or incurred or suffered by the Indemnified Parties as a
result of or arising from: (i) any failure by the Indemnifying Party to perform
and observe fully all obligations and conditions to be performed or observed by
the Indemnifying Party under this agreement; or (ii) the acts or omissions of
the Indemnifying Party or its employees, contractors, or other agents or
representatives.
(S)9.11 No Third Party Benefit. This agreement is intended for the
----------------------
exclusive benefit of the Parties and their respective successors and assigns,
and nothing contained in this agreement shall be construed as creating any
rights or benefits in or to any third party.
(S)9.12 Captions. The captions of the various sections of this agreement
--------
are not part of the context of this agreement, are only labels to assist in
locating and reading those sections, and shall be ignored in construing this
agreement.
(S)9.13 Genders and Numbers. When permitted by the context, each pronoun
-------------------
used in this agreement includes the same pronoun in other genders or numbers and
each noun used in this agreement includes the same noun in other numbers.
(S)9.14 Complete Agreement. This document (including its exhibits and
------------------
all other documents referred to herein, all of which are hereby incorporated
herein by reference) contains the entire agreement among the Parties and
supersedes all prior or contemporaneous discussions, negotiations,
representations, or agreements relating to the subject matter of this agreement.
No changes to this agreement shall be made or be binding upon any Party unless
made in writing and signed by each Party to this agreement.
(S)9.15 Counterparts. This agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
(S)9.16 Assignment. Provider may not assign this agreement without the
----------
prior written consent of Service Company, which consent may be withheld for any
reason. The sale, transfer, pledge, or assignment of any of the shares of
Provider held by any shareholder of Provider, the issuance by Provider of voting
shares to any other person, or any combination of such transactions within a
period of two years, such that the existing shareholders in Provider fail to
maintain a majority of the voting interest in Provider shall be deemed an
attempted assignment by Provider, and shall be null and void unless consented to
in writing by Service Company prior to any such transfer or issuance. Any
breach of this provision, whether or not void or voidable, shall constitute a
material breach of this agreement, and in the event of such breach, Service
Company may terminate this agreement upon 24 hours notice to Provider. Service
Company shall have the right to (i) assign its rights and obligations hereunder
to any third party and (ii)
28
<PAGE>
collaterally assign its interest in this agreement and its right to collect the
amounts set forth in Article VII hereunder to any financial institution or other
third party without the consent of Provider.
(S)9.17 Successors. Subject to (S)9.16, above, this agreement shall be
----------
binding upon, inure to the benefit of, and be enforceable by and against the
successors and assigns of each Party.
(S)9.18 Force Majeure. Neither Party shall be liable or deemed to be in
-------------
default for any delay or failure in performance under this agreement or other
interruption of service deemed to result, directly or indirectly, from acts of
God, civil or military authority, acts of public enemy, war, accidents, fires,
explosions, earthquakes, floods, failure of transportation, strikes or other
work interruptions by either Party's employees, or any other similar cause
beyond the reasonable control of either Party unless such delay or failure in
performance is expressly addressed elsewhere in this agreement.
PDG, P.A.
By /s/ Gregory T. Swenson, D.D.S.
-------------------------------
Gregory T. Swenson, D.D.S.
President
PDHC, LTD.
By /s/ Gregory A. Serrao
-------------------------------
Gregory A. Serrao
Chairman of the Board and
Chief Executive Officer
29
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit A Definitions
Exhibit B [Intentionally Left Blank]
Exhibit C Five-Year Employment Agreement
Exhibit D Standard Employment Agreement
Exhibit E List of Current PDHC Shareholders to be Retained by Provider
<PAGE>
EXHIBIT A
---------
DEFINITIONS
-----------
[*]
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
i
<PAGE>
ii
<PAGE>
iii
<PAGE>
iv
<PAGE>
v
<PAGE>
vi
<PAGE>
FIRST AMENDMENT TO SERVICE AGREEMENT
------------------------------------
This amendment is made effective January 1, 1997, between PDHC, Ltd., a
Minnesota corporation ("Service Company"), and PDG, P.A., a Minnesota
professional association ("Provider").
Background Information
----------------------
A. Service Company and Provider are all of the parties (the "Parties") to
a Service Agreement dated November 12, 1996 (the "Agreement").
B. The Parties have prepared a revised Budget (as defined in the
Agreement) for 1997 and desire to amend the Agreement so that the Agreement will
be consistent with such Budget.
Agreement
---------
The Parties hereby acknowledge the accuracy of the foregoing Background
Information and agree as follows:
(S)1. Definitions. All capitalized terms used in this amendment which
-----------
are not otherwise defined herein shall have the respective meanings given those
terms in the Agreement.
(S)2. [*]
(S)3. [*]
(S)4. [*]
(S)5. [*]
* This information has been omitted pursuant to a request for
confidential treatment and has been filed separately with the
Securities and Exchange Commission.
<PAGE>
(S)6. Construction. The modifications to the Agreement contained in this
------------
amendment shall apply prospectively only. In the event of any inconsistency
between the provisions of this amendment and the provisions of the Agreement,
the provisions of this amendment shall control; provided that this amendment
shall not be construed to limit the Parties' right to adjust amounts or
percentages pursuant to future Budgets as permitted by the Agreement. Except as
modified in this amendment, the Agreement shall continue in full force and
effect without change. This amendment shall be binding upon, inure to the
benefit of, and be enforceable by and against the respective successors and
assigns of each Party.
(S)7. Counterparts. This amendment may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same amendment.
PDHC, LTD. PDG, P.A.
By /s/ Gregory A. Serrao By /s/ Gregory T. Swenson
----------------------------- ------------------------------
Gregory A. Serrao Gregory T. Swenson, D.D.S.
Chairman of the Board and President
Chief Executive Officer
<PAGE>
SERVICES AGREEMENT
BETWEEN
SMILEAGE DENTAL CARE, INC.
and
WISCONSIN DENTAL GROUP, S.C.
December 23, 1996
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I. DEFINITIONS....................................................... 1
-----------
ARTICLE II. APPOINTMENT AND AUTHORITY OF SERVICE COMPANY...................... 1
--------------------------------------------
(S)2.1 Appointment....................................................... 1
-----------
(S)2.2 Authority......................................................... 2
---------
(S)2.3 Patient Referrals................................................. 2
-----------------
(S)2.4 Internal Management of Provider................................... 2
-------------------------------
(S)2.5 Practice of Dentistry............................................. 2
---------------------
ARTICLE III. POLICY BOARD..................................................... 3
------------
(S)3.1 Formation and Operation of Policy Board........................... 3
---------------------------------------
(S)3.2 Responsibilities of the Policy Board.............................. 3
------------------------------------
(a) Capital Improvements and Expansion........................... 3
----------------------------------
(b) Annual Budgets............................................... 4
--------------
(c) Marketing and Advertising.................................... 4
-------------------------
(d) Patient Fees; Collection Policies............................ 4
---------------------------------
(e) Provider and Payor Relationships............................. 4
--------------------------------
(f) Strategic and Operational Planning........................... 4
----------------------------------
(g) Capital Expenditures......................................... 4
--------------------
(h) Personnel Planning........................................... 4
------------------
(i) Grievance Referrals.......................................... 4
-------------------
(j) Patient Concerns and Claims.................................. 5
---------------------------
(k) Environmental Health and Safety.............................. 5
-------------------------------
(l) Emergency Care Services...................................... 5
-----------------------
(m) Financial Review............................................. 5
----------------
(n) Other........................................................ 5
-----
(S)3.3 Dental Decisions.................................................. 5
----------------
ARTICLE IV. RESPONSIBILITIES OF SERVICE COMPANY............................... 5
-----------------------------------
(S)4.1 Clinics........................................................... 6
-------
(S)4.2 Equipment......................................................... 6
---------
(S)4.4 Supplies.......................................................... 7
--------
(S)4.5 Capital Investment................................................ 7
------------------
(S)4.6 Support Services.................................................. 7
----------------
(S)4.7 Quality Assurance, Risk Management, and Utilization Review........ 7
----------------------------------------------------------
(S)4.8 Licenses and Permits.............................................. 7
--------------------
(S)4.9 Personnel......................................................... 8
---------
(S)4.10 Contract Negotiations............................................. 8
---------------------
(S)4.11 Billing and Collection............................................ 8
----------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
(S)4.12 Provider Account............................................... 9
----------------
(a) Power of Attorney......................................... 9
-----------------
(b) Priority of Payments...................................... 10
--------------------
(c) Further Assurances........................................ 10
------------------
(S)4.13 Financial Matters.............................................. 10
-----------------
(a) Annual Budget............................................. 10
-------------
(b) Accounting and Financial Records.......................... 11
--------------------------------
(c) Review of Expenditures.................................... 11
----------------------
(d) Tax Matters............................................... 11
-----------
(i) General.............................................. 11
-------
(ii) Sales and Use Taxes.................................. 11
-------------------
(S)4.14 Reports and Records............................................ 11
-------------------
(a) Dental Records............................................ 11
--------------
(b) Other Reports and Records................................. 12
-------------------------
(S)4.15 Recruitment of Provider Dentists............................... 12
--------------------------------
(S)4.16 Service Company's Insurance.................................... 12
---------------------------
(S)4.17 License of Name and Marks...................................... 12
-------------------------
(S)4.18 No Warranty.................................................... 12
-----------
ARTICLE V. RESPONSIBILITIES OF PROVIDER................................... 13
----------------------------
(S)5.1 Organization and Operations.................................... 13
---------------------------
(S)5.2 Provider Personnel............................................. 13
------------------
(a) Dentist Personnel......................................... 13
-----------------
(b) Provider and Patient Scheduling........................... 14
-------------------------------
(c) Paid Hours Reporting...................................... 14
--------------------
(d) Non-Dentist Dental Care Personnel......................... 14
---------------------------------
(S)5.3 Professional Standards......................................... 14
----------------------
(S)5.4 Dental Care.................................................... 14
-----------
(S)5.5 Peer Review and Quality Assurance.............................. 15
---------------------------------
(S)5.6 Provider's Insurance........................................... 15
--------------------
(S)5.7 Noncompetition................................................. 16
--------------
(S)5.8 Use of Name.................................................... 17
-----------
ARTICLE VI. CONFIDENTIALITY................................................ 17
---------------
(S)6.1 Confidential and Proprietary Information....................... 17
----------------------------------------
(S)6.2 Use of Practice Statistics..................................... 17
--------------------------
ARTICLE VII. FINANCIAL ARRANGEMENTS......................................... 18
----------------------
(S)7.1 Clinic Expense Reimbursement................................... 18
----------------------------
(S)7.2 Repayment of Advances.......................................... 18
---------------------
(S)7.3 Fees........................................................... 18
----
(a) Service Fee............................................... 18
-----------
(b) Performance Fee........................................... 18
---------------
(S)7.4 Adjustments to Fees............................................ 18
-------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
(S)7.5 Reasonable Value............................................... 19
----------------
(S)7.6 Payment........................................................ 19
-------
(S)7.7 Accounts Receivable............................................ 19
-------------------
ARTICLE VIII. TERM AND TERMINATION........................................... 20
--------------------
(S)8.1 Initial and Renewal Term....................................... 20
------------------------
(S)8.2 Termination.................................................... 20
-----------
(a) Termination By Service Company............................ 20
------------------------------
(b) Termination By Provider................................... 21
-----------------------
(c) Termination by Agreement.................................. 21
------------------------
(d) Legislative, Regulatory or Administrative Change.......... 21
-----------------------------------------------
(S)8.3 Effects of Termination......................................... 22
----------------------
(S)8.4 Purchase Obligation............................................ 23
-------------------
(S)8.5 Closing of Purchase............................................ 24
-------------------
ARTICLE IX. GENERAL........................................................ 25
-------
(S)9.1 Administrative Services Only................................... 25
----------------------------
(S)9.2 Relationship of Parties........................................ 25
-----------------------
(S)9.3 Notices........................................................ 25
-------
(S)9.4 Execution of Documents......................................... 26
----------------------
(S)9.5 Governing Law.................................................. 26
-------------
(S)9.6 Severability................................................... 27
------------
(S)9.7 Setoff......................................................... 27
------
(S)9.8 Remedies....................................................... 27
--------
(S)9.9 Non-waiver..................................................... 27
----------
(S)9.10 Indemnification................................................ 27
---------------
(S)9.11 No Third Party Benefit......................................... 28
----------------------
(S)9.12 Captions....................................................... 28
--------
(S)9.13 Genders and Numbers............................................ 28
-------------------
(S)9.14 Complete Agreement............................................. 28
------------------
(S)9.15 Counterparts................................................... 28
------------
(S)9.16 Assignment..................................................... 28
----------
(S)9.17 Successors..................................................... 29
----------
(S)9.18 Force Majeure.................................................. 29
-------------
INDEX TO EXHIBITS............................................................ 30
- -----------------
DEFINITIONS.................................................................. i
- -----------
</TABLE>
iii
<PAGE>
SERVICES AGREEMENT
This agreement is made effective December 23, 1996, between Smileage Dental
Care, Inc., a Wisconsin corporation ("Service Company"), and Wisconsin Dental
Group, S.C., a Wisconsin corporation ("Provider").
Background Information
----------------------
A. Provider operates as a dental practice providing dental services to the
general public in and around the Greater Milwaukee, Wisconsin area through
individual dentists who are licensed to practice dentistry in the state of
Wisconsin and who are employed or otherwise retained by Provider.
B. Service Company is engaged in the business of providing assets,
personnel, and services to dental practices other than such services as are
directly related to the provision of dental care or the practice of dentistry.
Service Company's services are intended to improve the efficiency and
profitability of dental practices and permit the dentists in such practices to
focus their efforts solely on rendering quality dental care.
C. Provider desires to focus its energies, expertise and time on the
practice of dentistry and on the delivery of dental services to patients. To
accomplish this goal, Provider desires to engage Service Company to provide such
services as are necessary and appropriate for the day-to-day administration of
the non-dental aspects of Provider's dental practice, and Service Company
desires to provide such services to Provider, all upon the terms and subject to
the conditions set forth in this agreement.
Statement of Agreement
----------------------
Service Company and Provider (the "Parties") hereby acknowledge the
accuracy of the foregoing Background Information and agree as follows:
ARTICLE I. DEFINITIONS
-----------
Capitalized terms used in this agreement but not otherwise defined herein
shall have the respective meanings given those terms in the attached Exhibit A.
ARTICLE II. APPOINTMENT AND AUTHORITY OF SERVICE COMPANY
--------------------------------------------
(S)2.1 Appointment. Provider hereby appoints Service Company as its sole
-----------
and exclusive agent for the performance of the Services, and Service Company
hereby accepts such appointment, subject at all times to the provisions of this
agreement.
<PAGE>
(S)2.2 Authority. Service Company shall have all power, authority, and
---------
responsibility reasonably necessary to provide the Services and carry out
Service Company's other obligations under this agreement. Without limiting the
foregoing, Service Company shall have the authority to provide the Services in
any reasonable manner Service Company deems appropriate to meet the day-to-day
requirements of the business functions of Provider. Subject to Article III of
this agreement, Service Company is also expressly authorized to negotiate and
execute on behalf of Provider contracts that do not relate to the provision of
Dental Care. Provider shall give Service Company 30 days prior written notice
of Provider's intent to execute any agreement obligating Provider to perform
Dental Care or otherwise creating a binding legal obligation on Provider.
Unless an expense is expressly designated as a Service Company Expense in this
agreement, all expenses incurred by Service Company in providing services
pursuant to this agreement shall be Clinic Expenses.
(S)2.3 Patient Referrals. The Parties agree that the benefits to Provider
-----------------
hereunder do not require, are not payment for, and are not in any way contingent
upon the referral, admission, treatment, or any other arrangement for the
provision of any item or service offered by Service Company to patients of
Provider in any facility, laboratory, or dental care operation controlled,
managed, or operated by Service Company.
(S)2.4 Internal Management of Provider. Matters involving the tax
-------------------------------
planning, investment planning, and internal management, control, or finances of
Provider, including without limitation the compensation of dentist employees of
Provider, shall remain the sole and exclusive responsibility of Provider and its
shareholders.
(S)2.5 Practice of Dentistry. The Parties acknowledge and agree that: (a)
---------------------
Service Company is not authorized or qualified to engage in any activity that
may be construed or deemed to constitute the practice of dentistry; and (b)
notwithstanding anything in this agreement to the contrary (i) Provider, through
its dentists, shall be solely responsible for and shall have complete authority,
responsibility, supervision, and control over the provision of all Dental Care
and that all Dental Care shall be provided and performed exclusively by or under
the supervision of dentists as such dentists, in their sole discretion, deem
appropriate, (ii) Service Company shall not have or exercise any control or
supervision over the provision of Dental Care, and (iii) to the extent any act
or service required of Service Company under this agreement is reasonably likely
to be construed by a court of competent jurisdiction or by any applicable
governmental agency to constitute the practice of dentistry, the requirement to
perform that act or service by Service Company shall be deemed waived and
unenforceable. For purposes of this agreement and as the context permits, the
term "dentist" shall be deemed to include those individuals licensed by the
State of Wisconsin to practice general dentistry or a dental care specialty such
as orthodontics, endodontics, periodontics, prosthodontics, pediatric dentistry,
oral surgery, and oral medicine.
2
<PAGE>
ARTICLE III. POLICY BOARD
------------
(S)3.1 Formation and Operation of Policy Board. The Parties hereby
---------------------------------------
establish an advisory policy board (the "Policy Board") which shall provide
consultation and advice to Service Company in support of Service Company
discharging its responsibility for developing and implementing management and
administrative policies for the overall operation of Clinics. The Policy Board
shall consist of six members, of which three members shall be designated by
Service Company, in its sole discretion, and three members shall be designated
by Provider; provided that, unless otherwise agreed by the Parties, the Policy
Board members designated by Provider shall be licensed dentists employed by
Provider. Each Party shall have the right to designate, remove, and replace its
Policy Board designees at any time and from time to time upon notice to the
other Party.
Except as may otherwise be expressly provided in this agreement or
any rules, bylaws, or regulations adopted by the Policy Board, the act of a
majority of the members of the Policy Board shall be the act of the Policy
Board. The Policy Board's decisions may be evidenced by either minutes of a
Policy Board meeting or written action taken by the Policy Board members making
the decision; provided that no written action signed by less than all of the
Policy Board members shall be effective unless notice of such action is given to
the Policy Board member who is not signing such action at least two business
days prior to the effective date of such action. The decisions, resolutions, or
recommendations of the Policy Board shall be reviewed by Service Company and, if
deemed necessary or appropriate by Service Company, in its sole discretion,
shall be implemented by Service Company or Provider, as appropriate.
The Policy Board shall hold regular meetings at such places and at
such times (not less often than quarterly) as the Policy Board may determine
from time to time. Special Policy Board meetings may be called by either Party
or any two Policy Board members; provided that notice of any meeting which is
not a regularly scheduled meeting shall be given to all Policy Board members at
least five business days prior to the meeting, unless such notice is waived by
the Policy Board members. Policy Board meetings may be held through the use of
telecommunications equipment so long as all members can hear each other clearly.
(S)3.2 Responsibilities of the Policy Board. The Policy Board shall
------------------------------------
have the following duties and responsibilities in its advisory capacity to the
Parties, provided, however, that no decision, resolution or recommendation of
the Policy Board shall be binding on either of the Parties unless specifically
agreed to by the Parties either pursuant to the express terms of this agreement
or in writing signed by the Party to be bound:
(a) Capital Improvements and Expansion. Any renovation and expansion
----------------------------------
plans and capital equipment expenditures with respect to Clinics shall be the
responsibility of Service Company, shall be reviewed by the Policy Board, and
shall be based upon economic feasibility, dentist support, productivity, and
then-current market conditions.
3
<PAGE>
(b) Annual Budgets. All annual capital and operating budgets prepared
--------------
in accordance with (S)4.13(a) by Service Company (in consultation with Provider)
shall be subject to the review and comment of the Policy Board. Notwithstanding
the foregoing sentence, such budgets shall be subject to the review, comment,
and approval of Parent. Service Company shall deliver a copy of such approved
budget to the Chief Financial Officer of Parent for Parent's approval.
(c) Marketing and Advertising. The Policy Board shall review and make
-------------------------
recommendations regarding advertising and other marketing of the dental services
performed at any Clinic.
(d) Patient Fees; Collection Policies. Subject to (S)3.3, as a part
---------------------------------
of the annual operating budget, in consultation with Provider and Service
Company, the Policy Board shall review and make recommendations concerning the
fee schedules and collection policies for all dental and ancillary services
rendered by Provider. Approval of the fee schedules shall be a Dental Decision.
(e) Provider and Payor Relationships. Subject to (S)3.3, decisions
--------------------------------
regarding the establishment or maintenance of contractual relationships between
Provider and outside or institutional dental care providers and third-party
payors shall be subject to the review and recommendations of the Policy Board.
Subject to (S)3.3, all discounted fee practices and schedules, including
individual provider or specialty discount arrangements, preferred provider
organization discounts and capitated fee arrangements, shall be subject to the
review and recommendations of the Policy Board. Where there is no clear
methodology for the allocation of capitated fees among Provider's Dental Care
Professionals, the Policy Board shall recommend the methodology intended to
result in the equitable and appropriate allocation of all related fees
consistent with the type and utilization of Dental Care covered under the
capitation arrangement.
(f) Strategic and Operational Planning. The Policy Board shall review
----------------------------------
and make recommendations regarding the long-term strategic and short-term
operational goals, objectives and plans developed by Service Company.
(g) Capital Expenditures. The Policy Board shall review and make
--------------------
recommendations regarding the priority of major capital expenditures.
(h) Personnel Planning. The Policy Board shall review and make
------------------
recommendations regarding Provider and support personnel manpower plans
developed by Service Company. The Policy Board shall review and make
recommendations regarding any variations to the restrictive covenants in the
dentists' employment or other agreements.
(i) Grievance Referrals. The Policy Board shall consider and make
-------------------
recommendations to the Parties regarding grievances pertaining to matters not
specifically addressed in this agreement as referred to it by key Provider or
Service Company management and supervisory personnel.
4
<PAGE>
(j) Patient Concerns and Claims. The Policy Board shall review and
---------------------------
monitor a patient claims tracking, monitoring and recovery procedure which shall
provide, without limitation, for (i) the timely and appropriate resolution of
all claims and related patient and Provider reimbursement decisions, and (ii)
the distribution of a summary report setting forth the status and proposed
actions with respect to each such claim to Provider and Service Company on a
regular basis. All Dental Care related patient concerns and claims
reimbursement decisions shall be a Provider Expense.
(k) Environmental Health and Safety. The Policy Board shall review
-------------------------------
and monitor environmental and workplace health and safety guidelines, the goal
of which is to achieve compliance with current national, state and local laws
and regulations regarding environmental and workplace health and safety.
(l) Emergency Care Services. The Policy Board shall review and
-----------------------
periodically make suggestions for improving (i) the organization and delivery of
emergency Dental Care by Provider, and (ii) the process and guidelines for
ensuring an appropriate response by Provider to dental and in-Clinic medical
emergencies as they may occur from time to time.
(m) Financial Review. The Policy Board shall review and monitor the
----------------
financial performance of Provider with respect to the attainment of its budgeted
goals.
(n) Other. The Policy Board shall have such other duties,
-----
responsibilities, and authority as may be set forth in this agreement or agreed
upon by the Parties from time to time.
(S)3.3 Dental Decisions. Notwithstanding the preceding section or any
----------------
other provisions of this agreement to the contrary, all Dental Decisions
(defined below) will be made solely by Provider and shall be binding on the
Parties; provided that the Policy Board may participate in the analysis and
discussion process. For purposes of this agreement, "Dental Decisions" shall
mean decisions relating directly to: (a) types and levels of Dental Care to be
provided; (b) recruitment of dentists for Provider, including the evaluation of
the background, experience, qualifications, specialties, and other credentials
of recruited dentists; (c) fee schedules for Provider's services, including
without limitation Provider's usual and customary fee schedule; and (d) any
other Dental Care related functions or decisions agreed upon by the Parties.
ARTICLE IV. RESPONSIBILITIES OF SERVICE COMPANY
-----------------------------------
During the Term, Service Company shall provide all such Services as are
necessary and appropriate for the day-to-day administration of the business
aspects of Provider's operations, including without limitation those services
set forth in this Article, provided that all such services shall be subject to
the applicable Budget.
5
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(S)4.1 Clinics
-------
(a) Service Company shall locate, lease, acquire or otherwise procure
a Clinic, taking into consideration the professional concerns of Provider. The
expenses associated with any such leasing, acquisition, or procurement shall be
Clinic Expenses. Any Clinic procured by Service Company for use by Provider
shall be procured at commercially reasonable rates.
(b) In the event Provider is the lessee of a Clinic under a lease with
an unrelated and nonaffiliated lessor, Service Company may require Provider to
assign such lease to Service Company upon receipt of consent from the lessor.
Provider shall exercise all reasonable efforts to assist in obtaining the
lessor's consent to the assignment. Any expenses incurred in the assignment
shall be Clinic Expenses.
(c) Service Company shall be responsible for the repair and
maintenance of each Clinic, in a manner consistent with Service Company's
responsibilities under the terms of any lease or other use arrangement relating
to that Clinic, the costs and expenses of which shall be a Clinic Expense;
provided that the costs and expenses of any repairs or maintenance necessitated
by the negligence or willful misconduct of Provider or its dentists, other
personnel, agents, or invitees shall be a Provider Expense.
(S)4.2 Equipment.
---------
(a) Service Company shall provide all non-dental equipment, fixtures,
office supplies, furniture and furnishings deemed reasonably necessary by
Service Company for the operation of each Clinic and reasonably necessary for
the provision of Dental Care.
(b) Service Company shall provide, finance, or cause to be provided or
financed such dental related equipment as is reasonably required by Provider.
Subject to economic feasibility as set forth in the budgets approved pursuant to
this agreement, Provider shall advise Service Company in all dental equipment
selections. Except for Special Dental Supplies (defined in (S) 4.3, below), all
dental and non-dental equipment acquired for the use of Provider shall be owned
by Service Company.
(c) Service Company shall be responsible for repairing, maintaining,
and keeping in reasonably good condition (ordinary wear and tear excepted), and
replacing (as necessary) all equipment provided by Service Company under this
agreement, the cost and expense of which shall be a Clinic Expense; and provided
that the cost and expense for any repairs, maintenance and replacement
necessitated by the negligence or willful misconduct of Provider or its
dentists, other personnel, agents, or invitees shall be a Provider Expense.
6
<PAGE>
(S)4.3 Laboratory Services. Service Company shall arrange for laboratory
-------------------
services, including without limitation dental appliance laboratory service,
pathology laboratory service, medical laboratory service, and such other
laboratory services as are reasonably necessary and appropriate for the
operation of each Clinic and the provision of Dental Care therein.
(S)4.4 Supplies. Service Company shall order, procure, purchase, own, and
--------
provide to Provider a reasonable inventory of Ordinary Dental Supplies and
office supplies as are reasonably necessary and appropriate for the operation of
each Clinic and the provision of Dental Care therein. Unless otherwise
prohibited by federal and/or state law, Service Company shall also order,
procure, purchase and provide on behalf of and as agent for Provider all
reasonable Special Dental Supplies required by Provider to provide Dental Care,
the cost of which shall be a Clinic Expense. Service Company shall ensure that
each Clinic is at all times adequately stocked with all such supplies. The
ultimate oversight, supervision and ownership of (a) all office and Ordinary
Dental Supplies is and shall remain the sole responsibility of Service Company,
and (b) all Special Dental Supplies is and shall remain the sole responsibility
of Provider.
(S)4.5 Capital Investment. Access to all needed working capital and
------------------
capital expenditures in accordance with the budget as approved in accordance
with (S)4.13(a) will be provided by Service Company. Service Company shall
determine the source of capital to be invested, which may include (a)
intracompany borrowings from Parent (at the rate set forth in clause (j) in the
definition of "Clinic Expenses"), and (b) borrowings, leases, or other financing
methods through independent third-party financial institutions.
(S)4.6 Support Services. Service Company shall provide or arrange for all
----------------
printing, stationery, forms, postage, duplication, facsimile, photocopying, and
data transmission and processing services, information services (including
providing a computer system for clinic functions, billing, communications, and
management), and other support services as are reasonably necessary and
appropriate for the operation of each Clinic and the provision of Dental Care
therein.
(S)4.7 Quality Assurance, Risk Management, and Utilization Review. Service
----------------------------------------------------------
Company shall assist Provider in Provider's establishment and implementation of
procedures to ensure the consistency, quality, appropriateness, and necessity of
Dental Care provided by Provider, and shall provide administrative support for
Provider's overall quality assurance, risk management, and utilization review
programs. Service Company shall have the authority to monitor Provider's level
of conformance with such procedures and to report its findings to Provider.
(S)4.8 Licenses and Permits. Although Provider shall be solely responsible
--------------------
for obtaining and maintaining all federal, state, and local licenses and
regulatory permits required for or in connection with the operation of Provider
and in connection with the operation of all dental equipment located in each
Clinic, Service Company shall assist Provider with the implementation of a plan
designed to ensure that all such licenses and permits are obtained and shall
provide
7
<PAGE>
reasonable assistance to Provider in obtaining the same. Service Company also
shall maintain all licenses and permits required for all equipment (existing and
future) located at each Clinic.
(S)4.9 Personnel. Except as provided in (S)5.2(d) of this agreement and
---------
subject to (S)3.3, Service Company shall employ or otherwise retain and shall be
responsible for recruiting, hiring, and terminating all management,
administrative, supervisory, clerical, secretarial, bookkeeping, accounting,
payroll, dental assistants, hygienists, laboratory technicians and personnel,
and other non-dentist personnel as Service Company deems necessary and
appropriate for Service Company's performance of its duties and obligations
under this agreement. The selection, training, and supervision of: (a) dental
assistants, hygienists, and other clinical personnel to be employed by Service
Company shall be the responsibility of Provider; and (b) all other personnel to
be employed by Service Company shall be the responsibility of Service Company.
Consistent with reasonably prudent personnel management policies, Service
Company shall seek and consider the advice, input, and requests of Provider in
regard to personnel matters. Service Company shall have sole responsibility for
determining the salaries and fringe benefits of such non-professional personnel,
and for withholding all appropriate amounts for income taxes, unemployment
insurance, social security, workers' compensation, and any other withholding
required by applicable law.
(S)4.10 Contract Negotiations. Service Company shall advise Provider with
---------------------
respect to and negotiate, either directly or on Provider's behalf, as
appropriate, such contractual arrangements with third parties as are reasonably
necessary and appropriate for Provider's provision of Dental Care, including
without limitation negotiated price agreements with third party payors,
alternative delivery systems, or other purchasers of group dental care services;
provided that no contract or arrangement regarding the provision of Dental Care
shall be entered into without Provider Consent.
(S)4.11 Billing and Collection. On behalf of and for the account of
----------------------
Provider, Service Company shall establish and maintain credit and billing and
collection policies and procedures, and shall exercise reasonable efforts to
bill and collect in a timely manner all professional and other fees for all
billable Dental Care provided by Dental Care Professionals, including any such
fees paid directly to Provider by Service Company pursuant to the then-current
Membership Agreement (or similar agreement for providing professional services
to dental plans) between Service Company and Provider. Service Company shall
advise and consult with Provider regarding the fees for Dental Care provided by
Provider (including any related discounting policy); it being understood,
however, that Provider's consent shall be necessary to establish the fees
(subject to (S)3.2(d), above) to be charged for Dental Care. In connection with
the billing and collection services to be provided hereunder, Provider hereby
grants to Service Company, throughout the Term (and thereafter as provided in
(S)8.3), an exclusive special power of attorney and appoints Service Company as
Provider's exclusive true and lawful agent and attorney-in-fact, and Service
Company hereby accepts such special power of attorney and appointment, for the
following purposes:
8
<PAGE>
(a) To bill Provider's patients, in either Provider's or Service
Company's name (as Service Company deems appropriate) and on Provider's behalf,
for all billable Dental Care provided by or on behalf of Provider to patients.
(b) To bill, in either Provider's or Service Company's name (as Service
Company deems appropriate) and on Provider's behalf, all claims for
reimbursement or indemnification from insurance companies and plans, all state
or federally funded dental benefit plans, and all other third party payors or
fiscal intermediaries for all covered billable Dental Care provided by or on
behalf of Provider to patients.
(c) To collect and receive, in either Provider's or Service Company's
name (as Service Company deems appropriate) and on Provider's behalf, all
accounts receivable generated by such billings and claims for reimbursement, to
administer such accounts including, but not limited to, extending the time of
payment of any such accounts for cash, credit or otherwise; discharging or
releasing the obligors of any such accounts; suing, assigning or selling at a
discount such accounts to collection agencies; or taking other measures to
require the payment of any such accounts; provided, however, that extraordinary
collection measures, such as filing lawsuits, discharging or releasing obligors
shall not be undertaken without Provider Consent.
(d) To deposit all amounts collected into the Provider Account.
Provider shall transfer and deliver to Service Company all funds received by
Provider from patients or third party payors for Dental Care. Upon receipt by
Service Company of any funds from patients or third party payors or from
Provider for Dental Care pursuant to this agreement, Service Company shall
promptly deposit the same into the Provider Account.
(e) To take possession of, endorse in the name of Provider, and deposit
into the Provider Account any notes, checks, money orders, insurance payments,
and any other instruments received in payment of accounts receivable for Dental
Care.
(f) To sign checks, drafts, bank notes or other instruments on behalf
of Provider, and to make withdrawals from the Provider Account for payments
specified in this agreement and otherwise as agreed upon from time to time by
the Parties.
Upon request of Service Company, Provider shall execute and deliver to the
financial institution at which the Provider Account is maintained such
additional documents or instruments as Service Company may reasonably request to
evidence or effect the special power of attorney granted to Service Company by
Provider pursuant to this section and (S)4.12. The special power of attorney
granted herein is coupled with an interest and shall be irrevocable except with
Service Company's written consent. The irrevocable power of attorney shall
expire when this agreement has been terminated, all accounts receivable
purchased by Service Company pursuant to (S)7.7, if any, have been collected,
and all amounts due to Service Company as described in Article VII have been
paid.
(S)4.12 Provider Account.
----------------
9
<PAGE>
(a) Power of Attorney. Service Company shall have access to the
-----------------
Provider Account solely for the purposes stated herein and shall use all funds
on deposit therein to pay all Clinic Expenses in accordance with the terms of
this agreement. Provider hereby grants to Service Company an exclusive special
power of attorney and appoints Service Company as Provider's true and lawful
agent and attorney-in-fact, throughout the Term (and thereafter as provided in
(S)8.3), and Service Company hereby accepts such special power of attorney and
appointment, to make withdrawals from Provider Account for payments specified in
this agreement and as requested from time-to-time by Provider. Notwithstanding
this exclusive special power of attorney, Provider may, upon reasonable advance
notice to Service Company and subject to (S)4.12(b) of this agreement, request
that Service Company draw checks on the Provider Account for Provider Expenses
and such other amounts as may be due to Provider under this agreement.
Disbursements shall be related to and in such amount so as to ensure that
disbursements made without prior Provider Consent are consistent with the
expenditures authorized by the Budget.
(b) [*]
(c) Further Assurances. Promptly upon request by Service Company from
------------------
time to time, Provider shall execute a separate power of attorney in form
reasonably satisfactory to Service Company for the purpose of further confirming
or evidencing the rights granted to Service Company under (S)(S)4.11 and 4.12.
(S)4.13 Financial Matters.
-----------------
(a) Annual Budget. At least 30 days prior to the commencement of each
-------------
calendar year, Service Company, in consultation with Provider, shall prepare and
deliver to the Policy Board for its review a proposed Budget, setting forth an
estimate of Provider's revenue and expenses for the upcoming calendar year
(including without limitation the Service and Performance Fees associated with
the services provided by Service Company hereunder). However, the initial
Budget has been prepared by Service Company in consultation with Provider before
the execution of this agreement. [*]
In the event a proposed Budget is disapproved by Parent (pursuant to
(S)3.2(b)), Service Company, in consultation with Provider, shall promptly
revise such Budget, taking into
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
10
<PAGE>
consideration the comments of Parent, and shall deliver such revised Budget to
the Policy Board for review and to Parent for approval. In the event that a
proposed Budget has not been approved by Parent by the beginning of the calendar
year, the Budget for the prior year shall be deemed to be adopted as the Budget
for the current year until a new Budget as been approved by Parent.
(b) Accounting and Financial Records. Service Company shall establish
--------------------------------
and administer accounting policies and procedures, internal controls, and
systems for the development, preparation, and safekeeping of administrative or
financial records and books of account relating to the business and financial
affairs of Provider, all of which shall be prepared and maintained in accordance
with GAAP. Service Company shall prepare and deliver to Provider, within 90 days
of the end of each calendar year, a balance sheet and an income statement
reflecting the financial status of Provider in regard to the provision of Dental
Care as of the end of such calendar year, all of which shall be prepared in
accordance with GAAP. In addition, Service Company shall prepare or assist in
the preparation of any other financial statements or records as Provider may
reasonably request.
(c) Review of Expenditures. Provider's chief executive officer shall
----------------------
review from time to time all expenditures related to the operation of Provider,
but such officer shall not have the power to prohibit or invalidate any
expenditure.
(d) Tax Matters.
-----------
(i) General. Service Company shall prepare or arrange for the
-------
preparation of all tax returns and reports of Provider required by applicable
law, which returns and reports shall be prepared by an accountant reasonably
acceptable to Provider.
(ii) Sales and Use Taxes. Service Company and Provider
-------------------
acknowledge and agree that to the extent that any of the services to be provided
by Service Company hereunder may be subject to any state sales and use taxes,
Service Company may have a legal obligation to collect such taxes from Provider
and to remit the same to the appropriate tax collection authorities. Provider
agrees to pay any and all applicable state sales, use, gross receipts, and other
similar taxes and charges (other than taxes on Service Company's net income)
with respect to any amount paid to Service Company hereunder and that such
amounts shall be a Provider Expense.
(S)4.14 Reports and Records.
-------------------
(a) Dental Records. Service Company shall establish, monitor, and
--------------
maintain procedures and policies for the timely creation, preparation, filing
and retrieval of all dental records generated by Provider in connection with
Provider's provision of Dental Care; and, subject to applicable law, shall
ensure that dental records are promptly available to dentists and any other
appropriate persons. All such dental records shall be retained and maintained in
11
<PAGE>
accordance with all applicable state and federal laws relating to the
confidentiality and retention thereof. All dental records shall be and remain
the property of Provider.
(b) Other Reports and Records. Service Company shall timely create,
-------------------------
prepare, and file such additional reports and records as are reasonably
necessary and appropriate for Provider's provision of Dental Care, and shall be
prepared to analyze and interpret such reports and records upon the request of
Provider.
(S)4.15 Recruitment of Provider Dentists. Upon Provider's request,
--------------------------------
Service Company shall perform all services reasonably necessary and appropriate
in connection with the recruitment of professional dental personnel. Service
Company shall provide Provider with model agreements to document Provider's
employment, retention or other service arrangements with such individuals.
However, it shall be and remain the sole and complete responsibility of Provider
to interview, select, contract with (subject to (S)5.2, below), supervise,
control and terminate all dentists performing Dental Care or other professional
services, and Service Company shall have no authority whatsoever with respect to
such activities.
(S)4.16 Service Company's Insurance. Throughout the Term, Service
---------------------------
Company shall, as a Clinic Expense, obtain and maintain with commercial
carriers, or through self-insurance, or some combination thereof: (a)
appropriate worker's compensation coverage for the employees of Service Company
provided pursuant to this agreement; and (b) professional and comprehensive
general liability insurance covering Service Company, Service Company's
personnel, and all of Service Company's equipment in such amounts and on such
terms and conditions as Service Company deems appropriate. Service Company
shall cause Provider to be named as an additional insured on Service Company's
property and casualty insurance policies. Upon the request of Provider, Service
Company shall provide Provider with a certificate evidencing such insurance
coverage. Service Company may also carry, at Service Company's option and as a
Clinic Expense, key person life and disability insurance on any shareholder or
dentist employee of Provider in amounts determined as reasonable and sufficient
by Service Company. Service Company shall be the owner and beneficiary of any
such insurance.
(S)4.17 License of Name and Marks. Service Company hereby grants the
-------------------------
Provider, for the Term, a non-exclusive royalty-free license to use the name
"Smileage" and "Smileage Dental Care" and all related marks and logos owned by
Service Company for the purpose of fulfilling its obligations hereunder,
including without limitation providing Dental Care to its patients.
(S)4.18 No Warranty. Provider acknowledges that Service Company has not
-----------
made and will not make any representations or warranties, express or implied,
regarding Service Company's services under this agreement or the results of
those services, including without limitation any representations or warranties
that the services provided by Service Company will result in any particular
amount or level of dental practice or income to Provider.
12
<PAGE>
ARTICLE V. RESPONSIBILITIES OF PROVIDER
----------------------------
(S)5.1 Organization and Operations. As a continuing condition of Service
---------------------------
Company's obligations under this agreement, Provider shall at all times during
the Term: (a) be and remain legally organized and operated to provide Dental
Care in a manner consistent with all state and federal laws; (b) operate and
maintain within the Practice Territory a full time practice of dentistry
providing Dental Care in compliance with all applicable federal, state, and
local laws, rules, regulations, ordinances, and orders; (c) maintain and use its
best efforts to enforce its articles or certificate of incorporation (or other
instrument of organization), bylaws, shareholder agreements, and other
organizational documents (hereafter in this (S)5.1 simply "organizational
documents") in the respective forms provided to Service Company prior to
execution of this agreement; (d) have at least three executive officers at the
level of vice president or above who are also dentist employees of Provider; (e)
maintain and use its best efforts to enforce the written employment agreements
and independent contractor agreements described in (S)5.2(a), below; and (f)
not, without Service Company Consent, (i) amend any of its employment agreements
or organizational documents in any material respect or waive any material rights
thereunder, or (ii) engage in any transaction constituting a merger,
consolidation, reorganization, sale or purchase of assets outside of the
ordinary course of business, liquidation, or dissolution. Provider hereby
acknowledges that Service Company would not have entered into this agreement but
for Provider's covenant to maintain such organizational documents and employment
agreements, and Provider shall pay to Service Company, in addition to the
amounts set forth in Article VII, any damages, compensation, payment, or
settlement amounts received by Provider from a dentist who terminates his
employment agreement without cause or whose employment agreement is terminated
by Provider for cause.
(S)5.2 Provider Personnel.
------------------
(a) Dentist Personnel. Provider shall retain, as a Provider Expense
-----------------
and not as a Clinic Expense, that number of dentists during the Term which are
necessary and appropriate, in Provider's sole discretion after consultation with
Service Company, to provide Dental Care to reasonably meet the demand therefor.
Provider shall cause each dentist retained by Provider to hold and maintain a
valid and unrestricted license to practice dentistry in the State of Wisconsin,
including without limitation any licenses required for the provision of any
specialty dental services, together with all necessary or appropriate board or
other certifications. Throughout the Term, Provider shall enter into and
maintain a written employment agreement substantially in the form of Exhibit D
for all dentists now and hereafter employed by Provider; provided that Provider
shall, throughout the Term, enter into and maintain a written employment
agreement substantially in the form of Exhibit C with each dentist of Provider
who now or hereafter is either an executive officer (at a level of vice
president or above) of or Policy Board member designated by Provider; and
provided further that Provider shall, immediately upon execution of this
agreement, enter into and maintain a written employment agreement substantially
in the form of Exhibit C with each of the dentists set forth on Exhibit E.
Throughout the Term, Provider shall enter into and maintain a written agreement
with each independent contractor retained by Provider, which agreements shall
contain confidentiality
13
<PAGE>
provisions substantially similar to those contained in the employment agreement
in the form of Exhibit D. Provider shall be responsible for paying the
compensation and benefits as applicable, for all dentists and any other dentist
personnel or other contracted or affiliated dentists, and for withholding all
sums for income tax, unemployment insurance, social security, or any other
withholding required by applicable law. Service Company may, on behalf of
Provider, administer the compensation and benefits with respect to such
individuals in accordance with the written agreement between Provider and each
dentist. Service Company shall neither control nor direct any dentist in the
performance of Dental Care for patients. Provider shall provide to Service
Company evidence of such licensing, certifications, and other credentials of the
dentists retained by Provider as Service Company may request from time to time.
(b) Provider and Patient Scheduling. Provider shall, with the
-------------------------------
reasonable assistance of Service Company, (i) develop a set of Provider and
patient scheduling guidelines and a corresponding scheduling system, and (ii)
support Service Company in the implementation of such guidelines and effective
operation of such system.
(c) Paid Hours Reporting. Provider shall support the development and
--------------------
effective operation by Service Company of a dentist paid hours reporting and
monitoring system.
(d) Non-Dentist Dental Care Personnel. All non-dentist personnel who
---------------------------------
provide Dental Care, including without limitation dental hygienists, denturists,
dental assistants, and other licensed or certified personnel shall be under such
control, supervision and direction of Provider and the dentists retained by
Provider in the performance of or in connection with Dental Care for patients as
is required under applicable state law and regulations.
(S)5.3 Professional Standards. As a continuing condition of Service
----------------------
Company's obligations hereunder, each dentist retained by Provider to provide
Dental Care must: (i) have and maintain a valid and unrestricted license to
practice dentistry in the state; and (ii) comply with, be controlled and
governed by, and otherwise provide Dental Care in accordance with applicable
federal, state and municipal laws, rules, regulations, ordinances and orders,
and the ethics and standard of care of the dental profession. All specialty
Dental Care shall be provided by a dentist who is either board certified or
board eligible in the related specialty or by another dentist licensed to
provide such specialty Dental Care operating under the general supervision of a
dentist who is either board certified or board eligible in that specialty.
(S)5.4 Dental Care. Provider shall ensure that dentists and non-dentist
-----------
dental care personnel are available in sufficient numbers as are necessary or
appropriate to provide Dental Care to reasonably meet the demand for such Dental
Care. In the event that dentists employed by, or shareholders of, Provider are
not available to provide Dental Care coverage, Provider shall engage and retain
dentists on a temporary coverage basis, which dentists shall meet or exceed the
qualifications required for Provider's Dental Care Professionals under this
agreement. All costs and expenses associated with the retention of such
temporary coverage shall be Provider Expenses. With the assistance of the
Service Company, Provider and the dentists shall be responsible for scheduling
dentist and non-dentist dental care personnel coverage of all dental
14
<PAGE>
procedures. Provider shall cause all dentists to exert their best efforts to
develop and promote Provider in such a manner as to ensure Provider is able to
serve the diverse needs of the community. Provider shall organize and maintain
a high quality, cost-effective process for ensuring that patients will have
timely access to emergency Dental Care on a 24-hour, seven day per week basis.
(S)5.5 Peer Review and Quality Assurance. Provider shall conduct its peer
---------------------------------
review and quality assurance activities in a manner that is consistent with
maintaining the confidentiality of the related processes, actions, and
documentation.
(a) Provider shall designate a committee of dentists to function as a
dental peer review committee to review credentials of potential dentist
recruits, periodically review the credentials of Provider's existing dentists,
determine the practice privileges of the dentists retained by Provider, perform
quality assurance, utilization review, and Provider profiling functions, and
otherwise resolve dental competency issues. The dental peer review committee
shall function pursuant to formal written policies and procedures established by
Provider upon consultation with and the assistance of Service Company.
(b) Provider also shall adopt a quality assurance program to monitor
and evaluate the quality and cost-effectiveness of the Dental Care provided by
the dentist personnel of Provider and other non-dentist personnel providing
Dental Care under the supervision of Provider's dentists. Upon request of
Provider, Service Company shall provide administrative assistance to Provider in
performing its quality assurance activities.
(c) Provider shall cooperate fully with Service Company in an effort to
achieve and maintain full accreditation status for Provider. For purposes of
facilitating accreditation and other related processes and without limiting
Provider's responsibilities under the preceding sentence, Provider shall develop
and maintain a philosophy of practice and a set of practice guidelines which are
acceptable to the Policy Board. Provider shall cause all personnel retained by
it to abide by such philosophy and guidelines at all times.
(d) Provider shall, after consultation with Service Company and
consideration of the recommendations of the Policy Board, support the
development, maintenance, and operation of a patient concerns and claims
recording, reporting, review, resolution, and tracking process which meets the
quality standards of Service Company. Provider shall cause all personnel
retained by it to comply fully with such process at all times.
(e) Provider shall, with the assistance of Service Company, develop a
set of quality standards and utilization, process monitoring, and reporting
guidelines. Provider shall cause all personnel retained by it to comply with
such standards and guidelines.
(S)5.6 Provider's Insurance. Provider shall, obtain and maintain with
--------------------
commercial carriers reasonably acceptable to Service Company or through self
insurance or some combination thereof (reasonably acceptable to Service Company)
appropriate workers'
15
<PAGE>
compensation coverage for Provider's employed personnel (which shall be a
Provider Expense) and professional and comprehensive general liability insurance
covering Provider and each of the dentists Provider retains to provide Dental
Care (which shall be a Clinic Expense). All costs, expenses, and liabilities
incurred by Provider or Service Company in excess of the limits of such policies
shall be a Provider Expense. Provider shall actively support the participation
of all dentists retained by Provider in training and continuing education
programs in order to reduce the risk of exposure to and the related cost of
obtaining and maintaining such coverage. The comprehensive general liability
coverage and professional liability coverage shall be in such minimum amounts as
Service Company may establish from time to time. In addition, Provider shall
cause each dentist retained by Provider as an independent contractor to obtain
comparable professional and comprehensive general liability insurance coverage.
All such insurance policies shall name Service Company as an additional insured
and provide for at least 30 days advance written notice to Provider and Service
Company from the insurer with respect to any alteration of coverage,
cancellation, or proposed cancellation for any reason. Provider shall cause to
be issued to Service Company by such insurer or insurers a certificate
reflecting such coverage. Upon the termination of this agreement for any
reason, Provider shall continue to carry professional liability insurance in the
amounts specified in this section for 10 years after termination, or if Provider
dissolves or ceases to practice dentistry, Provider shall obtain and maintain as
a Provider Expense "tail" professional liability coverage, in the amounts
specified in this section for an extended reporting period of 10 years.
Provider shall be responsible for paying all premiums for "tail" insurance
coverage. In no event shall the professional liability insurance carrier be
replaced or changed without Service Company Consent. Service Company shall
provide reasonable assistance to Provider to obtain such coverage.
(S)5.7 Noncompetition. Provider acknowledges that Service Company will
--------------
incur substantial costs in providing the equipment, support services, personnel,
and other items and services that are the subject matter of this agreement and
that in the process of providing services under this agreement, Provider will
learn or have access to financial and other Confidential Information of Service
Company to which Provider would not otherwise be exposed. Provider also
recognizes that the services to be provided by Service Company will be feasible
only if Provider operates an active practice to which the dentists associated
with Provider devote their full time and attention. Accordingly, Provider
further agrees as follows:
(a) During the Term, except for its obligations under this agreement,
Provider shall not establish, operate, or provide Dental Care at any dental
office, clinic or other dental care facility anywhere within the Practice
Territory nor have an ownership interest, direct or indirect, in any entity, or
participate in any joint venture, which operates any such office, clinic, or
facility; and
(b) Except as specifically approved by Service Company in writing,
during the Term and for a period of five years immediately following the date
this agreement is terminated for any reason, Provider shall not directly or
indirectly own (excluding ownership of less than five percent (5%) of the equity
of any publicly traded entity), manage, operate, control, lend funds to, lend
its name to, or maintain any interest in any entity, business, or enterprise
which (i)
16
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provides, distributes, or promotes any type of management or administrative
services or products to third parties in competition with Service Company in the
Practice Territory or (ii) offers any type of service or product to third
parties substantially similar to those offered by Service Company to Provider in
the Practice Territory. Notwithstanding the above restriction, nothing herein
shall prohibit Provider or any of its shareholders from providing management and
administrative services to its or their own dental practices after the
termination of this agreement, and nothing herein shall prohibit Provider or its
shareholders from contracting with a third party manager to provide
administrative or management services for its or their dental practices after
termination of this agreement as long as such relationship complies with the
provisions of this section.
(S)5.8 Use of Name. At all times during the Term, Provider shall, unless
-----------
otherwise directed by the Policy Board pursuant to (S)3.2(c), operate its dental
practice under the name "Wisconsin Dental Group", including without limitation
using all related marks and logos as are licensed to Provider pursuant to
(S)4.17, above, and filing an assumed or fictitious name application with the
Wisconsin Secretary of State or other appropriate governmental agency; provided
that Provider shall, immediately upon the expiration of the Term, abstain from
using such name, marks, and logos and shall take such steps as are necessary to
terminate such applications and Provider's rights thereunder.
ARTICLE VI. CONFIDENTIALITY
---------------
(S)6.1 Confidential and Proprietary Information. Neither Party shall, in
----------------------------------------
any manner or at any time, directly or indirectly, disclose any of the
Confidential Information of the other Party to any person, firm, association,
organization, or entity, or use, or permit or assist any person, firm,
association, organization, or entity to use any such Confidential Information,
excepting only: (a) disclosures (i) required by law, as reasonably determined by
the disclosing Party or its legal counsel, or (ii) made on a confidential basis
to the disclosing Party's shareholders, directors, officers, employees (limited
to those who need to know such Confidential Information), and legal, accounting,
and other professional advisors (collectively, the "Permitted Recipients"); or
(b) use of such Confidential Information by Permitted Recipients in connection
with this agreement; provided that each Party shall (i) make its Permitted
Recipients aware of the requirements of this agreement, (ii) take reasonable
steps to prohibit disclosure of such Confidential Information by any Permitted
Recipient to any other person or entity except another Permitted Recipient,
including without limitation taking such steps as that Party customarily takes
to protect its own Confidential Information, and (iii) be responsible and liable
for any disclosure or use of such Confidential Information by any of its
Permitted Recipients, except disclosures or uses permitted by this agreement.
(S)6.2 Use of Practice Statistics. Notwithstanding (S)6.1, above, but
--------------------------
subject to the restrictions of this section and applicable law, Service Company
may: (a) share with other professional corporations, associations, dental
practices, or dental care delivery entities the practice statistics of Provider,
including utilization review data, quality assurance data, cost data,
17
<PAGE>
outcomes data, or other practice data, provided that such information shall only
be disclosed to (i) affiliates of Service Company, (ii) other dental groups with
whom Service Company has a management relationship, (iii) managed care dental
benefit providers and other third party payors for the purpose of obtaining or
maintaining third party payor contracts, (iv) financial analysts and
underwriters, (v) employers and employee benefit associations, (vi) quality
assurance and accrediting organizations, or (vii) financial institutions; and
(b) disclose all practice-related information necessary or desirable in
connection with any public or private offering of any security of Service
Company. In addition, Service Company may disclose practice-related information
and data in connection with any survey, presentation, published material, study,
or research project which Service Company deems appropriate for the purpose of
gaining insight into existing and changing patterns in the organization and
delivery of Dental Care and related issues. In no event will any such data
disclose or divulge the identity of any patient or, to the extent reasonably
practicable, any dentist.
ARTICLE VII. FINANCIAL ARRANGEMENTS
----------------------
(S)7.1 [*]
(S)7.2 [*]
(S)7.3 [*]
(a) [*]
(b) [*]
(S)7.4 [*]
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
18
<PAGE>
(S)7.5 Reasonable Value. Payment of the Service Fee or Performance Fee is
----------------
not intended to be and shall not be interpreted or applied as permitting Service
Company to share in Provider's fee for Dental Care or any other services, but is
acknowledged as the Parties' negotiated agreement as to the reasonable fair
market value of the equipment, contract analysis and support, other support
services, purchasing, personnel, office space, management, administration,
strategic management, and other items and services furnished by Service Company
pursuant to this agreement, considering the nature and volume of the services
required and the risks assumed by Service Company. Provider and Service Company
acknowledge that: (a) Service Company's administrative expertise will
contribute great value to Provider's performance; (b) Service Company will incur
substantial costs and business risks in arranging for Provider's use of each
Clinic and in providing the equipment, support services, personnel, marketing,
office space, management, administration, and other items and services that are
the subject matter of this agreement; and (c) certain of such costs and expenses
can vary to a considerable degree according to the extent of Provider's business
and services. It is the intent of the Parties that the Service Fee and
Performance Fee reasonably compensate Service Company for the value to Provider
of Service Company's administrative expertise, given the considerable business
risk to Service Company in providing the items and services that are the subject
of this agreement.
(S)7.6 Payment. The amounts to be paid to Service Company under this
-------
Article shall be calculated by Service Company on the accrual basis of
accounting and paid monthly. To facilitate the payments due to Service Company
under this Article, Provider hereby expressly authorizes Service Company to
make withdrawals of such amounts from the Provider Account during the Term in
accordance with (S)4.12(b), and after termination as provided in (S)8.3.
(S)7.7 Accounts Receivable. To assure that Provider receives the entire
-------------------
amount of professional fees for its services and to assist Provider in
maintaining reasonable cash flow for the payment of Clinic Expenses, Service
Company may, during the Term, purchase, with recourse to Provider for the amount
of the purchase, the accounts receivable of Provider arising during the previous
month by transferring the amount set forth below into the Provider Account. The
consideration for the purchase shall be an amount equal to the Adjusted Gross
Revenue recorded each month. Service Company shall be entitled to offset Clinic
Expense reimbursement plus all fees and advances due to Service Company under
this Article against the amount payable
19
<PAGE>
for the accounts receivable. Although it is the intention of the Parties that
Service Company purchase and thereby become the owner of the accounts receivable
of Provider, in the event such purchase shall be ineffective for any reason,
Provider hereby grants to Service Company a security interest in the accounts
receivable, and Provider shall cooperate with Service Company and execute all
documents which may be reasonably requested by Service Company in connection
with such security interest. All collections in respect of such accounts
receivable purchased by Service Company shall be received by Provider as the
agent of Service Company and shall be endorsed to Service Company and deposited
in a bank account at a bank designated by Service Company. To the extent
Provider comes into possession of any payments in respect of such accounts
receivable, Provider shall direct such payments to Service Company for deposit
in bank accounts designated by Service Company.
ARTICLE VIII. TERM AND TERMINATION
--------------------
(S)8.1 Initial and Renewal Term. The Term of this agreement shall be for
------------------------
an initial period of 40 years beginning on the date of this agreement, and shall
renew automatically for successive five-year periods thereafter unless and until
either Party gives notice to the other Party at least 120 days prior to the
expiration of the then-current term of its intent to terminate this agreement at
the end of the then-current term or unless otherwise terminated as provided in
(S)8.2 of this agreement.
(S)8.2 Termination.
-----------
(a) Termination By Service Company. Service Company may terminate this
------------------------------
agreement immediately upon notice to Provider upon the occurrence of any one of
the following events:
(i) The dissolution of Provider;
(ii) Provider admits in writing its inability to pay generally
its debts as they become due or makes an assignment for the benefit of
creditors;
(iii) A receiver, trustee, liquidator, or conservator is appointed
for Provider or to take possession of all or substantially all of Provider's
property or a petition for insolvency, dissolution, liquidation, or
reorganization, or order for relief in which Provider is named as debtor, is
filed by, against, or with respect to Provider pursuant to any federal or state
statute, regulation, or law for the protection of debtors, and, with respect to
any such appointment or filing, Provider fails to secure a stay or discharge
thereof within 45 days after such appointment or filing;
(iv) Provider fails to pay when due any payment to be made by
Provider under this agreement, which failure continues for 10 days after notice
is given by Service Company
20
<PAGE>
to Provider thereof, provided that such failure is not directly attributable to
Service Company's failure to apply available funds in the Provider Account
according to (S)4.12(b); or
(v) Provider fails to comply with or perform any of its other
material duties or obligations under this agreement, which failure continues for
30 days after notice is given by Service Company to Provider thereof, or if
because of the nature of such failure it cannot reasonably be corrected within
such 30 day period, failure by Provider to commence such correction promptly
following its receipt of notice from Service Company and thereafter to
expeditiously and continuously prosecute the correction to completion.
(b) Termination By Provider. Provider may terminate this agreement
-----------------------
immediately upon notice to Service Company upon the occurrence of any of the
following events:
(i) A receiver, trustee, liquidator, or conservator is appointed
for Service Company or to take possession of all or substantially all of Service
Company's property or a petition for insolvency, dissolution, liquidation, or
reorganization, or order for relief in which Service Company is named as debtor,
is filed by, against, or with respect to Service Company pursuant to any federal
or state statute, regulation, or law for the protection of debtors, and, with
respect to any such appointment or filing, Service Company fails to secure a
stay or discharge thereof within 45 days after such appointment or filing;
(ii) Service Company fails to comply with or perform any of its
material duties or obligations under this agreement, which failure continues for
30 days after notice is given by Provider to Service Company thereof, or if
because of the nature of such failure it cannot reasonably be corrected within
such 30 day period, failure by Service Company to commence such correction
promptly following its receipt of notice from Provider and thereafter to
expeditiously and continuously prosecute the correction to completion; or
(iii) A court of competent jurisdiction makes a final
determination that Service Company has materially breached a fiduciary duty owed
to Provider.
Notwithstanding the foregoing, any termination by Provider under this
section shall require the affirmative vote of three-fourths of the then-
outstanding shares of Provider entitled to vote on such a matter.
(c) Termination by Agreement. Provider and Service Company may
------------------------
mutually agree to terminate this agreement at any time, such agreement to be in
writing and signed by both Parties.
(d) Legislative, Regulatory or Administrative Change. In the event
------------------------------------------------
there is a change in any federal, state, or local statute, law, regulation,
legislation, rule, policy, or general instruction, or a change in any third
party reimbursement system, or a ruling, judgment, or decree by any court,
agency, or other governing body having jurisdiction over either Party (hereafter
in this clause (d), a "ruling") which materially and adversely affects, or is
reasonably
21
<PAGE>
likely to affect, the manner in which either Party is to perform or be
compensated for its services under this agreement or which shall make this
agreement unlawful, the Parties shall immediately use their best efforts to
enter into a new service arrangement or basis for compensation for the services
furnished pursuant to this agreement that complies with that change and
approximates as closely as possible the economic position of the Parties prior
to such change or ruling.
If the Parties are unable to reach a new agreement within a
reasonable period of time following the date upon which it becomes reasonably
certain that such change will arise or ruling will be given, then either Party
may submit the issue to arbitration which shall be binding on the parties and
subject to the then-applicable Commercial Arbitration Rules of the American
Arbitration Association. In any such arbitration, the arbitrators shall be
consist of a panel of three arbitrators, which shall act by majority vote and
which shall consist of one arbitrator selected by the Party on one side of the
issue subject to the arbitration, one arbitrator selected by the Party on the
other side of the issue, and a third arbitrator selected by the two arbitrators
so selected, who shall be either a certified public accountant or an attorney at
law licensed to practice in the State of Wisconsin and who shall act as chairman
of the arbitration panel; provided that if the Party on one side of the issue
selects its arbitrator for the panel and the other Party fails to so select its
arbitrator within 10 business days after being requested by the first Party to
do so, then the sole arbitrator shall be the arbitrator selected by the first
Party.
All costs and expenses of arbitration shall be borne by the Parties
as determined by the arbitrator or arbitration panel, except that the fees of
any arbitrator on an arbitration panel who is selected individually by a Party
shall be borne separately by the Party appointing him; provided that if one
Party fails to select an arbitrator for a panel, and the sole arbitrator is the
arbitrator selected by the other Party, then the fees of that arbitrator shall
be borne by the Parties as determined by that arbitrator.
(S)8.3 Effects of Termination. Upon termination of this agreement as
----------------------
herein provided, neither Party shall have any further obligations under this
agreement, except for: (a) obligations accruing prior to the date of
termination, including without limitation payment of the amounts set forth in
Article VII relating to services provided prior to the termination of this
agreement; (b) obligations set forth in this agreement that expressly extend
beyond the Term, including without limitation indemnities and noncompetition
provisions, which provisions shall survive the expiration or termination of this
agreement; (c) the obligations of each party set forth in Article VI; and (d)
the obligation of Provider described in (S)8.4. Provider specifically
acknowledges and agrees that Service Company shall continue to collect and
receive on behalf of Provider all cash collections from accounts receivable in
existence at the time this agreement is terminated (which have not otherwise
been purchased by Service Company pursuant to (S)7.7), it being understood that
such cash collections will represent, in part, compensation to Service Company
for Services already rendered and compensation on accounts receivable purchased
by Service Company, if any. Upon the expiration or termination of this
agreement for any reason or cause whatsoever, Service Company shall surrender to
Provider all books and records pertaining to Provider's dental practice;
provided that Service Company may retain copies of such documents
22
<PAGE>
to the extent reasonably necessary for Service Company to complete its post-
termination obligations and activities under this agreement.
(S)8.4 Purchase Obligation. Upon termination of this agreement for any
-------------------
reason, Provider shall, at Service Company's option:
(a) Purchase from Service Company at book value the intangible assets,
deferred charges, goodwill, and all other amounts on the books of the Service
Company relating to this agreement or the items or services provided by Service
Company pursuant to this agreement, including without limitation the amount, if
any, for the covenants described in (S)5.7, above, as adjusted through the last
day of the month most recently ended prior to the date of such termination in
accordance with GAAP to reflect amortization or depreciation of all such
amounts;
(b) Purchase from Service Company any real estate owned by Service
Company and used as a Clinic at the greater of the appraised fair market value
thereof or the then book value thereof;
(c) Purchase, at the greater of the appraised fair market value or the
then book value, all improvements, additions, or leasehold improvements that
have been made by Service Company at any Clinic and that relate to the
performance of Service Company's obligations under this agreement;
(d) Assume all debt, and all contracts, payables, and leases that are
obligations of Service Company and that relate to the performance of Service
Company's obligations under this agreement or the properties leased or subleased
by Service Company in connection with its obligations under this agreement; and
(e) Purchase from Service Company, at the greater of the appraised fair
market value or the then book value, all of the equipment then being supplied by
Service Company pursuant to Service Company's obligations under this agreement,
and all other assets, including inventory and supplies, tangibles and
intangibles, set forth on the books of Service Company as adjusted through the
last day of the month most recently ended prior to the date of such termination
in accordance with GAAP to reflect operations of each Clinic, depreciation,
amortization, and other adjustments of assets shown on the books of the Service
Company.
For purposes of subsection (b), above, the appraised value shall be
determined by an appraiser mutually agreed upon by the Parties. In the event
the Parties are unable to agree upon an appraiser within 10 days following the
date upon which either Party requests the other Party to agree to an appraiser,
then each Party shall appoint an appraiser, who shall in turn select a third
appraiser who shall serve as the appraiser hereunder. In the event either Party
fails to select an appraiser within 15 days of the selection of an appraiser by
the other Party, the appraiser selected by the other Party shall serve as the
appraiser hereunder. The determination
23
<PAGE>
of the appraised value of the assets identified in subsection (b), above, by the
appraiser selected hereunder shall be binding on both Parties.
(S)8.5 Closing of Purchase. If Provider purchases assets pursuant to
-------------------
(S)8.4, Provider shall pay cash for the purchased assets; provided that the
amount of the purchase price allocable to an asset shall be reduced by the
amount of debt and liabilities of Service Company, if any, relating directly to
that asset which are assumed by Provider in connection with such purchase.
Provider and any dentist associated with Provider shall execute such documents
as may be required to assume the liabilities set forth in (S)8.4(d) and to
remove Service Company from any liability with respect to such purchased asset
and with respect to any property leased or subleased by Service Company. The
closing date for the purchase shall be determined by the Parties, but shall in
no event occur later than 180 days from the date of the notice of termination.
Provider shall be released from the covenants described in (S)5.7, above, upon
the successful consummation of such closing.
Notwithstanding the foregoing, Provider may, at its option, pay all or a
portion of the purchase price at the closing in shares of common stock of Parent
("Shares") for which Provider shall receive, as a credit to the purchase price,
an amount equal to the number of Shares transferred to Service Company by
Provider at the closing multiplied by the per Share fair market value (defined
below); provided that each Share transferred to Service Company is free and
clear of all liens, security interests, encumbrances, pledges, charges, claims,
voting trusts and restrictions on transfer of any nature whatsoever, except
restrictions on transfer imposed by or pursuant to federal and state securities
laws and such other restrictions as were expressly required by Parent in
connection with the acquisition of Service Company by Parent concurrently with
the execution of this agreement. For purposes of this section, the "per Share
fair market value" shall mean, as of any given date, the (i) last reported sale
price on the New York Stock Exchange on the most recent previous trading day,
(ii) last reported sale price on the NASDAQ National Market System on the most
recent previous trading day, (iii) mean between the high and low bid and ask
prices, as reported by the National Association of Securities Dealers, Inc. on
the most recent previous trading day, (iv) last reported sale price on any other
stock exchange on which the Shares are listed on the most recent previous
trading day, whichever is applicable, or (v) if none of the foregoing is
applicable, then the per Share fair market value of the Shares shall be the
value determined by the Board of Directors of Parent, in its discretion, based
upon the then-current Share value assigned by the Board of Directors of Parent
in connection with Parent's other activities; provided that, if Provider
disagrees with the determination of Parent's Board of Directors as to such
value, the per Share fair market value shall be determined by:
(A) Agreement between Service Company and Provider, if they are
able to agree upon a value within ten business days after being requested
to so agree; or, if not,
(B) An appraiser selected by agreement between Service Company
and Provider, if they are able to agree upon an appraiser within ten
business days after requested to so agree; or, if not,
24
<PAGE>
(C) The majority vote by an appraisal board consisting of three
appraisers, one member appointed by each of Service Company and Provider
and the third member appointed by the first two members so appointed who
shall act as chairman of the appraisal board, provided that in the event
either Party fails to so appoint its appointee to the appraisal board
within ten business days after being requested to do so by the other Party,
then the appraiser appointed by the requesting Party shall be the sole
appraiser.
ARTICLE IX. GENERAL
-------
(S)9.1 Administrative Services Only. Nothing in this agreement is
----------------------------
intended or shall be construed to allow Service Company to exercise control or
direction over the manner or method by which Provider and its dentists perform
Dental Care or other professional dental care services. The rendition of all
Dental Care shall be the sole responsibility of Provider and its dentists, and
Service Company shall not interfere in any manner or to any extent therewith.
Nothing contained in this agreement shall be construed to permit Service Company
to engage in the practice of dentistry, it being the sole intention of the
Parties hereto that the services to be rendered to Provider by Service Company
are solely for the purpose of providing non-dental administrative services to
Provider so as to enable Provider to devote its full time and energies to the
professional conduct of its dental practice and provision of Dental Care to its
patients and not to administration, or practice management.
(S)9.2 Relationship of Parties. The relationship of the Parties is and
-----------------------
shall be that of independent contractors, and nothing in this agreement is
intended, and nothing shall be construed to create an employer/employee,
partnership, or joint venture relationship between the Parties, or to allow
either to exercise control or direction over the manner or method by which the
other performs the services that are the subject matter of this agreement;
provided always that the services to be provided hereunder shall be furnished in
a manner consistent with the standards governing such services and the
provisions of this agreement.
(S)9.3 Notices. Any notice or other communication required or desired to
-------
be given to either Party shall be in writing and shall be deemed given when
deposited in the United States mail, first-class postage prepaid, addressed:
(a) If to Service Company
Smileage Dental Care, Inc.
9052 North Deerbrook Trail
Milwaukee, Wisconsin 53223
Attention: President
25
<PAGE>
With a copies to:
American Dental Partners, Inc.
301 Edgewater Place
Suite 320
Wakefield, Massachusetts 01880-1249
Attention: Gregory A. Serrao, President
and Chief Executive Officer
and
Baker & Hostetler
65 East State Street
Suite 2100
Columbus, Ohio 43215
Attention: Gary A. Wadman, Esq.
(b) If to Provider
Wisconsin Dental Group, S.C.
9052 North Deerbrook Trail
Milwaukee, Wisconsin 53223
Attention: President
With a copy to:
Niebler & Muren, S.C.
P.O. Drawer 825
Milwaukee, Wisconsin 53008-0825
Attention: Joseph C. Niebler, Sr., Esq.
Any Party may change the address to which notices and other
communications are to be given by giving the other Parties notice of such
change.
(S)9.4 Execution of Documents. Each Party shall execute, acknowledge or
----------------------
verify, and deliver any and all documents, and take any and all other actions,
which from time to time may be reasonably requested by any other Party to carry
out the purposes and intent of this agreement.
(S)9.5 Governing Law. All questions concerning the validity, intention,
-------------
or meaning of this agreement or relating to the rights and obligations of the
Parties with respect to performance under this agreement shall be construed and
resolved under the laws of Wisconsin, without reference to conflict of law
principles.
26
<PAGE>
(S)9.6 Severability. The intention of the Parties is to comply fully
------------
with all applicable laws and public policies, and this agreement shall be
construed consistently with all laws and public policies to the extent possible.
If and to the extent that any court of competent jurisdiction determines that it
is impossible to construe any provision of this agreement consistently with any
law or public policy and consequently holds that provision is invalid, such
holding shall in no way affect the validity of the other provisions of this
agreement, which shall remain in full force and effect. With respect to any
provision in this agreement finally determined by such a court to be invalid or
unenforceable, such court shall have jurisdiction to reform this agreement
(consistent with the intent of the Parties) to the extent necessary to make such
provision valid and enforceable, and, as reformed, such provision shall be
binding on the Parties.
(S)9.7 Setoff. Notwithstanding any provision of this agreement to the
------
contrary, Service Company shall have the right from time to time to setoff any
amounts owed by Service Company to Provider under this agreement against any
amounts owed by Provider to Service Company, whether pursuant to this agreement
or otherwise.
(S)9.8 Remedies. All rights and remedies of each Party under this
--------
agreement are cumulative and in addition to all other rights and remedies which
may be available to that Party from time to time, whether under any other
agreement, at law, or in equity.
Each Party hereby acknowledges that: (a) the provisions of (S)(S)5.7 and
6.1 of this agreement are fundamental for the protection of the other Party's
legitimate business interests; (b) such provisions are reasonable and
appropriate in all respects; and (c) in the event it violates any such
provisions, the other Party would suffer irreparable harm and its remedies at
law would be inadequate. Accordingly, in the event either Party violates or
attempts to violate any such provisions, the other Party shall be entitled to a
temporary restraining order, temporary and permanent injunctions, specific
performance, and other equitable relief without any showing of irreparable harm
or damage or the posting of any bond, in addition to any other rights or
remedies which may then be available to the other Party.
(S)9.9 Non-waiver. No failure by any Party to insist upon strict
----------
compliance with any term of this agreement, to exercise any option, enforce any
right, or seek any remedy upon any default of any other Party shall affect, or
constitute a waiver of, the first Party's right to insist upon such strict
compliance, exercise that option, enforce that right, or seek that remedy with
respect to that default or any prior, contemporaneous, or subsequent default;
nor shall any custom or practice of the Parties at variance with any provision
of this agreement affect or constitute a waiver of, any Party's right to demand
strict compliance with all provisions of this agreement.
(S)9.10 Indemnification. Each Party (the "Indemnifying Party") shall
---------------
indemnify and hold harmless the other Party and its shareholders, directors,
officers, employees, agents, representatives, and affiliates (the "Indemnified
Parties") from and against any and all losses, liabilities, damages, demands,
claims, suits, actions, judgments, assessments, costs and
27
<PAGE>
expenses, including without limitation interest, penalties, attorneys' fees, any
and all expenses incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation (collectively, "Damages"),
asserted against, imposed upon, or incurred or suffered by the Indemnified
Parties, directly or indirectly, as a result of or arising from: (i) any failure
of any representation or warranty of the Indemnifying Party in this agreement to
be accurate and complete in all material respects when made; or (ii) any failure
by the Indemnifying Party to perform and observe fully all obligations and
conditions to be performed or observed by the Indemnifying Party under this
agreement. In addition, Provider shall indemnify Service Company and its
shareholders, directors, officers, employees, agents, representatives, and
affiliates from and against any and all Damages asserted against, imposed upon,
or incurred or suffered by any of them, directly or indirectly, as a result of
or arising from the acts or omissions of Provider or its employees, contractors,
or other agents or representatives.
(S)9.11 No Third Party Benefit. This agreement is intended for the
----------------------
exclusive benefit of the Parties and their respective successors and assigns,
and nothing contained in this agreement shall be construed as creating any
rights or benefits in or to any third party.
(S)9.12 Captions. The captions of the various sections of this agreement
--------
are not part of the context of this agreement, are only labels to assist in
locating and reading those sections, and shall be ignored in construing this
agreement.
(S)9.13 Genders and Numbers. When permitted by the context, each pronoun
-------------------
used in this agreement includes the same pronoun in other genders or numbers and
each noun used in this agreement includes the same noun in other numbers.
(S)9.14 Complete Agreement. This document (including its exhibits and
------------------
all other documents referred to herein, all of which are hereby incorporated
herein by reference) contains the entire agreement among the Parties and
supersedes all prior or contemporaneous discussions, negotiations,
representations, or agreements relating to the subject matter of this agreement.
No changes to this agreement shall be made or be binding upon any Party unless
made in writing and signed by each Party to this agreement.
(S)9.15 Counterparts. This agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
(S)9.16 Assignment. Provider may not assign this agreement without the
----------
prior written consent of Service Company, which consent may be withheld for any
reason. The sale, transfer, pledge, or assignment of any of the shares of
Provider held by any shareholder of Provider, the issuance by Provider of voting
shares to any other person, or any combination of such transactions within a
period of two years, such that the existing shareholders in Provider fail to
maintain a majority of the voting interest in Provider shall be deemed an
attempted assignment by Provider, and shall be null and void unless consented to
in writing by Service Company prior to any such transfer or issuance. Any
breach of this provision, whether or not void or voidable, shall constitute a
material breach of this agreement, and in the event of such breach, Service
Company may terminate this agreement upon 24 hours notice to Provider. Service
Company
28
<PAGE>
shall have the right to (i) assign its rights and obligations hereunder to any
third party and (ii) collaterally assign its interest in this agreement and its
right to collect the amounts set forth in Article VII hereunder to any financial
institution or other third party without the consent of Provider.
(S)9.17 Successors. Subject to (S)9.16, above, this agreement shall be
----------
binding upon, inure to the benefit of, and be enforceable by and against the
successors and assigns of each Party.
(S)9.18 Force Majeure. Neither Party shall be liable or deemed to be in
-------------
default for any delay or failure in performance under this agreement or other
interruption of service deemed to result, directly or indirectly, from acts of
God, civil or military authority, acts of public enemy, war, accidents, fires,
explosions, earthquakes, floods, failure of transportation, strikes or other
work interruptions by either Party's employees, or any other similar cause
beyond the reasonable control of either Party unless such delay or failure in
performance is expressly addressed elsewhere in this agreement.
WISCONSIN DENTAL GROUP, S.C.
