<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
DENTALCO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MARYLAND 8099 52-1274789
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
</TABLE>
6115 FALLS ROAD, LAKE FALLS PROFESSIONAL BUILDING
BALTIMORE, MARYLAND 21209
(410) 377-3225
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
LAWRENCE F. HALPERT, D.D.S.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DENTALCO, INC.
6115 FALLS ROAD, LAKE FALLS PROFESSIONAL BUILDING
BALTIMORE, MARYLAND 21209
(410) 377-3225
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS
SENT TO THE AGENT FOR SERVICE, SHOULD BE SENT TO:
<TABLE>
<S> <C>
WILBERT H. SIROTA JOHN J. HUBER
JAY G. COHEN Latham & Watkins
Piper & Marbury L.L.P. 1001 Pennsylvania
36 South Charles Street Avenue, Suite 1300
Baltimore, Maryland 21201 Washington, D.C. 20004
(410) 539-2530 (202) 637-2200
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF OFFERING PRICE
SECURITIES TO BE REGISTERED (1)(2) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common Stock, $.0001 par value $50,000,000 $15,151.52
</TABLE>
(1) Includes shares of Common Stock issuable upon exercise of an option to
the Underwriters solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED SEPTEMBER 10, 1997
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.
<PAGE>
SHARES
DENTALCO, INC.
COMMON STOCK
-----------------
ALL OF THE SHARES BEING OFFERED HEREBY ARE BEING SOLD BY 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 PER SHARE WILL BE BETWEEN $ AND $ . SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.
------------------------
APPLICATION WILL BE MADE FOR QUOTATION OF THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "DNTL".
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10, FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------------
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.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS
PRICE TO AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
---------- -------------- ------------
<S> <C> <C> <C>
PER SHARE.............................................................. $ $ $
TOTAL(3)............................................................... $ $ $
</TABLE>
- ---------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITERS."
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $1,250,000.
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS AN OPTION, EXERCISABLE WITHIN
30 DAYS AFTER THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
ADDITIONAL SHARES AT THE PRICE TO PUBLIC LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF
ANY. IF THE UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE TO
PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO COMPANY
WILL BE $ , $ AND $ , RESPECTIVELY. SEE
"UNDERWRITERS."
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY LATHAM & WATKINS, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT DELIVERY
OF THE SHARES WILL BE MADE ON OR ABOUT , 1997, AT THE OFFICE OF MORGAN
STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR IN
IMMEDIATELY AVAILABLE FUNDS.
-------------------
MORGAN STANLEY DEAN WITTER DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1997
<PAGE>
[MAP DEPICTING THE LOCATION OF THE AFFILIATED PRACTICES]
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN
THIS PROSPECTUS, 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 AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY,
NOR DOES IT CONSTITUTE AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF
COMMON STOCK OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This delivery
requirement 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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Defined Terms.............................................................................................. 4
Prospectus Summary......................................................................................... 5
Risk Factors............................................................................................... 10
The Company................................................................................................ 19
Use of Proceeds............................................................................................ 20
Dividend Policy............................................................................................ 21
Capitalization............................................................................................. 22
Dilution................................................................................................... 24
Unaudited Pro Forma Consolidated Financial Data............................................................ 25
Selected Consolidated Financial Data....................................................................... 34
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 36
Business................................................................................................... 48
Management................................................................................................. 61
Certain Transactions....................................................................................... 67
Principal Stockholders..................................................................................... 71
Description of Capital Stock............................................................................... 73
Shares Eligible for Future Sale............................................................................ 75
Underwriters............................................................................................... 77
Legal Matters.............................................................................................. 79
Experts.................................................................................................... 79
Additional Information..................................................................................... 79
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------------
The Company intends to furnish its stockholders annual reports containing
consolidated financial statements audited and certified by its independent
certified public accountants and quarterly reports for each of the first three
quarters of each fiscal year containing unaudited consolidated financial
information.
All trademarks or service marks appearing in this Prospectus are registered
trademarks or service marks of the companies that utilize them.
3
<PAGE>
DEFINED TERMS
DentalCo, Inc., a holding company, is the direct parent of five wholly owned
subsidiaries, which in turn are the parents of six other wholly owned
subsidiaries (the 11 direct and indirect wholly owned subsidiaries are the
"Subsidiaries"). In Colorado and Indiana, states that permit the Company to own
and operate dental practices, three Subsidiaries own and operate three dental
practices (the "Owned Practices"). In Georgia, Maryland, Pennsylvania, North
Carolina, Virginia and Michigan, five Subsidiaries have long-term administrative
service agreements ("Service Agreements") with six professional associations or
corporations that are licensed to own and operate dental practices (the
"Affiliated Service Practices," and together with the Owned Practices, the
"Affiliated Practices"). In North Carolina, Pennsylvania, Missouri and New
Jersey, four Subsidiaries have management agreements ("Management Agreements")
with five professional associations or corporations that are licensed to own and
operate dental practices (the "Management Practices," and together with the
Affiliated Practices, the "Dental Practices"). Unless the context otherwise
requires, references to: (a) the "Company" or "DentalCo" includes DentalCo,
Inc., its predecessors, the Subsidiaries and the Affiliated Practices; (b)
"Affiliated Dentists" means the 109 general dentists and specialists employed
full-time by the Affiliated Practices as of August 31, 1997; and (c) "Dental
Sites" means the 45 dental sites where dental services are provided by the
Affiliated Practices. Except where regulation permits, DentalCo does not employ
dentists or control the practice of dentistry.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY MORE DETAILED
INFORMATION, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS INDICATED OTHERWISE, THE
INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION.
THE COMPANY
DentalCo is a leading provider of dental practice management services to
multi-disciplinary dental practices in targeted markets in the United States. At
August 31, 1997, the Company had 496 dental chairs under management at 45 Dental
Sites in Georgia, Maryland, Pennsylvania, North Carolina, Virginia, Michigan,
Indiana and Colorado. The Company's 109 Affiliated Dentists, of whom 88 provide
general dentistry services and 21 provide specialty services, treated an
aggregate of approximately 230,000 active patients during the 18 months ended
June 30, 1997. In addition, the Company provides non-clinical, technical and
administrative services to the Management Practices, which provide dental
services at 14 Dental Sites with 167 dental chairs under management.
The dental care services industry, which is highly fragmented, consisted of
approximately 151,000 practicing dentists in 1995, 87% of whom practiced either
alone or with one other dentist. In response to market trends, general and
specialty dental practices increasingly have formed larger group practices.
Traditionally, payments for dental care services have not been covered by
insurers and consequently have been paid for by patients on a fee-for-service
basis. Increasingly, employers are responding to the desire of employees for
enhanced benefits by providing access to third-party payment arrangements,
including indemnity insurance, preferred provider organizations ("PPOs") and
capitated managed dental care plans to finance the purchase of dental care
services.
The Health Care Financing Administration estimates that expenditures for
dental care services were approximately $45.8 billion in 1995 and will exceed
$59.1 billion by 2000. The Company believes that the growth in demand for dental
care services results primarily from: (i) the aging of the population, a large
portion of which have retained their teeth leading to an increased need for
dental care services, including high margin specialty services; (ii) increased
demand for cosmetic procedures, including orthodontic care; (iii) increased
availability and use of dental insurance; and (iv) the growth of managed care
organizations that offer dental coverage to their members.
The Company's objective is to become the leading multi-disciplinary dental
practice management services provider. To achieve this objective, DentalCo's
strategy is to: (i) expand in existing markets through the acquisition of, or
affiliation with, general dentistry practices; (ii) increase revenue per dental
chair by integrating specialists into a network of clustered multi-disciplinary
dental sites, providing comprehensive patient care; (iii) enter new markets
through the acquisition of practices or affiliation with dentists; (iv) attract
and retain qualified dentists and hygienists; (v) attract a broader patient base
through increased contracting with PPO and capitated plans; and (vi) continue to
implement its integrated management information systems to enhance the Company's
ability to improve performance, efficiently schedule patient visits and contract
with managed care organizations.
The Company has designed an operating model with the objective of maximizing
gross revenue through increased dental chair utilization by capturing payments
for the provision of both general and specialty dental care services. The
Company accomplishes this through clustering dental sites in a market and
integrating specialists into the cluster. As of June 30, 1997, specialty care
accounted for approximately 35% of the Company's gross revenue, which the
Company believes is in excess of the national average, reflecting the Company's
ability to diagnose and treat, within its clusters, patients requiring specialty
dental services. Clustering also facilitates the Company's ability to negotiate
PPO and capitated contracts on behalf of the Affiliated Practices. Newly
acquired or built sites typically require 18 to 24 months to fully implement the
operating model and successfully increase dental chair utilization. The Company
believes that the implementation of its operating model at the Affiliated
Practices will generate increased dental
5
<PAGE>
chair utilization. Services provided by the Dental Sites include general
dentistry (examinations, cleanings, filling cavities, bonding and fitting crowns
and bridges) as well as specialty services. Each cluster has or will have
available to it upon implementation of the Company's operating model, a
periodontist, prosthodontist, orthodontist, oral surgeon, pedodontist and
endodontist, each of which may rotate among the facilities that comprise a given
cluster.
The Company believes it is the largest provider of multi-disciplinary dental
practice management services in Georgia, Maryland and North Carolina as well as
the metropolitan area of Philadelphia, Pennsylvania. Since April 1996, the
Company has built five new and expanded four existing, Dental Sites adding an
aggregate of 66 dental chairs under management. The Company has also acquired or
affiliated with ten dental practices in eight states adding 34 Dental Sites, 380
dental chairs under management and 81 Affiliated Dentists. This expansion has
increased the patient base and geographic presence of the Affiliated Practices,
increased the Company's market presence and substantially increased its gross
revenue. The pro forma gross revenue of the Company for the year ended December
31, 1996 and the six months ended June 30, 1997 were $58.1 million and $30.2
million, respectively, compared to actual gross revenue of $12.5 million and
$23.0 million for the same periods, respectively.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered.......... shares
Common Stock to be Outstanding
After this Offering......... shares (1)
Use of Proceeds............... Repay $15.1 million of outstanding indebtedness, including
$1.1 million of related fees and expenses; repay the loan of
a Management Practice to an unaffiliated third party in the
amount of $1.6 million; redeem $9.4 million of Class D
Redeemable Stock, including accrued dividends; and for
financing future acquisitions, working capital and general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National
Market symbol............... DNTL
</TABLE>
- ------------------------
(1) The number of shares of Common Stock outstanding after this Offering and the
information set forth in this Prospectus, unless otherwise indicated: (i)
reflects a for stock split effected prior to the consummation of
this Offering; (ii) assumes the conversion immediately prior to the
consummation of this Offering of the Company's 8% Class A Cumulative
Convertible Preferred Stock, par value $.0001 per share (the "Class A
Preferred Stock"), Class B Convertible Preferred Stock, par value $.0001 per
share (the "Class B Preferred Stock"), 8% Class C Cumulative Convertible
Preferred Stock, par value $.0001 per share (the "Class C Preferred Stock"),
and 9% Class D Convertible Preferred Stock, par value $.0001 per share (the
"Class D Convertible Stock") into an aggregate of 6,109,920 shares of Common
Stock; (iii) assumes the redemption immediately prior to the consummation of
this Offering of the Company's 9% Class D Cumulative Redeemable Preferred
Stock (the "Class D Redeemable Stock", and together with the Class D
Convertible Stock, the "Class D Preferred Stock") for $9,332,500 plus
accrued but unpaid dividends through the date of redemption; (iv) includes
(a) shares of Common Stock issuable upon mandatory conversion of a
convertible promissory note having a conversion price equal to the initial
public offering price and an aggregate principal balance of $1.0 million
which was issued to Wake Forest University (the "Bowman Gray Note") in
connection with the acquisition of certain of the assets of the Bowman Gray
School of Medicine of Wake Forest University ("Bowman Gray") and (b) 41,667
shares of Common Stock issuable upon consummation of this Offering to
Raymond G. Makowske, D.D.S. ("Makowske"); and (v) excludes (a) 302,214
shares of Common Stock reserved for issuance under the Company's 1995 Equity
Participation Plan (the "1995 Plan"), of which options to purchase 302,214
shares of Common Stock have been granted and options to purchase 61,037
shares of Common Stock were exercisable at June 30, 1997; (b) 1,000,000
shares of Common Stock reserved for issuance under the Company's 1997
Omnibus Stock Plan (the "1997 Plan" and collectively with the 1995 Plan, the
"Stock Option Plans"), of which options to purchase 60,000 shares of Common
Stock at the initial public offering price will be granted to non-affiliated
directors of the Company upon consummation of this Offering; and (c)
shares of Common Stock reserved for issuance pursuant to (1) options to
purchase 400,587 shares of Common Stock granted to Carl Sardegna, the
Company's President, all of which were exercisable at June 30, 1997, (2)
options to purchase 25,000 shares of Common Stock granted to certain persons
in connection with the acquisition of the stock of The Dental Center, Inc.
and The Dental Center Adult, Inc. (collectively, "Indiana Dental"), none of
which were exercisable at June 30, 1997; (3) shares of Common Stock,
issuable upon consummation of this Offering, in connection with the right to
provide administrative services to V. Dale McElwee, D.D.S. & Associates,
P.C. ("McElwee"), a Management Practice; and (4) an option to purchase
30,000 shares of Common Stock granted to Barbara J. Piatt, the Company's
Chief Financial Officer, none of which were exercisable at June 30, 1997.
See "Management--Employee Benefit Plans," "Certain Transactions" and
"Description of Capital Stock."
7
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA
AS
ADJUSTED
1992 1993 1994 1995 1996 1996(1)
-------- -------- -------- -------- ------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Gross revenue:
Patient fees of Affiliated Practices... $ 7,826 $ 8,039 $ 7,661 $ 8,086 $10,300 $ 42,061
Capitation............................. 1,018 882 1,113 1,635 2,086 15,359
Management fees........................ -- -- -- -- 70 635
-------- -------- -------- -------- ------- ---------
Total.............................. 8,844 8,921 8,774 9,721 12,456 58,055
Net revenue.............................. 5,877 6,173 5,072 5,943 7,578 37,124
Operating income (loss).................. (321) (211) 143 389 (1,556) (706)
Earnings (loss) before income taxes...... (173) (134) 180 414 (1,508) (606)
Earnings (loss) before extraordinary
item(3)................................ (170) (60) 47 259 (1,146) (514)
Earnings (loss) before extraordinary item
applicable to common stock(3).......... (170) (60) 47 259 (1,146) (514)
Earnings (loss) before extraordinary item
per common share(4).................... (.11) (.04) .02 .06 (.19)
Weighted average common shares
outstanding(5)......................... 1,553 1,553 2,174 4,623 6,137
OPERATING DATA (AT END OF PERIOD):
Number of dental sites................... 9 9 9 8 13 44
Number of dental chairs under
management(6).......................... 82 82 78 73 125 488
Gross revenue per chair(7)............... $108,000 $109,000 $112,000 $133,000 $99,000 $118,000
Percentage of gross revenue derived from
specialty services..................... 42% 40% 41% 33% 33% 30%
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
---------------------------
<S> <C> <C> <C>
PRO FORMA
AS
ADJUSTED
1996 1997 1997(2)
------- ------- ---------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Gross revenue:
Patient fees of Affiliated Practices... $ 4,918 $16,265 $21,304
Capitation............................. 888 5,776 7,678
Management fees........................ -- 914 1,240
------- ------- ---------
Total.............................. 5,806 22,955 30,222
Net revenue.............................. 3,581 15,917 20,743
Operating income (loss).................. (453) (680) 163
Earnings (loss) before income taxes...... (434) (1,436) 398
Earnings (loss) before extraordinary
item(3)................................ (359) (1,304) 357
Earnings (loss) before extraordinary item
applicable to common stock(3).......... (359) (2,567) 357
Earnings (loss) before extraordinary item
per common share(4).................... (.06) (.26)
Weighted average common shares
outstanding(5)......................... 5,669 9,760
OPERATING DATA (AT END OF PERIOD):
Number of dental sites................... 9 44 45
Number of dental chairs under
management(6).......................... 100 476 493
Gross revenue per chair(7)............... $58,000 $46,000 $59,000
Percentage of gross revenue derived from
specialty services..................... 34% 35% 35%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------
<S> <C> <C> <C>
PRO FORMA
PRO AS
ACTUAL FORMA(8) ADJUSTED(9)
--------- ----------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....................................................... $ 2,163 $ 8,021 $ 28,744
Working capital................................................................. (3,968) 6,018 28,261
Total assets.................................................................... 53,091 60,632 80,544
Total debt...................................................................... 19,126 15,189 1,185
Class D Redeemable Stock........................................................ 4,135 9,393 --
Redeemable common stock......................................................... -- 1,000 --
Stockholders' equity............................................................ 22,295 27,515 71,824
</TABLE>
- ------------------------
(1) Gives pro forma effect to (i) the acquisition of substantially all of the
assets of Sanjiv Bhatia, D.D.S. ("Bhatia"), Donald K. Cunningham, D.D.S.,
P.C. ("Cunningham"), and Offerdahl & Associates, P.C. ("Offerdahl" and
collectively, the "1996 Acquisitions"); (ii) the acquisition of the stock of
Indiana Dental and Willis V. Kittleman, Jr., D.D.S., P.C. ("Kittleman"), the
merger with Nanston, Inc. ("Nanston"), the acquisition of certain of the
assets of Bowman Gray, and the acquisition of substantially all of the
assets of Modern Dental Concepts, Inc. ("Modern"), BelAir Beltway Dental
Associates ("BelAir") and Marvin Becker D.D.S. ("Becker") (collectively, the
"1997 Acquisitions" and together with the 1996 Acquisitions, the
"Acquisitions"); (iii) this Offering and the application of the net proceeds
therefrom as described under "Use of Proceeds;" (iv) conversion of Class D
Convertible Stock into 2,415,556 shares of Common Stock; and (v) issuance of
shares of Common Stock upon mandatory conversion of the Bowman Gray
Note, as if each had occurred on January 1, 1996. See "Unaudited Pro Forma
Consolidated Financial Data."
(2) Gives pro forma effect to (i) the 1997 Acquisitions; (ii) this Offering and
the application of the net proceeds therefrom as described under "Use of
Proceeds;" (iii) conversion of Class D Convertible Stock into 2,415,556
shares of Common Stock; and (iv) issuance of shares of Common Stock
upon mandatory conversion of the Bowman Gray Note, as if each had occurred
on January 1, 1997. See "Unaudited Pro Forma Consolidated Financial Data."
(3) Before loss on extinguishment of debt of $1,295, net of related income taxes
of $270, resulting from repayment of debt with a portion of the net proceeds
from this Offering. See "Use of Proceeds."
(4) After deducting loss on extinguishment of debt, pro forma as adjusted
earnings per share would be $ and $ in 1996 and the six months
ended June 30, 1997, respectively.
(5) Assumes conversion of 40,154 shares of Class A Preferred Stock and 47,068
shares of Class B Preferred Stock into 1,325,082 and 1,553,244 shares of
Common Stock, respectively, in 1995, 1996, and 1997, on an actual and a pro
forma basis; conversion of
(FOOTNOTES CONTINUED ON NEXT PAGE)
8
<PAGE>
816,038 shares of Class C Preferred Stock into 816,038 shares of Common
Stock in 1996 and 1997, on an actual and a pro forma basis; and conversion
of 93,325 shares of Class D Convertible Stock into 2,415,556 shares of
Common Stock in 1996 and 1997 on a pro forma basis. See "Unaudited Pro Forma
Consolidated Financial Data," "Certain Transactions" and "Description of
Capital Stock."
(6) Dental chairs under management means the dental chairs owned and managed by
the Affiliated Practices.
(7) Gross revenue per chair is defined as the sum of revenues from patient fees
of Affiliated Practices and capitation divided by the number of dental
chairs under management at the end of the period presented.
(8) Gives pro forma effect to the acquisition of Bowman Gray and the issuance of
$10.5 million of Class D Preferred Stock in July 1997 as if each occurred at
June 30, 1997. See "Capitalization" and "Unaudited Pro Forma Consolidated
Financial Data."
(9) As adjusted for (i) conversion of the Class A Preferred Stock, Class B
Preferred Stock, Class C Preferred Stock and Class D Preferred Stock; (ii)
this Offering and the application of the estimated net proceeds therefrom;
(iii) issuance of shares of Common Stock upon conversion of the Bowman
Gray Note; and (iv) recognition of loss on extinguishment of debt of $1,295
net of related income taxes of $270, resulting from repayment of debt with a
portion of the net proceeds from this Offering. See "Use of Proceeds,"
"Capitalization" and "Unaudited Pro Forma Consolidated Financial Data."
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RISK FACTORS
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company's strategy includes growth through continued acquisition of
dental sites and affiliation with dentists in areas where the Company operates
and in new markets. The success of the Company's acquisition strategy will
depend on a number of factors, including (i) regulatory requirements; (ii) the
availability of financing to fund the acquisition strategy on terms acceptable
to the Company; (iii) the ability to successfully integrate additional dentists
and dental sites; (iv) the ability to affiliate with dentists to open new dental
sites and the ability to obtain locations in suitable markets; and (v) the
ability to identify and affiliate with suitable existing dental practices on
favorable terms. In implementing its acquisition strategy, the Company will
compete with other potential acquirers, some of which may have greater financial
resources than the Company. Competition for acquisitions may intensify due to
ongoing consolidation in the dental care services industry, which may increase
the cost of capitalizing on acquisition opportunities. Publicly traded and
privately held companies, which may have access to greater resources than the
Company, are pursuing the acquisition of practices. While the Company believes
that it will be able to compete for acquisitions, there can be no assurance that
new competitors will not enter the market, the Company will be able to identify
and complete future acquisitions or competitors will not make it more difficult
for the Company to complete acquisitions on favorable terms. See
"--Competition." The Company's acquisition strategy may also divert management's
attention, and purchase price payments and costs of unsuccessful acquisition
efforts may adversely affect the Company's business, financial condition or
results of operations. Further, the Company's financial results in the fiscal
quarters immediately following an acquisition or affiliation may be adversely
affected during the period in which the Company is implementing its operating
model at the acquired or affiliated practice. See "Business--Services and
Operations--Operating Model." While the Company routinely evaluates and is
continually engaged in discussions with acquisition and affiliation candidates,
at present the Company is not involved in negotiations with any such candidate,
nor has it reached any agreement or understanding with respect to any future
acquisition or affiliation other than the option (the "HMK Option") to purchase
the assets of Howard M. Koff, D.D.S. and Associates, P.C. and Howard M. Koff,
D.D.S. and Associates of New Jersey, P.A. (collectively, "HMK") that was granted
to the Company in connection with the acquisition of Modern. See "Certain
Transactions." Although the Company believes that it is in compliance with
applicable antitrust laws, there can be no assurance that governmental
authorities would not view the Company as being dominant in a particular market
and, therefore, cause the Company to divest itself of any particular practice.
Acquisitions and affiliations involve numerous risks, including diversion of
management's attention, failure to retain key personnel and contracts of the
practices, government investigations of the activities of practices prior to
being acquired, inability to integrate businesses without material disruption,
amortization of acquired intangible assets and the effects of contingent
purchase price payments and one-time acquisition expenses. There can be no
assurance that the Acquisitions or any future acquisition or affiliation will be
successfully integrated into the Company's operations or that dental practices,
once acquired by or affiliated with the Company will grow. See
"Business--Strategy."
RISKS RELATED TO ACQUISITIONS
The Company has experienced rapid and substantial growth through
acquisitions of and affiliations with dental practices. For the six months ended
June 30, 1997, approximately 73.6% of gross revenue, 74.6% of net revenue and
72.3% of operating income were derived from Affiliated Practices acquired since
April 1996. The operations of the Company currently are not the subject of any
investigation or review by state or federal healthcare or insurance authorities.
The operations of the Dental Practices may not have been in compliance with
state or federal healthcare or insurance laws and regulations prior to being
acquired by or affiliated with the Company. There can be no assurance that such
operations, if reviewed, would be found in compliance with such laws and
regulations. The Company would be held responsible by state or federal
healthcare and insurance authorities for the non-compliance of Dental Practices
with such
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laws and regulations prior to the acquisition of or affiliation with such
practices by the Company. See "Business--Government Regulation." To the extent
the Company or the Dental Practices were found not to be in compliance with such
laws and regulations, the Company's business, financial condition and results of
operations could be materially adversely affected. See "Business" and "Legal
Proceedings."
RISKS RELATED TO GROWTH
In addition to acquisitions of and affiliations with dental practices, the
Company intends to grow through internal expansion. The Company's success will
depend, in part, on its ability to: (i) integrate the Affiliated Practices into
the Company's operations and convert them to multi-disciplinary dental sites;
(ii) integrate managed care into Dental Sites that previously did not provide
services under managed care contracts; (iii) further develop the Company's
corporate management and operations, and financial and accounting resources to
accommodate and manage growth; and (iv) comply with laws and regulations that
may differ from those under which the Company currently operates. The Company's
growth has placed and will continue to place strains on the Company's
management, systems and support personnel. While the Company is in the process
of implementing its integrated management information systems, uniform billing
systems, accounting policies and internal control procedures in the Affiliated
Practices, delays in completing, or the inability to successfully complete, such
processes could have a material adverse effect on the Company's business,
financial condition and results of operations. Although the Company is taking
steps to manage rapid growth, there can be no assurance that the Company will be
able to do so efficiently or that the Company's growth rate will continue. There
also can be no assurance that the gross revenue of DentalCo, which is derived
primarily from the revenue of the Affiliated Practices, will match or exceed the
combined individual operating results achieved by such practices in the past.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." Most of management has been working together since December 1994
and the Company's Chief Financial Officer joined the Company in March 1997.
Although each member of management has experience in either healthcare, managed
health-care, insurance, finance or the delivery of multi-disciplinary dental
care services, management has worked together for less than three years.
Further, management does not have extensive experience managing and servicing a
geographically dispersed dental network. There can be no assurance that the
Company's growth strategy will be successful or that modification to the
Company's strategy will not be required. See "Business--Strategy."
LIMITED CAPITAL; NEED FOR ADDITIONAL FINANCING
The Company has required and is expected to continue to require significant
capital resources to acquire, affiliate with or establish additional dental
sites and to integrate, operate and expand current and future dental sites. The
Company historically has used a combination of cash, promissory notes, stock and
the assumption of certain liabilities (including indebtedness) as consideration
in acquisitions of and affiliations with dental practices and intends to
continue to do so. The Company expects that its capital requirements over the
next several years will substantially exceed cash flow generated from operations
and borrowing available under the Company's existing credit facility (the
"Credit Facility") with NationsCredit Commercial Corporation ("NationsCredit")
or any successor credit facility. See "Use of Proceeds." Therefore, to finance
capital requirements, the Company anticipates that it will from time to time
issue additional equity securities and incur additional indebtedness. Equity
financings other than Common Stock could be required to the extent that the
Common Stock fails to maintain a market value sufficient to warrant its use for
future financing needs. The Company may not be able to obtain additional
required capital on satisfactory terms, if at all. In particular, the Credit
Facility contains certain restrictions on the Company's ability to acquire or
affiliate with additional dental practices. The failure to raise the funds
necessary to finance the expansion of the Company's operations or its other
capital requirements could materially and adversely affect the Company's
business, financial condition and results of operations or its ability to pursue
its acquisition or expansion strategy. If additional funds are raised through
the issuance of equity securities or debt securities with equity features,
dilution to the Company's existing stockholders
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may result. If additional funds are raised through the incurrence of debt, such
debt instruments will likely contain restrictive financial, maintenance and
security covenants. While net proceeds of this Offering will be used to repay
indebtedness under the Credit Facility, redeem all outstanding shares of Class D
Redeemable Stock (including accumulated dividends), effect future acquisitions
and affiliations, fund working capital and for general corporate purposes, there
can be no assurance the Company will not have a working capital deficit in the
future. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
GOVERNMENT REGULATION
The healthcare industry and the practice of dentistry are regulated
extensively at the state and federal levels. Each of the states in which the
Dental Practices are located has fraud and abuse laws which in many cases apply
to referrals for items or services reimbursable by third party payors and to
Medicare or other federally funded healthcare services programs such as Medicaid
(collectively, "Federal Programs"). A number of states also impose significant
penalties for submitting false claims for dental care services. Many states
either prohibit or require disclosure of self-referral arrangements and impose
penalties for the violation of these laws. Many states also prohibit dentists
from splitting fees with non-dentists. Many states limit the ability of a person
other than a licensed dentist to own or control equipment or offices used in a
dental practice. Some of these states allow leasing of equipment and office
space to a dental practice under a bona fide lease if the equipment and office
remain under the control of the dentist. Some states prohibit the advertising of
dental care services under a trade or corporate name and some require
advertisements to be in the name of the dentist. A number of states also
regulate the content of advertisements of dental care services and the use of
promotional gift items. Many states impose limits on the tasks that may be
delegated by dentists to hygienists and dental assistants. Some states require
entities designated as "clinics" to be licensed, and may define clinics to
include dental practices that are owned or controlled in whole or in part by
non-dentists. These laws and their interpretations vary from state to state and
are enforced by courts and regulatory authorities with broad discretion. Fee
splitting between a dentist and another person not a dentist in the same
professional group is prohibited by many states. In most cases, such laws do not
prohibit reasonable payments for services under services agreements even if such
payments are based on a percentage of the dentist's revenue. The laws in most
states regarding fee splitting have been subject to limited judicial and
regulatory interpretation. Most states also restrict certain marketing
activities by independent contractors and prohibit paying or receiving
remuneration, direct or indirect, that is intended to induce referrals for
dental care services. Federal law restricts certain marketing activities by
independent contractors and prohibits the offer, payment, solicitation, or
receipt of any form of remuneration in return for the referral of patients
covered by Federal Programs, or in return for purchasing, leasing, ordering, or
arranging for the purchase, lease or order of any item or service that is
covered by a Federal Program. These laws provide for criminal and civil
penalties. The applicability of these provisions to many business practices in
the healthcare industry, including the Services Agreements and the Management
Agreements, has not been subject to judicial or regulatory interpretation. While
the Company believes that it is in compliance with all applicable laws and
regulations as they are currently enforced, there can be no assurance that any
review by courts or other regulatory authorities of the Company's business
relationships or the operation of the Dental Practices will not result in
determinations that could adversely affect their operations or that the
regulatory environment will not change to restrict existing or future
operations. Those laws and their interpretation vary from state to state and are
enforced by regulatory authorities with broad discretion. There can be no
assurance that the legality of the ownership and operations of certain of the
Subsidiaries will not be successfully challenged. Furthermore, there can be no
assurance that the legality of the Services Agreements or the Management
Agreements will not be successfully challenged or that enforceability of the
provisions thereof will not be limited. In addition, certain provisions of such
agreements, including provisions relating to non-competition covenants could be
ruled unenforceable or their scope materially restricted. See
"Business--Affiliation Structure and Contractual Relationships." The laws and
regulations of certain states in which the Company may seek to expand could
require the
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Company to change the form of relationships entered into with dentists in a
manner which may restrict the Company's operations in those states or prevent
the Company from acquiring the assets of or managing dental practices in those
states. See "Business-Legal Proceedings." There can be no assurance that the
laws and regulations of the states in which the Company and the Dental Practices
presently operate will not change or be interpreted in the future either to
restrict or adversely affect the Company's relationships with the Affiliated
Dentists or dentists employed or affiliated with the Management Practices. See
"Business--Government Regulation." Federal and state governments are currently
considering various types of health law initiatives and comprehensive revisions
to the healthcare and healthcare insurance systems. Some of the proposals under
consideration, or others that may be introduced, could, if adopted, have a
material adverse effect on the Company's business, financial condition and
results of operations. It is uncertain what legislative programs, if any, will
be adopted in the future, or what actions Congress or state legislatures may
take regarding healthcare reform proposals or legislation. Further, in certain
markets in which the Dental Practices operate or may operate in the future,
organized groups of dental practitioners may attempt to support legislation and
regulatory action that makes it more difficult, or resist changes that make it
easier, for DentalCo or companies with similar strategies to continue to manage
a network of dental sites. There can be no assurance that future state or
federal legislation or changes in the regulation or interpretation of healthcare
and insurance laws and regulations individually, or in the aggregate, will not
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Government Regulation."
STATE LAWS REGARDING PROHIBITION OF CORPORATE PRACTICE OF DENTISTRY
The laws of many states prohibit a business corporation, such as the
Company, from practicing dentistry, which includes exercising control over the
judgments or decisions of dentists, dental hygienists or dental assistants.
These laws and their interpretations vary from state to state and are enforced,
with broad discretion, by both courts and regulatory authorities. Some states
prohibit a non-licensed party (other than a professional partnership or
professional corporation wholly owned by dentists) from owning, maintaining or
operating an office for the practice of dentistry. In addition, many states
impose limits on the tasks that may be delegated by a dentist to other staff
members. Expansion into certain jurisdictions may require the Company to use
alternate structures with dental practices. See "Business--Legal Proceedings."
Wherever permitted by applicable law, the Company has established wholly owned
subsidiaries that own, control and operate practices and employ dentists. The
Company will continue to use this structure. Where the Company is unable to
establish wholly owned subsidiaries, it will pursue affiliations that achieve
the substance of such ownership, management and operation, to the maximum extent
permitted by applicable law, including the use of long-term management
agreements with professional associations and corporations, such as the Services
Agreements. See "Business--Services and Operations." The Company provides dental
practice management services to the Affiliated Service Practices in Georgia,
Maryland, Pennsylvania, North Carolina, Virginia and Michigan. The Company
performs only non-clinical, technical and administrative services and does not
practice dentistry or exercise influence or control over the practice of
dentistry by the dentists employed by the Affiliated Service Practices. In
Colorado and Indiana, states that permit certain entities that are not
professional corporations or professional partnerships to directly employ
dentists, dental hygienists and dental assistants, the Owned Practices employ
dentists, dental hygienists or dental assistants who provide dental care
services. The Company provides non-clinical, technical and administrative
services for which it is paid management fees to the Management Practices in
Pennsylvania, Missouri, North Carolina and New Jersey. Although the Company
believes, based upon the advice of counsel, that it is in compliance with
applicable state laws and regulations relating to the corporate practice of
dentistry as currently enforced, there can be no assurance that regulatory
authorities or other parties will not assert that the Company is engaged in the
corporate practice of dentistry in such states, that laws or regulations
currently not enforced will be enforced in the future, or that the fees paid to
the Company by the Dental Practices constitute fee splitting or the corporate
practice of dentistry. If such a claim were successfully asserted, the Company
could be subject to civil and criminal penalties and the
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Company could be required to restructure its contractual arrangements. Such
results or the inability of the Company to successfully restructure its
relationships to comply with such statutes could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business-- Government Regulation."
DEPENDENCE ON AFFILIATED DENTISTS
The Company's business is dependent upon the recruitment and retention of
qualified dentists. While the Company has been successful in recruiting and
retaining Affiliated Dentists, no assurance can be given that the Company will
be able to continue to do so on terms similar to its current arrangements. If a
significant number of Affiliated Dentists were to terminate their relationships
with the Company or the Dental Practices, become unable or unwilling to continue
their employment or fail to uphold any non-competition provisions in their
employment agreements, the Company's business, financial condition and results
of operations would be materially adversely affected. See "Business--Services
and Operations."
POTENTIAL FLUCTUATIONS IN QUARTERLY PERFORMANCE
The Company has experienced fluctuations in quarterly operating results and
anticipates that such fluctuations will continue and could intensify. The
Company's quarterly operating results may vary significantly depending on a
number of factors, including seasonality, the frequency of inclement weather and
the integration of acquisitions or affiliations. Gross revenue increases in the
second and third quarters due to increased demand for dental care services
during summer vacation, decreases during the fourth quarter due to the holiday
season and may decrease in the first quarter depending upon the frequency of
inclement weather. There can be no assurance that the Company will be profitable
in the future or that, if profitable, its levels of profitability will not vary
significantly among quarterly periods. Fluctuations in operating results may
result in volatility in the price of the Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results."
RISKS ASSOCIATED WITH COST CONTAINMENT INITIATIVES
The healthcare industry, including the dental care services market, is
experiencing a trend toward cost containment, as third-party and government
payors seek to impose lower reimbursement rates upon providers. The Company
believes that this trend will continue and will increasingly affect dental care
services. This may result in a reduction in per-patient and per-procedure
revenue from historic levels. Significant reductions in payments to dentists or
other changes in reimbursement by third-party payors for dental care services
may have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Payor Mix."
COLLECTION RISKS
The Company assumes the financial risk related to collection, including the
potential uncollectibility of accounts, long collection cycles for accounts
receivable and delays attendant to reimbursement by third party payors, such as
government programs, private insurance plans and managed care organizations.
Increases in write-offs of doubtful accounts, delays in receiving reimbursement
or potential retroactive adjustments resulting from audits by government payors
may require the Company to borrow funds to meet current obligations. The
Company's business, financial condition and results of operations would be
adversely affected if it were unable to borrow funds on terms acceptable to the
Company. See "Business-- Collections."
COMPETITION
The dental care services industry is highly competitive and has undergone
significant change in the method in which dental care services are provided and
the manner in which dental care providers are
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selected and compensated. The Company competes with other dental practice
management companies which seek to acquire, provide management and other
services to and affiliate with existing dental practices, several of which have
financial, marketing and other competitive resources greater than those of the
Company. In addition, the Company may also compete with managed care providers.
The business of providing dental care services is highly competitive in each of
the markets in which the Dental Practices operate. In addition, companies in
other dental care industry segments, such as managed care companies, many of
which have financial and other resources greater than those of the Company, may
become competitors in acquiring or providing dental practice management services
to dental care providers. Further, the Affiliated Dentists compete with dentists
who operate single offices, and with dentists who maintain group practices or
operate in multiple offices. There can be no assurance that the Company will be
able to compete effectively or that additional competitors will not enter its
markets or make it more difficult for the Company to acquire or affiliate with
practices on favorable terms. See "Business-- Competition."
RISKS ASSOCIATED WITH PPO AND CAPITATED CONTRACTS AND INSURANCE REGULATION
The laws of many states regulate the sharing of risk through capitation.
There are state insurance regulatory risks associated with the Company's role in
negotiating and administering managed care contracts. The application of state
insurance laws to third party payor arrangements, other than fee-for-service
arrangements, is an unsettled area of law with little guidance available. As the
Company or Dental Practices contract with third-party payors on a capitated or
other basis under which they assume financial risk, the Company or the Dental
Practices may become subject to state insurance laws. The Company believes that
it is in compliance with the insurance laws of the states in which it operates,
but there can be no assurance that interpretations of these laws by the
regulatory authorities in the states in which the Company operates or in which
it expands will not require licensure or a restructuring of some or all of the
Company's operations. If the Company is required to become licensed as an
insurer under these laws, the licensure process can be lengthy and
time-consuming and, unless the regulatory authorities permit the Company to
continue to operate while the licensure process is progressing, the Company
could experience a material adverse change in its business. In addition, many of
the licensing requirements mandate strict financial and other requirements which
the Company may not immediately be able to meet. Further, once licensed, the
Company would be subject to continuing oversight by and reporting to the
respective regulatory agencies. The regulatory framework of certain
jurisdictions may limit the Company's expansion into, or ability to continue
operations within, such jurisdictions if the Company is unable to modify its
operational structure to conform with such regulatory framework. Any
determination that the Company or the Dental Practices are subject to state
insurance regulation could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Government Regulation."
PROFESSIONAL LIABILITY AND INSURANCE
The business of the Company entails an inherent risk of claims of liability
for acts of the Affiliated Dentists. The Company and Affiliated Dentists are and
periodically become involved as defendants in malpractice lawsuits and are
subject to the attendant risk of substantial damage awards. The Company
maintains professional liability coverage of $1.0 million per occurrence and
$3.0 million in the aggregate for its Affiliated Dentists and dental hygienists,
except for Nanston and Modern which are covered under separate policies with the
same coverage limits. In addition, the Company maintains a property insurance
policy and an umbrella liability insurance policy with coverage of $10.0
million. While the Company believes it has adequate professional liability
insurance coverage for itself, each Affiliated Dentist and hygienist, there can
be no assurance that a future claim or claims will not be successful or if
successful will not exceed the limits of available insurance coverage or that
such coverage will continue to be available at acceptable costs and on favorable
terms. A malpractice claim asserted against the Company, a Dental Practice or an
Affiliated Dentist could, in the event of an adverse outcome, have a material
adverse effect
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on the Company's business, financial condition and results of operations. See
"Business--Legal Proceedings."
RISKS RELATED TO INTANGIBLE ASSETS
The Acquisitions resulted in significant increases in the Company's
intangible assets relating to the Services Agreements, covenants not to compete
and goodwill. At June 30, 1997, the Company had intangible assets of $32.7
million, representing 61.6% of the Company's total assets at that date and an
additional approximate $900,000 of intangible assets were acquired in August
1997 as a result of the Bowman Gray acquisition. The Company expects the amount
allocable to intangible assets on its balance sheet to increase in the future in
connection with additional acquisitions, which will increase the Company's
amortization expense. In the event of any sale or liquidation of the Company or
a portion of its assets, there can be no assurance that the value of the
Company's intangible assets will ever be realized. In addition, the Company
continually evaluates whether events and circumstances have occurred indicating
that any portion of the remaining balance of the amount allocable to the
Company's intangible assets may not be recoverable. When factors indicate that
the amount allocable to the Company's intangible assets should be evaluated for
possible impairment, the Company may be required to reduce the carrying value of
such assets. Any future determination requiring the write off of a significant
portion of unamortized intangible assets could have a material adverse effect on
the Company's business, financial conditions and operating results.
Net identifiable intangible assets, which includes covenants not to compete,
patient records and Services Agreements, were approximately $643,000 at December
31, 1996 and $24.6 million at June 30, 1997, representing approximately 8.7% and
46.3%, respectively, of the Company's total assets. Net identifiable intangible
assets are recorded at fair value on the date of acquisition. Covenants not to
compete are being amortized over three to 10 years, Services Agreements are
being amortized over the 40 year life of the agreements and goodwill, which
relates to the excess of cost over the fair value of net assets of businesses
acquired, is being amortized over forty years. Goodwill was approximately
$655,000 at December 31, 1996 and $6.6 million at June 30, 1997, representing
approximately 8.8% and 12.4%, respectively, of the Company's total assets.
DEPENDENCE ON KEY PERSONNEL
The success of the Company is highly dependent upon the efforts and
abilities of Dr. Lawrence F. Halpert, 60, the Chairman of the Board of Directors
and Chief Executive Officer, and Carl J. Sardegna, 59, the President. While both
Dr. Halpert and Mr. Sardegna have employment agreements with the Company, the
loss of the services of either of these executives could have a material adverse
effect upon the Company's business, results of operations and financial
condition. See "Management."
CONTROL BY PRINCIPAL STOCKHOLDERS; MATERIAL BENEFITS TO INSIDERS
Upon completion of this Offering, entities affiliated with Grotech Partners
("Grotech Partners"), Dr. Halpert, Mr. Sardegna and certain of the dentists
affiliated with the Dental Practices, and entities affiliated with Morgan
Stanley Venture Capital ("Morgan Stanley Venture Capital") will beneficially own
an aggregate of approximately %, % and %, respectively, of the outstanding
shares of Common Stock. In addition, certain stockholders of the Company have
granted Dr. Halpert proxies to vote their shares of Common Stock. Accordingly,
Grotech Partners, such executive officers and dentists affiliated with the
Dental Practices and Morgan Stanley Venture Capital, will be able, if acting
together, to elect all of the Company's directors, to determine the outcome of
all corporate actions requiring approval of the Board of Directors or
stockholders and to control the business affairs and policies of the Company.
Such control may 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." Further, upon consummation of
this Offering, Grotech Partners and Morgan Stanley Venture Capital will
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receive a material benefit in connection with the Company's private placement of
Class D Convertible Stock and Class D Redeemable Stock in June and July 1997,
which was intended to meet the Company's short term capital needs in the second
quarter of 1997. Because limited financing was available at the time, the
capital need was satisfied by existing stockholders. Upon consummation of this
Offering, the Class D Convertible Stock is convertible into 2,415,556 shares of
Common Stock at $3.8635 per share and the Class D Redeemable Stock is redeemable
for $9,332,500 plus accrued but unpaid dividends through the date of redemption,
which as of August 31, 1997 were $274,044. The conversion price of the Class D
Convertible Stock and the redemption amount of the Class D Redeemable Stock
represent material benefits to such holders. See "Principal Stockholders" and
"Certain Transactions."
POTENTIAL CONFLICTS OF INTEREST
Dr. Halpert, a director and stockholder of the Company, is a stockholder of
Mid-Atlantic Dental Associates, P.A ("MADA"), V. Dale McElwee D.D.S., P.C. and
Ned Greenberg D.D.S. & Associates, P.C. (the "Virginia P.C."), and Dr. John C.
Johnston, a director and stockholder of the Company, is a stockholder of Nanston
Dental Group, P.C., all of which are Affiliated Practices with which the Company
has Services Agreements or Management Agreements. The Company has the right to
replace Drs. Halpert and Johnston as stockholders of these entities upon the
payment of nominal consideration. As a result of such ownership by Drs. Halpert
and Johnston, potential conflicts of interest may arise in certain matters,
including but not limited to matters relating to the Services Agreements and
Management Agreements. Although Drs. Halpert and Johnston have fiduciary duties
to the Company and its stockholders, there can be no assurance that the Company
will not be adversely affected by matters in which Drs. Halpert and Johnston
have a potential conflict of interest. See "Certain Transactions."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares in this Offering will incur immediate and substantial
dilution in the net tangible book value of approximately $ per share of
Common Stock as a result of the sale of shares of Common Stock offered by
the Company hereby. To the extent that the Underwriter's overallotment option or
outstanding options to purchase Common Stock are exercised, there will be
further dilution. See "Dilution."
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK
Certain provisions of the Company's Amended and Restated Articles of
Incorporation (the "Charter") and Restated By-Laws (the "By-Laws") to be
executed immediately prior to consummation of this Offering may be deemed to
have anti-takeover effects and may delay, defer or prevent a takeover attempt
that a stockholder might consider in its best interest. The Charter also
authorizes the Board of Directors to determine the rights, preferences,
privileges and restrictions of unissued series of the Company's authorized
preferred stock (the "Preferred Stock") and to fix the number of shares and the
designation of any such shares of the Preferred Stock with voting or conversion
rights that could adversely affect the voting or other rights of holders of the
Common Stock. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights, including economic rights, of the
holders of any shares of Preferred Stock. Any such issuance may discourage third
parties from attempting to acquire control of the Company. Furthermore, the
Company is subject to the anti-takeover provisions of the Maryland General
Corporation Law (the "MGCL") prohibiting the Company from engaging in a
"business combination" with an "interested stockholder" for a period of five
years after the date of the transaction in which the person first becomes an
"interested stockholder," unless the business combination is approved in a
prescribed manner. Upon the consummation of this Offering, the Company will also
be subject to the control share acquisition provisions of the MGCL, which
provide that shares acquired by a person with certain levels of voting power
have no voting rights unless approved by a stockholder vote of two-thirds of the
votes entitled to be cast, excluding shares owned by the acquiror and by the
Company's officer and employee-directors.
17
<PAGE>
In certain circumstances, such shares may be redeemed by the Company. The
application of these statutes and certain other provisions of the Charter also
could have the effect of discouraging, delaying or preventing a change of
control of the Company not approved by the Board of Directors, which among other
things, could adversely affect the market price of the Common Stock. See
"Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
After consummation of this Offering, 5,847,484 shares, representing % of
the outstanding shares of Common Stock, have been held for more than one year
and will be eligible for future sale in the public market at prescribed times
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). Of these shares, 1,121,664 have been held for more than two
years by non-affiliates of the Company and may be sold pursuant to Rule 144(k)
under the Securities Act. All of such shares are subject to registration rights
and shares are subject to lock-up agreements for a period of 180 days
following the date of this Prospectus. Sales of such shares in the public
market, or the perception that such sales may occur, could adversely affect the
market price of the Common Stock or impair the Company's ability to raise
additional capital in the future through the sale of equity securities. See
"Dilution," "Shares Eligible for Future Sale" and "Underwriters."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after this Offering. The initial public
offering price will be determined by negotiations among the Company and the
Representatives of the Underwriters and may not be indicative of market prices
of the Common Stock after this Offering. See "Underwriters." There has been
significant volatility in the market price of securities of healthcare and
dental care companies that often have been unrelated to operating performance of
such companies. The Company believes that various factors such as legislative
and regulatory developments, quarterly variations in the actual or anticipated
results of operations of the Company, lower revenues or earnings of the Company
than those anticipated by securities analysts, the overall economy and the
financial markets, could cause the price of the Common Stock to fluctuate
substantially. There can be no assurance that the market price of the Common
Stock will not decline below the initial public offering price.
18
<PAGE>
THE COMPANY
DentalCo is a leading provider of dental practice management services to
multi-disciplinary dental practices in targeted markets in the United States. At
August 31, 1997, the Company had 496 dental chairs under management at 45 Dental
Sites in Georgia, Maryland, Pennsylvania, North Carolina, Virginia, Michigan,
Indiana and Colorado. The Company's 109 Affiliated Dentists, of whom 88 provide
general dentistry services and 21 provide specialty services, treated an
aggregate of approximately 230,000 active patients during the 18 months ended
June 30, 1997. In addition, the Company provides non-clinical, technical and
administrative services to the Management Practices, which provide dental
services at 14 Dental Sites with 167 chairs under management.
DentalCo's predecessor, Chambers & Goodrich, P.A. ("Chambers"), was
organized in 1982 as a professional services association. In 1993, Chambers
changed its name to Mid-Atlantic Dental Associates, P.A., which was the
surviving professional association in a merger with Periodontal Associates, P.A.
("Periodontal") in October 1994. In July 1995, Mid-Atlantic Dental Associates,
P.A. converted from a Maryland professional services association to a business
corporation and changed its name to DentalCo, Inc. DentalCo subsequently
transferred all of its assets to DentalCo Management Services of Maryland, Inc.,
a Maryland corporation ("DMS Maryland"), in exchange for all of the outstanding
capital stock of DMS Maryland.
The Company's principal executive offices are located at 6115 Falls Road,
Lake Falls Professional Building, Baltimore, Maryland 21209 and its telephone
number is (410) 377-3225.
ACQUISITIONS
Since April 1996, the Company has completed ten acquisitions in eight
states. The Acquisitions added 34 Dental Sites, 380 dental chairs under
management and 81 Affiliated Dentists, expanded the Company's patient base and
geographic presence, increased its market presence and substantially increased
its gross revenue. The Company's acquisition of Nanston and Modern added
multiple dental sites in Georgia and Pennsylvania, respectively. In connection
with the Company's acquisition of Modern, the Company was granted the HMK
Option. See "Certain Transactions." In Indiana, the Company acquired the assets
of Indiana Dental, with six Dental Sites located in South Bend, Indiana and
Niles, Michigan. In Maryland, Colorado and Virginia, the Company acquired the
assets of or affiliated with Becker and BelAir; Offerdahl, Cunningham and
Kittleman; and Bhatia, respectively. A summary of the Acquisitions follows:
<TABLE>
<CAPTION>
1996 DENTAL CHAIRS
DATE OF GROSS DENTAL UNDER
AFFILIATED PRACTICE ACQUISITION REVENUE(1) LOCATION SITES(2) MANAGEMENT(2)
- ----------------------------- -------------- ---------- ---------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Sanjiv Bhatia, D.D.S......... April 1996 $ 850,000 Virginia 1 5
Donald K. Cunningham, D.D.S.,
P.C........................ November 1996 407,000 Colorado 1 4
Offerdahl & Associates,
P.C........................ December 1996 949,000 Colorado 1 8
Nanston, Inc................. January 1997 21,153,000 Georgia 12 172
Marvin Becker, D.D.S......... February 1997 1,230,000 Maryland 1 5
The Dental Center, Inc. and
The Dental Center Adult,
Inc........................ February 1997 4,238,000 Indiana/Michigan 6 50
Willis V. Kittleman Jr.,
D.D.S., P.C................ February 1997 1,071,000 Colorado 1 11
Modern Dental Concepts,
Inc........................ May 1997 12,686,000(4) Pennsylvania 9 96
BelAir Beltway Dental
Associates................. June 1997 1,427,000 Maryland 1 12
Bowman Gray School of
Medicine Wake Forest
University................. August 1997 2,355,000 North Carolina 1 17
<CAPTION>
NO. OF
DENTAL
AFFILIATED PRACTICE PROFESSIONALS(3)
- ----------------------------- ---------------------
<S> <C>
Sanjiv Bhatia, D.D.S......... 6
Donald K. Cunningham, D.D.S.,
P.C........................ 2
Offerdahl & Associates,
P.C........................ 6
Nanston, Inc................. 84
Marvin Becker, D.D.S......... 8
The Dental Center, Inc. and
The Dental Center Adult,
Inc........................ 21
Willis V. Kittleman Jr.,
D.D.S., P.C................ 9
Modern Dental Concepts,
Inc........................ 52
BelAir Beltway Dental
Associates................. 10
Bowman Gray School of
Medicine Wake Forest
University................. 15
</TABLE>
- ------------------------
(1) Data is for the year ended December 31, 1996.
(2) Data is as of August 31, 1997.
(3) Includes full time and part time general dentists, specialists and
hygienists operating at the Dental Sites as of August 31, 1997.
(4) The Dental Sites acquired from Modern are located in Pennsylvania. Modern
also collects management fees from operations located in Pennsylvania and
New Jersey. The gross revenue has been adjusted to reclassify the income
from the Management Practices in Pennsylvania and New Jersey as management
fees.
19
<PAGE>
DentalCo consummated the Acquisitions as part of its strategy to develop
clusters of Dental Sites in targeted geographic markets. The Company's two
largest acquisitions, Nanston and Modern, consisted of existing clusters.
Nanston is located in the Southeast and expanded the Company's operations to the
Atlanta, Georgia metropolitan area. Modern is located in the metropolitan area
of Philadelphia, Pennsylvania. The Company followed a similar strategy with the
acquisition of Indiana Dental, a cluster in the Indiana and contiguous Michigan
region. See "Certain Transactions."
In Maryland, the Company created a cluster through the purchase of several
smaller practices, including Becker and BelAir, and the acquisition of Bhatia in
northern Virginia. In addition, the Company constructed or expanded four Dental
Sites and added 46 dental chairs under management in Maryland and Virginia. In
Colorado, the Company is starting a cluster through the acquisition of three
small practices: Cunningham, Offerdahl and Kittleman.
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common
Stock offered hereby based upon an assumed initial public offering price of
$ per share are estimated to be approximately $ million ($
million if the Underwriters' over-allotment option is exercised in full), after
deducting underwriting discounts and commissions and estimated offering
expenses. The Company intends to apply the net proceeds of this Offering to the
following amounts, which are calculated as of June 30, 1997:
<TABLE>
<CAPTION>
AMOUNT
-------------
<S> <C>
(IN
THOUSANDS)
Repayment of Credit Facility................................................... $ 12,690
Fees and expenses of Credit Facility........................................... 1,130
Repayment of Nanston Loan...................................................... 1,100
Repayment of North Carolina P.A. Loan.......................................... 1,600
Repayment of loan to Grotech Partners.......................................... 214
Redemption of Class D Redeemable Stock including accrued dividends............. 9,393
Funds for future acquisitions, working capital and general corporate
purposes..................................................................... 19,123
-------------
$ 45,250
-------------
-------------
</TABLE>
Pending such uses, the net proceeds will be invested in short-term
investment grade marketable securities.
The Credit Facility provides for up to $25 million in revolving credit loans
of which up to $5 million may be used for working capital (subject to a
borrowing base limitation of 85% of eligible receivables) and the balance to
finance acquisitions approved by NationsCredit subject to the Company's
compliance with certain financial covenants. Borrowings under the Credit
Facility bear interest at 450 basis points over the 30-day commercial paper rate
as quoted in The Wall Street Journal under "Money Rates". The 30-day commercial
paper rate as of July 1, 1997 was 5.657%. Prior to December 31, 1997, the
Company may reborrow funds which it has previously borrowed and repaid. The
Credit Facility converts to a term loan on December 31, 1997, with a final
maturity date of December 31, 2001, and the Company is obligated to repay the
outstanding principal under the Credit Facility in quarterly installments of
principal commencing January 1, 1998. Under the terms of the Credit Facility,
the Company is also obligated to pay (i) an unused commitment fee of up to .5%
per annum on the daily average of the unused portion of the revolving credit
commitments during each quarter through December 31, 1997; (ii) $250,000 if the
Company terminates or irrevocably reduces the amount of revolving credit
commitments as a result of a public offering of Common Stock which results in
net proceeds to the Company of at least $25 million; and (iii) upon the earlier
of December 31, 2001 or the date on which the balance of the Credit Facility is
reduced to zero, a
20
<PAGE>
fee equal to a percentage of the Company's pro forma earnings before income,
taxes, depreciation and amortization ("EBITDA") for the Company's most recently
completed fiscal quarter less the debt of the Company permitted under the Credit
Facility, which as of June 30, 1997 was approximately $880,000. Approximately
$12.7 million was outstanding under the Credit Facility at August 31, 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources."
In connection with the Company's acquisition of Nanston, the Company assumed
a loan entered into between a subsidiary of Nanston and CIGNA Dental Health,
Inc. ("CIGNA") (the "Nanston Loan") and agreed to repay upon the consummation of
this Offering the outstanding balance of a loan by CIGNA to Nathan Bell, D.D.S.,
P.A. (the "North Carolina P.A."), a Management Practice (the "North Carolina
P.A. Loan"). The North Carolina P.A. Loan matures on January 1, 2003 and had an
outstanding balance as of June 30, 1997 of $1.6 million. The North Carolina P.A.
Loan bears interest at the prime rate as published in The Wall Street Journal
plus 2.5%, which at June 30, 1997 totalled 11.0%. The Nanston Loan which matures
on January 1, 2003, had an outstanding balance of $1.1 million as of June 30,
1997 and has an annual fixed interest rate of 11.25%.
On April 18, 1996, a limited partnership affiliated with Grotech Partners
loaned to the Company $200,000 (the "$200,000 Grotech Loan"). The $200,000
Grotech Loan is due on the earliest to occur of a sale of substantially all of
the assets or stock of the Company (including by merger), this Offering or
December 31, 2000. Interest accrues on the $200,000 Grotech Loan at the rate of
6% per annum.
The Class D Redeemable Stock, which will be redeemed upon the consummation
of this Offering, has a dividend rate of 9% per annum. At August 31, 1997, there
was approximately $9.3 million of Class D Redeemable Stock outstanding.
DIVIDEND POLICY
The Company has not declared or paid, nor does it currently intend to pay,
any cash dividends on its Common Stock. The Company intends to retain all
earnings to support its growth and expansion strategy. Future payment of
dividends, if any, will be at the discretion of the Company's Board of Directors
after taking into account various factors, including the Company's financial
condition, operating results, current and anticipated cash needs, plans for
expansion, contractual restrictions with respect to the payment of dividends,
including restrictions under the terms of the Credit Facility, and other factors
the Board of Directors may deem relevant. In addition, the Credit Facility
prohibits, and any future credit facilities or debt agreements may prohibit, the
payment of dividends.
21
<PAGE>
CAPITALIZATION
The following table reflects a for stock split effected prior to the
consummation of this Offering and sets forth the consolidated short term debt
and total capitalization of the Company at June 30, 1997 (i) on an actual basis;
(ii) on a pro forma basis to give effect to the acquisition of Bowman Gray and
the issuance of an additional 52,585 shares of Class D Convertible Stock and
52,585 shares of Class D Redeemable Stock; and (iii) on a pro forma basis, as
adjusted to give effect to (a) conversion of the Class A Preferred Stock, Class
B Preferred Stock, Class C Preferred Stock and Class D Convertible Stock into
Common Stock; (b) the sale of shares of Common Stock offered hereby and
the application of the net proceeds therefrom as set forth in "Use of Proceeds;"
and (c) the issuance of shares of Common Stock upon mandatory conversion
of the Bowman Gray Note. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Unaudited Pro Forma Consolidated Financial Data," the Consolidated
Financial Statements and the Notes thereto and other financial information
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED(1)
--------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Short term debt................................................................ $ 5,375 $ 1,503 $ 253
--------- --------- -----------
--------- --------- -----------
Long term debt:(2)
Credit Facility.............................................................. $ 11,440 $ 11,440 $ --
Nanston Loan................................................................. 1,100 1,100 --
Notes payable and capitalized leases(3)...................................... 1,211 1,146 932
--------- --------- -----------
Total long term debt....................................................... 13,751 13,686 932
Class D Redeemable Stock(4).................................................... 4,135 9,393 --
Redeemable common stock(5)..................................................... -- 1,000 --
Stockholders' equity:
Preferred Stock, $.0001 par value, authorized shares; no shares issued
and outstanding actual, pro forma and pro forma as adjusted................ -- -- --
Class A Preferred Stock...................................................... -- -- --
Class B Preferred Stock...................................................... -- -- --
Class C Preferred Stock...................................................... -- -- --
Class D Convertible Stock(4)................................................. -- -- --
Common stock, $.0001 par value; authorized 14,860,686 shares; issued and
outstanding: 5,330,620 shares actual(6); 5,330,620 shares pro forma(6);
shares pro forma as adjusted(6).................................. 1 1 3
Common stock to be issued(7)................................................. 141 141 --
Additional paid-in capital................................................... 24,092 29,312 75,055
Retained earnings............................................................ (1,939) (1,939) (3,234)
--------- --------- -----------
Total stockholders' equity................................................. 22,295 27,515 71,824
--------- --------- -----------
Total capitalization................................................... $ 40,181 $ 51,594 $ 72,756
--------- --------- -----------
--------- --------- -----------
</TABLE>
(FOOTNOTES ON NEXT PAGE)
22
<PAGE>
- ------------------------
(1) Assumes conversion of 40,154 shares of Class A Preferred Stock, 47,068
shares of Class B Preferred Stock, 816,038 shares of Class C Preferred Stock
and 93,325 shares of Class D Convertible Stock into 1,325,082, 1,553,244,
816,038 and 2,415,556 shares of Common Stock, respectively.
(2) Excludes $1.6 million of the North Carolina P.A. Loan currently outstanding,
which the Company has agreed to repay upon the consummation of this
Offering. See "Use of Proceeds."
(3) See Note 9 to the Consolidated Financial Statements.
(4) The Company issued $4.1 million and $4.1 million of Class D Redeemable Stock
and Class D Convertible Stock, respectively, in June, 1997, and $5.3 million
and $5.3 million of Class D Redeemable Stock and Class D Convertible Stock,
respectively, in July, 1997.
(5) Issued in connection with the Bowman Gray acquisition and convertible into
shares of Common Stock upon consummation of this Offering. See Note 14
to the Consolidated Financial Statements.
(6) Excludes (i) 1,302,214 shares of Common Stock reserved for issuance under
the Stock Option Plans, of which options to purchase 302,214 shares of
Common Stock have been granted and options to purchase 61,037 shares of
Common Stock were exercisable at June 30, 1997 under the 1995 Plan and
options to purchase 60,000 shares of Common Stock at the initial public
offering price which will be granted to non-affiliate directors of the
Company under the 1997 Plan upon consummation of this Offering; and (ii) (a)
options to purchase 400,587 shares of Common Stock granted to Mr. Sardegna
all of which were exercisable at June 30, 1997; (b) options to purchase
25,000 shares of Common Stock granted to certain persons in connection with
the acquisition of Indiana Dental, none of which were exercisable at June
30, 1997; and (c) an option to purchase 30,000 shares of Common Stock
granted to Ms. Piatt, none of which were exercisable at June 30, 1997. See
"Management --Employee Benefit Plans."
(7) Includes 41,667 shares of Common Stock issuable to Makowske at a price of
$3.39 per share.
23
<PAGE>
DILUTION
The net tangible book value (deficit) of the Company at June 30, 1997, was
approximately $ or $ per share of Common Stock. Net tangible
book value (deficit) per share represents the amount of total assets of the
Company, less: (i) goodwill and identified intangible assets; (ii) total
liabilities; and (iii) the convertible and redeemable equity securities. After
giving effect to the sale by the Company of the shares of Common Stock
offered hereby, assuming an initial public offering price of $ per share
and the application of the estimated net proceeds therefrom, the Company's pro
forma net tangible book value as of June 30, 1997 would have been $ , or
$ per share. This represents an immediate increase in the pro forma net
tangible book value to existing stockholders of $ per share and an
immediate dilution to new investors of $ per share. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $
Net tangible book value per share at June 30, 1997........
Increase attributable to new investors....................
--------- ---------
Pro forma net tangible book value per share after this
Offering................................................ $
$
---------
Dilution to new investors................................. $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis, as of June 30, 1997,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share, paid by existing
holders of Common Stock and by new investors purchasing shares offered hereby:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)...................................
New investors(1)...........................................
----- ----- --------- -----
Total................................................ 100.0% 100.0%
----- ----- --------- -----
----- ----- --------- -----
</TABLE>
- ------------------------
(1) Includes (i) 6,109,920 shares of Common Stock that will be issued upon
conversion of the Class A Preferred Stock, Class B Preferred Stock, Class C
Preferred Stock and Class D Convertible Stock, (ii) shares of Common
Stock payable upon conversion of the Bowman Gray Note and (iii) 41,667
shares of Common Stock issuable to Makowske upon consummation of this
Offering.
The foregoing tables assumes no exercise of outstanding options. At June 30,
1997, there were outstanding options to purchase 802,801 shares of Common Stock
at a weighted average exercise price of $2.73 per share. Options to purchase
461,624 shares were exercisable at June 30, 1997. To the extent these options
are exercised, there will be further dilution to new investors in the net
tangible book value of their shares. See "Capitalization," "Management--Employee
Benefit Plans" and Note 11 to the Consolidated Financial Statements.
24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data is based on
the historical financial statements of DentalCo, Nanston, Indiana Dental and
Modern and has been prepared to illustrate the effect of the Acquisitions, the
issuance of the Class D Preferred Stock and this Offering.
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1996 gives effect to these transactions as if each had been
completed on January 1, 1996. The unaudited pro forma consolidated statement of
operations for the six months ended June 30, 1997, gives effect to the 1997
Acquisitions, the issuance of the Class D Preferred Stock and this Offering as
if such transactions had been completed on January 1, 1997.
The unaudited pro forma consolidated balance sheet at June 30, 1997, gives
effect (i) on a pro forma basis, to the acquisition of Bowman Gray and the
issuance of an additional 52,585 shares of Class D Convertible Stock and 52,585
shares of Class D Redeemable Stock; and (ii) on a pro forma as adjusted basis,
for (a) the conversion of the Class A Preferred Stock, Class B Preferred Stock,
Class C Preferred Stock and Class D Convertible Stock into Common Stock, (b) the
Offering and the application of the net proceeds therefrom as set forth in "Use
of Proceeds," and (c) the issuance of shares of Common Stock upon mandatory
conversion of the Bowman Gray Note.
The Acquisitions have been accounted for using the purchase method of
accounting. The total cost of the Acquisitions has been allocated on a
preliminary basis to the tangible and intangible assets acquired and liabilities
assumed based upon their respective estimated fair values.
The unaudited pro forma consolidated financial data do not purport to
represent the actual results of operations of the Company had the transactions
and events assumed therein in fact occurred on the dates specified, nor is it
necessarily indicative of the results of operations that may be achieved in the
future. The unaudited pro forma consolidated financial data 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 each of DentalCo, Nanston, Indiana Dental and
Modern included elsewhere in this Prospectus.
25
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 ACQUISITIONS (2)
1996 ----------------------------------------------
COMPANY ACQUISITIONS INDIANA
HISTORICAL (1) NANSTON (3) DENTAL MODERN (3) OTHER (4)
---------- ------------ ----------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Gross revenue:
Patient fees of Affiliated
Practices................. $10,300 $1,394 $12,876 $3,438 $ 7,970 $6,083
Capitation.................. 2,086 45 8,127 800 4,301 --
Management fees............. 70 -- 150 -- 415 --
---------- ------ ----------- ------- ---------- ---------
Total..................... 12,456 1,439 21,153 4,238 12,686 6,083
Less amounts attributed to
Affiliated Service
Practices................... 4,878 73 9,217 -- 4,812 1,951
---------- ------ ----------- ------- ---------- ---------
Net revenue................... 7,578 1,366 11,936 4,238 7,874 4,132
---------- ------ ----------- ------- ---------- ---------
Operating costs:
Personnel and site
operations................ 6,106 1,102 8,382 4,187 4,663 3,629
Corporate................... 2,796 -- 2,704 -- 2,198 --
Depreciation and
amortization.............. 232 19 719 86 338 29
---------- ------ ----------- ------- ---------- ---------
Total..................... 9,134 1,121 11,805 4,273 7,199 3,658
---------- ------ ----------- ------- ---------- ---------
Operating income (loss)....... (1,556) 245 131 (35) 675 474
---------- ------ ----------- ------- ---------- ---------
Other income (expense):
Interest.................... (66) (57) (244) (26) (213) (13)
Investment.................. 109 3 -- -- 4 --
Other....................... 5 3 -- -- -- --
---------- ------ ----------- ------- ---------- ---------
Total..................... 48 (51) (244) (26) (209) (13)
---------- ------ ----------- ------- ---------- ---------
Earnings (loss) before income
taxes....................... (1,508) $ 194 $ (113) $ (61) $ 466 $ 461
------ ----------- ------- ---------- ---------
------ ----------- ------- ---------- ---------
Federal and State income taxes
(benefit)................... (362)
----------
Earnings (loss) before
extraordinary item (11)..... (1,146)
Preferred stock dividend...... --
----------
Earnings (loss) before
extraordinary item
applicable to common stock
(11)........................ $(1,146)
----------
----------
Earnings (loss) before
extraordinary item per
common share(11)............ $(.19)
Weighted average common shares
outstanding (14)............ 6,137
<CAPTION>
ACQUISITION OFFERING PRO FORMA
ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Gross revenue:
Patient fees of Affiliated
Practices................. $-- $42,061 $-- $42,061
Capitation.................. -- 15,359 -- 15,359
Management fees............. -- 635 -- 635
----------- --------- ----------- -----------
Total..................... -- 58,055 -- 58,055
Less amounts attributed to
Affiliated Service
Practices................... -- 20,931 -- 20,931
----------- --------- ----------- -----------
Net revenue................... -- 37,124 -- 37,124
----------- --------- ----------- -----------
Operating costs:
Personnel and site
operations................ (155)(5) 27,914 -- 27,914
Corporate................... 125(6) 7,823 -- 7,823
Depreciation and
amortization.............. 670(7) 2,093 -- 2,093
----------- --------- ----------- -----------
Total..................... 640 37,830 -- 37,830
----------- --------- ----------- -----------
Operating income (loss)....... (640) (706) -- (706)
----------- --------- ----------- -----------
Other income (expense):
Interest.................... (1,867)(8) (686) 662(10) (24)
1,800(9)
Investment.................. -- 116 -- 116
Other....................... -- 8 -- 8
----------- --------- ----------- -----------
Total..................... (67) (562) 662 100
----------- --------- ----------- -----------
Earnings (loss) before income
taxes....................... $ (707) (1,268) 662 (606)
-----------
-----------
Federal and State income taxes
(benefit)................... (362) 270 (92)
--------- ----------- -----------
Earnings (loss) before
extraordinary item (11)..... (906) 392 (514)
Preferred stock dividend...... (1,680)(12) 1,680(13)
(2,753)(12) (4,433) 2,753(13)
---
--------- -----------
-----------
Earnings (loss) before
extraordinary item
applicable to common stock
(11)........................ $(5,339) $ 4,825 $ (514)
--------- ----------- -----------
--------- ----------- -----------
Earnings (loss) before
extraordinary item per
common share(11)............
Weighted average common shares
outstanding (14)............
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Statement of
Operations.
26
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
1997 ACQUISITIONS
COMPANY ---------------------------- ACQUISITION
HISTORICAL MODERN (15) OTHER (17) ADJUSTMENTS
----------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Gross revenue:
Patient fees of Affiliated
Practices...................... $16,265 $3,308 $1,731 $--
Capitation....................... 5,776 1,882 20 --
Management fees.................. 914 326 -- --
------- ----------- ------ -------
Total.......................... 22,955 5,516 1,751 --
Less amounts attributed to
Affiliated Service
Practices...................... 7,038 1,794 647 --
------- ----------- ------ -------
Net revenue........................ 15,917 3,722 1,104 --
------- ----------- ------ -------
Operating Expenses:
Personnel and site operations.... 11,730 2,239 900 --
Corporate........................ 3,929 615 -- --
Depreciation and amortization.... 938 142 4 83(7)
------- ----------- ------ -------
Total.......................... 16,597 2,996 904 83
------- ----------- ------ -------
Operating income (loss)............ (680) 726 200 (83)
------- ----------- ------ -------
Other income (expense):
Interest......................... (1,013) (93) -- (130)(8)
900(9)
Investment income................ 132 -- -- --
Other............................ 125 -- -- --
------- ----------- ------ -------
Total.......................... (756) (93) -- 770
------- ----------- ------ -------
Earnings (loss) before income
taxes............................ (1,436) $ 633 $ 200 $ 687
----------- ------ -------
----------- ------ -------
Federal and State income taxes
(benefit)........................ (132)
-------
Earnings (loss) before
extraordinary item (11).......... (1,304)
Preferred stock dividend........... (779)(16)
(1,263) (1,551)(16)
------- -------
-------
Earnings (loss) before
extraordinary item applicable to
common stock (11)................ $(2,567)
-------
-------
Earnings (loss) before
extraordinary item per common
share (11)....................... $ (.26)
Weighted average common shares
outstanding (14)................. 9,760
<CAPTION>
OFFERING PRO FORMA
PRO FORMA ADJUSTMENTS AS ADJUSTED
------------ -------------- --------------
<S> <C> <C> <C>
Gross revenue:
Patient fees of Affiliated
Practices...................... $21,304 $-- $21,304
Capitation....................... 7,678 -- 7,678
Management fees.................. 1,240 -- 1,240
------------ ------ -------
Total.......................... 30,222 -- 30,222
Less amounts attributed to
Affiliated Service
Practices...................... 9,479 -- 9,479
------------ ------ -------
Net revenue........................ 20,743 -- 20,743
------------ ------ -------
Operating Expenses:
Personnel and site operations.... 14,869 -- 14,869
Corporate........................ 4,544 -- 4,544
Depreciation and amortization.... 1,167 -- 1,167
------------ ------ -------
Total.......................... 20,580 -- 20,580
------------ ------ -------
Operating income (loss)............ 163 -- 163
------------ ------ -------
Other income (expense):
Interest......................... (336) 314(10) (22)
Investment income................ 132 -- 132
Other............................ 125 -- 125
------------ ------ -------
Total.......................... (79) 314 235
------------ ------ -------
Earnings (loss) before income
taxes............................ 84 314 398
Federal and State income taxes
(benefit)........................ -- 41 41
------------ ------ -------
Earnings (loss) before
extraordinary item (11).......... 84 273 357
Preferred stock dividend........... 840(12)
(3,593) 2,753(12) --
------------ ------ -------
Earnings (loss) before
extraordinary item applicable to
common stock (11)................ $(3,509) $3,866 $ 357
------------ ------ -------
------------ ------ -------
Earnings (loss) before
extraordinary item per common
share (11)....................... $
Weighted average common shares
outstanding (14).................
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Statement of
Operations
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) Reflects the results of operations for the 1996 Acquisitions from January 1,
1996 to the date of acquisition by, or affiliation with, the Company.
(2) Reflects the historical revenue and expenses of Nanston, Indiana Dental,
Modern and other 1997 acquisitions as if they had been acquired on January
1, 1996.
(3) Certain amounts have been reclassified for consistency of presentation with
the Company's financial statements. To conform the historical consolidated
statements of operations for Nanston, Inc. and subsidiary for the year ended
August 31, 1996 and the four months ended December 31, 1995 and 1996, and
the combined statement of operations for Modern Dental Concepts, Inc. and
affiliated practices for the year ended December 31, 1996, to the Company's
Unaudited Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1996, the following reclassifications were made:
<TABLE>
<CAPTION>
FOUR MONTHS ENDED TWELVE MONTHS
YEAR ENDED DECEMBER 31, ENDED
AUGUST 31, -------------------- DECEMBER 31,
1996 1995 1996 1996
----------- --------- --------- -------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
NANSTON
Amounts attributed to Affiliated Service Practices:
As reported by Nanston...................................... $ -- $ -- $ -- $ --
Reclassification from operating expenses.................... 9,019 2,782 2,980 9,217
----------- --------- --------- -------------
As reported in Pro Forma.................................... $ 9,019 $ 2,782 $ 2,980 $ 9,217
----------- --------- --------- -------------
----------- --------- --------- -------------
Personnel and site operations:
As reported by Nanston...................................... $ 17,060 $ 5,448 $ 6,485 $ 18,097
Reclassification to amounts attributed to Affiliated Service
Practices................................................. (9,019) (2,782) (2,980) (9,217)
Reclassification to corporate costs......................... (487) 155 (166) (498)
----------- --------- --------- -------------
As reported in Pro Forma.................................... $ 7,554 $ 2,821 $ 3,339 $ 8,382
----------- --------- --------- -------------
----------- --------- --------- -------------
Corporate:
As reported by Nanston...................................... $ 2,360 $ 839 $ 685 $ 2,206
Reclassification from personnel and site operations......... 487 (155) 166 498
----------- --------- --------- -------------
As reported in Pro Forma.................................... $ 2,847 $ 684 $ 519 $ 2,704
----------- --------- --------- -------------
----------- --------- --------- -------------
MODERN
Amounts attributed to Affiliated Service Practices:
As reported by Modern....................................... $ --
Reclassification from total expenses less depreciation and
amortization and interest expense......................... 4,812
-------------
As reported in Pro Forma.................................... $ 4,812
-------------
-------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
FOUR MONTHS ENDED TWELVE MONTHS
YEAR ENDED DECEMBER 31, ENDED
AUGUST 31, -------------------- DECEMBER 31,
1996 1995 1996 1996
----------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Personnel and site operations:
Total expenses less depreciation and amortization and
interest expense as reported by Modern.................... $ 13,669
Reclassification to amounts attributed to Affiliated Service
Practices................................................. (4,812)
Reclassification to corporate............................... (2,198)
Adjustment to eliminate personnel and site operations costs
of a Management Practice.................................. (1,996)
-------------
As reported in Pro Forma.................................... $ 4,663
-------------
-------------
</TABLE>
Similar reclassifications were made for the six months ended June 30, 1997.
(4) Includes the results of operations for Becker, Kittleman, BelAir and Bowman
Gray.
(5) Reflects the effect of revised employment contract provisions with
Affiliated Dentists pursuant to the acquisitions of Cunningham, Offerdahl
and Kittleman.
(6) Reflects the effect of revised employment contract provisions pursuant to
the transfer of six professionals to constitute the management of the
Georgia regional office.
(7) To increase the amortization expense for intangible assets based on the
Company's preliminary allocation of purchase price as if the Acquisitions
were completed on January 1, 1996 as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA YEAR ENDED DECEMBER 31, 1996
<CAPTION>
GOODWILL AND NON COMPETE PRO FORMA
SERVICES AND OTHER AS ADJUSTED HISTORICAL
AGREEMENTS (10 YEAR DEPRECIATION DEPRECIATION
(40 YEAR WEIGHTED AND AND
LIFE) AVERAGE LIFE) AMORTIZATION DEPRECIATION AMORTIZATION AMORTIZATION
------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Company Historical........... $ -- $ -- $ -- $ 232 $ 232 $ 232
1996 Acquisitions............ -- -- 4 15 19 19
Nanston...................... 16,835 2,971 718 325 1,043 719
Modern....................... 5,357 945 228 250 478 338
Indiana Dental............... 3,199 564 136 30 166 86
Other........................ 3,139 555 114 41 155 29
------------- ------ ------ ----- ------ ------
Total........................ $ 28,530 $ 5,035 $ 1,200 $ 893 $ 2,093 $ 1,423
------------- ------ ------ ----- ------ ------
------------- ------ ------ ----- ------ ------
<CAPTION>
PRO FORMA
ADJUSTMENT TO
DEPRECIATION
AND
AMORTIZATION
-------------
<S> <C>
Company Historical........... $ --
1996 Acquisitions............ --
Nanston...................... 324
Modern....................... 140
Indiana Dental............... 80
Other........................ 126
------
Total........................ $ 670
------
------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA SIX MONTHS ENDED JUNE 30, 1997
<S> <C> <C> <C> <C> <C> <C> <C>
GOODWILL NON COMPETE PRO FORMA
AND AND OTHER PRO FORMA ADJUSTMENT
SERVICES 10 YEAR AS ADJUSTED HISTORICAL TO
AGREEMENTS WEIGHTED DEPRECIATION DEPRECIATION DEPRECIATION
40 YEAR AVERAGE AND AND AND
LIFE LIFE AMORTIZATION DEPRECIATION AMORTIZATION AMORTIZATION AMORTIZATION
----------- ----------- ----------- ------------- ----------- ----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Company Historical...... $ 22,419 $ 3,958 $ 497 $ 456 $ 953 $ 938 $ 15
Modern (5 months)....... 5,357 945 95 73 168 142 26
Other................... 754 132 16 30 46 4 42
----------- ----------- ----------- ----- ----------- ----------- -----------
Total................... $ 28,530 $ 5,035 $ 608 $ 559 $ 1,167 $ 1,084 $ 83
----------- ----------- ----------- ----- ----------- ----------- -----------
----------- ----------- ----------- ----- ----------- ----------- -----------
</TABLE>
(FOOTNOTES CONTINUED ON NEXT PAGE)
29
<PAGE>
(8) To record interest expense on borrowings incurred in connection with the
Acquisitions as follows:
<TABLE>
<CAPTION>
PRO FORMA YEAR ENDED DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C>
INDIANA
NANSTON MODERN DENTAL OTHER TOTAL
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total long-term debt.............................. $ 1,842 $ 1,191 $ -- $ -- $ 3,033
Less amounts retained by seller................... 246 -- -- -- 246
--------- --------- --------- --------- ---------
1,596 1,191 -- -- 2,787
Other debt........................................ -- 820 -- -- 820
Capital leases.................................... 572 -- -- -- 572
Credit lines...................................... -- 1,876 -- -- 1,876
Acquisition financing............................. 10,000 -- 3,875 2,618 16,493
--------- --------- --------- --------- ---------
Total borrowings................................ $ 12,168 $ 3,887 $ 3,875 $ 2,618 $ 22,548
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Interest Expense:
Long-term debt.................................. $ 164 $ 125 $ -- $ -- $ 289
Other debt...................................... -- 82 -- -- 82
Capital leases.................................. 59 -- -- -- 59
Credit lines.................................... -- 188 -- -- 188
Acquisition financing (at 10% Credit Facility
rate)........................................... 1,000 -- 388 262 1,650
--------- --------- --------- --------- ---------
Total......................................... $ 1,223 $ 395 $ 388 $ 262 $ 2,268
Less amount previously recorded................. 244 213 26 13 496
--------- --------- --------- --------- ---------
Adjustment...................................... $ 979 $ 182 $ 362 $ 249 1,772
--------- --------- --------- ---------
--------- --------- --------- ---------
1996 Acquisitions............................... 95
---------
Total interest adjustment..................... $ 1,867
---------
---------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA SIX MONTHS ENDED JUNE 30, 1997
<S> <C> <C> <C> <C> <C>
INDIANA
NANSTON MODERN DENTAL OTHER TOTAL
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Months included in Company historical............. 6 1 6 various
Months to be adjusted............................. -- 5 -- various
Annual interest expense........................... $ 1,223 $ 395 $ 388 $ 262 $ 2,268
Six month interest adjustment..................... -- 165 -- 58 223
Amount previously recorded........................ -- (93) -- -- (93)
--------- --------- --------- --------- ---------
Total interest adjustment......................... $ -- $ 72 $ -- $ 58 $ 130
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(9) Reflects the reduction in interest expense resulting from the repayment of
$18,000 (representing acquisition financing of $16,493 and debt of acquired
companies of $1,507) with the net proceeds from the issuance of the Class D
Preferred Stock.
(10) Reflects the reduction in interest expense resulting from the repayment of
outstanding borrowings under the Credit Facility, debt of acquired
companies, and debt of the Company with a portion of the net proceeds from
this Offering.
(11) Before loss on extinguishment of debt of $1,295, net of related income
taxes of $270, resulting from repayment of debt with a portion of the net
proceeds from this Offering. After deducting loss on extinguishment of debt,
pro forma as adjusted earnings per share would be $ for the year
ended December 31, 1996, and $ for the six months ended June 30, 1997.
(12) Represents (i) dividends of $1,680 accrued on the Class D Preferred Stock
at a rate of 9% per annum and (ii) a one-time dividend of $2,753 to
recognize the value of the "in-the-money" conversion rights granted on
issuance of the Class D Preferred Stock.
(13) Reflects the elimination of the dividends resulting from the redemption of
the Class D Redeemable Stock with a portion of the net proceeds from this
Offering, as well as conversion of the Class D Convertible Stock into an
aggregate of 2,415,556 shares of Common Stock.
30
<PAGE>
(14) Earnings per share for the Company, historical and pro forma, is computed
based on the weighted average number of Common Stock and Common Stock
equivalents outstanding during the period. Common Stock equivalents include
options to purchase Common Stock, assumed to be exercised using the treasury
stock method, as well as the Class A Preferred Stock, Class B Preferred
Stock, Class C Preferred Stock and Class D Convertible Stock on an as
converted basis. See Note 1 to the Consolidated Financial Statements.
(15) Reflects the results of operations for Modern from January 1, 1997 to the
date of acquisition by the Company.
(16) Adjustment represents (i) dividends of $779 accrued on the Class D
Preferred Stock and (ii) a one-time dividend of $1,551 to recognize the
value of the "in-the-money" conversion rights granted on issuance of the
Class D Preferred Stock subsequent to June 30, 1997. Company historical
represents dividends accrued through June 30, 1997 of $61 and a one-time
dividend of $1,202 to recognize the value of the "in-the-money" conversion
rights on stock issued through June 30, 1997.
31
<PAGE>
DENTALCO, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
ISSUANCE OF
BOWMAN CLASS D
COMPANY GRAY ACQUISITION PREFERRED OFFERING
HISTORICAL HISTORICAL(1) ADJUSTMENTS(2) STOCK(3) PRO FORMA ADJUSTMENTS
----------- --------------- ----------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash
equivalents........... $ 2,163 $ -- $ (683) $ 6,541 $ 8,021 $ 20,723(4)(6)
Accounts receivable,
net................... 5,056 256 -- -- 5,312 --
Other current assets.... 1,649 -- -- -- 1,649 270(7)
----------- ----- ----- ------- ----------- -------------
Total................. 8,868 256 (683) 6,541 14,982 20,993
Property and equipment,
net..................... 7,768 540 -- -- 8,308 --
Intangible assets, net.... 32,680 -- 887 -- 33,567 --
Other assets.............. 3,775 -- -- -- 3,775 (1,081)(8)
----------- ----- ----- ------- ----------- -------------
Total assets.............. $ 53,091 $ 796 $ 204 $ 6,541 $ 60,632 $ 19,912
----------- ----- ----- ------- ----------- -------------
----------- ----- ----- ------- ----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit lines and current
maturities of long-
term debt............. $ 5,375 $ -- $ -- $ (3,872) $ 1,503 $ (1,250)(4)
Other current
liabilities........... 7,461 -- -- -- 7,461
----------- ----- ----- ------- ----------- -------------
Total................. 12,836 -- -- (3,872) 8,964 (1,250)
Notes payable and
capitalized leases...... 13,751 -- -- (65) 13,686 (12,754)(4)
Other liabilities......... 74 -- -- -- 74
----------- ----- ----- ------- ----------- -------------
Total liabilities......... 26,661 -- -- (3,937) 22,724 (14,004)
----------- ----- ----- ------- ----------- -------------
Class D Redeemable Stock.. 4,135 5,258 9,393 (9,393)(4)
Redeemable common stock... -- -- 1,000 1,000 (1,000)(5)
Stockholders' Equity:
Common stock............ 1 -- -- -- 1 2(4)(5)
Common stock to be
issued................ 141 -- -- -- 141 (141)(5)
Class A Preferred
Stock................. -- -- -- -- -- -- (4)(5)
Class B Preferred
Stock................. -- -- -- -- -- -- (4)(5)
Class C Preferred
Stock................. -- -- -- -- -- -- (4)(5)
Class D Convertible
Stock................. -- -- -- -- -- -- (5)(5)
Additional paid in
capital............... 24,092 -- -- 5,220 29,312 45,743(4)(5)
Retained earnings
(deficit)............. (1,939) 796 (796) -- (1,939) (1,295)(7)
----------- ----- ----- ------- ----------- -------------
Total................. 22,295 796 (796) 5,220 27,515 44,309
----------- ----- ----- ------- ----------- -------------
Total Liabilities and
Stockholders'
Equity.............. $ 53,091 $ 796 $ 204 $ 6,541 $ 60,632 $ 19,912
----------- ----- ----- ------- ----------- -------------
----------- ----- ----- ------- ----------- -------------
<CAPTION>
PRO FORMA
AS ADJUSTED
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 28,744
Accounts receivable,
net................... 5,312
Other current assets.... 1,919
-------------
Total................. 35,975
Property and equipment,
net..................... 8,308
Intangible assets, net.... 33,567
Other assets.............. 2,694
-------------
Total assets.............. $ 80,544
-------------
-------------
LIABILITIES AND STOCKHOLDE
Current liabilities:
Credit lines and current
maturities of long-
term debt............. $ 253
Other current
liabilities........... 7,461
-------------
Total................. 7,714
Notes payable and
capitalized leases...... 932
Other liabilities......... 74
-------------
Total liabilities......... 8,720
-------------
Class D Redeemable Stock.. --
Redeemable common stock... --
Stockholders' Equity:
Common stock............ 3
Common stock to be
issued................
Class A Preferred
Stock................. --
Class B Preferred
Stock................. --
Class C Preferred
Stock................. --
Class D Convertible
Stock................. --
Additional paid in
capital............... 75,055
Retained earnings
(deficit)............. (3,234)
-------------
Total................. 71,824
-------------
Total Liabilities and
Stockholders'
Equity.............. $ 80,544
-------------
-------------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Balance
Sheet
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) To record the historical basis of the assets acquired by the Company in
connection with the Bowman Gray acquisition.
(2) Reflects management's preliminary allocation of the purchase price for the
Bowman Gray acquisition in accordance with the purchase method of accounting
as follows:
<TABLE>
<S> <C>
Purchase price:
Cash portion................................................... $ 683
Redeemable common stock to be issued........................... 1,000
---------
Total........................................................ $ 1,683
---------
---------
Preliminary allocation as follows:
Existing book value............................................ $ 796
Service Agreement.............................................. 665
Goodwill....................................................... 222
---------
Total........................................................ $ 1,683
---------
---------
</TABLE>
(3) Reflects the receipt of $10,517, less $39 issuance costs, from the issuance
of Class D Preferred Stock in July, 1997. The transaction was accounted for
as follows:
<TABLE>
<S> <C>
Class D Redeemable Stock....................................... $ 5,258
Class D Convertible Stock...................................... --
Additional paid in capital..................................... 5,220
---------
$ 10,478
---------
---------
Repayment of:
Credit lines and current maturity of long term debt.......... $ 3,872
Notes payable and capitalized leases......................... 65
---------
3,937
Cash and cash equivalents...................................... 6,541
---------
$ 10,478
---------
---------
</TABLE>
(4) To reflect the application of the estimated net proceeds of $45,300 from the
sale of shares offered hereby at an assumed initial public offering
price of $ per share as described in "Use of Proceeds."
(5) To reflect the conversion of the Class A Preferred Stock, Class B Preferred
Stock, Class C Preferred Stock and Class D Convertible Stock into 6,109,920
shares of Common Stock upon consummation of this Offering as well as the
issuance of shares of Common Stock upon mandatory conversion of the
Bowman Gray redeemable common stock to be issued and 41,667 shares of common
stock to be issued to Makowske upon consummation of this Offering. See
"Certain Transactions."
(6) Cash and cash equivalents includes $1,600 which will be utilized to repay
the North Carolina P.A. Loan. See "Use of Proceeds."
(7) Reflects loss on extinguishment of debt of $1,565 less related income tax
benefit of $270. Includes penalties and fees of $1,130 and deferred
financing costs of $435 written-off as loss on extinguishment of debt.
(8) Represents deferred financing costs of $435 written-off as loss on
extinguishment of debt and $646 of deferred offering costs charged to the
proceeds of this Offering.
33
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated balance sheet and consolidated statement of operations data
at and for the years ended December 31, 1994, 1995 and 1996, are derived from
the Consolidated Financial Statements, which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, and which (with the
exception of the consolidated balance sheet at December 31, 1994) are included
elsewhere in this Prospectus. The consolidated balance sheet and consolidated
statement of operations data as of and for the years ended December 31, 1992 and
1993 and the six months ended June 30, 1996 and 1997, 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 financial condition and results of
operations of the Company. The following selected consolidated financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Consolidated Financial
Statements and related notes thereto and other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Gross revenue:
Patient fees of Affiliated Practices........ $ 7,826 $ 8,039 $ 7,661 $ 8,086 $ 10,300 $ 4,918 $ 16,265
Capitation.................................. 1,018 882 1,113 1,635 2,086 888 5,776
Management fees............................. -- -- -- -- 70 -- 914
---------- ---------- ---------- ---------- --------- --------- ---------
Total................................... 8,844 8,921 8,774 9,721 12,456 5,806 22,955
Less amounts attributed to Affiliated Service
Practices................................... 2,967 2,748 3,702 3,778 4,878 2,225 7,038
---------- ---------- ---------- ---------- --------- --------- ---------
Net revenue................................... 5,877 6,173 5,072 5,943 7,578 3,581 15,917
Operating expenses:
Personnel and site operations............... 5,299 5,514 4,048 3,926 6,106 2,496 11,730
Corporate................................... 748 691 620 1,440 2,796 1,484 3,929
Depreciation and amortization............... 151 179 261 188 232 54 938
---------- ---------- ---------- ---------- --------- --------- ---------
Total................................... 6,198 6,384 4,929 5,554 9,134 4,034 16,597
---------- ---------- ---------- ---------- --------- --------- ---------
Operating income (loss)....................... (321) (211) 143 389 (1,556) (453) (680)
Other income (expense):
Investment income........................... -- -- 36 53 109 34 132
Interest expense............................ (32) (41) (36) (66) (66) (40) (1,013)
Other....................................... 180 118 37 38 5 25 125
---------- ---------- ---------- ---------- --------- --------- ---------
Total................................... 148 77 37 25 48 19 (756)
---------- ---------- ---------- ---------- --------- --------- ---------
Earnings (loss) before income taxes........... (173) (134) 180 414 (1,508) (434) (1,436)
Federal and state income taxes (benefit)...... (3) (74) 133 155 (362) (75) (132)
---------- ---------- ---------- ---------- --------- --------- ---------
Net earnings (loss)........................... (170) (60) 47 259 (1,146) (359) (1,304)
Preferred stock dividends declared (1)........ -- -- -- -- -- -- (1,263)
---------- ---------- ---------- ---------- --------- --------- ---------
Net earnings (loss) applicable to common
stock....................................... $ (170) $ (60) $ 47 $ 259 $ (1,146) $ (359) $ (2,567)
---------- ---------- ---------- ---------- --------- --------- ---------
---------- ---------- ---------- ---------- --------- --------- ---------
Net earnings (loss) per common share.......... (.11) (.04) .02 .06 (.19) (.06) (.26)
Weighted average common shares outstanding
(2)......................................... 1,553 1,553 2,174 4,623 6,137 5,669 9,760
OPERATING DATA (AT PERIOD END):
Number of dental sites........................ 9 9 9 8 13 9 44
Number of dental chairs under management
(3)......................................... 82 82 78 73 125 100 476
Gross revenue per chair (4)................... $ 108,000 $ 109,000 $ 112,000 $ 133,000 $ 99,000 $ 58,000 $ 46,000
Percentage of gross revenue derived from
specialty services.......................... 42% 40% 41% 33% 33% 34% 35%
</TABLE>
(FOOTNOTES ON NEXT PAGE)
34
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ -- $ (228) $ 64 $ 2,262 $ 1,144 $ 2,163
Working capital.................................................. (492) (593) (139) 2,201 1,364 (3,968)
Total assets..................................................... 994 1,069 1,843 4,812 7,406 53,091
Short-term debt (5).............................................. 734 751 877 350 227 5,375
Long-term debt................................................... 137 335 583 270 688 13,751
Class D Redeemable Stock......................................... -- -- -- -- -- 4,135
Stockholders' equity............................................. 6 (55) 277 3,277 5,143 22,295
</TABLE>
- ------------------------
(1) Includes a one-time dividend representing the estimated value of the
"in-the-money" conversion rights of $1,202 granted to the holders of the
Class D Preferred Stock issued in June 1997. See Note 11 to the Consolidated
Financial Statements.
(2) Assumes conversion of 40,154 shares of Class A Preferred Stock and 47,068
shares of Class B Preferred Stock into 1,325,082 and 1,553,244 shares of
Common Stock, respectively, in 1995, 1996, and 1997, and conversion of
816,038 shares of Class C Preferred Stock into 816,038 shares of Common
Stock in 1996 and 1997. See "Description of Capital Stock" and Note 1 to the
Consolidated Financial Statements.
(3) Dental chairs under management is defined as the dental chairs owned and
managed by the Affiliated Practices.
(4) Gross revenue per chair is defined as the sum of revenue from patient fees
from Affiliated Practices and capitation divided by number of dental chairs
under management at the end of the period presented.
(5) Includes current portion of long-term debt and borrowings under lines of
credit.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. DISCUSSIONS CONTAINING
SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH BELOW
UNDER "BUSINESS," AND IN THIS PROSPECTUS GENERALLY. 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, WITHOUT LIMITATION, THE RISK FACTORS SET
FORTH UNDER "RISK FACTORS" AND THE MATTERS GENERALLY SET FORTH IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION OF THE COMPANY'S RESULTS OF OPERATIONS AND
FINANCIAL CONDITION SHOULD BE READ IN CONJUNCTION WITH "UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL DATA," THE "SELECTED CONSOLIDATED FINANCIAL DATA," THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO, AND THE OTHER
FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
DentalCo is a leading provider of dental practice management services to
multi-disciplinary dental practices in targeted markets in the United States. At
August 31, 1997, the Company had 496 dental chairs under management at 45 Dental
Sites in Georgia, Maryland, Pennsylvania, North Carolina, Virginia, Michigan,
Indiana and Colorado. The Company's 109 Affiliated Dentists, of whom 88 provide
general dentistry services and 21 provide speciality services, treated an
aggregate of approximately 230,000 active patients during the 18 months ended
June 30, 1997. In addition, the Company provides non-clinical, technical and
administrative services to the Management Practices, which provide dental
services at 14 Dental Sites with 167 dental chairs under management.
In 1996, the Company began to implement a growth strategy of constructing
and expanding dental sites as well as acquiring and affiliating with dental
practices in targeted markets. Since April, 1996, the Company has built five new
sites and expanded four existing sites adding an aggregate of 66 dental chairs
under management. The Company also has acquired or affiliated with ten dental
practices in eight states adding 34 Dental Sites, 380 dental chairs under
management and 81 Affiliated Dentists. This expansion program has increased the
patient base and geographic presence of the Company, increased the Company's
market presence and substantially increased gross revenue. The pro forma gross
revenue of the Company for 1996 and the six months ended June 30, 1997 were
$58.1 million and $30.2 million, respectively, compared to actual gross revenue
of $12.5 million and $23.0 million for the same periods, respectively.
The Company has commenced and intends to continue implementing its operating
model at the Affiliated Practices over the next 18 to 24 months with the
objective of increasing revenue and profitability. To achieve this, the Company
intends to increase the mix of specialty services at a Dental Site or within a
cluster of Dental Sites, expand hours of operations, increase contracts with
managed care companies, and centralize certain functions such as billing and
purchasing. There can be no assurance that the Company will be successful in
implementing its operating model. See "Business--Services and Operations."
The Acquisitions have been accounted for under the purchase method of
accounting and the purchase price has been allocated between identified tangible
and intangible assets purchased and liabilities assumed based upon their
respective estimated fair values. Unallocated purchase price is treated as
goodwill and amortized over 40 years.
The Emerging Issues Task Force ("EITF") of the Financial Accounting
Standards Board ("FASB") is addressing certain matters relating to the physician
practice management industry, and the Company expects the EITF will review
criteria for the consolidation of professional service corporation revenues and
the accounting for business combinations. The Company is unable to predict the
impact that this review may have on the Company's acquisition strategy, its
accounting for business combinations as purchases of assets or
poolings-of-interests, and the estimated useful life assigned to intangible
assets.
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GROSS REVENUE. The Company derives gross revenue from three sources: Owned
Practices, Affiliated Service Practices and Management Practices. Gross revenue
consists of patient fees from Affiliated Practices, capitation and management
fees. Net revenue represents gross revenue less amounts attributed to the
Affiliated Service Practices. See Note 1 to the Consolidated Financial
Statements. The Company records patient fees at established rates reduced by
allowances for contractual adjustments. Contractual adjustments result from the
terms of certain payor reimbursement contracts and represent the difference
between charges at established rates and estimated recoverable amounts.
Allowances for contractual adjustments are recognized in the period the dental
services are rendered. Differences between estimated recoverable amounts and
actual final settlements under reimbursement contracts are reported in the
fiscal quarter in which the final settlements are made.
Patient fees of Affiliated Practices consist of fee-for-service payments,
co-payments under capitated plans, payments received from indemnity insurers and
a small amount from government programs. In 1996, on a pro forma basis, patient
fee revenue represented approximately 72.5% of gross revenue.
Capitation payments are fixed monthly fees paid to the Company on a per
member basis by managed care insurers in exchange for the provision of routine
dental services, regardless of the quantity or cost of services provided by the
participating dental practice. Approximately 26.5% of pro forma gross revenue in
1996 consisted of capitation payments. At June 30, 1997, the Company had over
243,000 covered lives under capitation contracts. Unlike managed care contracts
for the provision of medical services where capitation payments represent a
significant portion of the revenue generated, capitated plans for the provision
of dental services generally require that the patient pays a significant portion
of the total cost of services provided. The co-payment structure for dental
services reduces the dental practices' exposure to overutilization. Co-payments
are recognized in patient fee revenue. The Company expects revenues derived from
capitation contracts will increase as a result of the increasing demand for
dental managed care and as managed dental care contracts are added to acquired
or newly constructed dental sites.
Management fees represent income earned by the Company for performing
administrative functions, such as billing, collections, accounting, payroll and
leasing of facilities for Management Practices in North Carolina, New Jersey,
Missouri and Pennsylvania.
AMOUNTS ATTRIBUTED TO AFFILIATED SERVICE PRACTICES. Amounts attributed to
Affiliated Service Practices represent the amounts paid by such practices for:
(i) salaries and related taxes and benefits to dentists and hygienists; (ii)
costs relating to malpractice insurance, expenses relating to professional
meetings, seminars, professional dues, books and professional licensing fees;
and (iii) all other expenditures required to be made or incurred by the
Affiliated Service Practices under applicable law. Typically, salaries paid to
general dentists are fixed and salaries paid to specialists vary based upon the
dollar value of services performed. Amounts attributed to Affiliated Service
Practices are deducted from gross revenue to obtain net revenue.
PERSONNEL AND SITE OPERATIONS. Personnel and site operations expenses
consist of salary, benefits and bonus payments to Affiliated Dentists and other
professional service providers employed by the Owned Practices, compensation
expenses of the non-clinical staff at the Dental Sites, dental and office
supplies, laboratory fees, rent and lease expense. Salary and compensation
costs, which are typically fixed, represent the largest portion of these
expenses. As part of its strategy, DentalCo is seeking to increase efficiency by
utilizing dental assistants and hygienists at more than one Dental Site and,
where permitted, assigning expanded duties to dental assistants and hygienists
under the supervision of Affiliated Dentists. In an effort to reduce supply
costs as percentage of revenue, the Company is negotiating a contract with a
sole supplier to provide dental supplies to the Dental Practices.
CORPORATE. Corporate expenses consist of compensation expenses for
executive personnel and support and administrative staff as well as other
administrative costs at the Company's corporate headquarters and regional
offices. Administrative costs include expenses for financial systems, management
information systems, and overhead. The Company is in the process of implementing
an organizational structure, including the consolidation of functions, which it
believes will result in cost savings at the corporate level.
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<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
include property, equipment and other Dental Site depreciation charges as well
as amortization charges relating to intangible assets acquired in connection
with the Acquisitions, including covenants not to compete, management contracts
and goodwill. See Note 1 to Consolidated Financial Statements. Depending on the
amount and timing of future acquisitions, depreciation and amortization expense
could increase.
FEDERAL AND STATE INCOME TAXES (BENEFIT). As of June 30, 1997, the Company
had approximately $1.2 million of net operating loss carry forwards. As a
result, the Company's effective tax rate in future periods may be less than the
marginal federal tax rate of 36% to the extent such net operating losses are
utilized.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statement
of operations data expressed as a percentage of gross revenue:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1994 1995 1996 1996 1996 1997 1997
--------- --------- --------- ------------- --------- --------- -------------
STATEMENT OF OPERATIONS DATA:
Gross revenue:
Patient fees of Affiliated
Practices.................. 87.3% 83.2% 82.7% 72.5% 84.7% 70.9% 70.5%
Capitation................... 12.7 16.8 16.7 26.5 15.3 25.2 25.4
Management fees.............. -- -- .6 1.0 -- 3.9 4.1
--------- --------- --------- ----- --------- --------- -----
Total...................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Less amounts attributed to
Affiliated Service
Practices.................. 42.2 38.9 39.2 36.1 38.3 30.7 31.4
--------- --------- --------- ----- --------- --------- -----
Net revenue.................... 57.8 61.1 60.8 63.9 61.7 69.3 68.6
Operating expenses:
Personnel and site
operations................. 46.1 40.4 49.0 48.0 43.0 51.1 49.2
Corporate.................... 7.1 14.8 22.4 13.5 25.6 17.1 15.0
Depreciation and
amortization............... 3.0 1.9 1.9 3.6 .9 4.1 3.9
--------- --------- --------- ----- --------- --------- -----
Total...................... 56.2 57.1 73.3 65.1 69.5 72.3 68.1
--------- --------- --------- ----- --------- --------- -----
Operating income (loss)........ 1.6 4.0 (12.5) (1.2) (7.8) (3.0) .5
Other income (expense):
Interest expense............. (.4) (.7) (.5) -- (.7) (4.4) --
Investment income............ .4 .6 .9 .2 .6 .6 .4
Other income................. .4 .4 -- -- .4 .5 .4
--------- --------- --------- ----- --------- --------- -----
Total...................... .4 .3 .4 .2 .3 (3.3) .8
--------- --------- --------- ----- --------- --------- -----
Earnings (loss) before income
taxes........................ 2.0 4.3 (12.1) (1.0) (7.5) (6.3) 1.3
Federal and state income taxes
(benefit).................... 1.5 1.6 (2.9) .2 (1.3) .6 .1
--------- --------- --------- ----- --------- --------- -----
Net earnings (loss) before
extraordinary item........... .5% 2.7% (9.2)% (.8)% (6.2)% (5.7)% 1.2%
--------- --------- --------- ----- --------- --------- -----
--------- --------- --------- ----- --------- --------- -----
</TABLE>
38
<PAGE>
Since April 1996, the Company's operations have been significantly affected
by the integration of the Acquisitions. Specifically, the Company acquired
Bhatia, Cunningham and Offerdahl in April, November and December of 1996,
respectively. Nanston was acquired in January 1997 and Becker, Indiana Dental
and Kittleman were acquired in February 1997. Modern, BelAir and Bowman Gray
were acquired in May, June and August 1997, respectively. See "The Company" and
"Certain Transactions."
PRO FORMA SIX MONTHS ENDED JUNE 30, 1997, COMPARED TO ACTUAL SIX MONTHS
ENDED JUNE 30, 1997
GROSS REVENUE. Pro forma gross revenue for the six months ended June 30,
1997, compared to actual gross revenue, increased to $30.2 million from $23.0
million, an increase of 31%. This increase resulted primarily from the
acquisitions of Modern, Bowman Gray and two Maryland dental practices which
added gross revenue of $5.5 million, $1.2 million and $500,000 respectively.
Pro forma patient fees of Affiliated Practices for the six months ended June
30, 1997, compared to actual patient fees of such practices, increased by 31% to
$21.3 million from $16.3 million. This increase resulted primarily from the
acquisitions of Modern, Bowman Gray and two Maryland dental practices which
added patient fees of $3.3 million, $1.2 million and $500,000 respectively.
Pro forma capitation payments for the six months ended June 30, 1997
compared to actual capitation payments, increased by 33% from $5.8 million to
$7.7 million. This increase resulted principally from the acquisition of Modern.
Pro forma management fees for the six months ended June 30, 1997, compared
to actual management fees, increased by 31% to $1.2 million from $914,000. The
increase resulted from the acquisition of Modern which provides administrative
services to two Dental Sites in New Jersey and nine Dental Sites in
Pennsylvania.
AMOUNTS ATTRIBUTED TO AFFILIATED SERVICE PRACTICES. Pro forma amounts
attributed to Affiliated Service Practices for the six months ended June 30,
1997, compared to actual amounts attributed to Affiliated Service Practices,
increased by 36% to $9.5 million from $7.0 million. The increase resulted
primarily from the acquisitions of Modern and Bowman Gray, which added amounts
attributed to Affiliated Service Practices of $1.8 million and $647,000,
respectively.
PERSONNEL AND SITE OPERATIONS. Pro forma personnel and site operations
expenses for the six months ended June 30, 1997, compared to actual expenses,
increased by 27% to $14.9 million from $11.7 million. The increase resulted
primarily from the acquisitions of Modern, Bowman Gray and the two Maryland
practices, which added personnel and site operations expenses of $2.2 million,
$500,000 and $400,000 respectively.
CORPORATE. Pro forma corporate expenses for the six months ended June 30,
1997, compared to actual expenses, increased by 16% to $4.5 million from $3.9
million. The increase resulted primarily from the absorption of $615,000 in
corporate expenses at Modern. There were no significant corporate expenses
related to the acquisitions of Bowman Gray and two Maryland dental practices.
DEPRECIATION AND AMORTIZATION. Pro forma depreciation and amortization
expenses for the six months ended June 30, 1997, compared to actual depreciation
and amortization expenses, increased by 17% to $1.1 million from $938,000. The
increase resulted principally from the acquisition of Modern, which added
depreciation and amortization expenses of $142,000.
SIX MONTHS ENDED JUNE 30, 1997, COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
GROSS REVENUE. Gross revenue for the six months ended June 30, 1997,
compared to the six months ended June 30, 1996, increased by 297% to $23.0
million from $5.8 million. Of this increase, $10.5 million, $2.1 million and
$1.3 million was attributable to the acquisitions of Nanston, Indiana Dental and
Kittleman, respectively; $1.1 million was attributable to the acquisition of
Modern; and $2.2 million was
39
<PAGE>
attributable to same site growth in Maryland and Virginia. The Nanston
acquisition was consummated in January 1997, Indiana Dental and Kittleman were
consummated in February 1997 and Modern was consummated in May 1997.
Patient fees of Affiliated Practices for the six months ended June 30, 1997,
compared to the six months ended June 30, 1996, increased by 233% to $16.3
million from $4.9 million. Of this increase, $6.7 million, $1.6 million and $1.3
million was attributable to the acquisitions of Nanston, Indiana Dental and
Colorado, respectively; $661,000 was attributable to the acquisition of Modern;
and the balance was attributable to same site growth in Maryland and Virginia.
Capitation payments for the six months ended June 30, 1997, increased to
$5.8 million from $900,000. Of this increase, $3.7 million was attributable to
the acquisition of Nanston and $368,000 was attributable to the acquisition of
Modern.
Management fees for the six months ended June 30, 1997, were $914,000. There
were no management fees in the six months ended June 30, 1996. Of this amount,
$681,000 was attributable to the assumption of certain management contracts in
connection with the acquisition of Nanston.
AMOUNTS ATTRIBUTED TO AFFILIATED SERVICE PRACTICES. Amounts attributed to
Affiliated Service Practices for the six months ended June 30, 1997, compared to
the six months ended June 30, 1996, increased by 218% to $7.0 million from $2.2
million. Of this increase, $4.0 million was attributable to the acquisition of
Nanston and the balance was due to an increase in salaries at the three Dental
Sites in Virginia and Maryland. Amounts attributed to Affiliated Service
Practices as a percentage of revenue decreased from 38% for the six months ended
June 30, 1996 to 31% for the six months ended June 30, 1997 as a result of the
acquisitions of Owned Practices in Colorado and Indiana, which contributed
increased gross revenue to the Company without a corresponding increase in
amounts attributed to Affiliated Dentists.
PERSONNEL AND SITE OPERATIONS. Personnel and site operations expenses for
the six months ended June 30, 1997, compared to the six months ended June 30,
1996, increased by 368% to $11.7 million from $2.5 million. Of this increase,
$4.5 million, $2.2 million and $1.2 million was attributable to the acquisitions
of Nanston, Indiana Dental and Colorado, respectively; $455,000 was attributable
to the acquisition of Modern; and $800,000 was attributable to same site growth
in Maryland and Virginia. Amounts paid for personnel and site operations as a
percentage of gross revenue expenses increased from 43% for the six months ended
June 30, 1996 to 51% for the six months ended June 30, 1997 as a result of the
acquisition of the Owned Practices in Colorado and Indiana.
CORPORATE. Corporate expenses for the six months ended June 30, 1997,
compared to the six months ended June 30, 1996, increased by 160% to $3.9
million from $1.5 million. Of this increase, $900,000 and $200,000 was
attributable to the acquisitions of Nanston and Modern, respectively, and $1.3
million was attributable to an increase in the number of accounting and
management personnel and increased expenditures for management information
systems to implement a multi-state network. Corporate expenses as a percentage
of gross revenue decreased from 26% for the six months ended June 30, 1996 to
17% for the six months ended June 30, 1997 principally due to lower corporate
expenses as a percentage of gross revenue at the Acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses for
the six months ended June 30, 1997, compared to the six months ended June 30,
1996, increased to $938,000 from $54,000. Of this increase, $540,000, $110,000
and $50,000 was attributable to the acquisitions of Nanston; Offerdahl,
Cunningham and Kittleman; and Indiana Dental, respectively; $44,000 was
attributable to the acquisition of Modern; and the balance was attributable to
the depreciation related to newly opened sites in Virginia and Maryland. As a
percentage of gross revenue, depreciation and amortization expense increased
from 1% for the six months ended June 30, 1996 to 4% for the six months ended
June 30, 1997, due principally to the increased depreciation and amortization of
the intangibles associated with the Acquisitions.
40
<PAGE>
INTEREST EXPENSE. Interest expense for the six months ended June 30, 1997,
compared to the six months ended June 30, 1996, increased to $1.0 million from
$40,000, an increase of $973,000. The increase resulted primarily from increased
debt incurred to fund the acquisitions of Nanston, Modern, Indiana Dental,
Offerdahl, Cunningham and Kittleman, and selected sites in Maryland and
Virginia.
NET EARNINGS (LOSS). As a result of the above, the Company reported a net
loss of $1.4 million for the six months ended June 30, 1997, compared to a net
loss of $434,000 for the six months ended June 30, 1996.
PRO FORMA YEAR ENDED DECEMBER 31, 1996 COMPARED TO ACTUAL YEAR ENDED
DECEMBER 31, 1996
GROSS REVENUE. Pro forma gross revenue for 1996, compared to actual gross
revenue, increased by 365% to $58.1 million from $12.5 million. Of this
increase, $21.2 million and $4.2 million was attributable to the acquisitions of
Nanston and Indiana Dental respectively, each of which was consummated in
January 1997 and $7.5 million was attributable to the acquisition of certain
dental practices in Colorado, North Carolina, Maryland and Virginia as well as
the construction of two new Dental Sites in Maryland and one new Dental Site in
Virginia.
Pro forma patient fees of Affiliated Practices for 1996, compared to actual
patient fees, increased by 309% to $42.1 million from $10.3 million. Of this
increase, $12.9 million and $3.4 million was attributable to the acquisitions of
Nanston and Indiana Dental, respectively; $8.0 million was attributable to the
acquisition of Modern; and $7.5 million was attributable to the acquisition of
various dental practices in Colorado, North Carolina, Maryland and Virginia and
the construction of new Dental Sites in Maryland and Virginia.
Pro forma capitation payments for 1996, compared to actual capitation
payments, increased to $15.4 million from $2.1 million. Of this increase, $8.1
million and $800,000 was attributable to the acquisitions of Nanston and Indiana
Dental, respectively, and $4.3 million was attributable to the acquisition of
Modern.
Pro forma management fees for 1996, compared to actual management fees,
increased to $635,000 from $70,000. The increase was primarily attributable to
the acquisition of Modern which provided administrative services to two Dental
Sites in New Jersey and nine Dental Sites in Pennsylvania.
AMOUNTS ATTRIBUTED TO AFFILIATED SERVICE PRACTICES. Pro forma amounts
attributed to Affiliated Service Practices for 1996, compared to actual amounts
attributed to Affiliated Service Practices, increased to $20.9 million from $4.9
million. Of this increase, $8.8 million was attributable to an increase in the
number of Affiliated Dentists associated with the acquisition of Nanston and
$4.9 million was attributable to an increase in the number of Affiliated
Dentists associated with the acquisition of Modern.
PERSONNEL AND SITE OPERATIONS. Pro forma personnel and site operations
expenses for 1996, compared to actual expenses, increased to $27.9 million from
$6.1 million. Of this increase, $8.8 million, $4.6 million and $4.2 million were
attributable to the acquisitions of Nanston, Modern and Indiana Dental,
respectively, and the balance was attributable to the acquisition of certain
dental practices in Colorado, North Carolina, Maryland and Virginia and
construction of new Dental Sites in Maryland and Virginia.
CORPORATE. Pro forma corporate expenses for 1996, compared to actual
corporate expenses, increased by 178% to $7.8 million from $2.8 million. Of this
increase, $2.7 million and $2.2 million were attributable to the acquisitions of
Nanston and Modern, respectively.
DEPRECIATION AND AMORTIZATION. Pro forma depreciation and amortization
expenses for 1996, as compared to actual depreciation and amortization expenses,
increased to $2.0 million from $232,000. This increase resulted from the
acquisitions of Nanston, Modern, Indiana Dental, Cunningham and Offerdahl, and
the construction of new Dental Sites in Maryland and Virginia.
41
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
GROSS REVENUE. Gross revenue for 1996, compared to 1995, increased by 29%
to $12.5 million from $9.7 million. Of this increase, $1.1 million was
attributable to same site growth in Maryland which resulted from the expansion
of two Dental Sites and an increase in managed care contracts; $655,000 was
attributable to the acquisition of one Dental Site in Virginia; and $573,000 was
attributable to two newly constructed Dental Sites in Maryland and one newly
constructed Dental Site in Virginia.
Patient fees of Affiliated Practices for 1996, compared to 1995, increased
by 27% to $10.3 million from $8.1 million. Of this increase, $1.1 million was
attributable to same site growth in Maryland which resulted from the expansion
of two Dental Sites and an increase in managed care contracts; $525,000 was
attributable to two newly constructed Dental Sites in Maryland and one newly
constructed Dental Site in Virginia; and $473,000 was attributable to the
acquisition of one Dental Site in Virginia.
Capitation payments for 1996, compared to 1995, increased by 31% to $2.1
million from $1.6 million. Of this increase, $220,000 was attributable to same
site growth in Maryland which resulted from the expansion of two Dental Sites
and an increase in managed care contracts; $182,000 was attributable to the
acquisition of one Dental Site in Virginia; and $49,000 was attributable to two
newly constructed Dental Sites in Maryland and one newly constructed Dental Site
in Virginia.
Management fees for 1996 were $70,000. There were no management fees for
1995. The increase in management fees is attributable to entering into a
contract with the Management Practice in Missouri.
AMOUNTS ATTRIBUTED TO AFFILIATED SERVICE PRACTICES. Amounts attributed to
Affiliated Service Practices for 1996, compared to 1995, increased by 29% to
$4.9 million from $3.8 million. Of this increase, $700,000 was due to same site
growth in Maryland which resulted from the expansion of two Dental Sites and an
increase in managed care contracts; $209,000 was due to the acquisition of one
Dental Site in Virginia; and $183,000 was due to two newly constructed Dental
Sites in Maryland and one newly constructed Dental Site in Virginia.
PERSONNEL AND SITE OPERATIONS. Personnel and site operations expenses for
1996, compared to 1995, increased by 56% to $6.1 million from $3.9 million. Of
this increase, $330,000 was atributable to increased facilities costs (i.e.,
leasing for space and equipment) at existing Dental Sites; $320,000 was
attributable to increased facilities costs at newly constructed Dental Sites in
Maryland and Virginia; and the balance to increased staff, supplies and expenses
associated with the expansion and construction of four new sites representing a
52% increase in the number of chairs. Personnel and site operations expenses as
a percentage of gross revenue increased from 40% in 1995 to 49% in 1996
primarily due to increased expenses that are typically incurred at a newly
constructed or expanded Dental Site prior to realizing an increase in gross
revenue at such site.
CORPORATE. Corporate expenses for 1996, compared to 1995, increased by 100%
to $2.8 million from $1.4 million. Corporate expenses as a percentage of gross
revenue increased from 15% in 1995 to 22% in 1996. The increase resulted from
hiring additional accounting and management personnel to support a multi-state
network of dental sites.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses for
1996, compared to 1995, increased by 23% to $232,000 from $188,000. Of this
increase, $30,000 was attributable to the acquisition of one Dental Site in
Virginia and $14,000 was attributable to three newly constructed Dental Sites.
OTHER INCOME (EXPENSE). Other income for 1996, compared to 1995, increased
by 92% to $48,000 from $25,000. This increase resulted largely from increased
investment income of $55,000 due to interest earned on the remaining balance of
equity funding of $3.0 million received in August, 1995 and $3.0 million
received in July, 1996, offset in part by a decline in other income of $33,000.
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<PAGE>
FEDERAL AND STATE INCOME TAXES (BENEFIT). Due to a loss before income taxes
in 1996, an income tax benefit of $362,000 was realized compared to a provision
for income taxes of $155,000 in 1995.
NET EARNINGS (LOSS). As a result of the above, the Company reported a net
loss of $1.1 million in 1996 compared to net income of $259,000 in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
GROSS REVENUE. Gross revenue for 1995, compared to 1994, increased by 10%
to $9.7 million from $8.8 million. This increase was primarily attributable to
an increased focus by the Company on securing managed care contracts following
the sale by the Company of a dental HMO in August 1994 (the "Dental HMO"). See
Note 1 to the Consolidated Financial Statements.
Patient fees of Affiliated Practices for 1995, compared to 1994, increased
by 6% to $8.1 million from $7.6 million. This increase was primarily
attributable to same site growth resulting from increased co-payments pursuant
to newly secured capitation contracts.
Capitation payments for 1995, compared to 1994, increased by 45% to $1.6
million from $1.1 million. This increase was primarily attributable to an
increased focus by the Company on securing managed care contracts following the
sale by the Company of the Dental HMO.
AMOUNTS ATTRIBUTED TO AFFILIATED SERVICE PRACTICES. Amounts attributed to
Affiliated Service Practices for 1995, compared to 1994, remained at $3.7
million.
PERSONNEL AND SITE OPERATIONS. Personnel and site operations expenses for
1995, compared to 1994, decreased by 3% to $3.9 million from $4.0 million.
Personnel and site operations expenses as a percentage of revenue decreased from
46% in 1994 to 40% in 1995, reflecting the cost savings realized from the
consolidation of two Dental Sites in Maryland.
CORPORATE. Corporate expenses for 1995, compared to 1994, increased by 132%
to $1.4 million from $620,000. This increase resulted from a reallocation to
corporate expenses of a portion of the salaries of two Affiliated Dentists,
including Dr. Halpert, reflecting increased time devoted to implementing a
multistate network. Accordingly, corporate expenses as a percentage of gross
revenue increased from 7% in 1994 to 15% in 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses for
1995, compared to 1994, decreased by 28% to $188,000 from $261,000. The decrease
primarily resulted from consolidating two Dental Sites in Maryland and the
transfer of certain assets in connection with the sale of the Dental HMO. As a
percentage of gross revenue, depreciation decreased from 3% in 1994 to 2% in
1995 as a result of these events.
NET EARNINGS (LOSS). As a result of the above, net income increased from
$47,000 in 1994 to $259,000 in 1995.
43
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth unaudited quarterly results of operations of
the Company for each of the quarters in the years ended December 31, 1995 and
1996 and the six months ended June 30, 1997, including such amounts expressed as
a percentage of gross revenue. This information has been prepared on the same
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.
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED,
------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA:
Gross revenue:
Patient fees of
Affiliated
Practices........... $ 1,924 $ 2,120 $ 2,009 $ 2,033 $ 2,228 $ 2,690 $ 2,689 $ 2,693
Capitation.............. 395 339 486 415 401 487 528 670
Management fees......... -- -- -- -- -- -- -- 70
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total................. 2,319 2,459 2,495 2,448 2,629 3,177 3,217 3,433
Less amounts attributed
to Affiliated Service
Practices........... 909 904 928 1,037 1,196 1,029 1,335 1,318
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net revenue............... 1,410 1,555 1,567 1,411 1,433 2,148 1,882 2,115
Total operating
expenses................ 1,306 1,272 1,522 1,454 1,761 2,273 2,554 2,546
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)... 104 283 45 (43) (328) (125) (672) (431)
Earnings (loss) before
income taxes............ 112 267 53 (18) (302) (133) (651) (422)
Net earnings (loss)....... 70 167 33 (11 ) (244 ) (115 ) (509 ) (278)
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
----------- ---------
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Gross revenue:
Patient fees of
Affiliated
Practices........... $ 7,675 $ 8,590
Capitation.............. 2,608 3,168
Management fees......... 472 442
----------- ---------
Total................. 10,755 12,200
Less amounts attributed
to Affiliated Service
Practices........... 3,321 3,717
----------- ---------
Net revenue............... 7,434 8,483
Total operating
expenses................ 7,617 8,980
----------- ---------
Operating income (loss)... (183) (497)
Earnings (loss) before
income taxes............ (494) (942)
Net earnings (loss)....... (265 ) (1,039)
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF GROSS REVENUE
THREE MONTH PERIOD ENDED,
------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Gross revenue:
Patient fees of
Affiliated
Practices........... 83.0% 86.2% 80.5% 83.0% 84.7% 84.7% 83.6% 78.4%
Capitation.............. 17.0 13.8 19.5 17.0 15.3 15.3 16.4 19.6
Management fees......... -- -- -- -- -- -- -- 2.0
----- ----- ----- ----- ----- ----- ----- -----
Total................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Less amounts attributed to
Affiliated Service
Practices........... 39.2 36.8 37.2 42.4 45.5 32.4 41.5 38.4
----- ----- ----- ----- ----- ----- ----- -----
Net revenue............... 60.8 63.2 62.8 57.6 54.5 67.6 58.5 61.6
Total operating
expenses................ 56.3 51.7 61.0 59.4 67.0 71.5 79.4 74.2
----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss)... 4.5 11.5 1.8 (1.8) (12.5) (3.9) (20.9) (12.6)
Earnings (loss) before
income taxes............ 4.8 10.9 2.1 (.7) (11.5) (4.2) (20.2) (12.3)
Net earnings (loss)....... 3.0 6.8 1.3 (.4) (9.3) (3.6) (15.8) (8.1)
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Gross revenue:
Patient fees of
Affiliated
Practices........... 71.4% 70.4%
Capitation.............. 24.2 26.0
Management fees......... 4.4 3.6
----- -----
Total................. 100.0 100.0
Less amounts attributed to
Affiliated Service
Practices........... 30.9 30.5
----- -----
Net revenue............... 69.1 69.5
Total operating
expenses................ 70.8 73.6
----- -----
Operating income (loss)... (1.7) (4.1)
Earnings (loss) before
income taxes............ (4.6) (7.7)
Net earnings (loss)....... (2.5) (8.5)
</TABLE>
The Company has experienced fluctuations in gross revenue with higher
revenue typically recorded in the second and third quarters, while first and
fourth quarter revenues are typically lower on a relative basis. The Company
believes that lower revenue in the first quarter is attributable to the
frequency and intensity of inclement weather in certain markets and that lower
revenue in the fourth quarter is attributable to fewer working days during the
holiday season. The higher revenue in the second and third quarters is
attributable to increased demand for dental care services during summer
vacations and the beginning of the school year. Operating results will also be
affected by the timing of acquisitions and affiliations that may occur in the
future, the opening of new facilities constructed by DentalCo and the timing of
the implementation of major contracts with managed care and other payor
organizations.
Because compensation represents a majority of the Company's expenses, the
Company may be unable to promptly respond to any unexpected revenue shortfall.
An unexpected revenue shortfall could cause a significant variation in operating
results from quarter-to-quarter and could have a material adverse effect on the
Company's results of operations. Accordingly, the Company believes that
quarter-to-quarter comparisons of results of operations are not necessarily
meaningful and should not be relied upon as an indication of likely future
performance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs consist of working capital, capital
expenditures and acquisition funds needed to support its growth. Historically,
the Company has met these liquidity needs with equity capital provided by
venture capital investors, shares of Common Stock issued to fund a portion of
the purchase price of certain acquisitions, bank borrowings, and cash flow from
operations. See "Certain Transactions."
45
<PAGE>
Net cash used in operations was $17,000, $994,000 and $1.9 million in 1994,
1996 and the six months ended June 30, 1997, respectively. Net cash provided by
operations was $226,000 in 1995. The change from cash provided by operations to
cash used in operations from 1995 to 1996 and the six months ended June 30, 1997
was due primarily to the net losses incurred in 1996 and the six months ended
June 30, 1997, together with an increase in working capital to support the
Company's growth strategy, including implementation of a multistate network. The
Company anticipates a continued need for investment in working capital through
1997 as it implements its growth strategy.
Cash used in investing activities was $131,000, $582,000, $2.5 million and
$17.0 million in 1994, 1995, 1996 and the six months ended June 30, 1997,
respectively. Such investing activities consisted primarily of $0, $1.4 million
and $15.9 million used to finance acquisitions in 1995, 1996 and the six months
ended June 30, 1997, respectively, and $100,000, $653,000 and $699,000 used to
construct new or expand existing Dental Sites in 1995, 1996 and the six months
ended June 30, 1997, respectively.
Cash provided by financing activities to fund operations and investing
activities was $440,000, $2.6 million, $2.3 million and $19.9 million in 1994,
1995, 1996 and the six months ended June 30, 1997, respectively. Prior to 1997,
the Company financed its expansion substantially from the issuance of preferred
stock to venture capital firms which aggregated to $2.7 million and $2.9 million
in 1995 and 1996, respectively. In 1997, the Company primarily met its financing
needs both through borrowings under the Credit Facility which aggregated $17.7
million and the issuance of Class D Preferred Stock which aggregated $8.0
million. Approximately $5.0 million of the net proceeds from the issuance of the
Class D Preferred Stock was used to repay a portion of the balance outstanding
under the Credit Facility in June 1997 to bring the Company into compliance with
a financial covenant of the Credit Facility. In July 1997, the Company issued an
additional $10.5 million of Class D Preferred Stock. The net proceeds were used
to finance the acquisitions of Bowman Gray, Modern and BelAir and to fund
working capital needs. See "Certain Transactions" and "Description of Capital
Stock."
The Credit Facility, which was entered into on December 31, 1996, replaced
two bank lines of credit that the Company maintained during 1995 and 1996 and
which were paid in full at December 31, 1996. The Credit Facility provides for
up to $25 million in revolving credit loans of which up to $5 million may be
used for working capital (subject to a borrowing base limitation of 85% of
eligible receivables) and the balance to finance acquisitions approved by
NationsCredit subject to the Company's compliance with certain financial
covenants. Borrowings under the Credit Facility bear interest at 450 basis
points over the 30-day commercial paper rate as quoted in The Wall Street
Journal under "Money Rates." The rate as of July 1, 1997 was 5.657%. Prior to
December 31, 1997, the Company may reborrow funds which it has previously
borrowed and repaid. The Credit Facility converts to a term loan on December 31,
1997, with a final maturity date of January 1, 2003, and the Company is
obligated to repay the outstanding principal under the Credit Facility in
quarterly installments commencing January 1, 1998. Under the terms of the Credit
Facility, the Company is also obligated to pay (i) an unused commitment fee of
up to .5% per annum on the daily average of the unused portion of the revolving
credit commitments during each quarter through December 31, 1997; (ii) $250,000
if the Company terminates or irrevocably reduces the amount of revolving credit
commitments as a result of a public offering of Common Stock which results in
net proceeds to the Company of at least $25 million; and (iii) upon the earlier
of December 31, 2001 or the date on which the balance of the Credit Facility is
reduced to zero, a fee equal to a percentage of the Company's pro forma EBITDA
for the Company's most recently completed fiscal quarter less the debt of the
Company permitted under the Credit Facility, which as of June 30, 1997 was
approximately $880,000. Approximately $12.7 million was outstanding under the
Credit Facility at August 31, 1997. After completion of this Offering, the
Company expects to negotiate a new credit facility or renegotiate the Credit
Facility.
Through 1998, the Company expects to expend approximately $36.0 million for
acquisitions of, and affiliations with, dental practices and approximately $4.0
million for capital expenditures. Such capital expenditures are expected to be
primarily for implementation of its integrated management information
46
<PAGE>
systems, office furniture, telecommunications and office equipment and leasehold
improvements to support Dental Sites. The Company expects to finance the
acquisitions through a combination of cash, debt and equity. The net proceeds
from this Offering, estimated to be approximately $45.3 million will be used to
repay the outstanding borrowings under the Credit Facility, the Nanston Loan and
the North Carolina PA Loan, to redeem the Class D Redeemable Preferred Stock and
to fund possible future acquisitions and working capital needs. See "Use of
Proceeds." The Company believes that the net proceeds from this Offering and
amounts available under the Credit Facility or a successor credit facility,
together with cash generated from operations, will be sufficient to fund
acquisitions, capital expenditures and working capital through 1998. The Company
may also consider alternative financing methods such as equipment leases or
asset based borrowing. Funds generated from operations and funds available under
the Credit Facility as it may be amended or renegotiated, together with the
issuance of equity securities may not be sufficient to implement the Company's
growth strategy in the long term. The Company may be required to seek additional
financing through the renegotiation of credit facilities or public or private
placements of debt and equity securities. No assurance can be given that the
Company will be able to negotiate a new credit facility or renegotiate the
Credit Facility or complete additional debt or equity financing on terms
acceptable to the Company. See "Risk Factors--Limited Capital; Need for
Additional Financing."
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" ("FAS 128") which establishes standards
for computing and presenting earnings per share ("EPS"). FAS 128 replaces the
presentation of primary EPS with a presentation of basic EPS which excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding during the period. This
statement also requires dual presentation of basic EPS and diluted EPS on the
face of the income statement for all periods presented. FAS 128 is effective for
periods ending after December 15, 1997. The Company plans to adopt FAS 128 in
the period ending December 31, 1997 and does not expect the impact on EPS to be
significant.
47
<PAGE>
BUSINESS
INTRODUCTION
DentalCo is a leading provider of dental practice management services to
multi-disciplinary dental practices in targeted markets in the United States. At
August 31, 1997, the Company had 496 dental chairs under management at 45 Dental
Sites in Georgia, Maryland, Pennsylvania, North Carolina, Virginia, Michigan,
Indiana and Colorado. The Company's 109 Affiliated Dentists, of which 88 provide
general dentistry services and 21 provide specialty services, treated an
aggregate of approximately 230,000 active patients during the 18 months ended
June 30, 1997. In addition, the Company provides non-clinical, technical and
administrative services to the Management Practices which provide dental
services at 14 Dental Sites with 167 dental chairs under management.
DENTAL CARE SERVICES INDUSTRY
The Health Care Financing Administration estimates that expenditures for
dental care services were approximately $45.8 billion in 1995 and will exceed
$59.1 billion by 2000. The Company believes that the growth in demand for dental
care services results primarily from: (i) the aging of the population, a large
portion of which have retained their teeth leading to an increased need for
dental care services, including high margin specialty services; (ii) increased
demand for cosmetic procedures, including orthodontic care; (iii) increased
availability and use of dental insurance; and (iv) the growth of managed care
organizations that offer dental coverage to their members.
The dental care services industry, which is highly fragmented, consisted of
approximately 151,000 practicing dentists in 1995, 87% of whom practiced either
alone or with one other dentist. Traditionally, payments for dental care
services have not been covered by insurers and consequently have been paid by
patients on a fee-for-service basis. Employers have responded to the desire of
employees for enhanced benefits by providing access to third-party payment
arrangements to finance the purchase of dental care services. These third-party
arrangements include indemnity insurance, PPOs and capitated managed dental care
plans. Further, in response to ongoing market trends, general and specialty
dental practices increasingly have consolidated into larger dental networks.
Generally in these practice networks, a separate professional management team
provides practice management functions such as staffing, billing and
collections, information systems operations, managed care contracting, leasing,
purchasing and marketing, thereby enabling dentists to focus on providing dental
care services.
The Company believes consolidation in the dental care services industry will
continue and dentists will seek to affiliate or consolidate with entities, such
as the Company, that (i) allow dentists to focus on practicing dentistry by
providing administrative resources to manage scheduling, treatment plans,
quality assurance and other programs; (ii) provide dentists opportunities to
realize value for their practices; (iii) facilitate participation in managed
care plans through contracting and providing integrated management information
systems; (iv) provide systems and personnel that can process the information
required by increasingly complex government regulations; and (v) realize
economies of scale in purchasing and providing capital for equipment and site
expansion.
Payment for dental care services is derived primarily from patients and
third party insurers, with a significant increase in recent years of coverage
under PPOs and capitated plans. According to the American Dental Association, in
1995, approximately 50% of gross billings generated by general and specialist
dental providers were derived from private dental insurers, approximately 45%
were derived from direct payments by patients and the remainder was derived from
payments by government programs and other sources. According to the National
Association of Dental Plans, the number of people covered by capitated plans
increased from 7.8 million in 1990 to 20.7 million in 1995.
Dental insurers or administrators offer various types of coverage, including
indemnity plans, PPOs and capitated plans. Under a typical indemnity plan, the
dental provider charges a fee for each service
48
<PAGE>
provided to the insured patient, which is typically the same as that charged to
a patient not covered by any type of dental insurance. Under a PPO, the dentist
charges a discounted fee for each service provided based on a schedule
negotiated with the PPO in exchange for the stable patient base. Under a
capitated 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, regardless of the level of services provided to the member
for that period. Capitated plans also typically require a co-payment by the
patient for the provision of non-routine and specialty services provided. The
Company believes PPOs and capitated plans seek to contract with providers that
are conveniently located in highly populated areas, offer a full range of
multi-disciplinary services and have the ability to efficiently process
information about the patients they serve.
The Company believes that demographic trends, growth in dental insurance,
PPO and capitated plans provide opportunities for large dental practice
management service companies. The aging population and the increased demand for
cosmetic dental procedures supports the growth of dental care services,
expanding the market for the services of a dental practice management company. A
network of dental practitioners enables managed care plans to offer convenient
service to their members and provides practitioners with the ability to increase
patient flow through managed care contracts. Most general and specialist dental
services can be provided in the same dental chair which provides an opportunity
for increased patient volume and economies of scale in facilities and equipment.
In addition, the payment for dental care services generally differs from the
payment for medical services in the structure of co-payment arrangements. Unlike
medical co-payments which typically represent 10 to 20% of the total cost of
services provided, co-payments for dental care services typically represent a
substantial portion of the provider's reimbursement rate, often greater than 50%
of the usual fee-for-service charge. Because non-routine dental care services
are typically not capitated under dental managed care plans, the provider is not
negatively impacted by increased levels of utilization of such services under
dental managed care plans. Instead, payments for non-routine services are
largely the responsibility of the patient and are usually paid on a discounted
fee-for-service basis. The Company has not historically experienced significant
write-offs relating to individual payments for these services.
STRATEGY
The Company's objective is to become the leading multi-disciplinary dental
practice management company. To achieve this objective, the Company's strategy
is to:
EXPAND IN EXISTING MARKETS. To expand in existing markets, the Company
seeks to acquire or affiliate with general dental practices, expand existing
sites and build new sites. The Company targets for acquisition or affiliation
general dental practices that (i) are located in proximity to other dental sites
to create a cluster; (ii) have a large and stable patient base; (iii) generate
substantial referrals to specialists; (iv) collect revenue primarily from
fee-for-service, PPOs and indemnity insurance; (v) maintain a facility that can
accommodate the provision of or be expanded to provide dental care to large
numbers of patients; and (vi) are able to recruit and retain dentists. Under
current market conditions, the Company believes it is more economical to acquire
or affiliate with existing dental practices than to construct new sites. While
the Company will continue to expand existing Dental Sites, it will construct new
dental sites when it is unable to acquire or affiliate with a practice on
favorable terms. Since January 1, 1996, the Company has built five sites and
expanded four sites in Maryland, Virginia, Pennsylvania and Georgia, resulting
in an increase of 66 dental chairs under management.
INCREASE REVENUE PER DENTAL CHAIR. The Company seeks to increase revenue
per dental chair by increasing the mix of specialty services at a Dental Site or
within a cluster of Dental Sites and expanding hours of operation. By
integrating specialists into a network of clustered multi-disciplinary Dental
Sites, the Affiliated Service Practices can provide a broad range of general and
specialty dental care services. The clustered dental site format enables the
specialist to rotate among Dental Sites, utilize the same dental chairs as the
general dentists and enables a Dental Site to refer a patient requiring
specialty services to a
49
<PAGE>
different Dental Site that provides those services within a cluster. This
clustering strategy allows DentalCo to provide comprehensive dental care without
significantly increasing facility or administrative costs and thus capture a
larger portion of available patient revenue, resulting in increased revenue per
dental chair. The integration of specialists enables the Company to capture
revenue from higher margin specialty services, while providing patients with
greater convenience.
ENTER NEW MARKETS. DentalCo selectively enters new markets through
strategic acquisitions of, or affiliations with, dental practices. New markets
are identified by a site selection team that determines those dental practices
with potential to form clusters in a targeted market. The Company determines
whether a market is attractive based on demographics, growth potential, the
opportunity for managed care and the regulatory environment. Following an
acquisition or affiliation in a new market, the Company implements its operating
model to cluster sites, integrate specialists, expand hours of operation,
negotiate managed care contracts and assist practices with marketing and
advertising. Since 1996, the Company has entered markets in eight states through
affiliations or acquisitions and expanded its presence in those markets through
additional acquisitions, affiliations or construction of new sites.
ATTRACT AND RETAIN DENTISTS. DentalCo believes it is an attractive
alternative for dentists who maintain an individual practice because it provides
access to a large and stable patient base, flexible scheduling, fully equipped
facilities, capital and administrative resources and integrated management
information systems. The DentalCo environment enables general dentists and
specialists to focus on the practice of dentistry and removes the administrative
burden of practice management and patient base development. Through employment
contracts, the Company provides incentives to general dentists and specialists
based on certain performance criteria. The Company assists in the recruitment of
Affiliated Dentists through local references, selective use of professional
recruiters and advertising and the development and enhancement of relationships
with academic institutions, such as the Bowman Gray School of Medicine at Wake
Forest University.
INCREASE PPO AND CAPITATED CONTRACTING. The Company believes that the
population covered under PPO and capitated plans will increase and that DentalCo
is an attractive provider to these plans due to its broad network which provides
convenient access to patients covered by such plans. The Company's integrated
management information systems are capable of processing significant amounts of
information required by such plans. The Company has extensive experience
contracting with PPO and capitated plans and will use its integrated management
information systems to analyze and negotiate such contracts. As of June 30,
1997, the Company and the Affiliated Service Practices had contracts with 24
capitated plan providers and 30 PPO providers, including regional and national
plans, such as CIGNA Dental Health of Maryland, Prudential Insurance Company of
America and Aetna Health Management, compared to contracts with eight capitated
plan providers and five PPO plan providers as of January 1, 1996. The Company is
also seeking to expand coverage from a regional to national basis by
capitalizing on its existing relationships with major providers.
IMPLEMENT INTEGRATED MANAGEMENT INFORMATION SYSTEMS. The Company is
implementing integrated management information systems designed to create and
monitor individual patient treatment plans for the Affiliated Dentists and to
provide daily performance information, analysis of trends in revenue and
centralized billing and collection capabilities. The Company is installing a
customized software system at each Dental Site which will be linked to the
Company by a wide area network. Upon completion, the integrated management
information systems will provide access to data from all Dental Sites on a real
time basis compared to the current system which distributes such data within 24
hours. The integrated management information systems are expected to be
implemented at the Affiliated Service Practices, other than Nanston and Modern,
in the fourth quarter of 1997, and at all Dental Sites by the end of 1998, at a
cost of approximately $2.0 million. However, there can be no assurance that the
management information systems will be implemented on this anticipated schedule.
50
<PAGE>
SERVICES AND OPERATIONS
OPERATING MODEL. The Company's operating model is designed to maximize
gross revenue through increased dental chair utilization by capturing payments
for the provision of both general and specialty dental care services. The
Company accomplishes this through the clustering of dental sites and the
integration of specialists therein. A cluster is formed by acquiring,
affiliating with or constructing dental sites that are close to each other and
by employing and contracting with general dentists and specialists to staff
these sites. A cluster requires a number of dental sites and a number of dental
chairs at such sites sufficient to provide a comprehensive range of
multi-disciplinary dental care services in an efficient manner for both patient
and provider. Clusters enable specialists to rotate through different sites,
providing the patient base within each cluster with comprehensive dental care
services. Generally, specialists provide services from the same chair used by
general dentists. Depending upon the demographics of a particular geographic
region, the Company may refer patients requiring specialty services from one
Dental Site to another Dental Site within the cluster that provides those
specialty services. Demographic factors the Company may consider include patient
base size, the number of patients who are members and the benefit structure of
PPO and capitated plans and proximity of the sites that form the cluster.
Where the Company has established clusters, it has generally been able to
retain and increase revenues that otherwise would have been lost to other dental
service providers and has been able to increase its specialty revenue, which
typically provides higher operating margins. As of June 30, 1997, specialty care
accounted for approximately 35% of the Company's gross revenue, which the
Company believes is in excess of the national average, reflecting the Company's
ability to diagnose and treat within its clusters, patients requiring specialty
dental services. Clustering also facilitates the Company's ability to negotiate
PPO and capitated contracts on behalf of the Affiliated Service Practices. In
addition, a Dental Site providing specialty services within a cluster may be
designated as a dental site for the provision of specialty services under PPO or
capitated plans, increasing the Affiliated Service Practice's patient base and
gross revenue.
The Company also increases dental chair utilization by providing extended
hours of operation, expanding its patient base and using dental assistants and
hygienists efficiently. The Dental Sites are generally open on weekdays from
8:00 a.m. to 5:00 p.m. and many offer extended hours on certain weeknights and
weekends. Each Affiliated Service Practice also seeks to expand its patient base
by marketing its services to existing and potential new patients. To increase
productivity, the Company, where permitted, may advise the Affiliated Service
Practices to make greater use of dental assistants and hygienists under the
supervision of dentists.
Once a practice is acquired, affiliated with or constructed, the DentalCo
operating model is implemented. Newly acquired or built sites typically require
18 to 24 months to fully implement the operating model and successfully increase
dental chair utilization. The Company believes that the Affiliated Practices
will generate increased dental chair utilization as DentalCo implements its
operating model.
SITE SELECTION AND ACQUISITION POLICY. After identifying a desirable
market, the Company acquires the assets or stock of certain practices within
that market to form a cluster. The Company identifies desirable markets based
upon population density, income level, pace of community development and the
potential demand for managed care. Once the Company has identified a market, it
affiliates with or acquires sites located close to each other to form a cluster.
If the regulatory requirements of a particular state permit the Company to own
only certain assets of a dental practice, the Company will acquire only those
assets which it may properly acquire. The remaining assets will be acquired by a
practice affiliated with the Company that is permitted to own such assets. A
subsidiary of the Company will then affiliate with the owner of such assets
through a management services agreement, pursuant to which such subsidiary of
the Company administers the day-to-day business operations of the practice. In
certain states, regulations permit specially formed subsidiaries to own, operate
and manage a dental site. In such states a subsidiary of the
51
<PAGE>
Company will own, manage and operate the dental site and employ the dentists.
The dental practice maintains control and supervision over the provision of all
dental care services.
The Company seeks to acquire or affiliate with practices that generate a
high level of fee-for-service revenues with a stable patient base and little or
no specialty services performed on site. Typically, general dentists who
affiliate with or are employed by a Company subsidiary or dental practice have
at least three years of general practice experience or one year of general
practice residency. To identify dentists within a particular market, the Company
pursues referrals from Affiliated Dentists as well as referrals from the
academic community and accredited residency programs.
DENTAL SITES. At August 31, 1997, the Company provides dental practice
management services to Affiliated Practices in eight states that operate 45
Dental Sites, with 496 dental chairs under management. The Affiliated Service
Practices employ or contract with 88 full time general dentists and 21
specialists. Further, each Dental Site is generally staffed with dental
hygienists, dental assistants and one or more of either a site manager, a
receptionist and an appointment scheduler. Services provided by the Dental Sites
include general dentistry (examinations, cleanings, filling cavities, bonding
and fitting crowns and bridges) as well as specialty services. Each cluster has
or will have available to it upon implementation of the Company's operating
model, a periodontist, prosthodontist, orthodontist, oral surgeon, pedodontist
and endodontist, each of which may rotate among the facilities that comprise a
given cluster.
52
<PAGE>
The following is a list of Dental Sites for the Affiliated Practices at
August 31, 1997, and does not include the 14 Dental Sites and 167 dental chairs
under management connected with the Management Practices:
<TABLE>
<CAPTION>
DENTAL CHAIRS
DENTAL SITES UNDER MANAGEMENT SERVICES PROVIDED
- -------------------------------- --------------------- -----------------------------------------------------------
<S> <C> <C>
GEORGIA
Metropolitan Atlanta:
Atlanta..................... 22 Endodontics, Oral Medicine, Oral Surgery, Prosthodontics,
Periodontics and General Dentistry
Gwinett..................... 17 Endodontics, Orthodontics, Pedodontics, Periodontics and
General Dentistry
Decatur..................... 14 Orthodontics and General Dentistry
Douglasville................ 6 Orthodontics and General Dentistry
Fayetteville................ 14 General Dentistry
Greenbriar.................. 6 General Dentistry
Lawrenceville............... 21 General Dentistry
Norcross.................... 12 General Dentistry
North Cobb.................. 22 Orthodontics, Pedodontics, Periodontics and General
Dentistry
Roswell..................... 12 Orthodontics and General Dentistry
Snellville.................. 7 General Dentistry
Southlake................... 19 Endodontics, Oral Surgery, Orthodontics, Pedodontics,
Periodontics and General Dentistry
---
TOTAL GEORGIA............... 172
---
MARYLAND
Annapolis..................... 20 Endodontics, Oral Surgery, Orthodontics, Pedodontics,
Periodontics, Prosthodontics and General Dentistry
Metropolitan Baltimore:
Cross Keys.................. 5 General Dentistry
Lake Falls.................. 5 Oral Surgery, Orthodontics, Periodontics and General
Dentistry
Pikesville.................. 8 Oral Surgery, Periodontics and General Dentistry
BelAir North.................. 8 Endodontics, Periodontics, and General Dentistry
BelAir South.................. 11 Oral Surgery, Orthodontics, Pedodontics and General
Dentistry
Columbia...................... 34 Endodontics, Oral Surgery, Orthodontics, Pedodontics,
Periodontics, Prosthodontics and General Dentistry
East Point.................... 4 Periodontics and General Dentistry
Forestville................... 5 Endodontics, Orthodontics, Pedodontics, Periodontics and
General Dentistry
Frederick..................... 8 Oral Surgery, Orthodontics, Periodontics and General
Dentistry
Parkville..................... 12 Oral Surgery, Orthodontics and General Dentistry
---
TOTAL MARYLAND.............. 120
---
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
DENTAL CHAIRS
DENTAL SITES UNDER MANAGEMENT SERVICES PROVIDED
- -------------------------------- --------------------- -----------------------------------------------------------
<S> <C> <C>
PENNSYLVANIA
Metropolitan Philadelphia:
Market Street............... 10 Endodontics, Pedodontics, Periodontics, Prosthodontics,
Oral Surgery and General Dentistry
Welsh Road.................. 18 Endodontics, Pedodontics, Periodontics, Prosthodontics,
Oral Surgery and General Dentistry
Gallery II Mall............. 9 Periodontics and General Dentistry
Bensalem.................... 7 General Dentistry
Cheltenham.................. 10 General Dentistry
Hershey....................... 10 Oral Surgery, Periodontics, Prosthodontics and General
Dentistry
King of Prussia............... 9 Endodontics, Oral Surgery, Prosthodontics and General
Dentistry
Springfield................... 12 Endodontics, Oral Surgery, Periodontics and General
Dentistry
Upper Darby................... 11 Pedodontics, Prosthodontics, Oral Surgery and General
Dentistry
---
TOTAL PENNSYLVANIA............ 96
---
NORTH CAROLINA
Wake Forest................... 17 Oral Surgery, Orthodontics, Periodontics and General
Dentistry
---
TOTAL NORTH CAROLINA.......... 17
---
INDIANA
Granger....................... 5 Orthodontics, Pedodontics and General Dentistry
Laporte....................... 4 Pedodontics and General Dentistry
Plymouth...................... 4 Orthodontics, Pedodontics and General Dentistry
South Bend.................... 30 Orthodontics, Pedodontics and General Dentistry
Warsaw........................ 4 Pedodontics and General Dentistry
---
TOTAL INDIANA................. 47
---
COLORADO
Boulder....................... 11 Endodontics and General Dentistry
Lakewood...................... 8 Orthodontics and General Dentistry
Littleton..................... 4 General Dentistry
---
TOTAL COLORADO................ 23
---
VIRGINIA
Fredricksburg................. 5 General Dentistry
Woodbridge.................... 5 Orthodontics, Periodontics and General Dentistry
Manassas...................... 8 Periodontics and General Dentistry
---
TOTAL VIRGINIA................ 18
---
MICHIGAN
Niles......................... 3 Pedodontics and General Dentistry
---
TOTAL MICHIGAN................ 3
---
TOTAL....................... 496
---
---
</TABLE>
54
<PAGE>
OPERATIONS. By managing the non-clinical day-to-day operations of a Dental
Site, the Company provides an environment where Affiliated Dentists can focus on
the practice of dentistry and can realize additional income from an increased
patient flow generated by a larger multi-disciplinary practice. The Company
operates by providing dental care management services to an Affiliated Service
Practice through a Subsidiary or by owning, operating and managing an Owned
Practice. In certain limited circumstances, the Company will also enter into
management fee agreements under which a Management Practice pays a monthly fee
for the provision of management services. The Company offers one or more of the
following, depending upon state regulations: (i) screening, credentialing and
advising the Affiliated Practices relating to the recruitment of dentists and
hygienists; (ii) recruiting, hiring and training of non-professional and
administrative personnel (the Affiliated Service Practices may retain the right
to approve the hiring of such personnel); (iii) billing, collection and payroll
services for the Affiliated Practices; (iv) use of management information
systems specially designed to integrate and analyze information at each Dental
Site; (v) negotiation of PPO and capitated contracts; (vi) dental office space
and related furniture and equipment; (vii) dental and office supplies; (viii)
marketing and public relations through local advertising and use of toll-free
telephone numbers; and (ix) comprehensive health, dental and malpractice
insurance to all of the Affiliated Dentists employed by the Affiliated
Practices.
The Company's organizational strategy is to centralize those functions where
financial control is important or where efficiency can be achieved. Day-to-day
operational activities and the delivery of dental care are the responsibility of
the Affiliated Dentists and the individual Dental Sites.
The Company's operations are divided into six regions, Georgia, Northeast,
Mid-Atlantic, North Carolina, Indiana and Colorado. When fully operational, each
region's organizational structure is designed to have a maximum of six
positions, including clerical staff. The actual number of personnel in any one
region will depend on the revenue dollars of the region and ranges from one
person in the Company's smallest region to six in the Company's largest. The
activities of the regional staff are focused on monitoring the performance of
the Affiliated Dentists and providing management assistance in implementing the
Company's multi-disciplinary model. In addition, these staffs participate in the
acquisition process by identifying potential acquisition candidates, the need
for expansion at existing sites or the opening of new sites. Personnel at the
site and regional levels are given incentives to maximize operating income
through a profit-sharing program.
Headquarters' staff is responsible for management information systems,
billing and collections, financial controls, negotiation of contracts with
managed care companies and providing the regions and Dental Sites with
sufficient financial, clerical and operational data to monitor performance and
achieve goals. The Company is in the process of consolidating some
administrative functions at Nanston and Modern into headquarters.
DIAGNOSIS AND TREATMENT PLAN. On the patient's initial visit to a Dental
Site, the patient is diagnosed by a dentist who develops a comprehensive
treatment plan that meets the patient's dental health needs on a cost-effective
basis. The treatment plan is designed to prescribe a series of treatments that
will bring the patient to a state of dental health such that the patient's
dental needs are limited to maintenance and routine services. The treatment plan
is revised as necessary based upon follow up visits. If a treatment plan is
followed in its entirety by a patient, the Company believes the dental care
needs of that patient and the costs of providing such services can be reasonably
predicted. Where implemented, the Company utilizes its integrated management
information systems to facilitate implementation of the treatment plan by
coordinating all appointments required with the services to be delivered by the
general dentist or specialist under the treatment plan. In addition, the
integrated management information systems provide general information that may
be used to negotiate with managed care companies.
SCHEDULING. The Company believes effective scheduling enables the
Affiliated Service Practices to efficiently utilize dental chairs and to
maximize revenue. The Company believes traditional scheduling results in
unpredictability of revenue levels due to cancellations. Each Dental Site will
utilize the
55
<PAGE>
Company's integrated management information systems to schedule patient
appointments, reschedule canceled appointments and coordinate the provision of
specialty services. The system catalogs relevant information about each patient,
including the services to be provided, status and type of insurance and the fees
to be charged. This enables the site to estimate the revenue that will be
generated on a given day and react quickly to cancellations, substituting
previously unscheduled patients requiring similar treatment. These substitutions
enable the Company to increase utilization of dental chairs and increase revenue
per dental chair.
MANAGEMENT. The Company formulates strategies and policies relating to
non-dental operations of the Affiliated Service Practices and implements the
Company's acquisition strategy. Management negotiates the terms of acquisitions
or affiliations and managed care contracts and supervises the implementation of
budgeting, accounting, billing, finance and administrative policies. The
Executive Vice President, Clinical Operations, supervises employment matters
with respect to the Affiliated Dentists and assists the Affiliated Dentists in
the creation of and compliance with review standards and continuing professional
education courses for the Affiliated Dentists.
PAYOR MIX. The Company derives revenue from third-party payment
arrangements including indemnity insurance, PPO and capitated dental care plans.
Under indemnity insurance plans, the patient or the patient's employer pays
insurance premiums and the insurance company reimburses the dentist for all or a
portion of the dentist's usual and customary charges, with the patient paying
the portion not covered by insurance. Under PPO plans, dentists agree to provide
dental care services to plan members on a discounted fee-for-service basis.
Under capitated plans, a dental practice receives a fixed monthly amount for
each plan member covered for services regardless of the quantity or cost of
services that dental practice is obligated to provide. Capitated plans shift the
risk of higher than expected levels of utilization to the patient and the dental
group practice providing the dental care services. Members of capitated plans
pay the Affiliated Service Practices, as applicable, additional amounts as
co-payments for procedures not covered by capitation. The relative size of
capitation payments and co-payments varies in accordance with the level of
benefits provided and plan design.
The Company attempts to increase revenue and maximize profitability from
both fee-for-service and capitated plan collections. Fee-for-service revenue
includes fees paid by indemnity insurers, fees from PPO plans and direct patient
billings. In addition, the Company actively negotiates to obtain contracts with
capitated plan providers on behalf of the Affiliated Service Practices. Based on
its experience and use of its integrated management information systems, the
Company analyzes clinical and statistical data on a timely basis and believes it
can reduce the risks of higher than expected levels of utilization under
capitated payment arrangements. The Company believes its significant presence in
select geographic areas enables it to negotiate more favorable contractual terms
with managed care companies.
56
<PAGE>
In 1996 and the six months ended June 30, 1997, the Company's pro forma
gross revenue was generated from the following sources:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
------------------- ------------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Fee-for-service.......... $24,029 41.4% $ 9,878 32.7%
Capitated dental plans:
Capitation payments.... 15,359 26.5 7,678 25.4
Co-payments............ 18,032 31.1 11,426 37.8
Management fees.......... 635 1.0 1,240 4.1
-------- -------- ---------- -----
Total.................... $58,055 100.0% $30,222 100.0%
-------- -------- ---------- -----
-------- -------- ---------- -----
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INDIANA
COMPANY NANSTON MODERN DENTAL OTHER
-------------- -------------- -------------- ------------- -------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fee-for-service................................... $ 4,692 37.7% $ 2,889 13.7% $ 6,035 47.6% $2,997 70.7% $7,415 98.6%
Capitated dental plans:
Capitation payments............................. 2,086 16.7 8,127 38.4 4,301 33.9 800 18.9 45 .6
Co-payments..................................... 5,608 45.0 9,987 47.2 1,935 15.2 441 10.4 62 .8
Management fees................................... 70 .6 150 .7 415 3.3 -- -- -- --
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Total............................................. $12,456 100.0% $21,153 100.0% $12,686 100.0% $4,238 100.0% $7,522 100.0%
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
</TABLE>
COLLECTIONS. The Affiliated Practices generally provide a wide range of
payment options, including cash, check, credit card and deferred payment plans.
Dental services, other than orthodontic services, are paid for by the patient or
billed to the patient's insurance carrier on the date the services are rendered.
Higher cost orthodontic services may be provided under a payment plan developed
between the Affiliated Practice and the patient. The Affiliated Practices also
provide patient payment plans for other services above certain dollar amounts
and encourage patients to utilize the service of third party credit companies
which provide credit to patients, without recourse to the Company, that have
entered into contracts with the Affiliated Practices and can generally approve
credit applications during a patient's visit. The Company believes that its
financing options are a competitive advantage compared to individual
practitioners and small group practices without such options. Historically, the
Company's experience has been that approximately 3% to 5% of gross revenue are
uncollectible.
AFFILIATION STRUCTURE AND CONTRACTUAL RELATIONSHIPS
The Company conducts its operations through Services Agreements in Georgia,
Maryland, Pennsylvania, North Carolina, Virginia and Michigan under the terms of
which the Company receives a percentage of net collections (gross revenues less
adjustments for bad debts) by the Affiliated Service Practices ranging from 60%
to 80% and, in some cases, a percentage of capitation payments. In Indiana and
Colorado, state law permits the Owned Practices to acquire the assets of or
merge with and directly employ dentists. In North Carolina, New Jersey,
Pennsylvania and Missouri, the Company provides administrative services to the
Management Practices and receives a monthly fee.
Except in Colorado and Indiana, the Company does not employ Affiliated
Dentists who practice at the Dental Sites. In Colorado and Indiana, the Owned
Practices have entered into employment contracts with the Affiliated Dentists,
typically for terms of one year and terminable by the Company or the dentist
upon 60 to 90 days notice. In the other six states, the Affiliated Service
Practices employ or contract with the Affiliated Dentists and other professional
personnel to provide professional and related support services at the Dental
Sites. Many of the Affiliated Dentists' employment contracts provide that the
57
<PAGE>
general dentist or specialist has the potential to earn certain performance
incentives based upon the revenue he or she generates and may have the potential
to earn certain performance incentives that are related to the overall
profitability of the site or sites at which the particular dentist or specialist
practices. The employment agreements also contain non-compete and
non-solicitation provisions which limit the actions a dentist may take after
leaving the Affiliated Service Practice. Where an Affiliated Service Practice
has entered into an employment agreement, the agreement typically may be
terminated by the Affiliated Service Practice or the employee upon 30 to 180
days advance notice. Generally, non-professional staff receive a base salary and
also participate in site performance incentives. As the Company implements its
operating model, the Affiliated Practices may contract with specialists to
provide their services to a Dental Site or cluster on a part-time basis. When
the operating model is fully implemented, the Affiliated Practices will contract
with or employ these specialists on a full-time basis to enable the provision of
a comprehensive range of dental care services.
GOVERNMENT REGULATION
GENERAL. The practice of dentistry is highly regulated, and there can be no
assurance that the regulatory environment in which the Company and the Dental
Practices operate will not change significantly in the future. In general,
regulation of healthcare related companies is increasing.
Every state imposes licensing and other requirements on individual dentists
and dental facilities and services. In addition, federal and state laws regulate
health maintenance organizations and other managed care organizations for which
dentists may be providers. In connection with its operations in existing markets
and expansion into new markets, the Company may become subject to compliance
with additional laws, regulations and interpretations or enforcements thereof.
The ability of the Company to operate profitably will depend in part upon the
Company and its Dental Practices obtaining and maintaining all necessary
licenses, certifications and other approvals and operating in compliance with
applicable health care regulations.
Dental practices must meet federal, state and local regulatory standards in
the areas of safety and health. Historically, those standards have not had any
material adverse effect on the operations of the dental practices managed by the
Company. Based on its familiarity with the operations of the dental practices
managed by the Company, management believes that the Company and the practices
that it manages are in compliance in all material respects with all applicable
federal, state and local laws and regulations relating to safety and health.
FEDERAL FRAUD AND ABUSE. Federal law prohibits the offer, payment,
solicitation or receipt of any form of remuneration in return for, or in order
to induce, (i) the referral of a person for services, (ii) the furnishing or
arranging for the furnishing of items or services or (iii) the purchase, lease
or order or arranging or recommending purchasing, leasing or ordering of any
item or service, in each case, reimbursable under Federal Programs. Because
dental care services are covered under various governmental programs, including
Medicaid, the law applies to dentists and the provision of dental care services.
Pursuant to this anti-kickback law, the federal government announced a policy of
increased scrutiny of marketing activities, joint ventures and other
transactions among health care providers in an effort to reduce potential fraud
and abuse related to federal healthcare. Many states have similar anti-kickback
laws, and in many cases these laws apply to all patients, not just federal
health program beneficiaries. A number of states also have enacted laws that
prohibit referrals for certain services such as x-rays by dentists if the
dentist has certain enumerated financial relationships with the entity receiving
the referral, unless an exception applies. The applicability of these federal
and state laws to many business transactions in the health care industry,
including those intended by the Company, has not yet been subject to judicial
interpretation.
Noncompliance with, or violation of, the federal anti-kickback legislation
can result in exclusion from Federal Programs and civil and criminal penalties.
Similar penalties are provided for violation of state anti-
58
<PAGE>
kickback and self-referral laws. To the extent that the Company or any
Affiliated Practice is deemed to be subject to these federal or similar state
laws, the Company believes its intended activities will comply in all material
respects with such statutes and regulations.
STATE LEGISLATION. The laws of many states prohibit dentists from splitting
fees with non-dentists and prohibit non-dental entities, such as the Company,
from practicing dentistry and from employing dentists or, in certain
circumstances, dental assistants. Under such laws, the Company is prohibited
from exercising control over the provision of dental care services or, in
certain cases, from being paid for services in a way that is directly or
indirectly related to the revenues of the practice. State laws typically permit
a dentist to operate a dental practice only as an individual, a member of a
partnership or as an employee of a professional corporation, and prohibit,
either by specific provision or as a matter of general policy, a dentist from
conducting a dental practice as an employee of a business corporation. The laws
of some states prohibit the advertising of dental care services under a trade or
corporate name and require that all advertisements be made in the name of the
dentist. A number of states also regulate the content of advertisements of
dental care services and the use of promotional gift items. In addition, a
number of states limit the ability of a non-licensed dentist to own or control
equipment or offices used in a dental practice. Some of these states allow
leasing of equipment and office space to a dental practice, under a bona fide
lease, if the equipment and office remain in the complete care and custody of
the dentist. Management believes that the Company's current and planned
activities do not violate these statutes and regulations. There can be no
assurance, however, that future interpretations of such laws, or the enactment
of more stringent laws, will not require structural and organizational
modifications of the Company's existing contractual relationships with the
Affiliated Dentists or the operation of its Dental Practices. In addition,
statutes in some states could restrict expansion of Company operations into
those jurisdictions.
In addition, there are certain regulatory risks associated with the
Company's role in negotiating and administering managed care contracts. The
application of state insurance laws to arrangements other than various types of
fee-for-service arrangements is an unsettled area of law that provides little
guidance. As the Company or its Dental Practices contract with third-party
payors, including self-insured plans, for certain non fee-for-service basis
arrangements, the Company may become subject to state insurance laws.
Specifically, in some states, regulators may determine that the Company or the
Dental Practices are engaged in the business of insurance, particularly if they
contract directly with self-insured employers or another entity that is not
licensed to engage in the business of insurance. To the extent that the Company
or the Dental Practices are determined to be engaged in the business of
insurance, the Company may be required to change the form of its relationships
with third-party payors and the Company's revenues may be adversely affected.
REGULATORY COMPLIANCE. The Company regularly monitors developments in laws
and regulations relating to dentistry. The Company may be required to modify its
agreements, operations and marketing from time to time in response to changes in
the business, statutory and regulatory environment. The Company plans to
structure all of its agreements, operations and marketing in accordance with
applicable law, although there can be no assurance that its arrangements will
not be challenged successfully or that required changes may not have a material
adverse effect on operations or profitability.
FACILITIES AND EMPLOYEES
The Company's corporate headquarters are located at 6115 Falls Road,
Baltimore, Maryland in approximately 8,600 square feet occupied under a lease
that expires September 1998. Both Nanston and Modern lease office space in
connection with the operation of the Affiliated Practices in Georgia and
Pennsylvania, respectively. The Nanston lease relates to approximately 11,400
square feet and expires May 31, 2008. The Modern lease relates to approximately
7,600 square feet and will expire May 2006.
59
<PAGE>
The Company also leases real estate at the location of each Dental Site. For
the year ended December 31, 1996, the Company had lease costs of approximately
$766,000. The Company anticipates that it will continue to lease the sites
formerly utilized by the selling dentists. See "Certain Transactions."
As of August 31, 1997, the Company had 898 full and part time employees.
Approximately 782 were employed at the Dental Sites and 116 were employed at the
Company's headquarters in Baltimore, Maryland or the regional administrative
centers in Atlanta, Georgia or Philadelphia, Pennsylvania. None of the Company's
employees is represented by a labor union.
INSURANCE
The provision of dental care services entails an inherent risk of
professional malpractice and other similar claims. Although the Company does not
influence or control the practice of dentistry, the Company periodically is
involved as a defendant in malpractice claims. The Company and the Affiliated
Service Practices maintain professional liability coverage of $1.0 million per
occurrence and $3.0 million in the aggregate for its Affiliated Dentists and
dental hygienists, except for Nanston and Modern which are covered under
separate policies with the same coverage limits. Pursuant to terms of certain of
the purchase agreements for the Acquisitions, the Company has certain limited
rights of indemnification from the sellers of the practices. In addition, the
Company maintains property and employment practices insurance policies and an
umbrella liability insurance policy with coverage of $10.0 million. The Company
intends to implement a new professional liability insurance program for itself,
the Affiliated Service Practices and each Affiliated Dentist effective January
1, 1998. While the Company believes that its insurance coverage is adequate for
the Company's business, there can be no assurance that a future successful claim
will not exceed the limits of available insurance coverage or that such coverage
will continue to be available at acceptable costs and on favorable terms.
COMPETITION
The dental care services industry is highly competitive and has undergone
significant change in the method in which dental care services are provided and
the manner in which dental care providers are selected and compensated. The
Company competes with other dental practice management companies which seek to
acquire the assets of, provide administrative and other services to and
affiliate with existing dental practices, several of which have financial,
marketing and other competitive resources greater than those of the Company. In
addition, the Company may also compete with managed care providers. The business
of providing dental care services is highly competitive in each of the markets
in which the Dental Sites operate. In addition, companies in other dental care
industry segments, such as managed care companies, many of which have financial
and other resources greater than those of the Company, may become competitors in
acquiring or providing dental practice management services to dental care
providers. Further, the Affiliated Dentists compete with dentists who operate
single offices, as well as with dentists who maintain group practices or operate
in multiple offices.
LEGAL PROCEEDINGS
During the ordinary course of business, the Company and the Dental Practices
have become and may in the future be subject to pending and threatened legal
action and proceedings. From time to time, the Company is subject to litigation
incidental to its business. The Company may have liability with respect to its
own employees as well as the dentists associated with the Dental Practices. The
pending legal proceedings against the Company, the Affiliated Dentists and the
Affiliated Practices include claims of dental malpractice, which are generally
covered by insurance. Based on the investigations conducted to date, the Company
believes that the outcome of such legal actions and proceedings, individually or
in the aggregate, will not have a material adverse effect on the Company's
financial condition, results of operations or liquidity. See "Risk
Factors--Professional Liability and Insurance."
60
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding the executive officers
and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Lawrence F. Halpert, D.D.S........................... 61 Chairman of the Board of Directors and Chief
Executive Officer
Carl J. Sardegna..................................... 59 President and Director
Barbara J. Piatt..................................... 43 Senior Vice President and Chief Financial Officer
E. James Kuhns....................................... 58 Executive Vice President, Acquisitions
Errol L. Reese, D.D.S................................ 58 Executive Vice President, Clinical Operations
W. Roger Drury (1)................................... 50 Director
M. Fazle Husain (1).................................. 33 Director
John C. Johnston, D.D.S.............................. 63 Director
James E. Jordan, M.D. (2)............................ 63 Director
John S. Nord (1)..................................... 54 Director
Oliver S. Travers (2)................................ 71 Director
Hugh A. Woltzen (2).................................. 51 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
LAWRENCE F. HALPERT, D.D.S. has been Chairman of the Board and Chief
Executive Officer of the Company since January 1995. Dr. Halpert was the
founder, Chief Executive Officer and Chairman of the Boards of predecessor
companies Chambers and Periodontal. Further, he was the Chairman of the Board of
Dental Management Corporation and the Annapolis Plan of Dental Health Care, Inc.
from 1983 until 1994. Dr. Halpert has also served on the Boards of Directors of
NationsBank Maryland from 1988 to 1994 and CentraBank of Maryland from 1982 to
1988. Dr. Halpert is a Fellow of both the American and International Colleges of
Dentists and Omicron Kappa Upsilon Honorary Dental Fraternity.
CARL J. SARDEGNA has been President of the Company since January, 1995.
Prior to joining DentalCo, he served as an independent management consultant
from 1993 to 1994. Previously, he served as the Chairman and Chief Executive
Officer of Blue Cross and Blue Shield of Maryland, Inc. from 1986 to 1993, and
as Executive Vice President of UNUM Life Insurance Corporation from 1975 to
1986.
BARBARA J. PIATT has been the Chief Financial Officer and a Senior Vice
President since March 1997. From 1995 to 1997, she was an information systems
consultant to First Union Corporation. Prior to that time, Ms. Piatt was Chief
Financial Officer of Health Systems Group, a division of First Data Corporation
from 1993 to 1995, a Strategic Business Consultant to i-Stat Corporation of
Princeton, New Jersey from 1992 to 1993 and a Vice President of Marketing at
Baxter Healthcare from 1978 to 1992.
E. JAMES KUHNS joined the Company's predecessor in May 1994 as Senior Vice
President and Chief Financial Officer. In March, 1997 he was named Executive
Vice President, Acquisitions. Prior to joining the Company, Mr. Kuhns served as
the Vice President and Treasurer of Youth Services International, Inc. from 1991
to 1994. Mr. Kuhns is a CPA formerly with Ernst & Young.
ERROL L. REESE, D.D.S. joined the Company as Senior Vice President, Clinical
Operations in January 1996 and was appointed Executive Vice President, Clinical
Operations in March 1997. Dr. Reese served as the President of the University of
Maryland at Baltimore from 1990 to 1994 and as Dean of the
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<PAGE>
Baltimore College of Dental Surgery, Dental School from 1974 to 1990. Dr. Reese
is a Fellow in the American College of Dentists and the International College of
Dentists and is a member of the World Health Organization.
W. ROGER DRURY has been a Director of the Company since May 1997. Mr. Drury
was formerly Chief Financial Officer of Humana, Inc. from 1992 to 1996. Prior to
that he was Senior Vice President, Finance, at Humana. Mr. Drury has held the
following Directorships in the past: Bellarmine College, Louisville Chamber of
Commerce, Leadership Louisville, U.S. Behavioral Health, Healthcare Recoveries,
and CMG Health, Inc.
M. FAZLE HUSAIN has served as a Director of the Company since August 1996.
Mr. Husain is a general partner of Morgan Stanley Venture Partners II, L.P.
where he has been employed since 1991 and of certain partnerships affiliated
with Morgan Stanley that beneficially own Common Stock of the Company. Mr.
Husain is a director of U.S. Healthworks, Inc. and has also served as a director
of the following companies during the past five years: Enterprise Systems, Inc.,
Cambridge Heart, Inc. and The Compucare Company.
JOHN C. JOHNSTON, D.D.S. has served as a Director of the Company since
January 1997 and was founder, Chairman of the Board of Directors and Chief
Executive Officer of Nanston, Inc. prior to its merger with DentalCo. Dr.
Johnston founded Nanston's predecessor organizations, Employee Dental Services,
a private practice consolidation company and Nanston, Inc., a dental management
service organization, in 1977.
JAMES E. JORDAN, M.D. has been a Director of the Company since 1995 and is
currently a practicing physician for the Columbia Medical Plan, Inc. Dr. Jordan
was the Senior Vice President of Medical Affairs for Blue Cross and Blue Shield
of Maryland, Inc. from August 1993 until 1994. Dr. Jordan served as the
President of the Patuxent Medical Group Inc. and the Medical Director of the
Columbia Medical Plan from 1974 to 1994, serving as the President and Chief
Executive Officer of the Columbia Medical Plan, Inc., a subsidiary of Blue Cross
and Blue Shield of Maryland, Inc., from 1991 to 1994.
JOHN S. NORD has been a Director of the Company since May, 1997. Since 1995,
he has been Chief Executive Officer of U.S. Healthworks. Prior to that, from
1993 to 1995, Mr. Nord served as Chief Executive Officer of ASB Meditest. Mr.
Nord is a Trustee of the Massachusetts Arthritis Foundation.
OLIVER S. TRAVERS has been a Director of the Company since May 1997. Since
1990, he has been President and Chief Executive Officer of Schenuit Investments,
Inc. Prior to that, Mr. Travers served as President and Chief Executive Officer
of Allegheny International. Mr. Travers has served as Director of the following
companies: MNC Financial, Hunter-Melnor Corporation, Allegheny International,
and Waverly Inc.
HUGH A. WOLTZEN has been a Director of the Company since July 1995 and is a
Managing Director of Grotech Capital Group, a venture capital firm of which he
has been a partner since 1993. Prior to that, Mr. Woltzen was Executive Vice
President of MNC Financial, Inc., a bank holding company. Mr. Woltzen is a
director of The Americom Group, Enterprise Network Applications, Inc., The
Regency Corporation, Network Construction Services, Inc., Grotech MWA, Inc. and
Grotech Capital Group, Inc. and has also served as a Director of the following
companies during the past five years: MNC Affiliates Group, Inc., and American
Auto Funding Corporation.
Each director holds office until his successor is duly elected and
qualified, or until the earlier of his death, resignation or removal. Pursuant
to the By-Laws, the directors hold office for one year and until their
successors are duly elected and qualified.
There are no family relationships among any of the executive officers or
directors of the Company.
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<PAGE>
DIRECTOR COMPENSATION
Directors have not received compensation for their service on the Board of
Directors prior to this Offering. Upon completion of this Offering, the
directors will be compensated for their service on the Board of Directors at the
rate of $1,000 per meeting plus expenses and be eligible for options under the
1997 Plan.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee's principal functions will include making
recommendations to the Board regarding the annual selection of independent
public accountants and reviewing the recommendations of the independent public
accountants as a result of their audit of the Company's financial statements.
The Compensation Committee's principal function will be to establish the
compensation of the officers of the Company and to establish and administer the
Company's compensation programs, including the grant of options under the
Company's Stock Option Plans. No inside directors will be members of the Audit
Committee or Executive Committee. The Board of Directors may from time to time
establish other committees to facilitate the management of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Prior to 1997, the Company had no separate Compensation Committee or other
committee performing equivalent functions. As a result, compensation matters
were performed by the Board of Directors or senior management. None of the
directors expected to serve on the Compensation Committee is an employee of the
Company, and neither the Chief Executive Officer nor any other executive
officers will serve on the Compensation Committee. During the fiscal year ended
December 31, 1996, no executive officer of the Company served as a member of a
compensation committee of another entity, one of whose executive officers
participated in deliberations with the Board of Directors concerning executive
officer compensation of the Company. During this same period, no executive
officer of the Company served as a director of another entity, one of whose
executive officers participated in deliberations with the Board of Directors
concerning executive officer compensation of the Company. Also during this same
period, no executive officer of the Company served as a member of a compensation
committee of another entity of whose executive officers served as a director of
the Company.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth information with
respect to the annual and long-term compensation earned in 1996 by the Chief
Executive Officer and the three other executive officers whose annual salary and
bonus exceeded $100,000 in 1996 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1996 ANNUAL
COMPENSATION
---------------------
<S> <C> <C>
NAME AND PRINCIPAL POSITION (1) SALARY OTHER
- ----------------------------------------------------------------- ---------- ---------
Lawrence F. Halpert, D.D.S.......................................
Chief Executive Officer $ 484,280(2) $ 8,828(3)
Carl J. Sardegna.................................................
President 150,000 6,600(4)
E. James Kuhns...................................................
Executive Vice President, 125,000 6,600(4)
Acquisitions
Errol L. Reese, D.D.S............................................
Executive Vice President, 125,000 6,600(4)
Operations
</TABLE>
- ------------------------
(1) One executive officer, Barbara J. Piatt, joined the Company on March 1,
1997, and would have appeared in the table above had she been employed by
the Company in 1996.
(2) Dr. Halpert received a base salary of $262,374 from DentalCo and $221,906
from MADA in 1996.
(3) Consists of $8,828 for personal use of a Company automobile.
(4) Consists of $500 per month car allowance and $50 per month phone allowance.
EMPLOYMENT AGREEMENTS
The Company has entered into Employment Agreements with Dr. Halpert and Mr.
Sardegna. The Employment Agreements have an initial term of three years and two
years, respectively, and are automatically extended thereafter for successive
one year terms until terminated by either the Company or the employee. The
Employment Agreements provide for annual salaries in 1997 of $474,716 and
$150,000 for Dr. Halpert and Mr. Sardegna, respectively, subject to annual
adjustment at the discretion of the Board of Directors, and for annual cash
bonuses in amounts determined by the Board of Directors. In addition, Dr.
Halpert's salary will be reduced by the gross amount of compensation received by
Dr. Halpert from MADA. Pursuant to the terms of an employment agreement with
MADA, Dr. Halpert will receive a salary from MADA for the provision of dental
care services in the amount of 45% of his production realized by MADA. The
Employment Agreements contain confidentiality provisions and two year
non-compete covenants following termination or expiration of employment, other
than termination by the Company without "cause" in the case of Dr. Halpert (as
defined in the Employment Agreements). In the event the Company terminates the
employment of Dr. Halpert or Mr. Sardegna without "cause" (as defined in the
Employment Agreements), the affected employee would be entitled to three times
in the case of Dr. Halpert or two times in the case of Mr. Sardegna,
respectively, his base salary at the time of his termination. In the event Dr.
Halpert's employment is terminated without cause after a change of control (as
defined in the Employment Agreements) or after the Company's completion of an
offering of capital stock meeting certain terms, Dr. Halpert will be entitled to
three times his aggregate compensation for the last fiscal year prior to the
date of termination.
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<PAGE>
OPTION GRANTS. The Company did not grant any options to the Named Executive
Officers during 1996 under the Stock Option Plans.
OPTION EXERCISES AND HOLDINGS. The following table sets forth information
concerning the number and value of unexercised options to purchase the Company's
Common Stock held at the end of 1996 by the Named Executive Officers. The Named
Executive Officers did not exercise any options during 1996.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12/31/96 AT 12/31/96(1)
-------------------------- ------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Lawrence F. Halpert, D.D.S............................... -- --
Carl J. Sardegna......................................... 80,117 --
E. James Kuhns........................................... 24,177 96,709
Errol L. Reese........................................... 21,155 84,620
</TABLE>
- ------------------------
(1) Based on an assumed initial public offering price of $ per share,
less the option exercise price.
EMPLOYEE BENEFIT PLANS
1995 EQUITY PARTICIPATION PLAN
The Company's Board of Directors and stockholders approved the Company's
1995 Plan in July 1995 for all employees, officers and directors of the Company
and any other corporation in which the Company has acquired a proprietary
interest. A total of 302,214 shares of Common Stock are currently reserved for
issuance under the 1995 Plan. The purpose of the 1995 Plan is to reward
outstanding performance and to provide continuing, long-term incentives to the
employees, officers and directors of the Company. The 1995 Plan authorizes
grants of options that qualify as "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended ("ISOs"),
nonqualified stock options ("NQSOs") and stock appreciation rights ("SARs"). At
the completion of this Offering, options to purchase a total of 302,214 shares
will be outstanding under the 1995 Plan.
The 1995 Plan is administered by a committee of at least two members
appointed by the Board of Directors of the Company (the "Committee") which
determines eligibility, the type of awards to be granted as well as the timing
and size of such awards, exercise dates and such other limitations as it deems
appropriate. Upon the completion of this Offering, the Committee shall be
comprised of non-employee directors. An individual may not be awarded options to
purchase more than 125,000 shares in the aggregate. In the event of a
recapitalization, the aggregate number of shares on which options and SARs may
be granted, the number of shares covered by each option and SAR, and the
exercise price per share shall be proportionately adjusted. Options vest 20% per
year over a five-year period.
1997 OMNIBUS STOCK PLAN
The Company's Board of Directors approved the 1997 Plan in August 1997. All
employees, officers, and directors of the Company, or of any affiliate of the
Company and any other entity designated by the Board of Directors of the Company
are eligible to participate in the plan. The purpose of the 1997 Plan is to
promote long-term growth and profitability of the Company by providing key
employees with incentives to improve stockholder value and to contribute to the
Company's growth and financial success and to enable the Company to attract,
retain and reward the best-available persons for positions of substantial
responsibility. The 1997 Plan permits the granting of stock options (including
ISOs and NQSOs), SARs,
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<PAGE>
restricted and unrestricted stock awards, phantom stock, performance awards, or
any combination of such grants. A total of 1,000,000 shares of Common Stock are
currently reserved for issuance under the 1997 Plan At the completion of this
Offering, no options to purchase shares will be outstanding under the 1997 Plan.
The 1997 Plan is administered by the Board of Directors of the Company, or
by such committee or committees as may be appointed by the Board of Directors of
the Company from time to time (the Board of Directors, committee or committees
hereinafter referred to as the "Administrator"). The Administrator determines
eligibility for awards, the timing of awards, the types of award to be granted,
including the size of such award, the exercise price and the exercise date,
modifications to existing awards and such other limitations as the Administrator
deems appropriate. In the event of any stock dividend, split-up,
recapitalization, merger, consolidation, business combination or exchange of
shares and the like, the Administrator may make appropriate adjustments to the
maximum number and kind of shares reserved for issuance or with respect to which
awards may be granted under the Plan.
401(K) SAVINGS PLAN
The Company maintains the DentalCo, Inc. 401(k) and Investment Plan, a
defined contribution pension plan with a cash or deferred arrangement as
described in Section 401(k) of the Internal Revenue Code of 1986, as amended
(the "401(k) Plan"). The 401(k) Plan is intended to qualify under Section 401(a)
of the Code, so that contributions, and income earned thereon, are not taxable
to employees until withdrawn. All regular full-time Company employees over the
age of 21 are eligible to participate in the 401(k) Plan. The 401(k) Plan
provides that each participant may make elective pre-tax salary deferrals up to
15% of his or her annual compensation, subject to statutory limits. The trustee
of the 401(k) Plan invests each employee's account at the direction of the
employee, who may choose among several investment alternatives, which do not
include shares of Common Stock.
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<PAGE>
CERTAIN TRANSACTIONS
To implement its growth strategy, the Company has engaged in transactions
with venture capital partners, stockholders of acquired businesses and
employees.
VENTURE CAPITAL
On July 18, 1995, the Company issued 26,769 and 13,385 shares of Class A
Preferred Stock to Grotech Partners, IV, L.P. ("Grotech IV") and Merchant
Partners, L.P. ("Merchant"), repectively, in exchange for aggregate proceeds of
$3.0 million.
On April 18, 1996, a limited partnership affiliated with Grotech Partners
loaned to the Company the $200,000 Grotech Loan which will be repaid with the
proceeds of the Offering.
On June 27, 1996, the Company issued 717,877 and 98,161 shares of Series C
Preferred Stock to Morgan Stanley Venture Capital Fund II Annex, L.P. ("Morgan
II") and Morgan Stanley Venture Investors Annex, L.P. ("Morgan Annex"),
respectively, in exchange for aggregate proceeds of $3.0 million. See "Risk
Factors."
On June 4, 1997, the Company issued 21,993, 3,007, 10,740, 4,268.5, 465 and
266.5 shares of each of the Series D Convertible Stock and Series D Redeemable
Stock to Morgan II, Morgan Annex, Grotech IV, Grotech Partners III, L.P.
("Grotech III"), Grotech III Companion Fund, L.P. ("Grotech Companion"), and
Grotech III Pennsylvania Fund, L.P. ("Grotech Pennsylvania"), respectively, for
aggregate proceeds of approximately $8.0 million. On July 22, 1997, as the
second tranche of the June 1997 financing, the Company issued 6,562.5 and
2,187.5 shares of each of the Series D Convertible Stock and Series D Redeemable
Stock to US West Pension Trust for aggregate proceeds of $1.8 million. On July
25, 1997, as part of the same financing, the Company issued 31,110, 10,863.3,
1,183.4 and 678.3 shares of each of the Series D Convertible Stock and Series D
Redeemable Stock to Grotech IV, Grotech III, Grotech Companion and Grotech
Pennsylvania, respectively, for aggregate proceeds of approximately $8.8
million. Each share of Series D Convertible Stock is convertible into 25.88
shares of Common Stock, determined by dividing the $100 per share purchase price
by the per share conversion price of $3.8635. Upon conversion of each share of
Series D Convertible Stock, the Company must pay all dividends accrued but
unpaid thereon through the date of conversion. Dividends accrue on each share of
Series D Convertible Stock at the rate of 9.0% per annum, which at August 31,
1997 was $274,044. The Company is required to redeem all of the outstanding
shares of Series D Redeemable Stock immediately after consummation of this
Offering at a per share price of $100 plus accrued and unpaid dividends.
The Company used a portion of the proceeds from the sale of the Series D
Convertible Preferred Stock and Series D Redeemable Preferred Stock to (i) repay
principal and interest on a bridge loan previously advanced by Grotech IV to the
Company in the amount of $250,000, (ii) prepay (the "Prepayment") $5.0 million
of indebtedness under the Credit Facility, and (iii) fund the acquisitions of
Modern, BelAir and Bowman Gray. The remaining proceeds are available to fund
future acquisitions and working capital. The Prepayment was required to bring
the Company into compliance with a financial covenant of the Credit Facility. In
addition, the Prepayment was a condition required for NationCredit's consent to
the sale of the Series D Preferred Stock.
The Class A Preferred Stock, Class B Preferred Stock and Class C Preferred
Stock convert automatically into Common Stock upon the closing of an initial
public offering by the Company of its Common Stock pursuant to a firm commitment
underwriting registered under the Securities Act of 1933, as amended, at a price
to the public of not less than $8.00 per share and resulting in net proceeds to
the Company of at least $10.0 million (a "Class A-C IPO"). The Class D
Convertible Stock converts automatically into Common Stock and the Class D
Redeemable Stock is mandatorily redeemable upon the closing of an initial public
offering pursuant to a firm commitment underwriting registered under the
Securities Act of 1933, as amended, at a price to the public of not less than
$8.00 per share and resulting in
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<PAGE>
net proceeds to the Company of at least $25.0 million (a "Class D IPO"). Grotech
Partners and Morgan Stanley Venture Capital will receive a material benefit in
connection with the Company's redemption and conversion of the Class D Preferred
Stock. See "Risk Factors--Control by Principal Stockholders; Material Benefit to
Insiders."
ACQUISITIONS
NANSTON. Nanston, Inc., a Service Subsidiary, entered into a Services
Agreement dated January 15, 1997 with Nanston Dental Group, P.C., an Affiliated
Practice ("Nanston Dental"). Although Dr. Johnston, a director of the Company,
owns substantially all of the stock of Nanston Dental, the Company has the right
to replace Dr. Johnston as a stockholder of Nanston Dental upon the payment of
nominal consideration. Nanston Dental employs or contracts with all of the
dental professionals practicing at the Dental Sites in Georgia. In Georgia,
Nanston, Inc. provides Nanston Dental with dental and office supplies, billing
and collection services, community relations and marketing and accounting
services and assistance in recruiting dentists and managed care contract
negotiation. The Services Agreement is for a term of 40 years with automatic
renewal thereafter and may be terminated by Nanston Dental only for cause.
Nanston, Inc. receives a fee under the Services Agreement equal to 60.0% of net
collections.
INDIANA DENTAL. In connection with the acquisition of Indiana Dental, the
Company issued 12,500 shares of Common Stock to certain former stockholders of
Indiana Dental (the "Sellers"). Upon consummation of an initial public offering
(an "IPO") of the Common Stock prior to February 13, 2001 (the "Closing Date"),
if the per share price of the Common Stock sold by DentalCo in the IPO (the "IPO
Price") is less than $10.00 per share plus interest at a rate of 10.0% from the
Closing Date to the date of the IPO (the "Price"), a Service Subsidary will pay,
in cash or in shares of Common Stock, at its option, to the Sellers the
difference between the Price and the IPO Price multiplied by the number of
shares each Seller owns as of the date of the Indiana Stock Agreement.
MCELWEE. In connection with the acquisition by DentalCo Management Services
of Missouri, Inc. ("DMS Missouri") of the right to provide support services to
V. Dale McElwee, D.D.S. & Associates, P.C. (the "Missouri P.A."), Dr. McElwee
will receive, as partial consideration for the acquisition of the Missouri P.A.,
45,000 shares of Common Stock of the Company. Upon completion of an IPO, if the
IPO Price is less than $10.00 per share, the Company is obligated to issue
shares of Common Stock to Dr. McElwee equal to the difference between the IPO
Price and $10.00, such that the value of Dr. McElwee's Common Stock holdings
will equal $450,000 upon consummation of the IPO. DMS Missouri has entered into
a Management Agreement with the Missouri P.A. Although Dr. Halpert, the
Company's Chairman and Chief Executive Officer, owns substantially all of the
stock of the Missouri P.A., the Company has the right to replace Dr. Halpert as
a stockholder of the Missouri P.A. upon the payment of nominal consideration.
Pursuant to the terms of the Management Agreement, DMS Missouri provides billing
and collection services, assists in implementing a marketing plan, provides
accounting services and assists in recruiting dentists. The Missouri P.A. pays
DMS Missouri an average monthly fee of $26,000. The agreement is for a term of
40 years, renewable automatically and terminable by the Missouri P.A. only for
cause.
MODERN. In connection with the acquisition of Modern, the Company acquired
the HMK Option. The purchase price for the HMK Option is $3.3 million, subject
to working capital adjustments (the "HMK Purchase Price"). The stockholders of
HMK consist of Drs. Ayes, Blumenthal, Rush, and Koff, each a stockholder of
Modern. The HMK Option may be exercised by the Company at any time prior to May
30, 1999. HMK is currently indebted to an institutional lender (the "HMK
Lender") for approximately $3.5 million. The Company has agreed that if HMK is
unable to make required monthly payments of principal and interest to the HMK
Lender in the amounts of $130,000 through 1997 and $190,415 through 1998, the
Company will advance such monthly payments directly to the HMK Lender on behalf
of HMK. If the Company exercises the HMK Option, the aggregate amount of all
advances made to the HMK Lender on behalf of HMK will be deducted from the HMK
Purchase Price. If the aggregate amount of such advances
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<PAGE>
exceeds the HMK Purchase Price, HMK will remit the excess to the Company in
cash, or at HMK's option, in a number of shares of Common Stock, held pursuant
to an escrow created under the acquisition of Modern. If the Company does not
exercise the HMK Option prior to May 30, 1999, the HMK Option shall be deemed to
be automatically exercised if the sum of (i) 95% of HMK's current accounts
receivable on such date plus (ii) HMK's aggregate collected revenues for the
12-month period preceding such date (collectively, the "HMK Revenues"), equal or
exceed $2.0 million. If the HMK Option is not exercised, then HMK is required to
repay the Company the aggregate amount of advances made to the HMK Lender,
either in cash or in shares of Common Stock.
BOWMAN GRAY. In connection with the acquisition of Bowman Gray, the Company
issued a $1.0 million convertible promissory note that automatically converts to
Common Stock simultaneously with the closing of this Offering. The number of
shares of Common Stock to be issued is , which is equal to the principal
amount of the promissory note divided by the IPO Price.
EMPLOYEES
DMS Maryland, a Service Subsidiary, has entered into two Services Agreements
dated July 18, 1996 and February 1, 1996 with MADA and the Virginia P.C., each
of which is an Affiliated Practice owned primarily by Dr. Halpert, and which
employs or contracts with all of the dental professionals practicing at the
Dental Sites in Maryland and Virginia. Although Dr. Halpert, the Company's
Chairman and Chief Executive Officer, owns substantially all of the stock of
MADA and the Virginia P.C., the Company has the right to replace Dr. Halpert as
a stockholder of each upon the payment of nominal consideration. In Maryland and
Virginia, DMS Maryland provides dental and office supplies, information systems,
bookkeeping, billing and collection services, community relations, marketing,
accounting services, assistance in recruiting dentists, and assistance in
negotiating health insurance to the Affiliated Dentists (in Virginia only) and
managed care contracts. The Services Agreements are for a term of 40 years, with
automatic renewal thereafter and generally may be terminated by MADA or the
Virginia P.C. only for cause. DMS Maryland receives a fee under the Services
Agreements equal to 80% of net collections.
On July 31, 1997, Mr. Sardegna exercised options granted under his
employment agreement to purchase 320,470 shares of Common Stock for an exercise
price of $2.2639 per share, or $725,512 in the aggregate. The exercise price was
paid by the issuance of a three-year promissory note, dated July 21, 1997, from
Mr. Sardegna to the Company. Interest accrues at 8.0% per annum. The promissory
note and accrued interest is payable in equal annual installments on July 20,
1998, 1999 and 2000. The promissory note is secured by all of Mr. Sardegna's
right, title and interest in the 220,000 shares of Common Stock under a Security
and Assignment Agreement, dated July 21, 1997, by and between the Company and
Mr. Sardegna. The terms of this promissory note are on terms no less favorable
to the Company than those that could be obtained from unaffiliated parties.
Nanston leases approximately 28,000 square feet of space in Norcross,
Georgia from a partnership owned 50% by Dr. Johnston. Nanston currently uses
approximately 11,400 square feet of such space and sublets, when it can find
subtenants, the remainder. Aggregate lease payments on the entire space equal
approximately $11,850 per month, as adjusted annually for cost of living
increases. The lease terminates on May 31, 2008. The Company believes that the
lease terms are as favorable to the Company as those that can be obtained from
an unaffiliated third party.
STOCKHOLDERS' AGREEMENT
Certain of the current directors are elected to the Board of Directors
pursuant to the terms of a stockholders' agreement among the Company and its
stockholders (the "Stockholders' Agreement"). Effective upon consummation of
this Offering, all material provisions of the Stockholders' Agreement other than
those relating to registration rights will terminate and the Stockholders'
Agreement will no longer control the selection of the Board of Directors. The
Stockholders' Agreement provides generally
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<PAGE>
that if the Company intends to register any of its securities under the
Securities Act, stockholders of the Company party to the Stockholders' Agreement
(the "Eligible Stockholders") shall be entitled to include their shares of
Common Stock in such registration, subject to the ability of the managing
underwriter of any such offering, under certain circumstances, to exclude some
or all of such shares from such registration. In addition, the Eligible
Stockholders are entitled, subject to certain conditions and limitations, to
demand that the Company register some or all of their shares of Common Stock on
Form S-3, provided that such demand may not be exercised more than twice in any
twelve month period by any Eligible Stockholder who held preferred stock prior
to this Offering, and more than once in any twelve month period by the other
Eligible Stockholders. The Company is generally required to bear the expenses of
all such registrations, except underwriting discounts and commissions. On August
31, 1997, the Eligible Stockholders held a total of 12,244,996 shares of Common
Stock on a fully-diluted basis.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Common Stock as of August 31, 1997 and as adjusted to reflect
the sale of the shares of Common Stock offered hereby by: (i) each person who
owns beneficially more than 5% of the Common Stock; (ii) each director and Named
Executive Officer; and (iii) all directors and executive officers as a group.
Unless otherwise indicated, each named person exercises sole voting and
investment power, except to the extent such power may be shared with a spouse.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(2) OFFERING(2)
----------------------- -----------------------
<S> <C> <C> <C> <C>
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------------------------- ---------- ----------- ---------- -----------
Lawrence F. Halpert, D.D.S.(3)....................................... 2,208,921 18.8 2,208,921
Carl J. Sardegna(4).................................................. 500,587 4.2 500,587
E. James Kuhns(5).................................................... 48,354 * 48,354 *
Errol L. Reese, D.D.S.(6)............................................ 21,155 * 21,155 *
W. Roger Drury....................................................... -- -- -- --
M. Fazle Husain(7)................................................... -- -- -- --
John C. Johnston, D.D.S.(8).......................................... 1,124,970 9.6 1,124,970
James E. Jordan, M.D................................................. -- -- -- --
John S. Nord......................................................... -- -- -- --
Oliver S. Travers.................................................... -- -- -- --
Hugh A. Woltzen(9)................................................... -- -- -- --
Entities Affiliated with Grotech Partners(10)........................ 3,492,845 30.0 3,492,845
Entities Affiliated with Morgan Stanley Venture Capital(11).......... 1,463,120 12.5 1,463,120
All directors and executive officers as a group (11 persons)......... 8,859,952 75.1 8,859,952
</TABLE>
- ------------------------
* Percentage of shares beneficially owned is less than 1.0%.
(1) Unless otherwise indicated the address of the stockholders listed below is
c/o DentalCo, Inc., 6115 Falls Road, Lake Falls Professional Building,
Baltimore, Maryland 21209.
(2) Based on 11,721,009 shares of Common Stock outstanding prior to this
Offering, which includes 6,109,920 shares of Common Stock issuable upon
conversion of the Class A Preferred Stock, Class B Preferred Stock, Class C
Preferred Stock and Class D Preferred Stock, and shares of Common
Stock outstanding immediately after this Offering. Pursuant to the rules of
the Securities and Exchange Commission, shares of Common Stock which a
person has the right to acquire within 60 days of the date hereof pursuant
to the exercise of stock options or the conversion of a convertible security
are deemed outstanding for the purpose of computing the percentage ownership
of such person but are not deemed outstanding for the purpose of computing
the percentage ownership of any other person.
(3) Includes 300,000 shares of Common Stock held by the Halpert Grantor Retained
Annuity Trust, dated August 4, 1997, over which Dr. Halpert exercises sole
voting and investment power. Excludes 4,080,411 shares of Common Stock prior
to this Offering and 1,817,910 shares of Common Stock after this Offering
that Dr. Halpert has the right to vote under proxies granted by certain of
the Company's stockholders. Dr. Halpert disclaims beneficial ownership of
any shares of Common Stock he has the right to vote by proxy but of which he
is not the record owner.
(4) Includes options to acquire 180,117 shares of Common Stock, 100,000 of which
have been granted by a stockholder of the Company, all of which are
presently exercisable.
(5) Represents options to acquire 48,354 shares of Common Stock, all of which
are presently exercisable.
(6) Represents options to acquire 21,155 shares of Common Stock, all of which
are presently exercisable.
(FOOTNOTES CONTINUED ON NEXT PAGE)
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(7) Excludes shares of DentalCo capital stock beneficially owned by entities
affiliated with Morgan Stanley Venture Capital, as to which Mr. Husain
disclaims beneficial ownership. See footnote 11 below.
(8) Excludes 455,573 and 64,735 shares of Common Stock held by the Johnston
Stock Trust and the Johnston Family Educational Trust, to which Dr. Johnston
disclaims beneficial ownership.
(9) Excludes shares of DentalCo capital stock beneficially owned by entities
affiliated with Grotech Partners, as to which Mr. Woltzen disclaims
beneficial ownership. See footnote 10 below.
(10) Includes 26,769 shares of Class A Preferred Stock, 11,035 shares of Class B
Preferred Stock, 41,850 shares of Class D Convertible Stock, 41,850 shares
of Class D Redeemable Stock and 250,000 shares of Common Stock held by
Grotech Partners IV, L.P.; 3,373 shares of Class B Preferred Stock 15,132
shares of Class D Convertible Stock, 15,132 shares of Class D Redeemable
Stock and 275,699 shares of Common Stock held by Grotech Partners III, L.P.;
367 shares of Class B Preferred Stock, 1,648 shares of Class D Convertible
Stock, 1,648 shares of Class D Redeemable Stock and 30,034 shares of Common
Stock held by Grotech III Companion Fund L.P.; and 211 shares of Class B
Preferred Stock, 945 shares of Class D Convertible Stock, 945 shares of
Class D Redeemable Stock and 17,213 shares of Common Stock held by Grotech
III Pennsylvania Fund L.P. Each share of Class A Preferred Stock, Class B
Preferred Stock, Class C Preferred Stock and Class D Convertible Stock will
be automatically converted into Common Stock and each share of Class D
Redeemable Stock will be automatically redeemed immediately prior to the
consummation of this Offering. See "Description of Capital Stock."
(11) Includes 717,877 shares of Class C Preferred Stock, 21,993 shares of Class
D Convertible Stock and 21,993 shares of Class D Redeemable Stock held by
Morgan Stanley Venture Capital Fund II Annex, L.P. and 98,161 shares of
Class C Preferred Stock, 3,007 shares of Class D Convertible Stock and 3,007
shares of Class D Redeemable Stock held by Morgan Stanley Venture Investors
Annex, L.P. Each share of Class C Preferred Stock and Class D Convertible
Stock will be automatically converted into Common Stock and each of Class D
Redeemable Stock will be automatically redeemed immediately prior to the
consummation of this Offering. See "Description of Capital Stock."
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DESCRIPTION OF CAPITAL STOCK
Prior to the completion of this Offering, the authorized capital stock of
the Company consisted of 14,860,686 shares of Common Stock, 40,154 shares of
Class A Preferred Stock, 47,068 shares of Class B Preferred Stock, 816,038
shares of Class C Preferred Stock, 100,000 shares of Class D Convertible Stock,
and 100,000 shares of Class D Redeemable Stock, (the Class D Redeemable Stock
and the Class D Convertible Stock, collectively, the "Class D Preferred Stock").
Upon completion of this Offering, the authorized capital stock of the Company
will consist of shares of Common Stock, of which shares will be
assessed and outstanding, and shares of undesignated Preferred Stock
issuable in one or more series by the Board of Directors, of which as shares
will be issued and outstanding.
COMMON STOCK
Prior to this Offering 5,611,088 shares of Common Stock were outstanding.
After giving effect to the Charter immediately prior to the consummation of this
Offering, the Company will be authorized to issue up to shares of Common
Stock, par value $0.0001 per share. Holders of the Common Stock are entitled to
one vote per share on all matters submitted to the stockholders for a vote.
There are no cumulative voting rights in the election of directors. Subject to
the prior rights of any outstanding preferred stock, the shares of Common Stock
are entitled to receive such dividends as may be declared and paid by the Board
of Directors out of funds legally available therefor and to share, ratably, in
the net assets, if any, of the Company upon liquidation. The stockholders have
no preemptive rights to purchase any shares of the Company's Capital Stock. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be, when issued and paid for, duly authorized, validly issued, fully
paid and nonassessable.
PREFERRED STOCK
Prior to this Offering, 40,154 shares of Class A Preferred Stock, 47,068
shares of Class B Preferred Stock, 816,038 shares of Class C Preferred Stock and
186,650 shares of Class D Preferred Stock were outstanding. By the terms of the
Charter, each share of Class A Preferred Stock and Class B Preferred Stock
automatically converts into 33 shares of Common Stock immediately prior to the
effectiveness of this Offering, with the result that all outstanding Class A
Preferred Stock and Class B Preferred Stock will be converted into 2,878,326
shares of Common Stock upon the closing of a Class A-C IPO and will no longer be
authorized, issued or outstanding. Each share of Class C Preferred Stock
automatically converts into one share of Common Stock upon the closing of a
Class A-C IPO, with the result that all outstanding Class C Preferred Stock will
be converted into 816,038 shares of Common Stock and will no longer be
authorized, issued or outstanding. Each share of Class D Convertible Stock
automatically converts into 25.88 shares of Common Stock upon the closing of a
Class D IPO, with the result that all outstanding Class D Convertible Stock will
be converted into 2,415,556 shares of Common Stock and will no longer be
authorized, issued or outstanding. Each share of Class D Redeemable Stock is
automatically redeemable immediately following a Class D IPO at a redemption
price per share of $100, subject to adjustment in certain circumstances, plus
all accrued and unpaid dividends on such redeemed shares through the redemption
date, with the result that all outstanding Class D Redeemable Stock will be
redeemed for 9,332,500 plus accrued but unpaid dividends through the date of
redemption, which as of August 31, 1997, were $274,044 and will no longer be
authorized, issued or outstanding. Upon conversion of the share of Class A
Preferred Stock and Class C Preferred Stock, the obligation of the Company to
pay accrued but unpaid dividends thereon is extinguished. Upon conversion of the
Class D Convertible Preferred Stock, the Company will pay all accrued but unpaid
dividends thereon. No dividends accrue or are payable on the Class B Preferred
Stock.
Upon the consummation of this Offering, under the terms of the Charter, the
Board of Directors is authorized to classify any of the shares of its
authorized but unissued capital stock as preferred stock in one or more series,
from time to time, and with respect to each series, to determine the number of
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shares constituting such series, the dividend rate on the shares of each series,
whether such dividends shall be cumulative and the relation of such dividends to
any dividends payable on any other class of stock, whether the shares of each
series shall be redeemable and the terms thereof, whether the shares shall be
convertible into Common Stock and the terms thereof, the amount per share
payable on each series or other rights of holders of such shares on liquidation
or dissolution of the Company, the voting rights, if any, of shares of each
series and any other rights and privileges not in conflict with the Company's
charter and any qualifications, limitations or restrictions thereof. Upon the
consummation of this Offering, there will be no shares of preferred stock
outstanding and the Board of Directors has no present intention to issue any
preferred stock. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of discouraging takeover proposals or delaying
or preventing a change in control of the Company not approved by the Board of
Directors.
ANTI-TAKEOVER PROVISIONS OF CHARTER AND BY-LAWS
The Charter will provide for a staggered Board of Directors of three
classes, with the initial classes having one, two and three year terms,
respectively, and thereafter staggered three year terms. Under the Charter,
directors may only be removed for cause upon the affirmative vote of at least
80% of the shares of capital stock entitled to vote in the election of
directors. Under the By-Laws, the number of directors is currently fixed at
nine, which number may be changed only upon the vote of two-thirds of the
directors then in office.
The Charter and By-Laws require that any stockholder proposal relating to
the nomination of a director must be delivered to the Company's Secretary no
more than 90 days nor less than 60 days prior to the Annual Meeting of
Stockholders at which such nominee will be voted upon.
The foregoing provisions of the Charter and all provisions of the By-Laws
may be amended or repealed by the stockholders only upon the affirmative vote of
at least 80% of the shares of capital stock entitled to vote thereon. The
By-Laws also may be amended or repealed by the Board of Directors only upon the
vote of at least a majority of the directors then in office.
These provisions of the Charter and By-Laws could have the effect of
discouraging takeover proposals and delaying or preventing a change in control
of the Company not approved by the Board of Directors.
BUSINESS COMBINATIONS
Under Section 3-601 ET SEQ. of the MGCL (the "Business Combination
Statute"), certain "business combinations" (including mergers or similar
transactions subject to a statutory stockholder vote and additional transactions
involving transfers of assets or securities in specific amounts) between a
Maryland corporation subject to the Business Combination Statute and any person
who beneficially owns 10% or more of the voting power of the corporation's
shares or any affiliate of the corporation who, at any time within the preceding
two years, was the beneficial owner of 10% or more of the voting power of the
then-outstanding voting stock of the corporation (an "Interested Stockholder"),
or an affiliate thereof, are prohibited for five years after the most recent
date on which the Interested Stockholder became an Interested Stockholder unless
an exemption is available. Thereafter, any such business combination must be
recommended by the board of directors of the corporation and approved by the
affirmative vote of at least: (i) 80% of the votes entitled to be cast by all
holders of outstanding voting shares of the corporation; and (ii) two-thirds of
the votes entitled to be cast by holders of outstanding voting shares of the
corporation other than shares held by the Interested Stockholder with whom the
business combination is to be effected, unless the corporation's stockholders
receive a minimum price (as described in the Business Combination Statute) for
their shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares. The Business
Combination Statute does not apply, however, to business combinations that are
(a) exempted in the corporation's charter prior to the
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time the corporation became subject to the Business Combination Statute or (b)
approved or exempted by the board of directors prior to the time that the
Interested Stockholder becomes an Interested Stockholder. After a corporation
becomes subject to the Business Combination Statute, in order to amend the
corporation's charter to elect not to be subject to the foregoing requirements
with respect to one or more Interested Stockholders, the affirmative vote of at
least 80% of the votes entitled to be cast by all holders of outstanding shares
of voting stock and two-thirds of the votes entitled to be cast by holders of
outstanding shares of voting stock who are not Interested Stockholders is
required.
CONTROL SHARE ACQUISITIONS
Section 3-701 ET SEQ. of the MGCL provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock owned by the
acquiror or by officers or directors who are employees of the corporation.
"Control shares" are voting shares of stock which, if aggregated with all other
such shares of stock previously acquired by the acquiror, or in respect of which
the acquiror is able to exercise or direct the exercise of voting power except
solely by virtue of a revocable proxy, would entitle the acquiror to exercise
voting power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third; (ii) one-third or more but
less than a majority or (iii) a majority of all voting power. Control shares do
not include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share acquisition"
means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses and
delivery of an "acquiring person statement"), may compel the corporation's board
of directors to call a special meeting of stockholders to be held within 50 days
of demand to consider the voting rights of the shares. If no request for a
meeting is made, the corporation may itself present the question at any
stockholders' meeting.
Unless the charter or bylaws provide otherwise, if voting rights are not
approved at the meeting or if the acquiring person does not deliver an acquiring
person statement within 10 days following a control share acquisition then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition or of any meeting of stockholders at which the voting rights of such
shares are considered and not approved. Moreover, unless the articles or bylaws
provide otherwise, if voting rights for control shares are approved at a
stockholders' meeting and the acquiror becomes entitled to exercise or direct
the exercise of a majority or more of all voting power, other stockholders may
exercise appraisal rights. The fair value of the shares, as determined for
purposes of such appraisal rights, may not be less than the highest price per
share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation.
Following the consummation of this Offering, the Company will become subject
to the provisions of the Business Combination Statute and the control share
acquisition statue. The Business Combination Statute and the control share
acquisition statute could have the effect of discouraging takeover proposals and
delaying or preventing a change of control of the Company not approved by the
Board of Directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock of the Company is
First Union National Bank.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common Stock
and no prediction can be made as to the effect, if any, that future sales of
Common Stock or the availability of shares of Common Stock for future sale will
have on the market price of the Common Stock prevailing from time to time. Sales
of substantial amounts of Common Stock following this Offering, or the
perception that such sales could occur, could adversely affect prevailing market
prices of the Common Stock and could impair the Company's ability to raise
capital through an offering of its equity securities.
SALE OF RESTRICTED SHARES
Upon completion of this Offering, the Company will have outstanding shares
of Common Stock. Sales of a substantial number of shares of Common Stock in the
public market following this Offering could adversely affect the market price
for the Company's Common Stock. Of the shares of Common Stock to be outstanding
after completion of this Offering, shares (including the shares
offered hereby) will be eligible for resale unless acquired by affiliates of the
Company. Of the remaining shares outstanding, 4,725,820 have been held for more
than one year, and, as such, are eligible for resale subject to certain volume
and manner of sale restrictions under Rule 144 of the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) is entitled to sell restricted shares if at least
one year has passed since the later of the date on which such shares were issued
or the date that they were acquired from an affiliate of the Company. Rule 144
provides, however, that within any three-month period such person may only sell
up to the greater of 1% of the then outstanding shares of the Common Stock
(approximately shares following this Offering) or the average weekly
trading volume in the Common Stock during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Commission.
Sales under Rule 144 are also subject to certain manner-of-sale provisions and
notice requirements and to the availability of current public information about
the Company. Shares held by persons who are deemed to be affiliates of the
Company are subject to the volume limitations and other requirements of Rule 144
regardless of how long the shares have been owned or how they were acquired.
Restricted shares held by non-affiliates of the Company for more than two years
can be sold without limitation under Rule 144. The Commission has proposed
amendments to Rule 144 including the definition of affiliate and the holding
periods under the rule. These proposals have not yet been adopted by the
Commission.
OPTIONS
As of August 31, 1997, options to purchase a total of 529,000 shares of
Common Stock were outstanding. of these shares are subject to lockup
agreements. The Company intends to file one or more registration statements on
Form S-8 under the Securities Act to register all shares of Common Stock subject
to the outstanding stock options and Common Stock issuable pursuant to the Stock
Option Plans. The Company expects to file these registration statements promptly
following the consummation of this Offering, and such registration statements
are expected to become effective upon filing. Shares covered by these
registration statements will thereupon be eligible for sale in the public
markets, subject to the lockup agreements, to the extent applicable.
LOCK UP AGREEMENTS
The Company and its directors, executive and certain other officers and
principal stockholders who hold in the aggregate shares of Common Stock
(plus options to purchase an additional shares of Common Stock) have
agreed not to, indirectly or directly, offer, sell or otherwise dispose of any
shares of Common Stock, options, warrants to acquire shares of Common Stock or
any securities exerciseable for or convertible into Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated. However, Morgan
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Stanley & Co. Incorporated may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to such lock-up
agreements. See "Underwriters."
REGISTRATION RIGHTS
At the closing of this Offering, the Eligible Stockholders will be entitled
to certain rights with respect to the registration under the Securities Act of a
total of approximately 12,244,996 shares of Common Stock pursuant to the terms
of the Stockholders' Agreement. See "Certain Transactions."
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UNDERWRITERS
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, each of the Underwriters named below has
severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective number of shares of Common Stock set forth opposite
their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Morgan Stanley & Co. Incorporated.................................................
Donaldson, Lufkin & Jenrette Securities Corporation...............................
----------
Total.....................................................................
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all the shares of Common Stock offered hereby (other than those
covered by the overallotment option described below) if any such shares are
taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ per share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain other dealers. After
the initial offering of the shares of Common Stock, this offering price and
other selling terms may from time to time be varied by the Underwriters.
The Company has granted to the Underwriters an option, exerciseable for 30
days from the date of this Prospectus, to purchase up to additional shares
of Common Stock at the public offering price set forth on the cover page hereof,
less the underwriting discounts and commissions. The Underwriters may exercise
such option solely for the purpose of covering over-allotments, if any, made in
connection with the sale of the shares of Common Stock offered hereby. To the
extent that such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as the number set forth next to such Underwriter's name
in the preceding table bears to the total number of shares of Common Stock
offered hereby.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities under the Securities Act.
In connection with this Offering, the Company, its executive officers and
directors and certain existing stockholders of the Company, who will own an
aggregate of approximately shares of Common Stock after this Offering,
have agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, they will not (a) offer, pledge,
sell, contract to sell, sell any
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option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exerciseable or exchangeable for Common Stock (whether such shares or
any such securities are then owned by such person or are thereafter acquired
directly from the Company), or (b) enter into any swap or similar agreement that
transfers, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (a) or (b) of
the paragraph is to be settled by delivery of such Common Stock or such other
securities, in cash or otherwise, for a period of 180 days after the date of
this Prospectus, other than (i) the sale to the Underwriters of the shares of
Common Stock under the Underwriting Agreement, (ii) the issuance by the Company
of shares of Common Stock upon the exercise of an option sold or granted
pursuant to existing benefit plans of the Company and outstanding on the date of
this Prospectus, (iii) the transfer of shares of Common Stock in a bona fide
charitable donation or in any estate planning disposition provided that the
transferee in any such transaction agrees to be bound by the terms of the
"lock-up" agreement or (iv) the transfer of shares of Common Stock due to the
death or disability of a stockholder provided that such transferee agrees to be
bound by the terms of the "lock-up" agreement.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
In order to facilitate this offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with this Offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
the Common Stock in the open market. Finally, the underwriting syndicate may
reclaim selling concessions allowed to an underwriter or a dealer for
distributing the Common Stock in this Offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above independent
market levels. The Underwriters are not required to engage in these activities
at any time.
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the Common Stock offered hereby for employees and directors
of the Company and certain other individuals associated with the Company who
have expressed an interest in purchasing such shares of Common Stock in this
Offering. The number of shares available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same basis as other shares offered hereby.
PRICE OF THIS OFFERING
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiations
among the Company and the Representatives of the Underwriters. Among the factors
to be considered in determining the initial public offering price are the future
prospects of the Company and its industry in general, sales, earnings and
certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. There can, however, be no
assurance that the prices at which the Common Stock will sell in the public
market after this Offering will not be lower than the price at which it is sold
by the Underwriters.
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LEGAL MATTERS
The legality of the issuance of the Common Stock offered hereby and certain
other matters will be passed upon for the Company by Piper & Marbury L.L.P.,
Baltimore, Maryland. Certain legal matters will
be passed upon for the Underwriters by Latham & Watkins, Washington, D.C.
EXPERTS
The consolidated financial statements of DentalCo, Inc. and subsidiaries as
of December 31, 1995 and 1996 and for each of the years in the three-year period
ended December 31, 1996 have been included herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Nanston, Inc. and subsidiaries as
of December 31, 1996 and for the four month periods ended December 31, 1995 and
1996 have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The consolidated financial statements of
Nanston, Inc. and subsidiaries as of August 31, 1995 and 1996 and for each of
the years in the three-year period ended August 31, 1996 have been included
herein and in the registration statement in reliance upon the report of Smith &
Radigan, certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The combined financial statements of The Dental Center Inc. as of December
31, 1995 and 1996 and for the years then ended have been included herein and in
the registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The combined financial statements of Modern Dental Concepts, Inc. and
affiliated practices as of December 31, 1995 and 1996 and for the years then
ended have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement, and the
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and copies of all or any part of the Registration Statement may be obtained from
the Commission upon payment of a prescribed fee. The Commission maintains a Web
Site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such Web Site is http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DENTALCO, INC.
Report of Independent Certified Public Accountants....................................................... F-2
Consolidated Balance Sheets at December 31, 1995 and 1996 and June 30, 1997 (unaudited).................. F-3
Consolidated Statements of Operations for each of the years in the three-year period
ended December 31, 1996 and the six months ended June 30, 1996 and 1997 (unaudited).................... F-4
Consolidated Statements of Shareholders' Equity for each of the years
in the three-year period ended December 31, 1996 and the six months ended June 30, 1996 and 1997
(unaudited)............................................................................................ F-5
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1996 and the six months ended June 30, 1996 and 1997
(unaudited)............................................................................................ F-6
Notes to Consolidated Financial Statements............................................................... F-7
NANSTON, INC.
Reports of Independent Certified Public Accountants...................................................... F-24
Consolidated Balance Sheets at August 31, 1994 and 1995 and December 31, 1996............................ F-25
Consolidated Statements of Operations for each of the years in the three-year period ended August 31,
1996 and the four months ended December 31, 1995 and 1996.............................................. F-26
Consolidated Statements of Shareholders' Equity for each of the years in the three-year period ended
August 31, 1996 and the four months ended December 31, 1995 and 1996................................... F-27
Consolidated Statements of Cash Flows for each of the years in the three-year period ended August 31,
1996 and the four months ended December 31, 1995 and 1996.............................................. F-28
Notes to Consolidated Financial Statements............................................................... F-29
THE DENTAL CENTER, INC.
Report of Independent Certified Public Accountants....................................................... F-39
Combined Balance Sheets at December 31, 1995 and 1996.................................................... F-40
Combined Statements of Operations and Retained Earnings for the years ended December 31, 1995 and 1996... F-41
Combined Statements of Cash Flows for the years ended December 31, 1995 and 1996......................... F-42
Notes to Combined Financial Statements................................................................... F-43
MODERN DENTAL CONCEPTS, INC. AND AFFILIATED PRACTICES
Report of Independent Certified Public Accountants....................................................... F-48
Combined Balance Sheets at December 31, 1995 and 1996.................................................... F-49
Combined Statements of Operations for the years ended December 31, 1995 and 1996......................... F-51
Combined Statements of Owners' Deficit for the years ended December 31, 1995 and 1996.................... F-52
Combined Statements of Cash Flows for the years ended December 31, 1995, and 1996........................ F-53
Notes to Combined Financial Statements................................................................... F-54
</TABLE>
F-1
<PAGE>
When the transactions referred to in the last paragraph of Note 14 of the notes
to Consolidated Financial Statements have been consummated, we will be in a
position to render the following report.
KPMG Peat Marwick LLP
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
DentalCo, Inc.:
We have audited the accompanying consolidated balance sheets of DentalCo, Inc.
and subsidiaries (the Company) as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996. 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 financial position of DentalCo, Inc. and
subsidiaries as of December 31, 1995 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Baltimore, Maryland
March 14, 1997
F-2
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Cash and cash equivalents......................................................... $ 2,262 1,144 2,163
Accounts receivable, net (note 3)................................................. 915 1,250 5,056
Income taxes recoverable (note 12)................................................ 99 59 330
Prepaid expenses and other current assets......................................... 40 378 1,319
--------- --------- -----------
Total current assets........................................................ 3,316 2,831 8,868
Property and equipment, less accumulated depreciation (note 4).................... 657 1,815 7,768
Investment in and advances to affiliated group practice (note 5).................. -- 607 1,155
Intangible assets acquired, less accumulated amortization (note 6)................ 54 1,528 32,680
Deferred costs, less accumulated amortization (note 7)............................ -- 456 1,141
Other assets...................................................................... 785 169 1,479
--------- --------- -----------
$ 4,812 7,406 53,091
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit (note 8)........................................................ $ 183 -- 2,559
Accounts payable and accrued expenses........................................... 558 1,240 7,461
Current portion of long-term debt (notes 8 and 9)............................... 167 227 2,816
Deferred income taxes (note 12)................................................. 207 -- --
--------- --------- -----------
Total current liabilities................................................... 1,115 1,467 12,836
Long-term debt, less current portion (notes 8 and 9).............................. 270 688 13,751
Deferred rent (note 10)........................................................... 45 108 74
Deferred income taxes (note 12)................................................... 105 -- --
--------- --------- -----------
Total liabilities........................................................... 1,535 2,263 26,661
--------- --------- -----------
Class D Redeemable Stock (note 11)................................................ -- -- 4,135
Stockholders' equity (note 11):
Common stock, $.0001 par value; authorized 14,860,686 shares; issued and
outstanding 2,463,120 shares in 1995, 2,448,120 shares in 1996 and 5,330,620
shares in 1997................................................................ 1 1 1
Common stock to be issued, 41,667 shares in 1996 and 1997....................... -- 141 141
Class A Preferred Stock, $.0001 par value; authorized, issued and
outstanding--40,154 shares in 1995, 1996 and 1997............................. -- -- --
Class B Preferred Stock, $.0001 par value; authorized, issued and
outstanding--47,068 shares in 1995, 1996 and 1997............................. -- -- --
Class C Preferred Stock, $.0001 par value; authorized, issued and
outstanding--816,038 shares in 1996 and 1997.................................. -- -- --
Class D Convertible Stock, $.0001 par value; authorized 100,000 shares; issued
and outstanding 40,740 shares................................................. -- -- --
Additional paid-in capital...................................................... 2,765 5,636 24,092
Retained earnings (deficit)..................................................... 511 (635) (1,939)
--------- --------- -----------
Total stockholders' equity.................................................. 3,277 5,143 22,295
Commitments and contingent liabilities (notes 9, 13 and 14).......................
--------- --------- -----------
$ 4,812 7,406 53,091
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
----------- ---------- ---------- ----------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenue:
Patient fees of affiliated practices.......... $ 7,661 8,086 10,300 4,918 16,265
Capitation.................................... 1,113 1,635 2,086 888 5,776
Management fees............................... -- -- 70 -- 914
----------- ---------- ---------- ----------- -----------
Total gross revenue............................. 8,774 9,721 12,456 5,806 22,955
Less amounts attributed to affiliated service
practices..................................... 3,702 3,778 4,878 2,225 7,038
----------- ---------- ---------- ----------- -----------
Net revenue..................................... 5,072 5,943 7,578 3,581 15,917
----------- ---------- ---------- ----------- -----------
Operating expenses:
Personnel and site operations................. 4,048 3,926 6,106 2,496 11,730
Corporate..................................... 620 1,440 2,796 1,484 3,929
Depreciation and amortization................. 261 188 232 54 938
----------- ---------- ---------- ----------- -----------
Total operating expenses........................ 4,929 5,554 9,134 4,034 16,597
----------- ---------- ---------- ----------- -----------
Operating income (loss)......................... 143 389 (1,556) (453) (680)
----------- ---------- ---------- ----------- -----------
Other income (expense):
Investment income............................. 36 53 109 34 132
Interest expense.............................. (36) (66) (66) (40) (1,013)
Other......................................... 37 38 5 25 125
----------- ---------- ---------- ----------- -----------
Net other income................................ 37 25 48 19 (756)
----------- ---------- ---------- ----------- -----------
Earnings (loss) before income taxes............. 180 414 (1,508) (434) (1,436)
Federal and state income taxes (benefit) (note
12)........................................... 133 155 (362) (75) (132)
----------- ---------- ---------- ----------- -----------
Net earnings (loss)............................. 47 259 (1,146) (359) (1,304)
Preferred stock dividends declared.............. -- -- -- -- (1,263)
----------- ---------- ---------- ----------- -----------
Net earnings (loss) applicable to common
stock......................................... $ 47 259 (1,146) (359) (2,567)
----------- ---------- ---------- ----------- -----------
----------- ---------- ---------- ----------- -----------
Net earnings (loss) per common share............ $ .02 .06 (.19) (.06) (.26)
----------- ---------- ---------- ----------- -----------
----------- ---------- ---------- ----------- -----------
Weighted average number of common shares
outstanding................................... 2,174,085 4,622,634 6,136,643 5,668,924 9,759,673
----------- ---------- ---------- ----------- -----------
----------- ---------- ---------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON CLASS A CLASS B
COMMON STOCK TO BE PREFERRED PREFERRED
STOCK ISSUED STOCK STOCK
----------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993, representing combined equity of
Mid-Atlantic Dental Associates, P.A. and Periodontal
Associates, P.A............................................ $ -- -- -- --
Reorganization in October 1994 resulting in issuance of
47,068 shares of common stock.............................. 1 -- -- --
Issuance of 74,253 shares of common stock, 47,068 shares of
Series B-1 preferred stock and 387 shares of Series B-2
preferred stock in exchange for 47,068 shares of common
stock and $1............................................... -- -- -- --
Net earnings for the year.................................... -- -- -- --
----- --- --- ---
Balance at December 31, 1994................................. 1 -- -- --
Redemption and exchange of 387 shares of Series B-2 preferred
stock and 47,068 shares of Series B-1 preferred stock for
47,068 shares of Series B preferred stock and 387 shares of
common stock............................................... -- -- -- --
Issuance of 2,388,480 shares in 33 for 1 common stock
split...................................................... -- -- -- --
Issuance of 40,154 shares of Class A preferred stock......... -- -- -- --
Stock issuance costs......................................... -- -- -- --
Net earnings for the year.................................... -- -- -- --
----- --- --- ---
Balance at December 31, 1995................................. 1 -- -- --
Issuance of 816,038 shares of
Class C preferred stock.................................... -- -- -- --
Redemption of 60,000 shares of common stock for $3.33 per
share...................................................... -- -- -- --
Issuance of 45,000 shares of common stock in connection with
investment in affiliated group practice (note 5)........... -- -- -- --
Common shares to be issued in connection with purchase of
rights to patient records under existing services agreement
(41,667 shares)............................................ -- 141 -- --
Net loss for the year........................................ -- -- -- --
----- --- --- ---
Balance at December 31, 1996................................. 1 141 -- --
Issuance of 2,150,000 shares of common stock in connection
with acquisition of Nanston (note 2)....................... -- -- -- --
Issuance of 12,500 shares of common stock and options to
acquire 25,000 shares of common stock at $6 per share in
connection with acquisition of Indiana Dental (note 2)..... -- -- -- --
Issuance of 720,000 shares of common stock in connection with
acquisition of Modem (note 2).............................. -- -- -- --
Issuance of 40,740 shares of Class D Convertible Stock and
value of conversion rights granted to Class D Preferred
stockholders of $1,202, less issuance costs of $47 (note
11)........................................................ -- -- -- --
Class D Preferred Stock dividend (including value of
conversion rights of $1,202)............................... -- -- -- --
Net loss for the period (unaudited).......................... -- -- -- --
----- --- --- ---
Balance at June 30, 1997 (unaudited)......................... $ 1 141 -- --
----- --- --- ---
----- --- --- ---
<CAPTION>
CLASS C ADDITIONAL TOTAL
PREFERRED PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993, representing combined equity of
Mid-Atlantic Dental Associates, P.A. and Periodontal
Associates, P.A............................................ -- 31 205 236
Reorganization in October 1994 resulting in issuance of
47,068 shares of common stock.............................. -- (1) -- --
Issuance of 74,253 shares of common stock, 47,068 shares of
Series B-1 preferred stock and 387 shares of Series B-2
preferred stock in exchange for 47,068 shares of common
stock and $1............................................... -- (1) -- (1)
Net earnings for the year.................................... -- -- 47 47
--- ----------- ----------- -------------
Balance at December 31, 1994................................. -- 29 252 282
Redemption and exchange of 387 shares of Series B-2 preferred
stock and 47,068 shares of Series B-1 preferred stock for
47,068 shares of Series B preferred stock and 387 shares of
common stock............................................... -- -- -- --
Issuance of 2,388,480 shares in 33 for 1 common stock
split...................................................... -- -- -- --
Issuance of 40,154 shares of Class A preferred stock......... -- 3,000 -- 3,000
Stock issuance costs......................................... -- (264) -- (264)
Net earnings for the year.................................... -- -- 259 259
--- ----------- ----------- -------------
Balance at December 31, 1995................................. -- 2,765 511 3,277
Issuance of 816,038 shares of
Class C preferred stock.................................... -- 2,906 -- 2,906
Redemption of 60,000 shares of common stock for $3.33 per
share...................................................... -- (200) -- (200)
Issuance of 45,000 shares of common stock in connection with
investment in affiliated group practice (note 5)........... -- 165 -- 165
Common shares to be issued in connection with purchase of
rights to patient records under existing services agreement
(41,667 shares)............................................ -- -- -- 141
Net loss for the year........................................ -- -- (1,146) (1,146)
--- ----------- ----------- -------------
Balance at December 31, 1996................................. -- 5,636 (635) 5,143
Issuance of 2,150,000 shares of common stock in connection
with acquisition of Nanston (note 2)....................... -- 10,750 -- 10,750
Issuance of 12,500 shares of common stock and options to
acquire 25,000 shares of common stock at $6 per share in
connection with acquisition of Indiana Dental (note 2)..... -- 140 -- 140
Issuance of 720,000 shares of common stock in connection with
acquisition of Modem (note 2).............................. -- 3,600 -- 3,600
Issuance of 40,740 shares of Class D Convertible Stock and
value of conversion rights granted to Class D Preferred
stockholders of $1,202, less issuance costs of $47 (note
11)........................................................ -- 5,229 -- 5,229
Class D Preferred Stock dividend (including value of
conversion rights of $1,202)............................... -- (1,263) -- (1,263)
Net loss for the period (unaudited).......................... -- -- (1,304) (1,304)
--- ----------- ----------- -------------
Balance at June 30, 1997 (unaudited)......................... -- 24,092 (1,939) 22,295
--- ----------- ----------- -------------
--- ----------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss).............................................. $ 47 259 (1,146) (359) (1,304)
Adjustments to reconcile net earnings (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization.................................. 158 188 232 54 938
Provision for uncollectible accounts........................... -- 86 522 141 249
Provision for deferred rent.................................... 134 (45) 63 38 34
Deferred income taxes (benefit)................................ -- 145 (312) 12 (91)
Decrease (increase) in working capital:
Accounts receivable.......................................... (110) (387) (762) (269) (1,572)
Income tax receivable........................................ (99) -- 40 -- (455)
Prepaid expenses and other current assets.................... (16) (27) (313) (163) (274)
Accounts payable and accrued expenses........................ (149) 143 682 182 577
Income taxes payable......................................... 18 (136) -- (85) --
--------- --------- --------- --------- ---------
Net cash provided (used) by operating activities................... (17) 226 (994) (449) (1,898)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment............................... (116) (100) (653) (668) (699)
Decrease (increase) in other assets.............................. (29) (472) 252 (168) (347)
Purchases of dental group practices and related contracts........ -- -- (1,393) -- (15,930)
Pre-acquisition costs............................................ -- -- (230) -- 223
Investment in and advances to affiliated group practice.......... -- -- (442) -- (270)
Other............................................................ 14 (10) -- -- --
--------- --------- --------- --------- ---------
Net cash used by investing activities.............................. (131) (582) (2,466) (836) (17,023)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Line of credit borrowings (payments)............................. 184 (1) (183) (110) 17,910
Proceeds from long-term borrowings............................... 257 -- 269 313 --
Payment of long-term debt........................................ -- -- (186) -- (5,963)
Proceeds from issuance of capital stock, less issuance costs..... (1) 2,735 2,906 -- 7,993
Deferred costs................................................... -- (180) (464) -- --
--------- --------- --------- --------- ---------
Net cash provided by financing activities.......................... 440 2,554 2,342 203 19,940
--------- --------- --------- --------- ---------
Net increase (decrease) in cash.................................... 292 2,198 (1,118) (1,082) 1,019
Cash and cash equivalents--beginning of period..................... (228) 64 2,262 2,262 1,144
--------- --------- --------- --------- ---------
Cash and cash equivalents--end of period........................... $ 64 2,262 1,144 1,180 2,163
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
DentalCo, Inc. (DentalCo or the Company), a Maryland corporation, was formed
in July 1995, when Mid-Atlantic Dental Associates, P.A. (MADA) elected to
convert from a professional services corporation to a business corporation and
changed its name to DentalCo, Inc. In October, 1994 MADA had become the
surviving professional services corporation of a reorganization with Periodontal
Associates, P.A. (Periodontal). All of the business assets (except for the
licenses to practice dentistry) of the predecessor corporations (MADA and
Periodontal) are owned by DentalCo through a wholly-owned subsidiary, DentalCo
Management Services of Maryland, Inc. (DMSI). DentalCo controls the business
activities of the affiliated dental group practice through a long-term
management contract (hereinafter referred to as "services agreement") between
DMSI and Halpert and Associates, P.A., a Maryland professional service
corporation which was formed in July 1995 by certain former stockholders of MADA
and Periodontal who are practicing dentists. The reorganization of the
predecessor entities in 1994 and the formation of DentalCo through the
professional service corporation conversion in 1995 were accounted for as
reorganizations of entities under common control.
Since the Company's formation, the Company has grown primarily through
acquisitions. The Company, through its wholly-owned subsidiaries, generally
acquires substantially all the business assets of the dental service delivery
sites (dental sites) and operates them under services agreements with affiliated
dental groups that practice exclusively through such dental sites (hereinafter
referred to as "affiliated service practices"). Ownership of substantially all
the business assets and the services agreements provide the Company with most of
the risks and rewards of ownership of the affiliated service practices, which
are owned by the affiliated professional service corporations (PCs).
The services agreements provide for DentalCo's wholly-owned subsidiaries to
provide facilities, equipment, administrative support staff, management
information systems, quality assurance, peer review, utilization review,
practice management, marketing and other administrative services for a 40-year
term. The services agreements also provide for the affiliated PC and the Company
to participate in the net operating income (as defined) of the affiliated
service practices. The Company's participation generally ranges from 60% to 80%.
In addition, the Company is reimbursed for all dental site expenses, as defined
in the agreement.
The consolidated financial statements include the accounts of the Company
and its majority-owned and controlled subsidiaries. In consolidation, all
significant intercompany balances and transactions have been eliminated. If
allowed by state licensing regulations, the Company or its subsidiaries own the
stock of the PCs and the Company consolidates the accounts of the PCs in the
consolidated financial statements. The Company and its subsidiaries (which own
substantially all the business assets of the affiliated service practices) do
not consolidate the accounts of those PCs owned by the practicing dentists.
Accordingly, in recognition of the Company's assumption of most of the risks and
rewards of operating the affiliated service practices on a long-term basis, the
Company's statement of operations presents the gross revenues of such affiliated
service practices, less the amounts attributed to the affiliated service
practices in accordance with the services agreements, to arrive at the Company's
net revenue. The Company believes this display presentation of combining the
revenue of the affiliated service practices with those owned by the Company is
the most meaningful presentation in these circumstances.
F-7
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
At December 31, 1996, the Company owned and therefore consolidated a
wholly-owned subsidiary which had acquired the practices of Offerdahl &
Associates, P.C. and Donald K. Cunningham, D.D.S., P.C., professional service
corporations in Colorado. At December 31, 1996, the Company had services
agreements with Halpert and Associates, P.A., a Maryland professional service
corporation, and Ned Greenberg, DDS & Associates, a Virginia professional
service corporation. The Company also has an investment in and management
contract with V. Dale McElwee, D.D.S. & Associates, P.C. (the management
practice) but the Company does not own the related business assets and does not
participate in the net operating income of this practice. In this situation the
Company records management fee income only. The Company also owns 90% of a
non-operating subsidiary formed in 1995 to develop dental office management
software for eventual sale in cooperation with the University of Maryland School
of Dentistry.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost. Equipment held under
capital leases is stated at the present value of minimum lease payments at the
inception of the related leases. Depreciation of property and equipment is
calculated using the straight-line method over the estimated useful lives of the
assets, generally 5 to 10 years for dental furniture and equipment, 9 to 10
years for office furniture and fixtures, 5 to 6 years for computer equipment and
software and 5 years for vehicles. Equipment held under capital leases and
leasehold improvements are amortized on a straight-line basis over the shorter
of the lease term or estimated useful life of the assets.
When assets are retired or otherwise disposed of, the costs and related
accumulated depreciation are removed from the accounts. The difference between
the net book value of the assets and the proceeds from disposition is recognized
as gain or loss. Routine maintenance and repairs are charged to expense as
incurred, while costs of betterments and renewals are capitalized.
NET REVENUE
Net revenue represents revenue from the dental sites less amounts attribute
to the affiliated practices. The amounts attributed to the affiliated practices
represent amounts incurred by the PCs as salary, benefits and other payments to
employed dentists, hygienists and contracted specialists. Amounts incurred by
the Company as salary, benefits and other payments to employed dentists,
hygienists and contracted specialists in states where it operates and where
ownership of dental practices by the Company is permitted (currently Colorado
and Indiana) are reported as operating expenses. The Company's historical
operating income levels would be the same as those reported even if the Company
employed all of the dentists, hygienists and contracted specialists. Under the
services agreements, the Company assumes responsibility for the management of
all aspects of the dental group practices (including all operating expenses
consisting of
F-8
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
occupancy, dental supplies, laboratory fees, advertising and other costs) and
has a residual interest in most of the net operating income of the dental group
practices. However, the Company does not provide dental services. The Company's
net revenue is dependent upon the revenue of the affiliated practices.
Gross revenue is recorded at established rates reduced by allowances for
contractual adjustments. Contractual adjustments result from the terms of
certain reimbursement contracts and represent the difference between charges at
established rates and estimated recoverable amounts. Such adjustments are
recognized in the period the services are rendered. Any differences between
estimated recoverable amounts and actual final settlements under reimbursement
contracts are reported as contractual adjustments in the period of final
settlements. Capitation revenue is generated from contracts with managed care
companies, and patient fee income is recognized based on established fee
schedules.
Revenue on orthodontic contracts is recognized over the term of the contract
as services are performed. Based on Company and industry studies, it is
estimated that approximately 20% of total contract services are performed in the
month of installation, 10% of such services are performed in the final month of
the contract, and the remainder is performed on a pro rata basis over the term
of the contract, typically 24 months.
INTANGIBLE ASSETS AND IMPAIRMENT OF LONG-LIVED ASSETS
The Company's acquisitions involve the purchase of tangible and intangible
assets and the assumption of certain liabilities of the dental group practices.
The Company allocates the purchase price to the tangible assets acquired and
liabilities assumed, based on estimated fair market values. Costs in excess of
the net estimated fair market value of tangible assets acquired and liabilities
assumed is allocated first to identifiable intangibles and then either to the
services agreements (in those transactions where the Company has effectively
acquired the right to manage the dental site) or goodwill (for acquired dental
practices). The services agreements represent the Company's right to manage the
dental offices during the 40-year term of the agreement. The assigned value of
the services agreements is amortized using the straight-line method over its
term. The services agreements cannot be terminated by the affiliated PC without
cause, consisting primarily of bankruptcy or material default. The value
assigned to goodwill is amortized over 40 years.
The Company reviews intangible assets and other long-lived assets for
impairment whenever economic events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. If the carrying amount
of the asset exceeds the projected undiscounted cash flows of the operations
acquired over the estimated remaining useful life, the carrying value of the
asset will be reduced to the estimated fair value. Among the factors that the
Company will continually evaluate are unfavorable changes in each dental site's
relative market share and local market competitive environment, current and
forecasted operating results, cash flow levels of the dental offices and the
impact on the net revenue earned by the Company, and legal and regulatory
factors governing the practice of dentistry.
The Emerging Issues Task Force (EITF) of the Financial Accounting Standards
Board is currently evaluating certain matters relating to the physician practice
management industry, and the Company expects that the EITF will review criteria
for the consolidation of professional service corporation revenues and the
accounting for business combinations. The Company is unable to predict the
impact, if any, that
F-9
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
this review may have on the Company's acquisition strategy, the ability to
account for business combinations using the pooling-of-interests method, the
allocation of purchase price related to acquisitions, and the estimated useful
life assigned to intangible assets.
DEFERRED FINANCING COSTS
The Company defers financing costs incurred to obtain long-term debt and
amortizes such costs over the term of the related obligation.
STOCK BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES (APB No. 25), in accounting for its stock options.
Additional information required by Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS No. 123), is discussed in
note 11.
EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of
common and common equivalent shares outstanding during the periods. Common stock
equivalents include options to purchase common stock, assumed to be exercised
using the treasury stock method, and convertible preferred stock, which is
subject to mandatory conversion to common stock immediately prior to the
effectiveness of an initial public offering of common stock.
BUSINESS AND CREDIT CONCENTRATIONS
The Company's revenues are generated by the affiliated practices. At
December 31, 1996, two dental sites in Colorado were owned and twelve dental
sites located in Maryland, Virginia and Missouri were managed. Neither the
Company nor the affiliated practices require collateral or other security in
extending credit to patients; however, assignments of benefits receivable under
health insurance programs, plans or policies of patients are routinely obtained
(see note 3). In addition, management estimates that the Company derived
approximately 40% of its net revenues from services provided under its long-term
contracts with United Concordia Companies, a subsidiary of Blue Shield of
Pennsylvania, or its various affiliates for the years ended December 31, 1995
and 1996.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences attributable
to temporary differences between the financial statement carrying amounts and
their respective tax bases of assets and liabilities . Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
INTERIM FINANCIAL STATEMENTS
The financial statements for the six months ended June 30, 1996 and 1997
have been prepared by the Company, without audit, pursuant to Accounting
Principles Board (APB) Opinion No. 28, INTERIM
F-10
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL REPORTING. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to APB
Opinion No. 28; nevertheless, management of the Company believes that the
disclosures herein are adequate to prevent the information presented from being
misleading. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the results of
operations for the six months ended June 30, 1996 and 1997 have been included
herein. The results of operations for the six-month period are not necessarily
indicative of the results for the full year.
(2) ACQUISITIONS
1996 ACQUISITIONS
During the year ended December 31, 1996, the Company, through wholly-owned
subsidiaries, acquired certain assets and assumed certain liabilities of the
following dental practices:
Effective January 16, 1996, the Company acquired certain assets of Sanjiv
Bhatia, D.D.S., a general dentistry practice in Woodbridge, Virginia, and
a services agreement for $495, including a $195 promissory note payable
in three equal installments on March 14, 1997, 1998 and 1999, plus
interest at 8% per annum.
Effective November 14, 1996, the Company acquired the assets of Donald K.
Cunningham, D.D.S., P.C., a general dentistry practice in Littleton,
Colorado, for $325.
Effective December 2, 1996, the Company acquired the assets of Offerdahl
& Associates, P.C., a general dentistry practice in Lakewood, Colorado,
for $705.
The acquisitions above have been accounted for using the purchase method of
accounting and, accordingly, the purchase price has been allocated to the
tangible and intangible assets acquired and liabilities assumed, including
preacquisition contingencies, based on the estimated fair values at the dates of
acquisition. Often the Company must await additional information for the
resolution or final measurement of such contingencies during the allocation
period, which usually does not exceed one year from the date of acquisition.
Accordingly, the effect of the resolution or final measurement of preacquisition
contingencies during the allocation period is treated as an acquisition
adjustment primarily to the amount of intangible assets recorded. After the
allocation period, such resolution or final measurement is recognized in the
determination of net earnings. Preacquisition contingencies in connection with
the Company's acquisitions primarily relate to regulatory compliance matters,
income tax matters and legal proceedings. Accordingly, adjustments might be
required with respect to acquisitions to the extent that
F-11
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(2) ACQUISITIONS (CONTINUED)
finalized amounts differ from the estimates. The estimated fair values of the
assets acquired and liabilities assumed are summarized as follows:
<TABLE>
<S> <C>
Accounts receivable, net............................................ $ 95
Other assets........................................................ 25
Property and equipment.............................................. 353
Intangible assets:
Covenants not to compete.......................................... 126
Services agreements............................................... 271
Goodwill.......................................................... 655
---------
1,525
Less note payable to seller......................................... (195)
---------
Cash purchase price................................................. 1,330
Direct costs of acquisitions (allocated to services agreements)..... 63
---------
Total cost of acquisitions........................................ $ 1,393
---------
---------
</TABLE>
The following unaudited pro forma information reflects the effect of the
acquisitions on the consolidated results of operations of the Company as if the
acquisitions had occurred at January 1, 1995. Future results may differ
substantially from pro forma amounts, which cannot be considered indicative of
future results.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Net revenue................................................................ $ 7,874 9,252
Net earnings (loss)........................................................ 499 (1,023)
Net earnings (loss) per common share....................................... $ 0.20 (0.42)
--------- ---------
--------- ---------
</TABLE>
1997 ACQUISITIONS (UNAUDITED)
Acquisitions during the six months ended June 30, 1997 are summarized as
follows (unaudited):
<TABLE>
<CAPTION>
COMMON OTHER TOTAL
STOCK CONSIDERATION COST
--------- ------------- ---------
<S> <C> <C> <C>
Nanston....................................................................... $ 10,750 10,000 20,750
Indiana Dental................................................................ 140 3,875 4,015
Modern........................................................................ 3,600 6,000 9,600
Becker........................................................................ -- 650 650
Kittleman..................................................................... -- 835 835
BelAir........................................................................ -- 450 450
--------- ------ ---------
$ 14,490 21,810 36,300
--------- ------ ---------
--------- ------ ---------
</TABLE>
The Company assumed liabilities of approximately $6,000 in connection with
the Modern acquisition.
F-12
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(2) ACQUISITIONS (CONTINUED)
The total cost of the acquisitions has been allocated as follows:
<TABLE>
<CAPTION>
ALL OTHER
SERVICES ASSETS,
AGREEMENTS OTHER LESS
AND INTANGIBLE LIABILITIES TOTAL
GOODWILL ASSETS ASSUMED COST
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Nanston.............................................................. $ 16,835 2,971 944 20,750
Indiana Dental....................................................... 3,199 564 252 4,015
Modern............................................................... 5,357 945 3,298 9,600
Becker............................................................... 464 82 104 650
Kittleman............................................................ 431 76 328 835
BelAir............................................................... 240 120 90 450
----------- ----- ----- ---------
$ 26,526 4,758 5,016 36,300
----------- ----- ----- ---------
----------- ----- ----- ---------
</TABLE>
(3) ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1995 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Patients, excluding orthodontics contracts.................................. $ 589 684
Orthodontics contracts of patients.......................................... 500 524
Third-party payors.......................................................... 318 513
Accrued settlements under capitation contracts.............................. 208 466
--------- ---------
1,615 2,187
Deferred revenue--future services on orthodontics contracts................. (500) (463)
--------- ---------
1,115 1,724
Allowance for doubtful accounts............................................. (200) (474)
--------- ---------
$ 915 1,250
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Dental furniture and equipment.............................................. $ 460 701
Office furniture and fixtures............................................... 231 275
Computer equipment and software............................................. 271 529
Leasehold improvements...................................................... 213 1,040
Vehicles.................................................................... 86 86
--------- ---------
Total property and equipment................................................ 1,261 2,631
Less accumulated depreciation and amortization.............................. 604 816
--------- ---------
Net property and equipment.................................................. $ 657 1,815
--------- ---------
--------- ---------
</TABLE>
(5) INVESTMENT IN AND ADVANCES TO AFFILIATED GROUP PRACTICE
Loans and advances to V. Dale McElwee, D.D.S. & Associates, P.C., the owner
of a dental practice managed by the Company, are summarized as follows at
December 31, 1996:
<TABLE>
<S> <C>
Notes receivable..................................................... $ 465
Management fee receivable............................................ 70
Interest receivable.................................................. 18
Advances............................................................. 54
---------
$ 607
---------
---------
</TABLE>
The notes are due in five annual installments with a final maturity on
October 11, 2001, and bear interest at the annual rate of 8%. Advances and
management fees are noninterest bearing and are due on demand. In connection
with the investment above, the Company obtained a 40 year management contract
with V. Dale McElwee, D.D.S. & Associates, P.C. and issued 45,000 shares of
common stock of DentalCo valued at $165. Under certain circumstances, the
Company may be required to issue additional shares of Common Stock in connection
with this transaction.
F-14
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(6) INTANGIBLE ASSETS
Intangible assets acquired are summarized as follows at December 31, 1995
and 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Covenants not to compete.................................................... $ -- 126
Services agreements of dental group practices............................... 78 561
Goodwill of dental subsidiaries acquired.................................... -- 655
Pre-acquisition costs....................................................... -- 230
--------- ---------
Total cost of contract rights and practices acquired........................ 78 1,572
Less accumulated amortization............................................... 24 44
--------- ---------
Net intangible assets....................................................... $ 54 1,528
--------- ---------
--------- ---------
</TABLE>
(7) DEFERRED COSTS
Deferred costs at December 31, 1996 are summarized as follows:
<TABLE>
<S> <C>
Financing costs of new credit facility............................... $ 266
New office set-up costs, less accumulated amortization of $8......... 62
Initial public offering costs........................................ 128
---------
$ 456
---------
---------
</TABLE>
(8) LINES OF CREDIT
The Company had two bank lines of credit during 1995 and 1996, which were
paid in full at December 31, 1996.
On December 31, 1996, the Company entered into a Credit Agreement (the
Credit Facility) with NationsCredit Commercial Corporation (NationsCredit). The
Credit Facility provides for up to $25,000 in revolving credit loans, up to
$5,000 of which the Company may use for its working capital needs (subject to
borrowing base availability of 85% of eligible receivables, as defined), and the
balance of which may be used to finance acquisitions approved by NationsCredit
so long as after giving effect to the proposed acquisition, the Company is in
compliance with the financial covenants under the Credit Facility. The Credit
Facility currently bears interest at 450 basis points over NationsCredit's
30-day commercial paper rate. Outstanding balances under the credit facility
will convert to a term loan on December 31, 1997, and the Company is obligated
to repay the outstanding principal balance of the revolving credit loans in
quarterly installments of principal commencing January 1, 1998 through January
1, 2003.
Under the terms of the Credit Facility, the Company is also obligated to pay
(i) an unused commitment fee of up to 0.5% per annum on the average daily unused
portion of the revolving credit commitment during each quarter through December
31, 1997, (ii) $250 if the Company terminates or irrevocably reduces the amount
of revolving credit commitment as a result of a public offering of the Company's
Common Stock which results in net proceeds to the Company of at least $25,000;
and (iii) a contingency fee upon the earlier of December 31, 2001 or the date on
which the balance of the Credit Facility is reduced to zero. Such contingency
fee represents a percentage of the amount by which (a) the Company's future
EBITDA (as defined) multiplied by 7.5 exceeds (b) the amount of borrowings under
the facility. There was no balance outstanding under the Credit Facility at
December 31, 1996. The balance at June 30, 1997 was $12,690 (unaudited), which
is classified as long-term debt and of which $1,250 is the current portion.
The balance of the lines of credit at June 30, 1997 represents the
borrowings of an acquired company (see note 2).
F-15
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(9) LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
--------- -----
<S> <C> <C>
Notes payable to banks, secured by equipment; interest at prime plus 1% (8.25%
at December 31, 1996); due in monthly installments through final due dates
ranging from May 1997 through February 1999.................................. $ 163 91
Notes payable to vendors, secured by equipment:
7.5% note due in monthly installments of $1.7 (including interest) through
November, 1998............................................................. 52 35
11.72% note due in monthly installments of $0.9 (including interest) through
December, 2000............................................................. -- 30
13.86% notes due in monthly installments of $6.1 (including interest) through
February, 2001............................................................. -- 239
Other........................................................................ 13 --
10% notes payable to former stockholder, unsecured; due in monthly installments
of $2.1 (including interest) through September, 1997; $1.3 through September,
1999......................................................................... 61 42
6% note payable in connection with common stock redemption; principal and
interest due December 31, 2000, subject to acceleration of payment under
certain circumstances........................................................ -- 200
8% note payable in annual installments of $80, $75 and $70 (including interest)
through March, 1999.......................................................... -- 195
7.25% notes payable to health maintenance organization in monthly installments
of $3 (including interest) through April, 1999............................... 115 83
Notes payable to stockholders, unsecured:
Non-interest bearing note due in monthly installments of $2 through December,
1996....................................................................... 19 --
Prime plus 1/2% note, due on demand.......................................... 14 --
--------- ---
Total long-term debt........................................................... 437 915
Less current portion........................................................... 167 227
--------- ---
Long-term debt, less current portion........................................... $ 270 688
--------- ---
--------- ---
</TABLE>
At December 31, 1996, the aggregate maturities of long-term debt for the
next five years and thereafter are as follows: 1997--$386; 1998--$190;
1999--$154; 2000--$75; 2001--$19; and thereafter
- --$91.
Cash paid for interest expense was approximately $34 in 1994, $66 in 1995
and $59 in 1996.
F-16
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(10) LEASE AGREEMENTS
The Company has operating leases of dental offices and administrative
facilities expiring at various dates through 2006. The minimum annual rental
commitments for the next five years and thereafter are as follows: 1997--$800,
1998--$765, 1999--$674, 2000--$688, 2001--$690 and thereafter--$2,368.
Some leases include provisions whereby the Company is responsible for a
share of the buildings' operating expenses and real estate taxes. In addition,
the lease on one dental site provides for contingent rent based upon cash
collections. This lease provides for percentage rent, initially at 6.25% of
collections in 1992 and 1993, plus an additional 2.5% for deferred rent payable
in 1994, 1995 and 1996; thereafter, percentage rent is 8.75% of collections.
This lease was terminated in March 1996.
Rent expense was $624 in 1994, $760 in 1995 and $766 in 1996, including
contingent rent of $239, $407 and $306, respectively.
(11) CAPITAL STOCK
CLASS A PREFERRED STOCK
On July 18, 1995, the Company entered into a Preferred Stock Purchase
Agreement (the Agreement) with the purchasers of 40,154 shares of Class A
cumulative convertible Preferred Stock (Class A Preferred Stock) and a related
Stockholders' Agreement with such purchasers and all other stockholders of the
Company. Pursuant to the Agreement, the Company agreed, among other things, to
maintain consolidated net worth of $1,000 through July 18, 1998, $2,000 for the
following year and $3,000 thereafter. Also, the Company agreed that, among other
things, it will not, except as provided in the agreement: (a) redeem capital
stock or pay dividends, (b) acquire or dispose of assets in excess of stipulated
amounts, (c) merge, consolidate or otherwise change control of the Company, (d)
issue any capital stock, options or convertible debt, (e) incur any indebtedness
other than for working capital or purchase money indebtedness and (f) increase
the salaries of management.
The holders of Class A Preferred Stock are entitled to receive, when and if
declared out of funds legally available, dividends at the rate of $5.977 per
share per annum. Upon liquidation, the holders of the shares of Class A
Preferred Stock are entitled to receive, after payment of the Class C
liquidation payments, and before any distribution or payment is made upon any
other class of capital stock, an amount equal to $74.4124 per share
(approximately $3,000), subject to certain adjustments as defined in the
Agreement, plus any accumulated but unpaid dividends. Each share of Class A
Preferred Stock is convertible into 33 shares of common stock.
CLASS B PREFERRED STOCK
On July 17, 1995 the Company entered into a Preferred Stock Purchase
Agreement (the Agreement) with the purchasers of 47,068 shares of Series B
Preferred Stock (Class B Preferred Stock) and a related Stockholders' Agreement
with such purchasers and all other stockholders of the Company. Each share of
Class B Preferred Stock is convertible into 33 shares of common stock. The
holders of Class B Preferred Stock are entitled to receive dividends that they
would have received if they had converted their shares to common stock.
Upon liquidation, the holders of Class B Preferred Stock are entitled to
receive, after payment of the Class A and Class C liquidation payments, an
amount equal to $100.59 per share (approximately $4,735), plus an amount equal
to the amount of all declared but unpaid dividends.
F-17
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(11) CAPITAL STOCK (CONTINUED)
CLASS C PREFERRED STOCK
On June 27, 1996, the Company entered into a Preferred Stock Purchase
Agreement (the Agreement) with the purchasers of 816,038 shares of Class C
cumulative convertible Preferred Stock (Class C Preferred Stock) and a related
Stockholders' Agreement with such purchasers and all other stockholders of the
Company. Pursuant to the agreement, the Company agreed, among other things, to
provide the holders of Class C Preferred Stock quarterly dividends, when and if
declared, at the rate per annum of $0.2941 per share; dividends shall be
cumulative and accrue from the date of issuance. The dividends shall be paid in
full before any dividends shall be declared and set aside for the Class A and
Class B Preferred Stock and the common stock. Each share of Class C Preferred
Stock is convertible into one share of common stock, subject to certain
anti-dilution provisions. Upon liquidation, the holders of the shares of Class C
Preferred Stock are entitled to receive, before any distribution or payment is
made on the Class A and Class B Preferred Stock and the common stock, an amount
equal to $3.6763 per share (approximately $3,000), plus accumulated but unpaid
dividends.
If the Company effects a firm commitment underwritten initial public
offering of common stock at a price to the public of not less than $8 and
resulting in proceeds to the Company of not less than $10,000 (after deduction
of underwriting discounts and commissions but before deduction of other expenses
of issuance), the shares of the Class A, Class B and Class C Preferred Stock
shall automatically convert into the number of shares of common stock into which
such shares of Preferred Stock are convertible. Accordingly, such preferred
stocks are treated as common stock outstanding as if such conversion had
occurred on January 1, 1996.
At December 31, 1996, 4,422,165 shares have been reserved to cover
conversions of Preferred Stock and outstanding options. All share amounts herein
give effect to the 33 for 1 split of common stock which occurred on October 30,
1995.
CLASS D PREFERRED STOCK (UNAUDITED)
On June 4, 1997, pursuant to the terms of a Preferred Stock Purchase
Agreement (the "PSA"), the Company issued 40,740 shares of each of the Series D
Convertible Stock (Class D Convertible Stock) and Series D Redeemable Stock
(Class D Redeemable Stock) for aggregate proceeds of $8,148. On July 22, 1997,
the Company issued 8,750 shares of each of the Class D Convertible Stock and
Class D Redeemable Stock for aggregate proceeds of $1,750. On July 25, 1997, the
Company issued 43,835 shares of each of the Class D Convertible Stock and Class
D Redeemable Stock for aggregate proceeds of $8,767. Each share of Class D
Convertible Stock is convertible into 25.88 shares of common stock, based on a
$100 per share purchase price and a conversion price of $3.8635. Upon conversion
of each share of Class D Convertible Stock, the Company must pay all dividends
accrued but unpaid thereon through the date of conversion. Dividends accrue on
each share of Class D Convertible Stock and Class D Redeemable Stock at the rate
of 9% per annum. The Company is required to redeem all of the outstanding shares
of Class D Redeemable Stock at a per share price of $100 (approximately $9,333),
plus accrued and unpaid dividends, immediately after consummation of an initial
public offering of common stock.
Each share of Class D Convertible Stock automatically converts into 25.88
shares of Common Stock upon the closing of an initial public offering of common
stock, with the result that all outstanding Class D Convertible Stock will be
converted into 2,415,556 shares of Common Stock and will no longer be
authorized, issued or outstanding.
F-18
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(11) CAPITAL STOCK (CONTINUED)
The Company has accounted for the issuance of the Class D Convertible Stock
and Class D Redeemable Stock by giving recognition to the estimated value of the
conversion rights granted. The estimated fair value of the common stock of $5.00
per share, based on an independent valuation of such stock, exceeded the
conversion price by $1.14 per share (the "in-the-money conversion amount").
Accordingly, the Company has recorded a one-time dividend to the Class D
stockholders at the time of issuance as follows:
<TABLE>
<CAPTION>
THROUGH SUBSEQUENT TO
JUNE 30, 1997 JUNE 30, 1997 TOTAL
------------- ------------- ----------
<S> <C> <C> <C>
Class D Convertible shares issued.................. 40,740 52,585 93,325
Common stock equivalent shares..................... 1,054,351 1,361,205 2,415,556
Value of in-the-money conversion amount............ $ 1,202 1,551 2,753
------------- ----------
------------- ----------
Accrued 9% dividend to June 30, 1997............... 61
-------------
$ 1,263
-------------
-------------
</TABLE>
OPTIONS
In 1995, the Company granted stock options under an Executive Employment
Agreement and the Company's 1995 Equity Participation Plan to acquire 400,587
common shares and 196,439 common shares, respectively, at $2.26 per share. The
options under the Plan vest 20% per year and expire ten years from the date of
grant. Other options expire in 2000. In 1996, the Company granted stock options
to acquire 105,774 common shares under the aforementioned Plan at $2.26 per
share. The stock options issued by the Company have been granted with exercise
prices greater than the estimated fair market value of the common stock on the
date of grant. Accordingly, no compensation expense has been recorded. Stock
option transactions are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
---------------------------- ---------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ----------------- --------- ----------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of period.............. -- $ -- 597,027 $ 2.26
Granted................................................. 597,027 2.26 105,774 2.26
Exercised............................................... -- -- -- --
Cancelled............................................... -- -- -- --
--------- ----- --------- ----------------
Options outstanding at end of period.................... 597,027 $ 2.26 702,801 $ 2.26
--------- ----- --------- ----------------
--------- ----- --------- ----------------
Options exercisable at end of period.................... 400,587 $ 2.26 461,624 $ 2.26
--------- ----- --------- ----------------
--------- ----- --------- ----------------
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting for
its stock options. Had compensation expense for the Company's stock options been
determined in a manner consistent with Statement of Financial Accounting
Standards Statement No. 123 (SFAS No. 123), ACCOUNTING FOR STOCK-
F-19
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(11) CAPITAL STOCK (CONTINUED)
BASED COMPENSATION, the Company's net earnings (loss) would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Net earnings (loss)
As reported.................................................................. $ 259 (1,146)
--------- ---------
Pro forma.................................................................... (17) (1,354)
--------- ---------
--------- ---------
Pro forma earnings (loss) per common share................................... $ -- (.22)
--------- ---------
--------- ---------
</TABLE>
The fair value of the options for the purpose of the above pro forma
disclosure was calculated using the minimum value pricing model. The effects of
applying SFAS No. 123 in the pro forma net earnings for 1996 and 1995 may not be
representative of the effects on such pro forma information for future years.
(12) INCOME TAX EXPENSE
Income tax expense (benefit) for the years ended December 31, 1994, 1995 and
1996 consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
--------- ----- ---------
<S> <C> <C> <C>
Current:
Federal............................................................... $ 32 (24) (50)
State................................................................. 7 34 --
--------- --- ---
39 10 (50)
Deferred:
Federal............................................................... 94 148 (256)
State................................................................. -- (3) (56)
--------- --- ---
94 145 (312)
--------- --- ---
Total................................................................... $ 133 155 (362)
--------- --- ---
--------- --- ---
</TABLE>
Total income tax expense differed from the amount computed by applying the
U.S. Federal income tax rate of 35% to earnings before income taxes as a result
of the following:
<TABLE>
<CAPTION>
1994 1995 1996
--------- ----- ---------
<S> <C> <C> <C>
Computed "expected" tax expense......................................... $ 62 141 (528)
Increase (decrease) in income taxes resulting from:
Adjustment to valuation allowance..................................... -- -- 173
State income taxes, net of federal income tax benefit................. 4 20 (58)
Other................................................................. 67 (6) 51
--------- --- ---
Total income tax expense................................................ $ 133 155 (362)
--------- --- ---
--------- --- ---
</TABLE>
F-20
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(12) INCOME TAX EXPENSE (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liability are presented below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Cash basis reporting for tax purposes........................................ $ 201 317
Change in accounting for tax purposes (Section 481).......................... 45 --
Property and equipment, principally differences in depreciation.............. 64 72
Net operating loss........................................................... -- (582)
Valuation allowance.......................................................... -- 173
Other........................................................................ 2 20
--------- ---
Total deferred tax liability................................................... $ 312 --
--------- ---
--------- ---
</TABLE>
The significant components of the deferred tax expense for 1994, 1995 and
1996 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash basis reporting for tax purposes.................................. $ 101 190 116
Change in tax accounting............................................... -- (14) (45)
Book depreciation in excess of tax depreciation........................ -- (16) 8
Net operating loss..................................................... -- -- (582)
Valuation allowance adjustment......................................... -- -- 173
Other.................................................................. (7) (15) 18
--------- --------- ---
Total deferred income tax expense...................................... $ 94 145 (312)
--------- --------- ---
--------- --------- ---
</TABLE>
Cash paid for income taxes was approximately $32 in 1994, $146 in 1995 and
none in 1996.
At December 31, 1996, the Company had a net operating loss carryover of
approximately $1,475 which expires in the year 2011. Such loss may be subject to
restrictions on its use in the event of future change in ownership.
(13) COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of its
management employees, which include, among other terms, noncompetition
provisions and salary and benefits continuations.
LITIGATION
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. The Company may have liability with respect to
its own employees as well as the dentists associated with the affiliated service
practices and management practices. The pending legal proceedings against the
Company, the affiliated dentists and the affiliated practices include claims of
dental malpractice, which are generally covered by insurance. Based on the
investigations conducted to date, the Company believes that the outcome of such
legal actions and proceedings, individually or in the aggregate,
F-21
<PAGE>
DENTALCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(13) COMMITMENTS AND CONTINGENCIES (CONTINUED)
will not have a material adverse effect on the Company's financial condition,
results of operations or liquidity.
(14) EVENTS SUBSEQUENT TO DECEMBER 31, 1996
Effective as of January 1, 1997, the Company acquired all of the outstanding
stock of Nanston, Inc. and subsidiary, a multi-disciplinary dental practice and
dental management company operating in Georgia and North Carolina, for $20,750,
including $10,000 in cash and 2,150,000 shares of common stock.
Effective February 1, 1997, the Company acquired substantially all of the
assets of Marvin Becker, D.D.S., a general dentistry practice, for $650 in cash.
Effective as of January 1, 1997, the Company acquired all of the capital
stock of The Dental Center, Inc. and the Dental Center Adult, Inc., a dental
practice management company and a multi-disciplinary dentistry practice in South
Bend, Indiana for $3,875 in cash and 12,500 shares of DentalCo common stock
valued at $75. In addition, the sellers received options to purchase an
additional 25,000 shares of DentalCo stock at the date of the initial public
offering, at an exercise price of $6 per share.
Effective as of January 1, 1997, the Company acquired all the stock of
Willis V. Kittleman, Jr. D.D.S., a general dentistry practice in Boulder,
Colorado, for $835 in cash.
Effective June 1, 1997, the Company acquired substantially all the assets of
BelAir Beltway Dental Associates, a multi-disciplinary dental practice in
Baltimore, Maryland for $450 in cash.
Effective May 30, 1997 the Company acquired substantially all of the assets
of Modern Dental Concepts, Inc. a multi-disciplinary practice headquartered in
Philadelphia, Pennsylvania for approximately $9,600, including approximately
$6,000 in assumed liabilities and 720,000 shares of DentalCo common stock. In
addition, the Company has the option to purchase the practice of Howard M. Koff
D.D.S. and Associates, P.A. for $3.3 million in cash.
Effective August 31, 1997 the Company acquired certain assets of the
Department of Dentistry of the Bowman Gray School of Medicine at Wake Forest
University for $1,683, including $683 in cash and a $1,000 non-interest bearing
note convertible in the event of an initial public offering into common stock at
the initial public offering price per share. If an initial public offering does
not occur within two years from the date of closing, Bowman Gray School of
Medicine may elect to be paid $600 in cash in lieu of stock.
All business acquisitions described above will be accounted for by the
purchase method.
On August 29, 1997, the Company's Board of Directors authorized the filing
of a Registration Statement on Form S-1 in connection with an initial public
offering of common stock. The Company intends to effect a for stock
split as of the effective date of the transaction, and the shares of the Class A
Preferred, Class B Preferred, Class C Preferred and Class D Convertible Stock
will convert into shares of common stock immediately prior to the closing of
such offering. All share and per share information in the accompanying
consolidated financial statements have been retroactively adjusted to give
effect to the planned modification to the Company's capital structure.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Nanston, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Nanston,
Inc. and Subsidiary as of August 31, 1996, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nanston, Inc. and Subsidiary
as of August 31, 1996, 1995 and 1994, and the results of their operations and
their cash flows for the years then ended, in conformity with generally accepted
accounting principles.
Smith & Radigan
Atlanta, Georgia
October 11, 1996
F-23
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Nanston, Inc.:
We have audited the accompanying consolidated balance sheets of Nanston,
Inc. and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the four month periods then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements of Nanston, Inc. and subsidiary as of August 31, 1996 and 1995 and
for each of the years in the three-year period ended August 31, 1996 were
audited by other auditors whose report thereon dated October 11, 1996 expressed
an unqualified opinion on those statements.
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 December 31, 1996 and 1995 consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Nanston, Inc. and subsidiary as of December 31, 1996, and
the results of their operations and their cash flows for the four month periods
ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
January 24, 1997
F-24
<PAGE>
NANSTON, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995 AND 1996 AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
----------- ------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 187 59 119
Marketable securities.................................................... 106 112 113
Accounts receivable, less allowance for doubtful accounts (note 2)....... 1,514 1,761 1,770
Inventory................................................................ 244 304 316
Income taxes receivable.................................................. 47 -- 271
Deferred tax asset (note 10)............................................. -- 39 16
Current portion of note receivable (note 4).............................. 18 27 22
Other current assets..................................................... 55 60 34
----------- ----- -----
Total current assets....................................................... 2,171 2,362 2,661
----------- ----- -----
Property and equipment:
Equipment................................................................ 2,496 3,888 3,975
Leasehold improvements................................................... 839 1,386 1,296
Furniture and fixtures................................................... 307 402 398
Vehicle.................................................................. 15 16 16
Construction in process.................................................. 365 -- --
----------- ----- -----
4,022 5,692 5,685
Less accumulated depreciation and amortization........................... 1,722 2,347 2,512
----------- ----- -----
Net property and equipment................................................. 2,300 3,345 3,173
----------- ----- -----
Note receivable, less current portion (note 4)............................. 4 46 34
Cash surrender value of life insurance..................................... 172 188 196
Other assets............................................................... 40 61 76
----------- ----- -----
$ 4,687 6,002 6,140
----------- ----- -----
----------- ----- -----
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (note 3).................................................. $ 150 239 456
Accounts payable......................................................... 565 224 316
Accrued expenses......................................................... 1,240 1,526 1,336
Income tax payable (note 10)............................................. 5 100 --
Current portion of notes payable......................................... 324 382 329
Current portion of capital lease obligations............................. 202 206 212
----------- ----- -----
Total current liabilities.................................................. 2,486 2,677 2,649
----------- ----- -----
Long-term debt:
Notes payable............................................................ 813 1,922 1,842
Capital lease obligations................................................ 639 639 572
----------- ----- -----
1,452 2,561 2,414
Less current portion..................................................... 526 588 541
----------- ----- -----
926 1,973 1,873
----------- ----- -----
Stockholders' equity:
Common stock, par value $.01 per share; authorized, 200,000,000 shares;
issued and outstanding 14,986,612 shares in 1996 and 13,779,733 shares
in 1995................................................................ 138 138 150
Additional paid-in capital............................................... 860 860 1,530
Retained earnings........................................................ 277 466 50
Less treasury stock, 196,000 shares at cost.............................. -- (112) (112)
----------- ----- -----
Net stockholders' equity................................................... 1,275 1,352 1,618
----------- ----- -----
Commitments and contingencies (notes 7, 8 and 9)........................... $ 4,687 6,002 6,140
----------- ----- -----
----------- ----- -----
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
NANSTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEARS ENDED AUGUST 31, DECEMBER 31
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
Gross revenue:
Patient fees.................................................... $ 10,546 11,874 12,726 3,992 4,142
Capitation...................................................... 6,132 6,577 7,840 2,255 2,692
--------- --------- --------- --------- ---------
Total gross revenue............................................... 16,678 18,451 20,566 6,247 6,834
--------- --------- --------- --------- ---------
Operating expenses:
Salaries and other facility operating expenses.................. 14,310 15,219 17,060 5,448 6,485
Corporate administrative and general............................ 1,305 2,471 2,360 839 685
Depreciation and amortization................................... 340 361 625 155 249
--------- --------- --------- --------- ---------
Total operating expenses.......................................... 15,955 18,051 20,045 6,442 7,419
--------- --------- --------- --------- ---------
Operating income (loss)........................................... 723 400 521 (195) (585)
Other income (expense):
Interest expense................................................ (49) (55) (196) (23) (71)
--------- --------- --------- --------- ---------
Earnings (loss) before income taxes............................... 674 345 325 (218) (656)
Provision (benefit) for income taxes (note 10).................... 247 118 137 (77) (240)
--------- --------- --------- --------- ---------
Net earnings (loss)............................................... $ 427 227 188 (141) (416)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
NANSTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1994, 1995 AND 1996 AND FOUR MONTHS ENDED DECEMBER 31,
1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at September 1, 1993................................. $ 127 270 (376) -- 21
Contribution to ESOP......................................... 9 491 -- -- 500
Issuance of capital stock (5,000 shares)..................... -- -- -- -- --
Net earnings for 1994........................................ -- -- 427 -- 427
----- ----- --- --- ---------
Balance at August 31, 1994................................... 136 761 51 -- 948
Issuance of capital stock.................................... 2 98 -- -- 100
Net earnings for 1995........................................ -- -- 227 -- 227
----- ----- --- --- ---------
Balance at August 31, 1995................................... 138 859 278 -- 1,275
Purchase of treasury stock................................... -- -- -- (112) (112)
Net earnings for 1996........................................ -- -- 188 -- 188
----- ----- --- --- ---------
Balance at August 31, 1996................................... 138 859 466 (112) 1,351
Stock options exercised...................................... 12 671 -- -- 683
Net loss for the four months ended December 31, 1996......... -- -- (416) -- (416)
----- ----- --- --- ---------
Balance at December 31, 1996................................. $ 150 1,530 50 (112) 1,618
----- ----- --- --- ---------
----- ----- --- --- ---------
</TABLE>
F-27
<PAGE>
NANSTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEARS ENDED AUGUST 31, DECEMBER 31,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)............................................... $ 427 227 188 (141) (416)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation.................................................. 340 362 625 155 249
Loss on disposal of fixed assets.............................. -- -- -- -- 20
Provision for bad debts....................................... 438 252 504 178 218
ESOP contribution............................................. 500 -- -- -- --
Other......................................................... 49 138 -- -- --
Decrease (increase) in working capital:
Accounts receivable............................................. (889) (933) (749) (216) (227)
Inventory....................................................... (40) (21) (60) -- (12)
Income tax receivable........................................... -- (47) 47 (49) (271)
Other current assets............................................ 54 (16) (52) (67) 33
Accounts payable and accrued expenses........................... (227) 230 (55) 68 (99)
Income tax payable.............................................. 34 -- 99 -- (99)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities................. 686 192 547 (72) (604)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Acquisition of property and equipment............................. (394) (1,093) (1,670) (446) (97)
Net collections (advances) on notes receivable.................... 3 (19) (51) 2 17
Increase in cash surrender value of life insurance................ (17) (18) (16) (6) (9)
Purchase of marketable securities................................. -- -- (50) -- --
Proceeds from sale of marketable securities....................... 32 24 48 -- --
Increase in deposits.............................................. -- (59) (22) -- --
--------- --------- --------- --------- ---------
Net cash used by investing activities............................... (376) (1,165) (1,761) (450) (89)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Advances on line of credit........................................ (100) 150 89 234 217
Principal payments of long-term debt.............................. (222) (552) (588) (147) (325)
Proceeds received from long-term debt............................. 293 1,280 1,697 225 245
Increase (decrease) in capital lease obligation................... -- -- -- 97 (67)
Proceeds received from issuance of common stock................... -- -- -- -- 683
Purchase of treasury stock........................................ -- -- (112) -- --
--------- --------- --------- --------- ---------
Net cash provided used by financing activities...................... (29) 878 1,086 409 753
--------- --------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents.................... 281 (95) (128) (113) 60
Cash and cash equivalents at beginning of period.................... 1 282 187 187 59
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period.......................... $ 282 187 59 74 119
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-28
<PAGE>
NANSTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements present the consolidated accounts of Nanston, Inc.,
(the Company) and Nanston-North Carolina, Inc., its wholly-owned subsidiary.
Nanston-North Carolina, Inc. began operations during the fiscal year ended
August 31, 1994. All material intercompany balances and transactions have been
eliminated in consolidation.
Effective January 15, 1997, DentalCo, Inc., a Maryland corporation, acquired
all of the outstanding capital stock of Nanston, Inc. for $20,000, including
$10,000 in cash and 2,000,000 shares of non-voting common stock of DentalCo,
Inc.
OPERATIONS
Nanston, Inc. is a Georgia corporation which owns and operates dental
offices and laboratories in the State of Georgia. Nanston-North Carolina, Inc.
is a North Carolina corporation which receives a management fee from a North
Carolina dental group for providing management and operating services to the
group. Nanston-North Carolina, Inc. also leases equipment and facilities to the
North Carolina dental group and receives fees for this service.
MARKETABLE SECURITIES
The Company holds a bond and certificate of deposit at December 31, 1996
valued at $113. These investments are classified as "held to maturity
securities" and are reported at amortized cost as the Company has the positive
intent and ability to hold these securities to maturity.
RECEIVABLES
Receivables are stated at their estimated net realizable value. The Company
uses the allowance method to provide for uncollectible accounts receivable.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
under the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
accelerated and straight-line methods over the respective useful lives of the
assets as follows:
<TABLE>
<CAPTION>
USEFUL
LIVES
-----------
<S> <C>
Equipment........................................................................ 5-7 years
Leasehold improvements........................................................... 3-39 years
Furniture and fixtures........................................................... 5-7 years
Vehicle.......................................................................... 5 years
</TABLE>
F-29
<PAGE>
NANSTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Repairs and maintenance are expensed as incurred and additions or
betterments are capitalized.
REVENUE RECOGNITION
The Company has long-term contracts for orthodontic treatments which span a
twenty-four month period. The receivable balance on these contracts at December
31, 1996 was $2,444. Revenue is recognized on these contracts as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
TREATMENT PHASE PERIOD RECOGNITION
- ------------------------------------------------------------- --------------- ---------------------------------
<S> <C> <C>
Communication and appliance placement........................ Initial month 30 percent
Active treatment............................................. 24 months 60 percent (2.5% per month)
Appliance removal and retention.............................. Final month 10 percent
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates that the aggregate fair value of all financial
instruments at December 31, 1996 does not differ materially from the aggregate
carrying values of its financial instruments recorded in the balance sheet. The
estimated fair value amounts of cash and cash equivalents, receivables, accounts
payable and accrued liabilities approximate fair value due to their short-term
nature. Considerable judgment is necessarily required in interpreting market
data to develop the estimates of fair value, and accordingly, the estimates are
not necessarily indicative of the amounts that the Company could realize in a
current market exchange.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (a) the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and (b) the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and all highly liquid
investments with an original maturity of three months or less.
INCOME TAXES
The Company accounts for income taxes under Statements of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Under the
asset and liability method of SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
financial statement amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that
F-30
<PAGE>
NANSTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
includes the enactment date. Valuation allowances are recorded for deferred tax
assets when it is more likely than not that such deferred tax assets will not be
realized.
(2) ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
-------------------- ------------
1995 1996 1996
--------- --------- ------------
<S> <C> <C> <C>
Patients and third-party payors excluding orthodontics
contracts............................................... $ 778 1,146 1,178
Orthodontics contracts of patients, current............... 1,870 1,844 1,629
Orthodontics contracts of patients, noncurrent............ 801 791 815
--------- --------- ------------
3,449 3,781 3,622
Deferred revenue--future services on orthodontics
contracts............................................... (1,785) (1,753) (1,576)
--------- --------- ------------
1,664 2,028 2,046
Allowance for doubtful accounts........................... (150) (267) (276)
--------- --------- ------------
$ 1,514 1,761 1,770
--------- --------- ------------
--------- --------- ------------
</TABLE>
(3) LINE OF CREDIT
The Company has a bank line of credit that provides a credit commitment of
$500 available for working capital in the ordinary course of business. The
Company's borrowings against this commitment were $239 at August 31, 1996 and
$456 at December 31, 1996. Amounts borrowed under the line of credit are limited
to eighty percent of eligible accounts receivable and are secured by trade
receivables. The line of credit provides for interest on the outstanding balance
at the prime rate plus .25%, which was 8.75% at August 31, 1996 and 8.5% at
December 31, 1996.
The Company has also obtained a credit facility from a bank that provides a
credit commitment of $200 for the replacement of dental equipment. Loans from
this facility are due in sixty monthly installments including interest. Interest
is charged at a rate equal to the bank's five year cost of funds index plus 150
basis points. This facility expires on January 31, 1997. No funds were drawn on
this facility at August 31, 1995 and 1996 and December 31, 1996.
F-31
<PAGE>
NANSTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(4) NOTE RECEIVABLE
Notes receivable are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
------------------------------------ -----------------
<S> <C> <C> <C>
1995 1996 1996
----------------- ----------------- -----------------
8% note receivable from a dental group in North Carolina that is
managed by Nanston-North Carolina, Inc. The note is due in monthly
installments of $2 from January 1, 1996 through May 1, 1999......... $ -- 62 50
Notes receivable from employees, due in monthly installments with a
nominal interest rate............................................... 22 11 6
--- --- ---
$ 22 73 56
--- --- ---
--- --- ---
</TABLE>
Interest received for the year ended August 31, 1996 was $4 and the four
months ended December, 1996 was $2.
Future maturities of notes receivable are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1997............................................................. $ 22
1998............................................................. 24
1999............................................................. 8
2000............................................................. 2
---
$ 56
---
---
</TABLE>
F-32
<PAGE>
NANSTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(5) NOTES PAYABLE
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
-------------------- -------------
1995 1996 1996
--------- --------- -------------
<S> <C> <C> <C>
6.5% promissory note payable to insurance provider in monthly
installments between $3 and $6 depending on revenues
produced; secured by equipment............................. $ 267 212 193
12% note payable to related party, due in March 2000......... 64 64 64
8.5% note payable to bank in monthly installments of $8,
including interest, through November 1999; secured by
equipment.................................................. -- -- 224
Notes payable to bank; interest at prime plus 1.5%; secured
by receivables and equipment............................... 168 87 --
9% Note payable to bank in monthly installments of $4,
including interest, through December 2000.................. -- 157 --
8%-13.13% notes payable to related parties in combined
monthly installments of $8, including interest, through
July 1998; collateralized by equipment and key man life
insurance.................................................. 141 196 180
Note payable to insurance provider, due in monthly
installments of $22 including interest at prime plus
2 1/2%, through January 2005. The note is secured by stock
in Nanston-North Carolina, Inc., accounts receivable,
equipment and assignments of leases........................ 25 1,204 1,159
Other........................................................ 148 2 22
--------- --------- ------
Total notes payable $ 813 1,922 1,842
--------- --------- ------
--------- --------- ------
</TABLE>
The notes payable to the bank at August 31, 1996 contain certain financial
covenants, including minimum net worth and cash flow requirements and the
maintenance of a specified ratio of debt to tangible net worth. The Company was
not in compliance with certain of these ratios at August 31, 1996. The bank
issued waivers to the Company for 1996 and 1995.
Interest expense incurred on obligations to related parties was $26 in 1994,
$21 in 1995 $21 in 1996 and $5 each for the four months ended December 31, 1995
and 1996.
F-33
<PAGE>
NANSTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(5) NOTES PAYABLE (CONTINUED)
Future maturities of notes payable are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1997................................................. $ 329
1998................................................. 356
1999................................................. 356
2000................................................. 232
2001................................................. 238
Beyond............................................... 331
------
$ 1,842
------
------
</TABLE>
(6) CAPITAL LEASE OBLIGATIONS
Capital lease obligations are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
-------------------- ---------------
1995 1996 1996
--------- --------- ---------------
<S> <C> <C> <C>
Lease of dental equipment and computer equipment, payable in
monthly installments of $6, including interest imputed at
9.54% to 15.98%, through March 1999........................... $ 168 117 98
Lease of computer equipment, payable in monthly installments of
$12, including interest imputed at 8.6%, through February 25,
1999.......................................................... 351 423 383
Lease of dental equipment payable in monthly installments of $3,
including interest imputed at 14.76%, through April 2000...... 113 94 87
Lease of dental equipment payable to related party in monthly
installments of $1, including interest imputed at 7.33%,
though October 1998........................................... 7 5 4
--------- --------- -----
$ 639 639 572
--------- --------- -----
--------- --------- -----
</TABLE>
Interest expense on capital lease obligations to related parties was less
than $1 for each of the three years and for each of the four month periods ended
December 31, 1995 and 1996.
F-34
<PAGE>
NANSTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(6) CAPITAL LEASE OBLIGATIONS (CONTINUED)
Future maturities of capital lease obligations are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1997............................................................... $ 212
1998............................................................... 195
1999............................................................... 157
2000............................................................... 8
-----
$ 572
-----
-----
</TABLE>
Property and equipment includes equipment under capital leases of $351 and
$978 at August 31, 1995 and 1996, respectively, and $978 at December 31, 1996,
less accumulated amortization at such dates of $200, $475 and $392,
respectively.
(7) OPERATING LEASE COMMITMENTS
The Company leases dental offices and equipment under operating leases
expiring through 2001. Rental expense on these leases was $878 in 1994, $1,158
in 1995, $1,476 in 1996, and $411 and $535, respectively, for the four months
ended December 31, 1995 and 1996.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, EQUIPMENT OFFICES
- ------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
1997..................................................................... $ 19 1,330
1998..................................................................... 2 1,344
1999..................................................................... -- 1,191
2000..................................................................... -- 1,049
2001..................................................................... -- 377
Beyond................................................................... -- 1,116
</TABLE>
The operating leases include a fifteen-year lease for the Company's home
office building with Oakbrook JB, which is fifty percent owned by the Company's
majority stockholder. Lease payments on this facility were $149 in 1994, $150 in
1995, $152 in 1996, and $51 and 46, respectively, for the four month periods
ended December 31, 1995 and 1996. The lease payment will increase two percent
annually.
(8) EMPLOYEE BENEFIT PLANS
The Company's profit sharing 401(k) plan covers all full-time employees over
age 21 who have completed one year of continuous service. The Company has agreed
to match fifty percent of employee contributions (other than dentists). However,
the Company's matching contribution will not exceed one percent of total
compensation. The Company's contributions to the plan were $10 in 1994, $28 in
1995, $34 in 1996, and $13 and $12, respectively, for the four month periods
ended December 31, 1995 and 1996.
The Company has an Employee Stock Ownership Plan (ESOP). Participants
include all employees over age twenty-one who have completed one year of
continuous service. Participants become fully vested over a six-year period.
Allocation of stock contribution among plan participants is determined based on
F-35
<PAGE>
NANSTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(8) EMPLOYEE BENEFIT PLANS (CONTINUED)
pro-rata compensation for the measured period. The Company accrues for this
contribution of stock. The Company contributed 877,192 shares of common stock
valued at $500 in 1994. No contribution of stock was made in 1995 and 1996 and
for the four month periods ended December 31, 1995 and 1996. The Company makes
cash contributions to the Plan to fund stock redemptions. These contributions
were $27 in 1995, $13 in 1996, and $3 for the four month period ended December
31, 1996. The approximate redemption cost, in the event of termination of
employment of all employees and assuming full vesting, is approximately $859
(1,507,295 shares). This obligation would be paid in annual installments
beginning after a one-year break in service unless the individual balance is
greater than $4 in which case it would be paid in sixty monthly installments
after a five year break in service.
The Company had stock repurchase agreements with certain key employees. The
agreements provide that the stock will be redeemed at current fair value in the
event of the employee's death or termination of employment. The Company holds
life insurance policies on all but one of these employees. The approximate
redemption cost, in the event of death, of this employee's stock is $109. The
approximate redemption cost, in the event of termination of employment of all
these key employees, is approximately $787. This obligation would be paid in
sixty monthly installments.
The Company had stock option and repurchase agreements with other key
employees. These agreements provide that the stock can be purchased at par value
(.01 per share) and redeemed at current fair value in the event of termination
or the employee's death. At September 1, 1993, 196,000 options were outstanding.
During 1994, 5,000 options were exercised and 197,857 options were issued.
During 1995, no options were issued or exercised. During 1996, 250,878 options
were issued, 192,857 options expired and 4,000 options were exercised. During
the four month period ended December 31, 1996, 760,000 options were issued and
1,202,878 options were exercised. The approximate redemption cost, assuming the
subsequent termination of employment of these employees, is approximately $686.
This obligation would be paid in sixty monthly installments.
The Company applies APB No. 25 and related interpretations in accounting for
its stock options. Accordingly, the Company has recognized $674 in compensation
expense in connection with its stock options for 1996. Had compensation expense
for the Company's stock options been determined in a manner consistent with
Statement of Financial Accounting Standards ACCOUNTING FOR STOCK-BASED
COMPENSATION, Statement No. 123 (SFAS No. 123), the Company's net earnings would
not have changed. The minimal exercise price, when using the minimum value
pricing model to determine fair value of the options, results in no additional
value of the options.
The effects of applying SFAS No. 123 in the pro forma net income for 1996
may not be representative of the effects on such pro forma information for
future years.
(9) COMMITMENTS AND CONTINGENCIES
Premiums received from five health maintenance organizations accounted for
approximately thirty-five percent of the Company's service fees for the year
ended August 31, 1996 and the four months ended December 31, 1996. In addition
to the insurance premiums, some patients referred by these organizations make
supplemental co-payments with treatments.
F-36
<PAGE>
NANSTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
There are two classes of common stock. One class of common stock is
authorized for the employee stock ownership plan (ESOP) and the second class of
common stock is authorized for the other stockholders. Each of the two classes
of common stock have 100,000,000 shares authorized with identical terms, except
that obligations to the ESOP common stock shall be met before satisfying the
obligations to the other common stock.
The Company is from time to time subject to claims and suits arising in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
Each affiliated dental practice has entered into a Dentist Employment
Agreement with each full time dentist, orthodontist and other dental specialist
employed by it. Although the form of contract varies somewhat among practices
and among dentists with different specialties, the typical contract provides for
a defined compensation agreement, including performance-based compensation and a
covenant not to compete. Each full-time dentist is required to maintain
professional liability insurance, and mandated coverage limits are generally at
least $1,000 per claim and $3,000 in aggregate.
In addition, many affiliated dental practices employ intern dentists. All
the intern dentists have fixed compensation agreements for a fixed period of
time so that performance may be measured before permanent contracts are offered.
All interns are required to carry professional liability insurance in specified
amounts.
(10) INCOME TAX EXPENSE
The provision for income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEARS ENDED AUGUST 31, DECEMBER 31,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current:
Federal......................................... $ 221 52 150 (41) (221)
State........................................... 30 21 31 (8) (42)
--------- --------- --------- --------- ---------
251 73 181 (49) (263)
--------- --------- --------- --------- ---------
Deferred:
Federal......................................... (4) 42 (41) (24) 19
State........................................... -- 3 (3) (4) 4
--------- --------- --------- --------- ---------
(4) 45 (44) (28) 23
--------- --------- --------- --------- ---------
Total............................................. $ 247 118 137 (77) (240)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-37
<PAGE>
NANSTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(10) INCOME TAX EXPENSE (CONTINUED)
Total income tax is reconciled to the amount computed by applying the U.S.
Federal Income tax rate of 34% to earnings before income taxes as follows:
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEARS ENDED AUGUST 31, DECEMBER 31,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Computed expected tax expense (benefit)........... $ 229 117 111 (74) (223)
Increase (decrease) in income taxes resulting
from:
State taxes..................................... 27 14 13 (9) (22)
Other........................................... (9) (13) 13 6 5
--------- --------- --------- --------- ---------
Total income tax expense (benefit)................ $ 247 118 137 (77) (240)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset (liability) are presented below:
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
-------------------- -----------------
1995 1996 1996
--------- --------- -----------------
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Property and equipment....................................................... $ (64) (78) (108)
Allowance for doubtful accounts.............................................. 59 104 108
Accrued expenses............................................................. -- 13 16
--------- --------- -----
Net deferred tax assets (liabilities).......................................... $ (5) 39 16
--------- --------- -----
--------- --------- -----
</TABLE>
The significant components of the deferred tax expense are as follows:
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEARS ENDED AUGUST 31, DECEMBER 31,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Tax depreciation in excess of book..................... $ (4) 39 15 30 18
Allowance for doubtful accounts........................ -- 6 (46) (4) (46)
Accrued expenses....................................... -- -- (13) (4) --
--------- --- --- --- ---
Total deferred income tax expense (benefit)............ $ (4) 45 (44) 22 (28)
--------- --- --- --- ---
--------- --- --- --- ---
</TABLE>
F-38
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
The Dental Center, Inc.:
We have audited the accompanying combined balance sheets of The Dental
Center, Inc. (the Company) as of December 31, 1996 and 1995 and the related
combined statements of earnings and retained earnings, and cash flows for the
years then ended. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The Dental Center,
Inc. as of December 31, 1996 and 1995 and the results of their operations and
their cash flows for the years then ended, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
February 7, 1997
F-39
<PAGE>
THE DENTAL CENTER, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Accounts receivable, net (note 2)....................................................... $ 320,480 490,579
Prepaid expenses and other current assets............................................... 17,028 11,133
----------- ---------
Total current assets...................................................................... 337,508 501,712
Property and equipment, net (note 3)...................................................... 266,729 301,931
----------- ---------
$ 604,237 803,643
----------- ---------
----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft.......................................................................... $ 117,901 77,599
Line of credit (note 4)................................................................. 30,000 55,499
Accounts payable and accrued expenses................................................... 182,616 276,531
Income taxes payable.................................................................... 1,710 2,000
Current portion of long-term debt (note 5).............................................. 102,500 91,500
----------- ---------
Total current liabilities................................................................. 434,727 503,129
Long-term debt, less current portion (note 5)............................................. 120,424 190,272
Deferred income taxes (note 7)............................................................ 19,500 23,400
----------- ---------
Total liabilities......................................................................... 574,651 716,801
Stockholders' equity:
Common stock, no par value; authorized 1,000 shares; issued and outstanding 100 shares
at December 31, 1996 and 1995......................................................... 14,446 14,446
Additional paid-in capital.............................................................. 6,055 6,055
Retained earnings....................................................................... 9,085 66,341
----------- ---------
Total stockholders' equity................................................................ 29,586 86,842
Commitments and contingencies (notes 6, 8 and 9)..........................................
----------- ---------
$ 604,237 803,643
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-40
<PAGE>
THE DENTAL CENTER, INC.
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Gross revenue:
Patient fees......................................................................... $ 3,438,342 3,435,077
Capitation........................................................................... 799,947 736,509
------------ ----------
Total gross revenue.................................................................... 4,238,289 4,171,586
------------ ----------
Operating expenses:
Salaries and other facility operating expenses....................................... 3,204,581 3,172,580
Corporate administrative and general................................................. 983,302 999,438
Depreciation and amortization........................................................ 85,744 125,148
------------ ----------
Total operating expenses............................................................... 4,273,627 4,297,166
------------ ----------
Operating income (loss)................................................................ (35,338) (125,580)
------------ ----------
Other income (expense):
Interest expense..................................................................... (25,861) (36,364)
Investment income.................................................................... 43 53
------------ ----------
Net other income (expense)............................................................. (25,818) (36,311)
------------ ----------
Loss before income taxes............................................................... (61,156) (161,891)
Provision for income taxes (benefit) (note 7).......................................... (3,900) (6,000)
------------ ----------
Net loss............................................................................... (57,256) (155,891)
Retained earnings at beginning of year................................................. 66,341 222,232
------------ ----------
Retained earnings at end of year....................................................... $ 9,085 66,341
------------ ----------
------------ ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE>
THE DENTAL CENTER, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................... $ (57,256) (155,891)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization........................................................ 85,744 125,148
Decrease (increase) in working capital:
Accounts receivable................................................................ 170,099 (96,804)
Prepaid expenses................................................................... (5,895) 10,160
Accounts payable and accrued expenses.............................................. (93,915) 221,170
Income taxes payable............................................................... (290) 2,000
Deferred income taxes.............................................................. (3,900) (6,000)
----------- ----------
Net cash provided by operating activities................................................ 94,587 99,783
----------- ----------
Cash flows from investing activities--purchase of property and equipment................. (50,542) (32,927)
----------- ----------
Cash flows form financing activities:
Net payments of lines of credit........................................................ (25,499) (10,001)
Principal payments on long-term borrowings............................................. (99,857) (296,370)
Proceeds from issuance of debt......................................................... 41,009 221,294
----------- ----------
Net cash provided by financing activities................................................ (84,347) (85,077)
----------- ----------
Net decrease in cash..................................................................... (40,302) (18,221)
Cash (overdraft)--beginning of year...................................................... (77,599) (59,378)
----------- ----------
Cash (overdraft)--end of year............................................................ $ (117,901) (77,599)
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-42
<PAGE>
THE DENTAL CENTER, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The Dental Center, Inc. (the Company) is an Indiana professional
corporation. The Company and its affiliate, The Dental Center Adult, Inc. (the
Adult Center) were formed to provide dental services in Indiana. The Adult
Center is an S corporation.
The combined financial statements include the accounts of The Dental Center,
Inc. and its affiliated entity, the Adult Center. All significant intercompany
accounts and transactions have been eliminated.
On February 12, 1997 the stockholders of the Company and the Adult Center
sold all of the Company's outstanding stock to DentalCo, Inc. for an aggregate
purchase price of $4 million.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
ACCOUNTS RECEIVABLE
Accounts receivable principally represent receivables from patients and
third-party payors for dental services provided. Such amounts are recorded net
of contractual allowances. Orthodontic service revenues are recognized as the
services are provided over the term of the related contracts which generally
corresponds with the receipt of cash.
PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost. Equipment held under
capital leases is stated at the present value of minimum lease payments at the
inception of the related leases. Depreciation of property and equipment is
calculated using the straight-line method over the estimated useful lives of the
assets. Equipment held under capital leases and leasehold improvements are
amortized on a straight-line basis over the shorter of the lease term or
estimated useful life of the assets.
When assets are retired or otherwise disposed of, the costs and related
accumulated depreciation are removed from the accounts. The difference between
the net book value of the assets and the proceeds from disposition is recognized
as gain or loss. Routine maintenance and repairs are charged to expense as
incurred, while costs of betterments and renewals are capitalized.
INCOME TAXES
The Company is a corporation subject to Federal and state income taxes and
has adopted the provisions of the Financial Accounting Standards Board Statement
No. 109 (SFAS No. 109), ACCOUNTING FOR INCOME TAXES. Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
F-43
<PAGE>
THE DENTAL CENTER, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(2) REVENUE AND ACCOUNTS RECEIVABLE
Accounts receivable at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Patients.............................................................. $ 259,273 281,350
Third-party payors.................................................... 143,288 314,550
---------- ----------
402,561 595,900
Allowance for doubtful accounts....................................... (82,081) (105,321)
---------- ----------
$ 320,480 490,579
---------- ----------
---------- ----------
</TABLE>
Revenue for all dental services is recorded at established rates reduced by
allowances for contractual adjustments. Contractual adjustments result from the
terms of certain reimbursement contracts and represent the difference between
charges at established rates and estimated recoverable amounts. Such adjustments
are recognized in the period the services are rendered. Any differences between
estimated recoverable amounts and actual final settlements under reimbursement
contracts are reported as contractual adjustments in the year final settlements
are made. Managed care contract revenue is generated from long-term capitation
contracts with managed care companies, and patient fee income is recognized
based on established fee schedules.
(3) PROPERTY AND EQUIPMENT
Property and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ---------
<S> <C> <C>
Dental furniture and equipment....................................... $ 481,743 477,246
Office furniture and fixtures........................................ 101,247 99,260
Computer equipment and software...................................... 201,420 157,361
Leasehold improvements............................................... 134,442 134,442
Vehicles............................................................. 84,987 84,988
------------ ---------
Total property and equipment......................................... 1,003,839 953,297
Less accumulated depreciation and amortization....................... 737,110 651,366
------------ ---------
Net property and equipment........................................... $ 266,729 301,931
------------ ---------
------------ ---------
</TABLE>
(4) LINE OF CREDIT
The Company has a bank line of credit with a combined maximum limit of
$70,000, of which $30,000 and $55,499 were outstanding at December 31, 1996 and
1995, respectively. Interest on amounts drawn under these lines of credit is
payable monthly at the bank's prime rate plus 0.25% (8.8% at December 31, 1996),
with principal payable on demand.
F-44
<PAGE>
THE DENTAL CENTER, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(5) LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Notes payable secured by leasehold improvements, vehicles and
equipment:
Prime plus 1/4% note due in monthly installments of $3,371 plus
interest through March, 2000......................................... $ 131,478 171,933
8.8% note due in monthly installments of $3,361 (including interest)
through January, 1998................................................ 41,540 76,554
7.5% note due in monthly installments of $587 (including interest)
through March, 1996.................................................. -- 2,882
8.9% note due in monthly installments of $708 (including interest)
through April, 1998.................................................. 10,667 17,879
12.0% note due in monthly installments of $529 (including interest)
through January, 1998................................................ 6,424 12,524
10.9% note due in monthly installments of $1,048 (including interest)
through January, 2000................................................ 32,815 --
---------- ---------
Total notes payable.................................................... 222,924 281,772
Less current portion................................................... 102,500 91,500
---------- ---------
Long-term debt, less current portion................................... $ 120,424 190,272
---------- ---------
---------- ---------
</TABLE>
Cash paid for interest expense was approximately $26,000 in 1996 and $36,000
in 1995.
(6) LEASE AGREEMENTS
The Company has operating leases of dental offices at six Indiana locations;
South Bend, Granger, Niles, LaPorte, Warsaw and Plymouth, with lease terms
expiring at various dates through 1998. The minimum annual rental commitments
are as follows:
<TABLE>
<S> <C>
1997............................................................... $ 17,484
1998............................................................... 10,199
---------
$ 27,683
---------
---------
</TABLE>
Three of the locations (LaPorte, Warsaw and Plymouth) are satellite
locations that lease space and equipment from the owners on an as used basis.
There are no formal lease agreements for these locations.
The South Bend lease agreement commenced as a one year lease in 1995 with
the South Bend Dental Partnership. After the first year, the lease became a
month-to-month lease.
F-45
<PAGE>
THE DENTAL CENTER, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(7) INCOME TAX EXPENSE
Income tax expense (benefit) for the years ended December 31, 1996 and 1995
consists of a deferred Federal income tax benefit.
Total income tax expense differed from the amount computed by applying the
U.S. Federal income tax rate of 34% to earnings before income taxes as a result
of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Computed "expected" tax expense (benefit)............................... $ (15,400) (54,400)
Increase (decrease) in income taxes resulting from:
Benefit attributable to S Corporation loss............................ 6,800 44,200
State income taxes, net of federal income tax benefit................. -- --
Non-deductible expenses............................................... 5,200 4,700
Other................................................................. (500) (500)
---------- ---------
Total income tax expense (benefit)...................................... $ (3,900) (6,000)
---------- ---------
---------- ---------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets (liabilities) as of December 31 are
presented below:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash basis reporting for tax purposes................................. $ (23,400) (105,900)
Net operating loss and contribution carryforwards..................... 3,900 82,500
---------- ----------
Net deferred tax asset (liability).................................... $ (19,500) (23,400)
---------- ----------
---------- ----------
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of its
management employees, which include, among other terms, noncompetition
provisions and salary and benefits continuations.
LITIGATION
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will be adequately covered by insurance and will not
have a material adverse effect on the Company's financial position or results of
operations.
The Company is insured with respect to medical malpractice risks on a
claims-made basis. Management is not aware of any claims against it or its
affiliated dental provider group which might have a material impact on the
Company's financial position or results of operations.
F-46
<PAGE>
THE DENTAL CENTER, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(9) RELATED PARTY TRANSACTIONS
The Company has entered into an operating lease agreement with the South
Bend Dental Partnership, a related party. Total rent payments paid to the
Partnership totaled approximately $220,637 and $190,360 for the years ended
December 31, 1996 and 1995, respectively.
The South Bend Dental Partnership's cash accounts have been commingled with
the Company's cash accounts to avoid bank charges. The Company changed this
practice in November, 1996, and the Partnership account is no longer commingled
with the Company's cash accounts.
(10) PENSION AND OTHER FRINGE BENEFITS
The Dental Center, Inc. has a defined contribution pension plan for the
benefit of substantially all of its employees who have completed twelve months
of employment and attained the age of twenty-one years. Contributions to the
plan are discretionary and were $3,099 and $174,659 for the years ended December
31, 1996 and 1995, respectively.
Cash paid for pension expense was approximately $51,180 and $224,435 for the
years ended December 31, 1996 and 1995, respectively.
F-47
<PAGE>
MODERN DENTAL CONCEPTS, INC
AND AFFILIATED PRACTICES
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
ASSETS 1995 1996
- --------------------------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Current assets:
Cash................................................................................. $ 51,332 76,205
Accounts receivable, net of allowance for doubtful accounts of
$228,947 in 1995 and $247,242 in 1996.............................................. 1,317,828 1,404,711
Other receivables.................................................................... 20,366 84,715
Due from related parties............................................................. 796,806 876,504
Inventory--supplies and other........................................................ 282,307 304,371
Prepaid expenses..................................................................... 75,690 --
Deferred income taxes, net........................................................... 64,360 1,260
------------ ----------
Total current assets................................................................... 2,608,689 2,747,766
Property and equipment, net............................................................ 1,491,238 1,314,141
Due from related parties............................................................... 926,872 1,899,414
Security deposits...................................................................... 47,033 42,533
Deferred financing costs............................................................... -- 228,100
Goodwill and other intangibles, net.................................................... 1,435,056 1,145,735
Restricted cash........................................................................ -- 487,757
Deferred income taxes.................................................................. 47,392 40,256
------------ ----------
Total assets........................................................................... $ 6,556,280 7,905,702
------------ ----------
------------ ----------
</TABLE>
F-49
<PAGE>
MODERN DENTAL CONCEPTS, INC
AND AFFILIATED PRACTICES
COMBINED BALANCE SHEETS, CONTINUED
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------ ----------
<S> <C> <C>
LIABILITIES AND OWNERS' DEFICIT
Current liabilities:
Cash overdrafts...................................................................... $ 484,824 216,508
Current portion--long-term debt...................................................... 1,176,782 969,263
Credit lines payable................................................................. 472,000 1,876,119
Accounts payable..................................................................... 884,198 1,348,325
Accrued expenses..................................................................... 368,962 407,436
Accrued payroll...................................................................... 192,394 237,195
Payroll taxes payable................................................................ 655,378 470,811
Income taxes payable................................................................. 138,050 207,072
Security deposits payable............................................................ 10,353 10,353
Deferred rent........................................................................ 45,500 43,866
Due to related parties............................................................... 1,313,737 1,434,507
------------ ----------
Total current liabilities.............................................................. 5,742,178 7,221,455
------------ ----------
Long-term liabilities:
Long-term debt....................................................................... 733,113 221,754
Loans payable........................................................................ 758,539 820,697
Deferred rent........................................................................ 81,705 73,770
------------ ----------
Total long-term liabilities............................................................ 1,573,357 1,116,221
------------ ----------
Owners' deficit:
Capital stock........................................................................ 142 142
Additional paid-in capital........................................................... 46,563 46,563
Accumulated deficit.................................................................. (805,960) (478,679)
------------ ----------
Total owners' deficit.................................................................. (759,255) (431,974)
------------ ----------
Total liabilities and owners' deficit.................................................. $ 6,556,280 7,905,702
------------ ----------
------------ ----------
</TABLE>
F-50
<PAGE>
MODERN DENTAL CONCEPTS, INC
AND AFFILIATED PRACTICES
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------- ------------
<S> <C> <C>
REVENUE
Net patient revenue................................................................ $ 14,684,317 14,522,732
Management fees.................................................................... 225,365 62,356
Investment income.................................................................. -- 4,257
Rental income...................................................................... 170,286 172,084
------------- ------------
Total net revenue.................................................................... 15,079,968 14,761,429
------------- ------------
EXPENSES:
Salaries, wages, and benefits...................................................... 9,822,509 9,043,731
Materials and supplies............................................................. 684,542 534,871
Laboratory operations.............................................................. 318,098 261,204
Other operating expenses........................................................... 157,360 132,640
Selling, general, and administrative............................................... 1,248,793 1,620,294
Professional fees.................................................................. 146,849 577,678
Bad debt expense................................................................... 588,820 586,899
Lease expense...................................................................... 952,403 911,858
Depreciation and amortization...................................................... 509,788 405,782
Interest expense................................................................... 231,428 219,933
------------- ------------
Total expenses....................................................................... 14,660,590 14,294,890
------------- ------------
Income before income taxes........................................................... 419,378 466,539
Income taxes......................................................................... 117,920 139,258
------------- ------------
Net income........................................................................... $ 301,458 327,281
------------- ------------
------------- ------------
</TABLE>
F-51
<PAGE>
MODERN DENTAL CONCEPTS, INC
AND AFFILIATED PRACTICES
COMBINED STATEMENTS OF OWNERS' DEFICIT
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED OWNERS'
STOCK CAPITAL DEFICIT DEFICIT
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994................................... $ 142 46,563 (1,107,418) (1,060,713)
Net Income..................................................... -- -- 301,458 301,458
----- ----------- ------------ -----------
Balance at December 31, 1995................................... 142 46,563 (805,960) (759,255)
Net Income..................................................... -- -- 327,281 327,281
----- ----------- ------------ -----------
Balance at December 31, 1996................................... $ 142 46,563 (478,679) (431,974)
----- ----------- ------------ -----------
----- ----------- ------------ -----------
</TABLE>
F-52
<PAGE>
MODERN DENTAL CONCEPTS, INC
AND AFFILIATED PRACTICES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 301,458 327,281
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................................................ 348,907 320,254
Amortization................................................................ 160,881 85,528
Deferred rent............................................................... (48,711) (9,569)
Provision for deferred income taxes......................................... 56,144 70,236
Decrease (increase) in assets:
Accounts receivable....................................................... (400,137) (86,883)
Other receivables......................................................... 3,227 (64,349)
Due from officers......................................................... -- (114,807)
Inventory................................................................. 100,024 (22,064)
Prepaid expenses.......................................................... (66,676) 75,690
Security deposits......................................................... (13,731) 4,500
Increase (decrease) in liabilities:
Accounts payable.......................................................... 226,588 464,127
Accrued expenses.......................................................... 53,810 38,474
Accrued payroll........................................................... (7,263) 44,801
Payroll taxes payable..................................................... (131,829) (184,567)
Income taxes payable...................................................... 61,776 69,022
--------- -----------
Net cash provided by operating activities....................................... 644,468 1,017,674
--------- -----------
Cash flows from investing activities:
Purchase of appeals bond, restricted cash..................................... -- (487,757)
Change in due from related parties............................................ (563,059) (937,433)
Purchase of fixed assets...................................................... (382,669) (143,157)
--------- -----------
Net cash used in investing activities........................................... (945,728) (1,568,347)
--------- -----------
Cash flows from financing activities:
Change in net cash overdrafts................................................. (11,834) (268,316)
Change in due to related parties.............................................. 96,452 120,770
Deferred financing costs...................................................... -- (228,100)
Net proceeds from lines of credit............................................. 404,076 1,404,119
Proceeds from long-term debt.................................................. 144,346 --
Repayments of long-term debt.................................................. (655,348) (515,085)
Net proceeds (repayments) of loans payable.................................... (199) 62,158
--------- -----------
Net cash provided by (used in) financing activities............................. (22,507) 575,546
--------- -----------
Net increase (decrease) in cash................................................. (323,767) 24,873
Cash--beginning of year......................................................... 375,099 51,332
--------- -----------
Cash--end of year............................................................... $ 51,332 76,205
--------- -----------
--------- -----------
Additional disclosures:
Interest paid................................................................. $ 163,260 249,451
Taxes paid.................................................................... 7,776 --
Purchase price adjustment..................................................... -- 203,793
--------- -----------
--------- -----------
</TABLE>
F-53
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with this
Registration Statement. The Company will pay all expenses of this Offering. All
of such expenses are estimates, other than the filing fees payable to the
Securities and Exchange Commission, NASD and Nasdaq.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee................. $ 15,151.52
NASD Filing Fee............................................... 5,500.00
Nasdaq Listing Fee............................................ 50,000.00
Printing Fees and Expenses.................................... 175,000.00
Legal Fees and Expenses....................................... 420,000.00
Accounting Fees and Expenses.................................. 565,000.00
Blue Sky Fees and Expenses.................................... 15,000.00
Miscellaneous................................................. 4,348.48
------------
TOTAL..................................................... $1,250,000.00
------------
------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Charter provides that, to the fullest extent that limitations
on the liability of directors and officers are permitted by the MGCL, no
director or officer of the Company shall have any liability to the Company or
its stockholders for monetary damages. The MGCL provides that a corporation's
charter may include a provision which restricts or limits the liability of its
directors or officers to the corporation or its stockholders for money damages
except: (1) to the extent that it is provided that the person actually received
an improper benefit or profit in money, property or services, for the amount of
the benefit or profit in money, property or services actually received, or (2)
to the extent that a judgment or other final adjudication adverse to the person
is entered in a proceeding based on a finding in the proceeding that the
person's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. The Company's Charter and By-laws provide that the Company shall
indemnify and advance expenses to its currently acting and its former directors
to the fullest extent permitted by the MGCL and that the Company shall indemnify
and advance expenses to its officers to the same extent as its directors and to
such further extent as is consistent with law.
The Charter and By-laws provides that the Company will indemnify its
directors and officers and may indemnify employees or agents of the Company to
the fullest extent permitted by law against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Company. In addition, the Company's Charter provides that its
directors and officers will not be liable to stockholders for money damages,
except in limited instances. However, nothing in the Charter or By-laws of the
Company protects or indemnifies a director, officer, employee or agent against
any liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. To the extent that a director has been
successful in defense of any proceeding, the MGCL provides that he shall be
indemnified against reasonable expenses incurred in connection therewith.
The form of underwriting agreement, filed as Exhibit 1.1 hereto, contains
provisions by which the Underwriters agree to indemnify the Registrant and each
officer, director and controlling person of the Registrant against certain
liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Securities Act of 1933. The following numbers give effect to the 33 for 1 stock
split of the Company's Common Stock effected on October 30, 1995. Further
included is the consideration, if any, received by the Company for such
securities, and information relating to the section of the Securities Act of
1933 under which exemption from registration was claimed.
(a) ISSUANCES OF CAPITAL STOCK
On September 30, 1994, the Company entered into an Agreement and Plan of
Reorganization with Periodontal whereby the Company delivered 47,068 shares of
Common Stock in exchange for all of the assets of Periodontal to the following:
Dr. Halpert, the Company's Chief Executive Officer, received 25,537 shares of
Common Stock, Dr. Sheldon Wollman, a stockholder of the Company received 14,986
shares of Common Stock; Dr. Neil Goodrich, a stockholder of the Company received
5,840 shares of Common Stock, Dr. Herbert Livingston, a stockholder of the
Company received 637 shares of Common Stock and Dr. Martin Narun, a stockholder
of the Company received 68 shares of Common Stock.
On October 1, 1994, the Company issued 74,253 shares of Common Stock, 47,068
shares of Series B-1 Preferred Stock ("Series B-1 Preferred Stock") and 387
shares of Series B-2 Preferred Stock ("Series B-2 Preferred Stock") in exchange
for 47,068 shares of Common Stock and $746 pursuant to a Plan of
Recapitalization and Sale of Capital Stock by Mid-Atlantic Dental Associates,
P.A. as follows: Dr. Halpert, the Company's Chief Executive Officer, received
25,537 shares of Series B-1 Preferred Stock and 41,400 shares of Common Stock in
exchange for 25,537 shares of Common Stock of the Company and $414; Dr. Sheldon
Wollman, a stockholder of the Company, received 14,986 shares of Series B-1
Preferred Stock and 28,340 shares of Common Stock in exchange for 14,986 shares
of Common Stock and $283; Dr. Neil Goodrich, a stockholder of the Company
received 5,840 shares of Series B-1 Preferred Stock in exchange for 5,840 shares
of Common Stock; Dr. Herbert Livingston, a stockholder of the Company received
637 shares of Series B-1 Preferred Stock, 218 shares of Series B-2 Preferred
Stock and 3,552 shares of Common Stock in exchange for 637 shares of Common
Stock and $38; and Dr. Martin Narun received 68 shares of Series B-1 Preferred
Stock, 169 shares of Series B-2 Preferred Stock and 981 shares of Common Stock
in exchange for 68 shares of Common Stock and $11.
On July 17, 1995, the Company redeemed and canceled 387 shares of Series B-2
Preferred Stock, all of the issued and outstanding Series B-2 Preferred Stock of
the Company, and exchanged and canceled 47,068 shares of the Company's issued
and outstanding Series B-1 Preferred Stock held by the individuals listed in the
foregoing paragraph for 47,068 shares of the Company's Series B Preferred Stock.
On July 18, 1995, the Company issued 26,769 and 13,385 shares of Class A
Preferred Stock to Grotech Partners, IV, L.P. ("Grotech IV") and Merchant
Partners, L.P. ("Merchant") in exchange for an aggregate of $3 million pursuant
to a Preferred Stock Purchase Agreement between the Company and Grotech IV and
Merchant.
On October 30, 1995, the Company effected a 33 for 1 stock split of its
Common Stock pursuant to a Plan of Recapitalization for the Company.
On June 27, 1996, the Company issued 717,877 and 98,161 shares of Series C
Preferred Stock to Morgan Stanley Venture Capital Fund II Annex, L.P. ("Morgan
II") and Morgan Stanley Venture Investors Annex, L.P. ("Morgan Annex"),
respectively, in exchange for $3 million pursuant to a Preferred Stock Purchase
Agreement between the Company and Morgan II and Morgan Annex.
In September 1996, the Company obtained a Management Agreement with McElwee
and issued 45,000 shares of Common Stock to a stockholder of McElwee in
connection therewith.
In connection with the Nanston Merger, the Company issued 2,150,000 shares
of Class A Common Stock to former stockholders of Nanston GA for $12 million of
the purchase price in that transaction. On
II-2
<PAGE>
April 2, 1997 all of the issued and outstanding shares of Class A Common Stock
were converted into 2,000,000 share of common stock.
In connection the acquisition of Indiana Dental, the Company issued 5,000,
5,000 and 2,500 shares of Common Stock to Robert Austgen, a stockholder of the
Company, Charles Rosenbaum, a stockholder of the Company and Douglas Barton, a
stockholder of the Company, respectively, for $75,000 of the purchase price in
that transaction.
Effective May 30, 1997, the Company issued 720,000 shares of Common Stock to
Modern in connection with the acquisition by the Company of Modern.
On June 4, 1997, the Company issued 21,993, 3,007, 10,740, 4,268.5, 465, and
266.5 shares of each of the Series D Convertible and Series D Redeemable to
Morgan II, Morgan Annex, Grotech IV, Grotech Partners III, Grotech Companion and
Grotech Pennsylvania, respectively, or 81,480 shares of Class D Preferred Stock
in the aggregate, in exchange for approximately $8.0 million. The Company used a
portion of the proceeds to repay principal and interest on a bridge loan
previously advanced by Grotech IV to the Company in the amount of $250,000. On
July 22, 1997, as the second tranche of the June 1997 Financing, the Company
issued 6,562.5 and 2,187.5 shares of each of the Series D Convertible and Series
D Redeemable to US West Pension Trust, or 17,500 shares of Class D Preferred
Stock in the aggregate, in exchange for approximately $1.8 million. On July 25,
1997, as part of the same financing, the Company issued 31,110, 10,863.335,
1,183.4, and 678.3 shares of each of the Series D Convertible and Series D
Redeemable to Grotech IV, Grotech III, Grotech Companion and Grotech
Pennsylvania, respectively, or 87,670 shares of Class D Preferred Stock in the
aggregate in exchange for approximately $8.8 million.
(b) CERTAIN GRANTS OF STOCK OPTIONS
The Company's 1995 Plan was adopted by the Board of Directors and the
stockholders of the Company in July 1995. As of June 30, 1997, options to
purchase all 302,214 shares of Common Stock reserved for issuance under the 1995
Plan had been granted, but none of such options had been exercised. The
Company's 1997 Plan was adopted by the Board of Directors in August 1997. As of
August 31, 1997, no options to purchase the 1,000,000 shares of Common Stock
reserved for issuance under the 1997 Plan were granted.
In connection with the acquisition of Indiana Dental, the Company issued
options to acquire 6,250 shares of Common Stock to each of Robert Austgen,
Charles Rosenbaum, Douglas Barton and Gary Pippengel.
Mr. Sardegna, the Company's President, was granted options to purchase
400,000 shares of Common Stock, 400,687 shares as adjusted pursuant to certain
anti-dilution provisions, in connection with his employment agreement. As of
August 31, 1997, Mr. Sardegna exercised options to acquire 320,468 shares of
Common Stock.
Ms. Piatt, the Company's Chief Financial Officer, was granted options on
April 1, 1997 to purchase 30,000 shares of Common Stock, none of which were
exercised as of August 31, 1997.
No underwriters were engaged in connection with any of the foregoing sales
of securities. The shares of capital stock and securities issued in the above
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Securities Act or Regulation D or Rule
701 promulgated under the Securities Act, relative to sales by an issuer not
involving any public offering.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Underwriting agreement among DentalCo, Inc. and the underwriters.
3.1 Amended and Restated Articles of Incorporation of DentalCo, Inc.
3.2 Form of Amended and Restated Articles of Incorporation (to be filed upon the closing of the offering
referred to in the Registration Statement).
3.3 Amended and Restated By-Laws.
3.4 Form of Amended and Restated By-Laws (to be effective upon the closing of the offering referred to in
the Registration Statement).
4.1 Specimen certificate for shares of Common Stock, $.0001 par value, of the Registrant.
4.2 Amended and Restated Stockholders' Agreement dated as of June 5, 1997, by and among DentalCo, Inc. and
its stockholders.
4.3 Agreement and Irrevocable Proxy dated as of July 21, 1995 by and among Lawrence F. Halpert and certain
stockholders of DentalCo, Inc.
5.1* Opinion of Piper & Marbury L.L.P. as to the validity of the Common Stock being offered.
10.1 Plan of Recapitalization of and Sale of Capital Stock by Mid-Atlantic Dental Associates, P.A., dated
October 1, 1994.
10.2 Preferred Stock Purchase Agreement dated as of July 18, 1995 by and between DentalCo, Inc., Grotech
Partners IV, L.P., and Merchant Partners, L.P.
10.3 Preferred Stock Purchase Agreement dated June 27, 1996 by and among DentalCo, Inc., Morgan Stanley
Venture Capital Fund II Annex, L.P., and Morgan Stanley Venture Investors Annex, L.P.
10.4 Preferred Stock Purchase Agreement dated June 2, 1997 by and among DentalCo, Inc., Morgan Stanley
Venture Capital Fund II Annex, L.P., Morgan Stanley Venture Investors Annex, L.P., Grotech Partners IV,
L.P., Grotech Partners III, L.P., Grotech III Companion Fund, L.P. and Grotech III Pennsylvania Fund,
L.P.
10.5 Agreement and Plan of Merger and Reorganization dated December 27, 1996 by and among DentalCo, Inc.,
DentalCo/Southeast, Inc., Nanston, Inc. and the shareholders of Nanston, Inc.