By /s/ Jesley C. Ruff
-------------------------------
Jesley C. Ruff, President
SMILEAGE DENTAL CARE, INC.
By /s/ Don A. Deike
-------------------------------
Don A. Deike, President
29
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit A Definitions
Exhibit B [Intentionally Left Blank]
Exhibit C Five-Year Employment Agreement
Exhibit D Standard Employment Agreement
Exhibit E List of Dentists with Five-Year Employment Agreements
<PAGE>
EXHIBIT A
---------
DEFINITIONS
-----------
[*]
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
i
<PAGE>
ii
<PAGE>
iii
<PAGE>
iv
<PAGE>
v
<PAGE>
vi
<PAGE>
FIRST AMENDMENT TO SERVICE AGREEMENT
------------------------------------
This amendment is made effective January 1, 1997, between Smileage
Dental Care, Inc., a Wisconsin corporation ("Service Company"), and Wisconsin
Dental Group, S.C., a Wisconsin service corporation ("Provider").
Background Information
----------------------
A. Service Company and Provider are all of the parties (the
"Parties") to a Service Agreement dated December 23, 1996 (the "Agreement").
B. The Parties have prepared a revised Budget (as defined in the
Agreement) for 1997 and desire to amend the Agreement so that the Agreement will
be consistent with such Budget.
Agreement
---------
The Parties hereby acknowledge the accuracy of the foregoing
Background Information and agree as follows:
(S)1. Definitions. All capitalized terms used in this amendment which
-----------
are not otherwise defined herein shall have the respective meanings given those
terms in the Agreement.
(S)2. [*]
(S)3. [*]
(S)4. [*]
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Securities and Exchange
Commission.
<PAGE>
(S)5. [*]
(S)6. Construction. The modifications to the Agreement contained in this
------------
amendment shall apply prospectively only. In the event of any inconsistency
between the provisions of this amendment and the provisions of the Agreement,
the provisions of this amendment shall control; provided that this amendment
shall not be construed to limit the Parties' right to adjusted amounts or
percentages pursuant to future Budgets as permitted by the Agreement. Except as
modified in this amendment, the Agreement shall continue in full force and
effect without change. This amendment shall be binding upon, inure to the
benefit of, and be enforceable by and against the respective successors and
assigns of each Party.
(S)7. Counterparts. This amendment may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same amendment.
WISCONSIN DENTAL GROUP, S.C. SMILEAGE DENTAL CARE, INC.
By /s/ Jesley C. Ruff By /s/ Don A. Deike
-------------------------- --------------------------
Jesley C. Ruff, President Don A. Deike, President
* This information has been omitted pursuant to a request for confidential
treatment and has been filed separate with the Securities and Exchange
Commission.
<PAGE>
REVOLVING CREDIT AGREEMENT
DATED AS OF APRIL 24, 1997
AMONG
AMERICAN DENTAL PARTNERS, INC.,
THE LENDERS PARTY HERETO
AND
FLEET NATIONAL BANK
AS AGENT
--------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 1 Definitions.......................................................... 1
1.1 Certain Definitions.................................................. 1
1.2 Accounting Terms..................................................... 12
1.3 Rules of Interpretation.............................................. 13
Section 2 Revolving Credit Loans; Letters of Credit............................ 13
2.1 Amount............................................................... 13
2.2 Revolving Credit Note................................................ 13
2.3 Lending Office....................................................... 13
2.4 Requests For Revolving Credit Loans.................................. 14
2.5 Letters of Credit.................................................... 14
2.6 Maturity of Revolving Credit Loans................................... 15
2.7 Termination or Reduction of Commitment............................... 16
2.8 Several Obligations.................................................. 16
Section 3. [Intentionally Omitted]............................................. 16
Section 4 Interest Rates; Fees; Payments....................................... 16
4.1 Interest Rates....................................................... 16
4.2 Commitment Fee....................................................... 17
4.3 Letter of Credit Fees................................................ 18
4.4 Certain Notices...................................................... 18
4.5 Non-Receipt of Funds by the Agent.................................... 18
4.6 Sharing of Payment; Waiver of Enforcement Without Consent, Etc....... 19
4.7 Minimum and Maximum Amounts.......................................... 20
4.8 Computations......................................................... 20
4.9 Manner and Place of Payment.......................................... 20
4.10 Pro Rata Treatment................................................... 21
4.11 Payments Due on Saturdays, Sundays and Holidays...................... 21
4.12 Additional Costs..................................................... 21
4.13 Limitation on Types of Loans......................................... 22
4.14 Illegality........................................................... 23
4.15 Substitute Prime Rate Loans.......................................... 23
4.16 Compensation......................................................... 23
4.17 Capital Adequacy..................................................... 24
4.18 Optional Prepayments................................................. 25
4.19 Mandatory Prepayments................................................ 25
Section 5 Security............................................................. 25
5.1 Security Interests................................................... 25
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.2 Release of Security Interests 26
Section 6 Conditions Precedent.................................................. 26
6.1 Conditions to all Loans and Letters of Credit......................... 26
Section 7 Representations and Warranties........................................ 28
7.1 Corporate Status...................................................... 29
7.2 No Violation.......................................................... 29
7.3 Corporate Power and Authority......................................... 29
7.4 Enforceability........................................................ 29
7.5 Consents or Approvals................................................. 29
7.6 Financial Statements.................................................. 29
7.7 No Material Change.................................................... 30
7.8 Litigation............................................................ 30
7.9 Compliance with Other Instruments; Compliance with Law................ 30
7.10 Subsidiaries.......................................................... 30
7.11 Investment Company Status; Limits on Ability to Incur Indebtedness.... 30
7.12 Title to Property..................................................... 31
7.13 ERISA................................................................. 31
7.14 Taxes................................................................. 31
7.15 Environmental Matters................................................. 31
7.16 Intellectual Property................................................. 32
7.17 Level of Borrowing.................................................... 32
7.18 Malpractice Insurance................................................. 32
7.19 Disclosure............................................................ 32
Section 8 Affirmative Covenants................................................. 32
8.1 Use of Proceeds....................................................... 33
8.2 Conduct of Business; Maintenance of Existence......................... 33
8.3 Compliance with Laws.................................................. 33
8.4 Insurance............................................................. 33
8.5 Financial Statements, Etc............................................. 34
8.6 Notice of Default..................................................... 35
8.7 Environmental Matters................................................. 35
8.8 Taxes and Other Liens................................................. 36
8.9 ERISA Information..................................................... 36
8.10 Inspection............................................................ 37
8.11 Certain Obligations Respecting Subsidiaries........................... 37
8.12 Further Assurances.................................................... 38
Section 9 Negative Covenants.................................................... 38
9.1 Transactions with Affiliates.......................................... 38
9.2 Consolidation, Merger or Acquisition.................................. 38
9.3 Disposition of Assets................................................. 39
9.4 Indebtedness.......................................................... 40
9.5 Guarantees............................................................ 40
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9.6 Liens................................................................. 40
9.7 Restricted Payments................................................... 41
9.8 Investments........................................................... 41
9.9 ERISA................................................................. 42
9.10 Fiscal Year........................................................... 43
Section 10 Financial Covenants.................................................. 43
10.1 Debt Coverage........................................................ 43
10.2 Fixed Charges Coverage............................................... 43
10.3 Minimum Net Worth.................................................... 43
Section 11 Events of Default.................................................... 43
11.1. Events of Default.................................................... 43
11.2 Remedies Upon an Event of Default.................................... 45
Section 12. The Agent............................................................ 46
12.1. Appointment, Powers and Immunities................................... 46
12.2. Reliance by Agent.................................................... 46
12.3. Defaults............................................................. 47
12.4. Rights as a Lender................................................... 47
12.5. Events............................................................... 47
12.6. Non-Reliance on Agent and Other Lenders.............................. 48
12.7. Failure to Act....................................................... 48
12.8. Removal of Agent..................................................... 48
12.9. Collateral Sub-Agents................................................ 48
Section 13. General.............................................................. 49
13.1. Amendments, Etc...................................................... 49
13.2. Notices, Etc......................................................... 49
13.3. No Waiver; Remedies.................................................. 49
13.4. Right of Set-off..................................................... 49
13.5 Expenses; Indemnification............................................ 50
13.6 Successors and Assigns............................................... 51
13.7 Severability......................................................... 51
13.8 Governing Law........................................................ 51
13.9 Waiver of Jury Trial................................................. 51
13.10 Venue, Consent to Service of Process................................. 52
13.11 Additional Lenders................................................... 52
13.12 Headings............................................................. 52
13.13 Counterparts......................................................... 53
13.14 Confidentiality...................................................... 53
</TABLE>
iii
<PAGE>
EXHIBITS:
- --------
A - Revolving Credit Note
B - Security Agreement
C - Subsidiary Security Agreement
D - Stock Pledge Agreement
E - Subsidiary Guaranty
F - Compliance Certificate
SCHEDULES:
- ---------
A - Disclosure Schedule
1 - Applicable Margin and Commitment Fees
2 - Commitments of the Lenders
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT, dated as of April 24, 1997, by and among
AMERICAN DENTAL PARTNERS, INC., a Delaware corporation (the "Borrower"), having
--------
its principal place of business and chief executive offices at 301 Edgewater
Place, Suite 320, Wakefield, Massachusetts 01880; FLEET NATIONAL BANK, a
national banking association, with its principal place of business at Fleet
Center, 75 State Street, Boston, Massachusetts 02109-1810 (together with its
successors, "Fleet"); each other lender which may from time to time become a
-----
signatory hereto (individually, together with its successors as well as Fleet, a
"Lender" and collectively, together with their respective successors, the
------
"Lenders"); and Fleet, as agent for the Lenders (in such capacity, together
--------
with its successors in such capacity, the "Agent").
-----
WHEREAS, the Borrower has requested the Lenders to extend credit to the
Borrower in the form of loans and letters of credit and the Lenders are willing
to extend such credit upon the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1 Definitions.
--------- -----------
1.1 Certain Definitions. The following terms are used herein with
-------------------
the meanings assigned to them below:
"Accountants" shall mean KPMG Peat Marwick LLP, or another of the so-called
-----------
"big six" accounting firms or, subject to the prior approval of the Majority
Lenders, other certified public accountants selected by the Borrower.
"Adjusted EBITDA" shall mean, (a) for any fiscal quarter ending on or prior
---------------
to December 31, 1997, an amount equal to (i) EBITDA of the Borrower annualized
for each such period [e.g. first three months, actual first quarter EBITDA
multiplied by four; first six months, actual six month EBITDA multiplied by two,
etc.] less (ii) EBITDA for each Person acquired by the Borrower in a Permitted
----
Acquisition (each, an "Acquired Company") for such fiscal period plus (iii)
----
EBITDA for each Acquired Company on a pro forma basis for the twelve months
preceding the end of such fiscal period and (b) for any fiscal period ending
after December 31, 1997 an amount equal to (i) EBITDA of the Borrower for the
twelve month period then ended less (ii) EBITDA for each Acquired Company for
----
such fiscal period plus (iii) EBITDA for each Acquired Company on a pro forma
----
basis for the twelve months preceding the end of such fiscal period, provided,
--------
however, that the EBITDA for Acquired Companies may be adjusted, for certain
- -------
identified one-time savings.
"Affiliate" shall mean, with respect to any specified Person (the
---------
"specified person"), any Person directly or indirectly controlling, controlled
----------------
by or under direct or indirect common
<PAGE>
control with, the specified person and, without limiting the generality of the
foregoing, includes (i) any director, officer or, in the case of a limited
liability company, manager of the specified person or any Affiliate of the
specified person, (ii) any such director's, officer's or manager's parent,
spouse, child or child's spouse (a "relative"), (iii) any group acting in
concert, of one or more such directors, officers, managers, relatives or any
combination thereof (a "group"), (iv) any Person controlled by any such
director, officer, manager, relative or group in which any such director,
officer, manager, relative or group beneficially owns or holds 10% or more of
any class of voting securities or a 10% or greater equity or profits interest
and (v) any Person or group which beneficially owns or holds 10% or more of any
class of voting securities or membership interests or a 10% or greater equity or
profits interest in the specified person. For the purposes of this definition,
the term "control" when used with respect to any specified person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such specified person, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" shall mean this Revolving Credit Agreement.
---------
"Applicable Lending Office" means, for each Lender and for each Type of
-------------------------
Loan, the Lending Office of such Lender (or of an affiliate of such Lender)
designated for such Type of Loan on Schedule 2 hereof or such other office of
----------
such Lender (or of an affiliate of such Lender) as such Lender may from time to
time specify to the Agent and the Borrower as the office by which its Loans of
such Type are to be made.
"Applicable Margin" shall mean, in respect of any Type of Loan, the amount
-----------------
for such Type of Loan determined pursuant to Schedule 1 attached hereto.
----------
"Banking Day" shall mean any day, excluding Saturday and Sunday and
-----------
excluding any other day which in The Commonwealth of Massachusetts is a legal
holiday or a day on which banking institutions are authorized by law to close.
"Borrower Group Property" shall mean any real property owned, occupied, or
-----------------------
operated by the Borrower or any of its Subsidiaries.
"Capital Expenditures" shall mean all expenditures for fixed assets made by
--------------------
the Borrower or any of its Subsidiaries which are capitalized, including
expenditures related to a Capital Lease, but excluding all expenditures incurred
in connection with any Permitted Acquisition.
"Capital Lease" shall mean, as to any Person, any lease which is
-------------
capitalized on the balance sheet of such Person in accordance with GAAP.
"Capitalization" shall mean, at any date, the sum, calculated in accordance
--------------
with GAAP, of total stockholders equity (including preferred stock) of the
Borrower plus Total Debt.
"Capital Lease Obligations" shall mean, as to any Person, the amount of the
-------------------------
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the
-2-
<PAGE>
right to use) real and/or personal property which obligations are classified and
accounted for as a capital lease on a balance sheet of such Person in accordance
with GAAP (including Statement of Financial Accounting Standards No. 13, as
amended, of the Financial Accounting Standards Board).
"Closing Date" shall mean the first date on which the conditions set forth
------------
in Section 6.1 have been satisfied and any Loans are to be made or any Letters
of Credit are to be issued hereunder.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
----
successor statute.
"Collateral" shall have the meaning given that term in the Security
----------
Agreement.
"Collateral Release Event" shall be deemed to have occurred when the
------------------------
Borrower shall have furnished to the Bank evidence reasonably acceptable to the
Agent (a) that the Borrower has closed an initial public offering of its capital
stock and has received net proceeds (net of costs and expenses associated with
the offering) of not less than $32,000,000; and (b) that on a pro forma basis,
after giving effect to the offering, the Borrower complies with the following
financial criteria: (i) the percentage of Total Debt to Capitalization is less
than 25%; and (ii) the ratio of Total Debt to Adjusted EBITDA is less than 3.0
to 1.0 for the twelve month period ended as of the determination date.
"Commitment" In relation to any particular Lender, the maximum dollar
----------
amount which such Lender has agreed to loan to the Borrower or make available to
the Borrower upon the terms and subject to the conditions of this Agreement,
initially as set forth on Schedule 2 attached hereto, as such Lender's
----------
Commitment may be modified pursuant hereto and in effect from time to time.
Schedule 2 shall be amended from time to time, with prior notice to the
- ----------
Borrower, to reflect any changes in the Commitments of the Lenders.
"Commitment Percentage" In relation to any particular Lender, the
---------------------
percentage which such Lender's Commitment represents of the aggregate
Commitments of all the Lenders, initially as set forth on Schedule 2 attached
----------
hereto, as such Lender's Commitment Percentage may be modified pursuant hereto
and in effect from time to time. Schedule 2 shall be amended from time to time
----------
to reflect any changes in the Commitment Percentages of the Lenders.
"Contractual Obligation" shall mean, as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Controlled Group" shall mean all members of a controlled group of
----------------
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Sections 414(b) or 414(c) of the Code.
-3-
<PAGE>
"Default" shall mean any condition or event that constitutes an Event of
-------
Default or that with the giving of notice or lapse of time or both would, unless
cured or waived, become an Event of Default.
"Deposited Funds" shall have the meaning set forth in Section 4.6.
---------------
"EBITDA" shall mean, for any fiscal period, an amount equal to Net Income
------
for such period, plus each of the following (without duplication), to the extent
deducted in computing such Net Income: (i) Interest Expense, (ii) taxes
accrued, (iii) depreciation, and (iv) amortization of goodwill and other
intangibles.
"Environmental Laws" shall mean all federal, state, local and foreign laws,
------------------
and all regulations, notices or demand letters issued, promulgated or entered
thereunder, relating to pollution or protection of the environment and to
occupational health and safety, including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or Hazardous Substances into the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals or Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended, or any successor statutes.
"Event of Default" has the meaning set forth in Section 11.1.
----------------
"Excluded Property" shall mean (i) any property of the Borrower or its
-----------------
Subsidiaries the purchase price of which was, or in the future may be, financed
with Indebtedness permitted by Sections 9.4(b), 9.4(c), 9.4(e), or 9.4(f) and
(ii) real property of the Borrower or its Subsidiaries the purchase price of
which was financed with Indebtedness listed on Schedule A or assumed by the
Borrower in connection with a Permitted Acquisition and (iii) leasehold
interests in any real property.
"Extension of Credit" shall mean the making of any Loan or the issuance of
-------------------
any Letter of Credit.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Banking Day next
succeeding such day, provided that (a) if such day is not a Banking Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Banking Day as so published on the next succeeding Banking Day,
and (b) if no such rate is so published on such next succeeding Banking Day, the
Federal Funds Rate for such day shall be the average rate charged to Fleet on
such day on such transactions as determined by the Agent.
"Financial Statement Date" shall mean December 31, 1996.
------------------------
-4-
<PAGE>
"Fixed Charges" shall mean, for any fiscal period, the sum of (i) the
-------------
amount of the scheduled installments of principal payable in respect of
Indebtedness of the Borrower and its Subsidiaries during such period, plus (ii)
----
Interest Expense for such period, plus (iii) the tax provision of the Borrower
----
and its Subsidiaries paid or required to be paid in cash for such period, plus
----
(iv) Maintenance Capital Expenditures made by the Borrower and its Subsidiaries
during such period, plus (v) Rental Payments, plus (vi) distributions to
---- ----
stockholders.
"Fleet" means Fleet National Bank and its successors.
-----
"Funding Standard Controlled Group" shall mean all members of a controlled
---------------------------------
group of corporations and all trades or businesses (whether or not incorporated)
under common control which, together with the Borrower, are treated as a single
employer under Sections 414(b), 414(c), 414(m) or 414(o) of the Code.
"GAAP" shall mean accounting principles generally accepted in the United
----
States applied on a consistent basis.
"Governmental Approval" shall mean any authorization, consent, order,
---------------------
approval, license, lease, ruling, permit, tariff, rate, certification,
validation, exemption, filing or registration by or with, or notice to, any
Governmental Authority.
"Governmental Authority" shall mean any federal, state, municipal or other
----------------------
governmental department, commission, board, bureau, agency, court, tribunal or
other instrumentality, domestic or foreign, and any arbitrator.
"Guarantee" by any Person shall mean any obligation, contingent or
---------
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
or other obligation of any other Person and, without limiting the generality of
the foregoing, any obligation, direct or indirect, contingent or otherwise of
such Person (a) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation (whether arising by virtue
of partnership arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (b) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
--------
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Guarantors" shall mean, collectively, PDHC, Ltd., a Minnesota corporation,
----------
Texas Dental Partners, Inc., a Texas corporation, American Dental Partners of
Louisiana, Inc., a Delaware corporation, and Smileage Dental Care, Inc., a
Wisconsin corporation and any other Person that becomes a party to a Subsidiary
Guaranty.
"Guarantors' Documents" shall mean the Subsidiary Guaranties and the
---------------------
Subsidiary Security Agreements.
-5-
<PAGE>
"Hazardous Substances" shall mean all hazardous and toxic substances,
--------------------
wastes or materials, hydrocarbons (including naturally occurring or man-made
petroleum and hydrocarbons), flammable explosives, urea formaldehyde insulation,
radioactive materials, biological substances, PCBs, pesticides, herbicides and
any other kind and/or type of pollutants, or contaminates and/or any other
similar substances or materials which, because of toxic, flammable, explosive,
corrosive, reactive, radioactive or other properties that may be hazardous to
human health or the environment, are included under or regulated by any
Environmental Laws.
"Indebtedness" of any Person at any date shall mean, (a) all indebtedness
------------
of such Person for borrowed money (excluding current trade liabilities which
shall include payables to affiliated dental groups incurred in the ordinary
course of business and payable in accordance with customary practices), or which
is evidenced by a note, bond, debenture or similar instrument, (b) all
obligations of such Person under leases that are treated as capitalized leases
in accordance with GAAP, (c) all obligations of such Person in respect of
bankers acceptances issued or created for the account of such Person, and all
reimbursement obligations (contingent or otherwise) of such Person in respect of
any letters of credit issued for the account of such Person to the extent not
secured by cash and without duplication of any underlying Indebtedness, (d) all
liabilities secured by any Lien on any property owned by such Person even though
such Person has not assumed or otherwise become liable for the payment thereof,
and (e) without duplication, all Guaranties.
"Intellectual Property" shall have the meaning specified in Section 7.16.
---------------------
"Interest Expense" shall mean, for any fiscal period, the sum (determined
----------------
without duplication) of the aggregate amount of interest required to be paid
during such period on Indebtedness of the Borrower and its Subsidiaries (on a
consolidated basis), including the interest portion of payments under Capital
Lease Obligations.
"Interest Period" shall mean, with respect to any LIBOR Loan, the period
---------------
commencing on the date such LIBOR Loan is made or converted from a Prime Rate
Loan or the last day of the next preceding Interest Period with respect to such
LIBOR Loan and ending on the numerically corresponding day in the first, second,
third or sixth calendar month thereafter, as the Borrower may select as provided
in Section 4.4, except that each such Interest Period which commences on the
last Working Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Working Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may end after the
Maturity Date; (ii) each Interest Period which would otherwise end on a day
which is not a Working Day shall end on the next succeeding Working Day (or, if
such next succeeding Working Day falls in the next succeeding calendar month, on
the next preceding Working Day); and (iii) no Interest Period shall have a
duration of less than one month and, if the Interest Period therefor would
otherwise be a shorter period, such LIBOR Loan shall not be available hereunder.
-6-
<PAGE>
"Investments" shall mean, with respect to any Person (the "Investor"), any
-----------
investment by the Investor in any other Person, whether by means of share
purchase, capital contribution, purchase or other acquisition of a partnership
or joint venture interest, loan, time deposit, demand deposit or otherwise.
"Letter of Credit" shall mean any standby letter of credit issued by Fleet
----------------
for the account of the Borrower as provided in this Agreement.
"Letter of Credit Usage" shall mean, at any time, the aggregate at such
----------------------
time of (a) the maximum amount then available to be drawn under all outstanding
Letters of Credit, and (b) all then unreimbursed drawings under any Letters of
Credit.
"LIBOR Lending Office" shall mean, initially, the Agent's office at 75
--------------------
State Street, Boston, Massachusetts 02109-1810 and, thereafter, such other
office of the Agent as shall be making or maintaining LIBOR Loans.
"LIBOR Loan" shall mean, at any time, that principal amount of the Loans,
----------
the interest on which is determined at such time on the basis of rates referred
to in the definition of "LIBOR Rate".
"LIBOR Rate" shall mean with respect to any Interest Period pertaining to a
----------
LIBOR Loan, the rate per annum (rounded upwards, if necessary, to the nearest
1/16th of 1%) equal to the quotient of (a) the average of the rates at which
Fleet's LIBOR Lending Office is offered U.S. Dollar deposits two Working Days
prior to the beginning of such Interest Period in the interbank eurodollar
market where the foreign currency and exchange operations of such LIBOR Lending
Office are customarily conducted at 10:00 a.m., Boston time, for delivery on the
first day of such Interest Period for the number of days comprised therein and
in an amount equal to the amount of the LIBOR Loan to be outstanding during such
Interest Period, divided by (b) a number equal to 1.00 minus the Reserve
Requirement for such LIBOR Loan during such Interest Period.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any lease
that is capitalized in accordance with GAAP, and the filing of a financing
statement under the UCC or comparable law of any jurisdiction), together with
any renewal or extension thereof.
"Loans" shall mean the Revolving Credit Loans.
-----
"Loan Documents" shall mean, collectively, this Agreement, the Notes, the
--------------
Security Instruments, the Subsidiary Guaranties, the Subsidiary Security
Agreements and all other agreements and instruments that are from time to time
executed in connection with this Agreement, as each of such agreements and
instruments may be amended, modified or supplemented from time to time.
-7-
<PAGE>
"Maintenance Capital Expenditures" shall mean any expenditures for fixed
--------------------------------
assets made by the Borrower or any of its Subsidiaries which are capitalized and
which are necessary to maintain the existing operations of the Borrower and its
Subsidiaries on an ongoing basis and incurred during the relevant period.
"Majority Lenders" shall mean, at any time while no Loans are outstanding,
----------------
the Lenders having at least fifty-one percent (51%) of the aggregate amount of
the Commitments and, at any time while Loans are outstanding, Lenders holding at
least fifty-one percent (51%) of the outstanding aggregate principal amount of
the Loans.
"Material Adverse Effect" shall mean a material adverse effect on (a) the
-----------------------
business, operations, property, condition (financial or otherwise) or prospects
of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the
Borrower to perform its obligations under this Agreement, the Notes or any of
the other Loan Documents or (c) the validity or enforceability of this
Agreement, the Notes or any of the other Loan Documents or the ability of any
Subsidiary to perform its obligations under the Subsidiary Guaranty to which it
is a party, or the rights and remedies of the Agent and the Lenders hereunder or
thereunder.
"Maturity Date" shall mean April 23, 2000.
-------------
"Maximum Rate" shall have the meaning set forth in Section 4.1(d).
------------
"Multiemployer Plan" shall mean at any time an employee pension benefit
------------------
plan within the meaning of Section 4001(a)(3) of ERISA to which the Borrower or
any member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions, including for these purposes any Person which ceased to be a
member of the Controlled Group during such five year period.
"Net Income" or "Net Loss" for any period in respect of which the amount
---------- --------
thereof shall be determined, shall mean the aggregate of the consolidated net
income (or net loss) after taxes for such period of the Borrower and its
Subsidiaries, determined in accordance with GAAP.
"Net Worth" shall mean, at any date as of which the amount thereof is to be
---------
determined, the stockholders' equity (including preferred stock) of the Borrower
and its Subsidiaries as determined in accordance with GAAP, provided that in
--------
determining Net Worth any preferred stock shall be treated as equity.
"Notes" shall have the meaning set forth in Section 2.2.
-----
"Notice Date" shall have the meaning set forth in Section 12.8.
-----------
"Obligations" shall mean all obligations of the Borrower and its
-----------
Subsidiaries to the Agent and the Lenders of every kind and nature whether such
obligations are now existing or hereafter incurred or created, joint or several,
direct or indirect, absolute or contingent, due or to become due, matured or
unmatured, liquidated or unliquidated, arising by contract, operation of law or
otherwise, including, without limitation, (a) all principal of and interest
(including, without
-8-
<PAGE>
limitation, any interest which accrued after the commencement of any case,
proceeding or other action relating to the bankruptcy, insolvency or
reorganization of the Borrower) on any advance to the Borrower under the Notes
issued by the Borrower or pursuant to this Agreement; (b) all other amounts
(including, without limitation, any fees or expenses) payable by Borrower or the
Guarantors under the Loan Documents; (c) all amounts payable to Fleet in
connection with the issuance of any letter of credit by Fleet for the account of
any Borrower or any drawing thereunder, including, without limitation, any
reimbursement obligation and letter of credit fees payable under any letter of
credit application or reimbursement agreement executed by the Borrower in
connection with any such letter of credit; and (d) any renewals, refinancings or
extensions of any of the foregoing.
"Office of the Agent" shall mean the Banking office of the Agent located at
-------------------
75 State Street, Boston, MA 02109-1810 or such other location of which the
Agent shall notify the Borrower.
"Payor" shall have the meaning set forth in Section 4.5.
-----
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
----
succeeding to any or all of its functions under ERISA.
"Permitted Acquisition" shall have the meaning set forth in Section 9.2.
---------------------
"Permitted Liens" shall have the meaning set forth in Section 9.6.
---------------
"Person" shall mean and include any individual, firm, corporation, trust,
------
limited liability company or other unincorporated organization or association or
other enterprise or any government or political subdivision, agency, department
or instrumentality thereof.
"Plan" means any employee pension benefit plan which is covered by Title IV
----
of ERISA or subject to the minimum funding standards under Section 412 of the
Code and is either (a) maintained by the Borrower or any member of the
Controlled Group for employees of the Borrower or any member of the Controlled
Group or (b) maintained pursuant to a collective bargaining agreement or any
other arrangement under which more than one employer makes contributions and to
which the Borrower or any member of the Controlled Group is then making or
accruing an obligation to make contributions or has within the preceding five
plan years made contributions.
"Post-Default Rate" shall mean (i) with respect to any LIBOR Loan, the rate
-----------------
of interest per annum equal to 2% above the interest rate otherwise applicable
to such LIBOR Loan at the applicable time, (ii) with respect to any Prime Rate
Loan, the rate of interest per annum equal to 2% above the interest rate
otherwise applicable to such Prime Rate Loan, and (iii) with respect to any
other amount payable by the Borrower under this Agreement which is not paid when
due, the rate of interest per annum equal to 2% above the Prime Rate at the
applicable time.
-9-
<PAGE>
"Prime Rate" shall mean the per annum rate of interest from time to time
----------
announced and made effective by Fleet as its Prime Rate (which rate may or may
not be the lowest rate available from Fleet at any given time).
"Prime Rate Loan" means at any time the principal amount of the Loans which
---------------
bears interest at the Prime Rate.
"Regulation D" means Regulation D of the Board of Governors of the Federal
------------
Reserve System as the same may be amended or supplemented from time to time.
"Regulatory Change" means any change on or after the date of this Agreement
-----------------
in United States federal, state or foreign laws or regulations, including
Regulation D, or the adoption or making on or after such date of any
interpretations, directives or requests applying to a class of lenders including
any of the Lenders of or under any United States federal or state, or any
foreign, laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof (other than changes which affect taxes measured by or
imposed on the overall net income of any Lender or of its LIBOR Lending Office
by the jurisdiction in which the Lenders has its principal office or LIBOR
Lending Office).
"Reimbursement Obligation" shall mean the Obligation of the Borrower to
------------------------
reimburse Fleet and the Lenders on account of any drawing under any Letter of
Credit as provided in Section 2.5.
"Rental Payments" means rental payments in respect of operating lease
---------------
obligations for facilities of the Borrower and its Subsidiaries.
"Required Payment" shall have the meaning set forth in Section 4.5.
----------------
"Reserve Requirement" shall mean, for any LIBOR Loans for any Interest
-------------------
Period therefor, the average maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under Regulation D by the Lenders against
"Eurocurrency liabilities" (as such term is used in Regulation D).
"Responsible Officer" shall mean the President, the Chief Financial Officer
-------------------
or the Vice President Finance.
"Restricted Payment" shall mean, with respect to the Borrower or any
------------------
Subsidiary thereof, (a) any dividend or other distribution on any shares of
capital stock of the Borrower or such Subsidiary (except dividends payable
solely to the Borrower or any Subsidiary), and (b) any payment on account of the
purchase, redemption, retirement or acquisition of (i) any shares of the capital
stock of the Borrower or a Subsidiary thereof or (ii) any option, warrant,
convertible security or other right to acquire shares of the capital stock of
the Borrower or a Subsidiary thereof, other than, in either case, payments made
solely to the Borrower or such Subsidiary.
-10-
<PAGE>
"Revenue" for any period in respect of which the amount thereof shall be
-------
determined, shall mean the aggregate of the consolidated revenue for such period
of the Borrower and its Subsidiaries, determined in accordance with GAAP.
"Revolving Credit Commitment" shall have the meaning specified in Section
---------------------------
2.1.
"Revolving Credit Loans" shall have the meaning set forth in Section 2.1.
----------------------
"SEC" means the Securities and Exchange Commission.
---
"Security Agreement" shall have the meaning set forth in Section 5.1.
------------------
"Senior Debt" shall mean Total Debt, less the aggregate amount of
----------- ----
Subordinated Debt.
"Security Instruments" shall mean, collectively, the Security Agreement,
--------------------
the Subsidiary Security Agreements, the Stock Pledge Agreements and each other
instrument or agreement that purports to secure the Obligations of the Borrower
to the Lenders.
"Serrao" shall mean Gregory A. Serrao.
------
"Stated Rate" shall have the meaning set forth in Section 4.1(d).
-----------
"Stock Pledge Agreements" shall have the meaning set forth in Section 5.1.
-----------------------
"Subordinated Debt" shall mean Indebtedness of the Borrower that is
-----------------
subordinated to the Indebtedness of the Borrower owing to the Lenders either (a)
pursuant to a subordination agreement in the form (with conforming changes to
dates, parties and amounts and such other changes which, in the reasonable
judgment of the Agent, do not affect in any adverse manner the subordination of
such Indebtedness to the Indebtedness of the Borrower owing to the Lenders) of
the Subordination Agreement, dated November 11, 1996, entered into by the
Borrower in connection with its acquisition of PDHC, Ltd. and previously
provided to and approved by the Agent, (b) in such form and substance as may be
satisfactory to the Majority Lenders between the Borrower (or the Agent) and the
holder(s) of such Indebtedness, or (c) pursuant to the terms thereof, where the
Majority Lenders have confirmed in writing that such terms are satisfactory to
them.
"Subsidiary" shall mean, with respect to any Person, any corporation or
----------
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly owned by
such Person.
"Subsidiary Collateral" shall mean the collateral of each Subsidiary
---------------------
described in the Subsidiary Security Agreements.
"Subsidiary Guaranty" shall mean the guaranty agreement, substantially in
-------------------
the form of Exhibit E hereto, entered into by each Subsidiary of the Borrower.
---------
-11-
<PAGE>
"Subsidiary Security Agreements" shall mean, collectively, security
------------------------------
agreements, each substantially in the form of Exhibit C hereto, entered into by
---------
each Subsidiary of the Borrower.
"Summit" means Summit Partners and its Affiliates.
------
"Total Debt" shall mean the following (without duplication) with respect to
----------
the Borrower and its Subsidiaries: (i) all indebtedness for borrowed money
(other than trade liabilities, which shall include payables to affiliated dental
groups which are classified as current liabilities on the balance sheet of the
Borrower, incurred in the ordinary course of business and payable in accordance
with customary practices); (ii) all obligations evidenced by bonds, indentures,
notes and similar instruments; (iii) all Capital Lease Obligations; and (iv) all
liabilities secured by any Lien on any property owned by the Borrower,
regardless of whether such liabilities are non-recourse.
"Trailing Twelve Month Revenue" shall mean for the twelve-month period
-----------------------------
ending on the last day of the most recently ended fiscal quarter of the Borrower
and its Subsidiaries the sum of (i) Revenue of the Borrower and its Subsidiaries
for such period determined in accordance with GAAP plus (ii) revenue of Persons
acquired in Permitted Acquisitions consummated during such twelve-month period,
determined in accordance with GAAP, that is not otherwise included in clause (i)
above.
"Type" shall mean a Prime Rate Loan or a LIBOR Loan.
----
"UCC" shall have the meaning given such term in the Security Agreement.
---
"Unfunded Liabilities" means, with respect to any Plan, at any time, the
--------------------
amount (if any) by which (a) the present value of all benefits under such Plan
exceeds (b) the fair market value of all Plan assets allocable to such benefits,
all determined as of the then most recent valuation date for such Plan, but only
to the extent that such excess represents a potential liability of the Borrower
or any member of the Controlled Group to the PBGC or such Plan under Title IV of
ERISA.
"Wholly-owned Subsidiary" shall mean, as to any Person, a Subsidiary of
-----------------------
such Person all of whose outstanding shares of capital stock are owned directly
or indirectly by such Person.
"Working Day" shall mean any day on which dealings in foreign currencies
-----------
and exchange between Lenders may be carried on in the place where the LIBOR
Lending Office is located and in Boston, Massachusetts.
1.2 Accounting Terms. Unless otherwise specified herein, all
----------------
accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all financial
statements and certificates and reports as to financial matters required to be
delivered hereunder shall be prepared, in accordance with GAAP; provided that
--------
if any change in GAAP in itself materially affects the calculation of any
financial covenant in this Agreement, the Borrower may by notice to the Agent,
or the Agent may by notice to the Borrower, require that such covenant
thereafter be calculated in accordance with GAAP as in
-12-
<PAGE>
effect, and applied by the Borrower, immediately before such change in GAAP
occurs. If such notice is given, the compliance certificates delivered pursuant
to Section 8.5(c) after such change occurs shall be accompanied by
reconciliations of the difference between the calculation set forth therein and
a calculation made in accordance with GAAP as in effect from time to time after
such change occurs.
1.3 Rules of Interpretation.
-----------------------
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented and in effect from
time to time in accordance with its terms and the terms of this Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any Person includes its permitted successors and
permitted assigns.
(d) The words "include", "includes" and "including" are not limiting.
(e) The words "herein", "hereof", "hereunder" and words of like
import shall refer to this Agreement as a whole and not to any particular
section or subdivision of this Agreement.
(f) All terms not specifically defined herein or by GAAP, which terms
are defined in the Uniform Commercial Code as in effect in The Commonwealth of
Massachusetts, shall have the meanings assigned to them in such Code.
Section 2 Revolving Credit Loans; Letters of Credit.
-------- -----------------------------------------
Amount. Upon the terms and subject to conditions set forth herein,
------
and in reliance upon the representations, warranties and covenants of the
Borrower herein, the Lenders agree, severally and not jointly, to make loans
(each a "Revolving Credit Loan" and collectively the "Revolving Credit Loans")
--------------------- ----------------------
to the Borrower and Fleet hereby agrees to issue Letters of Credit for the
account of the Borrower at the Borrower' request from time to time from and
after the Closing Date and prior to the Maturity Date in an aggregate principal
amount not to exceed at any one time outstanding the sum of $30,000,000 (the
"Revolving Credit Commitment"), as the same may be reduced or terminated
- ----------------------------
pursuant to the provisions hereof, provided that the sum of all outstanding
--------
Revolving Credit Loans and Letter of Credit Usage shall not at any time exceed
the Revolving Credit Commitment. Within the foregoing limits and subject to the
terms and conditions hereof, the Borrower may request Letters of Credit and may
borrow, repay and reborrow Revolving Credit Loans at any time or from time to
time until the Maturity Date or the earlier termination of the Revolving Credit
Commitment.
2.2 Revolving Credit Note. The Revolving Credit Loans shall be
---------------------
evidenced by separate promissory notes for each Lender, each such note to be in
substantially the form attached hereto as Exhibit A, dated as of the Closing
---------
Date and completed with appropriate
-13-
<PAGE>
insertions (each such note being referred to herein as a "Note" and collectively
----
as the "Notes") and shall be payable with interest in accordance with Section 4
-----
below.
2.3 Lending Office. The Loans of each Type made by each Lender
--------------
shall be made and maintained at such Lender's Applicable Lending Office for
Loans of such Type.
2.4 Requests For Revolving Credit Loans. Whenever the Borrower
-----------------------------------
desires to obtain a Revolving Credit Loan or to convert an outstanding Revolving
Credit Loan from one Type to another, it shall notify the Agent in accordance
with the provisions of Section 4.4 below. Not later than 1:00 p.m. Boston time
-----------
on the date specified for each such borrowing hereunder, each Lender shall,
subject to the terms and conditions of this Agreement, make available the amount
of the Revolving Credit Loan to be made by it on such date to the Agent at the
Office of the Agent, for the account of the Borrower. Subject to the terms and
conditions of this Agreement, the amount so received by the Agent shall be made
available to the Borrower by wiring the funds to such account as the Borrower
shall specify.
2.5 Letters of Credit.
-----------------
(a) The Borrower may use the Revolving Credit Commitment for Letters
of Credit to be issued by Fleet, provided that in each case (a) the Borrower
--------
executes and delivers a letter of credit application and reimbursement agreement
reasonably satisfactory to Fleet and complies with any conditions to the
issuance of such Letter of Credit (including payment of any applicable fees);
(b) Fleet has approved the form of such Letter of Credit; (c) the requested
Letter of Credit is for a purpose permitted by Section 8.1 hereof; (d) such
Letter of Credit bears an expiration date not later than one year from its date
of issuance and not later than the Maturity Date; (e) the conditions set forth
in Section 6.1 shall have been satisfied as of the date of the issuance of the
Letter of Credit; and (f) both before the issuance of the requested Letter of
Credit and after giving effect to the issuance thereof the sum of (i) all
outstanding Revolving Credit Loans and Letter of Credit Usage shall not exceed
the Revolving Credit Commitment; and (ii) the Letter of Credit Usage shall not
exceed $3,000,000.
(b) Effective upon the issuance of each Letter of Credit and without
any further action on the part of Fleet or the Lenders in respect thereof, Fleet
hereby grants to each Lender, and each Lender hereby acquires from Fleet, a
participating interest in such Letter of Credit to the extent of such Lender's
Commitment Percentage thereof and each Lender severally agrees that it shall be
absolutely liable, without regard to the occurrence of any Default or Event of
Default, to the extent of such Lender's Commitment Percentage thereof, to
reimburse Fleet on demand for the amount of each draft paid by the Fleet under
each Letter of Credit to the extent that such amount is not reimbursed by the
Borrower.
(c) In order to induce Fleet to issue, extend and renew each Letter
of Credit, the Borrower hereby agrees to reimburse or pay to Fleet, for the
account of Fleet or (as the case may be) the Lenders, with respect to each
Letter of Credit issued, extended or renewed by Fleet hereunder, on each date
that any draft presented under any Letter of Credit is honored by Fleet or Fleet
otherwise makes payment with respect thereto, (i) the amount paid by Fleet under
or with respect to such Letter of Credit, and (ii) the amount of any reasonable
and customary fees,
-14-
<PAGE>
charges or other costs and expenses whatsoever incurred by Fleet or any Lender
in connection with any payment made by Fleet under, or with respect to, such
Letter of Credit.
(d) If any draft shall be presented or other demand for payment shall
be made under any Letter of Credit, Fleet shall notify the Borrower of the date
and amount of the draft presented or demand for payment and of the date and time
when it expects to pay such draft or honor such demand for payment. On the date
that such draft is paid or other payment is made by Fleet, Fleet shall promptly
notify the Lenders of the amount of any unpaid Reimbursement Obligation. All
such unpaid Reimbursement Obligations with respect to Letters of Credit shall be
deemed to be Prime Rate Loans. No later than 12:00 noon (Boston time) on the
Banking Day next following the receipt of such notice, each Lender shall make
available to the Agent, at the Agent's head office, in immediately available
funds, such Lender's Commitment Percentage of such unpaid Reimbursement
Obligation, together with an amount equal to the product of (i) the average,
computed for the period referred to in clause (iii) below, of the weighted
average interest rate paid by the Agent for federal funds acquired by the Agent
during each day included in such period, times (ii) the amount equal to such
-----
Lender's Commitment Percentage of such unpaid Reimbursement Obligation, times
-----
(iii) a fraction, the numerator of which is the number of days that have elapsed
from and including the date Fleet paid the draft presented for honor or
otherwise made payment until the date on which such Lender's Commitment
Percentage of such unpaid Reimbursement Obligation shall become immediately
available to the Agent, and the denominator of which is 365. The responsibility
of Fleet to the Borrower shall be only to determine that the documents
(including each draft) delivered under each Letter of Credit in connection with
such presentment shall be in conformity in all material respects with such
Letter of Credit.
(e) The Borrower's Reimbursement Obligations shall be absolute and
unconditional under any and all circumstances and irrespective of the occurrence
of any Default or Event of Default or any condition precedent whatsoever or any
set off, counterclaim or defense to payment which the Borrower may have or have
had against Fleet, the Agent, the Lenders or any beneficiary of a Letter of
Credit. The Borrower further agrees that Fleet, the Agent and the Lenders shall
not be responsible for, and the Borrower's Reimbursement Obligations shall not
be affected by, among other things, the validity or genuineness of documents or
of any endorsements thereon, even if such documents should in fact prove to be
in any or all respects invalid, fraudulent or forged, or any dispute between or
among the Borrower, the beneficiary of any Letter of Credit or any financing
institution or other party to which any Letter of Credit may be transferred or
any claims or defenses whatsoever of the Borrower, against the beneficiary of
any Letter of Credit or any such transferee.
(f) Fleet, the Agent and the Lenders shall not be liable for any
error, omission, interruption or delay in transmission, dispatch or delivery of
any message or advice, however transmitted, in connection with any Letter of
Credit. The Borrower agrees that any action taken or omitted by Fleet, the
Agent or the Lenders under or in connection with each Letter of Credit and the
related drafts and documents, if done in good faith, shall be binding upon the
Borrower and shall not result in any liability on the part of Fleet, the Agent
or the Lenders to the Borrower except, in the case of any such party, any such
liability resulted from the gross negligence or willful misconduct of such
party.
-15-
<PAGE>
2.6 Maturity of Revolving Credit Loans. All Revolving Credit Loans
----------------------------------
shall mature and the total unpaid principal amount thereunder shall be due and
payable on the Maturity Date, at which time all amounts advanced under this
Section 2 shall be immediately due and payable.
2.7 Termination or Reduction of Commitment.
--------------------------------------
(a) The Revolving Credit Commitment shall automatically terminate at
5:00 p.m. Boston time on the Maturity Date. The Borrower, upon notice to the
Agent and each Lender in accordance with Section 4.4 and the repayment in full
of the outstanding principal balance of the Revolving Credit Loans (and accrued
interest thereon) and the payment in full of any expenses or other fees owed by
the Borrower to the Agent or any Lender under or pursuant to this Agreement, may
elect to terminate the Revolving Credit Commitment permanently, whereupon the
Commitments of the Lenders shall be terminated entirely. If any Letters of
Credit would remain outstanding after the effective date of any such
termination, in addition to the satisfaction of all other applicable terms and
conditions of this Agreement, the Borrower shall either deposit with and pledge
to Fleet cash in an amount equal to 100% of the Letter of Credit Usage at the
effective date of such termination, or (ii) arrange for the termination of such
Letters of Credit and the return thereof to Fleet. No such termination may be
reinstated.
(b) The Borrower may also, upon notice to the Agent and each Lender
in accordance with Section 4.4, reduce the Revolving Credit Commitment in
integral multiples of $500,000, whereupon the Commitments of the Lenders shall
be reduced pro rata in accordance with their respective Commitment Percentages
by the aggregate amount specified in such notice. If, as a result of any such
reduction, the aggregate outstanding balance of Revolving Credit Loans plus the
Letter of Credit Usage would exceed the Revolving Credit Commitment, the
Borrower shall, as a condition precedent to any such reduction, deposit with and
pledge to Fleet cash in an amount equal to 100% of such excess or to make
repayments of outstanding Revolving Credit Loans in an aggregate amount equal to
such excess. No such reduction may be reinstated.
2.8 Several Obligations. The failure of any Lender to make any Loan
-------------------
to be made by it on the date specified therefor shall not relieve any other
Lender of its obligation to make its Loan on such date, but neither the Agent
nor any Lender shall be responsible for the failure of any other Lender to make
a Loan to be made by such other Lender.
Section 3. [Intentionally Omitted]
-------
Section 4 Interest Rates; Fees; Payments.
--------- ------------------------------
4.1 Interest Rates.
--------------
(a) The Borrower agrees to pay to the Agent for the account of each
Lender interest on the unpaid principal amount of each Loan for each day from
and including the date such Loan is made to but excluding the date the principal
of such Loan is paid in full at the following rates per annum:
-16-
<PAGE>
(i) for Loans which are Prime Rate Loans, at a rate per annum equal to the
Prime Rate plus the Applicable Margin; and
(ii) for Loans which are LIBOR Loans, at a rate per annum equal to the
LIBOR Rate plus the Applicable Margin.
(b) Notwithstanding the foregoing, if an Event of Default shall
occur, then at the option of the Agent or the Majority Lenders, the unpaid
balance of Loans and any other amount payable hereunder which is not paid in
full when due shall bear interest at a rate per annum equal to the Post-Default
Rate, until such Event of Default is cured or waived.
(c) Accrued interest on each Prime Rate Loan shall be payable monthly
in arrears on the first day of each month, accrued interest on LIBOR Loans shall
be payable on the last day of each Interest Period and, if any such Interest
Period is longer than three months, at intervals of three months after the first
day thereof, and interest on all Loans shall be payable in any event upon the
payment, prepayment or conversion thereof, but only on the principal so paid or
prepaid or converted; provided that interest payable pursuant to Section 4.1(b)
--------
during the pendency of an Event of Default shall be payable from time to time on
demand of the Agent. Promptly after the determination of any interest rate
provided for herein or any change therein, the Agent shall notify the Borrower
and each of the Lenders thereof.
(d) Notwithstanding the foregoing provisions of this Section 4.1, if
at any time the rate of interest set forth in subparagraph (a) above (the
"Stated Rate") exceeds the maximum non-usurious interest rate permissible for
-----------
any Lender to charge a commercial borrower under applicable law (the "Maximum
-------
Rate"), the rate of interest charged on the Loans by such Lender hereunder shall
- ----
be limited to the Maximum Rate. In the event the Stated Rate that has
theretofore been subject to the preceding sentence at any time is less than the
Maximum Rate in respect of the Loans hereunder by any Lender, the principal
amount of the Loans shall bear interest at the Maximum Rate until the total
amount of interest paid to such Lender or accrued on such Loans by such Lender
hereunder equals the amount of interest which would have been paid to the
Lenders or accrued on the Loans by the Lenders hereunder if the Stated Rate had
at all times been in effect. In the event that upon payment in full of all
amounts payable hereunder, the total amount of interest paid to any Lender or
accrued on such Lender's Loans under the terms of this Agreement is less than
the total amount of interest which would have been paid to such Lender or
accrued on such Lender's Loans if the Stated Rate had at all times been in
effect, then the Borrower shall, to the extent permitted by applicable law, pay
to such Lender an amount equal to the difference between (a) the lesser of (i)
the amount of interest which would have accrued on the Loans if the Maximum Rate
had at all times been in effect or (ii) the amount of interest which would have
accrued on the Loans if the Stated Rate had at all times been in effect and (b)
the amount of interest actually paid to the Lenders or accrued on the Loans
under this Agreement. In the event any Lender ever receives, collects or
applies as interest any sum in excess of the Maximum Rate, such excess amount
shall be applied to the reduction of the principal balance of such Lender's
Loans or to other amounts (other than interest) payable hereunder, and if no
such principal is then outstanding, such excess or part thereof remaining shall
be paid to the Borrower.
-17-
<PAGE>
4.2 Commitment Fee. The Borrower shall pay to the Agent for the
--------------
ratable account of each Lender quarterly in arrears on the first day of each
quarter a commitment fee on the actual daily balance of the unutilized portion
of the Commitment for the preceding quarter at a rate per annum equal to one
quarter of one percent (0.25%) based on the actual number of days elapsed in the
period based on a year of 360 days.
4.3 Letter of Credit Fees. In connection with each Letter of
---------------------
Credit, the Borrower shall pay to Fleet any applicable issuance, amendment,
transfer and similar fees in accordance with Fleet's customary charges and in
connection with the issuance of any Standby Letter of Credit shall also pay a
standby commission equal to the then effective Applicable Margin for LIBOR Loans
minus 0.125% of the total face amount of such Standby Letter of Credit.
4.4 Certain Notices. Notices to the Agent of borrowings,
---------------
conversions and prepayments of Loans, of the duration of Interest Periods and of
termination or reduction of Commitments shall be irrevocable and shall be
effective only if received by the Lenders not later than the time specified
below on the number of Banking Days prior to the date of the borrowing,
conversion, prepayment, termination or reduction specified below:
<TABLE>
<CAPTION>
Number of Banking Time of Day
Days Prior Notice (Boston Time)
----------------- -------------
<S> <C> <C>
Borrowings or prepayment
of Prime Rate Loans 0 12:00 noon
Borrowings of, prepayment
of, conversion into, or
duration of Interest Periods
for LIBOR Loans 2 10:30 a.m.
Termination or reduction
of Commitments 3 12:00 noon
</TABLE>
Each notice of borrowing, conversion or prepayment shall specify the amount, the
Type of the Loan to be borrowed, converted or prepaid, the date of borrowing,
conversion or prepayment (which shall be a Banking Day in the case of the
prepayment of a Prime Rate Loan, or a Working Day in the case of the conversion
or prepayment of a LIBOR Loan) and, in the case of LIBOR Loans, the duration of
the Interest Period therefor (subject to the definition of Interest Period).
Each such notice of duration of an Interest Period shall specify the Loans to
which such Interest Period is to relate. In the event that the Borrower fails
to select the duration of any Interest Period for any LIBOR Loan within the time
period and otherwise as provided in this Section 4.4, such LIBOR Loan will be
automatically converted into a Prime Rate Loan on the last day of the then
current Interest Period for such LIBOR Loan or (if outstanding as Prime Rate
Loans) will remain as, or (if not then outstanding) will be made as Prime Rate
Loans.
4.5 Non-Receipt of Funds by the Agent. Unless the Agent shall have
---------------------------------
been notified by a Lender or the Borrower (the "Payor") prior to the date on
-----
which such Lender is to
-18-
<PAGE>
make payment to the Agent of the proceeds of a Loan to be made by it hereunder
or the Borrower is to make a payment to the Agent for the account of one or more
of the Lenders, as the case may be (such payment being herein called the
"Required Payment"), which notice shall be effective upon receipt, that the
- -----------------
Payor does not intend to make the Required Payment to the Agent, the Agent may
assume that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient on such date and, if the Payor has not in fact made the
Required Payment to the Agent, the recipient of such payment shall, on demand,
pay to the Agent the amount made available to it together with interest thereon
in respect of the period commencing on the date such amount was so made
available by the Agent until the date the Agent recovers such amount at a rate
per annum equal to the Federal Funds Rate for such period.
4.6 Sharing of Payment; Waiver of Enforcement Without Consent, Etc.
--------------------------------------------------------------
(a) The Borrower agrees that, in addition to (and without limitation of) any
right of set-off, banker's lien or counterclaim any Lender may otherwise have,
each Lender shall be entitled, at its option and without regard to the adequacy
of any other Collateral or Subsidiary Collateral held by or for the benefit of
such Lender, to offset balances (whether based on provisional or final credits
or on collected or uncollected funds) held by it for the account of the Borrower
at any of its offices, in Dollars or in any other currency (collectively, the
"Deposited Funds"), against any principal of or interest on any Loans to the
---------------
Borrower by any Lender hereunder, or any other obligation of the Borrower
hereunder, which is not paid when due, taking into account any applicable grace
period, (regardless of whether such balances are then due to the Borrower), in
which case it shall promptly notify the Borrower, the Agent and the other
Lenders thereof, provided that such Lender's failure to give such notice shall
not affect the validity thereof. The Borrower further grants to the Agent for
the benefit of the Agent and each Lender a security interest in all such
Deposited Funds, it being agreed that the possession of any such Deposited Funds
by any Lender shall be for the benefit of the Agent and the Lenders, provided,
--------
however, that nothing herein shall restrict the Borrower from using such
- -------
Deposited Funds unless and until a Default or Event of Default shall have
occurred and be continuing. The Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any Person purchasing a
participation in the Loans made, or other obligations held, by another Person,
whether or not acquired pursuant to the foregoing arrangements, may exercise all
rights of set-off, banker's lien, counterclaim or similar rights with respect to
such participation as fully as if such Lender were a direct holder of Loans or
other obligations in the amount of such participation.
(b) The Lenders agree among themselves that no Lender shall, except
with the written consent of the Majority Lenders, exercise any right pursuant to
Section 4.6(a) or exercise, with respect to any Loans or other obligations
- --------------
hereunder, any other right of set-off, banker's Lien, counterclaim or similar
right, so long as any Lender has any Commitment hereunder or any amounts due
hereunder remain unpaid.
(c) If a Lender shall obtain payment of any principal of or interest
on any Loan made by it under this Agreement, or on any other obligation then due
to such Lender hereunder, through the exercise of any right of set-off, banker's
lien, counterclaim or similar right, or otherwise, it shall promptly notify the
Agent and purchase from the other Lenders participations in the Loans made, or
other obligations held, by the other Lenders in such amounts, and make
-19-
<PAGE>
such other adjustments from time to time as shall be equitable to the end that
all the Lenders shall share the benefit of such payment (net of any expenses
which may be incurred by such Lender in obtaining or preserving such benefit)
pro rata in accordance with the unpaid principal and interest on the Loans or
other obligations then due to each of them. To such end, all the Lenders shall
make appropriate adjustments among themselves (by the resale of participations
sold or otherwise) if such payment is rescinded or must otherwise be restored
(including the payment of interest to the extent that the Lender obligated to
return such funds is obligated to return interest).
(d) Each Lender waives all rights to enforce, and shall not attempt
to enforce, any rights hereunder, under the Notes or under any other Loan
Document without the prior written consent of the Majority Lenders. Each Lender
further agrees that all rights under the Security Instruments shall be exercised
only through the Agent under the Security Instruments.
(e) Nothing contained herein shall require any Lender to exercise any
right of set-off, banker's Lien, counterclaim or similar right or shall affect
the right of any Lender to exercise, and retain the benefits of exercising, any
such right with respect to any other indebtedness or obligation of any Borrower.
(f) This Section 4.6 is for the benefit of the Lenders only and does
-----------
not constitute a waiver of any rights against the Borrower or any of its
Subsidiaries or against any property held as security for any obligations
hereunder or under any Loan Document.
4.7 Minimum and Maximum Amounts. Each borrowing, conversion and
---------------------------
prepayment of principal of Revolving Credit Loans shall be in an aggregate
principal amount equal to (a) in the case of LIBOR Loans, $250,000 or a larger
multiple of $100,000, and (b) in the case of Prime Rate Loans, $50,000 or an
integral multiple thereof (conversions or prepayments of Revolving Credit Loans
of different Types or, in the case of LIBOR Loans, having different Interest
Periods, at the same time hereunder shall be deemed separate conversions and
prepayments for purposes of the foregoing, one for each Type or Interest
Period); provided that any payment or prepayment in full of the Loans may be in
--------
the aggregate outstanding principal amount thereof.
4.8 Computations. All interest on LIBOR Loans shall be computed on
------------
the basis of a year of 360 days and actual days elapsed (including the first day
but excluding the last day) occurring in the period for which payable and all
interest on Prime Rate Loans shall be computed on the basis of a year of 365
days (or 366 days in the case of a leap year) and actual days elapsed (including
the first but excluding the last day) occurring in the period for which payable.
4.9 Manner and Place of Payment. All payments under this Agreement
---------------------------
shall be made not later than 1:00 p.m. (Boston Time) on the date when due and
shall be made in immediately available funds at the Office of the Agent for the
account of each Lender or by the Borrower's check drawn on the depositary
account(s) maintained by the Borrower with the Agent payable to the Agent for
the account of each Lender or its order. All payments shall be made without
setoff, counterclaim, withholding or reduction of any kind whatsoever. The Agent
(or any Lenders for whose account any such payment is made) may (but shall not
be obligated
-20-
<PAGE>
to) debit the amount of any such payment on the date when due, taking into
account any applicable grace period, to any ordinary deposit account of the
Borrower with the Agent, or such Lender, as the case may be, without notice to
the Borrower. The Borrower shall, at the time of making each payment hereunder
or under any Note, specify to the Agent the Loans or other amounts payable by
the Borrower hereunder to which such payment is to be applied (and in the event
that they fail to so specify, or if an Event of Default has occurred and is
continuing, the Agent may apply such payment for the benefit of the Lenders as
it may elect in its sole discretion, but subject to the other terms and
conditions of this Agreement, including without limitation, Section 4.10
------------
hereof). Each payment received by the Agent hereunder or under any Note for the
account of a Lender shall be paid promptly to such Lender, in immediately
available funds, for the account of such Lender's Applicable Lending Office.
4.10 Pro Rata Treatment. Except to the extent otherwise provided
-------------------
herein: (a) each borrowing from the Lenders under Section 2.1 hereof shall be
-----------
made from the Lenders and the payment of the commitment fee under Section 4.2
-----------
hereof shall be made for the account of the Lenders pro rata according to the
Lenders' Commitment Percentage, (b) each payment by the Borrower of principal of
or interest on Loans of a particular Type shall be made to the Agent for the
account of the Lenders pro rata in accordance with the respective unpaid
principal amounts of such Loans held by the Lenders and (c) each conversion of
Loans of a particular Type shall be made pro rata among the Lenders in
accordance with the respective principal amounts of such Loans held by the
Lenders.
4.11 Payments Due on Saturdays, Sundays and Holidays. Whenever any
-----------------------------------------------
payment to be made hereunder or under the Notes shall be due on a day which is
not a Banking Day, such payment may be made on the next succeeding Banking Day,
and such extension of time shall be included in computing any interest or fees
due.
4.12 Additional Costs. The Borrower shall pay to the Agent for the
----------------
account of each Lender from time to time such amounts as such Lender may
determine to be necessary to compensate it for any costs incurred by such Lender
which such Lender determines are attributable to its making or maintaining of
any LIBOR Loans hereunder or its obligation to make any of such Loans hereunder,
or any reduction in any amount receivable by such Lender hereunder in respect of
any LIBOR Loan or such obligation (such increases in costs and reductions in
amounts receivable being herein called "Additional Costs"), in each case
----------------
resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to such Lender
under this Agreement or the Notes in respect of any LIBOR Loan; or
(ii) imposes or modifies any reserve, special deposit or similar
requirements (other than the Reserve Requirement, to the extent it is
taken into consideration in determining the LIBOR Rate) relating to
any extensions of credit or other assets of, or any deposits with or
other liabilities of, such Lender (including any LIBOR Loan or any
deposits referred to in the definition of "LIBOR Rate" below).
-21-
<PAGE>
Each Lender will provide the Borrower notice of any event occurring after the
date of this Agreement which will entitle such Lender to compensation pursuant
to this Section as promptly as practicable after it obtains knowledge thereof
and determines to request such compensation. Each Lender will furnish the
Borrower with a statement, in reasonable detail, setting forth the basis and
amount of each request by such Lender for compensation under this Section.
Within 30 days of the notice by such Lender, the Borrower shall pay the Agent
for the benefit of the affected Lender that portion of such increased costs
incurred or reduction in an amount received which is attributable to making,
funding and maintaining such affected Lender's Loans hereunder. If such sum is
not paid within such 30 day period, it shall bear interest at the Post Default
Rate until paid in full. The Borrower shall not be required to make any such
payment for such increased costs arising prior to the date which is one hundred
twenty (120) days before the date of such notice (unless and only to the extent
such law, rule, regulation, policy, guideline, directive or interpretation
applies retroactively to a period prior to the date which is one hundred twenty
(120) days before the date of such notice, in which case, the Borrower shall not
be required to make any payment for increased costs resulting from such
retroactive application unless such Lender provides such notice within one
hundred twenty (120) days after such rule, regulation, policy, guideline,
directive or interpretation is published in final form and the Lender reasonably
should have been aware thereof. If any affected Lender shall subsequently
recoup costs for which such Lender has heretofore been compensated by the
Borrower under this Section 4.12, such Lender shall remit to the Borrower the
amount of such recoupment.
(b) Without limiting the effect of the foregoing provisions of this
Section, in the event that, by reason of any Regulatory Change, any Lender
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest rate on
LIBOR Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Lender which includes LIBOR Loans
or (ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if such Lender so elects by
notice to the Borrower, the obligation of such Lender to make LIBOR Loans
hereunder shall be suspended until the date such Regulatory Change ceases to be
in effect.
(c) Determinations and allocations by any Lender for purposes of
this Section of the effect of any Regulatory Change on its costs of maintaining
its obligations to make LIBOR Loans or of making or maintaining LIBOR Loans or
on amounts receivable by it in respect of LIBOR Loans, and of the additional
amounts required to compensate such Lender in respect of any Additional Costs,
shall be conclusive absent manifest error, provided that such determinations and
allocations are made on a reasonable basis.
4.13 Limitation on Types of Loans. Anything herein to the contrary
----------------------------
notwithstanding, if, with respect to any LIBOR Loans, the Majority Lenders
determine in good faith (which determination shall be conclusive) that the
relevant rates of interest referred to in the definition of "LIBOR Rate" upon
the basis of which the rates of interest for any LIBOR Loan are to be determined
do not accurately reflect the cost to such Lenders of making or maintaining such
LIBOR Loans for the Interest Period therefor, then the Agent shall promptly
notify the Borrower, and so long as such condition remains in effect, the
Lenders shall be under no
-22-
<PAGE>
obligation to convert Prime Rate Loans into LIBOR Loans and the Borrower shall,
on the last day(s) of the then current Interest Period(s) for the outstanding
LIBOR Loans, either prepay such LIBOR Loans or convert such LIBOR Loans into
Prime Rate Loans.
4.14 Illegality. Notwithstanding any other provision of this
----------
Agreement to the contrary, in the event that it becomes unlawful for any Lender
or its LIBOR Lending Office to (a) honor its obligation to make LIBOR Loans
hereunder, or (b) maintain LIBOR Loans hereunder, then such Lender shall
promptly notify the Borrower thereof (identifying the illegality in question in
reasonable detail) and such Lenders's obligation to make LIBOR Loans hereunder
shall be suspended until such time as such Lender may again make and maintain
LIBOR Loans.
4.15 Substitute Prime Rate Loans. If the obligation of any Lender
---------------------------
to make LIBOR Loans shall be suspended pursuant to Sections 4.12, 4.13 or 4.14
hereof, all Loans which would otherwise be made by such Lender as LIBOR Loans
shall be made instead as Prime Rate Loans (and, if an event referred to in
Section 4.12(b) has occurred and such Lender so requests, by notice to the
Borrower, each LIBOR Loan of such Lender then outstanding shall be automatically
converted into a Prime Rate Loan on the date specified by such Lender in such
notice) and, to the extent that LIBOR Loans are so made as (or converted into)
Prime Rate Loans, all payments of principal which would otherwise be applied to
such LIBOR Loans shall be applied instead to such Prime Rate Loans.
4.16 Compensation. If any payment, prepayment or conversion of a
------------
LIBOR Loan occurs on a date other than the last day of an Interest Period for
such Loan, the Borrower shall pay to the Agent for the account of each Lender,
upon the request of the Lender through the Agent, as compensation for any loss,
cost or expense incurred by such Lender as the result of such payment,
prepayment or conversion, an amount (if a positive number) equal to:
A x (B-C) X D
--------------------
360
where:
"A" equals the principal amount of the LIBOR Loan so paid, prepaid or
converted (the "Affected LIBOR Loan");
-------------------
"B" equals the LIBOR Rate (expressed as a decimal) applicable to the
Affected LIBOR Loan;
"C" equals the applicable LIBOR Rate (expressed as a decimal) in effect on
or about the date of such payment, prepayment or conversion, for deposits
in an amount equal approximately to the principal amount of the Affected
LIBOR Loan with an Interest Period (the "Remaining Interest Period")
-------------------------
beginning on the date of such payment, prepayment or conversion to but
excluding the last day of the existing Interest Period; and
-23-
<PAGE>
"D" equals the number of days in the Remaining Interest Period;
and any other out-of-pocket loss or expense (including any internal processing
charge customarily charged by such Lender) suffered by such Lender in
liquidating deposits prior to maturity in amounts which correspond to the
principal amount of the Affected LIBOR Loan; provided that such Lender shall
--------
have delivered to the Borrower a certificate, in reasonable detail, as to the
amount of such loss and expense along with the basis for calculation thereof.
4.17 Capital Adequacy. If any Lender shall determine that the
----------------
applicability of any law, rule, regulation or guideline adopted pursuant to or
arising out of the July 1988 report of the Basle Committee on Banking
Regulations and Supervisory Practices entitled "International Convergence of
Capital Measurement and Capital Standards", or the adoption after the date
hereof of any other applicable law, rule, regulation or guideline regarding
capital adequacy, or any change in the foregoing or in the enforcement,
interpretation or administration thereof by any Governmental Authority charged
with the enforcement, interpretation or administration thereof, or compliance by
such Lender or any Person controlling such Lender (a "Parent") with any request
------
or directive regarding capital adequacy (whether or not having the force of law)
of any such Governmental Authority, has or would have the effect of reducing the
rate of return on capital of such Lender or its Parent as a consequence of such
Lender's obligations hereunder to a level below that which such Lender (or its
Parent) could have achieved but for such applicability, adoption, change or
compliance (taking into consideration the policies of such Lender (or its
Parent) with respect to capital adequacy) by an amount reasonably deemed by such
Lender to be material, then such Lender shall provide the Borrower notice
thereof. A statement of such Lender, in reasonable detail, claiming
compensation under this Section and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive absent manifest error;
provided that the determination thereof is made on a reasonable basis. In
- --------
determining such amount, such Lender may use any reasonable averaging and
attribution methods. Within 30 days of the notification by such Lender, the
Borrower shall pay the Agent for the benefit of the affected Lender that portion
of such increased costs incurred (including any reduction in the rate of return
on capital to an amount below that which such Lender could have achieved but for
such change in regulation after taking into account the Lenders' policies as to
capital adequacy) or reduction in an amount received which is attributable to
making, funding and maintaining such affected Lender's Loans hereunder. If such
sum is not paid within such 30 day period, it shall bear interest at the Post
Default Rate until paid in full. The Borrower shall not be required to make any
such payment for such increased costs arising prior to the date which is one
hundred twenty (120) days before the date of such notice (unless and only to the
extent such law, rule, regulation, policy, guideline, directive or
interpretation applies retroactively to a period prior to the date which is one
hundred twenty (120) days before the date of such notice, in which case, the
Borrower shall not be required to make any payment for increased costs resulting
from such retroactive application unless such Lender provides such notice within
one hundred twenty (120) days after such rule, regulation, policy, guideline,
directive or interpretation is published in final form and the Lender reasonably
should have been aware thereof). If any affected Lender shall subsequently
recoup costs for which such Lender has heretofore been compensated under this
Section 4.17 by the Borrower, such Lender shall remit to the Borrower the amount
of such recoupment.
-24-
<PAGE>
4.18 Optional Prepayments. The Borrower shall have the right to
--------------------
prepay the Loans in whole or in part and to convert Loans of one Type into
another Type, without premium or penalty, at any time and from time to time,
provided that (i) at the time of the prepayment in full of all Extensions
- --------
of Credit, the Borrower shall pay all interest accrued on the amount prepaid;
(ii) the Borrower shall give the Agent notice of such prepayment as provided in
Section 4.4; (iii) LIBOR Loans may be converted into Prime Rate Loans only on
the last day of an Interest Period thereof; and (iv) the Agent for the account
of each Lender shall be paid, at the time of any prepayment of a LIBOR Loan that
is being prepaid on other than the last day of an Interest Period therefor, the
amount provided for in Section 4.16.
4.19 Mandatory Prepayments. In the event the Borrower closes any
---------------------
public offering of its capital stock, the Borrower shall be required to prepay
the Loans in an amount equal to the net proceeds (after costs and expenses
associated with such offering) received by the Borrower in such offering, less
any amounts derived from the proceeds of such offering and used by the Borrower
to redeem shares of its Series B Preferred Stock, including accrued and unpaid
dividends, outstanding as of the date hereof in accordance with the provisions
of the Borrower's Amended and Restated Certificate of Incorporation and the
Series A and Series B Preferred Stock Purchase Agreement, dated January 8, 1996,
among the Borrower and certain stockholders of the Borrower party thereto, as
amended and as in effect as of the date hereof. The Borrower represents that as
of the date hereof 70,000 shares of its Series B Preferred Stock are issued and
outstanding. The Borrower covenants and agrees that it will not, without the
prior consent of the Majority Lenders, issue any additional shares of its Series
B Preferred Stock or amend its corporate charters to modify the rights and
remedies of the holders of the Series B Preferred Stock.
Section 5 Security.
--------- --------
5.1 Security Interests.
------------------
(a) The Borrower agrees to grant to the Agent for the benefit of
the Lenders on the Closing Date a security interest in, and a lien on, all
right, title and interest of the Borrower in and to substantially all the assets
of the Borrower (excluding Excluded Property) and to enter into a security
agreement in favor of the Agent for the benefit of the Lenders in the form of
Exhibit B hereto (the "Security Agreement") in order to secure payment and
- --------- ------------------
performance of the Borrower's Obligations to the Agent and the Lenders under
this Agreement, the Notes and the other Loan Documents to which it is a party.
(b) The Borrower shall cause each of its Subsidiaries to grant to
the Agent for the benefit of the Lenders on the Closing Date a security interest
in, and a lien on, all right, title and interest of each such Subsidiary in and
to substantially all the assets of each such Subsidiary and to enter into a
security agreement in favor of the Agent for the benefit of the Lenders in
substantially the form of Exhibit C hereto (collectively, the "Subsidiary
--------- ----------
Security Agreements") in order to secure payment and performance of the
- -------------------
Borrower's Obligations to the Agent and the Lenders under this Agreement, the
Notes and the other Loan Documents.
-25-
<PAGE>
(c) The Borrower agrees to enter into stock pledge agreements in
favor of the Agent for the benefit of the Lenders in the form of Exhibit D
---------
attached hereto (the "Stock Pledge Agreements") providing for the pledge to the
-----------------------
Agent for the benefit of the Lenders all outstanding capital stock of all
present and future Subsidiaries of the Borrower and to deliver to the Agent for
the benefit of the Lenders certificates representing all such shares accompanied
by undated stock powers or other appropriate instruments of transfer duly
executed in blank.
5.2 Release of Security Interests. Promptly following the
-----------------------------
occurrence of a Collateral Release Event, the Agent shall take such action as
shall be required to release, and each of the Lenders hereby consents to such
release of, the security interests in (i) the Collateral and the Subsidiary
Collateral created by the Security Instruments and (ii) the capital stock of
each Subsidiary of the Borrower pledged pursuant to the Stock Pledge Agreements
and agrees to execute and deliver to the Borrower and the Guarantors such UCC-3
termination statements and such other instruments as may be required to release
such security interests, and to return the pledged stock certificates.
Section 6 Conditions Precedent.
--------- --------------------
6.1 Conditions to all Loans and Letters of Credit. The Lenders
---------------------------------------------
shall not be obligated to make any of the Loans to the Borrower or to issue any
Letter of Credit hereunder until the following conditions have been satisfied to
the satisfaction of the Agent:
(a) This Agreement, the Notes and the Security Instruments. This
------------------------------------------------------
Agreement, the borrowings hereunder, the Notes, the Security Instruments and all
transactions contemplated by this Agreement and the Security Instruments shall
have been duly authorized by the Borrower. The Borrower shall have duly
executed and delivered to the Agent this Agreement, the Notes and the Security
Instruments in form and substance satisfactory to the Agent and its counsel.
Each of the Guarantors shall have duly executed and delivered to the Agent a
Subsidiary Guaranty substantially in the format of Exhibit E hereto and a
---------
Subsidiary Security Agreement substantially in the form of Exhibit C hereto.
---------
(b) No Default or Event of Default. On the date hereof and on the
------------------------------
date of making each Extension of Credit, no Default or Event of Default shall
have occurred and be continuing.
(c) Correctness of Representations. On the Closing Date and on the
------------------------------
date of each Extension of Credit, all representations and warranties made by the
Borrower in Section 7 below or otherwise in writing in connection herewith shall
be true and correct with the same effect as though such representations and
warranties had been made on and as of today's date, except that representations
and warranties expressly limited to a certain date shall be true and correct as
of that date.
(d) Opinion of Counsel for the Borrower. The Agent shall have
-----------------------------------
received (i) the favorable opinion of counsel to the Borrower and the Guarantors
addressed to the Agent and the Lenders and (ii) a legal memorandum from certain
local counsel to the Borrower and the Guarantors in states where the
Subsidiaries are doing business, in the case of both (i) and (ii) in form and
substance reasonably satisfactory to the Agent and its counsel.
-26-
<PAGE>
(e) Approvals. On the Closing Date and on the date of each
---------
Extension of Credit, all necessary consents, approvals, licenses, permissions,
registrations or validations of any Governmental Authority or any other Person
required for the execution, delivery, performance or carrying out of the
provisions of this Agreement, the Notes and the Security Instruments, or for the
validity or enforceability of the obligations incurred thereunder (other than
the filing of financing statements as required under subparagraph (f) below),
shall have been obtained and shall be in full force and effect and copies
thereof certified by a duly authorized officer of the Borrower to such effect
shall have been delivered to the Agent.
(f) Filing of Financing Statements, etc. On or before the Closing
-----------------------------------
Date, financing statements or other appropriate documentation relating to the
security interests and rights granted pursuant to the Security Instruments,
executed and delivered by the Borrower to the Agent, shall have been duly
recorded or filed in such manner and in such places as is required by law
(including, pursuant to the UCC) to establish, preserve, protect, and perfect
such security interests and rights; and all taxes, fees and other charges in
connection with the execution, delivery and filing of this Agreement and such
financing statements and other appropriate documentation shall have been duly
paid.
(g) Supporting Documents. On or before the date hereof, there
--------------------
shall have been delivered to the Agent the following supporting documents:
(i) a long-form legal existence and corporate good standing certificates
with respect to the Borrower and each of the Guarantors dated as of a
recent date issued by the appropriate Secretary of State or other
official;
(ii) certificates dated as of a recent date with respect to the due
qualification of the Borrower and each of the Guarantors to do
business in each jurisdiction where the failure to be so qualified
would have a Material Adverse Effect, issued by the Secretary of State
of each such jurisdiction;
(iii) copies of the corporate charters of the Borrower and each of the
Guarantors, certified by the appropriate Secretary of State or other
officials, as in effect on the date hereof;
(iv) a certificate of the Secretary or Assistant Secretary of the Borrower
certifying as to (a) the By-Laws of the Borrower, as in effect on the
date hereof; (b) the incumbency and signatures of the officers of the
Borrower who have executed any documents in connection with the
transactions contemplated by this Agreement; and (c) the resolutions
of the Board of Directors of the Borrower authorizing the execution,
delivery and performance of this Agreement and the making of the Loans
hereunder, and the execution and delivery of the Notes and the other
Loan Documents;
(v) a certificate of the Secretary or Assistant Secretary of each
Guarantor certifying as to (a) the By-Laws of the such Guarantor, as
in effect on the date hereof; (b) the incumbency and signatures of the
officers of such Guarantor who have
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<PAGE>
executed any documents in connection with the transactions
contemplated by this Agreement; and (c) the resolutions of the Boards
of Directors of such Guarantor authorizing the execution, delivery and
performance of the Subsidiary Guaranty and Subsidiary Security
Agreement to which it is a party.
(vi) all other information and documents which the Agent or its counsel may
reasonably request in connection with the transactions contemplated by
this Agreement.
(h) Compliance Certificate. The Borrower shall have furnished to
----------------------
the Agent a Compliance Certificate in the form of attached Exhibit F
---------
appropriately completed and signed by a Responsible Officer of the Borrower,
which certificate shall reflect compliance by the Borrower with the requirements
of this Agreement as of the date thereof.
(i) Litigation. No litigation, arbitration, proceeding or
----------
investigation shall be pending or, to the knowledge of the Borrower, threatened
against any Borrower or any Subsidiary of a Borrower which, in the sole
judgement of the Agent, might have a Material Adverse Effect.
(j) Fees and Expenses. On or before the Closing Date, the Borrower
-----------------
shall have (i) paid to the Agent for the account of the Lenders all amounts
payable under Section 13.5 hereof identified by the Agent on or before the
------------
Closing Date; and (ii) paid to the Agent all fees due under a certain letter
between the Agent and the Borrower, dated the date hereof.
(k) Legal Matters. All documents and legal matters incident to the
-------------
transactions contemplated by this Agreement shall be reasonably satisfactory to
Sullivan & Worcester LLP, special counsel for the Agent.
Section 7 Representations and Warranties.
--------- ------------------------------
In order to induce the Agent and the Lenders to enter into this Agreement
and to make the contemplated Extensions of Credit, the Borrower hereby
represents and warrants as follows (except to the extent qualified by
supplemental disclosure set forth on Schedule A hereto) and the following
----------
representations and warranties (to the extent so qualified, if any) shall
survive the execution and delivery of this Agreement and the Notes:
7.1 Corporate Status. The Borrower is a duly organized and validly
----------------
existing corporation in good standing under the laws of the State of Delaware
and is duly qualified or licensed as a foreign corporation in good standing in
each jurisdiction in which the failure to do so would have a Material Adverse
Effect.
7.2 No Violation. Neither the execution, delivery or performance
------------
of this Agreement or any other Loan Document, nor consummation of the
transactions contemplated therein or thereby will (i) contravene any law,
statute, rule or regulation to which the Borrower is subject or any judgment,
decree, franchise, order or permit applicable to the Borrower where such
contravention has or could reasonably be anticipated to have a Material Adverse
Effect, or
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<PAGE>
(ii) conflict or be inconsistent with or will result in any breach of, or
constitute a default under, or result in or require the creation or imposition
of any Lien (other than the liens created by the Security Instruments) upon any
of the property or assets of the Borrower pursuant to, any Contractual
Obligation of the Borrower, or (iii) violate any provision of the corporate
charters or by-laws of the Borrower.
7.3 Corporate Power and Authority. The execution, delivery and
-----------------------------
performance of this Agreement and the other Loan Documents to which it is a
party are within the corporate powers of the Borrower and have been duly
authorized by all necessary corporate action.
7.4 Enforceability. This Agreement and each other Loan Document
--------------
constitutes valid and binding obligations of the Borrower enforceable against
the Borrower in accordance with its terms, except as be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting the
enforcement of creditors' rights generally and subject to general principles of
equity, whether applied in a court of equity or at law.
7.5 Consents or Approvals. No order, permission, consent,
---------------------
approval, license, authorization, registration or validation of, or filing with,
or exemption by, any Governmental Authority or any other Person is required to
authorize, or is required in connection with, the execution, delivery and
performance of this Agreement or any other Loan Document by the Borrower, or the
taking of any action contemplated hereby or thereby, except where the failure to
obtain such authorization could reasonably be anticipated to have a Material
Adverse Effect, and except for the filing of UCC-1 financing statements in the
appropriate UCC filing offices listed on the Perfection Certificate (as defined
in the Security Agreement).
7.6 Financial Statements. The Borrower has furnished the Agent
--------------------
with the consolidated balance sheet of the Borrower and its Subsidiaries as of
the Financial Statement Date, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended, which
have been audited by the Accountants. Such financial statements, including the
related schedules and notes, fairly present the consolidated financial position
of the Borrower and its Subsidiaries as of the Financial Statement Date, and the
results of their operations and their cash flows for the year then ended in
conformity with GAAP.
(b) During the period from the Financial Statement Date to the
Closing Date: (i) except as identified in Schedule A or permitted pursuant to
----------
Section 9.3, there has been no sale, transfer or other disposition by the
Borrower or any of its Subsidiaries of any material part of their business or
property and, except as set forth in Schedule A, no purchase or other
----------
acquisition of any business or property (including any capital stock of any
Person) material in relation to the consolidated financial condition of the
Borrower and its Subsidiaries at the Financial Statement Date; and (ii) neither
the Borrower nor any of its Subsidiaries have made a Restricted Payment, or
agreed or committed to make a Restricted Payment, except as permitted pursuant
to Section 9.7.
(c) The Borrower has and, after giving effect to the Loans to be
made on the Closing Date, will have, assets (both tangible and intangible,
having a value in excess of the amount required to pay the probable liability on
their then-existing debts (whether matured or
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<PAGE>
unmatured, liquidated or unliquidated, fixed or contingent); the Borrower has
and will have access to adequate capital for the conduct of their business and
the discharge of their debts incurred in connection therewith as such debts
mature; the Borrower was not insolvent immediately prior to the making of the
Loans on the Closing Date and immediately after giving effect thereto, the
Borrower will not be insolvent.
(d) All the above-referenced financial statements (including the
related schedules and notes) have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by the
Accountants and disclosed therein and, in the case of interim financial
statements, subject to normal year-end adjustments and the absence of footnotes
and schedules).
7.7 No Material Change. Since the Financial Statement Date there
------------------
has been no development or event, or to the best knowledge of the Borrower, any
prospective development or event, which has had or could reasonably be
anticipated to have a Material Adverse Effect.
7.7 Litigation. There are no actions, suits or proceedings
----------
pending or threatened against or affecting the Borrower or any of its
Subsidiaries which in any one case or in the aggregate, if determined adversely
to the interests of such party, could reasonably be anticipated to have a
Material Adverse Effect.
7.9 Compliance with Other Instruments; Compliance with Law.
------------------------------------------------------
Neither the Borrower nor any of its Subsidiaries are (after taking into account
applicable cure periods) in default under any Contractual Obligation (including
any Contractual Obligation relating to any Indebtedness of the Borrower) where
such default could reasonably be anticipated to have a Material Adverse Effect.
Neither the Borrower nor any of its Subsidiaries are in default and or in
violation of any applicable statute, rule, writ, injunction, decree, order or
regulation of any Governmental Authority having jurisdiction over the Borrower
or its Subsidiaries which default or violation could reasonably be anticipated
to have a Material Adverse Effect.
7.10 Subsidiaries. On the Closing Date, the Borrower does not
------------
have any Subsidiaries except as set forth on attached Schedule A.
----------
7.11 Investment Company Status; Limits on Ability to Incur
-----------------------------------------------------
Indebtedness. The Borrower is not an "investment company" or a company
- ------------
"controlled by" an investment company within the meaning of the Investment
Company Act of 1940, as amended. The Borrower is not subject to regulation under
any Federal or State statute or regulation which limits its ability to incur
Indebtedness.
7.12 Title to Property. The Borrower and each of its Subsidiaries
-----------------
has good and marketable title to all of its properties and assets, including the
properties and assets reflected in the consolidated balance sheet of the
Borrower as of the Financial Statement Date, except such as have been disposed
of since that date in the ordinary course of business, and none of such
properties or assets is subject to any Lien except for (a) Permitted Liens, or
(b) a defect in title or other claim other than defects and claims that, in the
aggregate, would have no Material Adverse Effect. The Borrower and each of its
Subsidiaries enjoys peaceful and undisturbed possession
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<PAGE>
under all leases necessary in any material respect for the operation of their
properties and assets and no material default exists under such leases (after
taking into account applicable cure periods under said leases). All such leases
are valid and subsisting and are in full force and effect.
7.13 ERISA. The Borrower and each member of the Funding Standard
-----
Controlled Group have fulfilled their obligations under the minimum funding
standards of ERISA and the Code with respect to pension plans maintained by the
Borrower or any member of the Funding Standard Controlled Group or to which the
Borrower or any member of the Funding Standard Controlled Group is obligated to
contribute, except where the failure to fulfill such obligations would not
result in the aggregate of an "accumulated funding deficiency", within the
meaning of Section 302 of ERISA, in excess of $250,000. The Borrower and each
member of the Controlled Group are in compliance in all material respects with
the presently applicable provisions of ERISA and the Code, and have not incurred
any liability to the PBGC or a Plan under Title IV of ERISA (other than to make
contributions or premium payments in the ordinary course).
7.14 Taxes. All tax returns of the Borrower and its Subsidiaries
-----
require to be filed have been timely filed (after giving effect to any permitted
extensions), all material taxes, fees and other governmental charges (other than
those being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate accruals have been established and,
in the case of ad valorem taxes or betterment assessments, no proceedings to
-- -------
foreclose any lien with respect thereto have been commenced and, in all other
cases, no notice of lien has been filed or other action taken to perfect or
enforce such lien) shown thereon which are payable have been paid. The charges
and reserves on the books of the Borrower and its Subsidiaries for all income
and other taxes are adequate, and the Borrower knows of no additional assessment
or any basis therefor. The Federal income tax returns of the Borrower and its
Subsidiaries have not been audited within the last three years, all prior audits
have been closed, and there are no unpaid assessments, penalties or other
charges arising from such prior audits.
7.15 Environmental Matters. The Borrower and each of its
---------------------
Subsidiaries have obtained all Governmental Approvals that are required for the
operation of their business under any Environmental Law, except where the
failure to so obtain a Governmental Approval would not have a Material Adverse
Effect.
(b) The Borrower and each of its Subsidiaries are in compliance
with all terms and conditions of all required Governmental Approvals and are
also in compliance with all terms and conditions of all applicable Environmental
Laws, noncompliance with which would have a Material Adverse Effect.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation, proceeding, notice
or demand letter pending or, to the best knowledge of the Borrower threatened
against the Borrower or any of its Subsidiaries relating in any way to the
Environmental Laws which could have a Material Adverse Effect, and there is no
Lien of any private entity or Governmental Authority against any Borrower Group
Property, which Lien could have a Material Adverse Effect.
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<PAGE>
(d) There has been no claim, complaint, notice, or request for
information received by the Borrower or any Subsidiary with respect to any site
listed on the National Priority List promulgated pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") 42 USC (S)
------
9601 et seq. or any state list of sites requiring investigation or cleanup with
-- ----
respect to contamination by Hazardous Substances, which claim, complaint,
notice, or request for information could have a Material Adverse Effect.
(e) To the best of the Borrower's knowledge, there has been no
release or threat of release of any Hazardous Substance at any Borrower Group
Property which would likely result in liability being imposed upon the Borrower
or any Subsidiary thereof, which liability would have a Material Adverse Effect.
7.16 Intellectual Property. The Borrower and each of its
---------------------
Subsidiaries owns or licenses such copyrights, patents, trademarks and similar
rights ("Intellectual Property") as are necessary for the conduct of its
----------------------
respective businesses as now conducted, without any known conflict with the
rights of others which would have a Material Adverse Effect.
7.17 Level of Borrowing. After giving effect to any Extensions of
------------------
Credit to be made as of the date hereof under this Agreement, the sum of all
outstanding Revolving Credit Loans and Letter of Credit Usage do not exceed the
Revolving Credit Commitment.
7.18 Malpractice Insurance. The senior management of the Borrower,
---------------------
and each of its Subsidiaries, has concluded, after the exercise of reasonable
business judgment, that such entities are not engaged in the practice of
dentistry and are not required to maintain malpractice insurance and that if
such senior management concludes after the Closing Date that such entities are
required to maintain malpractice insurance, the Borrower covenants and agrees
to, and will require each of its Subsidiaries to, obtain and maintain
comprehensive malpractice insurance against bodily injury and death with
financially sound and reputable insurance companies in such amounts and against
such risks as are usually carried by owners of similar businesses and properties
in the same general areas in which the Borrower and its Subsidiaries operate.
7.19 Disclosure. None of the representations or warranties made by
----------
the Borrower in this Agreement, or in any other document furnished to the Agent
or the Lenders by or on behalf of the Borrower in connection herewith contains
(or will contain on the Closing Date) any untrue statement of a material fact or
omits (or will omit on the Closing Date) to state any material fact necessary to
make the statements herein or therein, in light of the circumstances under which
they are made, not misleading. There is no fact known to the Borrower on the
date of this Agreement which has any reasonable likelihood of having a Material
Adverse Effect which has not been set forth in or referred to in this Agreement.
Section 8 Affirmative Covenants.
--------- ---------------------
The Borrower covenants and agrees that for so long as this Agreement is in
effect and until the Notes, together with all interest thereon and all other
Obligations of the Borrower and the Guarantors to the Lenders are paid or
satisfied in full, unless the Majority Lenders shall otherwise consent in
writing:
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<PAGE>
8.1 Use of Proceeds. The Borrower shall use the proceeds of
---------------
Revolving Credit Loans for the working capital purposes of the Borrower and its
Subsidiaries and for Permitted Acquisitions, including for payments under
Letters of Credit and for the costs and expenses of the transactions
contemplated hereby. Without limiting the foregoing, no part of such proceeds
will be used for the purpose of purchasing or carrying any "margin security" as
such term is defined in Regulation U of the Board of Governors of the Federal
Reserve System.
8.2 Conduct of Business; Maintenance of Existence. The Borrower
---------------------------------------------
will, and will cause of each of its Subsidiaries to, continue to engage in the
business in which they are engaged and maintain its existence and comply with
all applicable statutes, rules and regulations and remain duly qualified as a
foreign corporation, licensed and in good standing in each jurisdiction where
such qualification or licensing is required by the nature of its business, the
character and location of its property, business, or the ownership or leasing of
its property, except where such noncompliance or failure to so qualify would not
have a Material Adverse Effect, and the Borrower will maintain its properties in
good operating condition, and continue to conduct its business as presently
conducted.
8.3 Compliance with Laws. The Borrower will, and will cause each of
--------------------
its Subsidiaries to, comply in all material respects with all applicable laws,
ordinances, rules, regulations and requirements of Governmental Authorities.
8.4 Insurance.
---------
(a) The Borrower will, and will cause each of its Subsidiaries to,
maintain insurance with financially sound and reputable insurance companies in
such amounts and with such deductibles and against such risks as is usually
carried by owners of similar businesses and properties in the same general areas
in which the Borrower and its Subsidiaries operate, provided that in any event
the Borrower and its Subsidiaries shall maintain or cause to be maintained (i)
insurance against casualty, loss or damage covering all property and
improvements of the Borrower and its Subsidiaries in amounts and in respect of
perils usually carried by owners of similar businesses and properties in the
same general areas in which Borrower and its Subsidiaries operate; (ii)
comprehensive general liability insurance against claims for bodily injury,
death or property damage; and (iii) workers' compensation insurance to the
extent required by applicable law. Such policies may be blanket policies
covering the Borrower and all its Subsidiaries. In the case of policies
referenced in clauses (i) and (ii) above, all such insurance shall (x) name the
Borrower and the Agent, for the benefit of the Lenders, as loss payees for
losses exceeding $250,000 and additional insureds as their interests may appear;
(y) provide that no termination, cancellation or material reduction in the
amount or material modification to the extent of coverage shall be effective
until at least 30 days after receipt by the Agent of notice thereof; and (z) be
reasonably satisfactory in all other respects to the Agent. Notwithstanding the
foregoing, from and after the occurrence of a Collateral Release Event, the
Borrower may upon a determination to such effect by its Board of Directors and
notice to the Agent, self insure, in whole or in part, for risks and claims of
the type described in clauses (i) and (ii) of the first sentence of this Section
8.4 to the extent that self insurance is normal and customary for similarly
situated businesses.
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<PAGE>
(b) The Borrower will not enter into any management service agreement
or similar agreement with an affiliated dentist or professional corporation
unless such dentist or professional corporation agrees to maintain comprehensive
malpractice insurance against claims for bodily injury and death with
financially sound and reputable insurance companies in such amounts and against
such risks as is usually carried by dentists in the same general areas in which
such dentists operate.
(c) As long as no Default or Event of Default shall have occurred and
be continuing, the Agent shall return to the Borrower any insurance proceeds it
receives in payment of a claim filed by the Borrower or any of its Subsidiaries.
8.5 Financial Statements, Etc. The Borrower will furnish to each of
-------------------------
the Lenders:
(a) within forty-five (45) days after the end of each quarter of the
Borrower (other than the fourth quarter), the unaudited consolidated balance
sheet as of the end of such period and the related consolidated statements of
operations and cash flows of the Borrower and its Subsidiaries as of and for the
three-month period and the year-to-date period ended on the last day of such
quarter and the unaudited consolidating balance sheet (which may be grouped by
geographic region after the occurrence of a Collateral Release Event) as of the
end of such period and the related unaudited consolidating statement of
operations (which may be grouped by geographic region after the occurrence of a
Collateral Release Event) for the three-month period and the year-to-date period
ended on the last day of such quarter, accompanied by a certificate of a
Responsible Officer of the Borrower to the effect that such financial statements
fairly present the consolidated financial condition of the Borrower and its
Subsidiaries as of the end of such quarter, and the consolidated results of
their operations and their consolidated cash flows for such quarter, in each
case in accordance with GAAP (except for the absence of footnotes) consistently
applied (subject to normal year-end audit adjustments);
(b) within one hundred twenty (120) days after the last day of each
year of the Borrower, the audited consolidated balance sheet and income
statement and statement of cash flows of the Borrower and its Subsidiaries as of
and for the year then ended, audited by the Accountants without any material
qualifications together with the unaudited consolidating balance sheet and
statement of operations of the Borrower and its Subsidiaries as of and for the
year then ended, together with a certificate (which may be included as part of a
Compliance Certificate) of a Responsible Officer of the Borrower to the effect
that such financial statements fairly present the consolidated financial
condition of the Borrower and its Subsidiaries as of the end of such year and
the consolidated results of their operations for such year, in each case in
accordance with GAAP.
(c) at the time of the delivery of the quarterly and yearly financial
statements required by Sections 8.5(a) and (b) above, a Compliance Certificate
signed by a Responsible Officer of the Borrower in the form attached to this
Agreement as Exhibit F, appropriately completed;
---------
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<PAGE>
(d) copies of any management letter provided by the Accountants and
addressed to the Board of Directors of the Borrower or to the Audit Committee of
the Board of Directors of the Borrower;
(e) promptly upon becoming aware of any litigation or other
proceeding against the Borrower or any of its Subsidiaries that could reasonably
be expected to have a Material Adverse Effect, notice thereof;
(f) promptly following the request of the Majority Lenders, such
further information concerning the business, affairs and financial condition or
operations of the Borrower and its Subsidiaries as the Agent may reasonably
request;
(g) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports, proxy
statements and other materials; and
(h) promptly upon the filing thereof by the Borrower with the SEC
(and in any event within ten (10) days of such filing), copies of any
registration statements (on SEC Form S-1, S-3 or any other form) and reports on
Forms 10-K, 10-Q and 8-K (or their equivalents if such forms no longer exist).
8.6 Notice of Default. As soon as practicable, and in any event,
-----------------
within three (3) Banking Days of becoming aware of the existence of any
condition or event which constitutes a Default, the Borrower will provide the
Agent and each Lender with written notice specifying the nature and period of
existence thereof and what action the Borrower is taking or proposes to take
with respect thereto.
8.7 Environmental Matters.
---------------------
(a) The Borrower and each of its Subsidiaries shall comply with all
terms and conditions of all applicable Governmental Approvals and all applicable
Environmental Laws, except where failure to comply would not have a Material
Adverse Effect.
(b) The Borrower shall promptly notify the Agent should the Borrower
become aware of:
(i) any spill, release, or threat of release of any Hazardous
Substance at or from any Borrower Group Property or by any
Person for whose conduct the Borrower or any Subsidiary
thereof are responsible, to the extent the Borrower is
required by Environmental Laws to report such to any
Governmental Authority;
(ii) any action or notice with respect to a civil, criminal or
administrative action, suit, demand, claim, hearing, notice of
violation, investigation, proceeding, notice or demand letter
pending or threatened against the Borrower or any Subsidiary
thereof relating in any way to the Environmental Laws, or any
Lien of any Governmental Authority or any
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<PAGE>
other Person against any Borrower Group Property relating in
any way to the Environmental Laws;
(iii) any claim made or threatened by any Person against the
Borrower or any of its Subsidiaries or any property of the
Borrower or any of its Subsidiaries thereof relating to
damage, contribution, cost recovery compensation, loss or
injury resulting from any Hazardous Substance pertaining to
such property or the business or operations of the Borrower or
such Subsidiary; and
(iv) any occurrence or condition on any real property adjoining any
Borrower Group Property known to the officers or supervisory
personnel of the Borrower or any of its Subsidiaries or other
employees having responsibility for the compliance by the
Borrower or any Subsidiary thereof with Environmental Laws,
without any independent investigation, which does cause, or
could cause, such Borrower Group Property, or any part
thereof, to contain Hazardous Substances in violation of any
Environmental Laws, or which does cause, or could cause, such
Borrower Group Property to be subject to any restrictions on
the ownership, occupancy, transferability or use thereof by
the Borrower or any of its Subsidiaries.
(c) The Borrower will, and will cause each of its Subsidiaries to, at
their own cost and expense, and within such period as may be required by
applicable law or regulation, initiate all remedial actions and thereafter
diligently prosecute such action as shall be required by law for the cleanup of
such Borrower Group Property, including all removal, containment and remedial
actions in accordance with all applicable Environmental Laws (and in all events
in a manner reasonably satisfactory to the Majority Lenders) and shall further
pay or cause to be paid, at no expense to the Agent or the Lenders, all cleanup,
administrative, and enforcement costs of applicable Government Authorities which
may be asserted against such Borrower Group Property.
8.8 Taxes and Other Liens. The Borrower will, and will cause each of
---------------------
its Subsidiaries to, pay when due all taxes, assessments, governmental charges
or levies, or claims for labor, supplies, rent and other obligations made
against it which, if unpaid, might become a Lien against the Borrower or such
Subsidiary or on its property, except liabilities being contested in good faith
and by proper proceedings, as to which adequate accruals are maintained on the
books of the Borrower or its Subsidiaries, in accordance with GAAP.
8.9 ERISA Information. If and when the Borrower or any member of the
-----------------
Controlled Group (a) gives or is required to give notice to the PBGC of any
"reportable event" (as defined in Section 4043 of ERISA) with respect to any
Plan which might constitute grounds for a termination of such Plan under Title
IV of ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, (b) receives notice of
complete or partial withdrawal liability under Title IV of ERISA or (c) receives
notice from the PBGC under Title IV of ERISA of an intent to terminate or
appoint a trustee to administer
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<PAGE>
the Plan, the Borrower shall in each such instance promptly furnish to the
Lenders a copy of any such notice.
8.10 Inspection. The Borrower will permit a representative of the
----------
Agent (including any field examiner or auditor retained by the Agent) to inspect
and make copies of the Borrower's books and records, and to discuss their
affairs, finances and accounts with their officers and accountants, at such
reasonable times and places and as often as the Agent may reasonably request.
8.11 Certain Obligations Respecting Subsidiaries. (a) The Borrower
-------------------------------------------
will, and will cause each of its Subsidiaries to, take such action from time to
time as shall be necessary to ensure that the Borrower at all times owns
(subject only to the Lien of the Security Instruments) all of the issued and
outstanding shares of each class of stock of each of its Subsidiaries. Without
limiting the generality of the foregoing, the Borrower shall not, and shall not
permit any of its Subsidiaries to, sell, transfer or otherwise dispose of any
shares of stock in any Subsidiary owned by it, or permit any of its Subsidiaries
to issue any shares of stock of any class whatsoever to any Person other than
the Borrower. In the event that any such additional shares of stock shall be
issued by any Subsidiary of the Borrower, the Borrower agrees forthwith to
deliver to the Agent pursuant to the Security Instruments the certificates
evidencing such shares of stock, accompanied by undated stock powers executed in
blank and shall take such other action as the Agent shall request to perfect the
security interest created therein pursuant to the Security Instruments.
(b) Promptly (but in any event within thirty (30) days) following
the creation of any Subsidiary (other than a shell acquisition subsidiary with
little or no assets) of the Borrower following the Closing Date, or the
acquisition of any Person by a Borrower or any Subsidiary thereof pursuant to
which such Person becomes a direct or indirect Subsidiary of the Borrower, the
Borrower (i) shall notify the Agent in writing of the creation or acquisition of
such Subsidiary and (ii) shall cause such Subsidiary to become a guarantor of
the performance of the Obligations and to execute and deliver a Subsidiary
Guaranty and such other documents, in form and substance satisfactory to the
Agent, as the Agent shall reasonably require in order to confirm the
authorization and enforceability of such guaranty.
(c) Prior to the occurrence of a Collateral Release Event and
promptly (but in any event within thirty (30) days) following the creation of
any Subsidiary (other than a shell acquisition subsidiary with little or no
assets) of the Borrower following the Closing Date, or the acquisition of any
Person by a Borrower or any Subsidiary thereof pursuant to which such Person
becomes a direct or indirect Subsidiary of the Borrower, the Borrower shall (i)
cause such Subsidiary to grant to the Agent for the benefit of the Lenders a
security interest in, and a lien on, all right, title and interest of such
Subsidiary in and to substantially all the assets of such Subsidiary (except for
Excluded Property) and to enter into a Subsidiary Security Agreement in favor of
the Agent for the benefit of the Lenders and such other documents, in form and
substance satisfactory to the Agent, as the Agent shall reasonably require in
order to confirm and perfect the authorization and enforceability of such
security interest, and (ii) forthwith deliver to the Lenders pursuant to the
Security Instruments the certificates evidencing all of the issued and
outstanding shares of stock of such Subsidiary, accompanied by undated stock
powers executed
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<PAGE>
in blank and take such other action as the Agent shall request to perfect the
security interest created therein pursuant to the Security Instruments. The
Borrower shall, and shall cause the appropriate Subsidiaries of the Borrower to,
promptly (x) execute and deliver to the Agent such number of copies as the Agent
may specify of documents creating such Liens, (y) do all other things which may
be necessary or which the Agent may reasonably request in order to confer upon
and confirm to the Agent the benefits of such security, and (z) deliver such
certificates, evidences of corporate action or other documents as the Agent may
reasonably request, all in form and substance reasonably satisfactory to the
Lenders, relating to the satisfaction of the Borrower's obligations under this
Section.
8.12 Further Assurances. The Borrower will, and will cause each of
------------------
its Subsidiaries to, execute and deliver to the Agent or any Lender any writings
and do all things necessary, effectual or reasonably requested by the Agent to
carry into effect the provisions and intent of this Agreement or any other Loan
Document.
Section 9 Negative Covenants.
--------- ------------------
The Borrower covenants and agrees that for so long as this Agreement is in
effect and until the Notes, together with all interest thereon and all other
Obligations of the Borrower and the Guarantors to the Lenders are paid or
satisfied in full, without the prior written consent of the Majority Lenders:
9.1 Transactions with Affiliates. Except as permitted by Section
----------------------------
9.8 hereof or as set forth on Schedule A, the Borrower will not, and will not
----------
permit any of its Subsidiaries to, directly or indirectly, pay any funds to or
for the account of, make any Investment in, lease, sell, transfer or otherwise
dispose of any assets, tangible or intangible, or engage in any transaction in
connection with any joint enterprise or other joint arrangement with, any
Affiliate of the Borrower, unless such transaction is not prohibited by this
Agreement, is for reasonable business or tax purposes, is in the ordinary course
of the Borrower's or such Subsidiary's business, and is upon fair and reasonable
terms no less favorable to the Borrower or such Subsidiary as those that could
be obtained in a comparable arm's length transaction with a Person that is not
an Affiliate.
9.2 Consolidation, Merger or Acquisition. (a) Neither the Borrower
------------------------------------
nor any of its Subsidiaries shall merge or consolidate with or into any other
Person, or make any acquisition of the business or assets of any other Person
except: (i) any Subsidiary of the Borrower may merge into a Borrower or any
wholly-owned Subsidiary of a Borrower; (ii) Investments to the extent permitted
by Section 9.8 hereof; and (iii) Permitted Acquisitions. For purposes hereof a
"Permitted Acquisition" is an acquisition which satisfies the following
---------------------
requirements: (A) if it involves an asset purchase, stock purchase or a merger
or consolidation, upon the consummation of which the surviving or acquired party
shall be the Borrower or a Subsidiary of the Borrower; (B) at the time of such
acquisition and after giving effect thereto no Event of Default shall have
occurred and be continuing; and (C) the conditions set forth in Section 9.2(b)
hereof shall have been satisfied with respect to the proposed acquisition.
(b) In addition to the requirements set forth in Section 9.2(a), the
following additional conditions must be satisfied with respect to each Permitted
Acquisition:
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<PAGE>
(i) Each company, business or Person to be acquired shall be engaged
in the same or a related line of business to the then current
businesses conducted by the Borrower and its Subsidiaries and
shall have EBITDA with adjustments for certain one-time saving
reasonably acceptable to the Agent for the twelve months
immediately preceding the proposed acquisition date greater than
$1.00;
(ii) With respect to any individual proposed acquisition involving
aggregate consideration in excess of $1,000,000, the Borrower
will submit a pro forma Compliance Certificate to the Agent,
which shall demonstrate that on a pro forma basis and after
giving effect to the proposed acquisition the Borrower will be
in compliance with the financial covenants set forth in Section
10. hereof.
(iii) All necessary consents, approvals, licenses, permissions,
registrations or validations of any Governmental Authority or
any other Person required for the consummation of the proposed
acquisition shall have been obtained and shall be in full force
and effect; and
(iv) With respect to any individual proposed acquisition involving an
aggregate acquisition price in excess of $10,000,000, such
acquisition shall be subject to the review (but not the
approval) of the Majority Lenders which review shall be
completed within five (5) Banking Days after the Agent and each
of the Lenders shall have received copies of the draft
acquisition agreement for such proposed acquisition and the
financial statements of the entity to be acquired (audited or
reviewed to the extent available) provided, however, that the
Borrower shall deliver to the Agent and each of the Lenders such
additional information or documents as the Agent shall
reasonably request, provided that any such additional request
shall not extend or delay the running of the aforementioned five
(5) Banking Day period.
(v) Each new Subsidiary of the Borrower formed to make such
acquisition and each Person to be acquired which becomes a
Subsidiary of the Borrower shall agree to become a guarantor of
the Obligations and shall have executed such instruments in
connection therewith as the Agent and its counsel shall
reasonably request, including without limitation a Subsidiary
Guaranty and a Subsidiary Security Agreement.
9.3 Disposition of Assets. The Borrower shall not convey, sell,
---------------------
lease, transfer or otherwise dispose of any of their property, business or
assets (including, without limitation, accounts receivable and leasehold
assets), whether now owned or hereafter acquired, except for (i) equipment or
other assets sold, leased, assigned or otherwise disposed of in the ordinary
course of business; (ii) the sale of inventory in the ordinary course of
business and (iii) other assets (excluding accounts receivable which may not be
disposed of), provided that the aggregate book value of all assets disposed of
--------
pursuant to this clause (iii) in any year shall not exceed five
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<PAGE>
percent (5%) of the consolidated total assets, determined on a pro forma basis
for completed Permitted Acquisitions, of the Borrower as of the end of any such
year.
9.4 Indebtedness. Neither the Borrower nor any of its Subsidiaries
------------
shall create, incur, assume or suffer to exist any Indebtedness, except:
(a) the Obligations;
(b) existing Indebtedness, including Subordinated Debt, if any,
listed on Schedule A hereto;
----------
(c) Capital Lease Obligations in an aggregate amount not to exceed
$250,000 at any one time outstanding; provided that after giving effect to
--------
the incurrence of any such Capital Lease Obligations, no Default or Event
of Default shall have occurred and be continuing;
(d) Subordinated Debt incurred by the Borrower after the date hereof;
provided that, after giving effect to the incurrence of such Subordinated
--------
Debt, no Default or Event of Default shall have occurred and be continuing;
(e) purchase money Indebtedness for the purchase price of equipment
and capital assets incurred in the ordinary course of business, provided
--------
that such Indebtedness does not exceed $250,000 in principal amount in the
aggregate at any time outstanding;
(f) other Indebtedness that does not exceed an amount equal to 1.5%
of Trailing Twelve Month Revenue (not including any other Indebtedness
permitted by this Section 9.4); and
-----------
(g) Indebtedness owing by the Borrower to one of its Subsidiaries or
to the Borrower from one of its Subsidiaries.
9.5 Guarantees. Neither the Borrower or any of its Subsidiaries
----------
shall create, incur or suffer to exist any obligations in respect of Guarantees
except for:
(a) the Subsidiary Guaranties;
(b) existing Guarantees, if any, listed on Schedule A hereto;
----------
(c) Guarantees entered into after the date hereof in connection
with Capital Lease Obligations and Indebtedness permitted under Section
9.4.
9.6 Liens. Neither the Borrower nor any of its Subsidiaries shall
-----
create, incur, assume or suffer to exist any Lien on any of its properties or
assets, except the following (collectively, "Permitted Liens"):
---------------
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<PAGE>
(a) Liens for taxes, fees, assessments and other governmental charges
not delinquent or being contested in good faith and by proper proceedings,
as to which adequate accruals are maintained on the books of the Borrower
in accordance with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, landlord's
or similar liens imposed by law incurred in the ordinary course of business
in respect of obligations not overdue, or being contested in good faith and
by proper proceedings and as to which adequate accruals with respect
thereto are maintained on the books of the Borrower in accordance with
GAAP;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other types of social security legislation;
(d) security deposits made to secure the performance of leases,
licenses and statutory obligations incurred in the ordinary course of
business;
(e) Liens in favor of the Agent;
(f) existing Liens, if any, listed on Schedule A hereto; provided
---------- --------
that no such Lien is spread to cover any additional property after the date
hereof, and that the principal amount of the Indebtedness secured thereby
is not increased; and
(g) Liens securing (i) Indebtedness for the purchase price of
property or the refinancing thereof (provided such refinancing does not
increase the amount of such Indebtedness) to the extent permitted by
Section 9.4(e) or (ii) Indebtedness permitted by Sections 9.4(c) or 9.4(f),
provided that in each such case (x) each such Lien is given solely to
--------
secure the purchase price of such property (or the refinancing thereof),
does not extend to any other property and is given at the time of
acquisition of such property, and (y) the Indebtedness secured thereby does
not exceed the lesser of the cost of such property or its fair market value
at the time of acquisition.
9.7 Restricted Payments. Neither the Borrower nor any of its
-------------------
Subsidiaries shall declare or make any Restricted Payment, except that (i) the
Subsidiaries may declare and make cash dividends to the Borrower, (ii) the
Borrower may make Restricted Payments in the form of stock redemption payment
of, and payments in respect of accrued and unpaid dividends on, Series B
Preferred Stock, out of public offering proceeds as contemplated by Section 4.19
hereof, and (iii) the Borrower may make payments to Gregory A. Serrao for the
repurchase of stock of the Borrower held by him pursuant to Section 12 of his
Employment and Non-Competition Agreement with the Company dated as of January 8,
1996, provided, however, that the Borrower shall not use proceeds of Revolving
Credit Loans to finance any such repurchase and any such repurchase shall have
been approved by the Board of Directors of the Borrower.
9.8 Investments. Neither the Borrower nor any of its Subsidiaries
-----------
shall make, maintain or acquire any Investment in any Person other than:
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<PAGE>
(a) marketable obligations issued or guaranteed by the United States
of America having a maturity of one year or less from the date of purchase;
(b) certificates of deposit, eurodollar time deposits, commercial
paper or any other obligations of any Lender or of any other bank or
savings and loan with a minimum capital surplus of $100,000,000, with a
maturity of less than one year from the date of such Investment;
(c) commercial paper with maturities of not more than 90 days having
the highest rating then given by Moody's Investors Services, Inc. or
Standard & Poor's Corporation;
(d) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in subparagraph (a) above
entered into with any bank with a minimum capital surplus of $100,000,000;
(e) shares in money market mutual funds substantially all the assets
of which are comprised of securities and other obligations of the types
described in subparagraphs (a) through (d) above;
(f) depository accounts at any Lender;
(g) stock or obligations issued to the Borrower or any Subsidiary
thereof in settlement of claims against others by reason of an event of
bankruptcy or a composition or the readjustment of debt or a reorganization
of any debtor of the Borrower or such Subsidiary;
(h) currently existing Investments set forth on Schedule A; and
----------
(i) Investments by the Borrower in its Subsidiaries.
9.9 ERISA. The Borrower will not permit any Plan maintained by the
-----
Borrower or by any member of the Controlled Group to: (a) engage in any
"prohibited transaction" (ERISA (S)2003(c)); (b) fail to report to the Agent a
"reportable event" (ERISA (S)4043) within 30 days after its occurrence or as to
any reportable event as to which the 30-day notice period requirement of Section
4043(b) of Title IV of ERISA has been waived by the PBGC, within 30 days of such
time as the Borrower is requested to notify the PBGC of such reportable event;
(c) incur any "accumulated funding deficiency" (ERISA (S)302); (d) terminate its
existence at any time in a manner which could result in the imposition of a Lien
on the property of the Borrower or any Subsidiary thereof; or (e) fail to report
to the Agent any "complete withdrawal" or "partial withdrawal" by the Borrower
or an affiliate from a "multiemployer plan" (ERISA (S)(S)4203, 4205, and 4001,
respectively). The quoted terms are defined in the respective sections of ERISA
cited above.
9.10 Fiscal Year. The Borrower and its Subsidiaries shall not change
-----------
their fiscal year without giving the Agent notice in writing at least forty-five
(45) days prior to the effective date of such change and negotiating and
reaching agreement with the Majority Lenders as to any
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<PAGE>
changes to the financial covenants set forth in Section 10 as may be occasioned
thereby in the reasonable judgment of the Majority Lenders.
Section 10 Financial Covenants.
---------- -------------------
The Borrower covenants and agrees that so long as this Agreement is in
effect and until the Notes, together with all interest thereon and all other
Obligations of the Borrower to the Lenders are paid or satisfied in full:
10.1 Debt Coverage. The Borrower will not permit (a) the ratio of
-------------
Senior Debt to Adjusted EBITDA to exceed 3.5 to 1.0 or (b) the ratio of Total
Debt to Adjusted EBITDA to exceed 4.0 to 1.0 (3.0 to 1.0 from and after the
occurrence of a Collateral Release Event) in each case, as determined at the end
of each fiscal quarter for the four quarters then ended.
10.2 Fixed Charges Coverage. The Borrower will not permit the ratio
----------------------
of Adjusted EBITDA plus Rental Payments to Fixed Charges as determined at the
----
end of each fiscal quarter for the four quarters then ended, to be less than (i)
1.00 to 1.00 through September 30, 1997, (ii) 1.15 to 1.00 at December 31, 1997,
and (iii) 1.25 to 1.00 at the end of each quarter thereafter.
10.3 Minimum Net Worth. The Borrower shall at all times maintain Net
-----------------
Worth at the end of any fiscal quarter in an amount of not less than (i) the Net
Worth of the Borrower at December 31, 1996, minus (ii) $2,000,000, plus (iii)
----- ----
fifty percent (50%) of cumulative consolidated Net Income for the period (taken
as a single period) from December 31, 1996 through the end of such quarter,
provided, that for purposes of this clause (iii) only positive consolidated Net
- --------
Income shall be included and any net losses shall be disregarded, plus (iv) one
----
hundred percent (100%) of the net proceeds of any public offering by the
Borrower of shares of its capital stock, less the amount of proceeds which are
used to redeem shares of the Borrower's Series B Preferred Stock, including
accrued and unpaid dividends.
Section 11 Events of Default.
---------- -----------------
11.1. Events of Default. The occurrence of any of the following
-----------------
events shall be an "Event of Default" hereunder:
----------------
(a) The Borrower shall default (i) in the due and punctual payment of
principal of any Loan; or (ii) in the payment of interest on any Loan or in
the payment of any other amount due under any Loan Document and such
default shall continue for more than five (5) Business Days after such
payment was due; or
(b) Any representation, warranty or statement made herein or any
other Loan Document, or in any certificate or statement furnished pursuant
to or in connection herewith or therewith, shall prove to be incorrect,
misleading or incomplete in any material respect on the date as of which
made or deemed made; or
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<PAGE>
(c) The Borrower shall default in the performance or observance of
any term, covenant or agreement on its part to be performed or observed
pursuant to Sections 8.2, 8.6, 8.10, 9.2, 9.7, 9.9, 9.10, and 10 hereof; or
(d) The Borrower shall default in the performance or observance of
any term, covenant or agreement on its part to be performed or observed
pursuant to any of the provisions of this Agreement or any other Loan
Document (other than those referred to in paragraphs (a) through (c) above)
and such default shall continue unremedied for a period of thirty (30) days
after the occurrence of such Default; or
(e) Any obligation of the Borrower or any of its Subsidiaries in
respect of any Indebtedness (other than the Notes) or any Guarantee,
including, without limitation, any Indebtedness owing to the Agent or any
Lender, which involves an aggregate amount in excess of $100,000 shall be
declared to be or shall become due and payable prior to the stated maturity
thereof and shall not be paid, or such Indebtedness or Guarantee shall not
be paid as and when the same becomes due and payable, or there shall occur
and be continuing any default under any instrument, agreement or evidence
of indebtedness relating to any such Indebtedness the effect of which is to
permit the holder or holders of such instrument, agreement or evidence of
indebtedness, or a trustee, agent or other representative on behalf of such
holder or holders, to cause such Indebtedness to become due prior to its
stated maturity and shall not be paid; or
(f) The Borrower or any of its Subsidiaries thereof shall (i) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code, (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, winding-up,
or composition or readjustment of debts, (v) fail to controvert in a timely
and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Bankruptcy Code, or (vi) take
any corporate action for the purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application
or consent of the Borrower or any of its Subsidiaries in any court of
competent jurisdiction, seeking (i) its liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of its debts,
(ii) the appointment of a trustee, receiver, custodian, liquidator or the
like of the Borrower or any of its Subsidiaries or of all or any
substantial part of its assets, or (iii) similar relief in respect of the
Borrower or any of its Subsidiaries under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of
debts, and such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of 60 days; or an
order for relief against the Borrower or any of its Subsidiaries shall be
entered in an involuntary case under the Bankruptcy Code; or
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<PAGE>
(h) A judgment or judgments for the payment of money in excess of
$250,000 (net of insurance proceeds) in the aggregate shall be rendered
against the Borrower or any of its Subsidiaries and any such judgment or
judgments shall not have been vacated, discharged, stayed or bonded pending
appeal within thirty (30) days from the entry thereof; or
(i) The Borrower or any member of the Controlled Group shall fail to
pay when due an amount or amounts aggregating in excess of $250,000 which
it is obligated to pay to the PBGC or to a Plan under Title IV of ERISA; or
a notice of intent to terminate a Plan or Plans having aggregate Unfunded
Liabilities in excess of $250,000 shall be filed under Title IV of ERISA by
the Borrower or any member of the Controlled Group, any plan administrator
or any combination of the foregoing; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate or to cause a trustee to
be appointed to administer any such Plan or Plans or a proceeding shall be
instituted by a fiduciary of any such Plan or Plans against the Borrower or
any member of the Controlled Group to enforce Sections 515 or 4219(c)(5) of
ERISA; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any such Plan or Plans must
be terminated; or there shall occur a complete or partial withdrawal form,
or a default, within the meaning of Section 4219(c)(5) of ERISA, with
respect to, one or more Multiemployer Plans which could cause the Borrower
or one or more members of the Controlled Group to incur a current payment
obligation in excess of $250,000; or
(j) Pension plans maintained by the Borrower or any member of the
Funding Standard Controlled Group or to which the Borrower or any member of
the Funding Standard Controlled Group is obligated to contribute shall
incur in the aggregate an "accumulated funding deficiency", within the
meaning of Section 302 of ERISA, in excess of $250,000, or
(k) Any Security Instrument shall cease for any reason to be in full
force and effect or shall cease to be effective to grant a perfected
security interest in a material portion of the collateral described in such
Security Instrument with the priority stated to be granted thereby; or
(l) The individuals serving as Chief Executive Officer and Chief
Financial Officer of the Borrower on the Closing Date shall both cease, for
any reason (including, without limitation, resignation, removal or death),
to be executive officers of the Borrower within any six month period,
unless successors reasonably acceptable to the Agent replace such
individuals within a reasonable period of time after they shall have ceased
to serve; or
(m) Prior to an initial public offering of the Borrower, (i) Summit
and Serrao collectively cease, for any reason, to retain and have the
unfettered ability at all times to exercise voting control over at least
twenty-five percent (25%) of the outstanding shares of voting stock of the
Borrower or (ii) Summit and Serrao shall no longer have the right to
designate, elect, or cause to be elected directors representing in the
aggregate a majority of the board of directors of the Borrower.
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<PAGE>
11.2 Remedies Upon an Event of Default. If any Event of Default
---------------------------------
shall have occurred and be continuing, the Agent may (and, if directed by
Majority Lenders, shall) by notice (a) declare the Commitments terminated
(whereupon the Commitments shall be terminated) and/or (b) declare the principal
amount then outstanding of, and the accrued interest on, the Loans and
commitment fees and all other amounts payable hereunder and under the Notes to
be forthwith due and payable, whereupon such amounts shall be and become
immediately due and payable, without further notice (including, without
limitation, notice of intent to accelerate), presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower; provided that in the case of the occurrence of an Event of Default
--------
with respect to the Borrower referred to in clauses (f) and (g) of Section 11.1,
the Commitments shall be automatically terminated and the principal amount then
outstanding of, and the accrued interest on, the Loans and commitment fees and
all other amounts payable hereunder and under the Notes shall be and become
automatically and immediately due and payable, without notice (including,
without limitation, notice of intent to accelerate), presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Borrower.
Section 12. The Agent.
---------- ---------
12.1. Appointment, Powers and Immunities. Each Lender hereby
----------------------------------
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the other Loan Documents with such powers as are specifically delegated to
the Agent by the terms hereof and thereof, together with such other powers as
are reasonably incidental thereto. The Agent (which term as used in this Section
12 shall include reference to its Affiliates and its own and its Affiliates'
officers, directors, employees and agents): (a) shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
other Loan Documents, and shall not by reason of this Agreement or any other
Loan Document be a trustee for any Lender; (b) shall not be responsible to the
Lenders for any recitals, statements, representations or warranties contained in
this Agreement or any other Loan Document, or in any certificate or other
document referred to or provided for in, or received by any of them under, this
Agreement or any other Loan Document, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or any other document referred to or provided for herein or therein or
for any failure by the Borrower or any other Person to perform any of its
obligations hereunder or thereunder; (c) shall not be required to initiate or
conduct any litigation or collection proceedings hereunder or under any other
Loan Document except to the extent requested by the Majority Lenders, and (d)
shall not be responsible for any action taken or omitted to be taken by it
hereunder or under any other Loan Document or any other document or instrument
referred to or provided for herein or therein or in connection herewith or
therewith, except for its own gross negligence or willful misconduct. The Agent
may employ agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care.
12.2. Reliance by Agent The Agent shall be entitled to rely upon any
-----------------
certification, notice or other communication (including any thereof by
telephone, telex, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel, independent
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<PAGE>
accountants and other experts selected by the Agent. As to any matters not
expressly provided for by this Agreement or any other Loan Document, the Agent
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder and thereunder in accordance with instructions signed by the Majority
Lenders (or if required by Section 13.1 hereof, by all of the Lenders), and such
------------
instructions of the Majority Lenders and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders.
12.3. Defaults. The Agent shall not be deemed to have knowledge of
--------
the occurrence of a Default (other than the non-payment of principal of or
interest on Loans) unless the Agent has received notice from a Lender or the
Borrower specifying such Default and stating that such notice is a "Notice of
Default". In the event that the Agent receives such a notice of the occurrence
of a Default, the Agent shall give prompt notice thereof to the Lenders (and
shall give each Lender prompt notice of each such non-payment). The Agent shall
(subject to Section 12.7 hereof) take such action with respect to such Default
------------
as shall be directed by the Majority Lenders (or if required by Section 13.1
------------
hereof, by all of the Lenders), provided that, unless and until the Agent shall
--------
have received such directions, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default as it shall deem advisable in the best interests of the Lenders.
12.4. Rights as a Lender. With respect to its Commitments and the
------------------
Loans made by it, Fleet in its capacity as a Lender hereunder shall have the
same rights and powers hereunder as any other Lender and may exercise the same
as though it were not acting as the Agent, and the term "Lender" or "Lenders"
shall, unless the context otherwise indicates, include Fleet in its individual
capacity. The Agent may (without having to account therefor to any Lender)
accept deposits from, lend money to and generally engage in any kind of banking,
trust or other business with the Borrower (and any of their Affiliates) as if it
were not acting as the Agent, and the Agent may accept fees and other
consideration from the Borrower (in addition to the agency fees and arrangement
fees heretofore agreed to between the Borrower and the Agent) for services in
connection with this Agreement or otherwise without having to account for the
same to the Lenders.
12.5. Events. The Lenders agree to indemnify the Agent (to the
------
extent not reimbursed under Section 13.5 hereof), but without limiting the
------------
obligations of the Borrower under said Section 13.5, ratably in accordance with
------------
their respective Commitments, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement or any other Loan Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses which the Borrower is
obligated to pay under Section 13.5 hereof but excluding, unless a Default has
------------
occurred and is continuing, normal administrative costs and expenses incident to
the performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents, provided that no Lender
--------
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified and provided
--------
further that nothing in this Section 12.5 shall require any Lender to reimburse
- ------- ------------
the Agent for internal overhead.
-47-
<PAGE>
12.6. Non-Reliance on Agent and Other Lenders. Each Lender agrees
---------------------------------------
that it has, independently and without reliance on the Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and decision to enter
into this Agreement and that it will, independently and without reliance upon
the Agent or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any of the
other Loan Documents. The Agent shall not be under any obligation to any Lender
to ascertain or to inquire as to the performance or observance by the Borrower
of this Agreement or any of the other Loan Documents or any other document
referred to or provided for herein or therein or to inspect the properties or
books of the Borrower. Except for notices, reports and other documents and
information expressly required to be furnished to the Lenders by the Agent
hereunder or the other Loan Documents, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower (or any
of its Affiliates) which may come into the possession of the Agent.
12.7. Failure to Act. Except for action expressly required of the
--------------
Agent hereunder and under the other Loan Documents, the Agent shall in all cases
be fully justified in failing or refusing to act hereunder and thereunder unless
it shall receive further assurances to its satisfaction by the Lenders of their
indemnification obligations under Section 12.5 hereof against any and all
------------
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
12.8. Removal of Agent. Subject to the appointment and acceptance of
----------------
a successor Agent as provided below, the Agent may be removed at any time with
or without cause by the Majority Lenders. Upon any such removal the Majority
Lenders shall have the right to appoint a successor Agent reasonably acceptable
to the Borrower. If no successor Agent shall have been so appointed by the
Majority Lenders and shall have accepted such appointment within 30 days after
the Majority Lenders' removal of the retiring Agent (the "Notice Date"), then
-----------
the retiring Agent may, on behalf of the Lenders, appoint a successor Agent
reasonably acceptable to the Borrower. Any successor Agent shall be (i) a Lender
or (ii) if no Lender has accepted such appointment within 30 days after the
Notice Date, a bank which has an office in Boston, Massachusetts with a combined
capital and surplus of at least $200,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's removal
hereunder as Agent, the provisions of this Section 12 shall continue in effect
----------
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Agent. The Agent may upon notice thereof to the
Borrower and the Lenders, but subject to the prior written consent of the
Borrower, resign, in which case the procedures for appointing a successor Agent
set forth in this Section 12.8 shall be followed as though the Agent had been
removed by the Majority Lenders.
12.9. Collateral Sub-Agents. Each Lender by its execution and
---------------------
delivery of this Agreement agrees, as contemplated by the Security Instruments,
that, in the event it shall hold any Liquid Investments referred to therein,
such Liquid Investments shall be held in the name
-48-
<PAGE>
and under the control of such Lender and such Lender shall hold such Liquid
Investments as a collateral sub-agent for the Agent thereunder.
Section 13. General.
---------- -------
13.1. Amendments, Etc. No amendment or waiver of any provision of
---------------
this Agreement or the Notes, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Majority Lenders and the Borrower, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided that no amendment, waiver or consent shall,
--------
unless in writing and signed by all the Lenders, do any of the following: (i)
increase any Commitment of any of the Lenders or subject the Lenders to any
additional obligations; (ii) reduce the principal of, or interest on, any Loan
or fees hereunder; (iii) postpone any date fixed for any payment of principal
of, or interest on, any Loan, or fee hereunder; (iv) change the percentage of
any of the Commitments or of the aggregate unpaid principal amount of any of the
Loans, or the number of Lenders, which shall be required for the Lenders or any
of them to take any action under this Agreement; (v) change any provision
contained in Sections 2.1, 4.12, through 4.19, 13.5 or this Section 13.1 hereof;
-------- --- ---- ---- ---- ------------
(vi) release any substantial portion of the security for the Obligations of the
Borrower under this Agreement or any Note, except for dispositions permitted
under Sections 5.2 or 9.3;(vii) modify the definition of "Majority Lenders" as
------------ ---
set forth in Section 1.1; or (viii) in those provisions where consent or
-----------
approval by the Majority Lenders is required, eliminate the requirement of such
consent or approval. Notwithstanding anything in this Section 13.1 to the
------------
contrary, no amendment, waiver or consent shall be made with respect to Section
-------
12 without the consent of the Agent.
- --
13.2. Notices, Etc. Unless otherwise specified herein, all notices
------------
hereunder to any party hereto shall be in writing and shall be deemed to have
been given when delivered by hand, or when sent by electronic facsimile
transmission or by telex, answer back received, or on the first Banking Day
after delivery to any overnight delivery service, freight pre-paid, or three
days after being sent by certified or registered mail, return receipt requested,
postage pre-paid, and addressed to such party at its address indicated on
Schedule 2 hereto; or at any other address specified by such party in writing
- ----------
except that notices to the Agent pursuant to Section 4 shall not be effective
until received by the Agent.
13.3. No Waiver; Remedies. No failure on the part of the Agent or
-------------------
the Lenders to exercise, and no delay in exercising, any right hereunder, under
the Notes or under any of the other Loan Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any right hereunder, under
the Notes or under any of the other Loan Documents preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
13.4. Right of Set-off. Upon the occurrence and during the
----------------
continuance of any Event of Default, each Lender is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender to or for the credit or the account of the Borrower against any and all
of the
-49-
<PAGE>
obligations of the Borrower now or hereafter existing under this Agreement and
the Notes, irrespective of whether or not such Lender shall have made any demand
hereunder.
(b) Each Lender agrees promptly to notify the Borrower, the Agent and
the other Lenders after any such set-off and application, provided that the
--------
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Lenders under this Section 13.4 are in addition
------------
to other rights and remedies (including, without limitation, other rights of
set-off) which the Lenders may have.
13.5 Expenses; Indemnification. The Borrower shall pay on demand
-------------------------
(i) the reasonable fees and disbursements of counsel to the Agent in connection
with the preparation of this Agreement and the preparation or review of each
agreement, opinion, certificate and other document referred to in or delivered
pursuant hereto which shall not exceed $75,000; (ii) all out-of-pocket costs and
expenses of the Agent in connection with the administration of this Agreement
and the other Loan Documents, and any waiver or amendment of any provision
hereof or thereof, including without limitation, the reasonable fees and
disbursements of counsel for the Agent; and (iii) if any Default or Event of
Default occurs, all reasonable costs and expenses incurred by the Agent and the
Lenders, including the reasonable fees and disbursements of counsel to the Agent
and the Lenders, and of any field examiners, auditors, appraisers, environmental
engineers or consultants, or investment banking firms retained by the Agent and
the Lenders in connection with such Event of Default or collection, bankruptcy,
insolvency and other enforcement proceedings related thereto. The Borrower
agrees to pay, indemnify and hold the Agent and the Lenders harmless from, any
and all recording and filing fees, and any and all liabilities with respect to,
or resulting from any delay in paying, stamp, excise or other taxes, if any,
which may be payable or determined to be payable in connection with the
execution and delivery of or the consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement or the other
Loan Documents, or any documents delivered pursuant hereto or thereto.
(b) The Borrower agree to indemnify the Agent and the Lenders and
their respective officers and directors and hold the Agent and the Lenders and
their respective officers and directors harmless from and against any and all
liabilities, losses, damages, reasonable costs and expenses of any kind
(including, without limitation, the reasonable fees and disbursements of counsel
for the Agent and each Lender in connection with any investigative,
administrative or judicial proceeding initiated by a third party, whether or not
the Agent or any Lender shall be designated a party thereto) which may be
incurred by the Agent or any Lender, relating to or arising out of this
Agreement or any other Loan Document, or the existence of any Hazardous
Substance on, in, or under any Borrower Group Property, or any violation of any
applicable Environmental Laws for which the Borrower or any Subsidiary thereof
has any liability or which occurs upon any Borrower Group Property, or the
imposition of any Lien under any Environmental Laws, provided that neither the
--------
Agent nor any Lender shall not have the right to be indemnified hereunder for
its own bad faith, gross negligence or willful misconduct as finally determined
by a court of competent jurisdiction.
-50-
<PAGE>
(c) The agreements in this Section 13.5 shall survive the repayment
------------
of the Notes, and all other amounts payable under this Agreement and the other
Loan Documents.
13.6 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns except that the Borrower may not assign its rights or obligations
hereunder or under the Notes without the prior written consent of all of the
Lenders. Each Lender may (without the consent of any other party to this
Agreement) sell participations in all or any part of the Loans to another bank
or other entity, in which event the participant shall not have any rights under
this Agreement (except as provided in the next succeeding sentence hereof), or
in the case of a Loan, such Lender's Note (the participant's rights against such
Lender in respect of such participation to be those set forth in the agreement
executed by such Lender in favor of the participant relating thereto, which
agreement shall not give the participant the right to consent to any
modification, amendment or waiver other than one described in clauses (i), (ii),
(iii) or (vi) of Section 13.1 hereof); provided that each such participation
---- ------------ --------
shall be in an amount not less than $5,000,000, and further provided that no
--------------------
participant shall be entitled to receive any greater amount pursuant to such
Section than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by it to such participant
had no such transfer occurred. Each Lender may furnish any information
concerning the Borrower, its Subsidiaries and any other Loan Party in the
possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants). The Agent and the Borrower
may, for all purposes of this Agreement, treat any Lender as the holder of any
Note drawn to its order (and owner of the Loans evidenced thereby) until written
notice of assignment, participation or other transfer shall have been received
by them from such Lender. Notwithstanding any other provision of this Section
-------
13.6, Fleet agrees for the benefit of the Borrower to retain for its own account
- ----
a principal amount of the Loans and a portion of the Revolving Credit Commitment
equal in the aggregate to at least 50% of the principal amount from time to time
outstanding of the Loans and of the Revolving Credit Commitment.
13.7 Severability. Any provision of this Agreement which is
------------
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
13.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REGARD TO CONFLICTS OF LAWS RULES).
13.9 WAIVER OF JURY TRIAL. THE AGENT, THE LENDERS AND THE BORROWER
--------------------
AGREE THAT NONE OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY
TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON,
OR ARISING OUT OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY COLLATERAL OR
THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY
-51-
<PAGE>
TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE
BEEN FULLY DISCUSSED BY THE AGENT, THE LENDERS AND THE BORROWER, AND THESE
PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE AGENT, THE LENDERS
NOR THE BORROWER HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS
OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
13.10 VENUE, CONSENT TO SERVICE OF PROCESS. THE BORROWER ACCEPT FOR
------------------------------------
THEMSELVES AND IN CONNECTION WITH THEIR PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT
OR PROCEEDING OF ANY KIND AGAINST THEM WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT, THE NOTES, ANY OTHER LOAN DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY, IRREVOCABLY AGREE TO BE BOUND BY ANY FINAL JUDGMENT RENDERED
BY ANY SUCH COURT IN ANY SUCH ACTION, SUIT OR PROCEEDING IN WHICH THEY SHALL
HAVE BEEN SERVED WITH PROCESS IN THE MANNER HEREINAFTER PROVIDED, SUBJECT TO
EXERCISE AND EXHAUSTION OF ALL RIGHTS OF APPEAL AND TO THE EXTENT THAT THEY MAY
LAWFULLY DO SO, WAIVE AND AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR
OTHERWISE, IN SUCH ACTION, SUIT OR PROCEEDING ANY CLAIMS THAT THEY ARE NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THEIR PROPERTY IS
EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE ACTION, SUIT OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS
IMPROPER, AND AGREE THAT PROCESS MAY BE SERVED UPON THEM IN ANY SUCH ACTION,
SUIT OR PROCEEDING IN THE MANNER PROVIDED BY CHAPTER 223A OF THE GENERAL LAWS OF
MASSACHUSETTS, RULE 4 OF THE MASSACHUSETTS RULES OF CIVIL PROCEDURE OR RULE 4 OF
THE FEDERAL RULES OF CIVIL PROCEDURE.
13.11 Additional Lenders. The Borrower, each of the Lenders and the
------------------
Agent may at any time agree to add one or more lenders to this agreement
pursuant to an instrument in writing specifying such new lender's "commitments"
(and the reduction in commitments of the existing Lenders as a result thereof)
in such manner as the Borrower, each of the Lenders and the Agent shall agree.
Upon the execution of such instrument (and the satisfaction of such conditions
and other terms as shall therein be specified) such additional lender or lenders
shall be deemed a "lender" or "lenders" for the purposes of this agreement and
shall enjoy all rights and assume all obligations on the part of the Lenders set
forth in this agreement, and the Lenders whose commitments are then being
reduced shall be released from their commitments to the extent of such
reduction.
13.12 Headings. Section headings in this Agreement are included
--------
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
-52-
<PAGE>
13.13 Counterparts. This Agreement may be signed in one or more
------------
counterparts each of which shall constitute an original and all of which taken
together shall constitute one and the same instrument.
13.14 Confidentiality. The Agent and each Lender will keep
---------------
confidential all Confidential Information (as defined below) and will not,
without the Borrower's consent, disclose the same to any person other than to
directors, officers, employees, agents or other representatives (including
attorneys, accountants and financial advisers) of the Agent or any Lender or
prospective Lender or any of their respective Affiliate and other than to any
governmental agency or authority in accordance with applicable laws, rules or
regulations. As used herein, the term "Confidential Information" shall mean only
information prepared by the Borrower and furnished to the Lenders or obtained by
the Lenders hereunder which consists of financial statements and projections of
the Borrower, the Borrower's form of management agreement, business plan, and
documents with respect to acquisitions by the Borrower or which is identified as
confidential and which (i) is not ascertainable or obtained from public or
published information or (ii) is not known or does not become known to the
public (other than through a breach by the Lenders of this Section).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed under seal and delivered by their respective officers thereunto
duly authorized as of the date first above written.
AMERICAN DENTAL PARTNERS, INC.
By: /s/ Ronald M. Levenson
--------------------------------
Name: Ronald M. Levenson
Title: Chief Financial Officer
FLEET NATIONAL BANK, Individually
and as Agent
By: /s/ Ginger C. Stolzenthaler
--------------------------------
Ginger C. Stolzenthaler
Vice President
-53-
<PAGE>
ACQUISITION AND EXCHANGE AGREEMENT
AMONG
AMERICAN DENTAL PARTNERS, INC.,
PDHC LTD.,
and
THE SHAREHOLDERS OF PDHC, LTD.
November 11, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ACQUISITION AND EXCHANGE AGREEMENT............................... 1
- ----------------------------------
BACKGROUND INFORMATION.......................... 1
----------------------
ARTICLE I
THE ACQUISITION.............................. 1
---------------
(S)1.1 The Acquisition..................................... 1
---------------
(S)1.2 The Purchase........................................ 2
------------
(S)1.3 Closing............................................. 2
-------
ARTICLE II
[Intentionally left blank]........................ 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ADP............... 3
-------------------------------------
(S)3.1 Organization and Standing........................... 3
-------------------------
(S)3.2 Corporate Power and Authority....................... 3
-----------------------------
(S)3.3 Capitalization of ADP............................... 3
---------------------
(a) ADP Stock....................................... 3
---------
(b) Due Authorization and Issuance.................. 4
------------------------------
(c) Stock Ownership................................. 4
---------------
(d) Post-Acquisition/Purchase....................... 4
-------------------------
(e) No Other Commitment............................. 4
-------------------
(f) Compliance with Laws; No Liens.................. 4
------------------------------
(g) Subsidiaries.................................... 4
------------
(S)3.4 Conflicts; Consents and Approvals................... 5
---------------------------------
(S)3.5 Litigation.......................................... 5
----------
(S)3.6 Brokerage and Finder's Fees......................... 5
---------------------------
(S)3.7 Financial Statements................................ 5
--------------------
(S)3.8 Undisclosed Liabilities............................. 6
-----------------------
(S)3.9 Taxes............................................... 6
-----
(S)3.10 Compliance with Law................................. 7
-------------------
(S)3.11 Legal Proceedings, etc.............................. 7
----------------------
(S)3.12 Complete Disclosure; Expiration..................... 8
-------------------------------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PARK SHAREHOLDERS........................ 8
------------------------
(S)4.1 Organization and Standing........................... 8
-------------------------
(S)4.2 Capitalization and Security Holders................. 9
-----------------------------------
(a) Park Shares.................................... 9
-----------
(b) Stock Ownership................................ 9
---------------
(c) Due Authorization and Issuance................. 9
------------------------------
(d) No Other Commitment............................ 9
-------------------
(e) Compliance with Laws; No Liens................. 10
------------------------------
(S)4.3 Subsidiaries........................................ 10
------------
(S)4.4 Business of Park.................................... 10
----------------
(S)4.5 Corporate Power and Authority....................... 10
-----------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(S)4.6 Consents and Approvals.............................. 11
----------------------
(S)4.7 Financial Statements................................ 11
--------------------
(S)4.8 Undisclosed Liabilities............................. 12
-----------------------
(S)4.9 Absence of Certain Changes.......................... 12
--------------------------
(S)4.10 Taxes............................................... 14
-----
(S)4.11 Compliance with Law................................. 15
-------------------
(S)4.12 Proprietary Rights.................................. 16
------------------
(S)4.13 Restrictive Documents or Laws....................... 17
-----------------------------
(S)4.14 Insurance........................................... 18
---------
(S)4.15 Bank Accounts, Depositories; Powers of Attorney..... 18
-----------------------------------------------
(S)4.16 Title to and Condition of Properties................ 18
------------------------------------
(S)4.17 Brokers, Finders.................................... 20
----------------
(S)4.18 Legal Proceedings, etc.............................. 20
----------------------
(S)4.19 ERISA............................................... 20
-----
(S)4.20 Contracts........................................... 23
---------
(S)4.21 Accounts Receivable................................. 24
-------------------
(S)4.22 No Conflict or Default.............................. 25
----------------------
(S)4.23 Books of Account; Records........................... 26
-------------------------
(S)4.24 Officers, Employees and Compensation................ 26
------------------------------------
(S)4.25 Labor Relations..................................... 27
---------------
(S)4.26 Suppliers and Third Party Payors.................... 27
--------------------------------
(S)4.27 Medicare and Medicaid............................... 27
---------------------
(S)4.28 Investment Intent................................... 27
-----------------
(S)4.29 Disciplinary Actions................................ 29
--------------------
(S)4.30 Complete Disclosure................................. 29
-------------------
ARTICLE V
COVENANTS OF THE PARTIES...................... 29
------------------------
(S)5.1 Mutual Covenants.................................... 29
----------------
(a) General........................................ 29
-------
(b) Governmental Matters........................... 29
--------------------
(c) Registration Rights............................ 29
-------------------
(d) Securities Law Compliance...................... 30
-------------------------
(S)5.2 Covenants of Park and the Park Shareholders......... 30
-------------------------------------------
(a) Delivery of Interim Statements................. 30
------------------------------
(b) Conduct of Business............................ 30
----------------
(c) Exclusive Rights............................... 32
----------------
(d) Access to Records and Other Due Diligence...... 33
-----------------------------------------
(e) Disclosures.................................... 33
-----------
(f) Employee Retention............................. 33
------------------
(g) Affiliate Indebtedness......................... 34
----------------
(h) Dividends and Distributions.................... 34
---------------------------
(i) Shareholders Agreements........................ 34
-----------------------
(j) Third Party Consents........................... 34
--------------------
(k) Notices of Certain Events...................... 34
-------------------------
(l) [Intentionally left blank]..................... 35
(m) Noncompetition................................. 35
--------------
(n) Injunctive Relief.............................. 36
-----------------
(o) Escrow Agreement............................... 36
----------------
(p) Subordination Agreement........................ 36
-----------------------
(q) Assignment of Rights to Certain Assets......... 36
--------------------------------------
(S)5.3 Covenants of ADP.................................... 36
----------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
(a) [Intentionally left blank]..................... 36
(b) Election of Director........................... 36
--------------------
(c) ADP Stock Options.............................. 36
-----------------
(d) Notices of Certain Events...................... 37
-------------------------
(e) Access to Records and Other Due Diligence...... 37
-----------------------------------------
(f) Dividends and Distributions.................... 37
---------------------------
(g) Disclosures.................................... 37
-----------
(h) Escrow Agreement............................... 38
----------------
(i) Subordination Agreement........................ 38
-----------------------
ARTICLE VI
CONDITIONS..................... 38
----------
(S)6.1 Mutual Conditions................................... 38
(a) Legal Prohibition.............................. 38
-----------------
(b) Debentures..................................... 38
----------
(c) Service Agreement.............................. 38
-----------------
(d) Governmental Approvals......................... 38
----------------------
(S)6.2 Conditions to Obligations of Park and the Park
----------------------------------------------
Shareholders
------------
(a) Representations and Warranties................. 39
------------------------------
(b) Performance of Agreement....................... 39
------------------------
(c) Certificate.................................... 39
-----------
(d) Opinion of Counsel............................. 39
------------------
(e) Authority...................................... 39
---------
(f) Material Adverse Changes....................... 39
------------------------
(g) Restrictive Conditions......................... 39
----------------------
(h) Defaults....................................... 39
--------
(S)6.3 Conditions to Obligations of ADP.................... 40
--------------------------------
(a) Representations and Warranties................. 40
------------------------------
(b) Performance of Agreement....................... 40
------------------------
(c) Certificate.................................... 40
-----------
(d) Reorganization................................. 40
--------------
(e) Structure of New PA............................ 40
-------------------
(f) Authority...................................... 41
---------
(g) Professional Personnel......................... 41
----------------------
(h) Financial Statements........................... 41
--------------------
(i) Opinion of Counsel............................. 41
------------------
(j) Existing Employment, Independent Contractor,
--------------------------------------------
and Deferred Compensation Agreements........... 41
------------------------------------
(k) Employment and Noncompetition Agreement with
--------------------------------------------
ADP............................................ 41
---
(l) Employment and Noncompetition Agreements of
-------------------------------------------
the New PA..................................... 42
----------
(m) Third Party Consents........................... 42
--------------------
(n) Termination of Options......................... 42
----------------------
(o) Delta Agreements............................... 42
----------------
(p) Restrictive Conditions......................... 42
----------------------
(q) Defaults....................................... 42
--------
(r) Material Adverse Changes....................... 43
------------------------
(s) Books and Records.............................. 43
-----------------
(t) Shareholders' Equity........................... 43
--------------------
(u) Capital Expenditures........................... 44
--------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
(v) Compliance with Laws........................... 44
--------------------
ARTICLE VII
TERMINATION AND AMENDMENT................ 44
-------------------------
(S)7.1 Termination......................................... 44
(a) Termination by Park and the Park
--------------------------------
Shareholders................................... 44
------------
(b) Termination by ADP............................. 44
------------------
(S)7.2 Amendment........................................... 45
---------
(S)7.3 Extension; Waiver................................... 45
-----------------
ARTICLE VIII
INDEMNIFICATION.................... 45
---------------
(S)8.1 Survival of Representations, Warranties and
-------------------------------------------
Agreements.......................................... 45
----------
(S)8.2 Indemnification..................................... 46
---------------
(S)8.3 Limitations on Indemnification...................... 47
------------------------------
(S)8.4 Procedure for Indemnification with Respect to Third
---------------------------------------------------
Party Claims........................................ 47
------------
(S)8.5 Procedure For Indemnification with Respect to Non-
--------------------------------------------------
third Party Claims.................................. 47
------------------
(S)8.6 Right of Setoff..................................... 49
---------------
(S)8.7 Escrow Agreement.................................... 50
----------------
(S)8.8 Liability Limitations............................... 50
---------------------
ARTICLE IX
MISCELLANEOUS................. 50
-------------
(S)9.1 Attorney In Fact.................................... 50
----------------
(S)9.2 Notices............................................. 51
-------
(S)9.3 Non-Waiver.......................................... 52
----------
(S)9.4 Genders and Numbers................................. 53
-------------------
(S)9.5 Headings............................................ 53
--------
(S)9.6 Counterparts........................................ 53
------------
(S)9.7 Entire Agreement.................................... 53
----------------
(S)9.8 No Third Party Beneficiaries........................ 53
----------------------------
(S)9.9 Governing Law....................................... 53
-------------
(S)9.10 Binding Effect; Assignment.......................... 53
--------------------------
(S)9.11 Remedies............................................ 54
--------
(S)9.12 Expenses............................................ 54
--------
(S)9.13 Public Announcements................................ 54
--------------------
(S)9.14 Severability........................................ 54
------------
INDEX OF PARK SCHEDULES.......................................... 59
- -----------------------
INDEX OF EXHIBITS................................................ 60
- -----------------
</TABLE>
iv
<PAGE>
ACQUISITION AND EXCHANGE AGREEMENT
----------------------------------
This Acquisition and Exchange Agreement (this "Agreement") is made
effective November 11, 1996, among American Dental Partners, Inc., a Delaware
corporation ("ADP"), PDHC, Ltd., a Minnesota professional association, dba Park
Dental ("Park"), and the shareholders of Park, as identified on Exhibit A
attached to this Agreement (the "Park Shareholders").
BACKGROUND INFORMATION
----------------------
A. ADP desires to acquire Park (other than its assets and operations
excluded in this Agreement) as part of a transaction (the "Acquisition")
intended to qualify as a tax free exchange under (S)351 of the Internal Revenue
Code of 1986, as amended (the "Code"), subject to the rules of (S)351 of the
Code and the regulations promulgated thereunder applicable to the receipt and
taxability of "boot" (within the meaning of such rules), pursuant to which,
among other things, all of the issued and outstanding Park Shares (defined in
(S)4.2, below) will be transferred to ADP by the Park Shareholders, in exchange
for which the Park Shareholders will receive, in the aggregate, the following:
(i) cash in the amount of $3,300,000 (the "Cash Consideration"), subject to
adjustment under (S)6.3(t); (ii) subordinated promissory notes in the aggregate
original principal amounts of $1,500,000, payable, with interest at the rate of
7% per annum, in seven equal annual installments due on the first seven
anniversaries of the Closing (defined in (S)1.2, below), respectively (the
"Notes"); and (iii) 210,000 shares of common stock, $.01 par value, of ADP ("ADP
Shares"), subject to adjustment under (S)6.3(t).
B. The respective boards of directors of ADP and Park have determined that
the Acquisition and the other transactions described in this Agreement are
desirable and in the best interests of their respective shareholders and have
duly approved and adopted this Agreement.
STATEMENT OF AGREEMENT
----------------------
The parties to this Agreement (the "Parties") hereby acknowledge the above
Background Information and agree as follows:
ARTICLE I
THE ACQUISITION
---------------
(S)1.1 The Acquisition. Upon the terms and subject to the conditions
---------------
described in this Agreement, each Park Shareholder shall, at the Closing,
transfer to ADP all of the issued and outstanding Park Shares owned by that
Shareholder. In exchange for such transfer, each Park Shareholder shall
receive, at the Closing (subject to the Escrow Agreement described in (S)8.7,
below), (i) that number of ADP Shares which is equal to the result obtained
<PAGE>
when the total number of ADP Shares to be issued as a result of the Acquisition
(as adjusted under (S)6.3(t), if applicable) is multiplied by a fraction having
as its numerator that number of Park Shares transferred to ADP by that
Shareholder and having as its denominator the total number of Park Shares issued
and outstanding immediately prior to the Closing (the "Conversion Fraction"),
(ii) a Note in a principal amount equal to the result obtained when $1,500,000
is multiplied by the Conversion Fraction, and (iii) cash in an amount equal to
the result obtained when the total Cash Consideration to be paid as a result of
the Acquisition (as adjusted under (S)6.3(t), if applicable) is multiplied by
the Conversion Fraction. Each Note shall be in the form attached to this
Agreement as Exhibit B and shall be subject to a Subordination Agreement in the
form attached hereto as Exhibit C. For purposes of applying the provisions of
this Article, the number of ADP Shares issuable to each Park Shareholder shall
be rounded to the nearest 1/10, and the principal amount of each Note and the
amount of the Cash Consideration payable to each Park Shareholder shall be
rounded to the nearest cent.
(S)1.2 The Purchase. In connection with the Acquisition, ADP shall,
------------
pursuant to the Series A and Series B Preferred Stock Purchase Agreement dated
January 8, 1996, as amended, February 19, 1996, and May 1, 1996, among ADP and
its current shareholders (the "ADP Shareholders," and collectively with the Park
Shareholders, the "Transferors"), cause the ADP Shareholders to transfer to ADP
cash in an aggregate amount at least equal to $6,200,000 in exchange for shares
of ADP's Series A Convertible Preferred Stock, par value $.01 per share, and
Series B Redeemable Preferred Stock, par value $.01 per share (the "Purchase"),
such that, following the Acquisition and the Purchase, the Transferors will own,
in the aggregate, not less than 80 percent of the total combined voting power of
all classes of capital stock of ADP entitled to vote and at least 80 percent of
the total number of shares of all other classes of capital stock of ADP.
(S)1.3 Closing. The closing of the transactions contemplated by this
-------
Agreement (the "Closing") shall be held at the offices of Fredrikson & Byron,
P.A., 1100 International Centre, 900 Second Avenue South, Minneapolis, Minnesota
55402-3397, commencing at 10:00 a.m. Eastern time on such date (the "Closing
Date") as may be reasonably designated by ADP; provided that the Closing shall
be held not later than 15 business days after satisfaction or waiver of all
conditions set forth in Article VI of this Agreement.