10.6 Asset Purchase Agreement dated May 30, 1997 among DentalCo Modern Acquisition Corp., Modern Dental
Concepts, Inc., Modern Dental Concepts-PA, Inc., Modern Dental Concepts-NJ, Inc., Marc V. Ayes, Michael
S. Ayes, D.D.S., Mitchel Blumenthal, D.D.S., Howard M. Koff, D.D.S., and Richard L. Rush, D.D.S.
10.7 Stock Purchase Agreement dated as of November 26, 1996 by and among DentalCo Management Services of
Maryland, Inc., Charles Rosenbaum, D.D.S., Douglas Barton, D.D.S., Gary Pippenger, D.D.S., Robert
Augsten, D.D.S. and The Dental Center, Inc. and The Dental Center Adult, Inc., as amended by Assignment
and Assumption and Amendment No. 1 to Stock Purchase Agreement dated as of February 12, 1997 and
effective as of January 1, 1997.
10.8 Asset Purchase Agreement dated March 18, 1997 by and among Wake Forest University, DentalCo of North
Carolina, Inc., and DentalCo, Inc., as amended by Amendment No. 1 dated August 31, 1997.
10.9 DentalCo, Inc. 1995 Equity Participation Plan.
10.10 DentalCo, Inc. 1997 Omnibus Stock Plan.
10.11 Loan Agreement dated August 24, 1995 between CIGNA Dental Health Inc. and Nanston-North Carolina, Inc.
10.12 Loan Agreement dated August 25, 1995 between CIGNA Dental Health Inc. and Nathan Bell D.D.S., P.A.
10.13 Loan Agreement dated January 15, 1997 by and between Nanston, Inc. and DentalCo, Inc.
10.14 Credit Agreement dated as of December 31, 1996 among DentalCo, Inc. and NationsCredit Commercial
Corporation, as amended by First Amendment to Credit Agreement dated as of January 15, 1997.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.15 Management Services Agreement dated February 1, 1996 by and between DentalCo Management Services of
Maryland, Inc. and Ned Greenberg, D.D.S. & Associates, P.C. (formerly Halpert, Bhatia and Yigit, P.C.).
10.16 Administrative Services Agreement dated July 18, 1996 by and between DentalCo Management Services of
Maryland, Inc. and Mid-Atlantic Dental Associates, P.A.
10.17 Administrative Services Agreement dated January 15, 1997 between Nanston, Inc. and Nanston Dental Group,
P.C.
10.18 Administrative Services Agreement dated February 12, 1997 by and between The Dental Center, Inc. and
Charles H. Rosenbaum, D.D.S. & Associates, P.C.
10.19 Administrative Services Agreement dated August 31, 1997 between DentalCo of North Carolina, Inc. and
Raymond Garrison, D.D.S., P.A.
10.20 Administrative Services Agreement dated May 30, 1997 between DentalCo Management Services of
Pennsylvania, Inc. and Ayes & Rush Dental Associates of Pennsylvania, P.C.
10.21* Administrative Services Agreement dated March 14, 1997 by and between Modern Dental Concepts-NJ, Inc.
and Ayes & Rush Dental Associates of New Jersey, P.A.
10.22* Office Services Agreement dated January 15, 1997 between Nathan Bell, D.D.S., P.A. and Nanston-North
Carolina, Inc.
10.23* Support Services Agreement dated August 1, 1997 by and between V. Dale McElwee, D.D.S. & Associates,
P.C. and DentalCo Management Services of Missouri, Inc.
10.24* Management Agreement dated April 19, 1989 by and between Modern Dental Concepts, Inc. and Howard M.
Koff, D.D.S. and Associates, P.C.
10.25 Option Agreement dated May 30, 1997 by and among DentalCo Modern Acquisition Corp., Howard M. Koff,
D.D.S. and Associates, P.C., Howard M. Koff, D.D.S. and Associates of New Jersey, P.A., Michael S. Ayes,
D.D.S., Mitchel Blumenthal, D.D.S., Howard M. Koff, D.D.S., and Richard L. Rush, D.D.S.
10.26 Executive Employment Agreement dated July 18, 1995 between Lawrence F. Halpert, D.D.S. and DentalCo,
Inc., as amended by First Amendment to Employment Agreement dated April 1, 1997.
10.27 Executive Employment Agreement dated July 18, 1995 between Carl J. Sardegna and DentalCo, Inc.
11.1* Computation of Earnings Per Share.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Piper & Marbury L.L.P. (included in Exhibit 5.1 hereto).
23.2 Consent of KPMG Peat Marwick LLP.
24.1 Powers of Attorney (included on page II- ).
27.1* Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules:
<TABLE>
<CAPTION>
SCHEDULE PAGE
NUMBER DESCRIPTION NO.
- ------------- ------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
II Valuation and Qualifying Accounts S-1
</TABLE>
ITEM 17. UNDERTAKINGS
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 this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is,
II-5
<PAGE>
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 persons 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 of whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon 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 of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) 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 this offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement or Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in Baltimore, Maryland on
this 10th day of September, 1997.
<TABLE>
<S> <C> <C>
DENTALCO, INC.
By: /s/CARL J. SARDEGNA
Carl J. Sardegna, PRESIDENT AND DIRECTOR
</TABLE>
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Lawrence F. Halpert, D.D.S., Carl J. Sardegna and
Barbara J. Piatt (with full power to each of them to act alone) as his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead in any and all capacities to sign any or all
amendments or post-effective amendments to this Registration Statement,
including amendments made pursuant to Rule 462 under the Securities Act of 1933,
as amended, and to file the same with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, to sign
any and all applications, registration statements, notices or other documents
necessary or advisable to comply with the applicable state securities laws, and
to file the same, together with all other documents in connection therewith,
with the appropriate state securities authorities, granting unto said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, 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, thereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendment has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ LAWRENCE F. HALPERT Chairman of the Board,
- ------------------------------ Chief Executive Officer September 10, 1997
Lawrence F. Halpert, D.D.S. and Director
/s/ CARL J. SARDEGNA
- ------------------------------ President and Director September 10, 1997
Carl J. Sardegna
/s/ W. ROGER DRURY
- ------------------------------ Director September 10, 1997
W. Roger Drury
/s/ M. FAZLE HUSAIN
- ------------------------------ Director September 10, 1997
M. Fazle Husain
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ JOHN C. JOHNSTON
- ------------------------------ Director September 10, 1997
John C. Johnston
<C> <S> <C>
/s/ JAMES E. JORDAN
- ------------------------------ Director September 10, 1997
James E. Jordan
/s/ JOHN S. NORD
- ------------------------------ Director September 10, 1997
John S. Nord
/s/ OLIVER S. TRAVERS
- ------------------------------ Director September 10, 1997
Oliver S. Travers
/s/ HUGH A. WOLTZEN
- ------------------------------ Director September 10, 1997
Hugh A. Woltzen
/s/ BARBARA J. PIATT
- ------------------------------ Senior Vice President and September 10, 1997
Barbara J. Piatt Chief Financial Officer
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- --------- ---------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
1.1* Underwriting agreement among DentalCo, Inc. and the underwriters.
3.1 Amended and Restated Articles of Incorporation of DentalCo, Inc.
3.2 Form of Amended and Restated Articles of Incorporation (to be filed upon the closing of the
offering referred to in the Registration Statement).
3.3 Amended and Restated By-Laws.
3.4 Form of Amended and Restated By-Laws (to be effective upon the closing of the offering
referred to in the Registration Statement).
4.1 Specimen certificate for shares of Common Stock, $.0001 par value, of the Registrant.
4.2 Amended and Restated Stockholders' Agreement dated as of June 5, 1997, by and among DentalCo,
Inc. and its stockholders.
4.3 Agreement and Irrevocable Proxy dated as of July 21, 1995 by and among Lawrence F. Halpert and
certain stockholders of DentalCo, Inc.
5.1* Opinion of Piper & Marbury L.L.P. as to the validity of the Common Stock being offered.
10.1 Plan of Recapitalization of and Sale of Capital Stock by Mid-Atlantic Dental Associates, P.A.,
dated October 1, 1994.
10.2 Preferred Stock Purchase Agreement dated as of July 18, 1995 by and between DentalCo, Inc.,
Grotech Partners IV, L.P., and Merchant Partners, L.P.
10.3 Preferred Stock Purchase Agreement dated June 27, 1996 by and among DentalCo, Inc., Morgan
Stanley Venture Capital Fund II Annex, L.P., and Morgan Stanley Venture Investors Annex, L.P.
10.4 Preferred Stock Purchase Agreement dated June 2, 1997 by and among DentalCo, Inc., Morgan
Stanley Venture Capital Fund II Annex, L.P., Morgan Stanley Venture Investors Annex, L.P.,
Grotech Partners IV, L.P., Grotech Partners III, L.P., Grotech III Companion Fund, L.P. and
Grotech III Pennsylvania Fund, L.P.
10.5 Agreement and Plan of Merger and Reorganization dated December 27, 1996 by and among DentalCo,
Inc., DentalCo/Southeast, Inc., Nanston, Inc. and the shareholders of Nanston, Inc.
10.6 Asset Purchase Agreement dated May 30, 1997 among DentalCo Modern Acquisition Corp., Modern
Dental Concepts, Inc., Modern Dental Concepts-PA, Inc., Modern Dental Concepts-NJ, Inc., Marc
V. Ayes, Michael S. Ayes, D.D.S., Mitchel Blumenthal, D.D.S., Howard M. Koff, D.D.S., and
Richard L. Rush, D.D.S.
10.7 Stock Purchase Agreement dated as of November 26, 1996 by and among DentalCo Management
Services of Maryland, Inc., Charles Rosenbaum, D.D.S., Douglas Barton, D.D.S., Gary Pippenger,
D.D.S., Robert Augsten, D.D.S. and The Dental Center, Inc. and The Dental Center Adult, Inc.,
as amended by Assignment and Assumption and Amendment No. 1 to Stock Purchase Agreement dated
as of February 12, 1997 and effective as of January 1, 1997.
10.8 Asset Purchase Agreement dated March 18, 1997 by and among Wake Forest University, DentalCo of
North Carolina, Inc., and DentalCo, Inc., as amended by Amendment No. 1 dated August 31, 1997.
10.9 DentalCo, Inc. 1995 Equity Participation Plan.
10.10 DentalCo, Inc. 1997 Omnibus Stock Plan.
10.11 Loan Agreement dated August 24, 1995 between CIGNA Dental Health Inc. and Nanston-North
Carolina, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- --------- ---------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.12 Loan Agreement dated August 25, 1995 between CIGNA Dental Health Inc. and Nathan Bell D.D.S.,
P.A.
10.13 Loan Agreement dated January 15, 1997 by and between Nanston, Inc. and DentalCo, Inc.
10.14 Credit Agreement dated as of December 31, 1996 among DentalCo, Inc. and NationsCredit
Commercial Corporation, as amended by First Amendment to Credit Agreement dated as of January
15, 1997.
10.15 Management Services Agreement dated February 1, 1996 by and between DentalCo Management
Services of Maryland, Inc. and Ned Greenberg, D.D.S. & Associates, P.C. (formerly Halpert,
Bhatia and Yigit, P.C.).
10.16 Administrative Services Agreement dated July 18, 1996 by and between DentalCo Management
Services of Maryland, Inc. and Mid-Atlantic Dental Associates, P.A.
10.17 Administrative Services Agreement dated January 15, 1997 between Nanston, Inc. and Nanston
Dental Group, P.C.
10.18 Administrative Services Agreement dated February 12, 1997 by and between The Dental Center,
Inc. and Charles H. Rosenbaum, D.D.S. & Associates, P.C.
10.19 Administrative Services Agreement dated August 31, 1997 between DentalCo of North Carolina,
Inc. and Raymond Garrison, D.D.S., P.A.
10.20 Administrative Services Agreement dated May 30, 1997 between DentalCo Management Services of
Pennsylvania, Inc. and Ayes & Rush Dental Associates of Pennsylvania, P.C.
10.21* Administrative Services Agreement dated March 14, 1997 by and between Modern Dental
Concepts-NJ, Inc. and Ayes & Rush Dental Associates of New Jersey, P.A.
10.22* Office Services Agreement dated January 15, 1997 between Nathan Bell, D.D.S., P.A. and
Nanston-North Carolina, Inc.
10.23* Support Services Agreement dated August 1, 1997 by and between V. Dale McElwee, D.D.S. &
Associates, P.C. and DentalCo Mangement Services of Missouri, Inc.
10.24* Management Agreement dated April 19, 1989 by and between Modern Dental Concepts, Inc. and
Howard M. Koff, D.D.S. and Associates, P.C.
10.25 Option Agreement dated May 30, 1997 by and among DentalCo Modern Acquisition Corp., Howard M.
Koff, D.D.S. and Associates, P.C., Howard M. Koff, D.D.S. and Associates of New Jersey, P.A.,
Michael S. Ayes, D.D.S., Mitchel Blumenthal, D.D.S., Howard M. Koff, D.D.S., and Richard L.
Rush, D.D.S.
10.26 Executive Employment Agreement dated July 18, 1995 between Lawrence F. Halpert, D.D.S. and
DentalCo, Inc., as amended by First Amendment to Employment Agreement dated April 1, 1997.
10.27 Executive Employment Agreement dated July 18, 1995 between Carl J. Sardegna and DentalCo, Inc.
11.1* Computation of Earnings Per Share.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Piper & Marbury L.L.P. (included in Exhibit 5.1 hereto).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Smith & Radigan, P.C.
24.1 Powers of Attorney (included on page II- ).
27.1* Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules:
<PAGE>
Exhibit 3.1
DENTALCO, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
DENTALCO, INC., a Maryland corporation having its principal office in
Baltimore County, Maryland (which is hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
("SDAT") that:
FIRST: The name of the Corporation is "DentalCo, Inc." The Corporation
desires to amend and restate its charter as currently in effect. The Articles of
Incorporation of the Corporation, then named Chambers & Goodrich, P.A., were
originally filed with the SDAT on November 30, 1982 and were last amended by
Articles of Amendment and Restatement filed with the SDAT on January 14, 1997.
SECOND: Pursuant to Section 2-609 of the Maryland General Corporation Law
(the "MGCL"), these Articles of Amendment and Restatement restate and further
amend the provisions of the Articles of Incorporation of the Corporation.
THIRD: The text of the Articles of Incorporation of the Corporation is
hereby amended and restated in its entirety as follows:
FIRST: The name of the corporation is: DentalCo, Inc.
(hereinafter, the "Corporation").
SECOND: The post office address of the principal office of the
Corporation in the State of Maryland is 6115 Falls Road, Baltimore,
Maryland 21209.
THIRD: The name and post office address of the resident agent of
the Corporation is Lawrence F. Halpert, D.D.S., whose post office
address is 6115 Falls Road, Baltimore, Maryland 21209. The resident
agent is a citizen of the State of Maryland and actually resides
therein.
FOURTH:
1. The purposes for which the Corporation is formed and the
business and objects to be carried on and promoted by it are as
follows:
(a) To provide non-clinical administration, consulting and
related services to organizations whose
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<PAGE>
principal business is the delivery of multi-specialty dental services
through managed care contracts and fee for services;
(b) To carry on any lawful business, within the State of
Maryland and in any state, territory, district or dependency of the
United States or in any foreign country; and
(c) To engage in any one or more businesses or
transactions, or to acquire all or any portion of any entity engaged
in any one or more businesses or transactions which the members of the
Board of Directors of the Corporation (the "Board") may from time to
time authorize or approve, whether or not related to the business
described elsewhere in this Article or to any other business at the
time or theretofore engaged in by the Corporation.
2. The foregoing enumerated purposes and objects shall in no
way be limited or restricted by reference to, or inference from, the
terms of any other clauses of this or any other Article of these
Amended and Restated Articles of Incorporation of the Corporation
(this "Charter"), and each shall be regarded as independent; and they
are intended to be and shall be construed as powers as well as
purposes and objects of the Corporation and shall be in addition to
and not in limitation of the general powers of corporations under the
General Laws of the State of Maryland.
FIFTH: The Corporation is authorized to issue Sixteen Million
(16,000,000) shares of capital stock, of which (1) Forty Thousand One
Hundred Fifty-Four (40,154) shares are designated and classified
hereby as 8% Class A Cumulative Convertible Preferred Stock, par value
$0.0001 per share (the "Class A Preferred Stock"); (2) Forty-Seven
Thousand Sixty-Eight (47,068) shares are designated and classified
hereby as Class B Convertible Preferred Stock, par value $0.0001 per
share (the "Class B Preferred Stock"); (3) Eight Hundred Sixteen
Thousand Thirty-Eight (816,038) shares are designated and classified
hereby as 8% Class C Cumulative Convertible Preferred Stock, par value
-2-
<PAGE>
$0.0001 per share (the "Class C Preferred Stock"), (4) One Hundred
Thousand (100,000) shares are designated and classified hereby as 9% Class
D Cumulative Convertible Preferred Stock, par value $0.0001 per share (the
"Class D Convertible Preferred Stock"), (5) One Hundred Thousand (100,000)
shares are designated and classified hereby as 9% Class D Cumulative
Redeemable Preferred Stock, par value $0.0001 per share (the "Class D
Redeemable Preferred Stock"), and (6) Fourteen Million Eight Hundred Sixty
Thousand Six Hundred Eighty-Six (14,860,686) shares are designated and
classified hereby as Common Stock, par value $.0001 per share (the "Common
Stock").
The shares of the Class D Convertible Preferred Stock and the
Class D Redeemable Preferred Stock are sometimes referred to herein
collectively as the "Class D Preferred Stock". The shares of the
Class A Preferred Stock, the Class B Preferred Stock, the Class C
Preferred Stock and the Class D Preferred Stock shall hereinafter
collectively be called the "Preferred Stock".
The aggregate par value of all shares of all classes of capital
stock that the Corporation has authority to issue is One Thousand Six
Hundred Dollars and No Cents ($1,600.00).
The following is a description of the voting rights, powers,
restrictions, rights to receive dividends and liquidation preferences
and terms and condition of conversion and redemption of the classes of
capital stock of the Corporation.
1. PREFERRED STOCK.
(a) Voting.
(1) Except as may be otherwise provided for herein or
by law, the holders of shares of the Preferred Stock shall vote
together with the holders of all other classes and series of stock of
the Corporation as a single class on all actions to be taken by the
stockholders of the Corporation.
(2) Each share of the Class A Preferred Stock, the
Class B Preferred Stock, the Class C Preferred Stock and the Class D
Convertible Preferred Stock shall entitle the holder thereof to such
number of votes per share on each such action as shall equal the
number of whole shares of Common Stock into which such share of
Preferred Stock is then convertible.
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<PAGE>
(3) Except with respect to the matters described in
Section 1(a)(4) of this Article (as to which the holders of the Class
D Redeemable Preferred Stock shall have the right to vote together
with the holders of shares of the Class D Convertible Preferred
Stock), the shares of the Class D Redeemable Preferred Stock shall not
entitle the holders thereof to vote upon any matter submitted to a
vote of the stockholders. The holders of the Class D Redeemable
Preferred Stock shall, nevertheless, be entitled to receive notice of
and to attend each and every meeting of the stockholders of the
Corporation so long as such shares shall remain issued and
outstanding.
(4) For so long as any shares of the Class D Preferred
Stock shall remain outstanding, the written consent or affirmative
vote, given in person or by proxy, either in writing or at any special
or annual meeting called for such purpose, of the holders of a
majority or more of the votes entitled to be cast by the holders of
shares of the Class D Preferred Stock outstanding at the time, voting
together as a separate class, shall be necessary, in addition to, and
not in lieu of, any other vote or consent of any other class of
stockholders of the Corporation required by the terms of this Charter
or applicable law, to permit, effect or validate any one or more of
the following actions by the Corporation:
(A) the authorization, creation, issuance or
reclassification of authorized stock of the Corporation into, or the
authorization, creation or issuance of any obligation or security
convertible into or evidencing a right to purchase, any shares of any
class of stock of the Corporation (including any class or series of
preferred stock) ranking on a parity with or senior to the Class D
Preferred Stock as to dividends or as to distributions upon
liquidation, dissolution or winding up of the Corporation;
(B) the amendment, alteration or repeal of any of
the provisions set forth in this Charter or the By-laws of the
Corporation, whether by merger, consolidation or otherwise, which
would alter or change any of the preferences, rights, powers or
privileges, or terms or condition of conversion or redemption of any
of the shares of the Class D Preferred Stock;
-4-
<PAGE>
(C) the authorization of any increase or decrease
in the number of authorized shares of the Class D Preferred Stock or
of any other class or series of capital stock of the Corporation
ranking senior to or on a parity with the Class D Preferred Stock as
to dividends or as to distributions upon liquidation, dissolution or
winding up of the Corporation, whether such authorization, increase or
decrease occurs by means of amendment hereof, merger, consolidation or
otherwise;
(D) the sale or disposition of all or
substantially all of the assets of the Corporation to any person or
entity, in one or a series of transactions, or the merger or
consolidation of the Corporation with another corporation or entity
(other than a merger contemporaneous, or in connection, with an
initial public offering of the Common Stock) or the dissolution or
liquidation of the Corporation;
(E) except as provided in Section 1(f)of this
Article with respect to the redemption of the shares of the Class D
Preferred Stock and in Section 2(f) of this Article with respect to
the redemption of the shares of the Class D Conversion Shares (as
hereinafter defined), the redemption or repurchase by the Corporation
of any outstanding shares of any other class or series of the capital
stock of the Corporation;
(F) the authorization or approval of the
acquisition by the Corporation, either directly or through one or more
subsidiaries or affiliated entities, of the assets, business, capital
stock or membership or partnership interests of any person, firm,
corporation, limited liability company or partnership engaged in the
practice of dentistry that is expected to have in the year during
which such acquisition shall occur (or in the immediately succeeding
year) annual revenues, on an accrual basis, of $5,000,000 or more;
(G) the entering by the Corporation into any line
of business other than the provision of non-clinical administration,
consulting and related services to organizations whose principal
business is the delivery of multi-specialty dental services through
managed care contracts and fee for
-5-
<PAGE>
services, except those businesses which are substantially similar or
related thereto or a reasonable extension thereof; or
(H) the authorization or approval of any equity
participation or incentive plan, stock option plan or arrangement or
stock purchase plan, other than those existing as of the date of the
effectiveness of these Articles.
(5) For so long as any shares of Class C Preferred
Stock remain outstanding, the consent, voting as a separate class, of
the holders of a majority of the shares of Class C Preferred Stock
outstanding at the time given in person or by proxy, either in writing
or at any special or annual meeting called for the purpose, shall be
necessary to permit, effect or validate any one or more of the
following actions by the Corporation:
(A) the authorization, creation, issuance or
reclassification of authorized stock of the Corporation into, or
authorization, creation or issuance of any obligation or security
convertible into or evidencing a right to purchase, any shares of any
class of stock of the Corporation (including any class or series of
preferred stock) ranking on a parity with or senior to the Class C
Preferred Stock as to dividends or upon liquidation, dissolution or
winding up of the Corporation;
(B) the amendment, alteration or repeal of any of
the provisions set forth in these Articles or the By-laws of the
Corporation, whether by merger, consolidation or otherwise, which
would adversely affect the preferences, rights, powers or privileges,
qualification, limitations and restrictions or increase or decrease
the number of authorized shares of the Class C Preferred Stock or of
any other class or series of capital stock of the Corporation ranking
senior to or on a parity with the Class C Preferred Stock as to
dividends or upon liquidation, dissolution or winding up of the
Corporation, whether such authorization, increase or decrease occurs
by means of amendment hereof, merger, consolidation or otherwise; and
(C) the sale or disposition of all or
substantially all of the assets of the Corporation
-6-
<PAGE>
to any person or entity or the merger or consolidation of the Corporation
with another corporation or entity (other than a merger contemporaneous, or
in connection, with an initial public offering of the Common Stock) or the
dissolution or liquidation of the Corporation.
(b) Dividends.
(1) Class D Preferred Stock. The holders of the
shares of the Class D Preferred Stock shall be entitled to receive
from time to time, out of funds legally available therefor, when, as
and if declared by the Board, quarterly cash dividends (the "Class D
Dividends") at the rate per annum of $9.00 per share of the Class D
Preferred Stock (that is, $2.25 per quarter, which is equal to an
annual rate of nine percent (9%) of the Class D Issue Price (as
hereinafter defined)), as adjusted for stock splits, stock dividends,
recapitalizations, reclassifications and similar events (hereinafter,
"Recapitalization Events") that affect the number of outstanding
shares of the Class D Preferred Stock, in preference to dividends or
distributions which may be declared on any other class or series of
Preferred Stock of the Corporation or on the Common Stock. The Class
D Dividends shall be cumulative and shall accrue from the date of
issuance of the Class D Preferred Stock. If any cash dividends shall
be declared or set aside for payment or paid on outstanding shares of
the Class D Preferred Stock in respect of any any dividend period, the
Corporation shall simultaneously declare and pay or set aside a sum
sufficient for the payment in full of all arrearages in the payment of
Class D Dividends in respect of any previous or current period or
periods, at the annual rate specified above. All Class D Dividends
which shall have accrued but remain unpaid as of the date of the
closing of the sale of shares of the Common Stock of the Corporation
to the underwriter(s) in connection with an initial public offering of
the Common Stock of the Corporation registered in accordance with the
provisions of the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder (the "Securities Act") (whether
or not such initial public offering shall qualify as a Class C
Mandatory Conversion Event or as a Class D Mandatory Conversion Event
(each as hereinafter defined))(but not including any registration made
in connection with a transaction described in Rule 145 promulgated
under the Securities Act or in connection with an offer and sale to an
-7-
<PAGE>
employee benefit plan of the Corporation)(an "IPO") shall be paid in full
in cash upon consummation of such closing to the holders of record of the
Class D Preferred Stock immediately prior to such closing. No cash
dividends shall be declared and set aside for payment to the holders of any
class of capital stock ranking junior to the Class D Preferred Stock with
respect to the right to receive dividends (including, without limitation,
the Class C Preferred Stock, the Class A Preferred Stock, the Class B
Preferred Stock and the Common Stock), unless at the same time or prior
thereto all Class D Dividends accrued and unpaid through the date of such
declaration shall be declared, set aside and paid on all of the then
outstanding shares of Class D Preferred Stock.
(2) Class C Preferred Stock. Subject to the
preferential right of the holders of the Class D Preferred Stock to
receive cash dividends, the holders of shares of the Class C Preferred
Stock shall be entitled to receive, out of funds legally available
therefor, when, as and if declared by the Board, and after the payment
in full any accrued but unpaid Class D Dividends, quarterly cash
dividends (the "Class C Dividends") at the rate per annum of $0.2941
per share of Class C Preferred Stock (that is, $0.0735 per quarter,
which is equal to an annual rate of eight percent (8.0%) of the Class
C Issue Price (as defined in Subparagraph 1(d)(2)(C) hereof)), as
adjusted for Recapitalization Events that affect the number of
outstanding shares of Class C Preferred Stock, in preference to any
dividends or distributions which may declared on any the Class B
Preferred Stock and the Class A Preferred Stock or on or the Common
Stock. The Class C Dividends shall be cumulative and shall accrue
from the date of issuance of the Class C Preferred Stock. If any cash
dividends shall be declared or set aside for payment or paid on
outstanding shares of the Class C Preferred Stock in respect of any
dividend period, the Corporation shall simultaneouly declare and pay
or set aside a sum suficient for payment in full of all arrearages in
the payment of Class C Dividends in respect of any previous or current
dividend period or periods, at the annual rate specified above. No
cash dividends shall be declared and set aside for payment to the
holders of any class of capital stock ranking junior to the Class C
Preferred Stock (including, without limitation, the Class A Preferred
Stock, the Class B Preferred Stock
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<PAGE>
and the Common Stock), unless at the same time or prior thereto all Class C
Dividends accrued and unpaid through the date of such declaration shall be
declared, set aside and paid on all the then outstanding shares of Class C
Preferred Stock.
(3) Class A Preferred Stock. Subject to the
preferential rights of the holders of the Class D Preferred Stock and
the Class C Preferred Stock to receive cash dividends, the holders of
the shares Class A Preferred Stock shall be entitled to receive, out
of funds legally available therefor, when, as and if declared by the
Board, and after the payment in full of any accrued but unpaid Class D
Dividends and Class C Dividends, quarterly cash dividends (the "Class
A Dividends") at the rate per annum of $5.9770 per share of Class A
Preferred Stock (that is, $1.49425 per quarter, which is equal to an
annual rate of eight percent (8.0%) of the product of (i) thirty-three
(33) and (ii) the Class A Issue Price (as defined in Section
1(d)(2)(A) hereof)), as adjusted for Recapitalization Events that
affect the number of outstanding shares of Class A Preferred Stock, in
preference to any cash dividends or distributions which may be
declared on the Class B Preferred Stock or on or Common Stock. The
Class A Dividends shall be cumulative and shall accrue from the date
of issuance of the Class A Preferred Stock. If any cash dividends
shall be declared or set aside for payment or paid on outstanding
shares of the Class A Preferred Stock in respect of any dividend
period, the Corporation shall simultaneously declare and pay or set
aside a sum sufficient for payment in full of all arrearages in the
payment of Class A Dividends in respect of any previous or current
dividend period or periods, at the annual rate specified above. No
cash dividends shall be declared and set aside for payment to the
holders of any class of capital stock ranking junior to the Class A
Preferred Stock with respect to the payment of cash dividends
(including, without limitation, the Class B Preferred Stock and the
Common Stock), unless at the same time or prior thereto all Class A
Dividends accrued and unpaid through the date of such declaration
shall be declared, set aside and paid on all the then outstanding
shares of Class A Preferred Stock.
(3) Class B Preferred Stock. The holders of the Class
B Preferred Stock shall not be entitled to receive cash dividends from
the Corporation
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<PAGE>
on account of the shares thereof unless the Corporation declares a dividend
on its shares of Class A Common Stock or Common Stock. If the Corporation
declares a dividend on its Class A Common Stock or Common Stock, then each
holder of the Class B Preferred Stock shall be entitled, after the payment
of any accrued and unpaid Class D Dividends, Class C Dividends or Class A
Dividends, to receive that portion of such dividend equal to the amount
that would have been payable to it had it converted its shares of the Class
B Preferred Stock into shares of Common Stock immediately prior to the
declaration of such dividend.
(c) Liquidation.
(1) Class D Preferred Stock. Upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary (a "Liquidation"), the holders of the shares of the Class
D Preferred Stock shall be entitled, before any distribution or
payment is made upon any other class of capital stock ranking junior
to the Class D Preferred Stock with respect to rights to receive
distributions on a Liquidation (including, without limitation, the
Class C Preferred Stock, the Class A Preferred Stock, the Class B
Preferred Stock and the Common Stock) to receive an amount equal to
$100 per share, as adjusted for Recapitalization Events, plus, in the
case of each share, an amount equal to the amount of all accumulated
but unpaid Class D Dividends, computed to the date payment thereof is
made available, and the holders of Class D Preferred Stock shall not
be entitled to any further payment (such amount payable with respect
to one share of Class D Preferred Stock being sometimes referred to
as, the "Class D Liquidation Payment" and with respect to all shares
of Class D Preferred Stock being sometimes referred to as, the "Class
D Liquidation Payments"). If upon a Liquidation, the assets to be
distributed among the holders of the Class D Preferred Stock shall be
insufficient to permit payment to the holders of the Class D Preferred
Stock of the entire amount of the Class D Liquidation Payments, then
the entire assets of the Corporation to be so distributed shall be
distributed ratably among the holders of Class D Preferred Stock.
(2) Class C Preferred Stock. Upon any Liquidation,
the holders of the shares of Class C Preferred Stock shall be
entitled, after the payment in
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<PAGE>
full by the Corporation of the Class D Liquidation Payments, but before any
distribution or payment is made upon any other class of capital stock
ranking junior to the Class C Preferred Stock with respect to rights to
receive distributions on a Liquidation (including, without limitation, the
Class A Preferred Stock, the Class B Preferred Stock, and the Common Stock)
to receive an amount equal to $3.6763 per share, as adjusted for
Recapitalization Events, plus, in the case of each share, an amount equal
to the amount of all accumulated but unpaid Class C Dividends, computed to
the date payment thereof is made available, and the holders of the Class C
Preferred Stock shall not be entitled to any further payment (such amount
payable with respect to one share of Class C Preferred Stock being
sometimes referred to as, the "Class C Liquidation Payment" and with
respect to all shares of Class C Preferred Stock being sometimes referred
to as, the "Class C Liquidation Payments"). If upon a Liquidation, after
the payment in full of the Class D Liquidation Payment, the remaining
assets to be distributed among the holders of the Class C Preferred Stock
shall be insufficient to permit payment to the holders of the Class C
Preferred Stock of the entire amount of the Class C Liquidation Payments,
then the entire assets of the Corporation to be so distributed to the
holders of the Class C Preferred Stock shall be distributed ratably among
the holders of Class C Preferred Stock.
(3) Class A Preferred Stock. Upon a Liquidation, the
holders of the shares of Class A Preferred Stock shall be entitled,
after payment in full of the Class D Liquidation Payments and the
Class C Liquidation Payments, but before any distribution or payment
is made upon any other class of capital stock ranking junior to the
Class A Preferred with respect to rights to receive distributions on
Liquidation (including, without limitation, the Class B Preferred
Stock and the Common Stock), to receive an amount equal to $74.7124
per share, as adjusted for Recapitalization Events, plus, in the case
of each share, an amount equal to the amount of all accumulated but
unpaid dividends, computed to the date payment thereof is made
available, and the holders of Class A Preferred Stock shall not be
entitled to any further payment (such amount payable with respect to
one share of Class A Preferred Stock being sometimes referred to as,
the "Class A Liquidation Payment" and with respect to all
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shares of Class A Preferred Stock being sometimes referred to as, the
"Class A Liquidation Payments"). If upon a Liquidation, and after the
payment in full of the Class D Liquidation Payments and the Class C
Liquidation Payments, the remaining assets to be distributed among the
holders of Class A Preferred Stock shall be insufficient to permit payment
to the holders of Class A Preferred Stock of the entire amount of the Class
A Liquidation Payments, then the entire assets of the Corporation to be so
distributed to the holders of the Class A Preferred Stock shall be
distributed ratably among the holders of the Class A Preferred Stock.
(4) Class B Preferred Stock. Upon a Liquidation, the
holders of the shares of Class B Preferred Stock shall be entitled,
after payment in full of the Class D Liquidation Payments, the Class C
Liquidation Payments and the Class A Liquidation Payments, but before
any distribution or payment is made upon any other class of capital
stock ranking junior to the Class B Preferred Stock with respect to
rights to receive distributions on Liquidation (including, without
limitation, and the Common Stock), to receive an amount equal to
$100.59 per share, plus, in the case of each share, an amount equal to
the amount of all declared but unpaid dividends on the Class B
Preferred Stock, computed to the date payment thereof is made
available, and the holders of Class B Preferred Stock shall not be
entitled to any further payment (such amount payable with respect to
one share of Class B Preferred Stock being sometimes referred to as,
the "Class B Liquidation Payment" and with respect to all shares of
Class B Preferred Stock being sometimes referred to as, the "Class B
Liquidation Payments"). If upon a Liquidation, after the payment in
full of the Class D Liquidation Payments, the Class C Liquidation
Payments and the Class A Liquidation Payments, the remaining assets to
be distributed among the holders of Class B Preferred Stock shall be
insufficient to permit payment to the holders of Class B Preferred
Stock of the entire amount of the Class B Liquidation Payments, then
the entire assets of the Corporation to be so distributed to the
holders of the Class B Preferred Stock shall be distributed ratably
among the holders of Class B Preferred Stock.
(5) Common Stock. Upon a Liquidation, after the
holders of the shares of the Preferred Stock
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shall have been paid in full the amounts to which they shall be entitled,
the remaining net assets of the Corporation shall be distributed to the
holders of and the Common Stock, pro rata, with convertible securities
(excluding shares of the Preferred Stock convertible into shares of the
Common Stock) sharing pro rata in such Liquidation in accordance with the
number of shares of Common Stock into which they are convertible at the
time of the Liquidation.
(6) Notice of Liquidation. Written notice of a
Liquidation (the "Liquidation Notice"), stating a payment date, the
amount of the Class D Liquidation Payments, the Class C Liquidation
Payments, the Class A Liquidation Payments and the Class B Liquidation
Payments and the place where said liquidation payments shall be
payable, shall be given by mail, postage prepaid, not less than twenty
(20) days prior to the payment date stated therein, to the holders of
record of the Preferred Stock entitled to receive liquidation
payments, such notice to be addressed to each such holder at its
address as shown by the records of the Corporation. Each holder of
shares of Preferred Stock shall have the opportunity to convert, at
its option, all such shares of Preferred Stock into Common Stock
pursuant to Subparagraph 1(d) hereof, prior to a Liquidation.
(d) Conversions. The shares of the Preferred Stock shall
be subject to the following provisions regarding conversion
("Conversion Provisions"):
(1) Mandatory Conversion.
(A) Class D Convertible Preferred Stock.
Immediately upon the occurrence of the Class D Mandatory Conversion
Event (as hereinafter defined), subject to the adjustments
contemplated by Section 1(d)(6) of this Article, each outstanding
share of the Class D Convertible Preferred Stock shall convert
automatically, without any action on the part of the holder thereof or
the Corporation, and whether or not any of the certificates for such
shares are surrendered to the Corporation, into the number of shares
of Common Stock into which such share of the Class D Convertible
Preferred Stock could have been converted as of the date of the Class
D Mandatory Conversion Event. For purposes hereof, the "Class D
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Mandatory Conversion Event" shall mean the closing of an initial public
offering by the Corporation of its Common Stock pursuant to a firm
commitment underwriting registered in accordance with the Securities Act
(but not including a registration in connection with a transaction
described in Rule 145 promulgated under the Securities Act or in connection
with an offer and sale to an employee benefit plan of the Corporation) at a
price to the public of not less than $8.00 per share and resulting in net
proceeds to the Company of at least $25,000,000, after deduction of
underwriting discounts and commissions but before deduction of other
expenses of issuance. Upon the occurrence of the Class D Mandatory
Conversion Event, the Corporation shall issue and deliver to each such
holder a certificate or certificates for the number of shares of the Common
Stock into which the shares of the Class D Convertible Preferred Stock were
convertible on the date of the Class D Mandatory Conversion Event in
exchange for the surrender to the Corporation of the certificates evidencing
such shares at the principal office of the Corporation (or at such other
office or agency of the Corporation as the Corporation may designate by
notice in writing to the holders of the Class D Convertible Preferred
Stock).
(B) Class C Convertible Preferred Stock.
Immediately upon the occurrence of the Class C Mandatory Conversion
Event (as hereinafter defined), subject to the adjustments
contemplated by Section 1(d)(6) of this Article, each outstanding
share of the Class C Convertible Preferred Stock shall convert
automatically, without any action on the part of the holder thereof or
the Corporation, and whether or not any of the certificates for such
shares are surrendered to the Corporation, into the number of shares
of Common Stock into which such share of the Class C Convertible
Preferred Stock could have been converted as of the date of the Class
C Mandatory Conversion Event. For purposes hereof, the "Class C
Mandatory Conversion Event" shall mean the closing of an initial
public offering by the Corporation of its Common Stock pursuant to a
firm commitment underwriting registered in accordance with the
provisions of the Securities Act(but not including a registration in
connection with a transaction described in Rule 145 promulgated under
the Securities Act or in connection with an offer and sale to an
employee benefit plan of the Corporation) at a price to the public of
not less
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than $8.00 per share and resulting in net proceeds to the Company of at
least $10,000,000, after deduction of underwriting discounts and
commissions but before deduction of other expenses of issuance. Upon the
occurrence of the Class C Mandatory Conversion Event, the Corporation
shall then issue and deliver to each such holder a certificate or
certificates for the number of shares of the Common Stock into which the
shares of the Class C Convertible Preferred Stock were convertible on the
date of the Class C Mandatory Conversion Event in exchange for the surrender
to the Corporation of the certificates evidencing such shares at the
principal office of the Corporation (or at such other office or agency of
the Corporation as the Corporation may designate by notice in writing to the
holders of the Class C Convertible Preferred Stock).
(C) Class A and Class B Preferred Stock. In
addition to the conversion of the Class C Convertible Preferred Stock
contemplated by Section 1(d)(1)(B) above, immediately upon the
occurrence of the Class C Mandatory Conversion Event, subject to the
adjustments contemplated by Section 1(d)(6)of this Article, each
outstanding share of the Class A Preferred Stock and of the Class B
Preferred Stock also shall convert automatically, without any action
on the part of the holder thereof or the Corporation, and whether or
not any of the certificates for such shares are surrendered to the
Corporation, into the number of shares of Common Stock into which each
such share could have been converted as of the date of the Class C
Mandatory Conversion Event. Upon the occurrence of the Class C
Mandatory Conversion Event, the Corporation shall issue and deliver to
each such holder a certificate or certificates for the number of
shares of the Common Stock into which the shares of the Class A
Preferred Stock and Class B Preferred Stock (as the case may be) were
convertible on the date of the Class C Mandatory Conversion Event in
exchange for the surrender to the Corporation of the certificates
evidencing such shares at the principal office of the Corporation (or
at such other office or agency of the Corporation as the Corporation
may designate by notice in writing to the holders thereof).
(2) Right to Convert.
(A) Class A Preferred Stock. Subject to the
terms and conditions of this
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Subparagraph 1(d), the holder of any share or shares of Class A Preferred
Stock shall have the right, at its option at any time, to convert, without
the payment of any additional consideration, any or all such shares of
Class A Preferred Stock (except that upon a Liquidation, the right of
conversion shall terminate at the close of business on the business day
fixed for payment of the amount distributable in respect of the Class A
Preferred Stock) into such number of fully paid and nonassessable shares of
Common Stock as is obtained by the product of (i) Thirty-Three (33) and
(ii) a fraction (a) the numerator of which is equal to the product of (i)
the number of shares of the Class A Preferred Stock so to be converted and
(ii) $2.26401 (the "Class A Issue Price") and (b) the denominator of which
is equal to the conversion price of $2.26401, or, in case an adjustment of
such conversion price has taken place pursuant to the further provisions of
this Subparagraph 1(d), then by the conversion price as last adjusted and
in effect at the date any share or shares of Class A Preferred Stock are
surrendered for conversion (such price as last adjusted being referred to
as, the "Class A Conversion Price").
(B) Class B Preferred Stock. Subject to the
terms and conditions of this Subparagraph 1(d), the holder of any
share or shares of Class B Preferred Stock (a "Class B Holder") shall
have the right, at its option, to convert, without the payment of any
additional consideration, any or all such shares of Class B Preferred
Stock then held by such Class B Holder (except that upon a
Liquidation, the right of conversion shall terminate at the close of
business on the business day fixed for payment of the amount
distributable in respect of the Class B Preferred Stock) into that
number of fully paid and nonassessable shares of Common Stock as shall
equal the product of (i) Thirty-Three (33) and (ii) that number of
shares of Class B Preferred Stock so to be converted (as adjusted for
Recapitalization Events).
(C) Class C Preferred Stock. Subject to the
terms and conditions of this Subparagraph 1(d), the holder of any
share or shares of Class C Preferred Stock shall have the right, at
its option at any time, to convert, without the payment of any
additional consideration, any or all such shares of Class C Preferred
Stock (except that upon a Liquidation, the right of conversion shall
terminate at
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the close of business on the business day fixed for payment of the amount
distributable in respect of the Class C Preferred Stock) into the number of
fully paid and nonassessable shares of Common Stock equal to the product of
(i) the number of shares of the Class C Preferred Stock so to be converted
and (ii) a fraction (A) the numerator of which is equal to $3.6763 (the
"Class C Issue Price") and (B) the denominator of which is equal to the
conversion price of $3.6763, or, in case an adjustment of such conversion
price has taken place pursuant to the further provisions of this
Subparagraph 1(d), then by the conversion price as last adjusted and in
effect at the date any share or shares of Class C Preferred Stock are
surrendered for conversion (such price as last adjusted being referred to
as, the "Class C Conversion Price").
(D) Class D Convertible Preferred Stock. Subject
to the terms and conditions of this Section 1(d), the holder of any
share or shares of the Class D Convertible Preferred Stock shall have
the right, at its option at any time, to convert, without the payment
of any additional consideration, any or all such shares of Class D
Convertible Preferred Stock (except that upon a Liquidation, the right
of conversion shall terminate at the close of business on the business
day fixed for payment of the Class D Liquidation Payments) into such
number of fully paid and nonassessable shares of Common Stock as is
obtained by multiplying (i) the number of shares of the Class D
Convertible Preferred Stock to be converted, by (ii) a fraction (a)
the numerator of which is $100 (the "Class D Issue Price") and (b) the
denominator of which is equal to the conversion price of $3.8635, or,
in case an adjustment of such conversion price has taken place
pursuant to the further provisions of this Section 1(d), then by the
conversion price as last adjusted and in effect at the date any such
share or shares of Class D Convertible Preferred Stock shall bee
surrendered for conversion (such price as last adjusted being referred
to as, the "Class D Conversion Price") (it being understood that (i)
the foregoing components of the initial Class D Conversion Price were
determined on the basis of the following assumptions: (a) all of the
authorized shares of the Class D Convertible Preferred Stock of the
Corporation will be issued by the Corporation, (b) the number of
issued and outstanding shares of the Common Stock of the Corporation
on a fully-diluted basis is 9,706,119 (and further assuming
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in deriving such number of shares that the Corporation shall have issued
(1) 666,667 shares of its Common Stock to Modern Dental Concepts, Inc.
("Modern") in connection with the acquisition by the Corporation of the
assets of Modern and (2) 100,000 shares of its Common Stock in connection
with the acquisition by the Corporation of certain of the assets of Wake
Forest University used at the Bowman Gray School of Medicine ("Bowman
Gray"), and (c) the shares of the Class D Convertible Preferred Stock
initially shall be convertible into, in the aggregate, such number of
shares of the Common Stock of the Corporation, which, when issued pursuant
to the conversion thereof, will represent 21.0526316% of the common equity
of the Corporation on a fully-diluted basis, and (ii) if, in fact, the
Corporation shall issue a greater or lesser number of shares of its Common
Stock in connection with the Modern or Bowman Gray acquisition
transactions, the Class D Conversion Price shall be adjusted as
appropriate, notwithstanding anything contained herein which might suggest
otherwise, such that, if all of the authorized shares of the Class D
Convertible Stock are issued, the shares of the Class D Convertible Stock
will be convertible into the same percentage of the common equity of the
Corporation on a fully-diluted basis). If any of the holders shall elect
to convert its shares of the Class D Convertible Preferred Stock to shares
of the Common Stock as provided for herein, all accrued but unpaid Class D
Dividends on the shares thereof surrendered for conversion shall, upon the
conversion of such shares, be set aside and paid by the Corporation to the
holders of such shares to the extent that funds shall be legally available
therefor, and, to the extent that funds shall not be legally available
therefor, any amounts not paid shall be paid promptly as assets become
legally available therefor.
(E) Class D Redeemable Preferred Stock. The
shares of the Class D Redeemable Preferred Stock shall not be
convertible at the option of the holder thereof into any other shares
or securities of the Corporation.
(3) Exercise of Conversion Rights. The rights of
conversion set forth in Sections 1(d)(2)(A) through 1(d)(2)(D) hereof
shall be exercised by a holder of shares of Preferred Stock by giving
written notice to the Corporation that the holder elects to convert a
stated number of shares of Preferred Stock
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into Common Stock and by the surrender of a certificate or certificates for
the shares so to be converted to the Corporation at its principal office
(or at such other office or agency of the Corporation as the Corporation
may designate by notice in writing to the holders of the Preferred Stock)
at any time during its usual business hours on the date set forth in such
notice, together with a statement of the name or names (with address and
social security or taxpayer identification number) in which the certificate
or certificates for shares of Common Stock shall be issued.
(4) Issuance of Certificates; Time Conversion
Effected. Promptly after the receipt of the written notice referred
to in Section 1(d)(3) hereof and upon surrender of the certificate or
certificates for the share or shares of Preferred Stock to be
converted, the Corporation shall issue and deliver, or cause to be
issued and delivered, to the holder, registered in such name or names
as such holder may direct, a certificate or certificates for that
number of whole shares of Common Stock issuable upon the conversion of
such share or shares of Preferred Stock. To the extent permitted by
law, such conversion shall be deemed to have been effected as of the
close of business on the date on which such written notice shall have
been received by the Corporation and the certificate or certificates
for such share or shares shall have been surrendered as aforesaid, and
at such time the rights of the holder of such share or shares of
Preferred Stock shall cease, and the person or persons in whose name
or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become
the holder or holders of record of the shares represented thereby.
(5) Fractional Shares; Partial Conversion. No
fractional shares shall be issued upon conversion of Preferred Stock
into Common Stock and the aggregate number of shares of Common Stock
to be issued to a holder shall be rounded to the nearest whole share.
In case the number of shares of Preferred Stock represented by the
certificate or certificates surrendered pursuant to Section 1(d)(4)
hereof exceeds the number of shares converted, the Corporation shall,
upon such conversion, execute and deliver to the holder, at the
expense of the Corporation, a new
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certificate or certificates for the number of shares of Preferred Stock
represented by the certificate or certificates surrendered which are not to
be converted. If any fractional share of Common Stock would, except for
the provisions of the first sentence of this Section 1(d)(5), be delivered
upon such conversion, the Corporation, in lieu of delivering such
fractional share, shall pay to the holder surrendering the Preferred Stock
for conversion an amount in cash equal to the current market price of such
fractional share as determined in good faith by the Board.
(6) Adjustment of Conversion Price Upon Issuance of
Common Stock. Whenever the Corporation shall issue or sell, or is, in
accordance with the provisions of Sections 1(d)(6)(A) through
1(d)(6)(J) hereof, deemed to have issued or sold, any shares of Common
Stock for consideration per share less than the Conversion Price of
any class of Preferred Stock (the "Affected Conversion Price") which
is in effect immediately prior to the time of such issuance or sale
(such issuance or sale shall be referred to as a "Dilutive Issuance"),
then, forthwith upon the Dilutive Issuance, each Affected Conversion
Price shall be adjusted by multiplying such Affected Conversion Price
in effect immediately prior to the Dilutive Issuance by the following
fraction:
X + Y
------
X + Z
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Where:
"X" equals the sum of (i) the number of shares of
Common Stock issued and outstanding immediately
prior to the Dilutive Issuance, (ii) the number of
shares of Common Stock issuable upon conversion of
any shares of the Preferred Stock and any other
class or series of convertible securities of the
Corporation issued and outstanding immediately
prior to the Dilutive Issuance and (iii) the
number of shares of Common Stock issuable upon the
exercise of any options or warrants, issued and
outstanding immediately prior to the Dilutive
Issuance, to purchase shares of the Common Stock
or securities convertible into Common Stock
(collectively, the "Common Stock Equivalents");
"Y" equals the number of shares of Common Stock which
the aggregate consideration received by the
Corporation in the Dilutive Issuance would
purchase at the applicable Conversion Price in
effect immediately prior to the Dilutive Issuance;
and
"Z" equals the number of shares of Common Stock issued
or deemed issued in the Dilutive Issuance.
(A) Issuance of Rights or Options. In
case at any time the Corporation shall in any manner grant
(whether directly or by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or
security convertible into or exchangeable for Common Stock (such
warrants, rights or options being called "Options" and such
convertible or exchangeable stock or securities being called
"Convertible Securities"), whether or not such Options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the effective price per share for
which Common Stock is issuable upon the exercise of such Options
or upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount, if any, received or
receivable by the Corporation as consideration for the granting
of such Options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon the exercise of all
such Options, plus, in the case of such
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Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common
Stock issuable upon the exercise of all such Options or upon the
conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options) shall be less than the Conversion
Price in effect immediately prior to the time of the granting of such
Options or Convertible Securities, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options
shall be deemed to have been issued for such effective price per share
as of the date of granting of such Options or the issuance of such
Convertible Securities and thereafter shall be deemed to be
outstanding. Except as otherwise provided in Subparagraph 1(d)(6)(C)
hereof, no adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities
upon exercise of such Options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities.
(B) Issuance of Convertible Securities.
In case the Corporation shall in any manner issue (whether directly
or by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or
convert any such Convertible Securities are immediately
exercisable, and the effective price per share for which Common
Stock is issuable upon such conversion or exchange (determined by
dividing (x) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon
the conversion or exchange thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than
the applicable Conversion Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of
shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall be deemed to have been
issued for such effective price per share as of the
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date of the issue or sale of such Convertible Securities and
thereafter shall be deemed to be outstanding, provided that (I) except
as otherwise provided in Subparagraph 1(d)(6)(C) hereof, no adjustment
of the Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities and (II) if any such issue or sale of such Convertible
Securities is made upon exercise of any Options to purchase any of the
Convertible Securities for which adjustments of the Conversion Price
have been or are to be made pursuant to other provisions of this
Subparagraph 1(d)(6), no further adjustment of the Conversion Price
shall be made by reason of such issue or sale.
(C) Change in Option Price or
Conversion Rate. Upon the happening of any of the following
events, namely, if the purchase price provided for in any Option
referred to in Subparagraph 1(d)(6)(A) hereof, the additional
consideration, if any, payable upon the conversion or exchange of
any Convertible Securities referred to in Subparagraphs
1(d)(6)(A) or 1(d)(6)(B) hereof, or the rate at which Convertible
Securities referred to in Subparagraphs 1(d)(6)(A) or 1(d)(6)(B)
hereof are convertible into or exchangeable for Common Stock
shall change at any time (including, but not limited to, changes
under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect for the Preferred Stock
at the time of such event shall forthwith be readjusted to the
Conversion Price which would have been in effect at such time had
such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially
granted, issued or sold, but only if as a result of such
adjustment the Conversion Price then in effect hereunder is
thereby reduced; and on the expiration of any such Option or the
termination of any such right to convert or exchange such
Convertible Securities, the Conversion Price then in effect
hereunder shall forthwith be increased to the Conversion Price
which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or
termination, never been issued.
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(D) Stock Dividends. In case the
Corporation shall declare a dividend or make any other
distribution upon any stock of the Corporation payable in Common
Stock, Options or Convertible Securities, any Common Stock,
Options or Convertible Securities, as the case may be, issuable
in payment of such dividend or distribution shall be deemed to
have been issued or sold at a consideration equal to $0.0001 per
share.
(E) Consideration for Stock. In case
any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the
Corporation therefor, net of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case any shares of
Common Stock, Options or Convertible Securities shall be issued
or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation shall
be deemed to be the fair value of such consideration as
determined in good faith by the Board, net of deduction of any
expenses incurred or any underwriting commissions or concessions
paid or allowed by the Corporation in connection therewith. In
case any Options shall be issued in connection with the issue and
sale of other securities of the Corporation, together comprising
one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options
shall be deemed to have been issued for such consideration as
determined in good faith by the Board.
(F) Record Date. In case the
Corporation shall take a record of the holders of its Common
Stock for the purpose of entitling them (x) to receive a dividend
or other distribution payable in Common Stock, Options or
Convertible Securities or (y) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date
shall be deemed (but only to the extent that one of the preceding
events actually occurs) to be the date of the issue or sale of
the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
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(G) Authorized but Unissued Shares. The
disposition of any shares of Common Stock owned or held by or for
the account of the Corporation shall be considered an issue or
sale of Common Stock for the purpose of this Subparagraph 1(d)(6).
(H) Certain Issuances of Common Stock
Excepted. Anything to the contrary notwithstanding, the
Corporation shall not be required to make any adjustment to any
Conversion Price in the case of (I) the conversion of any shares
of Preferred Stock into shares of Common Stock; (II) the issuance
or exercise of options to Carl Sardegna ("Sardegna") to acquire
Four Hundred Thousand Five Hundred Eighty-Seven (400,587) shares
of the Common Stock; (III) the issuance to employees of the
Corporation of options to acquire not more than Three Hundred Two
Thousand Two Hundred Fourteen (302,214) shares of the Common
Stock (representing 5.0% of the Capital Stock of the Corporation
prior to the issuance of the Class C Preferred Stock) pursuant to
an employee stock option plan unanimously approved by the Board;
or (IV) the issuance by the Corporation of (i) options or rights
to purchase Common Stock or (ii) shares of Common Stock pursuant
to any equity participation or incentive plan, stock option or
stock purchase plan or similar arrangement approved by the
holders of the Class D Preferred Stock and 2/3 or more of of the
entire Board and by a majority or more of the directors of the
Corporation other than the General Directors (such issuances of
securities of the Corporation set forth in this Subparagraph
1(d)(6)(H) being hereinafter collectively called, the "Exempt
Issuances").
(I) Calculation of Adjustment to
Conversion Price. The calculation by the Board of any adjustment
to the Conversion Price, made in good faith and in accordance
with the foregoing provisions of this Subparagraph 1(d)(6), shall
be final and binding on all stockholders of the Corporation;
provided, however, that if the Board shall calculate an
adjustment to the Conversion Price of more than one class of
capital stock in accordance with the provisions of this
Subparagraph 1(d)(6), then the Board shall calculate one
adjustment to the conversion price of such class of capital stock
of the Corporation, beginning with the last class to be issued by
the Corporation, proceeding
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in reverse chronological order, and ending with the Class A Preferred
Stock.
(J) Waiver of Adjustment of Conversion
Price. Notwithstanding anything herein to the contrary, the
operation of, and any adjustment of, the Class D Conversion
Price, pursuant to this Section 1(d)(6) may be waived by the
holders thereof with respect to any specific share or shares of
Class D Convertible Preferred Stock, the operation of, and any
adjustment of, the Class C Conversion Price pursuant to this
Section 1(d)(6) may be waived with respect to any specific share
or shares of Class C Preferred Stock, and, the operation of, and
any adjustment of, the Class A Conversion Price pursuant to this
Section 1(d)(6) may be waived by the holders thereof with respect
to any specific share or shares of Class A Preferred Stock, in
each case, either prospectively or retroactively and either
generally or in a particular instance by a writing executed by
the registered holder of such share or shares. Any waiver
pursuant to this Subparagraph 1(d)(6)(J) shall bind all future
holders of shares of the Class D Preferred Stock, the Class C
Preferred Stock and the Class A Preferred Stock for which such
rights have been waived. In the event that a waiver of
adjustment of the Conversion Price under this Subparagraph
1(d)(6)(J) results in different conversion prices for shares of
the Class D Preferred Stock, the Class C Preferred Stock or Class
A Preferred Stock, the Secretary of the Corporation shall
maintain a written ledger identifying the Conversion Price for
each share of the Class D Convertible Preferred Stock, the Class
C Preferred Stock and Class A Preferred Stock. Such information
shall be made available to any person upon request. For the
purposes of this Subparagraph 1(d)(6), if different shares of the
Class D Convertible Preferred Stock, the Class C Preferred Stock
or the Class A Preferred Stock have more than one Conversion
Price as a result of a waiver of adjustment of the Conversion
Price under this Subparagraph 1(d)(6)(J), the Conversion Price
for triggering any future adjustment of the applicable Conversion
Price of shares of the Class D Convertible Preferred Stock, the
Class C Preferred Stock and Class A Preferred Stock which have
not had such adjustment waived shall be the lowest Conversion
Price in effect with respect to shares of the Class D Convertible
Preferred Stock, the Class C Preferred Stock and Class A
Preferred Stock.
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(7) Subdivision or Combination of Common
Stock. In case the Corporation shall at any time subdivide (by
any stock split, stock dividend or otherwise) its outstanding
shares of Common Stock into a greater number of shares, the
Conversion Price in effect for the Class D Convertible Preferred
Stock, the Class C Preferred Stock and the Class A Preferred
Stock immediately prior to such subdivision shall each be
proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of
shares, the Conversion Price in effect for the Class D
Convertible Preferred Stock, the Class C Preferred Stock and
Class A Preferred Stock, immediately prior to such combination
shall each be proportionately increased.
(8) Reorganization or Reclassification. If
any capital reorganization or reclassification of the capital
stock of the Corporation shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or
reclassification, lawful and adequate provisions shall be made
whereby each holder of a share or shares of Preferred Stock shall
thereupon have the right to receive, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares
of Common Stock immediately theretofore receivable upon the
conversion of such share or shares of Preferred Stock, such
shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares
of such Common Stock equal to the number of shares of such Common
Stock immediately theretofore receivable upon such conversion had
such reorganization or reclassification not taken place, and in
any such case appropriate provisions shall be made with respect
to the rights and interests of such holder to the end that the
provisions hereof (including, without limitation, provisions for
adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the
exercise of such conversion rights.
(9) Notice of Adjustment. Upon any
adjustment of the Conversion Price or the number of shares of
Common Stock into which any class of the Preferred Stock shall be
convertible, then and in each
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such case the Corporation shall give written notice thereof, by first
class mail, postage prepaid, addressed to each holder of shares of
Preferred Stock and Common Stock at the address of such holder as
shown on the books of the Corporation, which notice shall state the
Conversion Price or the adjusted number of shares of Common Stock into
which each class of the Preferred Stock shall be convertible, as
applicable, resulting from such adjustment and setting forth in
reasonable detail the method upon which such calculation is based.
(10) Other Notices. In case at any time:
(A) the Corporation shall declare any
dividend upon its Common Stock payable in cash or stock or make
any other distribution to the holders of its Common Stock;
(B) the Corporation shall offer for
subscription pro rata to the holders of its Common Stock any
additional shares of stock of any class or other rights;
(C) there shall be any capital
reorganization or reclassification of the capital stock of the
Corporation, or a consolidation or merger of the Corporation with
or into, or a sale of all or substantially all its assets to,
another entity or entities; or
(D) there shall be a Liquidation;
then, in any one or more of said cases, the Corporation shall
give, by first class mail, postage prepaid, addressed to each
holder of any shares of Preferred Stock or Common Stock at the
address of such holder as shown on the books of the Corporation,
(x) at least twenty (20) days' prior written notice of the date
on which the books of the Corporation shall close or a record
shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale or
Liquidation and (y) in the case of any such reorganization,
reclassification, consolidation, merger, sale or Liquidation, at
least twenty (20) days' prior written notice of the date when the
same shall
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take place. Such notice in accordance with the foregoing clause (x)
shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock
shall be entitled thereto, and such notice in accordance with the
foregoing clause (y) shall also specify the date on which the holders
of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale or Liquidation, as the
case may be.
(11) Stock to be Reserved. The Corporation
will at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issuance upon
the conversion of Preferred Stock as herein provided, such number
of shares of Common Stock as shall then be issuable upon the
conversion of all outstanding shares of Preferred Stock. The
Corporation covenants that all shares of Common Stock which shall
be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with
respect to the issue thereof. The Corporation will take all such
action as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable
law or regulation, or of any requirement of any national
securities exchange upon which the Common Stock may be listed.
(12) No Reissuance of Preferred Stock. Shares
of Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.
(13) Issue Tax. The issuance of certificates
for shares of Common Stock upon conversion of the Preferred Stock
shall be made without charge to the holders thereof of any
issuance tax in respect thereof, provided that the Corporation
shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of
any certificate in a name other than that of the holder of the
Preferred Stock which is being converted.
(14) Definition of Common Stock. As used in
this Subparagraph 1(d), the term "Common Stock" shall mean and
include the Corporation's authorized Common Stock, $.0001 par
value per share, as
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constituted on the date of filing of these Articles and shall also
include any capital stock of any class of the Corporation thereafter
authorized which shall not be limited to a fixed sum or percentage of
par value in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon a
Liquidation; provided that the shares of Common Stock receivable upon
conversion of shares of Preferred Stock shall include only shares
designated as Common Stock of the Corporation on the date of filing of
this instrument, or in case of any reorganization or reclassification
of the outstanding shares thereof, the stock, securities or assets
provided for in Subparagraph 1(d)(8) hereof.
(15) Closing of Books. The Corporation will
at no time close its transfer books against the transfer of any
Preferred Stock or of any shares of Common Stock issued or
issuable upon the conversion of any shares of Preferred Stock in
any manner which interferes with the timely conversion of such
Preferred Stock, except as may otherwise be required to comply
with applicable securities laws.
(e) Preemptive Rights.
(1) The Corporation shall, prior to any
issuance by it of any of its securities (other than debt
securities with no equity features), offer to each holder of the
Class D Preferred Stock, the Class C Preferred Stock and the
Class A Preferred Stock by written notice the right, for a period
of thirty (30) days, to purchase a pro rata amount (based on
their fully diluted percentage ownership of the Common Stock) of
such securities for cash at an amount equal to the price or other
consideration for which such securities are to be issued;
provided, however, that the preemptive rights pursuant to this
Subparagraph 1(e) shall not apply to Exempt Issuances; and
provided further, that the preemptive rights provided to the
holders of the Class C Preferred Stock and the Class A Preferred
Stock shall expire upon the occurrence of the Class C Mandatory
Conversion Event and the preemptive rights provided to the
holders of the Class D Preferred Stock shall expire upon the
occurrence of the Class D Mandatory Conversion Event. The
Corporation's written
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notice to the holders of shares of the Class D Preferred Stock, the
Class C Preferred Stock and the Class A Preferred Stock shall describe
the securities proposed to be issued by the Corporation and specify
the number, price and payment terms.
(2) Each holder of shares of the Class D
Preferred Stock, the Class C Preferred Stock and the Class A
Preferred Stock may accept the Corporation's offer as to the full
number of securities offered to it or any lesser number, by
written notice thereof given by it to the Corporation prior to
the expiration of the aforesaid thirty (30) day period, in which
event the Corporation shall promptly sell and such holder of
shares of the Class D Preferred Stock, the Class C Preferred
Stock and Class A Preferred Stock shall buy, upon the terms
specified, the number of securities agreed to be purchased by
such holder of shares of the Class D Preferred Stock, the Class C
Preferred Stock and Class A Preferred Stock.
(3) The Corporation shall be free at any
time prior to the ninety (90) day period commencing thirty (30)
days after its notice pursuant to Subparagraph 1(e)(1) hereof, to
offer and sell to any third party or parties the number of such
securities not agreed by the holders of shares of the Class D
Preferred Stock, the Class C Preferred Stock and the Class A
Preferred Stock to be purchased by them, at a price and on
payment terms no less favorable to the Corporation than those
specified in such notice of offer. However, if such third party
sale or sales are not consummated within such ninety (90) day
period, the Corporation shall not sell such securities without
again complying with the provisions of this Subparagraph 1(e).
(4) Other than the preemptive rights granted
to the holders of the Class D Preferred Stock, the Class C
Preferred Stock and the Class A Preferred Stock under this
subparagraph 1(e), no class of capital stock of the Corporation
shall be entitled to preemptive rights under these Articles.
(f) Redemption.
(1) Class D Redeemable Preferred Stock
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(A) Redemption at the Option of the
Corporation. The Corporation shall have the right, at its
option, to redeem, at any time and from time to time, from the
holders thereof all or any portion of the outstanding shares of
the Class D Redeemable Preferred Stock at a redemption price per
share of $100, as adjusted for Recapitalization Events, plus an
amount equal to the aggregate amount of accrued but unpaid Class
D Dividends thereon through the date of redemption, in the manner
hereinafter provided for; provided, however, that, in each such
instance, the Corporation shall structure each such redemption
such that the Corporation shall redeem from each of the holders
thereof a number of shares thereof which bears the same ratio as
the aggregate number of shares of the Class D Redeemable
Preferred Stock held of record by each such holder bears to the
aggregate number of shares of the Class D Redeemable Preferred
Stock issued and outstanding on the date set for redemption.
(B) Mandatory Redemption. If the Class
D Mandatory Conversion Event shall occur on or before March 31,
2002, then, immediately following the occurrence thereof, the
Corporation shall redeem from the holders thereof all of the then
issued and outstanding shares of the Class D Redeemable Preferred
Stock at a redemption price per share of $100, as adjusted for
Recapitalization Events, plus an amount equal to the aggregate
amount of accrued but unpaid Class D Dividends thereon through
the date of redemption. If, however, the Class D Mandatory
Conversion Event shall not have occurred prior to the close of
business on March 31, 2002, then, notwithstanding the fact that
the Class D Mandatory Conversion Event shall not have occurred,
the Corporation shall redeem from the holders thereof on the next
business day following March 31, 2002, (i) all of the then issued
and outstanding shares of the Class D Redeemable Preferred Stock
at a redemption price per share of $100, as adjusted for
Recapitalization Events, plus an amount equal to the aggregate
amount of accrued but unpaid Class D Dividends thereon through
the date of redemption (the "Class D Redemption Price"), and (ii)
such number of Class D Conversion Shares (as hereinafter defined)
then held by each holder of shares of the Class D Redeemable
Preferred Stock as each such holder shall instruct the
Corporation in writing.
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(2) Class D Convertible Preferred Stock. If
the Class D Mandatory Conversion Event shall not have occurred
prior to the close of business on March 31, 2002, then the
Corporation shall redeem from the holders thereof on the next
business day following March 31, 2002, all of the then issued and
outstanding shares of the Class D Convertible Preferred Stock at
a redemption price per share equal to the greatest of the
following: (i) the Class D Redemption Price; (ii) the book value
of a share thereof as determined by the certified public
accountants then regularly servicing the Corporation or specially
engaged for this purpose from the books and records of the
Corporation in accordance generally accepted accounting
principles, consistently applied; or (iii) the fair market value
thereof as may be agreed upon by the holders thereof and the
Board, or, if they shall be unable to agree, as determined by
appraisal obtained in accordance with Section 5 of the
Stockholders' Agreement (as hereinafter defined). The shares of
the Class D Convertible Preferred Stock shall not be subject to
redemption at the option of the Corporation.
(3) Redemption of Class D Preferred Stock
Upon Exercise of Put Options. If any of the holders of the
shares of the Class C Preferred Stock or the Class A Preferred
Stock shall elect to exercise their "put" rights pursuant to
Section 11 of that certain Second Amended and Restated
Stockholders' Agreement dated as of Junev 2, 1997 by and among
the Corporation and each of the holders of the shares of the
Preferred Stock and the Common Stock (the "Stockholders'
Agreement"), the Corporation shall send written notice of such
exercise to each of the holders of the shares of the Class D
Preferred Stock, and, thereupon, each holder of shares of the
Class D Preferred Stock shall have the right, at its option, to
elect to require the Corporation to redeem from such holder all
or a specified portion of the shares of the Class D Preferred
Stock then held by such holder immediately prior to such event at
the Class D Redemption Price by delivering written notice of such
election to the Corporation within 10 business days of its
receipt of notice from the Corporation; provided, however, that
the failure of the Corporation to deliver such notice to the
holders of the Class D Preferred Stock shall not relieve the
Corporation of its obligation to redeem such shares if any holder
thereof shall so elect; and provided, further, that the holders
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of the Class D Preferred Stock shall have the right to elect to
require such redemption at any time after the exercise of any such
"put" rights until the expiration of a 10 business day period
following the date on which each such holder actually receives such
notice from the Corporation.
(4) Manner of Redemption. If, at any time,
the Corporation shall elect to redeem any of the shares of the
Class D Redeemable Preferred Stock pursuant to Subparagraph
1(f)(1)(A) of this Article or shall be required pursuant to
Subparagraphs 1(f)(1)(B), 1(f)(2), 1(f)(3), 1(f)(6) or 2(e) to
redeem any of the issued and outstanding shares of the Class D
Preferred Stock or any of the Class D Conversion Shares, the
Corporation shall send written notice of its intent or obligation
to do so to each holder of record of such shares at least 30 days
prior to the date of the redemption, which shall set forth the
number of shares of each type to be redeemed by the Corporation
from such holder and the aggregate number of shares of such type
to be redeemed from all of the holders thereof; the date of the
redemption and the applicable redemption price per share; and
shall instruct the holders thereof to surrender all certificates
evidencing the shares to be redeemed to the Corporation at its
principal office (or at such other place as may be designated in
such notice by the Corporation); provided, however, that the
failure of the Corporation to deliver such notice shall not
relieve the Corporation of its obligation to redeem such shares
if required by the terms of this Charter to do so. Upon receipt
of such notice, each holder of shares to be redeemed shall
surrender all certificates evidencing the shares to be redeemed
to the Corporation as instructed, and, thereupon, the Corporation
shall pay the redemption price for each such share to the order
of the holder of the shares so redeemed and each such
certificates and the shares evidenced thereby shall be canceled
and retired. No shares redeemed by the Corporation shall be
reissued by the Corporation. From and after the date of
redemption set forth in the Corporation's notice of redemption,
no further Class D Dividends shall accrue upon any shares of
Class D Preferred Stock subject to redemption on such date.
(5) Funds Insufficient to Effect Redemption.
If, at any time, the Corporation shall be required to redeem any
shares of the Class D Preferred
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Stock (or any Class D Conversion Shares (as hereinafter defined)), and
the Corporation shall not have assets or funds legally available for
the redemption of all of the shares required to be redeemed, the
Corporation shall redeem ratably from the holders of the Class D
Preferred Stock and Class D Conversion Shares such number of shares as
it shall have funds legally available therefor and shall redeem the
remainder of such shares on the earliest practicable date(s) as assets
or funds become legally available therefor.
(6) Mergers, Consolidations or Sales.
Following its receipt of written notice of the anticipated
occurrence of any of the following events, each of the holders of
shares of the Preferred Stock shall have the right to elect, at
its sole option, to either (i) convert, effective immediately
prior to the occurrence of any such event, all or a specified
portion of its shares of Preferred Stock into such number of
shares of the Common Stock as such shares shall be convertible
pursuant to the provisions of this Charter as of the date of the
closing of any such event, or (ii) to treat the occurrence of any
such event as a Liquidation of the Corporation, and to require
the Corporation to redeem from such holder all or the remaining
portion of the shares of the Class D Preferred Stock then held by
such holder promptly following, but, in no event later than 10
business days following, such event at a redemption price equal
to the amount of liquidation payments that each such holder would
have been entitled to receive in the event of an actual
Liquidation of the Corporation:
(i) any consolidation or merger of the
Corporation into or with any other entity or entities (other than
a merger or consolidation effectuated substantially
contemporaneously with, or in connection with, an IPO) which
results in (A) the exchange of all or substantially all of the
outstanding shares of the Corporation for securities or other
consideration issued or paid or caused to be issued or paid by
any such entity or an affiliate thereof, or (B) more than 50% of
the capital stock of the Corporation outstanding immediately
after the effective date of such merger or consolidation being
owned beneficially by persons other than the beneficial owners of
such capital stock immediately prior to such merger or
consolidation; or
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(ii) the sale or transfer by the
Corporation of all or substantially all its assets (whether in
one or a series of transactions).
2. COMMON STOCK.
(a) General. The Common Stock shall not be
subject to classification or reclassification by the Board, and
such classes of stock shall have the rights and terms hereinafter
specified, subject to the terms of any other stock provided in
this Charter pursuant to classification or reclassification by
the Board or otherwise in accordance with law.
(b) Voting Rights. Each share of Common Stock
shall have one vote, and, except as may be otherwise provided
herein or by law, the Common Stock shall vote together with all
other classes and series of stock of the Corporation as a single
class on all actions to be taken by the stockholders of the
Corporation.
(c) Dividends. Subject to the provisions of law
and the provisions of Subparagraph 1(b) hereof regarding any
preferences of the Preferred Stock, dividends may be paid on the
Common Stock of the Corporation at such time and in such amounts
as the Board may deem advisable.
(d) Liquidation. In the event of a Liquidation,
the holders of the Common Stock shall be entitled, after payment
or provision for payment of the debts and other liabilities of
the Corporation and the amounts to which the holders of any
Preferred Stock shall be entitled, pursuant to Subparagraph 1(c)
hereof, to share ratably in the remaining net assets of the
Corporation.
(e) Redemption of Certain Shares of Common Stock.
If the Class D Mandatory Conversion Event shall not have occurred
prior to the close of business on March 31, 2002, and the
Corporation shall be required to redeem from the holders thereof
all of the then issued and outstanding shares of the Class D
Convertible Preferred Stock, the Corporation also shall redeem
from such holders on the date of the redemption thereof, all of
the shares of Common Stock, if any, then held by such holders
that such holders acquired from the Company upon conversion of
any Class D
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Convertible Preferred Stock ("Class D Conversion Shares") in the
manner provided above. The redemption price per share for each Class
D Conversion Share to be so redeemed by the Corporation shall be equal
to the greater of the following: (i) the book value of a share
thereof as determined by the certified public accountants then
regularly servicing the Corporation or specially engaged for this
purpose from the books and records of the Corporation in accordance
generally accepted accounting principles, consistently applied; or
(ii) the fair market value of such Class D Conversion Shares as may be
agreed upon by the holders thereof and the Board, or, if they shall be
unable to agree, as determined by an appraisal obtained in accordance
with the terms of Section 5 of the Stockholders' Agreement.
SIXTH:
1. Board of Directors. The Board shall consist of not more
than Nine (9) members, which number may be decreased as permitted by
this Charter and pursuant to the By-Laws, but shall never be less
than the minimum number permitted by the MGCL now or hereafter in
force.
(a) Except as hereinafter provided, Five (5) of the
members of the Board (the "General Directors") shall be elected by
the affirmative vote or written consent of the holders of a plurality
in interest of the number of all shares of all classes of capital
stock then then outstanding, voting together for this purpose as
a single class. At a meeting (or in a written consent in lieu
thereof) held for the purpose of electing the General Directors,
the presence in person or by proxy (or the written consent) of a
majority of the shares of the capital stock then outstanding shall
constitute a quorum for the election of the General Directors.
(b) Three (3) of the members of the Board (the "Class A
Directors") shall be elected exclusively by the affirmative vote or
written consent, as a separate class, of the holders of a plurality
in interest of the Class A Preferred Stock then outstanding. At a
meeting (or in a written consent in lieu thereof) held for the
purpose of electing the Class A Directors, the presence in person or
by proxy (or the written consent) of a majority of the shares of the
Class A Preferred Stock then outstanding shall
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constitute a quorum for the election of the Class A Directors. a
vacancy in any directorship elected solely by the holders of the
Class A Preferred Stock shall be filled only by the holders of the
Class A Preferred Stock in accordance with the provisions of this
Subparagraph 1(b).
(c) One (1) member of the Board (the "Class C Director")
shall be elected exclusively by the affirmative vote or written
consent, as a separate class, of the holders of a plurality in
interest of the Class C Preferred Stock then outstanding. At a meeting
(or in a written consent in lieu thereof) held for the purpose of
electing the Class C Director, the presence in person or by proxy (or
the written consent) of a majority of the shares of the Class C
Preferred Stock then outstanding shall constitute a quorum for the
election of the Class C Director. a vacancy in any directorship
elected solely by the holders of the Class C Preferred Stock shall
be filled only by the holders of the Class C Preferred Stock in
accordance with the provisions of this Subparagraph 1(c).
2. Events of Noncompliance; Events of Default. For so long
as at least twenty-five percent (25%) of the shares of either the
Class D Preferred Stock, the Class C Preferred Stock or the Class A
Preferred Stock are owned by the original holders thereof, if any
of the following events ("Events of Noncompliance") shall occur and
be continuing:
(a) The Corporation shall fail to pay to the holders of
the Class D Preferred Stock, the Class C Preferred Stock or the
Class A Preferred Stock any declared Class D Dividends, the Class C
Dividends or the Class A Dividends, as appropriate, within thirty
(30) days after its due date; or
(b) The Corporation shall default in the performance of
any material covenant contained in any of the Preferred Stock
Purchase Agreements (as hereinafter defined), and such default, if
capable of being cured within a period of thirty (30) days after the
occurrence of such default, continues uncured and has not been waived
at the expiration of such thirty-day period by the holders of a
majority or more of the shares of the class of Preferred Stock
entitled to the benefit of such covenant under the terms of the
applicable Preferred Stock Purchase Agreement (the
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"Affected Class"); provided, however, that any default in any covenant
contained in Subsections (a), (b), (e), (f), (g), (h), (i), (k), (l),
(m), (n) or (o) of Section 5.14 and Section 5.13, respectively, of any
of the Preferred Stock Purchase Agreements shall, unless consented to
in advance by a majority or more of the outstanding shares of the
Affected Class, constitute an Event of Noncompliance immediately upon
the occurrence of such default;
(c) Any representation or warranty made by the Corporation
in any of the Preferred Stock Purchase Agreements shall prove to have
been incorrect when made in any material respect and, if capable of
being corrected within a period of thirty (30) days of the discovery
of such inaccuracy, is not corrected within such thirty-day period;
(d) The Corporation or any subsidiary thereof shall fail to
repay any indebtedness for borrowed money owing by the Corporation or
any subsidiary thereof in the aggregate principal amount of more than
One Hundred Thousand Dollars ($100,000) (the "Threshold Amount"), or
any interest or premium thereon, when due (or, if permitted by the
terms of the relevant document, within any applicable grace period),
whether such indebtedness shall become due by scheduled maturity, by
required prepayment, by acceleration, by demand or otherwise, or shall
fail to perform any term, covenant or agreement on its part to be
performed under any agreement or instrument evidencing or securing or
relating to any such indebtedness owing by the Corporation or any
subsidiary thereof, when required to be performed (or, if permitted
by the terms of the relevant document, within any applicable grace
period), if the effect of such failure to pay or perform is to
accelerate, or to permit the holder or holders of such indebtedness,
or the trustee or trustees under any such agreement or instrument,
to accelerate, the maturity of such indebtedness with an aggregate
principal amount that exceeds the Threshold Amount; or
(e) Lawrence F. Halpert, D.D.S. ("Halpert") is no longer
employed by the Corporation, except if due to death or permanent
mental or physical disability, or does not devote substantially his
full time and attention to the Corporation's business (subject to
the provisions of Section 2A of his employment agreement with the
Corporation) (any of the foregoing events
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being hereinafter called, a "Halpert Event"), provided, however, that
if the Majority Interest and the General Directors agree on the
selection of a new chief executive officer of the Corporation within
six (6) months after a Halpert Event, then the occurrence of such
Halpert Event shall not constitute an Event of Noncompliance
hereunder;
then, and in any such event, in addition to and without limiting
any of the rights and remedies available to the holders of any of
the shares of Preferred Stock, by the affirmative vote of the
holders of the Class D Preferred Stock, the Class C Preferred
Stock and the Class A Preferred, voting together as a single
class, with the holders of each share thereof being entitled to
cast such number of votes per share as shall equal the whole
number of shares of Common Stock into which such shares of
Preferred Stock are then convertible, plus the whole number of
shares of Common Stock then held by each such holder (the
"Majority Interest"), by notice to the Corporation, may declare
an event of default (an "Event of Default") if any Event of
Noncompliance shall be uncured and continuing for a period beyond
the applicable grace period thereof, if any.
Upon the declaration of an Event of Default and until the
Event of Noncompliance which caused the Event of Default is
cured, or waived by the Majority Interest, the holders of the
Class D Preferred Stock, the Class C Preferred Stock and the
Class A Preferred Stock shall thereupon be entitled,
notwithstanding any other provisions of this Charter, to remove
from office two (2) of the General Directors (or such greater
number of the General Directors such that, when replacements
therefor shall have been elected by the holders thereof as
hereinafter provided, the holders of the Class D Preferred Stock,
the Class C Preferred Stock and the Class A Preferred Stock shall
have elected a majority of the Board, in the aggregate) (the
vacancies to be created by such removal to be referred to as the
"Default Directorships"), and thereafter shall have the sole
power to elect and to remove persons to serve in the Default
Directorships. No person shall be elected to serve in any of
the Default Directorships unless such person shall have been
elected or agreed to by a majority or more of the holders of the
shares of each of the Class D Preferred Stock, the Class C
Preferred Stock and the Class A
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Preferred Stock, each voting separately as a class, with, for this
purpose only, (i) the holders of each share of the Class D Preferred
Stock, the Class C Preferred Stock and the Class A Preferred Stock
being entitled to such number of votes per share as shall equal the
number of whole shares of Common Stock into which such share of
Preferred Stock is then convertible plus the number of whole shares of
Common Stock then held by such holder of Preferred Stock, and (ii) the
Grotech Group (as hereinafter defined) being entitled to cast as part
of the vote of the holders of the Class A Preferred Stock, in addition
to such number of votes as it would otherwise be entitled to cast by
reason of holding shares of the Class A Preferred Stock, such
additional number of votes per share as shall equal the number of
whole shares of Common Stock into which each share of the Class B
Preferred Stock then held by the members of the Grotech Group is then
convertible plus the number of whole of shares Common Stock then held
by the Grotech Group. The members of the Board elected pursuant to
the preceding sentence shall serve until the Event of Noncompliance is
cured or waived as aforesaid, after which time the directors of the
Corporation removed shall be reelected to the Board and the provisions
of this Charter relating to the election of directors of the
Corporation in situations not constituting an Event of Noncompliance
or Event of Default shall once again apply.
Notwithstanding anything herein to the contrary, if any of
the events set forth in Subparagraphs 2(a) - (e) hereof shall
occur and be continuing so as to adversely effect the holders of
shares of the Class D Preferred Stock, the Class A Preferred
Stock or the Class C Preferred Stock but would not so effect the
holders of shares of any of the other classes in a substantially
similar adverse manner, then the holders of a majority of the
issued and outstanding shares of the Class D Preferred Stock, the
Class A Preferred Stock or the Class C Preferred Stock, as the
case may be, may declare an Event of Default and shall be
entitled to vote as a separate class to approve the election and
removal of the two (2) General Directors described in the
immediately preceding paragraph.
For purposes of this Subparagraph 2, the term "Preferred
Stock Purchase Agreements" shall mean and refer to (i) that
certain Preferred Stock Purchase Agreement dated as of July 18,
1995 by and between the
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Corporation and Grotech Partners IV, L.P. and Merchant Partners, L.P.
relating to the purchase and sale of the Class A Preferred Stock; (ii)
that certain Preferred Stock Purchase Agreement dated as of June 27,
1996 by and between the Corporation and Morgan Stanley Venture Capital
Fund II Annex, L.P. and Morgan Stanley Venture Investors Annex, L.P.
relating to the purchase and sale of the Class C Preferred Stock; and
(iii) that certain Preferred Stock Purchase Agreement dated as of June
2, 1997 by and between the Corporation and Grotech Partners IV, L.P.,
Grotech Partners III Companion Fund, L.P., Grotech III Pennsylvania
Fund, L.P., Morgan Stanley Venture Capital Fund II Annex, L.P. and
Morgan Stanley Venture Investors Annex, L.P. relating to the purchase
and sale of the Class D Preferred Stock. For purposes of this
Subparagraph 2, the term "Grotech Group" shall mean and refer to
Grotech Partners III, L.P., Grotech III Companion Fund, L.P., Grotech
III Pennsylvania Fund, L.P., Grotech Partners IV, L.P., and Grotech
Companies Fund, L.P., and any other partnership or entity affiliated
with Grotech Capital Group.
SEVENTH:
1. The following provisions are hereby adopted for the purpose
of defining, limiting and regulating the powers of the Corporation
and its stockholders and of the Board:
(a) The Corporation shall indemnify (1) all persons who
at any time were or are members of the Board and officers appointed
by the Board (the "Officers"), whether serving the Corporation or at
its request any other entity, to the full extent required or permitted
by MGCL now or hereafter in force, including the advance of expenses
under the procedures and to the full extent permitted by law and (2)
other employees and agents to such extent as shall be authorized by
the Board or the By-Laws and be permitted by law; for any threatened,
pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative, relating to any action
alleged to have been taken or omitted in such capacity as a director,
officer or other employee or agent authorized to be indemnified. The
foregoing rights of indemnification shall not be exclusive of any
other rights to which those seeking indemnification may be entitled.
The Board may take such action as is necessary to carry out these
indemnification provisions
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and is expressly empowered to adopt, approve and amend from time to
time the By-Laws, resolutions or contracts implementing such
provisions or such further indemnification arrangements as may be
permitted by law. No amendment of this Charter or the By-Laws shall
limit or eliminate the right to indemnification provided hereunder
with respect to acts or omissions occurring prior to such amendment or
repeal. The Corporation shall not be required to purchase or maintain
insurance on behalf of any present or former directors or officers or
other persons authorized to be indemnified.
(b) To the fullest extent permitted by Maryland statutory
or decisional law, as amended or interpreted, no person who at any
time was or is a member of the Board or Officer whether serving the
Corporation or at its request any other entity, shall be personally
liable to the Corporation or its stockholders for money damages. No
amendment of these Articles or the By-Laws or repeal of any of its
provisions shall limit or eliminate the benefits provided to members
of the Board and Officers under this provision with respect to any
act or omission which occurred prior to such amendment or repeal.
(c) The Corporation reserves the right from time to time,
subject to the provisions of the Preferred Stock Purchase Agreements,
to make any amendments of its charter which may now or hereafter be
authorized by law, including any amendments changing the terms or
contract rights, as expressly set forth in its charter, of any of
its outstanding stock by classification, reclassification or otherwise.
2. The enumeration and definition of particular powers of the
Board included in the foregoing shall in no way be limited or
restricted by reference to or inference from the terms of any other
clause of this or any other Article of this Charter, or construed as
or deemed by inference or otherwise in any manner to exclude or limit
any powers conferred upon the Board under the MGCL now or hereafter
in force.
3. The provisions of Sections 3-602 of the MGCL shall not apply
generally to any Business Combination (as defined in Section 3-601(e)(2)
of the MGCL) between the Corporation and any other entity.
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4. The provisions of Sections 3-701 to 3-709 of the MGCL shall
not apply generally to any Control Share Acquisition (as defined in
Section 3-701(e) of the MGCL) of any shares of capital stock of the
Corporation.
EIGHTH: The duration of the Corporation shall be perpetual.
FOURTH: Effective immediately upon the effectiveness of these Articles
with SDAT, each of the issued and outstanding shares of the Class A Common
Stock, par value $0.0001 per share, of the Corporation, shall be converted
automatically, without the need for further action by the Corporation or the
holder thereof, into one (1) share of the Common Stock, par value $0.0001 per
share, and each of the holders thereof shall have the right to surrender to
the Corporation at its principal executive office (or at such other place as
the Corporation shall designate in writing) each of the certificates
theretofore evidencing the shares of the Class A Common Stock of the
Corporation, and upon receipt of each such certificate, the Corporation shall
issue and deliver to each of the former holders of Class A Common Stock a
certificate in proper form evidencing the number of shares of the Common
Stock into which each such share is converted hereby. From and after the
effectiveness of these Articles each certificate formerly representing shares
of Class A Common Stock shall represent a like number of shares of Common
Stock.
FIFTH: Each member of the Board has signed a written consent pursuant to
Section 2-408 of the MGCL, in which consent these Articles of Amendment and
Restatement of the Articles of Incorporation of the Corporation (these
"Articles") were set forth, declared to be advisable and directed to be
submitted to the stockholders of the Corporation for consideration and
approval.
SIXTH: Each holder of shares of the Class A Common Stock, the Common
Stock, the Class A Preferred Stock, the Class B Preferred Stock and the Class
C Preferred Stock of the Corporation, the only classes of capital stock of
the Corporation issued and outstanding, adopted and approved these Articles
by unanimous written consent pursuant to Section 2-505 of the MGCL.
SEVENTH:
(1) As of immediately before the effectiveness of these Articles, the
total number of shares of stock of all classes that the Corporation had
authority to issue was Twelve Million Seven Hundred Three Thousand Five
Hundred Forty-Five (12,703,545)
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shares of capital stock, of which (1) Forty Thousand One Hundred Fifty-Four
(40,154) shares were classified as 8% Class A Cumulative Preferred Stock, par
value $0.0001 per share; (2) Forty-Seven Thousand Sixty-Eight (47,068) shares
were classified as Class B Preferred Stock, par value $0.0001 per share; (3)
Eight Hundred Sixteen Thousand Thirty-Eight (816,038) shares were classified
as 8% Class C Cumulative Preferred Stock, par value $0.0001 per share, (4)
Two Million (2,000,000) shares were classified as Class A Common Stock, par
value $0.0001 per share, and (5) Nine Million Three Hundred Thousand Two
Hundred Eighty-Five (9,300,285) shares shall be Common Stock, and the
aggregate par value of all shares of all classes of capital stock that the
Corporation had authority to issue was One Thousand Two Hundred Seventy
Dollars and Thirty-Five Cents ($1,270.35).
(2) Immediately following the effectiveness of these Articles, the total
number of shares of capital stock of all classes that the Corporation shall
have authority to issue shall be Sixteen Million (16,000,000) shares of
capital stock, of which (1) Forty Thousand One Hundred Fifty-Four (40,154)
shares shall be designated and classified as 8% Class A Cumulative
Convertible Preferred Stock, par value $0.0001 per share; (2) Forty-Seven
Thousand Sixty-Eight (47,068) shares shall be designated and classified as
Class B Convertible Preferred Stock, par value $0.0001 per share; (3) Eight
Hundred Sixteen Thousand Thirty-Eight (816,038) shares shall be designated
and classified as 8% Class C Cumulative Convertible Preferred Stock, par
value $0.0001 per share, (4) One Hundred Thousand (100,000)shall be
designated and classified as Class D 9% Cumulative Convertible Preferred
Stock, par value $0.0001 per share, (5) One Hundred Thousand (100,000) shares
shall be designated and classified hereby as Class D 9% Cumulative
Redeemable Preferred Stock, par value $0.0001 per share, and (7) Fourteen
Million Eight Hundred Sixty Thousand Six Hundred Eighty-Six (14,860,686)
shares shall be designated and classified as Common Stock, par value $.0001
per share, and the aggregate par value of all shares of all classes of
capital stock that the Corporation shall have authority to issue will be One
Thousand Six Hundred Dollars and No Cents ($1,600.00).
These Articles increase the aggregate par value of all classes of capital
stock of the Corporation.
A description of each class of capital stock of the Corporation,
including preferences and other rights, voting powers, restriction,
limitations as to dividends and qualifications, appears in Article Fifth of
the Articles set forth above.
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<PAGE>
EIGHTH: The current directors of the Corporation are: Dr. Lawrence F.
Halpert, Dr. Sheldon J. Wollman, Carl J. Sardegna, Dr. James E. Jordan, Hugh
A. Woltzen, Raymond Bank, M. Fazle Husain and Dr., John C. Johnson.
NINTH: The current resident agent of the Corporation is as set forth
in Article THIRD of the foregoing Articles of Amendment and Restatement. The
address of the current principal office of the Corporation in the State of
Maryland is 6115 Falls Road, Baltimore, Maryland 21209.
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<PAGE>
IN WITNESS WHEREOF, DentalCo, Inc. has caused these Articles of Amendment
and Restatement to be signed in its name and on its behalf by its Chairman
and attested by its Secretary this 30th day of May, 1997.
ATTEST: DENTALCO, INC.
By: /s/ E. James Kuhns, Secretary /s/ Lawrence F. Halpert
----------------------------- ---------------------------------(SEAL)
E. James Kuhns, Secretary Lawrence F. Halpert, D.D.S.
Chairman and Chief Executive Officer
THE UNDERSIGNED, the Chairman and Chief Executive Officer of DentalCo,
Inc. (the "Corporation"), who executed on behalf of the Corporation the
foregoing Articles of Amendment and Restatement, of which this certificate is
made a part, hereby acknowledges in the name and on behalf of said
Corporation the foregoing Articles of Amendment and Restatement to be the
corporate act of said Corporation and hereby certifies that to the best of
his knowledge, information and belief the matters and facts set forth therein
with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
/s/ Lawrence F. Halpert
---------------------------
Lawrence F. Halpert, D.D.S.
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<PAGE>
Exhibit 3.2
DENTALCO, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
DentalCo, Inc., a Maryland corporation having its principal office in
Baltimore County, Maryland (which is hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
(the "SDAT") that:
FIRST: The name of the Corporation is "DentalCo, Inc." The Corporation
desires to amend and restate its charter as currently in effect. The Articles
of Incorporation of the Corporation, then named Chambers & Goodrich, P.A., were
originally filed with the SDAT on November 30, 1982 and were last amended by
Articles of Amendment and Restatement filed with the SDAT on June 2, 1997.
SECOND: Pursuant to Section 2-609 of the Maryland General Corporation Law
(the "MGCL"), these Articles of Amendment and Restatement restate and further
amend the provisions of the Articles of Incorporation of the Corporation.
THIRD: The text of the Articles of Incorporation of the Corporation is
hereby amended and restated in its entirety as follows:
FIRST: The name of the corporation is:
DentalCo, Inc. (hereinafter, the "Corporation")
SECOND: The post office address of the principal office of
the Corporation in the State of Maryland is 6115 Falls Road,
Baltimore, Maryland 21209.
THIRD: The name and post office address of the resident
agent of the Corporation is Lawrence F. Halpert, D.D.S., whose
post office address is 6115 Falls Road, Baltimore, Maryland
21209. The resident agent is a citizen of the State of Maryland
and actually resides therein.
FOURTH:
(a) The purposes for which the Corporation is formed and
the business and objects to be carried on and promoted by it are
as follows:
(1) To provide non-clinical administration, consulting
and related services to organizations whose principal business is
the delivery of multi-specialty dental services through managed
care contracts and fee for services;
<PAGE>
(2) To carry on any lawful business, within the State
of Maryland and in any state, territory, district or dependency
of the United States or in any foreign country; and
(3) To engage in any one or more businesses or
transactions, or to acquire all or any portion of any entity
engaged in any one or more businesses or transactions which the
members of the Board of Directors of the Corporation (the
"Board") may from time to time authorize or approve, whether or
not related to the business described elsewhere in this Article
or to any other business at the time or theretofore engaged in by
the Corporation.
(b) The foregoing enumerated purposes and objects shall in
no way be limited or restricted by reference to, or inference
from, the terms of any other clauses of this or any other Article
of these Amended and Restated Articles of Incorporation of the
Corporation (this "Charter"), and each shall be regarded as
independent; and they are intended to be and shall be construed
as powers as well as purposes and objects of the Corporation and
shall be in addition to and not in limitation of the general
powers of corporations under the General Laws of the State of
Maryland.
FIFTH:
(a) The total number of shares of stock of all classes
which the Corporation has authority to issue is ________________
_________ shares of capital stock (par value $0.0001 per share),
amounting in aggregate par value to $ ___________. All of such
shares are initially classified as "Common Stock". The Board may
classify and reclassify any unissued shares of capital stock by
setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of capital stock.
(b) The following is a description of the preferences,
conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and
conditions of redemption of the Common Stock of the Corporation:
(1) Each share of Common Stock shall have one vote,
and, except as otherwise provided in respect of any class of
stock hereafter classified or reclassified, the exclusive voting
power for all purposes shall be vested in the holders of the
Common Stock.
(2) Subject to the provisions of law and any
preferences of any class of stock hereafter classified or
reclassified, dividends, including
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dividends payable in shares of another class of the Corporation's
stock, may be paid on the Common Stock of the Corporation at such
time and in such amounts as the Board may deem advisable.
(3) In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary,
the holders of the Common Stock shall be entitled, after payment
or provision for payment of the debts and other liabilities of
the Corporation and the amount to which the holders of any class
of stock hereafter classified or reclassified having a preference
on distributions in the liquidation, dissolution or winding up of
the Corporation shall be entitled, together with the holders of
any other class of stock hereafter classified or reclassified not
having a preference on distributions in the liquidation,
dissolution or winding up of the Corporation, to share ratably in
the remaining net assets of the Corporation.
(c) Subject to the foregoing, the power of the Board to
classify and reclassify any of the shares of capital stock shall
include, without limitation, subject to the provisions of the
charter, authority to classify or reclassify any unissued shares
of such stock into a class or classes of preferred stock,
preference stock, special stock or other stock, and to divide and
classify shares of any class into one or more series of such
class, by determining, fixing, or altering one or more of the
following:
(1) The distinctive designation of such class or
series and the number of shares to constitute such class or
series; provided that, unless otherwise prohibited by the terms
of such or any other class or series, the number of shares of any
class or series may be decreased by the Board in connection with
any classification or reclassification of unissued shares and the
number of shares of such class or series may be increased by the
Board in connection with any such classification or
reclassification, and any shares of any class or series which
have been redeemed, purchased, otherwise acquired or converted
into shares of Common Stock or any other class or series shall
become part of the authorized capital stock and be subject to
classification and reclassification as provided in this
sub-paragraph.
(2) Whether or not and, if so, the rates, amounts and
times at which, and the conditions under which, dividends shall
be payable on shares of such class or series, whether any such
dividends shall rank senior or junior to or on a parity with the
dividends payable on any other class or series of stock, and the
status of any such dividends as cumulative, cumulative to a
limited extent or non-cumulative and as participating or
non-participating.
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(3) Whether or not shares of such class or series
shall have voting rights, in addition to any voting rights
provided by law and, if so, the terms of such voting rights.
(4) Whether or not shares of such class or series
shall have conversion or exchange privileges and, if so, the
terms and conditions thereof, including provision for adjustment
of the conversion or exchange rate in such events or at such
times as the Board shall determine.
(5) Whether or not shares of such class or series
shall be subject to redemption and, if so, the terms and
conditions of such redemption, including the date or dates upon
or after which they shall be redeemable and the amount per share
payable in case of redemption, which amount may vary under
different conditions and at different redemption dates; and
whether or not there shall be any sinking fund or purchase
account in respect thereof, and if so, the terms thereof.
(6) The rights of the holders of shares of such class
or series upon the liquidation, dissolution or winding up of the
affairs of, or upon any distribution of the assets of, the
Corporation, which rights may vary depending upon whether such
liquidation, dissolution or winding up is voluntary or
involuntary and, if voluntary, may vary at different dates, and
whether such rights shall rank senior or junior to or on a parity
with such rights of any other class or series of stock.
(7) Whether or not there shall be any limitations
applicable, while shares of such class or series are outstanding,
upon the payment of dividends or making of distributions on, or
the acquisition of, or the use of moneys for purchase or
redemption of, any stock of the Corporation, or upon any other
action of the Corporation, including action under this
sub-paragraph, and, if so, the terms and conditions thereof.
(8) Any other preferences, rights, restrictions,
including restrictions on transferability, and qualifications of
shares of such class or series, not inconsistent with law and the
charter of the Corporation.
(d) For the purposes hereof and of any articles
supplementary to the charter providing for the classification or
reclassification of any shares of capital stock or of any other
charter document of the Corporation (unless otherwise provided in
any such articles or document), any class or series of stock of
the Corporation shall be deemed to rank:
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(1) prior to another class or series either as to
dividends or upon liquidation, if the holders of such class or
series shall be entitled to the receipt of dividends or of
amounts distributable on liquidation, dissolution or winding up,
as the case may be, in preference or priority to holders of such
other class or series;
(2) on a parity with another class or series either as
to dividends or upon liquidation, whether or not the dividend
rates, dividend payment dates or redemption or liquidation price
per share thereof be different from those of such others, if the
holders of such class or series of stock shall be entitled to
receipt of dividends or amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in proportion to
their respective dividend rates or redemption or liquidation
prices, without preference or priority over the holders of such
other class or series; and
(3) junior to another class or series either as to
dividends or upon liquidation, if the rights of the holders of
such class or series shall be subject or subordinate to the
rights of the holders of such other class or series in respect of
the receipt of dividends or the amounts distributable upon
liquidation, dissolution or winding up, as the case may be.
SIXTH:
(a) The number of directors of the Corporation shall be
nine (9), which number may be increased or decreased by at least
two-thirds of the directors then in office pursuant to the
By-Laws of the Corporation, but shall never be less than the
minimum number permitted by the General Laws of the State of
Maryland now or hereafter in force.
(b) Subject to the rights of the holders of any class of
Preferred Stock then outstanding, newly created directorships
resulting from any increase in the authorized number of directors
or any vacancies on the Board resulting from death, resignation,
retirement, disqualification, removal from office, or other cause
shall be filled by the required vote of the stockholders or the
directors then in office. A director so chosen by the
stockholders shall hold office for the balance of the term then
remaining. A director so chosen by the remaining directors shall
hold office until the next annual meeting of stockholders, at
which time the stockholders shall elect a director to hold office
for the balance of the term then remaining. No decrease in the
number of directors constituting the Board shall affect the
tenure of office of any director.
(c) Whenever the holders of any one or more series of
Preferred Stock of the Corporation shall have the right, voting
separately as a class, to elect one
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or more directors of the Corporation, the Board shall consist of said
directors so elected in addition to the number of directors fixed as
provided above in paragraph (a) of this Article SIXTH or in the
By-Laws. Notwithstanding the foregoing, and except as otherwise may be
required by law, whenever the holders of any one or more series
of Preferred Stock of the Corporation shall have the right,
voting separately as a class, to elect one or more directors of
the Corporation, the terms of the director or directors elected
by such holders shall expire at the next succeeding annual
meeting of stockholders.
(d) Subject to the rights of the holders of any class
separately entitled to elect one or more directors, any director,
or the entire Board, may be removed from office at any time, but
only for cause and then only by the affirmative vote of the
holders of at least 80% of the combined voting power of all
classes of shares of capital stock entitled to vote in the
election for directors voting together as a single class.
(e) At each annual meeting of stockholders beginning in
2000, successors to the class of directors whose term expires at
that annual meeting shall be elected for a three year term.
(1) The following persons shall serve as directors
until the 1998 annual meeting of stockholders:
[names of directors]
(2) The following persons shall serve as directors
until the 1999 annual meeting of stockholders:
[names of directors]
(3) The following persons shall serve as directors
until the 2000 annual meeting of stockholders:
[names of directors]
SEVENTH:
(a) The following provisions are hereby adopted for the
purpose of defining, limiting, and regulating the powers of the
Corporation and of the directors and stockholders:
(1) The Board is hereby empowered to authorize the
issuance from time to time of shares of its stock of any class,
whether now or hereafter
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authorized, or securities convertible into shares of its stock of any
class or classes, whether now or hereafter authorized, for such
consideration as may be deemed advisable by the Board and without
any action by the stockholders.
(2) No holder of any stock or any other securities of
the Corporation, whether now or hereafter authorized, shall have
any preemptive right to subscribe for or purchase any stock or
any other securities of the Corporation other than such, if any,
as the Board, in its sole discretion, may determine and at such
price or prices and upon such other terms as the Board, in its
sole discretion, may fix; and any stock or other securities which
the Board may determine to offer for subscription may, as the
Board in its sole discretion shall determine, be offered to the
holders of any class, series or type of stock or other securities
at the time outstanding to the exclusion of the holders of any or
all other classes, series or types of stock or other securities
at the time outstanding.
(3) The Board shall, consistent with applicable law,
have power in its sole discretion to determine from time to time
in accordance with sound accounting practice or other reasonable
valuation methods what constitutes annual or other net profits,
earnings, surplus, or net assets in excess of capital; to fix and
vary from time to time the amount to be reserved as working
capital, or determine that retained earnings or surplus shall
remain in the hands of the Corporation; to set apart out of any
funds of the Corporation such reserve or reserves in such amount
or amounts and for such proper purpose or purposes as it shall
determine and to abolish any such reserve or any part thereof; to
distribute and pay distributions or dividends in stock, cash or
other securities or property, out of surplus or any other funds
or amounts legally available therefor, at such times and to the
stockholders of record on such dates as it may, from time to
time, determine; and to determine whether and to what extent and
at what times and places and under what conditions and
regulations the books, accounts and documents of the Corporation,
or any of them, shall be open to the inspection of stockholders,
except as otherwise provided by statute or by the By-Laws, and,
except as so provided, no stockholder shall have any right to
inspect any book, account or document of the Corporation unless
authorized so to do by resolution of the Board.
(4) Notwithstanding any provision of law requiring the
authorization of any action by a greater proportion than a
majority of the total number of shares of all classes of capital
stock or of the total number of shares of any class of capital
stock, such action shall be valid and effective if authorized by
the affirmative vote of the holders of a majority of the total
number of shares of all classes outstanding and entitled to vote
thereon, except as otherwise provided in the charter.
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(5) The Corporation shall indemnify (A) its directors
and officers, whether serving the Corporation or at its request
any other entity, to the full extent required or permitted by the
General Laws of the State of Maryland now or hereafter in force,
including the advance of expenses under the procedures and to the
full extent permitted by law and (B) other employees and agents
to such extent as shall be authorized by the Board or the
Corporation's By-Laws and be permitted by law. The foregoing
rights of indemnification shall not be exclusive of any other
rights to which those seeking indemnification may be entitled.
The Board may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such by-laws, resolutions or
contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No
amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the right to
indemnification provided hereunder with respect to acts or
omissions occurring prior to such amendment or repeal.
(6) To the fullest extent permitted by Maryland
statutory or decisional law, as amended or interpreted, no
director or officer of the Corporation shall be personally liable
to the Corporation or its stockholders for money damages. No
amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the limitation on
liability provided to directors and officers hereunder with
respect to any act or omission occurring prior to such amendment
or repeal.
(7) The Corporation reserves the right from time to
time to make any amendments of its charter which may now or
hereafter be authorized by law, including any amendments changing
the terms or contract rights, as expressly set forth in its
charter, of any of its outstanding stock by classification,
reclassification or otherwise, but no such amendment which
changes such terms or contract rights of any of its outstanding
stock shall be valid unless such amendment shall have been
authorized by not less than a majority of the aggregate number of
the votes entitled to be cast thereon, by a vote at a meeting or
in writing with or without a meeting; provided, however, that any
amendment to, repeal of or adoption of any provision inconsistent
with Article SIXTH or sub-paragraph (7) of Article SEVENTH,
paragraph (a) shall have been authorized by not less than 80% of
the aggregate votes entitled to be cast thereon (considered for
this purpose as a single class), by vote at a meeting or in
writing with or without a meeting.
(8) The Corporation shall not be obligated to issue
certificates representing shares of capital stock. At the time
of issue or transfer of shares
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without certificates, the Corporation shall provide the stockholder
with such information as may be required under the MGCL and the
Maryland Uniform Commercial Code - Investment Securities.
(9) The provisions of Sections 3-701 to 3-709 of the
MGCL shall not apply generally to any Control Share Acquisition
(as defined in Section 3-701(e) of the MGCL) of any shares of
capital stock of the Corporation.
NINTH: The duration of the Corporation shall be perpetual.
FOURTH: Each member of the Board has signed a written consent pursuant to
Section 2-408 of the MGCL, in which consent these Articles of Amendment and
Restatement of the Articles of Incorporation of the Corporation (these
"Articles") were set forth, declared to be advisable and directed to be
submitted to the stockholders of the Corporation for consideration and approval.
FIFTH: Each holder of the Common Stock, the Class A Preferred Stock, Class
B Preferred Stock, and the Class C Preferred Stock of the Corporation, the only
classes of capital stock of the Corporation issued and outstanding, adopted and
approved these Articles by unanimous written consent pursuant to Section 2-505
of the MGCL.
SIXTH: As of immediately before the effectiveness of these Articles, the
total number of shares of stock of all classes which the Corporation had
authority to issue was _______ (________) shares, of which ________________
(_________) shares were _____________________, par value ______________ , etc.
[subject to change upon completion of the Modern Dental acquisition]
Subsequent to the filing of these Articles, the total amount of the
authorized capital stock of the Corporation shall be
__________________________________________ etc.
These Articles increase the aggregate par value of all classes of capital
stock of the Corporation.
A description of each class of capital stock of the Corporation, including
preferences and other rights, voting powers, restriction, limitations as to
dividends and qualifications, appears in Article Fifth of the Articles set forth
above.
IN WITNESS WHEREOF, DentalCo, Inc. has caused these Articles of Amendment
and Restatement to be signed in its name and on its behalf by its President and
attested by its Secretary this ___ day of _________, 1997.
ATTEST: DENTALCO, INC.
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<PAGE>
_________________________ By:_______________________________________(SEAL)
E. James Kuhns, Secretary Lawrence F. Halpert, D.D.S., Chairman and
CEO
THE UNDERSIGNED, the Chairman and Chief Executive Officer of DentalCo, Inc.
(the "Corporation"), who executed on behalf of the Corporation the foregoing
Articles of Amendment and Restatement of which this certificate is made a part,
hereby acknowledges in the name and on behalf of said Corporation the foregoing
Articles of Amendment and Restatement to be the corporate act of said
Corporation and hereby certifies that to the best of his knowledge, information
and belief the matters and facts set forth therein with respect to the
authorization and approval thereof are true in all material respects under the
penalties of perjury.
Dated: _______ __, 1997 By:_______________________________________(SEAL)
Lawrence F. Halpert, D.D.S., Chairman and CEO
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<PAGE>
Exhibit 3.3
DENTALCO, INC.
BY-LAWS
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. Annual Meeting. The Corporation shall
hold an annual meeting of its stockholders to elect
directors and transact any other business within its powers,
either at 10:00 a.m. on the 30th of June in each year if not
a legal holiday, or at such other time on such other day
falling on or before the 30th day thereafter as shall be set
by the Board of Directors. Except as the Charter or statute
provides otherwise, any business may be considered at an
annual meeting without the purpose of the meeting having
been specified in the notice. Failure to hold an annual
meeting does not invalidate the Corporation's existence or
affect any otherwise valid corporate acts.
SECTION 1.02. Special Meeting. At any time in the
interval between annual meetings, a special meeting of the
stockholders may be called by the Chairman of the Board or
the President or by a majority of the Board of Directors by
vote at a meeting or in writing (addressed to the Secretary
of the Corporation) with or without a meeting. Special
meetings of the stockholders shall be called at the request
of the stockholders only as may be required by law.
SECTION 1.03. Place of Meetings. Meetings of
stockholders shall be held at such place in the United
States as is set from time to time by the Board of
Directors.
SECTION 1.04. Notice of Meetings; Waiver of Notice. Not
less than ten nor more than 90 days before each
stockholders' meeting, the Secretary shall give written
notice of the meeting to each stockholder entitled to vote
at the meeting and each other stockholder entitled to notice
of the meeting. The notice shall state the time and place
of the meeting and, if the meeting is a special meeting or
notice of the purpose is required by statute, the purpose of
the meeting. Notice is given to a stockholder when it is
personally delivered to him or her, left at his or her
residence or usual place of business, or mailed to him or
her at his or her address as it appears on the records of
the Corporation. Notwithstanding the foregoing provisions,
each person who is entitled to notice waives notice if he or
she before or after the meeting signs a waiver of the notice
which is filed with the records of stockholders' meetings,
or is present at the meeting in person or by proxy.
SECTION 1.05. Quorum; Voting. Unless statute or the
Charter provides otherwise, at a meeting of stockholders the
presence in person or by proxy of stockholders entitled to
cast a majority of all the votes entitled to be cast at the
meeting constitutes a quorum, and a majority of all the
votes cast at a meeting at which a quorum is present is
sufficient to approve any matter
<PAGE>
which properly comes before the meeting, except that a
plurality of all the votes cast at a meeting at which a quorum
is present is sufficient to elect a director.
SECTION 1.06. Adjournments. Whether or not a quorum
is present, a meeting of stockholders convened on the date
for which it was called may be adjourned from time to time
without further notice by a majority vote of the
stockholders present in person or by proxy to a date not
more than 120 days after the original record date. Any
business which might have been transacted at the meeting as
originally notified may be deferred and transacted at any
such adjourned meeting at which a quorum shall be present.
SECTION 1.07. General Right to Vote; Proxies. Unless
the Charter provides for a greater or lesser number of votes
per share or limits or denies voting rights, each
outstanding share of stock, regardless of class, is entitled
to one vote on each matter submitted to a vote at a meeting
of stockholders. In all elections for directors, each share
of stock may be voted for as many individuals as there are
directors to be elected and for whose election the share is
entitled to be voted. A stockholder may vote the stock the
stockholder owns of record either in person or by written
proxy signed by the stockholder or by his duly authorized
attorney in fact. Unless a proxy provides otherwise, it is
not valid more than 11 months after its date.
SECTION 1.08. List of Stockholders. At each meeting
of stockholders, a full, true and complete list of all
stockholders entitled to vote at such meeting, showing the
number and class of shares held by each and certified by the
transfer agent for such class or by the Secretary, shall be
furnished by the Secretary.
SECTION 1.09. Conduct of Business and Voting. At all
meetings of stockholders, unless the voting is conducted by
inspectors, the proxies and ballots shall be received, and
all questions touching the qualification of voters and the
validity of proxies, the acceptance or rejection of votes
and procedures for the conduct of business not otherwise
specified by these By-Laws, the Charter or law, shall be
decided or determined by the chairman of the meeting. If
demanded by stockholders, present in person or by proxy,
entitled to cast 10% in number of votes entitled to be cast,
or if ordered by the chairman, the vote upon any election or
question shall be taken by ballot and, upon like demand or
order, the voting shall be conducted by two inspectors, in
which event the proxies and ballots shall be received, and
all questions touching the qualification of voters and the
validity of proxies and the acceptance or rejection of votes
shall be decided, by such inspectors. Unless so demanded or
ordered, no vote need be by ballot and voting need not be
conducted by inspectors. The stockholders at any meeting
may choose an inspector or inspectors to act at such
meeting, and in default of such election the chairman of the
meeting may appoint an inspector or inspectors. No
candidate for election as a director at a meeting shall
serve as an inspector thereat.
SECTION 1.10. Informal Action by Stockholders. Any
action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting if there is
filed with the records of stockholders meetings an unanimous
written consent which sets forth the action and is
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signed by each stockholder entitled to vote on the matter and
a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled
to vote at it.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business
and affairs of the Corporation shall be managed under the
direction of its Board of Directors. All powers of the
Corporation may be exercised by or under authority of the
Board of Directors, except as conferred on or reserved to
the stockholders by statute or by the Charter or By-Laws.
SECTION 2.02. Number of Directors. The Corporation
shall have at least three directors; provided that, if there
is no stock outstanding, the number of Directors may be less
than three but not less than one, and, if there is stock
outstanding and so long as there are less than three
stockholders, the number of Directors may be less than three
but not less than the number of stockholders. The
Corporation shall have the number of directors provided in
the Charter until changed as herein provided. A majority of
the entire Board of Directors may alter the number of
directors set by the Charter to not exceeding 25 nor less
than the minimum number then permitted herein, but the
action may not affect the tenure of office of any director.
SECTION 2.03. Election and Tenure of Directors. At
each annual meeting, the stockholders shall elect directors
to hold office until the next annual meeting and until their
successors are elected and qualify.
SECTION 2.04. Removal of Director. Unless statute or
the Charter provides otherwise, the stockholders may remove
any director, with or without cause, by the affirmative vote
of a majority of all the votes entitled to be cast for the
election of directors.
SECTION 2.05. Vacancy on Board. The stockholders may
elect a successor to fill a vacancy on the Board of
Directors which results from the removal of a director. A
director elected by the stockholders to fill a vacancy which
results from the removal of a director serves for the
balance of the term of the removed director. A majority of
the remaining directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of
Directors which results from any cause except an increase in
the number of directors, and a majority of the entire Board
of Directors may fill a vacancy which results from an
increase in the number of directors. A director elected by
the Board of Directors to fill a vacancy serves until the
next annual meeting of stockholders and until his or her
successor is elected and qualifies.
SECTION 2.06. Regular Meetings. After each meeting of
stockholders at which directors shall have been elected, the
Board of Directors shall meet as soon as practicable for the
purpose of organization and the transaction of other
business. In the event that no other time and place are
specified by resolution of the Board, the President or the
Chairman, with notice in accordance with Section 2.08, the
Board of Directors shall meet immediately following the
close
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of, and at the place of, such stockholders' meeting. Any
other regular meeting of the Board of Directors shall be
held on such date and at any place as may be designated
from time to time by the Board of Directors.
SECTION 2.07. Special Meetings. Special meetings of
the Board of Directors may be called at any time by the
Chairman of the Board or the President or by a majority of
the Board of Directors by vote at a meeting, or in writing
with or without a meeting. A special meeting of the Board
of Directors shall be held on such date and at any place as
may be designated from time to time by the Board of
Directors. In the absence of designation such meeting shall
be held at such place as may be designated in the call.
SECTION 2.08. Notice of Meeting. Except as provided
in Section 2.06, the Secretary shall give notice to each
director of each regular and special meeting of the Board of
Directors. The notice shall state the time and place of the
meeting. Notice is given to a director when it is delivered
personally to him or her, left at his or her residence or
usual place of business, or sent by telegraph, facsimile
transmission or telephone, at least 24 hours before the time
of the meeting or, in the alternative by mail to his or her
address as it shall appear on the records of the
Corporation, at least 72 hours before the time of the
meeting. Unless the By-Laws or a resolution of the Board of
Directors provides otherwise, the notice need not state the
business to be transacted at or the purposes of any regular
or special meeting of the Board of Directors. No notice of
any meeting of the Board of Directors need be given to any
director who attends except where a director attends a
meeting for the express purpose of objecting to the
transaction of any business because the meeting is not
lawfully called or convened, or to any director who, in
writing executed and filed with the records of the meeting
either before or after the holding thereof, waives such
notice. Any meeting of the Board of Directors, regular or
special, may adjourn from time to time to reconvene at the
same or some other place, and no notice need be given of any
such adjourned meeting other than by announcement.
SECTION 2.09. Action by Directors. Unless statute or
the Charter or By-Laws requires a greater proportion, the
action of a majority of the directors present at a meeting
at which a quorum is present is action of the Board of
Directors. A majority of the entire Board of Directors
shall constitute a quorum for the transaction of business.
In the absence of a quorum, the directors present by
majority vote and without notice other than by announcement
may adjourn the meeting from time to time until a quorum
shall attend. At any such adjourned meeting at which a
quorum shall be present, any business may be transacted
which might have been transacted at the meeting as
originally notified. Any action required or permitted to be
taken at a meeting of the Board of Directors may be taken
without a meeting, if an unanimous written consent which
sets forth the action is signed by each member of the Board
and filed with the minutes of proceedings of the Board.
SECTION 2.10. Meeting by Conference Telephone. Members
of the Board of Directors may participate in a meeting by
means of a conference telephone or similar communications
equipment if all persons participating in the meeting
can hear each other at the
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same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
SECTION 2.11. Compensation. By resolution of the
Board of Directors a fixed sum and expenses, if any, for
attendance at each regular or special meeting of the
Board of Directors or of committees thereof, and other
compensation for their services as such or on committees
of the Board of Directors, may be paid to directors.
Directors who are full-time employees of the Corporation
need not be paid for attendance at meetings of the board
or committees thereof for which fees are paid to other
directors. A director who serves the Corporation in any
other capacity also may receive compensation for such
other services, pursuant to a resolution of the directors.
ARTICLE III.
COMMITTEES
SECTION 3.01. Committees. The Board of Directors
may appoint from among its members an Executive Committee
and other committees composed of two or more directors
and delegate to these committees any of the powers of the
Board of Directors, except the power to declare dividends
or other distributions on stock, elect directors, issue
stock other than as provided in the next sentence,
recommend to the stockholders any action which requires
stockholder approval, amend the By-Laws, or approve any
merger or share exchange which does not require
stockholder approval. If the Board of Directors has
given general authorization for the issuance of stock, a
committee of the Board, in accordance with a general
formula or method specified by the Board by resolution or
by adoption of a stock option or other plan, may fix the
terms of stock subject to classification or
reclassification and the terms on which any stock may be
issued, including all terms and conditions required or
permitted to be established or authorized by the Board of
Directors.
SECTION 3.02. Committee Procedure. Each committee
may fix rules of procedure for its business. A majority
of the members of a committee shall constitute a quorum
for the transaction of business and the act of a majority
of those present at a meeting at which a quorum is
present shall be the act of the committee. The members
of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act
in the place of an absent member. Any action required or
permitted to be taken at a meeting of a committee may be
taken without a meeting, if an unanimous written consent
which sets forth the action is signed by each member of
the committee and filed with the minutes of the
committee. The members of a committee may conduct any
meeting thereof by conference telephone in accordance
with the provisions of Section 2.10.
SECTION 3.03. Emergency. In the event of a state
of disaster of sufficient severity to prevent the conduct
and management of the affairs and business of the
Corporation by its directors and officers as contemplated
by the Charter and the By-Laws, any two or more
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available members of the then incumbent Executive
Committee shall constitute a quorum of that Committee for
the full conduct and management of the affairs and
business of the Corporation in accordance with the
provisions of Section 3.01. In the event of the
unavailability, at such time, of a minimum of two members
of the then incumbent Executive Committee, the available
directors shall elect an Executive Committee consisting
of any two members of the Board of Directors, whether or
not they be officers of the Corporation, which two
members shall constitute the Executive Committee for the
full conduct and management of the affairs of the
Corporation in accordance with the foregoing provisions
of this Section. This Section shall be subject to
implementation by resolution of the Board of Directors
passed from time to time for that purpose, and any
provisions of the By-Laws (other than this Section) and
any resolutions which are contrary to the provisions of
this Section or to the provisions of any such
implementary resolutions shall be suspended until it
shall be determined by any interim Executive Committee
acting under this Section that it shall be to the
advantage of the Corporation to resume the conduct and
management of its affairs and business under all the
other provisions of the By-Laws.
ARTICLE IV.
OFFICERS
SECTION 4.01. Executive and Other Officers. The
Corporation shall have a Chairman of the Board, a
President, a Secretary, and a Treasurer. The Board of
Directors shall designate who shall serve as chief
executive officer, who shall have general supervision of
the business and affairs of the Corporation, and may
designate a chief operating officer, who shall have
supervision of the operations of the Corporation. In the
absence of any designation the Chairman of the Board, if
there be one, shall serve as chief executive officer and
the President shall serve as chief operating officer. In
the absence of the Chairman of the Board, the President
shall be the chief executive officer. The same person may
hold both offices. The Corporation may also have one or
more Vice-Presidents, assistant officers, and subordinate
officers as may be established by the Board of Directors.
A person may hold more than one office in the
Corporation except that no person may serve concurrently
as both President and Vice-President of the Corporation.
The Chairman of the Board shall be a director; the other
officers may be directors.
SECTION 4.02. Chairman of the Board. The Chairman of
the Board shall preside at all meetings of the Board of
Directors and of the stockholders at which he or she shall
be present and shall be the chief executive officer of the
Corporation. He or she may execute, in the name of the
Corporation, all authorized deeds, mortgages, bonds,
contracts or other instruments, except in cases in which the
signing and execution thereof shall have been expressly
delegated to some other officer or agent of the Corporation.
In general, he or she shall perform such duties as are
customarily performed by the chief executive officer of a
corporation and may perform any duties of the President and
shall perform such other duties and have such other powers
as are from time to time assigned to him or her by the Board
of Directors.
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SECTION 4.03. President. Unless otherwise provided by
resolution of the Board of Directors, the President, in the
absence of the Chairman of the Board, shall preside at all
meetings of the Board of Directors and of the stockholders
at which he or she shall be present. Unless otherwise
specified by the Board of Directors, the President shall be
the chief operating officer of the Corporation and perform
the duties customarily performed by chief operating
officers. He or she may execute, in the name of the
Corporation, all authorized deeds, mortgages, bonds,
contracts or other instruments, except in cases in which the
signing and execution thereof shall have been expressly
delegated by the Board or the chief executive officer of the
Corporation to some other officer or agent of the
Corporation. In general, he or she shall perform such other
duties customarily performed by a president of a corporation
and shall perform such other duties and have such other
powers as are from time to time assigned to him or her by
the Board of Directors or the chief executive officer of the
Corporation.
SECTION 4.04. Vice-Presidents. The Vice-President or
Vice-Presidents, at the request of the chief executive
officer or the President, or in the President's absence or
during his or her inability to act, shall perform the duties
and exercise the functions of the President, and when so
acting shall have the powers of the President. If there be
more than one Vice-President, the Board of Directors may
determine which one or more of the Vice-Presidents shall
perform any of such duties or exercise any of such
functions, or if such determination is not made by the Board
of Directors, the chief executive officer, or the President
may make such determination; otherwise any of the
Vice-Presidents may perform any of such duties or exercise
any of such functions. Each Vice-President shall perform
such other duties and have such other powers, and have such
additional descriptive designations in their titles (if
any), as are from time to time assigned to them by the Board
of Directors, the chief executive officer, or the President.
SECTION 4.05. Secretary. The Secretary shall keep the
minutes of the meetings of the stockholders, of the Board of
Directors and of any committees, in books provided for the
purpose; he or she shall see that all notices are duly given
in accordance with the provisions of the By-Laws or as
required by law; he or she shall be custodian of the records
of the Corporation; he or she may witness any document on
behalf of the Corporation, the execution of which is duly
authorized, see that the corporate seal is affixed where
such document is required or desired to be under its seal,
and, when so affixed, may attest the same. In general, he
or she shall perform such other duties customarily performed
by a secretary of a corporation, and shall perform such
other duties and have such other powers as are from time to
time assigned to him or her by the Board of Directors, the
chief executive officer, or the President.
SECTION 4.06. Treasurer. The Treasurer shall have
charge of and be responsible for all funds, securities,
receipts and disbursements of the Corporation, and shall
deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such
banks, trust companies or other depositories as shall, from
time to time, be selected by the Board of Directors; he or
she shall render to the President and to the Board of
Directors, whenever requested, an account of the financial
condition of the Corporation. In general, he or she shall
perform such other duties customarily performed by a
treasurer of a corporation, and shall
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perform such other duties and have such other powers as
are from time to time assigned to him or her by the Board
of Directors, the chief executive officer, or the
President.
SECTION 4.07. Assistant and Subordinate Officers. The
assistant and subordinate officers of the Corporation are
all officers below the office of Vice-President, Secretary,
or Treasurer. The assistant or subordinate officers shall
have such duties as are from time to time assigned to them
by the Board of Directors, the chief executive officer, or
the President.
SECTION 4.08. Election, Tenure and Removal of
Officers. The Board of Directors shall elect the
officers of the Corporation. The Board of Directors may
from time to time authorize any committee or officer to
appoint assistant and subordinate officers. Election or
appointment of an officer, employee or agent shall not of
itself create contract rights. All officers shall be
appointed to hold their offices, respectively, during the
pleasure of the Board. The Board of Directors (or, as to
any assistant or subordinate officer, any committee or
officer authorized by the Board) may remove an officer at
any time. The removal of an officer does not prejudice
any of his or her contract rights. The Board of
Directors (or, as to any assistant or subordinate
officer, any committee or officer authorized by the
Board) may fill a vacancy which occurs in any office for
the unexpired portion of the term.
SECTION 4.09. Compensation. The Board of Directors
shall have power to fix the salaries and other compensation
and remuneration, of whatever kind, of all officers of the
Corporation. No officer shall be prevented from receiving
such salary by reason of the fact that he or she is also a
director of the Corporation. The Board of Directors may
authorize any committee or officer, upon whom the power of
appointing assistant and subordinate officers may have been
conferred, to fix the salaries, compensation and
remuneration of such assistant and subordinate officers.
ARTICLE V.
DIVISIONAL TITLES
SECTION 5.01. Conferring Divisional Titles. The Board
of Directors may from time to time confer upon any employee
of a division of the Corporation the title of President,
Vice President, Treasurer or Controller of such division or
any other title or titles deemed appropriate, or may
authorize the Chairman of the Board or the President to do
so. Any such titles so conferred may be discontinued and
withdrawn at any time by the Board of Directors, or by the
Chairman of the Board or the President if so authorized by
the Board of Directors. Any employee of a division
designated by such a divisional title shall have the powers
and duties with respect to such division as shall be
prescribed by the Board of Directors, the Chairman of the
Board or the President.
SECTION 5.02. Effect of Divisional Titles. The
conferring of divisional titles shall not create an
office of the Corporation under Article IV unless
specifically designated as such by the
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Board of Directors; but any person who is an officer of
the Corporation may also have a divisional title.
ARTICLE VI.
STOCK
SECTION 6.01. Certificates for Stock. Each stockholder is
entitled to certificates which represent and certify the shares of
stock he or she holds in the Corporation. Each stock certificate
shall include on its face the name of the Corporation, the name of
the stockholder or other person to whom it is issued, and the class
of stock and number of shares it represents. It shall be in such
form, not inconsistent with law or with the Charter, as shall be
approved by the Board of Directors or any officer or officers
designated for such purpose by resolution of the Board of Directors.
Each stock certificate shall be signed by the Chairman of the Board,
the President, or a Vice-President, and countersigned by the Secretary,
an Assistant Secretary, the Treasurer, or an Assistant Treasurer.
Each certificate may be sealed with the actual corporate seal or a
facsimile of it or in any other form and the signatures may be either
manual or facsimile signatures. A certificate is valid and may be
issued whether or not an officer who signed it is still an officer
when it is issued.
SECTION 6.02. Transfers. The Board of Directors shall have
power and authority to make such rules and regulations as it may
deem expedient concerning the issue, transfer and registration of
certificates of stock; and may appoint transfer agents and registrars
thereof. The duties of transfer agent and registrar may be combined.
SECTION 6.03. Record Dates or Closing of Transfer Books.
The Board of Directors may set a record date or direct that
the stock transfer books be closed for a stated period for
the purpose of making any proper determination with respect
to stockholders, including which stockholders are entitled
to notice of a meeting, vote at a meeting, receive a
dividend, or be allotted other rights. The record date may
not be prior to the close of business on the day the record
date is fixed nor, subject to Section 1.06, more than 90
days before the date on which the action requiring the
determination will be taken; the transfer books may not be
closed for a period longer than 20 days; and, in the case of
a meeting of stockholders, the record date or the closing of
the transfer books shall be at least ten days before the
date of the meeting.
SECTION 6.04. Stock Ledger. The Corporation shall
maintain a stock ledger which contains the name and address
of each stockholder and the number of shares of stock of
each class which the stockholder holds. The stock ledger
may be in written form or in any other form which can be
converted within a reasonable time into written form for
visual inspection. The original or a duplicate of the stock
ledger shall be kept at the offices of a transfer agent for
the particular class of stock, or, if none, at the principal
office in the State of Maryland or the principal executive
offices of the Corporation.
9
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SECTION 6.05. Certification of Beneficial Owners. The
Board of Directors may adopt by resolution a procedure by
which a stockholder of the Corporation may certify in
writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the
account of a specified person other than the stockholder.
The resolution shall set forth the class of stockholders who
may certify; the purpose for which the certification may be
made; the form of certification and the information to be
contained in it; if the certification is with respect to a
record date or closing of the stock transfer books, the time
after the record date or closing of the stock transfer books
within which the certification must be received by the
Corporation; and any other provisions with respect to the
procedure which the Board considers necessary or desirable.
On receipt of a certification which complies with the
procedure adopted by the Board in accordance with this
Section, the person specified in the certification is, for
the purpose set forth in the certification, the holder of
record of the specified stock in place of the stockholder
who makes the certification.
SECTION 6.06. Lost Stock Certificates. The Board of
Directors of the Corporation may determine the conditions
for issuing a new stock certificate in place of one which is
alleged to have been lost, stolen, or destroyed, or the
Board of Directors may delegate such power to any officer or
officers of the Corporation. In their discretion, the Board
of Directors or such officer or officers may refuse to issue
such new certificate save upon the order of some court
having jurisdiction in the premises.
ARTICLE VII.
FINANCE
SECTION 7.01. Checks, Drafts, Etc. All checks,
drafts and orders for the payment of money, notes and
other evidences of indebtedness, issued in the name of
the Corporation, shall, unless otherwise provided by
resolution of the Board of Directors, be signed by the
President, a Vice-President or an Assistant
Vice-President and countersigned by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant
Secretary.
SECTION 7.02. Annual Statement of Affairs. The
President or chief accounting officer shall prepare annually
a full and correct statement of the affairs of the
Corporation, to include a balance sheet and a financial
statement of operations for the preceding fiscal year. The
statement of affairs shall be submitted at the annual
meeting of the stockholders and, within 20 days after the
meeting, placed on file at the Corporation's principal
office.
SECTION 7.03. Fiscal Year. The fiscal year of the
Corporation shall be the twelve calendar months period
ending _____________ in each year, unless otherwise
provided by the Board of Directors.
SECTION 7.04. Dividends. If declared by the Board of
Directors at any meeting thereof, the Corporation may pay
dividends on its shares in cash, property, or in shares of
the
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capital stock of the Corporation, unless such dividend
is contrary to law or to a restriction contained in the
Charter.
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.01. Procedure. Any indemnification, or
payment of expenses in advance of the final disposition of
any proceeding, shall be made promptly, and in any event
within 60 days, upon the written request of the director or
officer entitled to seek indemnification (the "Indemnified
Party"). The right to indemnification and advances
hereunder shall be enforceable by the Indemnified Party in
any court of competent jurisdiction, if (i) the Corporation
denies such request, in whole or in part, or (ii) no
disposition thereof is made within 60 days. The Indemnified
Party's costs and expenses incurred in connection with
successfully establishing his or her right to
indemnification, in whole or in part, in any such action
shall also be reimbursed by the Corporation. It shall be a
defense to any action for advance for expenses that (a) a
determination has been made that the facts then known to
those making the determination would preclude
indemnification or (b) the Corporation has not received both
(i) an undertaking as required by law to repay such advances
in the event it shall ultimately be determined that the
standard of conduct has not been met and (ii) a written
affirmation by the Indemnified Party of such Indemnified
Party's good faith belief that the standard of conduct
necessary for indemnification by the Corporation has been
met.
SECTION 8.02. Exclusivity, Etc. The indemnification
and advance of expenses provided by the Charter and these
By-Laws shall not be deemed exclusive of any other rights to
which a person seeking indemnification or advance of
expenses may be entitled under any law (common or
statutory), or any agreement, vote of stockholders or
disinterested directors or other provision that is
consistent with law, both as to action in his or her
official capacity and as to action in another capacity while
holding office or while employed by or acting as agent for
the Corporation, shall continue in respect of all events
occurring while a person was a director or officer after
such person has ceased to be a director or officer, and
shall inure to the benefit of the estate, heirs, executors
and administrators of such person. All rights to
indemnification and advance of expenses under the Charter of
the Corporation and hereunder shall be deemed to be a
contract between the Corporation and each director or
officer of the Corporation who serves or served in such
capacity at any time while this By-Law is in effect.
Nothing herein shall prevent the amendment of this By-Law,
provided that no such amendment shall diminish the rights of
any person hereunder with respect to events occurring or
claims made before its adoption or as to claims made after
its adoption in respect of events occurring before its
adoption. Any repeal or modification of this By-Law shall
not in any way diminish any rights to indemnification or
advance of expenses of such director or officer or the
obligations of the Corporation arising hereunder with
respect to events occurring, or claims made, while this
By-Law or any provision hereof is in force.
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SECTION 8.03. Severability; Definitions. The
invalidity or unenforceability of any provision of this
Article VIII shall not affect the validity or enforceability
of any other provision hereof. The phrase "this By-Law" in
this Article VIII means this Article VIII in its entirety.
ARTICLE IX.
SUNDRY PROVISIONS
SECTION 9.01. Books and Records. The Corporation
shall keep correct and complete books and records of its
accounts and transactions and minutes of the proceedings of
its stockholders and Board of Directors and of any executive
or other committee when exercising any of the powers of the
Board of Directors. The books and records of a Corporation
may be in written form or in any other form which can be
converted within a reasonable time into written form for
visual inspection. Minutes shall be recorded in written
form but may be maintained in the form of a reproduction.
The original or a certified copy of the By-Laws shall be
kept at the principal office of the Corporation.
SECTION 9.02. Corporate Seal. The Board of Directors
shall provide a suitable seal, bearing the name of the
Corporation, which shall be in the charge of the Secretary.
The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. If the
Corporation is required to place its corporate seal to a
document, it is sufficient to meet the requirement of any
law, rule, or regulation relating to a corporate seal to
place the word "Seal" adjacent to the signature of the
person authorized to sign the document on behalf of the
Corporation.
SECTION 9.03. Bonds. The Board of Directors may
require any officer, agent or employee of the Corporation to
give a bond to the Corporation, conditioned upon the
faithful discharge of his or her duties, with one or more
sureties and in such amount as may be satisfactory to the
Board of Directors.
SECTION 9.04. Voting Stock in Other Corporations. Stock of
other corporations or associations, registered in the name
of the Corporation, may be voted by the President, a
Vice-President, or a proxy appointed by either of them. The
Board of Directors, however, may by resolution appoint some
other person to vote such shares, in which case such person
shall be entitled to vote such shares upon the production of
a certified copy of such resolution.
SECTION 9.05. Mail. Any notice or other document
which is required by these By-Laws to be mailed shall be
deposited in the United States mails, postage prepaid.
SECTION 9.06. Execution of Documents. A person who
holds more than one office in the Corporation may not act in
more than one capacity to execute, acknowledge, or verify an
instrument required by law to be executed, acknowledged, or
verified by more than one officer.
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SECTION 9.07. Amendments. Subject to the special
provisions of Section 2.02, (a) any and all provisions of
these By-Laws may be altered or repealed and new by-laws may
be adopted at any annual meeting of the stockholders, or at
any special meeting called for that purpose, and (b) the
Board of Directors shall have the power, at any regular or
special meeting thereof, to make and adopt new by-laws, or
to amend, alter or repeal any of the By-Laws of the
Corporation.
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Exhibit 3.4
DENTALCO, INC.
BY-LAWS
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. Annual Meeting. The Corporation shall hold an annual
meeting of its stockholders to elect directors and transact any other
business within its powers, either at 10:00 a.m. on the 30th of June in each
year if not a legal holiday, or at such other time on such other day falling
on or before the 30th day thereafter as shall be set by the Board of
Directors. Except as the Charter or statute provides otherwise, any business
may be considered at an annual meeting without the purpose of the meeting
having been specified in the notice. Failure to hold an annual meeting does
not invalidate the Corporation's existence or affect any otherwise valid
corporate acts.
SECTION 1.02. Special Meeting. At any time in the interval between
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of
the Corporation) with or without a meeting. Special meetings of the
stockholders shall be called by the Secretary at the request of stockholders
only on the written request of stockholders entitled to cast a majority of
all the votes entitled to be cast at the meeting. A request for a special
meeting shall state the purpose of the meeting and the matters proposed to be
acted on at it. The Secretary shall inform the stockholders who make the
request of the reasonably estimated costs of preparing and mailing a notice
of the meeting and, on payment of these costs to the Corporation, notify each
stockholder entitled to notice of the meeting. Unless requested by
stockholders entitled to cast a majority of all the votes entitled to be cast
at the meeting, a special meeting need not be called to consider any matter
which is substantially the same as a matter voted on at any special meeting
of stockholders held in the preceding 12 months.
SECTION 1.03. Stockholder Proposals. For any stockholder proposal to
be presented in connection with an annual meeting of stockholders of the
Corporation, including any proposal relating to the nomination of a director
to be elected to the Board of Directors of the Corporation, the stockholders
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Corporation not less than
60 days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of
the annual meeting is advanced by more than 30 days or delayed by more than
60 days from such anniversary date, notice by the stockholder to be timely
must be so delivered not earlier than the 90th day prior to such annual
meeting and not later than the close of
<PAGE>
business on the later of the 60th day prior to such annual meeting or the
tenth day following the day on which public announcement of the date of such
meeting is first made. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (b) as to any other business that
the stockholder proposes to bring before the meeting, a brief description of
the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and of the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal
is made, (i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and
number of shares of stock of the Corporation which are owned beneficially and
of record by such stockholders and such beneficial owner.
SECTION 1.04. Place of Meetings. Meetings of stockholders shall be
held at such place in the United States as is set from time to time by the
Board of Directors.
SECTION 1.05. Notice of Meetings; Waiver of Notice. Not less than ten nor
more than 90 days before each stockholders' meeting, the Secretary shall give
written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The
notice shall state the time and place of the meeting and, if the meeting is a
special meeting or notice of the purpose is required by statute, the purpose
of the meeting. Notice is given to a stockholder when it is personally
delivered to him or her, left at his or her residence or usual place of
business, or mailed to him or her at his or her address as it appears on the
records of the Corporation. Notwithstanding the foregoing provisions, each
person who is entitled to notice waives notice if he or she before or after
the meeting signs a waiver of the notice which is filed with the records of
stockholders' meetings, or is present at the meeting in person or by proxy.
SECTION 1.06. Quorum; Voting. Unless statute or the Charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast
at the meeting constitutes a quorum, and a majority of all the votes cast at
a meeting at which a quorum is present is sufficient to approve any matter
which properly comes before the meeting, except that a plurality of all the
votes cast at a meeting at which a quorum is present is sufficient to elect a
director.
SECTION 1.07. Adjournments. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time without further notice by a majority vote of the
stockholders present in person or by proxy to a date not more than 120 days
after the original record date. Any business which might have been
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transacted at the meeting as originally notified may be deferred and
transacted at any such adjourned meeting at which a quorum shall be present.
SECTION 1.08. General Right to Vote; Proxies. Unless the Charter
provides for a greater or lesser number of votes per share or limits or
denies voting rights, each outstanding share of stock, regardless of class,
is entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. In all elections for directors, each share of stock may be
voted for as many individuals as there are directors to be elected and for
whose election the share is entitled to be voted. A stockholder may vote the
stock the stockholder owns of record either in person or by proxy. A
stockholder may sign a writing authorizing another person to act as proxy.
Signing may be accomplished by the stockholder or the stockholder's
authorized agent signing the writing or causing the stockholder's signature
to be affixed to the writing by any reasonable means, including facsimile
signature. A stockholder may authorize another person to act as proxy by
transmitting, or authorizing the transmission of, a telegram, cablegram,
datagram, or other means of electronic transmission to the person authorized
to act as proxy or to a proxy solicitation firm, proxy support service
organization, or other person authorized by the person who will act as proxy
to receive the transmission. Unless a proxy provides otherwise, it is not
valid more than 11 months after its date. A proxy is revocable by a
stockholder at any time without condition or qualification unless the proxy
states that it is irrevocable and the proxy is coupled with an interest. A
proxy may be made irrevocable for so long as it is coupled with an interest.
The interest with which a proxy may be coupled includes an interest in the
stock to be voted under the proxy or another general interest in the
Corporation or its assets or liabilities.
SECTION 1.09. List of Stockholders. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by
the Secretary.
SECTION 1.10. Conduct of Business and Voting. At all meetings of
stockholders, unless the voting is conducted by inspectors, the proxies and
ballots shall be received, and all questions touching the qualification of
voters and the validity of proxies, the acceptance or rejection of votes and
procedures for the conduct of business not otherwise specified by these
By-Laws, the Charter or law, shall be decided or determined by the chairman
of the meeting. If demanded by stockholders, present in person or by proxy,
entitled to cast 10% in number of votes entitled to be cast, or if ordered by
the chairman, the vote upon any election or question shall be taken by ballot
and, upon like demand or order, the voting shall be conducted by two
inspectors, in which event the proxies and ballots shall be received, and all
questions touching the qualification of voters and the validity of proxies
and the acceptance or rejection of votes shall be decided, by such
inspectors. Unless so demanded or ordered, no vote need be by ballot and
voting need not be conducted by inspectors. The stockholders at any meeting
may choose an inspector or inspectors to act at such meeting, and in default
of such election the chairman of the meeting may appoint an inspector or
inspectors. No candidate for election as a director at a meeting shall serve
as an inspector thereat.
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SECTION 1.11. Informal Action by Stockholders. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders meetings an
unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right
to dissent signed by each stockholder entitled to notice of the meeting but
not entitled to vote at it.
SECTION 1.12. Meeting by Conference Telephone. Stockholder s may
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business and affairs of
the Corporation shall be managed under the direction of its Board of
Directors. All powers of the Corporation may be exercised by or under
authority of the Board of Directors, except as conferred on or reserved to
the stockholders by statute or by the Charter or By-Laws.
SECTION 2.02. Number of Directors. The Corporation shall have at least
three directors; provided that, if there is no stock outstanding, the number
of Directors may be less than three but not less than one, and, if there is
stock outstanding and so long as there are less than three stockholders, the
number of Directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in
the Charter until changed as herein provided. Two-thirds of the entire Board
of Directors may alter the number of directors set by the Charter to not
exceeding 25 nor less than the minimum number then permitted herein, but the
action may not affect the tenure of office of any director.
SECTION 2.03. Election and Tenure of Directors. The directors shall be
divided into three classes as nearly equal in number as possible. At each
successive annual meeting of stockholders, the holders of stock present in
person or by proxy at such meeting and entitled to vote thereat shall elect
members of each successive class to serve for three year terms and until
their successors are elected and qualify. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so
as to maintain the number of directors in each class as nearly equal as
possible, and any additional director of any class shall, subject to Section
2.05, hold office for a term that shall coincide with the remaining term of
that class, but in no case shall a decrease in the number of directors
shorten the term of any incumbent director.
SECTION 2.04. Removal of Director. Subject to the rights of the
holders of any class separately entitled to elect one or more directors, any
director, or the entire Board of Directors, may be removed from office at any
time, but only for cause and then only by the affirmative vote
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of the holders of at least 80% of the combined voting power of all classes of
shares of capital stock entitled to vote in the election for directors.
SECTION 2.05. Vacancy on Board. Subject to the rights of the holders
of any class of stock separately entitled to elect one or more directors, the
stockholders may elect a successor to fill a vacancy on the Board of
Directors which results from the removal of a director. A director elected
by the stockholders to fill a vacancy which results from the removal of a
director serves for the balance of the term of the removed director. Subject
to the rights of the holders of any class of stock separately entitled to
elect one or more directors, a majority of the remaining directors, whether
or not sufficient to constitute a quorum, may fill a vacancy on the Board of
Directors which results from any cause except an increase in the number of
directors, and a majority of the entire Board of Directors may fill a vacancy
which results from an increase in the number of directors. A director elected
by the Board of Directors to fill a vacancy serves until the next annual
meeting of stockholders and until his or her successor is elected and
qualifies.
SECTION 2.06. Regular Meetings. After each meeting of stockholders at
which directors shall have been elected, the Board of Directors shall meet as
soon as practicable for the purpose of organization and the transaction of
other business. In the event that no other time and place are specified by
resolution of the Board, the President or the Chairman, with notice in
accordance with Section 2.08, the Board of Directors shall meet immediately
following the close of, and at the place of, such stockholders' meeting. Any
other regular meeting of the Board of Directors shall be held on such date
and at any place as may be designated from time to time by the Board of
Directors.
SECTION 2.07. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board or the
President or by a majority of the Board of Directors by vote at a meeting, or
in writing with or without a meeting. A special meeting of the Board of
Directors shall be held on such date and at any place as may be designated
from time to time by the Board of Directors. In the absence of designation
such meeting shall be held at such place as may be designated in the call.
SECTION 2.08. Notice of Meeting. Except as provided in Section 2.06,
the Secretary shall give notice to each director of each regular and special
meeting of the Board of Directors. The notice shall state the time and place
of the meeting. Notice is given to a director when it is delivered
personally to him or her, left at his or her residence or usual place of
business, or sent by telegraph, facsimile transmission or telephone, at least
24 hours before the time of the meeting or, in the alternative by mail to his
or her address as it shall appear on the records of the Corporation, at least
72 hours before the time of the meeting. Unless these By-Laws or a
resolution of the Board of Directors provides otherwise, the notice need not
state the business to be transacted at or the purposes of any regular or
special meeting of the Board of Directors. No notice of any meeting of the
Board of Directors need be given to any director who attends except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened, or to any director who, in writing executed and filed with the
records of the meeting either before or after the holding
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thereof, waives such notice. Any meeting of the Board of Directors, regular
or special, may adjourn from time to time to reconvene at the same or some
other place, and no notice need be given of any such adjourned meeting other
than by announcement.
SECTION 2.09. Quorum; Action by Directors. A majority of the entire
Board of Directors shall constitute a quorum for the transaction of business.
In the absence of a quorum, the directors present by majority vote and
without notice other than by announcement may adjourn the meeting from time
to time until a quorum shall attend. At any such adjourned meeting at which
a quorum shall be present, any business may be transacted which might have
been transacted at the meeting as originally notified. Unless statute or the
Charter or By-Laws requires a greater proportion, the action of a majority of
the directors present at a meeting at which a quorum is present is action of
the Board of Directors. Any action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting, if an
unanimous written consent which sets forth the action is signed by each
member of the Board and filed with the minutes of proceedings of the Board.
SECTION 2.10. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these
means constitutes presence in person at a meeting.
SECTION 2.11. Compensation. By resolution of the Board of Directors a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. Directors who are full-time employees
of the Corporation need not be paid for attendance at meetings of the board
or committees thereof for which fees are paid to other directors. A director
who serves the Corporation in any other capacity also may receive
compensation for such other services, pursuant to a resolution of the
directors.
SECTION 2.12. Presumption of Assent. A director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his or her dissent or abstention shall be entered in the minutes
of the meeting or unless he or she shall file his or her written dissent to
such action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who votes in
favor of such action.
SECTION 2.13. Advisory Directors. The Board of Directors may by
resolution appoint advisory directors to the Board, who may also serve as
directors emeriti, and shall have such authority and receive such
compensation and reimbursement as the Board of Directors shall
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provide. Advisory directors or directors emeriti shall not have the authority
to participate by vote in the transaction of business.
ARTICLE III.
COMMITTEES
SECTION 3.01. Committees. The Board of Directors may appoint from
among its members an Executive Committee, and other committees composed of
one or more directors and delegate to these committees any of the powers of
the Board of Directors, except the power to authorize dividends on stock,
elect directors, issue stock other than as provided in the next sentence,
recommend to the stockholders any action which requires stockholder approval,
amend these By-Laws, or approve any merger or share exchange which does not
require stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock providing for or establishing a
method or procedure for determining the maximum number of shares to be
issued, a committee of the Board, in accordance with that general
authorization or any stock option or other plan, or program adopted by the
Board of Directors, may authorize or fix the terms of stock subject to
classification or reclassification and the terms on which any stock may be
issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Directors.
SECTION 3.02. Committee Procedure. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority
of those present at a meeting at which a quorum is present shall be the act
of the committee. The members of a committee present at any meeting, whether
or not they constitute a quorum, may appoint a director to act in the place
of an absent member. Any action required or permitted to be taken at a
meeting of a committee may be taken without a meeting, if an unanimous
written consent which sets forth the action is signed by each member of the
committee and filed with the minutes of the committee. The members of a
committee may conduct any meeting thereof by conference telephone in
accordance with the provisions of Section 2.10.
SECTION 3.03. Emergency. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by
the Charter and these By-Laws, any two or more available members of the then
incumbent Executive Committee shall constitute a quorum of that Committee for
the full conduct and management of the affairs and business of the
Corporation in accordance with the provisions of Section 3.01. In the event
of the unavailability, at such time, of a minimum of two members of the then
incumbent Executive Committee, the available directors shall elect an
Executive Committee consisting of any two members of the Board of Directors,
whether or not they be officers of the Corporation, which two members shall
constitute the Executive Committee for the full conduct and management of the
affairs of the Corporation in accordance with the foregoing provisions of
this Section. This Section shall be subject to
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implementation by resolution of the Board of Directors passed from time to
time for that purpose, and any provisions of these By-Laws (other than this
Section) and any resolutions which are contrary to the provisions of this
Section or to the provisions of any such implementary resolutions shall be
suspended until it shall be determined by any interim Executive Committee
acting under this Section that it shall be to the advantage of the
Corporation to resume the conduct and management of its affairs and business
under all the other provisions of these By-Laws.
ARTICLE IV.
OFFICERS
SECTION 4.01. Executive and Other Officers. The Corporation
shall have a President, a Secretary, and a Treasurer. It may also have a
Chairman of the Board. The Board of Directors shall designate who shall
serve as chief executive officer, who shall have general supervision of the
business and affairs of the Corporation, and may designate a chief operating
officer, who shall have supervision of the operations of the Corporation. In
the absence of any designation the Chairman of the Board, if there be one,
shall serve as chief executive officer and the President shall serve as chief
operating officer. In the absence of the Chairman of the Board, or if there
be none, the President shall be the chief executive officer. The same person
may hold both offices. The Corporation may also have one or more
Vice-Presidents, assistant officers, and subordinate officers as may be
established by the Board of Directors. A person may hold more than one
office in the Corporation except that no person may serve concurrently as
both President and Vice-President of the Corporation. The Chairman of the
Board shall be a director, and the other officers may be directors.
SECTION 4.02. Chairman of the Board. The Chairman of the Board, if one
be elected, shall preside at all meetings of the Board of Directors and of
the stockholders at which he or she shall be present. Unless otherwise
specified by the Board of Directors, he or she shall be the chief executive
officer of the Corporation. In general, he or she shall perform such duties
as are customarily performed by the chief executive officer of a corporation
and may perform any duties of the President and shall perform such other
duties and have such other powers as are from time to time assigned to him or
her by the Board of Directors.
SECTION 4.03. President. Unless otherwise provided by resolution of
the Board of Directors, the President, in the absence of the Chairman of the
Board, shall preside at all meetings of the Board of Directors and of the
stockholders at which he or she shall be present. Unless otherwise specified
by the Board of Directors, the President shall be the chief operating officer
of the Corporation and perform the duties customarily performed by chief
operating officers. He or she may execute, in the name of the Corporation,
all authorized deeds, mortgages, bonds, contracts or other instruments,
except in cases in which the signing and execution thereof shall have been
expressly delegated to some other officer or agent of the Corporation. In
general, he or she shall perform such other duties customarily performed by a
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president of a corporation and shall perform such other duties and have such
other powers as are from time to time assigned to him or her by the Board of
Directors or the chief executive officer of the Corporation.
SECTION 4.04. Vice-Presidents. The Vice-President or Vice-Presidents,
at the request of the chief executive officer or the President, or in the
President's absence or during his or her inability to act, shall perform the
duties and exercise the functions of the President, and when so acting shall
have the powers of the President. If there be more than one Vice-President,
the Board of Directors may determine which one or more of the Vice-Presidents
shall perform any of such duties or exercise any of such functions, or if
such determination is not made by the Board of Directors, the chief executive
officer, or the President may make such determination; otherwise any of the
Vice-Presidents may perform any of such duties or exercise any of such
functions. Each Vice-President shall perform such other duties and have such
other powers, and have such additional descriptive designations in their
titles (if any), as are from time to time assigned to them by the Board of
Directors, the chief executive officer, or the President.
SECTION 4.05. Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any
committees, in books provided for the purpose; he or she shall see that all
notices are duly given in accordance with the provisions of these By-Laws or
as required by law; he or she shall be custodian of the records of the
Corporation; he or she may witness any document on behalf of the Corporation,
the execution of which is duly authorized, see that the corporate seal is
affixed where such document is required or desired to be under its seal, and,
when so affixed, may attest the same. In general, he or she shall perform
such other duties customarily performed by a secretary of a corporation, and
shall perform such other duties and have such other powers as are from time
to time assigned to him or her by the Board of Directors, the chief executive
officer, or the President.
SECTION 4.06. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by
the Board of Directors; he or she shall render to the President and to the
Board of Directors, whenever requested, an account of the financial condition
of the Corporation. In general, he or she shall perform such other duties
customarily performed by a treasurer of a corporation, and shall perform such
other duties and have such other powers as are from time to time assigned to
him or her by the Board of Directors, the chief executive officer, or the
President.
SECTION 4.07. Assistant and Subordinate Officers. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary, or Treasurer. The assistant or subordinate
officers shall have such duties as are from time to time assigned to them by
the Board of Directors, the chief executive officer, or the President.
SECTION 4.08. Election, Tenure and Removal of Officers. The Board of
Directors shall elect the officers of the Corporation. The Board of
Directors may from time to time
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authorize any committee or officer to appoint assistant and subordinate
officers. Election or appointment of an officer, employee or agent shall not
of itself create contract rights. All officers shall be appointed to hold
their offices, respectively, during the pleasure of the Board. The Board of
Directors (or, as to any assistant or subordinate officer, any committee or
officer authorized by the Board) may remove an officer at any time. The
removal of an officer does not prejudice any of his or her contract rights.
The Board of Directors (or, as to any assistant or subordinate officer, any
committee or officer authorized by the Board) may fill a vacancy which occurs
in any office for the unexpired portion of the term.
SECTION 4.09. Compensation. The Board of Directors shall have power to
fix the salaries and other compensation and remuneration, of whatever kind,
of all officers of the Corporation. No officer shall be prevented from
receiving such salary by reason of the fact that he or she is also a director
of the Corporation. The Board of Directors may authorize any committee or
officer, upon whom the power of appointing assistant and subordinate officers
may have been conferred, to fix the salaries, compensation and remuneration
of such assistant and subordinate officers.
ARTICLE V.
DIVISIONAL TITLES
SECTION 5.01. Conferring Divisional Titles. The Board of Directors
may from time to time confer upon any employee of a division of the
Corporation the title of President, Vice President, Treasurer or Controller
of such division or any other title or titles deemed appropriate, or may
authorize the Chairman of the Board or the President to do so. Any such
titles so conferred may be discontinued and withdrawn at any time by the
Board of Directors, or by the Chairman of the Board or the President if so
authorized by the Board of Directors. Any employee of a division designated
by such a divisional title shall have the powers and duties with respect to
such division as shall be prescribed by the Board of Directors, the Chairman
of the Board or the President.
SECTION 5.02. Effect of Divisional Titles. The conferring of
divisional titles shall not create an office of the Corporation under Article
IV unless specifically designated as such by the Board of Directors; but any
person who is an officer of the Corporation may also have a divisional title.
ARTICLE VI.
STOCK
SECTION 6.01. Certificates for Stock. The Board of Directors may
determine to issue certificated or uncertificated shares of capital stock and
other securities of the Corporation. For certificated stock, each
stockholder is entitled to certificates which represent and certify the
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shares of stock he or she holds in the Corporation. Each stock certificate
shall include on its face the name of the Corporation, the name of the
stockholder or other person to whom it is issued, and the class of stock and
number of shares it represents. It shall be in such form, not inconsistent
with law or with the Charter, as shall be approved by the Board of Directors
or any officer or officers designated for such purpose by resolution of the
Board of Directors. Each stock certificate shall be signed by the Chairman
of the Board, the President, or a Vice-President, and countersigned by the
Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer.
Each certificate may be sealed with the actual corporate seal or a facsimile
of it or in any other form and the signatures may be either manual or
facsimile signatures. A certificate is valid and may be issued whether or
not an officer who signed it is still an officer when it is issued. A
certificate may not be issued until the stock represented by it is fully paid.
SECTION 6.02. Transfers. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock; and
may appoint transfer agents and registrars thereof. The duties of transfer
agent and registrar may be combined.
SECTION 6.03. Record Dates or Closing of Transfer Books. T he Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted
other rights. The record date may not be prior to the close of business on
the day the record date is fixed nor, subject to Section 1.06, more than 90
days before the date on which the action requiring the determination will be
taken; the transfer books may not be closed for a period longer than 20 days;
and, in the case of a meeting of stockholders, the record date or the closing
of the transfer books shall be at least ten days before the date of the
meeting.
SECTION 6.04. Stock Ledger. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number
of shares of stock of each class which the stockholder holds. The stock
ledger may be in written form or in any other form which can be converted
within a reasonable time into written form for visual inspection. The
original or a duplicate of the stock ledger shall be kept at the offices of a
transfer agent for the particular class of stock, or, if none, at the
principal office in the State of Maryland or the principal executive offices
of the Corporation.
SECTION 6.05. Certification of Beneficial Owners. The Board of
Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of
stock registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth
the class of stockholders who may certify; the purpose for which the
certification may be made; the form of certification and the information to
be contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or
closing of the stock transfer books within which the certification must be
received by the Corporation; and any other provisions with respect to the
procedure which the Board considers necessary or desirable.
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On receipt of a certification which complies with the procedure adopted by
the Board in accordance with this Section, the person specified in the
certification is, for the purpose set forth in the certification, the holder
of record of the specified stock in place of the stockholder who makes the
certification.
SECTION 6.06. Lost Stock Certificates. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate
in place of one which is alleged to have been lost, stolen, or destroyed, or
the Board of Directors may delegate such power to any officer or officers of
the Corporation. In their discretion, the Board of Directors or such officer
or officers may require the owner of the certificate to give bond, with
sufficient surety, to indemnify the Corporation against any loss or claim
arising as a result of the issuance of a new certificate. In their
discretion, the Board of Directors or such officer or officers may refuse to
issue such new certificate save upon the order of some court having
jurisdiction in the premises.
ARTICLE VII.
FINANCE
SECTION 7.01. Checks, Drafts, Etc. All checks, drafts and orders
for the payment of money, notes and other evidences of indebtedness, issued
in the name of the Corporation, shall, unless otherwise provided by
resolution of the Board of Directors, be signed by the Chairman of the Board,
the President, a Vice-President or an Assistant Vice-President and
countersigned by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary.
SECTION 7.02. Annual Statement of Affairs. The President or chief
accounting officer shall prepare annually a full and correct statement of the
affairs of the Corporation, to include a balance sheet and a financial
statement of operations for the preceding fiscal year. The statement of
affairs shall be submitted at the annual meeting of the stockholders and,
within 20 days after the meeting, placed on file at the Corporation's
principal office.
SECTION 7.03. Fiscal Year. The fiscal year of the Corporation shall be
the twelve calendar months period ending December 31st in each year, unless
otherwise provided by the Board of Directors.
SECTION 7.04. Dividends. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
SECTION 7.05. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name
unless authorized by the Board of Directors. Such authority may be general
or confined to specific instances.
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SECTION 7.06. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the
Corporation in any of its duly authorized depositories as the Board of
Directors may select.