2
<PAGE>
ARTICLE II
[Intentionally left blank]
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ADP
-------------------------------------
In order to induce Park and the Park Shareholders to enter into this
Agreement, ADP hereby represents and warrants to Park and to each of the Park
Shareholders that the statements contained in this Article are true, correct and
complete, except as disclosed in the Schedules specifically referred to in this
Article and delivered by ADP to Park on or prior to the date of this Agreement
(collectively, the "ADP Schedules"):
(S)3.1 Organization and Standing. ADP is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of its state of
incorporation with full corporate power and authority to own, lease, use and
operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted. ADP is duly qualified to do business and
is in good standing in each jurisdiction listed in Schedule 3.1, is not
qualified to do business in any other jurisdiction, and neither the nature of
the business conducted by ADP nor the properties it owns, leases, or operates
requires it to qualify to do business as a foreign corporation in any other
jurisdiction. ADP is not in default in the performance, observation, or
fulfillment of any provision of its certificate of incorporation, bylaws, and
other organizational documents, as applicable, each as amended to date. A true
and complete copy of ADP's certificate of incorporation, bylaws and all
amendments thereto are attached to Schedule 3.1. ADP has no subsidiaries.
(S)3.2 Corporate Power and Authority. ADP has all requisite
-----------------------------
corporate power and authority to enter into this Agreement and to perform its
obligations under this Agreement. This Agreement and the transactions
contemplated by this Agreement have been duly and validly authorized by all
necessary corporate action on the part of ADP. This Agreement has been duly
executed and delivered by ADP and constitutes the legal, valid and binding
obligation of ADP, enforceable against ADP in accordance with its terms. No
other corporate action or proceeding by or in respect of ADP is or was necessary
to authorize this Agreement or the transactions contemplated by this Agreement.
(S)3.3 Capitalization of ADP.
---------------------
(a) ADP Stock. As of the date of this Agreement, ADP's
---------
authorized capital stock ("ADP Stock") consists solely of (a)
1,000,000 shares of common stock, $.01 par value, of which 100,000 are
issued and outstanding ("Common Stock"); (b) 400,000, $.01 par value,
Series A Convertible Preferred Shares
3
<PAGE>
(the "Series A Stock"), of which 51,821 are issued and outstanding
(without adjustment for the Purchase); and (c) 70,000, $.01 par value,
Series B Redeemable Preferred Shares (the "Series B Stock"), of which
9,069 are issued and outstanding (without adjustment for the
Purchase).
(b) Due Authorization and Issuance. Each outstanding share
------------------------------
of ADP Stock is, and all ADP Stock (including the ADP Shares) to be
issued to the Transferors in connection with the Purchase and the
Acquisition will be, duly authorized, validly issued, fully paid and
nonassessable, and have not been and will not be issued in violation of
any preemptive or similar rights.
(c) Stock Ownership. Set forth in Schedule 3.3 is a complete
---------------
and accurate list of the shareholders of ADP and the shares of ADP
owned by each of them.
(d) Post-Acquisition/Purchase. Immediately following the
-------------------------
Acquisition and the Purchase, the ADP Shares and the shares of ADP
Stock owned by the ADP Shareholders shall constitute, in the
aggregate, not less than 80 percent of the total combined voting power
of all classes of ADP Stock entitled to vote and at least 80 percent
of the total number of shares of all other classes of ADP Stock.
(e) No Other Commitment. Except as set forth in Schedule 3.3,
-------------------
there are no outstanding subscriptions, options, warrants, puts,
calls, agreements, understandings, claims or other commitments or
rights of any type relating to the issuance, sale or transfer by ADP
of any shares of ADP Stock, nor are there outstanding any securities
which are convertible into or exchangeable for any ADP Stock and ADP
has no obligation of any kind to issue any additional securities of
ADP, or any predecessor.
(f) Compliance with Laws; No Liens. The issuance of all
------------------------------
shares of ADP Stock has been, and the issuance of the ADP Stock to the
Transferors as contemplated by this agreement will be (subject to
(S)4.28, below), in full compliance with all applicable federal and
state securities laws and other laws. Except as set forth in Schedule
3.3, ADP has not agreed to register any securities under the
Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations thereunder or under any state securities law .
(g) Subsidiaries. ADP has no subsidiaries. In addition, ADP
------------
does not own, directly or indirectly, any equity or other ownership
interest in any corporation, partnership, joint venture, or other
entity or enterprise (hereinafter simply "entity"). ADP is no subject
to any obligation or requirement to provide funds to or make any
investment (in the
4
<PAGE>
form of a loan, capital contribution, or otherwise) in any entity.
(S)3.4 Conflicts; Consents and Approvals. Neither the execution and
---------------------------------
delivery of this Agreement by ADP nor the consummation of the transactions
contemplated in this Agreement will:
(a) Violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with the giving
of notice, the passage of time or otherwise, would constitute a default)
under, or entitle any third party (with the giving of notice, the passage
of time or otherwise) to terminate, accelerate or call a default under, or
result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of ADP under any of the
terms, conditions or provisions of the certificate of incorporation or
bylaws, each as amended to date, of ADP, or any note, bond, mortgage,
indenture, deed of trust, license, contract, undertaking, agreement, lease
or other instrument or obligation to which ADP is a party and which is
material to ADP and its subsidiaries, taken as a whole;
(b) Violate any order, writ, injunction, decree, statute, rule or
regulation, applicable to ADP or its properties or assets; or
(c) Require any action or consent or approval of, or review by, or
registration with any third party, court or governmental body or other
agency, instrumentality or authority, other than such actions as may be
necessary in respect of federal and state securities laws.
(S)3.5 Litigation. There is no suit, claim, action, proceeding or
----------
investigation pending or, to the best knowledge of ADP, threatened against ADP
which, individually or in the aggregate, is reasonably likely to have a material
adverse effect on ADP and its subsidiaries, taken as a whole, or a material
adverse effect on the ability of ADP to consummate the transactions contemplated
in this Agreement. ADP is not subject to any outstanding order, writ,
injunction or decree which, insofar as can be reasonably foreseen, individually
or in the aggregate, would have a material adverse effect on it or a material
adverse effect on the ability of ADP to consummate the transactions contemplated
by this Agreement.
(S)3.6 Brokerage and Finder's Fees. Neither ADP nor any of its
---------------------------
shareholders, directors, officers or employees has incurred, or will incur on
behalf of ADP, any brokerage, finder's or similar fee in connection with the
transactions contemplated by this Agreement.
(S)3.7 Financial Statements. ADP has furnished to Park the following
--------------------
(collectively, the "ADP Financial Statements"): the
5
<PAGE>
balance sheets for ADP as at September 30, 1996, and the related statements of
income and retained earnings and cash flows for the period then ended. The ADP
Financial Statements have been prepared from and are in accordance with the
books and records of ADP and in conformity with generally accepted accounting
principles applied on a consistent basis, were initialed for identification by
the Chief Executive Officer of ADP, and fairly present the financial condition
of ADP as of the dates stated and the results of operations of ADP for the
periods then ended in accordance with such practices.
(S)3.8 Undisclosed Liabilities. Except as disclosed in Schedule 3.8, ADP
-----------------------
does not have any liability or obligation of any nature (whether liquidated,
unliquidated, accrued, absolute, contingent or otherwise and whether due or to
become due) except:
(a) Those set forth in the ADP Financial Statements which have not
been paid or discharged since the date thereof; and
(b) Those incurred in transactions in the ordinary course of ADP's
business since the date of the ADP Financial Statements, including without
limitation the acquisition of dental practices, assets of dental practices,
or other similar transactions unless obligations of ADP with respect to
such acquisitions would be properly included in ADP Financial Statements if
current as of the date of this Agreement, or unless full disclosure of the
terms of any such acquisition is not prohibited by contractual undertakings
by ADP.
(S)3.9 Taxes.
-----
(a) ADP has duly, properly, and timely filed all federal, state,
local and foreign tax returns and tax reports required to be filed by it,
all such returns and reports are true, correct and complete, none of such
returns and reports have been amended, and all taxes, assessments, fees and
other governmental charges due from ADP including without limitation those
arising under such returns and reports, have been fully paid or are fully
accrued as liabilities in the ADP Financial Statements and will be timely
paid. No claim has been made by authorities in any jurisdiction where ADP
did not file tax returns that it is or may be subject to taxation therein.
(b) ADP has delivered to Park copies of all federal, state, local,
and foreign income tax returns filed with respect to ADP as of the date of
this Agreement. Schedule 3.9 sets forth the dates and results of any and
all audits conducted by taxing authorities within the last five years or
otherwise with respect to any tax year for which assessment is not barred
by any applicable statute of limitations. No waivers of any applicable
statute of limitations for the
6
<PAGE>
filing of any tax returns or payment of any taxes or assessments of any
deficient or unpaid taxes are outstanding. Except as set forth in Schedule
3.9, all deficiencies proposed as a result of any audits have been paid or
settled. There are no pending or, to the best of ADP's knowledge,
threatened federal, state, local or foreign tax audits or assessments of
ADP and no agreement with any federal, state, local or foreign taxing
authority that may affect the subsequent tax liabilities of ADP.
(c) ADP is not on the date of this Agreement, nor will it be at the
Closing, liable for taxes, assessments, fees or governmental charges for
which it has not made adequate provision.
(S)3.10 Compliance with Law. Except as set forth in Schedule 3.10, ADP has
-------------------
complied and is in compliance in all material respects with all applicable laws,
statutes, orders, rules, regulations, policies and guidelines promulgated, and
all judgments, decisions and orders entered, by any federal, state, local or
foreign court or governmental authority, agency, or instrumentality relating to
ADP, or its business or properties, including without limitation all zoning,
fire, safety, building, asbestos laws, ordinances, regulations and requirements,
Environmental Laws (defined in (S)4.11), Governmental Reimbursement Laws
(defined in (S)4.27), Title VII of the Civil Rights Act of 1964, as amended, the
Fair Labor Standards Act, as amended, the Occupational Safety and Health Act of
1970, as amended, the Americans with Disabilities Act of 1990, all applicable
federal, state and local laws, rules and regulations relating to employment, and
all applicable laws, rules and regulations governing payment of minimum wages
and overtime rates, and the withholding and payment of taxes from compensation
of employees; federal and state antitrust and trade regulation laws applicable
to competition generally or to agreements restricting, allocating or otherwise
affecting geographic or product markets; and all related laws, ordinances,
regulations and requirements (the "Relevant Laws"). Except as set forth in
Schedule 3.10, ADP has not been charged with or given notice of any violation of
any of the Relevant Laws which violation has not been remedied in full. Except
as set forth on Schedule 3.10, (i) ADP has never disposed of, or contracted for
the disposal of, hazardous wastes, hazardous substances, infectious or medical
waste, radioactive waste or sewage sludge, and (ii) no such wastes, substances,
or sludge generated by ADP have finally come to be located on any site which is
or has been (including as a potential or suspect site) included in any published
federal, state, or local "superfund" or other list of hazardous or toxic waste
sites.
(S)3.11 Legal Proceedings, etc. Except as listed and described in Schedule
-----------------------
3.11, there are no claims, proceedings, suits or investigations pending or
overtly threatened against or relating to
7
<PAGE>
ADP (or any of its officers, directors, or shareholders in connection with the
business or affairs of ADP), by or before any federal, state, local or foreign
court or governmental body, agency, or authority. There are no such claims,
proceedings, suits or investigations pending or, to the best of ADP's knowledge,
threatened for the purpose of enjoining or preventing the consummation of the
Acquisition or any other transaction contemplated by this Agreement or otherwise
challenging the validity or propriety of the transactions contemplated by this
Agreement. Except as disclosed in Schedule 3.11, neither ADP nor any of its
officers or directors is subject to any judgment, order or decree, or any
governmental restriction applicable to ADP, which has a reasonable probability
of resulting in a material adverse change in the business, operations, assets,
properties, prospects, rights or condition (financial or otherwise) of ADP, or
which may materially adversely affect the ability of ADP to conduct its business
as is currently being conducted. Except as listed and described in Schedule
3.11, there are no facts, circumstances, or occurrences, which may give rise to
any claims, proceedings, or suits against Park or any of its officers or
directors.
(S)3.12 Complete Disclosure; Expiration. No representation or warranty by
-------------------------------
ADP in this Agreement or the ADP Schedules contains, or will contain as of the
Closing, any untrue statement of a material fact or omits, or will omit as of
the Closing, a material fact necessary to make the statements contained herein
or therein not misleading.
ADP's obligations with respect to the representations and warranties set
forth in this Article shall expire on the third anniversary of the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PARK SHAREHOLDERS
------------------------
In order to induce ADP to enter into this Agreement, the Park Shareholders
hereby represent and warrant to ADP that the statements contained in this
Article are true, correct and complete, except as disclosed in the Schedules
specifically referred to in this Article and delivered by Park to ADP on or
prior to the date of this Agreement (collectively, the "Park Schedules").
(S)4.1 Organization and Standing. Each of Park and OHC (defined below) is
-------------------------
a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation with full corporate power and authority to
own, lease, use and operate its properties and to conduct its business as and
where now owned, leased, used, operated and conducted. Each of Park and OHC is
duly qualified to do business and is in good standing in each
8
<PAGE>
jurisdiction listed in Schedule 4.1, is not qualified to do business in any
other jurisdiction, and neither the nature of the business conducted by either
of Park or OHC nor the properties either of them owns, leases or operates
requires either of them to qualify to do business as a foreign corporation in
any other jurisdiction. Neither Park nor OHC has received any written notice or
assertion within the last three years from any governmental official in any
jurisdiction to the effect that it is required to be qualified or authorized to
do business in such jurisdiction, in which Park or OHC, as applicable, is not so
qualified or has not obtained such authorization. Neither Park nor OHC is in
default in the performance, observation or fulfillment of any provision of its
certificate or articles of incorporation, bylaws, or other organizational
documents, as applicable, each as amended to date. The term "OHC" shall mean
Park's wholly-owned subsidiary Oral HealthCare Corporation, a Minnesota
corporation.
(S)4.2 Capitalization and Security Holders.
-----------------------------------
(a) Park Shares. The authorized capital stock of Park (the "Park
-----------
Shares") consists solely of 50,000 shares of common stock, par value $1.00
a share, of which 11,784.3 will be issued and outstanding as of the
Closing. The Park Shareholders hold beneficially and of record all of the
outstanding Park Shares. The authorized capital stock of OHC (the "OHC
Shares") consists solely of 100,000 shares of common stock, par value $.01
a share, of which 1,000 are issued and outstanding.
(b) Stock Ownership. Schedule 4.2 sets forth a correct and
---------------
complete list of the names and addresses of, and the number of Park Shares
held beneficially and of record by, the Park Shareholders, respectively.
(c) Due Authorization and Issuance. Each outstanding Park Share
------------------------------
and OHC Share has been duly authorized and validly issued and is fully paid
and non-assessable and has not been issued in violation of any preemptive
or similar rights.
(d) No Other Commitment. Except as set forth in Schedule 4.2,
-------------------
there are no outstanding subscriptions, options, warrants, puts, calls,
agreements, understandings, claims or other commitments or rights of any
type relating to the issuance, sale or transfer by either Park, OHC, or any
Park Shareholder of any Park Shares or OHC Shares, nor are there
outstanding any securities which are convertible into or exchangeable for
any shares of capital stock of Park or OHC and neither OHC nor Park has any
obligation of any kind to issue any additional securities of Park or OHC,
or any predecessor.
9
<PAGE>
(e) Compliance with Laws; No Liens. The issuance, sale, and
------------------------------
transfer of all of the Park Shares and OHC Shares have been in full
compliance with all applicable federal and state securities laws and other
laws, including without limitation such laws, rules, and regulations
concerning the status of shareholders of a professional association. As to
his own Park Shares, each Park Shareholder represents and warrants that,
except as set forth in Schedule 4.2, all of that Park Shareholder's Park
Shares are free and clear of all liens, security interests, encumbrances,
pledges, charges, claims, voting trusts and restrictions on transfer of any
nature whatsoever, except restrictions on transfer imposed by or pursuant
to federal and state securities laws. Except as set forth in Schedule 4.2,
all OHC Shares are free and clear of all liens, security interests,
encumbrances, pledges, charges, claims, voting trusts and restrictions on
transfer of any nature whatsoever, except restrictions on transfer imposed
by or pursuant to federal and state securities laws. Except as set forth in
Schedule 4.2, Park has not agreed to register any securities under the
Securities Act of 1933, as amended (the "Securities Act"), and the rules
and regulations thereunder or under any state securities law.
(S)4.3 Subsidiaries. Set forth on Schedule 4.3 is a correct and complete
------------
list of all subsidiary corporations of Park, the number and class of shares of
capital stock of each such subsidiary, and the percentage of all capital stock
of that subsidiary which is represented by the shares owned by Park. Except as
set forth on Schedule 4.3, Park does not own, directly or indirectly, any equity
or other ownership interest in any corporation, partnership, joint venture or
other entity or enterprise (hereinafter, simply "entity"). Park is not subject
to any obligation or requirement to provide funds to or make any investment (in
the form of a loan, capital contribution or otherwise) in any entity.
(S)4.4 Business of Park. Park is and has been engaged in the business
----------------
of providing dental services to its patients and is engaged in no other business
whatsoever except as may be incidental to the foregoing.
(S)4.5 Corporate Power and Authority. Park has all requisite corporate
-----------------------------
power and authority to enter into and perform this Agreement and to carry out
its obligations under this Agreement. This Agreement and the transactions
contemplated by this Agreement have been duly and validly authorized by the
board of directors and no authorization by the shareholders of Park of such
transactions is necessary. This Agreement has been duly executed and delivered
by Park and constitutes the legal, valid and binding obligation of Park
enforceable against Park in accordance with its terms. No other corporate
action or proceeding by or in respect of Park is or was necessary to authorize
this Agreement or the consummation by
10
<PAGE>
Park of its obligations with respect to the transactions contemplated by this
Agreement.
(S)4.6 Consents and Approvals. Except for the consents described in
----------------------
Schedule 4.6, neither the execution and delivery of this Agreement by Park or
the Park Shareholders nor the consummation of the transactions contemplated by
this Agreement require or will require any action, consent, or approval of, or
review by, or registration with, any third party, court or governmental body or
other agency, instrumentality or authority.
(S)4.7 Financial Statements.
--------------------
(a) Park shall furnish to ADP the following (collectively, the
"Financial Statements"): (i) the balance sheets for Park as at December
31, 1995, and the related statements of income and retained earnings and
cash flows for the fiscal year then ended, including, in each case, the
related notes, all of which shall be prepared, examined and accompanied by
the unqualified audit report of Stirtz Bernards Boyden Surdel & Larter
("Stirtz Bernards"); (ii) the balance sheets for Park as at December 31,
1994, and December 31, 1993, and the related statements of income and
retained earnings and cash flows for the fiscal years then ended,
including, in each case, the related notes, all of which have been reviewed
and accompanied by the review report of Stirtz Bernards; and (iii) the
balance sheets for Brookpark Dental Center, P.A. ("Brookpark"), as at June
30, 1994, and June 30, 1993, and the related statements of income and
retained earnings and cash flows for the fiscal years then ended,
including, in each case, the related notes, all of which have been reviewed
and accompanied by the review report of Stirtz Bernards. The Financial
Statements as at and for the fiscal year ended December 31, 1995, are
sometimes hereinafter referred to separately as the "1995 Financial
Statements". The Financial Statements were prepared from and are in
accordance with the books and records of Park and its predecessors and in
conformity with generally accepted accounting principles applied on a
consistent basis, shall be initialed for identification by the Chief
Executive Officer of Park, and shall fairly present the financial condition
of Park as of the dates stated and the results of operations of Park for
the periods then ended in accordance with such practices.
(b) When delivered in accordance with Section 5.2(a) of this
Agreement, the balance sheet of Park as of the most recent month-end prior
to the Closing Date, and the related statements of income and retained
earnings and cash flows for the period beginning on the first day of Park's
current fiscal year through the most recent month-end prior to the Closing
(collectively, the "Interim Statements"), shall have been prepared in
conformity with generally accepted accounting
11
<PAGE>
principles applied on a basis consistent with that used in the Financial
Statements, and shall fairly present the financial condition of Park as of
such date and the results of operations of Park for such period then ended
in accordance with such practices.
(S)4.8 Undisclosed Liabilities. Except as disclosed in Schedule 4.8,
-----------------------
neither Park nor OHC has any liability or obligation of any nature (whether
liquidated, unliquidated, accrued, absolute, contingent or otherwise and whether
due or to become due) except:
(a) Those set forth in the 1995 Financial Statements which have
not been paid or discharged since the date thereof;
(b) Those arising under agreements or other commitments
specifically identified in Schedule 4.20;
(c) Current liabilities (determined in accordance with generally
accepted accounting principles) incurred since January 1, 1996, in
transactions in the ordinary course of business consistent with past
practices which are properly reflected on its books, and are or will be
properly reflected in the Interim Statements; and
(d) Those arising under and as a result of this Agreement.
(S)4.9 Absence of Certain Changes. Except as set forth in Schedule 4.9,
--------------------------
and except as specifically contemplated by this Agreement to occur prior to the
Closing, since January 1, 1996, there has not been:
(a) Any material adverse change in the business, operations,
assets, properties, prospects, rights or condition (financial or otherwise)
of Park, or any occurrence, circumstance, or combination thereof which
reasonably could be expected to result in any such material adverse change
(a "Material Adverse Effect");
(b) Any declaration, setting aside or payment of any dividend or
any distribution (in cash or in kind) to any shareholder of Park or any
direct or indirect redemption, purchase or other acquisition by Park of any
of its capital stock or any options, warrants, rights or agreements to
purchase or acquire such stock;
(c) Any increase in amounts payable by Park to or for the benefit
of, or committed to be paid by Park to or for the benefit of any
stockholder, director, or officer of Park, or any other consultant, agent
or employee of Park, or any relatives of any such person, or any increase
in any benefits granted under any bonus, stock option, profit-sharing,
12
<PAGE>
pension, retirement, deferred compensation, insurance, or other direct or
indirect benefit plan, payment or arrangement made to, with or for the
benefit of any such person, excepting only reimbursement in the ordinary
course of business, in a manner consistent with past practices, of out-of-
pocket expenses incurred by employees of Park directly in connection with
Park's business;
(d) Any transaction entered into or carried out by Park other than
in the ordinary and usual course of its business;
(e) Any borrowing or agreement to borrow funds by Park, any
incurring by Park of any other obligation or liability (contingent or
otherwise), except current liabilities incurred in the usual and ordinary
course of business (consistent with past practices), or any endorsement,
assumption or guarantee of payment or performance of any loan or obligation
of any other individual, firm, corporation or other entity by Park;
(f) Any material change in Park's method of doing business or any
material change in its accounting principles or practices or its method of
application of such principles or practices;
(g) Any mortgage, pledge, lien, security interest, hypothecation,
charge or other encumbrance imposed or agreed to be imposed on or with
respect to the property or assets of Park;
(h) Any sale, lease or other disposition of, or any agreement to
sell, lease or otherwise dispose of any of the properties or assets of
Park, other than in the usual and ordinary course of business;
(i) Any purchase of or any agreement to purchase assets (other
than inventory purchased in the ordinary course of business consistent with
past practices) for an amount in excess of $10,000 for any one purchase or
$25,000 for all such purchases made by Park or any lease or any agreement
to lease, as lessee, any capital assets with payments over the term thereof
to be made by Park exceeding an aggregate of $10,000;
(j) Any loan or advance made by Park to any individual, firm,
corporation or other entity;
(k) Any modification, waiver, change, amendment, release,
rescission or termination of, or accord and satisfaction with respect to,
any material term, condition or provision of any contract, agreement,
license or other instrument to which Park is a party, other than any
satisfaction by performance in accordance with the terms thereof in the
usual and ordinary course of business;
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(l) Any labor dispute or disturbance adversely affecting the
business operations or condition (financial or otherwise) of Park,
including without limitation the filing of any petition or charge of unfair
labor practice with any governmental or regulatory authority, efforts to
effect a union representation election, actual or threatened employee
strike, work stoppage or slow down; or
(m) Any disciplinary or other similar action, proceeding, or
investigation taken by the Minnesota Board of Dentistry or other
governmental or accrediting board, agency, or authority against or with
respect to Park, any Park Shareholder, or any employee of Park or any of
its affiliates.
(S)4.10 Taxes. Except as set forth on Schedule 4.10:
-----
(a) Each of Park and OHC has duly, properly, and timely filed all
federal, state, local and foreign tax returns and tax reports required to
be filed by it, all such returns and reports are true, correct and
complete, none of such returns and reports have been amended, and all
taxes, assessments, fees and other governmental charges due from Park and
OHC, including without limitation those arising under such returns and
reports, have been fully paid or are fully accrued as liabilities in the
1995 Financial Statements or the Interim Statements and will be timely
paid. No claim has been made by authorities in any jurisdiction where Park
or OHC did not file tax returns that either of them is or may be subject to
taxation therein.
(b) Park has delivered to ADP copies of all federal, state, local,
and foreign income tax returns filed with respect to Park and OHC for
taxable periods ended on or after December 31, 1991. Schedule 4.10 sets
forth the dates and results of any and all audits conducted by taxing
authorities within the last five years or otherwise with respect to any tax
year for which assessment is not barred by any applicable statute of
limitations. No waivers of any applicable statute of limitations for the
filing of any tax returns or payment of any taxes or assessments of any
deficient or unpaid taxes are outstanding. Except as set forth in Schedule
4.10, all deficiencies proposed as a result of any audits have been paid or
settled. There are no pending or, to the best knowledge of Park and the
Park Shareholders, threatened federal, state, local or foreign tax audits
or assessments of Park or OHC and no agreement with any federal, state,
local or foreign taxing authority that may affect the subsequent tax
liabilities of Park or OHC.
(c) Neither Park nor OHC is on the date of this Agreement, nor
will either be at the Closing, liable for taxes, assessments, fees or
governmental charges for which
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Park has not made adequate provision, including setting aside a sufficient
reserve to cover that potential liability in full in the 1995 Financial
Statements or the Interim Statements.
(d) There exists no tax-sharing agreement or arrangement pursuant
to which Park or OHC is obligated to pay the tax liability of any other
person or entity, or to indemnify any other person or entity with respect
to any tax.
(e) Schedule 4.10 includes a list of all states, territories and
jurisdictions to which any tax is properly payable by Park or OHC.
(S)4.11 Compliance with Law. Except as set forth in Schedule 4.11, each of
-------------------
Park and OHC has complied and is in compliance in all material respects, except
where non-compliance would have no adverse effect on the business and assets of
Park or OHC, with all applicable laws, statutes, orders, rules, regulations,
policies and guidelines promulgated, and all judgments, decisions and orders
entered, by any federal, state, local or foreign court or governmental
authority, agency, or instrumentality relating to either Park or OHC, or their
respective business or properties, including without limitation all zoning,
fire, safety, building, asbestos laws, ordinances, regulations and requirements,
Environmental Laws (defined below), Governmental Reimbursement Laws (defined in
(S)4.27), Title VII of the Civil Rights Act of 1964, as amended, the Fair Labor
Standards Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Americans with Disabilities Act of 1990, all applicable federal,
state and local laws, rules and regulations relating to employment, and all
applicable laws, rules and regulations governing payment of minimum wages and
overtime rates, and the withholding and payment of taxes from compensation of
employees; federal and state antitrust and trade regulation laws applicable to
competition generally or to agreements restricting, allocating or otherwise
affecting geographic or product markets; all laws, rules, and regulations
relating to the practice of dentistry and licensing or credentialing of
dentists, endodontists, periodontists, prosthodontists, pediatric dentists,
orthodontists, oral surgeons, certified registered dental assistants,
hygienists, and other dental care professionals involved with the business of
Park (collectively, the "Dental Licensing Laws"); all federal or state laws and
regulations relating to fraud and abuse; and all related laws, ordinances,
regulations and requirements (all of the foregoing, collectively, the
"Applicable Laws"). Schedule 4.11 includes a list of all franchises, licenses,
permits, consents, authorizations, approvals and certificates necessary for Park
to carry on its business as presently conducted (collectively, the "Permits"),
each of which currently is owned by Park and is valid and in full force and
effect. Except as set forth in Schedule 4.11, Park is not in violation of any
of the Permits, and there are no pending or, to the best knowledge of Park and
the Park
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Shareholders, threatened proceedings which could result in the revocation,
cancellation or inability of Park to renew any Permit. Except as set forth in
Schedule 4.11, neither Park nor OHC has been charged with or given notice of any
violation of any of the Applicable Laws which violation has not been remedied in
full (without any remaining liability of Park). Except as set forth on Schedule
4.11, (i) neither Park nor OHC has ever disposed of, or contracted for the
disposal of, hazardous wastes, hazardous substances, infectious or medical
waste, radioactive waste or sewage sludge, and (ii) no such wastes, substances,
or sludge generated by either Park or OHC have finally come to be located on any
site which is or has been (including as a potential or suspect site) included in
any published federal, state, or local "superfund" or other list of hazardous or
toxic waste sites.
For purposes of this Agreement, "Environmental Laws" shall mean all
federal, state, and local environmental laws, statutes, ordinances, and codes
relating to the protection of public health or the environment (including
without limitation any water, water vapor, land, subsurface, air, fish,
wildlife, biota, and other natural resources) and/or governing the use, storage,
treatment, generation, transportation, processing, handling, management,
production, or disposal of solid wastes, medical wastes, toxic substances,
hazardous wastes, hazardous substances, petroleum, petroleum based products,
radio-nuclides, or other radioactive materials and the rules, regulations,
policies, guidelines, interpretations, decisions, orders, and directives of
federal, state, and local government agencies and authorities with respect
thereto.
(S)4.12 Proprietary Rights. Schedule 4.12 sets forth:
------------------
(a) All material names, patents, inventions, customer lists,
proprietary rights, computer software, trademarks, trade names, service
marks, logos, copyrights and franchises and all applications therefor,
registrations thereof and licenses, sublicenses or agreements in respect
thereof which either Park or OHC owns or has the right to use or to which
either Park or OHC is a party; and
(b) All filings, registrations or issuances of any of the
foregoing with or by any federal, state, local or foreign regulatory,
administrative or governmental office or offices (all items in (a) and (b)
of this section, together with the customer lists described below, being
sometimes hereinafter referred to collectively as the "Proprietary
Rights").
Except as set forth in Schedule 4.12, either Park or OHC, is the sole and
exclusive owner of all right, title and interest in and to all Proprietary
Rights free and clear of all liens, claims, charges, equities, rights of use,
encumbrances and restrictions whatsoever, and there is no pending or, to the
best knowledge of
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Park and the Park Shareholders, threatened investigation, proceeding, inquiry or
other review by any federal, state, local or foreign regulatory, administrative
or governmental office or offices with respect to either Park or OHC's right,
title or interest in any Proprietary Right.
Other than those Proprietary Rights listed in Schedule 4.12, no name,
patent, invention, patient list, customer list, proprietary right, computer
software, trademark, trade name, service mark, logo, copyright, franchise,
license, sublicense, or other such right is necessary for the operation of the
business of Park in substantially the same manner as such business is presently
conducted. No business of Park has been or is now being conducted in
contravention of any trademark, copyright or other proprietary right of any
third party.
Except as set forth in Schedule 4.12, none of the Proprietary Rights: has
been hypothecated, sold, assigned or licensed by Park or OHC, or any other
person, corporation, firm or other legal entity; infringe upon or violate the
rights of any person, firm, corporation, or other legal entity; are subject to
challenge, claims of infringement, unfair competition or other claims; or are
being infringed upon or violated by any person, firm, corporation or other legal
entity. Except as set forth in Schedule 4.12: neither Park nor OHC has given,
directly or indirectly, any indemnification against patent, trademark or
copyright infringement as to any equipment, materials, products, services or
supplies which Park uses, licenses or sells; no product, process, method or
operation presently sold, engaged in or employed by Park infringes upon any
rights owned by any other person, firm, corporation or other legal entity; and
there is no pending or, to the best knowledge of Park and the Park Shareholders,
threatened claim or litigation against either Park or OHC contesting the right
of Park to sell, engage in or employ any such product, process, method, or
operation.
Except as set forth in Schedule 4.12, either Park or OHC has exclusive
rights to own, use and license others to use the computer software used by Park
(the "Software"). Schedule 4.12 lists and briefly describes, and Park has
provided to ADP true, correct and complete copies of, all material licenses,
agreements, documents and other materials relating to the Software and to the
rights of Park herein. Except to each other, neither Park nor OHC has licensed
or otherwise authorized any other person to use or make use of all or any part
of the Software, nor granted, assigned or otherwise conveyed any right in or to
the Software.
(S)4.13 Restrictive Documents or Laws. With the exception of the matters
-----------------------------
listed in Schedule 4.13, neither Park nor OHC is a party to or bound under any
mortgage, lien, lease, agreement, contract, instrument, law, order, judgment or
decree, or any similar restriction not of general application which materially
and
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adversely affects, or reasonably could be expected to so affect (a) the
condition of Park (financial or otherwise); (b) the continued operation by ADP
of Park's assets after the Closing on substantially the same basis as such
assets are currently operated; or (c) the consummation of the transactions
contemplated by this Agreement.
(S)4.14 Insurance. Park has been and is insured with respect to its
---------
property and the conduct of its business in such amounts and against such risks
as are sufficient for compliance with Applicable Laws and as are adequate to
protect the properties and businesses of Park in accordance with normal industry
practice. Such insurance is and has been provided by insurers unaffiliated with
Park, which insurers are, to the best of Park's knowledge, financially sound and
reputable. Set forth in Schedule 4.14 is a true, correct and complete list of
all insurance policies and bonds, if any, in force for which Park is named as an
insured party, or for which Park has paid any premiums, and such lists correctly
state the name of the insurer, the name of each insured party, the type and
amount of coverage, deductible amounts, if any, the expiration date and the
premium amount of each such policy or bond. Except as disclosed in Schedule
4.14, all such policies or bonds are currently in full force and effect and no
notice of cancellation or termination has been received by Park with respect to
any such policy or bond. Park will continue all such policies and bonds in full
force and effect through the Closing. All premiums due and payable on such
policies and bonds have been paid. Except as disclosed in Schedule 4.14, Park
is not a co-insurer under any term of any insurance policy.
(S)4.15 Bank Accounts, Depositories; Powers of Attorney. Set forth in
-----------------------------------------------
Schedule 4.15 is a true, correct and complete list of the names and locations of
all banks or other depositories in which either Park or OHC has accounts or safe
deposit boxes, and the names of the persons authorized to draw thereon, borrow
therefrom or have access thereto. Except as set forth in such Schedule 4.15, no
person or entity has a power of attorney from Park or OHC.
(S)4.16 Title to and Condition of Properties. Except as set forth in
------------------------------------
Schedule 4.16 or Schedule 4.20, Park and OHC have good, valid and marketable
title to all of its assets and properties of every kind, nature and description,
tangible or intangible, wherever located, which constitute all of the property
now used in and necessary for the conduct of its business as presently conducted
(including without limitation all property and assets shown or reflected on the
1995 Financial Statements). Except as set forth in Schedule 4.16, all such
properties are owned free and clear of all mortgages, pledges, liens, security
interests, encumbrances and restrictions of any nature whatsoever, including
without limitation (a) rights or claims of parties in possession; (b) easements
or claims of easements; (c) encroachments, overlaps, boundary line or water
drainage disputes or any other matters; (d)
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any lien or right to a lien for services, labor or material furnished; (e)
special tax or other assessments; (f) options to purchase, leases, tenancies, or
land contracts; (g) contracts, covenants, or reservations which restrict the use
of such properties and (h) violations of Environmental Laws and zoning, fire
safety, building, and other laws, ordinances and regulations applicable to such
properties. The current uses of all such properties are in material compliance
with all federal, state, local or other governmental building, zoning, health,
safety, platting, subdivision or other law, ordinance or regulation, or any
applicable private restriction, and such uses are legal conforming uses. Except
as set forth in Schedule 4.16, no financing statement under the Uniform
Commercial Code or similar law naming either Park or OHC as debtor has been
filed in any jurisdiction, and neither Park nor OHC is a party to or bound under
any agreement or legal obligation authorizing any party to file any such
financing statement. Schedule 4.16 contains a complete and accurate legal
description of all of the real property owned or leased by either Park or OHC
(organized by category). Neither Park nor OHC owns or leases any other real
property.
Except as set forth in Schedule 4.16, all real property and structures and
all machinery, equipment, and other tangible personal property owned, leased or
used by Park which are material to the operation of its business, are suitable
for the purpose or purposes for which they are being used (including material
compliance with all laws and regulations relating to such use), and are in good
condition and repair in all material aspects. There are no material structural
defects in the exterior walls or the interior bearing walls, the foundation or
the roof of any building or other such structure owned or used by Park, and the
electrical, plumbing, heating systems, and air conditioning systems of all such
structures are in good operating condition. Neither Park, OHC, nor any Park
Shareholder has caused or permitted, and to the best of their knowledge no other
party has caused or permitted, any hazardous waste or toxic material to be
disposed of or discharged on, leaked from, or otherwise contaminate any real
property owned, leased or used by either Park or OHC. No hazardous waste or
toxic material is stored upon or in any real property owned, leased, or used by
either Park or OHC (including without limitation any underground storage tanks),
except those wastes and toxic materials used by or generated by Park in the
ordinary course of its business. Neither Park nor OHC has not received any
notice of non-compliance or violations or threatened non-compliance or
violations of any applicable Environmental Laws relating to any real property
owned, leased or used by either Park or OHC. The utilities servicing the real
properties owned or used by Park are adequate to permit the continued operation
of the business of Park, and there are no pending or, to the best knowledge of
Park and the Park Shareholders, threatened zoning, condemnation or eminent
domain proceedings, building, utility or other moratoria, or injunctions
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or court orders which would materially affect such continued operation.
(S)4.17 Brokers, Finders. The transactions contemplated by this Agreement
----------------
were not submitted to either Park or the Park Shareholders by any broker or
other person entitled to a commission, finder's fee or like payment thereon, and
were not, with the consent of either Park or the Park Shareholders, submitted to
ADP by any broker or other person, and none of the actions of either Park or the
Park Shareholders has given rise to any claim by any person for a commission,
finder's fee or like payment against any of the Parties.
(S)4.18 Legal Proceedings, etc. Except as listed and described in Schedule
-----------------------
4.18, there are no (and over the last five years there have been no) claims,
proceedings, suits or investigations pending or overtly threatened against or
relating to Park (or any of its officers, directors, shareholders, or
subsidiaries in connection with the business or affairs of Park), by or before
any federal, state, local or foreign court or governmental body, agency, or
authority. There are no such claims, proceedings, suits or investigations
pending or, to the best knowledge of Park and the Park Shareholders, threatened
for the purpose of enjoining or preventing the consummation of the Acquisition
or any other transaction contemplated by this Agreement or otherwise challenging
the validity or propriety of the transactions contemplated by this Agreement.
Except as disclosed in Schedule 4.18, neither Park nor any of its officers,
directors, shareholders, or subsidiaries is subject to any judgment, order or
decree, or any governmental restriction applicable to Park, which has a
reasonable probability of having a Material Adverse Effect on Park or on its
ability to conduct its business as contemplated by this Agreement to be
conducted after the Closing. Except as listed and described in Schedule 4.18,
there are no facts, circumstances, or occurrences, which may give rise to any
claims, proceedings, or suits against Park, OHC, or, with respect to and in
their capacities as such, against any of its officers, directors, or
shareholders.
(S)4.19 ERISA.
-----
(a) Schedule 4.19 identifies each "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA") which (i) is subject to any provision of ERISA and (ii) is or was at
any time during the last five years maintained, administered or contributed to
by Park or any affiliate (as defined below) and covers any employee or former
employee of Park or any affiliate or under which Park or any affiliate has any
liability. Copies of such plans (and, if applicable, related trust agreements)
and all amendments thereto and summary plan descriptions or written
interpretations thereof have been furnished to ADP together with the three most
recent annual reports (Form 5500) prepared in connection with any such
20
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plan. Such plans are referred to collectively herein as the "Employee Plans."
For purposes of this section, "affiliate" of any person or entity means any
other person or entity which, together with such person or entity, would be
treated as a single employer under Section 414 of the Code or is an "affiliate,"
whether or not incorporated, as defined in Section 407(d)(7) of ERISA of such
person or entity. The only Employee Plans which individually or collectively
would constitute an "employee pension benefit plan" as defined in Section 3(2)
of ERISA (the "Pension Plans") are identified as on Schedule 4.19.
(b) No Employee Plan constitutes a "multiemployer plan," as defined in
Section 3(37) of ERISA, or a "defined benefit plan," as defined in Section 3(35)
and subject to Title IV of ERISA, and no Employee Plan is maintained in
connection with any trust described in Section 501(c)(9) of the Code. No
"accumulated funding deficiency," as defined in Section 412 of the Code, has
been incurred with respect to any Pension Plan, whether or not waived. Full
payment has been made of all amounts which Park or any affiliate is required to
have paid as contributions to or benefits under any Employee Plan as of the end
of the most recent fiscal year thereof and there are no unfunded obligations
under any Employee Plan that have not been disclosed to ADP in writing prior to
the Closing. Neither Park nor any of the Park Shareholders know of any
"reportable event," within the meaning of Section 4043 of ERISA, and no event
described in Section 4041, 4042, 4062 or 4063 of ERISA has occurred in
connection with any Employee Plan. No condition exists and no event has
occurred that could constitute grounds for termination of any Pension Plan, and
neither Park nor any of its affiliates has incurred any material liability under
Title IV of ERISA arising in connection with the termination of, or complete or
partial withdrawal from, any plan covered or previously covered by Title IV of
ERISA. Nothing done or omitted to be done and no transaction or holding of any
asset under or in connection with any Employee Plan has or will make either Park
or any officer or director of Park, subject to any liability under Title I of
ERISA or liable for any tax pursuant to Section 4975 of the Code. There is no
pending or, to the best knowledge of Park and the Park Shareholders, threatened
litigation, arbitration, disputed claim, adjudication, audit, examination or
other proceeding with respect to any Employee Plan or any fiduciary or
administrator thereof in their capacities as such.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. Park has furnished to ADP copies of
the most recent Internal Revenue Service determination letters with respect to
each such Employee Plan. Each Employee Plan has been maintained, from the time
of such Plan's inception up to and including the performance of any or all
transactions contemplated
21
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in this Agreement, in material compliance with its terms and the requirements
and fiduciary standards prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such Employee Plan.
(d) Except as set forth in Schedule 4.19, there is no contract,
agreement, plan or arrangement covering any employee or former employee of Park
or any affiliate that, individually or collectively, could give rise to the
payment of any amount that would not be deductible pursuant to the terms of the
Code.
(e) Schedule 4.19 identifies each employment, severance or other
similar contract, arrangement or policy and each plan or arrangement (written or
oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits or for deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits which (i) is not an Employee Plan, (ii) is entered into, maintained
or contributed to, as the case may be, by Park or any of its affiliates, and
(iii) covers any employee or former employee of Park or any of its affiliates.
Such contracts, plans and arrangements as are described above, copies or
descriptions of all of which have been furnished previously to ADP, are referred
to collectively herein as the "Benefit Arrangements." Each Benefit Arrangement
has been maintained in substantial compliance with its terms and with
requirements prescribed by any and all statutes, orders, rules and regulations
that are applicable to such Benefit Arrangement.
(f) Except as set forth in Schedule 4.19, there is no liability in
respect of post-retirement health and medical benefits for retired employees of
Park or any of its affiliates, determined using assumptions that are reasonable
in the aggregate, over the fair market value of any fund, reserve or other
assets segregated for the purpose of satisfying such liability (including for
such purposes any fund established pursuant to Section 401(h) of the Code).
Park has reserved its right to amend or terminate any Employee Plan or Benefit
Arrangement providing health or medical benefits in respect of any active
employee of Park under the terms of any such plan and descriptions thereof given
to employees. With respect to any of Park's Employee Plans which are "group
health plans" under Section 4980B of the Code and Section 607(1) of ERISA, there
has been timely compliance in all material respects with all requirements
imposed thereunder so that Park and its affiliates have no (and will not incur
any) loss, assessment, tax penalty, or other sanction with respect to any such
plan.
22
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(g) Except as set forth in Schedule 4.19, there has been no amendment
to, written interpretation or announcement (whether or not written) by Park or
any of its affiliates relating to, or change in employee participation (except
as a result of new employee participants added in the ordinary course of Park's
business) or coverage under, any Employee Plan or Benefit Arrangement which
would increase the expense of maintaining such Employee Plan or Benefit
Arrangement above the level of the expense incurred in respect thereof for the
fiscal year ended immediately prior to the Closing.
(h) Except as set forth in Schedule 4.19, Park is not a party or
subject to any union contract or any employment contract or arrangement
providing for annual future compensation to any officer, consultant, director or
employee.
(i) The execution and consummation of the transactions contemplated by
this agreement will not constitute a triggering event under any Employee Plan,
whether or not legally enforceable, which (either alone or upon the occurrence
of any additional or subsequent event) will or may result in any payment (of
severance pay or otherwise), acceleration, increase in vesting, or increase in
benefits to any current or former participant, employee or director of Park that
has not been specifically disclosed on Schedule 4.19 or which is not material to
the financial condition or business of Park.
(j) Any reference to ERISA or the Code or any section thereof shall be
construed to include all amendments thereto and applicable regulations and
administrative rulings issued thereunder.
(S)4.20 Contracts. Schedule 4.20 lists and briefly describes all
---------
contracts, purchase orders, agreements, leases, executory commitments,
arrangements and understandings (written or oral) to which either Park or OHC is
a party (a) which, including all amendments and supplements thereto, are
material to the condition, operations, assets or business of Park, (b) which (i)
involve payments or commitments in excess of $30,000 for any purchase order or
$30,000 for any other contract, agreement, lease, commitment, arrangement, or
understanding, or (ii) extend beyond one year (or both), unless cancelable on 60
or fewer days' notice without any liability, penalty or premium, (c) with any
present or former stockholder, director or officer of Park, or any person
related by blood or marriage to any such person or any person or entity
controlling, controlled by or under common control with any such person, or with
any employee, agent or consultant of Park not terminable at will, (d) which
provide for a discount from Park's standard fee schedules, (e) which provide for
the future purchase by Park of any materials, equipment, services or supplies,
which continue for a period of more than 12 months (including periods covered by
any option to renew by either party) or which provide
23
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for a price materially in excess of current market prices or in excess of normal
operating requirements over its remaining term, or (f) which involve any of the
following: (i) any borrowings or guarantees; (ii) any contracts containing
covenants purporting to limit the freedom of Park to compete in any line of
business or provide any of their services in any geographic area; (iii) any
obligation or commitment which limits the freedom of Park to sell, lease,
license or otherwise provide its services; (iv) any contract or agreement the
performance of which Park or any Park Shareholder knows or has reason to know is
reasonably expected to result in a material loss to Park (it being understood
that pricing mechanisms in third party payor contracts identified in the Park
Schedules shall not be deemed to cause such a material loss); or (v) any
obligation or commitment providing for indemnification or responsibility for the
obligations or losses of any person. All of such contracts, agreements, leases,
commitments, and other arrangements and understandings are valid and binding, in
full force and effect and enforceable in accordance with their respective
provisions. Neither Park nor OHC, as applicable, is in violation of nor in
default in respect of nor has there occurred an event or condition which, with
the passage of time or giving of notice (or both) would constitute a default by
Park of any such contract, agreement, lease, commitment, arrangement or
understanding.
Except as set forth in Schedule 4.20, Park has not received any notice from
any third party payor, patient, or supplier to the effect that such third party
payor, patient, or supplier will terminate its relationship or unilaterally
modify any terms of that relationship, where applicable, with Park as a result
of any transaction contemplated by this Agreement or otherwise.
Attached to Schedule 4.20 is a correct and complete copy of the fee
schedule which is currently in effect under each agreement with a third party
payor to which Park is a party.
Schedule 4.20 sets forth an accurate and complete list of the 10 largest
third party payors, as of the date of this agreement, in terms of revenue
generation for Park who currently contract with Park for the performance of, and
reimbursement for, dental services (the "Payor List"). Park has provided ADP
with a list of all individuals enrolled as patients with Park as at December 31,
1995, and September 30, 1996, pursuant to any such contract. Not less than five
days prior to the Closing, Park shall provide to ADP an accurate and complete
certified Payor List to the extent such list has changed since September 30,
1996.
Also attached to Schedule 4.20 is a correct and complete list of all
dentists employed or retained by Park.
(S)4.21 Accounts Receivable. Park has delivered to ADP a correct and
-------------------
complete schedule of its accounts receivable and notes
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receivable as at September 30, 1996. Except as set forth in Schedule 4.21, all
accounts and notes receivable of Park as of such date, and any accounts and
notes receivable arising between such date and the Closing are or will be
collectible in full (after application of a reserve in the amount of $737,384),
and are or will be valid and subsisting and represent or will represent sales
actually made or services actually provided in the ordinary and usual course of
business consistent with past practices.
Since December 31, 1995, there have been no accounts receivable of Park
converted to notes receivable or otherwise extended, except as listed in
Schedule 4.21, and from the date of this Agreement through the Closing, no
accounts receivable of Park will be converted to notes receivable, written off
or otherwise extended without the prior written consent of ADP.
Schedule 4.21 includes a list of all amounts payable to Park by any
Affiliate of Park (the "Related Party Receivables") and all amounts payable by
Park to any Affiliate of Park (the "Related Party Payables") as of December 31,
1995, specifying the payor, payee, and amount of each Related Party Receivable
and Related Party Payable. For purposes of this Agreement, other than for
(S)4.19, above, an "Affiliate" of Park shall mean any shareholder, director,
officer, employee, representative, or other agent of Park, any person related by
blood or marriage to any such person, or any person or entity, which, directly
or indirectly, controls, is controlled by, or is under common control with Park
or any such other person or entity.
(S)4.22 No Conflict or Default. Except for the consents described in
----------------------
Schedule 4.22, neither the execution and delivery of this Agreement by Park and
the Park Shareholders, nor compliance by Park and the Park Shareholders with the
terms and provisions of this Agreement, including without limitation the
consummation of the transactions contemplated by this Agreement, will violate in
any material manner any Applicable Laws or Permits or conflict with or result in
the breach of any term, condition or provision of the articles or certificate of
incorporation or bylaws of either Park or OHC or of any agreement, deed,
contract, undertaking, mortgage, indenture, writ, order, decree, restriction,
legal obligation or instrument to which either Park or OHC is a party or by
which either Park or OHC or any of their respective assets or properties are or
may be bound or affected, or constitute a default (or an event which, with the
giving of notice, the passage of time, or otherwise, would constitute a default)
thereunder, or result in the creation or imposition of any lien, security
interest, charge or encumbrance, or restriction of any nature whatsoever with
respect to any properties or assets of Park or OHC, or give to others any
interest or rights, including rights of termination, acceleration or
cancellation in or with respect to any of the properties, assets, contracts or
business of Park and OHC.
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(S)4.23 Books of Account; Records. Each of Park and OHC's general ledgers,
-------------------------
stock record books, minute books and other corporate records relating to the
material assets, properties, contracts and outstanding legal obligations of Park
and OHC are, in all material respects, complete and correct, and have been
maintained in accordance with good business practices, and the matters contained
therein are accurately reflected in the 1995 Financial Statements and the
Interim Statements.
(S)4.24 Officers, Employees and Compensation. Schedule 4.24 sets forth the
------------------------------------
names of all directors and officers of Park and OHC, their respective terms of
office, the total salary, bonus, fringe benefits and perquisites each received
in the fiscal year ended December 31, 1995, and any changes to the foregoing
which have occurred subsequent to December 31, 1995; Schedule 4.24 also lists
and describes the current compensation of any other employee of Park whose total
current salary and bonus exceeds $35,000 annually and any consultant, advisor,
or independent contractor whose compensation exceeds $5,000 annually. No
changes will be made by Park in the amount or kind of any compensation being
paid or provided to any individual listed in Schedule 4.24 from the amounts and
kinds of compensation described therein prior to the Closing without ADP's prior
written consent. Except as disclosed in Schedule 4.24, there are no other forms
of compensation paid to any such director, officer or employee of Park. Except
as disclosed in Schedule 4.24, the provisions for wages and salaries accrued in
the 1995 Financial Statements are, and such provisions accrued on the Interim
Statements will be, adequate for wages and salaries and other compensation to
its employees, including without limitation vacation pay, sick pay, accrued
compensation to any dentist, and all commissions and other fees payable to
agents, salesmen and representatives of Park. Except as set forth in Schedule
4.24, Park has not become obligated, directly or indirectly, to any stockholder,
director or officer of Park or any person related to such person by blood or
marriage, except for current liability for such compensation. Except as set
forth in Schedule 4.24, no stockholder, director, officer, or key employee of
Park or any person related to such person by blood or marriage holds any
position or office with or has any material financial interest, direct or
indirect, in any supplier or other outside business which has material
transactions with Park where the terms of such transactions are not on
reasonable arm's length commercial terms. Park has no agreement or
understanding with any of its stockholders, directors, officers, employees or
representatives which would influence any such person not to become associated
with ADP from and after the Closing or from serving Park after the Closing in a
capacity similar to the capacity presently held. Except as set forth in
Schedule 4.24, no employee of Park, to the best knowledge of Park and the Park
Shareholders, has a present intention to leave the employ of Park or has taken
any action indicative of leaving the employ of Park.
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(S)4.25 Labor Relations. Park has complied in all respects with all
---------------
applicable federal, state and local laws, rules, and regulations relating to
employment, and all applicable laws, rules and regulations governing payment of
minimum wages and overtime rates, and the withholding and payment of taxes from
compensation of employees and the payment of premiums and benefits under
applicable worker compensation laws. Except as set forth in Schedule 4.25, no
employees of Park are represented by any labor union or covered under any
collective bargaining agreement, and there is no unfair labor practice complaint
against Park pending before the National Labor Relations Board. There is no
labor strike, dispute, slowdown or stoppage, or any union organizing campaign,
actually pending or, to the best knowledge of Park and the Park Shareholders,
threatened against or involving Park. No labor grievance has been filed with
Park and no arbitration proceeding, which has had or may have such an effect has
arisen out of or under a collective bargaining or other labor agreement and is
pending and no claim therefor has been asserted. No collective bargaining or
other labor agreement is currently being negotiated by Park and no union or
collective bargaining unit represents Park's employees. Park has not
experienced any work stoppage or other material labor difficulty during the past
five years.
(S)4.26 Suppliers and Third Party Payors. Except as set forth in Schedule
--------------------------------
4.26, no supplier of products or services to Park has indicated that it shall
stop, or decrease the rate of, or substantially increase its fees for, supplying
products or services to Park either prior to, or following the consummation of,
the Acquisition. Schedule 4.26 sets forth (a) a list of all third party payors
who have terminated their relationships with Park since January 1, 1996, or have
notified Park or any Park Shareholder since January 1, 1996, that they intend to
terminate their relationships with Park, and (b) the gross receipts received
from such third party payors for the 12-month period ending on December 31,
1995. Except as set forth in Schedule 4.26, Park and the Park Shareholders do
not know of any third party payor that alone or in the aggregate comprises more
than 1% of fiscal 1995 actual revenues of Park as shown in the 1995 Financial
Statements that has indicated that it is considering or plans to discontinue
using Park as its provider of dental services as a result of the Acquisition or
otherwise.
(S)4.27 Medicare and Medicaid. Neither Park nor any Park Shareholder nor
---------------------
any employee or other agent of Park has violated, in any material respect, any
law, statute, rule, regulation, or order under or relating to Medicare,
Medicaid, or any other governmental health care reimbursement program, including
without limitation those relating to fraud and abuse (the "Governmental
Reimbursement Laws").
(S)4.28 Investment Intent. Each Park Shareholder: (a) has received and
-----------------
reviewed copies of the documents identified in the attached Exhibit D; (b) is a
resident of the State of Minnesota;
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(c) is either (i) an "accredited investor," as that term is defined in
Regulation D promulgated under the Securities Act, or (ii) by reason of his
business and financial experience, and the business and financial experience of
those persons advising him with respect to his investment in the ADP Shares and
the Notes, he, together with such advisors, has such knowledge, sophistication,
and experience in business and financial matters so as to be able to evaluate
the merits and risks of his prospective investment in the ADP Shares and the
Notes; (d) to his satisfaction, has been provided the opportunity to ask
questions and receive answers from ADP concerning the terms and conditions of
the ADP Shares and the Notes to be received in the Acquisition, has had all such
questions answered, and has been supplied all additional information deemed
necessary by him to verify the accuracy of all information provided; (e) is
acquiring the ADP Shares and the Notes to be acquired by him for his own account
for investment purposes only and without any view towards resale or other
distribution; (f) except for the representations, warranties, and disclosures of
ADP expressly set forth in Article III of this Agreement and Exhibit D hereof,
no representations, warranties, or disclosures have been made to him by or on
behalf of ADP in connection with this transaction, and in making his investment
in the ADP Shares, he is relying on such representations, warranties, and
disclosures and on the results of his own independent investigation; (g)
understands that an investment in the ADP Shares and the Notes is a speculative
investment and can bear the economic risks of his investment in the ADP Shares
and the Notes, can afford a complete loss of such investment, and is not relying
upon any representation or warranty made by ADP, or any officer, director,
shareholder, employee, agent, or representative of ADP regarding the value of
the ADP Shares and the Notes; (h) understands that the issuance of the ADP
Shares and the Notes as a result of this Agreement is intended to be exempt from
registration under the Securities Act and applicable state law and that the ADP
Shares and the Notes are not and will not be registered under the Securities
Act, the Securities Exchange Act of 1934, or any state securities laws, and that
there will be no public market for the ADP Shares and the Notes; (i) agrees that
any certificates evidencing the ADP Shares acquired by him shall contain a
legend to the effect that such shares have not been registered under the
Securities Act or any state securities laws and may not be sold without
registration as required by the Securities Act and applicable state securities
laws or exemptions therefrom, and in the case of such an exemption, requiring
delivery to ADP of a legal opinion of or satisfactory to its legal counsel that
such exemption is applicable; (j) agrees that ADP can issue stop transfer
instructions to its transfer agent prohibiting transfer of the ADP Shares to be
acquired by him except in compliance with the provisions of the Securities Act,
applicable state securities laws, this Agreement, and the Shareholders Agreement
(defined in (S)5.2(i), below); and (k) understands that the ADP Shares will be
subject to additional transfer, voting, and other restrictions pursuant to the
Shareholders Agreement.
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(S)4.29 Disciplinary Actions. Except as set forth in Schedule 4.29, during
--------------------
the three year period ending on December 31, 1995, there have been no
disciplinary or other similar actions, proceedings, or investigations taken by
the Minnesota Board of Dentistry or other governmental or accrediting board,
agency, or authority against or with respect to Park, any Park Shareholder, or
any employee of Park or any of its affiliates.
(S)4.30 Complete Disclosure. No representation or warranty by either Park
-------------------
or the Park Shareholders in this Agreement or the Park Schedules contains, or
will contain as of the Closing, any untrue statement of a material fact or
omits, or will omit as of the Closing, a material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE V
COVENANTS OF THE PARTIES
------------------------
(S)5.1 Mutual Covenants.
----------------
(a) General. Each Party shall use all reasonable efforts to take
-------
all actions and do all things necessary, proper or advisable to consummate
the Acquisition and the other transactions contemplated by this Agreement,
including without limitation using all reasonable efforts to cause the
conditions set forth in this Article for which such Party is responsible to
be satisfied as soon as reasonably practicable and to prepare, execute,
acknowledge or verify, deliver, and file such additional documents, and
take or cause to be taken such additional actions, as any other Party may
reasonably request.
(b) Governmental Matters. Each Party shall use all reasonable
--------------------
efforts to take any action that may be necessary, proper or advisable in
connection with any notices to, filings with, and authorizations, consents
and approvals of any court, administrative agency or commission, or other
governmental authority or instrumentality that it may be required to give,
make or obtain.
(c) Registration Rights. At the Closing, ADP and each Park
-------------------
Shareholder shall execute the Registration Rights Agreement in the form
attached as Exhibit E-1 (the "Registration Rights Agreement"). During the
12-month period following the Closing, ADP shall not grant registration
rights with respect to Common Stock issued in connection with the
acquisition of any other business by the Company ("Acquisition Shares")
which are more favorable than those applicable to the ADP Shares pursuant
to the Registration Rights Agreement unless it gives substantially similar
registration rights to the Park Shareholders; provided that in order to
receive such more favorable registration rights, the Company may require
29
<PAGE>
the Park Shareholders to make the ADP Shares subject to any more
restrictive transfer restrictions or similar provisions to which the
holders of Acquisition Shares may agree.
(d) Securities Law Compliance. ADP shall have the right to revise
-------------------------
and update the attached Exhibit D and the disclosure documents described in
that Exhibit prior to the Closing in such manner as ADP deems necessary to
comply with any federal or state securities laws. In the event of such
revision and update, the Park Shareholders shall have the right to delay
the Closing for a reasonable amount of time so as to permit the analysis of
such revisions and updates by the Park Shareholders.
(S)5.2 Covenants of Park and the Park Shareholders. Park and each Park
-------------------------------------------
Shareholder agrees that:
(a) Delivery of Interim Statements. Park shall cause the Interim
------------------------------
Statements to be delivered to ADP as soon as is reasonably practicable.
(b) Conduct of Business. Except as otherwise expressly
-------------------
contemplated by this Agreement, from the date of this Agreement until the
Closing (the "Pre-Closing Period"): (i) neither Park nor any of the Park
Shareholders shall take or permit to be taken any action or do or permit to
be done anything in the conduct of the business of Park, or otherwise, that
would be contrary to or in breach of any of the provisions of this
Agreement or which would cause any of their representations and warranties
contained in this Agreement to be or become untrue in any material respect;
(ii) Park shall conduct its business in the ordinary course consistent with
to its past practices; and (iii) Park and the Park Shareholders shall use
all reasonable efforts to preserve Park's business organizations intact,
keep available to Park and ADP the present services of Park's
nonprofessional employees, keep available for the New PA (defined in
(S)6.3(e), below) the services of Park's professional employees, and
preserve for Park and ADP the goodwill and all agreements with third
parties with whom business relationships exist. Without limiting the
generality of the foregoing, during the Pre-Closing Period, except as
otherwise expressly contemplated by this Agreement or with the prior
written consent of ADP, Park shall not:
(i) Adopt or propose any change in its articles or
certificate of incorporation or bylaws; adjust, split, combine, or
reclassify any of its capital stock; or make any other changes in
its authorized capital stock;
(ii) Other than the redemption by Park of 788 Park Shares from
Dr. Brian Murn pursuant to the Stock Purchase Agreement dated
October 15, 1996, for an aggregate
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<PAGE>
remaining redemption price of $447,350, and completion of
redemption payments in the aggregate outstanding amounts of $89,647
and $33,721 to Drs. Johnson and Lyng, respectively, pursuant to a
Stock Purchase Agreement dated October 9, 1993, with Brookpark, and
a Stock Purchase Agreement dated June 18, 1993, with Brookpark,
respectively, redeem, purchase, or otherwise acquire any shares of
its capital stock; grant any person or entity any right to acquire
any shares of its capital stock; issue, deliver, sell, or agree to
issue, deliver, or sell, any additional shares of its capital stock
or any other securities other than issuances of the capital stock
of Park upon the exercise of any currently outstanding options to
acquire such shares set forth in Schedule 4.2 or in order to
satisfy certain anti-dilution rights of Delta (defined in
(S)6.3(o)) described in Schedule 4.2; or enter into any agreement
or arrangement with respect to the sale or voting of its shares of
capital stock;
(iii) Merge or consolidate with any other person or entity or
acquire a material amount of assets of any other person or entity;
(iv) Sell, lease, license, pledge, encumber, or otherwise
dispose of any assets or property other than in the ordinary course
of business consistent with past practices;
(v) Incur, create, assume, or otherwise become liable for any
indebtedness other than indebtedness incurred in the ordinary
course of business consistent with past practices (but subject in
any event to (S)5.2(g) of this Agreement);
(vi) Enter into or modify any employment, severance,
termination, or similar agreement or arrangement with, or grant any
bonuses, salary increases, severance or termination pay to, any
officer, director, consultant, or employee;
(vii) Adopt, amend or terminate any employee benefit plan,
except in accordance with (S)4.19, above, or increase, amend, or
terminate any benefits to officers, directors, consultants, or
employees;
(viii) Modify in any material way or terminate any of the
contracts listed or required to be listed in Schedule 4.20 except
in the ordinary course of business consistent with past practices;
(ix) Settle any claims, litigation, or actions, whether now
pending or hereafter made or brought, unless
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such settlement does not and could not have a Material Adverse
Effect on Park;
(x) Engage in any transaction, or enter into any agreement,
contract, lease, or other arrangement or understanding, with any
Affiliate of Park, except for any transactions agreed to in writing
by ADP; or
(xi) Agree or commit to do any of the foregoing.
Notwithstanding the foregoing, but subject to (S)(S)6.3(t) and (u),
during the period beginning on the date of this Agreement and ending
on the Closing Date (the "Pre-Closing Period"), Park: (i) may pay to
its employees, consultants, or professional advisors cash in an
aggregate amount of not more than $2,000,000 (the "Special Payments"),
provided that the limitation on Special Payments shall not apply to
such reasonable legal and accounting fees as may be incurred by Park
in connection with the Acquisition and transaction contemplated in
connection therewith (subject to (S)9.12, below) or in the ordinary
course of its business, and provided further that Park shall use
reasonable efforts to make all Special Payments deductible for
purposes of calculating Park's federal corporate income tax; and (ii)
shall terminate, convert, or otherwise satisfy outstanding debentures,
options to acquire debentures, and all related deferred compensation
agreements of Park, on terms satisfactory to ADP and Park.
(c) Exclusive Rights. Neither Park nor any of the Park
----------------
Shareholders, nor any of their respective Affiliates or
representatives shall, directly or indirectly, solicit (including
without limitation by way of furnishing or making available any non-
public information concerning the business, properties or assets of
Park) or engage in negotiations or discussions with, disclose any of
the terms of this Agreement to, accept any offer from, furnish any
information to, or otherwise cooperate, assist or participate with any
person or organization (other than ADP and its representatives)
regarding any Acquisition Proposal (defined below), except that any
person or entity making an Acquisition Proposal may be informed of the
restrictions contained in this sentence. Park and the Park
Shareholders shall notify ADP promptly by telephone, and thereafter
promptly confirm in writing, if any such information is requested
from, or any Acquisition Proposal is received by, Park or any of the
Park Shareholders. For purposes of this Agreement, "Acquisition
Proposal" shall mean any offer or proposal received by any of the Park
Shareholders or Park prior to the Closing regarding the acquisition by
purchase, acquisition, lease, or otherwise of any capital stock of
Park, any of the business of Park, or any material assets, customer
relationships or other operations of Park.
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(d) Access to Records and Other Due Diligence. During the Pre-Closing
-----------------------------------------
Period, Park shall: (i) make or cause to be made available to ADP and its
representatives, attorneys, accountants and agents, for examination,
inspection, and review, the assets and property of Park and all books,
contracts, agreements, commitments, records and documents of every kind
relating to Park's business, and shall permit ADP and its representatives,
attorneys, accountants and agents to have access to the same at all
reasonable times, including without limitation access to all tax returns
filed and in preparation and all audit and other work papers of Stirtz
Bernards and all reports to management and related responses; (ii) permit
representatives of ADP to interview suppliers and personnel of Park; and
(iii) permit representatives of ADP to observe and review in all aspects of
the preparation of the Interim Statements.
(e) Disclosures. After the date of this Agreement, neither Park nor
-----------
any of the Park Shareholders shall: (i) disclose to any person,
association, firm, corporation or other entity (other than ADP or those
designated in writing by ADP) in any manner, directly or indirectly, any
proprietary information or data relevant to the business of Park, whether
of a technical or commercial nature, or (ii) use, or permit or assist, by
acquiescence or otherwise, any person, association, firm, corporation or
other entity (other than ADP or those designated in writing by ADP) to use,
in any manner, directly or indirectly, any such information or data,
excepting only (A) use of such data or information as is at the time (1)
generally known to the public and which did not become generally known
through any breach of any provision of this section by Park or any Park
Shareholder or (2) obtained from another source without breach of this
Agreement or any other confidentiality agreement, (B) disclosures of
information to employees of Park who need to know such information and use
of such information by employees of Park who need to use such information,
and (C) such other use and disclosure as is necessary and consistent with
reasonable business practices, applicable law, and professional practice
ethics and regulations, in each case only to the extent necessary for the
benefit of Park or ADP.
(f) Employee Retention. Park and the Park Shareholders understand
------------------
that in ADP's view it is essential to the successful operation of the
business of Park that Park retain substantially unimpaired its operating
organization, except for any changes contemplated by this Agreement.
During the Pre-Closing Period, Park and the Park Shareholders shall
endeavor in good faith at all times to maintain good relations with all
Park employees.
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(g) Affiliate Indebtedness. During the Pre-Closing Period, neither
----------------------
Park nor any of the Park Shareholders shall cause or permit Park to make
any advances, loans, or extensions of credit to any Affiliate of Park, or
otherwise increase the Related Party Receivables owed to Park by any
Affiliate of Park.
(h) Dividends and Distributions. During the Pre-Closing Period, Park
---------------------------
shall not, and the Park Shareholders shall not permit Park to, declare, set
aside or pay any dividend or any distribution (in cash or in kind) to any
of its shareholders.
(i) Shareholders Agreements. At the Closing the Park Shareholders
-----------------------
shall execute a Shareholders Agreement in the form attached as Exhibit E-2
to this Agreement (the "Shareholders Agreement").
(j) Third Party Consents. Park shall use all reasonable, good faith
--------------------
efforts to obtain all consents and approvals which ADP deems necessary or
appropriate from third parties with whom Park has contractual
relationships.
(k) Notices of Certain Events. During the Pre-Closing Period, Park
-------------------------
and the Park Shareholders shall promptly notify ADP of:
(i) Any notice or other communication from any person or
entity alleging that the consent of such person or entity is or may be
required in connection with the transactions contemplated by this
Agreement;
(ii) Any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(iii) Any actions, suits, claims, investigations or proceedings
commenced or, to the best knowledge of Park or any of the Park
Shareholders, threatened against, relating to, involving, or otherwise
affecting any of the Park Shareholders, Park, or any of its property
which, if in existence on the date of this Agreement would have been
required to have been disclosed by Park and the Park Shareholders
pursuant to (S)4.18 or which relate to the consummation of the
transactions contemplated by this Agreement; and
(iv) Any circumstances or events which, if in existence on the
date of this Agreement, would make any representation or warranty of
the Park Shareholders incorrect or incomplete in any material respect.
34
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(l) [Intentionally left blank]
(m) Noncompetition. Each Park Shareholder hereby covenants that he
--------------
or she shall not, for the period beginning on the Closing Date and ending
on the earlier of the date which is two years after that Park Shareholder
no longer owns any ADP Shares and the date upon which ADP consummates an
initial public offering of Common Stock under the Securities Act of 1933,
as amended, directly or indirectly, whether individually or as a
shareholder (except as a shareholder of a publicly traded corporation
owning 1% or less of the outstanding capital stock thereof) or other owner,
partner, member, director, officer, employee, consultant, creditor, or
agent of any person, association, or other entity:
(i) Enter into, engage in, or promote or assist (financially or
otherwise), directly or indirectly, any business which provides
management, consulting or other similar services of the type provided
by any Affiliated Company (defined below) to any practice providing
dental, orthodontic, periodontic, prosthodontic, endodontic, or other
professional dental services, pediatric dentistry, or oral surgery
anywhere in the Restricted Territory (defined below);
(ii) Induce or encourage any employee, officer, director, agent,
supplier, or independent contractor of any Affiliated Company to
terminate its relationship with any such Affiliated Company, or
otherwise interfere or attempt to interfere in any way with any
Affiliated Company's relationships with its employees, officers,
directors, agents, suppliers, independent contractors, or others; or
(iii) Knowingly employ or engage any person who, at any time
within the one-year period immediately preceding such employment or
engagement, was an employee, officer, or director of any Affiliated
Company.
Notwithstanding the foregoing, clause (i) of this section shall not
apply to Delta or its affiliates (which shall not be deemed to include the
other Park Shareholders) nor shall such clause be construed to restrict any
Park Shareholder from practicing dentistry or managing his own personal
dental practice in which such shareholder actively practices dentistry or
the management by Drs. Hoover, Anderson, and Norsted of their dental
practice, or the sale of such practice (regardless of the identity of the
purchaser thereof), known as Valley Dental, P.A. For purposes of this
(S)5.2(m), (A) "Affiliated Company" shall mean ADP and all subsidiaries or
affiliates of ADP other than Summit Ventures IV, L.P., and its affiliates
which are not engaged in a business similar to that
35
<PAGE>
of ADP or its subsidiaries; and (B) "Restricted Territory" shall mean a
radius of 30 miles from any facility or operation leased, owned, managed,
or operated by any Affiliated Company.
(n) Injunctive Relief. Park and the Park Shareholders acknowledge and
-----------------
agree that ADP's remedies at law for any violation or attempted violation
of any of Park's or the Park Shareholders' obligations under this Article
would be inadequate, and agree that in the event of any such violation or
attempted violation, ADP shall be entitled to a temporary restraining
order, temporary and permanent injunctions, and other equitable relief,
without the necessity of posting any bond or proving any actual damage, in
addition to all other rights and remedies which may be available to ADP
from time to time.
(o) Escrow Agreement. At the Closing, the Park Shareholders shall
----------------
execute and deliver to ADP the Escrow Agreement (described in (S)8.7,
below).
(p) Subordination Agreement. At the Closing, the Park Shareholders
-----------------------
shall execute and deliver to ADP the Subordination Agreement attached
hereto as Exhibit C.
(q) Assignment of Rights to Certain Assets. At or prior to the
--------------------------------------
Closing, Park shall assign to the New PA its rights to its patient records
pursuant to the Assignment Agreement attached hereto as Exhibit E-3.
(S)5.3 Covenants of ADP. ADP agrees that:
----------------
(a) [Intentionally left blank]
(b) Election of Director. At the Closing, ADP shall cause Dr. Gregory
--------------------
T. Swenson to be elected as a member of ADP's board of directors.
(c) ADP Stock Options. At the Closing, ADP shall grant under its
-----------------
stock option plans options to purchase an aggregate of 19,500 ADP Shares to
such individuals, in such amounts, and pursuant to such stock option plans
as are set forth in Exhibit G, subject to the terms and conditions of such
plans and any stock option agreements pursuant to such plans. If any such
individuals are to enter into employment agreements with ADP as
contemplated by other provisions of this Agreement, then the option to be
granted to such employees under this section may be granted pursuant to
such employment agreements, in which event the options to be granted
pursuant to this section will be the same as, and not in addition to, the
options to be granted under such employment agreements.
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<PAGE>
(d) Notices of Certain Events. During the Pre-Closing Period, ADP
-------------------------
shall promptly notify Park of:
(i) Any notice or other communication from any person or
entity alleging that the consent of such person or entity is or may be
required in connection with the transactions contemplated by this
Agreement;
(ii) Any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(iii) Any actions, suits, claims, investigations or proceedings
commenced or, to the best knowledge of ADP, threatened against,
relating to, involving, or otherwise affecting ADP which, if in
existence on the date of this Agreement would have been required to
have been disclosed by ADP pursuant to (S)3.5; and
(iv) Any circumstances or events which, if in existence on the
date of this Agreement, would make any representation or warranty of
ADP incorrect or incomplete in any material respect.
(e) Access to Records and Other Due Diligence. During the Pre-Closing
-----------------------------------------
Period, ADP shall: (i) make or cause to be made available to Park and its
representatives, attorneys, accountants and agents, for examination,
inspection, and review, the books, contracts, agreements, commitments,
records and documents of every kind relating to ADP's business, and shall
permit Park and its representatives, attorneys, accountants and agents to
have access to the same at all reasonable times, subject to such
confidentiality restrictions as may be applicable to ADP with respect to
such information.
(f) Dividends and Distributions. During the Pre-Closing Period, ADP
---------------------------
shall not declare, set aside or pay any dividend or any distribution (in
cash or in kind) to any of its shareholders, provided that the foregoing
shall not prohibit the accrual of dividends with respect to the Series A
Stock and the Series B Stock.
(g) Disclosures. During the Pre-Closing Period, ADP shall not: (i)
-----------
disclose to any person, association, firm, corporation or other entity
(other than Park or those designated in writing by Park) in any manner,
directly or indirectly, any proprietary information or data relevant to the
business of Park, whether of a technical or commercial nature, or (ii) use,
or permit or assist, by acquiescence or otherwise, any person, association,
firm, corporation or other entity (other than Park or those designated in
writing by
37
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Park) to use, in any manner, directly or indirectly, any such information
or data, excepting only (A) use of such data or information as is at the
time generally known to the public and which did not become generally known
through any breach of any provision of this section by ADP, (B) disclosures
of information to employees of ADP who need to know such information and
use of such information by employees of ADP who need to use such
information, and (C) such other use and disclosure as is necessary and
consistent with reasonable business practices and applicable law, in each
case only to the extent necessary for the benefit of Park or ADP.
(h) Escrow Agreement. At the Closing, ADP shall execute and deliver
----------------
the Escrow Agreement.
(i) Subordination Agreement. At the Closing, ADP shall execute and
-----------------------
deliver the Subordination Agreement.
ARTICLE VI
CONDITIONS
----------
(S)6.1 Mutual Conditions. The obligations of the Parties to consummate
-----------------
the Acquisition and the other transactions contemplated by this Agreement shall
be subject to the fulfillment of all of the following conditions unless waived
by both Park and ADP:
(a) Legal Prohibition. No temporary restraining order, preliminary
-----------------
or permanent injunction or other order or decree which prevents the
consummation of the Acquisition or the other transactions contemplated by
this Agreement having been issued and remaining in effect, and no statute,
rule or regulation having been enacted by any state or federal government
or governmental agency, which would prevent the consummation of the
Acquisition or the other transactions contemplated by this Agreement.
(b) Debentures. All outstanding debentures and debenture option
----------
agreements of Park shall have been terminated or otherwise satisfied on
terms satisfactory to ADP and Park.
(c) Service Agreement. The New PA and Park shall have entered
-----------------
into a Services Agreement in the form attached as Exhibit H to this
Agreement (the "Service Agreement").
(d) Governmental Approvals. Any governmental or other approvals
----------------------
or reviews of this Agreement or the transactions contemplated by this
Agreement required under any applicable laws, statutes, orders, rules,
regulations, policies or guidelines promulgated thereunder, or Park's
governance documents shall have been received.
38
<PAGE>
(S)6.2 Conditions to Obligations of Park and the Park Shareholders. The
-----------------------------------------------------------
obligations of Park and the Park Shareholders to consummate the Acquisition and
the other transactions contemplated by this Agreement shall be subject to the
fulfillment of all of the following conditions unless waived by Park in writing:
(a) Representations and Warranties. The representations and
------------------------------
warranties of ADP set forth in Article III of this Agreement shall be true
and correct in all material respects as of the date of this Agreement and
as of the Closing Date as though made at and as of the Closing Date.
(b) Performance of Agreement. ADP shall have performed and observed
------------------------
in all material respects all obligations and conditions to be performed or
observed by it under this Agreement at or prior to the Closing.
(c) Certificate. ADP shall have furnished Park and the Park
-----------
Shareholders with a certificate dated the Closing Date signed by its
president to the effect that the conditions set forth in (S)(S)6.2(a) and
(b) have been satisfied.
(d) Opinion of Counsel. The Park Shareholders shall have received
------------------
the legal opinion, dated the Closing Date, of Baker & Hostetler, counsel to
ADP, in substantially the form attached to this Agreement as Exhibit I.
(e) Authority. Park shall have received evidence satisfactory to it
---------
that this Agreement and the transactions contemplated by this Agreement
have been properly authorized by ADP.
(f) Material Adverse Changes. No material adverse change having
------------------------
occurred in ADP's financial condition, operations, prospects, assets, or
business, provided that "material adverse change" shall not be deemed to
include (A) such operating losses as may be incurred by ADP arising out of
its continuing operations without the receipt by ADP of income, (B) the
ongoing establishment by ADP of its organizational infrastructure,
including with limitation the hiring of additional executive and
administrative personnel, or (C) ADP entering into letters of intent or
definitive agreements for other acquisitions.
(g) Restrictive Conditions. ADP shall be free from any agreements,
----------------------
restrictions or conditions which in the reasonable opinion of Park would
have a material adverse effect upon ADP's financial condition, operations,
prospects, assets, business, or ability to consummate this transaction.
(h) Defaults. No material agreement or other document or
--------
restriction to which ADP is subject being in default or
39
<PAGE>
being breached by the transactions contemplated by this Agreement, which in
either case in the reasonable opinion of Park would have a material adverse
effect on ADP's financial condition, operations, prospects, assets, or
business or on the ability of ADP to consummate the transactions
contemplated by this Agreement.
(i) Purchase. The Purchase, described in (S)1.2, above, having been
--------
consummated prior to or at the Closing.
(S)6.3 Conditions to Obligations of ADP. The obligations of ADP to
--------------------------------
consummate the Acquisition and the other transactions contemplated by this
Agreement shall be subject to the fulfillment of all of the following conditions
unless waived by ADP in writing:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Park Shareholders set forth in Article IV of this
Agreement shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date as though made at and as of
the Closing Date.
(b) Performance of Agreement. Park and the Park Shareholders shall
------------------------
have performed and observed in all material respects all obligations and
conditions to be performed or observed by them under this Agreement at or
prior to the Closing.
(c) Certificate. The Park Shareholders shall have furnished ADP with
-----------
a certificate dated the Closing Date signed by all of the Park Shareholders
to the effect that the conditions set forth in (S)(S)6.3(a) and (b) have
been satisfied.
(d) Reorganization. The Park Shareholders shall have caused such
--------------
reorganization or restructuring of Park as may be necessary or appropriate
on terms satisfactory to ADP so that the Acquisition complies with all
applicable federal and state laws and regulations, including without
limitation the reorganization of Park into a for-profit corporation which
is not a professional association or professional corporation.
(e) Structure of New PA. Prior to the Closing, the individuals
-------------------
identified in Exhibit F attached to this Agreement (the "New PA
Shareholders") shall have formed a new professional association or other
entity satisfactory to ADP and Park (i) of which each New PA Shareholder is
a shareholder (having the proportionate ownership interest set forth in
Exhibit F) and an employee, and (ii) which is formed to operate the
professional dental practice currently operated by Park after the Closing
(the "New PA"). ADP shall be satisfied with the organizational and
operational documents and structures of the New PA, including without
limitation the employment agreements between the New PA and its employees.
40
<PAGE>
(f) Authority. ADP shall have received evidence satisfactory to it
---------
that this Agreement and the transactions contemplated by this Agreement
have been properly authorized by Park and the New PA.
(g) Professional Personnel. ADP confirming to its satisfaction that
----------------------
the professional personnel employed or otherwise retained by the New PA
support the transactions contemplated by this Agreement, including without
limitation the formation and operation of the New PA and the ability of the
New PA to support its obligations under the Service Agreement.
(h) Financial Statements. Park shall have delivered to ADP the
--------------------
Financial Statements and the Interim Statements.
(i) Opinion of Counsel. ADP shall have received the legal opinion,
------------------
dated the Closing Date, of (i) Fredrikson & Byron, P.A., counsel to Park,
in the form attached to this Agreement as Exhibit J-1; and (ii) Best &
Flanagan, counsel to Delta, in the form attached to this Agreement as
Exhibit J-2.
(j) Existing Employment, Independent Contractor, and Deferred
---------------------------------------------------------
Compensation Agreements. At or prior to the Closing, Park shall have: (i)
-----------------------
assigned to the New PA all of its rights, and the New PA shall have assumed
all of Park's obligations, with respect to all employment and independent
contractor agreements and arrangements between Park and each of its
professional employees (except for the Park Shareholders) and contractors
which the New PA desires to employ; (ii) obtained a written acknowledgement
to such assignment from each such employee or contractor; and (iii)
terminated such other employment and independent contractor agreements or
arrangements (including without limitation all individual disability and
deferred compensation arrangements) (A) between Park and each Park
Shareholder, and (B) between Park and such other of its employees and
contractors as are specified by ADP.
(k) Employment and Noncompetition Agreement with ADP. Each of
------------------------------------------------
Messrs. Forrest Flint, Mike Kenneally, and Mike Johnson and Dr. Gregory
Swenson shall have entered into an employment and noncompetition agreement
with ADP substantially in the forms attached to this Agreement as Exhibits
K, L, M, and N, respectively.
41
<PAGE>
(l) Employment and Noncompetition Agreements of the New PA. The New
------------------------------------------------------
PA shall have entered into employment agreements with each of its
professional employees as required by the Service Agreement, including
without limitation an employment and non-competition agreement with Dr.
Gregory Swenson on terms consistent economically with Dr. Swenson's current
employment agreement with Park and on such additional terms and conditions
as are satisfactory to ADP and Dr. Swenson.
(m) Third Party Consents. ADP shall have received all third party
--------------------
consents and approvals which ADP deems necessary or appropriate relating to
this Agreement and the transactions contemplated by this Agreement, and ADP
shall be satisfied that all significant contracts of Park shall remain in
full force and effect after the Closing in accordance with the terms and
conditions of such contracts, subject to any modifications required by this
Agreement.
(n) Termination of Options. Prior to the Closing, all outstanding
----------------------
options, warrants, or other rights to acquire any capital stock of Park
which have not been exercised prior to the execution of this Agreement
shall have been terminated, exercised, or otherwise satisfied on terms
satisfactory to ADP, including without limitation: (i) if any holder of
such options, warrants, or other rights acquires any Park Shares and is not
already a Park Shareholder, such holder becoming a party to this Agreement
as a Park Shareholder; and (ii) payment of all option exercise prices in
cash.
(o) Delta Agreements. The termination at or prior to the Closing of
----------------
the Stock Subscription Agreement, Amendment to Stock Subscription
Agreement, Written Undertaking, and Shareholder Control Agreement, each
dated as of May 1995, between Park and Delta Associates, Ltd., a Minnesota
non-profit corporation which is a shareholder of Park ("Delta"), or
affiliates of such corporation, as the case may be, on terms satisfactory
to ADP.
(p) Restrictive Conditions. Park and the Park Shareholders shall be
----------------------
free from any agreements, restrictions or conditions which in the
reasonable opinion of ADP would have a material adverse effect upon Park's
financial condition, operations, prospects, assets, business, or ability to
consummate this transaction.
(q) Defaults. No material agreement or other document or restriction
--------
to which Park or any Park Shareholder is subject being in default or being
breached by the transactions contemplated by this Agreement, which in
either case in the reasonable opinion of ADP would have a material adverse
effect on Park's financial condition, operations, prospects, assets,
42
<PAGE>
or business or on the ability of Park or any Park Shareholder to consummate
the transactions contemplated by this Agreement.
(r) Material Adverse Changes. No material adverse change having
------------------------
occurred in Park's financial condition, operations, prospects, assets, or
business.
(s) Books and Records. Park shall have delivered to ADP all books and
-----------------
corporate records of Park, including without limitation the stock books and
ledgers, the corporate seal, minute books, books of account, bank account
lists and tax returns and records.
(t) Shareholders' Equity. The shareholders' equity of Park,
--------------------
calculated in accordance with generally accepted accounting principles,
shall not be less than $5,800,000 (the "Equity Requirement") as of a date
which is not more than three days prior to the Closing (assuming the
payment by Park of all amounts which it is entitled to make pursuant to
this Agreement prior to the Closing, including without limitation the
Special Payments described in (S)5.2(b), above, and assuming a federal tax
benefit to Park of $800,000 with respect to the Special Payments), provided
that, in the event the Closing occurs after October 31, 1996, the Equity
Requirement shall increase automatically at a rate of $100,000 per month,
prorated on a daily basis through the date of the Closing. If the Equity
Requirement is not met, then ADP may, at its option elect to waive this
condition, proceed with the Closing: and (i) reduce the number of ADP
Shares which the Park Shareholders are to receive at the Closing by an
amount agreed upon by ADP and Park (with such reduction to be allocated
among the ADP Shares to be issued to the Park Shareholders, respectively,
in proportion to the respective interests of the Park Shareholders in the
total number of ADP Shares which could be issued but for such reduction);
or (ii) in the event ADP and Park are unable to reach such an agreement by
the Closing Date, ADP may instead reduce the Cash Consideration by the
amount by which the shareholders' equity of Park is less than the Equity
Requirement. For purposes of determining compliance with such condition,
such shareholders' equity shall be based upon financial statements (the
"Closing Financial Statements") prepared in accordance with generally
accepted accounting principles, as of a date which is not more than three
business days prior to the Closing, by Stirtz Bernards and approved by any
firm of independent certified public accountants selected by ADP (the "ADP
CPAs"). Park shall, and shall cause Stirtz Bernards to, permit
representatives of ADP and the ADP CPAs to review all aspects of the
preparation of the Closing Financial Statements, including without
limitation review of all work papers of Stirtz Bernards.
43
<PAGE>
(u) Capital Expenditures. The aggregate capital expenditures and
--------------------
capital lease obligation of Park, calculated in accordance with generally
accepted accounting principles, for the period beginning on June 30, 1996,
and ending on the date of the Closing shall not be more than $600,000.
(v) Compliance with Laws. ADP shall have (i) received evidence
--------------------
reasonably satisfactory to it that the business of Park has been, at all
times prior to the Closing, in compliance in all material respects with all
Applicable Laws relating directly or indirectly to the provision of dental
services; and (ii) confirmed to its satisfaction that the transactions
contemplated by this Agreement will be in compliance with all applicable
federal and state laws and regulations.
(w) Payment of Notes. Prior to the Closing, all outstanding notes
----------------
or other instruments evidencing any indebtedness of any Park Shareholder to
Park shall have been fully paid.
ARTICLE VII
TERMINATION AND AMENDMENT
-------------------------
(S)7.1 Termination.
-----------
(a) Termination by Park and the Park Shareholders. This Agreement
---------------------------------------------
may be terminated and cancelled at any time prior to the Closing by Park
and the Park Shareholders: (i) if (A) any of the representations or
warranties of ADP contained in this Agreement or the ADP Schedules, if any,
shall prove to be inaccurate in any material respect, or any obligation or
condition to be performed or observed by ADP under this Agreement has not
been performed or observed in any material respect at or prior to the time
specified in this Agreement, and (B) such inaccuracy or failure shall not
have been cured within 15 business days after receipt by ADP of written
notice of such occurrence from Park and the Park Shareholders; or (ii) if
any permanent injunction or other order of a court or other competent
authority preventing consummation of the Acquisition or any other
transaction contemplated by this Agreement shall have become final and non-
appealable.
(b) Termination by ADP. This Agreement may be terminated and
------------------
cancelled at any time prior to the Closing by ADP: (i) if (A) any of the
representations or warranties of any of the Park Shareholders contained in
this Agreement or the Park Schedules shall prove to be inaccurate in any
material respect, or any obligation or condition to be performed or
observed by Park or any of the Park Shareholders under this Agreement has
not been performed or observed in any
44
<PAGE>
material respect at or prior to the time specified in this Agreement, and
(B) such inaccuracy or failure shall not have been cured within 15 business
days after receipt by Park and the Park Shareholders of written notice of
such occurrence from ADP; (ii) if any permanent injunction or other order
of a court or other competent authority preventing consummation of the
Acquisition or any other transaction contemplated by this Agreement shall
have become final and non-appealable; (iii) in the event of a material
adverse loss or damage to, or condemnation of the property or assets of
Park, it being understood among the Parties that none of the risk of any
such loss or damage prior to the Closing shall be borne by ADP; (iv) if
within 15 business days after ADP's receipt of the Interim Statements, ADP
shall notify Park that it does not approve the Interim Statements; or (v)
if the Closing has not occurred on or before December 31, 1996.
(S)7.2 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed by all of the Parties.
(S)7.3 Extension; Waiver. At any time prior to the Closing, ADP (with
-----------------
respect to Park and the Park Shareholders) and Park (with respect to ADP) may,
to the extent legally allowed: (i) extend the time for the performance of any
of the obligations or other acts of the other Party; (ii) waive any inaccuracies
in the representations and warranties contained in this Agreement or in any
document delivered pursuant hereto; or (iii) waive compliance with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a Party to any such extension or waiver with respect to an other Party shall
be valid only if set forth in a written instrument signed by such Party.
ARTICLE VIII
INDEMNIFICATION
---------------
(S)8.1 Survival of Representations, Warranties and Agreements.
------------------------------------------------------
(a) Subject to the limitations set forth in (S)8.3, below, and
notwithstanding any investigation conducted at any time with regard thereto
by or on behalf of ADP, all representations, warranties, covenants and
agreements of the Park Shareholders in this Agreement shall survive the
execution, delivery and performance of this Agreement. All representations
and warranties of the Park Shareholders set forth in this Agreement shall
be deemed to have been made again by the Park Shareholders at and as of the
Closing.
(b) As used in this Article, any reference to a representation,
warranty or covenant contained in any section of this Agreement shall
include the Schedule relating to such section.
45
<PAGE>
(S)8.2 Indemnification.
---------------
(a) Subject to the limitations set forth in (S)(S)8.3 and 8.8,
below, the Park Shareholders shall indemnify and hold harmless ADP from and
against any and all losses, liabilities, damages, demands, claims, suits,
actions, judgments or causes of action, assessments, costs and expenses,
including without limitation interest, penalties, attorneys' fees, any and
all expenses incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation (collectively,
"Damages"), asserted against, resulting to, imposed upon, or incurred or
suffered by ADP, directly or indirectly, as a result of or arising from:
(i) any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants or agreements made by the Park
Shareholders or Park in this Agreement; or (ii) any Excluded Liability
(defined below).
(b) For purposes of this Agreement: (i) the term "Excluded
Liabilities" shall include (A) any and all claims against Park or its
officers or directors by any holder of any legal or beneficial interest in
the Park Shares which are based upon, related to, or arise out of any
agreements, transactions, acts, or omissions made or occurring prior to the
Closing, excepting only (1) claims for the Cash Consideration payable, the
Note deliverable, or ADP Shares issuable by ADP under Article I of this
Agreement with respect to such Park Shares, and (2) any claims against ADP
arising out of its failure to perform its obligations under this Agreement,
(B) any and all claims against Park or its officers or directors by any
current or former employee or independent contractors of Park which are
based upon, related to, or arise out of any agreements, transactions, acts,
or omissions made or occurring prior to the Closing, including without
limitation any claims for bonuses, deferred compensation, or other amounts
payable to any Park employees or independent contractors which are not
appropriately accrued on the Closing Financial Statements, and (C) the
items and matters identified or described in item (m) on Park Schedule 4.9,
items 1 and 3 on Park Schedule 4.11, and Park Schedule 4.18; and (ii) the
term "Indemnifiable Claims" shall mean the matters with respect to which
ADP is entitled to indemnification under (S)8.2(a).
(c) For purposes of this Article, all Damages shall be computed net
of any insurance coverage which actually reduces the Damages that would
otherwise be sustained; provided that in all cases the timing of the
receipt or realization of insurance proceeds shall be taken into account in
determining the amount of reduction of Damages.
46
<PAGE>
(d) ADP shall be deemed to have suffered Damages arising out of or
resulting from the matters referred to in (S)8.2(a), above, if the same
shall be suffered by any parent, subsidiary or affiliate of ADP, including
without limitation Park after the Closing.
(S)8.3 Limitations on Indemnification. Rights to indemnification under
------------------------------
(S)8.2 are subject to the following limitations:
(a) ADP shall not be entitled to indemnification hereunder with
respect to an Indemnifiable Claim (or, if more than one such Indemnifiable
Claim is asserted, with respect to all such Indemnifiable Claims) unless,
and then only to the extent that, the aggregate amount of Damages with
respect to such Indemnifiable Claim or Claims exceeds $50,000.
(b) The obligation of indemnity with respect to the representations
and warranties set forth in (S)4.10 of this Agreement shall terminate on
the expiration of the respective periods of limitations applicable to
assessment and collection of taxes under laws then applicable to such
taxes, with respect to the representations and warranties as to the absence
of unpaid or undisclosed taxes (including any interest, penalties or
expenses) of Park.
(c) The obligation of indemnity with respect to the representations
and warranties set forth in (S)4.19 of this Agreement shall terminate upon
expiration of the respective statutes of limitation applicable to the items
addressed in such section.
(d) The obligation of indemnity with respect to the representations
and warranties contained in (S)(S)4.2, 4.3, 4.5, 4.11 (to the extent it
relates to Environmental Laws, Governmental Reimbursement Laws, and Dental
Licensing Laws), and 4.27 of this Agreement shall not expire.
(e) The obligation of indemnity with respect to the representations
and warranties set forth in Article IV of this Agreement other than those
addressed in the immediately preceding subsections (b), (c), and (d) shall
terminate on the third anniversary of the Closing Date.
(f) The foregoing provisions of this (S)8.3 notwithstanding, if,
prior to the termination of any obligation to indemnify, written notice of
a claimed breach or other occurrence or matter giving rise to a claim of
indemnification is given by ADP to any one of the Park Shareholders, or a
suit or action based upon a claimed breach is commenced against any one of
the Park Shareholders, ADP shall not be precluded from pursuing such
claimed breach,
47
<PAGE>
occurrence, other matter, or suit or action, or from recovering from the
Park Shareholders (whether through the courts or otherwise) on the claim,
suit or action, by reason of the termination otherwise provided for above.
(g) The term "Indemnifiable Claim" shall not include indemnification
obligations of the Park Shareholders to ADP, to the escrow agent or to any
other third party which arise out of any Incorporated Document (defined in
(S)9.7).
(S)8.4 Procedure for Indemnification with Respect to Third Party Claims.
----------------------------------------------------------------
(a) If ADP desires to seek indemnification under this Article with
respect to Indemnifiable Claims resulting from the assertion of liability
by third parties ("Third Party Claims"), it shall give notice to the Park
Shareholders within a reasonable period of time of ADP's becoming aware of
any such Third Party Claim, which notice shall set forth such material
information with respect to such Third Party Claim as is then reasonably
available to ADP. Notwithstanding the foregoing: (i) ADP shall not have
any obligation to give any notice of any Third Party Claim unless such
assertion is in writing; and (ii) the rights of ADP to be indemnified in
respect of Third Party Claims shall not be adversely affected by its
failure to give notice pursuant to the foregoing provisions unless, and, if
so, only to the extent that, the Park Shareholders are materially
prejudiced by such failure. With respect to any Third Party Claim that
results or could result in an Indemnifiable Claim, the Parties shall make
available to each other all relevant information in their possession which
is material to any such assertion.
(b) ADP shall have the sole right to defend (or control the defense
of), compromise or settle each Third Party Claim on behalf, for the
account, and at the risk of the Park Shareholders. In the exercise of this
right, ADP shall act in good faith. ADP shall have no liability to the
Park Shareholders for or as a result of the defense, compromise or
settlement of any Third Party Claim made pursuant to a good faith
determination by the ADP Board of Directors or a committee thereof. In the
event of such a good faith determination, the sole right of the Park
Shareholders shall be to contest in good faith the issue of whether the
Third Party Claim resulted in an Indemnifiable Claim, in the manner set
forth in paragraph (c) below.
(c) Within 15 days of settlement, compromise or payment of a Third
Party Claim which ADP believes results in an Indemnifiable Claim, ADP shall
give written notice to the Park Shareholders of the terms and amount of
settlement, compromise or payment. At any time commencing on the date of
notice of
48
<PAGE>
the claim given pursuant to paragraph (a) and ending 15 days after the
notice given pursuant to this paragraph (c), the Park Shareholders may give
written notice (the "Contest Notice"), to ADP announcing their intent to
contest the issue whether the Third Party Claim is an Indemnifiable Claim.
If the Parties cannot resolve the issue within 30 days after the Contest
Notice, the contested issue shall be referred to arbitration in
Minneapolis, Minnesota, in accordance with the then current rules of the
American Arbitration Association. The determination made in accordance
with such rules shall be delivered in writing to the Parties and shall be
binding and conclusive on the Parties. Each Party shall pay its own legal,
accounting and other fees in connection with such a contest; provided that
if the contested claim is referred to and ultimately determined by
arbitration, the reasonable legal, accounting and other fees of the
prevailing Party and the fees and expense of any arbitrator shall be borne
by the non-prevailing Party.
(S)8.5 Procedure For Indemnification with Respect to Non-Third Party
-------------------------------------------------------------
Claims. In the event that ADP asserts the existence of an Indemnifiable Claim
- ------
giving rise to Damages (but excluding Indemnifiable Claims resulting from Third
Party Claims), it shall give written notice to the Park Shareholders specifying
the nature and amount of the Indemnifiable Claim asserted. If the Park
Shareholders, within 45 days after the receipt of such notice by ADP, have not
given written notice to ADP announcing their intent to contest such assertion by
ADP, such assertion shall be deemed accepted and the amount of Indemnifiable
Claim shall be deemed a valid Indemnifiable Claim. In the event, however, that
the Park Shareholders contest the assertion of an Indemnifiable Claim by giving
such written notice to ADP within such 45-day period, then if the Parties,
acting in good faith, cannot reach agreement with respect to such Indemnifiable
Claim within 30 days after such notice, the contested assertion of the claim
shall be referred to arbitration in Minneapolis, Minnesota, in accordance with
the then-current rules of the American Arbitration Association. The
determination made in accordance with such rules shall be delivered in writing
to the Parties and shall be final and binding and conclusive on the Parties and
the amount of the Indemnifiable Claim, if any, determined to exist shall be a
valid Indemnifiable Claim. Each Party shall pay its own legal, accounting and
other fees in connection with such a contest; provided that if the contested
claim is referred to and ultimately determined by arbitration, the reasonable
legal, accounting and other fees of the prevailing Party and the fees and
expenses of any arbitrator shall be borne by the non-prevailing Party.
(S)8.6 Right of Setoff. ADP shall have the right to setoff the amount of
---------------
Damages incurred as a result of an Indemnifiable Claim owing to ADP by any Park
Shareholder against any amounts owing to such Park Shareholder by ADP under the
Notes.
49
<PAGE>
(S)8.7 Escrow Agreement. For purposes of securing and fulfilling the
----------------
obligations of the Park Shareholders to ADP, and ADP's rights, under this
Article, the Park Shareholders shall: (a) execute and deliver at the Closing an
Escrow and Security Agreement in the form attached hereto as Exhibit O (the
"Escrow Agreement"), pursuant to which 77,000 ADP Shares will be held in escrow
(the "Escrowed Shares") and released as provided in the Escrow Agreement; and
(b) deposit the Escrowed Shares and take all other actions required of them
under the Escrow Agreement.
For purposes of securing and fulfilling certain obligations of the Park
Shareholders to the escrow agent under the Escrow Agreement, the Park
Shareholders shall deposit $50,000 of the Cash Consideration with Escrow Agent
at the Closing to be held subject to the terms of the Escrow Agreement.
(S)8.8 Liability Limitations. Notwithstanding the foregoing provisions
---------------------
of this Article VIII: (a) subject to the following clause (b), the liability of
each Park Shareholder for Damages with respect to an Indemnifiable Claim (the
"Pro Rata Share") shall be, but not exceed, an amount equal to the aggregate
Damages with respect to such Indemnifiable Claim multiplied by the Conversion
Fraction calculated under (S)1.1 with respect to such Park Shareholder as of the
Closing Date; (b) the total liability of each Park Shareholder for Damages with
respect to all Indemnifiable Claims shall not exceed an amount equal to
$5,000,000 multiplied by such Conversion Fraction; and (c) ADP's sole remedy
against the Park Shareholders for Indemnifiable Claims shall be to (i) setoff
the amount of Damages incurred as a result of the Indemnifiable Claim against
amounts payable under the Notes, or (ii) receive from the Escrow Agent (as
defined in the Escrow Agreement) Collateral (as defined in the Escrow
Agreement), provided that ADP shall have the option, in its discretion, to
select its remedy under the preceding clauses (i) and (ii) from time to time and
may utilize either or both remedies with respect to any Indemnifiable Claim,
subject to the provisions of the Notes which expressly provide for Damages to be
recovered first by offsetting against the Notes. No failure or inability (for
any reason) of ADP to recover any Park Shareholder's Pro Rata Share of Damages
with respect to an Indemnifiable Claim shall prohibit, limit, or otherwise
affect ADP's right to recover any other Park Shareholder's Pro Rata Share of
such Damages as provided in this Article, the Notes, and the Escrow Agreement,
but no such failure or inability shall increase any other Park Shareholder's Pro
Rata Share of such Damages.
ARTICLE IX
MISCELLANEOUS
-------------
(S)9.1 Attorney In Fact. Each Park Shareholder hereby appoints Dr.
----------------
Gregory Swenson as such Park Shareholder's attorney-in-fact and agent (the
"Agent"), and grants to the Agent full power and authority to take any and all
actions, and perform and do any and
50
<PAGE>
all things, in such Park Shareholder's place and stead, which the Agent may deem
necessary or appropriate in connection with this Agreement or the transactions
contemplated by this Agreement, as fully as such Park Shareholder might or could
do if personally present and acting, including without limitation executing,
acknowledging or verifying, and delivering any amendments, consents,
acknowledgements or other documents relating to this Agreement or the
transactions contemplated by this Agreement, receiving and giving notices under
this Agreement, and taking any and all other actions which are permitted or
required to be taken by such Park Shareholder under this Agreement.
The Agent may conclusively rely on any consent, approval, authorization,
acknowledgement, election, agreement, or other action made or given by Park
Shareholders who own a majority in interest of the ADP Shares, which action
shall be binding on all Park Shareholders.
The Agent may resign at any time and may be removed at any time by Park
Shareholders who own a majority in interest of the ADP Shares. Within 15 days
following any such resignation or removal or upon the incapacity of the Agent,
the Park Shareholders shall appoint a successor Agent to act pursuant to this
section, which successor shall be such person as may be designated in writing by
Park Shareholders owning a majority in interest of the ADP Shares, which
designation shall be provided to the other Park Shareholders and ADP in order to
make such designation effective.
Notwithstanding the preceding paragraphs, if, at any time, no Agent is then
serving pursuant to this section (for any reason), then Park Shareholders owning
a majority in interest of the ADP Shares shall have full authority to take any
and all actions under this agreement which could be taken by the Agent, which
actions shall be binding on all of the Park Shareholders.
ADP shall be entitled to conclusively rely on any consent, approval,
authorization, acknowledgement, election, agreement, or other action of the
Agent or Park Shareholders owning a majority in interest of the ADP Shares. For
purposes of this section, the term "ADP Shares" shall include all ADP Shares, as
previously defined in this Agreement, including without limitation those subject
to the Escrow Agreement.
(S)9.2 Notices. All notices and other communications under this Agreement
-------
to any Party shall be in writing and shall be deemed given when delivered
personally, telecopied (which is confirmed) to that Party at the telecopy number
for that Party set forth below, mailed by certified mail (return receipt
requested) to that Party at the address for that Party (or at such other address
for such Party as such Party shall have specified in notice to the other
Parties), or delivered to Federal Express, or any similar express delivery
service for delivery to that Party at that address:
51
<PAGE>
(a) If to ADP:
American Dental Partners, Inc.
301 Edgewater Place, Suite 320
Wakefield, Massachusetts 01880-1249
Attention: Gregory A. Serrao, President
Telecopy No.: (617) 224-4216
with a copy to
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
Attention: Gary A. Wadman, Esq.
Telecopy No.: (614) 462-2616
(b) If to Park (prior to the Closing):
PDHC Ltd.
c/o Mr. James A Bernards
Facilitation Inc.
7200 Metro Boulevard
Edina, Minnesota 55439
Telecopy No.: (612) 831-1219
with copies to
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402-3397
Attention: Neil A. Weikart
Telecopy No.: (612) 347-7077
(after the Closing):
To ADP (together with copies) as set forth in (a), above
(c) If to any Park Shareholder, to Agent at the following address:
Dr. Gregory T. Swenson
6415 Brooklyn Boulevard
Minneapolis, Minnesota 55429
Telecopy No.: (612) 535-4236
(S)9.3 Non-Waiver. No failure by any Party to insist upon strict
----------
compliance with any term or provision of this Agreement, to exercise any option,
to enforce any right, or to seek any remedy upon any default of any other Party
shall affect, or constitute a
52
<PAGE>
waiver of, any other Party's right to insist upon such strict compliance,
exercise that option, enforce that right, or seek that remedy with respect to
that default or any prior, contemporaneous, or subsequent default. No custom or
practice of the Parties at variance with any provision of this Agreement shall
affect or constitute a waiver of, any Party's right to demand strict compliance
with all provisions of this Agreement.
(S)9.4 Genders and Numbers. Where permitted by the context, each pronoun
-------------------
used in this Agreement includes the same pronoun in other genders and numbers,
and each noun used in this Agreement includes the same noun in other numbers.
(S)9.5 Headings. The headings of the various articles and sections of
--------
this Agreement are not part of the context of this Agreement, are merely labels
to assist in locating such articles and sections, and shall be ignored in
construing this Agreement.
(S)9.6 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same Agreement.
(S)9.7 Entire Agreement. This Agreement (including all exhibits,
----------------
schedules, and other documents referred to in this Agreement (the "Incorporated
Documents"), all of which are hereby incorporated by reference) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the Parties with respect to the subject matter of this
Agreement, including without limitation the Letter Agreement dated August 14,
1996, as amended. Any capitalized terms used in any Incorporated Document which
are not otherwise defined therein shall have the respective meanings given such
terms in this Agreement.
(S)9.8 No Third Party Beneficiaries. Nothing contained in this Agreement,
----------------------------
expressed or implied, is intended or shall be construed to confer upon or give
to any person, firm, corporation or legal entity, other than the Parties, any
rights, remedies or other benefits under or by reason of this Agreement.
(S)9.9 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Massachusetts without regard to
principles of conflicts of law.
(S)9.10 Binding Effect; Assignment. This Agreement shall be binding upon,
--------------------------
inure to the benefit of and be enforceable by and against the Parties and their
respective heirs, personal representatives, successors, and assigns. Neither
this Agreement nor any of the rights, interests or obligations under this
Agreement shall be transferred or assigned by any of the Parties without the
prior written consent of the other Parties.
53
<PAGE>
(S)9.11 Remedies. All rights and remedies of each Party under this
--------
Agreement shall be cumulative and in addition to all other rights and remedies
which may be available to that Party from time to time, whether under any other
agreement, at law, or in equity.
(S)9.12 Expenses. Except as otherwise specifically provided in this
--------
Agreement, each of Park and ADP will bear its respective legal, accounting, and
other costs and expenses associated with the transactions contemplated by this
Agreement (including without limitation the costs of any brokers and financial
advisors), it being understood that the expenses related to the organization of
the New PA shall be paid by the Park Shareholders and deducted from the Cash
Consideration at the Closing.
(S)9.13 Public Announcements. This Agreement and the transactions
--------------------
contemplated herein shall be confidential and no Party shall disclose any
information relating to this transaction without the prior written consent of
Park and the president of ADP, except for such disclosures to such professional
advisors as may be necessary or appropriate in order to complete the Acquisition
and related transactions. Each Party and its representatives will exercise all
reasonable efforts to maintain confidentiality with respect to this transaction
at all times prior to the public announcement, if any, of this Agreement. The
provisions of this section will be subject to each Party's obligation to comply
with applicable requirements of federal or state laws or any governmental order
or regulation.
(S)9.14 Severability. With respect to any provision of this Agreement
------------
finally determined by a court of competent jurisdiction to be unenforceable,
such court shall have jurisdiction to reform such provision so that it is
enforceable to the maximum extent permitted by applicable law, and the Parties
shall abide by such court's determination. In the event that any provision of
this Agreement cannot be reformed, such provision shall be deemed to be severed
from this Agreement, but every other provision of this Agreement shall remain in
full force and effect.
[Remainder of page intentionally left blank]
54
<PAGE>
The undersigned are executing this Acquisition and Exchange Agreement effective
as of the date set forth at the beginning hereof.
AMERICAN DENTAL PARTNERS, INC. PDHC, LTD.
By /s/ Gregory A. Serrao By /s/ Gregory T. Swenson
---------------------------- -----------------------------
Gregory A. Serrao, President Gregory T. Swenson, President
Each Park Shareholder confirms that he has read and fully understands this
Agreement, including without limitation the exhibits hereto and the
representations and warranties contained in (S)4.28 of this Agreement.
/s/ Mark Anderson, DDS
-----------------------------------
MARK ANDERSON, DDS
/s/ James Benson, DDS
-----------------------------------
JAMES BENSON, DDS
/s/ Elena Dinca, DDS
-----------------------------------
ELENA DINCA, DDS
/s/ Michael Dowdall, DDS
-----------------------------------
MICHAEL DOWDALL, DDS
/s/ Megan Eakins, DDS
-----------------------------------
MEGAN EAKINS, DDS
/s/ Robert Grady, DDS
-----------------------------------
ROBERT GRADY, DDS
/s/ John Gulon, DDS
-----------------------------------
JOHN GULON, DDS
/s/ Clarice Hermunslie, DDS
-----------------------------------
CLARICE HERMUNSLIE, DDS
[Signatures continued on following page]
55
<PAGE>
Each Park Shareholder confirms that he has read and fully understands this
Agreement, including without limitation the exhibits hereto and the
representations and warranties contained in (S)4.28 of this Agreement.
/s/ Robert Hoover
-----------------------------------
ROBERT HOOVER, DDS
/s/ Karen Kohler
-----------------------------------
KAREN KOHLER, DDS
/s/ Lee Lutterman
-----------------------------------
LEE LUTTERMAN, DDS
/s/ Todd Marshall
-----------------------------------
TODD MARSHALL, DDS
/s/ Daniel Marvin
-----------------------------------
DANIEL MARVIN, DDS
/s/ Hugh Norsted
-----------------------------------
HUGH NORSTED, DDS
/s/ Ira Rabinowitz
-----------------------------------
IRA RABINOWITZ, DMD
/s/ Larry Slepica
-----------------------------------
LARRY SLEPICA, DDS
/s/ Christopher Steele
-----------------------------------
CHRISTOPHER STEELE, DDS
/s/ Gregory T. Swenson
-----------------------------------
GREGORY T. SWENSON, DDS
[Signatures continued on following page]
56
<PAGE>
Each Park Shareholder confirms that he has read and fully understands this
Agreement, including without limitation the exhibits hereto and the
representations and warranties contained in (S)4.28 of this Agreement.
/s/ Peter Thompson
-----------------------------------
PETER THOMPSON, DDS
DELTA ASSOCIATES, LTD.
By /s/ William J. Dresser, D.D.S.
-------------------------------------
Printed Name William J. Dresser, D.D.S.
---------------------------
Its President
------------------------------------
57
<PAGE>
ASSET PURCHASE AGREEMENT
AMONG
AMERICAN DENTAL PARTNERS, INC.,
TEXAS DENTAL PARTNERS, INC.,
LES L. CRANE, D.D.S., P.C.,
and
LES L. CRANE, D.D.S.
December 13, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ASSET PURCHASE AGREEMENT....................................... 1
BACKGROUND INFORMATION.................... 1
----------------------
ARTICLE I
ASSET PURCHASE AND SALE................... 1
-----------------------
(S)1.1 Asset Purchase and Sale.......................... 1
-----------------------
(S)1.2 Excluded Assets.................................. 2
---------------
(S)1.3 Liabilities Assumed.............................. 2
-------------------
(S)1.4 Purchase Price................................... 3
--------------
(S)1.5 Escrowed Consideration........................... 4
----------------------
(S)1.6 Closing.......................................... 4
-------
(S)1.7 Conveyance Documents............................. 4
--------------------
(S)1.8 Possession....................................... 5
----------
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ADP........ 5
-------------------------------------
(S)2.1 Organization and Standing........................ 6
-------------------------
(S)2.2 Corporate Power and Authority.................... 6
-----------------------------
(S)2.3 Capitalization of ADP............................ 6
---------------------
(S)2.4 Conflicts; Consents and Approvals................ 6
---------------------------------
(S)2.5 Litigation....................................... 7
----------
(S)2.6 Brokerage and Finder's Fees...................... 7
---------------------------
(S)2.7 Acquisition of Park Dental....................... 7
--------------------------
(S)2.8 Complete Disclosure.............................. 7
-------------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF LONGHORN AND THE LONGHORN SHAREHOLDER.... 7
----------------------------------------
(S)3.1 Organization and Standing........................ 8
-------------------------
(S)3.2 Capitalization and Security Holders.............. 8
-----------------------------------
(a) Longhorn Shares............................. 8
---------------
(b) Stock Ownership............................. 8
---------------
(c) Due Authorization and Issuance.............. 8
------------------------------
(d) No Other Commitment......................... 8
-------------------
(e) Compliance with Laws; No Liens.............. 9
------------------------------
(S)3.3 Subsidiaries..................................... 9
------------
(S)3.4 Business of Longhorn............................. 9
--------------------
(S)3.5 Corporate Power and Authority.................... 9
-----------------------------
(S)3.6 Consents and Approvals........................... 9
----------------------
(S)3.7 Financial Statements............................. 10
--------------------
(S)3.8 Undisclosed Liabilities.......................... 10
-----------------------
(S)3.9 Absence of Certain Changes....................... 11
--------------------------
(S)3.10 Taxes............................................ 13
-----
(S)3.11 Compliance with Law.............................. 14
-------------------
(S)3.12 Proprietary Rights............................... 15
------------------
(S)3.13 Restrictive Documents or Laws.................... 16
-----------------------------
(S)3.14 Insurance........................................ 16
---------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
(S)3.15 Bank Accounts, Depositories; Powers of Attorney.. 17
-----------------------------------------------
(S)3.16 Title to and Condition of Properties............. 17
------------------------------------
(S)3.17 Brokers, Finders................................. 18
----------------
(S)3.18 Legal Proceedings, etc........................... 19
----------------------
(S)3.19 ERISA............................................ 19
-----
(S)3.20 Contracts........................................ 22
---------
(S)3.21 Accounts Receivable.............................. 23
-------------------
(S)3.22 No Conflict or Default........................... 24
----------------------
(S)3.23 Books of Account; Records........................ 24
-------------------------
(S)3.24 Officers, Employees and Compensation............. 24
------------------------------------
(S)3.25 Labor Relations.................................. 25
---------------
(S)3.26 Suppliers and Third Party Payors................. 26
--------------------------------
(S)3.27 Medicare and Medicaid............................ 26
---------------------
(S)3.28 Investment Intent................................ 26
-----------------
(S)3.29 Disciplinary Actions............................. 27
--------------------
(S)3.30 Complete Disclosure.............................. 28
-------------------
ARTICLE IV
COVENANTS OF THE PARTIES............. 28
------------------------
(S)4.1 Mutual Covenants................................. 28
----------------
(a) General..................................... 28
-------
(b) Governmental Matters........................ 28
--------------------
(c) Securities Law Compliance................... 28
-------------------------
(S)4.2 Covenants of Longhorn and the Longhorn
--------------------------------------
Shareholder...................................... 28
------------
(a) Delivery of Interim Statements.............. 28
------------------------------
(b) Conduct of Business......................... 28
-------------------
(c) Exclusive Rights............................ 30
----------------
(d) Access to Records and Other Due Diligence... 31
-----------------------------------------
(e) Disclosures................................. 31
-----------
(f) Employee Retention.......................... 32
------------------
(g) Affiliate Indebtedness...................... 32
----------------------
(h) Dividends and Distributions................. 32
---------------------------
(i) Shareholders Agreements..................... 32
-----------------------
(j) Formation of New PC......................... 32
-------------------
(k) Notices of Certain Events................... 33
-------------------------
(l) Representations and Warranties.............. 33
------------------------------
(m) Noncompetition.............................. 33
--------------
(n) Injunctive Relief........................... 34
-----------------
(S)4.3 Covenants of ADP.................................. 35
----------------
(a) Representations and Warranties.............. 35
------------------------------
(b) Non-Solicitation of Longhorn Employees...... 35
--------------------------------------
ARTICLE V
CONDITIONS.................... 35
----------
(S)5.1 Mutual Conditions................................. 35
-----------------
(a) Legal Prohibition........................... 35
-----------------
(b) Service Agreement........................... 35
-----------------
(c) Governmental Approvals...................... 35
----------------------
(d) Escrow Agreement............................ 35
----------------
(e) Registration Rights Agreement............... 36
-----------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
(S)5.2 Conditions to Obligations of Longhorn and the
---------------------------------------------
Longhorn Shareholder.............................. 36
--------------------
(a) Representations and Warranties............... 36
------------------------------
(b) Performance of Agreement..................... 36
------------------------
(c) Certificate.................................. 36
-----------
(d) Opinion of Counsel........................... 36
------------------
(e) Authority.................................... 36
---------
(f) Restrictive Conditions....................... 36
----------------------
(S)5.3 Conditions to Obligations of ADP and American..... 36
---------------------------------------------
(a) Representations and Warranties............... 36
------------------------------
(b) Performance of Agreement..................... 37
------------------------
(c) Certificate.................................. 37
-----------
(d) Reorganization............................... 37
--------------
(e) Structure of New PC.......................... 37
-------------------
(f) Authority.................................... 37
---------
(g) Professional Personnel....................... 37
----------------------
(h) Financial Statements......................... 37
--------------------
(i) Opinion of Counsel........................... 37
------------------
(j) Existing Employment and Deferred Compensation
---------------------------------------------
Agreements................................... 37
----------
(k) Employment and Noncompetition Agreement with
--------------------------------------------
ADP.......................................... 38
---
(l) Employment and Noncompetition Agreements of
-------------------------------------------
the New PC................................... 38
----------
(m) Third Party Consents......................... 38
--------------------
(n) Restrictive Conditions....................... 38
----------------------
(o) Defaults..................................... 38
--------
(p) Material Adverse Changes..................... 38
------------------------
(q) [Intentionally left blank.].................. 38
(r) Compliance with Laws......................... 39
--------------------
ARTICLE VI
TERMINATION AND AMENDMENT............ 39
-------------------------
(S)6.1 Termination....................................... 39
-----------
(a) Termination by Longhorn and the Longhorn
----------------------------------------
Shareholder................................... 39
-----------
(b) Termination by ADP............................ 39
------------------
(S)6.2 Amendment......................................... 40
---------
(S)6.3 Extension; Waiver................................. 40
-----------------
ARTICLE VII
INDEMNIFICATION ................. 40
---------------
(S)7.1 Survival of Representations, Warranties and
-------------------------------------------
Agreements........................................ 40
----------
(S)7.2 Indemnification................................... 41
---------------
(S)7.3 Limitations on Indemnification.................... 42
------------------------------
(S)7.4 Procedure for Indemnification with Respect to
---------------------------------------------
Third Party Claims................................ 43
------------------
(S)7.5 Procedure For Indemnification with Respect to Non-
--------------------------------------------------
Third Party Claims................................ 44
------------------
(S)7.6 Right of Setoff................................... 45
---------------
(S)7.7 Liability Limitations............................. 45
---------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
(S)7.8 Re-Assignment of Receivables...................... 45
----------------------------
(S)7.9 Indemnification of Longhorn....................... 46
---------------------------
ARTICLE VIII
MISCELLANEOUS.................. 46
-------------
(S)8.1 Notices........................................... 46
-------
(S)8.2 Non-Waiver........................................ 47
----------
(S)8.3 Genders and Numbers............................... 47
-------------------
(S)8.4 Headings.......................................... 47
--------
(S)8.5 Counterparts...................................... 47
------------
(S)8.6 Entire Agreement.................................. 48
----------------
(S)8.7 No Third Party Beneficiaries...................... 48
----------------------------
(S)8.8 Governing Law..................................... 48
-------------
(S)8.9 Binding Effect; Assignment........................ 48
--------------------------
(S)8.10 Remedies.......................................... 48
--------
(S)8.11 Expenses.......................................... 48
--------
(S)8.12 Public Announcements.............................. 48
--------------------
(S)8.13 Severability...................................... 49
------------
INDEX OF LONGHORN SCHEDULES.................................... 50
- ---------------------------
INDEX OF EXHIBITS.............................................. 51
- -----------------
</TABLE>
iv
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement (this "Agreement") is made December 13, 1996,
between American Dental Partners, Inc., a Delaware corporation ("ADP"), Texas
Dental Partners, Inc., a Texas corporation and wholly-owned subsidiary of ADP
("American"), Les L. Crane, D.D.S., P.C., a Texas corporation, dba Longhorn
Dental Associates ("Longhorn"), and Les L. Crane, D.D.S. (the "Longhorn
Shareholder").
BACKGROUND INFORMATION
----------------------
A. Longhorn desires to sell, and American desires to purchase,
substantially all of the assets of Longhorn (the "Asset Purchase") for total
consideration consisting of: (i) cash in the amount of $2,000,000 (the "Cash
Consideration"); (ii) a subordinated promissory note in the form attached hereto
as Exhibit A in the original principal amount of $435,000 (the "Note"), subject
to (S)1.5, below; (iii) 8,200 shares of common stock, par value $.01 per share,
of ADP (the "ADP Shares"), subject to (S)1.5 below; and (iv) the assumption by
American of the Assumed Liabilities (as defined in (S)1.3(a), below).
B. The respective boards of directors of ADP and Longhorn have determined
that the Asset Purchase and the other transactions described in this Agreement
are desirable and in the best interests of their respective shareholders and
have duly approved and adopted this Agreement. The Longhorn Shareholder also
has duly approved and adopted this agreement.
STATEMENT OF AGREEMENT
----------------------
The parties to this Agreement (the "Parties") hereby acknowledge the
foregoing Background Information and agree as follows:
ARTICLE I
ASSET PURCHASE AND SALE
-----------------------
(S)1.1 Asset Purchase and Sale. On the terms and subject to the
-----------------------
conditions described in this Agreement, Longhorn shall sell, assign, transfer,
convey, and deliver to American, and ADP shall cause American to purchase from
Longhorn, substantially all of the assets, rights, and business operations of
Longhorn (the "Assets"), including without limitation the following:
(a) All furniture, fixtures, and equipment (collectively, the
"Equipment");
(b) All office and dental supplies (collectively, the "Supplies");
<PAGE>
(c) All cash and cash equivalents (collectively, the "Cash");
(d) All accounts receivable (except Governmental Receivables, as
defined in (S)1.2(b), below) and notes receivable (collectively, the
"Receivables");
(e) Goodwill (the "Goodwill");
(f) All rights under any agreements with patients (to the extent
assignable) or suppliers (the "Patient and Supplier Agreements");
(g) All rights under any leases for the dental facilities currently
operated by Longhorn (the "Leases");
(h) All rights under any agreements with third parties providing
payment for dental services (the "Provider Agreements"); and
(i) All rights, titles, and interests in the Proprietary Rights and
the Software (each as defined in (S)3.12, below).
(S)1.2 Excluded Assets. Notwithstanding any other provisions of this
---------------
Agreement to the contrary, the following items shall be excluded from the
Assets:
(a) All patient records of Longhorn;
(b) Accounts receivable with respect to which assignment is
prohibited under any Governmental Reimbursement Law (as defined in (S)3.27,
below) (such receivables, "Governmental Receivables");
(c) Those assets of Longhorn set forth on Schedule 1.2(c); and
(d) Any other assets of Longhorn which American elects not to
purchase.
(S)1.3 Liabilities Assumed. At the Closing, American shall assume only
-------------------
the following liabilities of Longhorn (the "Assumed Liabilities"):
(a) Up to an aggregate of $132,000 of notes payable and capitalized
leases of Longhorn designated by ADP at or prior to the Closing;
(b) New Facilities Debt (as defined in (S)4.2(b), below);
(c) Longhorn's working capital liabilities, which include trade
accounts payable, employee payroll withholdings,
2
<PAGE>
accrued expenses incurred in the ordinary course of business, accrued but
unpaid franchise taxes, accrued but unpaid property taxes, and accrued but
unpaid doctor payroll and benefits;
(d) Accrued but unused vacation, sick, and personal time of
Longhorn employees;
(e) Accrued but unpaid obligations under Longhorn's employee health
and welfare plans; and
(f) Those liabilities set forth in Schedule 1.3(f).
Except as otherwise specifically provided in (S)1.3(a) through (f), above,
neither ADP nor American shall assume, or in any way be liable or responsible
for, any claims, liabilities, obligations, or debts of Longhorn, including
without limitation any liabilities of Longhorn relating to: (i) notes payable;
(ii) any pension, profit sharing, or employee benefit plans covering any of
Longhorn's employees for any period prior to the Closing; (iii) any acts or
omissions of Longhorn or its employees prior to the Closing (including without
limitation, any malpractice claims asserted by patients of Longhorn or other
tort claims asserted against Longhorn); (iv) claims for breach of contract; and
(v) other claims of any kind whatsoever, or any other liabilities of Longhorn,
direct or contingent.
(S)1.4 Purchase Price. Subject to (S)1.5, below:
--------------
(a) The total purchase price for the Assets (the "Purchase Price")
shall consist of the Cash Consideration, the Note, the ADP Shares, and the
assumption of the Assumed Liabilities by American.
(b) The Purchase Price shall be paid to Longhorn, at Closing, as
follows:
(i) ADP shall pay, or cause American to pay, the Cash
Consideration by certified or bank cashier's check or bank or wire
transfer;
(ii) ADP shall issue and deliver the Note;
(iii) ADP shall issue and deliver, or issue to American and
cause it to deliver, the ADP Shares; and
(iv) American shall assume the Assumed Liabilities by
executing and delivering an assumption agreement in the form attached
to this Agreement as Exhibit B (the "Assumption Agreement").
3
<PAGE>
(c) The Purchase Price shall be allocated among the Assets as
agreed upon by Longhorn and ADP at or prior to the Closing and in
accordance with Section 1060 of the Internal Revenue Code of 1986, as
amended, and the applicable regulations thereunder. Longhorn and ADP shall
exercise all reasonable good faith efforts to agree upon such allocation as
soon as practicable.
(d) The allocation of the Purchase Price for Federal income tax
purposes determined under this (S)1.4 shall be binding on each party to
this Agreement, shall be used for all purposes of their respective Federal,
state, and local income tax returns, and shall be supported by them in any
audits or other disputes or litigation involving any such returns.
(e) ADP and Longhorn shall timely prepare and file all required tax
reports and returns with respect to the allocation of Purchase Price under
this (S)1.4, such as Internal Revenue Service Form 8594 or any equivalent
statement, and will furnish the other Party with a copy of any such form or
statement no later than 10 days prior to the required filing date.
(S)1.5 Escrowed Consideration. Notwithstanding (S)1.4, above, at the
----------------------
Closing, the Note and 4,200 ADP Shares shall be deposited into escrow (the
"Escrowed Consideration") with an escrow agent reasonably satisfactory to
Longhorn and ADP (the "Escrow Agent") to be held and disbursed as provided in
the form of Escrow Agreement attached hereto as Exhibit C, which agreement (the
"Escrow Agreement") shall be executed and delivered by Longhorn and ADP at the
Closing.
(S)1.6 Closing. The closing of the Asset Purchase (the "Closing") shall
-------
be held at such time and place as may be mutually agreed upon by the Parties,
provided that the date for the Closing (the "Closing Date") shall be not later
than 15 business days after the satisfaction or waiver of all contingencies set
forth in Article V, below.
(S)1.7 Conveyance Documents. At the Closing, Longhorn shall execute and
--------------------
deliver to American the following documents to convey, assign, and transfer the
Assets to American:
(a) A bill of sale of the Equipment and Supplies, substantially in
the form attached as Exhibit D to this Agreement;
(b) An assignment of the Cash, Receivables, and Goodwill,
substantially in the form attached as Exhibit E to this Agreement;
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(c) An assignment of the Patient and Supplier Agreements,
substantially in the form attached as Exhibit F to this Agreement;
(d) An assignment of Leases, substantially in the form attached as
Exhibit G to this Agreement;
(e) An assignment of the Provider Agreements, substantially in the
form attached as Exhibit H to this Agreement;
(f) An assignment of the Proprietary Rights and Software,
substantially in the form attached as Exhibit I to this Agreement; and
(g) Such other assignment or conveyance documents as may be
reasonably requested by ADP or American.
If consents or approvals of any other parties are required for any
conveyances, assignments, or transfers contemplated by this Agreement, Longhorn
shall use all reasonable efforts to cause those consents or approvals to be
obtained prior to the Closing and shall cooperate with ADP and American after
the Closing in all ways reasonably requested by either of them to obtain any
such consents or approvals not obtained prior to the Closing; provided that the
foregoing shall not modify or constitute a waiver of (S)5.3(m) of this
Agreement. All costs related to such conveyances, assignments, and transfers
shall be paid by Longhorn (except ADP and American shall pay their own legal
fees). In the event that the assignor under any agreement assigned to American
pursuant to this Agreement fails or refuses to release Longhorn from its
obligations under such agreement in connection with such assignment, ADP shall
indemnify Longhorn against claims for non-performance under such agreement, as
more fully described in (S)7.7 of this Agreement.
(S)1.8 Possession. American shall be entitled to exclusive possession
----------
of the Assets at the Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ADP
-------------------------------------
In order to induce Longhorn and the Longhorn Shareholder to enter into this
Agreement, ADP hereby represents and warrants to Longhorn and the Longhorn
Shareholder that the statements contained in this Article are true, correct and
complete, except as disclosed in the Schedules specifically referred to in this
Article and delivered by ADP to Longhorn on or prior to the date of this
Agreement (collectively, the "ADP Schedules"):
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(S)2.1 Organization and Standing. ADP is a corporation duly organized,
-------------------------
validly existing and in good standing under the laws of its state of
incorporation with full corporate power and authority to own, lease, use and
operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted.
(S)2.2 Corporate Power and Authority. ADP has all requisite corporate
-----------------------------
power and authority to enter into this Agreement and to perform its obligations
under this Agreement. This Agreement and the transactions contemplated by this
Agreement have been duly and validly authorized by all necessary corporate
action on the part of ADP. This Agreement has been duly executed and delivered
by ADP and constitutes the legal, valid and binding obligation of ADP,
enforceable against ADP in accordance with its terms.
(S)2.3 Capitalization of ADP. As of the date of this Agreement, ADP's
---------------------
authorized capital stock consists solely of (a) 1,000,000 ADP Shares of which
310,000 are issued and outstanding; (b) 400,000, $.01 par value, Series A
Convertible Preferred Shares, of which 218,264 are issued and outstanding; and
(c) 70,000, $.01 par value, Series B Redeemable Preferred Shares, of which
38,196 are issued and outstanding. Each outstanding share of capital stock of
ADP is, and all ADP Shares to be issued in connection with the Asset Purchase
will be, duly authorized, validly issued, fully paid and nonassessable, and have
not been and will not be issued in violation of any preemptive or similar
rights.
(S)2.4 Conflicts; Consents and Approvals. Neither the execution and
---------------------------------
delivery of this Agreement by ADP nor the consummation of the transactions
contemplated in this Agreement will:
(a) Violate or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with the giving of notice,
the passage of time or otherwise, would constitute a default) under, or
entitle any third party (with the giving of notice, the passage of time or
otherwise) to terminate, accelerate or call a default under, or result in
the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of ADP under any of the terms, conditions or
provisions of the certificate of incorporation or bylaws, each as amended
to date, of ADP, or any note, bond, mortgage, indenture, deed of trust,
license, contract, undertaking, agreement, lease or other instrument or
obligation to which ADP is a party and which is material to ADP and its
subsidiaries, taken as a whole;
(b) Violate any order, writ, injunction, decree, statute, rule or
regulation, applicable to ADP or its properties or assets; or
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(c) Require any action or consent or approval of, or review by, or
registration with any third party, court or governmental body or other
agency, instrumentality or authority, other than such actions taken in
respect of federal and state securities laws as are contemplated by this
Agreement.
(S)2.5 Litigation. There is no suit, claim, action, proceeding or
----------
investigation pending or, to the best knowledge of ADP, threatened against ADP
which, individually or in the aggregate, is reasonably likely to have a material
adverse effect on ADP and its subsidiaries, taken as a whole, or a material
adverse effect on the ability of ADP to consummate the transactions contemplated
in this Agreement. ADP is not subject to any outstanding order, writ,
injunction or decree which, insofar as can be reasonably foreseen, individually
or in the aggregate, would have a material adverse effect on it or a material
adverse effect on the ability of ADP to consummate the transactions contemplated
by this Agreement.
(S)2.6 Brokerage and Finder's Fees. Neither ADP nor any of its
---------------------------
shareholders, directors, officers or employees has incurred, or will incur on
behalf of ADP, any brokerage, finder's or similar fee in connection with the
transactions contemplated by this Agreement.
(S)2.7 Acquisition of Park Dental. Effective as of November 12, 1996,
--------------------------
ADP consummated the acquisition of PDHC, Ltd., a Minnesota corporation.
(S)2.8 Complete Disclosure. No representation or warranty by either ADP
-------------------
or American in this Agreement contains, or will contain, as of the Closing, any
untrue statement of a material fact or omits, or will omit, as of the Closing, a
material fact necessary to make the statements contained herein or therein not
misleading. No documents set forth on Schedule 2.8 contained, as of the date of
its delivery to Longhorn, any untrue statement of a material fact or omitted, as
of the date of its delivery to Longhorn, a material fact necessary to make the
statements contained therein not misleading.
The representations and warranties contained in this Article shall expire
automatically on the third anniversary of the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF LONGHORN AND THE LONGHORN SHAREHOLDER
----------------------------------------
In order to induce ADP to enter into this Agreement, Longhorn and the
Longhorn Shareholder hereby jointly and severally represent and warrant to ADP
that the statements contained in this Article are true, correct and complete,
except as disclosed in the
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Schedules specifically referred to in this Article and delivered by Longhorn to
ADP on or prior to the date of this Agreement (collectively, the "Longhorn
Schedules").
(S)3.1 Organization and Standing. Longhorn is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of its state of
incorporation with full corporate power and authority to own, lease, use and
operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted. Longhorn is duly qualified to do business
and is in good standing in each jurisdiction listed in Schedule 3.1, is not
qualified to do business in any other jurisdiction, and neither the nature of
the business conducted by Longhorn nor the properties it owns, leases or
operates requires it to qualify to do business as a foreign corporation in any
other jurisdiction. Longhorn has not received any written notice or assertion
within the last three years from any governmental official in any jurisdiction
to the effect that it is required to be qualified or authorized to do business
in such jurisdiction, in which Longhorn is not so qualified or has not obtained
such authorization. Longhorn is not in default in the performance, observation
or fulfillment of any provision of its certificate or articles of incorporation,
bylaws, or other organizational documents, as applicable, each as amended to
date.
(S)3.2 Capitalization and Security Holders.
-----------------------------------
(a) Longhorn Shares. The authorized capital stock of Longhorn (the
---------------
"Longhorn Shares") consists solely of 100,000 shares of common stock, par
value $.10 a share (the "Common Shares"), of which 3,000 are issued and
outstanding. Except as set forth in Schedule 3.2, the Longhorn Shareholder
holds beneficially and of record all of the outstanding Longhorn Shares.
All of the outstanding Longhorn Shares are entitled to vote with respect to
the Asset Purchase. The Longhorn Shareholder shall cause the encumbrance
described on Schedule 3.2 to be released at or prior to the Closing.
(b) Stock Ownership. Schedule 3.2 sets forth correctly and
---------------
completely the name and address of, and the number of Longhorn Shares held
beneficially and of record by, the Longhorn Shareholder. The Longhorn
Shareholder is the sole holder of Longhorn Shares.
(c) Due Authorization and Issuance. Each outstanding Longhorn Share
------------------------------
has been duly authorized and validly issued and is fully paid and non-
assessable and has not been issued in violation of any preemptive or
similar rights.
(d) No Other Commitment. Except as set forth in Schedule 3.2, there
-------------------
are no outstanding subscriptions, options, warrants, puts, calls,
agreements, understandings, claims or
8
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other commitments or rights of any type relating to the issuance, sale or
transfer by either Longhorn or the Longhorn Shareholder of any Longhorn
Shares, nor are there outstanding any securities which are convertible into
or exchangeable for any shares of capital stock of Longhorn and Longhorn
has no obligation of any kind to issue any additional securities of
Longhorn, or any predecessor.
(e) Compliance with Laws; No Liens. The issuance and sale of all of
------------------------------
the Longhorn Shares has been in full compliance with all applicable federal
and state securities laws and other laws. Except as set forth in Schedule
3.2, all of the Longhorn Shares are free and clear of all liens, security
interests, encumbrances, pledges, charges, asserted claims, voting trusts
and restrictions on transfer of any nature whatsoever, except restrictions
on transfer imposed by or pursuant to federal and state securities laws.
Except as set forth in Schedule 3.2, Longhorn has not agreed to register
any securities under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations thereunder or under any
state securities law.
(S)3.3 Subsidiaries. Set forth on Schedule 3.3 is a correct and complete
------------
list of all subsidiary corporations of Longhorn, the number and class of shares
of capital stock of each such subsidiary, and the percentage of all capital
stock of that subsidiary which is represented by the shares owned by Longhorn.
Except as set forth on Schedule 3.3, Longhorn does not own, directly or
indirectly, any equity or other ownership interest in any corporation,
partnership, joint venture or other entity or enterprise (hereinafter, simply
"entity"). Longhorn is not subject to any obligation or requirement to provide
funds to or make any investment (in the form of a loan, capital contribution or
otherwise) in any entity.
(S)3.4 Business of Longhorn. Longhorn is and has been engaged in the
--------------------
business of providing general dentistry and specialty dental services to its
patients and the retail sale of dental products and is engaged in no other
business whatsoever except as may be incidental to the foregoing.
(S)3.5 Corporate Power and Authority. Longhorn has all requisite
-----------------------------
corporate power and authority to enter into and perform this Agreement and to
carry out its obligations under this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by the board of directors and the shareholders of Longhorn. This
Agreement has been duly executed and delivered by Longhorn and constitutes the
legal, valid and binding obligation of Longhorn enforceable against Longhorn in
accordance with its terms. No other corporate action or proceeding by or in
respect of Longhorn is or was necessary to
9
<PAGE>
authorize this Agreement or the consummation of the transactions contemplated by
this Agreement.
(S)3.6 Consents and Approvals. Except for the consents described in
----------------------
Schedule 3.6, all of which shall be obtained prior to the Closing (unless
otherwise expressly agreed by ADP in writing), neither the execution and
delivery of this Agreement by Longhorn or the Longhorn Shareholder nor the
consummation of the transactions contemplated by this Agreement require or will
require any action, consent, or approval of, or review by, or registration with,
any third party, court or governmental body or other agency, instrumentality or
authority.
(S)3.7 Financial Statements.
--------------------
(a) Longhorn shall furnish to ADP the balance sheets for Longhorn as
of December 31, 1995, and the related statements of income and retained
earnings and cash flows for the fiscal year then ended, including, in each
case, the related notes (collectively, the "Financial Statements"). The
Financial Statements as of and for the fiscal year ended December 31, 1995,
are sometimes hereinafter referred to separately as the "1995 Financial
Statements". The Financial Statements shall be prepared from and be in
accordance with the books and records of Longhorn on a cash basis
consistent with Longhorn's past practices, shall be initialed for
identification by the Chief Executive Officer of Longhorn, and shall fairly
present the financial condition of Longhorn as of the dates stated and the
results of operations of Longhorn for the periods then ended.
(b) When delivered in accordance with Section 4.2(a) of this
Agreement, the balance sheet of Longhorn as of the most recent month-end
prior to the Closing Date, and the related statements of income and
retained earnings and cash flows for the period beginning on the first day
of Longhorn's current fiscal year through the most recent month-end prior
to the Closing (collectively, the "Interim Statements"), shall have been
prepared on a basis consistent with that used in the Financial Statements,
and shall fairly present the financial condition of Longhorn as of such
date and the results of operations of Longhorn for such period then ended.
(S)3.8 Undisclosed Liabilities. Except as disclosed in Schedule 3.8,
-----------------------
Longhorn does not have any liability or obligation of any nature (whether
liquidated, unliquidated, accrued, absolute, contingent or otherwise and whether
due or to become due) except:
(a) Those set forth in the 1995 Financial Statements which have not
been paid or discharged since the date thereof;
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(b) Those arising from and after the date of this Agreement under
agreements or other commitments specifically identified in Schedule 3.20;
and
(c) Current liabilities (determined in accordance with generally
accepted accounting principles) incurred since January 1, 1996, in
transactions in the ordinary course of business consistent with past
practices which are properly reflected on its books, are or will be
properly reflected in the Interim Statements, and are not inconsistent with
the other representations, warranties and agreements of Longhorn and the
Longhorn Shareholder set forth in this Agreement.
(S)3.9 Absence of Certain Changes. Except as set forth in Schedule 3.9,
--------------------------
since January 1, 1996, there has not been:
(a) Any material adverse change in the business, operations, assets,
properties, prospects, rights or condition (financial or otherwise) of
Longhorn, or any occurrence, circumstance, or combination thereof which
reasonably could be expected to result in any such material adverse change
(a "Material Adverse Effect");
(b) Any declaration, setting aside or payment of any dividend or any
distribution (in cash or in kind) to any shareholder of Longhorn or any
direct or indirect redemption, purchase or other acquisition by Longhorn of
any of its capital stock or any options, warrants, rights or agreements to
purchase or acquire such stock;
(c) Any increase in amounts payable by Longhorn to or for the benefit
of, or committed to be paid by Longhorn to or for the benefit of any
stockholder, director, or officer of Longhorn, or any other consultant,
agent or employee of Longhorn, or any relatives of any such person, or any
increase in any benefits granted under any bonus, stock option, profit-
sharing, pension, retirement, deferred compensation, insurance, or other
direct or indirect benefit plan, payment or arrangement made to, with or
for the benefit of any such person, excepting only reimbursement in the
ordinary course of business, in a manner consistent with past practices, of
out-of-pocket expenses incurred by employees of Longhorn directly in
connection with Longhorn's business;
(d) Any transaction entered into or carried out by Longhorn other than
in the ordinary and usual course of its business;
(e) Any borrowing or agreement to borrow funds by Longhorn, any
incurring by Longhorn of any other obligation or liability (contingent or
otherwise), except current
11
<PAGE>
liabilities incurred in the usual and ordinary course of business
(consistent with past practices), or any endorsement, assumption or
guarantee of payment or performance of any loan or obligation of any other
individual, firm, corporation or other entity by Longhorn;
(f) Any material change in Longhorn's method of doing business or any
change in its accounting principles or practices or its method of
application of such principles or practices;
(g) Any mortgage, pledge, lien, security interest, hypothecation,
charge or other encumbrance imposed or agreed to be imposed on or with
respect to the property or assets of Longhorn;
(h) Any sale, lease or other disposition of, or any agreement to sell,
lease or otherwise dispose of any of the properties or assets of Longhorn,
other than in the usual and ordinary course of business;
(i) Any purchase of or any agreement to purchase assets (other than
inventory purchased in the ordinary course of business consistent with past
practices) for an amount in excess of $10,000 for any one purchase or
$25,000 for all such purchases made by Longhorn or any lease or any
agreement to lease, as lessee, any capital assets with payments over the
term thereof to be made by Longhorn exceeding an aggregate of $10,000;
(j) Any loan or advance made by Longhorn to any individual, firm,
corporation or other entity;
(k) Any material modification, waiver, change, amendment, release,
rescission or termination of, or accord and satisfaction with respect to,
any term, condition or provision of any contract, agreement, license or
other instrument to which Longhorn is a party, other than specific patient
treatment plans and other than any satisfaction by performance in
accordance with the terms thereof in the usual and ordinary course of
business;
(l) Any labor dispute or disturbance adversely affecting the business
operations or condition (financial or otherwise) of Longhorn, including
without limitation the filing of any petition or charge of unfair labor
practice with any governmental or regulatory authority, efforts to effect a
union representation election, actual or threatened employee strike, work
stoppage or slow down; or
(m) Any disciplinary or other similar action, proceeding, or
investigation, of record or notice of which has
12
<PAGE>
been provided to Longhorn or the Longhorn Shareholder, taken by the Texas
Board of Dentistry or other governmental or accrediting board, agency, or
authority against or with respect to Longhorn, the Longhorn Shareholder, or
any employee of Longhorn or any of its affiliates.
(S)3.10 Taxes.
-----
(a) Except as set forth in Schedule 3.10, Longhorn has duly, properly,
and timely filed all federal, state, local and foreign tax returns and tax
reports required to be filed by it, all such returns and reports are true,
correct and complete, none of such returns and reports have been amended,
and all taxes, assessments, fees and other governmental charges due from
Longhorn, including without limitation those arising under such returns and
reports, have been fully paid or are fully accrued as liabilities in the
1995 Financial Statements or the Interim Statements and will be timely
paid. No claim has been made by authorities in any jurisdiction where
Longhorn did not file tax returns that it is or may be subject to taxation
therein.
(b) Longhorn has delivered to ADP copies of all federal, state, local,
and foreign income tax returns filed with respect to Longhorn for taxable
periods ended on or after December 31, 1993. Schedule 3.10 sets forth the
dates and results of any and all audits conducted by taxing authorities
within the last five years or otherwise with respect to any tax year for
which assessment is not barred by any applicable statute of limitations.
No waivers of any applicable statute of limitations for the filing of any
tax returns or payment of any taxes or assessments of any deficient or
unpaid taxes are outstanding. Except as set forth in Schedule 3.10, all
deficiencies proposed as a result of any audits have been paid or settled.
There are no pending or threatened federal, state, local or foreign tax
audits or assessments of Longhorn and no agreement with any federal, state,
local or foreign taxing authority that may affect the subsequent tax
liabilities of Longhorn.
(c) Except as set forth in Schedule 3.10, Longhorn is not on the date
of this Agreement, nor will it be as of the Closing, liable for taxes,
assessments, fees or governmental charges for which Longhorn has not made
adequate provision, including setting aside a sufficient reserve to cover
that potential liability in full in the 1995 Financial Statements or the
Interim Statements.
(d) There exists no tax-sharing agreement or arrangement pursuant to
which Longhorn is obligated to pay the tax liability of any other person or
entity, or to indemnify any other person or entity with respect to any tax.
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(e) Schedule 3.10 includes a list of all states, territories and
jurisdictions to which any tax is properly payable by Longhorn.
(S)3.11 Compliance with Law. To the best knowledge of Longhorn and the
-------------------
Longhorn Shareholder, Longhorn has complied and is in compliance in all material
respects with all applicable laws, statutes, orders, rules, regulations,
policies and guidelines promulgated, and all judgments, decisions and orders
entered, by any federal, state, local or foreign court or governmental
authority, agency, or instrumentality relating to Longhorn, or its business or
properties, including without limitation all zoning, fire, safety, building,
asbestos laws, ordinances, regulations and requirements, Environmental Laws
(defined below), Governmental Reimbursement Laws (defined in (S)3.27), Title VII
of the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, the
Americans with Disabilities Act of 1990, all applicable federal, state and local
laws, rules and regulations relating to employment, and all applicable laws,
rules and regulations governing payment of minimum wages and overtime rates, and
the withholding and payment of taxes from compensation of employees; federal and
state antitrust and trade regulation laws applicable to competition generally or
to agreements restricting, allocating or otherwise affecting geographic or
product markets; all laws, rules, and regulations relating to the licensing or
credentialing of dentists, endodontists, periodontists, prosthodontists,
pediatric dentists, orthodontists, oral surgeons, certified registered dental
assistants, hygienists, and other dental care professionals involved with the
business of Longhorn; all federal or state laws and regulations relating to
fraud and abuse; and all related laws, ordinances, regulations and requirements
(collectively, the "Applicable Laws"); provided that the representations and
warranties set forth in this sentence shall not extend or relate to activities
of the owner or prior occupants of real property used by Longhorn but not owned
by Longhorn or the Longhorn Shareholder, except to the extent such activities
are known to Longhorn or the Longhorn Shareholder. Schedule 3.11 includes a
list of all franchises, licenses, permits, consents, authorizations, approvals
and certificates necessary for Longhorn to carry on its business as presently
conducted (collectively, the "Permits"), each of which currently is owned by
Longhorn and is valid and in full force and effect. Except as set forth in
Schedule 3.11, Longhorn is not in violation of any of the Permits, and there are
no pending or threatened proceedings which could result in the revocation,
cancellation or inability of Longhorn to renew any Permit. Except as set forth
in Schedule 3.11, Longhorn has not been charged with or given notice of any
violation of any of the Applicable Laws which violation has not been remedied in
full (without any remaining liability of Longhorn). Except as set forth on
Schedule 3.11, (i) Longhorn has never disposed of, or contracted for the
disposal of, hazardous wastes, hazardous
14
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substances, infectious or medical waste, radioactive waste or sewage sludge, and
(ii) no such wastes, substances, or sludge generated by Longhorn have finally
come to be located on any site which is or has been (including as a potential or
suspect site) included in any published federal, state, or local "superfund" or
other list of hazardous or toxic waste sites.
For purposes of this Agreement, "Environmental Laws" shall mean all
federal, state, and local environmental laws, statutes, ordinances, and codes
relating to the protection of public health or the environment (including
without limitation any water, water vapor, land, subsurface, air, fish,
wildlife, biota, and other natural resources) and/or governing the use, storage,
treatment, generation, transportation, processing, handling, management,
production, or disposal of solid wastes, medical wastes, toxic substances,
hazardous wastes, hazardous substances, petroleum, petroleum based products,
radio-nuclides, or other radioactive materials and the rules, regulations,
policies, guidelines, interpretations, decisions, orders, and directives of
federal, state, and local government agencies and authorities with respect
thereto.
(S)3.12 Proprietary Rights. Schedule 3.12 sets forth:
------------------
(a) All material names, patents, inventions, trade secrets, customer
lists, proprietary rights, computer software, trademarks, trade names,
service marks, logos, copyrights and franchises and all applications
therefor, registrations thereof and licenses, sublicenses or agreements in
respect thereof which Longhorn owns or has the right to use or to which
Longhorn is a party; and
(b) All filings, registrations or issuances of any of the foregoing
with or by any federal, state, local or foreign regulatory, administrative
or governmental office or offices (all items in (a) and (b) of this
section, together with the customer lists described below, being sometimes
hereinafter referred to collectively as the "Proprietary Rights").
Except as set forth in Schedule 3.12, Longhorn is the sole and exclusive
owner of all right, title and interest in and to all Proprietary Rights free and
clear of all liens, claims, charges, equities, rights of use, encumbrances and
restrictions whatsoever, and there is no pending or threatened investigation,
proceeding, inquiry or other review by any federal, state, local or foreign
regulatory, administrative or governmental office or offices with respect to
Longhorn's right, title or interest in any Proprietary Right.
Other than those Proprietary Rights listed in Schedule 3.12, no name,
patent, invention, trade secret, patient list, customer list, proprietary right,
computer software, trademark, trade name,
15
<PAGE>
service mark, logo, copyright, franchise, license, sublicense, or other such
right is necessary for the operation of the business of Longhorn in
substantially the same manner as such business is presently conducted. No
business of Longhorn has been or is now being conducted in contravention of any
trademark, copyright or other proprietary right of any third party.
Except as set forth in Schedule 3.12, none of the Proprietary Rights: has
been hypothecated, sold, assigned or licensed by Longhorn, or any other person,
corporation, firm or other legal entity; infringe upon or violate the rights of
any person, firm, corporation, or other legal entity; are subject to challenge,
claims of infringement, unfair competition or other claims; or are being
infringed upon or violated by any person, firm, corporation or other legal
entity. Except as set forth in Schedule 3.12: Longhorn has not given, directly
or indirectly, any indemnification against patent, trademark or copyright
infringement as to any equipment, materials, products, services or supplies
which Longhorn uses, licenses or sells; no product, process, method or operation
presently sold, engaged in or employed by Longhorn infringes upon any rights
owned by any other person, firm, corporation or other legal entity; and there is
no pending or threatened claim or litigation against Longhorn contesting the
right of Longhorn to sell, engage in or employ any such product, process,
method, or operation.
Longhorn has no exclusive rights to own, use and license others to use the
computer software used by Longhorn (the "Software"). Schedule 3.12 lists and
briefly describes, and Longhorn has provided to ADP true, correct and complete
copies of, all material licenses, agreements, documents and other materials
relating to the Software and to the rights of Longhorn therein. Longhorn has
not licensed or otherwise authorized any other person to use or make use of all
or any part of the Software, nor has Longhorn granted, assigned or otherwise
conveyed any right in or to the Software.
(S)3.13 Restrictive Documents or Laws. With the exception of the matters
-----------------------------
listed in Schedule 3.13, Longhorn is not a party to or bound under any mortgage,
lien, lease, agreement, contract, instrument, law, order, judgment or decree, or
any similar restriction not of general application which materially and
adversely affects, or reasonably could be expected to so affect (a) the
condition of Longhorn (financial or otherwise); (b) the continued operation by
ADP of Longhorn's assets after the Closing on substantially the same basis as
such assets are currently operated; or (c) the consummation of the transactions
contemplated by this Agreement.
(S)3.14 Insurance. Longhorn has been and is insured with respect to its
---------
property and the conduct of its business in such amounts and against such risks
as are sufficient for compliance
16
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with Applicable Laws and as are adequate to protect the properties and
businesses of Longhorn in accordance with normal industry practice. Such
insurance is and has been provided by insurers unaffiliated with Longhorn, which
insurers are financially sound and reputable. Set forth in Schedule 3.14 is a
true, correct and complete list of all insurance policies and bonds, if any, in
force for which Longhorn is named as an insured party, or for which Longhorn has
paid any premiums, and such lists correctly state the name of the insurer, the
name of each insured party, the type and amount of coverage, deductible amounts,
if any, the expiration date and the premium amount of each such policy or bond.