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.01. Procedure. Any indemnification, or payment of
expenses in advance of the final disposition of any proceeding, shall be made
promptly, and in any event within 60 days, upon the written request of the
director or officer entitled to seek indemnification (the "Indemnified
Party"). The right to indemnification and advances hereunder shall be
enforceable by the Indemnified Party in any court of competent jurisdiction,
if (i) the Corporation denies such request, in whole or in part, or (ii) no
disposition thereof is made within 60 days. The Indemnified Party's costs
and expenses incurred in connection with successfully establishing his or her
right to indemnification, in whole or in part, in any such action shall also
be reimbursed by the Corporation. It shall be a defense to any action for
advance for expenses that (a) a determination has been made that the facts
then known to those making the determination would preclude indemnification
or (b) the Corporation has not received both (i) an undertaking as required
by law to repay such advances in the event it shall ultimately be determined
that the standard of conduct has not been met and (ii) a written affirmation
by the Indemnified Party of such Indemnified Party's good faith belief that
the standard of conduct necessary for indemnification by the Corporation has
been met.
SECTION 8.02. Exclusivity, Etc. The indemnification and advance of
expenses provided by the Charter and these By-Laws shall not be deemed
exclusive of any other rights to which a person seeking indemnification or
advance of expenses may be entitled under any law (common or statutory), or
any agreement, vote of stockholders or disinterested directors or other
provision that is consistent with law, both as to action in his or her
official capacity and as to action in another capacity while holding office
or while employed by or acting as agent for the Corporation, shall continue
in respect of all events occurring while a person was a director or officer
after such person has ceased to be a director or officer, and shall inure to
the benefit of the estate, heirs, executors and administrators of such
person. The Corporation shall not be liable for any payment under this
By-Law in connection with a claim made by a director or officer to the extent
such director or officer has otherwise actually received payment under
insurance policy, agreement, vote or otherwise, of the amounts otherwise
indemnifiable hereunder. All rights to indemnification and advance of
expenses under the Charter of the Corporation and hereunder shall be deemed
to be a contract between the Corporation and each director or officer of the
Corporation who serves or served in such capacity at any time while this
By-Law is in effect. Nothing herein shall prevent the amendment of this
By-Law, provided that no such amendment shall diminish the rights of any
person hereunder with respect to events occurring or claims made before its
adoption or as to claims made after its adoption in respect of events
occurring before its adoption. Any repeal or modification of this By-Law
shall not in any way diminish any rights
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to indemnification or advance of expenses of such director or officer or the
obligations of the Corporation arising hereunder with respect to events
occurring, or claims made, while this By-Law or any provision hereof is in
force.
SECTION 8.03. Severability; Definitions. The invalidity or
unenforceability of any provision of this Article VIII shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
By-Law" in this Article VIII means this Article VIII in its entirety.
ARTICLE IX.
SUNDRY PROVISIONS
SECTION 9.01. Books and Records. The Corporation shall keep
correct and complete books and records of its accounts and transactions and
minutes of the proceedings of its stockholders and Board of Directors and of
any executive or other committee when exercising any of the powers of the
Board of Directors. The books and records of the Corporation may be in
written form or in any other form which can be converted within a reasonable
time into written form for visual inspection. Minutes shall be recorded in
written form but may be maintained in the form of a reproduction. The
original or a certified copy of these By-Laws shall be kept at the principal
office of the Corporation.
SECTION 9.02. Corporate Seal. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the
charge of the Secretary. The Board of Directors may authorize one or more
duplicate seals and provide for the custody thereof. If the Corporation is
required to place its corporate seal to a document, it is sufficient to meet
the requirement of any law, rule, or regulation relating to a corporate seal
to place the word "(seal)" adjacent to the signature of the person authorized
to sign the document on behalf of the Corporation.
SECTION 9.03. Bonds. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his or her duties, with one or
more sureties and in such amount as may be satisfactory to the Board of
Directors.
SECTION 9.04. Voting Stock in Other Corporations. Stock of other
corporations or associations, registered in the name of the Corporation, may
be voted by the President, a Vice-President, or a proxy appointed by either
of them. The Board of Directors, however, may by resolution appoint some
other person to vote such shares, in which case such person shall be entitled
to vote such shares upon the production of a certified copy of such
resolution.
SECTION 9.05. Mail. Any notice or other document which is required by
these By-Laws to be mailed shall be deposited in the United States mails,
postage prepaid.
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SECTION 9.06. Execution of Documents. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 9.07. Amendments. In accordance with the Charter, these
By-Laws may be repealed, altered, amended or rescinded (a) by the
stockholders of the Corporation (considered for this purpose as one class) by
the affirmative vote of not less than majority of all the votes entitled to
be cast by the outstanding shares of capital stock of the Corporation
generally in the election of directors which are cast on the matter at any
meeting of the stockholders called for that purpose (provided that notice of
such proposed repeal, alteration, amendment or rescission is included in the
notice of such meeting) or (b) by affirmative vote of not less than a
majority of the Board of Directors at a meeting held in accordance with the
provisions of these By-Laws.
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Exhibit 4.1
DENTALCO, INC.
DENT
COMMON STOCK COMMON STOCK
$.0001 PAR VALUE $.0001 PAR VALUE
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
THIS CERTIFIES that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK $.0001 PAR VALUE PER
SHARE OF DENTALCO, INC. (the "Corporation") transferable on the books of the
Corporation by the owner hereof in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby, are issued and shall
be held subject to all the provisions of the articles of incorporation of the
Corporation, and any amendments thereto.
Each share of the common stock shall have equal rights, privileges and
preferences and shall be entitled to one vote per share. This Certificate is
not valid until countersigned and registered by the Transfer Agent and
Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
Secretary
Chairman/CEO
1
<PAGE>
COUNTERSIGNED AND REGISTERED:
First Union National Bank
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - Under the _______________ Uniform Gifts to Minors
(State)
Act_____________________ as custodian for _________________.
(Name of Custodian) (Name of Minor)
Additional abbreviations may also be used though not in the above list.
For value received, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________________________________________________
_____________________________________________________________________________
2
<PAGE>
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE.
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
____________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and
appoint______________________________________________________________________
_____________________________________________________ Attorney to transfer the
said stock on the books of the within-named Corporation with full power of
substitution in the premises.
Dated, ______________________
________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
3
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this
"Agreement") is dated as of June 5, 1997, and is by and among (i)
DentalCo, Inc., a Maryland corporation (the "Company"), (ii) each
of the holders of the Common Stock of the Company, $0.0001 par
value per share (the "Common Stock"), listed in Schedule I hereto
("Schedule I") (which list includes all those parties who
formerly held shares of the Class A Common Stock of the Company),
(iii) each of the holders of the 8% Class A Cumulative
Convertible Preferred Stock of the Company, $0.0001 par value per
share (the "Class A Preferred Stock"), listed in Schedule II
hereto ("Schedule II"), (iv) each of the holders of Class B
Convertible Preferred Stock, par value $0.0001 per share (the
"Class B Preferred Stock"), listed in Schedule I, (v) each of the
holders of the 8% Class C Cumulative Convertible Preferred Stock
of the Company, par value $0.0001 per share (the "Class C
Preferred Stock"), listed in Schedule II, (vi) each of the
holders of the 9% Class D Cumulative Convertible Preferred Stock
of the Company, par value $0.0001 per share (the "Class D
Convertible Preferred Stock"), listed in schedule III, and (vii)
each of the holders of the 9% Class D Cumulative Redeemable
Preferred Stock of the Company, par value $0.0001 per share (the
"Class D Redeemable Preferred Stock"), listed in schedule III.
The Class D Convertible Preferred Stock and the Class D
Redeemable Preferred Stock are referred to herein together as the
"Class D Preferred Stock." The Class A Preferred Stock, Class B
Preferred Stock, Class C Preferred Stock and Class D Preferred
Stock are hereinafter collectively referred to as the "Preferred
Stock". The Class A Preferred Stock, Class C Preferred Stock and
Class D Preferred Stock are hereinafter collectively referred to
as the "Senior Stock". The Class B Preferred Stock, and Common
Stock are hereinafter referred to as the "Junior Stock". The
holders of the Preferred Stock, Common Stock and any other person
or entities (except the Company) becoming a party hereto or being
bound by the provisions hereof are hereinafter sometimes referred
to collectively as the "Stockholders" or individually as a
"Stockholder". The shares of Common Stock owned by the
Stockholders, or acquirable by the holders of Preferred Stock
(collectively, the "Preferred Stockholders") upon the conversion
thereof or by the holders of the upon the conversion thereof,
are hereinafter sometimes referred to collectively as the
"Shares".
RECITALS
WHEREAS, each holder of Common Stock (a "Common
Stockholder") shall own that number of shares of Common Stock as
set forth opposite such Stockholder's name on Schedule I, each
holder of options to purchase shares of Common Stock shall have
the right to purchase that number of shares of Common Stock as
set forth opposite such optionholder's name on Schedule I, each
holder of Class A Preferred Stock (a "Class A Preferred
Stockholder") shall own that number of shares of Class A
Preferred Stock as set forth opposite such Stockholder's name on
Schedule II, each holder of Class B Preferred Stock (a "Class B
Preferred Stockholder", and together with the Common
Stockholders, the "Junior Stockholders") shall own that number of
<PAGE>
shares of Class B Preferred Stock as set forth opposite such
Stockholder's name on Schedule I, each holder of Class C
Preferred Stock (a "Class C Preferred Stockholder") shall own
that number of shares of Class C Preferred Stock as set forth
opposite such Stockholder's name on Schedule II, each holder of
Class D Preferred Stock (a "Class D Preferred Stockholder", and
together with the Class A Preferred Stockholders and the Class C
Preferred Stockholders, the "Senior Stockholders") shall own that
number and type of shares of Class D Preferred Stock as set forth
opposite such Stockholder's name on Schedule III, and the shares
of Preferred Stock, Common Stock and options to purchase Common
Stock, as set forth in Schedules I, II and III, shall constitute
all of the capital stock of the Company on a fully-diluted basis
(the "Capital Stock") on the date hereof.
WHEREAS, the Company and the Stockholders, among other
things, desire to assure continuity and to perpetuate harmony in
the Company's management, policies and operations and, to that
end, wish to enter into this Agreement to provide certain rights
and obligations among themselves;
NOW, THEREFORE, in consideration of the premises and mutual
agreements, covenants and provisions herein contained, and for
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto
agree to amend and restate the Stockholders' Agreement in its
entirety as follows:
SECTION 1. RECITALS AND SCHEDULES. The Recitals and
Schedules hereto are specifically incorporated by reference
herein and made a part hereof.
SECTION 2. PURCHASE AND SALE. Except if made in
accordance with the terms and conditions of this Agreement and
pursuant to applicable securities laws, no purchase, sale, gift,
endorsement, assignment (including an assignment of voting
rights), transfer, pledge, encumbrance or other disposition,
whether voluntary, involuntary or by operation of law, including,
without limitation, any transfer pursuant to a divorce decree
(hereinafter collectively referred to as a "Transfer"), of Junior
Stock by a Junior Stockholder shall be valid and binding;
provided, however, that (i) any Junior Stockholder shall be
permitted to transfer Junior Stock to immediate family members
(that is, sons, daughters, grandchildren and their respective
spouses) for estate planning purposes and (ii) any Junior
Stockholder shall be permitted to transfer shares of Junior
Stock, now held or hereinafter acquired, to any other person who
is a Junior Stockholder on the date hereof, or who becomes a
Junior Stockholder pursuant to the provision of subsection (i)
above. The transferee of any shares of Junior Stock or rights
therein shall, as a condition precedent to such Transfer, become
a party to this Agreement. The attempted bad faith Transfer of
any Junior Stock for the purpose of evading the provisions of
this Agreement shall be null and void.
SECTION 3. DEATH OF A JUNIOR STOCKHOLDER. In the event
of the death (or, with respect to a Junior Stockholder which is
an entity, the dissolution) of a Junior Stockholder (the
"Deceased Stockholder"), the Deceased Stockholder's personal
representative or heirs (liquidating trustee, with respect to a
Junior Stockholder which is an entity), as the case may be
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(the "Personal Representative") may Transfer some or all of the shares of
Junior Stock beneficially owned by the Deceased Stockholder at the time of
his death (the "Deceased's Shares") to one or more other Junior Stockholders
without first complying with the provisions of Section 4 of this Agreement.
The Personal Representative shall not otherwise Transfer the Deceased's
Shares, except pursuant to the preceding sentence, without first complying
with the provisions of this Agreement.
SECTION 4. LIFETIME TRANSFERS OF COMMON STOCK.
(a) Voluntary Transfer. Except as otherwise permitted
by this Agreement, each Junior Stockholder agrees that, for so
long as any of the original purchasers of the Senior Stock
(collectively, the "Original Purchasers") own at least
twenty-five percent (25%) of the number of shares of the Senior
Stock owned by such Original Purchaser on the date hereof (the
"Threshold Shares"), he will not Transfer any or all of his
respective shares of Junior Stock, unless the holders owning at
least a majority in interest of the shares of the Senior Stock
outstanding at the time (voting together as a class with each
such Stockholder entitled to that number of votes equal to the
number of shares of Common Stock issued and issuable upon the
conversion of its shares of the Senior Stock)(hereinafter, the
"Senior Majority Interest") shall have given their consent in
writing to such Transfer.
(b) Senior Stock Offer From a Third Party.
(i) For so long as any of the Original Purchasers
owns the Threshold Shares, if a Senior Stockholder (the
"Transferring Senior Stockholder") receives a bona fide offer
from an independent third party to acquire such Senior
Stockholder's Senior Stock which the Transferring Senior
Stockholder is willing to accept to purchase all or any of the
shares of Capital Stock then beneficially owned by the
Transferring Senior Stockholder, the Transferring Senior
Stockholder shall first offer in writing (the "Senior Offer") to
sell such shares of Capital Stock (the "Offered Senior Stock") to
the Senior Stockholders, at the price and on the terms on which
the Transferring Senior Stockholder proposes to transfer the
Offered Senior Stock to the proposed third party transferee. The
Senior Stockholders shall have the option to acquire all or any
of the shares of Offered Senior Stock at the price and upon the
terms provided in the Senior Offer. Each Senior Stockholder shall
have the option, within twenty (20) days following such Senior
Stockholder's receipt of the Senior Offer, to accept the Senior
Offer by notifying the Transferring Senior Stockholder in writing
of such Senior Stockholder's intention to so purchase at Closing
all or any portion of the shares of Offered Senior Stock. If
more than one Senior Stockholder desires to purchase the shares
of Offered Senior Stock, such remaining shares shall be purchased
by them in such proportions as they may agree. In the absence of
agreement, each Senior Stockholder desiring to purchase the
shares of Offered Senior Stock shall be entitled to purchase up
to that number of shares of Offered Senior Stock which is equal
to the product of (A) a fraction, the numerator of which equals
the fully-diluted number of shares of Common Stock owned by such
Senior Stockholder and the denominator of which is equal to the
fully-diluted number of shares of Common Stock owned by all
Senior Stockholders desiring to purchase the remaining shares of
Offered Senior Stock, and (B) that number of shares remaining
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Offered Senior Stock available for purchase hereunder. For the
avoidance of doubt, it is understood and agreed that the
fully-diluted number of shares of Common Stock owned by a Senior
Stockholder shall include all shares of Common Stock issuable
upon the conversion of any shares of Preferred Stock held by such
Senior Stockholder, together with any shares of Common Stock then
owned by such Senior Stockholder.
(ii) If the Senior Stockholders collectively elect
to exercise options to purchase less than all of the shares of
Offered Senior Stock pursuant to Section 4(b)(i) hereof, the
Transferring Senior Stockholder may (A) either proceed to Closing
with respect to those shares of Offered Senior Stock to be
purchased by the Senior Stockholders and sell any remaining
shares pursuant to Section 4(b)(iii) hereof, or (B) elect not to
sell any of the shares of Offered Senior Stock by providing
notice of such election to the Senior Stockholders within fifteen
(15) days after the expiration of the twenty (20) day period
provided in Section 4(b)(i) hereof.
(iii) Any such shares of Offered Senior Stock
which are not so purchased pursuant to Section 4(b)(i) - (ii)
hereof by the Senior Stockholders may be sold by the Transferring
Senior Stockholder to the third party named in the Senior Offer
within a period of ninety (90) days after the expiration of the
twenty (20) day period provided in Section 4(b)(i) hereof. Such
shares of Offered Senior Stock may be transferred to the third
party named in the Senior Offer provided that such shares are
sold at the price and on the terms set forth in the Senior Offer.
Such shares of Offered Senior Stock shall continue to be subject
to the terms and conditions of this Agreement, and any new
stockholder shall execute a counterpart to this Agreement. Any
shares of Offered Senior Stock not actually sold or transferred
to such third party by the Transferring Senior Stockholder within
such ninety (90) day period at the price and on the terms set
forth in the Senior Offer shall remain subject to all of the
provisions of this Agreement.
(iv) Anything herein to the contrary
notwithstanding, no right of first refusal by any Senior
Stockholder shall apply hereunder with respect to (i) a transfer
by a Senior Stockholder to an affiliate (as defined in Rule 405
under the Securities Act of 1933, as amended (the "Securities
Act")) of such Senior Stockholder, or (ii) any distributions or
transfers by a Senior Stockholder which is a partnership to its
partners (including any of its limited partners); provided, in
each case, that all such transferees agree in writing to be bound
by, and to comply with, all provisions of this Agreement.
(c) Offer From a Third Party.
(i) For so long as any of the Original Purchasers
owns the Threshold Shares, if a Junior Stockholder (the
"Transferring Stockholder") receives a bona fide offer from an
independent third party to acquire such Junior Stockholder's
Junior Stock which the Transferring Stockholder is willing to
accept to purchase all or any of the shares of Capital Stock then
beneficially owned by the Transferring Stockholder, the
Transferring Stockholder shall first
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offer in writing (the "First Offer") to sell such shares of Capital Stock
(the "Offered Stock") to the Company at the price and on the terms on which
the Transferring Stockholder proposes to transfer the Offered Stock to the
proposed third party transferee. The First Offer shall set forth (A) the
number of shares of the Offered Stock, (B) the name and address of the
proposed transferee, (C) the amount of consideration to be received by the
Transferring Stockholder in the proposed sale of the Offered Stock to the
third party transferee and (D) the method of proposed payment. A copy of the
First Offer shall also be sent to the other Stockholders of the Company. The
Company shall have the option to acquire all or any of the shares of Offered
Stock at the price and upon the terms provided in the First Offer. The
Company shall have the right to exercise its option for a period of fifteen
(15) days (the "First Option Period") following its receipt of the First
Offer by notifying the Transferring Stockholder in writing of its intention
to purchase at Closing (as defined in Section 7 hereof) all or any shares of
the Offered Stock.
(ii) If the Company does not accept the First
Offer to purchase all of the shares of Offered Stock within the
period of fifteen (15) days provided above in Section 4(b)(i),
the Transferring Stockholder, immediately thereafter, shall be
deemed to have made an offer (the "Second Offer") to sell any
remaining shares of the Offered Stock to the Senior Stockholders
at the same price and on the same terms as contained in the First
Offer. The Senior Stockholders shall have the option to acquire
all or any of the remaining shares of Offered Stock at the price
and upon the terms provided in the First Offer. The Senior
Stockholders shall have the option, within fifteen (15) days
following the expiration of the First Option Period, to accept
the Transferring Stockholder's Second Offer by notifying the
Transferring Stockholder in writing of their intention to so
purchase at Closing all or any portion of the remaining shares of
Offered Stock. If more than one Senior Stockholder desires to
purchase the remaining shares of Offered Stock, such remaining
shares shall be purchased by them in such proportions as they may
agree. In the absence of agreement, each Senior Stockholder
desiring to purchase the remaining shares of Offered Stock shall
be entitled to purchase up to that number of shares of such
remaining Offered Stock which is equal to the product of (A) a
fraction, the numerator of which equals the fully-diluted number
of shares of Common Stock owned by such Senior Stockholder and
the denominator of which is equal to the fully-diluted number of
shares of Common Stock owned by all Senior Stockholders desiring
to purchase the remaining shares of Offered Stock, and (B) that
number of shares of remaining Offered Stock available for
purchase hereunder. For the avoidance of doubt, it is understood
and agreed that the fully-diluted number of shares of Common
Stock owned by a Senior Stockholder shall include all shares of
Common Stock issuable upon the conversion of any shares of
Preferred Stock held by such Senior Stockholder, together with
any shares of Common Stock then owned by such Stockholder.
(iii) If the Company and the Senior
Stockholders collectively elect to exercise options to purchase
less than all of the shares of Offered Stock pursuant to
Section 4(c)(i) and (ii) hereof, the Transferring Stockholder may
(A) either proceed to Closing with respect to those shares of
Offered Stock to be purchased by the Company and/or the Senior
Stockholders and sell any remaining shares pursuant to
Section 4(c)(iv) hereof, or (B) elect not to sell any of the
shares of Offered Stock by providing notice to the Company and/or
the Senior
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Stockholders, as the case may be, within fifteen (15) days after the
expiration of the fifteen (15) day period provided in Section 4(c)(ii) hereof.
(iv) Any such shares of Offered Stock which are
not so purchased pursuant to Section 4(c)(i)-(iii) hereof by the
Company or the Senior Stockholders, as the case may be, may be
sold by the Transferring Stockholder to the third party named in
the First Offer within a period of ninety (90) days after the
expiration of the fifteen (15) day period provided in
Section 4(c)(ii) hereof. Such shares of Offered Stock may be
transferred to the third party named in the First Offer provided
that such shares are sold at the price and on the terms set forth
in the First Offer. Such shares of Offered Stock shall continue
to be subject to the terms and conditions of this Agreement, and
any new stockholder shall execute a counterpart to this
Agreement. Any shares of Offered Stock not actually sold or
transferred to such third party by the Transferring Stockholder
within such ninety (90) day period at the price and on the terms
set forth in the First Offer shall remain subject to all of the
provisions of this Agreement.
(d) Involuntary Transfer. If any portion of a Junior
Stockholder's shares of Junior Stock are attached or taken in
execution, or if a Junior Stockholder applies for the benefit of,
or files a case under, any provision of the Federal bankruptcy
law or any other law relating to insolvency or relief of debtors,
or if a case or proceeding is brought against a Junior
Stockholder under any provision of the Federal bankruptcy law or
any other law relating to insolvency or relief of debtors which
is not dismissed within sixty (60) days after the commencement
thereof, or if a Junior Stockholder makes an assignment for the
benefit of creditors, or if any portion of a Junior Stockholder's
shares of Junior Stock is made subject to a charging order, or is
transferred pursuant to a divorce decree (each such event shall
be referred to as an "Involuntary Transfer"), such Junior
Stockholder (the "Subject Stockholder") shall give immediate
written notice of the Involuntary Transfer to the Company and the
Stockholders on the date thereof other than the Subject
Stockholder (the "Other Stockholders"), and the Company and the
Other Stockholders shall have the option, as provided in
Section 4(d)(i) and (ii) hereof, to purchase any or all of the
shares of Junior Stock subject to the Involuntary Transfer (the
"Involuntary Transfer Stock") at the price and upon the terms
provided in Sections 5(a) and 6 hereof in accordance with the
provisions of this Section 4(d).
(i) The Company shall have the option,
exercisable upon written notice to the Subject Stockholder, for a
period of ninety (90) days following receipt by the Company of
the written notice of such Involuntary Transfer, to acquire all
or any of the shares of the Involuntary Transfer Stock.
(ii) Any such shares of the Involuntary Transfer
Stock with respect to which the Company shall fail to timely
exercise its option to purchase pursuant to Section 4(d)(i)
hereof shall be deemed to have been offered to the Other
Stockholders, who shall have the option, exercisable upon written
notice to the Subject Stockholder, for a period of thirty (30)
days following expiration of the ninety (90) day period provided
in Section 4(d)(i) hereof, to purchase all or any of such
remaining shares of the Involuntary Transfer Stock. If more than
one Other Stockholder desires to purchase the Involuntary
Transfer Stock, such remaining shares
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shall be purchased by them in such proportions as they may agree. In the
absence of agreement, each Other Stockholder desiring to purchase the
remaining shares of the Involuntary Transfer Stock shall be entitled to
purchase up to that number of shares of such remaining Involuntary Transfer
Stock which is equal to the product of his fully-diluted percentage ownership
interest of Common Stock (excluding the Involuntary Transfer Stock) and that
number of shares of the Involuntary Transfer Stock available for purchase
hereunder.
(iii) If the Company or any Other Stockholder
has actual knowledge of an Involuntary Transfer by a Subject
Stockholder, the Company or the Other Stockholder, as applicable,
shall provide written notice to such effect to the Subject
Stockholder and to the Other Stockholders, and the provision of
such written notice shall constitute the Subject Stockholder's
providing written notice to the Company and to the Other
Stockholders for purposes of this Section 4(c).
(iv) The Company, the Other Stockholders, or a
combination of both, as applicable, purchasing the Involuntary
Transfer Stock hereunder (collectively, the "Section 4(d)
Purchasers"), as the case may be, shall settle with an assignee,
trustee in bankruptcy, attaching court or officer or successor in
interest holding shares of the Involuntary Transfer Stock
received in an Involuntary Transfer by taking any or all such
shares in execution and paying to them the purchase price for
each share as provided in Section 6 hereof, but not exceeding the
Subject Stockholder's indebtedness and proper items of expense.
The balance of the value of such shares of the Involuntary
Transfer Stock shall be distributed to the Subject Stockholder.
(e) Senior Tag Along Rights. If at any time prior to
a Qualifying Offering, as defined in Section 12 hereof, a Senior
Stockholder (a "Selling Senior Stockholder") desires to Transfer
(it being acknowledged that a Senior Stockholder shall be
permitted, without complying with this Section 4(e), to transfer
Senior Stock to immediate family members (that is, sons,
daughters, grandchildren and their respective spouses) for estate
planning purposes so long as the Senior Stock so transferred
remains subject to this Agreement), in a single transaction or in
a series of related transactions, that number of shares of
Capital Stock equal to ten percent (10%) or more of the total
number of shares of Capital Stock owned by such Senior
Stockholder in the aggregate, then the Selling Senior Stockholder
shall give notice of such intent to the Senior Stockholders at
least fifteen (15) days prior to the proposed date of such sale.
Such notice shall specify the number of shares and the terms,
including price, upon which such shares of Capital Stock are to
be sold, exchanged, conveyed, or otherwise transferred and the
proposed date of such sale, exchange, conveyance, or transfer.
One or more of the Senior Stockholders may elect to
participate in such sale by giving notice to the Selling Senior
Stockholder at least five (5) days prior to the date of the
proposed sale. Such notice from one or more of the Senior
Stockholders shall specify the number of shares of Capital Stock
which they propose to sell. If one or more of the Senior
Stockholders elect to participate in such sale, and give timely
notice of such election in accordance with the provisions of this
Section 4(e), then the Selling Senior Stockholder shall not
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effect such sale unless either (i) the proposed purchaser of such
shares offers to purchase from each of the Senior Stockholders
electing to participate in the sale, at the same time and on the
same terms (including price) as shares of Capital Stock that are
being purchase from the Selling Senior Stockholder, that number
of shares of Capital Stock on a fully-diluted basis owned by each
of the electing Senior Stockholders that bears the same
proportion to the total number of shares of Capital Stock on a
fully-diluted basis which such Senior Stockholders beneficially
own as the number of shares of Capital Stock being sold by the
Selling Senior Stockholder bears to the total number of shares of
Capital Stock owned by the Selling Senior Stockholder, or (ii) to
the extent the proposed purchaser is unwilling to purchase shares
of one or more of the electing Senior Stockholders' Capital Stock
as calculated above, then the number of shares of the electing
Senior Stockholders' Capital Stock as so calculated, and the
number of shares of Capital Stock of the Selling Senior
Stockholder as otherwise to be sold, shall each be reduced
proportionately to equal the total number of shares to be
purchased by the proposed purchaser, who will thereupon offer to
purchase that number of shares of the electing Senior
Stockholders' Capital Stock as so calculated at the same time as
the number of shares of Capital Stock to be sold by the Selling
Senior Stockholder, as recalculated herein.
Anything herein to the contrary notwithstanding, no tag
along right with respect to any Senior Stockholder shall apply
hereunder with respect to (i) a transfer by such Senior
Stockholder to an affiliate (as defined in Rule 405 under the
Securities Act, of such Senior Stockholder, or (ii) any
distributions or transfers by a Senior Stockholder which is a
partnership to its partners (including any of its limited
partners); provided, in each case, that all such transferees
agree in writing to be bound by, and to comply with, all
provisions of this Agreement.
(f) Tag Along Rights. If at any time prior to a
Qualifying Offering, as defined in Section 12 hereof, a Junior
Stockholder (a "Selling Stockholder") desires to Transfer (it
being acknowledged that a Junior Stockholder shall be permitted,
without complying with this Section 4(f), to transfer Junior
Stock to immediate family members (that is, sons, daughters,
grandchildren and their respective spouses) for estate planning
purposes so long as the Junior Stock so transferred remains
subject to this Agreement), in a single transaction or in a
series of related transactions, that number of shares of Junior
Stock equal to ten percent (10%) or more of the total number of
shares of Junior Stock owned by him in the aggregate and neither
the Company nor the Senior Stockholders have elected to purchase
said Junior Stock pursuant to the provisions of Section 4(c)
hereof, then the Selling Stockholder shall give notice of such
intent to the Senior Stockholders at least fifteen (15) days
prior to the proposed date of such sale. Such notice shall
specify the number of shares and the terms, including price, upon
which such shares of Junior Stock are to be sold, exchanged,
conveyed, or otherwise transferred and the proposed date of such
sale, exchange, conveyance, or transfer.
One or more of the Senior Stockholders may elect to
participate in such sale by giving notice to the Selling
Stockholder at least five (5) days prior to the date of the
proposed sale. Such notice from one or more of the Senior
Stockholders shall specify the number of shares of Junior Stock
which they propose to sell. If one or more of the Senior
Stockholders elect to participate in such sale, and give timely
notice of such election in accordance with the provisions
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of this Section 4(f), then the Selling Stockholder shall not effect such sale
unless either (i) the proposed purchaser of such shares offers to purchase
from each of the Senior Stockholders electing to participate in the sale, at
the same time and on the same terms (including price) as shares of Junior
Stock that are being purchased from the Selling Stockholder, that number of
shares of Capital Stock on a fully-diluted basis owned by each of the
electing Senior Stockholders that bears the same proportion to the total
number of shares of Capital Stock on a fully-diluted basis which such Senior
Stockholders beneficially own as the number of shares of Junior Stock being
sold by the Selling Stockholder bears to the total number of shares of Junior
Stock owned by the Selling Stockholder, or (ii) to the extent the proposed
purchaser is unwilling to purchase shares of one or more of the electing
Senior Stockholders' Junior Stock as calculated above, then the number of
shares of the electing Senior Stockholders' Capital Stock as so calculated,
and the number of shares of Junior Stock of the Selling Stockholder as
otherwise to be sold, shall each be reduced proportionately to equal the
total number of shares to be purchased by the proposed purchaser, who will
thereupon offer to purchase that number of shares of the electing Senior
Stockholders' Capital Stock as so calculated at the same time as the number
of shares of Junior Stock to be sold by the Selling Stockholder, as
recalculated herein.
SECTION 5. PURCHASE PRICE FOR STOCK.
(a) Determination of Purchase Price. In the event of
an Involuntary Transfer (a "Sale Event"), the purchase price for
the Involuntary Transfer Stock shall be the fair market value
thereof, as determined in accordance with the provisions of
Section 5(b) hereof, as of the date of the Sale Event.
(b) Fair Market Value.
(i) Agreement of Parties. For purposes of
determining the fair market value of the Involuntary Transfer
Stock, if the Section 4(d) Purchasers and the Subject Stockholder
agree in writing as to the fair market value thereof, then such
agreed value shall be the fair market value. If no agreement on
the fair market value of the Involuntary Transfer Stock can be
reached within thirty (30) days from the date upon which the last
option period pursuant to which any Section 4(d) Purchaser
elected to purchase such shares of Involuntary Transfer Stock has
expired, then the fair market value of the Involuntary Transfer
Stock shall be determined pursuant to Section 5(b)(ii) hereof.
(ii) Third Party Appraisal. If the fair market
value of the Involuntary Transfer Stock is not agreed upon as
provided in Section 5(b)(i) hereof within the period therein
stated, then within fourteen (14) days thereafter, an appraiser
or appraisers shall be jointly selected by the Subject
Stockholder, on the one hand, and the Company, if it is the only
Section 4(d) Purchaser, or the Senior Majority Interest, if the
Section 4(d) Purchasers are comprised in whole or in part of
persons or entities other than the Company, on the other hand,
and the determination of such jointly selected appraiser or
appraisers as to the fair market value of the Involuntary
Transfer Stock shall be binding and conclusive upon all parties.
If the Subject
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Stockholder and the Company or the Senior Majority Interest, as applicable,
are unable to reach an agreement as to an appraiser, the provisions of
Section 5(b)(iii) below shall apply.
For purposes of this Section 5(b)(ii), (a) the
"fair market value of the Involuntary Transfer Stock" shall be an
amount equal to the "fair market value per share of Common Stock"
multiplied by the number of shares of the Involuntary Transfer
Stock which are being sold and purchased hereunder, and (b) the
"fair market value per share of Common Stock" shall be an amount
equal to the fair market value of all of the shares of Common
Stock on a fully-diluted basis as of the date of the Sale Event,
as determined by appraisal pursuant to this Section 5(b)(ii),
divided by the total number of shares of Common Stock on a
fully-diluted basis as of such date.
(iii) Additional Appraiser. If the Subject
Stockholder, on the one hand, and the Company or the Senior
Majority Interest, as the case may be, on the other hand, do not
agree upon the selection of an appraiser or appraisers, as
provided in Section 5(b)(ii) hereof within the period therein
stated, then, within fourteen (14) days after the expiration of
the fourteen (14) day period provided for in Section 5(b)(ii)
hereof, each of the Subject Stockholder and the Company or the
Senior Majority Interest, as applicable, shall deliver to the
other a list of three appraisers and each of the Subject
Stockholder and the Company or the Senior Majority Interest, as
applicable, shall select one (1) appraiser from the list
delivered by the other by written notice to the other. If either
party fails to deliver a list of appraisers or to select an
appraiser from such list within said fourteen (14) day period,
the other party may select an appraiser from its list and such
appraiser shall serve as the sole appraiser. Each of the
appraisers so selected shall, within thirty (30) days of being
selected, determine the fair market value of the Common Stock.
If the lower of the two (2) appraisals is at least ninety percent
(90%) of the higher appraisal, then the fair market value of the
Common Stock shall be equal to the average of the two (2)
appraisals. If the lower of the two (2) appraisals is less than
ninety percent (90%) of the higher appraisal, then the two (2)
appraisers shall appoint a third appraiser within seven (7) days
after the end of said thirty (30) day period, and such third
appraiser shall, within thirty (30) days of being selected,
determine the fair market value of the Common Stock. In such
event, the fair market value of the Common Stock shall be equal
to the average of (A) the third appraisal and (B) whichever of
the first two appraisals is closest in dollars to the third
appraisal. The determination of such appraisers shall be
determinative of the fair market value of the Common Stock for
the purposes of this Agreement, and shall be binding, final and
conclusive on all parties hereto.
(iv) Costs of Appraisals. All expenses incurred
in the appraisal process shall be borne and paid equally by the
Subject Stockholder, on the one hand, and the Company, on the
other hand.
(v) Additional Consideration. If any shares of
the Junior Stock are sold at any time for any reason, any
consideration paid to any Junior Stockholder for a
non-competition agreement or any other agreement which provides
for payments above the prevailing
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market rates for the goods or services sold in such agreement, shall be
included in the calculation of the fair market value of the shares of the
Junior Stock.
SECTION 6. PAYMENT OF PURCHASE PRICE. The full amount
of the purchase price for the Involuntary Transfer Stock, as
determined pursuant to Section 5 hereof, shall be paid by check
by the Section 4(d) Purchasers on the Closing Date (as defined in
Section 7 hereof).
SECTION 7. CLOSING. Closing (the "Closing") on the sale
of any shares of Junior Stock sold pursuant to this Agreement
shall be, unless otherwise agreed to in writing by the purchasers
of such shares (the "Section 7 Purchasers") and the seller of
such shares (the "Seller") or his personal or legal
representative, or successor, as the case may be, held at the
principal place of business of the Company thirty (30) days after
the earlier of (a) the date on which an option is exercised to
purchase all of the shares of Junior Stock offered for sale
pursuant to this Agreement (or, if an election is made to sell
less than all of the offered shares of Junior Stock, then upon
the date on which an option is subsequently exercised to purchase
the remaining portion of such offered shares of Junior Stock) or
(b) if all of such shares of Junior Stock offered for sale are
not purchased pursuant to this Agreement, the date on which the
last option period to purchase such offered shares of Junior
Stock expires (collectively, the "Closing Date"); provided,
however, that if an appraiser is appointed to determine the
purchase price pursuant to Section 5 hereof, then notwithstanding
the foregoing to the contrary, the Closing shall take place on a
date no later than thirty (30) days after the receipt by the
Seller (or his personal or legal representative, or successor, as
the case may be), on the one hand, and the Section 7 Purchasers,
on the other hand, of the determination of the fair market value
of the shares of the Junior Stock or in accordance with the
provisions of Section 5(b) hereof, if such Closing Date would
occur later than the Closing Date otherwise determined pursuant
to this Section 7. At the Closing, the Seller shall surrender
the certificates representing the shares of Junior Stock to be
transferred and any documentation reasonably requested by the
Company or the Section 7 Purchasers, as the case may be, to
convey the Junior Stock transferred, properly endorsed or
executed for transfer.
SECTION 8. STOCK COVERED. Except as otherwise provided
herein, the provisions of Sections 2 through 7 of this Agreement
shall apply to all of the Junior Stock, (i) now owned by the
Junior Stockholders, (ii) issued hereafter to each of the Junior
Stockholders in consequence of any additional issuance, purchase,
exchange or reclassification of shares of stock, corporate
reorganization or any other form of recapitalization or
consolidation or merger or share split or share dividend, and
(iii) which are acquired by any Stockholder (except a Senior
Stockholder) owning in the aggregate at least five percent of the
Common Stock on a fully-diluted basis. The restrictions against
Transfer set forth in Sections 2 through 7 of this Agreement
shall not apply to the Senior Stockholders, either with respect
to the Preferred Stock or Common Stock owned by them.
Notwithstanding the foregoing sentence, the restrictions on
transfer set forth in Sections 2 through 7 of this Agreement
shall apply to the Common Stock and Class B Preferred Stock
acquired by Grotech Partners IV, L.P. from Dr. Sheldon J. Wollman
pursuant to the Stock Purchase Agreement dated April 3, 1996,
which shares are reserved for the
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granting of options to employees of the Company in accordance with the terms
of that certain Option and Redemption Agreement, dated April 3, 1996.
SECTION 9. Right of First Refusal.
(a) Right of First Refusal on Company Offerings
(i) The Company shall, prior to any issuance by
the Company or any subsidiary thereof (a "Subsidiary") of any of
its securities, offer to each Senior Stockholder by written
notice the right, for a period of 30 days, to purchase a pro rata
amount (based on such Senior Stockholder's percentage ownership
of the Shares) of such securities for cash at an amount equal to
the price or other consideration for which such securities are to
be issued; provided, however, that the first refusal rights of
the Senior Stockholders pursuant to this Section 9 shall not
apply to securities issued (A) upon conversion of any of the
Preferred Stock, (B) as a stock dividend or upon any subdivision
of shares of Common Stock, provided that the securities issued
pursuant to such stock dividend or subdivision are limited to
additional shares of Common Stock, (C) the issuance of shares of
Common Stock upon exercise of the options granted to Sardegna
prior to the date of this Agreement to purchase 400,587 shares of
Common Stock (the "Sardegna Options") and the issuance of up to
302,214 shares of Common Stock under the Company's 1995 Equity
Participation Plan, (D) the issuance of options or rights to
purchase Common Stock, or of Common Stock, pursuant to any other
equity participation or incentive plan, stock option or stock
purchase plan or similar plan or arrangement approved by a
majority or more of the holders of the Class D Preferred Stock
and 2/3 or more of the entire Board and by a majority or more of
the directors of the Corporation other than the General Directors
(as such term is defined in the Charter of the Corporation), (E)
solely in consideration for the acquisition (whether by merger or
otherwise) by the Company of all or substantially all of the
stock or assets of any other entity, (F) pursuant to a firm
commitment underwritten public offering, or (G) by any Subsidiary
to the Company. The Company's written notice to the Senior
Stockholders shall describe the securities proposed to be issued
by the Company and specify the number, price and payment terms.
(ii) Each Senior Stockholder may accept the
Company's offer as to the full number of securities offered to it
or any lesser number, by written notice thereof given by it to
the Company prior to the expiration of the aforesaid 30 day
period, in which event the Company shall promptly sell and such
Senior Stockholder shall buy, upon the terms specified, the
number of securities agreed to be purchased by such Senior
Stockholder.
(iii) The Company shall be free, at any time
prior to 90 days after the date of its notice of offer pursuant
to this Section 9, to offer and sell to any third party or
parties the number of such securities not agreed by the Senior
Stockholders to be purchased by them, at a price and on payment
terms no less favorable to the Company than those specified in
such notice of offer. However, if such third party sale or sales
are not consummated within such 90 day period, the Company shall
not sell such securities as shall not have been purchased within
such period without again complying with this Section 9.
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(b) Right of First Refusal on Additional Financings.
The Company will notify the Senior Stockholders as to the
proposed amount and terms of any third-party equity financing or
any debt financing that includes warrants, rights of conversion
to or exchange for capital stock, contingent pay-out or any other
equity features for the Company or any Subsidiary at least 30
days prior to offering participation in such financing to any
other entity. During such 30-day period, the Company will
negotiate in good faith with the Senior Stockholders as to the
amount, and the terms, of participation in such financing by the
Senior Stockholders. The Senior Stockholders shall have the
first right to participate in all or any portion of such
financing. The Company shall be free to offer any portion of the
financing to which the Senior Stockholders have not subscribed
during such 30 day period to outside investors on the same terms
and subject to the same conditions as offered to the Senior
Stockholders, provided that no such offering may be provided to
any third-party on more favorable terms than those offered to the
Senior Stockholders without again complying with this Section 9.
Further, if any such proposed financing is not consummated within
90 days from the date such offering was accepted or rejected by
the Senior Stockholders, the Company may not consummate such
offering without again complying with this Section 9.
(c) Right to Proceeds of Key Man Insurance Policy. If
the Company or any of its Subsidiaries shall receive proceeds
from insurance policies on the life of Lawrence F. Halpert
resulting from any event or series of events in an amount in
excess of $1,000,000, the Company will permit the Majority
Interest to elect, within 90 days of the Company's receipt of
such proceeds, to have the proceeds applied to the repurchase by
the Company from the Senior Stockholders of any shares of capital
stock then held thereby for an amount per share equal to the
liquidation payment to which the holder thereof would then be
entitled. In the event that such proceeds are insufficient for
the Company to repurchase all of such shares held by the Senior
Stockholders, then the Company shall repurchase a pro rata amount
of each Senior Stockholder's shares of capital stock (based on
such Senior Stockholder's percentage ownership of the Shares) for
a purchase price per share equal to shares of capital stock then
held thereby for an amount per share equal to the liquidation
payment to which the holder thereof would then be entitled. In
the event that such proceeds are insufficient for the Company to
repurchase all of such shares held by the Senior Stockholders,
then the Company shall repurchase a pro rata amount of each
Senior Stockholder's shares of capital stock (based on such
Senior Stockholder's percentage ownership of the Shares) for a
purchase price per share equal to the liquidation payment to
which the holder thereof would then be entitled.
(d) Suppression of Rights under Class A Purchase
Agreement. The Class A Preferred Stockholders hereby agree and
affirm that:
(i) the rights of refusal granted under
Sections 9(a) and 9(b) hereof supersede, replace and nullify any
and all rights of first refusal granted under Section 5.02 of
that certain Preferred Stock Purchase Agreement, dated as of
July 18, 1995 (the "Class A Purchase Agreement"), and that any
such rights of refusal granted under the Class A Purchase
Agreement are hereby canceled and shall hereafter be null and
void; and
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(ii) the rights to proceeds under the key man
insurance policy on the life of Lawrence F. Halpert under
Section 9(c) hereof supersede, replace and nullify any and all
rights to insurance proceeds set forth in Section 5.05 of the
Class A Purchase Agreement, and that any such rights to insurance
proceeds under the Class A Purchase Agreement are hereby canceled
and shall hereafter be null and void.
SECTION 10. UNLOCKING OPTION.
(a) Shareholder Notice. If a bona fide offer (a "Bona
Fide Offer") is made by an independent third party to purchase
all or substantially all of the Company's assets or equity
securities, then if the Bona Fide Offer is received by a
Stockholder, that Stockholder shall promptly notify the Company
in writing of the terms, including price, and conditions of the
Bona Fide Offer. Upon receipt of the notice from the
Stockholder, or, if the Bona Fide Offer is received by the
Company directly from the independent third party, the Company
promptly shall notify (the "Company Notice") the Stockholders in
writing of the Bona Fide Offer, specifying the terms, including
price, and conditions of the Bona Fide Offer.
(b) Unlocking Option. If a Company Notice is given to
the Stockholders (i) at any time after the Class A Unlocking Date
(as hereinafter defined), then the holders of a majority interest
of the Class A Preferred Stock, voting together as a class with
each holder of Class A Preferred Stock entitled to that number of
votes equal to the number of shares of Common Stock issuable upon
the conversion of its shares of Class A Preferred Stock together
with any shares of Common Stock then owned by such Stockholder
(the "Class A Majority Interest"), shall have, and (ii) at any
time after the Class C Unlocking Date (as hereinafter defined),
then the holders of a majority interest of the Class C Preferred
Stock, voting together as a class with each holder of Class C
Preferred Stock entitled to that number of votes equal to the
number of shares of Common Stock issuable upon the conversion of
its shares of Class C Preferred Stock together with any shares of
Common Stock then owned by such Stockholder (the "Class C
Majority Interest") shall have, and (iii) at any time after the
Class D Unlocking Date (as hereinafter defined), then the holders
of a majority interest of the Class D Preferred Stock, voting
together as a class with each holder of Class D Preferred Stock
entitled to that number of votes equal to the number of shares of
Common Stock issuable upon the conversion of its shares of Class
D Preferred Stock together with any shares of Common Stock then
owned by such Stockholder (the "Class D Majority Interest") shall
have, in each case, the option (the "Unlocking Option") for a
period of thirty (30) days from the date of receipt of the
Company Notice, to require the Company and the other Stockholders
(i) to accept the Bona Fide Offer or instead (ii) at the election
of the Company, (A) to acquire all the shares of Capital Stock
held by the Stockholder that has exercised the Unlocking Option
(the shares of Senior Stock, the "Selling Senior Stock" and (the
shares of Preferred Stock and Common Stock (if any) then held by
the holders of the Selling Senior Stock are hereinafter
collectively called, the "Section 10 Shares") on the same terms,
including price (calculated, in the event of a sale of all or
substantially all of the assets of the Company, based upon the
value per share of Capital Stock determined by the price to be
paid for such assets), and subject to the same conditions as
specified in the Bona Fide Offer and (B) to
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repay all indebtedness of the Company owing to any holder of Selling Senior
Stock (collectively, the "Section 10 Debt"). Any election by the Company
pursuant to this Section 10(b) shall be at the direction of a majority of the
members of the Board of Directors of the Company (the "Board") (with, if
applicable, the Board representatives of the holders of the Selling Senior
Stock abstaining from any such vote).
(c) Unlocking Option Date. The date on which the
Unlocking Option shall vest with respect to the Class A Preferred
Stock shall be December 31, 2001 (the "Class A Unlocking Date").
The date on which the Unlocking Option shall vest with respect to
the Class C Preferred Stock shall be December 31, 2001 (the
"Class C Unlocking Date"). The date on which the Unlocking
Option shall vest with respect to the Class D Preferred Stock
shall be December 31, 2001 (the "Class D Unlocking Date").
(d) Exercise of Unlocking Option. Should the holders
of the Selling Senior Stock owning at least a Class A Majority
Interest, Class C Majority Interest or Class D Majority Interest,
as appropriate, desire to exercise the Unlocking Option, they
shall notify the Company (the "Selling Senior Stockholders'
Notice") in writing of their exercise of the Unlocking Option
prior to the expiration of the aforementioned thirty (30) day
period. The Company shall have thirty (30) days from the date of
receipt of the Selling Senior Stockholders' Notice to elect
whether to acquire the Section 10 Shares and to repay the
Section 10 Debt or accept the Bona Fide Offer. If the Company
declines to acquire the Section 10 Shares and to repay the
Section 10 Debt, the Stockholders hereby agree to effect the sale
of their Company equity securities or consent to a sale of all or
substantially all of the Company's assets, as applicable,
pursuant to the Bona Fide Offer. For the avoidance of doubt, it
is understood and agreed that the delivery of a Selling Senior
Stockholder's Notice by the holders of the Class A Preferred
Stock, the Class C Preferred Stock or the Class D Preferred Stock
shall not preclude the holders of another such class of Preferred
Stock from also delivering a Selling Senior Stockholder's Notice
in accordance with the terms hereof.
(e) Failure to Consummate the Purchase. If the
Company shall fail to consummate the acquisition of the
Section 10 Shares and to repay the Section 10 Debt prior to the
expiration of a ninety (90) day period commencing from the date
of its receipt of the Selling Senior Stockholders' Notice, then
the Company and the Stockholders shall accept the Bona Fide
Offer. If, however, the Bona Fide Offer has been withdrawn prior
to such date due to the Company's inability to timely consummate
the acquisition of the Section 10 Shares and the repayment of the
Section 10 Debt, then the holders of the Selling Senior Stock
shall have the election, in accordance with the procedures set
forth herein, to require the Company and the Stockholders to
accept the next Bona Fide Offer without providing the Company
with the option to acquire the Section 10 Shares and to repay the
Section 10 Debt in lieu of accepting the Bona Fide Offer.
(f) Consideration. The acquisition by the Company of
the Section 10 Shares and repayment of the Section 10 Debt shall
be for cash consideration, or such other consideration as the
Class A Majority Interest, Class C Majority Interest or Class D
Majority Interest, as the
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case may be, shall elect, in its sole and absolute discretion, to accept. If
the Bona Fide Offer is accepted, the Senior Stockholders shall be entitled to
receive the same form of consideration as the Company's other stockholders;
provided, however, that, under all circumstances, the Senior Stockholders
shall receive any additional consideration paid, or that would have been
paid, in connection with the Bona Fide Offer as set forth in Section 5(b)(v)
hereof.
SECTION 11. INTENTIONALLY LEFT BLANK.
SECTION 12. REGISTRATION RIGHTS.
(a) Certain Definitions: As used in this Section 12,
the following terms shall have the following respective meanings:
"Commission" shall mean the Securities and
Exchange Commission, or any other Federal agency at the time
administering the Securities Act.
"Exchange Act" shall mean 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.
"Qualifying Offering" shall mean an underwritten
initial public offering (the "IPO") of the Common Stock at a
price to the public of not less than $8.00 per share and
resulting in proceeds to the Company of not less than
$10,000,000, after deduction of underwriting discounts and
commissions but before deduction of other expenses of issuance.
"Registration Expenses" shall mean the expenses so
described in Section 12(f) hereof.
"Securities Act" shall mean 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.
"Selling Expenses" shall mean the expenses so
described in Section 12(f) hereof.
(b) Required Registration.
(i) At any time after December 31, 1999, the
holders of the Class A Majority Interest (treating, for the
purposes of this Section 12(b), the shares of Class B Preferred
Stock held by each of Grotech Partners III, L.P., Grotech III
Companion Fund, L.P., Grotech III Pennsylvania Fund, L.P. and
Grotech Partners IV, L.P. collectively, the "Grotech Funds") as
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shares of Class A Preferred Stock), the Class C Majority Interest or the
Class D Majority Interest may request the Company to register under the
Securities Act all or a portion of their Shares for sale in the manner
specified in such notice; provided, however, that if the request shall relate
to the IPO of the Company's equity securities, the Company shall be required
to register such shares only if the offering of securities could reasonably
be expected to constitute a Qualifying Offering. Notwithstanding anything to
the contrary contained herein, no request may be made under this Section
12(b) within one hundred and twenty (120) days after the effective date of
(A) a registration statement filed by the Company covering a firm commitment
underwritten public offering in which the holders of Shares shall have been
entitled to join pursuant to Section 12(c) or (d) hereof and in which there
shall have been effectively registered at least fifty percent (50%) of the
number of Shares as to which registration shall have been so requested or (B)
a Qualifying Offering.
(ii) Following receipt of any notice under this
Section 12(b), the Company shall immediately notify all
Stockholders from whom notice has not been received and shall use
its best efforts to register under the Securities Act, for public
sale in accordance with the method of disposition specified in
such notice from requesting holders, the number of Shares
specified in such notice (and in all notices received by the
Company from other holders of Shares within thirty (30) days
after the giving of such notice by the Company). If such method
of disposition shall be an underwritten public offering, the
holders of a majority of the Shares to be sold in such offering
may designate the managing underwriter of such offering. The
Company shall be obligated to register Shares pursuant to this
Section 12(b) on only two (2) occasions each, with respect to
requests to register shares made by each of the Class A Majority
Interest, the Class C Majority Interest and the Class D Majority
Interest, provided, however, that such obligation shall be deemed
satisfied only when a registration statement covering at least
seventy-five percent (75%) of the total Shares specified in
notices received as aforesaid, for sale in accordance with the
method of disposition specified by the requesting holders, shall
have become effective and, if such method of disposition is a
firm commitment underwritten public offering, all such shares
shall have been sold pursuant thereto.
(iii) The Company shall be entitled to include
in any registration statement referred to in this Section 12(b),
for sale in accordance with the method of disposition specified
by the requesting holders, shares of Common Stock to be sold by
the Company for its own account, except as and to the extent
that, in the opinion of the managing underwriter (if such method
of disposition shall be an underwritten public offering), such
inclusion would adversely affect the marketing of the Shares to
be sold by the requesting holders. In addition, should the
managing underwriter determine that the number of Shares
requested to be sold by the Stockholders hereunder cannot be sold
without adversely affecting the marketing of the Shares, then the
number of Shares requested to be registered hereunder shall be
reduced among the requesting holders pro rata based on each
Stockholder's ownership of the Shares requested to be registered.
The Company will not file with the Commission any other
registration statement with respect to its Common Stock, whether
for its own account or that of other Stockholders, from the date
of receipt of a notice from requesting holders pursuant to this
Section 12(b) until the completion of the period of distribution
of the registration contemplated thereby.
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(c) Incidental Registration. If the Company at any
time proposes to register any of its securities under the
Securities Act for sale to the public, whether for its own
account or for the account of other security holders or both
(except with respect to registration statements on Forms S-4, S-8
or another form not available for registering the Shares for sale
to the public), each such time it will give written notice to all
Stockholders of its intention so to do. Upon the written request
of any Stockholder, received by the Company within thirty (30)
days after the giving of any such notice by the Company, to
register any of its Shares (whether or not such Shares are issued
or outstanding at the time), in whole or in part (which request
shall state the intended method of disposition thereof), the
Company will use its best efforts to cause the Shares as to which
registration shall have been so requested to be included in the
securities to be covered by the registration statement proposed
to be filed by the Company, all to the extent requisite to permit
the sale or other disposition by the holder (in accordance with
its written request) of such Shares so registered. In the event
that any registration pursuant to this Section 12(c) shall be, in
whole or in part, an underwritten public offering of Common
Stock, the number of shares of Common Stock to be included in
such an underwriting may be reduced, in whole or in part, if and
to the extent that the managing underwriter shall be of the
opinion that such inclusion would adversely affect the marketing
of the securities to be sold by the Company therein; in each such
case pro rata based on each Stockholder's ownership of the Shares
requested to be registered by the Stockholders. Notwithstanding
the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 12(c) without
thereby incurring any liability to the Stockholders.
(d) Registration on Form S-3. If at any time (i) any
Stockholder requests that the Company file a registration
statement on Form S-3 (or any successors thereto) for a public
offering of all or any portion of the Shares held by such
requesting holder or holders, the reasonably anticipated
aggregate price to the public of which is at least $500,000.00,
and (ii) the Company is a registrant entitled to use Form S-3 (or
any successor thereto) to register such shares, then the Company
shall use its best efforts to register under the Securities Act
on Form S-3 (or any successor thereto), for public sale in
accordance with the method of disposition specified in such
notice, the number of Shares specified in such notice. Whenever
the Company is required by this Section 12(d) to use its best
efforts to effect the registration of Shares, each of the
procedures and requirements of Section 12(b) hereof (including
but not limited to the requirement that the Company notify all of
the Stockholders from whom notice has not been received and
provide them with the opportunity to participate in the offering
and the cutback provisions therein contained) shall apply to such
registration, provided, however, that there shall be no
limitation on the number of registrations on Form S-3 (or any
successor thereto) which may be requested and obtained under this
Section 12(d), except that (i) not more than two (2) such
registrations may be requested and obtained by the Senior
Stockholders under this Section 12(d) in any twelve-month period
, (ii) not more than two such registrations may be requested
and obtained by the Class D Preferred Stockholders, other than
the Class D Preferred Stockholders, under this Section 12(d) in
any 12-month period and (iii) not more than one (1) such
registration may be requested and obtained by the Junior
Stockholders under this Section 12(d) in any twelve-month period.
Notwithstanding anything to the contrary contained
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herein, no request may be made under this Section 12(d) within one hundred
and twenty (120) days after the effective date of a registration statement
filed by the Company covering a firm commitment underwritten public offering
in which the holders of Shares shall have been entitled to join pursuant to
Section 12(c) hereof.
(e) Registration Procedures. If and whenever the
Company is required by the provisions of Section 12(b), (c) or
(d) hereof to use its best efforts to effect the registration of
any Shares under the Securities Act, the Company will, as
expeditiously as possible:
(i) prepare (and afford counsel for the selling
Stockholders reasonable opportunity to review and comment
thereon) and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant
to Section 12(b) hereof, shall be on Form S-1 or such other form
of general applicability satisfactory to the managing underwriter
selected as therein provided) with respect to such securities and
use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution
contemplated thereby (determined as hereinafter provided);
(ii) prepare (and afford counsel for the selling
Stockholders reasonable opportunity to review and comment
thereon) and file with the Commission such amendments and
supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such
registration statement effective for the period specified in
subparagraph (i) above and comply with the provisions of the
Securities Act with respect to the disposition of all Shares
covered by such registration statement in accordance with the
sellers' intended method of disposition set forth in such
registration statement for such period;
(iii) furnish to each seller of Shares and to
each underwriter such number of copies of the registration
statement and the prospectus included in the registration
statement (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or
other disposition of the Shares covered by such registration
statement;
(iv) use its best efforts to register or qualify
the Shares covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the
sellers of Shares or, in the case of an underwritten public
offering, the managing underwriter reasonably shall request,
provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as
a foreign corporation in any jurisdiction where it is not so
qualified or to consent to general service of process in any such
jurisdiction;
(v) use its best efforts to list the Shares
covered by such registration statement with any securities
exchange on which the Common Stock is then listed;
(vi) immediately notify each seller of Shares and
each underwriter under such registration statement, at any time
when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event of which
the Company has
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knowledge as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(vii) if the offering is underwritten and at
the request of any seller of Shares, use its best efforts to
furnish on the date that Shares are delivered to the underwriters
for sale pursuant to such registration: (A) an opinion dated
such date of counsel representing the Company for the purposes of
such registration, addressed to the underwriters and to such
seller, stating that such registration statement has become
effective under the Securities Act and that (1) to the best
knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under
the Securities Act, (2) the registration statement, the related
prospectus and each amendment or supplement thereof comply as to
form in all material respects with the requirements of the
Securities Act (except that such counsel need not express any
opinion as to financial statements contained therein) and (3) to
such other effects as reasonably may be requested by counsel for
the underwriters or by such seller or its counsel and (B) a
letter dated such date from the independent public accountants
retained by the Company, addressed to the underwriters and to
such seller, stating that they are independent public auditors
within the meaning of the Securities Act and that, in the opinion
of such auditors, the financial statements of the Company
included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all
material respects with the applicable accounting requirements of
the Securities Act, and such letter shall additionally cover such
other financial matters (including information as to the period
ending not more than five (5) business days prior to the date of
such letter) with respect to such registration as such
underwriters reasonably may request; and
(viii) make available for inspection by each
seller of Shares, upon such seller signing an appropriate
confidentiality agreement, any underwriter participating in any
distribution pursuant to such registration statement, and any
attorney, accountant or other agent retained by such seller or
underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration
statement.
For purposes of Section 12(e)(i) and (ii) and of
Section 12(b)(iii) hereof, the period of distribution of Shares
in a firm commitment underwritten public offering shall be deemed
to extend until each underwriter has completed the distribution
of all securities purchased by it (but no later than one hundred
and eighty (180) days), and the period of distribution of Shares
in any other registration shall be deemed to extend until the
earlier of the sale of all Shares covered thereby and one hundred
and twenty (120) days after the effective date thereof.
In connection with each registration hereunder,
the sellers of Shares will furnish to the Company in writing such
information with respect to themselves and the proposed
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distribution by them as reasonably shall be necessary in order to
assure compliance with Federal and applicable state securities
laws.
In connection with each registration pursuant to
Section 12(b), (c) or (d) hereof covering an underwritten public
offering, the Company and each seller agree to enter into a
written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such
provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the
Company's size and investment stature; provided that such
agreement shall not contain any provision applicable to the
Company which is inconsistent with the provisions hereof.
(f) Expenses. All expenses incurred by the Company in
complying with Section 12(b), (c) and (d) hereof, including,
without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent
public auditors for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association
of Securities Dealers, Inc., fees of transfer agents and
registrars, costs of insurance and reasonable fees and
disbursements of one law firm for the sellers of Shares, but
excluding any Selling Expenses, are called "Registration
Expenses". All underwriting discounts and selling commissions
applicable to the sale of the Shares are called "Selling
Expenses".
The Company will pay all Registration Expenses in
connection with each registration statement under Section 12(b),
(c) or (d) hereof, except to the extent that any such
Registration Expenses must be borne by the participating sellers
in order to permit the sale of shares in any state under the
state securities or "blue sky" laws thereof and except that (i)
the Class A Preferred Stockholders, the Class C Preferred
Stockholders or the Class D Preferred Stockholders, as the case
may be, shall pay such expenses in connection with the third
(3rd) and all following registration requests by such
Stockholders under Section 12(d) hereof (if at least two (2)
prior registrations requested by the Class A Preferred
Stockholders , the Class C Preferred Stockholders or the Class D
Preferred Stockholders, as the case may be, under Section 12(d)
hereof have successfully been consummated or, if not consummated,
were terminated due to the request of the Class A Preferred
Stockholders , the Class C Preferred Stockholders or the Class D
Preferred Stockholders, as the case may be) and (ii) the Junior
Stockholders shall pay such expenses in connection with the third
(3rd) and all following registration requests by Junior
Stockholders under Section 12(d) hereof (if at least two (2)
prior registrations requested by the Junior Stockholders under
Section 12(d) hereof have successfully been consummated or, if
not consummated, were terminated due to the request of the Junior
Stockholders). All Selling Expenses in connection with each
registration statement under Section 12(b), (c) or (d) hereof,
and any Registration Expenses borne by the sellers pursuant to
the preceding sentence shall be borne by the participating
sellers in proportion to the number of Shares sold by each, or by
such participating sellers (including the Company if it shall be
a participating seller) as they may agree. For the purposes of
this Section 12(f), the Grotech Funds shall be deemed to be
Senior, not Junior, Stockholders.
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(g) Indemnification and Contribution.
(i) In the event of a registration of any of the
Shares under the Securities Act pursuant to Section 12(b), (c) or
(d) hereof, the Company will indemnify and hold harmless each
seller of such Shares thereunder, each underwriter of such Shares
thereunder and each other person, if any, who controls such
seller or underwriter within the meaning of the Securities Act,
against any losses, claims, damages, liabilities or expenses,
joint or several (or actions in respect thereof), to which such
seller, underwriter or controlling person may become subject
under the Securities Act, Exchange Act, or other Federal or state
statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is
effected with the written consent of the Company), insofar as
such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any registration statement (the "Registration
Statement") under which such Shares were registered or qualified
under the Securities Act or applicable state securities laws
pursuant to Section 12(b), (c) or (d) hereof, any preliminary
prospectus (the "Preliminary Prospectus") or final prospectus
("Prospectus") contained therein, or any amendment or supplement
thereof, or arise out of or are based upon 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, or arise out of or are based in whole or in part on
any inaccuracy in the representations and warranties of the
Company contained in an underwriting agreement with the
underwriters or any failure of the Company to perform its
obligations under such underwriting agreement or under law; and
will reimburse each such seller, each such underwriter and each
such controlling person for any legal and other expenses as such
expenses are reasonably incurred by them in connection with
investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action; provided,
however, that the Company will not be liable in any such case to
the extent that any such loss, claim, damage, liability or
expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission in the
Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with the information furnished in writing
by any such seller, any such underwriter or any such controlling
person.
(ii) In the event of a registration of any of the
Shares under the Securities Act pursuant to Section 12(b), (c) or
(d) hereof, each seller of such Shares thereunder, severally and
not jointly, will indemnify and hold harmless the Company, each
person, if any, who controls the Company within the meaning of
the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each
underwriter, each person who controls any underwriter within the
meaning of the Securities Act and each other seller of Shares
thereunder, against any losses, claims, damages liabilities or
expenses, joint or several, to which the Company or such officer,
director, underwriter, controlling person or other seller may
become subject under the Securities Act, Exchange Act, or other
Federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation if such
settlement is effected with the written consent of the seller of
the Shares), insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) arise
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out of or are based upon 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 arise
out of or are based upon 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, or arise out of or are based in whole or
in part on any inaccuracy in the representations and warranties of the seller
of such Shares contained in an underwriting agreement with the underwriters
or any failure of such seller to perform its obligations under such agreement
or under law; provided, however, that such seller will be liable hereunder in
any such case if and only 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 reliance upon and in
strict conformity with information pertaining to such seller, as such,
furnished in writing to the Company by such seller stated to be specifically
for use in such registration statement and prospectus; provided further that
the liability of each seller hereunder shall be limited to the proportion of
any such loss, claim, damage, liability or expense which is equal to the
proportion that the public offering price of the Shares sold by such seller
under such registration statement bears to the total public offering price of
all securities sold thereunder, but not in any event to exceed the proceeds
received by such seller from the sale of Shares covered by such registration
statement.
(iii) Promptly after receipt by an indemnified
party hereunder of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be
made against the indemnifying party hereunder, notify the
indemnifying party in writing of the commencement thereof, but
the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to such indemnified party
for contribution or otherwise other than as specifically set
forth under the terms of this Section 12(g) and shall only
relieve it from any liability which it may have to such
indemnified party under this Section 12(g) if and to the extent
the indemnifying party is materially prejudiced by such omission.
In case any such action shall be brought against any indemnified
party and such indemnified party seeks or intends to seek
indemnity from an indemnifying party, the indemnifying party will
be entitled to participate in and, to the extent it may desire,
jointly with all other indemnifying parties similarly notified,
to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be a conflict between the
positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or 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 assume such legal
defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon
receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying
party will not be liable to such indemnified party for any legal
or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof unless (A) the indemnified
party shall have
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employed such counsel in connection with the assumption of legal defenses in
accordance with the provisions of the preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel) or (B) the indemnifying party
shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after
notice of commencement of the action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.
(iv) In order to provide for just and equitable
contribution to joint liability under the Securities Act in any
case in which either (A) any holder of Shares exercising rights
under this Agreement, or any controlling person of any such
holder, makes a claim for indemnification pursuant to this
Section 12(g) but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right
of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 12(g) provides
for indemnification in such case or (B) contribution under the
Securities Act may be required on the part of any such selling
holder or any such controlling person in circumstances for which
indemnification is provided under this Section 12(g); then, and
in each such case, the Company and such holder will contribute to
the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such
proportion so that such holder is responsible for the portion
represented by the percentage that the public offering
consideration of its Shares offered by the registration statement
bears to the public offering consideration of all securities
offered by such registration statement, and the Company is
responsible for the remaining portion; provided, however, that,
in any such case, (1) no such holder will be required to
contribute any amount in excess of the public offering price of
all such Shares offered by it pursuant to such registration
statement and (2) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the
Securities Act) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent
misrepresentation.
(h) Changes in Preferred Stock, or Common Stock. If,
and as often as, there is any change in the Preferred Stock, or
Common Stock by way of a stock split, stock dividend, combination
or reclassification, or through a merger, consolidation,
reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so
that the rights and privileges granted hereby shall continue with
respect to the Preferred Stock, or Common Stock as so changed and
shall apply to any securities received in any such transaction.
(i) Transfer and Termination of Registration Rights.
(i) Any holder of Shares or shares of Senior
Stock (or any valid transferee thereof) may transfer to any
transferee its registration rights pursuant to this Section 12;
provided, however, that the number of Shares and shares of Senior
Stock as to which registration rights are transferred shall equal
at least twenty percent (20%) of the shares of Senior
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Stock originally owned by the purchaser thereof (or the shares into which
such shares are convertible) if transferred by a Senior Stockholder or twenty
percent (20%) of the Shares owned by a Junior Stockholder if transferred by a
Junior Stockholder; and provided, further, that no transfer of such rights
may be made to a direct competitor of the Company.
(j) Term of Registration Rights. The registration
rights granted under this Section 12 shall terminate five (5)
years after the Qualifying Offering.
(k) John C. Johnston; ESOP Shareholders. Subject to
the "cut-back" provisions contained in this Section 12, the
Company agrees, in connection with the IPO, to request that the
underwriters permit John C. Johnston, D.D.S. the opportunity to
sell up to 10% of his Shares. In addition, the Company shall
attempt to work with the underwriters of the IPO to have
allocated to the former Nanston ESOP shareholders who are
employees of Nanston, Inc. after the Merger a reasonable number
of shares of Common Stock in the IPO.
SECTION 13. ELECTION/REMOVAL OF DIRECTORS.
(a) Each Stockholder agrees to vote his shares of
Capital Stock in accordance with the provisions of the Amended
and Restated Articles of Incorporation of the Company.
(b) Each Class D Preferred Stockholder agrees that, in
voting for the election of the General Directors (as such term is
defined in Article Sixth, Section 1(a) of the Company's charter),
until the occurrence of either an IPO or an Event of
Noncompliance (as such term is defined in Article Sixth,
Section 2 of the Company's charter), shares of Common Stock that
are owned by it as a result of conversion of Class D Preferred
Stock purchased by it on the date of this Agreement will be voted
for the slate of General Directors nominated by the Board of
Directors of the Company.
SECTION 14. FINANCIAL REPORTS. The Company shall,
at its expense, furnish to each Senior Stockholder (i) as soon as
available after the close of each fiscal year of the Company (but
no later than ninety (90) days after the end of such fiscal
year), a copy of the annual audited report relating to the
Company and its consolidated subsidiaries prepared by the
Company's independent auditors, which shall be approved by the
Board of Directors, together with financial statements prepared
in accordance with GAAP consisting of a consolidated balance
sheet of the Corporation and its consolidated subsidiaries as of
the end of such fiscal year and consolidated statements of
operations, stockholders' equity and cash flows of the
Corporation and its consolidated subsidiaries for such fiscal
year; (ii) as soon as available after the close of each fiscal
quarter (but no later than forty-five (45) days after the end of
such fiscal quarter), financial statements which shall be
approved by the Board of Directors and shall be prepared in
accordance with GAAP consisting of a consolidated balance sheet
of the Corporation and its consolidated subsidiaries as of the
end of such fiscal quarter and consolidated statements of
operations, stockholders' equity and cash flows of the
Corporation and its consolidated subsidiaries for such fiscal
quarter; (iii) annual fiscal budgets and financial projections
prepared by the Company's management and approved by the Board of
Directors at least thirty (30) days
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prior to the beginning of the fiscal year to which such budget and
projections relate; and (iv) notices of material events specified in Items
1-4 and 6 of Form 8-K used for current reports under Section 13 of the
Securities Exchange Act of 1934 together with supporting schedules and
appropriate discussion and analysis of such event by management.
SECTION 15. RIGHTS OF INSPECTION. The Company shall
permit any person designated by any Senior Stockholder to visit
and inspect any of the properties, corporate books and financial
records of the Company, to examine and make copies of the books
of accounts and other financial records of the Company, and to
discuss the affairs, finances and accounts of the Company with,
and to be advised as to the same by, its officers at such
reasonable times and intervals as the Company may designate;
provided, however, that the Senior Stockholders shall use its
best efforts to assure that information about the Company and its
operations, affairs and financial condition, not generally
disclosed to the public, which is furnished to the Senior
Stockholder pursuant to the provisions of this Section 15 shall
remain confidential and shall not be divulged to any person other
than the Senior Stockholder and its respective officers,
directors, employees and agents.
SECTION 16. SPECIFIC PERFORMANCE. Inasmuch as the shares
of the Company's capital stock cannot be readily purchased or
sold in the open market, irreparable damage would result in the
event that the provisions of this Agreement are not specifically
enforced. Therefore, the rights to, or obligations of, the
parties hereto shall be enforceable in a court of equity by a
decree of specific performance and appropriate injunctive relief
may be applied for and granted in connection therewith. Such
remedies, and all other remedies provided for in this Agreement,
shall, however, be cumulative and not exclusive and shall be in
addition to any other remedies which any party may have under
this Agreement or otherwise.
SECTION 17. ENDORSEMENT OF CERTIFICATE. Upon the
execution of this Agreement, each certificate for shares of
Common Stock, Class A Common Stock and Preferred Stock now
registered or to be issued in the name of the Stockholders shall
be endorsed by the Secretary of the Company as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE (FEDERAL) SECURITIES ACT OF 1933
OR THE APPLICABLE SECURITIES ACT OF ANY STATE BUT HAVE BEEN
ISSUED IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION
CONTAINED IN SAID ACTS. NO SALE, OFFER TO SELL OR OTHER
TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
MAY BE MADE UNLESS A REGISTRATION STATEMENT UNDER SAID ACTS
IS IN EFFECT WITH RESPECT TO THE SECURITIES, OR AN EXEMPTION
FROM THE REGISTRATION PROVISIONS OF SUCH ACTS IS THEN
APPLICABLE.
This certificate is transferable only upon compliance
with the provisions of that certain Stockholders' Agreement by
and among DentalCo, Inc. and each of its stockholders, a
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<PAGE>
copy of which is on file in the office of the Secretary of the Company and is
available upon request of any Stockholder without charge.
All certificates for any shares of Common Stock and
Preferred Stock hereinafter issued to the Stockholders shall bear
the same endorsement, and this Agreement shall cover all such
stock.
SECTION 18. TERM. Notwithstanding anything contained
herein to the contrary, this Agreement shall terminate, and all
rights and obligations hereunder shall cease, upon the earlier to
occur of the termination of this Agreement as provided by
applicable Maryland law or the occurrence of any of the following
events:
(a) The written agreement of each of the then parties
hereto; or
(b) The cessation of the Company's business.
The provisions of this Agreement set forth in Sections 2 through
and including 10 hereof, shall terminate and be of no further
force and effect upon the completion of the Qualifying Offering.
SECTION 19. NOTICES. All notices, offers, acceptances,
requests and other communications hereunder shall be in writing
and shall be deemed to have been duly given if delivered or
mailed by certified or registered mail to the Stockholders at
their addresses on the Company records, and to the Company at the
Company's principal place of business. Any party hereto may
change his or its address for notice by giving notice thereof in
the manner herein above provided.
SECTION 20. MISCELLANEOUS.
(a) Entire Agreement. This Agreement, including the
Schedules hereto, constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof and supersedes
all prior agreements and understandings, oral and written, among
the parties hereto with respect to the subject matter hereof.
All Schedules hereto are incorporated herein by reference.
(b) Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the
State of Maryland, without giving effect to its conflicts of laws
provisions.
(c) Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
(d) Amendments. This Agreement may not be amended or
modified, and no provisions hereof may be waived, without the
written consent of the Company and the holders of
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<PAGE>
the Class A Majority Interest, the Class C Majority Interest and the Class D
Majority Interest; provided, however, that future Stockholders may become
parties to this Agreement without the necessity of an amendment hereof if
such future Stockholders agree in writing to be bound by some or all of the
terms and conditions hereof, if such agreement is consented to by the
Company, and if such future Stockholders are added to Schedule I, Schedule II
or Schedule III hereto.
(e) Severability. Each provision of this Agreement
shall be treated as a separate and independent clause, and the
unenforceability of any one clause shall in no way impair the
enforceability of any of the other clauses herein. If one or
more of the provisions contained in this Agreement shall for any
reason be held to be excessively broad as to scope, activity,
subject or otherwise so as to be unenforceable at law, such
provision or provisions shall be construed by the appropriate
judicial body by limiting or reducing it or them, so as to be
enforceable to the maximum extent compatible with the applicable
law as it shall then appear.
(f) Titles and Subtitles. The titles and subtitles
used in this Agreement are for convenience only and are not to be
considered in construing or interpreting any term or provision of
this Agreement.
(g) Pronouns. All pronouns used herein shall be
deemed to refer to the masculine, feminine or neuter gender as
the context requires.
[Remainder of page intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
HOLDERS OF COMMON STOCK:
/s/ Lawrence F. Halpert
______________________________________ (SEAL)
Lawrence F. Halpert, D.D.S.
Neil C. Goodrich, D.D.S.
Herbert L. Livingston, D.D.S.
Martin N. Narun, D.D.S.
Grotech Partners IV, L.P.
By: /s/ Lawrence F. Halpert
____________________________________(SEAL)
Lawrence F. Halpert, D.D.S., as proxy and attorney-in-fact
pursuant to the terms and conditions of the Agreement and
Irrevocable Proxy, dated as of July 21, 1995.
Robert Austgen, D.D.S.
Charles Rosenbaum, D.D.S.
Douglas Barton, D.D.S.
By: /s/ Lawrence F. Halpert
____________________________________(SEAL)
Lawrence F. Halpert, D.D.S., as proxy and attorney-in-fact
pursuant to the terms and conditions of the Agreement and
Irrevocable Proxy, dated as of Febraury 12, 1997.
GROTECH PARTNERS III, L.P.
GROTECH III COMPANION FUND, L.P.
GROTECH III PENNSYLVANIA FUND, L.P.
By: Grotech Capital Group, Inc., General Partner
By: /s/ Hugh A. Woltzen
____________________________________(SEAL)
Hugh A. Woltzen, Managing Director
[Signatures continue on the next page.]
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<PAGE>
HOLDERS OF CLASS A COMMON STOCK:
/s/ John C. Johnston
______________________________________ (SEAL)
John C. Johnston, D.D.S.
Chris D. Johnston
Steve C. Johnston
Ronnie L. Johnston
Kyle E. Anderson
John E. Trapp
John E. Trapp, Inc.
Diana L. Liggett
Sam C. Grizzle
Terri B. Dreyer
Randall Little
James Mason
Lisa Wagner
Walter Reid
George Quintero
Nathan Bell, D.D.S.
Joseph Andrews
Johnston Stock Trust
Johnston Family Educational Trust
By: /s/ John C. Johnston
____________________________________(SEAL)
John C. Johnston, D.D.S., as attorney-in-fact pursuant to
Section 10.1 of the Agreement and Plan of Merger and
Reorganization, dated as of December 27, 1996, by and among
DentalCo, Inc., DentalCo/Southeast, Inc., Nanston, Inc. and
the shareholders of Nanston, Inc.
[Signatures follow on next page]
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<PAGE>
HOLDERS OF CLASS A PREFERRED STOCK:
Grotech Partners IV, L.P.
By: Grotech Capital Group, IV, LLC, General Partner
By: /s/ Hugh A. Woltzen
____________________________________(SEAL)
Hugh A. Woltzen, Managing Director
Merchant Partners, L.P.
By: Merchant Advisors, L.P., General Partner
By: Merchant Development Corp., General Partner
By: /s/ Raymond Bank
____________________________________(SEAL)
Raymond Bank, President
[Signatures continue on the next page.]
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<PAGE>
HOLDERS OF CLASS B PREFERRED STOCK:
By: /s/ Lawrence F. Halpert
____________________________________(SEAL)
Lawrence F. Halpert, D.D.S.
Neil C. Goodrich, D.D.S.
Herbert L. Livingston, D.D.S.
Martin N. Narun, D.D.S.
By: /s/ Lawrence F. Halpert
____________________________________(SEAL)
Lawrence F. Halpert, D.D.S., as proxy and attorney-in-fact
pursuant to the terms and conditions of the Agreement and
Irrevocable Proxy, dated as of July 21, 1995.
Grotech Partners IV, L.P.
By: Grotech Capital Group, IV, LLC, General Partner
By: /s/ Hugh A. Woltzen
____________________________________(SEAL)
Hugh A. Woltzen, Managing Director
GROTECH PARTNERS III, L.P.
GROTECH III COMPANION FUND, L.P.
GROTECH III PENNSYLVANIA FUND, L.P.
By: Grotech Capital Group, Inc., General Partner
By: /s/ Hugh A. Woltzen
____________________________________(SEAL)
Hugh A. Woltzen, Managing Director
[Signatures continue on the next page.]
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<PAGE>
HOLDERS OF CLASS C PREFERRED STOCK:
MORGAN STANLEY VENTURE CAPITAL
FUND II ANNEX, L.P.
By: Morgan Stanley Venture Partners II, L.P.,
General Partner
By: Morgan Stanley Venture Capital II, Inc.,
Managing General Partner
By: /s/ M. Fazle Husain
_____________________________________
M. Fazle Husain, General Partner
MORGAN STANLEY VENTURE INVESTORS
ANNEX, L.P.
By: Morgan Stanley Venture Partners II, L.P.,
General Partner
By: Morgan Stanley Venture Capital II, Inc.,
Managing General Partner
By: /s/ M. Fazle Husain
_____________________________________
M. Fazle Husain, General Partner
[Signatures continue on the next page.]
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<PAGE>
HOLDERS OF CLASS D PREFERRED STOCK:
Grotech Partners IV, L.P.
By: Grotech Capital Group, IV, LLC, General Partner
By: /s/ Hugh A. Woltzen
____________________________________(SEAL)
Hugh A. Woltzen, Managing Director
GROTECH PARTNERS III, L.P.
GROTECH III COMPANION FUND, L.P.
GROTECH III PENNSYLVANIA FUND, L.P.
By: Grotech Capital Group, Inc., General Partner
By: /s/ Hugh A. Woltzen
____________________________________(SEAL)
Hugh A. Woltzen, Managing Director
MORGAN STANLEY VENTURE CAPITAL
FUND II ANNEX, L.P.
By: Morgan Stanley Venture Partners II, L.P.,
General Partner
By: Morgan Stanley Venture Capital II, Inc.,
Managing General Partner
By: /s/ M. Fazle Husain
_____________________________________
M. Fazle Husain, General Partner
MORGAN STANLEY VENTURE INVESTORS
ANNEX, L.P.
By: Morgan Stanley Venture Partners II, L.P.,
General Partner
By: Morgan Stanley Venture Capital II, Inc.,
Managing General Partner
By: /s/ M. Fazle Husain
_____________________________________
M. Fazle Husain, General Partner
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Exhibit 4.3
AGREEMENT AND IRREVOCABLE PROXY
This AGREEMENT AND IRREVOCABLE PROXY (this "Agreement"), dated as of July
21, 1995, is by and among Lawrence F. Halpert ("Halpert"), and each of the
undersigned (each of whom, excluding Halpert, is hereinafter individually called
a "Stockholder" and all of whom are collectively called the "Stockholders").
RECITALS
A. Each Stockholder is the registered holder of that number of shares of the
common stock, par value $0.0001 per share (the "Common Stock"), the Class B
Convertible Preferred Stock, par value $0.0001 per share (the "Class B Preferred
Stock"), and options (the "Options") to acquire shares of the Common Stock, of
DentalCo, Inc., a Maryland corporation (the "Company"), as set forth under each
Stockholder's name on the signature page hereto;
B. Pursuant to that certain Preferred Stock Purchase Agreement, dated as of
even date herewith, by and between the Company and Grotech Partners IV, L.P. and
Merchant Partners, L.P. (the "PSPA"), the Company will sell to the foregoing
named entities that number of its securities set forth therein;
C. Halpert has required, as a condition precedent to the Company's execution
and delivery of the PSPA, that the Stockholders execute and deliver this
Agreement.
D. The Stockholders and Halpert desire to join together by this Agreement to
ensure that they shall at all times collectively control the business operations
of the Company by voting as a group that number of shares of capital stock of
the Company equal to or greater than fifty percent (50%) of the shares of
capital stock of the Company entitled to vote;
NOW, THEREFORE, in consideration of the foregoing and the execution of this
Agreement by each of the other Stockholders, the receipt and sufficiency of
which are hereby acknowledged by the Stockholders, the parties hereto agree as
follows:
1. Each Stockholder hereby revokes any and all previous proxies granted
with respect to any shares of capital stock or options of the Company owned
by him.
2. Each Stockholder hereby irrevocably constitutes and appoints Halpert
as his true and lawful proxy and attorney-in-fact, with full power of
substitution, for and in his name, place and stead, to call and attend any
and all meetings of the stockholders of the Company and any adjournments
thereof, to execute any and all written consents of stockholders of the
Company, and to vote all shares of capital stock of the Company presently or
at any future time owned beneficially or of record by such Stockholder,
including any and all securities having voting rights issued or issuable in
respect thereof, which such Stockholder is entitled to vote (all of the
foregoing being collectively referred to as the "Shares"), and to represent
and otherwise act as the
<PAGE>
Stockholder could act, in the same manner and with
the same effect as if such Stockholder were personally present, at any
annual, special or other meeting of the stockholders of the Company, and at
any adjournment thereof (a "Meeting"), or pursuant to any written consent in
lieu of a Meeting or otherwise.
3. Each Stockholder hereby covenants and agrees that he will not vote
at any Meeting or take any action by written consent of stockholders in lieu
of a Meeting on any matter whatsoever in contravention of the provisions of
this Agreement, and will promptly provide Halpert with copies of any
stockholder notices given by the Company and received by the Stockholder.
4. Each Stockholder hereby covenants and agrees that he will not,
and will not agree to, directly or indirectly, sell, transfer, assign,
pledge, hypothecate, cause to be redeemed or otherwise dispose of any of
the Shares, or grant any proxy, power-of-attorney or other authorization
or interest in or with respect to such Shares, or deposit such Shares
into a voting trust or enter into a voting agreement or arrangement with
respect to such Shares unless and until such Stockholder shall have taken
all actions (including, without limitation, the endorsement of a legend
on the certificates evidencing such Shares) reasonably necessary to
ensure that such Shares shall at all times be subject to the rights,
powers and privileges granted or conferred, and subject to all the
restrictions, covenants and limitations imposed, by this Agreement and shall
have caused any transferee of any of the Shares to execute and deliver to
Halpert an Agreement substantially in the form of this Agreement.
5. Each Stockholder represents and warrants to Halpert that (i) he has
full power and authority to enter into this Agreement and to grant the proxy
herein contained, and to perform his obligations hereunder, (ii) as of the
date hereof, the Shares consist of that number of shares of capital stock of
the Company and Options owned of record by him that are set forth opposite
below his name on the signature page hereto, (iii) he owns such Shares free
and clear of all liens, charges, claims, encumbrances and security interests
of any nature whatsoever, except as set forth in any agreement to which
Halpert is also a party and as provided in the Company's Amended and
Restated Articles of Incorporation (the "Charter"), (iv) he has the present
power and right to vote all of the Shares (except for the Options), and (v)
except as provided herein, he has not granted any proxy, power-of-attorney
or other authorization or interest with respect to any of such Shares,
deposited such Shares into a voting trust or entered into any voting
agreement or other arrangement with respect to the voting of such Shares.
6. The terms and provisions of this Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland, without
giving effect to the provisions thereof relating to conflicts of law.
7. The terms and provisions of this Agreement shall be binding upon,
inure to the benefit of, and be enforceable by the successors and permitted
assigns of the parties hereto.
8. This Agreement shall terminate at the earliest of (i) the date of
Halpert's death, or (ii) ten years from the date hereof.
2
<PAGE>
9. EACH STOCKHOLDER AGREES THAT THE PROXY GRANTED HEREIN AND ALL OTHER
POWER AND AUTHORITY INTENDED TO BE CONFERRED HEREBY IS COUPLED WITH AN
INTEREST SUFFICIENT IN LAW TO SUPPORT AN IRREVOCABLE POWER AND, EXCEPT AS
PROVIDED IN PARAGRAPH 8 ABOVE, SHALL NOT BE TERMINATED BY ANY ACT OF THE
STOCKHOLDER, BY LACK OF APPROPRIATE POWER OR AUTHORITY OR BY THE OCCURRENCE
OF ANY OTHER EVENT OR EVENTS.
10. The parties hereto acknowledge and agree that performance of their
respective obligations hereunder will confer a unique benefit on the other
and that a failure of performance will result in irreparable harm to the
other and will not be compensable by money damages. The parties hereto agree
that this Agreement, including the proxy granted herein, shall be
specifically enforceable and that specific enforcement and injunctive relief
shall be a remedy properly available to Halpert for any breach of any
agreement, covenant or representation of the other hereunder.
11. Each Stockholder will, upon request, execute and deliver any
additional documents and take such further actions as may reasonably be
deemed by Halpert to be necessary or desirable to complete the proxy granted
herein or to carry out the provisions hereof. The certificates or documents
evidencing the Shares shall bear a restrictive legend indicating that they
are subject to the terms of this Agreement and may not be transferred,
except in compliance with the terms hereof.
12. If any provision of this Agreement should ever be adjudicated to
exceed the time or other limitations permitted by Maryland law, then such
provision shall be deemed reformed in such jurisdiction to the maximum time
or other limitations permitted by Maryland law.
13. This Agreement may be executed in counterparts, each of which shall
be deemed to be an original, but all of which together shall constitute one
and the same document.
14. The Recitals hereto are specifically made a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. Signature pages follows.]
3
<PAGE>
Witness:
By: /s/ Lawrence F. Halpert (SEAL)
- ---------------------------- -------------------------------
Dr. Lawrence F. Halpert
Witness:
By: /s/ Sheldon J. Wollman (SEAL)
- ---------------------------- -------------------------------
Witness: Dr. Sheldon J. Wollman
Witness:
By: /s/ Herbert L. Livingston (SEAL)
- ---------------------------- -------------------------------
Dr. Herbert L. Livingston
Witness:
By: /s/ Neil C. Goodrich (SEAL)
- ---------------------------- -------------------------------
Dr. Neil C. Goodrich
Witness:
By: /s/ Martin N. Narun (SEAL)
- ---------------------------- -------------------------------
Dr. Martin N. Narun
Witness:
By: /s/ Carl J. Sardegna (SEAL)
- ---------------------------- ------------------------------
Carl J. Sardegna
4
<PAGE>
Exhibit 10.1
PLAN OF RECAPITALIZATION OF
AND SALE OF CAPITAL STOCK BY
MID-ATLANTIC DENTAL ASSOCIATES, P.A.
I. Present Capitalization.
The present authorized capitalization of Mid-Atlantic Dental Associates,
P.A. (the "Corporation") is One Hundred Thousand (100,000) shares of which all
of the shares are common stock, par value $0.05 per share (the "Common Stock").
The aggregate par value of all the shares of all classes of capital stock is
Five Thousand Dollars ($5,000).
The records of the Corporation currently indicate that the record holders of
the issued and outstanding shares of capital stock of the Corporation are as
follows:
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER COMMON STOCK
------------------------ ----------------
Dr. Lawrence F. Halpert....... 25,537
Dr. Sheldon J. Wollman........ 14,986
Dr. Neil C. Goodrich.......... 5,840
Dr. Herbert L. Livingston..... 637
Dr. Martin N. Narun........... 68
TOTAL..................... 47,068
II. The Plan of Recapitalization.
Upon acceptance by the State Department of Assessments and Taxation of
Maryland of the Articles of Amendment and Restatement of the Articles of
Incorporation of the Corporation (the "Restated Articles"), a copy of which is
attached hereto as Exhibit A, the Corporation's authorized capitalization shall
be One Hundred Sixty-Nine Thousand One Hundred Sixty-Three (169,163) shares of
capital stock, of which (1) Forty-Seven Thousand Sixty-Eight (47,068) shares
shall be the Series B-1 Preferred Stock, par value $0.0001 per share (the
"Series B-1 Preferred Stock"); (2) Three Hundred Eighty-Seven (387) shares shall
be the Series B-2 Preferred Stock, par value $0.0001 per share (the "Series B-2
Preferred Stock"); and (3) One Hundred Twenty-One Thousand Seven Hundred Eight
(121,708) shares shall be the Common Stock, par value $0.0001 per share (the
"Common Stock").
Upon approval of the plan of recapitalization (the "Plan of
Recapitalization") by the unanimous written consent of the Corporation's
stockholders (the "Stockholders") and the acceptance by the State Department of
Assessments of the Restated Articles, each holder of an existing share of Common
Stock will become the holder of a share of Series B-1 Preferred Stock and each
stock certificate representing a share of Common Stock currently outstanding
will be exchanged for a stock certificate representing a share of the Series B-1
Preferred Stock.
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<PAGE>
The charter of the Corporation, as currently in effect, sets forth specific
rights of the holders of each class of capital stock of the Corporation. The
Restated Articles amend and restate the specific rights of each class of capital
stock of the Corporation.
III. Plan of Sale of Capital Stock.
Upon the effectiveness of the Plan of Recapitalization, the Corporation
shall sell shares of capital stock of the Corporation to the following
shareholders each for a purchase price per share equal to $0.01 (the
"Purchase Price"): (i) Dr. Lawrence F. Halpert shall purchase 41,400 shares
of the Common Stock; (ii) Dr. Sheldon J. Wollman shall purchase 28,340 shares
of the Common Stock; (iii) Dr. Herbert L. Livingston shall purchase 3,552
shares of the Common Stock and 218 shares of the Series B-2 Preferred Stock;
and (iv) Dr. Martin N. Narun shall purchase 981 shares of the Common Stock
and 169 shares of the Series B-2 Preferred Stock. This sale of the capital
stock of the Corporation to the stockholders listed above shall hereinafter
be referred to as the Sale of Capital Stock.
IV. Capital Structure After Recapitalization and Sale of Capital Stock.
Upon the effectiveness of the Sale of Capital Stock, the records of the
Corporation shall indicate that the record holders of the issued and outstanding
shares of capital stock of the Corporation shall be as follows:
<TABLE>
<CAPTION>
SERIES B-2 PREFERRED
NUMBER OF SHARES ----------------------------------------
NAME OF SERIES B-1 NUMBER OF SHARES TOTAL
BENEFICIAL OWNER PREFERRED NUMBER OF SHARES COMMON STOCK NUMBER OF SHARES
- ------------------------------------ ------------------- --------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Dr. Lawrence F. Halpert............. 25,537 41,400 66,937
Dr. Sheldon J. Wollman.............. 14,986 28,340 43,326
Dr. Neil C. Goodrich................ 5,840 5,840
Dr. Herbert L. Livingston........... 637 218 3,552 4,387
Dr. Martin N. Narun................. 68 169 981 1,218
TOTAL............................... 47,068 387 74,253 121,708
</TABLE>
IV. Method of Carrying Out the Plan.
The Board of Directors of the Corporation (the "Board"), as of October 1,
1994, unanimously approved and adopted the Plan of Recapitalization, the
Restated Articles and the Sale of the Capital Stock, declared such actions
advisable and in the best interests of the Corporation, and directed that they
be submitted to the Stockholders for their adoption and their approval by
unanimous written consent.
The Plan of Recapitalization, the Sale of Capital Stock and the Restated
Articles shall be approved by the Stockholders by unanimous written consent
dated as of October 1, 1994.
After the Plan of Recapitalization, the Restated Articles and the Sale of
Capital Stock are approved by the Stockholders, the Board shall cause the
appropriate officers of the Corporation to file the Restated Articles with the
State Department of Assessments and Taxation of
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<PAGE>
Maryland, and to effect the Plan of Recapitalization and Sale of Capital
Stock as outlined herein. The Recapitalization and Sale of Capital Stock
shall become effective when the Restated Articles are filed with and accepted
for record by the State Department of Assessments and Taxation of Maryland
and each purchaser of the shares of Capital Stock have delivered to the
Corporation an amount equal to (i) the number of shares of capital stock
purchased thereby multiplied by (ii) the Purchase Price.
IN WITNESS WHEREOF, Mid-Atlantic Dental Associates, Inc., pursuant to
authority duly given by its Board of Directors, has caused this Plan to be duly
executed by its President and its corporate seal to be affixed hereto and
attested to by its Secretary, as of this 1st day of October, 1994.
ATTEST: MID-ATLANTIC DENTAL ASSOCIATES, INC.
/s/ Anita A. Logue By: /s/ Dr. Lawrence F. Halpert (SEAL)
_____________________________ __________________________________
Anita A. Logue, Secretary Dr. Lawrence F. Halpert. President
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<PAGE>
Exhibit 10.2
PREFERRED STOCK PURCHASE AGREEMENT
by and between
DENTALCO, INC.
and
GROTECH PARTNERS IV, L.P., and
MERCHANT PARTNERS, L.P.
Dated as of July 18, 1995
<PAGE>
THIS PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
July 18, 1995 by and between DENTALCO, INC., a Maryland corporation (formerly
known as Mid-Atlantic Dental Associates, P.A., the "Company"), and GROTECH
PARTNERS IV, L.P., a Delaware limited partnership ("Grotech"), and MERCHANT
PARTNERS, L.P., a Delaware limited partnership ("Merchant") (Grotech and
Merchant are sometimes hereinafter called, collectively, the "Purchasers" and
individually, a "Purchaser").
WHEREAS, the Company wishes to issue and sell to the Purchasers 40,154
shares (the "Shares") of its authorized but unissued preferred stock designated
8% Class A Cumulative Convertible Preferred Stock, $.0001 par value per share
(the "Preferred Stock"); and
WHEREAS, the Purchasers, severally, wish to purchase that number of the
Shares on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
ARTICLE I
PURCHASE OF PREFERRED STOCK
SECTION 1.01. Agreement to Sell and Purchase the Shares. Subject to the
terms and conditions of this Agreement, the Company agrees to sell to each
Purchaser the number of Shares, and at the purchase price per share, set forth
opposite the Purchaser's name in Schedule I hereto under the headings "Number of
Shares" and "Price Per Share," respectively. Each Purchaser, severally and not
jointly, agrees to purchase from the Company, upon and subject to the terms and
conditions hereinafter set forth, the number of Shares, and at the purchase
price per share, set forth opposite the Purchaser's name in Schedule I hereto
under the headings "Number of Shares" and "Price Per Share," respectively. The
closing of the sale of Shares contemplated by this Section 1.01 is referred to
herein as the "Closing."
SECTION 1.02. Closing. (a) The Closing shall take place at the offices of
Miles & Stockbridge, 10 Light Street, Baltimore, Maryland 21202, at 10:00 a.m.
on July 18, 1995, or at such other location, date and time as may be agreed to
by the Purchasers and the Company.
(b) At the Closing, the Company shall issue and deliver to each
Purchaser a stock certificate in definitive form, registered in the name of such
Purchaser, representing the Shares being purchased by it at the Closing. At the
Closing, the Purchasers shall deliver to the Company payment of the full
<PAGE>
purchase price of the Shares being purchased in the amount per share set forth
on Schedule I by wire transfer of immediately available funds in accordance with
the written wire transfer instructions provided by the Company to each
Purchaser.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, as of the date
of this Agreement, except as set forth in the Disclosure Schedule attached
hereto as Schedule II (which Disclosure Schedule makes explicit reference to the
particular representation or warranty as to which exception is taken, which in
each case shall constitute the sole representation and warranty as to which such
exception shall apply) ("Schedule II"):
SECTION 2.01. Organization, Qualifications and Corporate Power and
Business.
(a) The Company is a corporation duly organized and validly existing
under the laws of the State of Maryland and is duly licensed or qualified to
transact business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification, except where the failure to so qualify could not reasonably be
expected to have a material adverse effect on the financial condition or results
of operations of the Company and its Subsidiaries, taken as a whole. The
Company has the corporate power and authority to own and hold its properties and
to carry on its business as now conducted and as proposed to be conducted, to
execute, deliver and perform this Agreement and the Stockholders' Agreement of
even date herewith (the "Stockholders' Agreement") by and among the Company, the
Purchasers and all other stockholders of the Company, in the form substantially
as attached hereto as Exhibit A, to issue, sell and deliver the Shares and to
issue and deliver the shares of its common stock, $par value $0.0001 per share
(the "Common Stock"), issuable upon conversion of the Shares (the "Conversion
Shares").
(b) "Subsidiary" means any entity (i) securities of which having
ordinary voting power to elect a majority of the board of directors (or other
persons having similar functions), or (ii) other ownership interests of which
ordinarily constituting a majority voting interest, are at the time directly or
indirectly owned or controlled by the Company or by one or more of its
Subsidiaries or by the Company and one or more of its Subsidiaries. The Company
has no Subsidiaries and does not own of record or beneficially, directly or
indirectly, (i) any shares of capital stock or securities convertible into
capital stock of any other corporation or (ii) any participating interest in any
partnership, joint venture or other non-corporate business
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<PAGE>
enterprise, and the Company does not control, directly or indirectly, any
other entity. Each Subsidiary of the Company is a corporation duly organized
and validly existing under the laws of the State of Maryland and is duly
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification, except for the failure to so
qualify could not reasonably be expected to have a material adverse effect on
the financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole.
(c) The Company and each of its Subsidiaries is engaged principally
in the business of managing and controlling organizations whose principal
business is delivering multi-specialty dental services through managed care
contracts and fee for service.
SECTION 2.02. Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this Agreement and
the Stockholders' Agreement, the performance by the Company of its obligations
hereunder and thereunder and the issuance, sale and delivery of the Shares and
the issuance, sale and delivery of the Conversion Shares have been duly
authorized by all requisite corporate action and will not violate any provision
of applicable corporate or securities laws, any order of any court or other
agency of government, the Articles of Incorporation of the Company, as amended
or supplemented (the "Charter"), or the bylaws of the Company, or any provision
of any indenture, agreement or other instrument to which the Company or any of
its properties or assets is bound, or conflict with, result in a material breach
of or constitute (with due notice or lapse of time or both) a default which
would allow the other party to accelerate the obligations of the Company due to
it or otherwise exercise rights against the Company under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge, restriction, claim or encumbrance of any nature whatsoever upon
any of the properties or assets of the Company.
(b) The Shares, if and when issued in accordance with the terms of
this Agreement, will be validly issued, fully paid and nonassessable and will be
free and clear of all liens, charges, restrictions, claims and encumbrances
imposed by or through the Company, except as set forth herein or in the
Stockholders' Agreement. The Conversion Shares have been duly reserved for
issuance upon conversion of the Shares and, if and when so issued, will be duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
and will be free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company, except as set forth herein and
in the Stockholders' Agreement. Neither the
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<PAGE>
issuance, sale or delivery of the Shares nor the issuance or delivery of the
Conversion Shares is subject to any preemptive right of stockholders of the
Company or to any right of first refusal or other right in favor of any
person, except as herein provided or as provided in the Stockholders'
Agreement.
SECTION 2.03. Validity. This Agreement and the Stockholders' Agreement
have been duly authorized, executed and delivered by the Company and, assuming
the due execution and delivery by the other parties thereto, each constitutes
the legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and equitable
remedies, and to the extent that the indemnification provisions contained in the
Stockholders' Agreement may be limited by applicable Federal or state securities
laws.
SECTION 2.04. Authorized Capital Stock. (a) The authorized capital stock
of the Company consists of (i) 200,000 shares of Common Stock, (ii) 47,068
shares of Class B Convertible Preferred Stock, par value $0.0001 per share, and
(iii) 40,154 shares of the Preferred Stock. The stockholders of record of the
Company and the number of shares of capital stock held by each are set forth in
the attached Schedule III, all of which shares are validly issued and
outstanding, and, except as contemplated by this Agreement and the Stockholders'
Agreement, there are no subscriptions, warrants, options, convertible securities
or other rights (contingent or other) to purchase or otherwise acquire equity
securities of the Company. Except for the Conversion Shares, no shares of
Common Stock or other capital stock of the Company are reserved for possible
future issuance. The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of the Preferred Stock are as set forth
in the Charter, a copy of which is attached hereto as Exhibit B, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in accordance with all
applicable laws, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and equitable remedies. Except
pursuant to the terms of this Agreement and the Stockholders' Agreement, there
is no commitment by the Company to issue shares, subscriptions, warrants,
options, convertible securities or other such rights or to distribute to holders
of any of its equity securities any evidence of indebtedness or asset. Except
as provided for in the Charter, in the Stockholders' Agreement or herein, the
Company has no obligation (contingent or other) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof. Except as provided
for in the Charter, in the Stockholders' Agreement or as provided herein, there
are no
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<PAGE>
voting trusts or agreements, stockholders' agreements, pledge agreements,
buy-sell agreements, rights of first refusal, preemptive rights or proxies
relating to any securities of the Company (whether or not the Company is a
party thereto). All of the outstanding securities of the Company were issued
in compliance with all applicable federal and state securities laws.
(b) The authorized capital stock of DentalCo Management Services of
Maryland, Inc. consists of 5,000 shares of common stock, of which 100 shares are
issued and outstanding, and of which 100% are owned by the Company. The
authorized capital stock of HealthMaster, Inc. consists of 100,000 shares of
common stock, of which 1,000 shares are issued and outstanding, and of which 900
shares are owned by the Company and 100 shares are owned by the University of
Maryland Business School. There are no subscriptions, warrants, options,
convertible securities or other rights (contingent or other) to purchase or
otherwise acquire equity securities of any Subsidiary of the Company and no
shares of capital stock of a Subsidiary are reserved for possible future
issuance. There is no commitment by a Subsidiary of the Company to issue
shares, subscriptions, warrants, options, convertible securities or other such
rights or to distribute to holders of any of its equity securities any evidence
of indebtedness or asset. No Subsidiary of the Company has any obligation
(contingent or other) to purchase, redeem or otherwise acquire any of its equity
securities or any interest therein or to pay any dividend or make any other
distribution in respect thereof. There are no voting trusts or agreements,
stockholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive rights or proxies relating to any securities of a
Subsidiary of the Company (whether or not such Subsidiary is a party thereto).
All outstanding securities of any Subsidiary or issued in compliance with
applicable federal and state securities laws.
SECTION 2.05. Financial Statements and Projections. (a) "GAAP" means
generally accepted accounting principles set forth in opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accounting Standards Board or in such other statements by such
other entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
(b) (i) The Company has furnished to the Purchasers an internally
prepared unaudited balance sheet as at April 30, 1995 (the "1995 Balance Sheet")
of Mid-Atlantic Dental Associates, P.A. ("MADA") after giving effect to the
reorganization with Periodontal Associates, P.A. ("PA") as of October 1, 1994.
The 1995 Balance Sheet has been prepared in accordance with GAAP applicable to
financial statements which omit complete footnotes and schedules, and fairly
presents the financial position of the Company as at such date (subject to
immaterial year end adjustments).
-5-
<PAGE>
(ii) The Company has furnished to the Purchasers the Unaudited
Financial Statements Cash Basis of Periodontal Associates, P.A. ("PA") for the
years ended September 30, 1993 and September 30, 1992 compiled by Walpert,
Smullen & Blumenthal, P.A. (the "PA Financial Statements"), which include the
Accountants' Compilation Report, Statement of Assets and Liabilities, Statement
of Revenue and Expenses and Retained Earnings, Statement of Cash Flows, Notes to
Financial Statements and Schedule of Operating Expenses. The Company has
furnished to the Purchasers the Unaudited Financial Statements Cash Basis of
Mid-Atlantic Dental Associates, P.A. ("MADA") for the years ended October 31,
1994, October 31, 1993 and October 31, 1992 compiled by Walpert, Smullen &
Blumenthal, P.A. (the "MADA Financial Statements"), which include the
Accountants' Compilation Report, Statement of Assets, Liabilities and
Stockholders' Equity/(Deficiency) - Cash Basis, Statement of Revenue and
Expenses and (Deficit) - Cash Basis, Statement of Cash Flows - Cash Basis, Notes
to Financial Statements, Schedule of Operating Expenses - Cash Basis. For the
year ended October 31, 1994, the MADA Financial Statements include the operating
results for the month of October 1994 and the assets, liabilities and
stockholders' equity of PA, after giving effect to the reorganization which
transferred all the assets, liabilities and stockholders' equity of PA,
effective October 1, 1994, to MADA. The PA Financial Statements and the MADA
Financial Statements have been compiled in accordance with the Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants, and were prepared on the basis of cash receipts
and disbursements, which is a comprehensive basis of accounting other than GAAP.
The PA Financial Statements and the MADA Financial Statements fairly present the
financial positions of PA and MADA, respectively, as at such dates and the
results of their respective operations for the periods then ended. PA's and
MADA's federal and state income tax returns have not been audited in more than
ten years.
(iii) The Company has furnished to the Purchaser an unaudited
pro forma balance sheet of the Company which has been prepared to display the
recapitalization of the Company pursuant to the Charter and the issuance to the
Purchasers of the Shares in accordance with this Agreement, as if such events
occurred as of December 31, 1994 (the "Pro Forma Balance Sheet"), a copy of
which is attached hereto as Exhibit C.
(iv) The Company has furnished to the Purchasers Federal Income
Tax Returns for PA for each of the four years ended September 30, 1991, 1992,
1993 and 1994 and for MADA for the three years ended October 31, 1991, 1992 and
1993, all of which were prepared and filed on a cash basis.
(v) The Financial Statements include the accounts of Cross Keys
Dental Center which, for financial statement and income tax reporting purposes,
is treated as an MADA dental
-6-
<PAGE>
location. The Company is negotiating the terms of the acquisition of this
practice from Dr. Makowske.
(c) Neither the Company nor any Subsidiary has any material liability
or obligation, absolute or contingent (individually or in the aggregate),
including, without limiting the generality of the foregoing, any tax liabilities
due or to become due, not reflected in the Pro Forma Balance Sheet, except
obligations and liabilities incurred after the date of the Pro Forma Balance
Sheet in the ordinary course of business that are not individually or in the
aggregate material and that would not be required to be reflected in financial
statements prepared in accordance with GAAP.
(d) The Company's financial projections provided to the Purchasers
(the "Projections") dated January 25, 1995 that excluded any proposed
transaction with Principal Financial Group were developed by management of the
Company and based upon assumptions which the Company believes to be reasonable.
The contemplated transaction between the Company and Principal Financial Group
has not been completed and, therefore, the financial projections that include
Principal Financial Group should not be relied upon.
SECTION 2.06. Events Subsequent to the Date of the Pro Forma Balance
Sheet. Except for matters set forth herein or in the Stockholders' Agreement,
all of which are fully and accurately displayed in all material respects in the
Pro Forma Balance Sheet, and except for other matters set forth in the Pro Forma
Balance Sheet, since December 31, 1994 neither the Company nor any Subsidiary
has (i) issued any stock, bond or other corporate security or partnership
interest, (ii) borrowed any amount or incurred or become subject to any
liability (absolute, accrued or contingent), except current liabilities incurred
and liabilities under contracts entered into in the ordinary course of business,
(iii) discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the Pro Forma Balance Sheet and current liabilities
incurred since December 31, 1994 in the ordinary course of business, (iv)
declared or made any payment or distribution to stockholders or purchased or
redeemed any share of its capital stock or other security, (v) mortgaged,
pledged or subjected to lien any of its assets, tangible or intangible, other
than liens of current real property taxes not yet due and payable, (vi) sold,
assigned or transferred any of its tangible assets except in the ordinary course
of business, or cancelled any debt or claim, (vii) sold, assigned, transferred
or granted any exclusive license with respect to any patent, trademark, trade
name, service mark, copyright, trade secret or other intangible asset, (viii)
suffered any loss of property or waived any right of substantial value whether
or not in the ordinary course of business, (ix) made any material change in
officer compensation, (x) made any material change in the manner of business or
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<PAGE>
operations, (xi) entered into any transaction except in the ordinary course of
business or as otherwise contemplated hereby, (xii) entered into any commitment
(contingent or otherwise) to do any of the foregoing or (xiii) engaged in any
transaction with any director, officer, employee, stockholder, or partner of the
Company.
SECTION 2.07. Litigation; Compliance with Law. There is no (i) action,
suit, claim, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened against or affecting the Company or any
Subsidiary, at law or in equity, or before or by any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding relating to
the Company or any Subsidiary pending under collective bargaining agreements or
otherwise or (iii) governmental inquiry pending or, to the best of the Company's
knowledge, threatened against or affecting the Company or any Subsidiary, and,
to the Company's knowledge, there is no basis for any of the foregoing. The
Company has not received any opinion or memorandum or legal advice from legal
counsel to the effect that it or any Subsidiary is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to its
business, prospects, financial condition, operations properties or affairs.
Neither the Company nor any Subsidiary is in default with respect to any order,
writ, injunction or decree known to or served upon the Company or any Subsidiary
of any court or of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. There is no action or suit by the Company or any Subsidiary pending or
threatened against others. The Company and each Subsidiary has complied in all
material respects with all laws, rules, regulations and orders which are
material and applicable to its business, operations, properties, assets,
products and services, and the Company and each Subsidiary has all necessary
permits, licenses and other authorizations, including environmental, required to
conduct its business as conducted and as proposed to be conducted in all
material respects. To the best of the Company's knowledge, there is no existing
law, rule, regulation or order, and the Company is not aware of any proposed
law, rule, regulation or order, whether Federal or state, which would prohibit
or restrict the Company or any Subsidiary from, or otherwise materially
adversely affect the Company or any Subsidiary in, conducting its business in
any jurisdiction in which it is now conducting business or in which it proposes
to conduct business.
SECTION 2.08. Proprietary Information of Third Parties. To the best of
the Company's knowledge, no third party has claimed or has reason to claim that
any person now or previously employed or engaged as a consultant by the Company
or any Subsidiary has (a) violated or may be violating any of the terms or
conditions of his employment, non-competition or non-disclosure agreement with
such third party, (b) disclosed or may be disclosing or
-8-
<PAGE>
utilized or, to the best of the Company's knowledge, may be utilizing any
trade secret or proprietary information or documentation of such third party
or violated any confidential relationship which such person may have had with
such third party in connection with the development, manufacture or sale of
any product or proposed product or the development or sale of any service or
proposed service of the Company or any Subsidiary or (c) interfered or may be
interfering in the employment relationship between such third party and any
of its present or former employees. No third party has requested information
from the Company or any Subsidiary which reasonably suggests that such a
claim might be contemplated. To the best of the Company's knowledge, none of
the execution or delivery of this Agreement, or the carrying on of the
business of the Company or any Subsidiary as officers, employees or agents by
any officer, director or key employee of the Company or any Subsidiary, or
the conduct of the business of the Company or any Subsidiary, will conflict
with or result in a breach of the terms, conditions provisions of or
constitute a default under any contract, covenant or instrument under which
any such person is obligated. For purposes of the preceding sentence, the
conduct of the business of the Company means providing, directly or
indirectly, administrative services to dental practices, owning and leasing
to providers of dental services the fixed assets used to provide such
services, and contracting with HMO's, health plans, insurers or other
third-party payors for the delivery of dental services by affiliated dental
professionals.
SECTION 2.09. Title to Properties. The Company and each Subsidiary has
good and marketable title to its properties and assets reflected on the Pro
Forma Balance Sheet or acquired by it since the date of the Pro Forma Balance
Sheet (other than properties and assets disposed of in the ordinary course of
business since the date of that balance sheet), and all such properties and
assets are free and clear of mortgages, pledges, security interests, liens,
charges, claims, restrictions and other encumbrances, except for liens for
current taxes not yet due and payable and minor imperfections of title, if any,
not material in nature or amount and not materially detracting from the value or
impairing the use of the property subject thereto or impairing the operations or
proposed operations of the Company or any Subsidiary.
SECTION 2.10. Leasehold Interests. Each lease or agreement to which the
Company or any Subsidiary is a party under which it is a lessee of any property,
real or personal, is a valid and subsisting agreement without any material
default of the Company or the Subsidiary thereunder and, to the best of the
Company's knowledge, without any material default thereunder of any other party
thereto. No event has occurred and is continuing which, with due notice or
lapse of time or both, would constitute a default or event of default by the
Company or any Subsidiary under any such lease or agreement or, to the best of
the Company's knowledge, by any other party thereto. Possession of
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such property by the Company or the applicable Subsidiary has not been
disturbed and, to the best of the Company's knowledge, no claim has been
asserted against the Company or such Subsidiary adverse to its rights in such
leasehold interests.
SECTION 2.11. Insurance. The Company and each Subsidiary holds valid
policies covering all of the insurance required to be maintained by it under
Section 5.07 hereof.
SECTION 2.12. Taxes. The Company and each Subsidiary has filed all tax
returns, federal, state, county and local, required to be filed by it and the
Company or the Subsidiary has paid all taxes shown to be due by such returns as
well as other taxes, assessments and governmental charges which have become due
or payable, including without limitation all taxes which the Company or any
Subsidiary is obligated to withhold from amounts owing to employees, creditors
and third parties. All such taxes with respect to which the Company or any
Subsidiary has become obligated pursuant to elections made by the Company in
accordance with GAAP have been paid and adequate reserves have been established
for all taxes accrued but not yet payable. The Federal income tax returns of
either the Company or any Subsidiary have never been audited by the Internal
Revenue Service. No deficiency assessment with respect to or proposed
adjustment of the federal, state, county or local taxes of the Company or any
Subsidiary is pending or, to the best of the Company's knowledge, threatened.
There is no tax lien, whether imposed by any federal, state, county or local
taxing authority, outstanding against the assets, properties or business of the
Company or any Subsidiary. Neither the Company nor any of its stockholders has
ever filed an election pursuant to Section 1362 of the Internal Revenue Code of
1986, as amended (the "Code"), that the Company be taxed as an S corporation.
SECTION 2.13. Other Agreements. Except as set forth in the documents to
be executed in connection with the transactions contemplated by this Agreement
and the Stockholders' Agreement, neither the Company nor any Subsidiary is a
party to or otherwise bound by any written or oral contract or instrument or, to
the knowledge of the Company, other restriction which individually or in the
aggregate could materially adversely affect the business, prospects, financial
condition, operations, property or affairs of the Company or any Subsidiary.
Neither the Company nor any Subsidiary is a party to or otherwise bound by any
written or oral:
(a) contract with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of its
employees);
(b) contract or other commitment with any supplier containing any
provision permitting any party other than the Company or such Subsidiary to
renegotiate the price or other terms pursuant to which the Company or any
Subsidiary has or is
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expected to purchase in excess of $10,000 worth of products or services
during any 12-month period;
(c) contract for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(d) contract for the employment of any officer, employee or other
person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not terminable on
notice without cost or other liability to the Company or any Subsidiary, except
normal severance arrangements and accrued vacation pay;
(e) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, contract or understanding
pursuant to which benefits are provided to any employee of the Company or any
Subsidiary (other than group insurance plans applicable to employees generally);
(f) agreement or indenture relating to the borrowing of money or to
the mortgaging or pledging of, or otherwise placing a lien or security interest
on, any asset of the Company or any Subsidiary;
(g) guaranty of any obligation for borrowed money or otherwise;
(h) voting trust or agreement, stockholders agreement (except for
the Stockholders' Agreement), pledge agreement, buy-sell agreement or first
refusal or preemptive rights agreement (except for this Agreement and the
Stockholders' Agreement) relating to any securities of the Company or any
Subsidiary;
(i) agreement, or group of related agreements with the same party or
any group of affiliated parties, under which the Company or any Subsidiary has
advanced or agreed to advance money or has agreed to lease any property as
lessee or lessor;
(j) agreement or obligation (contingent or otherwise) to issue, sell
or otherwise distribute or to repurchase or otherwise acquire or retire any
share of its capital stock or any of its other equity securities (except
pursuant to this Agreement or the Stockholders' Agreement);
(k) assignment, license or other agreement with respect to any form
of intangible property;
(l) agreement under which it has granted any person any registration
rights, other than the Stockholders' Agreement;
(m) agreement under which it has limited or restricted its right to
compete with any person in any respect;
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(n) other contract or group of related contracts with the same party
involving more than $10,000 or continuing over a period of more than six months
from the date or dates thereof (including renewals or extensions optional with
another party), which contract or group of contracts is not terminable by the
Company without penalty upon notice of 30 days or less; or
(o) other contract, instrument, commitment, plan or arrangement, a
copy of which would be required to be filed with the Securities and Exchange
Commission (the "Commission") as an exhibit to a registration statement on
Form S-1 pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act
of 1933, as amended (the "Securities Act"), if the Company were registering
securities under the Securities Act.
To the best of the Company's knowledge, the Company and each Subsidiary and each
other party thereto have, in all material respects, performed all the
obligations required to be performed by them to date, have received no notice of
default and are not in default, in any material respect (with due notice or
lapse of time or both) under any lease, agreement or contract now in effect to
which the Company or any Subsidiary is a party or by which it or its property
may be bound. Neither the Company nor any Subsidiary has any present
expectation or intention of not fully performing all its obligations under each
such lease, contract or other agreement in all material respects, and neither
the Company nor any Subsidiary has any knowledge of any breach nor has it
received any written notice of any anticipated breach by the other party to any
contract or commitment to which the Company or any Subsidiary is a party. The
Company is not in violation of any provision of the Charter or its bylaws. No
Subsidiary is in violation of any provision of its charter or bylaws or other
organizing documents.
The Company has provided to the Purchasers a list of all management level
employees of the Company and of each Subsidiary indicating their current total
annual compensation.
SECTION 2.14. Patents, Trademarks, Etc. Set forth in Schedule II is a
list and brief description of all patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names and copyrights, and all applications for such which are in the
process of being prepared, 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 right, and in each
case a brief description of the nature of such right. The Company and each
Subsidiary owns or possesses adequate licenses or other rights to use, free and
clear of all liens, claims and restrictions, 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
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conduct of its business as conducted and as currently planned to be
conducted, and no claim is pending or, to the best of the Company's
knowledge, threatened to the effect that the operations of the Company or any
Subsidiary infringe upon or conflict with the asserted rights of any other
person under any Intellectual Property, and, to the best of the Company's
knowledge, there is no basis for any such claim (whether or not pending or
threatened). No claim is pending or, to the best of the Company's knowledge,
threatened to the effect that any such Intellectual Property owned or
licensed by the Company or any Subsidiary, or which the Company or any
Subsidiary otherwise has the right to use, is invalid or unenforceable by the
Company or such Subsidiary, and, to the best of the Company's knowledge,
there is no basis for any such claim (whether or not pending or threatened).
Except as set forth in Schedule II, neither the Company nor any Subsidiary is
obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant
to, any patent, trademark, service mark, trade name, copyright or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
SECTION 2.15. Loan Advances. Neither the Company nor any Subsidiary has
any outstanding loans or advances to any person nor is it obligated to make any
such loans or advances, except, in each case, for advances to its employees in
respect of reimbursable business expenses anticipated to be incurred by them in
connection with their performance of services for the Company or the Subsidiary.
SECTION 2.16. Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons. Neither the Company nor any Subsidiary has assumed, guaranteed,
endorsed or otherwise become directly or contingently liable on any indebtedness
of any other person (including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in the debtor, or otherwise to assure the
creditor against loss), except for guaranties by endorsement of negotiable
instruments for deposit or collection in the ordinary course of business.
SECTION 2.17. Significant Suppliers. No supplier which is material to the
Company or any Subsidiary has terminated, materially reduced or, to the
knowledge of the Company, threatened to terminate or materially reduce its
provision of products or services to the Company or any Subsidiary.
SECTION 2.18. Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article III
hereof, no registration or filing with, or consent or approval of or other
action by, any Federal, state or other governmental agency or instrumentality is
or will be necessary for the valid execution, delivery and performance by the
Company of this Agreement or the Stockholders' Agreement, the
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issuance, sale and delivery of the Shares or, upon conversion thereof, the
issuance and delivery of the Conversion Shares, other than (i) filings
pursuant to Federal and state securities laws (all of which filings have been
or, with respect to those filings which may be duly made after the applicable
Closing will be, made by or on behalf of the Company) in connection with the
sale of the Shares and (ii) with respect to the Stockholders' Agreement, the
registration of the shares covered thereby with the Commission and filings
pursuant to Federal and state securities laws.
SECTION 2.19. Disclosure. This Agreement (except with regard to any
statements made by the Purchasers), including any Schedule or Exhibit to this
Agreement, contains no untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein not misleading.
None of the written statements, documents, certificates or other items prepared
or supplied by the Company with respect to the transactions contemplated hereby,
when read together and in light of the circumstances in which they were made,
contains an untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein not misleading. There
is no fact which the Company has not disclosed to the Purchasers and their
counsel in writing and of which the Company is aware which materially and
adversely affects or could reasonably be expected materially and adversely to
affect the business, prospects, financial condition, operations, property or
affairs of the Company.
SECTION 2.20. Offering of the Shares. Neither the Company nor any person
authorized or employed by the Company as agent, broker, dealer or otherwise in
connection with the offering or sale of the Shares has offered the Shares for
sale to, or solicited any offer to buy the Shares from, or otherwise approached
or negotiated with respect thereto with, any person or persons, and neither the
Company nor any person acting on its behalf has taken or will take any other
action (including, without limitation, any offer, issuance or sale of any
security of the Company under circumstances which might require the integration
of such security with the Shares under the Securities Act or the rules and
regulations of the Commission thereunder), in either case so as to subject the
offering, issuance or sale of the Shares to the registration provisions of the
Securities Act.
SECTION 2.21. Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.22. Officers. Set forth in Schedule II is a list of the names
of the directors and officers of the Company and each Subsidiary, together with
the title or job classification and total current annual compensation of each
such person. None of such persons has an employment agreement or understanding,
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whether oral or written, with the Company or any Subsidiary, which is not
terminable on notice by the Company or such Subsidiary without cost or other
liability to the Company or such Subsidiary. None of such persons has, during
the past ten years, been arrested for or convicted of any material crime or
filed a petition to take advantage of any laws relating to bankruptcy,
insolvency, reorganization or composition or adjustment of debts or consented to
or failed to contest any petition filed against him in an involuntary case under
such laws or applied for, consented to or failed to contest the appointment of a
receiver, custodian, trustee or the like of a substantial part of his assets,
nor has he been an officer or director of any entity taking or being subject of
any such action.
SECTION 2.23. Transactions With Affiliates. No director, officer,
employee or stockholder of the Company or any Subsidiary, or member of the
family of any such person, or any corporation, partnership, trust or other
entity in which any such person, or any member of the family of any such person,
has a substantial interest or is an officer, director, trustee, partner or
holder of more than 5% of the outstanding capital stock thereof, is presently or
contemplated to be a party to any transaction with the Company or any
Subsidiary, including any contract, agreement or other arrangement providing for
the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments to any such person or firm.
SECTION 2.24. Employees. Each of Halpert and Sardegna (as each is defined
herein) has executed a confidentiality agreement with the Company, which is in
full force and effect. No officer or key employee of the Company or any
Subsidiary has advised the Company or the Subsidiary (orally or in writing) that
he intends to terminate employment with the Company or the Subsidiary. To the
best of the Company's knowledge, it and each Subsidiary has complied in all
material respects with all applicable laws relating to the employment of labor,
including provisions relating to wages, hours, equal opportunity, collective
bargaining and the payment of Social Security and other taxes, and, if
applicable, with the Employee Retirement Income Security Act of 1974, as
amended.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of Rule 501
under the Securities Act and was not organized for the specific purpose of
acquiring the Shares or the Conversion Shares;
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(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of development
so as to be able to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof;
(c) it has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management;
(d) the Shares being purchased by it and the Conversion Shares into
which those Shares are convertible are being acquired for its own account for
the purpose of investment and not with a view to or for sale in connection with
any distribution thereof;
(e) it understands that (i) the Shares and the Conversion Shares have
not been registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) or Section 3(b) thereof or Rule 505 or 506 promulgated
thereunder, (ii) the Shares and, upon conversion thereof, the Conversion Shares
must be held indefinitely unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration, (iii) the Shares
and the Conversion Shares will bear a legend to such effect and (iv) the Company
will make a notation on its transfer books to such effect;
(f) it is validly existing under the laws of the jurisdiction of its
organization and the consummation of the transactions contemplated hereby is
authorized by, and will not result in a violation of, state law or its charter
or other organizing documents;
(g) it has the full right, power and authority to execute this
Agreement and the Stockholders' Agreement and to perform its obligations
hereunder and thereunder;
(h) the execution, delivery and performance by the Purchasers of this
Agreement and the Stockholders, Agreement have been duly authorized by all
requisite corporate or other action; and
(i) assuming the due execution and delivery by the other parties
thereto, this Agreement and the Stockholders' Agreement constitute the legal,
valid and binding obligations of each of the Purchasers, enforceable in
accordance with their respective terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors rights and
equitable remedies, and to the extent that the indemnification provisions
contained in the Stockholders'
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Agreement may be limited by applicable Federal or state
securities laws.
ARTICLE IV
CONDITIONS TO THE CLOSING
SECTION 4.01. Conditions to the Obligations of the Purchasers. The
obligations of each Purchaser under Section 1.01 are, at its option, subject
to the satisfaction, on or before the date of the Closing, or waiver, of the
following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall have
received from Piper & Marbury L.L.P., counsel to the Company, an opinion
dated such date, substantially in the form set forth as Exhibit D attached
hereto.
(b) Performance. (i) The Company shall have performed and complied
with all agreements contained herein required to be performed or complied
with by it prior to or at such date, (ii) all of the representations and
warranties of the Company set forth in Article II hereof shall be true and
correct in all material respects as though made on and as of such date, and
(iii) the Chairman and Chief Executive Officer of the Company shall have
certified to the Purchasers in writing to such effect and to the further
effect that all of the conditions set forth in this Section 4.01 have been
satisfied.
(c) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory
in form and substance to the Purchasers and their counsel and the Purchasers
and their counsel shall have received all such counterpart originals or
certified or other copies of such documents as they reasonably may request.
(d) Supporting Documents. The Purchasers and their counsel shall
have received copies of the following documents:
(i) (A) the Charter, certified as of a recent date by the State
Department of Assessments and Taxation of the State of Maryland (the
"SDAT"), which Charter shall be in all respects satisfactory to the
Purchasers and shall contain the terms of the Preferred Stock agreed upon
by the parties hereto, and (B) a certificate of the SDAT dated as of a
recent date as to the active status of the Company and listing all documents
of the Company on file with the SDAT;
(ii) a certificate of the Secretary or an Assistant Secretary of
the Company dated such date and certifying: (A) that attached thereto is a
true and complete copy of the bylaws of the Company as in effect on
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the date of such certification; (B) that attached thereto is a true and
complete copy of all resolutions adopted by the board of directors and the
stockholders of the Company authorizing the execution, delivery and
performance of this Agreement and the Stockholders' Agreement, the issuance,
sale and delivery of the Shares and the reservation, issuance and delivery
of the Conversion Shares, and that all such resolutions are in full force
and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement and the Stockholders' Agreement;
(C) that the Charter has not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to clause (i)(B)
above; and (D) to the incumbency of each officer of the Company executing
this Agreement and the Stockholders' Agreement, the stock certificates
representing the Shares and any certificate or instrument furnished pursuant
hereto, and a certification by another officer of the Company as to the
incumbency of the officer signing the certificate referred to in this clause
(ii); and
(iii) such additional supporting documents and other information
with respect to the operations and affairs of the Company or any Subsidiary
as the Purchasers or their counsel may reasonably request.
(e) The Stockholders' Agreement. The Company and the other parties
to the Stockholders' Agreement (other than the Purchasers) shall have
executed and delivered the Stockholders' Agreement in substantially the form
of Exhibit A attached hereto.
(f) Charter. The Charter shall be as set forth in Exhibit B
hereto.
(g) Transaction Fees and Expenses. The Company shall have (i)
reimbursed the Purchasers, in accordance with Section 6.01 the reasonable
fees and disbursements of each Purchaser's counsel invoiced at the Closing
and (ii) paid to each Purchaser by certified check or such other payment
method agreed to by such Purchaser and the Company an aggregate commitment
fee of $25,000, payable in the amount of $16,667 to Grotech and $8,333 to
Merchant.
(h) Purchases by the Purchasers. The Purchasers shall purchase in
the aggregate 40,154 of the Shares for an aggregate purchase price of
$3,000,000.
(i) Employment Agreements. The Company shall have entered into
employment agreements and confidentiality and non-competition agreements with
each of Lawrence F. Halpert ("Halpert") and Carl J. Sardegna ("Sardegna"), in
each case in form and substance reasonably acceptable to the Purchasers.
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(j) Due Diligence. The Purchasers shall have discovered nothing
during their due diligence review of the Company that would cause them, in
their sole good faith discretion, not to purchase the Shares.
(k) Management Services Agreement. The Company or a Subsidiary of
the Company will have entered into a Management Services Agreement with
Halpert & Associates, P.A. in form and substance reasonably satisfactory to
the Purchasers.
(l) Additional Agreements. The Company shall have delivered such
other agreements and instruments as the Purchasers shall have reasonably
requested.
All such documents shall be reasonably satisfactory in form and substance to
the Purchasers and their counsel.
SECTION 4.02. Conditions to the Obligations of the Company. The
obligations of the Company under Section 1.01 hereof are, at its option,
subject to the satisfaction, on or before the date of the Closing, or waiver,
of the following conditions:
(a) Stockholders' Agreement. The Purchasers shall have accepted
the terms of and executed and delivered the Stockholders' Agreement.
(b) Purchases by the Purchasers. Both Purchasers shall be prepared
to consummate the purchase of the Shares to be purchased at the Closing in
accordance with the terms of this Agreement.
(c) Additional Agreements. The Purchasers shall have delivered
such other agreements and instruments as the Company shall have reasonably
requested.
All such documents shall be reasonably satisfactory in form and substance to
the Company and its counsel.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each Purchaser that so long as any
Shares or Conversion Shares are outstanding and owned by such Purchaser (or,
if occurring prior thereto, with respect to Sections 5.02, 5.03, 5.04, 5.07,
5.08 and 5.14, until such time as the Company successfully completes an
underwritten initial public offering of its common stock in which the
post-offering equity valuation of the Company exceeds $50 million (an "IPO")):
SECTION 5.01. Financial Information and Inspection Rights. Until the
earlier of such time that the Company completes a firm
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commitment underwritten public offering of its securities under the
Securities Act or it is required to file reports with the Commission pursuant
to the provisions of Section 15(d) of the Securities Exchange Act of 1934, as
amended, it shall furnish to each Purchaser:
(a) within 120 days after the end of each fiscal year, a
consolidated balance sheet and related consolidated statements of income,
stockholders' equity and cash flows, showing the financial position and
results of operation of the Company and its consolidated Subsidiaries for the
fiscal year then ended, prepared in accordance with GAAP and certified
commencing with the year ending December 31, 1995, by a nationally recognized
accounting firm selected by the board of directors of the Company and
reasonably acceptable to the Purchasers;
(b) within 45 days after the end of each quarter of each fiscal
year a consolidated balance sheet and related consolidated statements of
income, stockholders' equity and cash flows, showing the financial position
and results of operations of the Company and its consolidated Subsidiaries,
unaudited but prepared in accordance with GAAP, subject to normal year-end
adjustments and the absence of notes, and certified by the Chief Financial
Officer of the Company, or the principal accounting officer if the Company
does not have a Chief Financial Officer, as being fairly stated in all
material respects when considered in relation to the consolidated financial
statements of the Company, such consolidated balance sheet to be as of the
end of such quarter and such consolidated statements of income and cash
flows to be for such quarter and for the period from the beginning of the
fiscal year to the end of such quarter (with comparisons to the Company's
budget for such period), in each case, if available, with comparative
statements for the prior fiscal year;
(c) within 30 days after the end of each month of each fiscal year
a consolidated balance sheet and related consolidated statements of income,
stockholders' equity and cash flows, showing the financial position and
results of operations of the Company and its consolidated Subsidiaries,
unaudited but prepared in accordance with GAAP, subject to normal year-end
adjustments and the absence of notes, and certified by the Chief Financial
Officer of the Company, or the principal accounting officer if the Company
does not have a Chief Financial Officer, as being fairly stated in all
material respects when considered in relation to the consolidated financial
statements of the Company, such consolidated balance sheet to be as of the
end of such month and such consolidated statements of income and cash flows
to be for such month and for the period from the beginning of the fiscal year
to the end of such month (with comparisons to the Company's budget for such
period), in each case, if available, with comparative statements for the
prior fiscal year;
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(d) within 60 days prior to the start of each fiscal year,
consolidated capital and operating expense budgets (the "Budgets"), cash flow
projections and income and loss projections for the Company in respect of
such fiscal year and each of the two subsequent fiscal years and a projected
consolidated balance sheet at the end of each year, all itemized in
reasonable detail, and, promptly after preparation, any revisions to any of
the foregoing, all of which will be in form and substance acceptable to the
Purchasers;
(e) at the time of delivery of each annual and quarterly statement
pursuant to Section 5.01(a) and (b) hereof, a certificate executed by the
Chief Financial Officer of the Company, or the principal accounting officer
if the Company does not have a Chief Financial Officer, stating that he has
reviewed this Agreement and the Charter and has no knowledge of any default
by the Company in the performance or observance of any of the provisions of
this Agreement or the Charter or, if such officer has such knowledge,
specifying such default and the nature thereof;
(f) at the time of delivery of each quarterly and monthly statement
pursuant to Section 5.01(b) and (c) hereof, a brief management narrative
report explaining all significant variances from forecasts and all
significant current developments in staffing, marketing, sales and operations;
(g) promptly following receipt by the Company, each audit response
letter disclosing pending or threatened litigation or unasserted claims or
assessments considered to be probable of assertion, any accountant's
management letter and other written report submitted to the Company by its
independent public auditors in connection with an annual or interim audit of
the books of the Company and its Subsidiaries;
(h) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries that could
materially adversely affect the Company or any Subsidiary, with copies of all
pleadings filed in the same;
(i) promptly upon sending, making available or filing the same, all
press releases, reports, financial statements, returns and other material
documents that the Company or any Subsidiary sends or makes available to its
stockholders or directors or files with any governmental agency, including
the Commission and the Internal Revenue Service;
(j) promptly, from time to time, such other information regarding
the business, prospects, financial condition, operations, property or affairs
of the Company or any Subsidiary as such Purchaser reasonably may request;
(k) within 10 days after the Company becoming aware thereof, notice
of any default of any nature with respect to any loans, documents or
instruments
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regarding indebtedness or leases to which the Company or any Subsidiary is a
party; and
(l) permit each Purchaser, or any authorized representative
thereof, to visit and inspect the properties of the Company and its
Subsidiaries, including their corporate and financial records, and to discuss
their business and finances with officers, all at such reasonable times as
may be requested by such Purchaser. Each Purchaser or representative thereof
shall maintain the confidentiality of all information acquired by them in
exercising such rights.
SECTION 5.02. Right of First Refusal on Company Offerings/Right of First
Refusal on Additional Financings.
(a) Right of First Refusal on Company Offerings
(i) The Company shall, prior to any issuance by the Company or
any Subsidiary of any of its securities (other than the issuance of Shares
hereunder pursuant to Section 1.01 hereof and the issuance of securities by
a Subsidiary to the Company), offer to each Purchaser by written notice the
right, for a period of 30 days, to purchase a pro rata amount (based on the
percentage ownership of the Common Stock of the Company assuming the
conversion of the Shares) of such securities for cash at an amount equal to
the price or other consideration for which such securities are to be issued;
provided, however, that the first refusal rights of the Purchasers pursuant
to this Section 5.02(a) shall not apply to securities issued (A) upon
conversion of any of the Preferred Stock, (B) as a stock dividend or upon
any subdivision of shares of Common Stock, provided that the securities
issued pursuant to such stock dividend or subdivision are limited to
additional shares of Common Stock, (C) the issuance of shares of Common
Stock upon exercise of the options granted to Sardegna prior to the date of
this Agreement to purchase 12,139 shares of Common Stock (the "Sardegna
Options") and the issuance of up to 9,158 shares of Common Stock under the
Company's 1995 Equity Participation Plan, (D) solely in consideration for
the acquisition (whether by merger or otherwise) by the Company of all or
substantially all of the stock or assets of any other entity, or (E)
pursuant to a firm commitment underwritten public offering. The Company's
written notice to the Purchasers shall describe the securities proposed to
be issued by the Company and specify the number, price and payment terms.
(ii) Each Purchaser may accept the Company's offer as to the full
number of securities offered to it or any lesser number, by written notice
thereof given by it to the Company prior to the expiration of the aforesaid
30 day period, in which event the Company shall promptly sell and such
Purchaser shall buy, upon the terms specified, the
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number of securities agreed to be purchased by such Purchaser.
(iii) The Company shall be free at any time prior to 90 days
after the date of its notice of offer pursuant to this Section 5.02(a), to
offer and sell to any third party or parties the number of such securities
not agreed by the Purchasers to be purchased by them, at a price and on
payment terms no less favorable to the Company than those specified in such
notice of offer. However, if such third party sale or sales are not
consummated within such 90 day period, the Company shall not sell such
securities as shall not have been purchased within such period without again
complying with this Section 5.02(a).
(b) Right of First Refusal on Additional Financings. The Company
will notify the Purchasers as to the proposed amount and terms of any
third-party equity financing or any debt financing that includes warrants,
rights of conversion to or exchange for capital stock, contingent pay-out or
any other equity features for the Company or any Subsidiary at least 30 days
prior to offering participation in such financing to any other entity.
During such 30 day period, the Company will negotiate in good faith with the
Purchasers as to the amount, and the terms, of participation in such
financing by the Purchasers. The Purchasers shall have the first right to
participate in all or any portion of such financing. The Company shall be
free to offer any portion of the financing to which the Purchasers have not
subscribed during such 30 day period to outside investors on the same terms
and subject to the same conditions as offered to the Purchasers, provided
that no such offering may be provided to any third-party on more favorable
terms than those offered to the Purchasers without again complying with this
Section 5.02(b). Further, if any such proposed financing is not consummated
within 90 days from the date such offering was accepted or rejected by the
Purchasers, the Company may not consummate such offering without again
complying with this Section 5.02(b).
SECTION 5.03. Net Worth Covenant. The Company shall (i) at all times
prior to the third anniversary of the date of the Closing, cause the amount
by which the assets of the Company and its Subsidiaries exceed their
liabilities ("Consolidated Net Worth"), determined on a consolidated basis in
accordance with GAAP, to be greater than $1,000,000, and (ii) on and after
such third anniversary and prior to the fourth anniversary of the date of the
Closing, cause Consolidated Net Worth to be greater than $2,000,000, and
(iii) on such fourth anniversary and at all times thereafter cause
Consolidated Net Worth to be greater than $$3,000,000.
SECTION 5.04. Acquisition Policy. The Company and its board of directors
shall maintain a written policy articulating the goals and strategies of the
Company with respect to acquisitions of dental practices or other businesses
or entities,
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which policy shall be in all respects reasonably satisfactory to
the Purchasers. The Company shall not materially deviate from the approved
policy without the prior written approval of the Purchasers. A copy of that
policy as in effect on the date of this Agreement is attached hereto as
Exhibit E.
SECTION 5.05. Reservation of Conversion Shares. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the conversion of the Shares and
otherwise complying with the terms of this Agreement, such number of its duly
authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Shares from time to time outstanding or otherwise to comply
with the terms of this Agreement. If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of the Shares or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purposes. The Company
will obtain any authorization, consent, approval or other action by or make
any filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Shares.
SECTION 5.06. Corporate Existence. Except as contemplated hereunder, the
Company shall maintain its corporate existence, rights and franchises in full
force and effect.
SECTION 5.07. Properties, Business, Insurance. The Company shall
maintain, and cause each of its Subsidiaries to maintain, as to its
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, and the
Company shall use its best efforts to obtain and maintain key man term life
insurance on the life of Halpert in the amount of at least $3 million. All
of such insurance shall be reasonably satisfactory in all respects to the
Purchasers. The Company and its Subsidiaries shall not cause or permit any
assignment or change in beneficiary and shall not borrow against any such
policy. If the Company or any of its Subsidiaries shall receive proceeds
from such policies resulting from any event or related series of events in an
amount in excess of $1 million, the Company will permit the Purchasers to
elect, within 90 days of the Company's receipt of proceeds, to have cash
proceeds applied to the repurchase by the Company from the Purchasers of any
Shares then held by the Purchasers for an amount per share equal to the
liquidation payment to which the holder thereof would then be entitled.
SECTION 5.08. Board of Directors. The Company shall use its best efforts
to ensure that meetings of the Board are held at
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least once every two months. The Board shall consist of eight members, three
of whom shall be nominated and elected by the holders of the Preferred Stock
voting as a separate class in accordance with the Charter.
SECTION 5.09. Director Liabilityy. The Company shall at all times
maintain provisions in the Charter and its bylaws indemnifying all directors
against liability and limiting the liability to the Company of all directors
to the maximum extent permitted under the laws of the State of Maryland.
SECTION 5.10. Proprietary Information Agreements. The Company shall use
its best efforts to obtain a confidentiality agreement in form reasonably
satisfactory to the Purchasers from all present and future officers and key
employees who will have access to confidential information of the Company or
any Subsidiary upon their employment by the Company or such Subsidiary.
SECTION 5.11. Compliance with Laws. The Company shall comply, and shall
cause each Subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could materially adversely affect its
business or condition, financial or otherwise, including applicable
environmental laws.
SECTION 5.12. Keeping of Records and Books of Account. The Company shall
keep adequate records and books of account, in which complete entries will be
made in accordance with GAAP consistently applied, reflecting all financial
transactions of the Company, and shall cause each Subsidiary to comply, and
in which, for each fiscal year, all proper reserves for depreciation,
depletion, obsolescence, amortization, taxes, bad debts and other purposes in
connection with its business shall be made.
SECTION 5.13. Restrictive Agreements Prohibited. The Company shall not
become a party to any agreement which by its terms restricts the Company's
performance of this Agreement or the Stockholders' Agreement.
SECTION 5.14. Negative Covenants. Except as set forth in this Agreement
and the Stockholders' Agreement, the Company will not and will not permit any
Subsidiary to:
(a) redeem any shares of its capital stock or pay dividends or make
any cash or other distributions to its stockholders, except dividends or
other distributions on the Preferred Stock, and except that this prohibition
will not apply to distributions on capital stock of Subsidiaries provided
that such capital stock is owned by the Company;
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(b) sell or otherwise dispose of any assets of the Company or any
Subsidiary, except in the ordinary course of its business;
(c) acquire any assets or other capital items during any fiscal
year having an aggregate value in excess of the amounts budgeted for such
year in the Budgets most recently delivered to the Purchasers;
(d) make any acquisitions of dental practices or other businesses
or entities except as contemplated by the Budgets for the period and by the
acquisition policy most recently agreed to with the Purchasers pursuant to
Section 5.04;
(e) except for transactions contemplated by this Agreement, enter
into any transaction with any director, officer, employee or holder of more
than 5% of the outstanding capital stock of any class or series of capital
stock of the Company or any member of the family of any such person, or any
corporation, partnership, trust or other entity in which any such person, or
member of the family of any such person, is a director, officer, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof,
except for transactions which are no less favorable than could be obtained
with an independent third party in an arm's-length transaction and which are
approved by a majority of the disinterested directors of the Company;
(f) take any formal action by its board of directors or
stockholders to merge or consolidate with another corporation or entity or
dissolve or otherwise liquidate;
(g) change the location nature of its business operations, or
invest any funds in any concern or entity not strictly related to its
business;
(h) alter its corporate structure so that a change of control
occurs or make any loans (other than to a Subsidiary), guarantees (except
with respect to indebtedness of a Subsidiary) or enter into any joint
ventures or invest in any partially owned Subsidiaries (except for
HealthMaster, Inc.);
(i) issue or sell any capital stock, options, convertible debt, or
redeem the same, issue or grant any stock appreciation rights or other rights
in or to stock (except upon exercise of the Sardegna Options and except for
up to 9,158 shares of Common Stock pursuant to the Company's 1995 Equity
Participation Plan);
(j) enter into any contracts not in the ordinary course of its
business;
(k) incur any indebtedness for money borrowed, other than (i)
indebtedness incurred to finance short-term working capital needs and (ii)
purchase money indebtedness (up to the
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amount of the purchase price or capital expenditure paid) incurred in
connection with acquisitions of assets and capital expenditures;
(l) terminate the employment agreement with Halpert;
(m) except as provided in the employment agreements between the
Company and each of Halpert and Sardegna as in effect on the date of the
Closing (which agreements shall not be amended without the prior written
consent of the Purchasers) and except for salary increases and bonuses to
individuals in the ordinary course of business as recommended from time to
time by a compensation committee of the Board (which committee will be
maintained at all times and on which a member of the Board designated by the
Purchasers will sit) and as approved by the Board, increase the salary of any
management employee, or enter into any incentive compensation or other bonus
arrangement with any employee;
(n) increase the size of the Board; or
(o) alter, amend or breach any provision of its Charter or bylaws.
Notwithstanding the foregoing, the Company will be permitted to enter into
any transaction that would otherwise be prohibited by this Section 5.14 if,
as a result thereof, all of the Shares and the Conversion Shares then held by
the Purchasers would be purchased or redeemed for cash and for an amount that
would provide to the Purchasers a compounded internal rate of return of at
least (i) 60% if such transaction occurs on or before the first anniversary
of the Closing, (ii) 50% if such transaction occurs after the first
anniversary of the Closing and on or before the second anniversary thereof,
and (iii) 40% if such transaction occurs after the second anniversary of the
Closing. For purposes of calculating the applicable rate of return, a year
of 12 30-day months will be used with monthly compounding. No provision of
this Section 5.14 will prohibit the Company from taking such steps as are
necessary in connection with the successful completion of an IPO.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, (i) that, if the
Closing shall occur, the Company shall pay the (a) reasonable fees and
disbursements of each Purchaser's counsel in accordance with Section
4.01(g)(i), each Purchaser being entitled to retain separate counsel if
either of them in
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their discretion considers it appropriate, and (b) reasonable out-of-pocket
expenses of the Purchasers.
SECTION 6.02. Survival of Agreements. All covenants, agreements,
representations and warranties made herein, in the Stockholders' Agreement or
in any certificate or instrument delivered to the Purchasers pursuant to or
in connection with this Agreement or the Stockholders' Agreement shall
survive the execution and delivery of this Agreement, the Stockholders'
Agreement, the issuance, sale and delivery of the Shares, and the issuance
and delivery of the Conversion Shares, and all statements contained in any
certificate or other instrument delivered by the Company hereunder or
thereunder or in connection herewith or therewith shall be deemed to
constitute representations and warranties made by the Company.
SECTION 6.03. Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or
other commissions relative to this Agreement or to the transactions
contemplated hereby, based in any way on agreements, arrangements or
understandings made or claimed to have been made by such party with any third
party.
SECTION 6.04. Parties in Interest. All representations, 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 whether so expressed or not. Without limiting
the generality of the foregoing, all representations, covenants and
agreements benefiting the Purchasers shall inure to the benefit of any and
all subsequent holders from time to time of the Preferred Shares or the
Conversion Shares.
SECTION 6.05. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in
person, by overnight express mail or mailed by certified or registered mail,
return receipt requested, addressed as follows:
(a) If to the Company:
Lawrence F. Halpert, Chairman
DentalCo, Inc.
Lake Falls Professional Building
6115 Falls Road
Baltimore, Maryland 21209
with a copy to:
Wilbert H. Sirota, Esquire
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
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and
(b) If to either Purchaser, at the address of such Purchaser set
forth in Schedule I with a copy to:
J.W. Thompson Webb, Esquire
Miles & Stockbridge
10 Light Street
Baltimore, Maryland 21202
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Maryland,
without giving effect to its conflicts of laws provisions.
SECTION 6.07. Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, together with the Stockholders' Agreement and other
agreements referenced by this Agreement, constitutes the sole and entire
agreement of the parties with respect to the subject matter hereof. All
Schedules and Exhibits hereto are hereby incorporated herein by reference.
SECTION 6.08. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 6.09. Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the holders of at least two-thirds of the shares of Common Stock
issued or issuable upon conversion of the Shares.
SECTION 6.10. Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority,
the validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.11. Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 6.12. Recitals. The Recitals hereto are specifically made a part
of this Agreement.
SECTION 6.13. Knowledge. References in this Agreement to the best of the
Company's knowledge shall mean to the best of the Company's knowledge after
due investigation.
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SECTION 6.14. Existing Life Insurance. The parties to this Agreement
will negotiate in good faith to agree, as soon as practicable after the date
of the Closing, on a method pursuant to which the life insurance policies
identified on Schedule IV to this Agreement will be transferred to the
respective insureds under each policy in a manner that will preserve for the
Company value not less than the cash surrender value of each policy
determined as of the date of the Closing. The Company will not transfer the
policies unless the proposed arrangements for transfer have been approved by
the Purchasers. The Purchasers acknowledge that, after such transfer, the
Company will, if and for as long as the Board of Directors of the Company
approves, pay the premiums on the policies on behalf of the insureds (plus
payment to the insureds of the amount necessary to gross them up for the
income tax effect of paying the premiums on their behalf), provided that the
cost to the Company for such payments (and gross-up) does not exceed $134,000
per annum. The Purchasers agree that, prior to an IPO, each of them will
instruct each member of the Board of Directors of the Company designated by
the Purchasers to vote in favor of such payments (or in favor of any
agreement between the Company and the insureds providing for such payments),
provided that at the time of such payments the applicable insured is employed
by Halpert & Associates, P.A. (or its successor, "H&A") and H&A and the
Company continue to be parties to the Management Services Agreement.
SECTION 6.15. Counterparts. This Agreement may be executed in any number
of counterparts and any party hereto may execute any such counterpart, each
of which when executed and delivered shall be deemed to be an original and
all of which counterparts taken together shall constitute but one and the
same instrument. This Agreement shall become binding when one or more
counterparts taken together shall have been executed and delivered by the
parties. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
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IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
DENTALCO, INC.
By: /s/ LAWRENCE F. HALPERT (SEAL)
-------------------
Name: Lawrence F. Halpert
Title: Chairman/CEO
PURCHASERS:
GROTECH PARTNERS IV, L.P.
By: GroTech Capital Group, IV,
Inc., General Partner
By: (SEAL)
-------------------
Hugh A. Woltzen
Managing Director
MERCHANT PARTNERS, L.P.
By: Merchant Advisors, L.P.,
General Partner
By: Merchant Development Corp.,
General Partner
By: (SEAL)
-------------------
Raymond Bank
President
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IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
DENTALCO, INC.
By: (SEAL)
-------------------
Name:
Title:
PURCHASERS:
GROTECH PARTNERS IV, L.P.
By: GroTech Capital Group, IV,
Inc., General Partner
By: /s/ HUGH A. WOLTZEN (SEAL)
-------------------
Hugh A. Woltzen
Managing Director
MERCHANT PARTNERS, L.P.
By: Merchant Advisors, L.P.,
General Partner
By: Merchant Development Corp.,
General Partner
By: /s/ RAYMOND BANK (SEAL)
-------------------
Raymond Bank
President
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Exhibit 10.3
PREFERRED STOCK PURCHASE AGREEMENT
by and among
DENTALCO, INC.,
MORGAN STANLEY VENTURE CAPITAL FUND II ANNEX, L.P.,
and
MORGAN STANLEY VENTURE INVESTORS ANNEX, L.P.
Dated as of June 27, 1996
<PAGE>
THIS PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is dated
as of June 27, 1996 by and among DENTALCO, INC., a Maryland corporation
(formerly known as Mid-Atlantic Dental Associates, P.A., the "Company"),
MORGAN STANLEY VENTURE CAPITAL FUND II ANNEX, L.P., and MORGAN STANLEY
VENTURE INVESTORS ANNEX, L.P. (each a "Purchaser" and collectively the
"Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers an
aggregate 816,038 shares (the "Preferred Shares") of its authorized but
unissued preferred stock designated 8% Class C Cumulative Convertible
Preferred Stock, $.0001 par value per share (the "Class C Preferred Stock");
and
WHEREAS, certain of the Company's stockholders and members of the
Company's management are (i) the sole shareholders of Mid-Atlantic Dental
Associates, P.A. ("Mid-Atlantic") and (ii) hold 99% of the outstanding equity
securities of Ned Greenberg D.D.S. & Associates, P.C. ("Greenberg &
Associates" and collectively with "Mid-Atlantic," the "Affiliates" and each
an "Affiliate"), each of which is affiliated with the Company through such
common ownership and certain management agreements; and
WHEREAS, the Purchasers wish to purchase that number of the
Preferred Shares on the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF CLASS C PREFERRED STOCK
SECTION 1.01. Issuance, Sale and Delivery of the Preferred Shares.
(a) Subject to the terms and conditions of this Agreement, the Company agrees to
sell to each Purchaser, and each Purchaser shall purchase from the Company on
the Closing Date (as hereinafter defined) the number of Preferred Shares, set
forth opposite such Purchaser's name in Schedule I hereto under the heading
"Number of Preferred Shares," at the purchase price of $3.6763 per share. On
the Closing Date, the Company shall issue and deliver to each Purchaser
certificates in definitive form, registered in the name of such Purchaser,
evidencing the Preferred Shares to be issued and sold to such Purchaser
hereunder.
(b) As payment in full for the Preferred Shares being purchased by
each Purchaser hereunder, and against delivery thereof as aforesaid, on the
Closing Date, each Purchaser shall transfer to the account of the Company, by
wire transfer,
<PAGE>
immediately available funds in the amount set forth opposite the name of such
Purchaser on Schedule I hereto under the heading "Aggregate Purchase Price."
SECTION 1.02. Closing. The closing and sale of the Preferred Shares
(the "Closing") shall take place at the offices of Reboul, MacMurray, Hewitt,
Maynard & Kristol, 45 Rockefeller Plaza, New York, New York 10111, at 10:00 a.m.
on July 1, 1996, or at such other location, date and time as may be agreed to by
the Purchasers and the Company (such date and time being herein called the
"Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, as of the
date of this Agreement, except as set forth in the Disclosure Schedule attached
hereto as Schedule II (which Disclosure Schedule makes explicit reference to the
particular representation or warranty as to which exception is taken, which in
each case shall constitute the sole representation and warranty as to which such
exception shall apply) ("Schedule II"):
SECTION 2.01. Organization, Qualifications and Corporate Power and
Business.
(a) The Company is a corporation duly organized and validly existing
under the laws of the State of Maryland and is duly licensed or qualified to
transact business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification, except where the failure to so qualify could not reasonably be
expected to have a material adverse effect on the business, prospects, financial
condition, operations, properties or affairs of the Company and its
Subsidiaries, taken as a whole (a "Material Adverse Effect"). The Company has
the corporate power and authority to own and hold its properties and to carry on
its business as now conducted and as proposed to be conducted, to execute,
deliver and perform this Agreement and the Amended and Restated Stockholders'
Agreement of even date herewith (the "Stockholders' Agreement") by and among the
Company, the Purchasers and all other stockholders of the Company, in the form
substantially as attached hereto as Exhibit A, to issue, sell and deliver the
Preferred Shares and to issue and deliver the shares of its common stock, par
value $0.0001 per share (the "Common Stock"), issuable upon conversion of the
Preferred Shares (the "Conversion Shares").
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(b) "Subsidiary" means any entity (i) securities of which having
ordinary voting power to elect a majority of the board of directors (or other
persons having similar functions), or (ii) other ownership interests of which
ordinarily constituting a majority voting interest, are at the time directly or
indirectly owned or controlled by the Company or by one or more of its
Subsidiaries or by the Company and one or more of its Subsidiaries. Except for
DentalCo Management Services of Maryland, Inc. and HealthMaster Information
Technologies, Inc., the Company has no Subsidiaries and does not own of record
or beneficially, directly or indirectly, (i) any shares of capital stock or
securities convertible into capital stock of any other corporation or (ii) any
participating interest in any partnership, joint venture or other non-corporate
business enterprise, and the Company does not control, directly or indirectly,
any other entity. Each Subsidiary of the Company is a corporation duly
organized and validly existing under the laws of the State of Maryland and is
duly licensed or qualified to transact business as a foreign corporation and is
in good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification, except where the failure to so qualify
could not reasonably be expected to have a Material Adverse Effect.
(c) The Company and each of its Subsidiaries is engaged principally
in the business of providing, directly or indirectly, administrative services to
dental practices, owning and leasing to providers of dental services the fixed
assets used to provide such services, and contracting with HMO's, health plans,
insurers or other third-party payors for the delivery of dental services by
affiliated dental professionals.
(d) Each of the Affiliates is a corporation duly organized and
validly existing under the laws of the state of the jurisdiction of its
incorporation, and is duly licensed or qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which it owns or
leases any real property or in which the nature of business transacted by it
makes such licensing or qualification necessary, except where the failure to so
qualify could not be reasonably expected to have a Material Adverse Effect.
Each Affiliate has the corporate power and authority to own and hold its
properties and to carry on its business as currently conducted. None of the
Affiliates has any Subsidiaries.
SECTION 2.02. Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this Agreement and
the Stockholders' Agreement, the performance by the Company of its obligations
hereunder and thereunder and the issuance, sale and delivery of the Preferred
Shares and the
3
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issuance, sale and delivery of the Conversion Shares have been duly
authorized by all requisite corporate action and will not violate any
provision of applicable corporate or securities laws, any order of any court
or other agency of government, the Articles of Incorporation of the Company,
as amended or supplemented (the "Charter"), the bylaws of the Company, the
Articles of Incorporation or the bylaws of any Affiliate, or any provision of
any indenture, agreement or other instrument by which the Company, any of its
properties or assets, or any of its Affiliates are bound, or conflict with,
result in a material breach of or constitute (with due notice or lapse of
time or both) a default which would allow the other party to accelerate the
obligations of the Company or any Affiliate due to it or otherwise exercise
rights against the Company or any Affiliate under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge, restriction, claim or encumbrance of any nature whatsoever upon
any of the properties or assets of the Company or any Affiliate.
(b) The Preferred Shares, if and when issued in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable
and will be free and clear of all liens, charges, restrictions, claims and
encumbrances, except as set forth herein, in the Charter or in the Stockholders'
Agreement. The Conversion Shares have been duly reserved for issuance upon
conversion of the Preferred Shares and, if and when so issued, will be duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
and will be free and clear of all liens, charges, restrictions, claims and
encumbrances, except as set forth herein, in the Charter and in the
Stockholders' Agreement. Neither the issuance, sale or delivery of the
Preferred Shares nor the issuance or delivery of the Conversion Shares is
subject to any preemptive right of stockholders of the Company or to any right
of first refusal or other right in favor of any person, except as herein
provided or as provided in the Stockholders' Agreement.
SECTION 2.03. Validity. This Agreement and the Stockholders'
Agreement have been duly authorized, executed and delivered by the Company and,
assuming the due execution and delivery by the other parties thereto, each
constitutes the legal, valid and binding obligation of the Company, enforceable
in accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and equitable
remedies, and to the extent that the indemnification provisions contained in the
Stockholders' Agreement may be limited by applicable Federal or state securities
laws.
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SECTION 2.04. Authorized Capital Stock.
(a) The authorized capital stock of the Company consists of
(i) 10,000,000 shares of Common Stock, (ii) 47,068 shares of Class B Convertible
Preferred Stock, par value $0.0001 per share, (iii) 40,154 shares of 8% Class A
Cumulative Convertible Preferred Stock, par value $0.0001 per share, and (iv)
816,038 shares of 8% Class C Cumulative Convertible Preferred Stock, par value
$0.0001 per share. The stockholders of record of the Company and the number of
shares of capital stock held by each are set forth in the attached Schedule III,
all of which shares are validly issued and outstanding, and, except as
contemplated by this Agreement, the Charter and the Stockholders' Agreement,
there are no subscriptions, warrants, options, convertible securities or other
rights (contingent or other) to purchase or otherwise acquire equity securities
of the Company. Except for the Conversion Shares, no shares of Common Stock or
other capital stock of the Company are reserved for possible future issuance.
The designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of the Class C Preferred Stock are as set forth in the
Articles of Amendment to the Charter, a copy of which is attached hereto as
Exhibit B, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and equitable remedies. Except pursuant to the terms of this Agreement and the
Stockholders' Agreement, there is no commitment by the Company to issue shares,
subscriptions, warrants, options, convertible securities or other such rights or
to distribute to holders of any of its equity securities any evidence of
indebtedness or asset. Except as provided for in the Charter, in the
Stockholders' Agreement or herein, the Company has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any of its equity securities or
any interest therein or to pay any dividend or make any other distribution in
respect thereof. Except as provided for in the Charter, in the Stockholders'
Agreement or as provided herein, there are no voting trusts or agreements,
stockholders, agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive rights or proxies relating to any securities of the
Company (whether or not the Company is a party thereto). All of the outstanding
securities of the Company were issued in compliance with all applicable federal
and state securities laws.
(b) The authorized capital stock of DentalCo Management Services of
Maryland, Inc. consists of 5,000 shares of common stock, of which 100 shares are
issued and outstanding, and of which 100% are owned by the Company. The
authorized capital stock of HealthMaster, Inc. consists of 100,000 shares of
common
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stock, of which 1,000 shares are issued and outstanding, and of which 900
shares are owned by the Company and 100 shares are owned by the University of
Maryland Business School. The authorized capital stock of each Affiliate is set
forth in the attached Schedule III-A and the stockholders of record of each
Affiliate and the number of shares of capital stock held by each such
stockholder are set forth in said Schedule III-A. There are no subscriptions,
warrants, options, convertible securities or other rights (contingent or other)
to purchase or otherwise acquire equity securities of any Subsidiary or
Affiliate of the Company and no shares of capital stock of a Subsidiary or
Affiliate are reserved for possible future issuance. There is no commitment by
a Subsidiary or Affiliate of the Company to issue shares, subscriptions,
warrants, options, convertible securities or other such rights or to distribute
to holders of any of its equity securities any evidence of indebtedness or
asset. No Subsidiary or Affiliate of the Company has any obligation (contingent
or other) to purchase, redeem or otherwise acquire any of its equity securities
or any interest therein or to pay any dividend or make any other distribution in
respect thereof. There are no voting trusts or agreements, stockholders'
agreements, pledge agreements, buy-sell agreements, rights of first refusal,
preemptive rights or proxies relating to any securities of a Subsidiary or
Affiliate of the Company (whether or not such Subsidiary or Affiliate is a party
thereto). All of the outstanding securities of each Subsidiary or Affiliate
were issued in compliance with all applicable federal and state securities laws.
SECTION 2.05. Financial Statements and Projections.
(a) The Company has furnished to the Purchasers: (i) the audited
consolidated and consolidating balance sheets of the Company and its
subsidiaries, including without limitation the Affiliates, as of December 31,
1995 (the "1995 Balance Sheet") and the related consolidated and consolidating
statements of income, changes in stockholders' equity and cash flows for the
fiscal year then ended, which consolidated financial statements are certified by
KPMG Peat Marwick L.L.P. ("Peat Marwick"), the independent public accountants
retained by the Company, and (ii) the unaudited consolidated and consolidating
balance sheets of the Company and its subsidiaries as of April 30, 1996 (the
"1996 Balance Sheet") and the related unaudited statements of income and cash
flows for the four-month period then ended, certified by the principal financial
officer of the Company. Such financial statements have been prepared in
accordance with generally accepted accounting principles in the United States
("GAAP") consistently applied and fairly present the consolidated financial
position of the Company and its subsidiaries as of such respective dates and the
consolidated results of their operations for the periods then ended in
accordance with generally accepted accounting principles consistently applied,
subject, in the case of
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unaudited interim financial statements, to normal year-end adjustments (which
consist of normal recurring accruals) and the absence of certain footnote
disclosures.
(b) (i) The Company has furnished to the Purchasers an internally
prepared unaudited balance sheet as at April 30, 1995, of Mid-Atlantic Dental
Associates, P.A. ("MADA") after giving effect to the reorganization with
Periodontal Associates, P.A. ("PAPA") as of October 1, 1994. Such balance sheet
has been prepared in accordance with GAAP consistently applied and fairly
presents the consolidated financial position of the Company and its subsidiaries
as of such date and the consolidated results of their operations for the periods
then ended in accordance with GAAP consistently applied, subject, to normal
year-end adjustments (which consist of normal recurring accruals) and the
absence of certain footnote disclosures.
(ii) The Company has furnished to the Purchasers the Unaudited
Financial Statements Cash Basis of PAPA for the years ended September 30, 1993
and September 30 1992 compiled by Walpert, Smullen & Blumenthal, P.A. (the "PAPA
Financial Statements"), which include the Accountants' Compilation Report,
Statement of Assets and Liabilities, Statement of Revenue and Expenses and
Retained Earnings, Statement of Cash Flows, Notes to Financial Statements and
Schedule of Operating Expenses. The Company has furnished to the Purchasers the
Unaudited Financial Statements Cash Basis of MADA for the years ended October
31, 1994, October 31, 1993 and October 31, 1992 compiled by Walpert, Smullen &
Blumenthal, P.A. (the "MADA Financial Statements"), which include the
Accountants' Compilation Report, Statement of Assets, Liabilities and
Stockholders' Equity/(Deficiency) - Cash Basis, Statement of Revenue and
Expenses and (Deficit) - Cash Basis, Statement of Cash Flows - Cash Basis, Notes
to Financial Statements and Schedule of Operating Expenses - Cash Basis. For
the year ended October 31, 1994, the MADA Financial Statements include the
operating results for the month of October 1994 and the assets, liabilities and
stockholders' equity of PAPA, after giving effect to the reorganization which
transferred all the assets, liabilities and stockholders' equity of PAPA,
effective October 1, 1994, to MADA. The PAPA Financial Statements and the MADA
Financial Statements have been compiled in accordance with the Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants, and were prepared on the basis of cash receipts
and disbursements, which is a comprehensive basis of accounting other than GAAP.
The PA Financial Statements and the MADA Financial Statements fairly present the
financial positions of PAPA and MADA, respectively, as at such dates and the
results of their respective operations for the periods then ended. PAPA's and
MADA's federal and state income tax returns have not been audited in more than
ten years.
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(iii) The Company has furnished to the Purchasers Federal Income
Tax Returns for PAPA for each of the four years ended September 30, 1991, 1992,
1993 and 1994 and for MADA for the three years ended October 31, 1991, 1992 and
1993, all of which were prepared and filed on a cash basis.
(c) None of the Company, any Subsidiary thereof or any Affiliate,
taken as a whole, has any material liability or obligation of any kind or
nature, absolute or contingent (individually or in the aggregate), including,
without limiting the generality of the foregoing, any tax liabilities due or to
become due, not reflected in the 1995 Balance Sheet or the balance sheet of such
Affiliate as of December 31, 1995, except obligations and liabilities incurred
after the date of the 1995 Balance Sheet or the balance sheet of such Affiliate
as of December 31, 1995 in the ordinary course of business that are not
individually or in the aggregate material and that would not be required to be
reflected in financial statements prepared in accordance with GAAP.
(d) The Company's financial projections provided to the Purchasers
(the "Projections") were developed by management of the Company and based upon
assumptions which the Company believes to be reasonable.
SECTION 2.06. Events Subsequent to December 31, 1995. Except for
matters set forth herein or in the Stockholders' Agreement, all of which are
fully and accurately displayed in all material respects in the 1995 Balance
Sheet and the December 31, 1995 balance sheet of such Affiliate, since December
31, 1995 neither the Company, any Subsidiary nor any Affiliate has (i) issued
any stock, bond or other corporate security or partnership interest, (ii)
borrowed any amount or incurred or become subject to any liability (absolute,
accrued or contingent), except current liabilities incurred and liabilities
under contracts entered into in the ordinary course of business,
(iii) discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the 1996 Balance Sheet or the April 30, 1996 balance sheet
of such Affiliate and current liabilities incurred since December 31, 1995 in
the ordinary course of business, (iv) declared or made any payment or
distribution to stockholders or purchased or redeemed any share of its capital
stock or other security, (v) mortgaged, pledged or subjected to lien any of its
assets, tangible or intangible, other than liens of current real property taxes
not yet due and payable, (vi) sold, assigned or transferred any of its tangible
assets except in the ordinary course of business, or canceled any debt or claim,
(vii) sold, assigned, transferred or granted any exclusive license with respect
to any patent, trademark, trade name, service mark, copyright, trade secret or
other intangible asset, (viii) suffered any loss of property or waived any right
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of substantial value whether or not in the ordinary course of business, (ix)
made any material change in officer compensation, (x) made any material change
in the manner of business or operations, (xi) entered into any transaction
except in the ordinary course of business or as otherwise contemplated hereby,
(xii) entered into any commitment (contingent or otherwise) to take any of the
actions listed in clauses (i) through (xi) above, (xiii) suffered any Material
Adverse Effect or waived any rights of substantial value, whether or not in the
ordinary course of business, (xiv) received notification of cancellation, or
canceled or waived any rights which, individually or in the aggregate, are
material with respect to any currently existing agreement, contract, right or
understanding between it and any professional association or professional
corporation, including without limitation of the foregoing, any such agreement
between or among the Company and/or any Affiliate, or (xv) engaged in any
material transaction with any director, officer, employee, stockholder, or
partner of the Company.
SECTION 2.07. Litigation; Compliance with Law. There is no (i)
action, suit, claim, proceeding or investigation pending or, to the best of
the Company's knowledge, threatened against or affecting the Company, any
Subsidiary or any Affiliate, at law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii)
arbitration proceeding relating to the Company, any Subsidiary or any
Affiliate pending under collective bargaining agreements or otherwise or
(iii) governmental inquiry pending or, to the best of the Company's
knowledge, threatened against or affecting the Company, any Subsidiary or any
Affiliate, and, to the best of the Company's knowledge, there is no basis for
any of the foregoing. The Company has not received any opinion or memorandum
or legal advice from legal counsel to the effect that it, any Subsidiary or
any Affiliate is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to its business, prospects, financial
condition, operations, properties or affairs. There is no judgment, decree,
injunction, order or writ outstanding against the Company, any Subsidiary or
any Affiliate of any court or of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, and neither the Company, any Subsidiary
or any Affiliate is in default with respect to any such judgment, decree,
injunction, order or writ. There is no action or suit by the Company, any
Subsidiary or any Affiliate pending or threatened against others. The
Company, each Subsidiary and each Affiliate has complied in all material
respects with all laws, rules, regulations and orders which are material and
applicable to its business, operations, properties, assets, products and
services, and the Company, each Subsidiary and each Affiliate has all
necessary permits, licenses and other authorizations, including
environmental, required to conduct its
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business as conducted and as proposed to be conducted in all material respects.
Such permits, licenses and other authorizations have been validly issued by
the appropriate governmental bodies and are in full force and effect. To the
best of the Company's knowledge, there is no existing law, rule, regulation
or order, and the Company is not aware of any proposed law, rule, regulation
or order, whether Federal or state, which would prohibit or materially
restrict the Company, any Subsidiary or any Affiliate from, or otherwise
materially adversely affect the Company, any Subsidiary or any Affiliate in,
conducting its business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business.
SECTION 2.08. Proprietary Information of Third Parties. No third
party has claimed and, to the best of the Company's knowledge, no third party
has reason to claim that any person now or previously employed or engaged as a
consultant by the Company, any Subsidiary or any Affiliate has (a) violated or
may be violating any of the terms or conditions of his employment,
non-competition or non-disclosure agreement with such third party, (b) disclosed
or may be disclosing or utilized or, to the best of the Company's knowledge, may
be utilizing any trade secret or proprietary information or documentation of
such third party or violated any confidential relationship which such person may
have had with such third party in connection with the development, manufacture
or sale of any product or proposed product or the development or sale of any
service or proposed service of the Company, any Subsidiary or any Affiliate or
(c) interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees. No third party has
requested information from the Company, any Subsidiary or any Affiliate which
reasonably suggests that such a claim might be contemplated. To the best of the
Company's knowledge, none of the execution or delivery of this Agreement or the
Stockholders' Agreement, or the carrying on of the business of the Company, any
Subsidiary or any Affiliate by any officer, director or key employee of the
Company, any Subsidiary or any Affiliate, or the conduct of the business of the
Company, any Subsidiary or any Affiliate, will conflict with or result in a
breach of the terms, conditions provisions of or constitute a default under any
contract, covenant or instrument under which any such person is obligated. For
purposes of the preceding sentence, (i) the conduct of the business of the
Company or any Subsidiary means providing, directly or indirectly,
administrative services to dental practices, owning and leasing to providers of
dental services the fixed assets used to provide such services, and contracting
with HMO's, health plans, insurers or other third-party payors for the delivery
of dental services by affiliated dental professionals and (ii) the conduct of
the business of any Affiliate means the practice of dentistry.
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SECTION 2.09. Title to Properties. The Company, each Subsidiary and
each Affiliate has good and marketable title to its properties and assets
reflected on the 1996 Balance Sheet or the April 30, 1996 balance sheet of such
Affiliate or acquired by it since the date of the 1996 Balance Sheet or the
April 30, 1996 balance sheet of such Affiliate (other than properties and assets
disposed of in the ordinary course of business since the date of that balance
sheet), and all such properties and assets are free and clear of mortgages,
pledges, security interests, liens, charges, claims, restrictions and other
encumbrances, except for liens for current taxes not yet due and payable and
minor imperfections of title, if any, not material in nature or amount and not
materially detracting from the value or impairing the use of the property
subject thereto or impairing the operations or proposed operations of the
Company, any Subsidiary or any Affiliate.
SECTION 2.10. Leasehold Interests. Each lease or agreement to which
the Company, any Subsidiary or any Affiliate is a party under which it is a
lessee of any property, real or personal, is a valid and subsisting agreement
without any material default of the Company, the Subsidiary or the Affiliate
thereunder and, to the best of the Company's knowledge, without any material
default thereunder of any other party thereto. No event has occurred and is
continuing which, with due notice or lapse of time or both, would constitute a
default or event of default by the Company, any Subsidiary or any Affiliate
under any such lease or agreement or, to the best of the Company's knowledge, by
any other party thereto. Possession of such property by the Company or the
applicable Subsidiary or Affiliate has not been disturbed and, to the best of
the Company's knowledge, no claim has been asserted against the Company or such
Subsidiary or Affiliate adverse to its rights in such leasehold interests.
SECTION 2.11. Insurance. Each policy and binder of insurance for
professional liability, directors and officers, fire, liability, worker's
compensation and other customary matters held by or on behalf of the Company,
its Subsidiaries and its Affiliates is listed on Schedule II hereto. Each such
insurance policy (including each insurance policy or binder entered into after
the date of this Agreement in the place of a currently existing and valid policy
or binder, provided that such replacement policy shall insure against risk and
liabilities, be in amounts and be under terms and conditions substantially the
same as those provided in such currently existing policy or binder) is in full
force and effect, all premiums with respect thereto have been paid and the
Company, its Subsidiaries and its Affiliates are not in default with respect to
any material provision contained in such insurance policy, nor has the Company
or any such Subsidiaries or Affiliates failed to give any notice of any claim
under such insurance policy in due and timely fashion, nor has any coverage for
current claims been denied,
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except for (A) any default or failure that, as of the date of this Agreement,
did not exceed $50,000, and (B) any default or failure arising after the date
of this Agreement that could not reasonably be expected to have a Material
Adverse Effect. All such policies provide insurance, including without
limitation liability insurance, in such amounts and against such risks as is
customary for companies engaged in similar businesses as the Company to
protect the employees, properties, assets, businesses and operations of the
Company. Each individual or entity rendering professional health care
services as an employee or contractor to the Company, its subsidiaries or its
Affiliates maintains professional liability insurance.
SECTION 2.12. Taxes. The Company, each Subsidiary and each Affiliate
has duly and timely filed or caused to be filed all federal, state, local and
foreign income, franchise, excise, payroll, sales and use, property and
withholding tax returns, reports, estimates and information and other statements
or returns (collectively, "Tax Returns") required to be filed pursuant to any
applicable federal, state, local or foreign tax laws for all years and periods
for which such Tax Returns have become due. All such Tax Returns were correct
in all material respects as filed and correctly reflect the federal, state,
local and foreign income, franchise, excise, payroll, sales and use, property,
withholding and other taxes, duties, imposts and governmental charges (and
charges in lieu of any thereof), together with interest and penalties
(collectively, "Taxes"), required to be paid or collected by (or allocable to)
the Company, each Subsidiary or each Affiliate, as the case may be. The
Company, each Subsidiary and each Affiliate has (i) paid or caused to be paid
all Taxes as shown on the Tax Returns filed by it or on any assessment received
by it, and (ii) properly and fully accrued on its financial statements all Taxes
for any period from the date of the last reporting period covered by such Tax
Returns through the date hereof. The Internal Revenue Service has never audited
any federal income tax return of the Company, any Subsidiary or any Affiliate.
No deficiency assessment with respect to or proposed adjustment of the federal,
state, county or local taxes of the Company, any Subsidiary or any Affiliate is
pending or, to the best of the Company's knowledge, threatened. There is no tax
lien, whether imposed by any federal, state, county or local taxing authority,
outstanding against the assets, properties or business of the Company, any
Subsidiary or any Affiliate. Neither the Company nor any of its stockholders
has ever filed an election pursuant to Section 1362 of the Internal Revenue Code
of 1986, as amended (the "Code"), that the Company be taxed as an S corporation.
The Company is not a party to any tax-sharing or allocation agreements, nor does
the Company owe any amount under any tax-sharing or allocation agreement.
Neither the Company, any Subsidiary nor any Affiliate has ever been a member of
a consolidated group for federal income tax purposes other than the group of
which the Company is the common parent.
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SECTION 2.13. Other Agreements. Except as set forth in the documents
to be executed in connection with the transactions contemplated by this
Agreement and the Stockholders' Agreement, neither the Company, any Subsidiary
nor any Affiliate is a party to or otherwise bound by any written or oral
contract or instrument or, to the knowledge of the Company, other restriction
which individually or in the aggregate could have a Material Adverse Effect.
Neither the Company, any Subsidiary nor any Affiliate is a party to or otherwise
bound by any written or oral:
(a) contract with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of its
employees or the employees of any Subsidiary or any Affiliate);
(b) contract or other commitment with any supplier containing
any provision permitting any party other than the Company, such Subsidiary or
such Affiliate to renegotiate the price or other terms pursuant to which the
Company, any Subsidiary or any Affiliate has or is expected to purchase in
excess of $10,000 worth of products or services during any 12-month period;
(c) contract for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(d) contract for the employment of any officer, employee or
other person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not terminable on
notice without cost or other liability to the Company, any Subsidiary or any
Affiliate, except normal severance arrangements and accrued vacation pay;
(e) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, contract or understanding
pursuant to which benefits are provided to any employee, executive or director
of the Company, any Subsidiary, or any Affiliate (other than group insurance
plans applicable to employees generally);
(f) agreement or indenture relating to the borrowing of money or
to the mortgaging or pledging of, or otherwise placing a lien or security
interest on, any asset of the Company, any Subsidiary or any Affiliate;
(g) guaranty of any obligation for borrowed money or otherwise;
(h) voting trust or agreement, stockholders agreement (except
for the Stockholders' Agreement), pledge
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agreement, buy-sell agreement or first refusal or preemptive rights agreement
(except for this Agreement and the Stockholders' Agreement) relating to any
securities of the Company, any Subsidiary or any Affiliate;
(i) agreement, or group of related agreements with the same
party or any group of affiliated parties, under which the Company, any
Subsidiary or any Affiliate has advanced or agreed to advance money or has
agreed to lease any property as lessee or lessor;
(j) agreement or obligation (contingent or otherwise) to issue,
sell or otherwise distribute or to repurchase or otherwise acquire or retire any
share of its capital stock or any of its other equity securities (except
pursuant to this Agreement or the Stockholders' Agreement);
(k) assignment, license or other agreement with respect to any
form of intangible property;
(l) agreement under which it has granted any person any
registration rights, other than the Stockholders' Agreement;
(m) agreement under which it has limited or restricted its right
to compete with any person in any respect;
(n) other contract or group of related contracts with the same
party (including, without limitation, all leases of real and personal property,
mortgages, indentures and loan agreements) involving more than $10,000 or
continuing over a period of more than six months from the date or dates thereof
(including renewals or extensions optional with another party); or
(o) other contract, instrument, commitment, plan or arrangement,
a copy of which would be required to be filed with the Securities and Exchange
Commission (the "Commission") as an exhibit to a registration statement on Form
S1 pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act of
1933, as amended (the "Securities Act"), if the Company were registering
securities under the Securities Act.
True and complete copies of all documents and complete descriptions of
all oral understandings (if any) and copies of standard form agreements referred
to on Schedule II have been provided or made available to the Purchasers, their
counsel and representatives. Except as disclosed on such Schedule, the
agreements referred to on such Schedule are valid and enforceable obligations of
the Company, each Subsidiary or each Affiliate, as the case may be, and, to the
best knowledge of the Company, of the other parties thereto. To the best of the
Company's
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knowledge, the Company, each Subsidiary, each Affiliate and each other party
thereto have, in all material respects, performed all the obligations
required to be performed by them to date, have received no notice of default
and are not in default, in any material respect (with due notice or lapse of
time or both) under any lease, agreement or contract now in effect to which
the Company, any Subsidiary or any Affiliate is a party or by which it or its
property may be bound. Neither the Company, any Subsidiary nor any Affiliate
has any present expectation or intention of not fully performing all its
obligations under each such lease, contract or other agreement in all
material respects, and neither the Company, any Subsidiary nor any Affiliate
has any knowledge of any breach nor has it received any written notice of any
anticipated breach by the other party to any contract or commitment to which
the Company, any Subsidiary or any Affiliate, as the case may be, is a party.
The Company is not in violation of any material provision of the Charter or
its bylaws. No Subsidiary or Affiliate is in violation of any provision of
its charter or bylaws or other organizing documents.
The Company has provided to the Purchasers a list of all management
level employees of the Company and of each Subsidiary and Affiliate indicating
their current total annual compensation.
SECTION 2.14. Patents, Trademarks, Etc. Set forth in Schedule II is a
list and brief description of all patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names and copyrights, and all applications for such which are in the
process of being prepared, owned by or registered in the name of the Company,
any Subsidiary or any Affiliate or of which the Company, any Subsidiary or any
Affiliate is a licensor or licensee or in which the Company, any Subsidiary or
any Affiliate has any right, and in each case a brief description of the nature
of such right. The Company, each Subsidiary and each Affiliate owns or
possesses adequate licenses or other rights to use, free and clear of all liens,
claims and restrictions, 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 its business as conducted
and as currently planned to be conducted, and the Company, each Subsidiary's and
each Affiliate's licenses or rights to such Intellectual Property are valid,
enforceable and in good standing. No claim is pending or, to the best of the
Company's knowledge, threatened to the effect that the operations of the
Company, any Subsidiary or any Affiliate infringe upon or conflict with the
asserted rights of any other person under any Intellectual Property, and, to the
best of the Company's knowledge, there is no basis for any such claim (whether
or not pending or threatened). No claim is pending or, to the best of
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the Company's knowledge, threatened to the effect that any such Intellectual
Property owned or licensed by the Company, any Subsidiary or any Affiliate,
or which the Company, any Subsidiary or any Affiliate otherwise has the right
to use, is invalid or unenforceable by the Company or such Subsidiary or
Affiliate, and, to the best of the Company's knowledge, there is no basis for
any such claim (whether or not pending or threatened). Except as set forth
in Schedule II, neither the Company, any Subsidiary nor any Affiliate is
obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant
to, any patent, trademark, service mark, trade name, copyright or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
SECTION 2.15. Loan Advances. Neither the Company, any Subsidiary nor
any Affiliate has any outstanding loans or advances to any person nor is it
obligated to make any such loans or advances, except, in each case, for advances
to its employees in respect of reimbursable business expenses anticipated to be
incurred by them in connection with their performance of services for the
Company, the Subsidiary or the Affiliate.
SECTION 2.16. Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons. Neither the Company, any Subsidiary nor any Affiliate has assumed,
guaranteed, endorsed or otherwise become directly or contingently liable on any
indebtedness of any other person (including, without limitation, liability by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor, or otherwise to
assure the creditor against loss), except for guarantees by endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business.
SECTION 2.17. Significant Suppliers. No supplier which is material to
the Company, any Subsidiary or any Affiliate has terminated, materially reduced
or, to the knowledge of the Company, threatened to terminate or materially
reduce its provision of products or services to the Company, any Subsidiary or
any Affiliate.
SECTION 2.18. Governmental Approvals. Subject to the accuracy of
the representations and warranties of the Purchasers set forth in Article III
hereof, no registration or filing with, or consent or approval of or other
action by, any Federal, state or other governmental agency or instrumentality
is or will be necessary for (i) the valid execution, delivery and performance
by the Company of this Agreement or the Stockholders' Agreement, (ii) the
issuance, sale and delivery of the Preferred Shares or, upon conversion
thereof, the issuance and delivery of the Conversion Shares, or (iii) the
conduct of the business of the Company, each of its Subsidiaries, and each of
the Affiliates following
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the Closing in substantially the same manner in which it is currently
being conducted, other than (A) filings pursuant to Federal and state securities
laws (all of which filings have been or, with respect to those filings which may
be duly made after the Closing will be, made by or on behalf of the Company) in
connection with the sale of the Preferred Shares and (B) with respect to the
Stockholders' Agreement, the registration of the shares covered thereby with the
Commission and filings pursuant to Federal and state securities laws.
SECTION 2.19. Disclosure. This Agreement (except with regard to any
statements made by the Purchasers), including any Schedule or Exhibit to this
Agreement, contains no untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein not misleading.
None of the written statements, documents, certificates or other items prepared
or supplied by the Company with respect to the transactions contemplated hereby,
when read together and in light of the circumstances in which they were made,
contains an untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein not misleading. There
is no fact which the Company has not disclosed to the Purchasers and their
counsel in writing and of which the Company is aware which has a Material
Adverse Effect or could reasonably be expected to have a Material Adverse
Effect.
SECTION 2.20. Offering of the Preferred Shares. Neither the Company
nor any person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Preferred Shares or any
similar securities of the Company has offered any such securities for sale to,
or solicited any offers to buy any such securities from, or otherwise approached
or negotiated with respect thereto with any person or persons under
circumstances that involved the use of any form of general advertising or
solicitation as such terms are defined in Regulation D of the Securities Act,
and neither the Company nor any person acting on the Company's behalf has taken
or will take any action (including, without limitation, any offer, issuance,
sale or delivery of any securities of the Company under circumstances which
might require the integration of such transactions with the placement of the
Preferred Shares under the Securities Act or the rules and regulations of the
Securities and Exchange Commission thereunder) which might subject the offering,
issuance, sale or delivery of the Preferred Shares to the registration
provisions of the Securities Act.
SECTION 2.21. Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
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SECTION 2.22. Officers. Set forth in Schedule II is a list of the
names of the directors and officers of the Company, each Subsidiary and each
Affiliate, together with the title or job classification and total current
annual compensation of each such person. None of such persons has an employment
agreement or understanding, whether oral or written, with the Company, any
Subsidiary or any Affiliate, which is not terminable on notice by the Company,
such Subsidiary or such Affiliate without cost or other liability to the
Company, such Subsidiary or such Affiliate. None of such persons has, during
the past ten years, been arrested for or convicted of any material crime or
filed a petition to take advantage of any laws relating to bankruptcy,
insolvency, reorganization or composition or adjustment of debts or consented to
or failed to contest any petition filed against him in an involuntary case under
such laws or applied for, consented to or failed to contest the appointment of a
receiver, custodian, trustee or the like of a substantial part of his assets,
nor has he been an officer or director of any entity taking or being subject of
an such action.
SECTION 2.23. Transactions With Related Parties. No director,
officer, employee or stockholder of the Company, any Subsidiary or any
Affiliate, or member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or any member of
the family of any such person has a substantial interest or is an officer,
director, trustee, partner or holder of more than 5% of the outstanding capital
stock thereof, is presently or contemplated to be a party to any contract
transaction with the Company, any Subsidiary or any Affiliate, including any
contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental or real or personal property from or otherwise
requiring payments to any such person or firm.
SECTION 2.24. Employees. Each of Lawrence F. Halpert and Carl J.
Sardegna has executed a confidentiality agreement with the Company, which is in
full force and effect. No officer or key employee of the Company, any
Subsidiary or any Affiliate has advised the Company, the Subsidiary or the
Affiliate (orally or in writing) that he intends to terminate employment with
the Company, the Subsidiary or the Affiliate. To the best of the Company's
knowledge, it and each Subsidiary and each Affiliate has complied in all
material respects with all applicable laws relating to the employment of labor,
including provisions relating to wages, hours, equal opportunity, collective
bargaining and the payment of Social Security and other taxes.
SECTION 2.25. Employee Benefit Plans; Worker's Compensation.
(a) The Company, each Subsidiary and each Affiliate has complied and
currently is in compliance in all material
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respects, both as to form and operation, with the applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
the Internal Revenue Code with respect to each "employee benefit plan" as
defined under Section 3(3) of ERISA (a "Plan") which the Company, any
Subsidiary or any Affiliate (i) has ever adopted, maintained, established or
to which it has been required to contribute to or has ever contributed or
(ii) currently maintains or to which it currently contributes or is required
to contribute or (iii) currently participates in or is required to
participate in.
(b) Neither the Company, any Subsidiary nor any Affiliate has ever
maintained, adopted or established, contributed or been required to contribute
to, or otherwise participated in or been required to participate in, (i) a
"multiemployer plan" (as defined in Section 3(37) of ERISA) or (ii) a plan
otherwise subject to Title IV of ERISA. No amount is due or owing from the
Company (x) on account of a "multiemployer plan" (as defined in Section 3(37) of
ERISA) or on account of any withdrawal therefrom or (y) on account of a plan
otherwise subject to Title IV of ERISA or on account of any withdrawal
therefrom.
(c) Other than routine claims for benefits and liability for premiums
due the Pension Benefit Guaranty Corporation, none of the Company, any
Subsidiary or any Affiliate has incurred any material liability with respect to
a Plan that is currently due and owing and has not yet been satisfied, including
without limitation under Title I or Title IV or any other provision of ERISA,
the Internal Revenue Code or other applicable law, and no event has occurred,
and, to the best knowledge of the Company, there exists no condition or set of
circumstances that could result in the imposition of any material liability on
the Company with respect to a Plan, including without limitation under Title I
or Title IV or any other provision of ERISA, the Internal Revenue Code or other
applicable law.
(d) Except as required by applicable law, none of the Company, any
Subsidiary or any Affiliate has committed itself, orally or in writing, (i) to
provide or cause to be provided to any person any payments or provision of any
"welfare" or "pension" benefits (as defined in Sections 3(1) and 3(2) of ERISA)
in addition to, or in lieu of, those payments or benefits set forth under any
Plan, (ii) to continue the payment of, or accelerate the payment of, benefits
under any Plan, except as expressly set forth thereunder, or (iii) to provide or
cause to be provided any severance or other post-employment benefit, salary
continuation, termination, disability, death, retirement, health or medical
benefit to any person (including without limitation any former or current
employee).
(e) All amounts required to be paid by the Company, any Subsidiary or
any Affiliate in respect of workers'
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compensation coverage for all periods up to and including the date hereof
have been paid, and no notice of any deficiency has been received with
respect to such workers' compensation coverage. Such coverage will remain in
full force and effect following the Closing and will not in any way be
affected by, or terminate or lapse by reason of, any of the transactions
contemplated hereby.
SECTION 2.26 Environmental Matters. The Company, each Subsidiary,
and each Affiliate conducts its business and operations in material compliance
with all applicable environmental laws, ordinances and regulations, and neither
the Company, any Subsidiary nor any Affiliate has received notice of any claim,
action, suit, proceeding, hearing or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant, or hazardous or
toxic material or waste (collectively, an "Environmental Event") by the Company,
any Subsidiary or any Affiliate or with respect to any premises owned or
occupied by them. To the best knowledge of the Company, no notice of any
Environmental Event was given to any person or entity that occupied any of the
premises owned or occupied by or used by the Company, any Subsidiary or any
Affiliate prior to the date such premises were so occupied. Without limiting
the generality of the foregoing, to the best knowledge of the Company after due
inquiry, neither the Company, any Subsidiary nor any Affiliate has disposed of
or placed on or in any property or facility used in its business any waste
materials, hazardous materials or hazardous substances in violation of law.
SECTION 2.27 Fraud and Abuse. To the best knowledge of the Company,
neither the Company, any Subsidiary, any Affiliate, nor any of their respective
officers and directors, has engaged in any activities which are prohibited under
federal Medicare and Medicaid statutes, 42 U.S.C. Sections 1320a-7, 1320a-7(a)
and 1320a-7b, or the regulations promulgated pursuant to such statutes or
related state or local statutes or regulations or which are prohibited by rules
of professional conduct promulgated by the appropriate licensing authority of
the state or states in which such entity does business, including but not
limited to the following:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(b) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights to
any benefit or payment;
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(c) presenting or causing to be presented a claim for reimbursement
for services under Medicare, Medicaid, or other state health care program that
is for an item or service that is known or should be known to be (i) not
provided as claimed, or (ii) false or fraudulent;
(d) failing to disclose knowledge by a claimant of the occurrence of
any event affecting the initial or continued right to any benefit or payment on
its own behalf or on behalf of another, with intent to fraudulently secure such
benefit or payment;
(e) knowingly and willfully offering, paying, soliciting or receiving
any remuneration (including any kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or in kind (i) in return for referring
an individual to a person for the furnishing or arranging for the furnishing of
any item or service for which payment may be made in whole or in part by
Medicare or Medicaid, or other state health care program, or (ii) in return for
purchasing, leasing, or ordering or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service, or item for which payment may
be made in whole or in part by Medicare or Medicaid or other state health care
program; or
(f) knowingly and willfully making or causing to be made or inducing
or seeking to induce the making of any false statement or representation (or
omit to state a fact required to be stated therein or necessary to make the
statements contained therein not misleading) of a material fact with respect to
(i) the conditions or operations of a facility in order that the facility may
qualify for Medicare, Medicaid or other state health care program certification,
or (ii) information required to be provided under Section 1124A of the Social
Security Act (42 U.S.C. Section 1320a-3).
SECTION 2.28 Health Professional's Financial Relationships. To the
best knowledge of the Company, the operations of the Company, each Subsidiary
and each Affiliate are in compliance with and do not otherwise violate the
federal Medicare and Medicaid statutes regarding health professional
self-referrals, 42 U.S.C. Section 1395nn and 42 U.S.C. Section 1396b, or the
regulations promulgated pursuant to such statute, or similar state or local
statutes or regulations.
SECTION 2.29 Professional Licenses. There is no legal or regulatory
requirement that the shareholders, or any of them, of the Company or any
Subsidiary be a licensed dentist in order for the Company or the Subsidiaries to
conduct their business as currently conducted. In the case of each Affiliate,
all of the stockholders thereof are dentists licensed to practice under the laws
of each jurisdiction in which such Affiliate
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operates, and such Affiliate currently satisfies the shareholder licensing
requirement, if any, of each jurisdiction in which such Affiliate operates,
except where failure to do so would not have a Material Adverse Effect.
SECTION 2.30 Medical Waste. Neither the Company, any Subsidiary nor
any Affiliate is in violation of, or the subject of any investigation, inquiry
or enforcement action by any governmental authority under, the Medical Waste
Tracking Act, 42 U.S.C. Section 6992 et seq., or any applicable state or local
government statute, ordinance or regulation dealing with the disposal of medical
wastes (collectively "Medical Waste Laws"). The Company, each Subsidiary and
each Affiliate has obtained and is in compliance with any permits required by
the Medical Waste Laws relating to medical waste disposal, and all disposal of
medical waste by the Company has been in compliance with the Medical Waste Laws.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor", within the meaning of Rule 501
under the Securities Act and was not organized for the specific purpose of
acquiring the Preferred Shares or the Conversion Shares;
(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of development
so as to be able to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof;
(c) it has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management;
(d) the Preferred Shares being purchased by it and the Conversion
Shares into which those Preferred Shares are convertible are being acquired for
its own account for the purpose of investment and not with a view to or for sale
in connection with any distribution thereof;
(e) it understands that (i) the Preferred Shares and the Conversion
Shares have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) or Section 3(b) thereof or Rule 505 or
506
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promulgated thereunder, (ii) the Preferred Shares and, upon conversion
thereof, the Conversion Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration, (iii) the Preferred Shares and the Conversion Shares will
bear a legend to such effect and (iv) the Company will make a notation on its
transfer books to such effect;
(f) it is validly existing under the laws of the jurisdiction of its
organization and the consummation of the transactions contemplated hereby is
authorized by, and will not result in a violation of, state law or its charter
or other organizing documents;
(g) it has the full right, power and authority to execute this
Agreement and the Stockholders' Agreement and to perform its obligations
hereunder and thereunder;
(h) the execution, delivery and performance by the Purchaser of this
Agreement and the Stockholders' Agreement have been duly authorized by all
requisite corporate or other action; and
(i) assuming the due execution and delivery by the other parties
thereto, this Agreement and the Stockholders' Agreement constitute the legal,
valid and binding obligations of the Purchaser, enforceable in accordance with
their respective terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors rights and equitable remedies, and to the
extent that the indemnification provisions contained in the Stockholders'
Agreement may be limited by applicable Federal or state securities laws.
ARTICLE IV
CONDITIONS TO THE CLOSING
SECTION 4.01. Conditions to the Obligations of the Purchasers. The
obligations of each Purchaser under Section 1.01 are, at its option, subject to
the satisfaction, on or before the Closing Date, or waiver, of the following
conditions:
(a) Opinion of Company's Counsel. The Purchasers shall have received
from Piper & Marbury L.L.P., counsel to the Company, an opinion dated such date,
substantially in the form set forth as Exhibit C attached hereto.
(b) Performance. (i) The Company shall have performed and complied
with all agreements contained herein required to be performed or complied with
by it prior to or at-such date, (ii)
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all of the representations and warranties of the Company set forth in Article
II hereof shall be true and correct in all material respects as though made
on and as of such date, and (iii) the Chairman and Chief Executive Officer of
the Company shall have certified to the Purchasers in writing to such effect
and to the further effect that all of the conditions set forth in this
Section 4.01 have been satisfied.
(c) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchasers and their counsel and the Purchasers and
their counsel shall have received all such counterpart originals or certified or
other copies of such documents as they reasonably may request.
(d) No Actions. No preliminary or permanent injunction or other
order, decree or ruling issued by any court of competent jurisdiction nor any
statute, rule, regulation or order entered, promulgated or enacted by any
governmental, regulatory or administrative agency or authority shall be pending,
threatened or in effect that would prevent the consummation of the transactions
contemplated hereby.
(e) Approvals. The Company shall have obtained all consents or
approvals required to be obtained in order to consummate the transactions
contemplated hereby.
(f) Supporting Documents. The Purchasers and their counsel shall
have received copies of the following documents:
(i) (A) the Charter, certified as of a recent date by the State
Department of Assessments and Taxation of the State of Maryland (the
"SDAT"), which Charter shall be in all respects satisfactory to the
Purchasers and shall contain the terms of the Preferred Stock agreed
upon by the parties hereto, and (B) a certificate of the SDAT dated as
of a recent date as to the active status of the Company and listing all
documents of the Company on file with the SDAT;
(ii) a certificate of the Secretary or an Assistant Secretary of
the Company dated such date and certifying: (A) that attached thereto is
a true and complete copy of the bylaws of the Company as in effect on the
date of such certification; (B) that attached thereon is a true and
complete copy of all resolutions adopted by the board of directors and
the stockholders of the Company authorizing the execution, delivery and
performance of this Agreement and the Stockholders' Agreement, the
issuance sale and delivery of the Preferred Shares and the reservation,
issuance and delivery of the Conversion Shares, and that all
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such resolutions are in full force and effect and are all the resolutions
adopted in connection with the transactions contemplated by this
Agreement and the Stockholders' Agreement; (C) that the Charter has not
been amended since the date of the last amendment referred to in the
certificate delivered pursuant to clause (i)(B) above; and (D) to the
incumbency of each officer of the Company executing this Agreement and
the Stockholders' Agreement, the stock certificates representing the
Preferred Shares and any certificate or instrument furnished pursuant
hereto, and a certification by another officer of the Company as to the
incumbency of the officer signing the certificate referred to in this
clause (ii);
(iii) (A) the charter documents of each Subsidiary and Affiliate,
including all amendments thereto, certified as of a recent date by the
Secretary of State or the appropriate official of the relevant state and
(B) certificates of said Secretary or official dated as of a recent date
as to the due incorporation or association, as the case may be, and good
standing of each Subsidiary or Affiliate, as the case may be, and listing
all documents on file with said official; and
(iv) such additional supporting documents and other information
with respect to the operations and affairs of the Company, any Subsidiary
or any Affiliate as the Purchasers or their counsel may reasonably request.
(g) The Stockholders' Agreement. The Company and the other parties
to the Stockholders' Agreement (other than the Purchasers) shall have executed
and delivered the Amended and Restated Stockholders' Agreement in substantially
the form of Exhibit A attached hereto.
(h) Charter. The Charter shall have been amended as set forth in
Exhibit B hereto and the Preferred Shares shall have been duly authorized in
accordance with the terms thereof.
(i) Transaction Fees and Expenses. The Company shall have reimbursed
the Purchasers, in accordance with Section 6.01, the reasonable fees and
disbursements of the Purchasers' counsel invoiced on the Closing Date.
(j) Due Diligence. The Purchasers shall have discovered nothing
during their due diligence review of the Company that would cause them, in their
sole good faith discretion, not to purchase the Preferred Shares.
(k) Additional Agreement. The Company shall have delivered such
other agreements and instruments as the Purchasers shall have reasonably
requested.
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All such documents shall be reasonably satisfactory in form and substance to the
Purchasers and their counsel.
(l) Amendment of Administrative Services Agreement. The
Administrative Services Agreement between the Company and each of the Affiliates
shall have been amended substantially in the form of Exhibit D hereto.
SECTION 4.02. Conditions to the Obligations of the Company. The
obligations of the Company under Section 1.01 hereof are, at its option, subject
to the satisfaction, on or before the Closing Date, or waiver, of the following
conditions:
(a) Stockholders' Agreement. The Purchasers shall have executed and
delivered the Stockholders' Agreement.
(b) Additional Agreement. The Purchasers shall have delivered such
other agreements and instruments as the Company shall have reasonably requested.
All such documents shall be reasonably satisfactory in form and substance to the
Company and its counsel.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each Purchaser that so long as
any Preferred Shares or Conversion Shares are outstanding and owned by such
Purchaser (or, if occurring prior thereto, with respect to Sections 5.02, 5.03,
5.06 and 5.12, until such time as the Company successfully completes an
underwritten initial public offering of its common stock (i) at a price to the
public of not less than $8.00 per share (as adjusted for stock splits,
recapitalizations, etc.) and (ii) resulting in proceeds to the Company of not
less than $10,000,000 after deduction of underwriting discounts and commissions
but before deduction of other expenses of issuance (an "IPO")):
SECTION 5.01. Financial Information and Inspection Rights. Until the
earlier of such time that the Company completes a firm commitment underwritten
public offering of its securities under the Securities Acts or it is required to
file reports with the Commission pursuant to the provisions of Section 15(d) of
the Securities Exchange Act of 1934, as amended, it shall furnish to each
Purchaser:
(a) within 90 days after the end of each fiscal year, a consolidated
balance sheet and related consolidated statements of income, stockholders,
equity and cash flows, showing the financial position and results of operation
of the Company and
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its consolidated Subsidiaries for the fiscal year then ended, prepared in
accordance with GAAP and certified by a nationally recognized accounting firm
selected by the board of directors of the Company and reasonably acceptable
to the Purchasers;
(b) within 45 days after the end of each quarter of each fiscal year
a consolidated balance sheet and related consolidated statements of income,
stockholders' equity and cash flows, showing the financial position and results
of operations of the Company and its consolidated Subsidiaries, unaudited but
prepared in accordance with GAAP, subject to normal year-end adjustments and the
absence of notes, and certified by the Chief Financial Officer of the Company,
or the principal accounting officer if the Company does not have a Chief
Financial Officer, as being fairly stated in all material respects when
considered in relation to the consolidated financial statements of the Company,
such consolidated balance sheet to be as of the end of such quarter and such
consolidated statements of income and cash flows to be for such quarter and for
the period from the beginning of the fiscal year to the end of such quarter
(with comparisons to the Company's budget for such period), in each case, if
available, with comparative statements for the prior fiscal year;
(c) within 30 days after the end of each month of each fiscal year a
consolidated balance sheet and related consolidated statements of income,
stockholders' equity and cash flows, showing the financial position and results
of operations of the Company and its consolidated Subsidiaries, unaudited but
prepared in accordance with GAAP, subject to normal year-end adjustments and the
absence of notes, and certified by the Chief Financial Officer of the Company,
or the principal accounting officer if the Company does not have a Chief
Financial Officer, as being fairly stated in all material respects when
considered in relation to the consolidated financial statements of the Company,
such consolidated balance sheet to be as of the end of such month and such
consolidated statements of income and cash flows to be for such month and for
the period from the beginning of the fiscal year to the end of such month (with
comparisons to the Company's budget for such period), in each case, if
available, with comparative statements for the prior fiscal year;
(d) within 60 days prior to the start of each fiscal year,
consolidated capital and operating expense budgets (the "Budgets"), cash flow
projections and income and loss projections for the Company in respect of such
fiscal year and each of the two subsequent fiscal years and a projected
consolidated balance sheet at the end of each year, all itemized in reasonable
detail, and, promptly after preparation, any revisions to any of the foregoing,
all of which will be in form and substance acceptable to the Purchasers;
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(e) at the time of delivery of each annual and quarterly statement
pursuant to Section 5.01(a) and (b) hereof, a certificate executed by the Chief
Financial Officer of the Company, or the principal accounting officer if the
Company does not have a Chief Financial Officer, stating that he has reviewed
this Agreement and the Charter and has no knowledge of any default by the
Company in the performance or observance of any of the provisions of this
Agreement or the Charter or, if such officer has such knowledge, specifying such
default and the nature thereof;
(f) at the time of delivery of each quarterly and monthly statement
pursuant to Section 5.01(b) and (c) hereof, a brief management narrative report
explaining all significant variances from forecasts and all significant current
developments in staffing, marketing, sales and operations;
(g) promptly following receipt by the Company, each audit response
letter disclosing pending or threatened litigation or unasserted claims or
assessments considered to be probable of assertion, any accountant's management
letter and any other written report submitted to the Company by its independent
public auditors in connection with an annual or interim audit of the books of
the Company and its Subsidiaries;
(h) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries that could materially
adversely affect the Company or any Subsidiary, with copies of all pleadings
filed in the same;
(i) promptly upon sending, making available or filing the same, all
press releases, reports, financial statements, returns and other material
documents that the Company or any Subsidiary sends or makes available to its
stockholders or directors or files with any governmental agency, including the
Commission and the Internal Revenue Service;
(j) promptly, from time to time, such other information regarding the
business, prospects, financial condition, operations, property or affairs of the
Company or any Subsidiary as the Purchasers reasonably may request;
(k) within 10 days after the Company becoming aware thereof, notice
of any default of any nature with respect to any loans, documents or instruments
regarding indebtedness or leases to which the Company or any Subsidiary is a
party; and
(l) permit each Purchaser, or any authorized representative thereof,
to visit and inspect the properties of the Company and its Subsidiaries,
including their corporate and financial records, and to discuss their business
and finances with officers, all at such reasonable times as may be requested
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by such Purchaser. Each Purchaser or representative thereof shall maintain
the confidentiality of all information acquired by them in exercising such
rights.
SECTION 5.02. Net Worth Covenant. The Company shall (i) at all times
prior to the third anniversary of the Closing Date, cause the amount by which
the assets of the Company and its Subsidiaries exceed their liabilities
("Consolidated Net Worth"), determined on a consolidated basis in accordance
with GAAP, to be greater than $1,000,000, and (ii) on and after such third
anniversary and prior to the fourth anniversary of the Closing Date, cause
Consolidated Net Worth to be greater than $2,000,000, and (iii) on such fourth
anniversary and at all times thereafter cause Consolidated Net Worth to be
greater than $3,000,000.
SECTION 5.03. Acquisition Policy. The Company and its board of
directors shall maintain a written policy articulating the goals and strategies
of the Company with respect to acquisitions of dental practices or other
businesses or entities, which policy shall be in all respects reasonably
satisfactory to the Purchasers. The Company shall not materially deviate from
the approved policy without the prior written approval of the Purchasers. A
copy of that policy as in effect on the date of this Agreement is attached
hereto as Exhibit E.
SECTION 5.04. Reservation of Conversion Shares. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, for the purpose of effecting the conversion of the Preferred
Shares and otherwise complying with the terms of this Agreement, such number of
its duly authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Preferred Shares from time to time outstanding or otherwise to
comply with the terms of this Agreement. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of the Preferred Shares or otherwise to comply with the terms of
this Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes. The Company will
obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Preferred Shares.
SECTION 5.05. Corporate Existence. Except as contemplated hereunder,
the Company shall maintain its corporate existence, rights and franchises in
full force and effect.
SECTION 5.06. Properties, Business, Insurance. The Company shall
maintain, and cause each of its Subsidiaries to
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maintain, as to its properties and business, with financially sound and
reputable insurers, insurance against such casualties and contingencies and
of such types and in such amounts as is customary for companies similarly
situated, and the Company shall use its best efforts to obtain and maintain
key man term life insurance on the life of Lawrence F. Halpert in the amount
of at least $3 million. All of such insurance shall be reasonably
satisfactory in all respects to the Purchasers. The Company and its
Subsidiaries shall not cause or permit any assignment or change in
beneficiary and shall not borrow against any such policy.
SECTION 5.07. Board of Directors. The Company shall use its best
efforts to ensure that meetings of the Board are held at least once every two
months. The Board shall consist of nine members, one of whom shall be nominated
and elected by the holders of the Preferred Stock voting as a separate class in
accordance with the Charter.
SECTION 5.08. Director Liability. The Company shall at all times
maintain provisions in the Charter and its bylaws indemnifying all directors
against liability and limiting the liability to the Company of all directors to
the maximum extent permitted under the laws of the State of Maryland.
SECTION 5.09. Proprietary Information Agreement. The Company shall
use its best efforts to obtain a confidentiality agreement in form reasonably
satisfactory to the Purchasers from all present and future officers and key
employees who will have access to confidential information of the Company or any
Subsidiary upon their employment by the Company or such Subsidiary.
SECTION 5.10. Compliance with Laws. The Company shall comply, and
shall cause each Subsidiary to comply, with all applicable laws, rules,
regulations and orders, including applicable environmental laws, noncompliance
with which could have a Material Adverse Effect.
SECTION 5.11. Keeping of Records and Books of Account. The Company
shall keep, and shall cause each Subsidiary to keep, adequate records and books
of account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company or
such Subsidiary and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
SECTION 5.12. Restrictive Agreements Prohibited. The Company shall
not become a party to any agreement which by its terms restricts the Company's
performance of this Agreement or the Stockholders' Agreement.
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SECTION 5.13. Negative Covenants. Except as set forth in this
Agreement and the Stockholders' Agreement, the Company will not and will not
permit any Subsidiary to:
(a) redeem any shares of its capital stock or pay dividends or make
any cash or other distributions to its stockholders, except dividends or other
distributions on the Preferred Stock, and except that this prohibition will not
apply to distributions on capital stock of Subsidiaries provided that all of
such capital stock is owned by the Company;
(b) sell or otherwise dispose of any assets of the Company or any
Subsidiary, except in the ordinary course of its business;
(c) acquire any assets or other capital items during any fiscal year
having an aggregate value in excess of the amounts budgeted for such year in the
Budgets most recently delivered to the Purchasers;
(d) make any acquisitions of dental practices or other businesses or
entities except as contemplated by the Budgets for the period and by the
acquisition policy most recently agreed to with the Purchasers pursuant to
Section 5.03;
(e) except for transactions contemplated by this Agreement, enter
into any transaction with any director, officer, employee or holder of more than
5% of the outstanding capital stock of any class or series of capital stock of
the Company or any member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
family of any such person, is a director, officer, trustee, partner or holder of
more than 5% of the outstanding capital stock thereof, except for transactions
which are no less favorable than could be obtained with an independent third
party in an arm's-length transaction and which are approved by a majority of the
disinterested directors of the Company;
(f) take any formal action by its board of directors or stockholders
to merge or consolidate with another corporation or entity or dissolve or
otherwise liquidate;
(g) change the location nature of its business operations, or invest
any funds in any concern or entity not strictly related to its business;
(h) alter its corporate structure so that a change of control occurs
or make any loans (other than to a Subsidiary), guarantees (except with respect
to indebtedness of a Subsidiary) or enter into any joint ventures or invest in
any partially owned Subsidiaries;
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(i) issue or sell any capital stock, options, convertible debt, or
redeem the same, issue or grant any stock appreciation rights or other rights in
or to stock (except (x) upon exercise of the Sardegna Options, (y) upon exercise
of options to purchase up to 302,214 shares of Common Stock pursuant to the
Company's 1995 Equity Participation Plan and (z) upon exercise of options (the
"Grotech Options") granted to certain management employees of the Company to
purchase up to 250,000 shares of Common Stock, which shares of Common Stock are
currently registered in the name of Grotech Partners IV, L.P. ("Grotech IV") and
have been reserved by Grotech IV for re-issuance by the Company in connection
with such stock option grants;
(j) enter into any contracts not in the ordinary course of its
business;
(k) incur any indebtedness for money borrowed, other than (i)
indebtedness incurred to finance short-term working capital needs and (ii)
purchase money indebtedness (up to the amount of the purchase price or capital
expenditure paid) incurred in connection with acquisitions of assets and capital
expenditures;
(l) terminate the employment agreement with Lawrence F. Halpert;
(m) except as provided in the employment agreements between the
Company and each of Lawrence F. Halpert and Carl J. Sardegna as in effect on the
Closing Date (which agreements shall not be amended without the prior written
consent of the Purchasers) and except for salary increases and bonuses to
individuals in the ordinary course of business as recommended from time to time
by a compensation committee of the Board (which committee will be maintained at
all times and on which a member of the Board designated by the Purchasers will
sit) and as approved by the Board, increase the salary of any management
employee, or enter into any incentive compensation or other bonus arrangement
with any employee;
(n) increase the size of the Board; or
(o) alter, amend or breach any provision of its Charter or bylaws.
Notwithstanding the foregoing, the Company will be permitted to enter into any
transaction that would otherwise be prohibited by this Section 5.13 if, as a
result thereof, all of the Preferred Shares and the Conversion Shares then held
by the Purchasers would be purchased or redeemed for cash and for an amount that
would provide to the Purchasers a compounded internal rate of return of at least
(i) 60% if such transaction occurs on or before the first anniversary of the
Closing Date, (ii) 50% if
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such transaction occurs after the first anniversary of the Closing Date and
on or before the second anniversary thereof, and (iii) 40% if such
transaction occurs after the second anniversary of the Closing Date. For
purposes of calculating the applicable rate of return, a year of twelve
30-day months will be used with monthly compounding. No provision of this
Section 5.13 will prohibit the Company from taking such steps as are
necessary in connection with the successful completion of an IPO.
SECTION 5.14. Articles of Amendment. Between the date hereof and the
Closing Date, the Company shall adopt and approve the Articles of Amendment, and
shall use its best efforts to cause the Articles of Amendment to be accepted for
filing with the SDAT.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Expenses. Each party hereto will pay its own expenses
in connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, (i) that, if the Closing
shall occur, the Company shall pay the (a) reasonable fees and disbursements of
the Purchasers' counsel in accordance with Section 4.01(g)(i) and (b) reasonable
out-of-pocket expenses of the Purchasers.
SECTION 6.02. Survival of Agreements. All covenants, agreements,
representations and warranties made herein, in the Stockholders' Agreement or in
any certificate or instrument delivered to the Purchasers pursuant to or in
connection with this Agreement or the Stockholders' Agreement shall survive the
execution and delivery of this Agreement, the Stockholders' Agreement, the
issuance, sale and delivery of the Preferred Shares, and the issuance and
delivery of the Conversion Shares, and all statements contained in any
certificate or other instrument delivered by the Company hereunder or thereunder
or in connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company.
SECTION 6.03. Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.04. Parties in Interest. All representations, 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
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parties hereto whether so expressed or not. Without limiting the generality
of the foregoing, all representations, covenants and agreements benefiting
the Purchasers shall inure to the benefit of any and all subsequent holders
from time to time of the Preferred Shares or the Conversion Shares.
SECTION 6.05. Notices. All notices which are required or may be
given pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and (i) delivered personally,
(ii) mailed by certified or registered mail, return receipt requested and
postage prepaid, (iii) sent via a nationally recognized overnight courier or
(iv) sent via facsimile confirmed in writing to the recipient, in each case as
follows:
(a) If to the Company:
Lawrence F. Halpert, Chairman
DentalCo, Inc.
Lake Falls Professional Building
6115 Falls Road
Baltimore, Maryland 21209
Facsimile No.: (410) 560-1910
with a copy to:
Wilbert H. Sirota, Esquire
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
Facsimile No.: (410) 576-1700
and
(b) If to the Purchasers:
M. Fazle Husain
Morgan Stanley Venture Partners L.P.
1221 Avenue of the Americas
New York, New York 10020
Facsimile No.: (212) 703-8957
with a copy to:
Othon A. Prounis, Esquire
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Facsimile No.: (212) 841-5725
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
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SECTION 6.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Maryland, without
giving effect to its conflicts of laws provisions.
SECTION 6.07. Entire Agreement. This Agreement, including the
Schedules and Exhibits hereto, together with the Stockholders' Agreement and
other agreements referenced by this Agreement, constitutes the sole and entire
agreement of the parties with respect to the subject matter hereof. All
Schedules and Exhibits hereto are hereby incorporated herein by reference.
SECTION 6.08. Counterparts. This Agreement may be executed in any
number of counterparts and any party hereto may execute any such counterpart,
each of which when executed and delivered shall be deemed to be an original and
all of which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties. It shall
not be necessary in making proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
SECTION 6.09. Amendments. This Agreement may not be amended or
modified, and no provisions hereof may be waived, without the written consent of
the Company and the holders of at least two-thirds of the shares of Common Stock
issued or issuable upon conversion of the Preferred Shares.
SECTION 6.10. Severability. If any provision of this Agreement shall
be declared void or unenforceable by any judicial or administrative authority,
the validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.11. Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 6.12. Recitals. The Recitals hereto are specifically made a
part of this Agreement.
SECTION 6.13. Knowledge. References in this Agreement to the best of
the Company's knowledge shall mean the actual knowledge of any officer or
director of the Company after reasonable inquiry of the officers and directors
of the Subsidiaries and the Affiliates or the knowledge which an officer or
director of the Company would reasonably be expected to have given his position
and duties.
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IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
DENTALCO, INC.
By: /s/ Lawrence F. Halpert (SEAL)
----------------------------------
Name: Lawrence F. Halpert, D.D.S.
Title: Chairman/CEO
MORGAN STANLEY VENTURE CAPITAL
FUND II ANNEX, L.P.
By Morgan Stanley Venture
Partners II, L.P.
General Partner
By Morgan Stanley Venture
Capital II, Inc.
Managing General Partner
By /s/ M. Fazle Husain
------------------------------------------
M. Fazle Husain
General Partner
MORGAN STANLEY VENTURE INVESTORS
ANNEX, L.P.
By Morgan Stanley Venture Partners
II, L.P.
General Partner
By Morgan Stanley Venture Capital
II, Inc.
Managing General Partner
By /s/ M. Fazle Husain
------------------------------------------
M. Fazle Husain
General Partner
36
<PAGE>
Exhibit 10.4
PREFERRED STOCK PURCHASE AGREEMENT
by and among
DENTALCO, INC.
(the "Company")
and
MORGAN STANLEY VENTURE CAPITAL FUND II ANNEX, L.P.
MORGAN STANLEY VENTURE INVESTORS ANNEX, L.P.
GROTECH PARTNERS IV, L.P.
GROTECH PARTNERS III, L.P.
GROTECH III COMPANION FUND, L.P.
and
GROTECH III PENNSYLVANIA FUND, L.P.
Dated as of June 2, 1997
<PAGE>
THIS PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
June 2, 1997 by and among DENTALCO, INC., a Maryland corporation (formerly
known as Mid-Atlantic Dental Associates, P.A. and Chambers & Goodwin, P.A.,
the "Company"), MORGAN STANLEY VENTURE CAPITAL FUND II ANNEX, L.P., MORGAN
STANLEY VENTURE INVESTORS ANNEX, L.P., GROTECH PARTNERS IV, L.P., GROTECH
PARTNERS III, L.P., GROTECH III COMPANION FUND, L.P. AND GROTECH III
PENNSYLVANIA FUND, L.P. (each an "Initial Purchaser" and collectively the
"Initial Purchasers").
WHEREAS, as of the date hereof, the Company wishes to issue and sell to
the Initial Purchasers an aggregate of 40,740 shares of its authorized but
unissued 9% Class D Cumulative Convertible Preferred Stock, $0.0001 par value
per share,(the "Convertible Preferred Stock" and 40,740 shares of its
authorized but unissued 9% Class D Cumulative Redeemable Preferred Stock (the
"Redeemable Preferred Stock") (collectively, the "Class D Preferred Stock");
and
WHEREAS, certain of the Company's stockholders and members of the
Company's management are (i) the sole shareholders of (a) MidAtlantic Dental
Associates, P.A. ("MidAtlantic"), (b) V. Dale McElwee, D.D.S. & Associates,
P.C. ("McElwee"), (c) Nathan Bell, D.D.S., P.A. ("Bell") (d) Raymond
Garrison, D.D.S., P.A. ("Garrison") and (e) Nanston Dental Group, P.C.
("NDG"), and (ii) hold 99.99% of the outstanding equity securities of Ned
Greenberg D.D.S. & Associates, P.C. ("Greenberg" and collectively with
MidAtlantic, McElwee, Bell, Garrison and NDG, the "Affiliates" and each an
"Affiliate"), each of which is affiliated with the Company through such
common ownership and certain management agreements; and
WHEREAS, each of the Initial Purchasers wishes to purchase certain of the
shares of the Class D Preferred Stock on the terms and subject to the
conditions set forth in this Agreement and may purchase or arrange for the
purchase of additional shares of the Class D Preferred Stock;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF CLASS D PREFERRED STOCK
SECTION 1.01. Initial Issuance, Sale and Delivery of Shares of the Class
D Preferred Stock. (a) Subject to the terms and conditions of this
Agreement, the Company agrees to sell to each Initial Purchaser, and each
Initial Purchaser shall purchase from the Company, on the Initial Closing
Date (as hereinafter defined), the number and type of shares of the Class D
Preferred Stock set forth opposite such Purchaser's name in Schedule I hereto
under the
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heading "Number of Shares of the Class D Preferred Stock" at the purchase
price of $100 per share for an aggregate purchase price for all of the shares
of the Class D Preferred Stock of $8,148,000. Half the number of shares of
the Class D Preferred Stock to be purchased on the Initial Closing Date by
each Initial Purchaser shall be shares of Convertible Preferred Stock and
half shall be shares of Redeemable Preferred Stock. On the Initial Closing
Date, the Company shall issue and deliver to each Initial Purchaser
certificates in definitive form, registered in the name of such Purchaser,
evidencing the shares of the Class D Preferred Stock issued and sold to such
Purchaser hereunder on the Initial Closing Date.
(b) As payment in full for the shares of the Class D Preferred
Stock purchased by each Initial Purchaser hereunder on the Initial Closing
Date, and against delivery thereof as aforesaid, on the Initial Closing Date
each Initial Purchaser shall transfer to the account of the Company, by wire
transfer, immediately available funds in the amount set forth opposite the
name of such Purchaser on Schedule I under the heading "Aggregate Purchase
Price" (it being understood that, nothwithstanding the foregoing, Grotech
Partners IV, L.P. shall have the right, in lieu of transferring to the
Company, in cash, $250,000 of the aggregate purchase price for the shares of
the Class D Preferred Stock to be purchased by it at the Initial Closing, to
apply the entire principal amount plus accrued but unpaid interest due and
owing to it by the Company under the terms of that certain Promissory Note
dated May 22, 1997 toward such purchase price at the Initial Closing by
delivering such note to the Company at the Initial Closing marked "PAID IN
FULL.")
SECTION 1.02. Subsequent Issuance, Sale and Delivery of Shares of the
Class D Preferred Stock. (a) The Initial Purchasers agree that each of them
shall use reasonable efforts to identify and designate for the Company such
other or additional parties who would be willing and able to purchase from
the Company up to an additional 59,260 shares of the Class D Convertible
Preferred Stock and an additional 59,260 shares of the Class D Redeemable
Preferred Stock at the purchase price of $100 per share; it being understood
and agreed that the Initial Purchasers shall have no liability to the Company
to purchase any such shares if the Initial Purchasers shall be unable to
identify and designate any such party.
(b) Subject to the terms and conditions of this Agreement, the
Company agrees that, if a Subsequent Purhcaser or Purchasers shall be
designated by any of the Initital Purchaser, it shall sell to each of the
parties designated by the Initial Purchasers pursuant to Section 1.02(a)
above (each such party being referred to as a "Subsequent Purchaser") such
number of shares of the Class D Preferred Stock as shall be agreed in writing
between the Company and such Subsequent Purchaser. Each such sale will take
place on the Subsequent Closing Date (as hereinafter defined) at the purchase
price of $100 per share. Half the number of shares of the Class D Preferred
Stock purchased on the Subsequent Closing Date by each Subsequent Purchaser
shall be shares of Convertible Preferred Stock and half shall be shares of
Redeemable Preferred Stock. On the Subsequent Closing Date, the Company
shall issue and
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deliver to each Subsequent Purchaser, against payment in full therefor,
certificates in definitive form, registered in the name of such Purchaser,
evidencing the shares of the Class D Preferred Stock to be issued and sold to
such Purchaser hereunder on the Subsequent Closing Date.
(c) If a Subsequent Closing shall be scheduled, on or before the
Subsequent Closing Date, each Subsequent Purchaser shall enter into a Stock
Purchase Agreement Supplement with the Company in substantially the form of
Exhibit A hereto and shall become a party to this Agreement with all rights
and obligations of a "Purchaser" hereunder. The Company agrees that it shall
enter into a Stock Purchase Agreement Supplement with each party designated
by the Initial Purchasers pursuant to Section 1.02(a). Each Initial
Purchaser shall be entitled to be a Subsequent Purchaser.
(d) As payment in full for the shares of the Class D Preferred
Stock to be purchased by each Subsequent Purchaser hereunder on the
Subsequent Closing Date, and against delivery thereof as aforesaid, on the
Subsequent Closing Date each Subsequent Purchaser shall transfer to the
account of the Company, by wire transfer, immediately available funds in the
amount of the aggregate purchase price set forth in the applicable Stock
Purchase Agreement Supplement.
SECTION 1.03. Closings. (a) The closing and sale of the shares to be
sold to the Initial Purchasers pursuant to Section 1.01 (the "Initial
Closing") shall take place at the offices of Miles & Stockbridge, 10 Light
Street, Baltimore, Maryland, 21202, at 10:00 a.m. on June 4, 1997, or at such
other location, date and time as may be agreed to by the Initial Purchasers
and the Company (such date and time, the "Initial Closing Date").
(b) The closing and sale of the shares to be sold to the Subsequent
Purchasers pursuant to Section 1.02 (the "Subsequent Closing") shall take
place at the offices of Miles & Stockbridge, 10 Light Street, Baltimore,
Maryland, 21202, or at such other location, and at such date and time as
shall be agreed to by the Subsequent Purchasers and the Company (such date
and time, the "Subsequent Closing Date").
SECTION 1.04. Purchasers. For purposes of this Agreement, each of the
Initial Purchasers and each of the Subsequent Purchasers shall be deemed to
be, and shall be referred to herein, as a "Purchaser" and all of them
together shall be referred to herein collectively as the "Purchasers." Each
Purchaser shall be entitled to all the rights, and shall be bound by all the
obligations, of a "Purchaser" hereunder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, as of the
date of this Agreement, except as set forth in the Disclosure Schedule
attached hereto as Schedule II (which
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Disclosure Schedule makes explicit reference to the particular representation
or warranty as to which exception is taken, which in each case shall
constitute the sole representation and warranty as to which such exception
shall apply) ("Schedule II"):
SECTION 2.01. Organization, Qualifications and Corporate Power and
Business.
(a) The Company is a corporation duly organized and validly
existing under the laws of the State of Maryland and is duly licensed or
qualified to transact business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of the business transacted
by it or the character of the properties owned or leased by it requires such
licensing or qualification, except where the failure to so qualify could not
reasonably be expected to have a material adverse effect on the business,
prospects, financial condition, operations, properties or affairs of the
Company and its Subsidiaries, taken as a whole (a "Material Adverse Effect").
The Company has the corporate power and authority to own and hold its properties
and to carry on its business as now conducted and as proposed to be conducted,
to execute, deliver and perform this Agreement and the Second Amended and
Restated Stockholders' Agreement of even date herewith (the "Stockholders'
Agreement") by and among the Company, the Purchasers and all other stockholders
of the Company, in the form substantially as attached hereto as Exhibit B, to
issue, sell and deliver the shares of the Class D Preferred Stock and to issue
and deliver the shares (the "Conversion Shares") of its common stock, par value
$0.0001 per share (the "Common Stock"), issuable upon conversion of the shares
of the Class D Preferred Stock that are Convertible Preferred Stock.
(b) "Subsidiary" means any entity (i) securities of which having
ordinary voting power to elect a majority of the board of directors (or other
persons having similar functions), or (ii) other ownership interests of which
ordinarily constituting a majority voting interest, are at the time directly
or indirectly owned or controlled by the Company or by one or more of its
Subsidiaries or by the Company and one or more of its Subsidiaries. The
following corporations constitute all of the Subsidiaries of the Company:
DentalCo Management Services of Maryland, Inc., HealthMaster Information
Technologies, Inc., DentalCo Management Services of Missouri, Inc., Nanston,
Inc., NanstonNorth Carolina, Inc., DentalCo of North Carolina, Inc., DentalCo
Provider Network, Inc., [The Dental Center, Inc. and The Dental Center Adult,
Inc.] DentalCo Modern Acquisition Corp., DentalCo Management Services of New
Jersey, Inc. and DentalCo Mangement Services of Pennsylvania, Inc. Except for
the aforementioned Subsidiaries, the Company does not own of record or
beneficially, directly or indirectly, (i) any shares of capital stock or
securities convertible into capital stock of any other corporation or (ii) any
participating interest in any partnership, joint venture or other non-corporate
business enterprise, and the Company does not control, directly or indirectly,
any other entity. Each Subsidiary of the Company is a corporation duly
organized and validly existing under the laws of the jurisdiction in which it is
incorporated and is duly licensed or qualified to transact business as a foreign
corporation and is
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<PAGE>
in good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification, except where the failure to so
qualify could not reasonably be expected to have a Material Adverse Effect.
(c) The Company and each of its Subsidiaries is engaged principally
in the business of providing, directly or indirectly, administrative services
to dental practices, owning and leasing to providers of dental services the
fixed assets used to provide such services, and contracting with HMO's,
health plans, insurers or other thirdparty payors for the delivery of dental
services by affiliated dental professionals.
(d) Each of the Affiliates is a corporation duly organized and
validly existing under the laws of the state or the jurisdiction of its
incorporation, and is duly licensed or qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which it owns or
leases any real property or in which the nature of business transacted by it
makes such licensing or qualification necessary, except where the failure to
so qualify could not be reasonably expected to have a Material Adverse
Effect. Each Affiliate has the corporate power and authority to own and hold
its properties and to carry on its business as currently conducted. None of
the Affiliates has any Subsidiaries.
SECTION 2.02. Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this Agreement and
the Stockholders' Agreement, the performance by the Company of its
obligations hereunder and thereunder and the issuance, sale and delivery of
the shares of the Class D Preferred Stock, or any of them, and the issuance,
sale and delivery of the Conversion Shares have been duly authorized by all
requisite corporate action and will not violate any provision of applicable
corporate or securities laws, any order of any court or other agency of
government, the Articles of Incorporation of the Company, as amended,
restated or supplemented (the "Charter"), the bylaws of the Company, the
Articles of Incorporation, or similar constituting document, or the bylaws of
any Affiliate, or any provision of any indenture, agreement or other
instrument by which the Company, any of its properties or assets, or any of
its Affiliates are bound, or conflict with, result in a material breach of or
constitute (with due notice or lapse of time or both) a default which would
allow the other party to accelerate the obligations of the Company or any
Affiliate due to it or otherwise exercise rights against the Company or any
Affiliate under any such indenture, agreement or other instrument, or result
in the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or assets of
the Company or any Affiliate.
(b) The Articles of Amendment and Restatement of the Company
amending and restating the Charter in the form of Exhibit C have been duly
advised and approved by the board of directors and approved by the
stockholders of the Company in accordance with the
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requirements of the Maryland General Corporation Law and have been accepted
for record by the State Department of Assessments and Taxation of the State
of Maryland. The shares of the Class D Preferred Stock, or any of them, if
and when issued in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable and will be free and clear of
all liens, charges, restrictions, claims and encumbrances, except as set
forth herein, in the Charter or in the Stockholders' Agreement. The
Conversion Shares have been duly reserved for issuance upon conversion of the
shares of the Class D Preferred Stock that are Convertible Preferred Stock
and, if and when so issued, will be duly authorized, validly issued, fully
paid and nonassessable shares of Common Stock and will be free and clear of
all liens, charges, restrictions, claims and encumbrances, except as set
forth herein, in the Charter and in the Stockholders' Agreement. Neither the
issuance, sale or delivery of the shares of the Class D Preferred Stock nor
the issuance or delivery of the Conversion Shares is subject to any
preemptive right of stockholders of the Company or to any right of first
refusal or other right in favor of any person, except as herein provided or
as provided in the Stockholders' Agreement.
SECTION 2.03. Validity. This Agreement and the Stockholders' Agreement
have been duly authorized, executed and delivered by the Company and each
constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and
equitable remedies, and to the extent that the indemnification provisions
contained in the Stockholders' Agreement may be limited by applicable Federal
or state securities laws.
SECTION 2.04. Authorized Capital Stock.
(a) The authorized capital stock of the Company consists of Sixteen
Million (16,000,000) shares, of which (i) 40,154 shares are designated and
classified as 8% Class A Cumulative Convertible Preferred Stock, par value
0.0001 per share, (ii) 47,068 shares are designated as Class B Convertible
Preferred Stock, par value $0.0001 per share, (iii) 40,154 shares are
designated as 8% Class A Cumulative Convertible Preferred Stock, par value
$0.0001 per share, (iv) 816,038 shares are designated as 8% Class C
Cumulative Convertible Preferred Stock, par value $0.0001 per share, (v)
100,000 shares are designated as 9% Class D Cumulative Convertible Preferred
Stock, par value $0.0001 per share, (vi) 100,000 shares are designated as 9%
Class D Redeemable Preferred Stock and (viii) Fourteen Million Eight Hundred
Sixty Thousand Six Hundred EightySix (14,860,686) shares are designated as
Common Stock par value $0.0001 per share. The stockholders of record of the
Company and the number of shares of capital stock held by each are set forth
in the attached Schedule III, all of which shares are validly issued and
outstanding. Except as set forth in the Charter and the Stockholders'
Agreement, and as disclosed in the attached Schedule III, there are no
subscriptions, warrants, options, convertible securities or other rights
(contingent or other) to purchase or otherwise acquire equity securities of
the Company (other than
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their rights set forth in this Agreement). Schedule III sets forth a true,
accurate and complete listing, by stockholder of record, of the number of
shares of the Common Stock of the Company into which any outstanding shares
of the capital stock of the Company currently is convertible under the terms
of the Charter, and, by option holder, the number of shares of Common Stock
of the Company issuable upon the exercise of any outstanding options or
rights granted by the Company to any person or party to purchase or otherwise
acquire shares of capital stock from the Company. Except for the Conversion
Shares, no shares of Common Stock or other capital stock of the Company are
reserved for possible future issuance. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect
of the Class D Preferred Stock are as set forth in the Charter, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions set forth therein with respect to the Class D Preferred Stock
are valid, binding and enforceable and in accordance with all applicable
laws, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to
or affecting enforcement of creditors' rights and equitable remedies. Except
pursuant to the terms of this Agreement and the Stockholders' Agreement,
there is no commitment by the Company to issue shares, subscriptions,
warrants, options, convertible securities or other such rights or to
distribute to holders of any of its equity securities any evidence of
indebtedness or asset. Except as provided for in the Charter, in the
Stockholders' Agreement or herein, the Company has no obligation (contingent
or other) to purchase, redeem or otherwise acquire any of its equity
securities or any interest therein or to pay any dividend or make any other
distribution in respect thereof. Except as provided for in the Charter, in
the Stockholders' Agreement or as provided herein, there are no voting trusts
or agreements, stockholders, agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights or proxies relating to
any securities of the Company (whether or not the Company is a party
thereto). All of the outstanding securities of the Company were issued in
compliance with all applicable federal and state securities laws.
(b) The authorized capital stock of each of the Subsidiaries of the
Company is as shown in the attached Schedule IIIA. The authorized capital
stock of each Affiliate is as set forth in the attached Schedule III-A and
the stockholders of record of each Affiliate and the number of shares of
capital stock held by each such stockholder are set forth in said Schedule
III-A. There are no subscriptions, warrants, options, convertible securities
or other rights (contingent or other) to purchase or otherwise acquire equity
securities of any Subsidiary or Affiliate of the Company and no shares of
capital stock of a Subsidiary or Affiliate are reserved for possible future
issuance. There is no commitment by a Subsidiary or Affiliate of the Company
to issue shares, subscriptions, warrants, options, convertible securities or
other such rights or to distribute to holders of any of its equity securities
any evidence of indebtedness or asset. No Subsidiary or Affiliate of the
Company has any obligation (contingent or other) to purchase, redeem or
otherwise acquire any of its equity securities or any interest therein or to
pay any dividend or make
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any other distribution in respect thereof. There are no voting trusts or
agreements, stockholders' agreements, pledge agreements, buy-sell agreements,
rights of first refusal, preemptive rights or proxies relating to any
securities of a Subsidiary or Affiliate of the Company (whether or not such
Subsidiary or Affiliate is a party thereto). All of the outstanding
securities of each Subsidiary or Affiliate were issued in compliance with all
applicable federal and state securities laws.
SECTION 2.05. Financial Statements and Projections.
(a) The Company has furnished to the Purchasers: (i) the unaudited
consolidated and consolidating balance sheets of the Company and its
subsidiaries, including without limitation the Affiliates, as of December 31,
1996 (the "1996 Balance Sheet") and the related consolidated and
consolidating statements of income, changes in stockholders' equity and cash
flows for the fiscal year then ended, and (ii) the unaudited consolidated and
consolidating balance sheets of the Company and its subsidiaries as of March
31, 1997 (the "1997 Balance Sheet") and the related unaudited statements of
income and cash flows for the threemonth period then ended, certified by the
principal financial officer of the Company. Such financial statements have
been prepared in accordance with generally accepted accounting principles in
the United States ("GAAP") consistently applied and fairly present the
consolidated financial position of the Company and its subsidiaries as of
such respective dates and the consolidated results of their operations for
the periods then ended in accordance with generally accepted accounting
principles consistently applied, subject, in the case of unaudited interim
financial statements, to normal yearend adjustments (which consist of normal
recurring accruals) and the absence of certain footnote disclosures.
(b) None of the Company, any Subsidiary thereof or any Affiliate,
taken as a whole, has any material liability or obligation of any kind or
nature, absolute or contingent (individually or in the aggregate), including,
without limiting the generality of the foregoing, any tax liabilities due or
to become due, not reflected in the 1996 Balance Sheet or the balance sheet
of such Affiliate as of December 31, 1996, except obligations and liabilities
incurred after the date of the 1996 Balance Sheet or the balance sheet of
such Affiliate as of December 31, 1996 in the ordinary course of business
that are not individually or in the aggregate material and that would not be
required to be reflected in financial statements prepared in accordance with
GAAP.
(c) The Company's financial projections provided to the Purchasers
(the "Projections") were developed by management of the Company and based
upon assumptions which the Company believes to be reasonable.
SECTION 2.06. Events Subsequent to December 31, 1996. Except for
matters set forth herein, all of which are fully and accurately displayed in
all material respects in the 1996 Balance Sheet and the December 31, 1996
balance sheet of such Affiliate, since December 31, 1996 neither the Company,
any Subsidiary nor any Affiliate has (i) issued any stock, bond or other
corporate
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security or partnership interest, (ii) borrowed any amount or incurred or
become subject to any liability (absolute, accrued or contingent), except
current liabilities incurred and liabilities under contracts entered into in
the ordinary course of business, (iii) discharged or satisfied any lien or
encumbrance or incurred or paid any obligation or liability (absolute,
accrued or contingent) other than current liabilities shown on the 1997
Balance Sheet or the March 31, 1997 balance sheet of such Affiliate and
current liabilities incurred since December 31, 1996 in the ordinary course
of business, (iv) declared or made any payment or distribution to
stockholders or purchased or redeemed any share of its capital stock or other
security, (v) mortgaged, pledged or subjected to lien any of its assets,
tangible or intangible, other than liens of current real property taxes not
yet due and payable, (vi) sold, assigned or transferred any of its tangible
assets except in the ordinary course of business, or canceled any debt or
claim, (vii) sold, assigned, transferred or granted any exclusive license
with respect to any patent, trademark, trade name, service mark, copyright,
trade secret or other intangible asset, (viii) suffered any loss of property
or waived any right of substantial value whether or not in the ordinary
course of business, (ix) made any material change in officer compensation,
(x) made any material change in the manner of business or operations, (xi)
entered into any transaction except in the ordinary course of business or as
otherwise contemplated hereby, (xii) entered into any commitment (contingent
or otherwise) to take any of the actions listed in clauses (i) through (xi)
above, (xiii) suffered any Material Adverse Effect or waived any rights of
substantial value, whether or not in the ordinary course of business, (xiv)
received notification of cancellation, or canceled or waived any rights
which, individually or in the aggregate, are material with respect to any
currently existing agreement, contract, right or understanding between it and
any professional association or professional corporation, including without
limitation of the foregoing, any such agreement between or among the Company
and/or any Affiliate, or (xv) engaged in any material transaction with any
director, officer, employee, stockholder, or partner of the Company.
SECTION 2.07. Litigation; Compliance with Law. There is no (i) action,
suit, claim, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened against or affecting the Company, any
Subsidiary or any Affiliate, at law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii)
arbitration proceeding relating to the Company, any Subsidiary or any
Affiliate pending under collective bargaining agreements or otherwise or
(iii) governmental inquiry pending or, to the best of the Company's
knowledge, threatened against or affecting the Company, any Subsidiary or any
Affiliate, and, to the best of the Company's knowledge, there is no basis for
any of the foregoing. The Company has not received any opinion or memorandum
or legal advice from legal counsel to the effect that it, any Subsidiary or
any Affiliate is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to its business, prospects, financial
condition, operations, properties or affairs. There is
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no judgment, decree, injunction, order or writ outstanding against the
Company, any Subsidiary or any Affiliate of any court or of any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, and neither the Company, any
Subsidiary or any Affiliate is in default with respect to any such judgment,
decree, injunction, order or writ. There is no action or suit by the
Company, any Subsidiary or any Affiliate pending or threatened against
others. The Company, each Subsidiary and each Affiliate has complied in all
material respects with all laws, rules, regulations and orders which are
material and applicable to its business, operations, properties, assets,
products and services, and the Company, each Subsidiary and each Affiliate
has all necessary permits, licenses and other authorizations, including
environmental, required to conduct its business as conducted and as proposed
to be conducted in all material respects. Such permits, licenses and other
authorizations have been validly issued by the appropriate governmental
bodies and are in full force and effect. To the best of the Company's
knowledge, there is no existing law, rule, regulation or order, and the
Company is not aware of any proposed law, rule, regulation or order, whether
Federal or state, which would prohibit or materially restrict the Company,
any Subsidiary or any Affiliate from, or otherwise materially adversely
affect the Company, any Subsidiary or any Affiliate in, conducting its
business in any jurisdiction in which it is now conducting business or in
which it proposes to conduct business.
SECTION 2.08. Proprietary Information of Third Parties. No third party
has claimed and, to the best of the Company's knowledge, no third party has
reason to claim that any person now or previously employed or engaged as a
consultant by the Company, any Subsidiary or any Affiliate has (a) violated
or may be violating any of the terms or conditions of his employment,
non-competition or non-disclosure agreement with such third party, (b)
disclosed or may be disclosing or utilized or, to the best of the Company's
knowledge, may be utilizing any trade secret or proprietary information or
documentation of such third party or violated any confidential relationship
which such person may have had with such third party in connection with the
development, manufacture or sale of any product or proposed product or the
development or sale of any service or proposed service of the Company, any
Subsidiary or any Affiliate or (c) interfered or may be interfering in the
employment relationship between such third party and any of its present or
former employees. No third party has requested information from the Company,
any Subsidiary or any Affiliate which reasonably suggests that such a claim
might be contemplated. To the best of the Company's knowledge, none of the
execution or delivery of this Agreement or the Stockholders' Agreement, or
the carrying on of the business of the Company, any Subsidiary or any
Affiliate by any officer, director or key employee of the Company, any
Subsidiary or any Affiliate, or the conduct of the business of the Company,
any Subsidiary or any Affiliate, will conflict with or result in a breach of
the terms, conditions provisions of or constitute a default under any
contract, covenant or instrument under which any such person is obligated.
For purposes of the preceding sentence, (i) the conduct of the business of
the Company or any Subsidiary means providing,
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directly or indirectly, administrative services to dental practices, owning
and leasing to providers of dental services the fixed assets used to provide
such services, and contracting with HMO's, health plans, insurers or other
thirdparty payors for the delivery of dental services by affiliated dental
professionals and (ii) the conduct of the business of any Affiliate means the
practice of dentistry.
SECTION 2.09. Title to Properties. The Company, each Subsidiary and
each Affiliate has good and marketable title to its properties and assets
reflected on the 1997 Balance Sheet or the March 31, 1997 balance sheet of
such Affiliate or acquired by it since the date of the 1997 Balance Sheet or
the March 31,1997 balance sheet of such Affiliate (other than properties and
assets disposed of in the ordinary course of business since the date of that
balance sheet), and all such properties and assets are free and clear of
mortgages, pledges, security interests, liens, charges, claims, restrictions
and other encumbrances, except for liens for current taxes not yet due and
payable and minor imperfections of title, if any, not material in nature or
amount and not materially detracting from the value or impairing the use of
the property subject thereto or impairing the operations or proposed
operations of the Company, any Subsidiary or any Affiliate.
SECTION 2.10. Leasehold Interests. Each lease or agreement to which the
Company, any Subsidiary or any Affiliate is a party under which it is a
lessee of any property, real or personal, is a valid and subsisting agreement
without any material default of the Company, the Subsidiary or the Affiliate
thereunder and, to the best of the Company's knowledge, without any material
default thereunder of any other party thereto. No event has occurred and is
continuing which, with due notice or lapse of time or both, would constitute
a default or event of default by the Company, any Subsidiary or any Affiliate
under any such lease or agreement or, to the best of the Company's knowledge,
by any other party thereto. Possession of such property by the Company or
the applicable Subsidiary or Affiliate has not been disturbed and, to the
best of the Company's knowledge, no claim has been asserted against the
Company or such Subsidiary or Affiliate adverse to its rights in such
leasehold interests.
SECTION 2.11. Insurance. Each policy and binder of insurance for
professional liability, directors and officers, fire, liability, worker's
compensation and other customary matters held by or on behalf of the Company,
its Subsidiaries and its Affiliates is listed on Schedule II hereto. Each
such insurance policy (including each insurance policy or binder entered into
after the date of this Agreement in the place of a currently existing and
valid policy or binder, provided that such replacement policy shall insure
against risk and liabilities, be in amounts and be under terms and conditions
substantially the same as those provided in such currently existing policy or
binder) is in full force and effect, all premiums with respect thereto have
been paid and the Company, its Subsidiaries and its Affiliates are not in
default with respect to any material provision contained in such insurance
policy, nor has the Company or any such Subsidiaries or Affiliates
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failed to give any notice of any claim under such insurance policy in due and
timely fashion, nor has any coverage for current claims been denied, except
for (A) any default or failure that, as of the date of this Agreement, did
not exceed $50,000, and (B) any default or failure arising after the date of
this Agreement that could not reasonably be expected to have a Material
Adverse Effect. All such policies provide insurance, including without
limitation liability insurance, in such amounts and against such risks as is
customary for companies engaged in similar businesses as the Company to
protect the employees, properties, assets, businesses and operations of the
Company. Each individual or entity rendering professional health care
services as an employee or contractor to the Company, its subsidiaries or its
Affiliates maintains professional liability insurance.
SECTION 2.12. Taxes. The Company, each Subsidiary and each Affiliate
has duly and timely filed or caused to be filed all federal, state, local and
foreign income, franchise, excise, payroll, sales and use, property and
withholding tax returns, reports, estimates and information and other
statements or returns (collectively, "Tax Returns") required to be filed
pursuant to any applicable federal, state, local or foreign tax laws for all
years and periods for which such Tax Returns have become due. All such Tax
Returns were correct in all material respects as filed and correctly reflect
the federal, state, local and foreign income, franchise, excise, payroll,
sales and use, property, withholding and other taxes, duties, imposts and
governmental charges (and charges in lieu of any thereof), together with
interest and penalties (collectively, "Taxes"), required to be paid or
collected by (or allocable to) the Company, each Subsidiary or each
Affiliate, as the case may be. The Company, each Subsidiary and each
Affiliate has (i) paid or caused to be paid all Taxes as shown on the Tax
Returns filed by it or on any assessment received by it, and (ii) properly
and fully accrued on its financial statements all Taxes for any period from
the date of the last reporting period covered by such Tax Returns through the
date hereof. The Internal Revenue Service has never audited any federal
income tax return of the Company, any Subsidiary or any Affiliate. No
deficiency assessment with respect to or proposed adjustment of the federal,
state, county or local taxes of the Company, any Subsidiary or any Affiliate
is pending or, to the best of the Company's knowledge, threatened. There is
no tax lien, whether imposed by any federal, state, county or local taxing
authority, outstanding against the assets, properties or business of the
Company, any Subsidiary or any Affiliate. Neither the Company nor any of its
stockholders has ever filed an election pursuant to Section 1362 of the
Internal Revenue Code of 1986, as amended (the "Code"), that the Company be
taxed as an S corporation. The Company is not a party to any taxsharing or
allocation agreements, nor does the Company owe any amount under any
taxsharing or allocation agreement. Neither the Company, any Subsidiary nor
any Affiliate has ever been a member of a consolidated group for federal
income tax purposes other than the group of which the Company is the common
parent.
SECTION 2.13. Other Agreements. Except as set forth in the documents to
be executed in connection with the transactions contemplated by this
Agreement and the Stockholders' Agreement,
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neither the Company, any Subsidiary nor any Affiliate is a party to or
otherwise bound by any written or oral contract or instrument or, to the
knowledge of the Company, other restriction which individually or in the
aggregate could have a Material Adverse Effect. Neither the Company, any
Subsidiary nor any Affiliate is a party to or otherwise bound by any written
or oral:
(a) contract with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of its
employees or the employees of any Subsidiary or any Affiliate);
(b) contract or other commitment with any supplier containing any
provision permitting any party other than the Company, such Subsidiary or
such Affiliate to renegotiate the price or other terms pursuant to which the
Company, any Subsidiary or any Affiliate has or is expected to purchase in
excess of $10,000 worth of products or services during any 12-month period;
(c) contract for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(d) contract for the employment of any officer, employee or other
person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not terminable on
notice without cost or other liability to the Company, any Subsidiary or any
Affiliate, except normal severance arrangements and accrued vacation pay;
(e) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, contract or
understanding pursuant to which benefits are provided to any employee,
executive or director of the Company, any Subsidiary, or any Affiliate (other
than group insurance plans applicable to employees generally);
(f) agreement or indenture relating to the borrowing of money or to
the mortgaging or pledging of, or otherwise placing a lien or security
interest on, any asset of the Company, any Subsidiary or any Affiliate;
(g) guaranty of any obligation for borrowed money or otherwise;
(h) voting trust or agreement, stockholders agreement (except for
the Stockholders' Agreement), pledge agreement, buy-sell agreement or first
refusal or preemptive rights agreement (except for this Agreement and the
[Stockholders' Agreement]) relating to any securities of the Company, any
Subsidiary or any Affiliate;
(i) agreement, or group of related agreements with the same party
or any group of affiliated parties, under which the Company, any Subsidiary
or any Affiliate has advanced or agreed to advance money or has agreed to
lease any property as lessee or lessor;
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(j) agreement or obligation (contingent or otherwise) to issue,
sell or otherwise distribute or to repurchase or otherwise acquire or retire
any share of its capital stock or any of its other equity securities (except
pursuant to this Agreement or the Stockholders' Agreement);
(k) assignment, license or other agreement with respect to any form
of intangible property;
(l) agreement under which it has granted any person any
registration rights, other than the Stockholders' Agreement;
(m) agreement under which it has limited or restricted its right to
compete with any person in any respect;
(n) other contract or group of related contracts with the same
party (including, without limitation, all leases of real and personal
property, mortgages, indentures and loan agreements) involving more than
$10,000 or continuing over a period of more than six months from the date or
dates thereof (including renewals or extensions optional with another party);
or
(o) other contract, instrument, commitment, plan or arrangement, a
copy of which would be required to be filed with the Securities and Exchange
Commission (the "Commission") as an exhibit to a registration statement on
Form S-1 pursuant to Item 601(b)(10) of Regulation S-K under the Securities
Act of 1933, as amended (the "Securities Act"), if the Company were
registering securities under the Securities Act.
True and complete copies of all documents and complete descriptions of
all oral understandings (if any) and copies of standard form agreements
referred to on Schedule II have been provided or made available to the
Purchasers, their counsel and representatives. Except as disclosed on such
Schedule, the agreements referred to on such Schedule are valid and
enforceable obligations of the Company, each Subsidiary or each Affiliate, as
the case may be, and, to the best knowledge of the Company, of the other
parties thereto. To the best of the Company's knowledge, the Company, each
Subsidiary, each Affiliate and each other party thereto have, in all material
respects, performed all the obligations required to be performed by them to
date, have received no notice of default and are not in default, in any
material respect (with due notice or lapse of time or both) under any lease,
agreement or contract now in effect to which the Company, any Subsidiary or
any Affiliate is a party or by which it or its property may be bound.
Neither the Company, any Subsidiary nor any Affiliate has any present
expectation or intention of not fully performing all its obligations under
each such lease, contract or other agreement in all material respects, and
neither the Company, any Subsidiary nor any Affiliate has any knowledge of
any breach nor has it received any written notice of any anticipated breach
by the other party to any contract or commitment to which the Company, any
Subsidiary or any Affiliate, as the case may be, is a party. The Company is
not in violation of any material provision of the Charter or its bylaws. No
Subsidiary or Affiliate is in violation
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of any provision of its charter or bylaws or other organizing documents.
The Company has provided to the Purchasers a list of all management level
employees of the Company and of each Subsidiary and Affiliate indicating
their current total annual compensation.
The Administrative Services Agreement between the Company and each of the
Affiliates is substantially in the form of Exhibit D hereto.
SECTION 2.14. Patents, Trademarks, Etc. Set forth in Schedule II is a
list and brief description of all patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names and copyrights, and all applications for such which
are in the process of being prepared, owned by or registered in the name of
the Company, any Subsidiary or any Affiliate or of which the Company, any
Subsidiary or any Affiliate is a licensor or licensee or in which the
Company, any Subsidiary or any Affiliate has any right, and in each case a
brief description of the nature of such right. The Company, each Subsidiary
and each Affiliate owns or possesses adequate licenses or other rights to
use, free and clear of all liens, claims and restrictions, 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 its business as conducted and as currently
planned to be conducted, and the Company, each Subsidiary's and each
Affiliate's licenses or rights to such Intellectual Property are valid,
enforceable and in good standing. No claim is pending or, to the best of the
Company's knowledge, threatened to the effect that the operations of the
Company, any Subsidiary or any Affiliate infringe upon or conflict with the
asserted rights of any other person under any Intellectual Property, and, to
the best of the Company's knowledge, there is no basis for any such claim
(whether or not pending or threatened). No claim is pending or, to the best
of the Company's knowledge, threatened to the effect that any such
Intellectual Property owned or licensed by the Company, any Subsidiary or any
Affiliate, or which the Company, any Subsidiary or any Affiliate otherwise
has the right to use, is invalid or unenforceable by the Company or such
Subsidiary or Affiliate, and, to the best of the Company's knowledge, there
is no basis for any such claim (whether or not pending or threatened).
Except as set forth in Schedule II, neither the Company, any Subsidiary nor
any Affiliate is obligated or under any liability whatsoever to make any
payments by way of royalties, fees or otherwise to any owner or licensee of,
or other claimant to, any patent, trademark, service mark, trade name,
copyright or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise.
SECTION 2.15. Loan Advances. Neither the Company, any Subsidiary nor
any Affiliate has any outstanding loans or advances to any person nor is it
obligated to make any such loans or advances, except, in each case, for
advances to its employees in
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respect of reimbursable business expenses anticipated to be incurred by them
in connection with their performance of services for the Company, the
Subsidiary or the Affiliate.
SECTION 2.16. Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons. Neither the Company, any Subsidiary nor any Affiliate has assumed,
guaranteed, endorsed or otherwise become directly or contingently liable on
any indebtedness of any other person (including, without limitation,
liability by way of agreement, contingent or otherwise, to purchase, to
provide funds for payment, to supply funds to or otherwise invest in the
debtor, or otherwise to assure the creditor against loss), except for
guarantees by endorsement of negotiable instruments for deposit or collection
in the ordinary course of business.
SECTION 2.17. Significant Suppliers. No supplier which is material to
the Company, any Subsidiary or any Affiliate has terminated, materially
reduced or, to the knowledge of the Company, threatened to terminate or
materially reduce its provision of products or services to the Company, any
Subsidiary or any Affiliate.
SECTION 2.18. Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article III
hereof, no registration or filing with, or consent or approval of or other
action by, any Federal, state or other governmental agency or instrumentality
is or will be necessary for (i) the valid execution, delivery and performance
by the Company of this Agreement or the Stockholders' Agreement, (ii) the
issuance, sale and delivery of the shares of the Class D Preferred Stock or,
upon conversion thereof, the issuance and delivery of the Conversion Shares,
or (iii) the conduct of the business of the Company, each of its
Subsidiaries, and each of the Affiliates following the Closing in
substantially the same manner in which it is currently being conducted, other
than (A) filings pursuant to Federal and state securities laws (all of which
filings have been or, with respect to those filings which may be duly made
after the Closing will be, made by or on behalf of the Company) in connection
with the sale of the shares of the Class D Preferred Stock and (B) with
respect to the Stockholders' Agreement, the registration of the shares
covered thereby with the Commission and filings pursuant to Federal and state
securities laws.
SECTION 2.19. Disclosure. This Agreement (except with regard to any
statements made by the Purchasers), including any Schedule or Exhibit to this
Agreement, contains no untrue statement of a material fact or omits to state
a material fact necessary to make the statements contained herein not
misleading. None of the written statements, documents, certificates or other
items prepared or supplied by the Company with respect to the transactions
contemplated hereby, when read together and in light of the circumstances in
which they were made, contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
therein not misleading. There is no fact which the Company has not disclosed
to the Purchasers and their counsel in writing and of which the Company is
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aware which has a Material Adverse Effect or could reasonably be expected to
have a Material Adverse Effect.
SECTION 2.20. Offering of the Shares of the Class D Preferred Stock.
Neither the Company nor any person authorized or employed by the Company as
agent, broker, dealer or otherwise in connection with the offering or sale of
the shares of the Class D Preferred Stock or any similar securities of the
Company has offered any such securities for sale to, or solicited any offers
to buy any such securities from, or otherwise approached or negotiated with
respect thereto with any person or persons under circumstances that involved
the use of any form of general advertising or solicitation as such terms are
defined in Regulation D of the Securities Act, and neither the Company nor
any person acting on the Company's behalf has taken or will take any action
(including, without limitation, any offer, issuance, sale or delivery of any
securities of the Company under circumstances which might require the
integration of such transactions with the placement of the shares of the
Class D Preferred Stock under the Securities Act or the rules and regulations
of the Securities and Exchange Commission thereunder) which might subject the
offering, issuance, sale or delivery of the shares of the Class D Preferred
Stock to the registration provisions of the Securities Act.
SECTION 2.21. Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.22. Officers. Set forth in Schedule II is a list of the names
of the directors and officers of the Company, each Subsidiary and each
Affiliate, together with the title or job classification and total current
annual compensation of each such person. None of such persons has an
employment agreement or understanding, whether oral or written, with the
Company, any Subsidiary or any Affiliate, which is not terminable on notice
by the Company, such Subsidiary or such Affiliate without cost or other
liability to the Company, such Subsidiary or such Affiliate. None of such
persons has, during the past ten years, been arrested for or convicted of any
material crime or filed a petition to take advantage of any laws relating to
bankruptcy, insolvency, reorganization or composition or adjustment of debts
or consented to or failed to contest any petition filed against him in an
involuntary case under such laws or applied for, consented to or failed to
contest the appointment of a receiver, custodian, trustee or the like of a
substantial part of his assets, nor has he been an officer or director of any
entity taking or being subject of an such action.
SECTION 2.23. Transactions With Related Parties. No director, officer,
employee or stockholder of the Company, any Subsidiary or any Affiliate, or
member of the family of any such person, or any corporation, partnership,
trust or other entity in which any such person, or any member of the family
of any such person has a substantial interest or is an officer, director,
trustee, partner or holder of more than 5% of the outstanding capital stock
thereof, is presently or contemplated to be a party
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to any contract transaction with the Company, any Subsidiary or any
Affiliate, including any contract, agreement or other arrangement providing
for the employment of, furnishing of services by, rental or real or personal
property from or otherwise requiring payments to any such person or firm.
SECTION 2.24. Employees. Each of Lawrence F. Halpert and Carl J.
Sardegna has executed a confidentiality agreement with the Company, which is
in full force and effect. No officer or key employee of the Company, any
Subsidiary or any Affiliate has advised the Company, the Subsidiary or the
Affiliate (orally or in writing) that he intends to terminate employment with
the Company, the Subsidiary or the Affiliate. To the best of the Company's
knowledge, it and each Subsidiary and each Affiliate has complied in all
material respects with all applicable laws relating to the employment of
labor, including provisions relating to wages, hours, equal opportunity,
collective bargaining and the payment of Social Security and other taxes.
SECTION 2.25. Employee Benefit Plans; Worker's Compensation.
(a) The Company, each Subsidiary and each Affiliate has complied
and currently is in compliance in all material respects, both as to form and
operation, with the applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code
with respect to each "employee benefit plan" as defined under Section 3(3) of
ERISA (a "Plan") which the Company, any Subsidiary or any Affiliate (i) has
ever adopted, maintained, established or to which it has been required to
contribute or has ever contributed or (ii) currently maintains or to which it
currently contributes or is required to contribute or (iii) currently
participates in or is required to participate in.
(b) Neither the Company, any Subsidiary nor any Affiliate has ever
maintained, adopted or established, contributed or been required to
contribute to, or otherwise participated in or been required to participate
in, (i) a "multiemployer plan" (as defined in Section 3(37) of ERISA) or (ii)
a plan otherwise subject to Title IV of ERISA. No amount is due or owing
from the Company (x) on account of a "multiemployer plan" (as defined in
Section 3(37) of ERISA) or on account of any withdrawal therefrom or (y) on
account of a plan otherwise subject to Title IV of ERISA or on account of any
withdrawal therefrom.
(c) Other than routine claims for benefits and liability for
premiums due the Pension Benefit Guaranty Corporation, none of the Company,
any Subsidiary or any Affiliate has incurred any material liability with
respect to a Plan that is currently due and owing and has not yet been
satisfied, including without limitation under Title I or Title IV or any
other provision of ERISA, the Internal Revenue Code or other applicable law,
and no event has occurred, and, to the best knowledge of the Company, there
exists no condition or set of circumstances that could result in the
imposition of any material liability on the Company with respect to a Plan,
including without limitation under Title I or Title IV or
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any other provision of ERISA, the Internal Revenue Code or other applicable
law.
(d) Except as required by applicable law, none of the Company, any
Subsidiary or any Affiliate has committed itself, orally or in writing, (i)
to provide or cause to be provided to any person any payments or provision of
any "welfare" or "pension" benefits (as defined in Sections 3(1) and 3(2) of
ERISA) in addition to, or in lieu of, those payments or benefits set forth
under any Plan, (ii) to continue the payment of, or accelerate the payment
of, benefits under any Plan, except as expressly set forth thereunder, or
(iii) to provide or cause to be provided any severance or other
postemployment benefit, salary continuation, termination, disability, death,
retirement, health or medical benefit to any person (including without
limitation any former or current employee).
(e) All amounts required to be paid by the Company, any Subsidiary
or any Affiliate in respect of workers' compensation coverage for all periods
up to and including the date hereof have been paid, and no notice of any
deficiency has been received with respect to such workers' compensation
coverage. Such coverage will remain in full force and effect following the
Closing and will not in any way be affected by, or terminate or lapse by
reason of, any of the transactions contemplated hereby.
SECTION 2.26. Environmental Matters. The Company, each Subsidiary, and
each Affiliate conducts its business and operations in material compliance
with all applicable environmental laws, ordinances and regulations, and
neither the Company, any Subsidiary nor any Affiliate has received notice of
any claim, action, suit, proceeding, hearing or investigation, based on or
related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge,
release or threatened release into the environment, of any pollutant,
contaminant, or hazardous or toxic material or waste (collectively, an
"Environmental Event") by the Company, any Subsidiary or any Affiliate or
with respect to any premises owned or occupied by them. To the best
knowledge of the Company, no notice of any Environmental Event was given to
any person or entity that occupied any of the premises owned or occupied by
or used by the Company, any Subsidiary or any Affiliate prior to the date
such premises were so occupied. Without limiting the generality of the
foregoing, to the best knowledge of the Company after due inquiry, neither
the Company, any Subsidiary nor any Affiliate has disposed of or placed on or
in any property or facility used in its business any waste materials,
hazardous materials or hazardous substances in violation of law.
SECTION 2.27. Fraud and Abuse. To the best knowledge of the Company,
neither the Company, any Subsidiary, any Affiliate, nor any of their
respective officers and directors, has engaged in any activities which are
prohibited under federal Medicare and Medicaid statutes, 42 U.S.C. Sections
1320a-7, 1320a-7(a) and 1320a-7b, or the regulations promulgated pursuant to
such statutes or related state or local statutes or regulations or which are
prohibited by rules of professional conduct promulgated by the appropriate
licensing
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authority of the state or states in which such entity does business,
including but not limited to the following:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(b) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights
to any benefit or payment;
(c) presenting or causing to be presented a claim for reimbursement
for services under Medicare, Medicaid, or other state health care program
that is for an item or service that is known or should be known to be (i) not
provided as claimed, or (ii) false or fraudulent;
(d) failing to disclose knowledge by a claimant of the occurrence
of any event affecting the initial or continued right to any benefit or
payment on its own behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment;
(e) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe, or rebate),
directly or indirectly, overtly or covertly, in cash or in kind (i) in return
for referring an individual to a person for the furnishing or arranging for
the furnishing of any item or service for which payment may be made in whole
or in part by Medicare or Medicaid, or other state health care program, or
(ii) in return for purchasing, leasing, or ordering or arranging for or
recommending purchasing, leasing, or ordering any good, facility, service, or
item for which payment may be made in whole or in part by Medicare or
Medicaid or other state health care program; or
(f) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omit to state a fact required to be stated therein or
necessary to make the statements contained therein not misleading) of a
material fact with respect to (i) the conditions or operations of a facility
in order that the facility may qualify for Medicare, Medicaid or other state
health care program certification, or (ii) information required to be
provided under Section 1124A of the Social Security Act (42 U.S.C. Section
1320a-3).
SECTION 2.28. Health Professional's Financial Relationships. To the
best knowledge of the Company, the operations of the Company, each Subsidiary
and each Affiliate are in compliance with and do not otherwise violate the
federal Medicare and Medicaid statutes regarding health professional
selfreferrals, 42 U.S.C. Section 1395nn and 42 U.S.C. Section 1396b, or the
regulations promulgated pursuant to such statute, or similar state or local
statutes or regulations.
SECTION 2.29. Professional Licenses. There is no legal or regulatory
requirement that the shareholders, or any of them, of the Company or any
Subsidiary be a licensed dentist in order for the Company or the Subsidiaries
to conduct their business as
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currently conducted. In the case of each Affiliate, all of the stockholders
thereof are dentists licensed to practice under the laws of each jurisdiction
in which such Affiliate operates, and such Affiliate currently satisfies the
shareholder licensing requirement, if any, of each jurisdiction in which such
Affiliate operates, except where failure to do so would not have a Material
Adverse Effect.
SECTION 2.30. Medical Waste. Neither the Company, any Subsidiary nor
any Affiliate is in violation of, or the subject of any investigation,
inquiry or enforcement action by any governmental authority under, the
Medical Waste Tracking Act, 42 U.S.C. Section 6992 et seq., or any
applicable state or local government statute, ordinance or regulation dealing
with the disposal of medical wastes (collectively "Medical Waste Laws"). The
Company, each Subsidiary and each Affiliate has obtained and is in compliance
with any permits required by the Medical Waste Laws relating to medical waste
disposal, and all disposal of medical waste by the Company has been in
compliance with the Medical Waste Laws.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor", within the meaning of Rule 501
under the Securities Act and was not organized for the specific purpose of
acquiring the shares of the Class D Preferred Stock or the Conversion Shares;
(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its
investment in the Company and it is able financially to bear the risks
thereof;
(c) it has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management;
(d) the shares of the Class D Preferred Stock being purchased by
it, and the Conversion Shares into which the shares of the Class D Preferred
Stock being purchased by it that are Convertible Preferred Stock are
convertible are being acquired for its own account for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof;
(e) it understands that (i) the shares of the Class D Preferred Stock
and the Conversion Shares have not been registered under the Securities Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) or Section 3(b)
thereof or Rule 505 or 506 promulgated thereunder, (ii) the shares of the
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Class D Preferred Stock and, upon conversion thereof, the Conversion Shares
must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such registration,
(iii) the shares of the Class D Preferred Stock and the Conversion Shares
will bear a legend to such effect and (iv) the Company will make a notation
on its transfer books to such effect;
(f) it is validly existing under the laws of the jurisdiction of
its organization and the consummation of the transactions contemplated hereby
is authorized by, and will not result in a violation of, state law or its
charter or other organizing documents;
(g) it has the full right, power and authority to execute this
Agreement and the Stockholders' Agreement and to perform its obligations
hereunder and thereunder;
(h) the execution, delivery and performance by the Purchaser of
this Agreement and the Stockholders' Agreement have been duly authorized by
all requisite corporate or other action; and
(i) assuming the due execution and delivery by the other parties
thereto, this Agreement and the Stockholders' Agreement constitute the legal,
valid and binding obligations of the Purchaser, enforceable in accordance
with their respective terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors rights and equitable
remedies, and to the extent that the indemnification provisions contained in
the Stockholders' Agreement may be limited by applicable Federal or state
securities laws.
ARTICLE IV
CONDITIONS TO THE CLOSING
SECTION 4.01. Conditions to the Obligations of the Purchasers. The
obligations of each Initial Purchaser under Section 1.01 and the obligations
of each Subsequent Purchaser under Section 1.02 are, at its option, subject
to the satisfaction, on or before, in the case of each Initial Purchaser, the
Closing Date, and, in the case of each Subsequent Purchaser, the Subsequent
Closing Date, or waiver, of the following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall have
received from Piper & Marbury L.L.P., counsel to the Company, an opinion
dated the applicable Closing Date, substantially in the form set forth as
Exhibit E attached hereto.
(b) Performance. (i) The Company shall have performed and complied
with all agreements contained herein required to be performed or complied
with by it prior to or at the applicable Closing Date, (ii) all of the
representations and warranties of the Company set forth in Article II hereof
shall be true and correct in
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all material respects as though made on and as of the applicable Closing Date,
and (iii) the Chairman and Chief Executive Officer of the Company shall have
certified to the Purchasers in writing to such effect and to the further effect
that all of the conditions set forth in this Section 4.01 have been satisfied.
(c) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory
in form and substance to the Purchasers and their counsel and the Purchasers
and their counsel shall have received all such counterpart originals or
certified or other copies of such documents as they reasonably may request.
(d) No Actions. No preliminary or permanent injunction or other
order, decree or ruling issued by any court of competent jurisdiction nor any
statute, rule, regulation or order entered, promulgated or enacted by any
governmental, regulatory or administrative agency or authority shall be
pending, threatened or in effect that would prevent the consummation of the
transactions contemplated hereby.
(e) Approvals. The Company shall have obtained all consents or
approvals required to be obtained in order to consummate the transactions
contemplated hereby.
(f) Supporting Documents. The Purchasers and their counsel shall
have received copies of the following documents:
(i) (A) the Charter, certified as of a recent date by the
State Department of Assessments and Taxation of the State of Maryland (the
"SDAT"), which Charter shall be in all respects satisfactory to the
Purchasers and shall contain the terms of the Preferred Stock agreed upon by
the parties hereto, and (B) a certificate of the SDAT dated as of a recent
date as to the active status of the Company and listing all documents of the
Company on file with the SDAT;
(ii) a certificate of the Secretary or an Assistant Secretary
of the Company dated such date and certifying: (A) that attached thereto is
a true and complete copy of the bylaws of the Company as in effect on the
date of such certification; (B) that attached thereon is a true and complete
copy of all resolutions adopted by the board of directors and the
stockholders of the Company authorizing and approving the Articles of
Amendment and Restatement, the execution, delivery and performance of this
Agreement and the Stockholders' Agreement, the issuance, sale and delivery of
the shares of the Class D Preferred Stock and the reservation, issuance and
delivery of the Conversion Shares, and that all such resolutions are in full
force and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement and the Stockholders' Agreement;
(C) that the Charter has not been amended or supplemented since the date the
Articles of Amendment and Restatement were filed for record with the SDAT;
and (D) to the incumbency of each officer of the Company executing this
Agreement and the Stockholders' Agreement, the stock certificates
representing the
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shares of the Class D Preferred Stock purchased on such date
and any certificate or instrument furnished on such date pursuant hereto, and
a certification by another officer of the Company as to the incumbency of the
officer signing the certificate referred to in this clause (ii);
(iii) (A) the charter documents of each Subsidiary and
Affiliate, including all amendments thereto, certified as of a recent date by
the Secretary of State or the appropriate official of the relevant state and
(B) certificates of said Secretary or official dated as of a recent date as
to the due incorporation or association, as the case may be, and good
standing of each Subsidiary or Affiliate, as the case may be, and listing all
documents on file with said official; and
(iv) such additional supporting documents and other information
with respect to the operations and affairs of the Company, any Subsidiary or
any Affiliate as the Purchasers or their counsel may reasonably request.
(g) Stockholders' Agreement. The Company and the other parties to
the Stockholders' Agreement (other than the Purchasers) shall have executed
and delivered the Stockholders' Agreement.
(h) Charter. The Charter shall have been amended in a manner
satisfactory to the Initial Purchasers to add to the authorized capital of
the Company 100,000 shares of Class D Convertible Preferred Stock and 100,000
shares of Class D Redeemable Preferred Stock, including filing for record
with the SDAT the Articles of Amendment and Restatement.
(i) Transaction Fees and Expenses. The Company shall have
reimbursed the Purchasers, in accordance with Section 6.01, the reasonable
fees and disbursements of the Purchasers' counsel invoiced on the applicable
Closing Date.
(j) Due Diligence. The Purchasers shall have discovered nothing
during their due diligence review of the Company that would cause them, in
their sole good faith discretion, not to purchase the shares of the Class D
Preferred Stock.
(k) Additional Agreement. The Company shall have delivered such
other agreements and instruments as the Purchasers shall have reasonably
requested. All such documents shall be reasonably satisfactory in form and
substance to the Purchasers and their counsel.
SECTION 4.02. Conditions to the Obligations of the Company. The
obligations of the Company under Section 1.01 and Section 1.02 hereof are, at
its option, subject to the satisfaction, on or before the applicable Closing
Date, or waiver, of the following conditions:
(a) Stockholders' Agreement. The Purchasers shall have executed
and delivered the Stockholders' Agreement.
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(b) Additional Agreement. The Purchasers shall have delivered such
other agreements and instruments as the Company shall have reasonably
requested. All such documents shall be reasonably satisfactory in form and
substance to the Company and its counsel.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each Purchaser that so long as any
shares of the Class D Preferred Stock or Conversion Shares are outstanding
and owned by such Purchaser (or, if occurring prior thereto, with respect to
Sections 5.02, 5.03, 5.06 and 5.12, until such time as the Company
successfully completes an underwritten initial public offering of its common
stock (i) at a price to the public of not less than $8 per share (as adjusted
for stock splits, recapitalizations, etc.) and (ii) resulting in proceeds to
the Company of not less than $25,000,000 after deduction of underwriting
discounts and commissions but before deduction of other expenses of issuance
(an "IPO")):
SECTION 5.01. Financial Information and Inspection Rights. Until the
earlier of such time that the Company completes a firm commitment
underwritten public offering of its securities under the Securities Acts or
it is required to file reports with the Commission pursuant to the provisions
of Section 15(d) of the Securities Exchange Act of 1934, as amended, it shall
furnish to each Purchaser:
(a) within 90 days after the end of each fiscal year, a
consolidated balance sheet and related consolidated statements of income,
stockholders, equity and cash flows, showing the financial position and
results of operation of the Company and its consolidated Subsidiaries for the
fiscal year then ended, prepared in accordance with GAAP and certified by a
nationally recognized accounting firm selected by the board of directors of
the Company and reasonably acceptable to the Purchasers;
(b) within 45 days after the end of each quarter of each fiscal
year a consolidated balance sheet and related consolidated statements of
income, stockholders' equity and cash flows, showing the financial position
and results of operations of the Company and its consolidated Subsidiaries,
unaudited but prepared in accordance with GAAP, subject to normal year-end
adjustments and the absence of notes, and certified by the Chief Financial
Officer of the Company, or the principal accounting officer if the Company
does not have a Chief Financial Officer, as being fairly stated in all
material respects when considered in relation to the consolidated financial
statements of the Company, such consolidated balance sheet to be as of the
end of such quarter and such consolidated statements of income and cash flows
to be for such quarter and for the period from the beginning of the fiscal
year to the end of such quarter (with comparisons to the Company's budget for
such period), in each case, if available, with comparative statements for the
prior fiscal year;
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(c) within 30 days after the end of each month of each fiscal year
a consolidated balance sheet and related consolidated statements of income,
stockholders' equity and cash flows, showing the financial position and
results of operations of the Company and its consolidated Subsidiaries,
unaudited but prepared in accordance with GAAP, subject to normal yearend
adjustments and the absence of notes, and certified by the Chief Financial
Officer of the Company, or the principal accounting officer if the Company
does not have a Chief Financial Officer, as being fairly stated in all
material respects when considered in relation to the consolidated financial
statements of the Company, such consolidated balance sheet to be as of the
end of such month and such consolidated statements of income and cash flows
to be for such month and for the period from the beginning of the fiscal year
to the end of such month (with comparisons to the Company's budget for such
period), in each case, if available, with comparative statements for the
prior fiscal year;
(d) within 60 days prior to the start of each fiscal year,
consolidated capital and operating expense budgets (the "Budgets"), cash flow
projections and income and loss projections for the Company in respect of
such fiscal year and each of the two subsequent fiscal years and a projected
consolidated balance sheet at the end of each year, all itemized in
reasonable detail, and, promptly after preparation, any revisions to any of
the foregoing, all of which will be in form and substance acceptable to the
Purchasers;
(e) at the time of delivery of each annual and quarterly statement
pursuant to Section 5.01(a) and (b) hereof, a certificate executed by the
Chief Financial Officer of the Company, or the principal accounting officer
if the Company does not have a Chief Financial Officer, stating that he has
reviewed this Agreement and the Charter and has no knowledge of any default
by the Company in the performance or observance of any of the provisions of
this Agreement or the Charter or, if such officer has such knowledge,
specifying such default and the nature thereof;
(f) at the time of delivery of each quarterly and monthly statement
pursuant to Section 5.01(b) and (c) hereof, a brief management narrative
report explaining all significant variances from forecasts and all
significant current developments in staffing, marketing, sales and operations;
(g) promptly following receipt by the Company, each audit response
letter disclosing pending or threatened litigation or unasserted claims or
assessments considered to be probable of assertion, any accountant's
management letter and any other written report submitted to the Company by
its independent public auditors in connection with an annual or interim audit
of the books of the Company and its Subsidiaries;
(h) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries that could
materially adversely affect the Company or any Subsidiary, with copies of all
pleadings filed in the same;
26
<PAGE>
(i) promptly upon sending, making available or filing the same, all
press releases, reports, financial statements, returns and other material
documents that the Company or any Subsidiary sends or makes available to its
stockholders or directors or files with any governmental agency, including
the Commission and the Internal Revenue Service;
(j) promptly, from time to time, such other information regarding
the business, prospects, financial condition, operations, property or affairs
of the Company or any Subsidiary as the Purchasers reasonably may request;
(k) within 10 days after the Company becoming aware thereof, notice
of any default of any nature with respect to any loans, documents or
instruments regarding indebtedness or leases to which the Company or any
Subsidiary is a party; and
(l) permit each Purchaser, or any authorized representative
thereof, to visit and inspect the properties of the Company and its
Subsidiaries, including their corporate and financial records, and to discuss
their business and finances with officers, all at such reasonable times as
may be requested by such Purchaser. Each Purchaser or representative thereof
shall maintain the confidentiality of all information acquired by them in
exercising such rights.
SECTION 5.02. Net Worth Covenant. The Company shall at all times cause
the amount by which the assets of the Company and its Subsidiaries exceed
their liabilities ("Consolidated Net Worth"), determined on a consolidated
basis in accordance with GAAP, to be greater than the sum of $8,000,000.
SECTION 5.03. Acquisition Policy. The Company and its board of
directors shall maintain a written policy articulating the goals and
strategies of the Company with respect to acquisitions of dental practices or
other businesses or entities, which policy shall be in all respects
reasonably satisfactory to the Purchasers. The Company shall not materially
deviate from the approved policy without the prior written approval of the
Purchasers. A copy of that policy as in effect on the date of this Agreement
is attached hereto as Exhibit F.
SECTION 5.04. Reservation of Conversion Shares. The Company shall at
all times reserve and keep available out of its authorized but unissued
shares of Common Stock, for the purpose of effecting the conversion of the
shares of the Class D Preferred Stock that are Convertible Preferred Stock
and otherwise complying with the terms of this Agreement, such number of its
duly authorized shares of Common Stock as shall be sufficient to effect the
conversion of all shares of the Class D Preferred Stock that are Convertible
Preferred Stock from time to time outstanding or otherwise to comply with the
terms of this Agreement. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of the shares of the Class D Preferred Stock or otherwise to
comply with the terms of this Agreement, the Company will forthwith take such
corporate action as may be necessary to increase its authorized but unissued
shares of
27
<PAGE>
Common Stock to such number of shares as shall be sufficient for such
purposes. The Company will obtain any authorization, consent, approval or
other action by or make any filing with any court or administrative body that
may be required under applicable state securities laws in connection with the
issuance of shares of Common Stock upon conversion of the shares of the Class
D Preferred Stock.
SECTION 5.05. Corporate Existence. Except as contemplated hereunder,
the Company shall maintain its corporate existence, rights and franchises in
full force and effect.
SECTION 5.06. Properties, Business, Insurance. The Company shall
maintain, and cause each of its Subsidiaries to maintain, as to its
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, and the
Company shall use its best efforts to obtain and maintain key man term life
insurance on the life of Lawrence F. Halpert in the amount of at least $3
million. All of such insurance shall be reasonably satisfactory in all
respects to the Purchasers. The Company and its Subsidiaries shall not cause
or permit any assignment or change in beneficiary and shall not borrow
against any such policy.
SECTION 5.07. Board of Directors. The Company shall use its best
efforts to ensure that meetings of the Board are held at least once every two
months. The Board shall consist of nine members.
SECTION 5.08. Director Liability. The Company shall at all times
maintain provisions in the Charter and its bylaws indemnifying all directors
against liability and limiting the liability to the Company of all directors
to the maximum extent permitted under the laws of the State of Maryland.
SECTION 5.09. Proprietary Information Agreement. The Company shall use
its best efforts to obtain a confidentiality agreement in form reasonably
satisfactory to the Purchasers from all present and future officers and key
employees who will have access to confidential information of the Company or
any Subsidiary upon their employment by the Company or such Subsidiary.
SECTION 5.10. Compliance with Laws. The Company shall comply, and shall
cause each Subsidiary to comply, with all applicable laws, rules, regulations
and orders, including applicable environmental laws, noncompliance with which
could have a Material Adverse Effect.
SECTION 5.11. Keeping of Records and Books of Account. The Company
shall keep, and shall cause each Subsidiary to keep, adequate records and
books of account, in which complete entries will be made in accordance with
GAAP consistently applied, reflecting all financial transactions of the
Company or such Subsidiary and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made.
28
<PAGE>
SECTION 5.12. Restrictive Agreements Prohibited. The Company shall not
become a party to any agreement which by its terms restricts the Company's
performance of this Agreement or the Stockholders' Agreement.
SECTION 5.13. Negative Covenants. Except as set forth in this Agreement
and the Stockholders' Agreement, the Company will not and will not permit any
Subsidiary to:
(a) redeem any shares of its capital stock or pay dividends or make
any cash or other distributions to its stockholders, except dividends or
other distributions on the shares of its Class D Preferred Stock, and except
that this prohibition will not apply to distributions on capital stock of
Subsidiaries provided that all of such capital stock is owned by the Company;
(b) sell or otherwise dispose of any assets of the Company or any
Subsidiary, except in the ordinary course of its business;
(c) acquire any assets or other capital items during any fiscal
year having an aggregate value in excess of the amounts budgeted for such
year in the Budgets most recently delivered to the Purchasers;
(d) make any acquisitions of dental practices or other businesses
or entities except as contemplated by the Budgets for the period and by the
acquisition policy most recently agreed to with the Purchasers pursuant to
Section 5.03;
(e) except for transactions contemplated by this Agreement, enter
into any transaction with any director, officer, employee or holder of more
than 5% of the outstanding capital stock of any class or series of capital
stock of the Company or any member of the family of any such person, or any
corporation, partnership, trust or other entity in which any such person, or
member of the family of any such person, is a director, officer, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof,
except for transactions which are no less favorable than could be obtained
with an independent third party in an arm's-length transaction and which are
approved by a majority of the disinterested directors of the Company;
(f) take any formal action by its board of directors or
stockholders to merge or consolidate with another corporation or entity or
dissolve or otherwise liquidate;
(g) change the location or nature of its business operations, or
invest any funds in any concern or entity not strictly related to its
business;
(h) alter its corporate structure so that a change of control
occurs or make any loans (other than to a Subsidiary) or guarantees (except
with respect to indebtedness of a Subsidiary) or enter into any joint
ventures or invest in any partially owned Subsidiaries;
29
<PAGE>
(i) issue or sell any capital stock, options, convertible debt, or
redeem the same, issue or grant any stock appreciation rights or other rights
in or to stock (except (i) upon exercise of the Sardegna Options, (ii) upon
exercise of options to purchase up to 302,214 shares of Common Stock pursuant
to the Company's 1995 Equity Participation Plan, (iii) upon exercise of
options (the "Grotech Options") granted to certain management employees of
the Company to purchase up to 250,000 shares of Common Stock, which shares of
Common Stock are currently registered in the name of Grotech Partners IV,
L.P. ("Grotech IV") and have been reserved by Grotech IV for reissuance by
the Company in connection with such stock option grants, and (iv) pursuant to
any equity participation or incentive plan, stock option plan or arrangement
or stock purchase plan of the Company established by the Company after the
date hereof, provided that such plan or arrangement shall have been approved
by the affirmative vote or written consent of twothirds or more of the entire
Board of Directors of the Company and a majority or more of the Directors
other than the General Directors (as defined in the Charter of the Company);
(j) enter into any contracts not in the ordinary course of its
business;
(k) incur any indebtedness for money borrowed, other than (i)
indebtedness incurred to finance short-term working capital needs and (ii)
purchase money indebtedness (up to the amount of the purchase price or
capital expenditure paid) incurred in connection with acquisitions of assets
and capital expenditures and (iii) pursuant to the terms of that certain
letter agreement dated as of June 3, 1997 by and among the Initial Purchasers
and the Company relating to the refinancing or replacement of the
NationsCredit Credit Facility (as defined therein)(hereinafter the
"Refinancing Agreement") or fail to comply with or to perform its obligations
under the Refinancing Agreement;
(l) terminate the employment agreement with Lawrence F. Halpert;
(m) except as provided in the employment agreements between the
Company and each of Lawrence F. Halpert and Carl J. Sardegna as in effect on
the Closing Date (which agreements shall not be amended without the prior
written consent of the Purchasers) and except for salary increases and
bonuses to individuals in the ordinary course of business as recommended from
time to time by a compensation committee of the Board (which committee will
be maintained at all times and on which a member of the Board designated by
the Purchasers will sit) and as approved by the Board, increase the salary of
any management employee, or enter into any incentive compensation or other
bonus arrangement with any employee;
(n) increase the size of the Board; or
(o) alter, amend or breach any provision of its Charter or bylaws.
30
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No provision of this Section 5.13 will prohibit the Company from taking such
steps as are necessary in connection with the successful completion of an IPO.
SECTION 5.14. Articles of Amendment. Between the date hereof and the
Initial Closing Date, the Company shall adopt and approve the Articles of
Amendment and shall cause such Articles to be accepted for filing with the
SDAT.
SECTION 5.15. Amendment of Terms of Preferred Stock Purchase Agreements.
Effective immediately upon the consummation of the Initial Closing, the terms
of the Preferred Stock Purchase Agreement dated as of July 18, 1995 by and
between the Corporation and Grotech IV and Merchant Partners, L.P. relating
to the purchase and sale of the Class A Preferred Stock and the Preferred
Stock Purchase Agreement dated as of June 27, 1996, by and between the
Company and Morgan Stanley Venture Capital Fund II Annex, L.P. and Morgan
Stanley Venture Investors Annex, L.P. relating to the purchase and sale of
the Class C Preferred Stock of the Company (the "Prior Preferred Stock
Purchase Agreements") shall be amended, such that the following sentence
which currently appears in Section 5.13 of each such agreement following
subsection (o) of such section shall be deleted from each such agreement and
no longer applicable:
"Notwithstanding the foregoing, the Company will be
permitted to enter into any transaction that would otherwise
be prohibited by this Section 5.13 if, as a result thereof,
all of the shares of the Class [A][C] Preferred Stock and
Conversion Shares then held by the Purchasers would be
purchased or redeemed for cash and for the amount that would
provide to the Purchasers a compounded internal rate of
return of at least (i) 60% if such transaction occurs on or
before the first anniversary of the Closing Date, (ii) 50%
if such transaction occurs after the first anniversary of
the Closing Date and on or before the second anniversary
thereof, and (iii) forty percent if such transaction occurs
after the second anniversary of the Closing Date. For
purposes of calculating the applicable rate of return, a
year of twelve (12) 30day months will be used with monthly
compounded."
SECTION 5.16. Agreement to Vote Class B Shares. In consideration of the
agreement of the Company to amend the provisions of the Prior Preferred Stock
Purchase Agreements pursuant to the provisions of Section 5.15 above, Grotech
IV and Grotech Partners III, L.P. hereby agree to vote for the election or
removal of directors of the Company all of the shares of the Class B
Preferred Stock of the Company held by them from time to time as directed by
Lawrence F. Halpert, or his designee; provided however, that (i) such
agreement shall be limited to voting upon the election or removal of
directors only and shall not be applicable
31
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with respect to any other matter as to which the holders of the Class B
Preferred Stock may be entitled to vote, (ii) such agreement shall terminate
on the earlier of the initial public offering of any securities of the
Company or December 31, 2002, and (iii) such agreement shall not be
applicable at any time that holders of the Class B Preferred Stock shall be
permitted by Section 2 of Article Sixth of the Articles of Amendment and
Restatement to vote for the election or removal of directors.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, (i) that, if a Closing
shall occur, the Company shall, at each Closing, pay the (a) the reasonable
fees and disbursements of counsel to each of the Initial Purchasers in
accordance with Section 4.01(i) and (b) the reasonable out-of-pocket expenses
of the Purchasers.
SECTION 6.02. Survival of Agreements. All covenants, agreements,
representations and warranties made herein, in the Stockholders' Agreement or
in any certificate or instrument delivered to the Purchasers pursuant to or
in connection with this Agreement or the Stockholders' Agreement shall
survive the execution and delivery of this Agreement, the Stockholders'
Agreement, the issuance, sale and delivery of the shares of the Class D
Preferred Stock, and the issuance and delivery of the Conversion Shares, and
all statements contained in any certificate or other instrument delivered by
the Company hereunder or thereunder or in connection herewith or therewith
shall be deemed to constitute representations and warranties made by the
Company.
SECTION 6.03. Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or
other commissions relative to this Agreement or to the transactions
contemplated hereby, based in any way on agreements, arrangements or
understandings made or claimed to have been made by such party with any third
party.
SECTION 6.04. Parties in Interest. All representations, 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 whether so expressed or not. Without limiting
the generality of the foregoing, all representations, covenants and
agreements benefiting the Purchasers shall inure to the benefit of any and
all subsequent holders from time to time of the shares of the Class D
Preferred Stock or the Conversion Shares.
SECTION 6.05. Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and (i) delivered personally,
(ii) mailed by certified or registered mail, return receipt requested and
postage prepaid,
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(iii) sent via a nationally recognized overnight courier or (iv) sent via
facsimile confirmed in writing to the recipient, in each case as follows:
(a) If to the Company:
Lawrence F. Halpert, Chairman
DentalCo, Inc.
Lake Falls Professional Building
6115 Falls Road
Baltimore, Maryland 21209
Facsimile No.: (410) 560-1910
with a copy to:
Wilbert H. Sirota
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
Facsimile No.: (410) 576-1700
and
(b) If to the Purchasers:
M. Fazle Husain
Morgan Stanley Venture Partners L.P.
1221 Avenue of the Americas
New York, New York 10020
Facsimile No.: (212) 703-8957
with a copy to:
Othon A. Prounis
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Facsimile No.: (212) 841-5725
and
Hugh A. Woltzen
Grotech Capital Group IV, L.P.
9690 Deereco Road, Suite 800
Timonium, Maryland 21093
Facsimile No.: (410) 560-1910
with a copy to:
J. W. Thompson Webb
Miles & Stockbridge
10 Light Street
Baltimore, Maryland 21202
Facsimile No.: (410) 385-3700
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
33
<PAGE>
SECTION 6.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Maryland,
without giving effect to its conflicts of laws provisions.
SECTION 6.07. Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, together with the Stockholders' Agreement and other
agreements referenced by this Agreement, constitutes the sole and entire
agreement of the parties with respect to the subject matter hereof. All
Schedules and Exhibits hereto are hereby incorporated herein by reference.
SECTION 6.08. Counterparts. This Agreement may be executed in any
number of counterparts and any party hereto may execute any such counterpart,
each of which when executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument. This Agreement shall become binding when one or more
counterparts taken together shall have been executed and delivered by the
parties. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
SECTION 6.09. Amendments and Waivers. Except to the extent that
Subsequent Purchasers shall become parties hereto pursuant to the execution
of a Stock Purchase Supplement in accordance with Section 1.02(b) hereof,
this Agreement may not be amended or modified accept in writing signed by all
parties hereto. Notwithstanding the foregoing, it is the Agreement of the
parties that compliance by the Company with the provisions set forth in
Article IV of this Agreement may be waived on behalf of all Purchasers
provided that any such waiver is set forth in writing and signed by the
holders of at least two-thirds of the shares of Common Stock issued or
issuable upon conversion of the shares of the Class D Preferred Stock and by
each of the Initial Purchasers.
SECTION 6.10. Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority,
the validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.11. Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 6.12. Recitals. The Recitals hereto are specifically made a
part of this Agreement.
SECTION 6.13. Knowledge. References in this Agreement to the best of
the Company's knowledge shall mean the actual knowledge of any officer or
director of the Company after reasonable inquiry of the officers and
directors of the Subsidiaries and the Affiliates or the knowledge which an
officer or director of the Company would reasonably be expected to have given
his position and duties.
* * * * * * * * * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
DENTALCO, INC.
By: /s/ LAWRENCE F. HALPERT (SEAL)
-----------------------
Dr. Lawrence F. Halpert, Chairman
GROTECH PARTNERS IV, L.P.
By: GROTECH CAPITAL GROUP IV, LLC,
GENERAL PARTNER
By: /s/ HUGH A. WOLTZEN (SEAL)
-----------------------
Hugh A. Woltzen, Managing Director
GROTECH PARTNERS III, L.P.
GROTECH III COMPANION FUND, L.P.
GROTECH III PENNSYLVANIA FUND, L.P.
By: GROTECH CAPITAL GROUP, INC.,
GENERAL PARTNER
By: /s/ HUGH A. WOLTZEN (SEAL)
-----------------------
Hugh A. Woltzen, Managing Director
{signatures continued on following pages}
35
<PAGE>
MORGAN STANLEY VENTURE CAPITAL
FUND II, L.P.
By: MORGAN STANLEY VENTURE PARTNERS II, L.P.,
GENERAL PARTNER
By: MORGAN STANLEY VENTURE CAPITAL II, INC.,
MANAGING PARTNER
By: /s/ M. FAZLE HUSAIN (SEAL)
----------------------
Name: M. Fazle Husain
Title: General Partner
MORGAN STANLEY VENTURE INVESTORS
ANNEX, L.P.
By: MORGAN STANLEY VENTURE PARTNERS II, L.P.,
GENERAL PARTNER
By: MORGAN STANLEY VENTURE CAPITAL II, INC.,
MANAGING GENERAL PARTNER
By: /s/ M. FAZLE HUSAIN (SEAL)
----------------------
Name: M. Fazle Husain
Title: General Partner
36
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT
The undersigned, on behalf of Merchant Partners, L.P. ("Merchant"), the
holder of 441,705 shares of the Class A Preferred Stock of the Company,
hereby joins in and executes the foregoing Agreement solely for the purposes
of evidencing the acknowledgment of Merchant of the provisions of Section
5.15 thereof and its agreement to the amendments to the Prior Preferred Stock
Purchase Agreement referred to therein and for no other purpose.
MERCHANT PARTNERS, L.P.
By: Merchant Advisors, L.P.
General Partner
By: Merchant Development Corp.,
General Partner
By: /s/ RAYMOND BANK (SEAL)
-----------------------
Raymond Bank
President
37
<PAGE>
EXECUTION COPY
--------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
-----------------------------------------------
This Agreement and Plan of Merger and Reorganization (this "Agreement") is
dated December 27, 1996, among DentalCo Inc., a Maryland corporation
("DentalCo"), DentalCo/Southeast, Inc., a Maryland corporation, which is a
wholly owned subsidiary of DentalCo ("Subcorp"), Nanston, Inc., a Georgia
corporation ("Nanston"), and the shareholders of Nanston, as identified on
Exhibit A attached to this Agreement (the "Nanston Shareholders"). Collectively,
DentalCo, Subcorp, Nanston, and the Nanston Shareholders are referred to herein
as the "Parties" to this Agreement.
BACKGROUND INFORMATION
----------------------
A. DentalCo desires to acquire the business operations of Nanston through
the merger of Nanston with and into Subcorp (the "Merger"), pursuant to which
all of the Nanston Shares (defined in Section 4.2, below) outstanding at the
Effective Time (defined in Section 1.2, below) will be converted into the right
to receive, in the aggregate, the following: (i) cash in the amount of Seven
Million Ninety-Five Thousand, Five Hundred Ninety-Six Dollars and Thirty-Five
Cents ($7,095,596.35)(the "Cash Consideration"), and (ii) 2,000,000 shares of
non voting common stock, $0.0001 par value per share, of DentalCo (the "DentalCo
Shares"), plus such additional number of DentalCo Shares (if any) as shall be
necessary so that the aggregate number of DentalCo Shares issued in the Merger
shall not constitute less than 22.7% of the number of DentalCo capital shares on
a fully diluted basis outstanding after giving effect to the Merger (with the
number of DentalCo capital shares then outstanding being computed as set forth
on Exhibit J hereto). Subcorp will be the surviving entity resulting from the
Merger. The business of Nanston includes, without limitation, providing
non-clinical administration and related services to Nanston Dental Group, P.C.,
a Georgia professional corporation ("Nanston Dental"), and through Nanston's
wholly owned subsidiary, Nanston-North Carolina, Inc., a North Carolina
corporation ("NC"), providing consulting services to Nathan Bell, D.D.S., P.A.,
a North Carolina professional association ("Bell").
B. The respective boards of directors of DentalCo, Subcorp, and Nanston
have determined that, on the terms and conditions set forth herein, the Merger
and the other transactions described in this Agreement are advisable and in the
best interests of their respective shareholders and have duly approved and
adopted this Agreement and the Merger.
STATEMENT OF AGREEMENT
----------------------
The Parties hereby acknowledge the accuracy of the above Background
Information, which is incorporated herein by reference and deemed a part hereof,
and agree as follows:
<PAGE>
ARTICLE I
THE MERGER
----------
1.1. The Merger. Upon the terms and subject to the conditions described
in this Agreement, and in accordance with the provisions of applicable
Maryland and Georgia law, Nanston shall be merged with and into Subcorp. The
Merger shall be consummated by filing with each of the Secretary of State of
the States of Maryland and Georgia (the "Secretaries of State") a separate
Certificate of Merger substantially in the form to be attached to this
Agreement as Exhibit B (the "Certificates of Merger"). Following the Merger,
the separate corporate existence of Nanston shall cease and Subcorp shall
continue as the surviving corporation and shall continue its existence under
the laws of the State of Maryland. Subcorp, in its capacity as the
corporation surviving the Merger, is sometimes referred to in this Agreement
as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions
contemplated by this Agreement (the "Closing") shall be held at the offices
of Thomas S. Fisher, P.C., Suite 100, 1590 Oakbrook Drive, Norcross, Georgia
30093, commencing at 10:00 a.m. Georgia time on January 15, 1997 (the
"Closing Date") or such other date as may be reasonably agreed upon by
Nanston and DentalCo. In conjunction with the Closing, Nanston and Subcorp
shall cause the Certificates of Merger to be filed with the Secretaries of
State, and the Merger shall become effective at the time specified in the
Certificates of Merger, but not prior to the time that they are accepted for
filing with the Secretaries of State (the "Effective Time").
1.3 Effects of the Merger. The Merger shall have the effects set forth
under applicable Maryland and Georgia law.
1.4 Certificate of Incorporation and Bylaws. As provided in the
Certificates of Merger, the Articles of Incorporation of Subcorp in effect
immediately prior to the Effective Time shall be amended by the filing of the
Certificate of Merger filed in Maryland to change the name of Subcorp to
Nanston, Inc., and as so amended shall be the Articles of Incorporation of
the Surviving Corporation. The Bylaws of Subcorp in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Corporation.
1.5 Directors and Officers. After the Effective Time, the directors and
officers of Subcorp shall be the directors and officers of the Surviving
Corporation until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified. Schedule 1.5 sets
forth the name of the persons who will be the directors and officers of
Subcorp at the Effective Time.
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)(D) of the Internal Revenue Code of 1986, as amended (the "Code").
-2-
<PAGE>
ARTICLE II
CAPITAL STOCK
-------------
2.1 Capital Stock. At the Effective Time, by virtue of the Merger and
without any further action on the part of the Parties:
(a) Outstanding Subcorp Shares. Each common share of
Subcorp issued and outstanding 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,
$0.0001 par value per share, of the Surviving Corporation.
(b) Conversion of Outstanding Nanston Shares; Nanston
Options. Each Nanston Share (as defined in Section 4.2 hereof) which
is issued and outstanding immediately prior to the Effective Time
shall be automatically converted into the right to receive, subject to
the provisions of this Section 2.1 and Section 2.2 below, that number
of DentalCo Shares computed as set forth on Exhibit J hereto and the
Cash Consideration simultaneously with the Effective Time (the
DentalCo Shares and the Cash Consideration being collectively called,
the "Merger Consideration"). The number of DentalCo Shares that would
be issued to each Nanston Shareholder if the Closing occurred on the
date hereof is set forth on Schedule 2.1(b) hereto.
(c) Nanston Treasury Shares. All shares of Nanston capital
stock, if any, which are owned by Nanston or any subsidiary of
Nanston, or held in the treasury of Nanston shall be automatically
canceled and retired, and no Merger Consideration shall be paid in
respect of such shares.
2.2 Exchange of Certificates; Issuance of DentalCo Shares.
(a) Surrender of Nanston Share Certificates. From and
after the Effective Time, the certificates representing the Nanston
Shares (the "Nanston Share Certificates") shall represent for all
purposes only the right to receive the Merger Consideration pursuant
to the provisions of Section 2.1 above and this Section 2.2. Promptly
after the Effective Time, in conjunction with the Closing, each
Nanston Shareholder shall surrender to DentalCo Nanston Share
Certificates evidencing all of the Nanston Shares owned by that
Nanston Shareholder immediately prior to the Effective Time.
(b) Issuance of DentalCo Shares. In consideration of the
surrender of the Nanston Share Certificates evidencing the Nanston
Shares owned by the Nanston Shareholders pursuant to Section 2.2(a)
above and as part of the Merger Consideration, DentalCo shall, at the
Closing, issue to each Nanston Shareholder that number of DentalCo
Shares, and pay to each Nanston Shareholder that
-3-
<PAGE>
amount of cash, to which such Nanston Shareholder is entitled,
following the conversion described in Section 2.1(b) above.
The number of DentalCo Shares issuable to each Nanston Shareholder
shall be rounded to the nearest 1/10,000, and the amount of cash
payable to each Nanston Shareholder shall be rounded to the nearest
cent.
(c) Distribution with Respect to Unexchanged Shares. No
dividends or other distributions, if any, with respect to DentalCo
Shares having a record date after the Effective Time shall be paid to
the holder of any unsurrendered Nanston Share Certificate for Nanston
Shares until such holder surrenders such certificate.
(d) NonDilution. Until the closing of an initial public
offering by DentalCo of its capital stock, the percentage ownership of
DentalCo's capital stock represented by the DentalCo Shares issued in
the Merger, which shall constitute 22.7% on a fully diluted basis at
the Effective Time, shall not be decreased, except on a proportionate
basis with the holders of DentalCo Common (as defined in Section 3.3,
below), and except for additional shares of DentalCo capital stock
issued for acquisition purposes, financings with equity features, or
the grant of employee stock options.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DENTALCO AND SUBCORP
In order to induce Nanston and the Nanston Shareholders to enter into
this Agreement, DentalCo and Subcorp hereby represent and warrant to Nanston
and the Nanston Shareholders that the statements contained in this Article
III are true, correct and complete, except as disclosed in the schedules
specifically referred to in this Article III and attached hereto
(collectively, the "DentalCo Schedules"):
3.1 Organization and Standing. Each of DentalCo and Subcorp 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 DentalCo and
Subcorp 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
either DentalCo or Subcorp, nor the properties it owns, leases or operates
requires it to qualify to do business as a foreign corporation in any other
jurisdiction, if the failure so to qualify would have a DentalCo Material
Adverse Effect (as defined in Section 3.9(a) hereof). Neither DentalCo nor
Subcorp has received any written notice or assertion within the last three
years from any Governmental Authority (as defined in Section 3.11(c) hereof)
in any jurisdiction to the effect that either DentalCo or Subcorp is required
to be qualified or authorized to do business in such jurisdiction if DentalCo
or Subcorp was not so qualified or has not obtained such authorization.
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3.2 Corporate Power and Authority. Each of DentalCo and Subcorp 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 DentalCo and
Subcorp and constitutes the legal, valid and binding obligation of DentalCo and
Subcorp, enforceable against DentalCo and Subcorp in accordance with its terms.
3.3 Capitalization of Each of DentalCo and Subcorp. As of the date of
this Agreement, DentalCo's authorized capital stock consists solely of (a)
10,000,000 shares of $0.0001 par value common stock ("DentalCo Common"), of
which 2,403,120 shares are issued and outstanding; (b) 40,154 shares of $0.0001
par value 8% Class A Cumulative Convertible Preferred Stock, all of which are
issued and outstanding (the "Class A Preferred"), (c) 47,068 shares of $0.0001
par value Class B Convertible Preferred Stock, all of which are issued and
outstanding (the "Class B Preferred"), and (d) 816,038 shares of $0.0001 par
value 8% Class C Cumulative Convertible Preferred Stock, all of which are issued
and outstanding (the "Class C Preferred", and together with the Class A
Preferred and the Class B Preferred, the "Preferred"). Prior to the Effective
Time, DentalCo will amend its Articles of Incorporation to provide for the
authorization of 2,500,000 DentalCo Shares, none of which will be issued and
outstanding. At the Effective Time, 2,000,000 DentalCo Shares will be issued and
outstanding. The DentalCo Shares shall automatically convert on a one to one
basis to DentalCo Common immediately prior to the closing of an initial public
offering of DentalCo's capital stock. 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 of any shares of the capital stock of DentalCo or
Subcorp, nor are there outstanding any securities that are convertible into or
exchangeable for any shares of capital stock of DentalCo or Subcorp. The total
number of shares of DentalCo capital stock that would be issued if all of the
Preferred were converted into DentalCo Common is 3,694,364 (i.e., 1,325,082 upon
conversion of the Class A Preferred, 1,553,244 upon conversion of the Class B
Preferred, and 816,038 upon conversion of the Class C Preferred), and the total
number of shares of DentalCo Common issuable under all of the commitments and
rights set forth on Schedule 3.3 is 702,801. Each outstanding share of capital
stock of DentalCo is duly authorized, validly issued, fully paid and
nonassessable; all DentalCo Shares to be issued in connection with the Merger
are, or will prior to the Effective Time be, duly authorized and, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable and none of such shares have been or will be issued in violation
of any preemptive or similar rights. The authorized capital stock of Subcorp
consists of 5,000 shares of common stock, $1.00 par value per share, of which
100 will be issued and outstanding prior to the Effective Time. All of the
outstanding capital stock of Subcorp, when issued, will be owned by DentalCo.
3.4 Conflicts; Consents and Approvals. Except as would not have a
DentalCo Material Adverse Effect, neither the execution and delivery of this
Agreement by DentalCo and Subcorp nor the consummation of the transactions
contemplated in this Agreement will:
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(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 (as defined in
Section 4.2(i) hereof) upon any of the properties or assets of
DentalCo or Subcorp under any of the terms, conditions or provisions
of the articles of incorporation or bylaws, each as amended to date,
of DentalCo or Subcorp, or any note, bond, mortgage, indenture, deed
of trust, license, contract, undertaking, agreement, lease or other
instrument or obligation to which DentalCo or Subcorp is a party;
(b) Violate any order, writ, injunction, decree, statute,
rule or regulation, applicable to DentalCo or Subcorp or their
respective 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.
3.5 Litigation. There is no suit, claim, action, proceeding or
investigation pending or, to the best knowledge of DentalCo, threatened
against DentalCo or Subcorp or any of their respective officers or directors
in connection with the business or affairs of either DentalCo or Subcorp
which, individually or in the aggregate, is reasonably likely to have a
DentalCo Material Adverse Effect or materially delay or prevent DentalCo or
Subcorp from consummating the transactions contemplated by this Agreement.
Neither DentalCo nor Subcorp is subject to any outstanding order, writ,
injunction or decree which, insofar as can be reasonably foreseen,
individually or in the aggregate, would have a DentalCo Material Adverse
Effect or would materially delay or prevent DentalCo or Subcorp from
consummating the transactions contemplated by this Agreement.
3.6 Subsidiaries. Set forth in Schedule 3.6 is a correct and complete list
of all subsidiary corporations of DentalCo, the number and class of shares of
capital stock of each such subsidiary owned by DentalCo, the percentage of
all capital stock of that subsidiary which is represented by the shares owned
by DentalCo, and the existence of any Liens (as defined in Section 4.2(i)
hereof) on any such stock (to the extent not disclosed elsewhere in this
Agreement or the Schedules hereto). Except as set forth in Schedule 3.6,
DentalCo does not own, directly or indirectly, any investment, equity or
other ownership interest or any outstanding loan or advance to or from, any
person (including, without limitation, any officer, director or shareholder)
or any corporation, partnership, joint venture or other entity or enterprise
(hereinafter, "entity"). DentalCo 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.
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3.7 Financial Statements.
(a) DentalCo has furnished to Nanston and the Nanston Shareholders its
audited consolidated balance sheets as at December 31, 1995, and the related
audited statements of income and retained earnings and cash flows for the
fiscal year then ended, including, the related notes, all of which have been
examined by, and are accompanied by the unqualified audit report of KPMG
Peat Marwick, Certified Public Accountants (collectively, the "DentalCo
Financial Statements"). The DentalCo Financial Statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") and
fairly present the consolidated financial position of DentalCo and its
consolidated subsidiaries as of the dates stated and the consolidated
results of their operations for the periods then ended.
(b) When delivered in accordance with Section 6.3(b) of this
Agreement, the consolidated unaudited balance sheets of DentalCo as at the
most recent fiscal month-end of DentalCo 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 DentalCo's then current fiscal year
and ending on such most recent fiscal month end, as the case may be
(collectively, the "DentalCo Interim Statements"), shall have been prepared
in conformity with GAAP applied on a basis consistent with that used in the
DentalCo Financial Statements, and shall fairly present (subject, in the
case of unaudited statements, to normal, recurring audit adjustments) the
consolidated unaudited financial position of DentalCo and its consolidated
subsidiaries as at such date and the consolidated results of their
operations for such period then ended.
3.8 Undisclosed Liabilities. Except as disclosed in Schedule 3.8, or in
another Schedule to this Agreement, or in any other document provided to Nanston
or the Nanston Shareholders pursuant to this Agreement, to the best knowledge of
DentalCo, at the date of this Agreement, DentalCo has no liability or obligation
of any nature (whether liquidated, unliquidated, accrued, absolute, contingent
or otherwise and whether due or to become due) that would be required by GAAP to
be reflected on a consolidated balance sheet of DentalCo and its subsidiaries
(including the notes thereto) except:
(a) Those set forth in the DentalCo Financial Statements which
have not been paid or discharged since the date thereof;
(b) Current liabilities (determined in accordance with GAAP)
incurred since December 31, 1995, in transactions in the ordinary
course of business consistent with past practices which are properly
reflected on its books and will be properly reflected in the
DentalCo Interim Statements; and
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(c) Liabilities or obligations that have not and could not reasonably
be expected to have a DentalCo Material Adverse Effect.
3.9 Absence of Certain Changes. Except as contemplated by or otherwise
described in this Agreement or as set forth in Schedule 3.9, during the period
commencing on December 31, 1995 and ending on the date hereof, DentalCo has
conducted its business only in the ordinary course, and there has not been:
(a) Any change in the business operations, assets, properties,
or financial condition of DentalCo that, individually or in the
aggregate, has a material adverse effect on the financial condition
of DentalCo and its subsidiaries taken as a whole (a "DentalCo Material
Adverse Effect") or any such change that DentalCo reasonably expects
would have a DentalCo 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 DentalCo, or any direct or indirect redemption, purchase or other
acquisition by DentalCo of any of its capital stock or any options,
warrants, rights or agreements to purchase or acquire such stock;
(c) Any transaction entered into or carried out by DentalCo
other than in the ordinary and usual course of its business;
(d) Any borrowing or agreement to borrow funds by DentalCo
or incurring by DentalCo of any other obligation or liability
(contingent or otherwise), except (i) current liabilities incurred
in the usual and ordinary course of business (consistent with past
practices), and (ii) borrowings from NationsCredit Commercial
Corporation ("NationsCredit") or any other lending institutions in
connection with acquisitions;
(e) Any material change in DentalCo'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;
(f) Any material Lien imposed or agreed to be imposed on or
with respect to the property or assets of DentalCo;
(g) Any sale, lease or other disposition of, or any agreement
to sell, lease or otherwise dispose of any of the properties or assets
of DentalCo, other than in the usual and ordinary course of business;
(h) 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 $50,000 for any one
purchase or $500,000 for all such purchases made by DentalCo or any
lease or any agreement to lease,
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as lessee, any capital assets with payments over the term thereof to be
made by DentalCo exceeding an aggregate of $100,000;
(i) Any material loan or advance made by DentalCo to any
individual, firm, corporation or other entity;
(j) 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 material contract,
agreement, license or other instrument to which DentalCo is a party,
other than any satisfaction by performance in accordance with the terms
thereof in the usual and ordinary course of business; or
(k) Any labor dispute or disturbance having a DentalCo Material
Adverse Effect, 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.
3.10 Taxes. Except as could not reasonably be expected to have a DentalCo
Material Adverse Effect or as set forth on Schedule 3.10:
(a) DentalCo 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 DentalCo, including without limitation
those arising under such returns and reports, have been fully paid or are
fully accrued as liabilities in the DentalCo Financial Statements or the
DentalCo Interim Statements and will be timely paid if due prior to the
Closing. No written claim has been made to DentalCo by authorities in
any jurisdiction where DentalCo did not file tax returns that it is or
may be subject to taxation therein.
(b) DentalCo has delivered to Nanston and the Nanston Shareholders
copies of all federal, state, local, and foreign income tax returns filed
with respect to it for the taxable period ended on or after December 31,
1995. 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, to the best knowledge
of DentalCo, threatened federal, state, local or foreign tax audits or
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assessments of DentalCo and no agreement with any federal, state,
local or foreign taxing authority that may affect the subsequent
tax liabilities of DentalCo.
(c) There exists no tax-sharing agreement or arrangement pursuant to
which DentalCo 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.
3.11 Compliance with Applicable Law. To the best knowledge of DentalCo,
except as set forth on Schedule 3.11:
(a) DentalCo holds and is in compliance with the terms of, all
permits, licenses, variances, exemptions, orders and approvals of any
Governmental Authority, (as defined below) necessary for the lawful
conduct of its business as currently conducted (collectively, the "Permits")
except for failures to hold or be in compliance with the terms of such
Permits that would not have a DentalCo Material Adverse Effect.
(b) DentalCo is not in violation of nor has it been given notice or
been charged with any violation of any Applicable Law (as defined below),
except for possible violations that would not have a DentalCo Material
Adverse Effect. No investigation or review by any Governmental Authority
with respect to DentalCo is pending or, to the best knowledge of DentalCo,
threatened, nor has any Governmental Authority indicated an intention to
conduct any such investigation or review, other than, in each case, those
the outcome of which could not be reasonably expected to have a DentalCo
Material Adverse Effect.
(c) "Governmental Authority" means (i) any nation or government,
(ii) any federal, state, county, province, city, town, municipality or
other political subdivision thereof or thereto, (iii) any court, tribunal,
department, commission, board, bureau, instrumentality, agency, council,
arbitrator or other entity exercising executive, legislative, regulatory
or administrative functions or pertaining to government and (iv) any other
governmental entity, agency or authority having or exercising jurisdiction
over any relevant person, entity, item or matter.
(d) "Applicable Law" means (i) any applicable laws, statutes, rules,
requirements, ordinances, orders, writs, injunctions, decisions,
determinations, directives or decrees and other pronouncements having the
effect of law and (ii) all contracts or agreements with any Governmental
Authority relating to compliance with the matters described in clause (i)
above.
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3.12 Proprietary Rights. Schedule 3.12 sets forth:
(a) All names, patents, inventions, trade secrets, proprietary
rights, computer software, trademarks, trade names, service marks, logos,
copyrights and franchises and all applications therefor, registrations
therefor and licenses, sublicenses or agreements in respect thereof which
DentalCo owns or has the right to use or to which DentalCo is a party, and
that are material to the business operation of DentalCo taken as a whole;
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,
being sometimes hereinafter referred to collectively as the "DentalCo
Proprietary Rights").
Except as would not have a DentalCo Material Adverse Effect or as
set forth in Schedule 3.12, DentalCo is the sole and exclusive owner of all
right, title and interest in and to all DentalCo Proprietary Rights free and
clear of all Liens, and there is no pending or, to the best knowledge of
DentalCo, threatened investigation, proceeding, inquiry or other review by
any Governmental Authority with respect to DentalCo's rights, title or
interest in any DentalCo Proprietary Right.
3.13 Insurance. Set forth in Schedule 3.13 is a true, correct and complete
list of all insurance policies and bonds, if any, in force for which DentalCo is
named as an insured party, or for which DentalCo has paid any premiums since
January 1, 1996, and DentalCo has supplied to Nanston or the Nanston
Shareholders correct and complete copies of each policy and bond so listed.
Except as disclosed in Schedule 3.13, all such policies or bonds are currently
in full force and effect and no notice of cancellation or termination has been
received by DentalCo with respect to any such policy or bond. All premiums due
and payable on such policies and bonds have been paid. Except as disclosed in
Schedule 3.13, DentalCo is not a co-insurer under any term of any insurance
policy.
3.14 Title to and Condition of Properties and Leasehold Interests. Except
as would not have a DentalCo Material Adverse Effect or as set forth in Schedule
3.14, DentalCo has 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 balance sheet included in the DentalCo
Financial Statements); provided, however, that this Section 3.14 does not apply
to DentalCo Proprietary Rights, which are addressed in Section 3.12. Except as
set forth in Schedule 3.14 and except for (a) statutory liens for taxes not yet
due, (b) such imperfections in title, easements and Liens (as defined in Section
4.2(i)), if any, as are not substantial in character, amount or extent and do
not materially detract from the value or interfere with the present use of the
property subject thereto or affected thereby or otherwise materially impair the
business operations of DentalCo as presently carried on, (c) Liens existing on
the date hereof securing indebtedness for borrowed money reflected in
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the balance sheet included in the DentalCo Financial Statements and (d) other
matters which, singly or in the aggregate, could not reasonably be expected to
have a DentalCo Material Adverse Effect, all such properties are owned free and
clear of all Liens, including, without limitation, (i) rights or claims of
parties in possession; (ii) easements or claims of easements; (iii)
encroachments, overlaps, boundary lines or water drainage disputes or any other
matters; (iv) any Lien or right to a Lien for services, labor or material
furnished; (v) special tax or other assessments; (vi) options to purchase,
leases, tenancies, or land contracts; and (vii) contracts, covenants, or
reservations which restrict the use of such properties. Except as set forth in
Schedule 3.14, to the best knowledge of DentalCo, no financing statement under
the Uniform Commercial Code or similar law naming DentalCo as debtor has been
filed in any jurisdiction, and DentalCo is not a party to or bound under any
agreement or legal obligation authorizing any party to file any such financing
statement. Schedule 3.14 contains copies of all leases of real property to
which DentalCo is a party. DentalCo owns or leases no other real property.
Except as would not have a DentalCo Material Adverse Effect or as set forth
in Schedule 3.14, all real property and structures and all machinery, equipment,
and other tangible personal property owned, leased or used by DentalCo which are
material to the operation of its business, are suitable for the purpose or
purposes for which they are being used. The utilities servicing the real
properties owned or used by DentalCo are adequate to permit the continued
operation of the business of DentalCo, and there are no pending or, to the best
knowledge of DentalCo, threatened zoning, condemnation or eminent domain
proceedings, building, utility or other moratoria, or injunctions or court
orders which would materially affect such continued operation. Each lease or
agreement to which DentalCo is a party under which it is a lessee of any
property, real or personal, is a valid and subsisting agreement without any
material default of DentalCo thereunder and, to the best of DentalCo's
knowledge, without any material default thereunder of any other party thereto.
No event has occurred and is continuing which, with due notice or lapse of time
or both, would constitute a default or event of default by DentalCo under any
such lease or agreement or, to the best of DentalCo's knowledge, by any other
party thereto. Possession of such property by DentalCo has not been disturbed
and, to the best of DentalCo's knowledge, no claim has been asserted against
DentalCo adverse to its rights in such leasehold interests.
3.15 Brokers, Finders. The transactions contemplated by this Agreement
were not submitted to DentalCo by any broker or other person and none of the
actions of DentalCo has given rise to any valid claim by any person for a
commission, finder's fee or like payment from any of the Parties.
3.16 ERISA.
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(a) Schedule 3.16 identifies each "employee benefit plan,"
as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("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 DentalCo or any
affiliate (as defined below) and covers any employee or former
employee of DentalCo or any affiliate or under which DentalCo or any
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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 Nanston or the
Nanston Shareholders, 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 "DentalCo 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 DentalCo Employee Plans, which individually or collectively would
constitute an "employee pension benefit plan" as defined in Section
3(2) of ERISA (the "DentalCo Pension Plans"), are identified as such
on Schedule 3.16.
(b) No DentalCo Employee Plan constitutes a "multi employer
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 DentalCo Employee Plan is maintained in connection with any
trust described in Section 501(c) of the Code. Except as would not
have a DentalCo Material Adverse Effect, no "accumulated funding
deficiency, " as defined in Section 412 of the Code, has been incurred
with respect to any DentalCo Pension Plan, whether or not waived.
Full payment has been made of all amounts which DentalCo or any
affiliate is required to have paid as contributions to or benefits
under any DentalCo Employee Plan as of the end of the most recent
fiscal year thereof and there are no unfunded obligations under any
DentalCo Employee Plan that have not been disclosed to Nanston or the
Nanston Shareholders in writing prior to the date hereof. Except as
would not have a DentalCo Material Adverse Effect, or as set forth in
Schedule 3.16 or as expressly contemplated by this Agreement, DentalCo
knows of no "reportable events," 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 DentalCo Employee Plan.