Except as disclosed in Schedule 3.14, all such policies or bonds are currently
in full force and effect and no notice of cancellation or termination has been
received by Longhorn with respect to any such policy or bond. Longhorn will
continue all such policies and bonds in full force and effect through the
Closing. All premiums due and payable on such policies and bonds have been
paid. Except as disclosed in Schedule 3.14, Longhorn is not a co-insurer under
any term of any insurance policy.
(S)3.15 Bank Accounts, Depositories; Powers of Attorney. Set forth in
-----------------------------------------------
Schedule 3.15 is a true, correct and complete list of the names and locations of
all banks or other depositories in which Longhorn has accounts or safe deposit
boxes, and the names of the persons authorized to draw thereon, borrow therefrom
or have access thereto. Except as set forth in such Schedule 3.15, no person or
entity has a power of attorney from Longhorn.
(S)3.16 Title to and Condition of Properties. Except as set forth in
------------------------------------
Schedule 3.16, Longhorn has good, valid and marketable title to all of its
assets and properties of every kind, nature and description, tangible or
intangible, wherever located, which constitute all of the property now used in
and necessary for the conduct of its business as presently conducted (including
without limitation all property and assets shown or reflected on the 1995
Financial Statements). Except as set forth in Schedule 3.16, all such
properties are owned free and clear of all mortgages, pledges, liens, security
interests, encumbrances and restrictions of any nature whatsoever, including
without limitation (a) rights or claims of parties in possession; (b) easements
or claims of easements; (c) encroachments, overlaps, boundary line or water
drainage disputes or any other matters; (d) any lien or right to a lien for
services, labor or material furnished; (e) special tax or other assessments; (f)
options to purchase, leases, tenancies, or land contracts; (g) contracts,
covenants, or reservations which restrict the use of such properties and (h)
violations of Environmental Laws and zoning, fire safety, building, and other
laws, ordinances and regulations applicable to such properties. The current
uses of all such properties are in compliance with all federal, state, local or
other governmental building, zoning, health, safety, platting, subdivision or
other law, ordinance or regulation, or any applicable private restriction, and
such uses
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are legal conforming uses. Except as set forth in Schedule 3.16, no financing
statement under the Uniform Commercial Code or similar law naming Longhorn as
debtor has been filed in any jurisdiction, and Longhorn is not a party to or
bound under any agreement or legal obligation authorizing any party to file any
such financing statement. Schedule 3.16 contains a complete and accurate legal
description of all of the real property owned or leased by Longhorn (organized
by category). Longhorn does not own or lease any other real property.
Except as set forth in Schedule 3.16, all real property and structures and
all machinery, equipment, and other tangible personal property owned, leased or
used by Longhorn which are material to the operation of its business, are, to
the best of Longhorn's and the Longhorn Shareholder's knowledge, suitable for
the purpose or purposes for which they are being used (including full compliance
with all laws and regulations relating to such use), and are in good condition
and repair, ordinary wear and tear excepted. There are no material structural
defects in the exterior walls or the interior bearing walls, the foundation or
the roof of any building or other such structure owned or used by Longhorn, and
the electrical, plumbing, heating systems, and air conditioning systems of all
such structures are in good operating condition, ordinary wear and tear
excepted. No hazardous waste or toxic material has been disposed of or
discharged on, leaked from, or has otherwise contaminated any real property used
by Longhorn. No hazardous waste or toxic material is stored upon or in any real
property used by Longhorn (including without limitation any underground storage
tanks). Neither Longhorn nor the Longhorn Shareholder has caused or permitted,
and to the best of their knowledge no other party has caused or permitted, any
hazardous waste or toxic material to be disposed of or discharged on, leaked
from, or otherwise contaminate any real property used by Longhorn. Neither
Longhorn nor the Longhorn Shareholder has caused or permitted, and to the best
of their knowledge no other party has caused or permitted, any hazardous waste
or toxic material to be stored upon or in any real property used by Longhorn
(including without limitation any underground storage tanks). Longhorn has not
received any notice of non-compliance or violations or threatened non-compliance
or violations of any applicable Environmental Laws relating to any real property
used by Longhorn. The utilities servicing the real properties used by Longhorn
are adequate to permit the continued operation of the business of Longhorn, and
there are no pending or threatened zoning, condemnation or eminent domain
proceedings, building, utility or other moratoria, or injunctions or court
orders which would materially affect such continued operation.
(S)3.17 Brokers, Finders. The transactions contemplated by this Agreement
----------------
were not submitted to either Longhorn or the Longhorn Shareholder by any broker
or other person entitled to a commission, finder's fee or like payment thereon,
and were not, with the
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consent of either Longhorn or the Longhorn Shareholder, submitted to ADP by any
broker or other person, and none of the actions of either Longhorn or the
Longhorn Shareholder has given rise to any claim by any person for a commission,
finder's fee or like payment against any of the Parties.
(S)3.18 Legal Proceedings, etc. Except as listed and described in Schedule
-----------------------
3.18, there are no (and over the last five years there have been no) claims,
proceedings, suits or investigations pending or overtly threatened against or
relating to Longhorn (or any of its officers, directors, or shareholders in
connection with the business or affairs of Longhorn), by or before any federal,
state, local or foreign court or governmental body, agency, or authority. There
are no such claims, proceedings, suits or investigations pending or threatened
for the purpose of enjoining or preventing the consummation of the Asset
Purchase or any other transaction contemplated by this Agreement or otherwise
challenging the validity or propriety of the transactions contemplated by this
Agreement. Except as disclosed in Schedule 3.18, neither Longhorn nor any of
its officers, directors, or shareholders is subject to any judgment, order or
decree, or any governmental restriction applicable to Longhorn, which has a
reasonable probability of having a Material Adverse Effect, or which may
materially adversely affect the ability of Longhorn to acquire any property or
conduct business as is currently being conducted. Except as listed and
described in Schedule 3.18, there are no facts, circumstances, or occurrences
known to, or which reasonably should be known to, Longhorn or the Longhorn
Shareholder, which may give rise to any claims, proceedings, or suits against
Longhorn or any of its officers, directors, or shareholders.
(S)3.19 ERISA.
-----
(a) Schedule 3.19 identifies each "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA") which (i) is subject to any provision of ERISA and (ii) is or was at
any time during the last five years maintained, administered or contributed to
by Longhorn or any affiliate (as defined below) and covers any employee or
former employee of Longhorn or any affiliate or under which Longhorn or any
affiliate has any liability. Copies of such plans (and, if applicable, related
trust agreements) and all amendments thereto and written interpretations thereof
have been furnished to ADP together with the three most recent annual reports
(Form 5500) prepared in connection with any such plan. Such plans are referred
to collectively herein as the "Employee Plans." For purposes of this section,
"affiliate" of any person or entity means any other person or entity which,
together with such person or entity, would be treated as a single employer under
Section 414 of the Code or is an "affiliate," whether or not incorporated, as
defined in Section 407(d)(7) of ERISA of such person or entity. The only
Employee Plans which individually or collectively would constitute an
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"employee pension benefit plan" as defined in Section 3(2) of ERISA (the
"Pension Plans") are identified as on Schedule 3.19.
(b) No Employee Plan constitutes a "multiemployer plan," as defined in
Section 3(37) of ERISA, or a "defined benefit plan," as defined in Section 3(35)
and subject to Title IV of ERISA, and no Employee Plan is maintained in
connection with any trust described in Section 501(c)(9) of the Code. No
"accumulated funding deficiency," as defined in Section 412 of the Code, has
been incurred with respect to any Pension Plan, whether or not waived. Full
payment has been made of all amounts which Longhorn or any affiliate is required
to have paid as contributions to or benefits under any Employee Plan as of the
end of the most recent fiscal year thereof and there are no unfunded obligations
under any Employee Plan that have not been disclosed to ADP in writing prior to
the Closing. Neither Longhorn nor the Longhorn Shareholder knows of any
"reportable event," within the meaning of Section 4043 of ERISA, and no event
described in Section 4041, 4042, 4062 or 4063 of ERISA has occurred in
connection with any Employee Plan. No condition exists and no event has
occurred that could constitute grounds for termination of any Retirement Plan,
and neither Longhorn nor any of its affiliates has incurred any material
liability under Title IV of ERISA arising in connection with the termination of,
or complete or partial withdrawal from, any plan covered or previously covered
by Title IV of ERISA. Nothing done or omitted to be done and no transaction or
holding of any asset under or in connection with any Employee Plan has or will
make either Longhorn or any officer or director of Longhorn, subject to any
liability under Title I of ERISA or liable for any tax pursuant to Section 4975
of the Code. There is no pending or threatened litigation, arbitration,
disputed claim, adjudication, audit, examination or other proceeding with
respect to any Employee Plan or any fiduciary or administrator thereof in their
capacities as such.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. Longhorn has furnished to ADP
copies of the most recent Internal Revenue Service determination letters with
respect to each such Employee Plan. Each Employee Plan has been maintained,
from the time of such Plan's inception up to and including the performance of
any or all transactions contemplated in this Agreement, in compliance with its
terms and the requirements and fiduciary standards prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, which are applicable to such Employee Plan.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of Longhorn or any affiliate that, individually or
collectively, could give rise to
20
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the payment of any amount that would not be deductible pursuant to the terms of
the Code.
(e) Schedule 3.19 identifies each employment, severance or other
similar contract, arrangement or policy and each plan or arrangement (written or
oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits or for deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits which (i) is not an Employee Plan, (ii) is entered into, maintained
or contributed to, as the case may be, by Longhorn or any of its affiliates, and
(iii) covers any employee or former employee of Longhorn or any of its
affiliates. Such contracts, plans and arrangements as are described above,
copies or descriptions of all of which have been furnished previously to ADP,
are referred to collectively herein as the "Benefit Arrangements." Each Benefit
Arrangement has been maintained in substantial compliance with its terms and
with requirements prescribed by any and all statutes, orders, rules and
regulations that are applicable to such Benefit Arrangement.
(f) Except as set forth in Schedule 3.19, there is no liability in
respect of post-retirement health and medical benefits for retired employees of
Longhorn or any of its affiliates, determined using assumptions that are
reasonable in the aggregate, over the fair market value of any fund, reserve or
other assets segregated for the purpose of satisfying such liability (including
for such purposes any fund established pursuant to Section 401(h) of the Code).
Longhorn has reserved its right to amend or terminate any Employee Plan or
Benefit Arrangement providing health or medical benefits in respect of any
active employee of Longhorn under the terms of any such plan and descriptions
thereof given to employees. With respect to any of Longhorn's Employee Plans
which are "group health plans" under Section 4980B of the Code and Section
607(1) of ERISA, there has been timely compliance in all material respects with
all requirements imposed thereunder so that Longhorn and its affiliates have no
(and will not incur any) loss, assessment, tax penalty, or other sanction with
respect to any such plan.
(g) Except as set forth in Schedule 3.19, there has been no amendment
to, written interpretation or announcement (whether or not written) by Longhorn
or any of its affiliates relating to, or change in employee participation or
coverage under, any Employee Plan or Benefit Arrangement which would increase
the expense of maintaining such Employee Plan or Benefit Arrangement above the
level of the expense incurred in respect thereof for the fiscal year ended
immediately prior to the Closing.
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<PAGE>
(h) Except as set forth in Schedule 3.19, Longhorn is not a party or
subject to any union contract or any employment contract or arrangement
providing for annual future compensation to any officer, consultant, director or
employee.
(i) The execution and consummation of the transactions contemplated by
this agreement will not constitute a triggering event under any Employee Plan,
whether or not legally enforceable, which (either alone or upon the occurrence
of any additional or subsequent event) will or may result in any payment (of
severance pay or otherwise), acceleration, increase in vesting, or increase in
benefits to any current or former participant, employee or director of Longhorn
that has not been specifically disclosed on Schedule 3.19 or which is not
material to the financial condition or business of Longhorn.
(j) Any reference to ERISA or the Code or any section thereof shall be
construed to include all amendments thereto and applicable regulations and
administrative rulings issued thereunder.
(S)3.20 Contracts. Schedule 3.20 lists and briefly describes all
---------
contracts, purchase orders, agreements, leases, executory commitments,
arrangements and understandings (written or oral) to which Longhorn is a party
(a) which, including all amendments and supplements thereto, are material to the
condition, operations, assets or business of Longhorn, (b) which (i) involve
payments or commitments in excess of $10,000 for any purchase order or $10,000
for any other contract, agreement, lease, commitment, arrangement, or
understanding, or (ii) extend beyond one year (or both), unless cancelable on 60
or fewer days' notice without any liability, penalty or premium, (c) with any
present or former stockholder, director or officer of Longhorn, or any person
related by blood or marriage to any such person or any person or entity
controlling, controlled by or under common control with any such person, or with
any employee, agent or consultant of Longhorn not terminable at will, (d) which
provide for a discount from Longhorn's standard fee schedules, (e) which provide
for the future purchase by Longhorn of any materials, equipment, services or
supplies, which continue for a period of more than 12 months (including periods
covered by any option to renew by either party) or which provide for a price
materially in excess of current market prices or is in excess of normal
operating requirements over its remaining term, or (f) which involve any of the
following: (i) any borrowings or guarantees; (ii) any contracts containing
covenants purporting to limit the freedom of Longhorn to compete in any line of
business or provide any of their services in any geographic area; (iii) any
obligation or commitment which limits the freedom of Longhorn to sell, lease,
license or otherwise provide its services; (iv) any contract or agreement the
performance of which can reasonably be expected to result in a loss to Longhorn;
or (v) any obligation or commitment providing for indemnification or
responsibility for the obligations
22
<PAGE>
or losses of any person. All of such contracts, agreements, leases,
commitments, and other arrangements and understandings are valid and binding, in
full force and effect and enforceable in accordance with their respective
provisions. Longhorn is not in violation of nor in default in respect of nor
has there occurred an event or condition which, with the passage of time or
giving of notice (or both) would constitute a default of any such contract,
agreement, lease, commitment, arrangement or understanding.
Except as set forth in Schedule 3.20, Longhorn has not received any notice
from any third party payor or supplier to the effect that such third party payor
or supplier will terminate its relationship or unilaterally modify any terms of
that relationship, where applicable, with Longhorn as a result of any
transaction contemplated by this Agreement or otherwise.
Attached to Schedule 3.20 is a correct and complete copy of the fee
schedule which is currently in effect under each agreement with a third party
payor to which Longhorn is a party.
Also attached to Schedule 3.20 is a correct and complete list of all
dentists employed or retained by Longhorn.
Schedule 3.20 sets forth an accurate and complete list of the 10 largest
third party payors, as of the date of this agreement, in terms of revenue
generation for Longhorn who currently contract with Longhorn for the performance
of, and reimbursement for, dental services. Not less than five days prior to
the Closing, Longhorn shall provide to ADP an accurate and complete certified
list of (A) the 10 largest third party payors, as of that date, in terms of
revenue generation for Longhorn who then contract with Longhorn for the
performance of, and reimbursement for, dental services, and (B) all individuals
enrolled as patients with Longhorn as at the last day of the fiscal month
immediately preceding the Closing.
(S)3.21 Accounts Receivable. Set forth on Schedule 3.21 is a correct and
-------------------
complete list of Longhorn's accounts receivable and notes receivable as of
______________, 1996, which, along with any accounts receivable and notes
receivable arising between such date and the Closing, are or will be collectible
in full, except for an allowance in the aggregate amount of $________ for
uncollectible receivables, and are or will be valid and subsisting and represent
or will represent sales actually made or services actually provided in the
ordinary and usual course of business consistent with past practices (the
"Receivables").
Since December 31, 1995, there have been no accounts receivable of Longhorn
converted to notes receivable or otherwise extended, except as listed in
Schedule 3.21, and from the date of this Agreement through the Closing, no
accounts receivable (other than Governmental Receivables) of Longhorn will be
converted to
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notes receivable, written off or otherwise extended without the prior written
consent of ADP.
Schedule 3.21 includes a list of all amounts payable to Longhorn by any
Affiliate of Longhorn (the "Related Party Receivables") and all amounts payable
by Longhorn to any Affiliate of Longhorn (the "Related Party Payables") as of
December 31, 1995, specifying the payor, payee, and amount of each Related Party
Receivable and Related Party Payable. For purposes of this Agreement, other
than for (S)3.19, above, an "Affiliate" of Longhorn shall mean any shareholder,
director, officer, employee, representative, or other agent of Longhorn, any
person related by blood or marriage to any such person, or any person or entity,
which, directly or indirectly, controls, is controlled by, or is under common
control with Longhorn or any such other person or entity.
(S)3.22 No Conflict or Default. Except for the consents described in
----------------------
Schedule 3.22, all of which shall be obtained prior to the Closing (unless
otherwise expressly agreed by ADP in writing), neither the execution and
delivery of this Agreement by Longhorn and the Longhorn Shareholder, nor
compliance by Longhorn and the Longhorn Shareholder with the terms and
provisions of this Agreement, including without limitation the consummation of
the transactions contemplated by this Agreement, will violate in any manner any
Applicable Laws or Permits or conflict with or result in the breach of any term,
condition or provision of the articles or certificate of incorporation or bylaws
of Longhorn or of any agreement, deed, contract, undertaking, mortgage,
indenture, writ, order, decree, restriction, legal obligation or instrument to
which Longhorn is a party or by which Longhorn or any of its respective assets
or properties are or may be bound or affected, or constitute a default (or an
event which, with the giving of notice, the passage of time, or otherwise, would
constitute a default) thereunder, or result in the creation or imposition of any
lien, security interest, charge or encumbrance, or restriction of any nature
whatsoever with respect to any properties or assets of Longhorn, or give to
others any interest or rights, including rights of termination, acceleration or
cancellation in or with respect to any of the properties, assets, contracts or
business of Longhorn.
(S)3.23 Books of Account; Records. Longhorn's general ledgers, stock
-------------------------
record books, minute books and other corporate records relating to the material
assets, properties, contracts and outstanding legal obligations of Longhorn are,
in all material respects, complete and correct, and have been maintained in
accordance with Longhorn's existing business practices, and the matters
contained therein are appropriate and accurately reflected in the 1995 Financial
Statements and the Interim Statements.
24
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(S)3.24 Officers, Employees and Compensation. Schedule 3.24 sets forth the
------------------------------------
names of all directors and officers of Longhorn, their respective terms of
office, the total salary, bonus, fringe benefits and perquisites each received
in the fiscal year ended December 31, 1995, and any changes to the foregoing
which have occurred subsequent to December 31, 1995; Schedule 3.24 also lists
and describes the current compensation of any other employee of Longhorn whose
total current salary and bonus exceeds $35,000 annually and any consultant,
advisor, or independent contractor whose compensation exceeds $5,000 annually.
No changes will be made by Longhorn in the amount or kind of any compensation
being paid or provided to any individual listed in Schedule 3.24 from the
amounts and kinds of compensation described therein prior to the Closing without
ADP's prior written consent. Except as disclosed in Schedule 3.24, there are no
other forms of compensation paid to any such director, officer or employee of
Longhorn. Except as disclosed in Schedule 3.24, the provisions for wages and
salaries accrued in the 1995 Financial Statements are, and such provisions
accrued on the Interim Statements will be, adequate for wages and salaries and
other compensation to its employees, including without limitation vacation pay,
sick pay, accrued compensation to any dentist, and all commissions and other
fees payable to agents, salesmen and representatives of Longhorn. Except as set
forth in Schedule 3.24, Longhorn has not become obligated, directly or
indirectly, to any stockholder, director or officer of Longhorn or any person
related to such person by blood or marriage, except for current liability for
such compensation. Except as set forth in Schedule 3.24, no stockholder,
director, officer, agent or employee of Longhorn or any person related to such
person by blood or marriage holds any position or office with or has any
material financial interest, direct or indirect, in any supplier, customer or
account of, or other outside business which has material transactions with,
Longhorn. Longhorn has no agreement or understanding with any of its
stockholders, directors, officers, employees or representatives which would
influence any such person not to become associated with ADP from and after the
Closing or from serving Longhorn after the Closing in a capacity similar to the
capacity presently held. Except as set forth in Schedule 3.24, no employee of
Longhorn, to the best knowledge of Longhorn and the Longhorn Shareholder, has a
present intention to leave the employ of Longhorn or has taken any action
indicative of leaving the employ of Longhorn.
(S)3.25 Labor Relations. Longhorn has complied in all respects with all
---------------
applicable federal, state and local laws, rules, and regulations relating to
employment, and all applicable laws, rules and regulations governing payment of
minimum wages and overtime rates, and the withholding and payment of taxes from
compensation of employees and the payment of premiums and benefits under
applicable worker compensation laws. Except as set forth in Schedule 3.25, no
employees of Longhorn are represented by any labor union or covered under any
collective bargaining agreement,
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and there is no unfair labor practice complaint against Longhorn pending before
the National Labor Relations Board. There is no labor strike, dispute, slowdown
or stoppage, or any union organizing campaign, actually pending or threatened
against or involving Longhorn. No labor grievance has been filed with Longhorn
and no arbitration proceeding, which has had or may have such an effect has
arisen out of or under a collective bargaining or other labor agreement and is
pending and no claim therefor has been asserted. No collective bargaining or
other labor agreement is currently being negotiated by Longhorn and no union or
collective bargaining unit represents Longhorn's employees. Longhorn has not
experienced any work stoppage or other material labor difficulty during the past
five years.
(S)3.26 Suppliers and Third Party Payors. Except as set forth in Schedule
--------------------------------
3.26, no supplier of products or services to Longhorn has given notice to
Longhorn that it shall stop, or decrease the rate of, or substantially increase
its fees for, supplying products or services to Longhorn either prior to, or
following the consummation of, the Asset Purchase. Schedule 3.26 sets forth (a)
a list of all third party payors who have terminated their relationships with
Longhorn since January 1, 1996, or have notified Longhorn or the Longhorn
Shareholder since January 1, 1996, that they intend to terminate their
relationships with Longhorn, and (b) the gross receipts received from such third
party payors for the 12-month period ending on December 31, 1995. Except as set
forth in Schedule 3.26, Longhorn and the Longhorn Shareholder do not know of any
loss of a relationship with any third party payor that alone or in the aggregate
comprises more than 1% of fiscal 1995 actual revenues of Longhorn as shown in
the 1995 Financial Statements that has indicated that it is considering or plans
to discontinue using Longhorn as its provider of dental services as a result of
the Asset Purchase or otherwise.
(S)3.27 Medicare and Medicaid. Except as set forth in Schedule 3.27,
---------------------
neither Longhorn nor any dentist employed by Longhorn is a provider of dental
services through Medicare, Medicaid, or any other governmental health care
reimbursement program (collectively, the "Governmental Programs"), nor has or
does Longhorn or any such dentist received or expect to receive any
reimbursement under any such Governmental Programs. Neither Longhorn nor any
employee or other agent of Longhorn has violated any law, statute, rule,
regulation, or order under or relating to any Governmental Program, including
without limitation those relating to fraud and abuse (the "Governmental
Reimbursement Laws").
(S)3.28 Investment Intent. The Longhorn Shareholder: (a) is a resident of
-----------------
the State of Texas; (b) is (i) an "accredited investor," as that term is defined
in Regulation D promulgated under the Securities Act, and (ii) by reason of his
business and financial experience, and the business and financial experience of
those persons advising him with respect to Longhorn's investment in
26
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the ADP Shares and the Note, he, together with such advisors, has such
knowledge, sophistication, and experience in business and financial matters so
as to be able to evaluate the merits and risks of Longhorn's prospective
investment in the ADP Shares and the Note; (c) to his satisfaction, has been
provided the opportunity to ask questions and receive answers from ADP
concerning the terms and conditions of the ADP Shares and the Note to be
received in the Asset Purchase, has had all such questions answered, and has
been supplied all additional information deemed necessary by him to verify the
accuracy of all information provided; (d) is causing Longhorn to acquire the ADP
Shares and the Note for its own account for investment purposes only and without
any view towards resale or other distribution; (e) except for the
representations and warranties of ADP expressly set forth in Article II of this
Agreement, no representations or warranties have been made to him by or on
behalf of ADP in connection with this transaction, and in causing Longhorn to
make its investment in the ADP Shares, he is relying on the results of his own
independent investigation; (f) understands that an investment by Longhorn in the
ADP Shares and the Note is a speculative investment and has determined that
Longhorn can bear the economic risks of its investment in the ADP Shares and the
Note, can afford a complete loss of such investment, and is not relying upon any
representation or warranty made by ADP, or any officer, director, shareholder,
employee, agent, or representative of ADP regarding the value of the ADP Shares
and the Note; (g) understands that the issuance of the ADP Shares and the Note
as a result of this Agreement is intended to be exempt from registration under
the Securities Act and applicable state law and that the ADP Shares and the Note
are not and will not be registered under the Securities Act, the Securities
Exchange Act of 1934, or any state securities laws, and that there will be no
public market for the ADP Shares and the Note; (h) agrees that any certificates
evidencing the ADP Shares acquired by Longhorn shall contain a legend to the
effect that such shares have not been registered under the Securities Act or any
state securities laws and may not be sold without registration as required by
the Securities Act and applicable state securities laws or exemptions therefrom,
and in the case of such an exemption, requiring delivery to ADP of a legal
opinion of or satisfactory to its legal counsel that such exemption is
applicable; (i) agrees that ADP can issue stop transfer instructions to its
transfer agent prohibiting transfer of the ADP Shares to be acquired by Longhorn
except in compliance with the provisions of the Securities Act, applicable state
securities laws, this Agreement, and the Shareholders Agreement (defined in
(S)4.2(i), below); and (j) understands that the ADP Shares will be subject to
additional transfer, voting, and other restrictions pursuant to the Shareholders
Agreement.
(S)3.29 Disciplinary Actions. Except as set forth in Schedule 3.29, during
--------------------
the three year period ending on December 31, 1995, there have been no
disciplinary or other similar actions, proceedings, or investigations, of record
or notice of which has been provided to Longhorn or the Longhorn Shareholder,
taken by the
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Texas Board of Dentistry or other governmental or accrediting board, agency, or
authority against or with respect to Longhorn, the Longhorn Shareholder, or any
employee of Longhorn or any of its affiliates.
(S)3.30 Complete Disclosure. No representation or warranty by either
-------------------
Longhorn or the Longhorn Shareholder in this Agreement or the Longhorn Schedules
contains, or will contain as of the Closing, any untrue statement of a material
fact or omits, or will omit as of the Closing, a material fact necessary to make
the statements contained herein or therein not misleading.
ARTICLE IV
COVENANTS OF THE PARTIES
------------------------
(S)4.1 Mutual Covenants.
----------------
(a) General. Each Party shall use all reasonable efforts to take all
-------
actions and do all things necessary, proper or advisable to consummate the
Asset Purchase and the other transactions contemplated by this Agreement,
including without limitation using all reasonable efforts to cause the
conditions set forth in this Article for which such Party is responsible to
be satisfied as soon as reasonably practicable and to prepare, execute,
acknowledge or verify, deliver, and file such additional documents, and
take or cause to be taken such additional actions, as any other Party may
reasonably request.
(b) Governmental Matters. Each Party shall use all reasonable
--------------------
efforts to take any action that may be necessary, proper or advisable in
connection with any notices to, filings with, and authorizations, consents
and approvals of any court, administrative agency or commission, or other
governmental authority or instrumentality that it may be required to give,
make or obtain.
(S)4.2 Covenants of Longhorn and the Longhorn Shareholder. Longhorn and
--------------------------------------------------
the Longhorn Shareholder jointly and severally agree that:
(a) Delivery of Interim Statements. Longhorn shall cause the Interim
------------------------------
Statements to be delivered to ADP as soon as is reasonably practicable.
(b) Conduct of Business. Except as otherwise expressly contemplated
-------------------
by this Agreement, from the date of this Agreement until the Closing (the
"Pre-Closing Period"): (i) neither Longhorn nor the Longhorn Shareholder
shall take or permit to be taken any action or do or permit to be done
anything in the conduct of the business of Longhorn, or otherwise, that
would be contrary to or in breach of any of
28
<PAGE>
the provisions of this Agreement or which would cause any of their
representations and warranties contained in this Agreement to be or become
untrue in any material respect; (ii) Longhorn shall conduct its business in
the ordinary course consistent with its past practices; and (iii) Longhorn
and the Longhorn Shareholder shall use all reasonable efforts to preserve
Longhorn's business organizations intact, keep available to Longhorn and
ADP the present services of Longhorn's nonprofessional employees, keep
available for the New PC (defined in (S)4.2(j), below) the services of
Longhorn's professional employees, and preserve for Longhorn and ADP the
goodwill and all agreements with third parties with whom business
relationships exist. Without limiting the generality of the foregoing,
during the Pre-Closing Period, except as otherwise expressly contemplated
by this Agreement or with the prior written consent of ADP, Longhorn shall
not:
(i) Adopt or propose any change in its articles or certificate
of incorporation or bylaws; adjust, split, combine, or reclassify any
of its capital stock; or make any other changes in its authorized or
issued capital stock;
(ii) Redeem, purchase, or otherwise acquire any shares of its
capital stock; grant any person or entity any right to acquire any
shares of its capital stock; issue, deliver, sell, or agree to issue,
deliver, or sell, any additional shares of its capital stock or any
other securities other than issuances of the capital stock of Longhorn
upon the exercise of any currently outstanding options to acquire such
shares set forth in Schedule 3.2; or enter into any agreement or
arrangement with respect to the sale or voting of its shares of
capital stock;
(iii) Merge or consolidate with any other person or entity or
acquire a material amount of assets of any other person or entity;
(iv) Sell, lease, license, pledge, encumber, or otherwise
dispose of any assets or property other than in the ordinary course of
business consistent with past practices;
(v) Incur, create, assume, or otherwise become liable for any
indebtedness other than indebtedness incurred in the ordinary course
of business consistent with past practices (but subject in any event
to (S)4.2(g) of this Agreement);
(vi) Enter into or modify any employment, severance,
termination, or similar agreement or arrangement with, or grant any
bonuses, salary increases, severance or
29
<PAGE>
termination pay to, any officer, director, consultant, or employee
except in the ordinary course of business consistent with past
practices;
(vii) Adopt, amend or terminate any employee benefit plan,
except in accordance with (S)3.19, above, or increase, amend, or
terminate any benefits to officers, directors, consultants, or
employees;
(viii) Modify in any material way or terminate any of the
contracts listed or required to be listed in Schedule 3.20 except in
the ordinary course of business consistent with past practices;
(ix) Settle any claims, litigation, or actions, whether now
pending or hereafter made or brought, unless such settlement does not
and could not have a Material Adverse Effect on Longhorn;
(x) Engage in any transaction, or enter into any agreement,
contract, lease, or other arrangement or understanding, with any
Affiliate of Longhorn, except for any transactions agreed to in
writing by ADP; or
(xi) Agree or commit to do any of the foregoing.
Notwithstanding the foregoing to the contrary or (S)4.2(h), below,
during the Pre-Closing Period: (A) Longhorn may make normal distributions
to the Longhorn Shareholder, consistent with the general practices of
Longhorn prior to September 20, 1996; and (B) in connection with the
construction of two new dental facilities in Killeen, Texas, and South
Austin, Texas, Longhorn may incur debt up to $_________ for the financing
of such construction on commercially reasonable terms (the "New Facilities
Debt") and shall not incur any additional debt in connection with such
construction without the prior written approval of ADP.
(c) Exclusive Rights. Neither Longhorn nor the Longhorn Shareholder,
----------------
nor any of their respective Affiliates or representatives shall, directly
or indirectly, solicit (including without limitation by way of furnishing
or making available any non-public information concerning the business,
properties or assets of Longhorn) or engage in negotiations or discussions
with, disclose any of the terms of this Agreement to, accept any offer
from, furnish any information to, or otherwise cooperate, assist or
participate with any person or organization (other than ADP and its
representatives) regarding any Acquisition Proposal (defined below), except
that any person or entity making an Acquisition Proposal may be informed of
the restrictions contained in this sentence. Longhorn and the Longhorn
Shareholder shall notify ADP promptly by telephone, and thereafter promptly
confirm in
30
<PAGE>
writing, if any such information is requested from, or any Acquisition
Proposal is received by, Longhorn or the Longhorn Shareholder. For
purposes of this Agreement, "Acquisition Proposal" shall mean any offer or
proposal, including without limitation any expression of interest, whether
written or not, received by the Longhorn Shareholder or Longhorn prior to
the Closing regarding the acquisition by purchase, merger, lease, or
otherwise of any capital stock of Longhorn, any of the business of
Longhorn, or any material assets, customer relationships or other
operations of Longhorn.
(d) Access to Records and Other Due Diligence. During the Pre-Closing
-----------------------------------------
Period, Longhorn shall: (i) make or cause to be made available to ADP and
its representatives, attorneys, accountants and agents, for examination,
inspection, and review, the assets and property of Longhorn and all books,
contracts, agreements, commitments, records and documents of every kind
relating to Longhorn's business, and shall permit ADP and its
representatives, attorneys, accountants and agents to have access to the
same at all reasonable times, including without limitation access to all
tax returns filed and in preparation and all audit and other work papers of
any accountants retained by Longhorn and all reports to management and
related responses; (ii) permit representatives of ADP to interview
suppliers, customers, and personnel of Longhorn; and (iii) permit
representatives of ADP to participate in all aspects of the preparation of
the Interim Statements.
(e) Disclosures. After the date of this Agreement, neither Longhorn
-----------
nor the Longhorn Shareholder shall: (i) disclose to any person,
association, firm, corporation or other entity (other than ADP or those
designated in writing by ADP) in any manner, directly or indirectly, any
proprietary information or data relevant to the business of Longhorn,
whether of a technical or commercial nature, or (ii) use, or permit or
assist, by acquiescence or otherwise, any person, association, firm,
corporation or other entity (other than ADP or those designated in writing
by ADP) to use, in any manner, directly or indirectly, any such information
or data, excepting only (A) use of such data or information as is at the
time generally known to the public and which did not become generally known
through any breach of any provision of this section by Longhorn or the
Longhorn Shareholder, and (B) disclosures of information to employees of
Longhorn who need to know such information and use of such information by
employees of Longhorn who need to use such information, in each use only to
the extent necessary for the benefit of Longhorn or ADP.
(f) Employee Retention. Longhorn and the Longhorn Shareholder
------------------
understand that in ADP's view it is essential to the successful operation
of the business of Longhorn that Longhorn retain substantially unimpaired
its operating
31
<PAGE>
organization, except for any changes contemplated by this Agreement.
During the Pre-Closing Period, Longhorn and the Longhorn Shareholder shall
endeavor in good faith at all times to maintain good relations with all
Longhorn employees.
(g) Affiliate Indebtedness. During the Pre-Closing Period, neither
----------------------
Longhorn nor the Longhorn Shareholder shall cause or permit Longhorn to
make any advances, loans, or extensions of credit to any Affiliate of
Longhorn, or otherwise increase the Related Party Receivables owed to
Longhorn by any Affiliate of Longhorn.
(h) Dividends and Distributions. Subject to the last sentence of
---------------------------
(S)4.2(b), above, during the Pre-Closing Period, Longhorn shall not, and
the Longhorn Shareholder shall not permit Longhorn to, declare, set aside
or pay any dividend or any distribution (in cash or in kind) to any of its
shareholders.
(i) Shareholders Agreements. At the Closing Longhorn or the Longhorn
-----------------------
Shareholder shall execute a Shareholders Agreement in the form attached as
Exhibit K to this Agreement (the "Shareholders Agreement").
(j) Formation of New PC. Prior to the Closing, the Longhorn
-------------------
Shareholder shall form a new professional corporation or other entity
satisfactory to ADP and Longhorn to operate after the Closing the
professional dental practice currently operated by Longhorn (the "New PC").
The New PC shall have the name "L. Crane & Associates, P.C." and do
business as Longhorn Dental Associates pursuant to the license for such use
granted by American to the New PC under the Service Agreement. At or prior
to the Closing, the patient records of Longhorn, any patient agreements not
assigned to American under (S)1.1(f) of this Agreement, any employment
agreements between Longhorn and its dentists, and any other assets of
Longhorn which are not to be transferred to American and which are
necessary for the operation by the New PC of the dental practice operated
by Longhorn shall be transferred to the New PC on terms satisfactory to
ADP. The Longhorn Shareholder shall have until June 30, 1997, to (i) cause
the ownership of the New PC to be restructured so that not less than 49% is
owned by other dentist-employees of the New PC who are, and whose
percentage ownership interests and the terms of such interests are,
reasonably satisfactory to American; and (ii) cause each such dentist-
employee to enter into an employment agreement with the New PC in the form
attached as Exhibit L-1 to this Agreement; provided that, in the event the
conditions set forth in this sentence are not satisfied, ADP's designee
shall have the right to acquire all of the issued and outstanding shares of
capital stock of the New PC pursuant to an option agreement in the form
attached as Exhibit L-2 to
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<PAGE>
this Agreement, which shall be executed by ADP and the Longhorn Shareholder
at the Closing.
(k) Notices of Certain Events. Longhorn and the Longhorn Shareholder
-------------------------
shall promptly notify ADP of:
(i) Any notice or other communication from any person or
entity alleging that the consent of such person or entity is or may be
required in connection with the transactions contemplated by this
Agreement;
(ii) Any notice or other communication from any third party
payor that any agreement with such payor will be, is being, or has
been terminated or otherwise adversely amended;
(iii) Any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(iv) Any actions, suits, claims, investigations or proceedings
commenced or, to the knowledge of Longhorn or the Longhorn
Shareholder, threatened against, relating to, involving, or otherwise
affecting the Longhorn Shareholder, Longhorn, or any of its property
which, if in existence on the date of this Agreement would have been
required to have been disclosed by Longhorn and the Longhorn
Shareholder pursuant to (S)3.18 or which relate to the consummation of
the transactions contemplated by this Agreement; and
(v) Any circumstances or events which, if in existence on the
date of this Agreement, would make any representation or warranty of
the Longhorn Shareholder incorrect or incomplete in any material
respect.
(l) Representations and Warranties. At the Closing, Longhorn and the
------------------------------
Longhorn Shareholder shall deliver to ADP a certificate, in form and
content reasonably satisfactory to ADP, confirming that the representations
and warranties set forth in Article III of this Agreement are correct and
complete in all material respects.
(m) Noncompetition. For a period of two years after the Closing,
--------------
neither Longhorn nor the Longhorn Shareholder shall directly or indirectly
(whether individually or as a shareholder or other owner, partner, member,
director, officer, employee, consultant, creditor, or agent of any person,
association, or other entity):
33
<PAGE>
(i) Enter into, engage in, or promote or assist (financially
or otherwise), directly or indirectly, any business which provides
management, consulting or other similar services of the type provided
by any Affiliated Company (defined below) to any practice providing
dental, orthodontic, periodontic, prosthodontic, endodontic, or other
professional dental services, pediatric dentistry, or oral surgery
anywhere in the Restricted Territory (defined below);
(ii) Induce or encourage any employee, officer, director,
agent, supplier, or independent contractor of any Affiliated Company
to terminate its relationship with any such Affiliated Company, or
otherwise interfere or attempt to interfere in any way with any
Affiliated Company's relationships with its employees, officers,
directors, agents, suppliers, independent contractors, or others; or
(iii) Employ or engage any person who, at any time within the
one-year period immediately preceding such employment or engagement,
was an employee, officer, director, agent, supplier, or independent
contractor of any Affiliated Company.
For purposes of this (S)4.2(m), (A) "Affiliated Company" shall mean
ADP and all subsidiaries or affiliates of ADP other than Summit Ventures
IV, L.P., Noro-Moseley Partners III, L.P., and their respective affiliates
which are not engaged in a business similar to that of ADP or its
subsidiaries; and (B) "Restricted Territory" shall mean a radius of 30
miles from any facility or operation leased, owned, managed, or operated by
American.
(n) Injunctive Relief. Longhorn and the Longhorn Shareholder
-----------------
acknowledge and agree that ADP's remedies at law for any violation or
attempted violation of any of Longhorn's or the Longhorn Shareholder's
obligations under this Article would be inadequate, and agree that in the
event of any such violation or attempted violation, ADP shall be entitled
to a temporary restraining order, temporary and permanent injunctions, and
other equitable relief, without the necessity of posting any bond or
proving any actual damage, in addition to all other rights and remedies
which may be available to ADP from time to time.
(S)4.3 Covenants of ADP. ADP agrees that:
----------------
(a) Representations and Warranties. At the Closing, ADP shall
------------------------------
deliver to Longhorn and the Longhorn Shareholder a certificate, in form and
substance reasonably satisfactory to the Longhorn Shareholder, confirming
that the representations
34
<PAGE>
and warranties set forth in Article II of this Agreement are correct and
complete in all material respects.
(b) Non-Solicitation of Longhorn Employees. In the event that the
--------------------------------------
Closing of the Asset Purchase does not occur as provided in this Agreement,
ADP shall not, for a period of two years after the date of this Agreement,
solicit any of Longhorn's employees to leave the employ of Longhorn.
ARTICLE V
CONDITIONS
----------
(S)5.1 Mutual Conditions. The obligations of the Parties to consummate
-----------------
the Asset Purchase and the other transactions contemplated by this Agreement
shall be subject to the fulfillment of all of the following conditions unless
waived by both Longhorn and ADP:
(a) Legal Prohibition. No temporary restraining order, preliminary
-----------------
or permanent injunction or other order or decree which prevents the
consummation of the Asset Purchase or the other transactions contemplated
by this Agreement having been issued and remaining in effect, and no
statute, rule or regulation having been enacted by any state or federal
government or governmental agency, which would prevent the consummation of
the Asset Purchase or the other transactions contemplated by this
Agreement.
(b) Service Agreement. The New PC and American shall have entered
-----------------
into a Service Agreement in the form attached as Exhibit M to this
Agreement (the "Service Agreement").
(c) Governmental Approvals. Any governmental or other approvals or
----------------------
reviews of this Agreement or the transactions contemplated by this
Agreement required under any applicable laws, statutes, orders, rules,
regulations, policies or guidelines promulgated thereunder, or Longhorn's
governance documents shall have been received.
(d) Escrow Agreement. The Escrow Agreement shall have been executed
----------------
and delivered by the Escrow Agent to Longhorn and American.
(e) Registration Rights Agreement. At the Closing, ADP and Longhorn
-----------------------------
shall execute a registration rights agreement in the form attached to this
Agreement as Exhibit N.
(S)5.2 Conditions to Obligations of Longhorn and the Longhorn Shareholder.
------------------------------------------------------------------
The obligations of Longhorn and the Longhorn Shareholder to consummate the Asset
Purchase and the other transactions contemplated by this Agreement shall be
subject to the
35
<PAGE>
fulfillment of all of the following conditions unless waived by Longhorn or the
Longhorn Shareholder in writing:
(a) Representations and Warranties. The representations and
------------------------------
warranties of ADP set forth in Article II of this Agreement shall be true
and correct in all material respects as of the date of this Agreement and
as of the Closing Date as though made at and as of the Closing Date.
(b) Performance of Agreement. ADP shall have performed and observed
------------------------
in all material respects all obligations and conditions to be performed or
observed by it under this Agreement at or prior to the Closing.
(c) Certificate. ADP shall have furnished Longhorn and the Longhorn
-----------
Shareholder with a certificate dated the Closing Date signed by its
president to the effect that the conditions set forth in (S)(S)5.2(a) and
(b) have been satisfied.
(d) Opinion of Counsel. Longhorn and the Longhorn Shareholder shall
------------------
have received the legal opinion, dated the Closing Date, of Baker &
Hostetler, counsel to ADP, in substantially the form attached to this
Agreement as Exhibit O.
(e) Authority. Longhorn shall have received evidence satisfactory to
---------
it that this Agreement and the transactions contemplated by this Agreement
have been properly authorized by ADP.
(f) Restrictive Conditions. ADP shall be free from any agreements,
----------------------
restrictions or conditions which in the reasonable opinion of Longhorn
would have a material adverse effect upon ADP's ability to consummate this
transaction.
(S)5.3 Conditions to Obligations of ADP and American. The obligations of
---------------------------------------------
ADP to consummate the Asset Purchase and the other transactions contemplated by
this Agreement shall be subject to the fulfillment of all of the following
conditions unless waived by ADP in writing:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Longhorn and the Longhorn Shareholder set forth in Article
III of this Agreement shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing Date as though made at
and as of the Closing Date.
36
<PAGE>
(b) Performance of Agreement. Longhorn and the Longhorn Shareholder
------------------------
shall have performed and observed in all material respects all obligations
and conditions to be performed or observed by them under this Agreement at
or prior to the Closing.
(c) Certificate. Longhorn and the Longhorn Shareholder shall have
-----------
furnished ADP with a certificate dated the Closing Date signed by Longhorn
and the Longhorn Shareholder to the effect that the conditions set forth in
(S)(S)5.3(a) and (b) have been satisfied.
(d) Reorganization. The Longhorn Shareholder shall have caused the
--------------
reorganization or restructuring of Longhorn into the New PC, as described
in (S)4.2(j), on terms satisfactory to ADP and such that the Asset Purchase
complies with all applicable federal and state laws and regulations.
(e) Structure of New PC. The New PC shall have been formed as
-------------------
described in the first two sentences of 4.2(j), and ADP shall be satisfied
with the organizational and operational documents and structures of the New
PC.
(f) Authority. ADP shall have received evidence satisfactory to it
---------
that this Agreement and the transactions contemplated by this Agreement
have been properly authorized by Longhorn and the New PC.
(g) Professional Personnel. ADP confirming to its satisfaction that
----------------------
the professional personnel employed or otherwise retained by the New PC
support the transactions contemplated by this Agreement, including without
limitation the formation and operation of the New PC and the ability of the
New PC to support its obligations under the Service Agreement.
(h) Financial Statements. Longhorn shall have delivered to ADP the
--------------------
Financial Statements and the Interim Statements.
(i) Opinion of Counsel. ADP shall have received the legal opinion,
------------------
dated the Closing Date, of Richie & Gueringer, P.C., counsel to Longhorn
and the Longhorn Shareholder, in the form attached to this Agreement as
Exhibit P.
(j) Existing Employment and Deferred Compensation Agreements. At or
--------------------------------------------------------
prior to the Closing, Longhorn shall have terminated all employment
agreements or arrangements (including without limitation all individual
disability and deferred compensation arrangements) between Longhorn and any
of its employees.
37
<PAGE>
(k) Employment and Noncompetition Agreement with ADP. Each of the
------------------------------------------------
Longhorn Shareholder, Lisa Crane, and Brent Fox shall have entered into an
employment and noncompetition agreement with ADP or American substantially
in the forms attached to this Agreement as Exhibits Q, R, and S,
respectively.
(l) Employment and Noncompetition Agreements of the New PC. The New
------------------------------------------------------
PC shall have entered into employment agreements with each of its
professional employees as required by the Service Agreement, including
without limitation an employment and non-competition agreement with the
Longhorn Shareholder on terms consistent economically with the Longhorn
Shareholder's current employment agreement with Longhorn and on such
additional terms and conditions as are satisfactory to ADP and the Longhorn
Shareholder.
(m) Third Party Consents. ADP shall have received all necessary or
--------------------
appropriate third party consents and approvals relating to this Agreement
and the transactions contemplated by this Agreement, and ADP shall be
satisfied that all significant contracts of Longhorn shall remain in full
force and effect after the Closing in accordance with the terms and
conditions of such contracts, subject to any modifications required by this
Agreement.
(n) Restrictive Conditions. Longhorn and the Longhorn Shareholder
----------------------
shall be free from any agreements, restrictions or conditions which in the
reasonable opinion of ADP would have a material adverse effect upon
Longhorn's financial condition, operations, prospects, assets, business, or
ability to consummate this transaction.
(o) Defaults. No material agreement or other document or restriction
--------
to which Longhorn or the Longhorn Shareholder is subject being in default
or being breached by the transactions contemplated by this Agreement, which
in either case in the reasonable opinion of ADP would have a material
adverse effect on Longhorn's financial condition, operations, prospects,
assets, or business or on the ability of Longhorn or the Longhorn
Shareholder to consummate the transactions contemplated by this Agreement.
(p) Material Adverse Changes. No material adverse change having
------------------------
occurred in Longhorn's financial condition, operations, prospects, assets,
or business.
(q) [Intentionally left blank.]
(r) Compliance with Laws. ADP shall have (i) received evidence
--------------------
reasonably satisfactory to it that the business of Longhorn has been, at
all times prior to the Closing, in
38
<PAGE>
compliance in all material respects with all Applicable Laws relating
directly or indirectly to the provision of dental services; and (ii)
confirmed to its satisfaction that the transactions contemplated by this
Agreement will be in compliance with all applicable federal and state laws
and regulations.
(s) Release of Liens. ADP shall have received evidence satisfactory
----------------
to it that all mortgages, pledges, liens, security interests, and
encumbrances on any of the Assets have been released, except for such
mortgages, pledges, liens, security interests, and encumbrances which
secure any of the Assumed Liabilities.
ARTICLE VI
TERMINATION AND AMENDMENT
-------------------------
(S)6.1 Termination.
-----------
(a) Termination by Longhorn and the Longhorn Shareholder. This
----------------------------------------------------
Agreement may be terminated and cancelled at any time prior to the Closing
by Longhorn and the Longhorn Shareholder: (i) if (A) any of the
representations or warranties of ADP contained in this Agreement or the ADP
Schedules, if any, shall prove to be inaccurate in any material respect, or
any obligation or condition to be performed or observed by ADP under this
Agreement has not been performed or observed in any material respect at or
prior to the time specified in this Agreement, and (B) such inaccuracy or
failure shall not have been cured within 15 business days after receipt by
ADP of written notice of such occurrence from Longhorn and the Longhorn
Shareholder; or (ii) if any permanent injunction or other order of a court
or other competent authority preventing consummation of the Asset Purchase
or any other transaction contemplated by this Agreement shall have become
final and non-appealable.
(b) Termination by ADP. This Agreement may be terminated and
------------------
cancelled at any time prior to the Closing by ADP: (i) if (A) any of the
representations or warranties of Longhorn or the Longhorn Shareholder
contained in this Agreement or the Longhorn Schedules shall prove to be
inaccurate in any material respect, or any obligation or condition to be
performed or observed by Longhorn or the Longhorn Shareholder under this
Agreement has not been performed or observed in any material respect at or
prior to the time specified in this Agreement, and (B) such inaccuracy or
failure shall not have been cured within 15 business days after receipt by
Longhorn and the Longhorn Shareholder of written notice of such occurrence
from ADP; (ii) if any permanent injunction or other order of a court or
other competent authority preventing consummation of the Asset
39
<PAGE>
Purchase or any other transaction contemplated by this Agreement shall have
become final and non-appealable; (iii) in the event of a material adverse
loss or damage to, or condemnation of the property or assets of Longhorn,
it being understood among the Parties that none of the risk of any such
loss or damage prior to the Closing shall be borne by ADP; or (iv) if the
Closing has not occurred on or before December 31, 1996.
(S)6.2 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed by all of the Parties.
(S)6.3 Extension; Waiver. At any time prior to the Closing, ADP (with
-----------------
respect to Longhorn) and Longhorn (with respect to ADP) may, to the extent
legally allowed: (i) extend the time for the performance of any of the
obligations or other acts of the other Party; (ii) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant hereto; or (iii) waive compliance with any of the agreements
or conditions contained in this Agreement. Any agreement on the part of a Party
to any such extension or waiver shall be valid only if set forth in a written
instrument signed by such Party.
ARTICLE VII
INDEMNIFICATION
---------------
(S)7.1 Survival of Representations, Warranties and Agreements.
------------------------------------------------------
(a) Subject to the limitations set forth in (S)7.3, below, and
notwithstanding any investigation conducted at any time with regard thereto
by or on behalf of ADP, all representations, warranties, covenants and
agreements of Longhorn and the Longhorn Shareholder in this Agreement and
in any other documents executed or delivered by Longhorn or the Longhorn
Shareholder pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement (the "Additional Documents")
shall survive the execution, delivery and performance of this Agreement and
the Additional Documents. All representations and warranties of Longhorn
and the Longhorn Shareholder set forth in this Agreement and in the
Additional Documents shall be deemed to have been made again by Longhorn
and the Longhorn Shareholder at and as of the Closing.
(b) As used in this Article, any reference to a representation,
warranty or covenant contained in any section of this Agreement shall
include the Schedule relating to such section.
40
<PAGE>
(S)7.2 Indemnification.
---------------
(a) Subject to the limitations set forth in (S)7.3, below,
Longhorn and the Longhorn Shareholder, jointly and severally, shall
indemnify and hold harmless ADP from and against any and all losses,
liabilities, damages, demands, claims, suits, actions, judgments or causes
of action, assessments, costs and expenses, including without limitation
interest, penalties, attorneys' fees, any and all expenses incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in
settlement of any claim or litigation (collectively, "Damages"), asserted
against, resulting to, imposed upon, or incurred or suffered by ADP,
directly or indirectly, as a result of or arising from: (i) any inaccuracy
in or breach or nonfulfillment of any of the representations, warranties,
covenants or agreements made by the Longhorn Shareholder or Longhorn in
this Agreement or the Additional Documents; or (ii) any Excluded Liability
(defined below).
(b) For purposes of this Agreement: (i) the term "Excluded
Liability" shall include (A) any and all claims of any holder of any legal
or beneficial interest in the Longhorn Shares which are based upon, related
to, or arise out of any agreements, transactions, acts, or omissions made
or occurring prior to the Closing, including without limitation the claims
of any such holder who dissents with respect to the Asset Purchase,
excepting only any claims against ADP or American arising out of the
failure of either of them to perform their respective obligations under
this Agreement; (B) any and all claims of any third party or governmental
agency or entity based upon, arising out of or related to (1) non-
compliance by Longhorn with any Applicable Laws prior to the Closing, or
(2) the matters set forth on Schedule 3.18, 3.25, and 3.29; and (ii) the
term "Indemnifiable Claims" shall mean the matters with respect to which
ADP is entitled to indemnification under (S)7.2(a).
(c) For purposes of this Article, all Damages shall be computed
net of any insurance coverage which reduces the Damages that would
otherwise be sustained; provided that in all cases the timing of the
receipt or realization of insurance proceeds shall be taken into account in
determining the amount of reduction of Damages.
(d) ADP shall be deemed to have suffered Damages arising out of
or resulting from the matters referred to in (S)7.2(a), above, if the same
shall be suffered by any parent, subsidiary or affiliate of ADP, including
without limitation American.
41
<PAGE>
(S)7.3 Limitations on Indemnification. Rights to indemnification under
------------------------------
(S)7.2(a)(i) are subject to the following limitations:
(a) ADP shall not be entitled to indemnification hereunder with
respect to an Indemnifiable Claim under (S)7.2(a) arising out of a breach
of a representation or warranty (or, if more than one such Indemnifiable
Claim is asserted, with respect to all such Indemnifiable Claims) unless
the aggregate amount of Damages with respect to such Indemnifiable Claim or
Claims exceeds $25,000, in which event the indemnity provided for above
shall be effective only with respect to such Damages in excess of such
aggregate amount; provided, however, that the dollar limitations and
thresholds in this (S)7.3(a) shall not apply to any Indemnifiable Claim
relating to a breach of the representations and warranties set forth in
(S)(S)3.2, 3.3, 3.5, and 3.11 (to the extent such (S)3.11 relates to
Governmental Reimbursement Laws, licensing and credentialing of
professional personnel, and Environmental Laws).
(b) The obligation of indemnity with respect to the
representations and warranties set forth in (S)3.10 of this Agreement shall
terminate on the expiration of the respective periods of limitations
applicable to assessment and collection of taxes under laws then applicable
to such taxes, with respect to the representations and warranties as to the
absence of unpaid or undisclosed taxes (including any interest, penalties
or expenses) of Longhorn.
(c) The obligation of indemnity with respect to the
representations and warranties set forth in (S)3.19 of this Agreement shall
terminate upon expiration of the respective statutes of limitation
applicable to the items addressed in such section.
(d) The obligation of indemnity with respect to the
representations and warranties contained in (S)(S)3.2, 3.3, 3.5, and 3.11
(to the extent such (S)3.11 relates to Governmental Reimbursement Laws,
licensing and credentialing of professional personnel, and Environmental
Laws) of this Agreement shall not expire; and the obligation of indemnity
shall terminate on the date which is 18 months after the date of the
Closing with respect to (i) the representations and warranties regarding
good condition and repair of Longhorn properties contained in the first
sentence of the second paragraph of (S)3.16, and (ii) all of the
representations and warranties contained in the second sentence of the
second paragraph of (S)3.16.
42
<PAGE>
(e) The obligation of indemnity with respect to the
representations and warranties set forth in Article III of this Agreement
other than those addressed in the immediately preceding subsections (b),
(c), and (d) shall terminate on the date which is 90 days after the third
anniversary of the Closing.
(f) The foregoing provisions of this (S)7.3 notwithstanding, if,
prior to the termination of any obligation to indemnify, written notice of
a claimed breach or other occurrence or matter giving rise to a claim of
indemnification is given by ADP to Longhorn or the Longhorn Shareholder, or
a suit or action based upon a claimed breach is commenced against Longhorn
or the Longhorn Shareholder, ADP shall not be precluded from pursuing such
claimed breach, occurrence, other matter, or suit or action, or from
recovering from Longhorn or the Longhorn Shareholder or both (whether
through the courts or otherwise) on the claim, suit or action, by reason of
the termination otherwise provided for above.
(S)7.4 Procedure for Indemnification with Respect to Third Party Claims.
----------------------------------------------------------------
(a) If ADP desires to seek indemnification under this Article
with respect to Indemnifiable Claims resulting from the assertion of
liability by third parties, it shall give notice to Longhorn and the
Longhorn Shareholder (hereinafter "Indemnifying Parties") within a
reasonable period of time of ADP's becoming aware of any such Indemnifiable
Claim, which notice shall set forth such material information with respect
to such Indemnifiable Claim as is then reasonably available to ADP. If any
such liability is asserted against ADP and ADP notifies the Indemnifying
Parties of such liability, the Indemnifying Parties shall be entitled, if
they so elect by written notice delivered to ADP within a reasonable period
of time (not to exceed 15 days in any event) after receiving ADP's notice
(the "Response Period"), to assume the defense of such asserted liability
with counsel approved by ADP, which approval shall not be unreasonably
withheld or delayed. Notwithstanding the foregoing: (i) ADP shall not have
any obligation to give any notice of any assertion of liability by a third
party unless such assertion is in writing; (ii) the rights of ADP to be
indemnified in respect of Indemnifiable Claims resulting from the assertion
of liability by third parties shall not be adversely affected by its
failure to give notice pursuant to the foregoing provisions unless, and, if
so, only to the extent that, the Indemnifying Parties are materially
prejudiced by such failure; and (iii) each Party shall cooperate with any
other Party in all ways reasonably requested by such other Party in
connection with the defense of any such Indemnifiable Claim, including
without limitation
43
<PAGE>
making relevant witnesses available for interviews and relevant documents
available for inspection and copying on reasonable prior notice. With
respect to any assertion of liability by a third party that results in an
Indemnifiable Claim, the Parties shall make available to each other all
relevant information in their possession which is material to any such
assertion.
(b) In the event that the Indemnifying Parties fail to assume the
defense of ADP against any such Indemnifiable Claim, within the Response
Period, ADP shall have the right to defend, compromise or settle such
Indemnifiable Claim on behalf, for the account, and at the risk of the
Indemnifying Parties.
(c) Notwithstanding anything in this (S)7.4 to the contrary, (i)
if there is a reasonable probability that an Indemnifiable Claim may
materially and adversely affect ADP, its subsidiaries or affiliates,
including without limitation Longhorn, after the Closing, other than as a
result of money damages or other money payments, then ADP shall have the
right, at the cost and expense of the Indemnifying Parties, to defend,
compromise or settle such Indemnifiable Claim, provided that the Longhorn
Shareholder shall have the right to approve the legal counsel (including
such counsel's general fee structure) retained by ADP to defend such claim
and to approve related settlements, none of which approvals shall be
unreasonably withheld or delayed; and (ii) the Indemnifying Parties shall
not, without ADP's prior written consent, settle or compromise any
Indemnifiable Claim or consent to entry of any judgment in respect of any
Indemnifiable Claim unless such settlement, compromise or consent includes
as an unconditional term the giving by the claimant or the plaintiff to ADP
(and its subsidiaries and affiliates including without limitation Longhorn
after the Closing) a release from all liability in respect of such
Indemnifiable Claim.
(S)7.5 Procedure For Indemnification with Respect to Non-Third Party
-------------------------------------------------------------
Claims. In the event that ADP asserts the existence of an Indemnifiable Claim
- ------
giving rise to Damages (but excluding Indemnifiable Claims resulting from the
assertion of liability by third parties), it shall give written notice to the
Indemnifying Parties specifying the nature and amount of the Indemnifiable Claim
asserted. If the Indemnifying Parties, within 15 days after the receipt of such
notice by ADP, have not given written notice to ADP announcing their intent to
contest such assertion by ADP, such assertion shall be deemed accepted and the
amount of Indemnifiable Claim shall be deemed a valid Indemnifiable Claim. In
the event, however, that the Indemnifying Parties contest the assertion of an
44
<PAGE>
Indemnifiable Claim by giving such written notice to ADP within such 15-day
period, then if the Parties, acting in good faith, cannot reach agreement with
respect to such Indemnifiable Claim within 10 days after such notice, the
contested assertion of the claim shall be referred to arbitration in Boston,
Massachusetts, in accordance with the then-current rules of the American
Arbitration Association. The determination made in accordance with such rules
shall be delivered in writing to the Parties and shall be final and binding and
conclusive on the Parties and the amount of the Indemnifiable Claim, if any,
determined to exist shall be a valid Indemnifiable Claim. Each Party shall pay
its own legal, accounting and other fees in connection with such a contest;
provided that if the contested claim is referred to and ultimately determined by
arbitration, the legal, auditing and other fees of the prevailing Party and the
fees and expenses of any arbitrator shall be borne by the non-prevailing Party.
(S)7.6 Right of Setoff. In addition to its other rights under this
---------------
Agreement and the Additional Documents, ADP shall have the right to setoff any
amounts owing to ADP by Longhorn or the Longhorn Shareholder against any amounts
owing to Longhorn or the Longhorn Shareholder by ADP, whether pursuant to this
Agreement, the Additional Documents or otherwise.
(S)7.7 Liability Limitations. The foregoing provisions of this Article
---------------------
VII notwithstanding:
(a) The total liability of Longhorn and the Longhorn Shareholder
for Damages with respect to all Indemnifiable Claims shall not exceed
$3,182,000, in the aggregate;
(b) ADP shall not be entitled, absent actual fraud in the
inducement of this agreement, to rescission of this agreement as a remedy
for any breach of a representation or warranty hereunder; and
(c) The Indemnifying Parties shall not have any obligation to pay
the on-going costs of defense of any claim which ADP or American has
asserted is an Indemnifiable Claim and is being defended by ADP or American
unless it has been established by agreement or binding dispute resolution
that such claim is an Indemnifiable Claim.
(S)7.8 Re-Assignment of Receivables. No Receivable (as defined in (S)3.21
----------------------------
of this Agreement) shall be deemed uncollectible until it has been outstanding
for 180 days. If an Indemnifiable Claim arises in connection with a breach of
the representation and warranty regarding the collectibility of Receivables, and
if ADP or American recovers Damages with respect to such Indemnifiable Claim,
American shall, upon and to the extent of such recovery, assign to Longhorn or
the Longhorn Shareholder, part or all of one or more uncollectible Receivables,
beginning with the oldest uncollectible Receivable then held by American, in the
aggregate amount of such Damages actually recovered.
45
<PAGE>
(S)7.9 Indemnification of Longhorn. ADP and American, jointly and
---------------------------
severally, shall indemnify and hold harmless Longhorn and the Longhorn
Shareholder from and against any and all losses, liabilities, damages, demands,
claims, suits, actions, judgments or causes of action, assessments, costs and
expenses, including without limitation interest, penalties, attorneys' fees, any
and all expenses incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation asserted against,
resulting to, imposed upon, or incurred or suffered by Longhorn or the Longhorn
Shareholder, directly or indirectly, as a result of or arising from:
(a) Any inaccuracy in or breach or unfulfillment of any of the
representations, warranties, covenants, or agreements made by ADP or
American in this Agreement or the Additional Documents;
(b) Any liabilities expressly assumed by American pursuant to
(S)1.3 of this Agreement; and
(c) Without limiting the preceding clause (b), any obligations
arising after the Closing under any agreements assumed by American, and any
other liabilities arising after the Closing in connection with American's
ownership of the Assets, except to the extent based upon matters with
respect to which either ADP or American is entitled to indemnification
under this Article VII.
ARTICLE VIII
MISCELLANEOUS
-------------
(S)8.1 Notices. All notices and other communications under this Agreement
-------
to any Party shall be in writing and shall be deemed given when delivered
personally, telecopied (which is confirmed) to that Party at the telecopy number
for that Party set forth below, mailed by certified mail (return receipt
requested) to that Party at the address for that Party (or at such other address
for such Party as such Party shall have specified in notice to the other
Parties), or delivered to Federal Express, UPS, or any similar express delivery
service for delivery to that Party at that address:
(a) If to ADP:
American Dental Partners, Inc.
301 Edgewater Place, Suite 320
Wakefield, Massachusetts 01880-1249
Attention: Gregory A. Serrao, President
Telecopy No.: (617) 224-4216
46
<PAGE>
with a copy to
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
Attention: Gary A. Wadman, Esq.
Telecopy No.: (614) 462-2616
(b) If to Longhorn or the Longhorn Shareholder:
Longhorn Dental Associates
c/o Dr. Les L. Crane, D.D.S.
2604 Guadalupe
Austin, Texas 78705
Telecopy No.: (512) 847-1236
with a copy to
Richie & Gueringer, P.C.
111 Congress Avenue
Suite 2020
Austin, Texas 78701
Attention: Sheldon E. Richie, Esq.
Telecopy No.: (512) 320-7230
(S)8.2 Non-Waiver. No failure by any Party to insist upon strict
----------
compliance with any term or provision of this Agreement, to exercise any option,
to enforce any right, or to seek any remedy upon any default of any other Party
shall affect, or constitute a waiver of, any other Party's right to insist upon
such strict compliance, exercise that option, enforce that right, or seek that
remedy with respect to that default or any prior, contemporaneous, or subsequent
default. No custom or practice of the Parties at variance with any provision of
this Agreement shall affect or constitute a waiver of, any Party's right to
demand strict compliance with all provisions of this Agreement.
(S)8.3 Genders and Numbers. Where permitted by the context, each pronoun
-------------------
used in this Agreement includes the same pronoun in other genders and numbers,
and each noun used in this Agreement includes the same noun in other numbers.
(S)8.4 Headings. The headings of the various articles and sections of
--------
this Agreement are not part of the context of this Agreement, are merely labels
to assist in locating such articles and sections, and shall be ignored in
construing this Agreement.
(S)8.5 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same Agreement.
47
<PAGE>
(S)8.6 Entire Agreement. This Agreement (including all exhibits,
----------------
schedules, and other documents referred to in this Agreement (the "Incorporated
Documents"), all of which are hereby incorporated by reference) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the Parties with respect to the subject matter of this
Agreement, including without limitation the Letter Agreement dated September 20,
1996. All obligations of any Party under any Incorporated Document shall
constitute an obligation of such Party under this Agreement. Any capitalized
terms used in any Incorporated Document which are not otherwise defined therein
shall have the respective meanings given such terms in this Agreement.
(S)8.7 No Third Party Beneficiaries. Nothing contained in this Agreement,
----------------------------
expressed or implied, is intended or shall be construed to confer upon or give
to any person, firm, corporation or legal entity, other than the Parties and
American, any rights, remedies or other benefits under or by reason of this
Agreement.
(S)8.8 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Texas without regard to principles
of conflicts of law.
(S)8.9 Binding Effect; Assignment. This Agreement shall be binding upon,
--------------------------
inure to the benefit of and be enforceable by and against the Parties and their
respective heirs, personal representatives, successors, and assigns. Neither
this Agreement nor any of the rights, interests or obligations under this
Agreement shall be transferred or assigned by any of the Parties without the
prior written consent of the other Parties.
(S)8.10 Remedies. All rights and remedies of each Party under this
--------
Agreement shall be cumulative and in addition to all other rights and remedies
which may be available to that Party from time to time, whether under any other
agreement, at law, or in equity.
(S)8.11 Expenses. Except as otherwise specifically provided in this
--------
Agreement, each of Longhorn and ADP will bear its respective legal, accounting,
and other costs and expenses associated with the transactions contemplated by
this Agreement (including without limitation the costs of any brokers and
financial advisors).
(S)8.12 Public Announcements. This Agreement and the transactions
--------------------
contemplated herein shall be confidential and no Party shall disclose any
information relating to this transaction without the prior written consent of
Longhorn and the president of ADP, except for such disclosures to such
professional advisors as may be necessary or appropriate in order to complete
the Asset Purchase and related transactions. Each Party and its representatives
will exercise all reasonable efforts to maintain confidentiality with respect to
this transaction at all times prior to the public announcement, if any, of this
Agreement. The provisions of this section will be subject to each Party's
obligation to comply with
48
<PAGE>
applicable requirements of federal or state laws or any governmental order or
regulation.
(S)8.13 Severability. With respect to any provision of this Agreement
------------
finally determined by a court of competent jurisdiction to be unenforceable,
such court shall have jurisdiction to reform such provision so that it is
enforceable to the maximum extent permitted by applicable law, and the Parties
shall abide by such court's determination. In the event that any provision of
this Agreement cannot be reformed, such provision shall be deemed to be severed
from this Agreement, but every other provision of this Agreement shall remain in
full force and effect.
LES L. CRANE, D.D.S., P.C. AMERICAN DENTAL PARTNERS, INC.
By /s/ Les L. Crane By /s/ Gregory A. Serrao
------------------------------- -------------------------------------
Les L. Crane, D.D.S., President Gregory A. Serrao, President
TEXAS DENTAL PARTNERS, INC.
By /s/ Gregory A. Serrao
-------------------------------------
Gregory A. Serrao, President
The Longhorn Shareholder confirms that he has read and fully understands this
Agreement, including without limitation the exhibits hereto and the
representations and warranties contained in (S)3.28 of this Agreement.
/s/ Les L. Crane
- ---------------------------------
LES L. CRANE, D.D.S.
49
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
AMERICAN DENTAL PARTNERS, INC.,
AMERICAN DENTAL PARTNERS WISCONSIN, INC.,
SMILEAGE DENTAL CARE, INC.
AND
THE SHAREHOLDERS OF SMILEAGE DENTAL CARE, INC.
DECEMBER 23, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION............................. 1
BACKGROUND INFORMATION...................................................... 1
ARTICLE I THE MERGER............................... 1
(S)1.1 The Merger..................................................... 1
(S)1.2 Closing; Effective Time........................................ 2
(S)1.3 Effects of the Merger.......................................... 2
(S)1.4 Certificate of Incorporation and Bylaws........................ 2
(S)1.5 Directors and Officers......................................... 2
(S)1.6 Tax Effect of the Merger....................................... 2
ARTICLE II CAPITAL STOCK............................. 2
(S)2.1 Capital Stock.................................................. 2
(a) Outstanding American Shares............................... 2
(b) Outstanding Smileage Shares............................... 3
(c) Smileage Treasury Shares.................................. 3
(S)2.2 Exchange of Certificates; Issuance of Shares................... 3
(a) Surrender of Smileage Share Certificates.................. 3
(b) Issuance of ADP Shares.................................... 3
(c) Distributions with Respect to Unexchanged Shares.......... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ADP........................ 4
(S)3.1 Organization and Standing...................................... 4
(S)3.2 Corporate Power and Authority.................................. 4
(S)3.3 Capitalization of ADP.......................................... 4
(a) ADP Shares................................................ 5
(b) Stock Ownership........................................... 5
(c) Due Authorization and Issuance............................ 5
(e) Compliance with Laws; No Liens............................ 5
(S)3.5 Litigation..................................................... 6
(S)3.6 Brokerage and Finder's Fees.................................... 6
(S)3.7 Subsidiaries................................................... 7
(S)3.8 Financial Statements........................................... 7
(S)3.9 Undisclosed Liabilities........................................ 7
(S)3.10 Absence of Certain Changes..................................... 8
(S)3.11 Complete Disclosure............................................ 8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
SMILEAGE SHAREHOLDERS..................................... 8
(S)4.1 Organization and Standing...................................... 8
(S)4.2 Capitalization and Security Holders............................ 9
(a) Smileage Shares........................................... 9
(b) Stock Ownership........................................... 9
(c) Due Authorization and Issuance............................ 9
(d) No Other Commitment....................................... 9
(e) Compliance with Laws; No Liens............................ 9
(S)4.3 Subsidiaries................................................... 10
(S)4.4 Business of Smileage........................................... 10
(S)4.5 Corporate Power and Authority.................................. 10
(S)4.6 Consents and Approvals......................................... 10
(S)4.7 Financial Statements........................................... 10
(S)4.8 Undisclosed Liabilities........................................ 11
(S)4.9 Absence of Certain Changes..................................... 12
(S)4.10 Taxes.......................................................... 13
(S)4.11 Compliance with Law............................................ 14
(S)4.12 Proprietary Rights............................................. 16
(S)4.13 Restrictive Documents or Laws.................................. 17
(S)4.14 Insurance...................................................... 17
(S)4.15 Bank Accounts, Depositories; Powers of Attorney................ 18
(S)4.16 Title to and Condition of Properties........................... 18
(S)4.17 Brokers, Finders............................................... 19
(S)4.18 Legal Proceedings, etc......................................... 19
(S)4.19 ERISA.......................................................... 20
(S)4.20 Contracts...................................................... 22
(S)4.21 Accounts Receivable............................................ 23
(S)4.22 No Conflict or Default......................................... 24
(S)4.23 Books of Account; Records...................................... 24
(S)4.24 Officers, Employees and Compensation........................... 25
(S)4.25 Labor Relations................................................ 25
(S)4.26 Suppliers and Third Party Payors............................... 26
(S)4.27 Medicare and Medicaid.......................................... 26
(S)4.28 Investment Intent.............................................. 26
(S)4.29 Disciplinary Actions........................................... 27
(S)4.30 Complete Disclosure............................................ 28
ARTICLE V COVENANTS OF THE PARTIES......................... 28
(S)5.1 Mutual Covenants............................................... 28
(a) General................................................... 28
(b) Governmental Matters...................................... 28
(c) Securities Law Compliance................................. 28
(d) Subordination Agreement................................... 28
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
(S)5.2 Covenants of Smileage and the Smileage Shareholders............ 28
(a) Delivery of Smileage Interim Statements................... 29
(b) Conduct of Business....................................... 29
(c) Exclusive Rights.......................................... 30
(d) Access to Records and Other Due Diligence................. 31
(e) Disclosures............................................... 31
(f) Employee Retention........................................ 31
(g) Affiliate Indebtedness.................................... 32
(h) Dividends and Distributions............................... 32
(i) Agreements with Shareholders.............................. 32
(j) Restructuring of WDG...................................... 32
(k) Notices of Certain Events................................. 32
(l) Representations and Warranties............................ 33
(m) Noncompetition............................................ 33
(n) Injunctive Relief......................................... 34
(S)5.3 Covenants of ADP............................................... 34
(a) Representations and Warranties............................ 34
(b) Delivery of Interim Statements............................ 34
ARTICLE VI CONDITIONS..................................... 34
(S)6.1 Mutual Conditions.............................................. 34
(a) Legal Prohibition......................................... 34
(b) Service Agreement......................................... 35
(c) Governmental Approvals.................................... 35
(d) Deike Option.............................................. 35
(S)6.2 Conditions to Obligations of Smileage and the Smileage
Shareholders................................................. 35
(a) Representations and Warranties 35
(b) Performance of Agreement.................................. 35
(c) Certificate............................................... 35
(d) Opinion of Counsel........................................ 35
(e) Authority................................................. 35
(f) Restrictive Conditions.................................... 36
(g) Due Diligence............................................. 36
(h) Financial Statements...................................... 36
(i) Material Adverse Changes.................................. 36
(S)6.3 Conditions to Obligations of ADP and American.................. 36
(a) Representations and Warranties............................ 36
(b) Performance of Agreement.................................. 36
(c) Certificate............................................... 36
(d) Reorganization............................................ 36
(e) Restructure of WDG........................................ 36
(f) Authority................................................. 37
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
(g) Professional Personnel.................................... 37
(h) Financial Statements...................................... 37
(i) Opinion of Counsel........................................ 37
(j) Existing Employment and Deferred Compensation Agreements.. 37
(k) Employment and Noncompetition Agreement with ADP.......... 37
(l) Employment and Noncompetition Agreements of WDG........... 37
(m) Third Party Consents...................................... 37
(n) Termination of Options.................................... 38
(o) Restrictive Conditions.................................... 38
(p) Defaults.................................................. 38
(q) Material Adverse Changes.................................. 38
(r) Books and Records......................................... 38
(s) Shareholders' Equity...................................... 38
(t) Capital Expenditures...................................... 39
(u) Agreement Between Smileage and GDP........................ 39
(v) Compliance with Laws...................................... 39
(w) Related Party Transactions................................ 39
(x) Contract with First Commonwealth.......................... 39
(y) Due Diligence............................................. 39
ARTICLE VII TERMINATION AND AMENDMENT....................... 40
(S)7.1 Termination.................................................... 40
(a) Termination by Smileage and the Smileage Shareholders..... 40
(b) Termination by ADP........................................ 40
(S)7.2 Amendment...................................................... 40
(S)7.3 Extension; Waiver.............................................. 41
ARTICLE VIII INDEMNIFICATION........................... 41
(S)8.1 Survival of Representations, Warranties and Agreements......... 41
(S)8.2 Indemnification................................................ 41
(S)8.3 Limitations on Indemnification................................. 42
(S)8.4 Procedure for Indemnification with Respect to Third Party
Claims........................................................ 44
(S)8.5 Procedure For Indemnification with Respect to Non-Third Party
Claims........................................................ 45
(S)8.6 Right of Setoff................................................ 45
ARTICLE IX MISCELLANEOUS............................. 46
(S)9.1 Attorney In Fact............................................... 46
(S)9.2 Notices........................................................ 46
(S)9.3 Non-Waiver..................................................... 47
(S)9.4 Genders and Numbers............................................ 47
(S)9.5 Headings....................................................... 48
(S)9.6 Counterparts................................................... 48
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C>
(S)9.7 Entire Agreement............................................... 48
(S)9.8 No Third Party Beneficiaries................................... 48
(S)9.9 Governing Law.................................................. 48
(S)9.10 Binding Effect; Assignment..................................... 48
(S)9.11 Remedies....................................................... 48
(S)9.12 Expenses....................................................... 48
(S)9.13 Public Announcements........................................... 49
(S)9.14 Severability................................................... 49
INDEX OF ADP SCHEDULES...................................................... 51
INDEX OF SMILEAGE SCHEDULES................................................. 52
INDEX OF EXHIBITS........................................................... 53
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
-----------------------------------------------
This Agreement and Plan of Merger and Reorganization (this "Agreement") is
made effective December 23, 1996, among American Dental Partners, Inc., a
Delaware corporation ("ADP"), American Dental Partners Wisconsin, Inc., a
Wisconsin corporation which is a wholly-owned subsidiary of ADP ("American"),
Smileage Dental Care, Inc., a Wisconsin corporation ("Smileage"), and the
shareholders of Smileage, as identified on Exhibit A attached to this Agreement
(the "Smileage Shareholders").