Except as would not have a DentalCo Material Adverse Effect or as set
forth in Schedule 3.16 or as expressly contemplated by this Agreement,
no condition exists and no event has occurred that could constitute
grounds for termination of any Employee Plan, and neither DentalCo,
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
DentalCo Employee Plan has or will make either DentalCo or any officer
or director of DentalCo, 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 DentalCo, threatened
litigation, arbitration, disputed claim, adjudication, audit,
examination or other proceeding
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with respect to any DentalCo Employee Plan or any fiduciary or
administrator thereof in their capacities as such.
(c) Each DentalCo 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. DentalCo has furnished to Nanston or the
Nanston Shareholders copies of the most recent Internal Revenue
Service determination letters with respect to each such DentalCo
Employee Plan. Except as would not have a DentalCo Material Adverse
Effect, each DentalCo 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
DentalCo Employee Plan.
(d) Except as would not have a DentalCo Material Adverse
Effect, to the best knowledge of DentalCo, there is no contract,
agreement, plan, or arrangement covering any employee or former
employee of DentalCo, 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 3.16 identifies each written 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 DentalCo Employee Plan,
(ii) is entered into, maintained or contributed to, as the case may
be, by DentalCo, or any of its affiliates, and (iii) covers any
employee or former employee of DentalCo, or any of its affiliates.
Such contracts, arrangements as are described above, copies or
descriptions of all of which have been furnished previously to Nanston
or the Nanston Shareholders, are referred to collectively herein as
the "DentalCo Benefit Arrangements". Except as would not have a
DentalCo Material Adverse Effect, each DentalCo 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 DentalCo Benefit Arrangement.
(f) Except as would not have a DentalCo Material Adverse
Effect or at as set forth in Schedule 3.16, there is no liability in
respect of post-retirement
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health and medical benefits for retired employees of DentalCo, 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). Except as would not have a DentalCo Material
Adverse Effect, with respect to any DentalCo Employee Plans which are
"group health plans" under Section 4980B of the Code and Section
607(1) of ERISA, to the best knowledge of DentalCo, there has been
timely compliance in all material respects with all requirements
imposed thereunder so that DentalCo, 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 3.16, there has been no
amendment to, written interpretation or announcement (whether or not
written) by DentalCo, or any of its affiliates relating to, or change
in employee participation or coverage under, any DentalCo Employee
Plan or DentalCo Benefit Arrangement which would increase the expense
of maintaining such DentalCo Employee Plan or DentalCo Benefit
Arrangement above the level of the expense incurred in respect thereof
for the fiscal year ended immediately prior to the Effective Time.
(h) Except as set forth in Schedule 3.16, DentalCo is not
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) 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.
3.17 Contracts. Schedule 3.17 lists all contracts, purchase orders,
agreements, leases, executory commitments, and arrangements to which DentalCo is
a party (a) which, including all amendments and supplements thereto, are
material to the condition, operations, assets or business of DentalCo, (b) which
(i) involve payments or commitments in excess of $50,000 for any purchase order
or $50,000 for any other contract, agreement, lease, commitment, arrangement, or
understanding, or (ii) extend beyond three years (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 DentalCo, 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 DentalCo not terminable at will, (d) which
provide for the future purchase by DentalCo of any materials, equipment,
services or supplies, which continue for a period of more than 24 months
(including periods covered by any option to renew by either party), or (e) which
involve any of the following: (i) any borrowings or guarantees; (ii) any
contracts containing covenants purporting to limit the freedom of DentalCo 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
DentalCo to sell, lease, license or otherwise provide
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its services; (iv) any obligation or commitment providing for indemnification or
responsibility for the obligations or losses of any person.
Except as set forth in Schedule 3.17, DentalCo has not received any notice
from any third party payer, patient, or supplier to the effect that such third
party payer, patient, or supplier will terminate its relationship or
unilaterally modify any terms of that relationship, where applicable, with
DentalCo as a result of any transaction contemplated by this Agreement or
otherwise.
Also attached to Schedule 3.17 is a correct and complete list of all
dentists employed or retained by DentalCo or its affiliates. Except as set
forth in such list, DentalCo or its affiliates has a written employment
agreement with each dentist employed by it and a written independent contractor
or similar agreement with each dentist retained by it as an independent
contractor. DentalCo has provided a copy of each such agreement to Nanston or
the Nanston Shareholders, and all such agreements are currently in full force
and effect.
3.18 Accounts Receivable. DentalCo has delivered to Nanston or the Nanston
Shareholders a correct and complete schedule of its accounts receivable and
notes receivable as at November 30, 1996. Except as would not have a DentalCo
Material Adverse Effect or as set forth in Schedule 3.18 or in the DentalCo
Interim Statements, all accounts and notes receivable of DentalCo as at such
date, and any accounts and notes receivable arising between such date and the
Effective Time are or will be bona fide and represent sales actually made or
services actually provided in the ordinary course of business consistent with
past practices.
Schedule 3.18 includes a list of all amounts payable to DentalCo by any
Affiliate of DentalCo (the "DentalCo Related Party Receivables") and all amounts
payable by DentalCo to any Affiliate of DentalCo (the "DentalCo Related Party
Payables") as of November 30, 1996, specifying the payer, payee, and amount of
each DentalCo Related Party Receivable and DentalCo Related Party Payable. For
purposes of this Agreement, other than for Section 3.16, above, an "Affiliate"
of DentalCo shall mean any shareholder, director, officer, employee,
representative, other agent of DentalCo, 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 such or any such
other person or entity.
3.19 No Conflict or Default. Except as would not have a DentalCo Material
Adverse Effect or except for the consents described in Schedule 3.19, neither
the execution and delivery of this Agreement by DentalCo, nor compliance by
DentalCo with the terms and provisions of this Agreement, including without
limitation the consummation of the transactions contemplated by this Agreement,
will violate any Applicable Laws or Permits or conflict with or result in the
breach of any term, condition or provision of the of certificate of
incorporation or bylaws of DentalCo, or of any agreement, deed, contract,
undertaking, mortgage, indenture, writ, order, decree, restriction, legal
obligation or instrument to which DentalCo is a party or by which DentalCo or
any of its 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 with respect to any
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properties or assets of DentalCo 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 DentalCo.
3.20 Books of Account; Records. Except as would not have a DentalCo
Material Adverse Effect, DentalCo general ledgers, stock record books, minute
books and other corporate records relating to the material assets, properties,
contracts, and outstanding legal obligations of DentalCo, are, in all material
respects, complete and correct and the matters contained therein are reflected
in the DentalCo Financial Statements and the DentalCo Interim Statements to the
extent required to be so reflected therein by GAAP.
3.21 Officers, Employees, and Compensation. Schedule 3.21 sets forth the
names of all directors and officers of DentalCo, 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 thereto. Schedule 3.22 also lists and describes
the current compensation of any other employee of DentalCo whose total current
salary and bonus exceeds $80,000 annually. Except as disclosed in Schedule 3.22,
there are no other forms of compensation paid to any such director, officer, or
employee of DentalCo. Except as set forth in Schedule 3.21, DentalCo has not
become obligated, directly or indirectly, with respect to compensation to any
stockholder, director, officer, of DentalCo or any person related to such person
by blood or marriage, except for current liability for such compensation.
3.22 Labor Relations. Except as set forth in Schedule 3.22, no employees
of DentalCo are represented by any labor union or covered under any
collective bargaining agreement, and there is no unfair labor practice
complaint against DentalCo pending before the National Labor Relations Board.
No collective bargaining or other labor agreement is currently being
negotiated by DentalCo and no union or collective bargaining unit represents
DentalCo employees. DentalCo has not experienced any work stoppage or other
material labor difficulty during the past five years.
3.23 Suppliers and Third Party Payers. Schedule 3.23 sets forth (a) a list
of all third party payers and suppliers who have terminated their relationships
with DentalCo since January 1, 1996, or have notified DentalCo since September
1, 1996, that they intend to terminate their relationships with DentalCo, and
(b) the gross receipts received from such third party payers and gross monies
paid to such third party suppliers for the 12-month period ending on August 31,
1996.
3.24 Business of DentalCo. DentalCo is and has been engaged in the
business of providing non-clinical administration and related services, and
similar services, to dentists and is engaged in no other business whatsoever,
except as may be incidental to the foregoing.
3.25 Complete Disclosure. To the best knowledge of DentalCo, no
representation or warranty of DentalCo in this Agreement or in the DentalCo
Schedules contains any untrue
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statement of a material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading.
3.26 Environmental. DentalCo conducts its business and operations in
material compliance with all applicable environmental laws, ordinances and
regulations, and DentalCo has not received notice of any claim, action, suit,
proceeding, hearing or investigation, based on or related to the manufacture,
processing, distribution, use treatment, storage, disposal, transport, or
handling, or the emission, discharge, release or threatened release into the
environment, of any pollutant, contaminant, or hazardous or toxic material or
waste (collectively, an "Environmental Event") by DentalCo or with respect to
any premises owned or occupied by them. To the best knowledge of DentalCo, no
notice of any Environmental Event was given to any person or entity that
occupied any of the premises owned or occupied by or used by DentalCo prior to
the date such premises were so occupied. Without limiting the generality of the
foregoing, to the best knowledge of DentalCo, DentalCo has not disposed of or
placed on or in any property or facility used in its business any waste
materials, hazardous materials or hazardous substances in violation of law.
3.27 Fraud and Abuse. To the best knowledge of DentalCo, neither DentalCo,
nor any of its officers and directors, has engaged in any activities which are
prohibited under federal Medicare and Medicaid statutes, 42 U.S.C. Sections
1320a-7, 1320a-7(a) and 1320a-7b, or the regulations promulgated pursuant to
such statutes or related state or local statutes or regulations or which are
prohibited by rules of professional conduct promulgated by the appropriate
licensing authority of the sate or states in which such entity does business,
including but not limited to the following:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(b) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights
to any benefit or payment;
(c) presenting or causing to be presented a claim for reimbursement
for services under Medicare, Medicaid, or
other state health care program that is for an item or service that is known
or should be known to be (i) not provided as claimed, or (ii) false or
fraudulent;
(d) failing to disclose knowledge by a claimant of the occurrence
of any event affecting the initial or continued rights to any benefit or
payment on its own behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment;
(e) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe, or rebate),
directly or indirectly, overtly or covertly, in cash or in kind (i) in return
for referring an individual to a person for the furnishing or arranging for
the furnishing of any item or service for which payment may be made in whole
or in part by Medicare or Medicaid, or other state health care program, or
(ii) in return for purchasing, leasing, or ordering or arranging for or
recommending purchasing, leasing,
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or ordering any good, facility, service, or item for which payment may be made
in whole or in party by Medicare or Medicaid or other state health care program;
or
(f) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omit to state a fact required to be stated therein or
necessary to make the statements contained therein not misleading) of a
material fact with respect to (i) the conditions or operations of a facility
in order that the facility may qualify for Medicare, Medicaid or other state
health care program certification, or (ii) information required to be
provided under Section 1124A of the Social Security Act (42 U.S.C. Section
1320a-3).
Section 3.28. Health Professional's Financial Relationships. To the
best knowledge of DentalCo, the operations of DentalCo are in compliance with
and do not otherwise violate the federal Medicare and Medicaid statutes
regarding health professional self-referrals, 42 U.S.C. Section 1395nn and 42
U.S.C. Section 1396b, or the regulations promulgated pursuant to such
statute, or similar state or local statutes or regulations.
Section 3.29. Professional Licenses. There is no legal or regulatory
requirement that the shareholders, or any of them, of DentalCo be a licensed
dentist in order for DentalCo to conduct its business as currently conducted.
Section 3.30. Medical Waste. DentalCo is not in violation of, or the
subject of any investigation, inquiry or enforcement action by any
Governmental Authority under, the Medical Waste Tracking Act, 42 U.S.C.
Section 6992 et seq., or any applicable state or local government statute,
ordinance or regulation dealing with the disposal of medical wastes
(collectively "Medical Waste Laws"). DentalCo has obtained and is in
compliance with any permits required by the Medical Waste Laws relating to
medical waste disposal, and all disposal of medical waste by DentalCo has
been in compliance with the Medical Waste Laws.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF NANSTON AND THE JOHNSTON FAMILY
----------------------------------
In order to induce DentalCo and Subcorp to enter into this Agreement,
Nanston and John C. Johnston, D.D.S., individually ("Dr. Johnston"), Nancy
Anderson ("Ms. Anderson"), as Trustee under The Johnston Family Stock Trust
and The Johnston Family Education Trust (collectively, the "Trusts"), Chris
D. Johnston ("C.D. Johnston"), Steve C. Johnston ("S.C. Johnston"), Ronnie L.
Johnston ("R.L. Johnston"), and Kyle E. Anderson ("Mr. Anderson") (all of the
foregoing, other than Nanston, being hereinafter referred to collectively as,
the "Johnston Family"), hereby jointly and severally represent and warrant to
DentalCo and Subcorp that the statements contained in this Article IV are
true, correct and complete, except as disclosed in the schedules specifically
referred to in this Article IV and attached hereto (collectively, the
"Johnston Family Schedules"); provided, however, that with respect to
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representations and warranties regarding the "Providers" set forth in Sections
4.1(g), 4.1(h) (i.e., with respect to the shares of Bell included in "Shares"),
4.3 through 4.5 inclusive, 4.7 through 4.12 inclusive, 4.14 through 4.18
inclusive, and 4.20 through 4.31 inclusive (the "Bell Representations"), the
Johnston Family makes no representations and warranties regarding the Bell
Representations and, provided, further, that Nathan Bell, D.D.S. ("N. Bell") has
joined in the execution of this Agreement solely for the purposes of (i) making
the Bell Representations (the Bell Representations are made with such changes,
if any, as the context unambiguously requires) and the representations and
warranties set forth in Section 5.5 hereof, (ii) agreeing to the covenants of N.
Bell set forth in Section 6 hereof, and (iii) indemnifying DentalCo as provided
in Section 9 hereof:
4.1 Organization and Standing. Each of Nanston and NC (collectively the
"Companies") and each of Nanston Dental and Bell (collectively the "Providers")
is a corporation, professional corporation, or professional association 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 Company and each of the Providers 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 either Company
or the Providers nor the properties it owns, leases or operates requires it to
qualify to do business as a foreign corporation in any other jurisdiction, if
the failure so to qualify would have a Nanston Material Adverse Effect (as
defined in Section 4.8(a) hereof). Neither Company nor the Providers has
received any written notice or assertion within the last three years from any
Governmental Authority in any jurisdiction to the effect that either Company or
the Providers is required to be qualified or authorized to do business in such
jurisdiction if the Company or the Providers was not so qualified or has not
obtained such authorization. Neither Company nor the Providers 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.
4.2 Capitalization and Security Holders.
(a) Nanston Shares. The authorized capital stock of Nanston
(collectively, the "Nanston Shares") consists solely of (i)
100,000,000 shares of common stock, par value $.01 per share (the
"Common Shares"), of which 12,080,439 are issued and outstanding, (ii)
100,000,000 shares of ESOP common stock, par value $.01 per share (the
"ESOP Shares"), of which 1,507,295 are issued and outstanding, and
(iii) 50,000,000 shares of Class A Preferred Stock, par value $.01 per
share, of which none are issued and outstanding. On or prior to the
Closing, the Nanston Shareholders will hold of record all of the
outstanding Nanston Shares. All of the outstanding Nanston Shares are
entitled to vote with respect to the Merger.
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(b) NC Shares. The authorized capital stock of NC consists
solely of 1,000 common shares, par value $1.00 per share (the "NC
Shares"), of which 100 shares are issued and outstanding. Nanston
holds beneficially and of record all of the outstanding NC Shares.
(c) Nanston Dental Shares. The authorized capital stock of
Nanston Dental consists solely of 100,000 shares of common stock,
without par value (the "Nanston Dental Shares"), of which 501 shares
are issued and outstanding. Dr. Johnston and Sam C. Grizzle ("Dr.
Grizzle") hold of record all of the outstanding Nanston Dental Shares.
Dr. Johnston holds beneficially the 500 Nanston Dental Shares he holds
of record and Dr. Grizzle holds beneficially the 1 Nanston Dental
Share he holds of record.
(d) Bell Shares. The authorized capital stock of Bell
consists solely of 1,000 common shares, par value $1.00 per share (the
"Bell Shares"), of which 500 shares are issued and outstanding. N.
Bell holds beneficially and of record all of the outstanding Bell
Shares.
(e) Stock Ownership. Exhibit A attached to this Agreement
constitutes a correct and complete list of the names and addresses of,
and the number and class of shares of Nanston Shares held of record by
each of the Nanston Shareholders, respectively.
(f) Due Authorization and Issuance. Each outstanding
Nanston Share and NC Share (collectively, the "Company Shares") and
each Nanston Dental Share and each Bell Share has been duly authorized
and validly issued and is fully paid and non-assessable and has not
been issued in violation of and are free of any preemptive or similar
rights.
(g) 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 of any
shares of capital stock of either of the Companies or the Providers,
nor are there outstanding any securities which are convertible into or
exchangeable for any shares of capital stock of either of the
Companies or the Providers; and neither of the Companies nor the
Providers has any obligation of any kind to issue any additional
securities or to pay for securities of either of the Companies or the
Providers, as applicable, or any predecessor.
(h) Compliance with Laws; No Liens. To the best knowledge
of Nanston and the Johnston Family, the issuance and sale of all of
the shares referred to in Section 4.2(a), (b), (c), and (d) above
(collectively, the "Shares") has been in full compliance with all
applicable federal and state securities laws and other laws. Except
as set forth in Schedule 4.2, neither Company nor Nanston Dental has
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agreed to register any Shares or other securities under the Securities
Act of 1933, as amended (the "Securities Act"), and the rules and
regulations thereunder or under any state securities law. The Shares
are free and clear of any and all Liens.
(i) "Liens" means (i) any lien, charge, mortgage, pledge,
hypothecation, assignment, security interest, assessment, levy or
encumbrance of any kind or nature whatsoever (whether voluntary or
involuntary, affirmative or negative, and whether imposed or created
by contract, operation of Applicable Laws or otherwise) in, on, or
with respect to any properties or assets of the applicable person or
entity, whether now owned or hereafter acquired, (ii) any contract to
give any of the foregoing and (iii) any conditional sale of other
title retention agreement and any financing lease having substantially
the same effect as any of the foregoing.
4.3 Subsidiaries. Set forth in Schedule 4.3 is a correct and complete list
of all subsidiary corporations of each Company, the number and class of shares
of capital stock of each such subsidiary owned by either Company, the percentage
of all capital stock of that subsidiary which is represented by the shares owned
by the Companies, and the existence of any Liens on any such stock (to the
extent not disclosed elsewhere in this Agreement or the Schedules hereto). The
Providers have no subsidiaries. Except as set forth on Schedule 4.3, no Company
nor any Provider owns, directly or indirectly, any investment, equity or other
ownership interest or any outstanding loan or advance to or from, any person
(including, without limitation, any officer, director or shareholder) or any
entity. Neither any Company nor the Providers is 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.
4.4 Corporate Power and Authority. Nanston has all requisite corporate
power and authority to enter into and perform this Agreement and to carry out
its obligations hereunder. Each member of the Johnston Family has the capacity
to enter into and carry out its obligations hereunder. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by the board of directors and the shareholders of Nanston. To the
extent required by law, the transactions contemplated by this Agreement have
been authorized by the boards of directors and shareholders of NC and the
Providers. This Agreement has been duly executed and delivered by Nanston and
each member of the Johnston Family and constitutes their legal, valid and
binding obligation enforceable against each of them in accordance with its
terms. No other corporate action or proceeding by or in respect of either
Company or Provider is or was necessary to authorize this Agreement or the
consummation of the transactions contemplated by this Agreement.
4.5 Conflicts, Consents and Approvals. Except for the consents described
in Schedule 4.5 or as would not have a Nanston Material Adverse Effect, neither
the execution and delivery of this Agreement by the Companies and N. Bell nor
the consummation of the transactions contemplated in this Agreement will:
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(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, upon any of the properties or assets
of the Companies or the Providers under any of the terms, conditions or
provisions of the certificate or articles of incorporation or bylaws,
each as amended to date, of the Companies or the Providers, or any note,
bond, mortgage, indenture, deed of trust, license, contract, undertaking,
agreement, lease or other instrument or obligation to which the Companies
or the Providers is a party;
(b) Violate any order, writ, injunction, decree, statute, rule or
regulation, applicable to the Companies or the Providers or their
respective properties or assets; or
(c) Require any action or consent or approval of, or review by, or
registration with any third party or Governmental 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 of Georgia.
4.6 Financial Statements.
(a) Nanston has furnished to DentalCo the audited consolidated
balance sheets for the Companies as at August 31, 1996, August 31, 1995,
and August 31, 1994, and the related audited 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 and examined by, and are accompanied by the unqualified audit
report of Smith & Radigan, Certified Public Accountants (collectively,
the "Company Financial Statements"). (The Company Financial Statements as
at and for the fiscal year ended August 31, 1996, are sometimes
hereinafter referred to separately as the "Company Fiscal 1996
Statements"). The Company Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis, and fairly present the
consolidated financial position of the Companies as of the dates stated
and the consolidated results of operations of the Companies for the
periods then ended.
(b) When delivered in accordance with Section 6.2(a) of this
Agreement, the consolidated unaudited balance sheets of the Companies as
at the most recent fiscal month-end of Nanston 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 Nanston's then current
fiscal year and ending on such most recent fiscal month end, as the case
may be (collectively, the "Nanston Interim
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Statements"), shall have been prepared in conformity with GAAP applied on
a basis consistent with that used in the Company Financial Statements,
and shall fairly present (subject, in the case of unaudited statements,
to normal, recurring audit adjustments) the consolidated unaudited
financial condition of the Companies as at such date and the consolidated
results of operations of the Companies for such period then ended.
4.7 Undisclosed Liabilities. Except as disclosed in Schedule 4.7, in
another Schedule to this Agreement, or in any other document provided to
DentalCo pursuant to this Agreement, to the best knowledge of Nanston and the
Johnston Family, as of the date of this Agreement, neither Company nor either
of the Providers 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 Fiscal 1996 Statements which have not
been paid or discharged since the date thereof;
(b) Current liabilities (determined in accordance GAAP) incurred
since August 31, 1996, in transactions in the ordinary course of business
consistent with past practices which are properly reflected on its books
and will be properly reflected in the Nanston Interim Statements; and
(c) Liabilities or obligations that have not and could not
reasonably be expected to have a Nanston Material Adverse Effect.
4.8 Absence of Certain Changes. Except as contemplated by or otherwise
described in this Agreement, or as set forth in Schedule 4.8, during the
period commencing September 1, 1996 and ending on the date hereof, the
Companies and the Providers have conducted their respective businesses in the
ordinary course and there has not been:
(a) Any change in the business operations, assets, properties, or
financial condition of either Company or either of the Providers that,
individually or in the aggregate, has a material adverse effect on the
financial condition of the Companies and the Providers taken as a whole
(a "Nanston Material Adverse Effect"), or any such change that Nanston
or any member of the Johnston Family, reasonably expects would have a
Nanston 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 either Company
or either of the Providers, or any direct or indirect redemption, purchase
or other acquisition by either Company or either of the Providers of any
of its capital stock or any options, warrants, rights or agreements to
purchase or acquire such stock;
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(c) Any increase of more than 20% in amounts payable by either
Company or either of the Providers to or for the benefit of, or committed
to be paid by either Company or either of the Providers to or for the
benefit of, any stockholder, director, or officer of either Company or
either of the Providers, or any other consultant, agent or employee of
either Company or either of the Providers, 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 either Company or either of the Providers directly in
connection with the companies' respective businesses;
(d) Any transaction entered into or carried out by either Company or
either of the Providers other than in the ordinary and usual course of
their respective businesses;
(e) Any borrowing or agreement to borrow funds by either Company or
either of the Providers or, to the best knowledge of Nanston and the
Johnston Family, any incurring by either Company or either Provider of
any other obligation or liability (contingent or otherwise), except
(i) current liabilities incurred in the usual and ordinary course of
business (consistent with past practices), and (ii) borrowings from
SunTrust as replacement lender for BankSouth.
(f) Any material change in either Company's or either of the
Provider'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 material Lien imposed or agreed to be imposed on or with
respect to the property or assets of either Company or either of the
Providers.
(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
either Company or either Provider, other than in the usual and ordinary
course of business of that Company or that Provider;
(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 $25,000 for any one purchase
or $250,000 for all such purchases made by either Company or either
Provider or any lease or any agreement to lease, as lessee, any capital
assets with payments over the term
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thereof to be made by either Company or either Provider exceeding an
aggregate of $100,000;
(j) Any material loan or advance made by either Company or either
Provider 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 material contract, agreement,
license or other instrument to which either Company or either Provider is
a party, other than any satisfaction by performance in accordance with
the terms thereof in the usual and ordinary course of business; or
(l) Any labor dispute or disturbance having a Nanston Material
Adverse Effect, 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.
4.9 Taxes. Except as could not reasonably be expected to have a
Nanston Material Adverse Effect or as set forth on Schedule 4.9,
(a) Each Company and each Provider 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
either Company or Provider, including without limitation those arising
under such returns and reports, have been fully paid or are fully accrued
as liabilities in the Company's Fiscal 1996 Statements or the Nanston
Interim Statements and will be timely paid if due prior to the Closing.
No written claim has been made to either Company or Provider or by
authorities in any jurisdiction where either Company or Provider did not
file tax returns that it is or may be subject to taxation therein.
(b) Each Company and each of the Providers has delivered to
DentalCo Provider copies of all federal, state, local, and foreign income
tax returns filed with respect to such Company or such Provider for
taxable periods ended on or after August 31, 1992. Schedule 4.9 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
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 4.9, all deficiencies proposed as a result of any audits have
been paid or settled. There
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are no pending or, to the best knowledge of Nanston and the Johnston
Family, threatened federal, state, local or foreign tax audits or
assessments of either Company or Provider and no agreement with any
federal, state, local or foreign taxing authority that may affect the
subsequent tax liabilities of either Company or Provider.
(c) There exists no tax-sharing agreement or arrangement pursuant
to which either Company or Provider 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.
4.10 Compliance with Applicable Law. To the best knowledge of Nanston
and the Johnston Family, except as set forth on Schedule 4.10:
(a) The Companies and the Providers hold and are in compliance with
the terms of, all Permits, (as defined in Section 3.11) except for
failures to hold or be in compliance with the terms of such Permits that
would not have a Nanston Material Adverse Effect.
(b) Neither the Companies nor the Providers are in violation of nor
has been given notice or been charged with any violation of any
Applicable Law (as defined in Section 3.11(d)) except for possible
violations that would not have a Nanston Material Adverse Effect. No
investigation or review by any Governmental Authority (as defined in
Section 3.11(c)) with respect to either of the Companies or the Providers
is pending or, to the best knowledge of Nanston and the Johnston Family,
threatened, nor has any Governmental Authority indicated an intention to
conduct any such investigation or review, other than, in each case, the
outcome of which could not be reasonably expected to have a Nanston
Material Adverse Effect.
4.11 Proprietary Rights. Schedule 4.11 sets forth:
(a) All names, patents, inventions, trade secrets, proprietary
rights, computer software, trademarks, trade names, service marks, logos,
copyrights and franchises and all applications therefor, registrations
therefor and licenses, sublicenses or agreements in respect thereof which
either Company or Provider owns or has the right to use or to which
either Company or either Provider is a party, and that are material to the
business operation of the Companies taken as a whole; 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, being sometimes hereinafter referred to collectively as the
"Nanston Proprietary Rights").
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Except as would not have a Nanston Material Adverse Effect or as set
forth in Schedule 4.11, the Companies and the Providers are the sole and
exclusive owners of all right, title and interest in and to all Nanston
Proprietary Rights free and clear of all Liens and there is no pending or, to
the best knowledge of Nanston and the Johnston Family, threatened
investigation, proceeding, inquiry or other review by any Governmental
Authority with respect to either Company's or either Provider's rights, title
or interest in any Nanston Proprietary Right.
Except as set forth in Schedule 4.11, each Company and the Providers
have the exclusive rights to own, use and license others to use the computer
software used by such Company or such Provider (the "Software"). Schedule
4.11 lists, and the Companies and the Providers have provided to DentalCo
true, correct and complete copies of, all licenses and agreements relating to
any of the Software that is material to the business operation of the
Companies taken as a whole and to the rights of each Provider or Company
therein. Except as set forth in Schedule 4.11, neither Company nor Provider
has licensed or otherwise authorized any other person to use or make use of
all or any part of the Software listed on Schedule 4.11, nor has either
Company or Provider granted, assigned or otherwise conveyed any right in or
to the Software listed on Schedule 4.11.
4.12 Insurance. Set forth in Schedule 4.12 is a true, correct and
complete list of all insurance policies and bonds, if any, in force for which
either Company or Provider is named as an insured party, or for which either
Company or Provider has paid any premiums since August 31, 1996, and the
Companies and the Providers have supplied to DentalCo correct and complete
copies of each policy and bond so listed. Except as disclosed in Schedule
4.12, all such policies or bonds are currently in full force and effect and
no notice of cancellation or termination has been received by either Company
or Provider with respect to any such policy or bond. All premiums due and
payable on such policies and bonds have been paid. Except as disclosed in
Schedule 4.12, neither any Company nor any Provider is a co-insurer under any
term of any insurance policy.
4.13 Bank Accounts, Depositories; Powers of Attorney. Set forth in
Schedule 4.13 is a true, correct and complete list of the names and locations
of all banks or other depositories in which either Company or Nanston Dental
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 4.13, no person or entity has a power of attorney from
either Company or Nanston Dental.
4.14 Title to and Condition of Properties and Leasehold Interests.
Except as would not have a Nanston Material Adverse Effect or as set forth in
Schedule 4.14, each Company and each Provider has 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 balance
sheet included in the Company Fiscal 1996 Statements); provided, however,
that this Section 4.14 does not apply to Nanston Proprietary Rights, which
are addressed in Section 4.11. Except as set forth in Schedule 4.14 except
for (a)
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statutory liens for taxes not yet due, (b) such imperfections in title,
easements and Liens (as defined in Section 4.2(i)), if any, as are not
substantial in character, amount or extent and do not materially detract from
the value or interfere with the present use of the property subject thereto
or affected thereby or otherwise materially impair the business operations of
either Company or either Provider as presently carried on, (c) Liens existing
on the date hereof securing indebtedness for borrowed money reflected in the
balance sheet included in the Company Fiscal 1996 Statements and (d) other
matters which, singly or in the aggregate, could not reasonably be expected
to have a Nanston Material Adverse Effect, all such properties are owned free
and clear of all Liens, including without limitation, (i) rights or claims of
parties in possession; (ii) easements or claims of easements; (iii)
encroachments, overlaps, boundary lines or water drainage disputes or any
other matters; (iv) any Lien or right to a Lien for services, labor or
material furnished; (v) special tax or other assessments; (vi) options to
purchase, leases, tenancies, or land contracts; and (vii) contracts,
covenants, or reservations which restrict the use of such properties. Except
as set forth in Schedule 4.14, to the best knowledge of Nanston and the
Johnston Family, no financing statement under the Uniform Commercial Code or
similar law naming either Company or either Provider as debtor has been filed
in any jurisdiction, and no Company or Provider is a party to or bound under
any agreement or legal obligation authorizing any party to file any such
financing statement. Schedule 4.14 contains copies of all leases of real
property to which any Company or any Provider is a party. No Company or
Provider owns or leases any other real property.
Except as would not have a Nanston Material Adverse Effect or as set
forth in Schedule 4.14, all real property and structures and all machinery,
equipment, and other tangible personal property owned, leased or used by
either Company or either Provider which are material to the operation of its
business, are suitable for the purpose or purposes for which they are being
used. The utilities servicing the real properties owned or used by either
Company or either Provider are adequate to permit the continued operation of
the business of such Company or such Provider, and there are no pending or,
to the best knowledge of Nanston and the Johnston Family, threatened zoning,
condemnation or eminent domain proceedings, building, utility or other
moratoria, or injunctions or court orders which would materially affect such
continued operation. Each lease or agreement to which either Company or
either Provider is a party under which it is a lessee of any property, real
or personal, is a valid and subsisting agreement without any material default
of either Company or either Provider thereunder and, to the best knowledge of
Nanston and the Johnston Shareholders, without any material default
thereunder of any other party thereto. No event has occurred and is
continuing which, with due notice or lapse of time or both, would constitute
a default or event of default by either Company or either Provider under any
such lease or agreement or, to the best knowledge of Nanston and the Johnston
Shareholders, by any other party thereto. Possession of such property by
either Company or either Provider has not been disturbed and, to the best
knowledge of Nanston and the Johnston Shareholders, no claim has been
asserted against either Company or either Provider adverse to its rights in
such leasehold interests.
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4.15 Brokers, Finders. The transactions contemplated by this Agreement
were not submitted to either Company or either Provider or the Johnston
Family by any broker or other person and none of the actions of either
Company or either Provider or the Johnston Family has given rise to any valid
claim by any person for a commission, finder's fee or like payment against
any of the Parties.
4.16 Litigation. There is no suit, claim, action, proceeding or
investigation pending or, to the best knowledge of Nanston and the Johnston
Family, threatened against either Company or Provider or any of their
respective officers or directors in connection with the business or affairs
of either Company or Provider, which, individually or in the aggregate, is
reasonably likely to have a Nanston Material Adverse Effect or materially
delay or prevent either Company or Provider from consummating the
transactions contemplated by this Agreement. Neither Company or Provider is
subject to any outstanding order, writ, injunction or decree which, insofar
as can be reasonably foreseen, individually or in the aggregate, would have a
Nanston Material Adverse Effect or would materially delay or prevent either
Company or Provider from consummating the transactions contemplated by this
Agreement.
4.17 ERISA.
(a) Schedule 4.17 identifies each "employee benefit plan," as
defined in Section 3(3) of 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 either Company or
either Provider or any affiliate (as defined below) and covers any
employee or former employee of either Company or either Provider or
any affiliate or under which either Company or either Provider 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 DentalCo 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 "Nanston 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 Nanston Employee Plans, which individually or collectively would
constitute an "employee pension benefit plan" as defined in Section 3(2)
of ERISA (the "Nanston Pension Plans"), are identified as such on Schedule
4.17.
(b) No Nanston Employee Plan constitutes a "multi employer 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 Nanston
Employee Plan is maintained in connection with any trust described in
Section 501(c) of the Code. No "accumulated funding deficiency, " as
defined in Section 412 of the Code, has been incurred with respect to
any Nanston Pension Plan, whether or not
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waived. Full payment has been made of all amounts which either Company,
either Provider or any affiliate is required to have paid as contributions
to or benefits under any Nanston Employee Plan as of the end of the most
recent fiscal year thereof and there are no unfunded obligations under
any Nanston Employee Plan that have not been disclosed to DentalCo in
writing prior to the date hereof. Except as set forth in Schedule 4.18
or as expressly contemplated by this Agreement, neither the Companies,
nor the Providers, nor any member of the or either Provider or the
Johnston Family know of any "reportable events," 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 Nanston Employee
Plan. Except as set forth in Schedule 4.17 or as expressly contemplated
by this Agreement, no condition exists and no event has occurred that
could constitute grounds for termination of any Nanston Employee Plan,
and neither Company nor Provider, 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 Nanston Employee Plan has or will make either
Company or either Provider or any officer or director of either Company
or either Provider, 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
Nanston Employee Plan or any fiduciary or administrator thereof in their
capacities as such.
(c) Each Nanston 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.
The Companies and the Provider have furnished to DentalCo copies of the
most recent Internal Revenue Service determination letters with respect
to each such Nanston Employee Plan. Each Nanston 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 Nanston Employee Plan.
(d) Except as would not have a Nanston Material Adverse Effect, to
the best knowledge of Nanston and the Johnston Family, there is no
contract, agreement, plan, or arrangement covering any employee or former
employee of either Company, either Provider, or any affiliate that,
individually or collectively,
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could give rise to the payment of any amount that would not be deductible
pursuant to the terms of the Code.
(e) Schedule 4.17 identifies each written 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 a
Nanston Employee Plan, (ii) is entered into, maintained or contributed
to, as the case may be, by either Company, either Provider, or any of its
affiliates, and (iii) covers any employee or former employee of either
Company, either Provider, or any of its affiliates. Such contracts, loans
and arrangements as are described above, copies or descriptions of all of
which have been furnished previously to DentalCo, are referred to
collectively herein as the "Nanston Benefit Arrangements". Except as
would not have a Nanston Material Adverse Effect, each Nanston 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 Nanston Benefit Arrangement.
(f) Except as would not have a Nanston Material Adverse Effect, or
as set forth in Schedule 4.17, there is no liability in respect of
post-retirement health and medical benefits for retired employees of
either Company, either Provider, 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). The Companies
and the Providers have reserved their right to amend or terminate any
Nanston Employee Plan or Nanston Benefit Arrangement providing health
or medical benefits in respect of any active employee of the Companies
or the Providers, as applicable, under the terms of any such plan and
descriptions thereof given to employees. Except as would not have a
Nanston Material Adverse Effect, with respect to any of the Companies'
and any Provider's Employee Plans which are "group health plans" under
Section 4980B of the Code and Section 607(1) of ERISA, To the best
knowledge of Nanston and the Johnston Family, there has been timely
compliance in all material respects with all requirements imposed
thereunder so that the Companies, the Providers, and their 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 4.17, there has been no
amendment to, written interpretation or announcement (whether or not
written) by either
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Company, either Provider, or any of its affiliates relating to, or
change in employee participation or coverage under, any Nanston
Employee Plan or Nanston Benefit Arrangement which would increase the
expense of maintaining such Nanston Employee Plan or Nanston Benefit
Arrangement above the level of the expense incurred in respect thereof
for the fiscal year ended immediately prior to the Effective Time.
(h) Except as set forth in Schedule 4.17, none of the Companies or
the Providers is 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 Nanston 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
either Company or either Provider that has not been specifically
disclosed on Schedule 4.17 except for such as would not have a Nanston
Material Adverse Effect.
(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.
4.18 Contracts. Schedule 4.18 lists all contracts, purchase orders,
agreements, leases, executor commitments, and arrangements to which either
Company or either of the Providers is a party (a) which, including all
amendments and supplements thereto, are material to the condition,
operations, assets or business of either Company or either Provider, (b)
which (i) involve payments or commitments in excess of $50,000 for any
purchase order or $50,000 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 either Company or either of the Providers, 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 either Company or either of the Providers
not terminable at will, (d) which provide for a discount from either
Company's or either of the Provider's standard fee schedules, (e) which
provide for the future purchase by either Company or either of the Providers
of any materials, equipment, services or supplies, which continue for a
period of more than 24 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
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limit the freedom of either Company or either of the Providers 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 either Company
or either of the Providers to sell, lease, license or otherwise provide its
services; (iv) any contract or agreement the performance of which is expected
by either Company or either Provider or any member of the or either Provider
or the Johnston Family to result in a loss to either Company or either of the
Providers; (v) any obligation or commitment providing for indemnification or
responsibility for the obligations or losses of any person; (vi) any
agreement between either Company and either Provider; (vii) any agreement
relating to payment or reimbursement for services performed or to be
performed by the Providers.
Except as set forth in Schedule 4.18, neither any Company nor any
Provider has received any notice from any third party payer, patient, or
supplier to the effect that such third party payer, patient, or supplier will
terminate its relationship or unilaterally modify any terms of that
relationship, where applicable, with either Company or either of the
Providers as a result of any transaction contemplated by this Agreement or
otherwise.
Attached to Schedule 4.18 is a correct and complete copy of the fee
schedule which is currently in effect under each agreement with a third party
payer to which either Company or either of the Providers is a party.
Also attached to Schedule 4.18 is a correct an complete list of all
dentists employed or retained by the Providers. Except as set forth in such
list, the Providers has a written employment agreement with each dentist
employed by it and a written independent contractor or similar agreement with
each dentist retained by it as an independent contractor. Nanston and the
Providers provided a copy of each such agreement to DentalCo, and all such
agreements are currently in full force and effect.
4.19 Accounts Receivable. Each Company has delivered to DentalCo a
correct and complete schedule of its accounts receivable and notes receivable
as at November 30, 1996. Except as would not have a Nanston Material Adverse
Effect, or as set forth in Schedule 4.19 or in the Nanston Interim
Statements, all accounts and notes receivable of the Companies as of such
date, and any accounts and notes receivable arising between such date and the
Effective Time are or will be bona fide and represent sales actually made or
services actually provided in the ordinary course of business consistent with
past practices.
From August 31, 1996, to the date of this Agreement there have been no
accounts receivable of either Company converted to notes receivable or
otherwise extended, except as listed in Schedule 4.19.
Schedule 4.19 includes a list of all amounts payable to either Company
by any Affiliate of either Company (the "Nanston Related Party Receivables")
and all amounts payable by either Company to any Affiliate of either Company
(the "Nanston Related Party Payables") as of November 30, 1996, specifying
the payer, payee, and amount of each Nanston Related Party
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Receivable and Nanston Related Party Payable. For purposes of this
Agreement, other than for Section 4.17, above, an "Affiliate" of either
Company or either Provider shall mean any shareholder, director, officer,
employee, representative, other agent of such Company or such Provider, 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 such Company or such Provider or any such other
person or entity.
4.20 No Conflict or Default. Except as would not have a Nanston
Material Adverse Effect or except for the consents described in Schedule
4.20, neither the execution and delivery of this Agreement by the Companies
and the Johnston Family, nor compliance by such persons with the terms and
provisions of this Agreement, including without limitation the consummation
of the transactions contemplated by this Agreement, will violate any
Applicable Laws or Permits or conflict with or result in the breach of any
term, condition or provision of the certificate of incorporation or bylaws of
either Company, or either of the Providers or of any agreement, deed,
contract, undertaking, mortgage, indenture, writ, order, decree, restriction,
legal obligation or instrument to which either Company or either of the
Providers is a party or by which either Company or either of the Providers 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 with respect to any
properties or assets of either Company or either of the Providers 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 either Company or either of the Providers.
4.21 Books of Account; Records. Except as would not have a Nanston
Material Adverse Effect, the Companies' and the Providers' general ledgers,
stock record books, minute books and other corporate records relating to the
material assets, properties, contracts, and outstanding legal obligations of
the Companies and the Providers, respectively, are, in all material respects,
complete and correct and the matters contained therein are reflected in the
1996 Fiscal Statements and the Nanston Interim Statements to the extent
required to be so reflected therein by GAAP.
4.22 Officers, Employees, and Compensation. Schedule 4.22 sets forth
the names of all directors and officers of the Companies and the Providers,
their respective terms of office, the total salary, bonus, fringe benefits
and perquisites each received in the fiscal year ended August 31, 1996, and
any changes to the foregoing which have occurred subsequent thereto; Schedule
4.22 also lists and describes the current compensation of any other employee
of either Company or either of the Providers whose total current salary and
bonus exceeds $80,000 annually. Except as disclosed in Schedule 4.22, there
are no other forms of compensation paid to any such director, officer, or
employee of either Company or either of the Providers. Except as set forth in
Schedule 4.22, none of the Companies or the Providers has become obligated,
directly or indirectly, with respect to compensation to any stockholder,
director, officer, of either Company or the Providers or any person related
to such person by blood or marriage except for current liability for such
compensation.
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4.23 Labor Relations. Except as set forth in Schedule 4.23, no
employees of either Company or either of the Providers are represented by any
labor union or covered under any collective bargaining agreement, and there
is no unfair labor practice complaint against either Company or either of the
Providers pending before the National Labor Relations Board. No collective
bargaining or other labor agreement is currently being negotiated by either
Company or either Provider and no union or collective bargaining unit
represents either of the Companies' or the Providers' employees. Neither
Company nor either Provider has experienced any work stoppage or other
material labor difficulty during the past five years.
4.24 Suppliers and Third Party Payers. Except as set forth in Schedule
4.24, no supplier of products or services to either Company or either of the
Providers has indicated that it shall stop, or decrease the rate of, or
substantially increase its fees for, supplying products or services to either
Company or either of the Providers either prior to, or following the
consummation of, the Merger. Schedule 4.24 sets forth (a) a list of all
third party payers who have terminated their relationships with either of the
Companies, or either of the Providers since September 1, 1996, or have
notified either Company, or the either of Providers, or any member of the
Johnston Family since September 1, 1996, that they intend to terminate their
relationships with either of the Companies or the either of Providers, and
(b) the gross receipts received from such third party payers for the 12-month
period ending on August 31, 1996. Except as set forth in Schedule 4.24, to
the best knowledge of the Companies and the Johnston Family, there has been
no loss of any relationship with any third party payer that alone or in the
aggregate comprises more than 1% of fiscal 1996 actual revenues of either
Company or either Provider as shown in the Fiscal 1996 Statements or of any
third party payer that has indicated that it is considering or plans to
discontinue using the Providers as its provider of dental services as a
result of the Merger or otherwise.
4.25 Business of the Companies and the Providers. The Companies are and
have been engaged in the business of providing non-clinical administration
and related services, and similar services, to the Providers and are engaged
in no other business whatsoever except as may be incidental to the foregoing.
The Providers have 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.
4.26 Complete Disclosure. To the best knowledge of Nanston and the
Johnston Family, no representation or warranty of Nanston and/or the Johnston
Family in this Agreement or in the Johnston Family Schedules contains any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. To the best knowledge of N. Bell, no representation
or warranty made by him herein or in any schedule provided by him hereunder
contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading.
4.27 Environmental. The Companies and the Providers conduct their
respective businesses and operations in material compliance with all
applicable environmental laws,
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ordinances and regulations, and the Companies have not received notice of any
Environmental Event by the Companies or the Providers or with respect to any
premises owned or occupied by them. To the best knowledge of Nanston and the
Johnston Family, no notice of any Environmental Event was given to any person
or entity that occupied any of the premises owned or occupied by or used by
Nanston or the Providers prior to the date such premises were so occupied.
Without limiting the generality of the foregoing, to the best knowledge of
Nanston, neither the Companies nor the Providers has not disposed of or
placed on or in any property or facility used in its business any waste
materials, hazardous materials or hazardous substances in violation of law.
4.28 Fraud and Abuse. To the best knowledge of Nanston and the Johnston
Family, neither the Companies nor the Providers, nor any of their respective
officers and directors, has engaged in any activities which are prohibited
under federal Medicare and Medicaid statutes, 42 U.S.C. Sections 1320a-7,
1320a-7(a) and 1320a-7b, or the regulations promulgated pursuant to such
statutes or related state or local statutes or regulations or which are
prohibited by rules of professional conduct promulgated by the appropriate
licensing authority of the sate or states in which such entity does business,
including but not limited to the following:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for
any benefit or payment;
(b) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining
rights to any benefit or payment;
(c) presenting or causing to be presented a claim for reimbursement
for services under Medicare, Medicaid, or other state health care program
that is for an item or service that is known or should be known to be
(i) not provided as claimed, or (ii) false or fraudulent;
(d) failing to disclose knowledge by a claimant of the occurrence
of any event affecting the initial or continued rights to any benefit or
payment on its own behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment;
(e) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe, or rebate),
directly or indirectly, overtly or covertly, in cash or in kind (i) in
return for referring an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment
may be made in whole or in part by Medicare or Medicaid, or other state
health care program, or (ii) in return for purchasing, leasing, or
ordering or arranging for or recommending purchasing, leasing, or ordering
any good, facility, service, or item for which payment may be made in
whole or in party by Medicare or Medicaid or other state health care
program; or
(f) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omit to state a fact required to be stated therein
or necessary to make the statements contained therein not misleading)
of a material
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fact with respect to (i) the conditions or operations of a facility in
order that the facility may qualify for Medicare, Medicaid or other
state health care program certification, or (ii) information required
to be provided under Section 1124A of the Social Security Act (42 U.S.C.
Section 1320a-3).
Section 4.29. Health Professional's Financial Relationships. To the
best knowledge of Nanston and the Johnston Family, the operations of the
Companies and the Providers are in compliance with and do not otherwise
violate the federal Medicare and Medicaid statutes regarding health
professional self-referrals, 42 U.S.C. Section 1395nn and 42 U.S.C. Section
1396b, or the regulations promulgated pursuant to such statute, or similar
state or local statutes or regulations.
Section 4.30. Professional Licenses. There is no legal or regulatory
requirement that the shareholders, or any of them, of the Companies be a
licensed dentist in order for the Companies to conduct their business as
currently conducted. In the case of the Providers, all of the shareholders
thereof are dentists licensed to practice under the laws of each jurisdiction
in which such Provider operates, and such Provider currently satisfies the
shareholder licensing requirement, if any, of each jurisdiction in which such
Provider operates, except where failure to do so would not have a Nanston
Material Adverse Effect.
Section 4.31. Medical Waste. The Companies and the Providers are not
in violation of, or the subject of any investigation, inquiry or enforcement
action by any Governmental Authority under any Medical Waste Laws. The
Companies and the Providers have obtained and are in compliance with any
permits required by the Medical Waste Laws relating to medical waste
disposal, and all disposal of medical waste by the Companies and the
Providers have been in compliance with the Medical Waste Laws.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE NANSTON SHAREHOLDERS
In order to induce DentalCo and Subcorp to enter into this Agreement,
each Nanston Shareholder (severally, and not jointly with any other Nanston
Shareholder) hereby represents and warrants to DentalCo and Subcorp that the
statements contained in this Article V, with respect to such Nanston
Shareholder are true, correct, and complete, except as disclosed in the
Schedules specifically referred to in this Article V and attached hereto
(collectively, the "Nanston Shareholder Schedules").
5.1 Stock Ownership and Authority. Each Nanston Shareholder owns
beneficially and of record all of the Nanston Shares disclosed as being owned
by him in Exhibit A attached to this Agreement. Each Nanston Shareholder has
the full and unrestricted right, power and capacity to transfer and deliver
the Nanston Shares owned by him and to execute this Agreement and consummate
the transactions contemplated by this Agreement. No agreement restricts the
transfer of any of such Nanston Shares, requires any consent or approval
prior to any such transfer. This Agreement has been duly executed and
delivered by such Nanston Shareholder
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and constitutes the legal, valid and binding obligation of such Nanston
Shareholder, enforceable against such Nanston Shareholder in accordance with
its terms.
5.2 Consents and Approvals. Except for the consents described in
Schedule 5.2, the execution and delivery of this Agreement by such Nanston
Shareholder do not 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.
5.3 Brokers, Finders. The transactions contemplated by this Agreement
were not submitted to such Nanston Shareholder by any broker or other person,
and none of the actions of such Nanston Shareholder has given rise to any
valid claim by any person for a commission, finder's fee or like payment
against any of the Parties.
5.4 No Conflict or Default. Except for the consents described in
Schedule 5.4, neither the execution and delivery of this Agreement by such
Nanston Shareholder, nor compliance by such Nanston Shareholder with the
terms and provisions of this Agreement, will (to the best knowledge of such
Nanston Shareholder) violate in any manner any Applicable Laws or Permits or
conflict with or result in the breach of any term, condition or provision of
any agreement, deed, contract, undertaking, mortgage, indenture, writ, order,
decree, restriction, legal obligation or instrument to which such Nanston
Shareholder or any of his 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 with respect
to any properties or assets of such Nanston Shareholder, or give to other any
interest or rights, including rights or termination, acceleration or
cancellation in or with respect to any of the properties, assets, contracts
or business of such Nanston Shareholder.
5.5 Investment Intent. Such Nanston Shareholder and N. Bell: (a) has
received, prior to the Effective Time, copies of the documents identified in
the attached Exhibit C; (b) 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 DentalCo Shares, 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 DentalCo Shares; (c) to his satisfaction, has been provided
the opportunity to ask questions and receive answers from DentalCo concerning
the terms and conditions of the DentalCo Shares 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; (d) is acquiring the DentalCo Shares to be acquired by him for his
own account for investment purposes only and without any view towards resale
or other distribution; (e) except for the representations and warranties of
DentalCo expressly set forth in
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Article III hereof, no representations or warranties have been made to him by
or on behalf of DentalCo in connection with this transaction, and in making
his investment in the DentalCo Shares, he is relying on the representations
and warranties of DentalCo set forth in Article III hereof and on the results
of his own independent investigation; (f) can bear the economic risks of his
investment in the DentalCo Shares, can afford a complete loss of such
investment, and is not relying upon any representation or warranty made by
DentalCo, or any officer, director, shareholder, employee, agent, or
representative of DentalCo regarding the value of the DentalCo Shares; (g)
understands that the issuance of the DentalCo Shares as a result of this
Agreement is intended to be exempt from registration under the Securities Act
and applicable state law and that the DentalCo Shares are not and will not
(except as provided in the Registration Rights Agreement to be attached
hereto as Exhibit K and to be reasonably satisfactory to the Parties (the
"Registration Rights Agreement")) be registered under the Securities Act, the
Securities Exchange Act of 1934, as amended, or any state securities laws,
and that there will be no public market for the DentalCo Shares; (h)
understands that the DentalCo Shares will be subject to additional
restrictions on transfer pursuant to the Shareholders' Agreement to be
attached as Exhibit D hereto and to be reasonably satisfactory to the
Parties; (i) agrees that any certificates evidencing the DentalCo 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 DentalCo of a legal opinion of or
satisfactory to its legal counsel that such exemption is applicable, and (j)
agrees that DentalCo can issue stop transfer instructions to its transfer
agent prohibiting transfer of the DentalCo 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.
5.6 Complete Disclosure. To the best knowledge of the Nanston
Shareholders, no representation or warranty of the Nanston Shareholders in
this Agreement or in the Nanston Shareholder Schedules contains any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading.
ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Mutual Covenants.
(a) General. Each Party shall use its reasonable best efforts to
take all actions and do all things necessary, proper or advisable (and
consistent with the other terms and provisions of this Agreement) 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 Article VI of this Agreement 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
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actions, as any other Party may reasonably request that are not
inconsistent with the other terms and provisions of this Agreement.
(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, the Nanston Shareholders
shall have registration rights in accordance with the terms of the
Registration Rights Agreement.
(d) Securities Law Compliance. DentalCo shall have the right to
revise and update the attached Exhibit C and the disclosure documents
described in that Exhibit prior to the Closing in such manner as DentalCo
deems necessary to comply with any federal or state securities laws,
but no such revision to or updating of the attached Exhibit C or the
disclosure documents described in Exhibit C shall constitute a
modification of any of the representations and warranties made by
DentalCo in this Agreement or affect the condition set forth in Section
7.2(a) hereof.
6.2 Covenants of Nanston, the Johnston Family, and N. Bell. Nanston and
the Johnston Family jointly and severally agree as provided below with
respect to Nanston, the Companies and Nanston Dental, and N. Bell, severally
and not jointly with Nanston and the Johnston Family agrees as provided below
with respect to Bell, that:
(a) Delivery of Nanston Interim Statements. The Nanston Interim
Statements shall be delivered to DentalCo as soon as is reasonable
practicable.
(b) Conduct of Business. Except as otherwise expressly contemplated
by this Agreement, from the date of this Agreement until the Effective
Time (the "Pre-Merger Period"): Nanston and the Johnston Family shall
(i) cause the businesses of the Companies and the Providers to be operated
in (A) the ordinary course, consistent with past practice, (B) a manner
that is not contrary to or in breach of any of the provisions of this
Agreement, and (C) a manner which will not cause any of the
representations and warranties contained in this Agreement made by the
Companies, the Providers, or the Johnston Family to be or become untrue
in any material respect (or, with respect to any representations or
warranties already qualified as to materiality, to become untrue in any
respect); (ii) use all reasonable efforts to preserve the Companies' and
the Providers' business organizations intact, keep available to the
Companies and the Providers and DentalCo the present service of the
Companies' and the Providers' employees, and preserve for the Companies
and the Providers and DentalCo the
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goodwill and all agreements with the Providers and others with whom
business relationships exist, and (iii) use all reasonable efforts to
ensure that none of the Companies, the Providers, nor the Johnston
Family will engage in any action with the intent to adversely impact
the transactions contemplated by this Agreement. 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 DentalCo, the Companies and the Johnston Family
shall use all reasonable efforts to ensure that neither of the
Companies nor the Providers, nor any of their subsidiaries, shall:
(I) Adopt or propose any change in its or any of its
subsidiaries articles or certificate of incorporation or
bylaws; adjust, split, combine, or reclassify any of its or
any of its subsidiaries' capital stock (or any other equity
interest); or make any other changes in its or any of its
subsidiaries' authorized or issued capital stock;
(II) Redeem, purchase, or otherwise acquire any
shares of its or any of its subsidiaries' capital stock (or
any other equity interest) or agree, offer or propose to
redeem, purchase or otherwise acquire any shares of its or
any of its subsidiaries' capital stock (or any other equity
interest); grant any person or entity any right to acquire
any shares of its or any of its subsidiaries' capital stock
(or any other equity interest); issue, deliver, dispose of,
sell, or agree, offer or propose to issue, deliver, dispose
of, or sell, any additional shares of its or any of its
subsidiaries capital stock (or any other equity interest) or
any other securities, or enter into any agreement or
arrangement with respect to the sale or voting of its or any
of its subsidiaries' capital stock;
(III) Acquire or agree to acquire (by merger,
consolidation, acquisition of stock or assets or by any
other manner) any business or any corporation, partnership,
association or other business organization or division
thereof or, except in the ordinary course of business, make
or agree to make any investment (by purchase of stock,
contribution to capital, property transfer or purchase of
property or otherwise) in 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, guarantee or otherwise
become liable for any indebtedness other than indebtedness
incurred in the
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ordinary course of business consistent with past practices,
provided, however, that without the consent of DentalCo,
the total amount of the foregoing may not exceed $25,000;
(VI) Other than in the ordinary course of business
consistent with past practices, enter into or modify any
employment, severance, termination, or similar agreement or
arrangement with, or grant any bonuses, compensation
increases, severance or termination pay to, any past or
present officer, director, consultant, or employee;
(VII) Adopt, amend or terminate any employee
benefit plan, except in accordance with Section 4.17, above,
or increase, amend, or terminate any benefits to past or
present officers, directors, consultants, or employees,
including but not limited to the granting of stock options,
stock appreciation rights, performance awards or restricted
stock awards or the amendment or acceleration of vesting of
any existing stock options, stock appreciation rights,
performance awards or restricted stock awards;
(VIII) Modify, amend or terminate or waive,
release or assign any material right under any of the
contracts listed or required to be listed in Schedule 4.18
except in the ordinary course of business consistent with
past practices;
(IX) Settle, pay, discharge or satisfy any claims,
litigation, or actions, whether now pending, threatened or
hereafter made or brought, unless in the ordinary course of
business consistent with past practice and as does not and
could not reasonably be expected have a Nanston Material
Adverse Effect;
(X) Engage in any transaction, or enter into any
material agreement, contract, lease, or other arrangement or
understanding, with any Affiliate of either Company or
Provider, except for any transactions agreed to in writing
by DentalCo;
(XI) Except in the ordinary course of business,
make or commit to make any capital expenditure in an amount
which, when added to the aggregate amount of all other
capital expenditures made or committed to be made after the
date hereof, exceeds $25,000, except if approved by
DentalCo;
(XII) Except as required by GAAP or Applicable
Law, make or commit to make any material changes in
accounting procedures;
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(XIII) Take or agree to take any action that
(i) would result in any of its representations and
warranties contained in this Agreement that are qualified as
to materiality becoming untrue, (ii) would result in any of
such representations and warranties that are not so
qualified becoming untrue in any material respect or
(iii) to its best knowledge, could reasonably be expected
to have a Nanston Material Adverse Effect; or
(XIV) Agree or commit to do any of the
foregoing.
(c) Access to Records and Other Due Diligence. During the
Pre- Merger Period, each of the Companies shall: (i) make or cause to
be made available to DentalCo and its representatives, attorneys,
accountants and agents, for examination, inspection, and review, the
assets and property of the Companies and all books, contracts,
agreements, commitments, records and documents of every kind relating
to the Companies' respective businesses, and shall permit DentalCo 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 Smith & Radigan, Certified Public Accountants and
all reports to management, attorney, and related responses; and (ii)
permit representatives of DentalCo to interview suppliers, customers,
and personnel of the Companies subject to coordinating with Nanston's
President.
(d) Disclosures. After the date of this Agreement, none of
the Companies, the Johnston Family, the other Nanston Shareholders, or
N. Bell shall: (i) disclose to any person, association, firm,
corporation or other entity (other than DentalCo or those designated
in writing by DentalCo) in any manner, directly or indirectly, any
proprietary information or data relevant to the business of either
Company or either of the Providers, 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 DentalCo or those designated in writing by
DentalCo) 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 either Company or either of the Providers or any
Nanston Shareholder, (B) disclosure of information to employees of
either Company or either of the Providers who need to know such
information and use of such information by employees of either Company
or either of the Providers who need to use such information, in each
use only to the extent necessary for the benefit of the Companies or
the Providers or DentalCo and (C) disclosures required under existing
agreements disclosed to DentalCo. The obligations of the Nanston
Shareholders (other than the members of the Johnston Family) under
this Section
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6.2(d) are several and not joint. To the extent that this Agreement is
terminated, the provisions of this subsection (e) shall terminate on
the second anniversary of the date of this Agreement.
(e) Inter-Company Indebtedness. During the Pre-Merger
Period, neither Company, nor the Johnston Family, the other Nanston
Shareholders, nor N. Bell, as applicable, shall cause or permit either
Company or the Providers to, make any advances, loans, or extensions
of credit to any Affiliate of either Company or the Providers, or
otherwise increase the Nanston Related Party Receivables owed to
either Company or the Providers by any Affiliate of such Company or
the Providers, exception in the ordinary course of business consistent
with past practices.
(f) Dividends and Distributions. During the Pre-Merger
Period, the Companies shall not and the Companies and the Johnston
Family, the other Nanston Shareholders, and N. Bell shall use all
reasonable efforts to ensure that neither of the Providers, nor any of
their subsidiaries, will, declare, set aside or pay any dividend or
any distribution (in cash or in kind) on their capital stock (or any
other equity interest).
(g) Shareholders' Agreements. At the Closing, the Nanston
Shareholders shall execute a Shareholder's Agreement in the form to be
attached hereto as Exhibit D and to be reasonably satisfactory to the
Parties.
(h) Notices of Certain Events. The Companies, the Johnston
Family, each other Nanston Shareholder, and N. Bell shall promptly
notify DentalCo of any of the following matters of which it, he, or
she has actual knowledge:
(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 threatened which,
if in existence on the date of this Agreement would have
been required to have been disclosed pursuant to Section
4.16 or which relates to the consummation of the
transactions contemplated by this Agreement; and
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(iv) Any circumstances or events which, if in
existence on the date of this Agreement, would make any of
their representations or warranties incorrect in any
material respect or may result in a Nanston Material Adverse
Effect.
(i) Repurchase of ESOP Shares. Nanston shall repurchase
the ESOP Shares for cash in the amount not to exceed Two Million Nine
Hundred Four Thousand Four Hundred Three Dollars and Sixty-Five Cents
($2,904,403.65) in the aggregate (the "ESOP Amount") not later than
one day prior to the Closing with proceeds from the ESOP Loan (as
defined in Section 6.3(i) hereof).
6.3 Covenants of DentalCo. DentalCo agrees that:
(a) Dr. Johnston's Guaranties. DentalCo will exercise
reasonable efforts to cause the release of Dr. Johnston as of the
Closing from the personal guaranties delivered by Dr. Johnston on
behalf of Nanston described in Schedule 6.3(a) (collectively, the
"Guaranties") or, if such releases are not obtained, provide such
assurances of indemnification as may be reasonably acceptable to Dr.
Johnston.
(b) Delivery of DentalCo Interim Statements. DentalCo
shall cause the DentalCo Interim Statements to be delivered to Nanston
as soon as is reasonable practicable.
(c) Conduct of Business. Except as otherwise expressly
contemplated by this Agreement, during the Pre-Merger Period, DentalCo
shall (i) cause its business to be operated in (A) the ordinary
course, consistent with past practice, (B) a manner that is not
contrary to or in breach of any of the provisions of this Agreement,
and (C) a manner which will not cause any of the representations and
warranties contained in this Agreement made by DentalCo to be or
become untrue in any material respect (or, with respect to any
representations or warranties already qualified as to materiality, to
become untrue in any respect); (ii) use all reasonable efforts to
preserve its business organization intact, keep available to it the
present service of its employees, and preserve for it the goodwill of
its business, and (iii) use all reasonable efforts to ensure that it
will not engage in any action with the intent to adversely impact the
transactions contemplated by this Agreement. 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 Nanston and the Johnston Family, neither DentalCo
nor any of its subsidiaries shall:
(I) Adopt or propose any change in its or any of
its subsidiaries' articles or certificate of incorporation
or bylaws; adjust, split, combine, or reclassify any of its
or any of its subsidiaries' capital stock (or any other
equity interest); or make any
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other changes in its or any of its subsidiaries' authorized
or issued capital stock;
(II) Redeem, purchase, or otherwise acquire any
shares of its or any of its subsidiaries' capital stock (or
any other equity interest) or agree, offer or propose to
redeem, purchase or otherwise acquire any shares of its or
any of its subsidiaries' capital stock (or any other equity
interest); grant any person or entity any right to acquire
any shares of its or any of its subsidiaries' capital stock;
issue, deliver, dispose of, sell, or agree, offer or propose
to issue, deliver, dispose of, or sell, any additional
shares of its or any of its subsidiaries capital stock (or
any other equity interest) or any other securities, or enter
into any agreement or arrangement with respect to the sale
or voting of its or any of its subsidiaries' of capital
stock;
(III) Acquire or agree to acquire (by merger,
consolidation, acquisition of stock or assets or by any
other manner) any business or any corporation, partnership,
association or other business organization or division
thereof or, except in the ordinary course of business, make
or agree to make any investment (by purchase of stock,
contribution to capital, property transfer or purchase of
property or otherwise) in 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, guarantee or otherwise
become liable for any indebtedness other than indebtedness
incurred in the ordinary course of business consistent with
past practices or in connection with acquisitions disclosed
by DentalCo to Nanston;
(VI) Other than in the ordinary course of business
consistent with past practices, enter into or modify any
employment, severance, termination, or similar agreement or
arrangement with, or grant any bonuses, compensation
increases, severance or termination pay to, any past or
present officer, director, consultant, or employee;
(VII) Adopt, amend or terminate any employee
benefit plan, except in accordance with 3.17, above, or
increase, amend, or terminate any benefits to past or
present officers, directors, consultants, or employees,
including but not limited to the granting of stock options,
stock appreciation rights, performance awards or
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restricted stock awards or the amendment or acceleration of
vesting of any existing stock options, stock appreciation
rights, performance awards or restricted stock awards;
(VIII) Modify, amend in any material way or
terminate or waive, release or assign any material right
under any of the contracts listed or required to be listed
in Schedule 3.18 except in the ordinary course of business
consistent with past practices;
(IX) Settle, pay, discharge or satisfy any claims,
litigation, or actions, whether now pending, threatened or
hereafter made or brought, unless in the ordinary course of
business consistent with past practice and as does not and
could not reasonably be expected have a DentalCo Material
Adverse Effect;
(X) Engage in any transaction, or enter into any
material agreement, contract, lease, or other arrangement or
understanding, with any of their Affiliates, except for any
transactions agreed to in writing by Nanston; or
(XI) Except in the ordinary course of business or
in connection with acquisitions disclosed to Nanston, make
or commit to make any capital expenditure in an amount
which, when added to the aggregate amount of all other
capital expenditures made or committed to be made after the
date hereof, exceeds $100,000;
(XII) Except as required by GAAP or Applicable
Law, make or commit to make any material changes in
accounting procedures;
(XIII) Take or agree to take any action that
(i) would result in any of its representations and
warranties contained in this Agreement that are qualified as
to materiality becoming untrue, (ii) would result in any of
such representations and warranties that are not so
qualified becoming untrue in any material respect or (iii)
to its best knowledge, could reasonably be expected to have
a DentalCo Material Adverse Effect; or
(XIV) Agree or commit to do any of the
foregoing.
(d) Access to Records and Other Due Diligence. During the
Pre-Merger Period, DentalCo shall: (i) make or cause to be made
available to Nanston and its representatives, attorneys, accountants
and agents, for examination, inspection, and review, the assets and
property of DentalCo and all books, contracts, agreements,
commitments, records and documents of every kind relating to
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DentalCo's businesses, and shall permit Nanston 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 KPMG Peat Marwick, Certified Public Accountants and all
reports to management, attorneys and related responses; and (ii)
permit representatives of Nanston to interview suppliers, customers,
and personnel of DentalCo subject to coordination with DentalCo's
Chief Executive Officer or President.
(e) Disclosures. After the date of this Agreement,
DentalCo shall not: (i) disclose to any person, association, firm,
corporation or other entity (other than Nanston or those designated in
writing by Nanston) in any manner, directly or indirectly, any
proprietary information or data relevant to the business of DentalCo,
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 Nanston or those designated in
writing by Nanston) 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 DentalCo, (B) disclosure of information to employees
of DentalCo who need to know such information and use of such
information by employees of either Company who need to use such
information, in each case only to the extent necessary for the benefit
of DentalCo and (C) disclosures required under existing agreements. To
the extent that this Agreement is terminated, the provisions of this
subsection (e) shall terminate on the second anniversary of the date
of this Agreement.
(f) Inter-Company Indebtedness. During the Pre-Merger
Period, DentalCo shall not make any advances, loans, or extensions of
credit to any Affiliate of DentalCo, or otherwise increase the
DentalCo Related Party Receivables owed to DentalCo by any Affiliate,
except in the ordinary course of business consistent with past
practices.
(g) Dividends and Distributions. During the Pre-Merger
Period, DentalCo and its subsidiaries shall not declare, set aside or
pay any dividend or any distribution (in cash or in kind) on their
capital stock (or any other equity interest).
(h) Notices of Certain Events. DentalCo shall promptly
notify Nanston of any of the following matters of which it has actual
knowledge:
(i) Any notice or other communication from any
person or entity alleging that the consent of such person or
entity is or may
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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 threatened which,
if in existence on the date of this Agreement would have
been required to have been disclosed pursuant to 3.17 or
which relates 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 DentalCo incorrect in any
material respect or may result in a DentalCo Material
Adverse Effect.
(i) ESOP Loan. DentalCo shall loan to Nanston (the "ESOP
Loan") funds equal to the ESOP Amount pursuant to a loan agreement in
form and substance reasonably satisfactory to Nanston and DentalCo, the
proceeds of which shall be used solely to effect the redemption of the
ESOP Shares by Nanston not later than one day prior to the Closing Date.
The ESOP Loan shall bear interest at the Prime Rate of interest as
provided in the Wall Street Journal under "Money Rates", shall be for a
term not to exceed fifteen years, and the repayment of the ESOP Loan
shall be guaranteed by Dr. Johnston, individually, such guarantee to be
secured by a pledge of his Nanston Shares pursuant to agreements
reasonably satisfactory to him and DentalCo; provided, however, that at
the Effective Time, such guaranties and all pledges in connection
therewith shall be released, and the ESOP Loan shall become, by
operation and law and pursuant to the Merger, the obligation of the
Surviving Corporation.
ARTICLE VII
CONDITIONS
7.1 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 Nanston and DentalCo:
(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
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prevent the consummation of the Merger or the other transactions
contemplated by this Agreement; provided, however, that each of the
Parties shall have used reasonable efforts to prevent the entry of any
such injunction or other order or decree and to appeal as promptly as
possible any injunction or other order or decree that may be entered.
(b) Management Services Agreements. Nanston and NC shall have
entered into new long-term management services agreements with the
Providers, containing terms and conditions which are in compliance with
Applicable Law and are substantially in the form to be attached hereto
as Exhibit M and to be reasonably satisfactory to the Parties.
(c) Provider Stock Restriction Agreements. The shareholders
of the Providers shall have entered into Stock Restriction Agreements
with DentalCo containing terms and conditions which are in compliance
with applicable law and satisfactory to DentalCo and Nanston.
(d) CIGNA. All existing agreements among Cigna Dental Health,
Nanston, NC, and Bell concerning NC's business operations in North
Carolina shall have been approved by DentalCo, and N. Bell, if requested
by DentalCo or Nanston, shall have cooperated with DentalCo and Nanston
to transfer the Bell provider agreements (and any agreements with N.
Bell's other P.A. or P.C.) with Cigna Dental Health to Nanston (as
successor by name change to Subcorp) pursuant to an assignment agreement
reasonably acceptable to DentalCo, Nanston and N. Bell.
(e) IPO Delay. DentalCo and the Nanston Shareholders shall
have entered into a Redemption Agreement substantially in the form to be
attached to this Agreement as Exhibit E and to be reasonably
satisfactory to the Parties, providing for the redemption, in the sole
discretion of the Nanston Shareholders, of their DentalCo Shares if
DentalCo has not closed an initial public offering of its capital stock
within four (4) calendar years and sixty days after the Effective Time.
(f) Third Party Consents and Governmental Approvals. DentalCo
shall have received the third party consents and governmental approvals
relating to this Agreement and the transactions contemplated by this
Agreement listed on Schedule 7.1 and such consents and approvals shall
be in effect as of the Closing Date.
(g) Board and Nanston Shareholder Approval. The Merger and
the transactions contemplated by this Agreement shall have been approved
by Nanston's Board of Directors and Shareholders as required under
Georgia Corporation Law.
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7.2 Conditions to Obligations of Nanston and the Nanston
Shareholders. The obligations of Nanston and the Nanston 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 Nanston and the Nanston Shareholders in writing:
(a) Representations and Warranties. The representations and
warranties of DentalCo and Subcorp set forth in Article III of this
Agreement shall be true and correct in all material respects (except
that they shall be true and correct in all respects to the extent they
are already qualified as to materiality) as of the date of the this
Agreement and as of the Effective Time as though made at and as of the
Effective Time.
(b) Performance of Agreement. Each of DentalCo and Subcorp
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 Effective Time.
(c) Certificate. Each of DentalCo and Subcorp shall have
furnished Nanston and the Nanston Shareholders with a certificate dated
the Closing Date signed by its president to the effect that the
conditions set forth in Section 7.2(a) and (b) have been satisfied.
(d) Opinion of Counsel. The Nanston Shareholders shall have
received the legal opinion, dated the Closing Date, of Piper & Marbury
L.L.P., counsel to DentalCo, in substantially the form to be attached to
this Agreement as Exhibit F and to be reasonably satisfactory to the
Parties.
(e) Release of the Guaranties. At or prior to the Closing,
DentalCo shall have caused the release of Dr. Johnston from all of his
obligations under the Guaranties or provided such assurances of
indemnification as may be reasonably acceptable to Dr. Johnston.
(f) ESOP Valuation. The independent fiduciary of the ESOP
shall have delivered to Nanston a written opinion to the effect that the
transactions contemplated by this Agreement, including the price being
paid by Nanston for the ESOP Shares pursuant to Section 6.2(i), are fair
to the ESOP, which opinion is being obtained in connection with this
Agreement; Nanston shall promptly deliver to DentalCo copies of all
valuations, fairness opinions and other material reports or documents
prepared in connection with such assessment and valuation.
(g) DentalCo and Subcorp shall have executed and delivered
the agreements referred to in Sections 7.3(g) and (h).
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(h) No change having occurred in DentalCo's or Subcorp's
financial condition, operations, assets or business that results in, or
may reasonably be expected to have, a DentalCo Material Adverse Effect.
(i) Nanston Shareholders shall have received commitments and
assurances from DentalCo substantially in the form to be attached hereto
as Exhibit L and to be reasonably satisfactory to the Parties obligating
DentalCo, in the event it closes an initial public offering of it
capital stock and the average trading price ("Average Price") for its
stock during the first ten (10) trading days after the offering shall be
less than $11.50 per share, to pay additional Merger Consideration to
the Nanston Shareholders equal to the product of (i) 2,000,000 times
(ii) the difference between $11.50 and the greater of (x) the Average
Price or (y) $10.00. If such additional consideration is payable,
DentalCo shall, at its sole discretion, have the option to deliver to
the Nanston Shareholders either (a) cash equal to the amount of such
additional consideration, or (b) such number of additional shares of its
common stock as shall equal the additional Merger Consideration divided
by the Average Price, such shares to be registrable securities as
provided in the Registration Rights Agreement.
(j) Due Diligence. Nanston shall have favorably completed its
due diligence review of DentalCo on or prior to January 14, 1996. To
date, neither Nanston or the Nanston Shareholders have discovered
anything in their due diligence review of DentalCo that would cause them
not to proceed to Closing in accordance with the terms of this
Agreement.
7.3 Conditions to Obligations of DentalCo and Subcorp. The
obligations of DentalCo and Subcorp 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 DentalCo in
writing:
(a) Representations and Warranties. The representations and
warranties set forth in Article IV of this Agreement and the
representations and warranties of set forth in Article V of this
Agreement shall be true and correct in all material respects (except
that they shall be true and correct in all respects to the extent they
are already qualified as to materiality) as of the date of this
Agreement and as of the Effective Time as though made at and as of the
Effective Time.
(b) Performance of Agreement. The Companies, the Johnston
Family, the other Nanston Shareholders, and N. Bell shall have performed
and observed in all material respects (except that they shall be true
and correct in all respects to the extent they are already qualified as
to materiality) all obligations and conditions to be performed or
observed by them under this Agreement at or prior to the Effective Time.
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(c) Certificate. The Companies, the Johnston Family, the
other Nanston Shareholders, and N. Bell shall have furnished DentalCo
and Subcorp with a certificate dated the Closing Date signed by all of
such parties to the effect that the conditions set forth in Section
7.3(a) and (b) (as they apply to the respective signatory) have been
satisfied.
(d) Opinion of Counsel. DentalCo shall have received the
legal opinion, dated the Closing Date, of Thomas S. Fisher, P.C.,
counsel to Nanston and the Nanston Shareholders, in the form to be
attached to this Agreement as Exhibit G and to be reasonably
satisfactory to the Parties.
(e) Existing Employment and Deferred Compensation Agreements.
At or prior to the Closing, Nanston shall have terminated all employment
agreements or arrangements (including without limitation all disability
and deferred compensation arrangements) between Nanston and NC and Dr.
Johnston, and any of Messrs. C.D. Johnston, S.C. Johnston, R.L.
Johnston, Andrews, and Anderson and Ms. Dreyer.
(f) Employment and Noncompetition Agreement with DentalCo.
Dr. Johnston shall have entered into an employment and noncompetition
agreement substantially in the form to be attached to this Agreement as
Exhibit H and to be reasonably satisfactory to the Parties.
(g) Employment and Noncompetition Agreements. Each of
Messrs. C.D. Johnston, S.C. Johnston, R.L. Johnston, Andrews and
Anderson and Ms. Dreyer shall have entered into employment and
noncompetition agreements substantially in the form to be attached to
this Agreement as Exhibit I and to be reasonably satisfactory to the
Parties.
(h) Shareholders' Agreements. Each Nanston Shareholder shall
have executed and delivered and thereby became parties to the
Shareholders' Agreement to be attached hereto as Exhibit D and to be
reasonably satisfactory to the Parties.
(i) Termination of Options. Prior to the Closing, all
outstanding options, warrants, or other rights to acquire any capital
stock of either Company which have not been exercised prior to the
execution of this Agreement shall have been terminated.
(j) Protech Spin-Off. Nanston's subsidiary, Protech Dental
Services, Inc., a Georgia corporation, shall have been disposed of by
Nanston.
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(k) ESOP. Not later than one day prior to the Closing, the
ESOP Shares shall have been repurchased by Nanston for cash in an amount
not to exceed the ESOP Amount.
(l) Books and Records. Nanston shall have delivered to
DentalCo all books and corporate records of each Company, including,
without limitation, the stock books and ledgers, the corporate seal,
minute books, books of account, bank account lists and tax returns and
records.
(m) No Changes. No change shall have occurred in either of
the Companies' or the Providers' financial condition, operations, assets
or business that results in, or may reasonably be expected to have a
Nanston Material Adverse Effect.
(n) Due Diligence. DentalCo shall have favorably completed
its due diligence review of the Companies and the Providers on or prior
to January 14, 1996. To date, DentalCo has discovered nothing in its due
diligence review of the Companies and the Providers that would cause it
not to proceed to Closing in accordance with the terms of this
Agreement.
(o) NationsCredit Approval. On or prior to the time that
DentalCo is required to make the ESOP Loan, NationsCredit shall have
favorably completed its due diligence review of the transactions
contemplated by this Agreement.
(p) Termination of Options. At or prior to the Effective
Time, all options or other rights of persons or entities to acquire (i)
Nanston Shares (except for Subcorp pursuant to the terms of this
Agreement), or (ii) shares of NC, shall have been exercised or
terminated (in the case of Nanston Shares) and shall have expired
without the exercise thereof (in the case of NC).
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination by Nanston and the Nanston Shareholders. Except
to the extent the Party seeking to terminate is itself in default of a
material provision of this Agreement, this Agreement may be terminated and
canceled at any time prior to the Effective Time by Nanston and the Nanston
Shareholders: (i) if (A) any of the representations or warranties of
DentalCo or Subcorp contained in this Agreement or the DentalCo Schedules, if
any, shall prove to be inaccurate in any material respect (except that they
shall be true and correct in all respects to the extent they are already
qualified as to materiality), or any obligation or condition to be performed
or observed by DentalCo or Subcorp 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 DentalCo and Subcorp
of written notice of such occurrence from Nanston and the Nanston
Shareholders or
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has not been waived in writing; (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; or (iii) if the Closing has not occurred on
or before January 15, 1997.
8.2 Termination by DentalCo. Except to the extent the Party
seeking to terminate is itself in default of a material provision of this
Agreement, this Agreement may be terminated and canceled at any time prior to
the Effective Time by DentalCo: (i) if (A) any of the representations or
warranties contained in Article IV or Article V of this Agreement or the
Schedules thereto shall prove to be inaccurate in any material respect
(except that they shall be true and correct in all respects to the extent
they are already qualified as to materiality), or any obligation or condition
to be performed or observed by either of the Companies, the Johnston Family,
the other Nanston Shareholders, or N. Bell 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 Nanston of written
notice of such occurrence from DentalCo or Subcorp and has not been waived in
writing; (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; or (iii) if the Closing has not occurred on or before January
15, 1997.
8.3 Amendment. This Agreement may not be amended except by
an instrument in writing signed by all of the Parties.
8.4 Extension; Waiver. At any time prior to the Effective
Time, DentalCo (with respect to the Companies, the Johnston Family and the
other Nanston Shareholders) and Nanston (with respect to DentalCo and
Subcorp) 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 IX
INDEMNIFICATION
9.1 Survival of Representations, Warranties and Agreements.
(a) Subject to the limitations set forth in Section 9.3,
below, and notwithstanding any investigation conducted at any time with
regard thereto by or on behalf of DentalCo or Subcorp, all
representations, warranties, covenants and agreements of the Companies,
the Johnston Family, the other Nanston Shareholders, or N. Bell in this
Agreement shall survive the execution, delivery
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and performance of this Agreement. All such representations and
warranties shall be deemed to have been made again at and as of the
Effective Time.
(b) Subject to the limitations set forth in Section 9.3
below, and notwithstanding any investigation conducted at any time with
regard thereto by or on behalf of Nanston or the Nanston Shareholder,
all representations, warranties, covenants, and agreements of DentalCo
or Subcorp in this Agreement shall survive the execution, delivery, and
performance of this Agreement. All such representations and warranties
shall be deemed to have been made again by DentalCo and Subcorp at and
as of the Effective Time.
(c) As used in this Article IX, any reference to a
representation, warranty, covenant, or agreement contained in any
section of this Agreement shall include the Schedule relating to such
section.
9.2 Indemnification.
(a) Subject to the limitations set forth in Section 9.3,
below, the Companies and the Johnston Family, jointly and severally, and
N. Bell, severally but not jointly with the Johnston Family, on the one
hand, and DentalCo, on the other hand, shall indemnify and hold harmless
the other party and, in its discretion the other party's shareholders,
officers, directors, affiliates, and agents 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 said party, directly or indirectly, as a
result of or arising from any inaccuracy in or breach or nonfulfillment
of any of the representations, warranties, covenants or agreements made
by such other party in this Agreement;
(b) Each Nanston Shareholder severally and not jointly, shall
indemnify and hold harmless DentalCo from and against any and all
Damages asserted against, resulting to, imposed upon, or incurred
suffered by DentalCo, directly or indirectly, as a result of or arising
from any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants, or agreements made by that
Nanston Shareholder in this Agreement.
(c) DentalCo shall be deemed to have suffered Damages arising
out of or resulting from the matters referred to in Section 9.2(a),
above, if the same shall be suffered by any parent, subsidiary or
affiliate (including Subcorp) of DentalCo, including without limitation
Nanston after the Effective Time.
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9.3 Limitation on Indemnification. Rights to indemnification
under this Article IX are subject to the following limitations:
(a) Neither party shall be entitled to indemnification
hereunder with respect to a claim under Section 9.2(a) or (b) (the
("Indemnifiable Claim") 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 $10,000, and then only for the excess; provided however, that
the foregoing limitation will not apply to a Indemnifiable Claim or
Claims arising under the representations and warranties set forth in
Sections 3.10, 3.16, 4.9 and 4.17 of this Agreement.
(b) The obligation of indemnity with respect to the
representations and warranties set forth in Sections 3.10, 3.16, 4.9 and
4.17 of this Agreement shall terminate on the expiration of the
respective periods of limitations applicable to assessment and
collection of taxes or ERISA liabilities under laws then applicable to
such taxes or ERISA liabilities, as the case may be.
(c) The obligation of indemnity with respect to the
representations and warranties set forth in Article III and IV of this
Agreement other than those addressed in the immediately preceding
subsection (b), shall terminate on the date which is the earlier of 90
days after the second anniversary of the Effective Time or (ii) the
closing of DentalCo's initial public offering of its capital stock.
(d) The foregoing provisions of this Section 9.3
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 reasonably and
in good faith by one party to the other party, or a suit or action based
upon a claimed breach is commenced against any such other party, then
such claiming party shall not be precluded from pursuing such claimed
breach, occurrence, other matter, or suit or action, or from recovering
from such other party (whether through the courts or otherwise) on the
claim, suit or action, by reason of the termination otherwise provided
for above.
9.4 Procedure for Indemnification with Respect to Third Party Claims.
(a) If a party (hereinafter "Claiming Party") desires to seek
indemnification under this Article IX with respect to Indemnification
Claims resulting from the assertion of liability by third parties, it
shall give notice to the other party against whom indemnification is
sought (hereinafter "Indemnifying Party," whether one or more) within a
reasonable period of time of Claiming Party becoming aware of any such
Indemnifiable Claim, which notice shall set forth such material
information with respect to such Indemnifiable Claim as is
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then reasonably available to the Claiming Party. The Indemnifying Party
shall be entitled, if it so elects by written notice delivered to
Claiming Party within a reasonable period of time (not to exceed 15 days
in any event) after receiving Claiming Party notice (the "Response
Period"), to assume the defense of such asserted liability with counsel
reasonably satisfactory to Claiming Party. 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 Claiming Party against any such Indemnifiable Claim,
within the Response Period, Claiming Party shall have the right to
defend, compromise or settle such Indemnifiable Claim.
(c) Notwithstanding anything in this Section 9.4 to the
contrary, (i) if there is a reasonable probability that an Indemnifiable
Claim may materially and adversely affect Claiming Party, its
subsidiaries or affiliates, including without limitation Subcorp after
the Effective Time, other than as a result of money damages or other
money payments, then Claiming Party shall have the right to defend,
compromise or settle such Indemnifiable Claim; and (ii) the Indemnifying
Party shall not, without Claiming Party 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 Claiming Party (and its subsidiaries and affiliates
including without limitation Subcorp after the Effective Time) a release
from all liability in respect of such Indemnification Claim.
9.5 Procedure For Indemnification with Respect to Non-Third Party
Claims. In the event that Claiming 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 45 days after the receipt of such notice by Claiming Party, has not
given written notice to Claiming Party announcing its intent to contest such
assertion by Claiming Party, such assertion shall be deemed accepted and the
amount of the 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 Claiming
Party within such 45 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 Charlotte, North Carolina 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
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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.
ARTICLE X
MISCELLANEOUS
10.1 Attorney-In-Fact. Each Nanston Shareholder hereby irrevocably
appoints Dr. Johnston as such Nanston Shareholder's attorney-in-fact and
agent, and grants Dr. Johnston full power and authority to take any and all
actions, to perform and do any and all things, in such Nanston Shareholder's
place and stead, which Dr. Johnston may deem necessary or appropriate in
connection with this Agreement or the transactions contemplated by this
Agreement, as fully as such Nanston Shareholder might or could do if
personally present and acting, including, without limitation, execution,
acknowledgment or verification, and delivery of any amendments, consents,
acknowledgments 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 actions which are permitted or
required to be taken by such Nanston Shareholder under Article VIII of this
Agreement. Dr. Johnston shall have no obligation to exercise the power and
authority granted under this Section 10.1, and may decline to take action on
behalf of any Nanston Shareholder unless expressly directed to do so by such
Nanston Shareholder.
10.2 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, UPS, or any similar
express delivery service for delivery to that Party at that address:
(a) If to DentalCo or Subcorp:
DentalCo Inc.
6115 Falls Road
Baltimore, MD 21209
Attention: Carl Sardegna, President
Telecopy No.: (410) 377-3231
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with a copy to
Piper & Marbury L.L.P.
Charles Center South
36 South Charles Street
Baltimore, MD 21201
Attention: Wilbert H. Sirota, Esq.
Telecopy No.: (410) 576-1700
(b) If to Nanston:
Nanston, Inc.
Suite 200
1590 Oakbrook Drive
Norcross, Georgia 30093-2287
Attention: John C. Johnston, D.D.S., Chief
Executive Officer
Telecopy No.: (770) 441-0299
with copies to
Thomas S. Fisher, Esq.
Nanston, Inc.
Suite 100
1590 Oakbrook Drive
Norcross, Georgia 30093-2287
Telecopy No.: (770) 449-4851
(c) If to any Nanston Shareholder, to that Nanston
Shareholder at the following address:
c/o John C. Johnston, D.D.S.
Suite 200
1590 Oakbrook Drive
Norcross, Georgia 30093-2287
Telecopy No.: (770) 441-0299
with copies to
Thomas S. Fisher, Esq.
Nanston, Inc.
Suite 100
1590 Oakbrook Drive
Norcross, Georgia 30093-2287
Telecopy No.: (770) 449-4851
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(d) If to N. Bell, to his address as listed on the records
of NC.
10.3 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.
10.4 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.
10.5 Headings. The headings of the various articles and
sections of this Agreement are not part of this Agreement, are merely labels
to assist in locating such articles and sections, and shall be ignored in
construing this Agreement.
10.6 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.
10.7 Entire Agreement. This Agreement (including all
exhibits, schedules, and other documents referred to in this Agreement)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the Parties with respect to the
subject matter thereof, including without limitation the Letter Agreement
dated November 1, 1996.
10.8 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.
10.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia without regard
to principles of conflicts of law.
10.10 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.
10.11 Remedies. Except as expressly provided herein, all
rights and remedies of each Party under this Agreement shall be cumulative
and in addition to all other rights and remedies
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which may be available to that Party from time to time, whether under any
other agreement, at law, or in equity.
10.12 Expenses. Except as otherwise specifically provided
in this Agreement, DentalCo shall pay its costs and expenses associated with
the transactions contemplated by this Agreement, including without limitation
the fees and expense of its legal counsel (including any special legal
counsel), certified public accountants, brokers and other financial advisors,
and Nanston shall pay all costs and expenses incurred by the Companies and
the Nanston Shareholders in connection with this Agreement or the
transactions contemplated by this Agreement, including without limitation the
fees and expense of its legal counsel (including any special legal counsel),
certified public accountants, brokers and other financial advisors.
10.13 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 Nanston and DentalCo, except for such disclosure 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.
10.14 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.
10.15 Schedules. Notwithstanding anything to the contrary
set forth in this Agreement, DentalCo, on the one hand, and Nanston, the
Nanston Shareholders and N. Bell, on the other hand, shall have the
continuing obligation (which shall terminate on the Closing Date) promptly to
supplement or amend the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in such
Schedules; provided, however, that for the purpose of the rights and
obligations of the parties hereunder, any such supplemental or amended
disclosure shall be deemed to have been disclosed as of the date of this
Agreement if provided to the other party hereto not later than two (2)
business days prior to the Closing Date and, provided, further, that to the
extent that any such disclosure would or would likely have a (i) DentalCo
Material Adverse Effect, then DentalCo shall have the option not to proceed
to Closing, and (ii) Nanston Material Adverse Effect, then Nanston shall have
the option not to proceed to Closing.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the Parties as of the date first above written.
DENTALCO, INC.
By /s/ Lawrence F. Halpert
---------------------------------
Lawrence F. Halpert, D.D.S., CEO
DENTALCO/SOUTHEAST, INC.
By /s/ Lawrence F. Halpert
---------------------------------
Lawrence F. Halpert, D.D.S., CEO
NANSTON, INC.
By /s/ John C. Johnston
---------------------------------
John C. Johnston, D.D.S.
Chief Executive Officer
/s/ John C. Johnston
-----------------------------------
JOHN C. JOHNSTON, D.D.S.
/s/ Nancy Anderson
-----------------------------------
NANCY ANDERSON, individually and as
Trustee under the Johnston Family
Stock Trust and Johnston Educational
Trust
/s/ Chris D. Johnston
-----------------------------------
CHRIS D. JOHNSTON, Individually and
as Trustee under the Johnston Family
Stock Trust and Johnston Educational
Trust
{signatures continued on following pages}
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<PAGE>
/s/ Steve C. Johnston
-----------------------------------
STEVE C. JOHNSTON, Individually and
as Trustee under the Johnston Family
Stock Trust and Johnston Educational
Trust
/s/ Ronnie L. Johnston
-----------------------------------
RONNIE L. JOHNSTON, Individually and
as Trustee under the Johnston Family
Stock Trust and Johnston Educational
Trust
/s/ Kyle E. Anderson
-----------------------------------
KYLE E. ANDERSON
/s/ John E. Trapp
-----------------------------------
JOHN E. TRAPP
JOHN E. TRAPP, INC.
By /s/ John E. Trapp
---------------------------------
John E. Trapp, President
/s/ Diana L. Liggett
-----------------------------------
DIANA L. LIGGETT
/s/ Sam C. Grizzle
-----------------------------------
SAM C. GRIZZLE
{signatures continued on following page}
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<PAGE>
/s/ Terri B. Dreyer
-----------------------------------
TERRI B. DREYER
/s/ Randall Little
-----------------------------------
RANDALL LITTLE
/s/ James Mason
-----------------------------------
JAMES MASON
/s/ Lisa Wagner
-----------------------------------
LISA WAGNER
/s/ Walter Reid
-----------------------------------
WALTER REID
/s/ George Quintero
-----------------------------------
GEORGE QUINTERO
/s/ Nathan Bell
-----------------------------------
NATHAN BELL, D.D.S., for the sole
purposes as set forth in the
provisos to the introductory
paragraph to Article IV hereof.
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EXECUTION COPY
ASSET PURCHASE AGREEMENT
BY AND AMONG
DentalCo Modern Acquisition Corp.
Modern Dental Concepts, Inc.
Modern Dental Concepts - PA, Inc.
Modern Dental Concepts - NJ, Inc.
Marc V. Ayes
Michael S. Ayes, D.D.S.
Mitchel Blumenthal, D.D.S.
Howard M. Koff, D.D.S
Richard L. Rush, D.D.S.
_________________________________________________________
Dated as of May 30, 1997
_________________________________________________________
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is dated as of May 30,
1997, and is by and among DentalCo Modern Acquisition Corp., a Maryland
corporation (the "Buyer") and a wholly owned subsidiary of DentalCo, Inc.,
Modern Dental Concepts, Inc., a Pennsylvania corporation ("MDC"), Modern Dental
Concepts-PA, Inc., a Pennsylvania corporation ("MDC-PA"), Modern Dental
Concepts-NJ, Inc., a New Jersey corporation ("MDC-NJ", and together with MDC and
MDC-PA, "Modern"), Marc V. Ayes, an individual ("Marc Ayes"), Michael S. Ayes,
D.D.S., an individual ("Michael Ayes"), Mitchel Blumenthal, D.D.S., an
individual ("Blumenthal"), Howard M. Koff, D.D.S., an individual ("Koff"), and
Richard L. Rush, D.D.S., an individual ("Rush") (Marc Ayes, Michael Ayes,
Blumenthal, Koff, and Rush are sometimes individually referred to herein as a
"Stockholder" and collectively as the "Stockholders"). Modern and the
Stockholders are sometimes collectively referred to herein as the "Seller
Parties".
RECITALS
A. Modern owns and operates a dental management business that provides
non-clinical development, marketing, administrative, management and related
services (collectively, the "Services") to, among others, (i) nine dental
practices located in Pennsylvania, the names and addresses of which appear on
Schedule A attached hereto (collectively, the "Pennsylvania Practices") and two
dental practices located in New Jersey, the names and addresses of which appear
on Schedule A attached hereto (collectively, the "New Jersey Practices"), and
(ii) Howard M. Koff, D.D.S. & Associates ("HMK"). The professional assets (i.e.,
dental records) of the Pennsylvania Practices are owned by Ayes & Rush Dental
Associates of Pennsylvania, P.C., a Pennsylvania professional services
corporation ("Ayes & Rush of PA"), and the non-professional assets of the
Pennsylvania Practices are owned or leased by MDC-PA. All of the assets of the
New Jersey Practices are owned by Ayes & Rush Dental Associates of New Jersey,
P.A., a New Jersey professional association ("Ayes & Rush of NJ", and together
with Ayes & Rush of PA, "Ayes & Rush"). The business conducted by Modern is
called, the "Business".
B. Ayes & Rush of PA and Ayes & Rush of NJ (i) provide a comprehensive
range of dental services to the public at those sites set forth on Schedule A
attached hereto (the "Sites"); (ii) provide such services through those dentist
employees listed on Schedule B attached hereto (the "Ayes & Rush Dentists") and
their dental technicians and dental hygienists listed on Schedule B attached
hereto (the "Non-Dentist Employees"), utilizing the administrative assistance of
Modern's employees listed on Schedule C attached hereto, which employees are
neither dentists, dental technicians nor dental hygienists (the "Modern
Employees"); and (iii) are parties to those certain provider and other
third-party payor agreements listed on Schedule D attached hereto, constituting
all of such agreements of the Business, including, without limitation, dental
health maintenance organization agreements (collectively, the "DHMO
Agreements").
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C. Pursuant to that certain Management Services Agreement dated as of March
14, 1997 (the "Ayes & Rush of PA MSA") by and between MDC-PA and Ayes & Rush of
PA, MDC-PA provides to Ayes & Rush of PA certain Services. Pursuant to that
certain Administrative Services Agreement dated as of March 14, 1997 (the "Ayes
& Rush of NJ ASA") by and between MDC-NJ and Ayes & Rush of NJ, MDC-NJ provides
to Ayes & Rush of NJ certain Services.
D. Pursuant to that certain Management Services Agreement (the "HMK MSA",
and together with the Ayes & Rush of PA MSA and the Ayes & Rush of NJ ASA, the
"Management Agreements") by and between MDC and HMK, MDC provides to HMK certain
Services.
E. On the terms and subject to the conditions set forth in this Agreement,
Modern desires to transfer to the Buyer, and the Buyer desires to acquire from
Modern, free and clear of all liens, encumbrances and restrictions of any kind,
except as set forth in this Agreement, all of the assets, whether tangible or
intangible, of Modern comprising the Business (the "Purchased Assets"). In
connection, but not in limitation, therewith: (i) Modern desires to assign to
the Buyer, and the Buyer desires to (a) accept the assignment of, all of
Modern's right, title and interest in, to and under the Management Agreements,
and (b) assume all of Modern's obligations arising after the Closing (as defined
below) under the Management Agreements; and (ii) Modern desires to transfer to
the Buyer and the Buyer desires to acquire from Modern, all of its tangible and
intangible property, including, without limitation, tangible and intangible
property used by Ayes & Rush of PA or located at the Sites at which Ayes & Rush
of PA provides dental services (but not including any of the patient records
owned by Ayes & Rush).
F. The Buyer, simultaneously with Closing, intends to transfer to its
wholly owned subsidiary, (i) DentalCo Management Services of Pennsylvania, Inc.,
a Maryland corporation ("DentalCo Penn"), the assets acquired from MDC-PA, and
(ii) DentalCo Management Services of New Jersey, Inc., a Maryland corporation
("DentalCo NJ"), the assets acquired from MDC-NJ.
G. The Buyer desires to obtain an option to acquire, all of the assets of
HMK in accordance with the provisions of Section 1.07(c) hereof (the "HMK
Option").
H. The respective Boards of Directors of Modern (and to the extent required,
each of Ayes & Rush and HMK (as hereinafter defined)) and the Buyer have
approved this Agreement and the transactions herein contemplated (the
"Transactions").
I. The acquisition by the Buyer of the Purchased Assets is intended to
qualify as a tax-free reorganization pursuant to Sections 368 (a)(1)(C) and
368(a)(2)(C) of the Internal Revenue Code of 1986, as amended (the "Code"),
pursuant to which Modern shall receive capital stock of DentalCo (as defined in
Section 1.04(b) hereof) in exchange for the transfer of the Purchased Assets to
the Buyer.
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NOW, THEREFORE, in consideration of the premises herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto mutually agree as follows:
ARTICLE I
PURCHASE OF ASSETS
1.01 Purchase of Assets. Subject to Section 1.02 hereof, and on the terms
and conditions set forth in this Agreement, Modern agrees to transfer and convey
on the Closing Date (as hereinafter defined) to the Buyer, and the Buyer agrees
to acquire from Modern, all of the Purchased Assets, including, but not limited
to, those shown on the 1996 Balance Sheet (as defined in Section 2.04(a)
hereof), except for those assets disposed of in the ordinary course of business,
consistent with past practice, since the date of the 1996 Balance Sheet, whether
tangible or intangible, real or personal. The Purchased Assets shall include,
but not be limited to, the following (but only to the extent relating to the
Business):
(a) all cash on hand, cash equivalents, investments (including stock,
debt instruments, options and other instruments and securities) and bank
deposits;
(b) all personal property, whether leased or owned, including, without
limitation, those assets set forth on Schedule 1.01(b) attached hereto;
(c) all management services contracts (including, without limitation,
the Management Agreements), managed care (including, without limitation,
provider and third-party payor) contracts, contracts with governmental
entities, contracts with third-party fiscal intermediaries or carriers
administering any Medicaid program of any state, the Medicare program, or
any clinic or other in-patient health care facility, any preferred provider
organization dental insurance company contract, purchase order, service
contract, and supply, maintenance, and equipment purchase contracts, and all
rights relating thereto (a list of all such contracts appears on Schedule
1.01(c) attached hereto (the "Contracts"));
(d) all lease agreements relating to real property and all rights
relating thereto (a list of such leases appears on Schedule 1.01(d) attached
hereto (the "Leases"));
(e) all of the stock in trade, supplies (including medical supplies) and
inventory, as stocked by the Seller Parties, as set forth on Schedule
1.01(e) attached hereto (the "Inventory");
(f) all lists of suppliers, patient lists (but excluding patient
records), marketing literature, Inventory and supply records, files and all
other books and records (subject to the provisions of Section 1.02(e)
below);
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(g) all accounts receivable (the "Accounts");
(h) all trademarks, trade names, services marks, copyrights, product
designs, applications, or agreements for any of the foregoing, goodwill,
software and other electronic systems and databases, and the telephone
numbers of Modern;
(i) all transferable licenses, permits, approvals, and authorizations,
if any;
(j) the amount (the "HMK Amount") due to Modern from HMK, an affiliate
of Modern (at March 31, 1997, the HMK Amount aggregated approximately
$1,253,342); and
(k) audited financials for three years ended December 31, 1996 (the
Buyer shall pay for any incremental expenses of the auditors to complete
such audit).
1.02 Excluded Assets. The following items are not intended by the parties
to be a part of the Purchased Assets:
(a) controlled drugs and substances; and
(b) any original records which by law Modern is required to maintain in
its possession.
1.03 Assumed Liabilities.
(a) Subject to the provisions of Section 1.03(b) below, the Buyer shall
assume the following specific liabilities and obligations of Modern as of
the Subsequent Closing Date (the "Subsequent Closing Date"), as defined in
that certain Preferred Stock Purchase Agreement dated as of June 2, 1997 by
and among DentalCo, Morgan Stanley Venture Capital Fund II, L.P., Grotech
Partners IV, L.P., Grotech Partners III, L.P., Grotech III Companion Fund,
L.P., and Grotech III Pennsylvania Fund, L.P. (the "Assumed Liabilities"):
(i) outstanding long-term debt (including current portions thereof)
not to exceed $4,000,000 in the aggregate (the "Assumed LT Debt Threshold
Amount");
(ii) all other payables of Modern (Section 1.09 hereof sets forth
certain adjustments of the purchase price set forth in Section 1.04
hereof with respect to current assets and current liabilities assumed
hereunder by Buyer);
(iii) all amounts due to Northeast and Benton Dental Supply Company
("Benton") from Modern (which shall be treated as current liabilities of
Modern pursuant to Section 1.09 hereof) in the aggregate not to exceed
$234,440 to Northeast and $128,255 to Benton, as of the Closing Date (in
discharging this liability to Benton, the Buyer shall pay to J&J (as
hereinafter defined), on behalf of Benton, $128,255); and
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<PAGE>
(iv) the obligations for amounts accrued as the result of services or
goods received after the Closing Date pursuant to agreements assumed, and
to be performed after the Closing Date, by the Buyer.
(b) Except pursuant to the foregoing Section 1.03(a), the Buyer shall
not assume, fulfill or otherwise discharge any liabilities or obligations of
the Seller Parties or the Ancillary Seller Parties (as defined in Section
2.02 hereof).
1.04 Purchase Price. Subject to and upon the terms and conditions set forth
herein, the aggregate purchase price payable by the Buyer to Modern for the
Purchased Assets, subject to verification by KPMG Peat Marwick (Baltimore,
Maryland office) of the MDC Financial Statements (as defined in Section 2.04
hereof) as reconciled to the Closing Date, is $12,000,000, to be payable, on the
Subsequent Closing Date, as follows (subject to the provisions of Section 1.09
hereof):
(a) the Buyer (or an affiliate) will assume the Assumed Liabilities; and
(b) the balance will be paid by the delivery (subject to the provisions
of Section 1.07(d) hereof) by the Buyer to MDC of that number of shares of
the voting Common Stock, $0.0001 par value per share (the "DentalCo
Shares"), of DentalCo, Inc., a Maryland corporation ("DentalCo"), determined
by subtracting from $12,000,000 the amount of Modern's long-term debt
assumed by the Buyer (or an affiliate) under Section 1.03(a)(i) hereof, and
dividing the result by $12.00.
1.05 Allocation of the Purchase Price Among the Purchased Assets. The
parties hereto agree that the consideration for the purchase of the Purchased
Assets shall be allocated among the Purchased Assets in the manner as set forth
on Schedule 1.05 hereto. Modern and the Buyer shall each complete, execute and
timely file with the Internal Revenue Service its respective income tax returns
for the taxable year that includes the Closing Date, an Internal Revenue
Service Form 8594 (or such other Internal Revenue Service Form as may then be
prescribed for use by applicable income tax regulations) to comply with the
applicable asset acquisition reporting requirements of Section 1060 of the Code,
and the income tax regulations promulgated thereunder. Form 8594 shall be
completed by Modern and the Buyer based on, and shall in all events be
consistent with, the allocation of the consideration for the Purchased Assets.
1.06 Closing. The closing ("Closing") of the Transactions shall take place
at 5:00 p.m., Baltimore time, at the offices of the Buyer, 6115 Falls Road,
Baltimore, Maryland 21209, on June 2, 1997 (the "Closing Date"); the
Transactions shall become effective as of May 31, 1997; provided, however, that
the parties hereto agree to unwind the Transactions if, prior to August 31, 1997
(unless such date is extended by the parties hereto) the Buyer has not received
the approval to the Transactions of its senior lender or the Subsequent Closing
Date has not occurred prior to that date.
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1.07 Deliveries by the Seller Parties. On or prior to the Subsequent Closing
Date (except as otherwise noted below), the Seller Parties shall deliver, or
cause to be delivered, to the Buyer the following (collectively, the "Seller
Closing Deliveries"):
(a) a duly executed Bill of Sale, in substantially the form as attached
hereto as Exhibit A (the "Bill of Sale");
(b) on the Closing Date, the duly executed Stock Restriction Agreements
among each of (i) Ayes & Rush of PA, Michael Ayes and Rush (together with
any other stockholders of Ayes & Rush of PA, if any, as the Buyer deems
necessary), and DentalCo Penn, and (ii) Ayes & Rush of NJ, Michael Ayes and
Rush (together with any other stockholders of Ayes & Rush of NJ, if any, as
the Buyer deems necessary), and DentalCo NJ (which may constitute a part of
the Ayes & Rush of NJ ASA), in substantially the form as attached hereto as
Exhibit B (collectively, the "Stock Restriction Agreements");
(c) on the Closing Date, a duly executed agreement setting forth the HMK
Option (the "HMK Option Agreement"), in substantially the form as attached
hereto as Exhibit C;
(d) a duly executed Escrow Agreement with respect to the pledge by MDC
of 180,000 DentalCo Shares to be escrowed to secure certain obligations to
the Buyer of HMK and the Stockholders, in form as agreed to by the parties
hereto, to be attached hereto as Exhibit D (the "Escrow Agreement");
(e) on the Closing Date, duly executed Employment Agreements between
DentalCo or an affiliate and each of Michael Ayes and Marc Ayes, in
substantially the form as attached hereto as Exhibit E (the "Stockholder
Employment Agreements");
(f) on the Closing Date, duly executed Employment Agreements between the
Ayes & Rush Dentists and each of Ayes & Rush of PA, and Ayes & Rush of NJ,
as applicable, including Blumenthal and Rush, in substantially the form as
attached hereto as Exhibit F (the "Ayes & Rush Dentists Employment
Agreements");
(g) on the Closing Date, the duly executed Employment Agreements between
HMK and its employee dentists, orthodontists, including Koff, and other
employee specialists (collectively, the "HMK Dentists"), substantially in
the form as attached hereto as Exhibit G (the "HMK Dentists Employment
Agreements");
(h) on the Closing Date, a duly executed Release of Johnson & Johnson
Finance Corporation ("J&J") pursuant to which it releases all liens on the
Purchased Assets (which liens were created in connection with that certain
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loan (the "J&J Loan") from J&J to HMK and others in the original principal
amount of $4,574,444.36), such release to be in the form as is acceptable to
the Buyer, in its sole but good faith discretion (the "J&J Release");
(i) on the Closing Date, evidence, satisfactory to the Buyer, in its
sole but good faith discretion, that Modern has purchased "tail" or other
insurance as appropriate to insure the Buyer and its affiliates and Modern
and its affiliates against acts or omissions of Modern and any dental
provider providing dental services to one or more entities with whom Modern
had a management relationship, or pursuant to which it employed or was
otherwise party to a provider agreement during any period prior to the
Closing;
(j) except as provided in Section 1.02(e) hereof, all of the books,
records, instruments, documents and materials relating to the Business,
(collectively, the "Business Records"), provided, however, that after the
Closing Date, the Seller Parties shall provide the Buyer with reasonable
access to any books and records of the Seller Parties not comprising the
Business Records to the extent reasonably requested by the Buyer;
(k) the certificate referred to in Section 6.01 below, in substantially
the form as attached hereto as Exhibit H;
(l) an opinion of counsel to Modern in form as is satisfactory to the
Buyer and its counsel;
(m) true and complete copies of the organizational documents, and all
amendments thereto, of each of the Broad Group Companies (as defined in
Section 2.01 hereof), including the corporate by-laws and all amendments
thereto (collectively, the "Organizational Documents"), certified by their
respective Secretaries; and good standing certificates for each of the Broad
Group Companies, dated no earlier than 10 days prior to the Closing Date;
(n) a copy of the resolutions of the Boards of Directors of Modern,
certified by their respective secretaries, authorizing the execution,
delivery and performance of this Agreement, the Exhibits hereto, and the
other instruments and documents required to be executed and delivered by
each of them in connection herewith and authorizing the consummation of the
Transactions, and a copy of the resolutions of the Boards of Directors of
Ayes & Rush and HMK, certified by their respective secretaries, authorizing
the execution, delivery and performance of the Management Agreements;
(o) evidence satisfactory to the Buyer of the recording of or unfiled
originally executed Uniform Commercial Code ("UCC") termination statements
(Form UCC-3) with respect to any UCC financing statements filed with respect
to any of the Purchased Assets (except with respect to liens securing any of
the long-term debt of Modern that the Buyer has specifically agreed to
assume pursuant to this Agreement), together with true and complete copies
as executed of all such termination statements or one or more letters, in
form satisfactory to the Buyer, from Modern's lenders agreeing to file such
termination statements promptly after Closing;
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(p) original copies of all Contracts, Leases, and other agreements being
acquired by the Buyer, and all Consents (as defined in Section 2.11), and
all assignments related to any of the foregoing;
(q) a complete and accurate list, indicating aging, of Accounts as of
the Closing Date (or within three (3) business days thereof), in such form
as shall be reasonably requested by the Buyer;
(r) all material documents (including, without limitation, schedules and
exhibits thereto)(the "Reorganization Documents"), executed by the Seller
Parties, the Ancillary Seller Parties, or their affiliates, in connection
with the reorganization of Modern and certain of its affiliates effected in
March, 1997 (the "Reorganization");
(s) the Stockholders' Agreement (as defined in Section 2.16(h) hereof);
(t) on the Closing Date, non-competition agreements of each of the
Stockholders (which may be contained in their respective employment
agreements with the Buyer or an affiliate), Morris Harris, Richard Feldman,
and Robert Feldman, each of the Broad Group Companies, and Modern Healthcare
Concepts, Inc., an affiliate of MDC ("MHC"), in which each agrees not to
compete with the Business for a period of five years from the Closing Date,
all in form and substance reasonably satisfactory to the Buyer and the other
parties thereto;
(u) the provider agreements between MHC, on the one hand, and Modern or
Ayes & Rush, as applicable, on the other hand, in form satisfactory to the
Buyer;
(v) on the Closing Date, evidence reasonably satisfactory to the Buyer
and its lender that the assets of Ayes & Rush and HMK are free from Liens
(as defined in Section 2.07(a) hereof), except for purchase money security
interests with respect to dental equipment and other ordinary course
security interests, and except, with respect to HMK, Liens in connection
with the J&J Loan that are acceptable in amount to the Buyer; and
(w) such other documents as are reasonably necessary to convey all of
the rights, title and interests in and to the Purchased Assets to the Buyer,
and as the Buyer may reasonably request in order to effectuate the
Transactions.
1.08 Deliveries by the Buyer. On or prior to the Subsequent Closing Date,
the Buyer shall deliver, or cause to be delivered, to Modern and/or the
Stockholders the following (collectively, the "Buyer Closing Deliveries"):
(a) a duly executed Assumption of Debt Agreement evidencing assumption
of the Assumed Liabilities, in form reasonably satisfactory to Modern or the
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simultaneous repayment of such amounts and assumption of contracts and
agreements described in Section 1.01 hereof and other assumed liabilities
described in Section 1.03 hereof;
(b) subject to the provisions of Section 1.07(d) hereof, the DentalCo
Shares;
(c) an opinion of counsel to the Buyer in form as is satisfactory to
Modern and its counsel;
(d) the duly executed Stock Restriction Agreements, the HMK Option
Agreement, the Escrow Agreement, the Stockholder Employment Agreements, the
Ayes & Rush Dentists Employment Agreements, and the HMK Dentists Employment
Agreements;
(e) the certificate referred to in Section 7.01 below, in substantially
the form as attached hereto as Exhibit I;
(f) true and complete copies of the Articles of Incorporation of the
Buyer and DentalCo and all amendments thereto, as recorded, and their
corporate by-laws, certified by the Secretaries of the Buyer and DentalCo;
and good standing certificates for the Buyer and DentalCo dated no earlier
than 10 days prior to the Closing Date;
(g) a copy of the resolutions of the Boards of Directors of the Buyer
and DentalCo, certified by their respective secretaries, authorizing the
execution, delivery and performance of this Agreement and the other
instruments and documents required to be executed and delivered by each of
them in connection herewith and authorizing the consummation of the
Transactions; and
(h) such other documents as Modern may reasonably request in order to
effectuate the Transactions.
1.09. Working Capital Deficit Adjustment.
(a) Determination of Shortfall.At least five, but not more than ten,
days prior to the Closing Date, Modern shall deliver to the Buyer its
unaudited combined balance sheet, prepared in accordance with GAAP (as
hereinafter defined), dated not more than ten, nor less than five, days
prior to the Closing Date (the "Closing Date Balance Sheet"). The Closing
Date Adjusted Current Liabilities and the Closing Date Adjusted Current
Assets (as such terms are hereinafter defined) shall be determined by Buyer
and MDC at the Closing. On the Reconciliation Date (as defined in subsection
(b) below), if the Closing Date Adjusted Current Liabilities exceed (the "WC
Deficit") the Closing Date Adjusted Current Assets, as reconciled to the
Reconciliation Date in accordance with the provisions of subsection (b)
below, then the purchase price payable for the Purchased Assets shall be
reduced by the WC Deficit, and the escrow agent, pursuant to the Escrow
Agreement, shall deliver to Buyer that number of DentalCo Shares as is equal
to the WC Excess divided by the greater of $12.00 and the closing price of
DentalCo common stock averaged for the past 30 days prior to the required
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delivery of DentalCo Shares to Buyer as set forth above, but only if the
common stock of DentalCo is publicly traded during such 30-day period.
"Closing Date Adjusted Current Liabilities" shall mean the current
liabilities of Modern, determined in accordance with GAAP and as listed on the
Closing Date Balance Sheet, less the sum of (i) any debt appearing on the
Closing Date Balance Sheet as a current liability that the Buyer has agreed to
assume pursuant to Section 1.03(a)(i) hereof and (ii) any income taxes payable
appearing on the Closing Date Balance Sheet as a current liability, which Modern
demonstrates, to the reasonable satisfaction of the Buyer, are not a liability
of Modern, or that will be offset by usable net operating losses of Modern.
"Closing Date Adjusted Current Assets" shall mean the current assets of
Modern, determined in accordance with GAAP and as listed on the Closing Date
Balance Sheet, less the amount of such current assets constituting an account
receivable due from HMK, plus the amount of restricted cash, if any, appearing
on the Closing Date Balance Sheet that Modern demonstrates, to the reasonable
satisfaction of the Buyer, should be characterized as a current asset of Modern
in accordance with GAAP.
(b) Reconciliation of Accounts Receivable and Accounts Payable. On the
first anniversary of the Closing Date (the "Reconciliation Date"), the Buyer
shall reconcile (the "Reconciliation"), through the Reconciliation Date, the
accounts receivable and other receivables (collectively, the "Closing Date
Receivables") and payables (the "Closing Date Payables") appearing on the
Closing Date Balance Sheet against the actual amounts collected by the Buyer
with respect to the Closing Date Receivables and the amounts actually paid
by the Buyer with respect to the Closing Date Payables.
If the Buyer or MDC, as applicable, objects (in a writing delivered by the
objecting party to the non-objecting party within five days after (A) the
delivery of the Closing Date Balance Sheet or (B) the Reconciliation, as
applicable), to the validity of an item appearing as a current asset or current
liability on the Closing Date Balance Sheet or if MDC objects within such
five-day period to the Reconciliation, then the Baltimore and Philadelphia
offices of KPMG Peat Marwick LLP shall, with the cooperation of the parties to
such dispute, definitively resolve the objection as promptly as is practicable.
One half of the fees of KPMG Peat Marwick LLP shall be borne by each party to
the dispute.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER PARTIES
As a material inducement to the Buyer to enter into this Agreement and
consummate the Transactions, the Seller Parties hereby jointly and severally
make those representations and warranties to the Buyer as set forth in this
Article II with those exceptions set forth on the Seller Disclosure Schedule
attached hereto. As used in this Agreement, the phrase "to the best of the
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Stockholders' knowledge" and any similar phrase shall mean the actual knowledge
as of the date of this Agreement of the Stockholders after reasonable inquiry
and investigation.
2.01 Organization and Authority. Each of MDC, MDC-PA, MDC-NJ, Ayes & Rush of
PA, Ayes & Rush of NJ, and HMK (collectively, the "Broad Group Companies") is a
corporation or professional corporation or professional association, as
applicable, duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation. Each of the Broad Group Companies is
licensed or qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the properties owned, leased or operated
by it or the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to so qualify will not have a
material adverse effect on its financial condition or results of operations.
True and complete copies of the charter and by-laws of each Broad Group Company
have been delivered to the Buyer. None of the Broad Group Companies is in
violation of any material term of its charter or by-laws. Each Broad Group
Company has all requisite corporate power and authority to conduct its business
as presently conducted, and to enter into this Agreement (to the extent it is a
party hereto) and each agreement, document and instrument to be executed and
delivered by or on behalf of it pursuant to or as contemplated by this Agreement
and to carry out the Transactions (excluding this Agreement, the "Ancillary
Agreements"). The capital stock of MDC is owned as set forth on the attached
Schedule 2.01.
2.02 Authorization and Validity of Agreement. The execution, delivery and
performance by each of Ayes & Rush of PA, Ayes & Rush of NJ, HMK and MHC
(collectively, the "Ancillary Seller Parties") and each of the Seller Parties of
this Agreement (but only to the extent that it is a party hereto) and each
Ancillary Agreement (but only to the extent that it is a party thereto), has
been duly authorized by all necessary action, corporate or otherwise, of the
Seller Parties and the Ancillary Seller Parties. This Agreement has been duly
executed and delivered by each of the Seller Parties and, assuming the due
authorization, execution, and delivery hereof by the Buyer, is a legal, valid
and binding obligation of each of the Seller Parties, enforceable against each
of them in accordance with its terms. Each Ancillary Agreement is, or when
executed by the Seller Parties and the Ancillary Seller Parties, as applicable,
a party thereto, will constitute, a legal, valid and binding obligation of each
of the Seller Parties and the Ancillary Seller Parties, as applicable,
enforceable against each of them in accordance with its respective terms.
2.03 No Violation. Neither the execution and delivery of this Agreement nor
any Ancillary Agreement, nor the consummation of the Transactions will (a)(i)
constitute a default or violation (or an event which, with notice or lapse of
time or both, would constitute a default) under, (ii) result in the termination
of, (iii) accelerate the performance required by, (iv) cause the acceleration of
the maturity of any debt or obligation pursuant to, or (v) result in the
creation or composition of any security interest, lien, or other encumbrance
upon any property or assets of the Seller Parties or Ancillary Seller Parties
under, any agreement or commitment to which any of the Seller Parties or
Ancillary Seller Parties is a party or to which any of their respective assets
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are subject, or (b) violate any statute or laws or any judgment, decree, order,
regulation, or rule of any court or governmental authority.
2.04 Financial Statements. (a) MDC has furnished to the Buyer its audited
combined balance sheets for each of its fiscal years ended December 31, 1994,
1995 and 1996 (the December 31, 1996 balance sheet being called, the "1996
Balance Sheet"), and the related audited statements of income and retained
earnings and cash flows for the fiscal years then ended, including, in each
case, the related notes thereto, all of which have been examined by, and are
accompanied by the unqualified independent auditor's report of KPMG Peat
Marwick (collectively, the "MDC Financial Statements"). The MDC Financial
Statements have been prepared in accordance with generally accepted
accounting principles, consistently applied ("GAAP"), and fairly present the
combined financial position of MDC and its subsidiaries as of the dates
stated and the combined results of operations of MDC and its subsidiaries for
the periods then ended.
(b) MDC has delivered to the Buyer its combined unaudited balance sheet
as at March 31, 1997, and its unaudited related statements of income and
retained earnings and cash flows for the period beginning on the first day
of MDC's current fiscal year and ending on March 31, 1997 (collectively, the
"MDC Interim Statements"). The MDC Interim Statements have been prepared in
conformity with GAAP, and fairly present (subject to normal, recurring audit
adjustments) the combined unaudited financial position of MDC and its
subsidiaries as at such date and the combined results of operations of MDC
and its subsidiaries for such period then ended. The business conducted by
MDC and its subsidiaries prior to the Reorganization is substantially
similar in scope, combined financial position and combined results of
operations as that conducted by MDC and its subsidiaries after the
Reorganization. The Reorganization has not had a material adverse effect (a
"Material Adverse Effect") on the combined financial position and results of
operations of MDC and its subsidiaries, and none is reasonably likely to
occur as the direct result of the Reorganization. Other than for MDC-PA and
MDC-NJ, MDC has no subsidiaries, and is not required, pursuant to GAAP, to
consolidate the financial position and results of operations of any other
entity with its own.
2.05 Accounts. The Accounts, as set forth in the list of aged Accounts to be
delivered at Closing, have been properly recorded, allowances have been made for
presumed non-collection in accordance with normal practices of the Business, and
such Accounts are, to the best knowledge of the Seller Parties, fully
collectible, without any defense on the part of the debtors thereof.
2.06 No Undisclosed Liabilities. The Business does not have any liabilities
or obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent or otherwise), except for liabilities or obligations stated
or adequately reserved against in the MDC Interim Statements, or incurred in the
ordinary course of business since the date of the MDC Interim Statements
consistent with past practice and the terms of this Agreement.
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2.07 Title to and Condition of Purchased Assets.
(a) Modern holds and will convey to the Buyer good, insurable (if
applicable) and marketable title to the Purchased Assets and all equipment
warranties and documentation with respect to the Purchased Assets, free and
clear of all mortgages, pledges, security interests, liens, charges, claims,
restrictions or other encumbrances (collectively, "Liens"), other than those
set forth on Schedule 2.07 attached hereto, which such Liens shall be
satisfied in full or released upon the Buyer's discharge of the Assumed LT
Debt Threshold Amount.
(b) All of the Purchased Assets that constitute tangible assets that are
currently used in the operation of the Business are in good operating
condition and working order, ordinary wear and tear excepted; provided,
however, the foregoing is not intended as an express or implied warranty of
merchantability, suitability, or any other UCC warranty.
2.08 Contracts and Leases.
(a) Schedule 1.01(c) hereto contains a complete and accurate list of all
Contracts of the Business, Schedule 1.01(d) hereto contains a complete and
accurate list of all Leases of the Business, Schedule D contains a complete
and accurate list of all third-party payor and provider agreements of the
Business, including, without limitation, DHMO agreements (collectively, the
"TPA's") to which either of Ayes & Rush, MDC or HMK is a party, and Schedule
2.08(a) hereto contains a list of all contracts relating to the Business
concerning (i) a partnership or joint venture, (ii) indebtedness for
borrowed money, including any guarantees, (iii) capitalized lease
obligations pursuant to which a security interest against any of the assets
of the Business has been created or exists, (iv) confidentiality or
noncompetition, (v) the employment of any individual on a full-time,
part-time, consulting or other basis providing annual compensation in excess
of $10,000, or providing severance benefits, (vi) the advance or loan to any
officer, director, or employee of the Broad Group Companies (except pursuant
to reasonable business-related travel or ordinary course business expenses),
(vii) the payment in excess of $25,000 by any of the Broad Group Companies
for services or goods, or (viii) any subject matter, if the consequences of
a default or termination would, or could reasonably be expected to, have a
Material Adverse Effect. Schedule B hereto contains a list of all of the
Ayes & Rush Dentists Employment Agreements and the HMK Dentists Employment
Agreements. The contracts referred to in this subsection (a) are
collectively called, the "Material Contracts". None of Modern, Ayes & Rush,
nor HMK own any real property used in the Business or that would be required
to appear on the 1996 Balance Sheet or the MDC Interim Statements.
(b) (i) All of the Material Contracts constitute legal, valid, binding
and enforceable obligations between the parties thereto, and are in full
force and effect, and except as set forth on Schedule 2.08(b) hereto, (ii)
no notice of or consent to the assignment of such Contracts, Leases, TPA's,
or other contracts is required to transfer such agreements to the Buyer or
its designee (but only to the extent that this Agreement contemplates the
assignment thereof), and after such assignment, such Material Contracts will
continue to constitute legal, valid, binding and enforceable obligations
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against the parties thereto, and will be in full force and effect on
identical terms, (iii) to the knowledge of the Seller Parties and the
Ancillary Seller Parties, no party to such agreement is in breach or default
thereunder, and no event has occurred, with notice or lapse of time, that
would constitute a breach or default, or permit the termination,
modification, or acceleration, under such agreements, and (iv) no party to
such agreements has repudiated any material provision thereof.
(c) Each of Modern, Ayes & Rush and HMK, as applicable, has operated
materially in compliance with the Material Contracts to which it is a party,
and to the knowledge of the Seller Parties, each other party to the Material
Contracts has operated materially in compliance with the Material Contracts.
(d) Modern has delivered to the Buyer and its counsel, as required by
Section 1.07(r) hereof, all of the Reorganization Documents. The
Reorganization Documents are in full force and effect, and constitute the
valid and binding obligations of the parties thereto, and are enforceable in
accordance with their respective terms. The Reorganization Documents have
not been amended.
2.09 Taxes.
(a) Modern has filed all Tax Returns that it was required to file. All
such Tax Returns were correct and complete in all respects. All Taxes owed
by Modern (whether or not shown on any Tax Return) have been paid. No claim
has ever been made by an authority in a jurisdiction where Modern does not
file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no security interests of any kind whatsoever on any
of the assets of Modern that arose in connection with any failure (or
alleged failure) to pay any Tax.
(b) Modern has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(c) No Seller Party or Ancillary Seller Party (or employee of Modern or
an Ancillary Seller Party responsible for Tax matters) expects any authority
to assess Modern for any additional Taxes for any period for which Tax
Returns have been filed. There is no dispute or claim concerning any Tax
Liability of Modern either (i) claimed or raised by any authority in writing
or (ii) as to which any Seller Party or Ancillary Seller Party (or employee
of Modern or an Ancillary Party responsible for Tax matters) has any
knowledge based upon personal contact with any agent of such authority.
Schedule 2.09(c) hereto lists all federal, state, local, and foreign income
Tax Returns filed with respect to Modern for taxable periods ended on or
after December 31, 1993, indicates those Tax Returns that have been audited,
and indicates those Tax Returns that currently are the subject of an audit.
Modern has delivered to the Buyer correct and complete copies of all federal
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income Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by Modern since December 31, 1993.
(d) Modern has not waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) The unpaid Taxes of Modern (i) did not, as of March 31, 1997, exceed
the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set
forth on the face of the MDC Interim Statements (rather than in any notes
thereto) and (ii) do not exceed that reserve as adjusted for the passage of
time through the Closing Date in accordance with the past custom and
practice of Modern in filing its Tax Returns.
(f) None of the Assumed Liabilities is an obligation to make a payment
that will not be deductible under Section 280G of the Code. Modern has
disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within
the meaning of Section 6662 of the Code. Modern is not a party to any Tax
allocation or sharing agreement. Modern (i) has not been a member of an
"Affiliated Group" within the meaning of Section 1504(a) of the Code filing
a consolidated federal income Tax Return (other than a group the common
parent of which was MDC) and (ii) has no Tax Liability for the Taxes of any
person (other than Modern) under Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(g) Schedule 2.09(g) hereto sets forth, with respect to Modern as of the
most recent practicable date, the basis of Modern in the Purchased Assets.
For purposes of this Section 2.09:
"Modern" includes MDC, MDC-PA, MDC-NJ, Ayes & Rush, HMK, and any entity that
was a predecessor thereof at any time during the past 365 days.
For purposes of this Section 2.09 and Section 3.07 hereof:
"Taxes" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Section 59A of the Code),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
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"Tax Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), for Taxes.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof
2.10 Employee Matters.
(a) Schedule 2.10 hereto identifies, with respect to Modern, each
"employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("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 Modern or any
affiliate (as defined below) and covers any employee or former employee of
Modern or any affiliate or under which either Modern 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 the Buyer 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 "Modern 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 Modern Employee Plans, which
individually or collectively would constitute an "employee pension benefit
plan" as defined in Section 3(2) of ERISA (the "Modern Pension Plans"), are
identified as such on Schedule 2.10 hereto
(b) No Modern Employee Plan constitutes a "multi employer 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 Modern Employee
Plan is maintained in connection with any trust described in Section 501(c)
of the Code. No "accumulated funding deficiency, " as defined in Section 412
of the Code, has been incurred with respect to any Modern Pension Plan,
whether or not waived. Full payment has been made of all amounts which
either Modern or any affiliate is required to have paid as contributions to
or benefits under any Modern Employee Plan as of the end of the most recent
fiscal year thereof and there are no unfunded obligations under any Modern
Employee Plan that have not been disclosed to the Buyer in writing prior to
the date hereof. Except as set forth in Schedule 2.10 hereto or as expressly
contemplated by this Agreement, none of the Seller Parties or the Ancillary
Seller Parties know of any "reportable events," 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 Modern Employee Plan.
Except as set forth in Schedule 2.10 hereto or as expressly contemplated by
this Agreement or the Transactions, no condition exists and no event has
occurred that could constitute grounds for termination of any Modern
Employee Plan, and neither Modern nor any affiliate 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
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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
Modern Employee Plan has or will make either Modern or any officer or
director of Modern 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 Modern Employee Plan or
any fiduciary or administrator thereof in their capacities as such.
(c) Each Modern 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. Modern has
furnished to the Buyer copies of the most recent Internal Revenue Service
determination letters with respect to each such Modern Employee Plan. Each
Modern Employee Plan has been maintained, from the time of such Plan's
inception up to and including the performance of any or all Transactions, 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 Modern Employee Plan.
(d) Except as would not have a Material Adverse Effect, to the best
knowledge of the Seller Parties and the Ancillary Seller Parties, there is
no contract, agreement, plan, or arrangement covering any employee or former
employee of either Modern 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 2.10 hereto identifies each written 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 a Modern Employee Plan,
(ii) is entered into, maintained or contributed to, as the case may be, by
either Modern or any of its affiliates, and (iii) covers any employee or
former employee of either Modern or any of its affiliates. Such contracts,
loans and arrangements as are described above, copies or descriptions of
all of which have been furnished previously to the Buyer, are referred to
collectively herein as the ""Modern Benefit Arrangements''. Except as
would not have a Material Adverse Effect, each Modern 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 Modern Benefit Arrangement.
(f) Except as would not have a Material Adverse Effect, or as set forth
in Schedule 2.10 hereto, there is no liability in respect of post-retirement
health and medical benefits for retired employees of either Modern 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
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segregated for the purpose of satisfying such liability (including for such
purposes any fund established pursuant to Section 401(h) of the Code).
Modern has reserved its right to amend or terminate any Modern Employee Plan
or Modern Benefit Arrangement providing health or medical benefits in
respect of any active employee of Modern under the terms of any such plan
and descriptions thereof given to employees. Except as would not have a
Material Adverse Effect, with respect to any of Modern Employee Plans which
are "group health plans" under Section 4980B of the Code and Section 607(1)
of ERISA, to the best knowledge of the Seller Parties and the Ancillary
Seller Parties, there has been timely compliance in all material respects
with all requirements imposed thereunder so that Modern 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 2.10 hereto, there has been no
amendment to, written interpretation or announcement (whether or not
written) by either Modern or any of its affiliates relating to, or change in
employee participation or coverage under, any Modern Employee Plan or Modern
Benefit Arrangement which would increase the expense of maintaining such
Modern Employee Plan or Modern Benefit Arrangement above the level of the
expense incurred in respect thereof for the fiscal year most recently ended.
(h) Except as set forth in Schedule 2.10 hereto, Modern 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 will not
constitute a triggering event under any Modern 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
Modern that has not been specifically disclosed on Schedule 2.10 hereto.
4l(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.
For purposes of this Section 2.10 "Modern" includes MDC, MDC-PA, MDC-NJ,
Ayes & Rush, HMK, and any entity that was a predecessor thereof at any time
during the past 365 days.
2.11 Litigation, Proceedings and Applicable Law.
(a) Except as set forth in Schedule 2.11 hereto, and to the extent that
it could reasonably be expected to adversely affect the Business, there is
no (i) action, suit, claim, proceeding or investigation pending or
threatened (whether known or unknown) against or affecting Modern, or with
respect to any employee of Modern,
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relating to his employment therewith, at law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (ii) arbitration
proceeding relating to Modern or with respect to any employee of Modern,
relating to his employment therewith pending under collective bargaining
agreements or otherwise, or (iii) governmental inquiry pending or threatened
against or affecting Modern or with respect to any employee of Modern, relating
to his employment therewith (collectively, "Litigation Matters"), and there is
no basis for any of the foregoing. Schedule 2.11 hereto contains a list of all
Litigation Matters to which Modern has been a party during the three years
immediately preceding the Closing. Copies of all correspondence, records of all
proceedings, motions, orders, writs, injunctions, decrees, consents and other
documents relating to Litigation Matters have been provided to the Buyer. None
of Modern or any employee of Modern has received any opinion or memorandum or
legal advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may affect Modern's business,
prospects, financial condition, operations, properties or affairs. None of
Modern or any employee of Modern is in default with respect to any order, writ,
injunction or decree known to or served upon Modern or any employee of Modern of
any court or of any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
There is no action or suit by Modern, or with respect to any employee of Modern,
relating to his employment therewith pending or threatened against others.
(b) Each of Modern and the employees of Modern (i) has complied in
all material respects with all laws, rules, regulations and orders which are
applicable to Modern's business, operations, properties, assets, products and
services, and (ii) has obtained all necessary permits, licenses and other
authorizations, including environmental, required to enable Modern to conduct
its business as conducted and as proposed to be conducted. There is no existing
law, rule, regulation or order, whether Federal or state or local, which would
prohibit or restrict Modern from, or otherwise adversely affect Modern in,
conducting its business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business.
For purposes of this Section 2.11 "Modern" includes MDC, MDC-PA, MDC-NJ,
Ayes & Rush, HMK, and any entity that was a predecessor thereof at any time
during the past 365 days.
2.12 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the MDC
Interim Financial Statements, Modern has conducted the Business in the ordinary
course, consistent with past practices, and there has been (i) no change in the
condition, financial or otherwise, of the Business that has or is reasonably
likely to have a Material Adverse Effect, (ii) no waiver of any valuable right
of, or cancellation of any debt or claim held by, the Business, (iii) no
incurrence or modification of any contingent liability with respect to the
obligations of others, and no incurrence or modification of any other contingent
or fixed obligations or liabilities, except in the ordinary course of business
consistent with past practice, (iv) no increase, direct or indirect, in the
compensation paid or payable to any officer, director, employee, or agent of the
Business other than salary increases in the ordinary course of business
consistent with past practice of the Business, (v) no material loss, destruction
or damage to any property of the Business, whether or not insured, (vi) no
notice of a claim of unfair labor practices or labor disputes or work stoppages
involving the Business and no change in senior personnel of the Business, (vii)
no acquisition or
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disposition of any assets (or any contract or arrangement therefor) nor any
other transaction by the Business other than in the ordinary course of business
consistent with past practice, (viii) no payment or discharge of a material Lien
or liability of the Business that is not recorded in the MDC Interim Financial
Statements, (ix) no employment agreement entered into by the Business and no
obligation or liability incurred by the Business to any of its officers,
directors, stockholders, or employees, or any loans or advances made by the
Business to any of its officers, directors, stockholders, or employees, except
normal compensation and expense allowances payable to officers or employees, or
except in the ordinary course of business consistent with past practices, (x) no
change in accounting practices or methods, credit practices or collection
policies used by the Business, and (xi) no agreement or understanding, whether
in writing or otherwise, that would result in any of the transactions or events
or require the Business to take any of the actions specified in subsections (i)
through (xi) above.
2.13 CONSENTS AND APPROVALS. Other than the consents listed in SCHEDULE
2.08(B) hereof (the "Consents"), no consent of any person or entity is necessary
to the consummation of the Transactions.
2.14 REGULATORY COMPLIANCE. (a) Except as would not reasonably be expected
to have a Material Adverse Effect, each of the Seller Parties and Ancillary
Seller Parties is now and has been in compliance in all material respects with
all applicable statutes, rules, regulations, and requirements of all Federal,
state, and local commissions, boards, and agencies having jurisdiction over the
Business, including, without limitation, insurance laws and regulations, the
Internal Revenue Service, the Department of Health and Human Services and its
Health Care Financing Administration (including, without limitation, all
applicable statutes, rules, regulations, manual provisions, and requirements
pertaining to payments and other consideration to referral
sources)(collectively, the "Health Care Laws"), and the Seller Parties and
Ancillary Seller Parties have timely filed all reports, data and other
information required to be filed with such commissions, boards, and agencies
where a failure to file timely would have a Material Adverse Effect. Except as
would not, or would not reasonably be expected to, have a Material Adverse
Effect, none of the Broad Group Companies has ever entered into or been subject
to any judgment, consent, decree, compliance order or administrative order or
received from any governmental or regulatory authority any request for
information, notice, demand letter, administrative inquiry or formal or informal
complaint or claim. The Material Contracts comply in all material respects with
the Health Care Laws.
(b) Neither of Modern nor MHC employs any dentist, hygienist, or
other health care provider for the purpose of providing dental care to
individuals or is otherwise subject to any governmental or other agency or
entity regulating, supervising or otherwise having authority over dental care or
health care professionals or providers.
(c) Each Ayes & Rush Dentist and Non-Dentist Employee, and each
employee of HMK who provides any dental services (collectively, the "Health Care
Providers"), to the extent required, is licensed under the laws of the State of
New Jersey or
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Pennsylvania, as applicable, and each Health Care Provider has complied in all
material respects with all laws, rules and regulations relating to the rendering
of services. Since the later of December 31, 1992 or the date of employment of
each Health Care Provider, no Health Care Provider has (i) had his or her
professional license, Drug Enforcement Agency number, Medicare or Medicaid
provider status, or staff privileges at any hospital or dental facility
suspended, relinquished, terminated or revoked, (ii) been reprimanded,
sanctioned or disciplined by any licensing board or any federal, state, or local
society, agency, regulatory body, governmental authority, hospital, third-party
payor or specialty board, or (iii) had a final judgment or settlement entered
against him or her in connection with a malpractice or similar action. To the
best knowledge of the Seller Parties and the Ancillary Seller Parties, all of
the dentists employed by any of the Broad Group Companies are in good physical
and mental health and do not suffer from any illnesses or disabilities which
could prevent any of them from fulfilling their responsibilities under the
respective contracts, agreements or understandings with the Broad Group
Companies, and none of such persons uses (except with a physician's approval) or
abuses any controlled substances during the time period required to perform his
or her duties and obligations under any contracts, agreements, or understandings
of the Business.
(d) The Business does not involve and has never involved patients
covered by any arrangements that required direct billing of Medicare or
Medicaid.
2.15 ENVIRONMENTAL MATTERS. None of the Broad Group Companies has
released, emitted, buried or otherwise disposed of Regulated Substances (as
hereinafter defined) in violation of any Environmental Law (as hereinafter
defined). No one else has released, emitted, buried or otherwise disposed of
Regulated Substances on any of the sites (the "Broad Group Sites") owned or
operated by any Broad Group Company. No storage tanks, underground or otherwise,
are or have been located on any of the Broad Group Sites. Each of the Broad
Group Companies has complied materially with all Environmental Laws relating to
its operations. There are no asbestos containing materials ("ACM's"),
polychlorinated biphenyls ("PCB's") or radioactive substances located on the
Broad Group Sites (except as is typical in the operation of dental practices and
which complies with Environmental Law). None of the Seller Parties or Ancillary
Seller Parties has received any notice, demand, suit or information request
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") or any comparable state law, nor do they have knowledge of any
other party's receipt of the same relating to any of the Business and the Broad
Group Sites. None of the Seller Parties nor the Ancillary Seller Parties has
received written notice that any of the Business or the Broad Group Sites is
listed on any regulatory list of contaminated properties, including but not
limited to the National Priorities List promulgated pursuant to CERCLA (the
"CERCLIS") or any federal, state or local counterpart. No Seller Party or
Ancillary Seller Party has any existing or potential liability under any
Environmental Laws. No environmental approvals, clearances or consents are
required under applicable law from any governmental entity or authority in order
for the Transactions to be consummated, or for Ayes & Rush, HMK or MHC to
continue their respective businesses after the Closing Date, or for the Buyer or
its affiliates to operate the Business after the Closing Date, all in a manner
consistent with present business operations. To
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the best knowledge of the Seller Parties and the Ancillary Seller Parties, there
are no conditions on any adjacent properties which threaten the Business or the
Broad Group Sites (provided, however, that for purposes of this sentence, best
knowledge shall not be deemed to require due investigation by any Seller Party
or Ancillary Seller Party). None of the Broad Group Companies is required to
have, nor do they have, any permits or approvals issued under any Environmental
Law. The Broad Group Companies have disclosed to the Buyer, prior to the date
of this Agreement, their hazardous waste policies, their use of Regulated
Substances and all potentially material environmental matters, and have
disclosed to the Buyer, in writing, all reports, assessments, remedial action
plans or other similar documents, in their or their agent's possession, relating
to any environmental condition, whether or not material, of the Broad Group
Sites or operations.
As used in this Section 2.15 and in Section 3.12 hereof: (i) "Environmental
Law" means any statute, regulation, rule, code, common law, order or judgment of
any applicable federal, state, local or foreign jurisdiction relating to
pollution, hazardous substances, hazardous wastes, petroleum or otherwise
relating to protection of the environment, natural resources or human health,
including, by way of example and not by way of limitation, the Clean Air Act,
the Clean Water Act, the Resource Conservation Recovery Act ("RCRA"), CERCLA,
the Toxic Substances Control Act ("TSCA"), and the Emergency Planning and
Community Right-to-Know Act, all as currently amended; and (ii) "Regulated
Substances" means any substance regulated under Environmental Laws, including
but not limited to hazardous waste, as defined pursuant to RCRA, hazardous
substances, as defined pursuant to CERCLA, toxic substances as defined under
TSCA, hazardous materials, as defined under the Hazardous Materials
Transportation Act, petroleum and its fractions, ACM's and PCB's.
2.16 INVESTMENT INTENT. Each of the Stockholders: (a) has received, prior
to the Closing, copies of the documents identified in the attached EXHIBIT J
(which DentalCo may update or supplement at any time prior to Closing); (b) is
either (i) an "accredited investor," as that term is defined in Regulation D
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
or (ii) by reason of his business and financial experience, and the business and
financial experience of those persons, if any, advising him with respect to his
investment in the DentalCo Shares, 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 DentalCo Shares; (c) to his satisfaction, has been provided the opportunity
to ask questions and receive answers from DentalCo concerning the terms and
conditions of the DentalCo Shares to be received in the Transactions, 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)
will be acquiring the DentalCo Shares in connection with the liquidation of MDC
within one year following the Closing Date and will be acquired by him for his
own account for investment purposes only and without any view towards resale or
other distribution; (e) except for the representations and warranties of
DentalCo expressly set forth in Article III hereof, no representations or
warranties have been made to him by or on behalf of DentalCo in connection with
the Transactions, and in making his investment in the
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DentalCo Shares, he is relying on the representations and warranties of DentalCo
set forth in Article III hereof and on the results of his own independent
investigation; (f) can bear the economic risks of his investment in the DentalCo
Shares, can afford a complete loss of such investment, and is not relying upon
any representation or warranty made by DentalCo, or any officer, director,
shareholder, employee, agent, or representative of DentalCo regarding the value
of the DentalCo Shares; (g) understands that the issuance of the DentalCo Shares
as a result of this Agreement is intended to be exempt from registration under
the Securities Act and applicable state law and that the DentalCo Shares are not
required to be registered under the Securities Act, the Securities Exchange Act
of 1934, as amended, or any state securities laws, and that there can be no
assurance that a public market for the DentalCo Shares will ever develop; (h)
understands that, except for the distribution of DentalCo Shares by MDC in
complete liquidation of MDC, the DentalCo Shares will be subject to additional
restrictions on transfer pursuant to the Stockholders' Agreement (the
"Stockholders' Agreement") attached hereto as EXHIBIT K and to be reasonably
satisfactory to the parties hereto; (i) agrees that any certificates evidencing
the DentalCo 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 DentalCo of a legal
opinion of or satisfactory to its legal counsel that such exemption is
applicable, and (j) agrees that DentalCo can issue stop transfer instructions to
its transfer agent prohibiting transfer of the DentalCo Shares to be acquired by
him, except in compliance with the provisions of the Securities Act, applicable
state securities laws, this Agreement, and the Stockholders' Agreement.
2.17 INSURANCE. Each of the Broad Group Companies maintains as to its
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies (with respect to insurance
carried by Modern, such insurance covers any claims against Modern arising from
medical malpractice claims against Ayes & Rush, including its predecessors, or
any of their employees and Modern's subcontractors) and of such types and in
such amounts as is customary for companies similarly situated. SCHEDULE 2.17
hereto contains a list of all such insurance policies, together with the
termination date, premium amounts and the nature and amount of coverage of each
such policy. A copy of each such insurance policy, together with copies of the
reports of all claims made, and pending, against such policy during the three
fiscal years immediately preceding the Closing, have previously been delivered
to the Buyer by Modern.
2.18 MEDICAL WASTE. The Seller Parties and Ancillary Seller Parties are
not in violation of, or the subject of any investigation, inquiry or enforcement
action by any governmental authority under, the Medical Waste Tracking Act, 42
U.S.C. Section 6992 et seq., or any applicable state or local government
statute, ordinance, or regulation dealing with the disposal of medical wastes
(collectively, the "Medical Waste Laws."). Ayes & Rush, HMK and MHC have
obtained and are in compliance with any permits required by the Medical Waste
Laws relating to medical
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waste disposal, and all disposal of medical waste by Ayes & Rush, HMK and MHC
has been in compliance with the Medical Waste Laws.
2.19 FRAUD AND ABUSE. None of the Broad Group Companies, nor any of their
respective officers, directors, or stockholders, has engaged in any activities
which are prohibited under federal Medicare and Medicaid Statutes, 42 U.S.C.
Sections 1320a-7, 1320a-7(a) and 1320a-7(b), or the regulations promulgated
pursuant to such statutes or related state or local statutes or regulations, or
which are prohibited by the rules of professional conduct promulgated by the
appropriate licensing authority of the States of Maryland, New Jersey and
Pennsylvania and which could materially adversely affect the Business, including
but not limited to the following:
2.19.1. knowingly and willfully making or causing to be made a false
statement or representations of a material fact in any application for benefit
or payment;
2.19.2. knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment;
2.19.3. presenting or causing to be presented a claim for
reimbursement for services under Medicare, Medicaid, or other state health care
program that is for an item or service that is known or should be known to be
(a) not provided as claimed, or (b) false or fraudulent;
2.19.4. failing to disclose knowledge by a claimant of the occurrence
of any event affecting the initial or continued right to any benefit or payment
on its own behalf or on behalf of another, with intent to fraudulently secure
such benefit or payment;
2.19.5. knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe, or rebate), directly
or indirectly, overtly or covertly, in cash or in kind (a) in return for
referring an individual to a person for the furnishing or the arranging for the
furnishing of any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or other state health care program, or (b) in
return for purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing, or ordering any good, facility, service, or item for which
payment may be made in whole or in part by Medicare or Medicaid or other state
health care program; or
2.19.6. knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a fact required to be stated therein or
necessary to make the statements therein not misleading) of a material fact with
respect to (a) the conditions or operations of a facility in order that the
facility may qualify for Medicare, Medicaid or other state health care program
certification, or (b) information required to be provided under Section 1124A of
the Social Security Act (42 U.S.C. Section 1320a-3).
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2.20 LOAN ADVANCES. Except as set forth in SCHEDULE 2.20 hereto, none of
the Broad Group Companies has outstanding loans or advances to any person nor
are any of such companies obligated to make any such loans or advances, except
with respect to MHC, for loans or advances that are not reasonably likely to
have a Material Adverse Effect.
2.21 ASSUMPTIONS, GUARANTIES, ETC. OF INDEBTEDNESS OF OTHER PERSONS. Except
as set forth in SCHEDULE 2.21 hereto, none of the Broad Group Companies has
assumed, guaranteed, endorsed or otherwise become directly or contingently
liable on any indebtedness of any other person (including, without limitation,
liability by way of agreement, contingent or otherwise, to purchase, to provide
funds for payment, to supply funds to or otherwise invest in the debtor, or
otherwise to assure the creditor against loss), except for guaranties by
endorsement of negotiable instruments for deposit or collection in the ordinary
course of business, and with respect to MHC, except for loans or advances that
are not reasonably likely to have a Material Adverse Effect.
2.22 TRANSACTIONS WITH AFFILIATES. Except at set forth in SCHEDULE 2.22
hereto, no director, officer, employee or stockholder of any Broad Group
Company, nor member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or any member of
the family of any such person, has a substantial interest or is an officer,
director, trustee, partner or holder of more than 5% of the outstanding capital
stock thereof, is presently or is contemplated to be a party to any transaction
with the Business, including any contract, agreement or other arrangement
providing for the employment of, furnishing of services by, rental of real or
personal property from or otherwise requiring payments to any such person or
firm.
2.23 INTELLECTUAL PROPERTY. (a) Except as set forth in SCHEDULE 2.23
hereto, Modern, Ayes & Rush and HMK (i) have exclusive ownership of or an
exclusive license or other rights to use the trademarks, trade names, services
marks, copyrights, product designs, software and other electronic systems and
databases, or agreements for any of the foregoing, and the telephone numbers
used in the Business (collectively, the "Intellectual Property"), all as set
forth in SCHEDULE 2.23 hereto (which schedule includes all of the Intellectual
Property used by any of Modern, Ayes & Rush, or HMK). Except as set forth in
SCHEDULE 2.23 hereto, the rights of Modern and HMK in the intellectual property
that they own are freely transferable. To the best knowledge of the Seller
Parties and Ancillary Seller Parties, there are no infringements by another
person of any of the rights of Modern, Ayes & Rush and HMK under any such
Intellectual Property. No claim is pending or threatened against any of Modern,
Ayes & Rush and HMK to the effect that any such Intellectual Property infringes
upon or conflicts with the asserted rights of any other person and, to the best
knowledge of the Seller Parties and the Ancillary Seller Parties, there is no
basis for any such claim (whether or not pending or threatened). To the best
knowledge of the Seller Parties and the Ancillary Seller Parties, none of
Modern, Ayes & Rush nor HMK is making unlawful use of any Intellectual Property
of any other person, including, without limitation, any former employer or any
past or present employees of Modern, Ayes & Rush or HMK. To the best knowledge
of the Seller Parties and
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the Ancillary Seller Parties, none of Modern, Ayes & Rush nor HMK, nor their
respective employees has any agreements or arrangements with former employers of
such employees relating to any Intellectual Property of such employers, which
interfere or conflict with the performance of such employee's duties to Modern,
Ayes & Rush or HMK.
(b) Each of Modern, Ayes & Rush and HMK has required all of its
employees having access to valuable non-public information relating to the
Business to execute agreements under which such employees are required to
maintain the confidentiality of all such information. Except as set forth in
SCHEDULE 2.23 hereto, no employee or consultant of Modern, Ayes & Rush or HMK
owns any rights in any products, technology or Intellectual Property of the
Business.
2.24 RECORDS OF THE BUSINESS. The records of the Business are true and
complete in all material respects, and there are no material matters as to which
appropriate entries have not been made in the records.
2.25 DISCLOSURE. No representation or warranty by the Seller Parties or
the Ancillary Seller Parties in this Agreement and no information in any
statement, certificate, schedule or other document furnished or to be furnished
to the Buyer pursuant hereto contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary to make
the statements contained herein or therein, when taken together, not misleading.
There is no fact which each of the Seller Parties or Ancillary Seller Parties
has not disclosed, in writing, to the Buyer which could reasonably be expected
to have a Material Adverse Effect (other than information regarding general
business risks and the like).
2.26 BROKERS. None of the Seller Parties or Ancillary Seller Parties has
employed any broker, finder or agent with respect to the Transactions, nor do
they know of any basis on which any third party could claim any broker's,
finder's, agent's or similar fee with respect thereto from the Seller Parties or
Ancillary Seller Parties.
2.27 RELATIONSHIP WITH EMPLOYEES AND INDEPENDENT CONTRACTORS. SCHEDULE 2.27
hereto sets forth a list of all Ayes & Rush Dentists, HMK Dentists, Non-Dentist
Employees and Modern Employees, and all consultants and independent contractors
(including current job title and aggregate annual compensation) thereof who have
received for the fiscal year ended December 31, 1996 or are scheduled to receive
for the fiscal year ending December 31, 1997, payments in excess of $25,000. The
relationships of the Business with the third party administrators, DPO's and
insurers with which it participates are good commercial working relationships.
None of such third party administrators, DPO's and insurers that have accounted
for more than 5% of the revenues of the Business during the fiscal year ended
December 31, 1996 have canceled or otherwise terminated their relationships with
the Business or have indicated that they will do so, or have decreased
materially their usage of services of the Business.
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2.28 MISCELLANEOUS.
(a) The fair market value of the DentalCo Shares and cash in lieu of
a fractional share received by MDC pursuant to the provisions of Section 1.04
hereof will be approximately equal to the fair market value of the MDC common
stock surrendered in exchange therefor.
(b) The fair market value of the Purchased Assets will equal or
exceed the sum of any liabilities assumed by the Buyer, plus the amount of
liabilities, if any, to which the Purchased Assets are subject.
(c) The Buyer will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market of the gross
assets held by MDC immediately prior to the Transaction. For purposes of this
representation, amounts paid by MDC to dissenters, amounts used by MDC to pay it
reorganization expenses, amounts paid by MDC to shareholders who receive cash or
property, and all redemptions and distributions (except for regular, normal
dividends) made by MDC immediately preceding the transfer, will be included as
assets of MDC held immediately prior to the Transaction.
(d) There is no plan or intention by the MDC shareholders who own one
percent or more of MDC common stock, and to the best of the knowledge of the
management of MDC, there is no plan or intention on the part of the remaining
shareholders of MDC to sell, exchange, or otherwise dispose of a number of
DentalCo Shares received in the Transaction that would reduce the MDC
shareholders' ownership of DentalCo Shares to a number of shares having a value,
as of the date of the Transaction, of less than 50 percent of the value of the
formerly outstanding stock of MDC as of the same date. For purposes of this
representation, shares of MDC common stock exchanged for cash or other property,
surrendered by dissenters or exchanged for cash in lieu of fractional DentalCo
Shares will be treated as outstanding MDC common stock on the date of the
Transaction. Shares of MDC common stock and DentalCo Shares held by MDC
shareholders and otherwise sold, redeemed, or disposed of prior or subsequent to
the Transaction will be considered in making this representation.
(e) MDC will distribute the DentalCo Shares it receives in the
Transaction, and its other properties, in pursuance of the plan or
reorganization.
(f) The liabilities of MDC assumed by the Buyer as a result of the
Transaction and the liabilities to which the Purchased Assets are subject were
incurred by MDC in the ordinary course of its business.
(g) MDC will pay its respective expenses, if any, incurred in
connection with the Transaction, however, the Buyer is permitted to pay or
assume only those expenses of MDC that are solely and directly related to the
Transaction.
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(h) There is no intercorporate indebtedness existing between MDC and
the Buyer or MDC and DentalCo that was issued, acquired, or will be settled at a
discount.
(i) MDC is not an investment company as defined in Section
368(a)(2)(iii) and (iv) of the Code.
(j) MDC is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3(A) of the Code.
(k) The payment of cash in lieu of fractional DentalCo Shares is
solely for the purpose of avoiding the expense and inconvenience to DentalCo of
issuing fractional shares and does not represent separately
bargained-for-consideration. The total cash consideration that will be paid in
the transaction to the MDC shareholders instead of issuing fractional DentalCo
Shares will not exceed one percent of the total consideration that will be
issued in the Transaction to the MDC shareholders in exchange for their DentalCo
Shares. The fractional share interests of each MDC shareholder will be
aggregated, and no MDC shareholder will receive cash in an amount greater to or
greater than the value of one full DentalCo Share.
(l) None of the compensation received by any shareholder-employees of
MDC will be separate consideration for, or allocable to, any of their shares of
MDC common stock; none of the DentalCo Shares received by any
shareholder-employees of MDC will be separate consideration for, or allocable to
any employment agreement; and the compensation paid to any shareholder-employees
of MDC will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for similar services.
(m) MDC will liquidate within twelve months of the Transaction.
(n) The DentalCo Shares issued to MDC in connection with the
Transactions will be voting common stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND DENTALCO
The Buyer and DentalCo hereby represent and warrant to the Seller Parties
that, except as set forth on the Disclosure Schedule of the Buyer and DentalCo:
3.01 ORGANIZATION AND AUTHORITY. Each of DentalCo and the Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland, and is licensed or qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to so qualify will not have a material adverse effect on its
financial condition or results of
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operations (a "DentalCo Material Adverse Effect"). True and complete copies of
the charter and by-laws of each of DentalCo and the Buyer have been delivered to
MDC. Neither DentalCo nor the Buyer is in violation of any material term of its
charter or by-laws. Each of DentalCo and the Buyer has all requisite corporate
power and authority to conduct its business as presently conducted, and, to the
extent a party thereto, to enter into this Agreement and each Ancillary
Agreement and to carry out the Transactions.
3.02 AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution, delivery and
performance by the Buyer of this Agreement, and by DentalCo and the Buyer of any
Ancillary Agreement (to the extent a party thereto) has been duly authorized by
all necessary action, corporate or otherwise, of DentalCo and the Buyer. This
Agreement has been duly executed and delivered by the Buyer and, assuming the
due authorization, execution, and delivery hereof by the Seller Parties, is a
legal, valid and binding obligation of the Buyer, enforceable against it in
accordance with its terms. Each Ancillary Agreement is, or when executed by
DentalCo or the Buyer (to the extent a party thereto) will constitute, a legal,
valid and binding obligation of each of DentalCo and the Buyer, as applicable,
enforceable against each of them in accordance with its respective terms.
3.03 DENTALCO SHARES. The DentalCo Shares, when delivered to Modern on the
Closing Date, will be free and clear of all liens, claims, and encumbrances of
any kind, whatsoever, except for restrictions contained in DentalCo's Articles
of Incorporation and pursuant to the Stockholders' Agreement. If $8,000,000 of
the purchase price were paid by the delivery of DentalCo Shares to Modern, the
DentalCo Shares would represent, prior to the investment by certain current
institutional investors of DentalCo of up to $20 million of debt and equity,
6.87% of the common stock of DentalCo issued and outstanding on the Closing Date
on a fully-diluted basis.
3.04 NO VIOLATION. Neither the execution and delivery of this Agreement nor
any Ancillary Agreement, nor the consummation of the Transactions will (a)(i)
constitute a default or violation (or an event which, with notice or lapse of
time or both, would constitute a default) under, (ii) result in the termination
of, (iii) accelerate the performance required by, (iv) cause the acceleration of
the maturity of any debt or obligation pursuant to, or (v) result in the
creation or composition of any Lien upon any property or assets of the Buyer or
DentalCo under, any agreement or commitment to which any of the Buyer or
DentalCo is a party or to which any of their respective assets are subject, or
(b) violate any statute or laws or any judgment, decree, order, regulation, or
rule of any court or governmental authority.
3.05 FINANCIAL STATEMENTS. (a) The Buyer has furnished to MDC the audited
consolidated balance sheets of DentalCo for each of DentalCo's fiscal years
ended December 31, 1995 and 1996 (the December 31, 1996 balance sheet being
called, the "DentalCo 1996 Balance Sheet"), and the related audited statements
of income and retained earnings and cash flows for the fiscal years then ended,
including, in each case, the related notes thereto, all of which have been
examined by, and are accompanied by the unqualified independent auditor's report
of KPMG Peat Marwick (collectively, the "DentalCo Financial Statements"). The
DentalCo
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Financial Statements have been prepared in accordance with GAAP and fairly
present the consolidated financial position of DentalCo and its subsidiaries as
of the dates stated and the consolidated results of operations of DentalCo and
its subsidiaries for the periods then ended.
(b) The Buyer has delivered to MDC the consolidated unaudited balance
sheet of DentalCo as at March 31, 1997, and its unaudited related statements of
income and retained earnings and cash flows for the period beginning on the
first day of DentalCo's current fiscal year and ending on March 31, 1997
(collectively, the "DentalCo Interim Statements"). The DentalCo Interim
Statements have been prepared in conformity with GAAP, and fairly present
(subject to normal, recurring audit adjustments) the consolidated unaudited
financial position of DentalCo and its subsidiaries as at such date and the
consolidated results of operations of DentalCo and its subsidiaries for such
period then ended.
3.06 NO UNDISCLOSED LIABILITIES. DentalCo does not have any material
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent or otherwise), except for liabilities or
obligations stated or adequately reserved against in the DentalCo Interim
Statements, or incurred in the ordinary course of business since the date of the
DentalCo Interim Statements consistent with past practice and the terms of this
Agreement .
3.07 TAXES.
(a) DentalCo has filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in all respects. All Taxes
owed by DentalCo (whether or not shown on any Tax Return) have been paid.
No claim has ever been made by an authority in a jurisdiction where
DentalCo does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. There are no security interests of any kind
whatsoever on any of the assets of DentalCo that arose in connection with
any failure (or alleged failure) to pay any Tax.