BACKGROUND INFORMATION
----------------------
A. ADP desires to acquire Smileage through the merger of Smileage with
American (the "Merger"), pursuant to which all of the Smileage Shares (defined
in (S)4.2, below) outstanding at the Effective Time (defined in (S)1.2, below)
will be converted into the right to receive, in the aggregate, the following:
(i) cash in the amount of $546,250 (the "Cash Consideration"), subject to
adjustment under (S)6.3(s); (ii) subordinated promissory notes in the form
attached to this Agreement as Exhibit B in the aggregate original principal
amount of $247,500 (the "Notes"); and (iii) 50,700 shares of common stock, $.01
par value, of ADP ("ADP Shares"), subject to adjustment under (S)6.3(s).
Smileage will be the surviving entity resulting from the Merger and will be a
wholly-owned subsidiary of ADP.
B. The respective boards of directors of ADP, American, and Smileage have
determined that the Merger and the other transactions described in this
Agreement are desirable and in the best interests of their respective
shareholders and have duly approved and adopted this Agreement. The
shareholders of Smileage and American also have duly approved and adopted this
Agreement.
STATEMENT OF AGREEMENT
----------------------
The parties to this Agreement (the "Parties") hereby acknowledge the above
Background Information and agree as follows:
ARTICLE I
THE MERGER
----------
(S)1.1 The Merger. Upon the terms and subject to the conditions described
----------
in this Agreement, and in accordance with the provisions of Section 180.1101,
Wisconsin Statutes (the "Wisconsin Statute"), Smileage shall be merged with
American. The Merger shall be consummated by filing with the Secretary of State
of Wisconsin (the "Secretary of State") a Certificate of Merger substantially in
the form attached to this Agreement as Exhibit C (the "Certificate of Merger").
Following the Merger, the separate corporate existence of American shall cease
and Smileage shall continue as the surviving corporation and shall continue its
existence under the laws of the State of Wisconsin. Smileage, in
<PAGE>
its capacity as the corporation surviving the Merger, is sometimes referred to
in this Agreement hereafter as the "Surviving Corporation."
(S)1.2 Closing; Effective Time. The closing of the transactions
-----------------------
contemplated by this Agreement (the "Closing") shall be held at the offices of
Niebler & Muren, S.C., Suite 270, 450 North Sunnyslope Road, Brookfield,
Wisconsin, 53008, commencing at 10:00 a.m. Eastern time on such date (the
"Closing Date") as may be reasonably designated by ADP; provided that the
Closing shall be held not later than 15 business days after satisfaction or
waiver of all conditions set forth in Article VI of this Agreement. Promptly
following the Closing, Smileage and American shall cause the Certificate of
Merger to be filed with the Secretary of State, and the Merger shall become
effective at the time specified in the Certificate of Merger (the "Effective
Time").
(S)1.3 Effects of the Merger. The Merger shall have the effects set forth
---------------------
in the Wisconsin Statute.
(S)1.4 Certificate of Incorporation and Bylaws. As provided in the
---------------------------------------
Certificate of Merger, the certificate of incorporation of American in effect
immediately prior to the Effective Time shall be amended by the filing of the
Certificate of Merger to adopt the name of Smileage Dental Care, Inc., and as so
amended shall be the certificate of incorporation of the Surviving Corporation
after the Merger. The bylaws of American in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation after the
Merger.
(S)1.5 Directors and Officers. After the Effective Time, the directors
----------------------
and officers of American shall be the directors and officers of the Surviving
Corporation until their respective successors are duly elected and qualified.
(S)1.6 Tax Effect of the Merger. The Parties intend that the Merger
------------------------
constitute a "reorganization" within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"), and
the regulations thereunder; provided that the Parties acknowledge and agree that
the receipt by the Smileage Shareholders of the Cash Consideration and Notes
will be a taxable event.
ARTICLE II
CAPITAL STOCK
-------------
(S)2.1 Capital Stock. At the Effective Time, by virtue of the Merger and
-------------
without any further action on the part of ADP, American, or the Smileage
Shareholders:
(a) Outstanding American Shares. Each common share, $.01 par
---------------------------
value, of American which is issued and outstanding
2
<PAGE>
immediately prior to the Effective Time shall be unchanged and shall remain
issued and outstanding after the Effective Time, constituting one issued
and outstanding common share, $.01 par value, of the Surviving Corporation.
(b) Outstanding Smileage Shares. Each Smileage Share which is
---------------------------
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive, subject to the provisions of (S)2.2,
below, (i) that number of ADP Shares which is equal to the result obtained
when the total number of ADP Shares to be issued as a result of the Merger
(as adjusted under (S)6.3(s), if applicable) is multiplied by a fraction
having one as its numerator and having as its denominator the total number
of Smileage Shares issued and outstanding immediately prior to the
Effective Time (the "Conversion Fraction"), (ii) a Note in a principal
amount equal to the result obtained when $247,500 is multiplied by the
Conversion Fraction, and (iii) cash in an amount equal to the result
obtained when the total Cash Consideration to be paid as a result of the
Merger (as adjusted under (S)6.3(s), if applicable) is multiplied by the
Conversion Fraction. For purposes of this Agreement, the 1,063 shares of
Smileage stock which are subject to the Deike Option (as defined in
(S)4.2(a), below) shall be deemed to be stock of Smileage which is issued
and outstanding, and prior to the Closing Date, the Deike Option shall be
exchanged for and converted into the Smileage Shares then subject to the
Deike Option.
(c) Smileage Treasury Shares. All Smileage Shares, if any, which
------------------------
are held in the treasury of Smileage shall be cancelled and retired, and no
payment shall be made in respect of such Smileage Shares.
(S)2.2 Exchange of Certificates; Issuance of Shares.
--------------------------------------------
(a) Surrender of Smileage Share Certificates. After the Effective
----------------------------------------
Time, the certificates representing the Smileage Shares (the "Smileage
Share Certificates") shall represent for all purposes only the right to
receive ADP Shares, Notes, and Cash Consideration pursuant to the
provisions of (S)2.1, above, and this (S)2.2. Promptly after the Effective
Time, each Smileage Shareholder shall surrender to ADP the Smileage Share
Certificates evidencing all of the Smileage Shares owned by that Smileage
Shareholder immediately prior to the Effective Time.
(b) Issuance of ADP Shares. In consideration of the surrender of
----------------------
the Smileage Share Certificates evidencing the Smileage Shares owned by the
Smileage Shareholders pursuant to (S)2.2(a), above, ADP shall, after the
Effective Time and upon surrender by a Smileage Shareholder of such
Shareholder's Smileage Share Certificates, issue to that Smileage
3
<PAGE>
Shareholder that number of ADP Shares, deliver to that Smileage Shareholder
a Note having the principal amount, and pay to that Smileage Shareholder
Cash Consideration in the amount to which that Smileage Shareholder is
entitled following the conversion described in (S)2.1(b), above. For
purposes of applying the provisions of this Article, the number of ADP
Shares issuable to each Smileage Shareholder shall be rounded to the
nearest 1/10, and the principal amount of Note and the amount of the Cash
Consideration payable to each Smileage Shareholder shall be rounded to the
nearest cent.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
------------------------------------------------
other distributions, if any, with respect to ADP Shares having a record
date after the Effective Time shall be paid or become payable to the holder
of any unsurrendered certificate for Smileage Shares until such holder
surrenders such certificate.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ADP
-------------------------------------
In order to induce Smileage and the Smileage Shareholders to enter into
this Agreement, ADP hereby represents and warrants to Smileage and the Smileage
Shareholders that the statements contained in this Article are true, correct and
complete, except as disclosed in the Schedules specifically referred to in this
Article and delivered by ADP to Smileage on or prior to the date of this
Agreement (collectively, the "ADP Schedules"):
(S)3.1 Organization and Standing. Each of American and ADP is a
-------------------------
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation with full corporate power and authority to own,
lease, use and operate its properties and to conduct its business as and where
now owned, leased, used, operated and conducted. Copies of ADP's Articles of
Incorporation and Bylaws which have been provided to Smileage and the Smileage
Shareholders are true and correct copies thereof as of the date of this
Agreement.
(S)3.2 Corporate Power and Authority. Each of American and ADP has all
-----------------------------
requisite corporate power and authority to enter into this Agreement and to
perform its obligations under this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of each of American and
ADP. This Agreement has been duly executed and delivered by each of American
and ADP and constitutes the legal, valid and binding obligation of each of
American and ADP, enforceable against American and ADP in accordance with its
terms.
(S)3.3 Capitalization of ADP.
---------------------
4
<PAGE>
(a) ADP Shares. ADP's authorized capital stock consists solely of (i)
----------
1,000,000 shares of common stock, $.01 par value, of which __________ are issued
and outstanding; (ii) 400,000, $.01 par value, Series A Convertible Preferred
Shares, of which _____________ are issued and outstanding; and (iii) 70,000,
$.01 par value, Series B Redeemable Preferred Shares, of which ___________ are
issued and outstanding.
(b) Stock Ownership. ADP has made available to Smileage a correct and
---------------
complete list of the names of the ADP shareholders, and the number, class and
series of shares of ADP capital stock held beneficially and of record by, the
ADP shareholders, including the holders of any options or warrants for any
capital stock of ADP.
(c) Due Authorization and Issuance. Each outstanding share of capital
------------------------------
stock of ADP is, and all ADP Shares to be issued in connection with the Merger
will be, duly authorized, validly issued, fully paid and nonassessable, and have
not been and will not be issued in violation of any preemptive or similar
rights. American is a wholly-owned subsidiary of ADP.
(d) No Other Commitment. Except as set forth in Schedule 3.3 or as
-------------------
may be the subject of pending negotiations in connection with ADP's efforts to
acquire other dental clinics and related services (an "Acquisition") or as
otherwise contemplated by the Merger and the terms of this Agreement, there are
no outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, claims or other commitments or rights of any type relating to
the issuance, sale or transfer by either ADP or any of its shareholders who
either alone or a part of a group beneficially own 5% or more of the outstanding
voting stock of ADP, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of capital stock of ADP and ADP
has no obligations of any kind to issue any additional securities of ADP, or any
predecessor.
(e) Compliance with Laws; No Liens. Each outstanding share of capital
------------------------------
stock of ADP has been, and all ADP Shares to be issued in connection with the
Merger will be, issued in full compliance with all applicable federal and state
securities laws and other laws. Except as set forth in Schedule 3.3, all such
ADP Shares are free and clear of all liens, security interests, encumbrances,
pledges, charges, claims, voting trusts, and restrictions on transfer of any
nature whatsoever, except restrictions on transfer imposed by or pursuant
federal and state securities laws. Except as set forth in Schedule 3.3 or in
connection with a pending or recently-completed Acquisition, ADP has not agreed
to register any securities under the Securities Act of 1933, as amended
5
<PAGE>
(the "Securities Act"), and the rules and regulations thereunder or under
any state securities law.
(S)3.4 Conflicts; Consents and Approvals. Neither the execution and
---------------------------------
delivery of this Agreement by ADP nor the consummation of the transactions
contemplated in this Agreement will:
(a) Violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with the giving
of notice, the passage of time or otherwise, would constitute a default)
under, or entitle any third party (with the giving of notice, the passage
of time or otherwise) to terminate, accelerate or call a default under, or
result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of ADP under any of the
terms, conditions or provisions of the certificate of incorporation or
bylaws, each as amended to date, of ADP, or any note, bond, mortgage,
indenture, deed of trust, license, contract, undertaking, agreement, lease
or other instrument or obligation to which ADP is a party and which is
material to ADP and its subsidiaries, taken as a whole;
(b) Violate any order, writ, injunction, decree, statute, rule or
regulation, applicable to ADP or its properties or assets; or
(c) Require any action or consent or approval of, or review by, or
registration with any third party, court or governmental body or other
agency, instrumentality or authority, other than (i) such actions taken in
respect of federal and state securities laws as are contemplated by this
Agreement; and (ii) the filing of the Certificate of Merger with the
Secretary of State.
(S)3.5 Litigation. There is no suit, claim, action, proceeding or
----------
investigation pending or, to the best knowledge of ADP, threatened against ADP
which, individually or in the aggregate, is reasonably likely to have a material
adverse effect on ADP and its subsidiaries, taken as a whole, or a material
adverse effect on the ability of ADP to consummate the transactions contemplated
in this Agreement. ADP is not subject to any outstanding order, writ,
injunction or decree which, insofar as can be reasonably foreseen, individually
or in the aggregate, would have a material adverse effect on it or a material
adverse effect on the ability of ADP to consummate the transactions contemplated
by this Agreement.
(S)3.6 Brokerage and Finder's Fees. Neither ADP nor any of its
---------------------------
stockholders, directors, officers or employees has incurred, or will incur on
behalf of ADP, any brokerage, finder's or similar fee in connection with the
transactions contemplated by this Agreement.
6
<PAGE>
(S)3.7 Subsidiaries. Set forth on Schedule 3.7 is a current and complete
------------
list of all subsidiary corporations of ADP, and the number and class of shares
of capital stock of each such subsidiary, and the percentage of all capital
stock of that subsidiary which is represented by the shares owned by ADP.
Except as set forth in Schedule 3.7, ADP does not own, directly or indirectly,
any equity or other ownership interest in any corporation, partnership, joint
venture, or other entity or enterprise (hereinafter, simply "entity"). Except
in connection with a pending Acquisition, ADP is not subject to any obligation
or requirement to provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any entity not a subsidiary of ADP.
(S)3.8 Financial Statements.
---------------------
(a) ADP has furnished to Smileage and the Smileage Shareholders
the balance sheet for ADP for the nine months ended September 30, 1996, and
the related statement of income and retained earnings for the period then
ended, all of which have been internally prepared by ADP's management
(collectively, the "ADP Financial Statements"). The ADP Financial
Statements have been prepared from and in accordance with the books and
records of ADP on a consistent basis, shall be initialed for identification
by the chief executive officer of ADP, and fairly present the financial
condition of ADP as of the date stated and the results of operations of ADP
for the period then ended in accordance with such practices.
(b) When delivered in accordance with Section 5.3(b) of this
Agreement, the balance sheet of ADP as of October 31, 1996, and the related
statements of income and retained earnings for the period beginning on the
first day of ADP's current fiscal year through October 31, 1996
(collectively, the "ADP Interim Statements"), shall have been internally
prepared on a basis consistent with that used in the ADP Financial
Statements, and shall fairly present the financial condition of ADP as of
such date and the results of operations of ADP for such period then ended
in accordance with such practices.
(S)3.9 Undisclosed Liabilities. Except as disclosed in Schedule 3.9, ADP
-----------------------
does not have any liability or obligation of any nature (whether liquidated,
unliquidated, accrued, absolute, contingent or otherwise and whether due or to
become due) except:
(a) Those set forth in the ADP Financial Statements which have not
been paid or discharged since the date thereof; and
(b) Current liabilities (determined in accordance with generally
accepted accounting principles) incurred since the beginning of ADP's current
fiscal year in transactions in the
7
<PAGE>
ordinary course of business consistent with past practices which are properly
reflected on its books, are or will be properly reflected in the ADP Interim
Statements, and are not inconsistent with the other representations, warranties
and agreements of ADP set forth in this Agreement.
(S)3.10 Absence of Certain Changes. Except as set forth in Schedule 3.10,
--------------------------
since the beginning of ADP's current fiscal year, there has not been any
material adverse change in the business, operations, assets, properties,
prospects, rights or condition (financial or otherwise) of ADP, or any
occurrence, circumstance, or combination thereof which reasonably could be
expected to result in any such material adverse change.
(S)3.11 Complete Disclosure. No representation or warranty by ADP in
-------------------
this Agreement or the ADP Schedules contains, or will contain as of the Closing,
any untrue statement of a material fact or omits, or will omit as of the
Closing, a material fact necessary to make the statements contained herein or
therein not misleading.
The representations and warranties contained in this Article shall expire
automatically on the third anniversary of the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SMILEAGE SHAREHOLDERS
------------------------
In order to induce ADP to enter into this Agreement, the Smileage
Shareholders hereby jointly and severally (except for those specific
representations and warranties which are made severally as expressly set forth
herein) represent and warrant to ADP that the statements contained in this
Article are true, correct and complete, except as disclosed in the Schedules
specifically referred to in this Article and delivered by Smileage to ADP on or
prior to the date of this Agreement (collectively, the "Smileage Schedules").
(S)4.1 Organization and Standing. Smileage is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of its state of
incorporation with full corporate power and authority to own, lease, use and
operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted. Smileage is duly qualified to do business
and is in good standing in each jurisdiction listed in Schedule 4.1, is not
qualified to do business in any other jurisdiction, and neither the nature of
the business conducted by Smileage nor the properties it owns, leases or
operates requires it to qualify to do business as a foreign corporation in any
other jurisdiction. Smileage has not received any written notice or assertion
within the last three years from any governmental official in any jurisdiction
to the effect that it is required to be qualified or authorized to do
8
<PAGE>
business in such jurisdiction, in which Smileage is not so qualified or has not
obtained such authorization. Smileage is not in default in the performance,
observation or fulfillment of any provision of its certificate or articles of
incorporation, bylaws, or other organizational documents, as applicable, each as
amended to date.
(S)4.2 Capitalization and Security Holders.
-----------------------------------
(a) Smileage Shares. The authorized capital stock of Smileage
---------------
(the "Smileage Shares") consists solely of 56,000 shares of common stock,
par value $.01 a share (the "Common Shares"), of which 34,350 are issued
and outstanding and 1,063 are subject to an option in favor of Don A. Deike
(the "Deike Option"). The Smileage Shareholders hold beneficially and of
record all of the outstanding Smileage Shares. All of the outstanding
Smileage Shares are entitled to vote with respect to the Merger.
(b) Stock Ownership. Schedule 4.2 sets forth a correct and
---------------
complete list of the name and address of, and the number of Smileage Shares
held beneficially and of record by, the Smileage Shareholders,
respectively.
(c) Due Authorization and Issuance. Each outstanding Smileage
------------------------------
Share has been duly authorized and validly issued and is fully paid and
non-assessable (except to the extent provided in Wisconsin Statutes
(S)180.0622(2)(b)) and has not been issued in violation of any preemptive
or similar rights.
(d) No Other Commitment. Except as set forth in Schedule 4.2,
-------------------
there are no outstanding subscriptions, options, warrants, puts, calls,
agreements, understandings, claims or other commitments or rights of any
type relating to the issuance, sale or transfer by either Smileage or the
Smileage Shareholders of any Smileage Shares, nor are there outstanding any
securities which are convertible into or exchangeable for any shares of
capital stock of Smileage and Smileage has no obligation of any kind to
issue any additional securities of Smileage, or any predecessor.
(e) Compliance with Laws; No Liens. The issuance and sale of all
------------------------------
of the Smileage Shares have been in full compliance with all applicable
federal and state securities laws and other laws. Except as set forth in
Schedule 4.2, each Smileage Shareholder severally represents and warrants
that the Smileage Shares owned by such Smileage Shareholder are free and
clear of all liens, security interests, encumbrances, pledges, charges,
claims, voting trusts and restrictions on transfer of any nature
whatsoever, except restrictions on transfer imposed by or pursuant to
federal and state securities laws. Except as set forth in Schedule 4.2,
9
<PAGE>
Smileage has not agreed to register any securities under the Securities
Act, and the rules and regulations thereunder or under any state securities
law.
(S)4.3 Subsidiaries. Set forth on Schedule 4.3 is a correct and complete
------------
list of all subsidiary corporations of Smileage, the number and class of shares
of capital stock of each such subsidiary, and the percentage of all capital
stock of that subsidiary which is represented by the shares owned by Smileage.
Except as set forth on Schedule 4.3, Smileage does not own, directly or
indirectly, any equity or other ownership interest in any entity. Smileage is
not subject to any obligation or requirement to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
entity.
(S)4.4 Business of Smileage. Smileage is and has been engaged in the
--------------------
business of providing dental services to its patients and is engaged in no other
business whatsoever except as may be incidental to the foregoing and except as
to providing administrative services to Georgia Dental Plan, Inc. and to [First
Commonwealth/SDS].
(S)4.5 Corporate Power and Authority. Smileage has all requisite
-----------------------------
corporate power and authority to enter into and perform this Agreement and to
carry out its obligations under this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by the board of directors and the shareholders of Smileage. This
Agreement has been duly executed and delivered by Smileage and constitutes the
legal, valid and binding obligation of Smileage enforceable against Smileage in
accordance with its terms. No other corporate action or proceeding by or in
respect of Smileage is or was necessary to authorize this Agreement or the
consummation of the transactions contemplated by this Agreement.
(S)4.6 Consents and Approvals. Except for the consents described in
----------------------
Schedule 4.6, all of which shall be obtained prior to the Closing (unless
otherwise expressly agreed by ADP in writing), neither the execution and
delivery of this Agreement by Smileage or the Smileage Shareholders nor the
consummation of the transactions contemplated by this Agreement require or will
require any action, consent, or approval of, or review by, or registration with,
any third party, court or governmental body or other agency, instrumentality or
authority, other than the filing of the Certificate of Merger with the Secretary
of State.
(S)4.7 Financial Statements.
--------------------
(a) Smileage shall furnish to ADP the following (collectively, the
"Smileage Financial Statements"): (i) the balance sheets for Smileage as
at December 31, 1995, and the related statements of income and retained
earnings and cash flows for the fiscal year then ended, including, in each
case,
10
<PAGE>
the related notes, all of which shall be prepared, examined and accompanied
by the unqualified audit report of BDO Seidman, LLP ("BDO Seidman"); and
(ii) the consolidated balance sheets for Smileage Dental Services, Inc.
(with which SDC was then consolidated) as at December 31, 1994, and
December 31, 1993, and the related statements of income and retained
earnings and cash flows for the fiscal years then ended, including, in each
case, the related notes, all of which have been prepared, examined and
accompanied by the unqualified audit report of BDO Seidman. The Smileage
Financial Statements as at and for the fiscal year ended December 31, 1995,
are sometimes hereinafter referred to separately as the "1995 Smileage
Financial Statements". The Smileage Financial Statements shall be prepared
from and be in accordance with the books and records of Smileage and in
conformity with generally accepted accounting principles applied on a
consistent basis, shall be initialed for identification by the chief
executive officer of Smileage, and shall fairly present the financial
condition of Smileage as of the dates stated and the results of operations
of Smileage for the periods then ended in accordance with such practices.
(b) When delivered in accordance with Section 5.2(a) of this
Agreement, the balance sheet of Smileage as of the most recent month-end
prior to the Closing Date, and the related statements of income and
retained earnings and cash flows for the period beginning on the first day
of Smileage's current fiscal year through the most recent month-end prior
to the Closing (collectively, the "Smileage Interim Statements"), shall
have been prepared in conformity with generally accepted accounting
principles applied on a basis consistent with that used in the Smileage
Financial Statements, and shall fairly present the financial condition of
Smileage as of such date and the results of operations of Smileage for such
period then ended in accordance with such practices.
(S)4.8 Undisclosed Liabilities. Except as disclosed in Schedule 4.8,
-----------------------
Smileage does not have any liability or obligation of any nature (whether
liquidated, unliquidated, accrued, absolute, contingent or otherwise and whether
due or to become due) except:
(a) Those set forth in the 1995 Smileage Financial Statements which
have not been paid or discharged since the date thereof;
(b) Those arising from and after the date of this Agreement under
agreements or other commitments specifically identified in Schedule 4.20;
and
(c) Current liabilities (determined in accordance with generally
accepted accounting principles) incurred since January 1, 1996, in
transactions in the ordinary course of
11
<PAGE>
business consistent with past practices which are properly reflected on its
books, are or will be properly reflected in the Smileage Interim
Statements, and are not inconsistent with the other representations,
warranties and agreements of the Smileage Shareholders set forth in this
Agreement.
(S)4.9 Absence of Certain Changes. Except as set forth in Schedule 4.9 or
--------------------------
reflected in the Smileage Interim Statements, since January 1, 1996, there has
not been:
(a) Any material adverse change in the business, operations,
assets, properties, prospects, rights or condition (financial or otherwise)
of Smileage, or any occurrence, circumstance, or combination thereof which
reasonably could be expected to result in any such material adverse change
(a "Material Adverse Effect");
(b) Any declaration, setting aside or payment of any dividend or
any distribution (in cash or in kind) to any shareholder of Smileage or any
direct or indirect redemption, purchase or other acquisition by Smileage of
any of its capital stock or any options, warrants, rights or agreements to
purchase or acquire such stock;
(c) Any increase in amounts payable by Smileage to or for the
benefit of, or committed to be paid by Smileage to or for the benefit of
any stockholder, director, or officer of Smileage, or any other consultant,
agent or employee of Smileage, or any relatives of any such person, or any
increase in any benefits granted under any bonus, stock option, profit-
sharing, pension, retirement, deferred compensation, insurance, or other
direct or indirect benefit plan, payment or arrangement made to, with or
for the benefit of any such person, excepting only reimbursement in the
ordinary course of business, in a manner consistent with past practices, of
out-of-pocket expenses incurred by employees of Smileage directly in
connection with Smileage's business;
(d) Any transaction entered into or carried out by Smileage other
than in the ordinary course of its business;
(e) Any borrowing or agreement to borrow funds by Smileage, any
incurring by Smileage of any other obligation or liability (contingent or
otherwise), except current liabilities incurred in the ordinary course of
business (consistent with past practices), or any endorsement, assumption
or guarantee of payment or performance of any loan or obligation of any
other individual, firm, corporation or other entity by Smileage;
(f) Any material change in Smileage's method of doing business or
any change in its accounting principles or
12
<PAGE>
practices or its method of application of such principles or practices;
(g) Any mortgage, pledge, lien, security interest, hypothecation,
charge or other encumbrance imposed or agreed to be imposed on or with
respect to the property or assets of Smileage;
(h) Any sale, lease or other disposition of, or any agreement to
sell, lease or otherwise dispose of any of the properties or assets of
Smileage, other than in the usual and ordinary course of business;
(i) Any purchase of or any agreement to purchase assets (other than
inventory purchased in the ordinary course of business consistent with past
practices) for an amount in excess of $10,000 for any one purchase or
$25,000 for all such purchases made by Smileage or any lease or any
agreement to lease, as lessee, any capital assets with payments over the
term thereof to be made by Smileage exceeding an aggregate of $10,000;
(j) Any loan or advance made by Smileage to any individual, firm,
corporation or other entity;
(k) Any modification, waiver, change, amendment, release,
rescission or termination of, or accord and satisfaction with respect to,
any material term, condition or provision of any contract, agreement,
license or other instrument to which Smileage is a party, other than any
satisfaction by performance in accordance with the terms thereof in the
usual and ordinary course of business;
(l) Any labor dispute or disturbance adversely affecting the
business operations or condition (financial or otherwise) of Smileage,
including without limitation the filing of any petition or charge of unfair
labor practice with any governmental or regulatory authority, efforts to
effect a union representation election, actual or threatened employee
strike, work stoppage or slow down; or
(m) Any disciplinary or other similar action, proceeding, or
investigation taken by the Wisconsin Board of Dentistry or other
governmental or accrediting board, agency, or authority against or with
respect to Smileage, any Smileage Shareholder, or any employee of Smileage
or any of its affiliates.
(S)4.10 Taxes.
-----
(a) Smileage has duly, properly, and timely filed all federal,
state, local and foreign tax returns and tax reports
13
<PAGE>
required to be filed by it, all such returns and reports are true, correct
and complete, none of such returns and reports have been amended, and all
taxes, assessments, fees and other governmental charges due from Smileage,
including without limitation those arising under such returns and reports,
have been fully paid or are fully accrued as liabilities in the 1995
Smileage Financial Statements or the Smileage Interim Statements and will
be timely paid. No claim has been made by authorities in any jurisdiction
where Smileage did not file tax returns that it is or may be subject to
taxation therein.
(b) Smileage has delivered to ADP copies of all federal, state,
local, and foreign income tax returns filed with respect to Smileage for
taxable periods ended on or after December 31, 1991. Schedule 4.10 sets
forth the dates and results of any and all audits conducted by taxing
authorities within the last five years or otherwise with respect to any tax
year for which assessment is not barred by any applicable statute of
limitations. No waivers of any applicable statute of limitations for the
filing of any tax returns or payment of any taxes or assessments of any
deficient or unpaid taxes are outstanding. Except as set forth in Schedule
4.10, all deficiencies proposed as a result of any audits have been paid or
settled. There are no pending or, to the knowledge of the Smileage
Shareholders, threatened federal, state, local or foreign tax audits or
assessments of Smileage and no agreement with any federal, state, local or
foreign taxing authority that may affect the subsequent tax liabilities of
Smileage.
(c) Smileage is not on the date of this Agreement, nor will it be
as of the Closing, liable for taxes, assessments, fees or governmental
charges for which Smileage has not made adequate provision, including
setting aside a sufficient reserve to cover that potential liability in
full in the 1995 Smileage Financial Statements or the Smileage Interim
Statements.
(d) There exists no tax-sharing agreement or arrangement pursuant
to which Smileage is obligated to pay the tax liability of any other person
or entity, or to indemnify any other person or entity with respect to any
tax.
(e) Schedule 4.10 includes a list of all states, territories and
jurisdictions to which any tax is properly payable by Smileage.
(S)4.11 Compliance with Law. Smileage has complied and is in compliance in
-------------------
all material respects with all applicable laws, statutes, orders, rules,
regulations, policies and guidelines promulgated, and all judgments, decisions
and orders entered, by any federal, state, local or foreign court or
governmental authority, agency, or instrumentality relating to Smileage, or its
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business or properties, including without limitation all zoning, fire, safety,
building, asbestos laws, ordinances, regulations and requirements, Environmental
Laws (defined below), Governmental Reimbursement Laws (defined in (S)3.27),
Title VII of the Civil Rights Act of 1964, as amended, the Fair Labor Standards
Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the
Americans with Disabilities Act of 1990, all applicable federal, state and local
laws, rules and regulations relating to employment, and all applicable laws,
rules and regulations governing payment of minimum wages and overtime rates, and
the withholding and payment of taxes from compensation of employees; federal and
state antitrust and trade regulation laws applicable to competition generally,
establishing or complying with minimum fee schedules, or to agreements
restricting, allocating or otherwise affecting geographic or product markets;
all laws, rules, and regulations relating to the licensing or credentialing of
dentists, endodontists, periodontists, prosthodontists, pediatric dentists,
orthodontists, oral surgeons, certified registered dental assistants,
hygienists, and other dental care professionals involved with the business of
Smileage; all federal or state laws and regulations relating to fraud and abuse;
and all related laws, ordinances, regulations and requirements (all of the
foregoing, collectively, the "Applicable Laws"). Schedule 4.11 includes a list
of all franchises, licenses, permits, consents, authorizations, approvals and
certificates necessary for Smileage to carry on its business as presently
conducted (collectively, the "Permits"), each of which currently is owned by
Smileage and is valid and in full force and effect. Except as set forth in
Schedule 4.11, Smileage is not in violation of any of the Permits, and there are
no pending or, to the knowledge of the Smileage Shareholders, threatened
proceedings which could result in the revocation, cancellation or inability of
Smileage to renew any Permit. Except as set forth in Schedule 4.11, Smileage
has not been charged in writing with or given written notice of any violation of
any of the Applicable Laws which violation has not been remedied in full
(without any remaining liability of Smileage). Except as set forth on Schedule
4.11, Smileage has never disposed of, or contracted for the disposal of,
hazardous wastes or hazardous substances in violation of any of the Applicable
Laws.
For purposes of this Agreement, "Environmental Laws" shall mean all
federal, state, and local environmental laws, statutes, ordinances, and codes
relating to the protection of public health or the environment (including
without limitation any water, water vapor, land, subsurface, air, fish,
wildlife, biota, and other natural resources) and/or governing the use, storage,
treatment, generation, transportation, processing, handling, management,
production, or disposal of solid wastes, medical wastes, toxic substances,
hazardous wastes, hazardous substances, petroleum, petroleum based products,
radio-nuclides, or other radioactive materials and the rules, regulations,
policies, guidelines,
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interpretations, decisions, orders, and directives of federal, state, and local
government agencies and authorities with respect thereto.
(S)4.12 Proprietary Rights. Schedule 4.12 sets forth:
------------------
(a) All material patents, inventions, trade secrets, proprietary
rights, computer software, trademarks, trade names, service marks, logos,
copyrights and franchises and all applications therefor, registrations
thereof and licenses, sublicenses or agreements in respect thereof which
Smileage owns or has the right to use or to which Smileage is a party; and
(b) All filings, registrations or issuances of any of the foregoing
with or by any federal, state, local or foreign regulatory, administrative
or governmental office or offices (all items in (a) and (b) of this
section, together with the customer lists described below, being sometimes
hereinafter referred to collectively as the "Proprietary Rights").
Except as set forth in Schedule 4.12, Smileage is the sole and exclusive
owner of all right, title and interest in and to all Proprietary Rights free and
clear of all liens, claims, charges, equities, rights of use, encumbrances and
restrictions whatsoever, and there is no pending or, to the knowledge of the
Smileage Shareholders, threatened investigation, proceeding, inquiry or other
review by any federal, state, local or foreign regulatory, administrative or
governmental office or offices with respect to Smileage's right, title or
interest in any Proprietary Right.
Other than those Proprietary Rights listed in Schedule 4.12, no name,
patent, invention, trade secret, patient list, customer list, proprietary right,
computer software, trademark, trade name, service mark, logo, copyright,
franchise, license, sublicense, or other such right is necessary for the
operation of the business of Smileage in substantially the same manner as such
business is presently conducted. No business of Smileage has been or is now
being conducted in contravention of any trademark, copyright or other
proprietary right of any third party.
Except as set forth in Schedule 4.12, none of the Proprietary Rights: has
been hypothecated, sold, assigned or licensed by Smileage, or any other person,
corporation, firm or other legal entity; infringes upon or violates the rights
of any person, firm, corporation, or other legal entity; is subject to
challenge, claims of infringement, unfair competition or other claims; or is
being infringed upon or violated by any person, firm, corporation or other legal
entity. Except as set forth in Schedule 4.12: Smileage has not given, directly
or indirectly, any indemnification against patent, trademark or copyright
infringement as to any equipment, materials, products, services or supplies
which Smileage
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uses, licenses or sells; no product, process, method or operation presently
sold, engaged in or employed by Smileage infringes upon any rights owned by any
other person, firm, corporation or other legal entity; and there is no pending
or threatened claim or litigation against Smileage contesting the right of
Smileage to sell, engage in or employ any such product, process, method, or
operation.
Except as set forth in Schedule 4.12, Smileage has exclusive rights to own,
use and license others to use the computer software used by Smileage (the
"Software"). Schedule 4.12 lists and briefly describes, and Smileage has
provided to ADP true, correct and complete copies of, all material licenses,
agreements, documents and other materials relating to the Software and to the
rights of Smileage herein. Smileage has not licensed or otherwise authorized
any other person to use or make use of all or any part of the Software, nor has
Smileage granted, assigned or otherwise conveyed any right in or to the
Software.
Schedule 4.20 sets forth an accurate and complete list of the 10 largest
third party payors, as of the date of this agreement, in terms of revenue
generation for Smileage who currently contract with Smileage for the performance
of, and reimbursement for, dental services. Smileage has made available to ADP
a listing of all individuals enrolled as patients with Smileage as at December
31, 1995 and November 30, 1996, pursuant to any such contract.
(S)4.13 Restrictive Documents or Laws. With the exception of the matters
-----------------------------
listed in Schedule 4.13, Smileage is not a party to or bound under any mortgage,
lien, lease, agreement, contract, instrument, law, order, judgment or decree, or
any similar restriction not of general application which materially and
adversely affects, or reasonably could be expected to so affect (a) the
condition of Smileage (financial or otherwise); (b) the continued operation by
ADP of Smileage's assets after the Closing on substantially the same basis as
such assets are currently operated; or (c) the consummation of the transactions
contemplated by this Agreement.
(S)4.14 Insurance. Set forth in Schedule 4.14 is a true, correct and
---------
complete list of all insurance policies and bonds, if any, in force which are
owned by Smileage or in which, to the knowledge of the Smileage Shareholders,
Smileage is named as an insured party, or for which Smileage has paid any
premiums, and such lists correctly state the name of the insurer, the name of
each insured party, the type and amount of coverage, deductible amounts, if any,
the expiration date and the premium amount of each such policy or bond. Except
as disclosed in Schedule 4.14, all such policies or bonds are currently in full
force and effect and no written notice of cancellation or termination has been
received by Smileage with respect to any such policy or bond. Smileage will
continue all such policies and bonds in full force and effect
17
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through the Closing. All premiums due and payable on such policies and bonds
have been paid. Except as disclosed in Schedule 4.14, Smileage is not a co-
insurer under any term of any insurance policy.
(S)4.15 Bank Accounts, Depositories; Powers of Attorney. Set forth in
-----------------------------------------------
Schedule 4.15 is a true, correct and complete list of the names and locations of
all banks or other depositories in which Smileage has accounts or safe deposit
boxes, and the names of the persons authorized to draw thereon, borrow therefrom
or have access thereto. Except as set forth in such Schedule 4.15, no person or
entity has a power of attorney from Smileage.
(S)4.16 Title to and Condition of Properties. Except as set forth in
------------------------------------
Schedule 4.16, Smileage has good, valid and marketable title to all of its
assets and properties of every kind, nature and description, tangible or
intangible, wherever located, which constitute all of the property now used in
and necessary for the conduct of its business as presently conducted (including
without limitation all property and assets shown or reflected on the 1995
Financial Statements). Except as set forth in Schedule 4.16, all such
properties are owned free and clear of all mortgages, pledges, liens, security
interests, encumbrances and restrictions of any nature whatsoever, including
without limitation (a) rights or claims of parties in possession; (b) easements
or claims of easements; (c) encroachments, overlaps, boundary line or water
drainage disputes or any other matters; (d) any lien or right to a lien for
services, labor or material furnished; (e) special tax or other assessments; (f)
options to purchase, leases, tenancies, or land contracts; (g) contracts,
covenants, or reservations which restrict the use of such properties and (h)
violations of Environmental Laws and zoning, fire safety, building, and other
laws, ordinances and regulations applicable to such properties. The current
uses of all such properties are in compliance with all federal, state, local or
other governmental building, zoning, health, safety, platting, subdivision or
other law, ordinance or regulation, or any applicable private restriction, and
such uses are legal conforming uses. Except as set forth in Schedule 4.16, no
financing statement under the Uniform Commercial Code or similar law naming
Smileage as debtor has been filed in any jurisdiction, and Smileage is not a
party to or bound under any agreement or legal obligation authorizing any party
to file any such financing statement. Schedule 4.16 contains a complete and
accurate legal description of all of the real property owned or leased by
Smileage (organized by category). Smileage does not own or lease any other real
property.
Except as set forth in Schedule 4.16, all real property and structures, to
the extent occupied by Smileage, and all machinery, equipment, and other
tangible personal property owned, leased or used by Smileage which are material
to the operation of its business, are suitable for the purpose or purposes for
which they
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are being used, and, to the knowledge of the Smileage Shareholders, are in good
condition and repair. To the knowledge of the Smileage Shareholders, there are
no material structural defects in the exterior walls or the interior bearing
walls, the foundation or the roof of any building or other such structure owned
or used by Smileage, and the electrical, plumbing, heating systems, and air
conditioning systems of all such structures are in good operating condition. To
the knowledge of the Smileage Shareholders, no hazardous waste or toxic material
has been disposed of or discharged on, leaked from, or has otherwise
contaminated any real property owned, leased or used by Smileage. To the
knowledge of the Smileage Shareholders, no hazardous waste or toxic material is
stored upon or in any real property owned, leased, or used by Smileage
(including without limitation any underground storage tanks). Smileage has not
received any written notice of non-compliance or violations or threatened non-
compliance or violations of any applicable Environmental Laws relating to any
real property owned, leased or used by Smileage. The utilities servicing the
real properties owned or used by Smileage are, to the knowledge of the Smileage
Shareholders, adequate to permit the continued operation of the business of
Smileage, and there are no pending or, to the knowledge of the Smileage
Shareholders, threatened zoning, condemnation or eminent domain proceedings,
building, utility or other moratoria, or injunctions or court orders which would
materially affect such continued operation.
(S)4.17 Brokers, Finders. The transactions contemplated by this Agreement
----------------
were not submitted to either Smileage or the Smileage Shareholders by any broker
or other person entitled to a commission, finder's fee or like payment thereon,
and were not, with the consent of either Smileage or the Smileage Shareholders,
submitted to ADP by any broker or other person, and none of the actions of
either Smileage or the Smileage Shareholders have given rise to any claim by any
person for a commission, finder's fee or like payment against any of the
Parties.
(S)4.18 Legal Proceedings, etc. Except as listed and described in Schedule
-----------------------
4.18, there are no (and over the last five years there have been no) claims,
proceedings, suits or investigations pending or, to the knowledge of the
Smileage Shareholders, overtly threatened against or relating to Smileage (or
any of its officers, directors, or shareholders in connection with the business
or affairs of Smileage), by or before any federal, state, local or foreign court
or governmental body, agency, or authority. There are no such claims,
proceedings, suits or investigations pending or, to the knowledge of the
Smileage Shareholders, threatened for the purpose of enjoining or preventing the
consummation of the Merger or any other transaction contemplated by this
Agreement or otherwise challenging the validity or propriety of the transactions
contemplated by this Agreement. Except as disclosed in Schedule 4.18, neither
Smileage nor any of its officers, directors, or shareholders are subject to any
judgment, order or decree, or any
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governmental restriction applicable to Smileage, which has a reasonable
probability of having a Material Adverse Effect, or which may materially
adversely affect the ability of Smileage to acquire any property or conduct
business as is currently being conducted.
(S)4.19 ERISA.
-----
(a) Schedule 4.19 identifies each "employee benefit plan," as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")
which (i) is subject to any provision of ERISA and (ii) is or was at any time
during the last five years maintained, administered or contributed to by
Smileage or any affiliate (as defined below) and covers any employee or former
employee of Smileage or any affiliate or under which Smileage or any affiliate
has any liability. Copies of such plans (and, if applicable, related trust
agreements) and all amendments thereto and written interpretations thereof have
been furnished to ADP together with the three most recent annual reports (Form
5500) prepared in connection with any such plan. Such plans are referred to
collectively herein as the "Employee Plans." For purposes of this section,
"affiliate" of any person or entity means any other person or entity which,
together with such person or entity, would be treated as a single employer under
Section 414 of the Code or is an "affiliate," whether or not incorporated, as
defined in Section 407(d)(7) of ERISA of such person or entity. The only
Employee Plans which individually or collectively would constitute an "employee
pension benefit plan" as defined in Section 3(2) of ERISA (the "Pension Plans")
are identified as such on Schedule 4.19.
(b) No Employee Plan constitutes a "multiemployer plan," as defined in
Section 3(37) of ERISA, or a "defined benefit plan," as defined in Section 3(35)
and subject to Title IV of ERISA, and no Employee Plan is maintained in
connection with any trust described in Section 501(c)(9) of the Code. No
"accumulated funding deficiency," as defined in Section 412 of the Code, has
been incurred with respect to any Pension Plan, whether or not waived. Full
payment has been made of all amounts which Smileage or any affiliate is required
to have paid as contributions to or benefits under any Employee Plan as of the
end of the most recent fiscal year thereof and there are no unfunded obligations
under any Employee Plan that have not been disclosed to ADP in writing prior to
the Closing. Neither Smileage nor the Smileage Shareholders know of any
"reportable event," within the meaning of Section 4043 of ERISA, and no event
described in Section 4041, 4042, 4062 or 4063 of ERISA has occurred in
connection with any Employee Plan. To the knowledge of the Smileage
Shareholders, no condition exists and no event has occurred that could
constitute grounds for termination of any Employee Plan. Neither Smileage nor
any of its affiliates has incurred any material liability under Title IV of
ERISA arising in connection with the termination of, or complete or partial
withdrawal from, any plan covered or previously covered by
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Title IV of ERISA. Nothing done or omitted to be done and no transaction or
holding of any asset under or in connection with any Employee Plan has or will
make either Smileage or any officer or director of Smileage, subject to any
liability under Title I of ERISA or liable for any tax pursuant to Section 4975
of the Code. There is no pending or, to the knowledge of the Smileage
Shareholders, threatened litigation, arbitration, disputed claim, adjudication,
audit, examination or other proceeding with respect to any Employee Plan or any
fiduciary or administrator thereof in their capacities as such.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified, and each trust
forming a part thereof is exempt from tax pursuant to Section 501(a) of the
Code. Smileage has furnished to ADP copies of the most recent Internal Revenue
Service determination letters with respect to each such Employee Plan. Each
Employee Plan has been maintained, from the time of such Plan's inception up to
and including the performance of any or all transactions contemplated in this
Agreement, in material compliance with its terms and the requirements and
fiduciary standards prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such Employee Plan.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of Smileage or any affiliate that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of the Code.
(e) Schedule 4.19 identifies each employment, severance or other
similar contract, arrangement or policy and each plan or arrangement (written or
oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits or for deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits which (i) is not an Employee Plan, (ii) is entered into, maintained
or contributed to, as the case may be, by Smileage or any of its affiliates, and
(iii) covers any employee or former employee of Smileage or any of its
affiliates. Such contracts, plans and arrangements as are described above,
copies or descriptions of all of which have been furnished previously to ADP,
are referred to collectively herein as the "Benefit Arrangements." Each Benefit
Arrangement has been maintained in material compliance with its terms and in
material compliance with requirements prescribed by any and all statutes,
orders, rules and regulations that are applicable to such Benefit Arrangement.
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(f) Except as set forth in Schedule 4.19, there is no liability in
respect of post-retirement health and medical benefits for retired employees of
Smileage or any of its affiliates, determined using assumptions that are
reasonable in the aggregate, over the fair market value of any fund, reserve or
other assets segregated for the purpose of satisfying such liability (including
for such purposes any fund established pursuant to Section 401(h) of the Code).
Smileage has reserved its right to amend or terminate any Employee Plan or
Benefit Arrangement providing health or medical benefits in respect of any
active employee of Smileage under the terms of any such plan and descriptions
thereof given to employees. With respect to any of Smileage's Employee Plans
which are "group health plans" under Section 4980B of the Code and Section
607(1) of ERISA, to the knowledge of the Smileage Shareholders, there has been
timely compliance in all material respects with all requirements imposed
thereunder.
(g) Except as set forth in Schedule 4.19, there has been no amendment
to, written interpretation or announcement (whether or not written) by Smileage
or any of its affiliates relating to, or change in employee participation or
coverage under, any Employee Plan or Benefit Arrangement which would increase
the expense of maintaining such Employee Plan or Benefit Arrangement above the
level of the expense incurred in respect thereof for the fiscal year ended
immediately prior to the Closing.
(h) Except as set forth in Schedule 4.19, Smileage is not a party or
subject to any union contract or any employment contract or arrangement
providing for annual future compensation to any officer, consultant, director or
employee.
(i) The execution and consummation of the transactions contemplated by
this Agreement will not constitute a triggering event under any Employee Plan,
whether or not legally enforceable, which will result in any payment,
acceleration, increase in vesting, or increase in benefits to any current or
former participant, employee or director of Smileage that has not been
specifically disclosed on Schedule 4.19 or which is not material to the
financial condition or business of Smileage.
(j) Any reference to ERISA or the Code or any section thereof shall be
construed to include all amendments thereto and applicable regulations and
administrative rulings issued thereunder prior to the date of this Agreement.
(S)4.20 Contracts. Schedule 4.20 lists and briefly describes all
---------
contracts, purchase orders, agreements, leases, executory commitments,
arrangements and understandings (written or oral) to which Smileage is a party
(a) which, including all amendments and supplements thereto, are material to the
condition, operations, assets or business of Smileage, (b) which (i) involve
payments or commitments in excess of $25,000 for any purchase order or $25,000
22
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for any other contract, agreement, lease, commitment, arrangement, or
understanding, or (ii) extend beyond one year (or both), unless cancelable on 60
or fewer days' notice without any liability, penalty or premium, (c) with any
present or former stockholder, director or officer of Smileage, or any person
related by blood or marriage to any such person or any person or entity
controlling, controlled by or under common control with any such person, or with
any employee, agent or consultant of Smileage not terminable at will, (d) which
provide for a discount from Smileage's standard fee schedules, (e) which provide
for the future purchase by Smileage of any materials, equipment, services or
supplies, which continue for a period of more than 12 months (including periods
covered by any option to renew by either party) or which provide for a price
materially in excess of current market prices or is in excess of normal
operating requirements over its remaining term, or (f) which involve any of the
following: (i) any borrowings or guarantees; (ii) any contracts containing
covenants purporting to limit the freedom of Smileage to compete in any line of
business or provide any of their services in any geographic area; (iii) any
obligation or commitment which limits the freedom of Smileage to sell, lease,
license or otherwise provide its services; (iv) any contract or agreement the
performance of which can reasonably be expected to result in a loss to Smileage;
or (v) any obligation or commitment providing for indemnification or
responsibility for the obligations or losses of any person. All of such
contracts, agreements, leases, commitments, and other arrangements and
understandings are valid and binding, in full force and effect and enforceable
in accordance with their respective provisions. Smileage is not in violation of
nor in default in respect of nor has there occurred an event or condition which,
with the passage of time or giving of notice (or both) would constitute a
default of any such contract, agreement, lease, commitment, arrangement or
understanding.
Except as set forth in Schedule 4.20, Smileage has not received any written
notice or, to the knowledge of the Smileage Shareholders, any other notice from
any third party payor, patient, or supplier to the effect that such third party
payor, patient, or supplier will terminate its relationship or unilaterally
modify any terms of that relationship, where applicable, with Smileage as a
result of any transaction contemplated by this Agreement or otherwise.
Attached to Schedule 4.20 is a correct and complete copy of the fee
schedule which is currently in effect under each agreement with a third party
payor to which Smileage is a party.
Also attached to Schedule 4.20 is a correct and complete list of all
dentists employed or retained by Smileage.
(S)4.21 Accounts Receivable. Smileage has delivered to ADP a correct and
-------------------
complete schedule of its accounts receivable and notes receivable as at November
30, 1996. Except as set forth in
23
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Schedule 4.21, all accounts and notes receivable of Smileage as of such date,
and any accounts and notes receivable arising between such date and the Closing
represent or will represent sales actually made or services actually provided in
the ordinary course of business consistent with past practices.
Since December 31, 1995, there have been no accounts receivable of Smileage
converted to notes receivable or otherwise extended, except as listed in
Schedule 4.21, and from the date of this Agreement through the Closing, no
accounts receivable of Smileage will be converted to notes receivable, written
off or otherwise extended without the prior written consent of ADP.
Schedule 4.21 includes a list of all amounts payable to Smileage by any
Affiliate of Smileage (the "Related Party Receivables") and all amounts payable
by Smileage to any Affiliate of Smileage (the "Related Party Payables") as of
December 31, 1995, specifying the payor, payee, and amount of each Related Party
Receivable and Related Party Payable. For purposes of this Agreement, other
than for (S)4.19, above, an "Affiliate" of Smileage shall mean any shareholder,
director, officer, employee, representative, or other agent of Smileage, any
person related by blood or marriage to any such person, or any person or entity,
which, directly or indirectly, controls, is controlled by, or is under common
control with Smileage or any such other person or entity.
(S)4.22 No Conflict or Default. Except for the consents described in
----------------------
Schedule 4.22, all of which shall be obtained prior to the Closing (unless
otherwise expressly agreed by ADP in writing), neither the execution and
delivery of this Agreement by Smileage and the Smileage Shareholders, nor
compliance by Smileage and the Smileage Shareholders with the terms and
provisions of this Agreement, including without limitation the consummation of
the transactions contemplated by this Agreement, will, to the knowledge of the
Smileage Shareholders, violate in any manner any Applicable Laws or Permits or
conflict with or result in the breach of any term, condition or provision of the
articles or certificate of incorporation or bylaws of Smileage or of any
agreement, deed, contract, undertaking, mortgage, indenture, writ, order,
decree, restriction, legal obligation or instrument to which Smileage is a party
or by which Smileage or any of its respective assets or properties are or may be
bound or affected.
(S)4.23 Books of Account; Records. Smileage's general ledgers, stock
-------------------------
record books, minute books and other corporate records relating to the material
assets, properties, contracts and outstanding legal obligations of Smileage are,
in all material respects, complete and correct, and the matters contained
therein are appropriate and accurately reflected in the 1995 Financial
Statements and the Smileage Interim Statements.
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(S)4.24 Officers, Employees and Compensation. Smileage has made available
------------------------------------
to ADP a true and correct list of all directors and officers of Smileage, their
respective terms of office, the total salary, bonus, fringe benefits and
perquisites each received in the fiscal year ended December 31, 1995, and any
changes to the foregoing which have occurred subsequent to December 31, 1995,
and a list of the current compensation of any other employee of Smileage whose
total current salary and bonus exceeds $35,000 annually and any consultant,
advisor, or independent contractor whose compensation exceeds $5,000 annually.
No changes will be made by Smileage in the amount or kind of any compensation
being paid or provided to any individuals listed from the amounts and kinds of
compensation described therein prior to the Closing without ADP's prior written
consent. Except as disclosed to ADP in writing, there are no other forms of
compensation paid to any such director, officer or employee of Smileage. Except
as disclosed to ADP in writing, the provisions for wages and salaries accrued in
the 1995 Smileage Financial Statements are, and such provisions accrued on the
Smileage Interim Statements will be, adequate for wages and salaries and other
compensation to its employees, including without limitation vacation pay, sick
pay, accrued compensation to any dentist, and all commissions and other fees
payable to agents, salesmen and representatives of Smileage. Except as set
forth in Schedule 4.24, Smileage has not become obligated, directly or
indirectly, to any stockholder, director or officer of Smileage or any person
related to such person by blood or marriage, except for current liability for
such compensation. Except as set forth in Schedule 4.24, no stockholder,
director, officer, agent or employee of Smileage or any person related to such
person by blood or marriage holds any position or office with or has any
material financial interest, direct or indirect, in any supplier, customer or
account of, or other outside business which has material transactions with,
Smileage. Smileage has no agreement or written understanding with any of its
stockholders, directors, officers, employees or representatives which would
influence any such person not to become associated with ADP from and after the
Closing or from serving Smileage after the Closing in a capacity similar to the
capacity presently held. Except as set forth in Schedule 4.24, no employee of
Smileage, to the best knowledge of Smileage and the Smileage Shareholders, have
a present intention to leave the employ of Smileage or has taken any action
indicative of leaving the employ of Smileage.
(S)4.25 Labor Relations. Smileage has complied in all material respects
---------------
with all applicable federal, state and local laws, rules, and regulations
relating to employment, and has complied in all respects with all applicable
laws, rules and regulations governing payment of minimum wages and overtime
rates, and the withholding and payment of taxes from compensation of employees
and the payment of premiums and benefits under applicable worker compensation
laws. Except as set forth in Schedule 4.25, no employees of Smileage are
represented by any labor union or covered under any collective
25
<PAGE>
bargaining agreement, and there is no unfair labor practice complaint against
Smileage pending before the National Labor Relations Board. There is no labor
strike, dispute, slowdown or stoppage, or any union organizing campaign,
actually pending or threatened against or involving Smileage. No labor
grievance has been filed with Smileage and no arbitration proceeding, which has
had or may have such an effect, has arisen out of or under a collective
bargaining or other labor agreement and is pending, and no claim therefor has
been asserted in writing. Except as set forth on Schedule 4.25, no collective
bargaining or other labor agreement is currently being negotiated by Smileage
and no union or collective bargaining unit represents Smileage's employees.
Smileage has not experienced any work stoppage or other material labor
difficulty during the past five years.
(S)4.26 Suppliers and Third Party Payors. Except as set forth in Schedule
--------------------------------
4.26, no supplier of products or services to Smileage has indicated that it
shall stop, or decrease the rate of, or substantially increase its fees for,
supplying products or services to Smileage either prior to, or following the
Effective Date. Schedule 4.26 sets forth (a) a list of all third party payors
who have terminated their relationships with Smileage since January 1, 1996, or
have notified Smileage or any Smileage Shareholder since January 1, 1996, that
they intend to terminate their relationships with Smileage, and (b) the gross
receipts received from such third party payors for the 12-month period ending on
December 31, 1995. Except as set forth in Schedule 4.26, Smileage and the
Smileage Shareholders do not know of any loss of a relationship with any third
party payor that alone or in the aggregate comprises more than 1% of fiscal 1995
actual revenues of Smileage as shown in the 1995 Smileage Financial Statements
that has indicated that it is considering or plans to discontinue using Smileage
as its provider of dental services as a result of the Merger or otherwise.
(S)4.27 Medicare and Medicaid. Neither Smileage nor any dentist employed
---------------------
by Smileage is a participant of Medicare, Medicaid, or any other governmental
health care reimbursement program (collectively, the "Governmental Programs"),
nor has or does Smileage or any such dentist received or expect to receive any
reimbursement under any such Governmental Programs. Neither Smileage nor any
employee or other agent of Smileage has violated any law, statute, rule,
regulation, or order under or relating to any Governmental Program, including
without limitation those relating to fraud and abuse (the "Governmental
Reimbursement Laws"), which violation would have a Material Adverse Effect.
(S)4.28 Investment Intent. Each Smileage Shareholder: (a) has received
-----------------
copies of the documents identified in the attached Exhibit D; (b) is a resident
of the State of Wisconsin; (c) is either (i) an "accredited investor," as that
term is defined in Regulation D promulgated under the Securities Act, or (ii) by
reason of his business and financial experience, and the business and financial
experience of those persons advising him with respect to his
26
<PAGE>
investment in the ADP Shares and the Notes, he, together with such advisors, has
such knowledge, sophistication, and experience in business and financial matters
so as to be able to evaluate the merits and risks of his prospective investment
in the ADP Shares and the Notes; (d) to his satisfaction, has been provided the
opportunity to ask questions and receive answers from ADP concerning the terms
and conditions of the ADP Shares and the Notes to be received in the Merger, has
had all such questions answered, and has been supplied all additional
information deemed necessary by him to verify the accuracy of all information
provided; (e) is acquiring the ADP Shares and the Notes to be acquired by him
for his own account for investment purposes only and without any view towards
resale or other distribution; (f) except for the representations and warranties
of ADP expressly set forth in Article III of this Agreement, no representations
or warranties have been made to him by or on behalf of ADP in connection with
this transaction, and in making his investment in the ADP Shares and the Notes,
he is relying on the results of his own independent investigation; (g)
understands that an investment in the ADP Shares and the Notes are a speculative
investment and can bear the economic risks of his investment in the ADP Shares
and the Notes, can afford a complete loss of such investment, and is not relying
upon any representation or warranty made by ADP, or any officer, director,
shareholder, employee, agent, or representative of ADP regarding the value of
the ADP Shares and the Notes, except as expressly set forth in Article III
hereof; (h) understands that the issuance of the ADP Shares and the Notes as a
result of this Agreement is intended to be exempt from registration under the
Securities Act and applicable state law and that the ADP Shares and the Notes
are not and will not be registered under the Securities Act, the Securities
Exchange Act of 1934, or any state securities laws, and that there will be no
public market for the ADP Shares and the Notes; (i) agrees that any certificates
evidencing the ADP Shares acquired by him shall contain a legend to the effect
that such shares have not been registered under the Securities Act or any state
securities laws and may not be sold without registration as required by the
Securities Act and applicable state securities laws or exemptions therefrom, and
in the case of such an exemption, requiring delivery to ADP of a legal opinion
of or satisfactory to its legal counsel that such exemption is applicable; (j)
agrees that ADP can issue stop transfer instructions to its transfer agent
prohibiting transfer of the ADP Shares to be acquired by him except in
compliance with the provisions of the Securities Act, applicable state
securities laws, this Agreement, and the Shareholders Agreement (defined in
(S)5.2(i), below); and (k) understands that the ADP Shares will be subject to
additional transfer, voting, and other restrictions pursuant to the Shareholders
Agreement.
(S)4.29 Disciplinary Actions. Except as set forth in Schedule 4.29, during
--------------------
the three year period ending on December 31, 1995, there have been no
disciplinary or other similar actions, proceedings, or investigations taken by
the Wisconsin Board of Dentistry or other governmental or accrediting board,
agency, or
27
<PAGE>
authority against or with respect to Smileage, any Smileage Shareholder, or any
employee of Smileage or its affiliate, Wisconsin Dental Group, S.C. ("WDG").
(S)4.30 Complete Disclosure. No representation or warranty by either
-------------------
Smileage or the Smileage Shareholders in this Agreement or the Smileage
Schedules contains, or will contain as of the Closing, any untrue statement of a
material fact or omits, or will omit as of the Closing, a material fact
necessary to make the statements contained herein or therein not misleading.
ARTICLE V
COVENANTS OF THE PARTIES
------------------------
(S)5.1 Mutual Covenants.
----------------
(a) General. Each Party shall use all reasonable efforts to take all
-------
actions and do all things necessary, proper or advisable to consummate the
Merger and the other transactions contemplated by this Agreement, including
without limitation using all reasonable efforts to cause the conditions set
forth in this Article for which such Party is responsible to be satisfied
as soon as reasonably practicable and to prepare, execute, acknowledge or
verify, deliver, and file such additional documents, and take or cause to
be taken such additional actions, as any other Party may reasonably
request.
(b) Governmental Matters. Each Party shall use all reasonable
--------------------
efforts to take any action that may be necessary, proper or advisable in
connection with any notices to, filings with, and authorizations, consents
and approvals of any court, administrative agency or commission, or other
governmental authority or instrumentality that it may be required to give,
make or obtain.
(c) Securities Law Compliance. ADP shall have the right to revise and
-------------------------
update the attached Exhibit D and the disclosure documents described in
that Exhibit prior to the Closing in such manner as ADP deems necessary to
comply with any federal or state securities laws.
(d) Subordination Agreement. At the Closing, ADP and each of the
-----------------------
Smileage Shareholders shall execute a Subordination Agreement with respect
to the Notes in substantially the form as Exhibit E attached to this
Agreement.
(S)5.2 Covenants of Smileage and the Smileage Shareholders. Smileage and
---------------------------------------------------
the Smileage Shareholders jointly and severally agree that:
28
<PAGE>
(a) Delivery of Smileage Interim Statements. Smileage shall cause
---------------------------------------
the Smileage Interim Statements to be delivered to ADP as soon as is
reasonably practicable.
(b) Conduct of Business. Except as otherwise expressly contemplated
-------------------
by this Agreement, from the date of this Agreement until the Closing (the
"Pre-Merger Period"): (i) neither Smileage nor the Smileage Shareholders
shall take or permit to be taken any action or do or permit to be done
anything in the conduct of the business of Smileage or WDG, or otherwise,
that would be contrary to or in breach of any of the provisions of this
Agreement or which would cause any of their representations and warranties
contained in this Agreement to be or become untrue in any material respect;
(ii) Smileage and WDG shall conduct their respective businesses in the
ordinary course consistent with their past practices; and (iii) Smileage
and the Smileage Shareholders shall use all reasonable efforts to preserve
Smileage's business organizations intact, keep available to Smileage and
ADP the present services of Smileage's nonprofessional employees, keep
available for WDG the services of WDG's professional employees, and
preserve for Smileage and ADP the goodwill and all agreements with third
parties with whom business relationships exist. Without limiting the
generality of the foregoing, during the Pre-Merger Period, except as
otherwise expressly contemplated by this Agreement or with the prior
written consent of ADP, Smileage shall not:
(i) Adopt or propose any change in its articles or certificate of
incorporation or bylaws; adjust, split, combine, or reclassify any of
its capital stock; or make any other changes in its authorized or
issued capital stock except in connection with the Deike Option;
(ii) Redeem, purchase, or otherwise acquire any shares of its
capital stock; grant any person or entity any right to acquire any
shares of its capital stock; issue, deliver, sell, or agree to issue,
deliver, or sell, any additional shares of its capital stock or any
other securities other than issuances of the capital stock of Smileage
upon the exercise of any currently outstanding options to acquire such
shares set forth in Schedule 4.2; or enter into any agreement or
arrangement with respect to the sale or voting of its shares of
capital stock except in connection with the Deike Option;
(iii) Merge or consolidate with any other person or entity or
acquire a material amount of assets of any other person or entity;
(iv) Sell, lease, license, pledge, encumber, or otherwise dispose
of any assets or property other than in
29
<PAGE>
the ordinary course of business consistent with past practices;
(v) Incur, create, assume, or otherwise become liable for any
indebtedness other than indebtedness incurred in the ordinary course
of business consistent with past practices (but subject in any event
to (S)5.2(g) of this Agreement);
(vi) Enter into or modify any employment, severance, termination,
or similar agreement or arrangement with, or grant any bonuses, salary
increases, severance or termination pay to, any officer, director,
consultant, or employee;
(vii) Adopt, amend or terminate any employee benefit plan,
except in accordance with (S)4.19, above, or increase, amend, or
terminate any benefits to officers, directors, consultants, or
employees;
(viii) Modify in any material way or terminate any of the
contracts listed or required to be listed in Schedule 4.20 except in
the ordinary course of business consistent with past practices;
(ix) Settle any claims, litigation, or actions, whether now
pending or hereafter made or brought, unless such settlement does not
and could not have a Material Adverse Effect on Smileage;
(x) Engage in any transaction, or enter into any agreement,
contract, lease, or other arrangement or understanding, with any
Affiliate of Smileage, except for any transactions agreed to in
writing by ADP; or
(xi) Agree or commit to do any of the foregoing.
(c) Exclusive Rights. Neither Smileage nor the Smileage Shareholders,
----------------
nor any of their respective Affiliates or representatives shall, directly
or indirectly, solicit (including without limitation by way of furnishing
or making available any non-public information concerning the business,
properties or assets of Smileage) or engage in negotiations or discussions
with, disclose any of the terms of this Agreement to, accept any offer
from, furnish any information to, or otherwise cooperate, assist or
participate with any person or organization (other than ADP and its
representatives) regarding any Acquisition Proposal (defined below), except
that (i) any person or entity making an Acquisition Proposal may be
informed of the restrictions contained in this sentence and (ii) any action
required by law (including the fiduciary duties of directors) shall be
permitted. Smileage and the Smileage Shareholders shall notify ADP
promptly by telephone,
30
<PAGE>
and thereafter promptly confirm in writing, if any such information is
requested from, or any Acquisition Proposal is received by, Smileage or any
of the Smileage Shareholders. For purposes of this Agreement, "Acquisition
Proposal" shall mean any offer or proposal received by the Smileage
Shareholders or Smileage prior to the Effective Time regarding the
acquisition by purchase, merger, lease, or otherwise of any capital stock
of Smileage, any of the business of Smileage, or any material assets,
customer relationships or other operations of Smileage.
(d) Access to Records and Other Due Diligence. During the Pre-Merger
-----------------------------------------
Period, Smileage shall: (i) make or cause to be made available to ADP and
its representatives, attorneys, accountants and agents, for examination,
inspection, and review, the assets and property of Smileage and WDG and all
books, contracts, agreements, commitments, records and documents of every
kind relating to Smileage's or WDG's businesses, and shall permit ADP and
its representatives, attorneys, accountants and agents to have access to
the same at all reasonable times, including without limitation access to
all tax returns filed and in preparation and all audit and other work
papers of BDO Seidman and all reports to management and related responses;
(ii) permit representatives of ADP to interview suppliers, customers, and
personnel of Smileage; and (iii) permit representatives of ADP to
participate in all aspects of the preparation of the Smileage Interim
Statements.
(e) Disclosures. After the date of this Agreement, neither Smileage
-----------
nor any of the Smileage Shareholders shall: (i) disclose to any person,
association, firm, corporation or other entity (other than ADP or those
designated in writing by ADP) in any manner, directly or indirectly, any
proprietary information or data relevant to the business of Smileage or WDG
whether of a technical or commercial nature, or (ii) use, or permit or
assist, by acquiescence or otherwise, any person, association, firm,
corporation or other entity (other than ADP or those designated in writing
by ADP) to use, in any manner, directly or indirectly, any such information
or data, excepting only (A) use of such data or information as is at the
time generally known to the public and which did not become generally known
through any breach of any provision of this section by Smileage or any
Smileage Shareholder, and (B) disclosures of information to employees of
Smileage who need to know such information and use of such information by
employees of Smileage who need to use such information, in each use only to
the extent necessary for the benefit of Smileage or ADP.
(f) Employee Retention. Smileage and the Smileage Shareholders
------------------
understand that in ADP's view it is essential to the successful operation
of the business of Smileage that Smileage retain substantially unimpaired
its operating
31
<PAGE>
organization, except for any changes contemplated by this Agreement.
During the Pre-Merger Period, Smileage and the Smileage Shareholders shall
endeavor in good faith at all times to maintain good relations with all
Smileage employees.
(g) Affiliate Indebtedness. During the Pre-Merger Period, neither
----------------------
Smileage nor any of the Smileage Shareholders shall cause or permit
Smileage to make any advances, loans, or extensions of credit to any
Affiliate of Smileage, or otherwise increase the Related Party Receivables
owed to Smileage by any Affiliate of Smileage other than in the ordinary
course of business.
(h) Dividends and Distributions. During the Pre-Merger Period,
---------------------------
Smileage shall not, and the Smileage Shareholders shall not permit Smileage
to, declare, set aside or pay any dividend or any distribution (in cash or
in kind) to any of its shareholders.
(i) Agreements with Shareholders. At the Closing, the Smileage
----------------------------
Shareholders shall execute a Shareholders Agreement in substantially the
form of Exhibit F attached to this Agreement (the "Shareholders Agreement")
and a Registration Rights Agreement in substantially the form of Exhibit G
attached to this Agreement.
(j) Restructuring of WDG. Prior to the Closing, Smileage and the
--------------------
Smileage Shareholders shall take such actions to cause the ownership,
employees, assets, and other items of WDG to be restructured, reallocated,
or otherwise modified on terms satisfactory to ADP, and after the Closing,
WDG shall operate the professional dental practice currently operated by
WDG prior to such restructuring.
(k) Notices of Certain Events. Smileage and the Smileage Shareholders
-------------------------
shall promptly notify ADP of:
(i) Any notice or other communication from any person or entity
alleging that the consent of such person or entity is or may be
required in connection with the transactions contemplated by this
Agreement;
(ii) Any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(iii) Any actions, suits, claims, investigations or proceedings
commenced or, to the knowledge of Smileage or any of the Smileage
Shareholders, threatened against, relating to, involving, or otherwise
affecting any of the Smileage Shareholders, Smileage, or any of their
32
<PAGE>
respective properties which, if in existence on the date of this
Agreement would have been required to have been disclosed by Smileage
and the Smileage Shareholders pursuant to (S)4.18 or which relate to
the consummation of the transactions contemplated by this Agreement;
and
(iv) Any circumstances or events which, if in existence on the
date of this Agreement, would make any representation or warranty of
the Smileage Shareholders incorrect or incomplete in any material
respect.
(l) Representations and Warranties. At the Closing, Smileage and the
------------------------------
Smileage Shareholders shall deliver to ADP a certificate, in form and
content reasonably satisfactory to ADP, confirming that the representations
and warranties set forth in Article IV of this Agreement are correct and
complete in all material respects as of the Closing Date.
(m) Noncompetition. From and after the Effective Date and for the
--------------
period of two years thereafter, each Smileage Shareholder shall not
directly or indirectly (whether individually or as a shareholder or other
owner, partner, member, director, officer, employee, consultant, creditor,
or agent of any person, association, or other entity):
(i) Enter into, engage in, or promote or assist (financially or
otherwise), directly or indirectly, any business which provides
management, consulting or other similar services of the type provided
by any Affiliated Company (defined below) to any practice providing
dental, orthodontic, periodontic, prosthodontic, endodontic, or other
professional dental services, pediatric dentistry, or oral surgery
anywhere in the Restricted Territory (defined below);
(ii) Induce or encourage any employee, officer, director, agent,
supplier, or independent contractor of any Affiliated Company to
terminate its relationship with any such Affiliated Company, or
otherwise interfere or attempt to interfere in any way with any
Affiliated Company's relationships with its employees, officers,
directors, agents, suppliers, independent contractors, or others; or
(iii) Employ or engage any person who, at any time within the
one-year period immediately preceding such employment or engagement,
was an employee, officer, director, agent, supplier, or independent
contractor of any Affiliated Company.
For purposes of this (S)5.2(m): (A) "Affiliated Company" shall mean
ADP and all subsidiaries or affiliates of ADP other
33
<PAGE>
than Summit Ventures IV, L.P. and Noro-Moseley Partners III, L.P., and
their affiliates which are not engaged in a business similar to that of ADP
or its subsidiaries; (B) "Restricted Territory" shall mean a radius of 30
miles from any facility or operation leased, owned, managed, or operated by
any Affiliated Company; and (C) nothing contained in this (S)5.2(m) shall
be construed to prohibit or restrict any Smileage Shareholder who is a
licensed dentist from practicing dentistry anywhere in the world.
(n) Injunctive Relief. Smileage and the Smileage Shareholders
-----------------
acknowledge and agree that ADP's remedies at law for any violation or
attempted violation of any of Smileage's or the Smileage Shareholders'
obligations under this Article would be inadequate, and agree that in the
event of any such violation or attempted violation, ADP shall be entitled
to a temporary restraining order, temporary and permanent injunctions, and
other equitable relief, without the necessity of posting any bond or
proving any actual damage, in addition to all other rights and remedies
which may be available to ADP from time to time.
(S)5.3 Covenants of ADP. ADP agrees that:
----------------
(a) Representations and Warranties. At the Closing, ADP shall
------------------------------
deliver to Smileage and the Smileage Shareholders a certificate, in form
and substance reasonably satisfactory to the Smileage Shareholders,
confirming that the representations and warranties set forth in Article III
of this Agreement are correct and complete in all material respects as of
the Closing Date.
(b) Delivery of Interim Statements. ADP shall cause the ADP Interim
------------------------------
Statements to be delivered to Smileage as soon as is reasonably
practicable.
ARTICLE VI
CONDITIONS
----------
(S)6.1 Mutual Conditions. The obligations of the Parties to consummate
-----------------
the Merger and the other transactions contemplated by this Agreement shall be
subject to the fulfillment of all of the following conditions unless waived by
both Smileage and ADP:
(a) Legal Prohibition. No temporary restraining order, preliminary or
-----------------
permanent injunction or other order or decree which prevents the
consummation of the Merger or the other transactions contemplated by this
Agreement having been issued and remaining in effect, and no statute, rule
or regulation having been enacted by any state or federal government or
governmental agency, which would prevent the consummation of
34
<PAGE>
the Merger or the other transactions contemplated by this Agreement.
(b) Service Agreement. WDG and Smileage shall have entered into a
-----------------
Services Agreement in the form attached as Exhibit H to this Agreement (the
"Service Agreement").
(c) Governmental Approvals. Any governmental or other approvals or
----------------------
reviews of this Agreement or the transactions contemplated by this
Agreement required under any applicable laws, statutes, orders, rules,
regulations, policies or guidelines promulgated thereunder, or Smileage's
governance documents shall have been received.
(d) Deike Option. ADP and Smileage shall be satisfied with the
------------
resolution of the issues arising in connection with the Deike Option.
(S)6.2 Conditions to Obligations of Smileage and the Smileage Shareholders.
-------------------------------------------------------------------
The obligations of Smileage and the Smileage Shareholders to consummate the
Merger and the other transactions contemplated by this Agreement shall be
subject to the fulfillment of all of the following conditions unless waived by
Smileage and the Smileage Shareholders in writing:
(a) Representations and Warranties. The representations and
------------------------------
warranties of ADP set forth in Article III of this Agreement shall be true
and correct in all material respects as of the date of this Agreement and
as of the Closing Date as though made at and as of the Closing Date.
(b) Performance of Agreement. ADP shall have performed and observed
------------------------
in all material respects all obligations and conditions to be performed or
observed by it under this Agreement at or prior to the Closing Date.
(c) Certificate. ADP shall have furnished Smileage and the Smileage
-----------
Shareholders with a certificate dated the Closing Date signed by its
president to the effect that the conditions set forth in (S)(S)6.2(a) and
(b) have been satisfied.
(d) Opinion of Counsel. Smileage and the Smileage Shareholders shall
------------------
have received the legal opinion, dated the Closing Date, of Baker &
Hostetler, counsel to ADP, in substantially the form as Exhibit I attached
to this Agreement.
(e) Authority. Smileage shall have received evidence satisfactory to
---------
it that this Agreement and the transactions contemplated by this Agreement
have been properly authorized by ADP.
35
<PAGE>
(f) Restrictive Conditions. ADP shall be free from any agreements,
----------------------
restrictions or conditions which in the reasonable opinion of Smileage
would have a material adverse effect upon ADP's financial condition,
operations, projects, assets, business or ability to consummate this
transaction.
(g) Due Diligence. Smileage and the Smileage Shareholders shall be
-------------
satisfied with the results of their due diligence review of ADP.
(h) Financial Statements. ADP shall have delivered to Smileage the
--------------------
ADP Financial Statements and the ADP Interim Statements.
(i) Material Adverse Changes. No material adverse change having
------------------------
occurred in ADP's financial condition, operations, prospects, assets or
business.
(S)6.3 Conditions to Obligations of ADP and American. The obligations of
---------------------------------------------
ADP and American to consummate the Merger and the other transactions
contemplated by this Agreement shall be subject to the fulfillment of all of the
following conditions unless waived by ADP in writing:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Smileage and the Smileage Shareholders set forth in Article
IV of this Agreement shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing Date as though made at
and as of the Closing Date.
(b) Performance of Agreement. Smileage and the Smileage Shareholders
------------------------
shall have performed and observed in all material respects all obligations
and conditions to be performed or observed by them under this Agreement at
or prior to the Closing Date.
(c) Certificate. Smileage and the Smileage Shareholders shall have
-----------
furnished ADP with a certificate dated the Closing Date signed by Smileage
and all of the Smileage Shareholders to the effect that the conditions set
forth in (S)(S)6.3(a) and (b) have been satisfied.
(d) Reorganization. The Smileage Shareholders shall have caused such
--------------
reorganization or restructuring of Smileage as may be necessary or
appropriate on terms satisfactory to ADP so that the Merger complies with
all applicable federal and state laws and regulations.
(e) Restructure of WDG. WDG shall have been restructured as described
------------------
in (S)5.2(j), and ADP shall be satisfied with the organizational and
operational documents
36
<PAGE>
and structures of WDG, including without limitation the employment and
noncompetition agreements between WDG and those Smileage Shareholders who
are employees of WDG.
(f) Authority. ADP shall have received evidence satisfactory to it
---------
that this Agreement and the transactions contemplated by this Agreement
have been properly authorized by Smileage and WDG.
(g) Professional Personnel. ADP confirming to its satisfaction that
----------------------
the professional personnel employed or otherwise retained by Smileage or
WDG support the transactions contemplated by this Agreement, including
without limitation the restructuring and operation of WDG and the ability
of WDG to support its obligations under the Service Agreement.
(h) Financial Statements. Smileage shall have delivered to ADP the
--------------------
Smileage Financial Statements and the Smileage Interim Statements.
(i) Opinion of Counsel. ADP shall have received the legal opinion,
------------------
dated the Closing Date, of Niebler & Muren, S.C., counsel to Smileage and
the Smileage Shareholders, in the form attached as Exhibit J to this
Agreement.
(j) Existing Employment and Deferred Compensation Agreements. At or
--------------------------------------------------------
prior to the Closing, Smileage shall have terminated all employment
agreements or arrangements (including without limitation all individual
disability and deferred compensation arrangements) between Smileage and any
of its employees.
(k) Employment and Noncompetition Agreement with ADP. Each of Don A.
------------------------------------------------
Deike, Dr. David H. Erickson and James H. Bryant shall have entered into an
employment and noncompetition agreement with Smileage acceptable to ADP.
(l) Employment and Noncompetition Agreements of WDG. WDG shall have
-----------------------------------------------
agreed to enter into employment and noncompetition agreements with each of
the Smileage Shareholders who are employees of WDG as required by the
Service Agreement, substantially in the form as Exhibit K attached to this
Agreement.
(m) Third Party Consents. ADP shall have received all necessary or
--------------------
appropriate third party consents and approvals relating to this Agreement
and the transactions contemplated by this Agreement, and ADP shall be
satisfied that all significant contracts of Smileage shall remain in full
force and effect after the Effective Time in accordance with the terms and
conditions of such contracts, subject to any modifications required by this
Agreement.
37
<PAGE>
(n) Termination of Options. Prior to the Closing, all outstanding
----------------------
options, warrants, or other rights to acquire any capital stock of Smileage
which have not been exercised prior to the execution of this Agreement
shall have been terminated on terms satisfactory to ADP.
(o) Restrictive Conditions. Smileage, WDG, and the Smileage
----------------------
Shareholders shall be free from any agreements, restrictions or conditions
which in the reasonable opinion of ADP would have a material adverse effect
upon Smileage's or WDG's financial condition, operations, prospects,
assets, business, or ability to consummate the transactions contemplated by
this Agreement.
(p) Defaults. No material agreement or other document or restriction
--------
to which Smileage, WDG, or any Smileage Shareholder is subject being in
default or being breached by the transactions contemplated by this
Agreement, which in either case in the reasonable opinion of ADP would have
a material adverse effect on Smileage's or WDG's financial condition,
operations, prospects, assets, or business or on the ability of Smileage,
WDG, or any of the Smileage Shareholders to consummate the transactions
contemplated by this Agreement.
(q) Material Adverse Changes. No material adverse change having
------------------------
occurred in Smileage's or WDG's financial condition, operations, prospects,
assets, or business.
(r) Books and Records. Smileage shall have delivered to ADP all books
-----------------
and corporate records of Smileage, including without limitation the stock
books and ledgers, the corporate seal, minute books, books of account, bank
account lists and tax returns and records.
(s) Shareholders' Equity. The shareholders' equity of Smileage,
--------------------
calculated in accordance with generally accepted accounting principles,
shall not be less than $461,000 (the "Equity Requirement") as of the
Closing; provided that, in the event the Closing occurs after October 31,
1996, the Equity Requirement shall increase automatically at a rate of
$12,000 per month, prorated on a daily basis through the date of the
Closing. If the Equity Requirement is not met, then ADP may, at its option
elect to waive this condition, proceed with the Closing: and (i) reduce
the number of ADP Shares which the Smileage Shareholders are to receive at
the Closing by an amount agreed upon by ADP and Smileage (with such
reduction to be allocated among the ADP Shares to be issued to the Smileage
Shareholders, respectively, in proportion to the respective interests of
the Smileage Shareholders in the total number of ADP Shares which could be
issued but for such reduction); or (ii) in the event ADP and Smileage are
unable to reach such an
38
<PAGE>
agreement by the Closing Date, ADP may instead reduce the Cash
Consideration by the amount by which the shareholders' equity of Smileage
is less than the Equity Requirement. For purposes of determining
compliance with such condition, such shareholders' equity shall be based
upon financial statements (the "Closing Financial Statements") prepared in
accordance with generally accepted accounting principles, as of a date
which is not more than three business days prior to the Closing, by BDO
Seidman and approved by any firm of independent certified public
accountants selected by ADP (the "ADP CPAs"). Smileage shall, and shall
cause BDO Seidman to, permit representatives of ADP and the ADP CPAs to
review all aspects of the preparation of the Closing Financial Statements,
including without limitation review of all work papers of BDO Seidman.
(t) Capital Expenditures. The aggregate capital expenditures and
--------------------
capital lease obligation of Smileage, calculated in accordance with
generally accepted accounting principles, for the period beginning on
September 1, 1996 and ending on the Closing Date shall not be more than
$758,000.
(u) Agreement Between Smileage and GDP. Georgia Dental Plan, Inc.
----------------------------------
shall have entered into an administrative services agreement with Smileage
substantially in the form of Exhibit L attached to this Agreement.
(v) Compliance with Laws. ADP shall have (i) received evidence
--------------------
reasonably satisfactory to it that the business of Smileage has been, at
all times prior to the Closing, in compliance in all material respects with
all Applicable Laws relating directly or indirectly to the provision of
dental services; and (ii) confirmed to its satisfaction that the
transactions contemplated by this Agreement will be in compliance with all
applicable federal and state laws and regulations.
(w) Related Party Transactions. ADP shall be satisfied that all
--------------------------
transactions between Smileage or WDG and any Affiliate of Smileage or WDG
are on arm's-length terms and conditions.
(x) Contract with First Commonwealth. ADP shall be satisfied with the
--------------------------------
contractual arrangements between Smileage and First Commonwealth.
(y) Due Diligence. ADP shall be satisfied with the results of its due
-------------
diligence review of Smileage and WDG.
39
<PAGE>
ARTICLE VII
TERMINATION AND AMENDMENT
-------------------------
(S)7.1 Termination.
-----------
(a) Termination by Smileage and the Smileage Shareholders. This
-----------------------------------------------------
Agreement may be terminated and cancelled at any time prior to the
Effective Time by Smileage and the Smileage Shareholders: (i) if (A) any of
the representations or warranties of ADP contained in this Agreement or the
ADP Schedules, if any, shall prove to be inaccurate in any material
respect, or any obligation or condition to be performed or observed by ADP
under this Agreement has not been performed or observed in any material
respect at or prior to the time specified in this Agreement, and (B) such
inaccuracy or failure shall not have been cured within 15 business days
after receipt by ADP of written notice of such occurrence from Smileage and
the Smileage Shareholders; or (ii) if any permanent injunction or other
order of a court or other competent authority preventing consummation of
the Merger or any other transaction contemplated by this Agreement shall
have become final and non-appealable.
(b) Termination by ADP. This Agreement may be terminated and
------------------
cancelled at any time prior to the Effective Time by ADP: (i) if (A) any of
the representations or warranties of Smileage or any of the Smileage
Shareholders contained in this Agreement or the Smileage Schedules shall
prove to be inaccurate in any material respect, or any obligation or
condition to be performed or observed by Smileage or any of the Smileage
Shareholders under this Agreement has not been performed or observed in any
material respect at or prior to the time specified in this Agreement, and
(B) such inaccuracy or failure shall not have been cured within 15 business
days after receipt by Smileage and the Smileage Shareholders of written
notice of such occurrence from ADP; (ii) if any permanent injunction or
other order of a court or other competent authority preventing consummation
of the Merger or any other transaction contemplated by this Agreement shall
have become final and non-appealable; (iii) in the event of a material
adverse loss or damage to, or condemnation of the property or assets of
Smileage, it being understood among the Parties that none of the risk of
any such loss or damage prior to the Closing shall be borne by ADP; (iv) if
within 15 business days after ADP's receipt of the Smileage Interim
Statements, ADP shall notify Smileage that it does not approve the Smileage
Interim Statements; or (v) if the Closing has not occurred on or before
December 31, 1996.
(S)7.2 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed by all of the Parties.
40
<PAGE>
(S)7.3 Extension; Waiver. At any time prior to the Effective Time, ADP
-----------------
(with respect to Smileage) and Smileage and the Smileage Shareholders (with
respect to ADP) may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other Party; (ii)
waive any inaccuracies in the representations and warranties contained in this
Agreement or in any document delivered pursuant hereto; or (iii) waive
compliance with any of the agreements or conditions contained in this Agreement.
Any agreement on the part of a Party to any such extension or waiver shall be
valid only if set forth in a written instrument signed by such Party.
ARTICLE VIII
INDEMNIFICATION
---------------
(S)8.1 Survival of Representations, Warranties and Agreements.
------------------------------------------------------
(a) Subject to the limitations set forth in (S)8.3, below, and
notwithstanding any investigation conducted at any time with regard thereto
by or on behalf of any Party hereto, all representations, warranties,
covenants and agreements in this Agreement and in any other documents
executed or delivered pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement (the "Additional Documents")
shall survive the execution, delivery and performance of this Agreement and
the Additional Documents. All representations and warranties set forth in
this Agreement and in the Additional Documents shall be deemed to have been
made again at and as of the Effective Time.
(b) As used in this Article, any reference to a representation,
warranty or covenant contained in any section of this Agreement shall
include the Schedule relating to such section.
(S)8.2 Indemnification.
---------------
(a) Subject to the limitations set forth in (S)8.3, below, ADP (on
the one hand) and the Smileage Shareholders, jointly and severally, or
severally as to those representations made severally (on the other hand),
shall indemnify and hold harmless the Party entitled to be indemnified (the
"Indemnified Party," whether one or more) from and against any and all
losses, liabilities, damages, demands, claims, suits, actions, judgments or
causes of action, assessments, costs and expenses, including without
limitation interest, penalties, attorneys' fees, any and all expenses
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts
paid in settlement of any claim or litigation (collectively, "Damages"),
asserted against, resulting to, imposed upon, or incurred or suffered by
the Indemnified
41
<PAGE>
Party, directly or indirectly, as a result of or arising from: (i) any
inaccuracy in or breach or nonfulfillment of any of the representations,
warranties, covenants or agreements made by the other Party in this
Agreement or the Additional Documents; or (ii) any Excluded Liability
(defined below).
(b) For purposes of this Agreement: (i) the term "Excluded
Liability" shall include any and all claims of any holder of any legal or
beneficial interest in the Smileage Shares which are based upon, related
to, or arise out of any agreements, transactions, acts, or omissions made
or occurring prior to the Effective Time, including without limitation the
claims of any such holder who dissents with respect to the Merger,
excepting only any claims against ADP or American arising out of the
failure of either of them to perform their respective obligations under
this Agreement; and (ii) the term "Indemnifiable Claims" shall mean the
matters with respect to which the Indemnified Party is entitled to
indemnification under (S)8.2(a).
(c) For purposes of this Article, all Damages shall be computed net
of any insurance proceeds actually collected by the Indemnified Party. The
Indemnified Party agrees to assign to the Party against whom
indemnification is being sought (the "Indemnifying Party," whether one or
more) its rights to receive any other insurance proceeds which may
otherwise reduce the Damages. The Indemnifying Party shall thereafter have
the right to pursue any such insurance proceeds. The Indemnified Party
shall have no obligation to present or pursue any claim for insurance with
respect to any Damages.
(d) Each Party shall be deemed to have suffered Damages arising out
of or resulting from the matters referred to in (S)8.2(a), above, if the
same shall be suffered by any parent, subsidiary or affiliate of such
Party.
(e) The liability hereunder of the Smileage Shareholders shall be
joint and several with respect to the breach of any representation,
warranty or covenant in this Agreement and in any Additional Document and
several and not joint with respect to the breach of any covenant which is
several in the Agreement and in any Additional Document.
(S)8.3 Limitations on Indemnification. Rights to indemnification under
------------------------------
(S)8.2(a)(i) are subject to the following limitations:
(a) ADP shall not be entitled to indemnification hereunder with
respect to an Indemnifiable Claim under (S)8.2(a) arising out of a breach
of a representation or warranty (or,
42
<PAGE>
if more than one such Indemnifiable Claim is asserted, with respect to all
such Indemnifiable Claims) unless the aggregate amount of Damages with
respect to such Indemnifiable Claim or Claims exceeds $50,000, in which
event the indemnity provided for above, shall be effective for all amounts
in excess of $50,000. Notwithstanding the foregoing, there shall be no
dollar limitations and no threshold amount with respect to an Indemnifiable
Claim relating to a breach of the representations and warranties set forth
in (S)(S)4.2, 4.3, 4.5, and 4.11.
(b) The obligation of indemnity with respect to the representations
and warranties set forth in (S)4.10 of this Agreement shall terminate on
the expiration of the respective periods of limitations applicable to
assessment and collection of taxes under laws then applicable to such
taxes, with respect to the representations and warranties as to the absence
of unpaid or undisclosed taxes (including any interest, penalties or
expenses) of Smileage.
(c) The obligation of indemnity with respect to the representations
and warranties set forth in (S)4.19 of this Agreement shall terminate upon
expiration of the respective statutes of limitation applicable to the items
addressed in such section.
(d) The obligation of indemnity with respect to the representations
and warranties contained in (S)(S)4.2, 4.3, 4.5, and 4.11 of this Agreement
shall not expire.
(e) The obligation of indemnity with respect to the representations
and warranties set forth in Article IV of this Agreement other than those
addressed in the immediately preceding subsections (b), (c), and (d) shall
terminate on the date which is 90 days after the third anniversary of the
Effective Time.
(f) The foregoing provisions of this (S)8.3 notwithstanding, if, prior
to the termination of any obligation to indemnify, written notice of a
claimed breach or other occurrence or matter giving rise to a claim of
indemnification is given by the Indemnified Party to any other Party, or a
suit or action based upon a claimed breach is commenced against any Party,
the Indemnified Party shall not be precluded from pursuing such claimed
breach, occurrence, other matter, or suit or action, or from recovering
from the other Party (whether through the courts or otherwise) on the
claim, suit or action, by reason of the termination otherwise provided for
above.
(g) The foregoing provisions of this Article VIII notwithstanding, the
total liability of Smileage and the
43
<PAGE>
Smileage Shareholders for Damages with respect to all Indemnifiable Claims
shall not exceed $4,900,000 in the aggregate.
(S)8.4 Procedure for Indemnification with Respect to Third Party Claims.
----------------------------------------------------------------
(a) If a Party desires to seek indemnification under this Article
with respect to Indemnifiable Claims resulting from the assertion of
liability by third parties, it shall give notice to the Indemnifying Party
within a reasonable period of time of the Indemnified Party's becoming
aware of any such Indemnifiable Claim, which notice shall set forth such
material information with respect to such Indemnifiable Claim as is then
reasonably available to the Indemnified Party. If any such liability is
asserted against the Indemnified Party and the Indemnified Party notifies
the Indemnifying Party of such liability, the Indemnifying Party shall be
entitled, if they so elect by written notice delivered to the Indemnified
Party within a reasonable period of time (not to exceed 15 days in any
event) after receiving the Indemnified Party's notice (the "Response
Period"), to assume the defense of such asserted liability with counsel
satisfactory to the Indemnified Party. Notwithstanding the foregoing: (i)
the Indemnified Party shall not have any obligation to give any notice of
any assertion of liability by a third party unless such assertion is in
writing; and (ii) the rights of the Indemnified Party to be indemnified in
respect of Indemnifiable Claims resulting from the assertion of liability
by third parties shall not be adversely affected by its failure to give
notice pursuant to the foregoing provisions unless, and, if so, only to the
extent that, the Indemnifying Party is materially prejudiced by such
failure. With respect to any assertion of liability by a third party that
results in an Indemnifiable Claim, the Parties shall make available to each
other all relevant information in their possession which is material to any
such assertion.
(b) In the event that the Indemnifying Party fails to assume the
defense of the Indemnified Party against any such Indemnifiable Claim,
within the Response Period, the Indemnified Party shall have the right to
defend, compromise or settle such Indemnifiable Claim on behalf, for the
account, and at the risk of the Indemnifying Party.
(c) Notwithstanding anything in this (S)8.4 to the contrary, (i) if
there is a reasonable probability that an Indemnifiable Claim may
materially and adversely affect the Indemnified Party, its subsidiaries or
affiliates, other than as a result of money damages or other money
payments, then the Indemnified Party shall have the right, at the cost and
expense of the Indemnifying Party, to defend, compromise or
44
<PAGE>
settle such Indemnifiable Claim; and (ii) the Indemnifying Party shall not,
without the Indemnified Party's prior written consent, settle or compromise
any Indemnifiable Claim or consent to entry of any judgment in respect of
any Indemnifiable Claim unless such settlement, compromise or consent
includes as an unconditional term the giving by the claimant or the
plaintiff to the Indemnified Party (and its subsidiaries and affiliates) a
release from all liability in respect of such Indemnifiable Claim.
(S)8.5 Procedure For Indemnification with Respect to Non-Third Party
-------------------------------------------------------------
Claims. In the event that the Indemnified Party asserts the existence of an
- ------
Indemnifiable Claim giving rise to Damages (but excluding Indemnifiable Claims
resulting from the assertion of liability by third parties), it shall give
written notice to the Indemnifying Party specifying the nature and amount of the
Indemnifiable Claim asserted. If the Indemnifying Party, within 15 days after
the receipt of such notice by the Indemnified Party, have not given written
notice to the Indemnified Party announcing their intent to contest such
assertion by the Indemnified Party, such assertion shall be deemed accepted and
the amount of Indemnifiable Claim shall be deemed a valid Indemnifiable Claim.
In the event, however, that the Indemnifying Party contests the assertion of an
Indemnifiable Claim by giving such written notice to the Indemnified Party
within such 15-day period, then if the Parties, acting in good faith, cannot
reach agreement with respect to such Indemnifiable Claim within 10 days after
such notice, the contested assertion of the claim shall be referred to binding
arbitration in Milwaukee, Wisconsin, in accordance with the then-current rules
of the American Arbitration Association. The determination made in accordance
with such rules shall be delivered in writing to the Parties and shall be final
and binding and conclusive on the Parties and the amount of the Indemnifiable
Claim, if any, determined to exist shall be a valid Indemnifiable Claim. Each
Party shall pay its own legal, accounting and other fees and expenses in
connection with such a contest; provided that if the contested claim is referred
to and ultimately determined by arbitration, the legal, accounting and other
fees and expenses of the prevailing Party and the fees and expenses of any
arbitrator shall be borne by the non-prevailing Party.
(S)8.6 Right of Setoff. In addition to its other rights under this
---------------
Agreement and the Additional Documents, each Party shall have the right to
setoff any amounts owing to such Party by any other Party against any amounts
owing to such other Party, whether pursuant to this Agreement, the Additional
Documents or otherwise.
45
<PAGE>
ARTICLE IX
MISCELLANEOUS
-------------
(S)9.1 Attorney In Fact. Each Smileage Shareholder hereby
----------------
irrevocably appoints [____________________] as such Smileage Shareholder's
attorney-in-fact and agent ("Agent"), and grants to [____________________] full
power and authority to take any and all actions, and perform and do any and all
things, in such Smileage Shareholder's place and stead, which
[____________________] may deem necessary or appropriate in connection with this
Agreement or the transactions contemplated by this Agreement, as fully as such
Smileage Shareholder might or could do if personally present and acting,
including without limitation executing, acknowledging or verifying, and
delivering any amendments, agreements, consents, certificates, acknowledgements
or other documents described in or relating to this Agreement or the
transactions contemplated by this Agreement, receiving and giving notices under
this Agreement, and taking any and all other actions which are permitted or
required to be taken by such Smileage Shareholder under this Agreement.
(S)9.2 Notices. All notices and other communications under this
-------
Agreement to any Party shall be in writing and shall be deemed given when
delivered personally, telecopied (which is confirmed) to that Party at the
telecopy number for that Party set forth below, mailed by certified mail (return
receipt requested) to that Party at the address for that Party (or at such other
address for such Party as such Party shall have specified in notice to the other
Parties), or delivered to Federal Express, United Parcel Service, or any similar
express delivery service for delivery to that Party at that address:
(a) If to ADP:
American Dental Partners, Inc.
301 Edgewater Place, Suite 320
Wakefield, Massachusetts 01880-1249
Attention: Gregory A. Serrao, President
Telecopy No.: (617) 224-4216
with a copy to
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
Attention: Gary A. Wadman, Esq.
Telecopy No.: (614) 462-2616
46
<PAGE>
(b) If to Smileage:
Smileage Dental Care, Inc.
9052 North Deerbrook Trail
Milwaukee, Wisconsin 53223
Attention: Don A. Deike, President
Telecopy No.: (414) ____________
with a copy to
Niebler & Muren, S.C.
450 North Sunnyslope Road
Suite 270
Chancellory Park I
Drawer 825
Milwaukee, Wisconsin 53008-0825
Attention: Joseph C. Niebler, Esq.
Telecopy No.: (414) 784-7630
(c) If to any Smileage Shareholder, to Agent
at the following address:
David H. Erickson, D.D.S.
857 East Glenbrook Road
Bayside, Wisconsin 53217
with a copy to
Niebler & Muren, S.C.
450 North Sunnyslope Road, Suite 270
Chancellory Park I
P.O. Drawer 825
Milwaukee, Wisconsin 53008-0825
Attention: Joseph C. Niebler, Sr., Esq.
Telecopy No.: (414) 784-7630
(S)9.3 Non-Waiver. No failure by any Party to insist upon strict
----------
compliance with any term or provision of this Agreement, to exercise any option,
to enforce any right, or to seek any remedy upon any default of any other Party
shall affect, or constitute a waiver of, any other Party's right to insist upon
such strict compliance, exercise that option, enforce that right, or seek that
remedy with respect to that default or any prior, contemporaneous, or subsequent
default. No custom or practice of the Parties at variance with any provision of
this Agreement shall affect or constitute a waiver of, any Party's right to
demand strict compliance with all provisions of this Agreement.
(S)9.4 Genders and Numbers. Where permitted by the context, each pronoun
-------------------
used in this Agreement includes the same pronoun in other genders and numbers,
and each noun used in this Agreement includes the same noun in other numbers.
47
<PAGE>
(S)9.5 Headings. The headings of the various articles and sections of
--------
this Agreement are not part of the context of this Agreement, are merely labels
to assist in locating such articles and sections, and shall be ignored in
construing this Agreement.
(S)9.6 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same Agreement.
(S)9.7 Entire Agreement. This Agreement (including all exhibits,
----------------
schedules, and other documents referred to in this Agreement (the "Incorporated
Documents"), all of which are hereby incorporated by reference) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the Parties with respect to the subject matter of this
Agreement, including without limitation the Letter Agreement dated September 30,
1996. All obligations of any Party under any Incorporated Document shall
constitute an obligation of such Party under this Agreement. Any capitalized
terms used in any Incorporated Document which are not otherwise defined therein
shall have the respective meanings given such terms in this Agreement.
(S)9.8 No Third Party Beneficiaries. Nothing contained in this Agreement,
----------------------------
expressed or implied, is intended or shall be construed to confer upon or give
to any person, firm, corporation or legal entity, other than the Parties and
American, any rights, remedies or other benefits under or by reason of this
Agreement.
(S)9.9 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Wisconsin without regard to
principles of conflicts of law.
(S)9.10 Binding Effect; Assignment. This Agreement shall be binding upon,
--------------------------
inure to the benefit of and be enforceable by and against the Parties and their
respective heirs, personal representatives, successors, and assigns. Neither
this Agreement nor any of the rights, interests or obligations under this
Agreement shall be transferred or assigned by any of the Parties without the
prior written consent of the other Parties.
(S)9.11 Remedies. All rights and remedies of each Party under this
--------
Agreement shall be cumulative and in addition to all other rights and remedies
which may be available to that Party from time to time, whether under any other
agreement, at law, or in equity.
(S)9.12 Expenses. Except as otherwise specifically provided in this
--------
Agreement, each Party will bear his, her, and its respective legal, accounting,
and other costs and expenses associated with the transactions contemplated by
this Agreement (including without limitation the costs of any brokers and
financial advisors), it being understood that all such costs and expenses
incurred by Smileage shall be paid by the Smileage Shareholders.
48
<PAGE>
(S)9.13 Public Announcements. This Agreement and the transactions
--------------------
contemplated herein shall be confidential and no Party shall disclose any
information relating to this transaction without the prior written consent of
Smileage and the president of ADP, except for such disclosures to such
professional advisors as may be necessary or appropriate in order to complete
the Merger and related transactions. Each Party and its representatives will
exercise all reasonable efforts to maintain confidentiality with respect to this
transaction at all times prior to the public announcement, if any, of this
Agreement. The provisions of this section will be subject to each Party's
obligation to comply with applicable requirements of federal or state laws or
any governmental order or regulation.
(S)9.14 Severability. With respect to any provision of this Agreement
------------
finally determined by a court of competent jurisdiction to be unenforceable,
such court shall have jurisdiction to reform such provision so that it is
enforceable to the maximum extent permitted by applicable law, and the Parties
shall abide by such court's determination. In the event that any provision of
this Agreement cannot be reformed, such provision shall be deemed to be severed
from this Agreement, but every other provision of this Agreement shall remain in
full force and effect.
AMERICAN DENTAL PARTNERS, INC.
By /s/ Gregory A. Serrao
-------------------------------------
Gregory A. Serrao, President
SMILEAGE DENTAL CARE, INC.
By /s/ Don A. Deike
-------------------------------------
Don A. Deike, President
/s/ David H. Erickson
----------------------------------------
DAVID H. ERICKSON, D.D.S.
/s/ John Sebanc
----------------------------------------
JOHN SEBANC, D.D.S., M.S.
[Signatures continued on following page]
49
<PAGE>
ANN SEBANC TRUST
By /s/ Ann Sebanc
-------------------------------------
Ann Sebanc, Trustee
/s/ Robert F. Chojnacki, D.D.S.
----------------------------------------
ROBERT F. CHOJNACKI, D.D.S.
/s/ Stephen Froehlich, D.D.S.
----------------------------------------
STEPHEN FROEHLICH, D.D.S.
/s/ Gerald D. Patterson, D.D.S.
----------------------------------------
GERALD D. PATTERSON, D.D.S.
/s/ Jesley C. Ruff, D.D.S.
----------------------------------------
JESLEY C. RUFF, D.D.S.
/s/ Don A. Deike
----------------------------------------
DON A. DEIKE
50
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This agreement is made effective July 1, 1997, between American Dental
Partners, Inc., a Delaware corporation (the "Company"), and John M. Werwie,
D.D.S., James F. Ruzicka, D.D.S., and Jon J. Pagenkopf, D.D.S. (collectively,
the "Shareholders").
Background Information
----------------------
A. Concurrently with the execution of this agreement, the Company is
causing its subsidiary, American Dental Partners of Wisconsin, Inc. ("American")
to enter into a Service Agreement with Wisconsin Dental Professionals, S.C., a
Wisconsin service corporation ("WDP"). As partial consideration for the
Shareholders forming WDP and causing WDP to enter into the Service Agreement,
upon execution of the Service Agreement, the Company is issuing to Shareholders
3,647 shares of common stock, par value $.01 per share, in the Company (the "ADP
Shares").
B. This agreement is being entered into as a condition to entering into
the Service Agreement.
Statement of Agreement
----------------------
The parties to this agreement (the "Parties") hereby acknowledge the
foregoing Background Information and agree as follows:
(S)1. Definitions. In addition to other terms defined in other
-----------
provisions of this agreement, as used in this agreement, the following terms
shall have the following meanings, respectively:
(a) "Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
(b) "Commission" means the Securities and Exchange Commission, or
any other federal agency from time to time administering the Act.
(c) "Common Stock" means shares of common stock, par value $.01 per
share, of the Company.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to
time.
(e) "Holder" means a person who is then a record owner of
Registrable Securities.
<PAGE>
(f) "IPO" means the first sale of Common Stock pursuant to a public
offering (including without limitation one for the assets or securities of
other companies) pursuant to a registration statement under the Act, and
"IPO Date" means the date on which the IPO is completed.
(g) "Registrable Securities" means shares of Common Stock which have
not been previously registered for sale under the Act, including without
limitation those issuable upon conversion of the Company's Series A
Convertible Preferred Stock and any securities issued or issuable with
respect to any such shares of Common Stock (i) upon any conversion or
exchange thereof, (ii) by way of stock split or stock dividend, or (iii) in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
(h) The term "register" means to register under the Act and
applicable state securities laws for the purpose of effecting a public sale
of securities, and the term "registration" means a registration of
securities under the Act and applicable state securities laws for the
purpose of effecting a sale of securities.
(i) "Registration Expenses" means all expenses incurred by the
Company in compliance with (S)(S)2 or 4 of this agreement, including
without limitation all registration and filing fees, printing expenses,
transfer taxes, fees and disbursements of accountants and counsel for the
Company, blue-sky fees and expenses (including fees and disbursements of
counsel for the underwriter(s)), fees of transfer agents and registrars,
reasonable fees and disbursements of one counsel for all selling Holders
(selected by Holders owning a majority of all Registrable Securities then
owned by all such Holders), and the expense of any special audits incident
to or required by any such registration.
(j) "Rule 144" means Rule 144 promulgated by the Commission under
the Act.
(k) "Selling Expenses" means all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and any
transfer taxes applicable to such sales.
(l) "Selling Shareholder" means all Holders who are participating in
a registration.
(S)2. Piggy Back Registrations.
------------------------
(a) If, after the IPO Date, the Company decides to register any
Registrable Securities, either for its own account or the account of any
Holder exercising registration
-2-
<PAGE>
rights or otherwise (other than a registration relating solely to a merger,
acquisition of assets or securities or tender or exchange offer, or 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), the Company shall:
(i) Promptly give notice thereof to the Shareholders (which
notice shall include the number of shares the Company or other
Holder proposes to register and, if known, the name of the proposed
underwriter); and
(ii) Use all commercially reasonable efforts to include in such
registration all the Registrable Securities specified in a request
made by the Shareholders within 15 days after the date of delivery
of the notice from the Company described in clause (i) above. If the
underwriter advises the Company that marketing considerations
require a limitation on the number of Registrable Securities offered
pursuant to any related registration statement, then the Company may
offer all of the Registrable Securities it proposes to register for
its own account and such limitation on any remaining Registrable
Securities that may, in the opinion of the underwriter, be sold will
be imposed pro rata among all Holders who requested inclusion of
Registrable Securities in such registration (whether under this
agreement, any other similar agreement, or otherwise) in proportion
to the number of Registrable Securities requested to be registered
by each of them, respectively.
(b) The Company shall select the underwriter for any offering made
pursuant to this (S)2.
(S)3. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to
(S)(S)2 or 4 shall be paid by the Company. All Selling Expenses incurred in
connection with any such registration, qualification or compliance shall be
borne by the Holders of the Registrable Securities registered, pro rata on the
basis of the number of their Registrable Securities so registered.
(S)4. Listing Application. If shares of Common Stock are listed on a
-------------------
national securities exchange or approved for quotation on any over-the-counter
market system, the Company shall, at its expense, include in its listing
application all of the shares of Common Stock of the listed class then owned by
the Shareholders.
-3-
<PAGE>
(S)5. Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this agreement, the Company shall keep the
Shareholders, if it has Registrable Securities included in any such
registration, advised in writing as to the initiation of each registration and
as to the completion thereof. At its expense, the Company shall as promptly as
practicable do the following for the benefit of the Shareholders:
(a) Keep such registration effective for a period of 120 days or
until the Shareholders have completed the distribution described in the
registration statement relating thereto, whichever first occurs, and amend
or supplement such registration statement and the prospectus contained
therein from time to time to the extent necessary to comply with the Act
and applicable state securities laws;
(b) Use all commercially reasonable efforts to register or qualify
the Registrable Securities covered by such registration under the
applicable securities or "blue sky" laws of such jurisdictions as the
Shareholders may reasonably request; provided that the Company shall not be
obligated to qualify to do business in any jurisdiction where it is not
then so qualified or otherwise required to be so qualified or to take any
action which would subject it to the service of process in suits other than
those arising out of such registration or which would subject it to
taxation in such jurisdiction;
(c) Furnish such number of conformed copies of such registration
statement and of each amendment or supplement thereto (in each case
including all exhibits and documents filed therewith), such number of
copies of the prospectus included in such registration statements
(including each preliminary prospectus and summary prospectus), such
documents incorporated by reference in such registration statement or
prospectus and such other documents incident thereto as the Shareholders
from time to time may reasonably request;
(d) To the extent then permitted under applicable professional
guidelines and standards, use all reasonable efforts to obtain a comfort
letter from the Company's independent public accountants in customary form
and covering such matters of the type customarily covered by comfort
letters and an opinion from the Company's counsel in customary form and
covering such matters of the type customarily covered in a public issuance
of securities and provide copies thereof to the Shareholders; and
-4-
<PAGE>
(e) Permit the counsel to the selling Holders whose expenses are
being paid pursuant to (S)3 hereof to participate in the registration
statement preparation process and to inspect and copy such corporate
documents as he may reasonably request.
(S)6. Indemnification.
---------------
(a) The Company shall indemnify the Shareholders with respect to
registration, qualification or compliance effected pursuant to this
agreement against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) prepared by the Company incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein (in light of
the circumstances under which they were made, in the case of any
prospectus) not misleading, or any violation by the Company of the Act or
the Exchange Act or securities act of any state 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,
qualification or compliance, and shall reimburse the Shareholders for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or
action, whether or not resulting in any liability, provided that the
Company shall not be liable in any such case to the extent that: (i) any
such claim, loss, liability or expense arises out of or is based on any
untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in such prospectus, offering circular or other document in
reliance upon any written information furnished to the Company by the
Shareholders or any underwriter expressly for use therein; or (ii) in the
case of a sale directly by the Shareholders (including without limitation a
sale through any underwriter retained by the Shareholders), it arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission that was contained in a preliminary prospectus
or other preliminary document and corrected in a final or amended
prospectus or other document and the Shareholders failed to deliver a copy
of the final or amended document at or prior to the confirmation of the
sale of the applicable securities to the person asserting such claim, loss,
damage, liability, or action.
-5-
<PAGE>
(b) The Shareholders shall, if Registrable Securities held by it are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors
and officers and each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the
Company or such underwriter within the meaning of the Act and the rules and
regulations thereunder, each other Holder and each of their officers,
directors and partners, and each person controlling such Holder, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein (in light of the
circumstances under which they were made, in the case of any prospectus)
not misleading, and will reimburse the Company and each such Holder's
directors, officers, partners, persons, underwriters or control persons for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, whether or not resulting in liability, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon
and in conformity with written information furnished to the Company by the
Shareholders; provided, however, that the obligations of the Shareholders
hereunder shall be limited to an amount equal to the net proceeds received
by the Shareholders upon sale of its securities.
(c) Each party entitled to indemnification under this (S)6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, but the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations under this (S)6
(except and to the extent the Indemnifying Party has been prejudiced as a
consequence thereof). The Indemnifying Party will be entitled to
participate in, and to the extent that it may elect by written notice
delivered to the Indemnified Party promptly after receiving the aforesaid
notice from such Indemnified Party, at its expense to assume, the defense
of any such claim or any litigation resulting therefrom, with counsel
reasonably satisfactory to such Indemnified Party; provided that the
Indemnified Party may participate in such
-6-
<PAGE>
defense at its expense, notwithstanding the assumption of such defense by
the Indemnifying Party; and provided, further, that if the defendants in
any such action shall include both the Indemnified Party and the
Indemnifying Party and the Indemnified Party shall have reasonably
concluded that there may be legal defenses available to it and/or other
Indemnified Parties which are different from or additional to those
available to the Indemnifying Party, the Indemnified Party shall have the
right to select separate counsel to assert such legal defenses and to
otherwise participate in the defense of such action on behalf of such
Indemnified Party or Parties and the fees and expenses of such counsel
shall be paid by the Indemnifying Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party (which consent shall not be unreasonably withheld,
delayed or conditioned), consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation. Each
Indemnified Party shall (i) furnish such information regarding itself or
the claim in question as an Indemnifying Party may reasonably request in
writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom and (ii) reasonably assist
the Indemnifying Party in any such defense, provided that the Indemnified
Party shall not be required to expend its funds in connection with such
assistance.
(d) The Shareholders shall not be required to participate in a
registration pursuant to which it would be required to execute an
underwriting agreement in connection with a registration effected by (S)2
which imposes indemnification obligations on the Shareholders more onerous
than those imposed hereunder; provided, however the Company shall not be
deemed to breach the provisions of (S)2 if the Shareholders are not
permitted to participate in a registration on account of its refusal to
execute an underwriting agreement on the basis of this subsection (d).
(S)7. Shareholders Information; Further Assurances. If the Shareholders
--------------------------------------------
have Registrable Securities included in any registration, or request inclusion
in any registration, the Shareholders shall furnish to the Company such
information regarding the Shareholders and the distribution proposed by the
Shareholders as the Company may reasonably request and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this agreement, or in connection with an opinion or "no-action"
letter of the type
-7-
<PAGE>
described in (S)8, below, or otherwise required by applicable state or federal
securities laws. The Shareholders shall execute such documents and take such
other actions consistent with this agreement which may be reasonably requested
by the Company.
(S)8. Exception to Registration Obligation. Notwithstanding any other
------------------------------------
provisions of this agreement to the contrary, the Company shall not be required
to effect a registration under this agreement with respect to Registrable
Securities held by the Shareholders if: (i) in the written opinion of counsel
for the Company, which counsel and the opinion so rendered shall be reasonably
acceptable to the Shareholders, the Shareholders may sell without registration
all Registrable Securities for which the Shareholders requested registration
under the provisions of this agreement, in the quantity in which the Registrable
Securities were proposed to be sold (whether under Rule 144 or otherwise); or
(ii) the Company shall have obtained from the Commission a "no-action" letter to
that effect.
(S)9. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may permit the sale of
restricted securities (as that term is used in Rule 144) to the public without
registration, the Company shall:
(a) Make and keep public information available as those terms are
defined in Rule 144, at all times from and after 90 days following the IPO
Date;
(b) Use all commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of
the Company under the Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(c) So long as the Shareholders own any restricted securities,
furnish to the Shareholders upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any
time from and after 90 days following the IPO Date) and of the Act and
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as the Shareholders
may reasonably request in availing itself of any rules or regulations of
the Commission allowing the Shareholders to sell any such securities
without registration.
-8-
<PAGE>
(S)10. Remedies. The Company and the Shareholders recognize and agree
--------
that they may not have an adequate remedy if any of them fail to comply with the
provisions of this agreement, and that damages will not be readily
ascertainable, and each of them expressly agrees that in the event of such
failure the other parties shall be entitled to seek specific performance of the
defaulting party's obligations hereunder.
(S)11. Restrictions on Transfer. If the Shareholders seek to include
------------------------
Registrable Securities in a registration pursuant to this agreement, the
Shareholders shall, if so requested by the underwriters who are managing such
offering, as a condition precedent to including Registrable Securities in such
offering, execute an agreement on usual and customary terms pursuant to which
the Shareholders agree not to sell or otherwise transfer any Common Stock
(except pursuant to such offering) for such period of time following the
consummation of such offering as such underwriters may reasonably request;
provided that such period shall not exceed 180 days.
(S)12. Miscellaneous.
-------------
(a) All notices and other communications required or desired to be
given to any Party under this agreement shall be in writing and shall be
deemed given when delivered personally, telecopied (which is confirmed) to
that Party at the telecopy number for that Party set forth below, mailed by
certified mail (return receipt requested) to that Party at the address for
that Party (or at such other address for such Party as such Party shall
have specified in notice to the other Parties) or being delivered to
Federal Express, UPS, or any similar express delivery service for delivery
to that Party at that address:
(i) If to the Company:
American Dental Partners, Inc.
301 Edgewater Place
Suite 320
Wakefield, Massachusetts 01880-1249
ATTN: Gregory A. Serrao, President
Telecopy No.: (617) 224-4216
With a copy to:
Baker & Hostetler
65 East Street
Suite 2100
Columbus, Ohio 43215
ATTN: Gary A. Wadman, Esq.
Telecopy No.: (614) 462-2616
-9-
<PAGE>
(ii) If to a Shareholder, to the residence address of such
Shareholder set forth below:
John A. Werwie
4636 N. Murray
Milwaukee, Wisconsin 53211
James F. Ruzicka
2127 North 74th Street
Wauwatusa, Wisconsin 53213
Jon J. Pagenkopf
4873 N. Anita
Milwaukee, Wisconsin 53217
with a copy to:
Charles Vogel, Esq.
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202-3590
Telecopy No.: (414) 273-5198
(b) The headings of the various sections of this agreement are for
convenience of reference only and shall not limit, alter or otherwise
affect the meaning hereof. Where permitted by the context, each pronoun
used in this agreement shall include the same pronoun in other genders and
numbers and each noun used in this agreement shall include the same noun in
other numbers. This agreement constitutes the entire understanding of the
Parties with respect to the subject matter hereof and supersedes all prior
and current understandings and agreements, whether written or oral.
(c) This agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the conflict of
laws provisions thereof.
(d) This agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and the
Shareholders.
(e) This agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) If any provisions of this agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability
shall attach only to such provision and shall not in any manner affect or
render illegal, invalid or unenforceable any other provision of this
-10-
<PAGE>
agreement, and this agreement shall be carried out as if any such illegal,
invalid, or unenforceable provision were not contained herein.
(g) This agreement shall be binding upon, inure to the benefit of, and
be enforceable by and against the heirs, personal representatives,
successors, and assigns of each Party.
AMERICAN DENTAL PARTNERS, INC.
By: /s/ Gregory A. Serrao /s/ John M. Werwie, D.D.S.
-------------------------- ------------------------------
Gregory A. Serrao, President JOHN M. WERWIE, D.D.S.
/s/ James F. Ruzicka, D.D.S.
------------------------------
JAMES F. RUZICKA, D.D.S.
/s/ Jon J. Pagenkopf, D.D.S.
------------------------------
JON J. PAGENKOPF, D.D.S.
-11-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This agreement is made effective October 1, 1997, among American
Dental Partners, Inc., a Delaware corporation (the "Company"), and Karl H.
Biewald, D.D.S., J.E. Cutliffe, D.D.S., Timothy J. Montgomery, D.D.S., Curtis R.
Dunn, D.D.S., and Christopher S. Hipp, D.D.S. (collectively, the
"Shareholders").
Background Information
----------------------
A. Concurrently with the execution of this agreement, the Company is
causing its wholly-owned subsidiary, Apple Park Associates, Inc., a Delaware
corporation ("American"), to acquire substantially all of the assets (the
"Assets") of APAM, Inc., a Minnesota corporation formerly known as Apple Park
Associates, Inc. ("APA"), and OC Specialists, Ltd., a Minnesota corporation
formerly known as Orthodontic Care Specialists, Ltd. ("OCS"), and engaging in
certain transactions with the Shareholders pursuant to an Asset Purchase
Agreement dated October 1, 1997, among the Company, American, APA, OCS, and the
Shareholders (the "Purchase Agreement"). Under the Purchase Agreement, the
consideration being paid to the Shareholders consists, in part, of 13,235 shares
of common stock, par value $.01 per share, of the Company (the "Common Stock").
B. This agreement is being entered into as a condition to the
completion of the transactions contemplated by the Purchase Agreement.
Statement of Agreement
----------------------
The parties to this agreement (the "Parties") hereby acknowledge the
foregoing Background Information and agree as follows:
(S)1. Definitions. In addition to other terms defined in other
-----------
provisions of this agreement, as used in this agreement, the following terms
shall have the following meanings, respectively:
(a) "Act" means the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
(b) "Commission" means the Securities and Exchange Commission, or any
other federal agency from time to time administering the Act.
(c) "Common Stock" means shares of common stock, par value $.01 per
share, of the Company.
<PAGE>
(d) "Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to
time.
(e) "Holder" means a person who is then a record owner of Registrable
Securities.
(f) "IPO" means the first sale of Common Stock pursuant to a public
offering (including without limitation one for the assets or securities of
other companies) pursuant to a registration statement under the Act, and
"IPO Date" means the date on which the IPO is completed.
(g) "Registrable Securities" means shares of Common Stock which have
not been previously registered for sale under the Act, including without
limitation those issuable upon conversion of the Company's Series A
Convertible Preferred Stock and any securities issued or issuable with
respect to any such shares of Common Stock (i) upon any conversion or
exchange thereof, (ii) by way of stock split or stock dividend, or (iii) in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
(h) The term "register" means to register under the Act and applicable
state securities laws for the purpose of effecting a public sale of
securities, and the term "registration" means a registration of securities
under the Act and applicable state securities laws for the purpose of
effecting a sale of securities.
(i) "Registration Expenses" means all expenses incurred by the Company
in compliance with (S)(S)2 or 4 of this agreement, including without
limitation all registration and filing fees, printing expenses, transfer
taxes, fees and disbursements of accountants and counsel for the Company,
blue-sky fees and expenses (including fees and disbursements of counsel for
the underwriter(s)), fees of transfer agents and registrars, reasonable
fees and disbursements of one counsel for all selling Holders (selected by
Holders owning a majority of all Registrable Securities then owned by all
such Holders), and the expense of any special audits incident to or
required by any such registration.
(j) "Rule 144" means Rule 144 promulgated by the Commission under the
Act.
(k) "Selling Expenses" means all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and any
transfer taxes applicable to such sales.
-2-
<PAGE>
(l) "Selling Shareholder" means all Holders who are participating in a
registration.
(S)2. Piggy Back Registrations.
------------------------
(a) If, after the IPO Date, the Company decides to register any
Registrable Securities, either for its own account or the account of any
Holder exercising registration rights or otherwise (other than a
registration relating solely to a merger, acquisition of assets or
securities or tender or exchange offer, or 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), the Company shall:
(i) Promptly give notice thereof to the Shareholders (which
notice shall include the number of shares the Company or other Holder
proposes to register and, if known, the name of the proposed
underwriter); and
(ii) Use all commercially reasonable efforts to include in such
registration all the Registrable Securities specified in a request
made by any Shareholder within 15 days after the date of delivery of
the notice from the Company described in clause (i) above. If the
underwriter advises the Company that marketing considerations require
a limitation on the number of Registrable Securities offered pursuant
to any related registration statement, then the Company may offer all
of the Registrable Securities it proposes to register for its own
account and such limitation on any remaining Registrable Securities
that may, in the opinion of the underwriter, be sold will be imposed
pro rata among all Holders who requested inclusion of Registrable
Securities in such registration (whether under this agreement, any
other similar agreement, or otherwise) in proportion to the number of
Registrable Securities requested to be registered by each of them,
respectively.
(b) The Company shall select the underwriter for any offering made
pursuant to this (S)2.
(S)3. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to
(S)(S)2 or 4 shall be paid by the Company. All Selling Expenses incurred in
connection with any such registration, qualification or compliance shall be
borne by the Holders of the Registrable Securities registered, pro rata on the
basis of the number of their Registrable Securities so registered.
-3-
<PAGE>
(S)4. Listing Application. If shares of Common Stock are listed on a
-------------------
national securities exchange or approved for quotation on any over-the-counter
market system, the Company shall, at its expense, include in its listing
application all of the shares of Common Stock of the listed class then owned by
the Shareholders.
(S)5. Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this agreement, the Company shall keep the
Shareholders with Registrable Securities included in any such registration,
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company shall as promptly as
practicable do the following for the benefit of such Shareholders:
(a) Keep such registration effective for a period of 120 days or
until such Shareholders have completed the distribution described in the
registration statement relating thereto, whichever first occurs, and amend
or supplement such registration statement and the prospectus contained
therein from time to time to the extent necessary to comply with the Act
and applicable state securities laws;
(b) Use all commercially reasonable efforts to register or
qualify the Registrable Securities covered by such registration under the
applicable securities or "blue sky" laws of such jurisdictions as such
Shareholders may reasonably request; provided that the Company shall not be
obligated to qualify to do business in any jurisdiction where it is not
then so qualified or otherwise required to be so qualified or to take any
action which would subject it to the service of process in suits other than
those arising out of such registration or which would subject it to
taxation in such jurisdiction;
(c) Furnish such number of conformed copies of such registration
statement and of each amendment or supplement thereto (in each case
including all exhibits and documents filed therewith), such number of
copies of the prospectus included in such registration statements
(including each preliminary prospectus and summary prospectus), such
documents incorporated by reference in such registration statement or
prospectus and such other documents incident thereto as such Shareholders
from time to time may reasonably request;
(d) To the extent then permitted under applicable professional
guidelines and standards, use all reasonable efforts to obtain a comfort
letter from the Company's independent public accountants in customary form
and covering such matters of the type customarily covered by comfort
letters and an opinion from the Company's counsel in customary form and
covering such matters of the type customarily covered
-4-
<PAGE>
in a public issuance of securities and provide copies thereof to such
Shareholders; and
(e) Permit the counsel to the selling Holders whose expenses are
being paid pursuant to (S)3 hereof to participate in the registration
statement preparation process and to inspect and copy such corporate
documents as he may reasonably request.
(S)6. Indemnification.
---------------
(a) The Company shall indemnify the Shareholders with respect to
which registration, qualification or compliance has been effected pursuant
to this agreement against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any related
registration statement, notification or the like) prepared by the Company
incident to any such registration, qualification or compliance, or based on
any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein
(in light of the circumstances under which they were made, in the case of
any prospectus) not misleading, or any violation by the Company of the Act
or the Exchange Act or securities act of any state 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,
qualification or compliance, and shall reimburse such Shareholders for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or
action, whether or not resulting in any liability, provided that the
Company shall not be liable in any such case to the extent that: (i) any
such claim, loss, liability or expense arises out of or is based on any
untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in such prospectus, offering circular or other document in
reliance upon any written information furnished to the Company by any
Shareholder or any underwriter expressly for use therein; or (ii) in the
case of a sale directly by any Shareholder (including without limitation a
sale through any underwriter retained by any Shareholder), it arises out of
or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission that was contained in a preliminary prospectus
or other preliminary document and corrected in a final or amended
prospectus or other document and such Shareholder failed to deliver a copy
of the final or amended document at or prior to the confirmation of the
sale of the applicable securities to the person asserting such claim, loss,
damage, liability, or action.
-5-
<PAGE>
(b) Each Shareholders shall, if Registrable Securities held by such
Shareholder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each
of its directors and officers and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of the Act
and the rules and regulations thereunder, each other Holder and each of
their officers, directors and partners, and each person controlling such
Holder, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or
any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein
(in light of the circumstances under which they were made, in the case of
any prospectus) not misleading, and will reimburse the Company and each
such Holder's directors, officers, partners, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, whether or not resulting in liability, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by any Shareholder; provided, however, that the obligations of each
Shareholder hereunder shall be limited to an amount equal to the net
proceeds received by such Shareholder upon sale of his securities.
(c) Each party entitled to indemnification under this (S)6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, but the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations under this (S)6
(except and to the extent the Indemnifying Party has been prejudiced as a
consequence thereof). The Indemnifying Party will be entitled to
participate in, and to the extent that it may elect by written notice
delivered to the Indemnified Party promptly after receiving the aforesaid
notice from such Indemnified Party, at its expense to assume, the defense
of any such claim or any litigation resulting therefrom, with counsel
reasonably satisfactory to such Indemnified Party; provided that the
Indemnified Party may participate in such defense at its expense,
notwithstanding the assumption of such defense by the Indemnifying Party;
and provided, further, that
-6-
<PAGE>
if the defendants in any such action shall include both the Indemnified
Party and the Indemnifying Party and the Indemnified Party shall have
reasonably concluded that there may be legal defenses available to it
and/or other Indemnified Parties which are different from or additional to
those available to the Indemnifying Party, the Indemnified Party shall have
the right to select separate counsel to assert such legal defenses and to
otherwise participate in the defense of such action on behalf of such
Indemnified Party or Parties and the fees and expenses of such counsel
shall be paid by the Indemnifying Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party (which consent shall not be unreasonably withheld,
delayed or conditioned), consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation. Each
Indemnified Party shall (i) furnish such information regarding itself or
the claim in question as an Indemnifying Party may reasonably request in
writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom and (ii) reasonably assist
the Indemnifying Party in any such defense, provided that the Indemnified
Party shall not be required to expend its funds in connection with such
assistance.
(d) No Shareholder shall be required to participate in a registration
pursuant to which he would be required to execute an underwriting agreement
in connection with a registration effected by (S)2 which imposes
indemnification obligations on such Shareholder more onerous than those
imposed hereunder; provided, however the Company shall not be deemed to
breach the provisions of (S)2 if such Shareholder is not permitted to
participate in a registration on account of his refusal to execute an
underwriting agreement on the basis of this subsection (d).
(S)7. Shareholder Information; Further Assurances. Each Shareholder
-------------------------------------------
with Registrable Securities included in any registration, or requesting
inclusion in any registration, shall furnish to the Company such information
regarding such Shareholder and the distribution proposed by such Shareholder as
the Company may reasonably request and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this agreement, or in connection with an opinion or "no-action" letter of the
type described in (S)8, below, or otherwise required by applicable state or
federal securities laws. Each Shareholder shall execute such documents and take
such other actions consistent with this agreement which may be reasonably
requested by the Company.
-7-
<PAGE>
(S)8. Exception to Registration Obligation. Notwithstanding any other
------------------------------------
provisions of this agreement to the contrary, the Company shall not be required
to effect a registration under this agreement with respect to Registrable
Securities held by any Shareholder if: (i) in the written opinion of counsel
for the Company, which counsel and the opinion so rendered shall be reasonably
acceptable to such Shareholder, such Shareholder may sell without registration
all Registrable Securities for which such Shareholder requested registration
under the provisions of this agreement, in the quantity in which the Registrable
Securities were proposed to be sold (whether under Rule 144 or otherwise); or
(ii) the Company shall have obtained from the Commission a "no-action" letter to
that effect.
(S)9. Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations of the Commission which may permit the
sale of restricted securities (as that term is used in Rule 144) to the public
without registration, the Company shall:
(a) Make and keep public information available as those terms are
defined in Rule 144, at all times from and after 90 days following the IPO
Date;
(b) Use all commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of
the Company under the Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(c) So long as any Shareholder owns any restricted securities,
furnish to such Shareholder upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any
time from and after 90 days following the IPO Date) and of the Act and
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as such Shareholder
may reasonably request in availing himself of any rules or regulations of
the Commission allowing such Shareholder to sell any such securities
without registration.
(S)10. Remedies. The Company and the Shareholders recognize and agree
--------
that they may not have an adequate remedy if any of them fails to comply with
the provisions of this agreement, and that damages will not be readily
ascertainable, and each of them expressly agrees that in the event of such
failure the other parties shall be entitled to seek specific performance of the
defaulting party's obligations hereunder.
(S)11. Restrictions on Transfer. If any Shareholder seeks to include
------------------------
Registrable Securities in a registration pursuant to this
-8-
<PAGE>
agreement, such Shareholder shall, if so requested by the underwriters who are
managing such offering, as a condition precedent to including Registrable
Securities in such offering, execute an agreement on usual and customary terms
pursuant to which such Shareholder agrees not to sell or otherwise transfer any
Common Stock (except pursuant to such offering) for such period of time
following the consummation of such offering as such underwriters may reasonably
request; provided that such period shall not exceed 180 days.
(S)12. Miscellaneous.
-------------
(a) All notices and other communications required or desired to be
given to any Party under this agreement shall be in writing and shall be
deemed given when delivered personally to that Party or his agent,
telecopied (which is confirmed) to that Party or his agent at the telecopy
number for that Party or his agent provided for in the Purchase Agreement,
mailed by certified mail (return receipt requested) to that Party or his
agent at the address for that Party or his agent provided for in the
Purchase Agreement (or at such other address for such Party as such Party
shall have specified in a notice to the other Parties), or delivered to
Federal Express or any similar express delivery service for delivery to
that Party or his agent at that address.
(b) The headings of the various sections of this agreement are for
convenience of reference only and shall not limit, alter or otherwise
affect the meaning hereof. Where permitted by the context, each pronoun
used in this agreement shall include the same pronoun in other genders and
numbers and each noun used in this agreement shall include the same noun in
other numbers. This agreement constitutes the entire understanding of the
Parties with respect to the subject matter hereof and supersedes all prior
and current understandings and agreements, whether written or oral.
(c) This agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the conflict of
laws provisions thereof.
(d) This agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and the
Shareholders then owning not less than a majority of the Registrable
Securities then owned by all Shareholders.
(e) This agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
-9-
<PAGE>
(f) If any provisions of this agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability
shall attach only to such provision and shall not in any manner affect or
render illegal, invalid or unenforceable any other provision of this
agreement, and this agreement shall be carried out as if any such illegal,
invalid, or unenforceable provision were not contained herein.
(g) This agreement shall be binding upon, inure to the benefit of, and
be enforceable by and against the heirs, personal representatives,
successors, and assigns of each Party.
AMERICAN DENTAL PARTNERS, INC.
By /s/ Ronald M. Levenson /s/ Karl H. Biewald, D.D.S.
----------------------------- ---------------------------------
Ronald M. Levenson, Chief KARL H. BIEWALD, D.D.S.
Financial Officer
/s/ J.E. Cutliffe, D.D.S.
---------------------------------
J.E.CUTLIFFE, D.D.S.
/s/ Timothy J. Montgomery, D.D.S.
---------------------------------
TIMOTHY J. MONTGOMERY, D.D.S.
/s/ Curtis R. Dunn, D.D.S.
---------------------------------
CURTIS R. DUNN, D.D.S.
/s/ Christopher S. Hipp, D.D.S.
---------------------------------
CHRISTOPHER S. HIPP, D.D.S.
-10-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This agreement is made effective October 1, 1997, among American Dental
Partners, Inc., a Delaware corporation (the "Company"), and Karl H. Biewald,
D.D.S. ("Dr. Biewald"), and Terri M. Lawler ("Ms. Lawler") (Dr. Biewald and Ms.
Lawler, collectively, the "Shareholders").
Background Information
----------------------
A. Concurrently with the execution of this agreement, the Company is
acquiring from Dr. Biewald all of the outstanding capital stock of Orthocare,
Ltd., a Minnesota corporation ("Orthocare"), and Dental Specialty Management,
Ltd., a Minnesota corporation ("DSM-MN"), and from Ms. Lawler the outstanding
capital stock of DC Orthocare, Ltd., a Wisconsin corporation, and MW Orthocare,
Ltd., a Wisconsin corporation, owned by her, and engaging in certain
transactions with the Shareholders pursuant to a Stock Purchase Agreement dated
October 1, 1997, among the Company, Orthocare, DSM-MN, and the Shareholders (the
"Purchase Agreement"). Under the Purchase Agreement, the consideration being
paid to the Shareholders consists, in part, of 9,412 shares of common stock, par
value $.01 per share, of the Company (the "Common Stock").
B. This agreement is being entered into as a condition to the completion
of the transactions contemplated by the Purchase Agreement.
Statement of Agreement
----------------------
The parties to this agreement (the "Parties") hereby acknowledge the
foregoing Background Information and agree as follows:
(S)1. Definitions. In addition to other terms defined in other provisions
-----------
of this agreement, as used in this agreement, the following terms shall have the
following meanings, respectively:
(a) "Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
(b) "Commission" means the Securities and Exchange Commission, or
any other federal agency from time to time administering the Act.
<PAGE>
(c) "Common Stock" means shares of common stock, par value $.01 per
share, of the Company.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to
time.
(e) "Holder" means a person who is then a record owner of Registrable
Securities.
(f) "IPO" means the first sale of Common Stock pursuant to a public
offering (including without limitation one for the assets or securities of
other companies) pursuant to a registration statement under the Act, and
"IPO Date" means the date on which the IPO is completed.
(g) "Registrable Securities" means shares of Common Stock which have
not been previously registered for sale under the Act, including without
limitation those issuable upon conversion of the Company's Series A
Convertible Preferred Stock and any securities issued or issuable with
respect to any such shares of Common Stock (i) upon any conversion or
exchange thereof, (ii) by way of stock split or stock dividend, or (iii) in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
(h) The term "register" means to register under the Act and applicable
state securities laws for the purpose of effecting a public sale of
securities, and the term "registration" means a registration of securities
under the Act and applicable state securities laws for the purpose of
effecting a sale of securities.
(i) "Registration Expenses" means all expenses incurred by the Company
in compliance with (S)(S)2 or 4 of this agreement, including without
limitation all registration and filing fees, printing expenses, transfer
taxes, fees and disbursements of accountants and counsel for the Company,
blue-sky fees and expenses (including fees and disbursements of counsel for
the underwriter(s)), fees of transfer agents and registrars, reasonable
fees and disbursements of one counsel for all selling Holders (selected by
Holders owning a majority of all Registrable Securities then owned by all
such Holders), and the expense of any special audits incident to or
required by any such registration.
(j) "Rule 144" means Rule 144 promulgated by the Commission under the
Act.
-2-
<PAGE>
(k) "Selling Expenses" means all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and any
transfer taxes applicable to such sales.
(l) "Selling Shareholder" means all Holders who are participating in
a registration.
(S)2. Piggy Back Registrations.
------------------------
(a) If, after the IPO Date, the Company decides to register any
Registrable Securities, either for its own account or the account of any
Holder exercising registration rights or otherwise (other than a
registration relating solely to a merger, acquisition of assets or
securities or tender or exchange offer, or 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), the Company shall:
(i) Promptly give notice thereof to the Shareholders (which
notice shall include the number of shares the Company or other Holder
proposes to register and, if known, the name of the proposed
underwriter); and
(ii) Use all commercially reasonable efforts to include in such
registration all the Registrable Securities specified in a request
made by any Shareholder within 15 days after the date of delivery of
the notice from the Company described in clause (i) above. If the
underwriter advises the Company that marketing considerations require
a limitation on the number of Registrable Securities offered pursuant
to any related registration statement, then the Company may offer all
of the Registrable Securities it proposes to register for its own
account and such limitation on any remaining Registrable Securities
that may, in the opinion of the underwriter, be sold will be imposed
pro rata among all Holders who requested inclusion of Registrable
Securities in such registration (whether under this agreement, any
other similar agreement, or otherwise) in proportion to the number of
Registrable Securities requested to be registered by each of them,
respectively.
(b) The Company shall select the underwriter for any offering made
pursuant to this (S)2.
(S)3. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to
(S)(S)2 or 4 shall be paid by the Company. All Selling Expenses incurred in
connection with any such registration,
-3-
<PAGE>
qualification or compliance shall be borne by the Holders of the Registrable
Securities registered, pro rata on the basis of the number of their Registrable
Securities so registered.
(S)4. Listing Application. If shares of Common Stock are listed on a
-------------------
national securities exchange or approved for quotation on any over-the-counter
market system, the Company shall, at its expense, include in its listing
application all of the shares of Common Stock of the listed class then owned by
the Shareholders.
(S)5. Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this agreement, the Company shall keep the
Shareholders with Registrable Securities included in any such registration,
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company shall as promptly as
practicable do the following for the benefit of such Shareholders:
(a) Keep such registration effective for a period of 120 days or
until such Shareholders have completed the distribution described in the
registration statement relating thereto, whichever first occurs, and amend
or supplement such registration statement and the prospectus contained
therein from time to time to the extent necessary to comply with the Act
and applicable state securities laws;
(b) Use all commercially reasonable efforts to register or qualify
the Registrable Securities covered by such registration under the
applicable securities or "blue sky" laws of such jurisdictions as such
Shareholders may reasonably request; provided that the Company shall not
be obligated to qualify to do business in any jurisdiction where it is not
then so qualified or otherwise required to be so qualified or to take any
action which would subject it to the service of process in suits other
than those arising out of such registration or which would subject it to
taxation in such jurisdiction;
(c) Furnish such number of conformed copies of such registration
statement and of each amendment or supplement thereto (in each case
including all exhibits and documents filed therewith), such number of
copies of the prospectus included in such registration statements
(including each preliminary prospectus and summary prospectus), such
documents incorporated by reference in such registration statement or
prospectus and such other documents incident thereto as such Shareholders
from time to time may reasonably request;
(d) To the extent then permitted under applicable professional
guidelines and standards, use all reasonable efforts to obtain a comfort
letter from the Company's independent public accountants in customary form
and covering
-4-
<PAGE>
such matters of the type customarily covered by comfort letters and an
opinion from the Company's counsel in customary form and covering such
matters of the type customarily covered in a public issuance of securities
and provide copies thereof to such Shareholders; and
(e) Permit the counsel to the selling Holders whose expenses are
being paid pursuant to (S)3 hereof to participate in the registration
statement preparation process and to inspect and copy such corporate
documents as he may reasonably request.
(S)6. Indemnification.
---------------
(a) The Company shall indemnify the Shareholders with respect to
which registration, qualification or compliance has been effected pursuant
to this agreement against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) prepared by the Company
incident to any such registration, qualification or compliance, or based
on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein
(in light of the circumstances under which they were made, in the case of
any prospectus) not misleading, or any violation by the Company of the Act
or the Exchange Act or securities act of any state 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,
qualification or compliance, and shall reimburse such Shareholders for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or
action, whether or not resulting in any liability, provided that the
Company shall not be liable in any such case to the extent that: (i) any
such claim, loss, liability or expense arises out of or is based on any
untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in such prospectus, offering circular or other document in
reliance upon any written information furnished to the Company by any
Shareholder or any underwriter expressly for use therein; or (ii) in the
case of a sale directly by any Shareholder (including without limitation a
sale through any underwriter retained by any Shareholder), it arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission that was contained in a preliminary
prospectus or other preliminary document and corrected in a final or
amended prospectus or other document and such Shareholder failed to
deliver a copy of the final or
-5-
<PAGE>
amended document at or prior to the confirmation of the sale of the
applicable securities to the person asserting such claim, loss, damage,
liability, or action.
(b) Each Shareholders shall, if Registrable Securities held by such
Shareholder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each
of its directors and officers and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of the Act
and the rules and regulations thereunder, each other Holder and each of
their officers, directors and partners, and each person controlling such
Holder, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or
any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein
(in light of the circumstances under which they were made, in the case of
any prospectus) not misleading, and will reimburse the Company and each
such Holder's directors, officers, partners, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, whether or not resulting in liability, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by any Shareholder; provided, however, that the obligations of each
Shareholder hereunder shall be limited to an amount equal to the net
proceeds received by such Shareholder upon sale of his securities.
(c) Each party entitled to indemnification under this (S)6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, but the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations under this (S)6
(except and to the extent the Indemnifying Party has been prejudiced as a
consequence thereof). The Indemnifying Party will be entitled to
participate in, and to the extent that it may elect by written notice
delivered to the Indemnified Party promptly after receiving the aforesaid
notice from such Indemnified Party, at its expense to assume, the defense
of any such claim or any litigation resulting therefrom, with
-6-
<PAGE>
counsel reasonably satisfactory to such Indemnified Party; provided that
the Indemnified Party may participate in such defense at its expense,
notwithstanding the assumption of such defense by the Indemnifying Party;
and provided, further, that if the defendants in any such action shall
include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be legal
defenses available to it and/or other Indemnified Parties which are
different from or additional to those available to the Indemnifying Party,
the Indemnified Party shall have the right to select separate counsel to
assert such legal defenses and to otherwise participate in the defense of
such action on behalf of such Indemnified Party or Parties and the fees
and expenses of such counsel shall be paid by the Indemnifying Party. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party (which consent shall not
be unreasonably withheld, delayed or conditioned), consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim
or litigation. Each Indemnified Party shall (i) furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom
and (ii) reasonably assist the Indemnifying Party in any such defense,
provided that the Indemnified Party shall not be required to expend its
funds in connection with such assistance.
(d) No Shareholder shall be required to participate in a registration
pursuant to which he would be required to execute an underwriting
agreement in connection with a registration effected by (S)2 which imposes
indemnification obligations on such Shareholder more onerous than those
imposed hereunder; provided, however the Company shall not be deemed to
breach the provisions of (S)2 if such Shareholder is not permitted to
participate in a registration on account of his refusal to execute an
underwriting agreement on the basis of this subsection (d).
(S)7. Shareholder Information; Further Assurances. Each Shareholder
-------------------------------------------
with Registrable Securities included in any registration, or requesting
inclusion in any registration, shall furnish to the Company such information
regarding such Shareholder and the distribution proposed by such Shareholder as
the Company may reasonably request and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this agreement, or in connection with an opinion or "no-action" letter of the
type described in (S)8, below, or otherwise required by applicable state or
federal securities laws. Each
-7-
<PAGE>
Shareholder shall execute such documents and take such other actions consistent
with this agreement which may be reasonably requested by the Company.
(S)8. Exception to Registration Obligation. Notwithstanding any other
------------------------------------
provisions of this agreement to the contrary, the Company shall not be required
to effect a registration under this agreement with respect to Registrable
Securities held by any Shareholder if: (i) in the written opinion of counsel
for the Company, which counsel and the opinion so rendered shall be reasonably
acceptable to such Shareholder, such Shareholder may sell without registration
all Registrable Securities for which such Shareholder requested registration
under the provisions of this agreement, in the quantity in which the Registrable
Securities were proposed to be sold (whether under Rule 144 or otherwise); or
(ii) the Company shall have obtained from the Commission a "no-action" letter to
that effect.
(S)9. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may permit the sale of
restricted securities (as that term is used in Rule 144) to the public without
registration, the Company shall:
(a) Make and keep public information available as those terms are
defined in Rule 144, at all times from and after 90 days following the IPO
Date;
(b) Use all commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of
the Company under the Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(c) So long as any Shareholder owns any restricted securities,
furnish to such Shareholder upon request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144
(at any time from and after 90 days following the IPO Date) and of the Act
and Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed as
such Shareholder may reasonably request in availing himself of any rules
or regulations of the Commission allowing such Shareholder to sell any
such securities without registration.
(S)10. Remedies. The Company and the Shareholders recognize and agree
--------
that they may not have an adequate remedy if any of them fails to comply with
the provisions of this agreement, and that damages will not be readily
ascertainable, and each of them expressly agrees that in the event of such
failure the other
-8-
<PAGE>
parties shall be entitled to seek specific performance of the defaulting party's
obligations hereunder.
(S)11. Restrictions on Transfer. If any Shareholder seeks to include
------------------------
Registrable Securities in a registration pursuant to this agreement, such
Shareholder shall, if so requested by the underwriters who are managing such
offering, as a condition precedent to including Registrable Securities in such
offering, execute an agreement on usual and customary terms pursuant to which
such Shareholder agrees not to sell or otherwise transfer any Common Stock
(except pursuant to such offering) for such period of time following the
consummation of such offering as such underwriters may reasonably request;
provided that such period shall not exceed 180 days.
(S)12. Miscellaneous.
-------------
(a) All notices and other communications required or desired to be
given to any Party under this agreement shall be in writing and shall be
deemed given when delivered personally to that Party or his agent,
telecopied (which is confirmed) to that Party or his agent at the telecopy
number for that Party or his agent provided for in the Purchase Agreement,
mailed by certified mail (return receipt requested) to that Party or his
agent at the address for that Party or his agent provided for in the
Purchase Agreement (or at such other address for such Party as such Party
shall have specified in a notice to the other Parties), or delivered to
Federal Express or any similar express delivery service for delivery to
that Party or his agent at that address.
(b) The headings of the various sections of this agreement are for
convenience of reference only and shall not limit, alter or otherwise
affect the meaning hereof. Where permitted by the context, each pronoun
used in this agreement shall include the same pronoun in other genders and
numbers and each noun used in this agreement shall include the same noun in
other numbers. This agreement constitutes the entire understanding of the
Parties with respect to the subject matter hereof and supersedes all prior
and current understandings and agreements, whether written or oral.
(c) This agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the conflict of
laws provisions thereof.
(d) This agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and the
Shareholders then owning not less than a majority of the Registrable
Securities then owned by all Shareholders.
-9-
<PAGE>
(e) This agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) If any provisions of this agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability
shall attach only to such provision and shall not in any manner affect or
render illegal, invalid or unenforceable any other provision of this
agreement, and this agreement shall be carried out as if any such illegal,
invalid, or unenforceable provision were not contained herein.
(g) This agreement shall be binding upon, inure to the benefit of, and
be enforceable by and against the heirs, personal representatives,
successors, and assigns of each Party.
AMERICAN DENTAL PARTNERS, INC.
By /s/ Ronald M. Levenson /s/ Karl H. Biewald
---------------------------- ------------------------------
Ronald M. Levenson, Chief KARL H. BIEWALD, D.D.S.
Financial Officer
/s/ Terri M. Lawler
------------------------------
TERRI M. LAWLER
-10-
<PAGE>
EXHIBIT 11
AMERICAN DENTAL PARTNERS, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
----------------- ----------------- ----------------
PRO PRO PRO
FORMA FORMA FORMA
AS AS AS
ACTUAL ADJUSTED ACTUAL ADJUSTED ACTUAL ADJUSTED
1996 1996 1996 1996 1997 1997
------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
PRIMARY
Net earnings (loss)....... $(2,443) $ 538 $(1,514) $ 386 $ 754 $1,486
Less: Dividends on Series
B Redeemable Preferred
Stock................... (96) (29) (420)
------- ------ ------- ------ ------ ------
Net earnings (loss)
attributable to common
stockholders............. $(2,539) $ 538 $(1,543) $ 386 $ 334 $1,486
======= ====== ======= ====== ====== ======
Weighted average common
shares outstanding....... 788 834 582 582 2,418 2,418
Add: Options and common
stock issued one year
prior to filing
date(1)................ 1,438 1,888 1,624 1,872 (7) 241
Add: Assumed conversion of
Series A Convertible
Preferred Stock(2)..... 2,400 2,400 2,400 2,400 2,400 2,400
Add: Shares issued in
connections with initial
public offering(3)....... 1,506 1,506 1,506
------- ------ ------- ------ ------ ------
Weighted average common
shares as adjusted....... 4,806 6,428 4,806 6,360 4,811 6,585
======= ====== ======= ====== ====== ======
Net earnings (loss) per
share.................... $ (0.55) $ 0.08 $ (0.33) $ 0.06 $ 0.07 $ 0.22
======= ====== ======= ====== ====== ======
FULLY DILUTED
Net earnings (loss)....... $(2,443) $ 538 $(1,514) $ 385 $ 754 $1,486
Less: Dividends on Series
B Redeemable Preferred
Stock................... (96) (28) (420)
------- ------ ------- ------ ------ ------
Net earnings (loss)
attributable to common
stockholders............. $(2,538) $ 538 $(1,543) $ 385 $ 334 $1,486
======= ====== ======= ====== ====== ======
Weighted average common
shares outstanding....... 786 872 582 774 2,480 2,480
Add: Options and common
stock issued one year
prior to filing
date(1)................ 1,438 1,689 1,624 1,873 (8) 240
Add: Assumed conversion of
Series A Convertible
Preferred Stock(2)..... 2,400 2,400 2,400 2,400 2,400 2,400
Add: Shares issued in
connection with initial
public offering(3)....... 1,508 1,508 1,508
------- ------ ------- ------ ------ ------
Weighted average common
shares as adjusted....... 4,806 8,587 4,808 6,553 4,852 6,808
======= ====== ======= ====== ====== ======
Net earnings (loss) per
share.................... $ (0.55) $ 0.08 $ (0.33) $ 0.06 $ 0.06 $ 0.22
======= ====== ======= ====== ====== ======
</TABLE>
- --------
(1) Pursuant to the rules of the SEC all options granted and shares of common
stock issued at prices less than the initial public offering price during
the twelve months preceding the offering date have been included in
primary and fully diluted weighted average shares outstanding for all
periods presented.
(2) In connection with the initial public offering, Series A Convertible
Preferred shares will automatically convert to common stock on a one for
one basis.
(3) In connection with the initial public offering, gives effect to the
issuance of common shares which would have been necessary to pay
$13,700,000 of revolving credit facility indebtedness, redeem $7,706,000
of Series B Redeemable Preferred Stock and pay $1,000,000 of estimated
offering costs.
<PAGE>
Exhibit 21
Subsidiaries of American Dental Partners, Inc.
PDHC, Ltd., a Minnesota corporation
Texas Dental Partners, Inc., a Texas corporation
Smileage Dental Care, Inc., a Wisconsin corporation
American Dental Partners of Louisiana, Inc., a Delaware corporation
Soster Dental, Inc., a Pennsylvania corporation
American Dental Partners of Wisconsin, Inc., a Delaware corporation
Apple Park Associates, Inc., a Delaware corporation
Orthocare, Ltd., a Minnesota corporation
H/P Orthocare, Inc., a Minnesota corporation
M/C Orthocare, Inc., a Minnesota corporation
DC Orthocare, Ltd., a Wisconsin corporation
MW Orthocare, Ltd., a Wisconsin corporation
Dental Specialty Management, Ltd., a Minnesota corporation
Oral Healthcare Corporation, a Delaware Corporation
<PAGE>
EXHIBIT 23(B)
The Board of Directors
American Dental Partners, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Selected Historical and Pro Forma Consolidated
Financial Data" and "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
November 12, 1997
<PAGE>
EXHIBIT 23(C)
The Board of Directors
PDHC, Ltd.:
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/ Stirtz Bernards Boyden Surdel &
Larter, P.A.
Edina, Minnesota
November 12, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 5,836 2,459
<SECURITIES> 0 0
<RECEIVABLES> 2,591 3,210
<ALLOWANCES> 0 0
<INVENTORY> 174 324
<CURRENT-ASSETS> 10,006 7,306
<PP&E> 5,943 7,683
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 25,294 28,293
<CURRENT-LIABILITIES> 6,817 6,563
<BONDS> 0 0
7,096 7,517
8,009 8,483
<COMMON> 22 23
<OTHER-SE> 142 190
<TOTAL-LIABILITY-AND-EQUITY> 25,294 28,293
<SALES> 3,933 36,620
<TOTAL-REVENUES> 3,933 36,620
<CGS> 0 0
<TOTAL-COSTS> 6,414 35,590
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (38) 195
<INCOME-PRETAX> (2,443) 835
<INCOME-TAX> 0 81
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,443) 754
<EPS-PRIMARY> (0.55) 0.07
<EPS-DILUTED> (0.55) 0.07
</TABLE>