(b) DentalCo has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(c) Neither of the Buyer nor DentalCo (or employee of DentalCo
responsible for Tax matters) expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of DentalCo either (i)
claimed or raised by any authority in writing or (ii) as to which the Buyer
or DentalCo (or employee of DentalCo responsible for Tax matters) has any
knowledge based upon personal contact with any agent of such authority.
Schedule 3.07(c) hereto lists all federal, state, local, and foreign income
Tax Returns filed with respect to DentalCo for taxable periods ended on or
after December 31, 1995, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the subject of
an audit. DentalCo has delivered to MDC correct and complete copies
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of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by DentalCo since December 31,
1995.
(d) DentalCo has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment
or deficiency.
(e) The unpaid Taxes of DentalCo (i) did not, as of March 31, 1997,
exceed the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax
income) set forth on the face of the DentalCo Interim Statements (rather
than in any notes thereto) and (ii) do not exceed that reserve as adjusted
for the passage of time through the Closing Date in accordance with the
past custom and practice of DentalCo in filing its Tax Returns.
(f) DentalCo is not a party to any Tax allocation or sharing
agreement. DentalCo (i) has not been a member of an "Affiliated Group"
within the meaning of Section 1504(a) of the Code filing a consolidated
federal income Tax Return (other than a group the common parent of which
was DentalCo) and (ii) has no Tax Liability for the Taxes of any person
(other than DentalCo) under Reg. Section 1.1502-6 (or any similar provision
of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
3.08 EMPLOYEE MATTERS.
(a) SCHEDULE 3.08 hereto identifies, with respect to DentalCo, each
"employee benefit plan" that (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 DentalCo or any affiliate (as defined below) and covers any
employee or former employee of DentalCo or any affiliate or under which either
DentalCo 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 MDC, 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 "DentalCo 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 DentalCo Employee Plans, which individually or
collectively would constitute an "employee pension benefit plan" (the "DentalCo
Pension Plans"), are identified as such on SCHEDULE 3.08 hereto
(b) No DentalCo Employee Plan constitutes a "multi employer plan" or
a "defined benefit plan,", and no DentalCo Employee Plan is maintained in
connection with any trust described in Section 501(c) of the Code. No
"accumulated funding deficiency," has been incurred with respect to any DentalCo
Pension Plan, whether or not waived. Full payment has been made of all amounts
which either DentalCo or any affiliate is required to have paid as contributions
to or benefits under any DentalCo Employee Plan as of the end of the most recent
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fiscal year thereof and there are no unfunded obligations under any DentalCo
Employee Plan that have not been disclosed to MDC in writing prior to the date
hereof. Except as set forth in SCHEDULE 3.08 hereto or as expressly contemplated
by this Agreement, neither of the Buyer or DentalCo know of any "reportable
events,", and no event described in Section 4041, 4042 4062 or 4063 of ERISA has
occurred in connection with any DentalCo Employee Plan. Except as set forth in
SCHEDULE 3.08 hereto or as expressly contemplated by this Agreement or the
Transactions, no condition exists and no event has occurred that could
constitute grounds for termination of any DentalCo Employee Plan, and neither
the Buyer nor DentalCo nor any affiliate 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 DentalCo Employee Plan has
or will make either DentalCo or any officer or director of DentalCo 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 DentalCo Employee Plan or any fiduciary or administrator thereof
in their capacities as such.
(c) Each DentalCo 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. The Buyer has
furnished to MDC copies of the most recent Internal Revenue Service
determination letters with respect to each such DentalCo Employee Plan. Each
DentalCo Employee Plan has been maintained, from the time of such Plan's
inception up to and including the performance of any or all Transactions, 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 DentalCo
Employee Plan.
(d) Except as would not have a DentalCo Material Adverse Effect, to
the best knowledge of the Buyer and DentalCo, there is no contract, agreement,
plan, or arrangement covering any employee or former employee of either the
Buyer or DentalCo 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 3.08 hereto identifies each written 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 a DentalCo Employee Plan,
(ii) is entered into, maintained or contributed to, as the case may be, by
either the Buyer or DentalCo or any of its affiliates, and (iii) covers any
employee or former employee of either the Buyer or DentalCo or any of its
affiliates. Such contracts, loans and arrangements as are described above,
copies or descriptions of all of which have been
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furnished previously to MDC, are referred to collectively herein as the
"DentalCo Benefit Arrangements". Except as would not have a DentalCo Material
Adverse Effect, each DentalCo 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
DentalCo Benefit Arrangement.
(f) Except as would not have a DentalCo Material Adverse Effect, or
as set forth in SCHEDULE 3.08 hereto, there is no liability in respect of
post-retirement health and medical benefits for retired employees of either the
Buyer or DentalCo 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). DentalCo has reserved its right to amend or terminate any DentalCo
Employee Plan or DentalCo Benefit Arrangement providing health or medical
benefits in respect of any active employee of DentalCo under the terms of any
such plan and descriptions thereof given to employees. Except as would not have
a DentalCo Material Adverse Effect, with respect to any of DentalCo Employee
Plans which are "group health plans", to the best knowledge of the Buyer and
DentalCo, there has been timely compliance in all material respects with all
requirements imposed thereunder so that DentalCo 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 3.08 hereto, there has been no
amendment to, written interpretation or announcement (whether or not written) by
either DentalCo or any of its affiliates relating to, or change in employee
participation or coverage under, any DentalCo Employee Plan or DentalCo Benefit
Arrangement which would increase the expense of maintaining such DentalCo
Employee Plan or DentalCo Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year most recently ended.
(h) Except as set forth in SCHEDULE 3.08 hereto, DentalCo 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 will not
constitute a triggering event under any DentalCo 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 DentalCo that has not
been specifically disclosed on SCHEDULE 3.08 hereto.
3.09 LITIGATION, PROCEEDINGS AND APPLICABLE LAW.
(a) Except as set forth in SCHEDULE 3.09 hereto, there is no (i)
action, suit, claim, proceeding or investigation pending or threatened (whether
known or unknown) against or affecting the Buyer or DentalCo, or with respect to
any employee of DentalCo, relating to his employment therewith, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
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foreign, (ii) arbitration proceeding relating to DentalCo or with respect to any
employee of DentalCo, relating to his employment therewith pending under
collective bargaining agreements or otherwise, or (iii) governmental inquiry
pending or threatened against or affecting DentalCo or with respect to any
employee of DentalCo, relating to his employment therewith (collectively,
"DentalCo Litigation Matters"), and there is no basis for any of the foregoing.
SCHEDULE 3.09 hereto contains a list of all DentalCo Litigation Matters to which
DentalCo has been a party during the three years immediately preceding the
Closing. Copies of all correspondence, records of all proceedings, motions,
orders, writs, injunctions, decrees, consents and other documents relating to
DentalCo Litigation Matters have been provided to MDC. None of DentalCo or any
employee of DentalCo has received any opinion or memorandum or legal advice from
legal counsel to the effect that it is exposed, from a legal standpoint, to any
liability or disadvantage which may affect DentalCo's business, prospects,
financial condition, operations, properties or affairs. None of DentalCo or any
employee of DentalCo is in default with respect to any order, writ, injunction
or decree known to or served upon DentalCo or any employee of DentalCo of any
court or of any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign. There
is no action or suit by DentalCo, or with respect to any employee of DentalCo,
relating to his employment therewith pending or threatened against others.
(b) Each of DentalCo and the employees of DentalCo (i) has complied
in all material respects with all laws, rules, regulations and orders which are
applicable to DentalCo's business, operations, properties, assets, products and
services, and (ii) has obtained all necessary permits, licenses and other
authorizations, including environmental, required to enable DentalCo to conduct
its business as conducted and as proposed to be conducted. There is no existing
law, rule, regulation or order, whether Federal or state or local, which would
prohibit or restrict DentalCo from, or otherwise adversely affect DentalCo in,
conducting its business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business.
3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on SCHEDULE
3.10 hereto, since the date of the DentalCo Interim Financial Statements, no
event has occurred that would result in a DentalCo Material Adverse Effect.
3.11 REGULATORY COMPLIANCE. (a) Except as would not reasonably be expected
to have a DentalCo Material Adverse Effect, DentalCo is now in compliance in all
material respects with all applicable statutes, rules, regulations and
requirements of all Federal, state, and local commissions, boards, and agencies
having jurisdiction over the its business, including, without limitation, the
Internal Revenue Service, the Department of Health and Human Services and its
Health Care Financing Administration (including, without limitation, all
applicable statutes, rules, regulations, manual provisions, and requirements
pertaining to payments and other consideration to referral sources), and
DentalCo has timely filed all reports, data and other information required to be
filed with such commissions, boards, and agencies where a failure to file timely
would have a DentalCo Material Adverse Effect. Except as would not, or would not
reasonably be expected to, have a DentalCo Material Adverse Effect, DentalCo has
never entered
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into or been subject to any judgment, consent, decree, compliance order or
administrative order or received from any governmental or regulatory authority
any request for information, notice, demand letter, administrative inquiry or
formal or informal complaint or claim.
(b) Except as permitted by law, DentalCo employs no dentist,
hygienist, or other health care provider for the purpose of providing dental
care to individuals or is otherwise subject to any governmental or other agency
or entity regulating, supervising or otherwise having authority over dental care
or health care professionals or providers.
(c) The Business does not involve patients covered by any
arrangements with Medicare.
3.12 ENVIRONMENTAL MATTERS. DentalCo has not released, emitted, buried or
otherwise disposed of Regulated Substances in violation of any Environmental
Law. No one else has released, emitted, buried or otherwise disposed of
Regulated Substances on any of the sites owned or operated by DentalCo (the
"DentalCo Sites"). No storage tanks, underground or otherwise, are or have been
located on any of the DentalCo Sites. DentalCo has complied materially with all
Environmental Laws relating to its operations. There are no ACM's, PCB's or
radioactive substances located on the DentalCo Sites (except as is typical in
the operation of dental practices and which complies with Environmental Law).
DentalCo has received no notice, demand, suit or information request pursuant to
CERCLA or any comparable state law, nor does it have knowledge of any other
party's receipt of the same relating to its business and the DentalCo Sites.
DentalCo has received no written notice that any of the DentalCo Sites is listed
on any regulatory list of contaminated properties, including but not limited to
CERCLIS or any federal, state or local counterpart. DentalCo has no existing or
potential liability under any Environmental Laws. No environmental approvals,
clearances or consents are required under applicable law from any governmental
entity or authority in order for the Transactions to be consummated. To the best
knowledge of DentalCo, there are no conditions on any adjacent properties which
threaten the DentalCo's business or the DentalCo Sites (provided, however, that
for purposes of this sentence, best knowledge shall not be deemed to require due
investigation by DentalCo). DentalCo is not required to have, nor does it have,
any permits or approvals issued under any Environmental Law
3.13 INSURANCE. DentalCo maintains as to its properties and business, with
financially sound and reputable insurers, insurance against such casualties and
contingencies and of such types and in such amounts as is customary for
companies similarly situated. Schedule 3.13 hereto contains a list of all such
insurance policies, together with the termination date, premium amounts and the
nature and amount of coverage of each such policy.
3.14 MEDICAL WASTE. DentalCo is not in violation of, or the subject of any
investigation, inquiry or enforcement action by any governmental authority
under, the Medical Waste Laws. DentalCo has obtained and is in compliance with
any permits required by the
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Medical Waste Laws relating to medical waste disposal, and all disposal of
medical waste by DentalCo has been in compliance with the Medical Waste Laws.
3.15 Fraud and Abuse. Neither DentalCo nor any of its respective officers,
directors, or stockholders, has engaged in any activities which are prohibited
under federal Medicare and Medicaid Statutes, 42 U.S.C. Sections 1320a-7,
1320a-7(a) and 1320a-7(b), or the regulations promulgated pursuant to such
statutes or related state or local statutes or regulations, or which are
prohibited by the rules of professional conduct promulgated by the appropriate
licensing authority of the State of Maryland and which could materially
adversely affect its business, including but not limited to the following:
3.15.1. knowingly and willfully making or causing to be made a false
statement or representations of a material fact in any application for benefit
or payment;
3.15.2. knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment;
3.15.3. presenting or causing to be presented a claim for
reimbursement for services under Medicare, Medicaid, or other state health care
program that is for an item or service that is known or should be known to be
(a) not provided as claimed, or (b) false or fraudulent;
3.15.4. failing to disclose knowledge by a claimant of the occurrence
of any event affecting the initial or continued right to any benefit or payment
on its own behalf or on behalf of another, with intent to fraudulently secure
such benefit or payment;
3.15.5. knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe, or rebate), directly
or indirectly, overtly or covertly, in cash or in kind (a) in return for
referring an individual to a person for the furnishing or the arranging for the
furnishing of any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or other state health care program, or (b) in
return for purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing, or ordering any good, facility, service, or item for which
payment may be made in whole or in part by Medicare or Medicaid or other state
health care program; or
3.15.6. knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a fact required to be stated therein or
necessary to make the statements therein not misleading) of a material fact with
respect to (a) the conditions or operations of a facility in order that the
facility may qualify for Medicare, Medicaid or other state health care program
certification, or (b) information required to be provided under Section 1124A of
the Social Security Act (42 U.S.C. Section 1320a-3).
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3.16 Transactions with Affiliates. Except at set forth in Schedule 3.16
hereto, no director, officer, employee or stockholder of DentalCo, nor member of
the family of any such person, or any corporation, partnership, trust or other
entity in which any such person, or any member of the family of any such person,
has a substantial interest or is an officer, director, trustee, partner or
holder of more than 5% of the outstanding capital stock thereof, is presently or
is contemplated to be a party to any transaction with DentalCo's business,
including any contract, agreement or other arrangement providing for the
employment of, furnishing of services by, rental of real or personal property
from or otherwise requiring payments to any such person or firm.
3.17 Records of the Business. The records of DentalCo's business are true
and complete in all material respects, and there are no material matters as to
which appropriate entries have not been made in the records.
3.18 Disclosure. No representation or warranty by DentalCo in this
Agreement and no information in any statement, certificate, schedule or other
document furnished or to be furnished to MDC pursuant hereto contains or will
contain any untrue statement of a material fact, or omits or will omit to state
a material fact necessary to make the statements contained herein or therein,
when taken together, not misleading. There is no fact which DentalCo has not
disclosed, in writing, to MDC which could reasonably be expected to have a
DentalCo Material Adverse Effect (other than information regarding general
business risks and the like).
3.19 Brokers. DentalCo has not employed any broker, finder or agent with
respect to the Transactions, nor does it know of any basis on which any third
party could claim any broker's, finder's, agent's or similar fee with respect
thereto from DentalCo.
3.20 Miscellaneous.
(a) DentalCo has no plan or intention to reacquire any of the
DentalCo Shares issued in the Transaction.
(b) The Buyer has no plan or intention to sell or otherwise dispose
of any of the Purchased Assets, except for dispositions made in the ordinary
course of business or transfers described in Section 368(a)(2)(C) of the Code.
(c) Following the Transaction, the Buyer will continue the historic
business of MDC or use a significant portion of MDC's historic business assets
in a business.
(d) The Buyer will pay its expenses incurred in connection with the
Transaction.
(e) There is no intercorporate indebtedness existing between MDC and
the Buyer nor MDC and DentalCo that was issued, acquired, or will be settled for
a discount.
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(f) Neither the Buyer nor DentalCo is an investment company as
defined in Section 368(2)(F)(iii) and (iv) of the Code.
(g) Neither the Buyer nor DentalCo owns, directly or indirectly, nor
has it owned during the past five years, directly or indirectly, any stock of
MDC.
(h) The payment of cash in lieu of fractional DentalCo Shares is
solely for the purpose of avoiding the expense and inconvenience to DentalCo of
issuing fractional shares and does not represent separately
bargained-for-consideration.
(i) None of the compensation received by any shareholder-employees of
MDC from the Buyer will be separate consideration for, or allocable to, any of
their shares of MDC common stock.
(j) Prior to, and at the time of, the Transaction, DentalCo will be
in direct control of the Buyer within the meaning of Section 368(c) of the Code,
without the applicable of Section 318 of the Code.
(k) No stock of the Buyer will be issued in the Transaction.
(l) DentalCo will not assume any liabilities of MDC in the
Transaction.
(m) Neither Buyer nor DentalCo warrant or represent that the
acquisition by Buyer of the Purchased Assets will qualify as a tax-free
reorganization pursuant to Sections 368 (a)(1)(C) or 368(a)(2)(C) of the Code.
ARTICLE IV
COVENANTS OF THE SELLER PARTIES
The Seller Parties jointly and severally covenant to the Buyer that, except
as otherwise consented to in writing by the Buyer after the date of this
Agreement:
4.01 Conduct of Business.
(a) Between the date hereof and the Closing Date, without the prior
written consent of the Buyer, none of the Seller Parties and the Ancillary
Seller Parties will (to the extent that any such action could reasonably be
expected to adversely affect the Business): (i) conduct the Business, other than
in the ordinary course of business, consistent with past practices; (ii) make
any sale, transfer, lease or other disposition of any Purchased Assets or
mortgage, pledge or otherwise create a security interest in any of the Purchased
Assets, other than in the ordinary course of business consistent with past
practices; (iii) fail to maintain the books, accounts and
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records of the Business on a basis consistent with past Business; (iv) create,
incur or assume any indebtedness (except for accounts payable in the ordinary
course of business) for money borrowed in connection with the Business; (v) with
respect to the Business, effect any transaction with any other entity or person,
the terms of which are not commercially reasonable or are other than on an arm's
length basis; (vi) take any action that would cause any of the representations
and warranties made in Article II hereof not to remain true and correct; (vii)
undertake any action or engage in any omission which shall impair or jeopardize
any of the rights to any of the Purchased Assets; or (viii) enter into any
contract, agreement, commitment or arrangement with respect to any of the
actions prohibited by the foregoing.
(b) From the date hereof until the Closing Date, the Seller Parties
shall keep the Buyer advised of any significant decisions concerning the
Business and shall use their best efforts to preserve the Business.
4.02 Liabilities. The Seller Parties and the Ancillary Seller Parties, as
applicable, promptly shall pay, fulfill, perform or otherwise discharge any
liabilities or obligations, as they become due, arising out of, relating to, or
in connection with the Business prior to the Closing Date.
4.03 [Intentionally Left Blank].
4.04 No-Shop. So long as this Agreement has not been terminated in
accordance with its provisions, the Seller Parties and the Ancillary Seller
Parties shall negotiate exclusively with the Buyer for the acquisition of the
Purchased Assets, and during such time, none of the Seller Parties, the
Ancillary Seller Parties nor their respective affiliates, advisors, directors,
officers, employees or agents (collectively, the "Modern Parties") shall,
directly or indirectly, solicit, discuss any proposal regarding, or negotiate
with any person or entity (other than among themselves), the sale or other
acquisition of the Purchased Assets or the Business, whether by asset or stock
sale, merger, or otherwise. If the Modern Parties shall breach the provisions
of this Section 4.04, then the Seller Parties, jointly and severally, shall be
obligated to pay to the Buyer by wire transfer of immediately available funds,
Two Million Dollars ($2,000,000), such obligation to survive termination of this
Agreement. The parties hereto acknowledge and agree that the provisions of this
Section 4.04 are reasonable and are an integral part of the Transactions, and
without these provisions, the parties would not execute and deliver this
Agreement; accordingly, if the Seller Parties fail to pay the amount set forth
herein and in order to obtain such payment, the Buyer institutes suit against
one or more of the Seller Parties, the Seller Parties shall pay to the Buyer its
reasonable costs and expenses (including reasonable attorneys' fees) in
connection with such suit, together with interest on the amount of such costs
and expenses at the prime rate of interest as set forth in the Wall Street
Journal under "Money Rates" (such obligation to survive termination of this
Agreement).
4.05 Consummation of the Transactions. The Seller Parties shall use their
reasonable commercial efforts to cause all of the conditions to closing required
of them to be performed promptly to be satisfied.
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ARTICLE V
COVENANTS OF THE BUYER AND DENTALCO
The Buyer and DentalCo covenant to the Seller Parties that, except as
otherwise consented to in writing by MDC after the date of this Agreement:
5.01 Consummation of the Transactions. Buyer will use its reasonable
commercial efforts to obtain financing to pay the purchase price set forth in
Section 1.04 hereof not later than August 31, 1997.
5.02 Operations in Pennsylvania, New Jersey, and New York. After the
Closing, the Buyer or an affiliate shall create one or more divisions or
subsidiaries to operate in Pennsylvania, New Jersey, and New York, and in
connection therewith, create management bonus pool based upon the achievement of
stated regional earnings profits margins, in accordance with the following
formula:
RE/Regional Revenues Set Aside as Incentive Pool
10% to 12.9% 10% of RE exceeding 10% PM
13% to 14.9% 10% of 1st 3% RE exceeding 10% PM, plus 15%
of RE exceeding 13% PM
15% or more 10% of 1st 3% RE exceeding 10% PM, plus 15%
of RE exceeding 13% PM but less than 15% PM,
and 20% of RE exceeding 15% PM
For example, if RE equals $18,000 and Regional Revenues equal $100,000, then the
Incentive Pool will equal $1,200 [a 10% PM = 10,000; 10% of $3,000 = $300 + 15%
of $2,000 = $300 + 20% of $3,000 = $600].
"RE" is defined as all revenue of the region less all site expenses and regional
administrative expenses, including depreciation and goodwill in connection with
acquisitions. RE will exclude any interest charges and DentalCo management
fees.
"Regional Revenues" equal the gross revenues generated by the Region.
"PM" means the profit margin determined by dividing RE by Regional Revenues.
5.03 Assumed Liabilities. Subject to Section 5.01 above, Buyer shall pay,
fulfill, perform, or otherwise discharge all Assumed Liabilities as they become
due and payable, and with respect to amounts past due, within 30 days after the
Subsequent Closing Date.
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5.04 DentalCo Guarantee. Subject to Section 5.01 above, DentalCo hereby
guarantees to Seller all covenants, representations and warranties of Buyer, and
the performance and assumption of all liabilities by Buyer hereunder.
ARTICLE VI
CONDITIONS TO THE BUYER'S OBLIGATIONS
Unless waived by the Buyer in writing, in its sole discretion, all
obligations of the Buyer under this Agreement are subject to the fulfillment,
prior to or at the Closing, of each of the following conditions:
6.01 Representations and Warranties. Each of the representations and
warranties contained in Article II hereof shall be true and accurate in all
material respects (except with respect to any representation or warranty that is
already qualified as to materiality, which shall be true and correct in all
respects) as of the date of this Agreement and shall be true and correct in all
material respects (except with respect to any representation or warranty that is
already qualified as to materiality, which shall be true and correct in all
respects) as of the Closing Date or the Subsequent Closing Date, as applicable,
as if made on the Closing Date or the Subsequent Closing Date, as applicable
(except for any representation or warranty expressly stated to have been made or
given as of a specified date, which, at the Closing Date, shall be true and
correct in all respects as of the date expressly stated). Each of the Seller
Parties shall have delivered to the Buyer a certificate of its president, to the
extent that such party is an entity, or of the individual, if such party is an
individual, certifying the fulfillment of the conditions set forth in this
Section 6.01 and in Sections 6.02, 6.03, 6.06, 6.07, 6.08, 6.09 and 6.11 below,
and a certificate of the Secretary of the party supplying such certificate, if
the party is an entity, as to the incumbency of such officer executing the
certificate.
6.02 Covenants and Obligations. All of the covenants and obligations that
any of the Seller Parties or the Ancillary Seller Parties are required to
perform or to comply with pursuant to the terms of this Agreement at or prior to
Closing shall have been duly performed or complied with in all material respects
prior to the Closing Date.
6.03 No Proceeding or Litigation.
(a) No preliminary or permanent injunction or other order shall have
been issued by any court of competent jurisdiction, whether federal, state or
foreign, or by any governmental or regulatory body, whether federal, state or
foreign, nor shall any statute, rule, regulation or executive order be
promulgated or enacted by any governmental authority, whether federal, state or
foreign, which prevents the consummation of the Transactions.
(b) On or prior to the date of this Agreement, no suit, action,
claim, proceeding or investigation before any court, arbitrator or
administrative, governmental or regulatory body, whether federal, state or
foreign, shall have been commenced and be pending
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against any of the Seller Parties, the Ancillary Seller Parties or any of their
respective affiliates, associates, officers or directors seeking to prevent the
consummation of the Transactions.
6.04 Approvals of Governmental Authorities. All governmental approvals
necessary or advisable in the reasonable opinion of the Buyer's counsel to
consummate the Transactions shall have been received and shall not contain any
provision which, in the judgment of the Buyer, is unduly burdensome.
6.05 Form and Content of Documents. The form and content of all documents,
certificates and other instruments delivered by the Seller Parties and the
Ancillary Seller Parties, as applicable, shall be reasonably satisfactory to the
Buyer and its counsel.
6.06 Consents and Approvals. All consents and approvals, if any, required
to be obtained in connection with the Transactions shall have been obtained.
Each of the consents and approvals obtained shall be free from burdensome
restrictions and conditions.
6.07 Material Adverse Effect. Since the 1996 Balance Sheet date, there
shall have been no Material Adverse Effect with respect to the Business of any
of the Broad Group Companies (to the extent that such Material Adverse Effect of
the Broad Group Companies has had, or could reasonably be expected to have, a
Material Adverse Effect on the Business). There shall be no condition existing
or threatened with respect to the Broad Group Companies that might be expected
to have a Material Adverse Effect on the Business
6.08 Employee Matters. Modern shall have paid to any Modern employee
terminated on or prior to the Closing Date any applicable severance or other
payments of any nature whatsoever (including, without limitation, accrued
salary, wages or vacation pay) due to the employee by reason of his employment
or termination of employment by Modern. Each of the Seller Parties shall
indemnify the Buyer for any such payments required to be made by Modern which
Modern fails to make on or prior to the Closing Date.
6.09 Closing Deliveries. On the applicable date provided in Section 1.07
hereof, each of the Seller Closing Deliveries shall have been delivered to the
Buyer, and the Buyer and its counsel shall be reasonably satisfied with the form
and substance thereof.
6.10 Modern Employees. Each Modern Employee listed on Schedule 6.10 hereto
shall have accepted employment with the Buyer or an affiliate.
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ARTICLE VII
CONDITIONS TO THE SELLER PARTIES' OBLIGATIONS
Unless waived in writing by Modern, in its sole discretion, all obligations of
the Seller Parties under this Agreement are subject to the fulfillment, prior to
or at the Closing, of each of the following conditions:
7.01 Representations and Warranties. Each of the representations and
warranties contained in Article III hereof shall be true and correct in all
material respects (except with respect to any representation or warranty that is
already qualified as to materiality, which shall be true and correct in all
respects) as of the date of this Agreement and shall be true and correct in all
material respects (except with respect to any representation or warranty that is
already qualified as to materiality, which shall be true and correct in all
respects) as of the Closing Date or the Subsequent Closing Date, as applicable,
as if made on the Closing Date or the Subsequent Closing Date, as applicable
(except for any representation or warranty expressly stated to have been made or
given as of a specified date, which, at the Closing Date, shall be true and
correct in all respects as of the date expressly stated). The Buyer shall have
delivered to Modern a certificate of its Secretary certifying the fulfillment,
to the extent applicable, of the conditions set forth in this Section 7.01 and
in Sections 7.02, 7.03, 7.05, and 7.06 below.
7.02 Covenants and Obligations. All of the covenants and obligations that
the Buyer is required to perform or to comply with pursuant to the terms of this
Agreement at or prior to Closing shall have been duly performed or complied with
by the Buyer.
7.03 No Proceeding or Litigation.
(a) No preliminary or permanent injunction or other order shall have
been issued by any court of competent jurisdiction, whether federal, state or
foreign, or by any governmental or regulatory body, whether federal, state or
foreign, nor shall any statute, rule, regulation or executive order be
promulgated or enacted by any governmental authority, whether federal, state or
foreign, which prevents the consummation of the Transactions.
(b) On or prior to the date of this Agreement, no suit, action,
claim, proceeding or investigation before any court, arbitrator or
administrative, governmental or regulatory body, whether federal, state or
foreign, shall have been commenced and be pending against the Buyer or any of
its affiliates, associates, officers or directors seeking to prevent the
Transactions.
7.04 Form and Content of Documents. The form and content of all documents,
certificates and other instruments delivered by the Buyer shall be reasonably
satisfactory to Modern and its counsel.
7.05 Stockholder Employment Agreements. DentalCo or an affiliate shall have
entered into the Stockholder Employment Agreements.
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7.06 Closing Deliveries. On or before the Subsequent Closing Date, the
Buyer shall have delivered to Modern the Buyer Closing Deliveries and the Seller
Parties and their counsel shall be reasonably satisfied with the form and
substance thereof.
ARTICLE VIIA
TERMINATION AND AMENDMENT
7A.01 Termination by the Seller Parties. Except to the extent that any
of the Seller Parties are themselves in default of a material provision of this
Agreement, this Agreement may be terminated and canceled at any time prior to
the Closing Date (or, with respect to (iii) below, prior to the Subsequent
Closing Date) by the Seller Parties: if (i)(a) any of the representations or
warranties of the Buyer contained in this Agreement shall prove to be inaccurate
in any material respect (except that they shall be true and correct in all
respects to the extent they are already qualified as to materiality), or any
obligation or condition to be performed or observed by the Buyer 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 the Buyer of
written notice of such occurrence from the Seller Parties or has not been waived
by them in writing; (ii) if any permanent injunction or other order of a court
or other competent authority preventing consummation of the Transactions shall
have become final and non-appealable; or (iii) if the Subsequent Closing Date
has not occurred on or before August 31, 1997.
7A.02 Termination by the Buyer. Except to the extent that the Buyer is
itself in default of a material provision of this Agreement, this Agreement may
be terminated and canceled at any time prior to the Closing Date (or, with
respect to (iii) below, prior to the Subsequent Closing Date) by the Buyer: if
(i)(a) any of the representations or warranties of the Seller Parties or the
Ancillary Seller Parties, as applicable, contained in this Agreement shall prove
to be inaccurate in any material respect (except that they shall be true and
correct in all respects to the extent they are already qualified as to
materiality), or any obligation or condition to be performed or observed by the
Seller Parties or the Ancillary Seller Parties 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 Modern of written notice of such
occurrence from the Buyer or has not been waived by them in writing; (ii) if any
permanent injunction or other order of a court or other competent authority
preventing consummation of the Transactions shall have become final and
non-appealable; or (iii) if the Subsequent Closing Date has not occurred on or
before August 31, 1997.
7A.03 Effect of Termination. If this Agreement is terminated pursuant
to the provisions of Section 7A.01 or 7A.02 above, then all rights and
obligations of the parties hereunder shall terminate without liability on the
part of any party to the other, except for the liability of the party then in
breach, which shall survive the termination hereunder.
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ARTICLE VIII
INDEMNIFICATION
8.01 Survival of Representations, Warranties and Agreements.
(a) Subject to the limitations set forth in Section 8.03 below, and
notwithstanding any investigation conducted at any time with regard thereto by
or on behalf of DentalCo or the Buyer, all representations, warranties,
covenants and agreements of the Seller Parties and the Ancillary Seller Parties
in this Agreement shall survive the execution, delivery and performance of this
Agreement. All such representations and warranties shall be deemed to have been
made again at and as of the Closing Date.
(b) Subject to the limitations set forth in Section 8.03 below, and
notwithstanding any investigation conducted at any time with regard thereto by
or on behalf of the Seller Parties, all representations, warranties, covenants,
and agreements of the Buyer in this Agreement shall survive the execution,
delivery, and performance of this Agreement. All such representations and
warranties shall be deemed to have been made again by the Buyer at and as of the
Closing Date.
(c) As used in this Article VIII, any reference to a representation,
warranty, covenant, or agreement contained in any section of this Agreement
shall include the Schedule relating to such section.
8.02 Indemnification.
(a) Subject to the limitations set forth in Section 8.03 below, the
Seller Parties, jointly and severally, on the one hand, and the Buyer, on the
other hand, shall indemnify and hold harmless the other party and the other
party's shareholders, officers, directors, employees, affiliates, and agents
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 said
party, directly or indirectly, as a result of or arising from any inaccuracy in
or breach or nonfulfillment of any of the representations, warranties, or
covenants made by such other party in this Agreement;
(b) Subject to the limitations set forth in Section 8.03 below, the
Seller Parties shall indemnify and hold harmless the Buyer and its shareholders,
officers, directors, employees, affiliates, and agents from and against any and
all Damages arising from any pre-Closing liability of the Broad Group Companies
with respect to the Business or the Purchased Assets, except with respect to the
Assumed Liabilities.
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(c) The Buyer shall be deemed to have suffered Damages arising out of
or resulting from the matters referred to in Sections 8.02(a) and (b), above, if
the same shall be suffered by any parent, subsidiary or affiliate of the Buyer.
8.03 Limitation on Indemnification. Rights to indemnification under this
Article VIII are subject to the following limitations:
(a) The obligation of indemnity with respect to the representations
and warranties set forth in Sections 2.09, 2.10, 3.07 and 3.08 of this Agreement
shall terminate on the expiration of the respective periods of limitations
applicable to assessment and collection of Taxes or ERISA liabilities under laws
then applicable to such Taxes or ERISA liabilities, as the case may be.
(b) The obligation of indemnity with respect to the representations
and warranties set forth in Article II and III of this Agreement, other than
those addressed in the immediately preceding subsection (a), shall terminate on
the date which is the earlier of (i) 18 months after the Closing Date or (ii)
the closing of DentalCo's initial public offering of its capital stock.
(c) The foregoing provisions of this Section 8.03 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 reasonably and in good faith by one party to the other
party, or a suit or action based upon a claimed breach is commenced against any
such other party, then such claiming party shall not be precluded from pursuing
such claimed breach, occurrence, other matter, or suit or action, or from
recovering from such other party (whether through the courts or otherwise) on
the claim, suit or action, by reason of the termination otherwise provided for
above.
(d) Neither the Seller Parties, on the one hand, nor the Buyer, on
the other, shall be entitled to indemnification hereunder with respect to an
Indemnifiable Claim (as hereinafter defined) 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
$100,000, and then only for the excess; provided however, that the foregoing
limitation will not apply to an Indemnifiable Claim or Claims arising from the
representations and warranties set forth in Sections 2.09, 2.10, 2.15, 3.07,
3.08 and 3.12 of this Agreement.
(e) In no event shall the Damages payable hereunder by the Seller
Parties, on the one hand, or the Buyer, on the other, exceed $12,000,000.
(f) If the Stockholders are liable to the Buyer for Damages
hereunder, then they may satisfy the payment of such Damages in an amount up to
$8,000,000 by the delivery to the Buyer of cash or that number of DentalCo
Shares that they received pursuant to Section 1.04 hereof and have not sold or
transferred equal to the amount of such Damages divided by the
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greater of $12.00 and the closing price of such shares averaged for the past 30
days (but only if the common stock of DentalCo is publicly traded during such
30-day period).
8.04 Procedure for Indemnification with Respect to Third Party Claims.
(a) If a party (hereinafter a "Claiming Party") desires to seek
indemnification under this Article VIII with respect to an indemnifiable claim
hereunder (an "Indemnifiable Claim") resulting from the assertion of liability
by third parties, it promptly shall give notice to the other party against whom
indemnification is sought (hereinafter "Indemnifying Party," whether one or
more) after becoming aware of any such Indemnifiable Claim (but in any event,
not later than 30 after becoming aware of such Indemnifiable Claim), which
notice shall set forth such material information with respect to such
Indemnifiable Claim as is then reasonably available to the Claiming Party. The
delay or failure of the Claiming Party to provide any notice required herein
shall not release the Indemnifying Party from liability or any other obligation
with respect to this indemnification, except and only to the extent that the
Indemnifying Party's ability to defend against the action is materially impaired
by such delay or failure. The Indemnifying Party shall be entitled, if it so
elects by written notice delivered to the Claiming Party within a reasonable
period of time (not to exceed 15 days in any event) after receiving the Claiming
Party notice (the "Response Period"), to assume the defense of such asserted
liability with counsel reasonably satisfactory to the Claiming Party. With
respect to any assertion of liability by a third party that results in an
Indemnifiable Claim, the parties hereto shall make available to each other all
relevant information in their possession which is material to any such
assertion.
(b) If the Indemnifying Party fails to assume the defense of the
Claiming Party against any such Indemnifiable Claim within the Response Period,
the Claiming Party shall have the right to defend, compromise or settle such
Indemnifiable Claim.
(c) Notwithstanding anything in this Section 8.04 to the contrary,
(i) if there is a reasonable probability that an Indemnifiable Claim may
materially and adversely affect the Claiming Party, its subsidiaries or
affiliates, other than as a result of money damages or other money payments,
then the Claiming Party shall have the right to defend, compromise or settle
such Indemnifiable Claim; and (ii) the Indemnifying Party shall not, without the
Claiming 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 Claiming Party (and its
subsidiaries and affiliates) a release from all liability in respect of such
Indemnification Claim.
8.05 Procedure For Indemnification with Respect to Non-Third Party Claims.
If a Claiming 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 45 days after the receipt of such notice by a
Claiming Party, has not given written notice to a Claiming Party announcing its
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intent to contest such assertion by a Claiming Party, such assertion shall be
deemed accepted and the amount of the 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 a Claiming Party within such 45 day period, then if the parties hereto,
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 Baltimore, Maryland 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
hereto and shall be final and binding and conclusive on the parties hereto 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 hereto and the fees and expenses
of any arbitrator shall be borne by the non-prevailing party hereto.
8.06 Exclusive Remedy. Except for the remedy of specific performance as
provided by this Agreement, the parties hereto acknowledge and agree that their
sole and exclusive remedy with respect to any and all claims relating to the
subject matter of this Agreement shall be pursuant to the indemnification
provisions set forth in this Article VIII. In furtherance of the foregoing, the
parties hereto hereby waive, to the fullest extent permitted under applicable
law, any and all rights, claims and causes of action that any of them have or
may have against the other arising under or based upon any federal, state or
local statute, law, ordinance, rule or regulation, or arising under common law.
ARTICLE IX
MISCELLANEOUS
9.01 Recitals. The Recitals hereto are incorporated herein by reference and
specifically made a part of this Agreement.
9.02 Further Assurances. The Seller Parties and the Buyer shall, without
further cost or expense to the other, duly execute, acknowledge and deliver such
further documents and take such other actions and give such other assurances as
the other may reasonably request in order to effectuate the Transactions and to
convey and vest in the Buyer, and protect its right, title and interest in, the
Purchased Assets.
9.03 Costs. Except as otherwise provided herein, each party hereto shall
pay all fees and expenses incurred by it or them in connection with this
Agreement and the Transactions. Modern shall pay all sales, use, and other
similar taxes, if any, payable in connection with the Transactions. All
applicable property taxes and utilities shall be prorated to the Closing Date.
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9.04 Specific Performance. The parties hereto each acknowledge that a
remedy at law for any breach or attempted breach by such party of the covenants
set forth in Articles IV and V hereof will be inadequate, and each agrees that
the other party shall be entitled to specific performance and injunctive and
other equitable relief in case of any such breach or attempted breach. Any such
remedy shall be in addition to any damages which the Buyer or the Seller Parties
may be legally entitled to recover.
9.05 Notices. All notices, demands or requests which are required or
permitted to be given pursuant to this Agreement shall be in writing, and shall
be delivered personally, by commercial carrier, by fax with a machine-generated
confirmation sheet and regular mail follow-up or by registered or certified
mail, postage prepaid, addressed to a party as stated below, or as a party may
hereafter designate by notice given in accordance with this section:
(a) If to Buyer:
DentalCo Modern Acquisition Corp.
c/o DentalCo, Inc.
6115 Falls Road
Baltimore, Maryland 21209
Attention: President
Facsimile No.: (410) 377-3231
With a copy to:
Jay Gordon Cohen, Esquire
Piper & Marbury L.L.P.
36 S. Charles Street
Baltimore, Maryland 21201
Facsimile No.: (410) 576-1700
(b) If to the Seller Parties:
Michael S. Ayes, D.D.S.
Modern Dental Concepts, Inc.
714 Market Street
Philadelphia, Pennsylvania 19106
Facsimile No.: (215) 922-2651
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With a copy to:
Stephen M. Goodman, Esquire
Morgan, Lewis & Bockius, L.L.P.
2000 One Logan Square
Philadelphia, Pennsylvania 19103
Facsimile: (215) 963-5299
Notice given personally or by commercial carrier is effective upon delivery.
Notice given by fax with a machine-generated confirmation sheet is effective
upon the date of mailing the follow-up copy. Notice given by United States mail
is effective the third United States Post Office delivery day after the date of
mailing.
9.06 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other party, except
that this Agreement may be assigned, in whole or in part, by the Buyer to any
person or entity affiliated with, controlled by, or under common control with,
the Buyer.
9.07 Entire Agreement; Amendment; Waiver. This Agreement, including the
Exhibits and Schedules hereto and the other documents delivered pursuant to the
terms hereof, sets forth the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein and therein, and
supersedes all prior agreements, understandings, arrangements, communications,
representations or warranties, whether oral or written, made by or between the
parties hereto. Any confidentiality agreement executed between the parties or
their affiliates shall survive the execution of this Agreement to the extent
that the Transactions herein contemplated fail to close. This Agreement may be
amended only pursuant to a writing signed by the party against whom such
amendment or waiver is claimed. No failure by any party hereto 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 hereto shall affect, or constitute a waiver of, any other party
hereto'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 hereto at variance with any provision of this Agreement shall affect or
constitute a waiver of any party hereto's right to demand strict compliance with
all provisions of this Agreement.
9.08 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
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9.09 Headings. The headings of the Sections and Articles of this Agreement
are inserted for convenience only and shall not constitute a part hereof or
affect in any way the meaning or interpretation of this Agreement.
9.10 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
9.11 Bulk Sales Law. The Buyer waives compliance by the Seller Parties with
the provision of any applicable bulk sales laws, it being understood that the
Seller Parties shall remain fully liable and shall indemnify the Buyer, its
affiliates, directors, officers, and employees for any and all losses and
liabilities incurred by any of them as a result of non-compliance with any
applicable bulk sales laws.
9.12 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Maryland, without giving
effect to its conflicts of laws provisions.
9.13 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.
9.14 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 hereto,
any rights, remedies or other benefits under or by reason of this Agreement.
9.15 Schedules. Notwithstanding anything to the contrary set forth in this
Agreement, the parties hereto shall have the continuing obligation (which shall
terminate on the Closing Date) promptly to supplement or amend the Schedules
hereto with respect to any matter hereafter arising or discovered which, if
existing or known at the date of this Agreement, would have been required to be
set forth or described in such Schedules; provided, however, that for the
purpose of the rights and obligations of the parties hereunder, any such
supplemental or amended disclosure shall be deemed to have been disclosed as of
the date of this Agreement if provided to the other party hereto not later than
five (5) business days prior to the Closing Date and, provided, further, that to
the extent that any such disclosure would or would likely have a (i) Material
Adverse Effect, then the Buyer shall have the option not to proceed to Closing,
or (ii) material adverse effect on the financial condition and results of
operations of DentalCo, then the Seller Parties shall have the option not to
proceed to Closing.
{Remainder of page intentionally left blank. Signature pages follow}
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
BUYER:
WITNESS: DENTALCO MODERN ACQUISITION CORP.
/s/ E. JAMES KUHNS By: /s/ LAWRENCE F. HALPERT
- ---------------------------- ------------------------------------
E. JAMES KUHNS, SECRETARY LAWRENCE F. HALPRET, PRESIDENT
SELLER:
WITNESS: MODERN DENTAL CONCEPTS, INC.
/s/ ROBERT RUSH By: /s/ MICHAEL AYES
- ---------------------------- ------------------------------------
ROBERT RUSH MICHAEL AYES, PRESIDENT
WITNESS: MODERN DENTAL CONCEPTS-
PA, INC.
/s/ ROBERT RUSH By: /s/ MICHAEL AYES
- --------------------------- ------------------------------------
ROBERT RUSH MICHAEL AYES, PRESIDENT
WITNESS: MODERN DENTAL CONCEPTS - NJ, INC.
/s/ ROBERT RUSH By: /s/ MICHAEL AYES
- --------------------------- ------------------------------------
ROBERT RUSH MICHAEL AYES, PRESIDENT
WITNESS:
/s/ ROBERT RUSH By: /s/ MARC V. AYES
- --------------------------- ------------------------------------
ROBERT RUSH MARC V. AYES
{signature pages continued on next page}
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WITNESS:
/s/ ROBERT RUSH By: /s/ MICHAEL S. AYES
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ROBERT RUSH MICHAEL S. AYES, D.D.S.
WITNESS:
/s/ ROBERT RUSH By: /s/ MITCHEL BLUMENTHAL
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ROBERT RUSH MITCHEL BLUMENTHAL, D.D.S.
WITNESS:
/s/ ROBERT RUSH By: /s/ HOWARD M. KOFF
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ROBERT RUSH HOWARD M. KOFF, D.D.S.
WITNESS:
/s/ ROBERT RUSH By: /s/ RICHARD L. RUSH
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ROBERT RUSH RICHARD L. RUSH, D.D.S.
The undersigned joins herein for the sole purpose of unconditionally guarantying
the obligations of the Buyer AND WITH RESPECT TO ITS SPECIFIC UNDERTAKINGS
HEREIN to the Seller hereunder.
DENTALCO, INC.
By: /s/ Lawrence F. Halpert
--------------------------------------------
LAWRENCE F. HALPERT, D.D.S., CHAIRMAN & CEO
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Exhibit 10.7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of the 26th day of November, 1996 by and among DENTALCO MANAGEMENT SERVICES OF
MARYLAND, INC., a Maryland corporation (the "Purchaser"), Charles Rosenbaum,
D.D.S., Douglas Barton, D.D.S., Gary Pippenger, D.D.S., and Robert Austgen,
D.D.S. (the "Sellers"), and THE DENTAL CENTER, INC., and THE DENTAL CENTER
ADULT, INC. Indiana corporations (collectively the "Company") (collectively all
entities shall be referred to hereinafter as the Parties").
WITNESSETH
The Sellers are the holders of all of the outstanding Common Stock of the
Company. The Company operates dental practices (the "Business") at the locations
set forth on Exhibit A hereto (the "Site"). By letter dated July 29, 1996 the
Purchaser has expressed its intention to purchase, and the Sellers expressed
their intention to sell, all of their shares of the Common Stock of the Company.
Accordingly, in consideration of the foregoing and of the covenants,
agreements, representations and warranties hereinafter contained, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Purchaser, the Company and the Sellers agree as follows:
ARTICLE I
SALE AND PURCHASE PRICE
Section 1.1 Sale of Stock
Subject to the terms and conditions hereof, at the Closing (as hereinafter
defined), the Sellers will sell, convey, transfer and deliver to the Purchaser
all of the outstanding Common Stock of the Company (the "Stock") by delivering
certificates, in due and proper form, representing the Stock, duly endorsed or
accompanied by the duly executed stock powers, which have been notarized. The
Stock shall be conveyed free and clear of all liens, claims, charges, pledges,
security interests, encumbrances and restrictions, except as hereinafter set
forth.
Section 1.2 Purchase Price
The purchase price for the Stock shall be Four Million Dollars
($4,000,000.00) (the "Purchase Price), payable at the Closing as follows
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(a) the Purchaser shall pay the amount of One Million Five Hundred Thousand
Dollars ($1,500,000.00) to the Sellers via certified check or wire transfer to
the account or accounts specified in writing by the Sellers; and
(b) the Purchaser shall deliver four (4) promissory notes (collectively the
"Purchase Money Note") in the principal amount of Six Hundred Twenty-Five
Thousand Dollars ($625,000.00) each in substantially the form attached hereto as
Exhibit B (collectively the "Note"), with each not payable to one of the
Sellers. The Purchase Money Note will be secured by a first security interest in
the Practice assets; the form of security agreement is attached as Exhibit B1.
(c) as part of the Purchase Price, the Purchaser agrees to assume the
Sellers' responsibility and obligations existing under the bank loans (the "Bank
Loans"), not to exceed Two Hundred Thousand Dollars ($200,000.00), attached
hereto as Exhibit C. The face amount of the Purchase Money Note shall be reduced
on a dollar-for-dollar basis by the outstanding principal balance of the Bank
Loans as of the Closing Date. Purchaser will secure the release of the Sellers'
personal guaranty of the Bank Loans.
(d) Purchaser shall assume the Sellers' accounts payable after the Closing
Date and reduce the face amount of the Purchase Money Note on a
dollar-for-dollar basis.
(e) the principal amount payable under the Note shall be adjusted to reflect
any liabilities which are assumed by the Purchaser as a result of their
transaction which shall include Sellers' account payable.
(f) without adjustment to the Purchase Price, Sellers may transfer ownership
of automobiles (with related liabilities) to themselves.
Section 1.3 Closing
The closing ("Closing") shall occur on , 1996 (the "Closing Date"),
commencing at 10:00 a.m., Eastern Time, at the offices of the Company, 1005 E.
LaSalle Avenue, South Bend, Indiana, or on such other date, time, or place as
the parties may agree upon in writing.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company and the Sellers
The Sellers and the Company hereby represent and warrant to the Purchaser
that, except as set forth in the Disclosure Schedule (the "Disclosure Schedule")
attached hereto (which Disclosure Schedule makes explicit reference to the
particular representation or warranty as to which exception is taken):
(a) Organization and Standing.
(i) The Company has the corporate power and authority and all material
governmental licenses, authorizations, consents and approvals to own all of its
properties and assets and to carry on its business as currently conducted.
(ii) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of [Indiana]. The Company is qualified
to do business in each jurisdiction in which such qualification is required,
except for those jurisdictions in which the failure to so qualify would not
materially adversely affect the business, operations, assets or condition
(financial or otherwise) of the Company (a "MAC"). The copies of the Charter and
by-laws (and other applicable organizational documentation) of the Company, as
amended to date, that [have been/will be] delivered to the Purchaser are
complete and correct, and the stock books and minute books and other records of
the Company delivered to the Purchaser on or before Closing [are/will
be materially complete and accurate.
(b) Bank Accounts, etc. The Disclosure Schedule sets forth a true and
complete list of all bank accounts, safe deposit boxes and lock boxes of the
Company, including, with respect to each such account and lock box
identification of all authorized signatories.
(c) Power and Authority. The Company has the corporate power and authority
to execute and deliver their Agreement and the other documents required by the
Agreement to be delivered by the Company (their Agreement and such other
documents being collectively hereinafter called, the "Transaction Documents"),
and to perform its obligations under the Transaction Documents.
(d) Binding Agreement.
(i) Their Agreement and the other documents required by their Agreement to
be delivered by the Sellers (their Agreement and such other documents being
collectively hereinafter called, the "Sale Documents") have been and on the
Closing Date will be, duly and validly executed and delivered by the Sellers
and, assuming the due and valid execution and
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delivery of their Agreement and the other Sale documents by the Purchaser,
constitute the valid and binding agreements of the Sellers, enforceable
against the Sellers in accordance with their terms, except as enforceability
may be limited by applicable equitable principles or by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect affecting the enforcement of creditors' rights and remedies generally.
(ii) The execution and delivery of their Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized and approved by the Board of
Directors of the Company, and no other corporate proceedings are necessary to
authorized their Agreement or the Transaction Documents and the transaction
contemplated hereby or thereby. Their Agreement has been and on the Closing Date
the Transaction Documents will be duly and validly executed and delivered by the
Company and, assuming the due and valid execution and delivery of their
Agreement and the Transaction Documents by the Purchaser, constitute the valid
and binding agreements of the Company, enforceable against the Company in
accordance with their terms, except as enforceability may be limited by
applicable equitable principles or by bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect affecting the enforcement
of creditors' rights and remedies generally.
(e) Absence of Conflicting Agreements. Neither the execution and delivery of
the Sale Documents by the Sellers or of the Transaction Documents by the
Company, nor the performance by any of them of the transactions contemplated
thereby or compliance with the terms thereof (a) conflicts with, or constitutes
a breach of, or a default under, or will result in a breach or violation of (i)
any applicable law, or any applicable rule, judgment, order, writ, injunction or
decree of any court, or (ii) any applicable rule or regulation of any
administrative agency or other governmental authority to which the Sellers or
the Company is bound or to which the property of the Sellers or the Company are
subject; (b) any provision of the Charter or by-laws of the Company; (c)
violates any provision of or results in the breach of, or entitles any party to
accelerate or terminate (whether after the giving of notice or lapse of time or
both) an obligation under, any mortgage, lien, lease, contract, license, note,
indenture, instrument or any other material agreement to which the Sellers or
the Company are parties; or (d) results in the creation or imposition of any
lien, charge, pledge, security interest or other encumbrance upon any property
of the Sellers or the Company, including, but not limited to, the Stock.
(f) Consents. No license, consent, approval, order or authorization of, or
registration, declaration or filing with any person, entity or governmental
agency or authority is required in connection with the execution and delivery of
the Sale Documents by the Sellers, or of the Transaction Documents by the
Company, or for the consummation by them of the transactions contemplated
thereby.
(g) Prior Names/Fundamental Changes. Except as set forth in the Disclosure
Schedule, the Company has not, during the 12-year period immediately preceding
the date hereof, changed its name, been the surviving entity of a merger,
consolidation or other reorganization, or acquired all or substantially all of
the assets of any person or entity. The
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Disclosure Schedule sets forth all fictitious names under which the Company
or such predecessors, if any, have conducted business.
(h) Financial Statements. The Sellers have delivered to the Purchaser the
complied balance sheets and related income statements of the Company for each of
the fiscal years ended December 31, 1995, March 31, 1994, and March 31, 1993,
and a compiled income statement and balance sheet for the six-month period ended
June 30, 1996, true and correct copies of which are attached hereto in the
Disclosure Schedule and made a part hereof. Such financial statements fairly
represent the financial condition and results of operations and cash flows of
the Company as of such dates and for such periods therein referred to and,
except for the fact that they are prepared on a cash basis, have been materially
prepared in accordance with generally accepted accounting principles ("GAAP"),
consistently applied throughout the periods indicated. All liabilities and
obligations of the Company outstanding as of the dates of said financial
statements required to be reflected therein in accordance with GAAP have been
included in said financial statements (subject, in the case of the financial
statements for the six-month period ended June 30, 1996, to normal recurring
year end adjustments). The books and records of the Company from which the
financial statements were prepared, properly and accurately record the
transactions and activities which they purport to record.
(i) No Material Adverse Change. Since December 31, 1995, (a) there has been
no MAC, (b) there has been no damage or destruction of any of the Company's
assets by fire or other casualty, whether or not covered by insurance, and (c)
the Company has conducted its business only in the normal course.
(j) No Violation. The Company is not in default under or in violation of any
provision of (a) its Charter or by-laws, or (b) any material agreement,
understanding, arrangement, indenture, contract, lease, sublease, loan
agreement, note, restriction, obligation or liability to which it is a party or
by which it is bound or to which it is bound or to which it is or its assets are
subject.
(k) Common Stock.
(i) The authorized capital stock of the Company consists of 2,000 shares of
Common Stock, of which 200 shares are issued and outstanding and no shares of
which are held in the treasure of the Company. The Stock is duly authorized,
validly issued, fully paid and non-assessable. there are no preemptive or
similar rights on the part of any holder of any class of securities of the
Company. there are no outstanding offers, subscriptions, puts, calls options,
warrants, convertible securities, rights or other agreements or commitments
obligating the Company or the Sellers to issue or sell, purchase, redeem or
acquire or cause to be issued or sold, purchased, redeemed or acquired, any
shares of the capital stock of the Company or any securities or obligations
convertible into or exchangeable for (or giving any person any right to acquire
any shares of such capital stock), or obligating the Company or the Sellers to
enter into any such agreement or commitment. There are no existing shareholder
agreements, voting agreements or voting trusts respecting any shares of Common
Stock.
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(ii) All of the Stock is owned beneficially and of record by the Sellers
free and clear of any security interest, liens, options, equities, claims,
restrictions, mortgages, deeds of trust, pledges, encumbrances, or rights of
others (collectively, "Encumbrances"), and no other party has any right, title
or interest, whether legal or equitable, in the Stock. At the Closing, the
Purchaser (or its assignee as permitted hereunder) shall acquire good and valid
and marketable title to the Stock, free and clear of any Encumbrance whatsoever.
(l) Absence of Undisclosed and Contingent Liabilities. The Company has no
material liabilities of any nature (whether secured or unsecured, accrued,
absolute or contingent, unliquidated or otherwise and whether known or unknown
or due to be come due) as of the date hereof other than (i) liabilities
disclosed or reserved against in the December 31, 1995 complied balance sheet of
the Company, including the notes thereto (and in the case of the compiled June
30, 1996 balance sheet, subject to normal recurring year end adjustments), and
(ii) liabilities arising in the ordinary course of business after December 31,
1995. The Company knows of no basis for the assertion against it by any person
of a material claim based on a liability which is not disclosed on its December
31, 1995 compiled balance sheet or on the June 30, 1996 complied balance sheet.
(m) Compliance with Laws. The Company has operated and currently is in
compliance in all material respects with all applicable federal, state, local
and other governmental laws and ordinances, and all applicable orders, rules and
regulations of federal, state, local and other governmental agencies. The
Company has not received any claim or notice that its business is not in
material compliance with any of the foregoing.
(n) Legal Proceedings. Except as set forth in the Disclosure Schedule, there
are no disputes, claims, actions, suits, proceedings, arbitrations or
investigations, either administrative or judicial, pending or to the best
knowledge of the Sellers and the Company, threatened or contemplated against or
affecting the Company or the Stock at law or in equity or otherwise, before or
by any court or governmental agency or body, domestic or foreign, or before an
arbitrator of any kind. Neither the Sellers nor the Company are aware of any
state of facts or the occurrence of any event that might result in a MAC. the
Company is not in violation of or in default in respect of any judgment, order,
writ, injunction or decree of any court or any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality. There is no claim, action, suit, litigation, proceeding,
arbitration, investigation or controversy of any kind against the Sellers to
which the Sellers are a party or by which the Sellers or their assets are
subject, either administrative or judicial pending or, to the knowledge of the
Sellers, threatened, which will or is attempting to delay or prevent
consummation of the transactions contemplated hereby or which impairs or could
impair the Seller's ability to transfer the Stock free of all Encumbrances.
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(o) Contracts: Other Assets.
(i) The Company has provided Purchaser with a copy of its depreciation
schedules which are materially accurate and complete (the "Tangible Property"),
all of which are now assets of the Company.
The Company will have on the Closing Date, all right, title and interest in,
and good and marketable title to, all of the Tangible Personal Property, free
and clear of any Encumbrance. Each lease and license relating to any of the
Tangible Personal Property is valid and binding against the Company and, to the
knowledge of the Company, the other parties hereto, and is in full force and
effect and is not in default as to the payment of rent or otherwise. True,
complete and correct copies of all leases and licenses relating to the Tangible
Consummation of the transactions contemplated by their Agreement will not
constitute an event of default under any said leases or licenses and the
continuation, validity and effectiveness of such leases and licenses will not be
adversely effected by the transactions contemplated hereby. Except for the old
house on the rear of the premises located at 1005 E. LaSalle Avenue, South Bend,
Indiana, all of the buildings and all material items of Tangible Personal
Property owned, leased or used by the Company are in good operating condition
and repair, ordinary wear and tear excepted; comply in all material respects
with applicable law, regulations and ordinances, including but not limited to
zoning, building and fire codes; and are suitable and sufficient for the present
conduct of the Company's business. Each building and item of Tangible Personal
Property owned or leased by the Company is adequately covered by one of the
insurance policies described below. The Company owns no parcels of real estate.
(ii) The Company is the lessee under the real estate leases described in the
Disclosure Schedule. True, correct and complete copies of such leases and any
amendments, extensions and renewals thereof have heretofore been delivered by
the company to the Purchaser. the Company now enjoys and on the Closing Date
will enjoy, quiet and undisturbed possession under each of said leases. The
Company's interest in each of said leases is free and clear of any mortgages and
liens, is not subject to any third parties other than the lessor thereof, is
fully assignable without the consent of any third party other than the lessor
thereof and may be subleased without the consent of any third party other than
the lessor thereof. to the company's knowledge, such leased real estate is free
and clear of any zoning or use or building restriction which would not, or on
the Closing Date or thereafter, interfere with the present use of any such
leased real estate. Said leases now are, and on the Closing Date will be, valid
and binding against the Company and, to the knowledge of the Company and the
Sellers, the lessor sunder said leases, are in full force and effect, and are
not now, and on the Closing Date will not be, in default of the part of the
Company, as to the payment of rent or otherwise. The consummation f the
transactions contemplated by their Agreement will not constitute an event of
default under any of said leases and the continuation, validity and
effectiveness of such leases will not be adversely effected by the transaction
contemplated by their Agreement.
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(iii) The Disclosure Schedule contains a complete and accurate list of the
following as of the date of their Agreement, copies of which shall be made
available to the Purchaser:
(A) All material contracts, commitments or agreements, oral or written, to
which the Company is a party or is otherwise bound, which affect or relate to
the Company's business and which are not cancelable upon ninety (90) days (or
less) notice (the "Material Contracts"); and
(B) All material written policies and procedures with respect to the
provision of services and treatment by the Sellers or the Company, including,
without limitation, fee schedules and payment terms, all of which are now assets
of the Company.
The Material Contracts are valid and binding against the Company, and to the
knowledge of the Company and the Sellers, the other parties thereto, and in full
force and effect and are not in default.
(iv) At Closing, all other assets, both tangible and intangible, owned by
the Company, will be free and clear of any Encumbrance.
(p) Relationships. Except for disputes with individual patients, there are
no disputes or controversies existing between the Company or any of its clients
with respect to any service sold or provided by the Company and there are no
disputes or controversies existing between the Company and any supplier or other
contractor with respect to any product or service purchased from such person by
the Company.
(q) Labor and Employment Matters.
(i) Except as provided in the Disclosure Schedule, the Company is in
material compliance with all applicable laws respecting wages and hours,
employment practices, and terms and conditions of employment, and the Company is
not engaged in any unfair labor practice; and
(ii) Except as provided in the Disclosure Schedule, the Company does not
maintain or contribute to, nor has the Company ever maintained or contributed to
any of the following:
(A) any employee pension benefit plan, as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA");
(B) any employee welfare benefit plan, as defined in Section 3(1) of ERISA;
(C) any stock option, stock purchase, stock ownership, bonus, performance,
or incentive plan or arrangement;
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(D) any plan or program providing non-cash compensation or benefits, whether
or not taxable, to the recipient;
(E) any plan or arrangement providing compensation or benefits upon a
severance of employment, reduction in hours, or change of employment
classification;
(F) any vacation, sick, holiday, or other leave policy or program; or
(G) any other plan, agreement, arrangement, or understanding (whether oral
or written) which is similar to any of the foregoing in respect to its
employees. For all purposes of their Subsection, the term "Company" shall
include any other entity, whether or not incorporated, which is a part of a
controlled group including the Company or which is under common control with the
Company within the meaning of Section 414(b) of the Internal Revenue Code of
1986 (the "Code").
(r) Finders. No broker or finder has acted for the Sellers and/or the
Company in connection with the transactions contemplated by their Agreement, and
no broker or finder is entitled to any broker's or finder's fee or other
commission in respect thereof based in any way or agreements, understandings or
arrangements with the Sellers or the Company.
(s) Disclosure. No representation or warranty by the Sellers or the Company
in their Agreement and no information in any statement, certificate, schedule or
other document furnished or to be furnished to the Purchaser pursuant hereto
contains or will contain any untrue statement of a material fact, or omits or
will omit to state material fact necessary to make the statements contained
herein or therein, when taken together, not misleading. To the best of the
Seller's knowledge, there is not fact which the Sellers or the Company have not
disclosed to the Purchaser which would result in a MAC.
(t) Tax Matters. (i) All federal, state, local and foreign tax returns
and tax reports (or extensions relating thereto) required to be filed by the
Company (and each predecessor in interest thereof) have been filed on a
timely basis with the appropriate governmental agencies in all jurisdictions
in which such returns and reports are required to be filed and all such
returns and reports were true and correct when filed and (ii) all federal,
state, local and foreign income, profits, franchise, sales, use, payroll,
premium, occupancy, property, severance, excise, withholding, value added,
unemployment, transfer and other taxes, including interest, additions to tax
and penalties and transferee or secondary liability for taxes and any taxes
due as a result of being a member of any affiliated, consolidated, combined
or unitary group or any liability in respect of taxes under a tax sharing,
tax allocation, tax indemnity or other agreement (collectively, "Taxes") due
from, or properly accruable (under GAAP) by, the Company with respect to
taxable periods ending on or prior to, and the portion of any interim period
up to, the date hereof have been fully and timely paid (or, if not yet
payable, have been fully provided for in the financial statements referred in
paragraph (h) above hereof or, for Taxes accruing after December 31, 1995, on
the books and records of the Company). there are no levies, liens or
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other encumbrances relating to Taxes existing, or to the Sellers' knowledge,
threatened or pending with respect to any asset of the Company.
(u) Insurance. The Disclosure Schedule contains a complete and correct list,
as of the date hereof, of all insurance policies maintained by the Company,
true, complete and correct copies of which have made available to the Purchaser,
together will all riders and amendments thereto. All such policies are valid and
in full force and effect and all premiums due thereon have been paid. The
Company has also set forth in the Disclosure Schedule a list of insurance
policies previously maintained by the Company under which coverage continues for
open claims reported during the applicable policy period, each of which
previously maintained policies is identified thereon as no longer maintained by
the Company. The insurance which is and has been maintained by the Company
provides coverage that is comparable in both amount and extend to the insurance
coverage normally maintained by other companies of comparable size carrying on
the same business or businesses as the Company. During the past three years, no
claim has been made or notice given, and there exists, to the knowledge of the
Sellers, no reasonable ground to cancel or avoid any of said policies or to
reduce the coverage provided thereby. During the past three years, no claims
have been made or amounts paid pursuant to such insurance policies. The Company
has not, during the past three years, been denies or had revoked or rescinded by
the carrier any policy of insurance.
(v) Accounting Controls. Neither the Company nor any director, officer,
agent, employee, consultant or other person associated with or acting on behalf
of the Company (including, without limitation, the Sellers, acting on behalf of
the Company, has (i) used any corporate funds for any unlawful contributions,
gifts, entertainment or any other unlawful expenses relating to political
activity or (ii) made any direct or indirect unlawful payments to governmental
officials or others from corporate funds or established or maintained any
unlawful or unrecorded funds. The Company makes and keeps accurate books and
records reflecting its assets and maintains internal accounting controls which
provide reasonable assurance that: (A) transactions are executed in accordance
with management's authorizations; (B) transactions are recorded as necessary to
permit preparation of the Company's financial statements and to maintain
accountability for the earnings and assets of the Company and (C) access to the
assets of the Company is permitted substantially in accordance with management's
authorization, and the recorded accountability of the assets of the Company is
compared with its existing assets at reasonable intervals.
(w) Officers of the Company. The Disclosure Schedule sets forth a complete
list of the names and positions held of all officers and employees of the
Company, and the names of all consultants and independent contractors regularly
retained, and the current annual rate of compensation (including bonuses) paid
by the Company to each such officers, employee, consultant and independent
contractor whose annual rate of compensation (including bonuses) exceeds Fifty
Thousand Dollars ($50,000.00) in the aggregate.
(x) License and Permits. The Company has secured all material licenses,
franchise, permits and other authorizations from federal, state, local and other
governmental or
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administrative authorities (an "Authority") applicable to its assets,
properties and operations or necessary for the conduct of its business (the
"Permits"). The Disclosure Schedule sets forth a true, complete and correct
list of all such Permits held or used by the Company and true and complete
copies thereof have heretofore been delivered by the Company to the
Purchaser, Each of said Permits is in full force and effect, the Company (or
other designed permittee or licensee thereunder) is in material compliance
with the terms, provisions and conditions thereof, there are no outstanding
violations, notices of noncompliance therewith, judgments, consents decrees,
orders or judicial or administrative action(s) or proceedings(s) affecting
any of said Permits and to the Company's knowledge, no condition exists and
no event has occurred which (whether with or without notice, lapse of time or
the occurrence of any other event) would permit the suspension of revocation
of any of said permits other than by expiration of the term set forth
therein. Consummation of the transactions contemplated by their Agreement
shall not affect the validity, enforceability or effectiveness of any such
Permit and no filing with, or consent authorization or approval of any
Authority is required in connection with the consummation of the transactions
contemplated hereby.
(v) Environmental Matters. Without limitation upon any other warranty
contained herein, the Company, to the best of the Seller's knowledge, is in
substantial compliance with all applicable environmental laws, rules, and
regulations, and, to the best of their knowledge, has not committed any act
which constitutes a release of hazardous substances or a release of petroleum
under the Comprehensive Environmental Response Compensation and Liability Act
("CERCLA") or the Solid Waste Disposal Act. The Company does not, and has not,
engaged in the off-site disposal, treatment, recycling, or storage of any waste
products which are "hazardous waste" under the Solid Waste Disposal Act or
prohibited under the laws of the state in which the Business is conducted.
Section 2.2 Representations and Warranties of the Purchaser.
(a) Organization and Standing. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland.
(b) Power and Authority. The Purchaser has the power and authority to
execute and deliver their Agreement and the other documents required by their
Agreement to be delivered by the Purchaser (their Agreement and such other
documents being collectively hereinafter called, the "Purchaser Transaction
Documents"), and to perform its obligations under the Purchaser Transaction
Documents. The execution and delivery of the Purchaser Transaction Documents the
consummation of the transaction contemplated thereby have been duly and validly
authorized and approved by all necessary corporate actions on the part of the
Purchaser, and no other corporate proceedings are necessary to authorize the
Purchaser Transaction Documents and the transactions contemplated thereby.
(c) Binding Agreement. Their Agreement and each of the other the Purchaser
Transaction Documents have been, and on the Closing Date, will be duly and
validly executed
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and delivered by the Purchaser. Their Agreement constitutes, and upon
execution thereof by the Purchaser, each of the other the Purchaser
Transaction Documents will constitute the legal, valid and binding
obligations of the Purchaser, enforceable against the Purchaser in accordance
with their terms, except as enforceability may be limited by applicable
equitable principles or by bankruptcy, insolvency, reorganization, moratorium
or similar laws from time to time in effect affecting the enforcement of
creditors' rights and remedies generally.
(d) Absence of Conflicting Agreements. Neither the execution and delivery of
the Purchaser Transaction Documents by the Purchaser, nor the performance by the
Purchaser of the transactions contemplated hereby, conflicts with, or
constitutes a breach of, or a default under, or will result in a breach or
violation of: (i) the Articles of Incorporation or the By-laws of the Purchaser;
(ii) any applicable law or any applicable rule, judgment, order writ,
injunction, or decree of any court; (iii) any applicable rule or regulation of
any administrative agency or other governmental authority of (iv) any material
agreement, indenture, contract or instrument to which the Purchaser is a party
or by which it is bound.
(e) Consents. No license, consent, approval, order or authorization of, or
registration, declaration or filing with any person, entity or governmental
agency or authority is required in connection with the execution and delivery of
the Purchaser Transaction Documents, or for the consummation by it of the
transactions contemplated thereby.
(f) Disclosure. No representation or warranty by the Purchaser in their
Agreement and no information is any statement, certificate, schedule or other
documents furnished or to be furnished to the Company or the Sellers pursuant
hereto contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein, when taken together, not misleading. To the best of
the Purchaser's knowledge, there is no fact which the Purchaser has not
disclosed to the Sellers which would result in a material adverse change to the
Purchaser.
ARTICLE III
CONDITIONS PRECEDENT TO THE CLOSING
Section 3.1 Conditions Precedent to Obligations of the Purchaser.
The obligations of Purchaser to consummate the transactions contemplated
hereby on the Closing Date shall be subject to the following conditions, any or
all of which may be waived in writing by the Purchaser.
(a) Accuracy of Representations and Warranties. Each of the representations
and warranties of the Sellers and the Company contained herein shall be true and
correct in all material respects with respect to the representations and
warranties not already qualified by a materiality standard and shall be true and
correct in all respects if already qualified by a
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materiality standard on and as of the Closing Date with the same effect as
though made on and as of such date and the Sellers and the Company shall have
performed and complied in all material respects with each of the agreements,
covenants, stipulations, terms and conditions contained herein and required
to be performed or complied with by them on or prior to the Closing Date.
(b) No Adverse Change. Since December 31, 1995, there shall have been no
MAC.
(c) No Loss. Since December 31, 1995, the Company shall not have suffered
any loss on account of fire, flood, accident, strike or other calamity which
resulted in a MAC, whether or not such loss shall have been covered by
insurance.
(d) Covenants. All of the covenants and obligations that the Sellers or the
Company is required to perform or to comply with pursuant to the terms of Their
Agreement and the Sale Agreements or Transaction Documents at or prior to
Closing shall have been duly performed or complied with by the Sellers or the
Company, as the case may be, in all respects prior to the Closing Date.
(e) Officer's Certificate. The President or Vice President of the Company
shall have executed and delivered to the Purchaser on the Closing Date a
Certificate, dated that date, in form and substance reasonably satisfactory to
the Purchaser and its legal counsel, to the effect that each of the provisions
of paragraphs (a), (b), (c), and (d) of their Section 3.1 is true and correct in
every respect.
(f) No Injunction; Consents. No action, proceeding or investigation shall
have been instituted or threatened to set aside the transactions provided for
herein or to enjoin or prevent the consummation of the transactions contemplated
hereby and all required consents and approvals for the consummation of the
transactions contemplated hereby shall have been secured.
(g) Deliveries by Sellers. The Sellers shall have delivered to the Purchaser
the following:
(i) all original stock certificates evidencing the Stock held by the
Sellers, duly executed in blank or accompanied by stock powers, duly executed in
blank together with a signature guarantee for the Sellers, free and clear of any
lien, claim, charge, pledge, security interest or 'encumbrance whatsoever;
(ii) a good standing certificate of the Company, dated no earlier than 30
days prior to the Closing Date, certifying that the Company is in good standing
in the State of Indiana;
(iii) copies of the resolutions duly adopted by the board of directors and
shareholders of the Company, authorizing the execution, delivery and performance
of any Transaction Documents to which the Company is a party and the other
agreements, instruments and documents contemplated hereby and to be delivered
hereunder, duly certified by the
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Secretary or Assistant Secretary of the Company, which resolutions shall be
in full force and effect at the time of delivery on the Closing Date.
(iv) a certificate of incumbency executed by the President or any Executive
Vice President of the Company, and by the secretary or any Assistant Secretary
of the Company, listing the officers of the Company authorized to execute any
Transaction Documents and the other certificates, schedules and the instruments
to be delivered on behalf of the Company, and their respective officer
positions, and containing the genuine signature of each such person set forth
opposite their name;
(v) originals or true and correct copies of the books and records of the
Company, including the Articles of Incorporation of the Company and all
amendments thereto (the "Charter") and the corporate by-laws of the Company and
all amendments thereto (the "by-laws"); and
(vi) such other documents and instruments as shall be required to consummate
the transaction contemplated hereunder;
(h) Resignations. The Company and the Sellers shall have caused to be
delivered at the Closing the resignations, to become effective at the Closing,
of all of the Company's directors and officers, together with the relinquishment
of all remuneration and benefits accruing to them in their capacity as directors
of the Company, but not otherwise, and waivers and releases of all rights which
they may have against the Company in their capacity as directors of the Company,
but not otherwise.
(i) Due Diligence. On or before thirty (30) days prior to the Closing Date,
the Purchaser and its representatives and agents shall have completed their
inspections and "due diligence" examination of the Business and the Purchaser
shall be fully satisfied with the results thereof in the Purchaser's role and
reasonable discretion
(j) Facility Lease. The Purchaser shall have entered into a facility lease
for the Site in substantially the form of Exhibit D hereto.
(k) & (l) omitted
(m) By Closing, Sellers shall have executed an employment agreement with The
Dental Center, Inc. ("Employer) in the form attached, hereto, as "Exhibit E",
and shall have caused to be executed, Employment Agreements between and among
The Dental Center, Inc. or the Adult Dental Center, Inc. and the following
dental providers:
a. Dr. Charles Rosenbaum;
b. Dr. Douglas Barton;
c. Dr. Gary Pippenger, and
d. Dr. Robert Austgen, in the form attached, hereto, as "Exhibit E"
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Section 3.2 Conditions Precedent to Obligations of the Sellers.
The obligations of the Sellers to consummate the transactions contemplated
hereby on the Closing Date shall be subject to the following conditions, any or
all of which may be waived in writing by the Sellers:
(a) Accuracy of Representations and Warranties. Each of the representations
and warranties of the Purchaser contained herein shall be true and correct in
all material respects with respect to the representations and warranties not
already qualified by a materiality standard and shall be true and correct in all
respects if already qualified by a materiality standard on and as of the Closing
Date with the same effect as though made on and as of such date and the
Purchaser shall have in all material respects performed and complied with each
of the agreements, covenants, stipulations, terms and conditions contained in
each of the Purchaser Transaction Documents and required to be performed or
complied with by the Purchaser on or prior to the Closing Date.
(b) Officer's Certificate. An executive officer of the Purchaser shall have
executed and delivered to the Sellers on the Closing Date a Certificate, dated
that date, in form and substance reasonably satisfactory to the Sellers and its
legal counsel, to the effect that the provisions of paragraph (a) of their
Section 3.2 are true and correct in every respect.
(c) Deliveries by the Purchaser. The Purchaser shall have delivered to
Sellers the following:
(i) a good standing certificate and certified charter documents of the
Purchaser, each of recent date, from the Maryland State Department of
Assessments and Taxation; and
(ii) copies of the resolutions duly adopted by the board of directors of the
Purchaser authorizing the execution, delivery and performance of the Purchaser
Transaction Documents and the other agreements, instruments and documents
contemplated thereby, duly certified by the Secretary or Assistant Secretary of
the Purchaser, which shall be in full force and effect at the time of delivery
on the Closing Date; and
(iii) a certificate of incumbency executed by the President or any vice
President of the Purchaser, and by the Secretary or any Assistant Secretary of
the Purchaser of the Purchaser, listing the officers of the Purchaser authorized
to execute (to the extent a party thereto) the Purchaser Transaction Documents
and other certificates, schedules and instruments to be delivered on behalf of
such corporation, and their respective officer positions, and containing the
genuine signature of each such person set forth opposite their name.
schedules and instruments to be delivered on behalf of such corporation,
and their respective officer positions, and containing the genuine signature
of each such person set forth opposite their name.
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(iv) delivery of a portion of the Purchase Price in cash, if applicable, the
appropriate amount of Dentalco stock, and a duly executed Note Pursuant to
Section 1.2 hereof; and
(v) the Guarantee of Dentalco, Inc. in the form set forth in Exhibit "F";
and
(vi) such other documents and instruments as shall be required to consummate
the transaction contemplated hereunder;
(d) Due Diligence. On or before thirty (30) days prior to the Closing Date,
the Sellers shall have completed their due diligence examination of Purchaser
and Sellers shall be fully satisfied with the results thereof in Sellers' sole
and reasonable discretion.
ARTICLE IV
CONVENANTS
Section 4.1 Conduct of the Business.
From and after the date of their Agreement to and including the Closing
Date, the Sellers covenant and agree as follows:
(a) The Sellers shall cause the Company to (i) conduct its business
efficiently and consistent with past business practices and preserve its current
business organization, (ii) keep available the services of its present officers,
employees, consultants and agents, (iii) maintain its present business
relationships with suppliers, customers, brokers, sales representatives and such
other persons for firms having business relationships on the date hereof with
the Company, (iv) preserve its reputation and goodwill and (v) comply in all
material respects with the provisions of all laws, regulations, judicial decrees
and other applicable to it or to be the conduct of its business; and
(b) The Sellers shall cause the Company to (i) refrain from introducing
any unusual operations or entering into any new line of business, (ii)
maintain its books, records and accounts in its customary and usual manner,
(iii) refrain from introducing methods of accounting inconsistent with those
used in prior periods. (iv) maintain in full force and effect all policies of
insurance in effect on the date of their Agreement and to maintain all of its
properties in good repair and condition, reasonable wear and tear excepted
and (v) prepare and timely and properly prepare and file all federal, state,
local, foreign and other tax returns.
(c) The Sellers shall keep the Purchaser advised of any significant
decisions concerning the Business or the prospects of the Business and shall use
its best efforts to preserve the Business and the prospects of the Business, and
assume that each supplier and customer of
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the Company continues to do business on substantially the same terms and
conditions as such supplier or customer did with the Company before such date.
(d) Cooperate with Purchaser in obtaining the consents and authorizations of
all persons and entities which are required, in order to satisfy Purchaser's
conditions of closing, and to consummate the transactions contemplated, hereby,
and make all filing with and give all notices to third parties, which may be
necessary or reasonable required, in order to consummate the transactions
contemplated, hereby, and to cooperate fully with Purchaser's due diligence,
including providing the Purchaser with reasonable access to the Practice Site
and to Seller's records promptly after the date of execution, hereof. Further,
Sellers agree to cooperate and support any outside public accountant's audit of
the Practice Site's 1993-1995 Financial Statements.
(e) After Purchaser has waived its due diligence contingency, the Company
shall begin proceedings to terminate its retirement plans.
Section 4.2 Certain Acts.
The Sellers covenant and agree that from and after the date hereof, the
Sellers shall not and shall cause the Company not to, without the prior written
consent to the Purchaser:
(a) enter into any business combination transaction (such as a merger,
consolidation, sale of stock or sale of assets) with any person;
(b) amend or authorize any amendment to or modification of its Charter or
Bylaws;
(c) make any changes in its authorized or issued capital stock, or issue any
corporate securities of any nature of opinion for any of the foregoing, or enter
into any contract of any nature respecting shares of its capital stock or
otherwise make any changes in its capital structure;
(d) make any distribution or payment in respect of shares of its capital
stock or purchase or redeem any share of its capital stock;
(e) enter into any material contract or commitment extending beyond the
Closing Date, except in the ordinary course of business;
(f) terminate, modify or amend any lease, license, permit, contract or other
agreement, except in the ordinary course of business and not involving an
increase in liability or reduction in revenue;
(g) adjust in any way, either directly or indirectly, or grant or agree to
grant any increase in the wages, salary, bonus or other compensation,
remuneration or benefits of any employee, officer, director, consultant,
shareholder or agent, except as required by existing
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agreements or arrangements described in the Disclosure Schedule, or become a
party to any employment agreement or any consulting arrangement, or become a
party to any contract or arrangement providing for the payment of bonuses,
profits, shares, stock benefits, severance payments for retirement benefits,
except as expressly contemplated by their Agreement;
(h) make any capital expenditure in excess of $2,000.00
(i) incur any indebtedness, liabilities or obligations of any nature, except
current liabilities in the ordinary course of business consistent with past
practices;
(j) sell or transfer any property other than in the ordinary course of
business, or acquire or dispose of any fixed assets or mortgage, pledge or
subject to any lien, charge or encumbrance any assets, tangible or intangible;
(k) release, waive, sell or assign any debts, claims, rights or other
intangible obligations, or accept or agree to accept less than the stated or
face amount in settlement, discharge or satisfaction of any receivable;
(l) discharge or satisfy any lien or encumbrance or pay any obligation of
liability (obsolete or contingent) other than current liabilities shown on the
balance sheet dated Jun. 30, 1996 and the current liabilities incurred after the
balance sheet dated June 30, 1996 in the ordinary course of business and in
normal amounts;
(m) agree, whether in writing or otherwise, to do any of the foregoing; or
(n) make any bids or proposals or enter into any contracts for the sale of
products or the performance of services by the Company, except in the ordinary
course of business.
Section 4.3 Access to and Use of Information.
From the date hereof to the Closing Date, the Purchaser and its officer,
directors, agents, lenders, employees and representatives shall have the right
at any time during normal business hours (in a matter that does not unreasonable
interfere with the Company's or the Company's business operations) with
reasonable advance notice, to visit and inspect the Company's and the Company's
offices, plants and properties and to examine and make excerpts from its books,
contracts, accounts and records, and to request and receive from the Company and
the Company information concerning its business, operations and financial
condition. No such visit inspection, excerpting or receipt of information shall
affect in any manner any of the representations warranties, convenants,
agreements or stipulations of the Sellers under their Agreement or constitute
any waiver thereof by the Purchaser.
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Section 4.4 No-Shop
The Sellers convenant and agree that neither he nor any of their agents or
representatives (including, without limitation, any investment banker, attorney
or accountant retained by him) will, directly or indirectly, initiate, solicit,
entertain or negotiate, or approve, or enter into any agreement or understanding
with respect to, any acquisition, merger, consolidation, recapitalization,
restructuring or similar transaction involving the Business so long as this
Agreement remains in effect.
Section 4.5 Non-Compete.
omitted.
Section 4.7 Confidentiality.
The Sellers shall, except with the prior written consent of the Purchaser,
keep secret and retain in strict confidence, and not use for its benefit nor
disclose to any other party, any information relating to the Business, except
such information may be disclosed (i) if required by court order or decree or
applicable by law, (ii) if it is publicly available through no act or failure to
act of the Sellers, (iii) during the course of or in connection with any
litigation, governmental investigation, arbitration, or other proceeding based
upon or in connection with the subject matter of their Agreement, or (iv) if it
is otherwise expressly provided for herein.
Section 4.7 Subordination.
Subject to its right to realize upon its collateral upon default and its
right to receive payments of principal and interest when Purchaser is in
default to Senior Lender, the Sellers hereby covenant and agree that the
payment of the principal and interest on the Note shall be subordinate (at
such times as Purchaser is in default to Senior Lender), in right of payment
and priority to the prior payment in full of all of Sellers' indebtedness,
whether or not existing on the date hereof, payable by the Purchaser to any
bank or institutional lender (a "Senior Lender"). The Sellers shall, upon the
request of any Senior Lender, execute an increditor agreement in form and
substance satisfactory to such Senior lender and to Sellers.
ARTICLE V
INDEMNIFICATION
Section 5.1 Seller's Indemnification.
The Sellers (an "Indemnitor") hereby covenant and agree to indemnify the
Purchaser (an "Indemnitee") and the Company and hold them harmless against and
with respect to any and all
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damage, loss, liability, deficiency, cost and expense (including, without
limitation, reasonable attorney's fees) resulting from: (i) any
misrepresentation, breach of warranty or non-fulfillment of any agreement,
covenant or obligation on the part of the Sellers contained in their
Agreement or under any document or certificate delivered by the Sellers
pursuant hereto; and (ii) any and all actions, suits, proceedings, demands,
assessments, judgment, out-of-pocket costs, reasonable attorney's fees and
out-of-pocket expenses of any nature incident to the foregoing. In no event,
however, shall the amount payable by the Sellers pursuant to their Section
5.1 exceed the total amount of the Purchase Price.
Section 5.2 Purchaser's Indemnification.
The Purchaser (an "Indemnitor") hereby covenants and agrees to indemnify
and hold harmless the Sellers (an "Indemnitee") against and with respect to
any and all damage, loss, liability, deficiency, cost and expense (including,
without limitation, reasonable attorney's fees) resulting from (i) any
misrepresentation, breach of warranty or non-fulfillment of agreement,
covenant or obligation on the part of the Purchaser under the Agreement or
under any certificate or document delivered by the Purchaser pursuant hereto;
(ii) Purchaser's operation of the Company after the Closing; and (iii) any
and all actions, suits, proceedings, demands, assessments, judgments,
out-of-pocket costs, reasonable attorney's fees and out-of-pocket expenses of
any nature incident to the foregoing.
Section 5.3 Notice to Indemnitor.
In the event that an Indemnitee has presented against it a demand, claim
or other written notice (each a "Notice"), which Notice constitutes a cause
of action for which the Indemnitee is entitled to be indemnified hereunder,
then and in such event, the Indemnitee shall notify the Indemnitor in writing
of the receipt of such Notice as soon as practicable after first receiving
such Notice, but in any event no longer than 30 days following the
Indemnitee's receipt of such Notice. The delay or failure of the Indemnitee
to provide any notice required herein shall not release the Indemnitor from
liability or any other obligation with respect to their indemnification,
except and only to the extent that the Indemnitor's ability to defend against
the action is impaired by such delay or failure.
Section 5.4 Action by Indemnitor.
The Indemnitor, with respect to any Notice referred to hereunder, shall have
the opportunity to defend such action with counsel reasonably acceptable to all
the parties herein. In the event the Indemnitor shall agree to defend the
action, Indemnitor shall agree to defend the action, Indemnitor shall be
provided full and complete cooperation by the Indemnitee in order to effectuate
a defense and shall be entitled to effectuate at Indemnitor's sole cost and
expense a reasonable settlement of the action, provided that Indemnitor obtains
a complete release of the Indemnitee with respect to any such action.
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Section 5.5 Failure to Act.
In the event the Indemnitor, after written notice, fails to promptly pay
the amount claimed in any such action, or fails to otherwise defend such
action, then and in such event, the Indemnitee may pay such amount, or settle
or defend such action, and the costs of any such payment or defense shall be
paid by the Indemnitor promptly upon demand.
Section 5.6 Enforcement.
The Indemnitor further agrees that in the event of any breach of their
indemnification, in addition to the obligations set forth above, Indemnitor will
pay the costs of any reasonable attorney's fees and/or court costs incurred by
the Indemnitee in enforcing the terms of their indemnification.
ARTICLE VI
TERMINATION
Their Agreement may be terminated (i) by the mutual written consent of the
parties hereto, (ii) by written notice from the Purchaser to the Sellers if the
conditions contained in Section 3.1 hereof are not satisfied or waived on or
before November 30, 1996 or (iii) by written notice from the Sellers to the
Purchaser if the conditions contained in Section 3.2 hereof are not satisfied or
waived on or before November 30, 1996. If their Agreement is terminated pursuant
to the foregoing provisions, their Agreement and all agreements contained herein
or attached hereto as exhibits shall become null and void, and thereafter no
party hereto shall have any liability or responsibility to any other party
hereto.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Survival of Representations.
All of the representations, warranties, covenants and agreements made by the
parties in their Agreement or pursuant hereto shall survive for a period of
three years after the Closing under their Agreement.
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Section 7.2 Governing Law; Assignment; Binding Effect.
Their Agreement shall be governed by the laws of the State of Indiana. Their
Agreement may not be assigned by any party without the written consent of the
other parties hereto. Their Agreement shall be biding upon and inure to the
benefit of the respective parties hereto and their heirs, personal
representatives, and permitted successors and assigns, as the case by be.
Section 7.3 Best Efforts.
Each party hereto shall use its best efforts to fulfill its conditions to
Closing and otherwise to consummate the transactions contemplated by their
Agreement.
Section 7.4 Amendments.
Their Agreement may not be amended except by an instrument in writing signed
by the Purchaser and the Sellers.
Section 7.5 Waiver.
Except as otherwise provided in their Agreement, any failure of either of
the parties to comply with any provisions hereof may be waived by the party
entitled to the benefit thereof only by a written instrument signed by the party
granting such waiver, but such waiver or failure to insist upon strict
compliance with such provision shall not operate as a waiver of or estoppel with
respect to, any subsequent or other failure.
Section 7.6 Further Assurances.
Each of the parties hereto agrees that, from and after the Closing, upon the
reasonable request of any other party hereto and without further consideration,
such party will execute and deliver to such other party documents and further
assurances and will take such other actions (without cost to such party) as such
other party may reasonably request in order to carry out the purpose and
intention of their Agreement.
Section 7.7 Counterparts.
Their Agreement may be executed in one or more counterparts, and by the
different hereto in separate counterparts, each of which executed shall be
deemed to be an original but all of which when taken together shall constitute
one and the same agreement.
Section 7.8 Notices.
Except as otherwise provided, herein, all notices hereunder shall be in
writing and shall be deemed to have been duly given upon receipt if delivered by
hand or three (3) days after
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mailing by certified or registered mail at the following address: if to the
Sellers, to Charles Rosenbaum, D.D.S., c/o Richard L. Mintz, 1400 KeyBank
Building, 202 S. Michigan Street, South Bend, Indiana 46601, and if to the
Purchaser, to DentalCo Management Services of Maryland, Inc., 6115 Falls
Road, Baltimore, Maryland 21209, or to such other address as hereinafter may
be furnished in writing by a party hereto each other party hereto.
Section 7.9 Costs and Expenses.
Except as other wise provided herein, the parties hereto will pay their own
costs and expenses relating to the transactions contemplated by their Agreement,
including fees and disbursements of their respective counsel, accountants and
financial advisors, whether or not the transactions contemplated hereunder are
consummated. The Sellers agree that none of such expenses shall be payable on
their behalf by the Company after Closing.
Section 7.10 Entire Agreement; Headings.
Their Agreement (including all attachments and schedules hereto) a letter
dated October 31, 1996 from James Kukas to Richard L. Mintz and the Stock
Agreement between the Parties constitute the entire agreement among the parties
pertaining to the subject matter hereof, and may not be modified or waived
except in writing. The headings are for convenience only and shall not bear upon
the construction of their Agreement.
Section 7.11 Time and Essence; Right to Specific Performance.
TIME IS OF THE ESSENCE IN THEIR AGREEMENT. The parties recognize that
monetary damages in the event of the failure of a party hereto to perform its
undertakings and obligations hereunder are inadequate and impossible of
measurement. Accordingly, each party hereto agrees that all undertakings and
obligations hereunder shall be subject to the equitable remedy of specific
performance and agrees that it will not challenge the power of any court of
competent jurisdiction to order such performance.
IN WITNESS WHEREOF, the parties hereto have executed their Agreement as of
the date first above written.
ATTEST: DENTALCO MANAGEMENT SERVICES
OF MARYLAND, INC.
/s/ E. James Kuhns By: /s/ Lawrence F. Halpert
________________________________ __________________________________
E. James Kuhns, Secretary Lawrence F. Halpert, President
/s/ Charles Rosenbaum /s/ Douglas Barton
________________________________ __________________________________
Charles Rosenbaum, D.D.S. Douglas Barton, D.D.S.
On Behalf of Sellers On Behalf of Sellers
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/s/ Gary Pippenger /s/ Robert Austgen
________________________________ _________________________________
Gary Pippenger, D.D.S. Robert Austgen, D.D.S.
On Behalf of Sellers On Behalf of Sellers
THE DENTAL CENTER, INC. THE DENTAL CENTER ADULT, INC.
By: /s/ Anne Jankowski By: /s/ Charles Rosenbaum
____________________________ _______________________________
Anne Jankowski Charles Rosenbaum, President
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ASSIGNMENT AND ASSUMPTION
AND
AMENDMENT NO. 1
TO
STOCK PURCHASE AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AND AMENDMENT NO. 1 to STOCK PURCHASE
AGREEMENT (this "Assignment and Amendment"), dated as of February 12, 1997,
and effective as of January 1, 1997, is by and among DentalCo Management
Services of Maryland, Inc. (the "Assignor"), DentalCo Management Services of
Missouri, Inc., a Maryland corporation (the "Assignee"), Charles Rosenbaum,
D.D.S., Douglas Barton, D.D.S., Gary Pippenger, D.D.S. and Robert Austgen,
D.D.S. (the "Sellers"), and The Dental Center, Inc. and The Dental Center
Adult, Inc. (collectively, the "Company").
WITNESSETH:
WHEREAS, Assignor, Sellers and the Company are parties to that certain
Stock Purchase Agreement dated as of November 26, 1996 (the "Purchase
Agreement"), pursuant to which the Assignor is purchasing all the capital stock
of the Company;
WHEREAS, one of the conditions precedent to the obligations of the Assignor
under the Purchase Agreement is the execution and delivery of certain Employment
Agreements by and between the Company and the Sellers;
WHEREAS, the Assignor desires to assign its rights, interests, privileges,
obligations and duties under the Purchase Agreement to the Assignee, the
Assignee desires to assume such rights and obligations thereunder, and the
Sellers and the Company are willing to consent to such assignment of the
Purchase Agreement;
WHEREAS, the parties have agreed to a Purchase Price comprised of cash and
stock of DentalCo, Inc., a Maryland corporation ("DentalCo"), and therefore wish
to delete any references in the Purchase Agreement to the Promissory Note and
corresponding Security Agreement and Guaranty Agreement;
WHEREAS, the parties desire that the transactions contemplated under the
Purchase Agreement be effective as of January 1, 1997;
WHEREAS, the parties desire to amend the Purchase Agreement;
<PAGE>
WHEREAS, all capitalized terms used herein, but not otherwise defined
herein, shall have the respective meanings ascribed to such terms in the
Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and mutual agreements,
covenants and provisions herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties, intending to be legally bound, hereto agree to this Assignment and
Amendment as follows:
1. Assignment and Assumption
(a) Assignor hereby assigns, the Assignee hereby assumes, and the Sellers
and the Company hereby acknowledge and consent to the assignment and assumption
of, the rights, interests, privileges, obligations and duties of Assignor under
the Purchase Agreement.
(b) Assignee does hereby accept the foregoing assignment of the Purchase
Agreement and does hereby undertake to assume and perform all of the terms,
covenants, obligations and conditions which arise under the Purchase Agreement
from the date of this Assignment and Amendment in lieu of Assignor and with like
force and effect as if Assignee were the original Purchaser under the Purchase
Agreement.
2. Amendment
The Purchase Agreement is hereby amended as follows:
(a) All references to the Promissory Note and corresponding Security
Agreement, and the execution and delivery thereof, are deleted from
the Purchase Agreement and such documents, whether orally agreed to or
in written form, are hereby void, nullified and of no further force,
and the corresponding Exhibits B and B1 are also deleted.
(b) The form of Guaranty of DentalCo, Inc. attached to the Purchase
Agreement as Exhibit "F" is hereby deleted and replaced with the form
of Guaranty attached hereto as Replacement Exhibit "F."
(c) Section 1.1 is hereby deleted in its entirety and replaced with the
following:
"Subject to the terms and conditions hereof, as of the
Effective Date (as defined in Section 1.3 herein), the
Sellers will sell, convey, and transfer to the Purchaser all
of the outstanding Common Stock of the Company (the
"Stock"). At the Closing (as defined in Section 1.3
herein), the Seller shall deliver the Stock free and clear
of all liens, claims, charges, pledges, security interests,
encumbrances and restrictions, except as hereinafter set
forth, by delivering certificates, in due and proper form,
representing the Stock, duly endorsed or
2
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accompanied by duly executed stock powers, which have been
notarized."
(d) Section 1.2 is hereby deleted in its entirety and replaced with the
following:
"The purchase price for the Stock, payable at the
Closing, is as follows (the "Purchase Price"):
(a) the Purchaser shall pay the amount of Three Million
Eight Hundred Seventy-Five Thousand Dollars ($3,875,000) to
the Sellers via certified check or wire transfer to the
account or accounts specified in writing by the Sellers; and
(b) twelve thousand five hundred (12,500) shares of the
common stock of DentalCo, par value $0.0001 per share (the
"Common Stock"), subject to certain restrictions contained
in the proxy agreement by and between DentalCo and each of
the holders of the Common Stock and the Stockholders'
Agreement by and among DentalCo and each of its
shareholders, shall be issued to the Sellers in such
proportion as set forth below:
(i) Robert Austgen, D.D.S. 5,000 shares
(ii) Charles Rosenbaum, D.D.S. 5,000 shares
(iii) Douglas Barton, D.D.S. 2,500 shares
(c) without adjustment to the Purchase Price, Sellers may
transfer ownership (with all related liabilities) of their
respective automobile currently owned by the Company to
themselves."
(e) Section 1.3 is hereby deleted in its entirety and replaced with the
following:
"The consummation of the transactions contemplated
hereunder shall be effective as of 12:01 a.m.,
January 1, 1997 (the "Effective Date").
The closing ("Closing") shall occur on February
12, 1997 (the "Closing Date"), commencing at 10:00
a.m., Eastern Time, at the offices of the Company
at 1005 E. LaSalle Avenue, South Bend, Indiana, or
on such other date, time or place as the parties
may agree upon in writing."
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(f) Section 3.1(m) is hereby deleted in its entirety and replaced with the
following:
"(m) Prior to Closing, each Seller shall
have executed an employment agreement with The
Dental Center, Inc., an Indiana corporation,
and/or Charles H. Rosenbaum, D.D.S. & Associates,
P.C., a Michigan professional corporation
(collectively, "Employer") in the form attached
hereto as "Exhibit E"."
3. Purchase Agreement Otherwise Unamended. The terms of the Purchase Agreement
not amended hereby shall, except as the context unambiguously requires, remain
in full force and effect.
4. Entire Agreement. The Purchase Agreement, as amended by this Assignment
and Amendment, sets forth the entire agreement and understanding of the parties
with respect to the transactions contemplated by the Purchase Agreement and this
Assignment and Amendment, and supersedes all prior agreements, arrangements, and
understandings relating to the subject matter of such agreement. This Section
does not apply to the certain Stock Agreement dated as of November 26, 1996 by
and among Assignor and the Sellers, as amended, the Amended and Restated
Stockholders' Agreement, dated as of January 15, 1997, as amended, by and among
DentalCo and certain of its stockholders, or the Agreement and Irrevocable Proxy
designating and appointing Lawrence F. Halpert, D.D.S. as the Sellers true and
lawful proxy.
5. Applicable Law. This Assignment and Amendment shall be construed and
enforced in accordance with the laws of the State of Indiana, without regard to
conflict of law principles, in effect therein.
6. Counterparts. This Assignment and Amendment may be executed in
counterparts, each of which when so executed shall be deemed to be an original
and all of which shall together constitute one document.
[Remainder of page intentionally left blank. Signature pages follow.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment and
Amendment on the day and year first above written.
ATTEST: DENTALCO MANAGEMENT SERVICES
OF MARYLAND, INC.
By: /s/ E. James Kuhns By: /s/ Lawrence F. Halpert
--------------------------------- -----------------------------
E. James Kuhns Name: Lawrence F. Halpert
Secretary Title: President
DENTALCO MANAGEMENT SERVICES
OF MISSOURI, INC.
By: /s/ E. James Kuhns By: /s/ Lawrence F. Halpert
--------------------------------- ------------------------------
E. James Kuhns Name: Lawrence F. Halpert, DDS
Secretary Title: President
THE DENTAL CENTER, INC.
By: /s/ Anne Jankowski By: /s/ Charles Rosenbaum
--------------------------------- -----------------------------
Anne Jankowski Name: Charles Rosenbaum
Title: President
THE DENTAL CENTER ADULT, INC.
By: /s/ Anne Jankowski By: /s/ Charles Rosenbaum
--------------------------------- -----------------------------
Anne Jankowski Name: Charles Rosenbaum
Title: President
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WITNESS:
/s/ Anne Jankowski /s/ Douglas Barton
- --------------------------------- -----------------------------
Anne Jankowski Douglas Barton, D.D.S.
/s/ Anne Jankowski /s/ Robert Austgen
- --------------------------------- -----------------------------
Anne Jankowski Robert Austgen, D.D.S.
/s/ Anne Jankowski /s/ Charles Rosenbaum
- --------------------------------- -----------------------------
Anne Jankowski Charles Rosenbaum, D.D.S.
/s/ Anne Jankowski /s/ Gary Pippenger
- --------------------------------- -----------------------------
Anne Jankowski Gary Pippenger, D.D.S.
6
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Exhibit 10.8
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is executed as of the 18th
day of March, 1997, by and among Wake Forest University, a North Carolina
not-for-profit corporation (the "Seller"); DentalCo of North Carolina, Inc., a
Maryland corporation (the "Buyer"); and DentalCo, Inc., a Maryland corporation
("DentalCo").
INTRODUCTION
Seller's business (the "Business") is composed of the clinical dental
services of the Department of Dentistry (the "DOD") of the Bowman Gray School of
Medicine, which is a "school" of the Seller. Seller wishes to sell to Buyer,
and Buyer wishes to purchase from Seller, on the terms and subject to the
conditions hereinafter set forth, legal and equitable title to all of the Assets
(as hereinafter defined) of Seller.
NOW THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto mutually agree as follows:
ARTICLE I
PURCHASE OF ASSETS
1.01 Purchase of Assets. Subject to Section 1.03, and on the terms and
conditions set forth in this Agreement, Seller agrees to transfer and convey on
the Closing Date (as hereinafter defined) to the Buyer, and the Buyer agrees to
acquire from Seller, all of Seller's rights, title and interest in and to solely
those assets, properties, and rights of Seller relating to and used in the
Business, whether tangible or intangible, real or personal (all of such assets,
properties and rights hereinafter collectively referred to as the "Assets")
including, but not limited to, the following assets:
(a) all personal property of the Business including, without
limitation, those fixed assets set forth on Schedule 1.01(a) attached hereto;
(b) all accounts receivable of the Business (the Accounts );
(c) all original lease agreements listed on Schedule 1.01(c) attached
hereto (the "Leases") and all rights relating thereto;
(d) all contracts with third parties, including but not limited to
all original management, managed care, government agency, purchase order,
service, supply, maintenance, and equipment purchase contracts listed on
Schedule 1.01(d) attached hereto (the "Contracts") and all rights relating
thereto, to the extent that these contracts are assignable;
(e) all of the stock in trade, supplies (including dental supplies)
and inventory, as stocked by Seller in connection with the Business in
accordance with normal ordering procedures, as set forth on Schedule 1.01(e)
attached hereto (the "Inventory");
(f) all lists of suppliers, patient lists, referral lists, Inventory
and supply records, files, patient billing and financial records (copies only)
and all other books and records of the Business;
(g) all goodwill, marketing, and other intangible assets, excluding
the telephone numbers, of the Business (collectively, the "Rights");
(h) all employment contracts and employment affiliations with all
clinical employees and clinical administrative employees, excluding dentists, of
the Business;
(i) all transferable licenses, permits, approvals, and authorizations
of the Business; and
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(j) all cash on hand in the Business after the Business satisfies all
outstanding obligations.
1.02 Dental Records. Seller shall transfer to Raymond Garrison, D.D.S.,
P.A., a North Carolina professional corporation (the "PA"), for $10.00 and other
valuable consideration, the patient charts and dental records relating to
services of the Business.
1.03 Excluded Assets. The following items which are related to the Assets
are not intended by the parties to be a part of the sale and purchase
contemplated hereunder, and are excluded from the Assets: (i) intellectual
property of the Seller and individuals currently employed by the Seller,
including patents, trademarks, copyrights, and similar intellectual property
which are described in Schedule 1.03(a) attached hereto; (ii) accounts
receivable held by Wake Forest University Physicians; (iii) controlled drugs and
substances; (iv) any records which by law Seller is required to maintain in its
possession; (v) those personal items listed on Schedule 1.03(b) attached
hereto; (vi) marketing literature of Seller, or any of its subsidiaries; and
(vii) any interest in, or rights to use of, the names of Seller, or any of its
subsidiaries, and any derivatives or contractions thereof.
1.04 Liabilities.
(a) Subject to the provisions of Section 1.04(b), Buyer shall assume,
fulfill or otherwise discharge when due, in accordance with their respective
terms, solely the liabilities of Seller arising under the Contracts and Leases
after the Closing Date (the "Assumed Liabilities").
(b) Except for the foregoing Section 1.04(a), Buyer shall not be
required to assume, fulfill or otherwise discharge any liabilities or
obligations arising out of, relating to or in connection with the Seller, prior
to the Closing. Without limiting the generality of the foregoing, Buyer shall
not assume any accounts payable existing as of the Closing Date.
1.05 Purchase Price. The purchase price payable by the Buyer to the Seller
for the Assets in the aggregate shall be: One Million Six Hundred Seventy Five
Thousand Dollars ($1,675,000.00), plus an amount equal to the face value of the
Accounts in excess of One Hundred Ninety Thousand Dollars ($190,000.00), to be
determined on the Closing Date, based on the then current Schedule 2.04 (the
"A/R Price") (collectively, the "Purchase Price"), payable as follows:
(a) Six Hundred Seventy Five Thousand Dollars ($675,000.00), plus the
A/R Price, shall be payable in cash at the Closing via wire transfer to the
account or accounts specified in writing by the Seller; and
(b) the balance of the Purchase Price One Million Dollars
($1,000,000.00) shall be paid by delivery of a convertible Promissory Note (the
"Promissory Note") in substantially the form appended hereto as Exhibit A, which
Promissory Note shall provide for payment in full in the form of DentalCo Common
Stock (as defined in Section 3.04 hereof), payable simultaneously with the
closing of the initial public offering of DentalCo Common Stock (the "IPO"),
such number of shares to be issued to be equal to the principal amount of the
Promissory Note divided by the issue price per share in the IPO. The Promissory
Note shall also provide that in the event the closing on the IPO does not occur
on or before the first anniversary of the Closing hereunder, the principal
amount due under the Promissory Note shall be immediately due and payable, in
cash, without interest. As security for the Buyer's obligations under the
Promissory Note, Buyer agrees to deposit into an escrow account on the Closing
Date, an amount equal to the full amount due under the Promissory Note, such
amount to be utilized to satisfy Buyer's obligations under the Promissory Note
in the event the cash payment condition set forth above is triggered. The terms
and conditions of the escrow shall be as set forth in the Escrow Agreement,
substantially in the form of Exhibit B hereof (the "Escrow Agreement"). The
shares to be issued pursuant to the Promissory Note shall be registered in the
IPO, but Seller will defer resale of such shares for any period imposed by
underwriters of the IPO upon affiliates of DentalCo, but in no event more than
six (6) months.
1.06 Allocation of the Purchase Price Among the Assets. The parties agree
that the consideration for the purchase of the Assets shall be allocated among
those Assets in the manner as set forth on Schedule 1.06 hereto.
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Seller and Buyer shall each complete, execute and timely file with the Internal
Revenue Service their respective income tax returns for the taxable year that
includes the Closing Date, an Internal Revenue Service Form 8594 (or such other
Internal Revenue Service Form as may then be prescribed for use by applicable
Income Tax Regulations) to comply with the applicable asset acquisition
reporting requirements of Section 1060 of the Internal Revenue Code of 1986, as
amended (the "IRC"), and the Income Tax Regulations thereunder. Form 8594 shall
be completed by Seller and Buyer based on, and shall in all events be consistent
with, the allocation of the consideration for the Assets.
1.07 Closing. The closing ("Closing") shall take place at 2:00 p.m.,
Eastern Time, at the offices of Seller, Medical Center Boulevard, Winston-Salem,
North Carolina 27157, on April 1, 1997, or such other time and date as may be
mutually agreed upon (the "Closing Date").
1.08 Deliveries by Buyer. At the Closing, the Buyer shall deliver to
Seller the following:
(a) the cash portion of the Purchase Price as described in Section
1.05;
(b) the Promissory Note, duly executed by the Buyer;
(c) the Escrow Agreement, duly executed by the Buyer;
(d) certificates of an appropriate officer of the Buyer and DentalCo
certifying that resolutions were duly adopted by the board of directors of the
Buyer or DentalCo, as the case may be, authorizing and approving Buyer's or
DentalCo's performance of the transactions contemplated hereby and the execution
and delivery of this Agreement and the documents described herein, and that such
resolutions are true and in full force and effect as of the Closing Date;
(e) certificates of an appropriate officer of the Buyer and DentalCo
certifying (i) that each covenant and agreement of the Buyer or DentalCo, as the
case may be, to be performed prior or as of the Closing Date pursuant to this
Agreement has been performed in all material respects, and (ii) that the
representations and warranties by or on behalf of the Buyer or DentalCo, as the
case may be, set forth herein are true and correct in all material respects as
of the Closing Date;
(f) certificates of incumbency for the respective officers of the
Buyer and DentalCo executing this Agreement or making certifications for
Closing, dated as of the Closing Date;
(g) the Post-Closing Covenants Agreement, substantially in the form
of Exhibit C hereto (the "the Post-Closing Covenants Agreement"), duly executed
by the Buyer and DentalCo;
(h) the Space Lease (as defined in the Post-Closing Covenants
Agreement), duly executed by Buyer;
(i) the New Space Lease (as defined in the Post-Closing Covenants
Agreement), duly executed by Buyer;
(j) an Administrative Services Agreement between Buyer and Raymond
Garrison, D.D.S., P.A. (the "PA"), duly executed by Buyer and the PA,
substantially in the form of Exhibit D;
(k) a Professional Services Agreement between Seller and the PA
pursuant to which Seller agrees to furnish professional dental services to the
PA through its faculty dentists, duly executed by the PA, substantially in the
form of Exhibit E; and
(l) such other documents as Seller may reasonably request in order to
effectuate the transactions contemplated hereby.
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<PAGE>
1.09 Deliveries by Seller. At the Closing, Seller shall deliver to the
Buyer:
(a) a duly executed bill of sale and assignment of intangibles,
substantially in the form of Exhibit F attached hereto (the "Bill of Sale");
(b) original copies of all Contracts and Leases to be assumed by the
Buyer, and all Seller Consents (as defined in Section 2.12) and assignments
related thereto;
(c) a complete and accurate list of Accounts as of the Closing Date
(or within three (3) business days thereof), in such form as shall be requested
by Buyer;
(d) evidence that the Seller has purchased "tail" or other insurance
as appropriate to insure against acts or omissions of Seller's employees and
agents engaged in the Business and arising from the operation of the Business
during the period prior to the Closing;
(e) certificates of an appropriate officer of the Seller certifying
that resolutions were duly adopted by the board of trustees of the Seller
authorizing and approving Seller's performance of the transactions contemplated
hereby and the execution and delivery of this Agreement and the documents
described herein, and that such resolutions are true and in full force and
effect as of the Closing Date;
(f) certificates of an appropriate officer of the Seller certifying
(i) that each covenant and agreement of the Seller to be performed prior or as
of the Closing Date pursuant to this Agreement has been performed in all
material respects, and (ii) that the representations and warranties by or on
behalf of the Seller set forth herein are true and correct in all material
respects as of the Closing Date;
(g) certificates of incumbency for the respective officers of the
Seller executing this Agreement or making certifications for Closing, dated as
of the Closing Date;
(h) the Post-Closing Covenants Agreement duly executed by the Seller;
(i) the Space Lease duly executed by Seller;
(j) the New Space Lease duly executed by Seller;
(k) the Professional Services Agreement duly executed by Seller
(l) the Escrow Agreement duly executed by the Seller; and
(m) such other documents as are reasonably necessary to convey all of
Seller's right, title and interest in and to the Assets, and as the Buyer may
reasonably request in order to effectuate the transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer and DentalCo, and their
respective successors and assigns, as provided in this Article II.
2.01 Organization and Authority of Seller. The Seller is a not-for-profit
corporation duly organized, validly existing and in good standing under the laws
of the State of North Carolina and has full power and authority to own and lease
the Assets, and to transfer them to the Buyer as provided herein. The Seller
has full power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. The Seller has taken all action required by
law, its Charter and By-Laws to consummate the transactions contemplated hereby,
and this Agreement is a valid and binding agreement of the Seller enforceable in
accordance with its terms.
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<PAGE>
2.02 No Violation. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will: (i) violate
any statute or laws or any judgment, decree, order, regulation, or rule of any
court or governmental authority, (ii) under any agreement or commitment to
which the Seller is a party or to which any of the Assets is subject:
(a) constitute a default or violation (or an event which, with notice or
lapse of time or both, would constitute a default) thereunder,
(b) result in the termination of such agreement or commitment,
(c) accelerate the performance required by such agreement or commitment,
(d) cause the acceleration of the maturity of any debt or obligation
pursuant to such agreement or commitment, or
(e) result in the creation or composition of any security interest, lien,
or other encumbrance upon any of the Assets.
2.03 Financial Information. Attached hereto as Schedule 2.03 is, with
respect to the Business: statements of revenues and expenses for the years ended
June 30, 1995 and 1996, and for the six month period ended December 31, 1996
(the "Financial Information"). The Financial Information (i) is true and
complete in all material respects; (ii) is in accordance with the books and
records of the Seller; (iii) presents fairly and accurately the revenues and
expenses of the Business for the periods shown; and (iv) has been prepared on a
consistent basis.
2.04 Accounts. Attached hereto as Schedule 2.04 is a list of aged
Accounts. The Accounts have been properly booked, allowances have been made for
presumed non-collection in accordance with normal practice, and such Accounts
are, to the best of the Seller's knowledge, fully collectible, without any
defense on the part of the debtors thereof.
2.05 No Undisclosed Liabilities. The Seller has no liabilities or
obligations of any nature (whether absolute, accrued, contingent, or otherwise)
which may adversely affect Buyer's right, title, and interest in and to the
Assets. The Seller knows of no basis for assertion against the Seller of any
claim or liability of any nature, other than those incurred in the ordinary
course of business or contemplated hereby, which may adversely affect Buyer's
right, title, and interest in and to the Assets.
2.06 Title to and Condition of Assets.
(a) The Seller holds and will convey to the Buyer good, insurable (if
applicable) and marketable title to the Assets, together with all equipment
warranties and documentation with respect thereto, free and clear of all
mortgages, liens and encumbrances, other than those set forth on Schedule 2.06
attached hereto, which such mortgages, liens, and encumbrances shall be
satisfied in full on or before Closing Date.
(b) All of the tangible Assets currently used in the operation of the
Business are in good operating condition and working order, ordinary wear and
tear and obsolescence excepted.
2.07 Contracts and Leases.
(a) Schedule 1.01(c) is a complete and accurate list of the Leases,
and Schedule 1.01(d) is a complete and accurate list of the Contracts;
(b) All of the Contracts and Leases are valid and are in full force
and effect; and
(c) Except as set forth in Schedule 2.07, to the best of Seller's
knowledge, (i) there are no
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existing material defaults by the Seller or any other party thereto, of any
Contract or Lease, (ii) there is no basis for any valid claim of a material
default, and (iii) no event has occurred which, with the giving of notice or the
passage of time (or both), would constitute such a material default.
2.08 Taxes. The Seller has duly filed all tax reports and returns required
to be filed by it, and has duly paid all taxes and other charges due or claimed
to be due from it and the Business by federal, state or local taxing authorities
(including, without limitation, income, franchise, property, excise, license,
sales and employment taxes), and there are no tax liens upon any of the Assets
except liens for current taxes not yet due.
2.09 Employee Matters. The representations and warranties made in this
Section 2.09 are made solely with respect to the Business.
(a) Except as set forth in Schedule 2.09(a), the Seller is in
material compliance with all applicable laws respecting wages and hours,
employment practices, and terms and conditions of employment, and the Seller is
not engaged in any unfair labor practice.
(b) Except as set forth in Schedule 2.09(b), the Seller does not
maintain or contribute to, nor has the Seller ever maintained or contributed to
any of the following:
(1) any employee pension benefit plan, as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA");
(2) any employee welfare benefit plan, as defined in Section
3(1) of ERISA;
(3) any stock option, stock purchase, stock ownership, bonus,
performance, or incentive plan or arrangement;
(4) any plan or program providing non-cash compensation or
benefits, whether or not taxable, to the recipient;
(5) any plan or arrangement providing compensation or benefits
upon a severance of employment, reduction in hours, or change of employment
classification;
(6) any vacation, sick, holiday, or other leave policy or
program; or
(7) any other plan, agreement, arrangement, or understanding
(whether oral or written) which is similar to any of the foregoing in respect to
Seller's employees. For all purposes of this subsection, the term "Seller"
shall include any other entity, whether or not incorporated, which is a part of
a controlled group including the Seller or which is under common control with
the Seller within the meaning of Section 414(b) of the IRC.
2.10 Litigation, Proceedings and Applicable Law. Except as set forth in
Schedule 2.10 hereto, there are no private or governmental actions, suits or
other proceedings pending, which relate to the Business, against the Seller, the
Business or the Assets, and no action, suit or other proceeding described in
such Schedule 2.10 is reasonably expected to have (in any case or in the
aggregate) a materially adverse effect on any of the Seller, the Business or the
Assets.
2.11 Absence of Certain Changes or Events. Except as set forth in
Schedule 2.11 hereto, since the date of the Financial Statements, there has not
been any material adverse change in the Assets or the Business.
2.12 Consents and Approvals. Other than the consents listed in Schedule
2.12 (the "Seller Consents"), no consent of any person is necessary to the
consummation by the Seller of the transactions contemplated hereby.
2.13 Regulatory Compliance. The Seller is in compliance in all material
respects, as related to the
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Business, with all applicable statutes, rules, regulations and requirements of
all federal, state, and local commissions, boards, and agencies having
jurisdiction over the Seller and its Business, including, without limitation,
the Internal Revenue Service, the Department of Health and Human Services and
its Health Care Financing Administration (including, without limitation, all
applicable statutes, rules, regulations, manual provisions, and requirements
pertaining to payments and other consideration to referral sources), and the
Seller has timely filed all reports, data and other information required to be
filed with such commissions, boards, and agencies where a failure to file timely
would have a material adverse effect on the Assets.
2.14 Environmental Matters. Except as provided in Schedule 2.14, without
limitation upon any other warranty contained herein, the Seller, to the best of
its knowledge, and solely with respect to the Business, is in substantial
compliance with all applicable environmental laws, rules, and regulations, and,
to the best of its knowledge, has not committed any act which constitutes a
release of hazardous substances or a release of petroleum under the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA")
or the Solid Waste Disposal Act. With respect to the Business, except in
compliance with applicable laws, Seller has not and will not engage in the
off-site disposal, treatment, recycling, or storage of any waste products which
are "hazardous waste" under the Solid Waste Disposal Act or prohibited under the
laws of the state of North Carolina.
2.15 Records of the Business. The records of the Business are true and
complete in all material respects.
2.17 Brokers and Finders. The Seller has not employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finder's fees
in connection with the transactions contemplated by this Agreement.
2.18 Rights. The Seller owns all of its Rights free and clear of any
claims, liens, restrictions or encumbrances. To the best of the Seller's
knowledge, the Seller's operation of the Business does not conflict with or
infringe upon any patent, patent application, trademark, service mark, trade
name or copyright of others.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND DENTALCO
The Buyer and DentalCo hereby represent and warrant to the Seller and its
successors and assigns, as provided in this Article III.
3.01 Organization and Authority. Each of Buyer and DentalCo is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland. Each of Buyer and DentalCo has full power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby. Each of Buyer and DentalCo has taken all action required
by law, its Articles of Incorporation and By-Laws to consummate the transactions
contemplated hereby, and this Agreement is a valid and binding agreement of each
of Buyer and DentalCo enforceable in accordance with its terms.
3.02 No Violation. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will result in a
violation of or be in conflict with any terms of any contract or other agreement
to which each of Buyer and DentalCo is a party, or of any statute, law,
judgment, decree, order, regulation or any rule of any court or governmental
authority applicable to either Buyer or DentalCo.
3.03 Brokers and Finders. Neither Buyer nor DentalCo has employed any
broker or finder or incurred any liability for any brokerage fees, commissions
or finder's fees in connection with the transactions contemplated by this
Agreement.
3.04 Capitalization of DentalCo. As of the date of this Agreement,
DentalCo's authorized capital stock consists solely of (a) 9,300,285 shares of
$0.0001 par value common stock ("DentalCo Common Stock"), of which 2,415,620
shares are issued and outstanding; (b) 2,000,000 shares of $0.001 par value
Class A common stock, all of which are issued and outstanding (the "Class A
Common"); (c) 40,154 shares of $0.0001 par value 8% Class A
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Cumulative Convertible Preferred Stock, all of which are issued and outstanding
(the "Class A Preferred"); (d) 47,068 shares of $0.0001 par value Class B
Convertible Preferred Stock, all of which are issued and outstanding (the "Class
B Preferred"); and (e) 816,038 shares of $0.0001 par value 8% Class C Cumulative
Convertible Preferred Stock, all of which are issued and outstanding (the "Class
C Preferred", and together with the Class A Preferred and the Class B Preferred,
the "Preferred"). Except as set forth in Schedule 3.04, 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 of any shares of the capital stock of DentalCo,
nor are there outstanding any securities that are convertible into or
exchangeable for any shares of capital stock of DentalCo. The total number of
shares of DentalCo capital stock that would be issued if all of the Class A
Common and the Preferred were converted into DentalCo Common Stock is 5,694,364
(i.e., 2,000,000 upon conversion of the Class A Common, 1,325,082 upon
conversion of the Class A Preferred, 1,553,244 upon conversion of the Class B
Preferred, and 816,038 upon conversion of the Class C Preferred), and the total
number of shares of DentalCo Common Stock issuable under all of the commitments
and rights set forth on Schedule 3.04 is 744,468. Each outstanding share of
capital stock of DentalCo is duly authorized, validly issued, fully paid and
nonassessable; all shares of DentalCo Common Stock to be issued pursuant to the
Promissory Note will be, upon the issuance thereof, duly authorized, validly
issued, fully paid and nonassessable, and none of such shares will be issued in
violation of any preemptive or similar rights.
3.05 Consents and Approvals. Other than the consents listed in Schedule
3.05 (the "Buyer Consents") (the Seller Consents and the Buyer Consents are
collectively referred to as the "Consents"), no consent of any person is
necessary to the consummation by the Buyer or DentalCo of the transactions
contemplated hereby.
3.06 Regulatory Compliance. Each of the Buyer and DentalCo is in
compliance in all material respects with all applicable statutes, rules,
regulations and requirements of all federal, state, and local commissions,
boards, and agencies having jurisdiction over such entity, including, without
limitation, the Internal Revenue Service, the Department of Health and Human
Services and its Health Care Financing Administration (including, without
limitation, all applicable statutes, rules, regulations, manual provisions, and
requirements pertaining to payments and other consideration to referral
sources), and each of the Buyer and DentalCo has timely filed all reports, data
and other information required to be filed with such commissions, boards, and
agencies where a failure to file timely would have a material adverse effect on
the such entity's business.
3.07 Employee Matters.
(a) Except as set forth in Schedule 3.07(a), DentalCo is in material
compliance with all applicable laws respecting wages and hours, employment
practices, and terms and conditions of employment, and DentalCo is not engaged
in any unfair labor practice.
(b) Except as set forth in Schedule 3.07(b), DentalCo does not
maintain or contribute to, nor has DentalCo ever maintained or contributed to
any of the following:
(1) any employee pension benefit plan, as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA");
(2) any employee welfare benefit plan, as defined in Section
3(1) of ERISA;
(3) any stock option, stock purchase, stock ownership, bonus,
performance, or incentive plan or arrangement;
(4) any plan or program providing non-cash compensation or
benefits, whether or not taxable, to the recipient;
(5) any plan or arrangement providing compensation or benefits
upon a severance of employment, reduction in hours, or change of employment
classification;
(6) any vacation, sick, holiday, or other leave policy or
program; or
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(7) any other plan, agreement, arrangement, or understanding
(whether oral or written) which is similar to any of the foregoing in respect to
DentalCo's employees. For all purposes of this subsection, the term "DentalCo"
shall include any other entity, whether or not incorporated, which is a part of
a controlled group including DentalCo or which is under common control with
DentalCo within the meaning of Section 414(b) of the IRC.
3.08 Litigation, Proceedings and Applicable Law. Except as set forth in
Schedule 3.08 hereto, there are no private or governmental actions, suits or
other proceedings pending against either the Buyer or DentalCo, and no action,
suit or other proceeding described in such Schedule 3.08 is reasonably expected
to have (in any case or in the aggregate) a materially adverse effect on any of
the Buyer or DentalCo.
ARTICLE IV
PRE-CLOSING COVENANTS AND CONDITIONS TO CLOSING
4.01 Covenants of Seller. The Seller covenants to the Buyer that, prior to
Closing, except as otherwise consented to in writing by the Buyer:
(a) Conduct of Business. On and after the date hereof through the
Closing Date, the Seller will, to the best of Seller's ability: (i) operate and
maintain the Business in the ordinary course; (ii) preserve the business
organization of the Business intact, preserve the good will of suppliers,
referrers, and others doing business with the Seller; and (iii) not take any
action which may jeopardize the Seller's ownership rights in any of the Assets,
or cause all or any portion of the Assets to be subject to a lien or other
encumbrance, or permit any third party to undertake any such action.
(b) Information. The Seller will give and make available to the
Buyer and the Buyer's accountants, counsel and other representatives reasonable
access, upon reasonable notice and during normal business hours throughout the
period prior to the Closing Date, to the properties, books, patient records,
contracts, financial statements and all other records of the Business. The
Buyer shall have the right to communicate with the employees and consultants of
the Seller. The Seller will furnish, or cause to be furnished, to the Buyer and
its accountants, counsel and other representatives during such period all such
information concerning the Business, the Business and the Assets as the Buyer or
such representatives may reasonably request.
(c) Consents and Estoppels. The Seller agrees to take or cause the
taking of all necessary action, and agrees to assist the Buyer in obtaining all
consents required for consummation of the transactions contemplated by this
Agreement and, if requested by Buyer, an estoppel certificate from each of the
lessors of the Leases, in form and substance reasonably acceptable to the Buyer,
each of which shall provide, among other things, that the applicable Lease is in
full force and effect, that the Seller is not in default under any such Lease,
and that the lessor consents to the assignment of such Lease to the Buyer.
(d) No Inconsistent Action. Unless this Agreement has been
terminated pursuant to the provisions hereof, the Seller will not seek or
negotiate the transfer of any of the Assets to any entity or person other than
the Buyer except in the ordinary course of business. The Seller will not take
any action which is inconsistent with or impairs the consummation of the
transactions contemplated by this Agreement or which would make inaccurate the
representations and warranties made by the Seller in this Agreement.
(e) Notice of Litigation. The Seller will provide written notice to
the Buyer of any litigation, proceeding or governmental investigation which
arises, or to the knowledge of the Seller, is threatened, after the date of this
Agreement and prior to the Closing Date, against or relating to the Seller in
connection with the Business, the Business, the Assets, or the transactions
contemplated by this Agreement, setting forth in such notice the facts and
circumstances currently available to the Seller with respect to such litigation,
proceeding, or investigation.
(f) Consultation. From the date hereof and until the Closing Date,
the Seller shall consult with the Buyer regarding all major business and
operations decisions affecting the Business. The Seller acknowledges the
interest of the Buyer in the business operations and decisions with respect to
the Business, and
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agrees during such period to give careful consideration to any suggestions the
Buyer may make with regard thereto.
(g) Disclosure. The Seller will inform the Buyer promptly of
anything material that would make the representations, warranties and
disclosures made herein untrue or misleading or which constitutes a breach of
any covenant contained herein, provided, however, that for purposes of the
rights and obligations of the parties hereunder, any such supplemental or
amended disclosure shall not be deemed to have been disclosed as of the date of
this Agreement unless so agreed in writing by the Buyer and shall not affect the
rights and remedies of the Buyer hereunder that would exist notwithstanding such
disclosure.
(h) Consents to Assignments of Certain Agreements. To the extent
that the assignment by the Seller, to the Buyer of any Contract is not permitted
without the consent of the other party thereto, or if the terms of any such
agreement includes a provision which automatically voids any proposed
assignment, imposes any increase in rent or other charges, or otherwise changes
the terms of the original agreement with the Seller, then the Seller will use
reasonable efforts, at no cost to Seller, to obtain all such Seller Consents as
are requested by the Buyer. If any Seller Consent is requested by the Buyer but
not obtained, the Seller will cooperate in any reasonable arrangement requested
by the Buyer, at its option, which is designed to provide the Buyer with all of
the benefits under such agreement, as if such Seller Consent had been obtained.
4.02 Covenants of Buyer. The Buyer covenants to the Seller that, prior to
Closing, except as otherwise consented to in writing by the Seller:
(a) No Inconsistent Action. The Buyer shall not take any action
which is inconsistent with or impairs the consummation of the transactions
contemplated by this Agreement or which would make inaccurate the
representations and warranties made by the Buyer in this Agreement.
(b) Disclosure. The Buyer shall inform the Seller promptly of
anything material that would make the representations, warranties and
disclosures made herein untrue or misleading or which constitutes a breach of
any covenant contained herein, provided, however, that for purposes of the
rights and obligations of the parties hereunder, any such supplemental or
amended disclosure shall not be deemed to have been disclosed as of the date of
this Agreement unless so agreed in writing by the Seller and shall not affect
the rights and remedies of the Seller hereunder that would exist notwithstanding
such disclosure.
4.03 Conditions to Obligations. All obligations of each of the parties
under this Agreement are subject to the fulfillment, prior to or as of the
Closing, of each of the conditions set forth in this section, unless waived by
the party who has not failed to meet the condition, in its sole discretion.
(a) Representations and Warranties. As of the Closing Date, the
representations and warranties of each party contained in this Agreement shall
be true in all material respects and shall be deemed made again at and as of
such date and be true as so made again.
(b) Covenants. Each party shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by it or him prior to the Closing.
(c) No Adverse Change. There shall not have occurred since the date
of execution of this Agreement: (i) any damage or loss to the Assets, (ii) any
event which could reasonably be expected to give rise to any such damage or
loss, or (iii) any suit, litigation, or claim against any of the parties hereto,
or relating to the Assets or the consummation of the transactions contemplated
herein, including any threat thereof, which is reasonably expected to have (in
any case or in the aggregate) a material adverse effect on the consummation of
the transactions contemplated herein, or on the conduct of the Business, as
currently conducted.
(d) Consents, Estoppels and Actions. All requested Consents and
estoppel certificates of any third parties and any other actions which each
party has covenanted to obtain and take under this Agreement, shall have been
obtained and completed, and each required license or government approval
necessary for the consummation of the transactions contemplated under this
Agreement shall have been obtained and completed.
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(e) Execution of Closing Documents. Each party at the Closing shall
have executed, acknowledged and delivered to the other each of the Closing
documents described in Sections 1.08 and 1.09, respectively.
(f) Documents Accurate. The Buyer shall be satisfied in its
reasonable judgment that the Contracts to be assumed are in full force and
effect, and that the Financial Information, in all material respects, is true
and accurately reflects the assets, income, liabilities, and other obligations
of the Seller relating to the Business.
(g) Schedules. The Seller shall have updated all Schedules attached
hereto to be current as of the Closing Date (or within fifteen (15) days
thereof), and such revised and updated Schedules shall be deemed to be, and are,
incorporated herein and made a part hereof and shall supersede all previous
Schedules. Without limiting the generality of the foregoing, Seller shall
conduct a Closing inventory of all of the tangible Assets that have a fair
market value of $100 or more as of the end of the calendar month immediately
preceding the Closing, and shall update the lists of those Assets set forth on
Schedule 1.01(a), and shall deliver such lists to Buyer at least five (5)
business days prior to the Closing Date.
(h) Due Diligence. (i) The Buyer shall have completed by Closing its
due diligence and verification of the Assets, liabilities, revenues, and
expenses of the Business and such other matters as it deems material to the
transactions contemplated by this Agreement, (ii) the Seller shall have
completed by Closing its due diligence and verification of the Buyer and
DentalCo as it deems material to the transactions contemplated by this
Agreement, and (iii) each party shall have deemed such information to be
satisfactory to it in its sole discretion.
(i) Agreements. The respective parties shall have entered into the
agreements listed in Sections 1.08 and 1.09.
(j) Dr. Garrison. Either (i) Raymond Garrison, D.D.S. ("Dr.
Garrison") shall have entered into employment agreements with Buyer and the PA,
in such forms as may be agreed to by the Buyer, Seller, and each party to such
agreements; or (ii) Dr. Garrison remains as an employee of Seller, and Seller
shall have entered into an agreement with Buyer, pursuant to which Seller would
agree to provide the services of Dr. Garrison to Buyer, in such form as may be
agreed to by the Buyer, Seller, and Dr. Garrison.
ARTICLE V
INDEMNIFICATION
5.01 Indemnification of Buyer. The Seller (an "Indemnitor"), hereby agrees
to indemnify, defend, and hold harmless the Buyer, the PA and their employees,
agents, successors, and assigns (collectively, the "Indemnitee") from and
against all demands, claims, actions, or causes of action, assessments, losses,
damages, liabilities, costs and expenses (including, without limitation,
interest, penalties and reasonable attorneys' fees) (a "Claim") of any nature,
to the extent not covered by Buyer's or PA's insurance, whether absolute,
contingent or otherwise, asserted against or imposed upon or incurred by the
Buyer relating to (a) Seller's conduct of the Business prior to the Closing, or
(b) a breach of any representation, warranty or covenant by Seller contained in
or made pursuant to this Agreement.
5.02 Indemnification of Seller by Buyer. The Buyer (an "Indemnitor")
hereby agrees to indemnify, defend and hold harmless the Seller, each of its
Affiliates (defined as an entity which owns or controls, is owned or controlled
by, or is under common ownership or control with, Seller), and each of their
employees, agents, successors, and assigns (collectively, the "Indemnitee") from
and against all Claims, of any nature, to the extent not covered by Seller's or
the Affiliate's insurance, whether absolute, contingent or otherwise, asserted
against or imposed upon or incurred by the Seller relating to (a) Buyer's or
PA's conduct of the Business subsequent to the Closing, or (b) a breach of any
representation, warranty or covenant by Buyer contained in or made pursuant to
this Agreement.
5.03 Indemnification of Seller by DentalCo. DentalCo (an "Indemnitor")
hereby agrees to indemnify, defend and hold harmless the Seller, its Affiliates,
and each of their employees, agents, successors, and assigns
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(collectively, the "Indemnitee") from and against all Claims, of any nature, to
the extent not covered by Seller's or the Affiliate's insurance, whether
absolute, contingent or otherwise, asserted against or imposed upon or incurred
by the Seller relating to a breach of any representation, warranty or covenant
by DentalCo contained in or made pursuant to this Agreement.
5.04 Notice to Indemnitor. In the event that an Indemnitee has presented
against it a Claim or other written notice (each a "Notice"), which Notice
constitutes an allegation or assertion of a Claim for which Indemnitee is
entitled to be indemnified hereunder, then and in such event, the Indemnitee
shall notify Indemnitor in writing of the receipt of such Notice as soon as
practicable after first receiving such Notice, but in any event not longer than
20 days following the Indemnitee's receipt of such Notice. The delay or failure
of the Indemnitee to provide any notice required herein shall not release
Indemnitor from liability or any other obligation with respect to this
indemnification, except and only to the extent that Indemnitor's ability to
defend against the action is impaired by such delay or failure.
5.05 Action by Indemnitor. Indemnitor, with respect to any Notice referred
to hereunder, shall have the opportunity to defend such Claim with counsel
reasonably acceptable to all the parties herein. In the event Indemnitor shall
agree to defend the Claim, Indemnitor shall be provided full and complete
cooperation by the Indemnitee in order to effectuate a defense and shall be
entitled to effectuate at Indemnitor's sole cost and expense a reasonable
settlement of the Claim, provided that Indemnitor obtains a complete release of
the Indemnitee with respect to any such Claim.
5.06 Failure to Act. In the event Indemnitor, after written notice, fails
to promptly pay the amount claimed in any such Claim, or fails to otherwise
defend such Claim, then and in such event, the Indemnitee may pay such amount,
or settle or defend such Claim, and the costs of any such payment or defense
shall be paid by Indemnitor promptly upon demand.
5.07 Enforcement. Indemnitor further agrees that in the event of any
breach of this indemnification, in addition to the obligations set forth above,
any dispute regarding such breach shall be resolved as provided in Section 6.4.
5.08 Limitations On Indemnification. An Indemnitee shall not be entitled
to take action under the terms of this Article until the Indemnitee has suffered
a Claim, or Claims as the case may be, totaling in excess of a threshold amount
of Fifty Thousand Dollars ($50,000) in the aggregate.
ARTICLE VI
MISCELLANEOUS
6.01 Survival. All of the representations and warranties made by the
parties in this Agreement (other than the representation made in Section 2.08),
and in any other certificates and documents delivered in connection herewith,
and all other obligations of the parties hereunder (other than the covenant made
in Section 1.06) shall survive the Closing until the third anniversary of the
Closing Date. The representation made in Section 2.08 and the covenant made in
Section 1.06 shall survive until the expiration of the applicable statutory
period of limitation, giving effect to any waiver, mitigation or extension
thereof.
6.02 Further Assurances. The Seller and the Buyer shall, without further
cost or expense to the other, duly execute, acknowledge and deliver such further
documents and take such other actions and give such other assurances as the
other may reasonably request in order to effectuate the transactions
contemplated hereby and to convey and vest in the Buyer, and protect its right,
title and interest in, the Assets.
6.03 Costs. Except as otherwise provided herein, each party hereto shall
pay all fees and expenses incurred by it in connection with this Agreement and
the transactions contemplated hereby. The Seller shall pay all sales, use, and
other similar taxes, if any, payable in connection with the transactions
contemplated hereby. All applicable property taxes and utilities shall be
prorated to the Closing Date.
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6.04 Dispute Resolution.
(a) The parties will make good faith efforts to resolve mutually any
disputes which arise between them regarding the performance of this Agreement.
As part of this dispute resolution process, either party will, at the request of
the other party, promptly provide to the other party a short and plain written
statement setting forth that party's position regarding the dispute and that
party's suggested resolution.
(b) The sole and exclusive method for resolving any controversy or
claim arising out of or relating to this Agreement shall be as provided in this
Section 6.04.
(c) If either party desires to assert a claim arising out of or
relating to a dispute in connection with this Agreement, that party shall
present to the other party a short and plain written statement setting forth
that party's claim regarding the dispute and that party's suggested resolution.
(d) Within fifteen (15) days after receipt of the statement set forth
in Subsection (c) above, the receiving party shall provide to the sending party
a short and plain written statement of response setting forth the receiving
party's position regarding the claim and the receiving party's suggested
resolution.
(e) For a period of fifteen (15) days following the sending of the
statement of response set forth under Subsection (d) above, the parties shall
negotiate in an effort to resolve the controversy.
(f) Any dispute which has not been resolved under the procedure set
forth in Subsections (c) through (e) above, shall be submitted to and decided by
arbitration to be held in Winston-Salem, North Carolina, in accordance with the
Rules of the American Arbitration Association, as follows:
(i) There shall be one arbitrator who shall be selected in
accordance with the Rules of the American Arbitration Association;
(ii) The authority of the arbitrator shall be limited to a
determination of the facts, and to the interpretation and application of
specific provisions of this Agreement as they may apply to the issue in dispute.
The arbitrator shall be bound by this Agreement, and shall have no authority to
add to, subtract from, amend, or modify the provisions of this Agreement. The
arbitrator shall render an opinion and a final award, which shall be binding on
both parties. Judgment upon the award may be entered in any court having
jurisdiction thereof; and
(iii) Each party shall bear its own fees, costs, and expenses
of an arbitration proceeding, including witnesses, travel, attorneys, and other
representatives; and the general costs and expenses of the arbitration. Costs
and expenses of the arbitrator and the American Arbitration Association shall be
borne equally by the parties.
6.05 Notices. All notices, demands or requests which are required or
permitted to be given pursuant to this Agreement shall be in writing, and shall
be delivered personally, by commercial carrier, by fax with a machine-generated
confirmation sheet and regular mail follow-up or by registered or certified
mail, postage prepaid, addressed to a party as stated below, or as a party may
hereafter designate by notice given in accordance with this section:
(a) If to Buyer:
DentalCo of North Carolina, Inc.
6115 Falls Road
Baltimore, Maryland 21209
Attention: President
Facsimile No.: (410) 377-3231
With a copy to:
Steven J. Mandell, Esquire
Piper & Marbury L.L.P.
36 S. Charles Street
Baltimore, Maryland 21201
Facsimile No.: (410) 539-0489
(b) if to the Seller:
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Wake Forest University
Medical Center Boulevard
Winston-Salem, North Carolina 27157
Attention: Russell E. Armistead
Vice President for Health Services Administration
Facsimile No.: (910) 716-3368
With a copy to:
Leon H. Corbett, Jr., Esq.
Vice President and Counsel
P.O. Box 7656
Winston-Salem, North Carolina 27109
Facsimile No.: (910) 759-5933
and to:
Raymond Garrison, D.D.S., P.A.
Attention: Raymond Garrison, D.D.S.
Department of Dentistry
Bowman Gray School of Medicine
Medical Center Boulevard
Winston-Salem, North Carolina 27157
Facsimile No.: (910) 716-3997
Notice given personally or by commercial carrier is effective upon delivery.
Notice given by fax with a machine-generated confirmation sheet is effective
upon the date of mailing the follow-up copy. Notice given by United States mail
is effective the third United States Post Office delivery day after the date of
mailing.
6.06 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other party, except
that this Agreement may be assigned, in whole or in part, by Buyer to any person
or entity controlling, controlled by, or under common control with, Buyer.
6.07 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto and the other documents delivered pursuant to the terms hereof,
set forth the entire agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein, and supersede all
prior agreements, understandings, arrangements, communications, representations
or warranties, whether oral or written, made by or between the parties hereto.
This Agreement may be amended, and any provision of this Agreement may be
waived, only pursuant to a writing signed by the party against whom such
amendment or waiver is claimed.
6.08 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
6.09 Headings. The headings of the Sections and Articles of this Agreement
are inserted for convenience only and shall not constitute a part hereof or
affect in any way the meaning or interpretation of this Agreement.
6.10 Counterparts. 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.
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6.11 Bulk Sales Law. Buyer waives compliance by the Seller with the
provision of any applicable bulk sales laws, it being understood that each
Seller shall remain fully liable and shall jointly and severally indemnify Buyer
for any and all losses and liabilities incurred by Buyer as a result of
non-compliance with any applicable bulk sales laws.
6.12 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
[Remainder of page intentionally left blank. Signature page follows.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ATTEST: SELLER:
WAKE FOREST UNIVERSITY
/s/ Leon H. Corbett, Jr. By: /s/ Richard Janeway, M.D.
----------------------------- -------------------------
Leon H. Corbett, Jr. Richard Janeway, M.D.
Secretary Executive Vice President for
Health Affairs
BUYER:
DENTALCO OF NORTH CAROLINA, INC.
/s/ E. James Kuhns By: /s/ Errol L. Reese
----------------------------- --------------------------
E. James Kuhns, Secretary Errol L. Reese
DENTALCO:
DENTALCO, INC.
/s/ E. James Kuhns By: /s/ Errol L. Reese
----------------------------- ---------------------------
E. James Kuhns, Secretary Errol L. Reese
THE UNDERSIGNED EXECUTES THIS AGREEMENT AS OF THE DATE FIRST ABOVE WRITTEN
SOLELY FOR THE PURPOSE OF AGREEING TO THE PROVISIONS AFFECTING IT.
RAYMOND GARRISON, D.D.S., P.A.
/s/ E. James Kuhns By: /s/ Errol L. Reese
----------------------------- -----------------------------
E. James Kuhns, Secretary Errol L. Reese
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AMENDMENT NO. 1 TO
ASSET PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT is made as of the 31 day
of August, 1997, by and among Wake Forest University, a North Carolina
not-for-profit corporation (the "Seller"); DentalCo of North Carolina, Inc., a
Maryland corporation (the "Buyer"); and DentalCo, Inc., a Maryland corporation
("DentalCo").
INTRODUCTION
The parties hereto have entered into an Asset Purchase Agreement dated
as of March 18, 1997 (the "Agreement"), and desire to amend the Agreement as
set forth herein in connection with the consummation of the purchase
transaction contemplated in the Agreement.
Capitalized terms not defined herein shall have the meanings ascribed to
them in the Agreement.
NOW THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto mutually agree to amend the Agreement as
follows:
1. Purchase Price. Section 1.05 is hereby amended to change "One Million
Six Hundred Seventy Five Thousand Dollars ($1,675,000.00)" to "One Million Seven
Hundred Thousand Dollars ($1,700,000)."
2. Closing. Section 1.07 is hereby amended to change the date therein
from April 1, 1997 to August __, 1997.
3. Deliveries by Buyer. Section 1.08(k) is hereby deleted in its
entirety, and replaced with the following:
"(k) Employment Agreements between the PA and each of the faculty
dentists listed on Schedule 1.08(k) hereto (the "Faculty Dentists"),
substantially in the form attached hereto as Exhibit E, duly executed by the PA
(the "PA Employment Agreements"), and an Employment Agreement between the Buyer
and Raymond Garrison, D.D.S. ("Dr. Garrison"), substantially in the form
attached hereto as Exhibit F, duly executed by the Buyer (the "Garrison
Employment Agreement"); and".
4. Deliveries by Seller. The reference to "Exhibit F" in Section 1.09(a)
is hereby amended to read "Exhibit G". Section 1.09(k) is hereby deleted in its
entirety, and replaced with the following, new Sections 1.09(l) and (m) shall be
added to read as follows, and Sections 1.09(l) and (m) shall be renamed as
1.09(n) and (o), respectively:
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"(k) The PA Employment Agreements duly executed by each of the Faculty
Dentists;
(l) Employment Agreements between the Bowman Gray School of Medicine
of the Seller and each of the Faculty Dentists, substantially in the form
attached hereto as Exhibit H;
(m) The Garrison Employment Agreement duly executed by Dr.
Garrison;".
5. No Violation. Section 2.02 is hereby amended to add the words "to
which Seller is subject" after the phrase "governmental authority".
6. Financial Information. Section 2.03 is hereby amended to change "June
30, 1995 and 1996, and for the six month period ended December 31, 1996" to
"June 30, 1995, 1996 and 1997".
7. Capitalization of DentalCo. Section 3.04 is hereby deleted in its
entirety, and replaced with the following:
3.04 Capitalization of DentalCo. As of the date of this Agreement,
DentalCo's authorized capital stock consists solely of (a) 14,860,686 shares of
$0.0001 par value common stock ("DentalCo Common Stock"), of which 5,082,287
shares are issued and outstanding; (b) 40,154 shares of $0.0001 par value 8%
Class A Cumulative Convertible Preferred Stock, all of which are issued and
outstanding (the "Class A Preferred"); (c) 47,068 shares of $0.0001 par value
Class B Convertible Preferred Stock, all of which are issued and outstanding
(the "Class B Preferred"); (d) 816,038 shares of $0.0001 par value 8% Class C
Cumulative Convertible Preferred Stock, all of which are issued and outstanding
(the "Class C Preferred"); (e) 100,000 shares of $0.0001 par value 8% Class D
Cumulative Convertible Preferred Stock, of which 93,325 are issued and
outstanding (the "Class D Convertible"); and (f) 100,000 shares of $0.0001 par
value 8% Class D Cumulative Redeemable Preferred Stock, of which 93,325 are
issued and outstanding (the "Class D Redeemable", and together with the Class A
Preferred, the Class B Preferred and the Class D Convertible, the "Preferred").
Except as set forth in Schedule 3.04, 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 of
any shares of the capital stock of DentalCo, nor are there outstanding any
securities that are convertible into or exchangeable for any shares of capital
stock of DentalCo. The total number of shares of DentalCo capital stock that
would be issued if all of the Preferred were converted into DentalCo Common
Stock is 11,159,853 (i.e., 1,325,082 upon conversion of the Class A Preferred,
1,553,244 upon conversion of the Class B Preferred, 816,038 upon conversion of
the Class C Preferred, and 2,383,202 upon conversion of the Class D
Convertible), and the
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<PAGE>
total number of shares of DentalCo Common Stock issuable under all of the
commitments and rights set forth on Schedule 3.04 is 814,468. Each outstanding
share of capital stock of DentalCo is duly authorized, validly issued, fully
paid and nonassessable; all shares of DentalCo Common Stock to be issued
pursuant to the Promissory Note will be, upon the issuance thereof, duly
authorized, validly issued, fully paid and nonassessable, and none of such
shares will be issued in violation of any preemptive or similar rights.
8. Dr. Garrison. Section 4.03(j) shall be deleted in its entirety.
9. Further Assurances. Section 6.02 is hereby amended by changing "The
Seller and the Buyer" at the beginning of the Section to " The Seller, the
Buyer, and DentalCo".
10. Schedules and Exhibits.
(a) The following new Schedules and Exhibits are hereby added to the
Agreement:
Schedule 1.09(k) List of Faculty Dentists
Exhibit E Form of PA Employment Agreement
Exhibit F Garrison Employment Agreement
Exhibit H Form of Bowman Gray School of Medicine
Employment Agreement
(b) "Exhibit F" is hereby renamed as "Exhibit G".
(c) All other remaining Schedules and Exhibits are hereby amended as
attached hereto.
11. All other terms and conditions of the Agreement shall remain in full
force and effect.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Asset
Purchase Agreement as of the day and year first above written.
ATTEST: SELLER:
WAKE FOREST UNIVERSITY
/s/ Leon H. Corbett, Jr. By: /s/ Richard Janeway, M.D.
----------------------------- --------------------------------
Leon H. Corbett, Jr. Richard Janeway, M.D.
Secretary Executive Vice President for
Health Affairs
BUYER:
DENTALCO OF NORTH CAROLINA, INC.
/s/ E. James Kuhns By: /s/ Carl J. Sardegna
----------------------------- ---------------------------------
E. James Kuhns, Secretary Carl J. Sardegna, Vice President
DENTALCO:
DENTALCO, INC.
/s/ E. James Kuhns By: /s/ Carl J. Sardegna
----------------------------- ---------------------------------
E. James Kuhns, Secretary Carl J. Sardegna, President
THE UNDERSIGNED EXECUTES THIS AGREEMENT AS OF THE DATE FIRST ABOVE WRITTEN
SOLELY FOR THE PURPOSE OF AGREEING TO THE PROVISIONS AFFECTING IT.
RAYMOND GARRISON, D.D.S., P.A.
/s/ E. James Kuhns By: /s/ Errol L. Reese
- ------------------------------ --------------------------------
E. James Kuhns Errol L. Reese
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<PAGE>
DENTALCO, INC.
1995 EQUITY PARTICIPATION PLAN
1. PURPOSE:
This 1995 Equity Participation Plan (the "Plan") is intended as an
employment incentive and to encourage capital accumulation and stock ownership
in DentalCo, Inc. (the "Corporation") by certain officers (including officers
who are also directors) of the Corporation and of its Subsidiaries (as defined
below) in order to increase their proprietary interest in the Corporation's
success.
2. ADMINISTRATION:
The Plan shall be administered by a committee appointed by the Board of
Directors of the Corporation (the "Committee"), which Committee shall consist of
not less than two members of the Board of Directors. The Committee shall
determine the persons who shall participate in the Plan and the extent of their
participation.
The interpretation and construction by the Committee of any provisions of
the Plan or any stock option agreements entered into under the Plan and any
determination by the Committee pursuant to any provision of the Plan or any such
agreement shall be final and conclusive. No member of the Committee shall be
liable for any action or determination made in good faith, and the members shall
be entitled to indemnification and reimbursement in the manner provided in the
Corporation's charter or by-laws, and under any directors and officers liability
insurance coverage of the Corporation which may be in effect from time to time.
3. ELIGIBILITY:
The individuals who shall be eligible to participate in the Plan shall be
officers (including those officers who are also directors of the Corporation),
or of any corporation in which the Corporation has a proprietary interest by
reason of stock ownership or otherwise, including any corporation in which the
Corporation acquires a proprietary interest after the adoption of this Plan (but
only if the Corporation owns or controls, directly or indirectly, stock
possessing not less than 50% of the total combined voting power of all classes
of stock in such corporation) (a "Subsidiary"), as the Committee shall determine
from time to time.
4. AWARD OF OPTIONS:
The Committee, at any time and from time to time, may authorize the granting
of options under this Plan to any eligible individual under the Plan. Subject to
the terms of the Plan, the Committee shall determine the timing, size and all
other terms applicable to options
<PAGE>
granted under this Plan. Options granted under the Plan may be incentive
stock options under section 422 of the Internal Revenue Code of 1986 as
amended, or nonqualified stock options.
5. AWARD OF STOCK APPRECIATION RIGHTS:
The Committee, at any time and from time to time, may authorize the granting
of stock appreciation rights to optionees who have been granted options under
this Plan. Each stock appreciation right shall relate to a specific option
granted under this Plan and may be granted concurrently with the option to which
it relates or at any time prior to the exercise, termination or expiration of
such option.
The term "stock appreciation right" shall mean the right to receive from
the Corporation, upon surrender of the option or a portion thereof without
payment to the Corporation, an amount equal to the fair market value on the
exercise date of the total number of Shares (as defined hereinafter) of
common stock of the Corporation for which the stock appreciation right is
exercised, less the exercise price which the optionee would have otherwise
been required to pay upon exercise of the option to purchase the Shares. The
amount payable by the Corporation upon the exercise of a stock appreciation
right may be paid in cash or in shares of common stock of the Corporation, or
in any combination thereof, as the Committee in its sole discretion shall
determine; provided, however, that in no event shall the total number of
Shares which may be paid to the optionee pursuant to the exercise of a stock
appreciation right exceed the total number of Shares subject to the related
option. No fractional Shares shall be issued under this section and the
optionee shall instead be entitled to receive a cash adjustment equal to the
same fraction of the fair market value per share.
The Committee may fix, with respect to stock appreciation rights granted
under this Plan, such waiting periods, exercise dates or other limitations as it
shall deem appropriate, provided that no stock appreciation right shall be
exercisable after the expiration of the option to which it relates. In addition,
the Committee may impose a total prohibition on the exercise of such rights for
such period or periods as it, in its sole discretion, deems to be appropriate.
The Shares involved in an option as to which a stock appreciation right is
related shall be used not more than once to calculate the amounts to be received
pursuant to an exercise of such right. The right of an optionee to exercise an
option shall be cancelled if and to the extent that shares covered by such
option are used to calculate amounts received upon exercise of a related stock
appreciation right.
6. STOCK:
The stock subject to the options, stock appreciation rights, and other
provisions of the Plan shall be shares of the Corporation's authorized but
unissued common stock in the Corporation (all such shares of common stock are
referred to herein as "Shares"). Subject to adjustment in accordance with the
provisions of Paragraph 7(f) hereof, the total number of Shares
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<PAGE>
which may be issued under the Plan shall not exceed in the aggregate 9,158
Shares. No individual shall be eligible to receive more than 5,000 Shares
pursuant to the Plan.
In the event that any outstanding option or stock appreciation right under
the Plan for any reason expires or is terminated prior to the end of the period
during which options or stock appreciation rights may be granted, the Shares
allocable to the unexercised portion of such option or stock appreciation right
may again be subjected to options or stock appreciation rights under the Plan.
7. TERMS AND CONDITIONS OF STOCK OPTION AGREEMENTS:
Stock options and stock appreciation rights granted pursuant to the Plan
shall be evidenced by agreements in such form as the Committee shall, from time
to time, approve. Stock appreciation rights shall be evidenced by an agreement
amending the stock option agreement to which such rights relate. Such agreements
shall comply with and be subject to the following terms and conditions:
(a) Medium of Payment:
Upon exercise of the option, the option price shall be payable at the
discretion of the Committee: (i) in United States dollars in cash or by
certified check, bank draft or money order payable to the order of the
Corporation; (ii) through the delivery of shares of common stock of the
Corporation which have been held by the optionee for at least six months at
the time of surrender or acquired under a grant not less than six months
prior to the time of surrender and which shall be valued at their fair
market value on the date of exercise; (iii) by withholding of Shares
otherwise issuable pursuant to an exercise of an option equal in value to
the option price or any portion thereof; or (iv) by any other means that the
Committee may approve. At the discretion of the Committee, payment in full
of the option price need not accompany the written notice of exercise
provided that the notice directs that the stock certificates for the Shares
issued upon exercise be delivered to a licensed broker acceptable to the
Corporation as agent for the individual exercising the option and at the
time the stock certificates are delivered to the broker, the broker will
tender to the Corporation cash or cash equivalents acceptable to the
Corporation equal to the exercise price.
(b) Number of Shares:
The agreement shall state the total number of Shares to which it
pertains.
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<PAGE>
(c) Option Price:
The option price for Shares covered by an incentive stock option granted
hereunder shall be not less than 100% of the fair market value, as
determined by the Committee, of such Shares on the date of the granting of
the incentive stock option and, unless the Committee provides otherwise, the
option price for Shares covered by a non-qualified stock option granted
hereunder shall be not less than 85% of the fair market value, as determined
by the Committee, of such Shares on the date of the granting of the
nonqualified stock option.
(d) Term of Options and Stock Appreciation Rights:
Unless the Committee provides otherwise, each option and related stock
appreciation right granted under the Plan shall expire not more than 10
years from the date the option is granted; provided that a stock
appreciation right shall not be exercisable prior to or later than the time
the related option could be exercised.
(e) Date of Exercise:
The Committee may in its discretion provide that an option or stock
appreciation right may not be exercised, in whole or in part, for any period
or periods of time specified by the Committee. Except as may be so provided,
any option or stock appreciation right may be exercised in whole at any time
or in part from time to time during its term. In the case of an option or
stock appreciation right not immediately exercisable in full, the Committee
may in its discretion accelerate the time at which an option or stock
appreciation right granted hereunder may be exercised.
(f) Recapitalization:
The aggregate number of Shares on which options and stock appreciation
rights may be granted to persons participating under the Plan, the number of
Shares thereof covered by each outstanding option and stock appreciation
right, and the price per Share thereof in each such option and stock
appreciation right shall all be proportionately adjusted for any increase or
decrease in the number of issued Shares, as applicable, resulting from a
subdivision or consolidation of shares or other capital adjustment, or the
payment of a stock dividend or other increase or decrease in such Shares,
effected without receipt of consideration by the Corporation; provided,
however, that any fractional Shares resulting from any such adjustment shall
be eliminated.
If the Corporation shall be the surviving or resulting corporation in
any merger or consolidation, any option granted hereunder shall pertain to
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<PAGE>
and apply to the securities to which a holder of the number of Shares
subject to the option or stock appreciation right would have been entitled;
but a dissolution or liquidation of the Corporation, or a merger or
consolidation in which the Corporation is not the surviving or resulting
corporation shall cause every option and stock appreciation right
outstanding hereunder to terminate, except that the surviving or resulting
corporation may, in its absolute and uncontrolled discretion, tender options
or stock appreciation rights to purchase its shares on terms and conditions,
both as to the number of shares and otherwise, which shall substantially
preserve the rights and benefits of any option or stock appreciation right
then outstanding hereunder.
In the event of a change in the Corporation's common stock which is
limited to a change in the designation thereof to "capital stock" or other
similar designation, or to a change in the par value thereof, or from par
value to no par value, without increase in the number of issued shares, the
shares resulting from any such change shall be deemed to be Shares of common
stock within the meaning of the Plan.
(g) Transferability:
No option or related stock appreciation right shall be assignable or
transferable except by will or by the laws of descent and distribution.
During the lifetime of an optionee, the option or related stock appreciation
right shall be exercisable only by such optionee. Notwithstanding the
foregoing, in the discretion of the Committee, transfers of options shall be
permitted to (a) members of the immediate family of the optionee (children,
grandchildren, spouse, parents or siblings of the optionee); (b) trusts for
the benefit of such family members; and (c) partnerships whose only partners
are such family members. No consideration may be paid for the transfer of
such options. The Committee may grant transferable or nontransferable
options in its discretion and the option agreement shall specify whether the
option is transferable or nontransferable.
(h) Rights as a Stockholder:
An optionee shall have no rights as a stockholder with respect to Shares
covered by the optionee's option or stock appreciation right until the date
of the issuance of the Shares to the optionee and only after such Shares are
fully paid. No adjustment will be made for dividends or other rights for
which the record date is prior to the date of such issuance.
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<PAGE>
(i) Withholding:
The Corporation shall have the right to withhold, or require an
individual exercising an option to remit to the Corporation, an amount
sufficient to satisfy any applicable federal, state or local withholding tax
requirements imposed with respect to the exercise of options. To the extent
permissible under applicable tax, securities and other laws, the option
agreement shall permit satisfaction of a tax withholding requirement by
withholding Shares issued as a result of the exercise of an option.
(j) Other Provisions:
The agreements authorized under this Plan may contain such other
provisions as the Committee shall deem advisable.
8. TERM AND EFFECTIVENESS OF PLAN:
The Plan shall become effective on the date it is approved by the
affirmative vote of a majority of the votes cast in person or by proxy at a
meeting of the stockholders of the Corporation and when so approved shall be
deemed to have been in full force and effect from and after the date on which it
is adopted for the Corporation by action of its Board of Directors. Before
stockholder approval has been obtained, the Committee may grant stock options
and stock appreciation rights under the Plan; however, such stock options and
stock appreciation rights shall be void if the Plan is not thereafter approved
by the stockholders. No stock option or stock appreciation rights shall be
granted pursuant to this Plan after the tenth anniversary of the date on which
the Plan was adopted by the Board of Directors of the Corporation or the date
the Plan is approved by the stockholders of the Corporation whichever is
earlier.
9. AMENDMENTS:
The Board of Directors may from time to time alter, amend, suspend, or
discontinue this Plan, subject to the terms of the Plan; and, with respect to
incentive stock options, to the extent required by the Internal Revenue Code, no
action by the Board of Directors which materially modifies the Plan shall become
effective without the approval of the stockholders of the Corporation. The
Committee may alter or amend any and all option and stock appreciation rights
agreements granted hereunder, provided that no such amendment shall become
effective without the consent of the option holder.
10. APPLICATION OF FUNDS:
The proceeds received by the Corporation from the sale of common stock
pursuant to options will be used for general corporate purposes.
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<PAGE>
Exhibit 10.10
DENTALCO, INC.
1997 OMNIBUS STOCK PLAN
1. Establishment, Purpose and Types of Awards
DENTALCO, INC. hereby establishes the DENTALCO, INC. 1997 OMNIBUS STOCK
PLAN (the "Plan"). The purpose of the Plan is to promote the long-term
growth and profitability of DENTALCO, INC. (the "Corporation") by (i)
providing key people with incentives to improve stockholder value and to
contribute to the growth and financial success of the Corporation, and (ii)
enabling the Corporation to attract, retain and reward the best-available
persons for positions of substantial responsibility.
The Plan permits the granting of stock options (including incentive stock
options qualifying under Code section 422 and nonqualified stock options),
stock appreciation rights, restricted or unrestricted stock awards, phantom
stock, performance awards, or any combination of the foregoing.
2. Definitions
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Affiliate" shall mean (i) any entity, whether now or hereafter
existing, which controls, is controlled by, or is under common control with,
the Corporation (including, but not limited to, joint ventures, limited
liability companies, and partnerships) and (ii) any other entity designated
by the Board. For this purpose, "control" shall mean ownership of 50% or more
of the total combined voting power or value of all classes of stock or
interests of the entity.
(b) "Award" shall mean any stock option, stock appreciation right, stock
award, phantom stock award, or performance award.
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder.
(e) "Common Stock" shall mean shares of common stock of the Corporation,
par value of $0.0001 per share.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Fair Market Value" of a share of the Corporation's Common Stock for
any purpose on a particular date shall be determined in a manner such as the
Administrator shall in good faith determine to be appropriate; provided that
in the event the Common Stock shall become registered under Section 12 of the
Exchange Act, then thereafter the Fair Market Value of the Corporation's
Common Stock for any purpose on a particular date shall mean the last
reported sale price per share of Common Stock, regular way, on such date or,
in case no such sale takes place on such date, the average of the closing
bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on a national securities exchange or
included for quotation on the Nasdaq-National Market, or if the Common Stock
is not so listed or admitted to trading or included for quotation, the last
quoted price, or if the Common Stock is not so quoted, the average of the
high bid and low asked prices, regular way, in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the Common Stock
is not quoted by any such organization, the average of the closing
<PAGE>
bid and asked prices, regular way, as furnished by a professional market
maker making a market in the Common Stock as selected in good faith by the
Administrator or by such other source or sources as shall be selected in good
faith by the Administrator. If, as the case may be, the relevant date is not
a trading day, the determination shall be made as of the next preceding
trading day. As used herein, the term "trading day" shall mean a day on
which public trading of securities occurs and is reported in the principal
consolidated reporting system referred to above, or if the Common Stock is
not listed or admitted to trading on a national securities exchange or
included for quotation on the Nasdaq-National Market, any business day.
(h) "Grant Agreement" shall mean a written document memorializing the
terms and conditions of an Award granted pursuant to the Plan and shall
incorporate the terms of the Plan.
(i) "Parent" shall mean a corporation, whether now or hereafter
existing, within the meaning of the definition of "parent corporation"
provided in Code section 424(e), or any successor thereto.
(j) "Rule 16b-3" shall mean Rule 16b-3 as in effect under the Exchange
Act on the effective date of the Plan, or any successor provision prescribing
conditions necessary to exempt the issuance of securities under the Plan (and
further transactions in such securities) from Section 16(b) of the Exchange
Act.
(k) "Subsidiary" and "subsidiaries" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Section 424(f) of the
Code, or any successor thereto.
3. Administration
(a) Administration of the Plan. The Plan shall be administered by the
Board or by such committee or committees as may be appointed by the Board
from time to time (the Board, committee or committees hereinafter referred to
as the "Administrator").
(b) Powers of the Administrator. The Administrator shall have all the
powers vested in it by the terms of the Plan, such powers to include
authority, in its sole and absolute discretion, to grant Awards under the
Plan, prescribe Grant Agreements evidencing such Awards and establish
programs for granting Awards.
The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the eligible persons to
whom, and the time or times at which Awards shall be granted; (ii) determine
the types of Awards to be granted; (iii) determine the number of shares to be
covered by or used for reference purposes for each Award; (iv) impose such
terms, limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and
substitute new Awards (provided however, that, except as provided in Section
7(d) of the Plan, any modification that would materially adversely affect any
outstanding Award shall not be made without the consent of the holder); (vi)
accelerate or otherwise change the time in which an Award may be exercised or
becomes payable and to waive or accelerate the lapse, in whole or in part, of
any restriction or condition with respect to such Award, including, but not
limited to, any restriction or condition with respect to the vesting or
exercisability of an Award following termination of any grantee's employment;
and (vii) establish objectives and conditions, if any, for earning Awards and
determining whether Awards will be paid after the end of a performance period.
The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
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<PAGE>
(c) Non-Uniform Determinations. The Administrator's determinations
under the Plan (including without limitation, determinations of the persons
to receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the Grant Agreements evidencing such Awards)
need not be uniform and may be made by the Administrator selectively among
persons who receive, or are eligible to receive, Awards under the Plan,
whether or not such persons are similarly situated.
(d) Limited Liability. To the maximum extent permitted by law, no
member of the Administrator shall be liable for any action taken or decision
made in good faith relating to the Plan or any Award thereunder.
(e) Indemnification. To the maximum extent permitted by law and by the
Corporation's charter and by-laws, the members of the Administrator shall be
indemnified by the Corporation in respect of all their activities under the
Plan.
(f) Effect of Administrator's Decision. All actions taken and decisions
and determinations made by the Administrator on all matters relating to the
Plan pursuant to the powers vested in it hereunder shall be in the
Administrator's sole and absolute discretion and shall be conclusive and
binding on all parties concerned, including the Corporation, its
stockholders, any participants in the Plan and any other employee of the
Corporation, and their respective successors in interest.
4. Shares Available for the Plan; Maximum Awards
Subject to adjustments as provided in Section 7(d) of the Plan, the
shares of Common Stock that may be issued with respect to Awards granted
under the Plan shall not exceed an aggregate of 1,000,000 shares of Common
Stock. The Corporation shall reserve such number of shares for Awards under
the Plan, subject to adjustments as provided in Section 7(d) of the Plan. If
any Award, or portion of an Award, under the Plan expires or terminates
unexercised, becomes unexercisable or is forfeited or otherwise terminated,
surrendered or canceled as to any shares, or if any shares of Common Stock
are surrendered to the Corporation in connection with any Award (whether or
not such surrendered shares were acquired pursuant to any Award), the shares
subject to such Award and the surrendered shares shall thereafter be
available for further Awards under the Plan; provided, however, that any such
shares that are surrendered to the Corporation in connection with any Award
or that are otherwise forfeited after issuance shall not be available for
purchase pursuant to incentive stock options intended to qualify under Code
section 422.
5. Participation
Participation in the Plan shall be open to all employees, officers, and
directors of the Corporation, or of any Affiliate of the Corporation, as may
be selected by the Administrator from time to time.
6. Awards
The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in
tandem with other types of Awards. All Awards are subject to the terms and
conditions provided in the Grant Agreement.
(a) Stock Options. The Administrator may from time to time grant to
eligible participants Awards of incentive stock options as that term is
defined in Code section 422 or nonqualified stock options; provided, however,
that Awards of incentive stock options shall be limited to employees of the
Corporation or of any Parent or Subsidiary of the Corporation. Options
intended to qualify as incentive stock options under Code section 422 must
have an exercise price at least equal to Fair Market Value on the date of
grant, but nonqualified stock options may be granted with an exercise price
less than Fair Market Value. No stock option
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<PAGE>
shall be an incentive stock option unless so designated by the Administrator
at the time of grant or in the Grant Agreement evidencing such stock option.
(b) Stock Appreciation Rights. The Administrator may from time to time
grant to eligible participants Awards of Stock Appreciation Rights ("SAR").
An SAR entitles the grantee to receive, subject to the provisions of the Plan
and the Grant Agreement, a payment having an aggregate value equal to the
product of (i) the excess of (A) the Fair Market Value on the exercise date
of one share of Common Stock over (B) the base price per share specified in
the Grant Agreement, times (ii) the number of shares specified by the SAR, or
portion thereof, which is exercised. Payment by the Corporation of the
amount receivable upon any exercise of an SAR may be made by the delivery of
Common Stock or cash, or any combination of Common Stock and cash, as
determined in the sole discretion of the Administrator. If upon settlement
of the exercise of an SAR a grantee is to receive a portion of such payment
in shares of Common Stock, the number of shares shall be determined by
dividing such portion by the Fair Market Value of a share of Common Stock on
the exercise date. No fractional shares shall be used for such payment and
the Administrator shall determine whether cash shall be given in lieu of such
fractional shares or whether such fractional shares shall be eliminated.
(c) Stock Awards. The Administrator may from time to time grant
restricted or unrestricted stock Awards to eligible participants in such
amounts, on such terms and conditions, and for such consideration, including
no consideration or such minimum consideration as may be required by law, as
it shall determine. A stock Award may be paid in Common Stock, in cash, or
in a combination of Common Stock and cash, as determined in the sole
discretion of the Administrator.
(d) Phantom Stock. The Administrator may from time to time grant Awards
to eligible participants denominated in stock-equivalent units ("phantom
stock") in such amounts and on such terms and conditions as it shall
determine. Phantom stock units granted to a participant shall be credited to
a bookkeeping reserve account solely for accounting purposes and shall not
require a segregation of any of the Corporation's assets. An Award of
phantom stock may be settled in Common Stock, in cash, or in a combination of
Common Stock and cash, as determined in the sole discretion of the
Administrator. Except as otherwise provided in the applicable Grant
Agreement, the grantee shall not have the rights of a stockholder with
respect to any shares of Common Stock represented by a phantom stock unit
solely as a result of the grant of a phantom stock unit to the grantee.
(e) Performance Awards. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or
more performance goals established by the Administrator. Performance awards
may be paid by the delivery of Common Stock or cash, or any combination of
Common Stock and cash, as determined in the sole discretion of the
Administrator. Performance goals established by the Administrator may be
based on the Corporation's or an Affiliate's operating income or one or more
other business criteria selected by the Administrator that apply to an
individual or group of individuals, a business unit, or the Corporation or an
Affiliate as a whole, over such performance period as the Administrator may
designate.
7. Miscellaneous
(a) Withholding of Taxes. Grantees and holders of Awards shall pay to
the Corporation, or make provision satisfactory to the Administrator for
payment of, any taxes required to be withheld in respect of Awards under the
Plan no later than the date of the event creating the tax liability. The
Corporation may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to the grantee or
holder of an Award. In the event that payment to the Corporation of such tax
obligations is made in shares of Common Stock, such shares shall be valued at
Fair Market Value on the applicable date for such purposes.
-4-
<PAGE>
(b) Loans. The Corporation may make or guarantee loans to grantees to
assist grantees in exercising Awards and satisfying any withholding tax
obligations.
(c) Transferability. Except as otherwise determined by the
Administrator, and in any event in the case of an incentive stock option or a
stock appreciation right granted with respect to an incentive stock option,
no Award granted under the Plan shall be transferable by a grantee otherwise
than by will or the laws of descent and distribution. Unless otherwise
determined by the Administrator in accord with the provisions of the
immediately preceding sentence, an Award may be exercised during the lifetime
of the grantee, only by the grantee or, during the period the grantee is
under a legal disability, by the grantee's guardian or legal representative.
(d) Adjustments; Business Combinations. In the event of changes in the
Common Stock of the Corporation by reason of any stock dividend, split-up,
recapitalization, merger, consolidation, business combination or exchange of
shares and the like, the Administrator shall, in its discretion, make
appropriate adjustments to the maximum number and kind of shares reserved for
issuance or with respect to which Awards may be granted under the Plan as
provided in Section 4 of the Plan and to the number, kind and price of shares
covered by Awards granted, and shall, in its discretion and without the
consent of holders of Awards, make any other adjustments in Awards, including
but not limited to reducing the number of shares subject to Awards or
providing or mandating alternative settlement methods such as settlement of
the Awards in cash or in shares of Common Stock or other securities of the
Corporation or of any other entity, or in any other matters which relate to
Awards as the Administrator shall, in its sole discretion, determine to be
necessary or appropriate.
Notwithstanding anything in the Plan to the contrary and without the
consent of holders of Awards, the Administrator, in its sole discretion, may
make any modifications to any Awards, including but not limited to
cancellation, forfeiture, surrender or other termination of the Awards in
whole or in part regardless of the vested status of the Award, in order to
facilitate any business combination that is authorized by the Board to comply
with requirements for treatment as a pooling of interests transaction for
accounting purposes under generally accepted accounting principles.
The Administrator is authorized to make, in its discretion and without
the consent of holders of Awards, adjustments in the terms and conditions of,
and the criteria included in, Awards in recognition of unusual or
nonrecurring events affecting the Corporation, or the financial statements of
the Corporation or any Subsidiary, or of changes in applicable laws,
regulations, or accounting principles, whenever the Administrator determines
that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under the Plan.
(e) Stockholders' Agreement. As a condition precedent to the grant of
any Award under the Plan or the exercise pursuant to such an Award or to the
delivery of certificates for shares issued pursuant to any Award, the
Administrator may require the grantee or the grantee's successor or permitted
transferee, as the case may be, to become a party to a Stockholders'
Agreement of the Corporation in such form as the Administrator may determine
from time to time.
(f) Termination, Amendment and Modification of the Plan. The Board may
terminate, amend or modify the Plan or any portion thereof at any time.
(g) Non-Guarantee of Employment or Service. Nothing in the Plan or in
any Grant Agreement thereunder shall confer any right on an individual to
continue in the service of the Corporation or shall interfere in any way with
the right of the Corporation to terminate such service at any time.
(h) No Trust or Fund Created. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Corporation and a grantee or
-5-
<PAGE>
any other person. To the extent that any grantee or other person acquires a
right to receive payments from the Corporation pursuant to an Award, such
right shall be no greater than the right of any unsecured general creditor of
the Corporation.
(i) Governing Law. The validity, construction and effect of the Plan,
of Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator relating
to the Plan or such Grant Agreements, and the rights of any and all persons
having or claiming to have any interest therein or thereunder, shall be
determined exclusively in accordance with applicable federal laws and the
laws of the State of Maryland, without regard to its conflict of laws
principles.
(j) Effective Date. Termination Date. The Plan is effective as of the
date on which the Plan was adopted by the Board, subject to approval of the
stockholders within twelve months before or after such date. No Award shall
be granted under the Plan after the close of business on the day immediately
preceding the tenth anniversary of the effective date of the Plan. Subject
to other applicable provisions of the Plan, all Awards made under the Plan
prior to such termination of the Plan shall remain in effect until such
Awards have been satisfied or terminated in accordance with the Plan and the
terms of such Awards.
Date Approved by the Board: August 1, 1997
Date Approved by the Stockholders: ___________________
-6-
<PAGE>
Exhibit 10.11
LOAN AGREEMENT
(Nanston)
This Loan Agreement (the "Agreement") is entered between CIGNA Dental
Health Inc., a Florida corporation (the "Lender") and Nanston-North Carolina,
Inc., a North Carolina corporation (the "Borrower"), as of August 24, 1995.
R E C I T A L S
WHEREAS, Nathan Bell, D.D.S., P.A. ("Bell") wishes to (a) borrow
certain sums from Lender (the "Bell Loan") in connection with the start-up
of five new dental facilities at locations in North Carolina set forth on
Schedule I hereto (collectively, the "Dental Facilities"), (b) enter into
an agreement with Borrower under which Borrower will provide office and
consulting services at the Dental Facilities (the "Bell/Nanston Agreement")
and (c) lease the Dental Facilities from Borrower under separate leases (the
"Bell/Nanston Leases");
WHEREAS, Borrower wishes to obtain financing for constructing and
furnishing the Dental Facilities which it has leased under separate leases (the
"Nanston Leases") and Lender is willing to lend to Borrower for such purposes
(the "Facility Loan"), so that, together with the Bell Loan, Bell is able to
provide dental services to, among others, Lender's DHMO members pursuant to
Bell's agreement with Lender (the "CIGNA/Bell Agreement"); and
NOW, THEREFORE, the Borrower and Lender agree as follows:
AGREEMENT
1. SUBJECT LOAN. Subject to all the terms and conditions of this
Agreement, Lender agrees from time to time to make advances to Borrower up to an
aggregate amount of $1,242,500 (the "Loan"). The Loan shall be evidenced by a
note in the form of Exhibit A. to this Agreement (the "Note").
2. PRINCIPAL ADVANCES. Lender shall make advances under the Loan to
Borrower as follows:
2.1. PREREQUISITES TO ADVANCES. Before Lender shall have any
obligation to make any advance hereunder, each of the following shall have
been validly entered into and, if lender is not a party, approved by Lender
in its sole discretion: (i) the CIGNA/Bell Agreement; (ii) the
Bell/Nanston Agreement; (iii) the Bell Loan; and (iv) the Nanston Leases as
to each Dental Facility for which any advance is requested.
2.2. THE LOAN. The following shall govern the advances made by Lender
to Borrower under the Loan:
<PAGE>
Provided no Event of Default has occurred hereunder, Lender shall
make available to Borrower the sum of $248,500 for the build-out and
equipping of each Dental Facility. Each advance with respect to each
Dental Facility shall be made within five (5) business days of receipt
by the Lender (or the Lender's agent) of a certificate executed by an
officer of Borrower to the affect that the amount requested represents
obligations incurred by the Borrower in completing the build out of
equipping of the Dental Facility. The Borrower shall attach to the
certificate invoices supporting the requested advances for each Dental
Facility up to $248,500, provided the invoices are reasonable and
related to the construction or build-out of the Dental Facility.
Borrower shall use all reasonable efforts to open each of the above
Dental Facilities by January 1, 1996. If all five of the Dental Facilities
are open and operational by January 1, 1996, all accrued interest as of
such date will be forgiven.
Subleases to Bell, referred to above as the Bell/Nanston Leases, shall
be subject to the prior approval of Lender and shall provide for
termination in the event of breach by Bell of any agreement with Borrower
or Lender. Time for adherence to this schedule is of the essence of this
Agreement.
2.4. LOAN PURPOSES. All advances under the Loan shall be used to
construct, equip and open the Dental Facilities, within the above schedule,
each of which shall meet all the customary requirements of Lender for
dental facilities. Each Dental Facility shall be fitted (i.e., wired and
plumbed with a minimum of six (6) dental operatories, and shall be
initially equipped with at least four (4) operatories.
2.5. THE NOTE. The amount of all principal advances and all principal
payments on the Note, the dates on which such advances and payments were
made, and the unpaid principal balance shall be recorded by the Lender from
time to time in the Lender's books and records, which books and records
shall constitute prima facie evidence, absent manifest error, of the
accuracy of the information recorded; provided, however, that inadvertent
failure by the Lender to make any such entry shall not affect the
obligations of Borrower or Lender under this Agreement.
3. PRINCIPAL REPAYMENTS. By April 1, 1996, and from time to time
thereafter, Lender shall provide Borrower an amortization schedule (the
"Amortization Schedule"), which shall set payments so that the full amount
due, including interest and charges, shall be paid in full by January 1, 2003
(the "Maturity Date"). Borrower shall begin making payments under the
Amortization Schedule, beginning April 1, 1996 and on the first day of each
month thereafter. If advances are made after April 1, 1996, Lender shall
provide a revised Amortization Schedule to Borrower and Borrower shall make
payments thereunder. The entire principal amount of the Loan by Lender to
Borrower hereunder is due and payable by the Maturity Date, regardless of
when the principal amount is advanced or payments are made hereunder.
Borrower shall have
<PAGE>
the right at any time to prepay all or any part of the principal of the Loan
at any time before the Maturity Date, without penalty or premium.
Notwithstanding the above, it is the intent of the parties that Lender and
Borrower shall use their best efforts, together with Bell, to obtain financing
from a third party to pay the Loan and the Bell Loan in full as soon as possible
after the date of this Agreement. Lender makes no representations or warranties
to Borrower regarding the terms that may be obtained for any third-party loan.
4. INTEREST RATE. All unpaid principal amounts outstanding under this
Agreement shall bear interest from the date of each advance to the Borrower
under this Agreement at a fixed effective annual rate of interest which is equal
to the Prime Rate (as defined below) plus 2.5%. For purposes of this Agreement,
"Prime Rate" shall mean the highest prime rate published in the "Money Rates"
listing in any edition of the Wall Street Journal on the day of the initial
advance under the Loan.
5. SECURITY. As security for the Loan, Borrower hereby assigns to
Lender for Lender's benefit and grants to Lender for Lender's benefit a lien
on and a security interest in all of the collateral described in the Security
Agreement attached as Exhibit B (collectively, the "Collateral"). The
security interests granted hereby secure the payment of all obligations of
Borrower under this Agreement, now or hereafter existing under any provision
of this Agreement.
6. AFFIRMATIVE COVENANTS. So long as any obligation hereunder shall
remain unpaid or unperformed, Borrower will, unless Lender shall otherwise
consent in writing:
6.1. PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain its
corporate existence, corporate rights, and corporate franchises.
6.2. COMPLIANCE WITH LAWS, ETC. With regard to Borrower's own
operations, the Bell/Nanston Agreement, and any other agreements Borrower
has with Bell or any other provider of dental services in any state, comply
with all present and future applicable laws, rules, regulations, orders and
requirements (including, without limitation, all applicable licenses,
certifications and registrations necessary in the State of North Carolina)
of every duly constituted governmental or quasi-governmental authority or
agency applicable to Borrower.
6.3. INSPECTION AND VISITATION RIGHTS. At any reasonable time during
normal business hours and from time to time, permit Lender or any
administrative agents or representatives thereof to examine and make copies
of an abstracts from the records and books of account of, and visit the
properties of Borrower and to discuss the affairs, finances and accounts of
Borrower with any of their officers or directors and with their independent
certified public accountants and authorize and direct such accountants to
<PAGE>
disclose any and all financial statements and other information of any kind
that they may have with respect to Borrower.
6.4. KEEPING OF BOOKS. Keep proper books of record and account, in
which full and correct entries shall be made of all financial transactions
and the assets and business of Borrower in accordance with generally
accepted accounting principles consistently applied.
6.5. MAINTENANCE OF INSURANCE. Maintain insurance with responsible
and reputable insurance companies or associations in such amounts and
covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which
Borrower operates.
6.6. MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve all of its
properties with respect to which failure to so maintain and preserve would
have a material adverse effect on the condition (financial or otherwise),
business or operations of Borrower or on the value or utility to Borrower
of any property, in good working order and condition, ordinary wear and
tear excepted.
6.7. SOLVENCY. Continue to be Solvent.
7. NEGATIVE COVENANTS. So long as any obligation hereunder shall remain
outstanding, Borrower will not, without the prior written consent of Lender:
7.1. LIENS, ETC. Create or suffer to exist any lien, security
interest or other charge or encumbrance (including the lien or retained
security title of a conditional vendor) of any kind or any other type of
preferential arrangement, upon or with respect to any of its assets or
properties of any character (including, without limitation, accounts),
whether now owned or hereafter acquired, or assign, any right to receive
income (other than for collection purposes), or sign or file under the
Uniform Commercial Code or any comparable statute of any comparable statute
of any jurisdiction a financing statement which names Borrower as debtor,
or sign any security agreement authorizing any secured party thereunder to
file such financing statement.
7.2. DEBT. Create or suffer to exist any debt other than (i) debt
under this Agreement, (ii) existing debt and renewals or refinancings of
such existing debt on terms and conditions no less favorable to Borrower
than those of such existing debt, or (iii) debt of Borrower resulting from
trade payables or other obligations, or guaranties by Borrower of such
trade payables or such other obligations, incurred in the ordinary course
of business and accounted for as current accounts payable.
<PAGE>
7.3. LEASE OBLIGATIONS. Create or suffer to exist, any obligations
for the payment of rental for any property under leases or agreements to
lease, except for such obligations of Borrower created in the ordinary
course of business.
7.4. CHANGE IN BUSINESS. Make any material change in the nature or
conduct of their respective businesses as carried on at the date hereof.
7.5. SALES, ETC. OF ASSETS. Sell, lease, transfer or otherwise
dispose of any assets or shares of stock (whether in one transaction or in
a series of transactions), except for (i) sales of inventory in the
ordinary course of business and (ii) sales of assets no longer useful in
the conduct of Borrower's business.
7.6. PREPAYMENTS OF DEBT. Prepay, redeem, defease (whether actually
or in substance) or purchase in any manner (or deposit or set aside funds
for the purpose of any of the foregoing), make any payment in respect of
principal of, or make any payment in respect of interest on, any debt of
Borrower except for (i) regularly scheduled payments of principal or
interest required in accordance with the terms of the instruments governing
such debt and (ii) payments with respect to obligation under this
Agreement.
8. WARRANTIES. Borrower represent and warrant as follows:
8.1. EXISTENCE. Borrower is a duly organized and validly existing
North Carolina corporation in good standing and is duly qualified to
transact business in each state or other jurisdiction in which it owns or
leases any real property or in which it owns or leases any real property or
in which the nature of the business conducted makes such qualification
necessary or, if not so qualified, such failure to qualify will have no
material adverse effect upon Borrower's financial condition and their
ability to transact business.
8.2. GOVERNMENTAL RESTRICTIONS. No registration with or approval of
any governmental agency of any kind is required on the part of Borrowers
for the due execution and delivery or for the enforceability of this
Agreement or any related writing other than the filing or recording of
documents with public officials, the noting of title certificates and
similar acts and things related to the perfection of the security interests
and other liens referred to in Section 5.
8.3. CORPORATE AUTHORITY. Borrower has requisite corporate power and
authority to enter into this Agreement and to obtain and secure the subject
loan in accordance with this Agreement. The officer executing and
delivering this Agreement on behalf of Borrower has been duly authorized to
do so and to execute and deliver a subject note and other related writings
in accordance with the Agreement. Upon the execution and delivery thereof,
this Agreement and the aforesaid related writings will each become a valid
and binding obligation enforceable against Borrower according to their
respective
<PAGE>
tenors subject, however, to any applicable insolvency or bankruptcy law of
general applicability and general principles of equity.
8.4. LITIGATION. No litigation or proceeding is pending against
Borrower before any court, administrative agency or arbitrator which might,
if successful, have a material adverse effect on Borrower.
8.5. TAXES. Borrower has filed all federal, state and local tax
returns which are required to be filed by it and paid all taxes due as
shown thereon. The Internal Revenue Service has not alleged any material
default by Borrower in the payment of any tax material in amount or
threatened to make any assessment.
8.6. LAWFUL OPERATIONS. Borrower's operations have at all relevant
times been and continue to be in material compliance with all requirements
imposed by law, whether federal, state or local, whether statutory,
regulatory or other, including (without limitation) ERISA, all
environmental laws, and occupational safety and health laws and all zoning
ordinances.
8.7. INSURANCE. Borrower's insurance coverage complies with the
standards set forth in subsection 6.5 and those set forth in the Security
Agreement.
8.8. DEFAULTS. No default under this Agreement exists, nor will any
exist immediately after the execution and delivery of this Agreement.
8.9. NO JOINT VENTURE. Neither party intends by entering into this
Agreement to create an employment or agency relationship or a joint venture
or partnership with the other party. It is agreed that each party in
performing its obligations under this Agreement, acts as an independent
contractor.
9. EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default hereunder:
9.1. PAYMENTS. If any principal or interest due hereunder remains
unpaid for more than fifteen (15) days after notice is given by Lender to
Borrower of such nonpayment.
9.2. WARRANTIES. If any representation, warranty or statement made in
this Agreement or in any related writing referred to in Section 8 shall be
false or erroneous in any respect; or if any representation, warranty or
statement hereafter made by or on behalf of Borrowers in any related
writing shall be false or erroneous in any material respect.
9.3. RELATED AGREEMENTS. If there is any default in, or termination
of (a) the Bell Loan, (b) the Bell/Nanston Agreement, (c) the Nanston
Leases, or (d) the
<PAGE>
Bell/Nanston Leases, or if there is any default in or
termination of the CIGNA/Bell Agreement, and Nanston has not within four
months after such default or termination provided a substitute, acceptable
to CIGNA in its sole discretion, to assume Bell's obligation under the
CIGNA/Bell Agreement and the Bell Loan.
9.4. BORROWER'S SOLVENCY. If (a) Borrower shall discontinue
operations, or (b) Borrower shall commence any insolvency action of any
kind or admit (by answer, default or otherwise) the material allegations
of, or consent to any relief requested in, any insolvency action of any
kind commenced against Borrower by their creditors or any thereof, of (c)
any creditor or creditors shall commence against Borrower any insolvency
action of any kind which shall remain in effect (neither dismissed nor
stayed) for thirty (30) consecutive days.
9.5. EFFECTS OF DEFAULT. Notwithstanding any contrary provision or
inference in this Agreement or in any related writing:
9.5.1. OPTIONAL DEFAULTS. If any event of default referred to
in Subsection 9.1 through 9.3, both inclusive, shall occur and be
continuing, Lender: (a) shall have no further obligation hereunder to make
further advances to Borrower and (b) shall have the right in its sole
discretion, by giving written notice to Borrower, to accelerate the
maturity of all of Borrower's debt to Lender (other than debt, if any,
already due and payable), and all such debt shall thereupon become and
thereafter be immediately due and payable in full without any presentment
or demand and without any further or other notice of any kind, all of which
are hereby waived by Borrower.
9.5.2. AUTOMATIC DEFAULTS. If any event of default referred
to in Subsection 9.4 shall occur, all of Borrowers' debt to Lender (other
than debt, if any, already due and payable) shall thereupon become and
thereafter be immediately due and payable in full, all without any
presentment, demand or notice of any kind, which are hereby waived by
Borrowers.
10. MISCELLANEOUS.
10.1. BINDING EFFECT. This Agreement shall become effective when
it shall have been executed by Borrower and Lender and thereafter shall be
binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns, except that Borrower shall not have the
right to assign its rights hereunder or any interest herein without the
prior written consent of Lender.
10.2. SUCCESSORS AND ASSIGNS. Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party. All covenants, promises
and agreements by or on behalf of Borrower or
<PAGE>
Lender that are contained in this Agreement shall bind and inure to the
benefit of their respective successors and assigns. Borrower may not
assign or transfer any of its rights or obligations hereunder without the
prior written consent of Lender. Lender may, in its sole discretion, assign
all or part of this Agreement and Loan as it so chooses.
10.3 HEADINGS. Section headings in this Agreement are included for
convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
10.4 SEVERABILITY OF PROVISIONS. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
10.5. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of North Carolina.
10.6. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement.
10.7. WAIVER OF JURY TRIAL. The parties acknowledge and agree
that any-controversy that may arise under this Agreement and the related
writings would involve difficult and complex issues and therefore agree
that any lawsuit growing out of or incidental to any such controversy will
be tried in a court of competent jurisdiction by a judge sitting without a
jury.
10.8. LATE CHARGE; APPLICATION OF PAYMENTS. If Borrower fails to
pay any amount due hereunder, or any fee in connection herewith, in full
within fifteen (15) days after its due date, Borrower will, in each case,
incur and shall pay a late charge equal to the greater of twenty dollars
($20.00) or five percent (5%) of the installment due. The payment of the
late charge will not cure or constitute a cure or waiver of any event of
default under this Agreement. Except as otherwise agreed in writing,
payments will be applied first to accrued but unpaid interest and fees, in
the order of their respective due dates, until paid in full, then to late
charges, and then to principal.
10.9. WAIVERS. Lender may from time to time in its discretion
grant borrowers waivers and consents in respect of this Agreement or any
related writing or assent to amendments thereof, but no such waiver or
consent shall be binding on the Lender unless specifically granted by the
Lender in writing, which writing shall be strictly construed. Borrower
agrees that no course of dealing in respect of, nor any omission or delay
in the
<PAGE>
exercise of, any right, power or privilege by Lender shall operate
as a waiver thereof, nor shall any single or partial exercise thereof
preclude any further or other exercise thereof or of any other, as each
right, power or privilege may be exercised either independently or
concurrently with others as often and in such order as Lender may deem
expedient.
10.10. NOTICES. All notices, consents, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have
been duly given or delivered. If delivered personally, telexed with
receipt acknowledged, mailed by certified or registered mail return receipt
requested, sent by facsimile with confirmation of receipt or delivered by a
recognized commercial courier addressed as follows:
If to the Borrower:
Nanston, Inc.
1590 Oak Brook Drive
Suite 200
Norcross, Georgia 30093-2287
Attention: Steve Johnston
If to the Lender:
CIGNA Dental Health Inc.
300 N.W. 82nd Ave.
Suite 700
Plantation, Florida
Attention: CFO
or to such other address as any party may have furnished in writing to the
other party.
10.11. ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement of the parties regarding the subject matter hereof and supersedes
any and all prior understandings, proposals, offers, negotiations or
agreement on the subject matter hereof. No amendment of this Agreement
shall be valid, unless contained in a writing which refers to this
Agreement and is signed by an authorized representative of each party.
IN WITNESS WHEREOF, the Lender and the Borrower have caused this Agreement
to be duly executed as of the date first set forth above.
<PAGE>
LENDER: CIGNA DENTAL HEALTH INC.
By: /s/ Zayra Calderon
-------------------------------------------------------
Type Name: Zayra Calderon
---------------------------------------------
Its: CFO
BORROWER: NANSTON-NORTH CAROLINA, INC.
By: /s/ Steve Johnston
-------------------------------------------------------
Type Name: Steve Johnston
---------------------------------------------
Its: Vice President
<PAGE>
EXHIBIT 10.12
LOAN AGREEMENT
(BELL)
This Loan Agreement (the "Agreement") is entered into between CIGNA Dental
Health Inc., a Florida corporation (the "Lender") and Nathan Bell D.D.S., P.A.,
a North Carolina professional association (the "Borrower"), as of August 25,
1995.
RECITALS
WHEREAS, Borrower wishes to (a) borrow certain sums from Lender (the "Loan")
in connection with the start-up of five new dental facilities at the locations
in North Carolina as set forth on Schedule I hereto (collectively, the "Dental
Facilities"), (b) enter into an agreement with Nanston-North Carolina, Inc.
("Nanston") under which Nanston will provide office and consulting services at
the Dental Facilities (the "Bell/Nanston Agreement?) and (c) lease the Dental
Facilities from Nanston under separate leases (the "Bell/Nanston Leases");
WHEREAS, Nanston wishes to obtain financing for constructing and furnishing
the Dental Facilities which it has leased under separate leases (the "Nanston
Leases") and Lender is willing to lend to Nanston for such purposes (the
"Nanston Loan"), so that, together with the Loan, Borrower is able to provide
dental services to, among others, Lender's DHMO members pursuant to Borrower's
agreement with Lender (the "Provider Agreement"); and
WHEREAS, Borrower wishes to borrow certain sums to fund initial working
capital requirements associated with the start-up of the Dental Facilities and
Lender is willing to lend to Borrower for such purpose.
AGREEMENT
1(a). SUBJECT LOAN. Subject to all the terms and conditions of this
Agreement, Lender agrees from time to time, during a three-year period beginning
on the date that the First Dental Facility begins operations, to make working
capital advances to Borrower (the "Operating Advances") up to the aggregate
amount of $3,300,000 and from the date of this Agreement until the date sixty
(60) days after the opening of the last Dental Facility, to make start-up
advances (the "Start-up Advances") up to $425,000 (the "Operating Advances and
the Start-up Advances collectively the "Advances"), all subject to the
restrictions and requirements in Section 2. The Loan shall be evidenced by a
note in the form of Exhibit A to this Agreement (the "Note").
1(b). PURPOSE OF LOAN. The Operating Advances shall be made to assist
Borrower in paying its monthly bills, and the Operating Advances are not
intended as guaranteed payments. The Start-up Advances shall be made to
assist Borrower with the start-up costs of the Dental Facilities, including
training, travel, recruitment of office and professional personnel, and
similar expenses incurred in connection with the preparation of each Dental
Facility for the practice of dentistry.
<PAGE>
2. THE ADVANCES. Lender shall make Advances to Borrower as follows:
(a) THE START-UP ADVANCES. During the period commencing with the
execution of this Agreement and ending on the date two months after the
opening of the last Dental Facility, Lender shall make available to Borrower
up to an aggregate of $425,000 in Start-up Advances. The Start-up Advances
shall be made from time to time during such period upon the written request
of Borrower, setting forth therein the uses to which such amounts shall be
put.
(b) The Operating Advances.
(i) The Initial Operating Advances. The Lender shall, with
respect to each Dental Facility, advance to the Borrower the sum of
$30,000 (the "Initial Operating Advance") upon receipt from
Borrower of notice that such Dental Facility has commenced
operation. The aggregate of all Initial Operating Advances shall
not exceed $150,000.
(ii) THE ADDITIONAL OPERATING ADVANCES. Commencing with
the second month of operation, the first Dental Facility to become
operational, Borrower shall deliver to Lender a cash flow statement
reflecting the total cash received at all Dental Facilities since
commencement of operation(including any Operating Advances) and the
total cash expenses incurred by all Dental Facilities during such
period in connection with the practice of dentistry and any
reasonable fee for office and consulting services charged by
Nanston as provided for in Schedule 2. To the extent that any cash
flow statement reflects a cumulative negative amount (the
"Operating Deficit"), Lender shall, subject to the provisions of
the paragraph 2 hereof, make an Additional Operating Advance to the
Borrower in an amount equal to the lesser of (a) the Operating
Deficit, or (b) the Maximum Additional Operating Advance for such
month. The Maximum Additional Operating Advance for any month shall
be defined as the number of Dental Facilities which have been
operating between two and six months times $30,000, plus the number
of Dental Facilities which have been operating more than six months
but less than twelve months times $20,000, plus the number of
Dental Facilities which have been operating twelve months or more
but less than thirty-six months times $15,000.
2.1 PREREQUISITE TO ADVANCES. Before Lender shall have any obligation to
make any Advances hereunder, the following shall have been validly entered into
and, if Lender is not a party, approved by lender in its sole discretion: (i)
the Provider Agreement; (ii) the
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Bell/Nanston Agreement; (iii) the Nanston Loan; (iv) the Nanston leases; and
(v) the Bell Leases as to each Dental Facility for which any Advance is
requested.
2.2 OBLIGATION TO MAKE ADVANCES. Lender shall have not obligation to make
any advance to Borrower if at the time of such request: (i) the aggregate unpaid
principal amount of all Advances made pursuant to this Agreement after any such
Advance exceeds $3,725,000; (ii) an Event of Default exists under this
Agreement; or (iii) Borrower has not submitted the necessary financial
statements to Lender.
2.3 REQUESTS FOR ADDITIONAL OPERATING ADVANCES. In order to receive an
Additional Operating Advance, Borrower must submit a cumulative cash flow
statement to Lender from the date of opening for each Dental Facility and a
cumulative consolidated cash flow statement for al Dental Facilities with a
request for the Additional Operating Advance. Lender will review each request
and within fifteen (15) days make an Additional Operating Advance in the
amount equal to the lesser of (a) the Operating Deficit or (b) the Maximum
Additional Operating Advance.
2.4 RECORD OF ADVANCES. The amount of all Advances and all principal
payments o the Note, the dates on which such advances and payments were made,
and the unpaid principal balance shall be recorded by the Lender from time to
time in the Lender's books and records, which books and records shall constitute
PRIMA FACIE evidence. absent manifest error, of the accuracy of the information
recorded; PROVIDED; HOWEVER, that inadvertent failure by the Lender to make any
such entry shall not affect the obligations of Borrower or Lender under this
Agreement.
3. PRINCIPAL REPAYMENTS. The entire principal amount loaned by Lender to
Borrower hereunder is due and payable., not later than January 1, 2003,
regardless of when the principal amount is advanced hereunder. Borrower shall
have the right at any time to prepay all or any part f the principal of the Loan
without penalty or premium. PROVIDED, HOWEVER, for any calendar year in which
there is a positive cash flow for all Dental Facilities on a consolidated basis,
fifty percent (50%) of such amount shall be paid to Lender, within 30 days of
the end of such calendar year, and shall be applied to the outstanding principal
and interest on the Loan in inverse order of the maturity of the installments.
On January , 1999, the outstanding principal and accrued interest shall be
amortized over forty-eight (48) installments, with the first such payment due on
January 1, 1999.
4. INTEREST RATE AND PAYMENT. All advances under this Agreement shall bear
interest from the date of the Advance by the Lender to the Borrower at a fixed
effective rate of interest which is equal to the Prime Rate (as defined below)
plus 2.5%. For purposes of this Agreement,
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the term "Prime Rate" shall mean the highest prime rate published in the
"Money Rates" listing in any edition of the Wall Street Journal on the day of
the initial advance under the Loan.
5. SECURITY. As security for the Loan, Borrower hereby assigns to Lender for
Lender's benefit and grants to Lender for Lender's benefit a lien on and a
security interest in all of the collateral described in the Security Agreement
attached as Exhibit B (collectively, the "Collateral"). The security interests
granted hereby secure the payment of all obligations of Borrower under this
Agreement, now or hereafter existing under any provision of this Agreement.
6. AFFIRMATIVE COVENANTS. So long as any obligation hereunder shall remain
unpaid or unperformed, Borrower will, unless Lender shall otherwise consent in
writing:
6.1. PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain its
existence as a professional association.
6.2. COMPLIANCE WITH LAWS, ETC. Comply with all present and future
applicable laws, rules, regulations, orders and requirements (including,
without limitation, all applicable licenses, certifications and registrations
necessary to practice dentistry in the State of North Carolina) of every duly
constituted governmental or quasi-governmental authority or agency applicable
to Borrower.
6.3. INSPECTION AND VISITATION RIGHTS. At any reasonable time
during normal business hours and from time to time, permit Lender or any
administrative agents or representatives thereof to examine and make copies
of and abstracts from the records and books of account of, and visit the
properties of Borrower and to discuss the affairs, finances and accounts of
Borrower with any of their officers or directors and with their independent
certified public accountants and authorize and direct such accountants to
disclose any and all financial statements and other information of any kind
that they may have with respect to Borrower.
6.4. KEEPING OF BOOKS. Keep proper books of record and account, in
which full and correct entries shall be made of all financial transactions
and the assets and business of Borrower in accordance with generally accepted
accounting principles consistently applied.
6.5. MAINTENANCE OF INSURANCE. Maintain insurance with responsible and
reputable insurance companies or associations in such amounts and covering
such risks as is usually carried by professional associations in such amounts
and covering such risks as is usually carried by professional associations
engaged in similar businesses and owning similar properties in the same
general areas in which Borrower operates. In addition, Borrower shall cause
the Dental Facilities to purchase and maintain professional liability
insurance coverage with an insurance company acceptable to the Lender.
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6.6 MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve all of its
properties with respect to which failure to so maintain and preserve would
have a material adverse effect on the condition (financial or otherwise),
business or operations of Borrower or on the value or utility to Borrower of
any property, in good working order and condition, ordinary wear and tear
excepted.
6.7. SOLVENCY. Continue to be Solvent.
7. NEGATIVE COVENANTS. So long as any obligation hereunder shall remain
outstanding, Borrower will not, without the prior written consent of Lender:
7.1. LIENS, ETC. Create or suffer to exist any lien, security interest
or other charge or encumbrance (including the lien or retained security title
of a conditional vendor) of any kind or any other type of preferential
arrangement, upon or with respect to any of its assets or properties of any
character (including, without limitation, accounts), whether now owned by
hereafter acquired, or assign, any right to receive income (other than for
collection purposes), or sign or file under the Uniform Commercial Code or
any comparable statute of any jurisdiction a financing statement which names
Borrower as debtor, or sign any security agreement authorizing any secured
party thereunder to file such financing statement.
7.2. DEBT. Create or suffer to exist any debt other than (i) debt
under this Agreement, (ii) existing debt and refundings or refinancings of
such existing debt on terms and conditions no less favorable to Borrower than
those of such existing debt, or (iii) debt of Borrower resulting from trade
payables or other obligations, or guaranties by Borrower of such trade
payables or such other obligations, incurred in the ordinary course of
business and accounted for as current accounts payable.
7.3. LEASE OBLIGATIONS. Create or suffer to exist, any obligations for
the payment of rental for any property under leases or agreements to lease,
except for such obligations of Borrower created in the ordinary course of
business.
7.4. CHANGE IN BUSINESS. Make any material change in the nature or
conduct of its business as carried on at the date hereof.
7.5. SALES, ETC. OF ASSETS. Sell, lease, transfer or otherwise dispose
of any assets (whether in one transaction or in a series of transactions),
except for sales of assets no longer useful in the conduct of Borrower's
business.
7.6. PREPAYMENTS OF DEBT. Prepay, redeem, defease (whether actually or
in substance) or purchase in any manner (or deposit or set aside funds for
the purpose of any of the foregoing), make any payment in respect of
principal of, or make any payment in respect of
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interest on, any debt of Borrower except for (i) regularly scheduled payments
of principal or interest required in accordance with the terms of the
instruments governing such debt and (ii) payments with respect to obligation
under this Agreement.
8. WARRANTIES. Borrower represent and warrant as follows:
8.1. EXISTENCE. Borrower is a duly organized and validly existing
professional association in good standing and is duly qualified to transact
business in each state or other jurisdiction in which it owns or leases any
real property or in which the nature of the business conducted makes such
qualification necessary or, if not so qualified, such failure to qualify will
have no material adverse effect upon Borrower's financial condition and their
ability to transact business.
8.2. GOVERNMENTAL RESTRICTIONS. No registration with or approval of
any governmental agency of any kind is required on the part of Borrowers for
the due execution and delivery or for the enforceability of this Agreement or
any related writing other than the filing or recording of documents with
public officials, the noting of title certificates and similar acts and
things related to the perfection of the security interests and other liens
referred to in section 5.
8.3. AUTHORITY. Borrower has requisite power and authority to enter
into this Agreement and to obtain and secure the subject loan in accordance
with this Agreement. The individual executing and delivering this Agreement
on behalf of Borrower has been duly authorized to do so and to execute and
deliver a subject note and other related writings in accordance with the
Agreement. Upon the execution and delivery thereof, this Agreement and the
aforesaid related writings will each become a valid and binding obligation
enforceable against Borrower according to their respective tenors subject,
however, to any applicable insolvency or bankruptcy law of general
applicability and general principles of equity.
8.4. LITIGATION. No litigation or proceeding is pending against
Borrower before any court, administrative agency or arbitrator which might,
if successful, have a material adverse effect on Borrower.
8.5. TAXES. Borrower has filed all federal, state and local tax
returns which are required to be filed by it and paid all taxes due as shown
thereon. The Internal Revenue Service has not alleged any material default by
Borrower in the payment of any tax material in amount or threatened to make
any assessment.
8.6. LAWFUL OPERATIONS. Borrower's operations have at all relevant
times been and continue to be in material compliance with all requirements
imposed by law, whether federal, state or local, whether statutory,
regulatory or other, including (without limitation)
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ERISA, all environmental laws, and occupational safety and health laws and
all zoning ordinances.
8.7. INSURANCE. Borrower's insurance coverage complies with the
standards set forth in subsection 6.5 and those set forth in the Security
Agreement.
8.8. DEFAULTS. No default under this Agreement exists, nor will any
exist immediately after the execution and delivery of this Agreement.
8.9. NO JOINT VENTURE. Neither party intends by entering into this
Agreement to create an employment or agency relationship or a joint venture
or partnership with the other party. It is agreed that each party in
performing its obligations under this Agreement, acts as an independent
contractor.
9. EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default hereunder:
9.1. PAYMENTS. If any principal or interest due hereunder remains
unpaid for more than fifteen (15) days after notice is given by Lender to
Borrower of such nonpayment.
9.2. WARRANTIES. If any representation, warranty or statement made in
this Agreement or in any related writing referred to in section 8 shall be
false or erroneous in any respect; or if any representation, warranty or
statement hereafter made by or on behalf of Borrowers in any related writing
shall be false or erroneous in any material respect.
9.3. RELATED AGREEMENTS. If there is any default in (a) the Nanston
Loan, (b) the Bell/Nanston Agreement, (c) the Provider Agreement, (d) the
Nanston Leases, or (e) the Bell Nanston Leases.
9.4. BORROWER'S SOLVENCY. If (a) Borrower shall discontinue
operations, or (b) Borrower shall commence any insolvency action of any kind
or admit (by answer, default or otherwise) the material allegations of, or
consent to any relief requested in, any insolvency action of any kind
commenced against Borrower by their creditors or any thereof, or (c) any
creditor or creditors shall commence against Borrower any insolvency action
of any kind which shall remain in effect (neither dismissed nor stayed) for
thirty (30) consecutive days.
9.5. EFFECTS OF DEFAULT. Not withstanding any contrary provision or
inference in this Agreement or in any related writing:
9.5.1. OPTIONAL DEFAULTS. If any event of default referred to in
subsections 9.1 through 9.3, shall occur and be continuing, Lender shall have
the right in its discretion, by giving written notice to Borrower, to
accelerate the maturity of all of Borrower's
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debt to Lender (other than debt, if any, already due and payable), and all
such debt shall thereupon become and thereafter be immediately due and
payable in full without any presentment or demand and without any further or
other notice of any kind, all of which are hereby waived by Borrower.
9.5.2. AUTOMATIC DEFAULTS. If any event of default referred to in
subsection 9.4 shall occur, all of Borrower's debt to Lender (other than
debt, if any, already due and payable) shall thereupon become and there after
be immediately due and payable in full, all without any presentment, demand
or notice of any kind, which are hereby waived by Borrower. Borrower is
responsible for any outstanding debt or deficiency upon liquidation of the
Collateral or assignment of Borrower's obligations under the Provider
Agreement.
9.5.3. DEFAULT UNDER PROVIDER AGREEMENT. If any event of default
referred to in subsection 9.3(e) shall occur, Lender may (a) accelerate the
maturity of all of Borrower's debt to Lender, and all such debt shall
thereupon become and thereafter be immediately due and payable in full, all
without presentment, demand or notice of any kind all of which are hereby
waived by Borrower, or (b) assign the Loan to a new provider and proceed
against Borrower for any deficiency or (c) proceed against the Collateral and
collect any deficiency from the Borrower.
9.5.4. CAPITATION PAYMENTS/CURE OF DEFAULT. If Borrower does not
cure any default, to Lender's sole satisfaction, within thirty days after
such default occurs, Lender shall have the right to apply any capitation
payments or other amounts due to Borrower from Borrower to amounts due
hereunder.
10. MISCELLANEOUS.
10.1. BINDING EFFECT. This Agreement shall become effective when
executed by Borrower and Lender and thereafter shall be binding upon and
inure to the benefit of Borrower and Lender and their respective successors
and assigns, except that Borrower shall not have the right to assign its
rights hereunder or any interest herein without the prior written consent of
Lender.
10.2. SUCCESSORS AND ASSIGNS. Whenever in this Agreement any of the
parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party. All covenants, promises and agreements
by or on behalf of Borrower or Lender that are contained in this Agreement
shall bind and inure to the benefit of their respective successors and
assigns. Borrower may not assign or transfer any of its rights or obligations
hereunder without the prior written consent of Lender.
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10.3. HEADINGS. Section headings in this Agreement are included for
convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
10.4. SEVERABILITY OF PROVISIONS. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
10.5. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of North Carolina.
10.6. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement.
10.7. WAIVER OF JURY TRIAL. The parties acknowledge and agree that
any controversy that may arise under this Agreement and the related writings
would involve difficult and complex issues and therefore agree that any
lawsuit growing out of or incidental to any such controversy will be tried in
a court of competent jurisdiction by a judge sitting without a jury.
10.8. LATE CHARGE: APPLICATION OF PAYMENTS. if Borrower fails to pay
any amount due hereunder, or any fee in connection herewith, in full within
fifteen (15) days after its due date, Borrower will, in each case, incur and
shall pay a late charge equal to the greater of twenty dollars ($20.00) or
five percent (5%) of the installment due. The payment of the late charge will
not cure or constitute a cure or waiver of any event of default under this
Agreement. Except as otherwise agreed in writing, payments will be applied
first to accrued but unpaid interest and fees, in the order of their
respective due dates, until paid in full, then to late charges, and then to
principal.
10.9. WAIVERS. Lender may from time to time in its discretion grant
borrowers waivers and consents in respect of this Agreement or any related
writing or assent to amendments thereof, but no such waiver or consent shall
be binding on the Lender unless specifically granted by the Lender in
writing, which writing shall be strictly construed. Borrower agrees that no
course of dealing in respect of, nor any omission or delay in the exercise
of, any right, power or privilege by Lender shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any
further or other exercise thereof or of any other, as each right, power or
privilege may be exercised either independently or concurrently with others
as often and in such order as Lender may deem expedient.
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10.10. NOTICES. All notices, consents, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given or delivered. If delivered personally, telexed with receipt
acknowledged, mailed by certified or registered mail return receipt
requested, sent by facsimile with confirmation of receipt or delivered by a
recognized commercial courier addressed as follows:
If to the Borrower:
Nathan Bell D.D.S., P.A.
200 Keisler Dr.
Suite C
Cary, N.C. 27511-0000
If to the Lender:
CIGNA Dental Health Inc.
300 N.W. 82nd Ave.
Suite 700
Plantation, Florida
Attention: CFO
or to such other address as any party may have furnished in writing to
the other party.
10.11. ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement of the parties regarding the subject matter thereof and supersedes
any and all prior understandings, proposals, offers, negotiations or
agreement on the subject matter hereof. No amendment of this Agreement shall
be valid, unless contained in writing which refers to this Agreement and is
signed by an authorized representative of each party.
10.12. NO THIRD-PARTY BENEFITS. This Agreement is not intended to and
shall not confer any benefits on any third party and may not be relied on by
any third party with regard to any dealings with Borrower, Nanston, or any
other person.
10.13. It is the intent of the parties that Lender and Borrower shall
use their best efforts, together with Nanston, to obtain financing from a
third party to pay the Loan and the Nanston Loan in full as soon as possible
after the date of this Agreement. Lender makes no representation or
warranties to Borrower regarding the terms that may be obtained for any
third-party loan.
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IN WITNESS WHEREOF, the Lender and the Borrower have caused this Agreement
to be duly executed as of the date first set forth above.
LENDER:
CIGNA DENTAL HEALTH INC.
By: /s/ Zayra Calderon
--------------------------------------------
(Name)
Type Name: Zayra Calderon
----------------------------------
Its: CFO
BORROWER'.
NATHAN BELL D.D.S., P.A.
By: /s/ Nathan Bell
-------------------------------------------
(Name)
Type Name: Nathan Bell D.D.S., P.A.
---------------------------------
Its: President
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Exhibit 10.13
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made January 15, 1997, by and
between Nanston, Inc., a Georgia corporation (the "Borrower"), and DentalCo,
Inc., a Maryland corporation (the "Lender"). Capitalized terms not herein
defined shall have the meanings ascribed to them by the Merger Agreement (as
hereinbelow defined).
RECITALS
A. Pursuant to Section 6.3(i) of that certain Agreement and Plan of
Merger and Reorganization dated December 27, 1996 (the "Merger Agreement") by
and among the Lender, DentalCo/Southeast, Inc., the Borrower, and the
shareholders of the Borrower, the Lender agreed to lend to the Borrower the
Principal Sum (as hereinafter defined) for the purpose of permitting the
Borrower to redeem the ESOP Shares.
B. Subject to and upon the terms, conditions and provisions of this
Agreement, the Lender will make a loan to the Borrower upon and subject to the
provisions of this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. THE LOAN.
1.1. ADVANCE OF LOAN. Subject to the terms and conditions of this
Agreement and relying upon the representations and warranties herein set forth,
the Lender agrees to make a loan (the "Loan") to the Borrower on the date hereof
in the principal amount of Two Million Nine Hundred Four Thousand Four Hundred
Three Dollars and Sixty-Five Cents ($2,904,403.65)(the "Principal Sum"). The
Loan proceeds may be used by the Borrower solely to redeem the ESOP Shares.
1.2. PRINCIPAL PAYMENT. The Borrower shall repay the entire Principal
Sum on the written demand by the Lender in accordance with the notice provisions
of Section 8.3 hereof.
1.3. INTEREST. Except for any period during which a Default (as
hereinafter defined) has occurred and is continuing hereunder, the Borrower
shall pay interest on the unpaid balance of the Principal Sum from its date
until its maturity (whether by acceleration, extension or otherwise) at a
floating and fluctuating per annum rate of interest equal at all times to the
Prime Rate (as hereinafter defined) in effect from time to time plus one percent
(1%) per annum. Interest accrued during such time on the Loan shall be paid by
the Borrower to the Lender on June 30th and December 31st of each year,
commencing on June 30, 1997, until the maturity of the Loan (whether by
acceleration, extension or otherwise) at which time the Borrower shall pay to
the Lender all accrued and unpaid interest on the Loan. The term "Prime Rate" as
used in this Agreement means Citibank's floating and fluctuating per annum prime
rate of interest from time to time established and declared by Citibank as its
prime rate. The Prime Rate does not
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necessarily represent the lowest rate of interest charged by Citibank to
borrowers. The Lender will provide the Borrower with a calculation of each
interest payment due.
1.4. OPTIONAL PREPAYMENT. The Borrower shall have the right to prepay
the Loan in whole at any time or in part from time to time without penalty;
provided that (a) each partial prepayment shall be in an amount not less than
Two Hundred Fifty Thousand Dollars and Zero Cents ($250,000.00), and (b)
simultaneously with each prepayment the Borrower shall pay to the Lender
interest accrued and unpaid on the amount prepaid to the date of prepayment.
Each prepayment shall be applied first to unpaid interest on the Loan and then
to the Principal Sum.
1.5. INTEREST CALCULATION. All interest and fees payable under the
provisions of this Agreement or the Note (as hereinafter defined) shall be
computed on the basis of actual number of days elapsed over a year of 360 days.
Where applicable, the interest rate on all amounts on which interest is
calculated with respect to the Prime Rate shall change immediately and
contemporaneously with each change of the Prime Rate.
1.6. LATE CHARGES. If the Borrower fails to make any payment of
principal, interest, prepayments, fees or any other amount becoming due pursuant
to the provisions of this Agreement or the Note, within five (5) days of the
date due and payable, the Borrower shall pay to the Lender a late charge equal
to five percent (5%) of the amount of such payment. Such five-day period shall
not be construed in any way to extend the due date of any such payment. Late
charges are imposed for the purpose of defraying the Lender's expenses incident
to the handling of delinquent payments, and are in addition to, and not in lieu
of, the exercise by the Lender of any rights and remedies hereunder or under
applicable laws and any fees and expenses of any agents or attorneys which the
Lender may employ upon Default.
1.7. LOAN PAYMENTS. Whenever any payment to be made by the Borrower
under the provisions of this Agreement or the Note is due on a day which is not
a Business Day (as hereinafter defined), the due date thereof shall be extended
to the next succeeding Business Day and, in the case of any payment which bears
interest, such extension of time shall be included in computing interest on such
payment. "Business Day" as used herein means any day other than Saturday,
Sunday or other day on which commercial Lenders in the State of Maryland are
authorized to close. All payments of principal, interest, fees or other amounts
to be made by the Borrower under the provisions of this Agreement or the Note
shall be paid without set-off or counterclaim to the Lender at the Lender's
office specified in Section 8.3 hereof in lawful money of the United States of
America in immediately available funds.
1.8. INTEREST ON OVERDUE AMOUNTS. If the principal of or interest on,
the Note or any other amount required to be paid to the Lender hereunder or
under the Note is not paid when due, whether by acceleration or otherwise, the
Borrower shall on demand from time to time pay to the Lender interest on such
principal, interest or other amount from the date due until the date of payment
(after as well as before any judgment) at a rate per annum equal to the Prime
Rate in effect from time to time, plus five percent (5%) per annum.
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1.9. THE NOTE. The obligation of the Borrower to pay the Loan with
interest shall be evidenced by a promissory note (which promissory note, as the
same may from time to time be extended, replaced, amended, restated, or
otherwise modified, is herein called the "Note") dated the date hereof in the
principal amount of the Loan and executed and delivered by the Borrower to the
Lender simultaneously with the advance of the Loan.
1.10. DEFINITIONS OF OBLIGATIONS AND FINANCING DOCUMENTS. As used
in this Agreement, the term "Obligations" means collectively and includes all
present and future indebtedness, liabilities and obligations of any kind and
nature whatsoever of the Borrower to the Lender both now existing and hereafter
arising under, as a result of, on account of, or in connection with, this
Agreement, the Note or the other Financing Documents (as hereinafter defined),
including, without limitation, principal, interest, fees, late charges,
enforcement costs (as hereinafter defined) and other costs and expenses whether
direct, contingent, joint, several, matured or unmatured. The term "Financing
Documents" means collectively and includes this Agreement, the Note, and any
other instrument, document or agreement both now and hereafter executed,
delivered or furnished by the Borrower or any other person (as hereinafter
defined) evidencing, securing or in connection with this Agreement or all or any
part of the Obligations.
SECTION 2. CONDITIONS PRECEDENT. The Lender shall not be required to make
the Loan unless the following conditions precedent have been satisfied in a
manner acceptable to the Lender:
2.1. BORROWER'S CORPORATE DOCUMENTS. The Lender shall have received
(a) a copy, certified as of a recent date by the Secretary of State of Georgia
of the Articles or Certificate of Incorporation of the Borrower, (b) a Good
Standing Certificate of the Borrower in the State of Georgia, and (c) a copy,
certified to the Lender as true and correct as of the date hereof by the
President of the Borrower, of the resolutions of the Borrower's board of
directors authorizing the execution and delivery of this Agreement and the other
Financing Documents to which the Borrower is a party and designating the officer
or officers of the Borrower who are authorized to sign this Agreement and such
other Financing Documents for and on behalf of the Borrower.
2.2. FINANCING DOCUMENTS. The execution and delivery of each of the
Financing Documents required by the Lender to be executed and delivered prior to
the making of the Loan.
2.3. ADDITIONAL DOCUMENTS. The furnishing in form and content
acceptable to the Lender of any additional documents that the Lender may deem
reasonably necessary or desirable.
2.4. REPRESENTATIONS, WARRANTIES AND DEFAULT. All representations
and warranties made in or in connection with this Agreement and the other
Financing Documents shall be true, correct and complete in all material respects
(except with respect to those representations and warranties already qualified
as to materiality, which shall be true, correct and complete in all respects) as
of the date hereof and no event which, after execution of the Financing
Documents would constitute a Default hereunder, shall have occurred and be
continuing.
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SECTION 3. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Lender that, except to the actual knowledge of the Lender, the
following statements are true, correct and complete:
3.1 AUTHORITY, ETC. The Borrower is a Georgia corporation, duly
organized and in good standing under the laws of the State of Georgia. None of
the terms and provisions of this Agreement or any of the other Financing
Documents to which the Borrower is a party are in violation of any laws or
regulations applicable to the Borrower or of the Borrower's articles or
certificate of incorporation or by-laws or are in conflict with any agreement or
contractual obligation to which the Borrower is a party. The execution and
delivery of this Agreement and the other Financing Documents to which the
Borrower is a party have been duly authorized by all appropriate corporate
action and constitute the legal, valid and binding obligations of the Borrower
enforceable in accordance with their terms.
3.2. LITIGATION. There is no litigation or proceeding pending or, to
the knowledge of the Borrower, threatened against or affecting the Borrower
which might materially adversely affect the business, financial condition or
operations of the Borrower or the ability of the Borrower to perform and comply
with this Agreement or the other Financing Documents to which the Borrower is a
party.
3.3. COMPLIANCE WITH LAWS. The Borrower is not in violation of any
material applicable federal, state or local law, statute, rule, regulation or
ordinance and has not received any notice or is the subject of any investigation
to the effect that the Borrower's operations are not in material compliance with
any such law, statute, rule, regulation or ordinance, including, without
limitation, applicable environmental, health and safety laws and regulations.
SECTION 4. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees with
the Lender that so long as any of the Obligations shall be outstanding, and
unless compliance shall have been waived in writing by the Lender, the Borrower
shall:
4.1. PAYMENT OF OBLIGATIONS. Punctually pay the principal of and
interest on the Loan and the other Obligations, at the times and places, in the
manner and in accordance with the terms of this Agreement, the Note and the
other Financing Documents.
4.2. FINANCIAL STATEMENTS AND OTHER REPORTS. Maintain at all times a
system of accounting established and administered in accordance with sound
business practices, and will deliver, or cause to be delivered, to the Lender
(a) as soon as available but in no event more than 60 days after the end of each
fiscal quarter in each fiscal year of the Borrower, the balance sheet of the
Borrower as of the end of such period and the related statements of income,
retained earnings and cash flows for such period prepared by the Borrower and in
form and content satisfactory to the Lender, (b) as soon as available, but in no
event more than 120 days after the end of each fiscal year of the Borrower, the
balance sheet of the Borrower as of the end of such year and the related
statements of income, retained earnings and cash flows for such year
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compiled by the Borrower's independent auditors satisfactory to the Lender,
and (c) promptly upon request of the Lender, such other information, reports
or documents respecting the business, properties, operation or financial
condition of the Borrower as the Lender may at any time and from time to time
reasonably request. Lender shall treat all such financial information and
other reports confidentially and will use such materials only in connection
with Borrower's business.
4.3. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to
engage in business of the same general type as now being conducted by the
Borrower, and do and cause to be done all things necessary to maintain and keep
in full force and effect its corporate existence in good standing in each
jurisdiction in which it conducts business.
4.4. COMPLIANCE WITH LAWS. Comply with all laws, rules, regulations
and decrees to which the Borrower may be subject, a violation of which may have
a material adverse effect on the business, operation or financial condition of
the Borrower.
4.5. PAYMENT OF LIABILITIES AND TAXES. Pay, when due, all of its
indebtedness and liabilities, and pay and discharge promptly all taxes,
assessments and governmental charges and levies (including, without limitation,
F.I.C.A. payments and withholding taxes) upon the Borrower or upon the
Borrower's income, profits or property, except to the extent the amount or
validity thereof is contested in good faith by appropriate proceedings so long
as adequate reserves have been set aside therefor.
4.6. CONTRACTUAL OBLIGATIONS. Comply with any agreement or
undertaking to which the Borrower is a party and maintain in full force and
effect all contracts and leases to which the Borrower is or becomes a party
unless the failure to do so would not have a material adverse effect on the
business, operation, properties or financial condition of the Borrower.
4.7. MAINTENANCE OF PROPERTIES. Do all things necessary to maintain,
preserve, protect and keep its properties in good repair, working order and
condition, and make all necessary and proper repairs, renewals and replacements
so that the Borrower's business may be properly conducted at all times, unless
the failure to do so would not have a material adverse effect on the business,
operation or financial condition of the Borrower.
4.8. INSURANCE. Maintain with financially sound and reputable
insurance companies insurance on its properties in such amounts and covering
such risks as is consistent with sound business practice, and will furnish to
the Lender upon request information as to the insurance carried by the Borrower.
4.9. INSPECTION. Permit the Lender, by its representatives and
agents, to inspect any of the properties, books and financial records of the
Borrower, to examine the books of accounts and other financial records of the
Borrower, and to discuss the affairs, finances and accounts of the Borrower
with, and to be advised as to the same by, the Borrower (or its representatives)
at such reasonable times and intervals as the Lender may designate. Lender
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agrees to keep all information confidential and will use such information for
Borrower's business only.
4.10. NOTICE. Promptly give written notice to the Lender of (a) the
occurrence of any Default or any event, development or circumstance which might
materially adversely effect the business, operations, properties or financial
condition of the Borrower, (b) any litigation instituted or threatened against
the Borrower or any judgment against the Borrower where claims against the
Borrower exceed $100,000 and are not covered in full by insurance, and (c) any
notice of a claim against or investigation of the Borrower or any of the
Borrower's properties with respect to any applicable federal, state or local
environmental, health or safety laws, statutes, rules or regulations.
SECTION 5. NEGATIVE COVENANTS. The Borrower covenants and agrees with the
Lender that so long as any of the Obligations shall be outstanding, the
Borrower, unless compliance shall have been waived by the Lender, shall not,
directly or indirectly:
5.1. LOANS AND INVESTMENTS. Make or permit to remain outstanding any
loan or advance to, provide any guaranty for, or make or own any investment in,
any person.
5.2. CAPITAL EXPENDITURES. Make any capital expenditures in excess of
$100,000 during any fiscal year of the Borrower.
5.3. DIVIDENDS. Declare or pay any dividend or other distribution on
or with respect to any shares of any class of its capital stock now or hereafter
outstanding or redeem, purchase or otherwise acquire any shares of any class of
its capital stock now or hereafter outstanding or any warrants or rights to
purchase any such stock, except pursuant to agreements, if any, existing on the
date hereof.
5.4. MERGERS, ACQUISITIONS, ETC.. Enter into any merger or
consolidation involving the sale of substantially all of the Borrower or its
assets, unless at or before the closing thereof, the Obligations shall have been
repaid.
5.5. SALE OF ASSETS AND LIQUIDATION. Sell, lease or otherwise dispose
of, in one transaction or a series of transactions, all or any substantial part
of its business, assets or properties outside of the ordinary course of business
or take any action to liquidate, dissolve or wind up the Borrower or its
business.
SECTION 6. DEFAULT. The occurrence of any one or more of the following
events shall constitute a default under the provisions of this Agreement, and
the term "Default" shall mean, whenever it is used in this Agreement, any one or
more of the following events (and the term "Event of Default" as used herein
means one or more of the following events, whether or not any requirement for
the giving of notice, the lapse of time, or both has been satisfied):
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6.1. PAYMENT OF OBLIGATIONS. The failure of the Borrower to pay any
of the Obligations as and when due and payable in accordance with the provisions
of this Agreement, the Note and/or any of the other Financing Documents, whether
at the due date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise, and such failure shall continue uncured for a
period of five (5) days after the date of written notice thereof by the Lender
to the Borrower;
6.2. PERFORM, ETC. CERTAIN PROVISIONS OF THIS AGREEMENT. The failure
of the Borrower to perform, observe or comply with the provisions of Section 4
or Section 5 of this Agreement in any material respect (except that with respect
to any provision already qualified as to materiality, the Borrower's failure to
perform, observe or comply with such provisions in any respect);
6.3. PERFORM, ETC. OTHER PROVISIONS OF THIS AGREEMENT. The failure of
the Borrower to perform, observe or comply with any of the provisions of this
Agreement other than those covered by Sections 6.1 and 6.2 above, and such
failure is not cured to the satisfaction of the Lender within a period of thirty
(30) days after the date of written notice thereof by the Lender to the
Borrower;
6.4. REPRESENTATIONS AND WARRANTIES. If any representation and
warranty contained herein or any statement or representation made in any
certificate or any other information at any time given by or on behalf of the
Borrower or furnished in connection with this Agreement or any of the other
Financing Documents shall prove to be false, incorrect or misleading in any
material respect on the date as of which made;
6.5. DEFAULT UNDER OTHER FINANCING DOCUMENTS. The occurrence of a
default (as defined and described therein) under the provisions of the Note or
any of the other Financing Documents which is not cured within applicable cure
periods, if any;
6.6. LIQUIDATION, TERMINATION, DISSOLUTION, ETC. If the Borrower
shall liquidate, dissolve or terminate its existence;
6.7. DEFAULT UNDER OTHER INDEBTEDNESS. If the Borrower shall default
in any payment of any indebtedness in an amount in excess of $50,000 owing to
the Lender (other than the Obligations under the Financing Documents) or to any
other person beyond the period of grace, if any, provided in the instrument or
agreement under which such indebtedness was created, or default in the
observance or performance of any other agreement or condition relating to any
such indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur the effect of which
default or other event is to cause or to permit the holder or holders of such
indebtedness or beneficiary or beneficiaries of such indebtedness (or a trustee
or agent on behalf of such holder or holders or beneficiary or beneficiaries) to
cause, with the giving of notice, if required, such indebtedness to become due
prior to its stated maturity;
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6.8. ATTACHMENT. The issuance of any attachment or garnishment
against property or credits of the Borrower for an amount in excess, singly or
in the aggregate, of $25,000, which shall not have been vacated, discharged,
stayed or bonded pending appeal within 30 days after the issuance thereof;
6.9. JUDGMENTS. One or more judgments or decrees shall be entered
against the Borrower involving in the aggregate a liability in excess of
$25,000, and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 30 days after the entry
thereof.
6.10. INABILITY TO PAY DEBTS, ETC. If the Borrower shall admit its
inability to pay its debts as they mature or shall make any assignment for the
benefit of any of its creditors;
6.11. BANKRUPTCY. If proceedings in bankruptcy, or for reorganization
of the Borrower, or for the readjustment of any of the Borrower's debts, under
the United States Bankruptcy Code (as amended) or any part thereof, or under any
other applicable laws, whether state or federal, for the relief of debtors, now
or hereafter existing, shall be commenced against or by the Borrower and, except
with respect to any such proceedings instituted by the Borrower, shall not be
discharged within thirty (30) days of their commencement;
6.12. RECEIVER, ETC. A receiver or trustee shall be appointed for
the Borrower or for any substantial part of the Borrower's assets, or any
proceedings shall be instituted for the dissolution or the full or partial
liquidation of the Borrower and, except with respect to any such appointments
requested or instituted by the Borrower, such receiver or trustee shall not be
discharged within thirty (30) days of his or her appointment, and, except with
respect to any such proceedings instituted by the Borrower, such proceedings
shall not be discharged within thirty (30) days of their commencement; or
SECTION 7. RIGHTS AND REMEDIES.
7.1. GENERAL RIGHTS AND REMEDIES. The occurrence or nonoccurrence of
a Default under the provisions of this Agreement shall in no way affect or
condition the right of the Lender to demand payment at any time of any of the
Obligations which are payable on demand, regardless of whether or not such a
Default has occurred. Upon the occurrence of a Default specified in Sections
6.10, 6.11, and 6.12, the Loan hereunder shall immediately and automatically
terminate and the unpaid principal amount of the Note (with accrued interest
thereon) and all other Obligations then outstanding shall immediately become due
and payable without further action of any kind and without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived by the
Borrower. If any other Default shall occur hereunder, then in each and every
such case, the Lender may at its option at any time thereafter declare without
notice to the Borrower (except as may be provided herein) the unpaid principal
amount of the Note (with accrued interest thereon) and all other Obligations to
be immediately due and payable, whereupon the same shall forthwith become due
and payable by the Borrower to the Lender, without presentment, demand, protest
or notice of any kind, all of which the
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Borrower hereby expressly waives. Upon any Default, the Lender may exercise
any rights and remedies available to the Lender under this Agreement, the
Note, the other Financing Documents and applicable laws.
7.2. DEFAULT RATE. Notwithstanding the entry of any decree, order,
judgment or other judicial action, upon the occurrence of a Default hereunder,
the unpaid principal amount of the Note and all other monetary Obligations
outstanding or becoming outstanding while such Default exists shall bear
interest from the date of such Default until such Default has been cured to the
satisfaction of the Lender, at a floating and fluctuating per annum rate of
interest equal at all times to the Prime Rate in effect from time to time, plus
five percent (5%) per annum (the "Default Rate"), irrespective of whether or not
as a result thereof, the Note or any of the Obligations has been declared due
and payable or the maturity thereof accelerated. The Borrower shall on demand
from time to time pay such interest to the Lender and the same shall be a part
of the Obligations hereunder.
7.3. ENFORCEMENT COSTS. The Borrower agrees to pay to the Lender on
demand (a) all enforcement costs paid, incurred or advanced by or on behalf of
the Lender and (b) interest on such enforcement costs from the date paid,
incurred or advanced until paid in full at a per annum rate of interest equal at
all times to the Default Rate. As used herein, the term "enforcement costs"
shall mean and include collectively and include all expenses, charges,
recordation or other taxes, costs and fees (including attorneys' fees and
expenses) of any nature whatsoever advanced, paid or incurred by or on behalf of
the Lender in connection with (a) the collection or enforcement of this
Agreement or any of the other Financing Documents, and (b) the exercise by the
Lender of any rights or remedies available to it under the provisions of this
Agreement or any of the other Financing Documents. All enforcement costs, with
interest as above provided, shall be a part of the Obligations hereunder.
7.4. APPLICATION OF PROCEEDS. Any proceeds of the collection of the
Obligations will be applied by the Lender to the payment of enforcement costs,
and any balance of such proceeds (if any) will be applied by the Lender to the
payment of the remaining Obligations (whether then due or not), at such time or
times and in such order and manner of application as the Lender may from time to
time in its sole discretion determine.
7.5. REMEDIES, ETC. CUMULATIVE. Each right, power and remedy of the
Lender as provided for in this Agreement or in the other Financing Documents or
now or hereafter existing under applicable laws or otherwise shall be cumulative
and concurrent and shall be in addition to every other right, power or remedy
provided for in this Agreement or in the other Financing Documents or now or
hereafter existing under applicable laws or otherwise, and the exercise or
beginning of the exercise by the Lender of any one or more of such rights,
powers or remedies shall not preclude the simultaneous or later exercise by the
Lender of any or all such other rights, powers or remedies.
7.6. NO WAIVER, ETC. No failure or delay by the Lender to insist upon
the strict performance of any term, condition, covenant or agreement of this
Agreement or of the other
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Financing Documents, or to exercise any right, power or remedy consequent
upon a breach thereof, shall constitute a waiver of any such term, condition,
covenant or agreement or of any such breach, or preclude the Lender from
exercising any such right, power or remedy at any later time or times. By
accepting payment after the due date of any amount payable under this
Agreement or under any of the other Financing Documents, the Lender shall not
be deemed to waive the right either to require prompt payment when due of all
other amounts payable under this Agreement or under any of the other
Financing Documents, or to declare a Default for failure to effect such
prompt payment of any such other amount. The payment by the Borrower or any
other person and the acceptance by the Lender of any amount due and payable
under the provisions of this Agreement or the other Financing Documents at
any time during which a Default exists shall not in any way or manner be
construed as a waiver of such Default by the Lender or preclude the Lender
from exercising any right of power or remedy consequent upon such Default.
SECTION 8. MISCELLANEOUS.
8.1. COURSE OF DEALING; AMENDMENT. No course of dealing between the
Lender and the Borrower shall be effective to amend, modify or change any
provision of this Agreement or the other Financing Documents. The Lender shall
have the right at all times to enforce the provisions of this Agreement and the
other Financing Documents in strict accordance with the provisions hereof and
thereof, notwithstanding any conduct or custom on the part of the Lender in
refraining from so doing at any time or times. The failure of the Lender at any
time or times to enforce its rights under such provisions, strictly in
accordance with the same, shall not be construed as having created a custom in
any way or manner contrary to specific provisions of this Agreement or the other
Financing Documents or as having in any way or manner modified or waived the
same. This Agreement and the other Financing Documents to which the Borrower is
a party may not be amended, modified, or changed in any respect except by an
agreement in writing signed by the Lender and the Borrower.
8.2. WAIVER OF DEFAULT. The Lender may, at any time and from time to
time, execute and deliver to the Borrower a written instrument waiving, on such
terms and conditions as the Lender may specify in such written instrument, any
of the requirements of this Agreement or of the other Financing Documents or any
Event of Default or Default and its consequences, provided, that any such waiver
shall be for such period and subject to such conditions as shall be specified in
any such instrument. In the case of any such waiver, the Borrower and the
Lender shall be restored to their former positions prior to such Event of
Default or Default and shall have the same rights as they had hereunder. No such
waiver shall extend to any subsequent or other Event of Default or Default, or
impair any right consequent thereto and shall be effective only in the specific
instance and for the specific purpose for which given.
8.3. NOTICES. All notices, requests and demands to or upon the
parties to this Agreement shall be deemed to have been given or made when
delivered by hand, or when deposited in the mail, postage prepaid by registered
or certified mail, return receipt requested, or, in the case of notice by
telegraph, telex or facsimile transmission, when properly transmitted,
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addressed as follows or to such other address as may be hereafter designated
in writing by one party to the other:
Borrower: Nanston, Inc.
Suite 200
590 Oakbrook Drive
Norcross, Georgia 30093-2287
Attention: John C. Johnston, D.D.S., President
Lender: DentalCo, Inc.
6115 Falls Road
Baltimore, Maryland 21209
Attention: Carl Sardegna, President
except in cases where it is expressly herein provided that such notice, request
or demand is not effective until received by the party to whom it is addressed.
8.4. RIGHT TO PERFORM. If the Borrower shall fail to make any payment
or to otherwise perform, observe or comply with the provisions of this Agreement
or any of the other Financing Documents, then and in each such case, the Lender
may (but shall be under no obligation whatsoever to) without notice to or demand
upon the Borrower remedy any such failure by advancing funds or taking such
action as it deems appropriate for the account and at the expense of the
Borrower. The advance of any such funds or the taking of any such action by the
Lender shall not be deemed or construed to cure a Default or waive performance
by the Borrower of any provisions of this Agreement. The Borrower shall pay to
the Lender on demand, together with interest thereon from the date advanced or
incurred until paid in full at a per annum rate of interest equal at all times
to the Default Rate, any such funds so advanced by the Lender and any costs and
expenses advanced or incurred by or on behalf of the Lender in taking any such
action, all of which shall be a part of the Obligations hereunder.
8.5. COSTS AND EXPENSES. The Borrower agrees to pay to the Lender on
demand all fees, recordation and other taxes, costs, which the Lender may incur
or which are payable in connection with the closing, including, without
limitation, the recording or filing of any and all of the Financing Documents.
All such fees, costs, recordation and other taxes shall be a part of the
Obligations hereunder.
8.6. CONSENT TO JURISDICTION. The Borrower irrevocably (a) consents
and submits to the jurisdiction and venue of any state or federal court sitting
in the State of Maryland over any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Financing Documents, (b) waives,
to the fullest extent permitted by law, any objection that the Borrower may now
or hereafter have to the laying of the venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum,
and (c) consents to the service of process in any such suit, action or
proceeding in any such court by the mailing of
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copies of such process to the Borrower by certified or registered mail at the
Borrower's address set forth herein for the purpose of giving notice.
8. 7. WAIVER OF JURY TRIAL. The Borrower and the Lender hereby
voluntarily and intentionally waive any right they may have to a trial by jury
in any action, proceeding or litigation directly or indirectly arising out of,
under or in connection with the Loan, this Agreement or any of the other
Financing Documents.
8.8. CERTAIN DEFINITIONAL PROVISIONS. The term "person" as used in
this Agreement means and includes any natural person, individual, company,
corporation, limited liability company or partnership, partnership, joint
venture, unincorporated association, government or political subdivision or
agency thereof, or any other entity of whatever nature. All terms defined in
this Agreement shall have such defined meanings when used in each other
Financing Documents. Accounting terms used in this Agreement shall have the
respective meanings given to them under generally accepted accounting principles
in effect from time to time. The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Defined terms in the singular shall include the plural and vice versa.
8.9. SEVERABILITY. The invalidity, illegality or unenforceability of
any provision of this Agreement shall not affect the validity, legality or
enforceability of any of the other provisions of this Agreement which shall
remain effective.
8.10. SURVIVAL. All representations, warranties and covenants
contained among the provisions of this Agreement shall survive the execution and
delivery of this Agreement and all other Financing Documents.
8.11. BINDING EFFECT. This Agreement and all other Financing
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lender and their respective personal representatives, successors and assigns,
except that the Borrower shall not have the right to assign its rights hereunder
or any interest herein without the prior written consent of the Lender.
8.12. APPLICABLE LAW AND TIME OF ESSENCE. This Agreement and the
rights and obligations of the parties hereunder shall be construed and
interpreted in accordance with the laws of the State of Maryland, both in
interpretation and performance. Time is of the essence in connection with all
obligations of the Borrower hereunder and under any of the other Financing
Documents.
8.13. DUPLICATE ORIGINALS AND COUNTERPARTS. This Agreement may be
executed in any number of duplicate originals or counterparts, each of such
duplicate originals or counterparts shall be deemed to be an original and all
taken together shall constitute but one and the same instrument.
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8.14. HEADINGS. Section and subsection headings in this Agreement are
included herein for convenience of reference only, shall not constitute a part
of this Agreement for any other purpose and shall not be deemed to affect the
meaning or construction of any of the provisions hereof.
8.15 RECITALS. The Recitals hereto are incorporated herein by
reference and specifically made a part of this Agreement.
{signatures appear on following page}
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IN WITNESS WHEREOF, each of the parties hereto have executed and delivered
this Agreement under their respective seals as of the day and year first written
above.
ATTEST: NANSTON, INC., BORROWER
/s/ DIANE LIGGITT By: /s/ KYLE ANDERSON (SEAL)
________________________ ______________________________
DIANE LIGGITT, SECRETARY KYLE ANDERSON, PRESIDENT
ATTEST: DENTALCO, INC., LENDER
/s/ E. JAMES KUHNS By: /s/LAWRENCE F. HALPERT (SEAL)
_________________________ ______________________________
E. JAMES KUHNS, SECRETARY LAWRENCE F. HALPERT, PRESIDENT
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Exhibit 10.14
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
CREDIT AGREEMENT
DATED AS OF DECEMBER 31, 1996
AMONG
DENTALCO, INC.
THE LENDERS REFERRED TO HEREIN
AND
NATIONSCREDIT COMMERCIAL CORPORATION,
AS AGENT
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<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS........................................................1
SECTION 1.01. Certain Defined Terms.......................................1
SECTION 1.02. Accounting Terms and Determinations........................17
SECTION 1.03. Other Definitional Provisions..............................18
ARTICLE II - REVOLVING CREDIT LOANS...........................................19
SECTION 2.01. Revolving Credit Loans and Commitments.....................19
SECTION 2.02. Revolving Credit Notes.....................................20
SECTION 2.03. Interest on the Revolving Credit Loans.....................20
SECTION 2.04. Advancing Revolving Credit Loans...........................21
SECTION 2.05. Mandatory Repayments and Prepayments.......................21
SECTION 2.06. Optional Prepayments.......................................22
SECTION 2.07. Application of Payments....................................22
SECTION 2.08. Reduction of Commitment....................................22
SECTION 2.09. Contingency Fee............................................23
ARTICLE III - CONDITIONS......................................................25
SECTION 3.01. Conditions to Closing......................................25
SECTION 3.02. Conditions to Acquisition Loans............................27
SECTION 3.03. Conditions to Each Loan....................................28
ARTICLE IV - REPRESENTATIONS AND WARRANTIES...................................30
SECTION 4.01. Corporate Existence and Power..............................30
SECTION 4.02. Corporate and Governmental Authorization;
No Contravention.........................................................30
SECTION 4.03. Binding Effect; Liens of Security Documents................30
SECTION 4.04. Financial Information......................................31
SECTION 4.05. Litigation.................................................31
SECTION 4.06. Ownership of Property, Liens...............................32
SECTION 4.07. No Default.................................................32
SECTION 4.08. No Burdensome Restrictions.................................32
SECTION 4.09. Labor Matters..............................................33
SECTION 4.10. Subsidiaries; Other Equity Investments.....................33
SECTION 4.11. Investment Company Act.....................................33
SECTION 4.12. Margin Regulations.........................................33
SECTION 4.13. Taxes......................................................33
SECTION 4.14. Compliance with ERISA......................................34
SECTION 4.15. Brokers....................................................34
SECTION 4.16. Employment, Shareholders and Subscription Agreements.......34
SECTION 4.17. Full Disclosure............................................34
SECTION 4.18. Private Offering...........................................35
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SECTION 4.19. Compliance with Environmental Requirements; No Hazardous
Materials.....................................................35
SECTION 4.20. Real Property Interests....................................36
SECTION 4.21. Third Party Reimbursement..................................37
ARTICLE V - AFFIRMATIVE COVENANTS.............................................38
SECTION 5.01. Financial Statements and Other Reports.....................38
SECTION 5.02. Payment of Obligations.....................................41
SECTION 5.03. Conduct of Business and Maintenance of Existence...........42
SECTION 5.04. Maintenance of Property; Insurance.........................42
SECTION 5.05. Compliance with Laws.......................................43
SECTION 5.06. Inspection of Property, Books and Records..................43
SECTION 5.07. Use of Proceeds............................................43
SECTION 5.08. Further Assurances.........................................44
SECTION 5.09. Lenders' Meetings..........................................44
SECTION 5.10. Hedging Facilities.........................................44
SECTION 5.11. Hazardous Materials; Remediation...........................44
SECTION 5.12. Collateral Reports.........................................45
SECTION 5.13. Collections; Right to Notify Account Debtors...............45
SECTION 5.14. Board Meetings.............................................45
SECTION 5.15. Enforcement of Covenants Not to Compete....................45
SECTION 5.16. Landlord and Warehouseman Waivers..........................46
SECTION 5.17. Additional Subsidiaries....................................46
SECTION 5.18. Accreditation and Licensing................................46
ARTICLE VI - NEGATIVE COVENANTS...............................................47
SECTION 6.01. Debt.......................................................47
SECTION 6.02. Negative Pledge............................................48
SECTION 6.03. Capital Stock..............................................48
SECTION 6.04. Restricted Payments........................................49
SECTION 6.05. ERISA......................................................49
SECTION 6.06. Consolidations, Mergers and Sales of Assets................49
SECTION 6.07. Purchase of Assets, Investments............................50
SECTION 6.08. Transactions with Affiliates...............................51
SECTION 6.09. Amendments or Waivers......................................51
SECTION 6.10. Fiscal Year................................................51
SECTION 6.11. Management Compensation....................................51
SECTION 6.12. Investor Fees..............................................51
SECTION 6.13. Capital Expenditures.......................................51
SECTION 6.14. Total Debt Coverage Ratio..................................52
SECTION 6.15. Debt to Capitalization.....................................52
SECTION 6.16. Debt to EBITDA.............................................52
Section 6.17. Minimum Interest Coverage..................................52
SECTION 6.18. Minimum Net Worth..........................................52
SECTION 6.19. Operating Lease Expense....................................53
SECTION 6.20. Pro Forma Calculations.....................................53
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ARTICLE VII -EVENTS OF DEFAULT................................................54
SECTION 7.01. Events of Default..........................................54
ARTICLE VIII - FEES, EXPENSES AND INDEMNITIES; GENERAL PROVISIONS RELATING TO
PAYMENTS..................................................................58
SECTION 8.01. Fees.......................................................58
SECTION 8.02. Computation of Interest and Fees...........................58
SECTION 8.03. General Provisions Regarding Payments......................58
SECTION 8.04. Expenses...................................................59
SECTION 8.05. Indemnity..................................................59
SECTION 8.06. Taxes......................................................60
SECTION 8.07. Funding Losses.............................................60
SECTION 8.08. Maximum Interest...........................................60
ARTICLE IX - THE AGENT........................................................62
SECTION 9.01. Appointment and Authorization..............................62
SECTION 9.02. Agent and Affiliates.......................................62
SECTION 9.03. Action by Agent............................................62
SECTION 9.04. Consultation with Experts..................................62
SECTION 9.05. Liability of Agent.........................................62
SECTION 9.06. Indemnification............................................62
SECTION 9.07. Credit Decision............................................63
SECTION 9.08. Successor Agent............................................63
ARTICLE X - MISCELLANEOUS.....................................................64
SECTION 10.01. Survival...................................................64
SECTION 10.02. No Waivers.................................................64
SECTION 10.03. Notices....................................................64
SECTION 10.04. Severability...............................................64
SECTION 10.05. Amendments and Waivers.....................................64
SECTION 10.06. Successors and Assigns; Registration.......................65
SECTION 10.07. Collateral.................................................66
SECTION 10.08. Headings...................................................67
SECTION 10.09. Governing Law; Submission To Jurisdiction..................67
SECTION 10.10. Notice of Breach by Agent or Lender........................67
SECTION 10.11. Waiver Of Jury Trial.......................................67
SECTION 10.12. Counterparts...............................................68
EXHIBIT A - Revolving Credit Note
EXHIBIT B - Notice of Borrowing
EXHIBIT C - Company Security Agreement
EXHIBIT D - Company Pledge Agreement
EXHIBIT E - Subsidiary Guaranty Agreement
EXHIBIT F - Subsidiary Pledge Agreement
EXHIBIT G - Subsidiary Security Agreement
EXHIBIT H - Professional Service Provider Security Agreement
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EXHIBIT I - Assignment of Life Insurance
EXHIBIT J - Borrowing Base Certificate
SCHEDULE 1.01 - Approved Acquisitions
SCHEDULE 3.01 - Debt to be Repaid at Closing
SCHEDULE 4.10 - Subsidiaries and Other Credit Parties
SCHEDULE 4.16 - Employment, Shareholders' and Subscription Agreements
SCHEDULE 4.19 - Environmental Matters
SCHEDULE 4.20 - Real Property Interests
SCHEDULE 4.21 - Potential Third Party Payor Claims
SCHEDULE 5.04 - Required Insurance
SCHEDULE 6.01 - Outstanding Debt
SCHEDULE 6.20 - Pro Forma EBITDA Adjustments
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CREDIT AGREEMENT
Credit Agreement, dated as of December 31, 1996, among DentalCo, Inc.,
the LENDERS listed on the signature pages hereof and NationsCredit Commercial
Corporation, as Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. The following terms have the
following meanings:
"Account Debtor" shall mean any Person who may become obligated to
any Credit Party under, with respect to, or on account of, a Receivable of such
Credit Party (including without limitation any guarantor of the payment or
performance of a Receivable or any Third Party Payor).
"Acquisition" means the purchase by the Company (or any of its
Subsidiaries) of any dental practices or dental practice groups or a majority of
the assets of a dental practice with the proceeds of an Acquisition Loan
provided pursuant to Section 2.01(c).
"Acquisition Availability" has the meaning specified in Section
2.01(c).
"Acquisition Loans" means, collectively, the Revolving Credit Loans of
the Lenders to be made to the Company pursuant to Section 2.01(c).
"Additional Acquisition Liabilities" means those obligations (actual
or contingent), of the Company and/or any of its Subsidiaries to pay
consideration in respect of acquisitions in addition to that payable at the
closing of such acquisition, whether arising under the acquisition agreement
relating thereto, or any Service Agreement and whether in the form of a
securities repurchase arrangement or otherwise.
"Affiliate" means (i) any Person that directly, or indirectly through
one or more intermediaries, controls the Company (a "Controlling Person") or
(ii) any Person (other than the Company or any of its Subsidiaries) which is
controlled by or is under common control with a Controlling Person. As used
herein, the term "control" of a Person means the possession, directly or
indirectly, of the power to vote 10% or more of any class of voting securities
of such Person or to direct or cause the direction of the management or policies
of a Person, whether through the ownership of voting securities, by contract or
otherwise.
<PAGE>
"Agent" means NationsCredit in its capacity as agent for the Lenders
hereunder, and its successors in such capacity.
"Agreement Date" means the date as of which this Agreement is dated.
"Approved Acquisition" means each pending Acquisition and
corresponding Acquisition Loan amount described on Schedule 1.01 hereto, which
Acquisition has been reviewed and approved by the Agent on or before the date of
this Agreement and shall be completed on the terms and conditions set forth in
Schedule 1.01 and as otherwise previously described to the Agent in the
materials supplied pursuant to Section 3.02, or on such other terms and
conditions as shall be acceptable to the Agent and the Required Lenders.
"Asset Sale" means any sale, lease or other disposition (including any
such transaction effected by way of merger or consolidation) by the Company or
any of its Subsidiaries of any asset, but excluding (i) dispositions of
inventory in the ordinary course of business and (ii) dispositions of Temporary
Cash Investments and cash payments otherwise permitted under this Agreement;
provided that a disposition of assets not excluded by clauses (i) or (ii) above
during any Fiscal Year shall not constitute an Asset Sale unless and until (and
only to the extent that) the aggregate Net Cash Proceeds from such disposition,
when combined with all other such dispositions previously made during such
Fiscal Year, exceeds $50,000.
"Assignment of Life Insurance" means the Collateral Assignment of Life
Insurance Policy dated as of the date hereof between the Company and the Agent,
substantially in the form of Exhibit I.
"Authorized Signatory" means a Person designated as such by the
Company to the Agent in writing.
"Availability Termination Date" means December 31, 1997, or such later
date to which the Lenders, in their sole discretion upon the written request of
the Company, may agree to extend the Company's ability to incur Revolving Loans.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Blue Cross/Blue Shield" means any and all contracts or agreements in
force between any Credit Party and any Blue Cross/Blue Shield Plan.
"Borrowing Base" means, on any date, a dollar amount equal to 85% of
Eligible Receivables determined as of such date.
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"Borrowing Base Certificate" means a certificate, duly executed by the
chief financial officer or treasurer of the Company, appropriately completed and
substantially in the form of Exhibit J.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York City are authorized by law to close.
"Capital Lease" of any Person means any lease of any property (whether
real, personal or mixed) by such Person as lessee which would, in accordance
with GAAP, be required to be accounted for as a capital lease on the balance
sheet of such Person.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (42 U.S.C. Sections 9601 et seq.), as amended from
time to time, and regulations promulgated thereunder.
"CHAMPUS Receivable" means a Receivable payable pursuant to CHAMPUS.
"CHAMPUS" means, collectively, the Civilian Health and Medical Program
of the Uniformed Service, a program of medical benefits covering former and
active members of the uniformed services and certain of their dependents,
financed and administered by the United States Departments of Defense, Health
and Human Services and Transportation, and all laws, rules, regulations,
manuals, orders, guidelines or requirements pertaining to such program including
(a) all federal statutes (whether set forth in 10 U.S.C. Sections 1071-1106 or
elsewhere) affecting such program; and (b) all rules, regulations (including 32
C.F.R. Section 199), manuals, orders and administrative, reimbursement and other
guidelines of all governmental authorities promulgated in connection with such
program (whether or not having the force of law), in each case as the same may
be amended, supplemented or otherwise modified from time to time.
"CHAMPVA Receivable" means a Receivable payable pursuant to CHAMPVA.
"CHAMPVA" means, collectively, the Civilian Health and Medical Program
of the Department of Veteran Affairs, a program of medical benefits covering
retirees and dependents of former members of the armed services administered by
the United States Department of Veteran Affairs, and all laws, rules,
regulations, manuals, orders, guidelines or requirements pertaining to such
program including (a) all federal statutes (whether set forth in 38 U.S.C.
Section 1713 or elsewhere) affecting such program or, to the extent applicable
to CHAMPVA, CHAMPUS; and (b) all rules, regulations (including 38 C.F.R. Section
17.54), manuals, orders and administrative, reimbursement and other guidelines
of all governmental authorities promulgated in connection with such program
(whether or not having the force of law), in each case as the same may be
amended, supplemented or otherwise modified from time to time.
"Closing Date" means the date on which the initial Loan is made
hereunder.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
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"Collateral" means all property mortgaged, pledged or otherwise
purported to be subjected to a Lien pursuant to the Security Documents.
"Commitment" means the Revolving Credit Commitment.
"Commitment Termination Date" shall have the meaning assigned to it in
Section 2.05.
"Common Stock" means the authorized common stock of the Company, par
value $.0001 per share .
"Company" means DentalCo, Inc., a Maryland corporation.
"Company Account" means the account specified on the signature pages
hereof into which all Loans to the Company shall be made available, or such
other account as the Company shall from time to time specify by notice to the
Lenders.
"Company Pledge Agreement" means the Pledge Agreement dated as of the
date hereof between the Company and the Agent, substantially in the form of
Exhibit D.
"Company Security Agreement" means the Security Agreement dated as of
the date hereof between the Company and the Agent, substantially in the form of
Exhibit C.
"Consolidated Capital Expenditures" means, for any period, the
aggregate amount of expenditures by the Company and its Consolidated
Subsidiaries for plant, property and equipment during such period but excluding
(i) any such expenditures made for the replacement or restoration of assets to
the extent financed by condemnation awards or proceeds of insurance received
with respect to the loss or taking of or damage to the asset or assets being
replaced or restored and (ii) Acquisitions.
"Consolidated Capitalization" means at any time of determination, the
sum of (a) the Consolidated Total Debt at such time, and (b) the Consolidated
Net Worth at such time.
"Consolidated Current Assets" means, at any date, the consolidated
current assets (excluding cash and cash equivalents) of the Company and its
Consolidated Subsidiaries determined as of such date.
"Consolidated Current Liabilities" means, at any date, (i) the
consolidated current liabilities (excluding Debt) of the Company and its
Consolidated Subsidiaries plus (ii) the current liabilities of any Person (other
than the Company or a Consolidated Subsidiary) which are Guaranteed by the
Company or a Consolidated Subsidiary, all determined as of such date.
"Consolidated Free Cash Flow" means, for any period, EBITDA for such
period minus the following amounts:
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(a) all cash payments of income taxes by the Company and its
Consolidated Subsidiaries during such period;
(b) Consolidated Capital Expenditures for such period, to the extent
that such Consolidated Capital Expenditures are not financed during such
period (and are not anticipated to be financed within 30 days of the making
thereof) with the proceeds of Debt of the Company; and
(c) any net gain in respect of asset sales during such period.
"Consolidated Net Income" means for any period net income of the
Company and its Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Worth" means as of the date of any determination
thereof, the amount of the shareholder's equity of the Company and its
Consolidated Subsidiaries as would be shown on the consolidated balance sheet
of the Company and its Consolidated Subsidiaries, determined on a consolidated
basis in accordance with GAAP.
"Consolidated Operating Lease Expense" means for any period the
aggregate amount of rent and other expenses incurred under operating leases of
equipment and other personalty of the Company and its Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Revenue" means for any period the gross revenue of the
Company and its Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Company in
its consolidated financial statements if such statements were prepared as of
such date.
"Consolidated Total Debt" means at any date the Debt of the Company
and its Consolidated Subsidiaries, determined on a consolidated basis at such
date.
"Contingency Fee" means the fee payable by the Company to
NationsCredit pursuant to Section 2.09.
"Credit Party" means any of the Company, any Subsidiary, any party to
a Service Agreement, and McElwee.
"Debt" of a Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the
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deferred purchase price of property or services, except trade accounts payable
arising and paid in the ordinary course of business, (iv) all Capital Leases of
such Person, (v) all obligations of such Person to purchase securities (or other
property) which arise out of or in connection with the issuance or sale of the
same or substantially similar securities (or property), (vi) all non-contingent
obligations of such Person to reimburse any bank or other Person in respect of
amounts paid under a letter of credit or similar instrument, (vii) all equity
securities of such Person subject to repurchase or redemption otherwise than at
the sole option of such Person, (viii) all Debt secured by a Lien on any asset
of such Person, whether or not such Debt is otherwise an obligation of such
Person, and (ix) all Debt of others Guaranteed by such Person, but shall exclude
the Contingency Fee.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Rate" has the meaning set forth in Section 2.03(e), provided
that with respect to any Obligation for which a rate of interest is not
otherwise specified herein, the Default Rate shall be the Index Rate plus 6.5%
per annum.
"EBITDA" means, for any period, the consolidated net income of the
Company and its Consolidated Subsidiaries for such period, after all expenses
and other proper charges except depreciation, interest, amortization and income
taxes, determined in accordance with GAAP eliminating, without duplication: (i)
all intercompany items, (ii) all earnings attributable to equity interests in
Persons that are not Subsidiaries unless actually received by the Company or a
Consolidated Subsidiary, (iii) all income arising from the forgiveness,
adjustment, or negotiated settlement of any indebtedness, (iv) any extraordinary
items of income or expense, (v) any increase or decrease in income arising from
any change in the Company's method of accounting, subject to Section 1.02, and
(vi) any interest income.
"Eligible Receivables" means, at any date of determination thereof,
the aggregate amount of all Receivables at such date due to a Credit Party other
than the following (determined without duplication):
(a) any Receivable due from an Account Debtor that is not both
domiciled in the United States of America and (if not a natural person)
organized under the laws of the United States of America or any political
subdivision thereof and any Receivable that is not denominated and payable
in U.S. dollars;
(b) any Receivable that does not comply with all applicable legal
requirements, including, without limitation, all laws, rules, regulations
and orders of any governmental or judicial authority, including any
Receivable due from an account debtor located in the States of Indiana, New
Jersey or Minnesota, unless the applicable Credit Party, (at the time the
Receivable was created and at all times thereafter) (i) had filed and has
maintained effective a current notice of business activities report with
the appropriate office or agency of the State of Indiana, New Jersey or
Minnesota, as
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<PAGE>
applicable or (ii) was and has continued to be exempt from filing such
report and has provided Agent with satisfactory evidence thereof);
(c) any Receivable in respect of which there is any unresolved
dispute with the Account Debtor, but only to the extent of such dispute;
(d) any Receivable payable more than 31 days after the date of the
issuance of the original invoice therefor;
(e) any Receivable that remains unpaid for more than 90 days from the
date of the original issuance of the invoice therefor;
(f) any unbilled Receivable;
(g) any Receivable arising outside the ordinary course of business of
the Credit Party whose activities gave rise thereto, unless the Agent shall
have consented to such Receivable being an Eligible Receivable;
(h) (i) that portion of any Receivable in respect of which there has
been established by any Credit Party a contra account whether in respect of
contractual allowances, audit adjustments, anticipated discounts or
otherwise, (ii) which is a Private Receivable and is due from an Account
Debtor to whom a Credit Party owes a trade payable, but only to the extent
of such account or trade payable, or (iii) which Receivable is subject to
any right of recision, set-off, recoupment, counterclaim or defense,
whether arising out of transactions concerning the provision of medical
services or otherwise, provided that this clause (iii) shall not apply to
adjustments in the ordinary course with respect to Government Receivables;
(i) any Receivable that is not subject to a first priority perfected
Lien under the Security Documents and any Receivable evidenced by an
"instrument" (as defined in the UCC) not in the possession of the Agent;
(j) any Receivable due from any Third Party Payor (i) as to which on
such date Receivables representing more than 50% of the aggregate amount of
all Receivables of such Third Party Payor have remained unpaid for more
than 90 days from the original due date specified at the time of the
original issuance of the original invoice therefor, (ii) in respect of
which a credit loss has been recognized or reserved by any Credit Party,
(iii) in respect of which the Agent shall have notified the Company that
such Third Party Payor does not have a satisfactory credit standing as
determined in good faith by the Agent, (iv) that is a Subsidiary or
Affiliate of the Company, (v) that, except in the case of a Government
Receivable, is the United States of America or any state government or any
department, agency or instrumentality thereof, unless the applicable Credit
Party has complied in all respects with the Federal Assignment of Claims
Act of 1940 or corresponding provision of state law, or (vi) that
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is the subject of a case or proceeding of the type described in clauses (g)
and (h) of Section 7.01 or that is not Solvent;
(k) any Receivable due from an account debtor that the applicable
Credit Party has not instructed such account debtor in the invoice therefor
to make payments in respect of such Receivable to a Lockbox Account or from
any account debtor that makes payments in a form that cannot be accepted in
a Lockbox Account;
(l) any Receivables, other than Government Receivables, due from a
Third Party Payor at any time, to the extent that the aggregate outstanding
amount of Receivables due from such Third Party Payor and its affiliates at
such time exceeds 50% of the aggregate amount of all Receivables due to the
Credit Parties at such time, but only to the extent of such excess, unless
the Agent shall have consented to such excess being Eligible Receivables;
(m) any Receivable which has been paid or discharged in whole or
part;
(n) any Private Receivable, the Third Party Payor thereon has not
received such notice of the assignment thereof to the Agent as the Agent
shall reasonably require; and
(o) any Receivable generated by a Credit Party which has not executed
a Security Agreement or such other documents as the Agent shall require
assigning its rights to such Receivables to the Agent as security for the
Obligations.
"Employment Contracts" means the employment contracts delivered by the
Company to NationsCredit on or before the Closing Date pursuant to Section
3.01(n).
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, plans, injunctions, permits, concessions,
grants, franchises, licenses, agreements and governmental restrictions, whether
now or hereafter in effect, relating to human health, the environment or to
emissions, discharges or releases of pollutants, contaminants, Hazardous
Materials or wastes into the environment, including ambient air, surface water,
ground water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, Hazardous Materials or wastes or the clean-up or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor statute.
"ERISA Group" means the Company, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under Section 414 of the Code.
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"Event of Default" has the meaning set forth in Section 7.01.
"Excess Cash Flow" means, for any period, an amount equal to (i)
Consolidated Free Cash Flow for such period plus (or minus) (ii) any net cash
extraordinary gains (or extraordinary cash losses) for such period of the
Company and its Consolidated Subsidiaries (except any such gains or losses in
respect of Asset Sales) plus (or minus) (iii) any decrease (or increase) in the
average of the Net Working Investment at the end of each fiscal month ended
during such period, when compared with the average of the Net Working Investment
at the end of each fiscal month ended during the corresponding period in the
prior Fiscal Year, plus (iv) any interest income of the Company and its
Consolidated Subsidiaries for such period, minus (v) the sum for such period of
(x) Total Debt Service (exclusive of amortization of debt discount or premium)
for such period, and (z) the aggregate amount of Restricted Payments made during
such period in accordance with the proviso to Section 6.04.
"Financing Documents" means this Agreement, the Notes, the Subsidiary
Guaranty Agreements and the Security Documents.
"Fiscal Year" means a fiscal year of the Company.
"GAAP" has the meaning set forth in Section 1.02.
"Government Receivables" means, collectively, any and all Receivables
which are (a) Medicare Receivables, (b) Medicaid Receivables, (c) CHAMPUS
Receivables, (d) CHAMPVA Receivables, or (e) any other Receivable payable by a
governmental authority approved by the Agent.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt 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: (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt 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 (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt 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.
"HCFA" shall mean the Health Care Financing Administration, an agency
of HHS, and any successor thereto.
"HHS" means the United States Department of Health and Human Services
or any successor thereto.
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"Hazardous Materials" means: (i) any "hazardous substance" as defined
in CERCLA; (ii) asbestos; (iii) polychlorinated biphenyls; (iv) petroleum, its
derivatives, by-products and other hydrocarbons; and (v) any other toxic,
radioactive, caustic or otherwise hazardous substance regulated under
Environmental Laws.
"Hazardous Materials Contamination" means contamination (whether now
existing or hereafter occurring) of the improvements, buildings, facilities,
personalty, soil, groundwater, air or other elements on or of the relevant
property by Hazardous Materials, or any derivatives thereof, or on or of any
other property as a result of Hazardous Materials, or any derivatives thereof,
generated on, emanating from or disposed of in connection with the relevant
property.
"Healthcare Law" means, collectively, any and all federal, state or
local laws, rules, regulations, manuals, orders, guidelines and requirements
pertaining to the health care industry, including without limitation all laws,
rules, regulations, manuals, orders, guidelines and requirements pertaining to
CHAMPUS, CHAMPVA, Medicaid or Medicare
"Indemnitees" has the meaning set forth in Section 8.05.
"Index Rate" means for any day in any calendar month, the rate of
interest equivalent to the money market yield for the Interest Determination
Date falling in such month on the one month commercial paper rate for
dealer-placed commercial paper of issuers whose corporate bonds are rated "AA"
or its equivalent by a nationally recognized rating agency, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York and published weekly by the Board of Governors of the Federal Reserve
System in its H.15 report, or any successor publication published by the Board
of Governors of the Federal Reserve System or, if such rate for such date is not
yet published in such statistical release, the rate for that date will be the
rate set forth in the weekly statistical release designated as such, or any
successor publication, published by the Board of Governors of the Federal
Reserve System.
"Interest Determination Date" means December 2, 1996 and the first
Business Day of each calendar month thereafter.
"Insurance Account" has the meaning set forth in the Security
Agreements.
"Inventory" means inventory as defined in Article 9 of the UCC.
"Investment" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, time deposit or otherwise.
"Investor" means any of the holders of the Class A Preferred Stock or
Class C Preferred Stock of the Company, and their respective successors, assigns
and Affiliates.
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"Key-Man Life Insurance Policy" has the meaning assigned to it in
Section 5.04(d).
"Lender" means NationsCredit and each other Person that becomes a
holder of a Note pursuant to Section 10.06, and their respective successors, and
"Lenders" means all of the foregoing.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement and the
other Financing Documents, the Company or any Subsidiary shall be deemed to own
subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, Capital
Lease or other title retention agreement relating to such asset.
"Loans" means the Revolving Credit Loans.
"Lockbox Accounts" has the meaning set forth in the Security
Agreements.
"Lockbox Agreement" means, collectively, the Lockbox Agreements each
in form and substance satisfactory to Lender, entered into among the Agent, the
Company and its Subsidiaries and the Lockbox Banks pursuant to the Security
Agreements.
"Lockbox Bank" means, collectively, the banks or other depository
institutions at which Lockbox Accounts are established and maintained.
"Margin Stock" has the meaning assigned thereto in Regulation G, T, U
or X of the Federal Reserve Board, as the same may be amended, supplemented or
modified from time to time.
"Material Adverse Effect" means, with respect to any event, act,
condition or occurrence of whatever nature (including any adverse determination
in any litigation, arbitration, or governmental investigation or proceeding),
whether singly or in conjunction with any other event or events, act or acts,
condition or conditions, occurrence or occurrences, whether or not related, a
material adverse change in, or a material adverse effect upon, any of (a) the
financial condition, operations, business, properties or prospects of the
Company and its Subsidiaries, taken as a whole, (b) the rights and remedies of
the Agent or the Lenders under the Financing Documents, or the ability of the
Company, any Subsidiary or any Credit Party to perform its obligations under the
Financing Documents to which it is a party, as applicable, (c) the legality,
validity or enforceability of any Financing Document, or (d) the existence,
perfection or priority of any security interest granted in the Financing
Documents.
"Material Plan" means at any time a Plan having Unfunded Liabilities.
"Maximum Lawful Rate" has the meaning set forth in Section 2.03.
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"McElwee" means V. Dale McElwee, D.D.S. and Associates, P.C., a
Maryland corporation.
"Medicaid" means, collectively, the healthcare assistance program
established by Title XIX of the Social Security Act (42 USC Sections 1396 et
seq.) and any statutes succeeding thereto, and all laws, rules, regulations,
manuals, orders, guidelines or requirements pertaining to such program including
(a) all federal statutes (whether set forth in Title XIX of the Social Security
Act or elsewhere) affecting such program; (b) all state statutes and plans for
medical assistance enacted in connection with such program and federal rules and
regulations promulgated in connection with such program; and (c) all applicable
provisions of all rules, regulations, manuals, orders and administrative,
reimbursement, guidelines and requirements of all government authorities
promulgated in connection with such program (whether or not having the force of
law), in each case as the same may be amended, supplemented or otherwise
modified from time to time.
"Medicaid Receivable" means a Receivable payable pursuant to a
Medicaid Provider Agreement.
"Medicaid Certification" means certification of a facility by HCFA or
a state agency or entity performing such function that such healthcare facility
fully complies with all the conditions of Medicaid.
"Medicaid Provider Agreement" means an agreement entered into between
a state agency or other entity administering Medicaid in such state and a health
care facility or dentist under which the health care facility or dentist agrees
to provide services or merchandise for Medicaid patients.
"Medicare" means, collectively, the health insurance program for the
aged and disabled established by Title XVIII of the Social Security Act (42 USC
Sections 1395 et seq.) and any statutes succeeding thereto, and all laws, rules,
regulations, manuals, orders or guidelines pertaining to such program including
(a) all federal statutes (whether set forth in Title XVIII of the Social
Security Act or elsewhere) affecting such program; and (b) all applicable
provisions of all rules, regulations, manuals, orders and administrative,
reimbursement, guidelines and requirements of all governmental authorities
promulgated in connected with such program (whether or not having the force of
law), in each case as the same may be amended, supplemented or otherwise
modified from time to time.
"Medicare Receivable" means a Receivable payable pursuant to a
Medicare Provider Agreement.
"Medicare Certification" means certification of a facility by HCFA or
a state agency or entity under contract with HCFA that such health care facility
fully complies with all conditions for such facility's participation in
Medicare.
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"Medicare Provider Agreement" means an agreement entered into between
a state agency or other entity administering Medicare in such state and a health
care facility or dentist under which the health care facility or dentist agrees
to provide services or merchandise for Medicare patients.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA 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 ERISA Group during
such five year period.
"NationsCredit" means NationsCredit Commercial Corporation, a Delaware
corporation, and its successors.
"Net Cash Proceeds" means, with respect to any transaction, an amount
equal to the cash proceeds received by the Company or any of its Subsidiaries
from or in respect of such transaction (including any cash proceeds received as
income or other proceeds of any non-cash proceeds of such transaction), less (x)
any expenses (including commissions) reasonably incurred by such Person in
respect of such transaction and (y) in the case of an Asset Sale, the amount of
any Debt secured by a Lien on the related asset and discharged from the proceeds
of such Asset Sale and any taxes paid or payable by such Person (as estimated by
the chief financial officer of the Company) in respect of such Asset Sale.
"Net Working Investment" means, at any date, Consolidated Current
Assets minus Consolidated Current Liabilities, all determined at such date.
"Note" means a Revolving Credit Note.
"Notice of Borrowing" has the meaning set forth in Section 2.04.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Loans, all accrued and unpaid fees and all expenses,
reimbursements, indemnities and other obligations of the Company to the Lenders
or to any Lender, the Agent or any indemnified party hereunder arising under the
Financing Documents.
"Officers' Certificate" means a certificate executed on behalf of a
Person by its chairman of the board (if an officer), chief executive officer or
president or one of its vice presidents and by its chief financial officer or
treasurer.
"Payment Account" means, with respect to each Lender, the account
specified on the signature pages hereof into which all payments by or on behalf
of the Company to such Lender under the Financing Documents shall be made, or
such other account as such Lender shall from time to time specify by notice to
the Company.
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"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Contest" means a contest maintained in good faith by
appropriate proceedings promptly instituted and diligently conducted and with
respect to which such reserve or other appropriate provision, if any, as shall
be required in conformity with GAAP shall have been made; provided that
compliance with the obligation that is the subject of such contest is
effectively stayed during such challenge.
"Permitted Liens" means Liens permitted pursuant to Section 6.02.
"Permitted Refinancing" means any refunding or refinancing of an item
of Debt at a market rate of interest; provided, that (i) the principal amount
thereof shall not be increased other than by the amount of the reasonable costs
and expenses of such refinancing, (ii) the time for repayment thereof reduced,
(iii) the security thereof increased, or (iv) the terms otherwise materially
altered.
"Person" means any natural person, corporation, limited partnership,
limited liability company, professional association, general partnership, joint
stock company, joint venture, association, company, trust, bank, trust company,
land trust, business trust or other organization, whether or not a legal entity,
and any government agency or political subdivision thereof.
"Plan" means at any time an employee pension benefit plan (other than
a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code and either (i) is
maintained, or contributed to, by any member of the ERISA Group for employees of
any member of the ERISA Group or (ii) has at any time within the preceding five
years been maintained, or contributed to, by any Person which was at such time a
member of the ERISA Group for employees of any Person which was at such time a
member of the ERISA Group.
"Pledge Agreements" means, collectively, the Company Pledge Agreement
and any Subsidiary Pledge Agreement.
"Prime Rate" means the rate publicly announced from time to time by
NationsBank of North Carolina, N.A. as its "prime rate". Changes in the Prime
Rate shall be effective as of the opening of business on the date of each
announced change therein.
"Private Receivables" mean, collectively, any and all Receivables that
are not Government Receivables.
"Private Receivable Collections" mean, collectively, all Collections
in respect of the Private Receivables.
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"Professional Service Provider Security Agreement" shall mean any
security agreement between any dentist or dental practice group party to a
Service Agreement and the Agent, substantially in the form of Exhibit H.
"Pro Forma EBITDA Adjustment" has the meaning set forth in Section
6.20.
"Quarterly Date" means the first Business Day of each January, April,
July and October occurring after the Agreement Date.
"Receivable" means, as at any date of determination thereof, the
unpaid portion of the obligation, as stated in the respective invoice, of a
patient of any Credit Party in respect of Inventory or dental services rendered
in the ordinary course of business, which amount has been earned by performance
under the terms of the related contract and recognized as revenue on the books
of the Company, net of any credits, rebates or offsets owed to the patient or
any Third Party Payor in respect thereof and also net of any commissions payable
to Persons other than a Credit Party or any employee thereof.
"Required Lenders" means at any time Lenders holding Notes evidencing
at least 51% of the aggregate unpaid principal amount of the Loans or, if no
Loans are outstanding, having at least 51% of the aggregate amount of the
Commitments.
"Restricted Payment" means (i) any dividend or other distribution on
any shares of the Company's capital stock (except dividends payable solely in
shares of its capital stock of the same class or payment of cash in lieu of
fractional shares) or (ii) any payment on account of the purchase, redemption,
retirement or acquisition of (a) any shares of the Company's capital stock or
(b) any option, warrant or other right to acquire shares of the Company's
capital stock.
"Revolving Credit Commitment" means (i) for NationsCredit as Lender,
initially $25,000,000, less any amount assigned to another person that becomes a
Lender after the date hereof (a "Subsequent Lender") and (ii) for any Subsequent
Lender, the amount of Revolving Credit Commitment assigned to such Lender, in
each case as such amount may be reduced from time to time in accordance with
this agreement.
"Revolving Credit Commitments" means the sum of the Revolving Credit
Commitments of each Lender.
"Revolving Credit Loan" shall have the meaning assigned to it in
Section 2.01.
"Revolving Credit Note" shall have the meaning assigned to it in
Section 2.02 and the Revolving Credit Note shall be substantially in the form of
Exhibit A hereto.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations promulgated thereunder.
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"Security Agreements" means, collectively, the Company Security
Agreement and any Subsidiary Security Agreement.
"Security Documents" means the Security Agreements, the Pledge
Agreements, any Professional Service Provider Security Agreement, the Assignment
of Life Insurance and any other agreement pursuant to which the Company or any
of its Subsidiaries or Affiliates provides a Lien on its assets in favor of the
Agent for the benefit of the Lenders, and all supplementary assignments,
security agreements, pledge agreements, acknowledgments or other documents
delivered or to be delivered pursuant to the terms hereof or of any other
Security Document.
"Service Agreement" means an agreement between the Company and/or one
or more of its Subsidiaries and one or more dental practice groups pursuant to
which the Company and/or such Subsidiary agrees to provide certain management
services to the group.
"Solvent" means, with respect to any Person, such Person: (i) owns
property whose fair salable value is greater than the amount required to pay all
of such Person's liabilities (including contingent debts), (ii) is able to pay
all of its liabilities as such liabilities mature, and (iii) has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage.
"Subsidiary" means any person 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 the Company.
"Subsidiary Guaranty Agreement" means any guaranty agreement between a
Subsidiary or McElwee and the Agent, substantially in the form of Exhibit E.
"Subsidiary Pledge Agreement" means any pledge agreement between a
Subsidiary and the Agent, substantially in the form of Exhibit F.
"Subsidiary Security Agreement" means any Security Agreement between a
Subsidiary or McElwee and the Agent, substantially in the form of Exhibit G.
"Temporary Cash Investment" means any Investment in (i) direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial paper
rated at least A-1 by Standard & Poor's Rating Group and P-1 by Moody's
Investors Service, Inc., (iii) time or demand deposits with, including
certificates of deposit issued by, any office located in the United States of
any bank or trust company which is organized under the laws of the United States
or any State thereof and has capital, surplus and undivided profits aggregating
at least $500,000,000 and which issues (or the parent of which issues)
certificates of deposit or commercial paper with a rating described in clause
(ii) above, (iv) repurchase agreements with respect to securities described in
clause (i) above entered into with an office of a bank or trust company meeting
the criteria specified in clause (iii) above, provided in each case that such
Investment matures within one year from
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the date of acquisition thereof by the Company or any of its Subsidiaries or (v)
any money market or mutual fund that invests only in the foregoing and manager
of which and the liquidity of which is reasonably satisfactory to the Agent.
"Third Party Payor" means any governmental entity, insurance company,
health maintenance organization, preferred provider organization or similar
entity that is obligated to make payments with respect to a Receivable.
"Total Debt Service" means, for any period, the sum of (i) the
aggregate interest charges incurred by the Company and its Consolidated
Subsidiaries for such period, whether expensed or capitalized, including the
portion of any obligation under Capital Leases allocable to interest expense in
accordance with GAAP and the portion of any debt discount or premium (but not
expenses of issuance) that shall be amortized in such period, and (ii) the
aggregate amount of all scheduled principal payments on all Debt, including the
portion of any payments under Capital Leases that is allocable to principal.
"UCC" has the meaning set forth in the Security Agreement.
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), 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 a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Working Capital Availability" has the meaning specified in Section
2.01(b).
"Working Capital Loans" means the aggregation of Revolving Credit
Loans of the Lenders to be made to the Company pursuant to Section 2.01(b).
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time
("GAAP"), applied on a basis consistent (except for changes concurred in by the
Company's independent public accountants) with the most recent audited
consolidated financial statements of the Company and its Consolidated
Subsidiaries delivered to the Lenders; provided that, if: (i) the Company
notifies the Lenders that the Company wishes to amend any covenant in Article VI
or the definition of "Excess Cash Flow" or any related definition to eliminate
the effect of any change in GAAP on the operation of such covenant or the
determination of "Excess Cash Flow", or (ii) the Agent notifies the Company that
the Required Lenders wish to amend Article VI or the definition of "Excess Cash
Flow" or any related definition for such purpose, then the Company's compliance
with such covenant
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or "Excess Cash Flow", as the case may be, shall be determined on the basis of
GAAP in effect immediately before the relevant change in GAAP became effective,
until either such notice is withdrawn or such covenant is amended in a manner
satisfactory to the Company and the Required Lenders.
SECTION 1.03. Other Definitional Provisions. References in this
Agreement to "Articles", "Sections", "Schedules" or "Exhibits" shall be to
Articles, Sections, Schedules or Exhibits of or to this Agreement unless
otherwise specifically provided. Any of the terms defined in Section 1.01 may,
unless the context otherwise requires, be used in the singular or plural
depending on the reference. "Include", "includes" and "including" shall be
deemed to be followed by "without limitation" whether or not they are in fact
followed by such words or words of like import. "Writing", "written" and
comparable terms refer to printing, typing and other means of reproducing words
in a visible form. References to any agreement or contract are to such
agreement or contract as amended, modified or supplemented from time to time in
accordance with the terms hereof and thereof. References to any Person include
the successors and assigns of such Person. References "from" or "through" any
date mean, unless otherwise specified, "from and including" or "through and
including", respectively.
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ARTICLE II
REVOLVING CREDIT LOANS
SECTION 2.01. Revolving Credit Loans and Commitments. (a) Upon the
terms and subject to the conditions set forth herein, from time to time prior to
the Availability Termination Date, each Lender severally and not jointly agrees
to make revolving credit loans ("Revolving Credit Loans") from time to time to
the Company in an aggregate principal amount at any time outstanding not to
exceed such Lender's Revolving Credit Commitment. Such Revolving Credit Loans
shall constitute either Working Capital Loans or Acquisition Loans.
(b) (i) Working Capital Loans shall be available for the working
capital needs of the Company and its Subsidiaries and shall not exceed in
aggregate principal amount at any time outstanding the least of:
(A) $5,000,000,
(B) an amount equal to the Borrowing Base, and
(C) the Revolving Credit Commitment then in effect, less
the aggregate outstanding principal amount of
Acquisition Loans.
(ii) Each Working Capital Loan shall be in an aggregate amount of
$100,000 or an integral multiple of $10,000 in excess thereof. No more than two
Working Capital Loans shall be made within any week beginning on Monday of such
week and ending on the last Business Day of such week.
(c) (i) Acquisition Loans for Approved Acquisitions shall be
available, and shall be made by the Lenders to the Company, for the purposes and
in the amounts set forth in the definition of the term "Approved Acquisition"
contained in Section 1.01 hereof.
(ii) Acquisition Loans shall also be available in the sole good
faith discretion of the Agent and the Required Lenders for the purpose of
financing other Acquisitions by the Company and its Subsidiaries, provided that
the aggregate principal amount for all Acquisition Loans (including Acquisition
Loans made in connection with Approved Acquisitions) shall not exceed at any
time outstanding (the "Acquisition Availability") the Revolving Credit
Commitment then in effect, less the aggregate outstanding principal amount of
Working Capital Loans.
(iii) Acquisition Loans (for other than Approved
Acquisitions) may be made in such amounts and at such times as the Agent and the
Required Lenders shall agree in their sole good faith discretion and upon such
terms and conditions as the Agent and the Required Lenders shall require.
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(d) Within the foregoing limits, to but excluding the Availability
Termination Date, the Company may borrow under this Section 2.01, repay or
prepay Revolving Credit Loans as required under Section 2.05(b) or to the extent
permitted by Section 2.06, and reborrow pursuant to this Section 2.01.
SECTION 2.02. Revolving Credit Notes. The Revolving Credit Loans of
each Lender shall be evidenced by a single Revolving Credit Note, substantially
in the form of Exhibit A (each such note, a "Revolving Credit Note"), dated the
Agreement Date in an aggregate principal amount equal to the amount of such
Lender's Revolving Credit Commitment, duly executed and delivered and payable to
such Lender. Each Lender shall record the date and amount of each Revolving
Credit Loan made by it whether such Revolving Credit Loan was a Working Capital
Loan or an Acquisition Loan, and the date and amount of each payment of
principal made by the Company with respect thereto, and prior to any transfer of
its Revolving Credit Note shall endorse on Schedule A thereto (or any
continuation thereof) forming a part thereof appropriate notations to evidence
the foregoing information with respect to each such Revolving Credit Loan then
outstanding; provided that the failure of any Lender to make any such
recordation or endorsement shall not affect the obligations of the Company
hereunder or under the Revolving Credit Notes. Each Lender is hereby
irrevocably authorized by the Company so to endorse its Revolving Credit Note
and to attach to and make a part of its Revolving Credit Note a continuation of
any such schedule as and when required.
SECTION 2.03. Interest on the Revolving Credit Loans. (a) The
Company shall pay interest on the Revolving Credit Loans to the Lenders monthly
in arrears on the first day of each calendar month immediately succeeding the
month for which such interest accrues, commencing with the first day of the
calendar month following the calendar month in which the Closing Date occurs.
In all cases accrued interest on all of the Revolving Credit Loans shall be
payable by the Company to the Lenders on the Commitment Termination Date.
Interest at the Default Rate shall be payable upon demand by the Lenders at any
time that the Default Rate is applicable under this Agreement. If any interest
on any of the Revolving Credit Loans accrues or remains payable after the
Commitment Termination Date, such interest shall be payable by the Company upon
demand by the Lenders.
(b) Except as provided in paragraph (c) below, the Company shall
be obligated to pay interest to the Lenders on the outstanding principal balance
of each Revolving Credit Loan from the date such Revolving Credit Loan is made
until such Revolving Credit Loan is repaid in full at a floating rate per annum
equal to the Index Rate plus four and one-half percentage points (4.50%).
(c) All computations of interest hereunder or under the other
Financing Documents for Revolving Credit Loans shall be made by the Agent on the
basis of a 360 day year for the actual number of days occurring in the period
for which such interest is payable. Each determination by the Agent of an
interest rate hereunder shall be conclusive and binding for all purposes, absent
manifest error.
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(d) So long as any Event of Default shall have occurred and be
continuing, the interest rate applicable to the Loans or other Obligations of
the Company or any of its Subsidiaries under the Financing Documents may be
increased by the Required Lenders, at their option, by up to two percentage
points (2%) per annum above the rate otherwise applicable (the "Default Rate").
SECTION 2.04. Advancing Revolving Credit Loans. Except as provided
in the last sentence of this section, each Revolving Credit Loan shall be made
on notice by the Company to the Agent, given no later than 11:00 a.m. (New York
time) on the Business Day of the proposed Revolving Credit Loan. Such notice
(each a "Notice of Borrowing") shall be substantially in the form of Exhibit B
hereto, shall be duly completed and executed by an Authorized Signatory, and
shall specify therein the requested date and amount of such Revolving Credit
Loan, and such other information as may be required by the Agent. Each Notice
of Borrowing shall be given in writing (by telecopy, telex or cable) or by
telephone and confirmed immediately in writing. Notwithstanding the foregoing,
(i) no Notice of Borrowing that requests an Acquisition Loan for an Approved
Acquisition shall be effective until the Agent shall have been provided such
information respecting the proposed Acquisition as is required under Section
3.02 with such time to review the same as the Agent and the Required Lenders
shall reasonably deem necessary, and (ii) no Notice of Borrowing that requests
an Acquisition Loan (other than for an Approved Acquisition) shall be effective
until the Agent notifies the Company that the Agent and the Required Lenders
have consented to the proposed Acquisition after having been provided such
information respecting the proposed Acquisition as is required to be delivered
pursuant to Section 3.02 and such time to review the same as the Agent and the
Required Lenders shall reasonably deem necessary.
SECTION 2.05. Mandatory Repayments and Prepayments. (a) The
Revolving Credit Commitment of each Lender shall terminate at the opening of
business on January 1, 2003 (such date and such earlier date on which the
Revolving Credit Commitments shall terminate pursuant to Section 2.08, Section
7.01 or otherwise, the "Commitment Termination Date"), and there shall become
due and the Company shall pay on the Commitment Termination Date, the entire
outstanding principal amount of each Revolving Credit Loan, together with
accrued and unpaid interest thereon to but excluding the Commitment Termination
Date.
(b) If at any time (i) the aggregate unpaid principal balance of the
Working Capital Loans exceeds the Working Capital Availability, or (ii) the
aggregate unpaid principal balance of the Acquisition Loans exceeds the
Acquisition Availability, then, on the next succeeding Business Day, the Company
shall prepay Working Capital Loans and/or Acquisition Loans in an aggregate
principal amount equal to such excess.
(c) Commencing on January 1, 1998 (the "Amortization Commencement
Date") and continuing on each Quarterly Date thereafter, the Company shall repay
the Revolving Credit Loans in equal quarterly installments of principal equal to
the amount set forth for such date below:
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AMORTIZATION TABLE
Date Quarterly Installment Amount
------ --------------------------------
January 1, 1998 through December 31, 1998 $625,000
January 1, 1999 through December 31, 1999 $750,000
January 1, 2000 through December 31, 2000 $875,000
January 1, 2001 through December 31, 2001 $1,000,000
January 1, 2002 through December 31, 2002 $1,125,000
January 1, 2003 the remaining outstanding
principal amount
(d) There shall become due and payable, and the Company shall prepay,
on the 90th day following the last day of each Fiscal Year, beginning with the
Fiscal Year ending December 31, 1998, an aggregate principal amount of Revolving
Credit Loans equal to fifty percent (50%) of the Excess Cash Flow for such
Fiscal Year.
(e) There shall become due and payable, and the Company shall prepay
promptly upon receipt by the Company or any Subsidiary of the proceeds of any
Asset Sale after the Agreement Date, an amount of Revolving Loans equal to 100%
of the Net Cash Proceeds of such Asset Sale
SECTION 2.06. Optional Prepayments. The Company may prepay the
Revolving Credit Loans in whole or in part (in minimum principal amounts of
$100,000 or in any larger integral multiple of $10,000, or the total remaining
amount outstanding) upon at least three Business Days' prior irrevocable written
notice to the Lenders, without premium or penalty except as provided in Section
2.08(b). The aggregate principal amount of the Revolving Credit Loans
designated for prepayment in any notice of optional prepayment given pursuant to
this subsection shall become due and payable on the date fixed for prepayment as
specified in such notice.
SECTION 2.07. Application of Payments. Each payment or prepayment of
less than all the outstanding aggregate principal amount of the Loans shall be
applied pro rata to all Loans according to their respective outstanding
principal amounts. The principal amount of each payment on the Loans pursuant
to Section 2.06 shall be applied to reduce the remaining payments required by
Section 2.05(c) in inverse order of the maturity thereof. No payment of the
principal amount of the Loans pursuant to Section 2.05(c) or 2.06 shall reduce
the amount of any payment required by 2.05(d).
SECTION 2.08. Reduction of Commitments. (a) The Revolving Credit
Commitment shall reduce (i) to the amount of the aggregate outstanding principal
amount of the Revolving Credit Loans on the Availability Termination Date, and
thereafter by the amount of each payment made or required to be made pursuant to
Section 2.05 or Section 2.06.
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(b) The Company shall have the right at any time to terminate in whole
this Agreement, or from time to time, irrevocably to reduce in part the amount
of the Revolving Credit Commitment upon at least 15 days' prior written notice
to the Agent. Such notice shall be irrevocable on the part of the Company and
shall specify the effective date of such reduction or termination, whether a
termination or reduction is being made, and, in the case of any reduction, the
amount thereof shall be in an amount of Five Million Dollars ($5,000,000) or an
integral multiple thereof. Upon any such reduction, the Company shall
simultaneously prepay any outstanding Revolving Credit Loans to the extent
necessary so that the aggregate outstanding principal amount of the Revolving
Credit Loans does not exceed the amount of the Revolving Credit Commitment after
giving effect to any partial reduction thereof. The aforesaid prior notice
requirement shall not apply to the Agent's exercise of remedies under Section
7.01. In the event the Company exercises its rights under this paragraph to
prepay the Revolving Credit Loans and terminate this Agreement or permanently
reduce the Revolving Credit Commitment, the Company agrees that such prepayment
shall be accompanied by (i) the payment by the Company to the Agent for the
ratable account of the Lenders of all accrued and unpaid interest and, in the
case of a termination of this Agreement, all fees and other remaining
Obligations and (ii) if such reduction or prepayment shall occur prior to
December 31, 1997, the payment of a fee to the Agent for the ratable account of
the Lenders equal to three percent (3.0%) multiplied by the amount by which the
Revolving Credit Commitments are permanently reduced by such exercise.
Notwithstanding clause (ii) of the foregoing sentence, clause (ii) of the
foregoing sentence shall not apply, and the amount of the prepayment fee to be
collected shall be $250,000 in the event that such permanent reduction results
from a bona fide public offering of Common Stock which results in the Company's
receipt of at least $25,000,000 in cash net proceeds. The amount of the
Revolving Credit Commitment may not be reinstated if it is reduced or if this
Agreement is terminated by the Company. The fee described in this Section shall
be in addition to any fee due pursuant to Section 2.09.
SECTION 2.09. Contingency Fee. In addition to the
prepayment/commitment reduction fee described above, upon the earlier of (i) the
fifth anniversary of the Agreement Date, and (ii) the date on which the
Revolving Credit Commitments shall reduce to zero, the Company shall pay to
NationsCredit a contingency fee in cash in an amount calculated as follows
(provided that, at the option of NationsCredit following an initial public
offering of the Company's Common Stock, such fee may be paid in an equivalent
amount of such Common Stock):
1. If such fee shall become payable on or prior to June 30, 1997, such
fee shall be calculated as follows:
3% multiplied by [(A x 8.5) - Debt of the Company that is
permitted pursuant to Section 6.01]
Where A = the greater of: (i) Pro Forma EBITDA (less 25% of the
amount of Pro Forma EBITDA attributable to practices or practice
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groups acquired between January 1, 1997 and June 30, 1997 solely with
Common Stock), and (ii) $5,600,000.
2. If such fee shall become payable after June 30, 1997, such fee shall
be calculated as follows:
3% multiplied by [(A x 7.5) - Debt of the Company that is
permitted pursuant to Section 6.01]
Where A = the greater of: (i) Pro Forma EBITDA, and (ii)
$5,600,000.
For purposes of the foregoing, "Pro Forma EBITDA" shall mean, at any date
of determination, the Company's annualized EBITDA as determined based upon the
Company's actual EBITDA for its most recently completed fiscal quarter plus any
applicable Pro Forma EBITDA Adjustment for such fiscal quarter (and, assuming
for purposes of determining annualized EBITDA, that the first and fourth fiscal
quarters of the Company each contribute 20% of annual EBITDA and that the second
and third fiscal quarters of the Company each contribute 30% of annual EBITDA
for any fiscal year), and adjusted to include the estimated EBITDA contribution
of any Acquisitions completed during such fiscal quarter (assuming for purposes
of such adjustment that the acquired companies had been acquired as of the first
day of such fiscal quarter).
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ARTICLE III
CONDITIONS
SECTION 3.01. Conditions to Closing. The obligation of each Lender
to make its initial Loan hereunder shall be subject to the satisfaction of the
following conditions precedent:
(a) receipt by the Agent of counterparts hereof signed by each of the
parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Agent in form
satisfactory to it of telegraphic, telex or other written confirmation from
such party of execution of a counterpart hereof by such party);
(b) receipt by NationsCredit of a duly executed Revolving Credit Note
for its account, in the form provided for herein;
(c) receipt by the Agent of duly executed counterparts of each
Security Document required to be effective on the Closing Date (including
the Lockbox Agreements), together with evidence satisfactory to it in its
sole good faith discretion of the effectiveness, priority and perfection of
the security contemplated thereby and the lien search reports and any
additional documents reasonably requested by the Agent;
(d) receipt by the Agent of duly executed counterparts of the
Subsidiary Guaranties, duly executed by each Subsidiary of the Company;
(e) receipt by the Agent of the initial Borrowing Base Certificate,
duly executed and completed by the Company;
(f) receipt by the Agent of an opinion of counsel for the Company and
its Subsidiaries, covering such matters relating to the transactions
contemplated hereby as the Agent may reasonably request (by its execution
and delivery of this Agreement, the Company authorizes and directs such
counsel to deliver such opinions to the Agent);
(g) receipt by the Agent of an opinion of Kilpatrick & Cody, special
counsel for the Agent, covering such additional matters relating to the
transactions contemplated hereby as NationsCredit may reasonably request;
(h) receipt by NationsCredit, including in its capacity as Agent, of
all fees and any other amounts due and payable hereunder (including fees
and expenses payable pursuant to Section 8.04);
(i) receipt by NationsCredit of any information it may request
concerning the financial condition, results of operations, liabilities
(contingent and otherwise, including with respect to environmental
liabilities and employee and retiree benefits)
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and prospects of, and the financial reporting and accounting systems and
the management information systems of, the Company; and confirmation
satisfactory to the Agent, after consultation with management of the
Company, KPMG Peat Marwick L.L.P., as independent public accountants for
the Company, and any independent environmental consultant or independent
accountant retained by the Agent, of all such information; and satisfaction
of the Agent in its sole good faith discretion with all such information;
(j) satisfaction of NationsCredit in its sole good faith discretion
as to the absence of event, act, condition or occurrence of whatever nature
that constitutes, or that is reasonably likely to result in, a Material
Adverse Effect;
(k) receipt by NationsCredit of a certificate signed by the chief
financial officer or treasurer of the Company to the effect that, both
before and immediately after the execution and delivery of the Financing
Documents, the making of the Loans, and the other transactions contemplated
to take place on the Closing Date, (i) no Default shall have occurred and
be continuing and (ii) the representations and warranties of the Company
and each of its Subsidiaries made in or pursuant to the Financing Documents
executed by such Person are true in all material respects;
(l) receipt by NationsCredit of (i) the financial statements and
balance sheet referred to in Sections 4.04(a), (b) and (c), and (ii)
payment instructions with respect to each wire transfer to be made by the
Agent on the Closing Date setting forth the amount of such transfer, the
purpose of such transfer, the name and number of the account to which such
transfer is to be made, the name and ABA number of the bank or other
financial institution where such account is located and the name and
telephone number of an individual that can be contacted to confirm receipt
of such transfer;
(m) receipt by the Agent of the certificate referred to in Section
5.04(c) and of a copy of the Key-Man Life Insurance Policy and a duly
executed instrument of assignment assigning the Key-Man Life Insurance
Policy to the Agent as collateral under the Security Documents;
(n) receipt by the Agent of evidence satisfactory to it in its
sole good faith discretion of the effectiveness of employment contracts
between the Company and Dr. Lawrence F. Halpert and Carl J. Sardegna that
are in form and substance satisfactory to the Agent in its sole good faith
discretion to include provisions relating to cash and non-cash
compensation, stock repurchase and non-compete; and
(o) receipt by the Agent of evidence satisfactory to it in its sole
good faith discretion that all outstanding obligations of the Company and
its Subsidiaries under the instruments and agreements described on Schedule
3.01 have been paid in full, all commitments thereunder have been
terminated and all Liens securing such obligations and all guarantees
thereof, and all other Liens other than Permitted Liens, have been
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released, or assurances satisfactory to the Agent, in its good faith
discretion, that such payments, terminations and releases shall occur upon
the making of the Loans;
(p) receipt by the Agent of the written consent of the holders of the
Series A Preferred Stock and Series C Preferred Stock of the Company,
consenting to the transactions contemplated hereby and waiving any right of
first refusal to participate in the financing contemplated hereby, together
with the agreement of such holders of Series A Preferred Stock and Series C
Preferred Stock that such holders shall not exercise the put options
granted by the Company and requiring the Company to repurchase such
preferred stock (or any common stock into which such preferred stock may be
converted), until after the date which is one (1) year after the
termination of this Agreement and payment in full of the Obligations; and
(q) receipt by the Agent of all documents it may reasonably request
relating to the existence of the Company and its Subsidiaries, the
corporate authority for and the validity of the Financing Documents, and
any other matters relevant hereto, all in form and substance satisfactory
to the Agent in its sole good faith discretion.
The documents referred to in this Section shall be delivered to the Agent no
later than the Closing Date. The certificates and opinions referred to in this
Section shall be dated the Closing Date. In the event the Lenders, in their
sole discretion, elect to make Loans hereunder notwithstanding the failure of
the Agent to receive any item required to be delivered pursuant to this Section,
such condition shall not be waived but the Company shall be deemed to have
covenanted with the Agent and the Lenders to satisfy such condition by the
thirty-first (31st) day following the Agreement Date. Failure to satisfy such
condition on or before such thirty-first (31st) day following the Agreement Date
shall constitute an Event of Default hereunder.
SECTION 3.02. Conditions to Acquisition Loans. The obligation of any
Lender to make an Acquisition Loan on the occasion of any borrowing is subject
to the satisfaction of the following additional conditions:
(a) receipt by each Lender of a Notice of Borrowing in accordance
with Section 2.04;
(b) receipt by the Agent of all documents, instruments and agreements
to be delivered in connection with the Acquisition and/or any financing
therefor, which documents shall be substantially in the forms approved by
the Agent and the Lenders prior to the Agreement Date or otherwise in form
and substance satisfactory to the Agent and the Lenders;
(c) completion of, and satisfaction of the Agent and the Lenders
with, such legal and/or business due diligence review of the Acquisition,
the terms thereof, and the target thereof as the Agent and the Lenders
reasonably shall deem relevant (the
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Agent hereby acknowledges that it has completed its due diligence with
respect to the Approved Acquisitions, other than Nanstan, Inc.);
(d) evidence satisfactory to the Agent that all property to be
acquired in the Acquisition, including all property of any Person that,
following such Acquisition, is to become a Subsidiary, will be pledged to
the Agent and the Lenders as security for the Obligations and that the
Liens granted pursuant thereto will constitute perfected Liens, subject
only to Permitted Liens, and that any Person that will become a Subsidiary
as a result of such Acquisition has executed a guaranty of the Obligations
in form and substance satisfactory to the Agent and the Required Lenders
and otherwise complied with the requirements of Section 6.07;
(e) receipt by the Agent and the Lenders of such historical financial
statements and information and such market information respecting the
target of the Acquisition as the Agent and the Lenders reasonably shall
deem relevant;
(f) receipt by the Agent and the Lenders of pro forma financial
statements showing the target and the Company on a consolidated basis after
giving effect to such Acquisition as of the date of the closing thereof and
a certificate of the chief financial officer or treasurer of the Company
demonstrating that the Company, both before and after giving effect to the
Acquisition, will be in compliance with the financial and other covenants
contained herein and in the other Financing Documents; and
(g) such other information respecting the Acquisition, the target or
the Company as the Agent and the Lenders reasonably shall deem relevant.
Section 3.03. Conditions to Each Loan. The obligation of any Lender
to make a Loan on the occasion of any borrowing thereof (including on the
Closing Date) is subject to the satisfaction of the following additional
conditions:
(a) receipt by each Lender of a Notice of Borrowing in accordance
with Section 2.04 and, in the case of a Working Capital Loan, a Borrowing
Base Certificate, as of the close of business on the last Business Day
preceding the date of such borrowing;
(b) the fact that, immediately before and after such borrowing, no
Default shall have occurred and be continuing; and
(c) the fact that the representations and warranties of the Company
contained in the Financing Documents shall be true in all material respects
on and as of the date of such borrowing, except for such changes therein as
are expressly permitted by the terms of this Agreement.
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Each borrowing hereunder shall be deemed to be a representation and warranty by
the Company on the date of such borrowing as to the facts specified in clauses
(b) and (c) of this Section.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants as to itself and each of its
Subsidiaries that:
SECTION 4.01. Corporate Existence and Power. The Company and each
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of its organization, and the Company and
each other Credit Party has all corporate powers, if applicable, and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted and as will be conducted (including,
without limitation, accreditations and certifications as a provider of health
care services eligible to receive payment and compensation and to participate
under Medicare, Medicaid, CHAMPUS or CHAMPVA or any Blue Cross/Blue Shield or
equivalent program, as applicable). The Company and each Subsidiary is
qualified to do business as a foreign corporation in each jurisdiction in which
the failure of the Company or such Subsidiary to be so qualified could
reasonably be expected to have a Material Adverse Effect.
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Company and each
of its Subsidiaries of the Financing Documents to which it is a party are within
the Company's or such Subsidiary's (as the case may be) corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official (other
than the filing of UCC-1 financing statements, which have been made and are in
full force and effect) and do not contravene, or constitute a default under, any
provision of applicable law or regulation (including specifically any applicable
rule or regulation relating to the eligibility of any Credit Party to receive
payment and to participate as an accredited and certified provider of health
care services under Medicare, Medicaid, CHAMPUS, CHAMPVA or any Blue Cross/Blue
Shield or equivalent program or relating to the licenses and permits required
therein or in connection therewith, as applicable) or of the certificate or
articles of incorporation or by-laws of the Company, any of its Subsidiaries or
any other Credit Party or of any agreement, judgment, injunction, order, decree
or other instrument binding upon the Company or any of its Subsidiaries or any
other Credit Party or result in the creation or imposition of any Lien (other
than the Liens created by the Security Documents) on any asset of the Company or
any of its Subsidiaries or any other Credit Party.
SECTION 4.03. Binding Effect; Liens of Security Documents. (a) Each
of the Financing Documents to which the Company is a party (other than the
Notes) constitutes a valid and binding agreement of the Company, and each of the
Notes, when executed and delivered in accordance with this Agreement, will
constitute valid and binding obligations of the Company, in each case
enforceable in accordance with its respective terms, subject to: (i) the effect
of any applicable bankruptcy, fraudulent transfer, moratorium, insolvency,
reorganization or other similar laws affecting the rights of creditors
generally; and (ii) the effect of general principles of equity whether applied
by a court of equity or law.
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(b) Each of the Financing Documents to which any Subsidiary of the
Company or any other Credit Party is a party constitutes a valid and binding
agreement of such Subsidiary or Credit Party, enforceable in accordance with its
terms, subject to: (i) the effect of any applicable bankruptcy, fraudulent
transfer, moratorium, insolvency, reorganization or other similar laws affecting
the rights of creditors generally; and (ii) the effect of general principles of
equity whether applied by a court of equity or law.
(c) The Security Documents create valid security interests in the
Collateral purported to be covered thereby, which security interests are
perfected security interests, prior to all other Liens other than Permitted
Liens. Each of the representations and warranties made by the Company, any of
its Subsidiaries or any other Credit Party in the Security Documents is true and
correct.
SECTION 4.04. Financial Information.
(a) (i) The audited consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of December 31, 1995, and the related audited
consolidated statements of operations and cash flows for the fiscal year then
ended, and (ii) the unaudited consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of August 31, 1996, and the related unaudited
consolidated statements of operations and cash flows for the 8 months then
ended, copies of each of which have been delivered to each of the Lenders,
fairly present, in conformity with GAAP applied on a consistent basis, the
consolidated financial position of the Company and its Consolidated Subsidiaries
as of such dates and their consolidated results of operations and cash flows for
the periods then ended (subject, in the case of the statements described in
clause (ii), to normal year-end adjustments). As of the dates of such balance
sheets and the date hereof, neither the Company nor any of its Subsidiaries had
or has any material liabilities, contingent or otherwise, including liabilities
for taxes, long-term leases or forward or long-term commitments, which are not
properly reflected on such balance sheets.
(b) The information contained in the most recently delivered
Borrowing Base Certificate is complete and correct and the amounts shown therein
as "Eligible Receivables" have been determined as provided in the Financing
Documents.
(c) Since August 31, 1996, there has been no event, act, condition or
occurrence of whatever nature that constitutes, or that could reasonably be
expected to result in, a Material Adverse Effect.
SECTION 4.05. Litigation. There is no action, suit or proceeding
pending against, or to the knowledge of the Company threatened against or
affecting, the Company, any of its Subsidiaries or any other Credit Party before
any court or arbitrator or any governmental body, agency or official which, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect. There is no action, suit or proceeding pending against, or to the
knowledge of the Company threatened against or affecting, any party to any
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of the Financing Documents before any court or arbitrator or any governmental
body, agency or official which in any manner draws into question the validity of
any of the Financing Documents. There is no pending investigation of any Credit
Party by HCFA or any other governmental authority, which investigation is not
otherwise conducted in the ordinary course of business and no criminal, civil or
administrative action, audit, or investigation by a fiscal intermediary or by or
on behalf of any governmental authority exists or, to the best knowledge of the
Company, is threatened with respect to any Credit Party which could reasonably
be expected to materially and adversely affect such Credit Party's right to
receive Medicare, Medicaid, CHAMPUS or CHAMPVA reimbursement to which such
Credit Party would otherwise be entitled, or right to participate in the
Medicare, Medicaid, CHAMPUS or CHAMPVA programs, or otherwise have a Material
Adverse Effect on the receipt of Medicare, Medicaid, CHAMPUS or CHAMPVA
reimbursement by such Credit Party, and, to the best knowledge of the Company,
no Credit Party is subject to any pending but unassessed Medicare, Medicaid,
CHAMPUS or CHAMPVA claim payment adjustments, except to the extent that such
Credit Party is contesting such assessment in good faith by appropriate
proceedings diligently pursued and has established and will maintain adequate
reserves for such adjustments in accordance with GAAP.
SECTION 4.06. Ownership of Property, Liens. On and as of the
Agreement Date, the Company and each Subsidiary is the lawful owner of, has good
and marketable title to and is in lawful possession of, or has valid leasehold
interests in, all properties and other assets (real or personal, tangible,
intangible or mixed) purported to be owned or leased (as the case may be) by
such Person on the balance sheet referred to in Section 4.04(a), and none of
such Person's properties and assets is subject to any Liens, except Permitted
Liens. The Company, its Subsidiaries and the other Credit Parties conduct their
business without infringement or claim of infringement of any material license,
patent, trademark, trade name, service mark, copyright, trade secret or other
intellectual property right of others and there is no infringement or claim of
infringement by others of any material license, patent, trademark, trade name,
service mark, copyright, trade secret or other intellectual property right of
the Company, any of its Subsidiaries or any other Credit Party.
SECTION 4.07. No Default. No Default has occurred and is continuing
and none of the Company, any of its Subsidiaries or any other Credit Party is in
default under or with respect to any material contract, agreement, lease or
other material instrument to which it is a party or by which its property is
bound or affected. Neither the Company nor any other Credit Party has received
notification from any governmental authority that any such governmental
authority has taken or intends to take action to revoke, terminate or adversely
amend any license, certificate, accreditation or permit of such Person to
operate a healthcare facility or to participate under Medicare, Medicaid,
CHAMPUS or CHAMPVA.
SECTION 4.08. No Burdensome Restrictions. No contract, lease,
agreement or other instrument to which the Company, any of its Subsidiaries or
any other Credit Party is a party or by which any of its property is bound or
affected, no charge, corporate restriction, judgment, decree or order and no
provision of applicable law or governmental regulation is reasonably likely to
have or result in a Material Adverse Effect.
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SECTION 4.09. Labor Matters. There are no strikes or other labor
disputes pending or, to the best knowledge of the Company, threatened, against
the Company, any of its Subsidiaries or any other Credit Party. Hours worked
and payments made to the employees of the Company, its Subsidiaries and any
other Credit Party have not been in violation of the Fair Labor Standards Act or
any other applicable law dealing with such matters. All payments due from the
Company, any of its Subsidiaries or any other Credit Party, or for which any
claim may be made against any of them, on account of wages and employee and
retiree health and welfare insurance and other benefits have been paid or
accrued as a liability on their books, as the case may be. The consummation of
the transactions contemplated by the Financing Documents will not give rise to a
right of termination or right of renegotiation on the part of any union under
any collective bargaining agreement to which it is a party or by which it is
bound.
SECTION 4.10. Subsidiaries; Other Equity Investments. Other than as
set forth on Schedule 4.10, the Company has no Subsidiaries and there are no
other Credit Parties on the date hereof. Other than as set forth on Schedule
4.10, each such Subsidiary is, and, in the case of any additional corporate
Subsidiaries formed after the Agreement Date, each of such additional corporate
Subsidiaries will be at each time that this representation is made or deemed to
be made after the Agreement Date, a wholly-owned Subsidiary that is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and has all corporate powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as then conducted. Neither the Company nor any of its
Subsidiaries is engaged in any joint venture or partnership with any other
Person.
SECTION 4.11. Investment Company Act. The Company is not an
"investment company" as defined in the Investment Company Act of 1940, as
amended. The consummation of the transactions contemplated by the Financing
Documents do not and will not violate any provision of such Act or any rule,
regulation or order issued by the Securities and Exchange Commission
thereunder.
SECTION 4.12. Margin Regulations. None of the proceeds from the
Loans have been or will be used, directly or indirectly, for the purpose of
purchasing or carrying any Margin Stock, for the purpose of reducing or retiring
any indebtedness which was originally incurred to purchase or carry any Margin
Stock or for any other purpose which might cause any of the loans under this
Agreement to be considered a "purpose credit" within the meaning of Regulations
G, T, U or X of the Board of Governors of the Federal Reserve Board.
SECTION 4.13. Taxes. The Company's federal tax identification number
is 58-1274789. The federal tax identification number of each Subsidiary and
each other Credit Party are as set out for such Person on Schedule 4.10. All
Federal, state and local tax returns, reports and statements required to be
filed by or on behalf of the Company and its Subsidiaries have been filed with
the appropriate governmental agencies in all jurisdictions in which such
returns, reports and statements are required to be filed, and all taxes
(including real property taxes) and other charges shown to be due and payable
have been timely paid prior to the date
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on which any fine, penalty, interest, late charge or loss may be added thereto
for nonpayment thereof, except any of the foregoing as may be subject to a
Permitted Contest. All state and local sales and use taxes required to be paid
by the Company, any of its Subsidiaries or any other Credit Party have been
paid, except any of the foregoing as may be subject to a Permitted Contest. All
Federal and state returns have been filed by the Company, its Subsidiaries and
the other Credit Parties for all periods for which returns were due with respect
to employee income tax withholding, social security and unemployment taxes, and
the amounts shown thereon to be due and payable have been paid in full or
adequate provisions therefor have been made.
SECTION 4.14. Compliance with ERISA. Each member of the ERISA Group
has fulfilled its obligations under the minimum funding standards of ERISA and
the Code with respect to each Plan and is in compliance in all material respects
with the presently applicable provisions of ERISA and the Code with respect to
each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum
funding standard under Section 412 of the Code in respect of any Plan, (ii)
failed to make any contribution or payment to any Plan or Multiemployer Plan or
in respect of any Benefit Arrangement, or made any amendment to any Plan or
Benefit Arrangement, which has resulted or could reasonably be expected to
result in the imposition of a Lien or the posting of a bond or other security
under ERISA or the Code or (iii) incurred any liability under Title IV of ERISA
other than a liability to the PBGC for premiums under Section 4007 of ERISA.
SECTION 4.15. Brokers. No broker, finder or other intermediary has
brought about the obtaining, making or closing of the transactions contemplated
by the Financing Documents, and the Company has and will have no obligation to
any Person in respect of any finder's or brokerage fees in connection herewith
or therewith.
SECTION 4.16. Employment, Shareholders and Subscription Agreements.
Except for the agreements described in Schedule 4.16 (which schedule may be
updated from time to time by the Company with the consent of the Agent), true
and complete copies of which have been delivered to the Lenders, there are no
(i) employment agreements covering the management of the Company, any of its
Subsidiaries or any other Credit Party, (ii) collective bargaining agreements or
other labor agreements covering any employees of the Company, its Subsidiaries
or any other Credit Party, (iii) agreements for managerial, consulting or
similar services to which the Company or its Subsidiaries is a party or by which
it is bound or (iv) agreements regarding the Company or any of its Subsidiaries,
their respective assets or operations or any investment therein to which any of
its stockholders is a party or by which it is bound.
SECTION 4.17. Full Disclosure. None of the information (financial or
otherwise) furnished by or on behalf of the Company to the Agent or any Lender
in connection with the consummation of the transactions contemplated by any of
the Financing Documents contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained herein
or therein not misleading in the light of the circumstances under which such
statements were made. All financial projections delivered to
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the Lenders have been prepared on the basis of the assumptions stated therein.
Except as previously disclosed to the Agent in writing, such projections
represent the Company's best estimate of the Company's future financial
performance and such assumptions are believed by the Company to be fair and
reasonable in light of current business conditions.
SECTION 4.18. Private Offering. Neither the Company nor any Person
acting on its behalf has offered the Notes or any similar securities for sale
to, or solicited any offer to buy any of the same from, or otherwise approached
or negotiated in respect thereof with, any Person other than the Lenders and not
more than five other institutional investors. Neither the Company nor any
Person acting on its behalf has taken, or will take, any action which would
subject the issuance or sale of the Notes to Section 5 of the Securities Act.
SECTION 4.19. Compliance with Environmental Requirements; No
Hazardous Materials. Except as provided on Schedule 4.19:
(a) Other than generation in compliance with all applicable
Environmental Laws, no Hazardous Materials are located on any properties
now or previously owned, leased or operated by the Company or any of its
Subsidiaries or have been released into the environment, or deposited,
discharged, placed or disposed of at, on, under or near any of such
properties except such of the foregoing as could not reasonably be expected
to have a Material Adverse Effect. No portion of any such property is
being used, or has been used at any previous time, for the disposal,
storage, treatment, processing or other handling of Hazardous Materials
(other than processing or handling incidental to the generation of
Hazardous Materials in compliance with all applicable Environmental Laws),
nor is any such property affected by any Hazardous Materials Contamination
except for such of the foregoing as could not reasonably be expected to
have a Material Adverse Effect.
(b) No asbestos or asbestos-containing materials are present on any
of the properties now or previously owned, leased or operated by the
Company or any of its Subsidiaries except such of the foregoing as could
not reasonably be expected to have a Material Adverse Effect.
(c) No polychlorinated biphenyls are located on or in any properties
now or previously owned, leased or operated by the Company or any of its
Subsidiaries, in the form of electrical transformers, fluorescent light
fixtures with ballasts, cooling oils or any other device or form except
such of the foregoing as could not reasonably be expected to have a
Material Adverse Effect.
(d) No underground storage tanks are located on any properties now or
previously owned, leased or operated by the Company or any of its
Subsidiaries, or were located on any such property and subsequently removed
or filled except such of the foregoing as could not reasonably be expected
to have a Material Adverse Effect.
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(e) Except as disclosed on Schedule 4.19 (as such schedule may be
updated from time to time by the Company with the consent of the Agent), no
notice, notification, demand, request for information, complaint, citation,
summons, investigation, administrative order, consent order and agreement,
litigation or settlement with respect to Hazardous Materials or Hazardous
Materials Contamination is in existence or, to the Company's knowledge,
proposed, threatened or anticipated with respect to or in connection with
the operation of any properties now or previously owned, leased or operated
by the Company or any of its Subsidiaries. All such properties and their
existing and prior uses comply and at all times have complied with any
applicable governmental requirements relating to environmental matters or
Hazardous Materials except for such non-compliances as could not reasonably
be expected to have a Material Adverse Effect. Except as disclosed on
Schedule 4.19 there is no condition on any of such properties which is in
violation of any applicable governmental requirements relating to Hazardous
Materials, and neither the Company nor any of its Subsidiaries has received
any communication from or on behalf of any governmental authority that any
such condition exists. Except disclosed on Schedule 4.19, none of such
properties nor any property to which the Company has, directly or
indirectly, transported or arranged for the transportation of any material
is listed or, to the Company's knowledge, proposed for listing on the
National Priorities List promulgated pursuant to CERCLA, on CERCLIS (as
defined in CERCLA) or on any similar federal, state or foreign list of
sites requiring investigation or cleanup, nor, to the knowledge of the
Company, is any such property anticipated or threatened to be placed on any
such list.
(f) There has been no environmental investigation, study, audit,
test, review or other analysis conducted of which the Company has knowledge
in relation to the current or prior business of the Company or any property
or facility now or previously owned, leased or operated by the Company or
any of its Subsidiaries which has not been delivered to the Lenders at
least five days prior to the date hereof.
(g) For purposes of this Section 4.19, the terms "Company" and
"Subsidiary" shall include any business or business entity (including a
corporation) which is, in whole or in part, a predecessor of the Company or
any Subsidiary.
SECTION 4.20. Real Property Interests. Except for the ownership,
leasehold or other interests set forth in Schedule 4.20, the Company and its
Subsidiaries have, as of the Agreement Date, no ownership, leasehold or other
interest in real property.
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SECTION 4.21. Third Party Reimbursement . If any Credit Party is or
has been audited by Medicare, Medicaid, CHAMPUS, CHAMPVA or similar governmental
Third Party Payors, (i) none of such audits provides for adjustments in
reimbursable costs or asserts claims for reimbursement or repayment by such
Credit Party of costs and/or payments theretofore made by such governmental
Third Party Payor that, if adversely determined, could reasonably be expected to
have or result in a Material Adverse Effect and (ii) none of the Credit Parties
have had requests or assertions of claims for reimbursement or repayment by it
of costs and/or payments heretofore made by any other Third Party Payor that, if
adversely determined, could reasonably be expected to have or result in a
Material Adverse Effect, except in either case to the extent described on
Schedule 4.21.
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Article V
Affirmative Covenants
The Company agrees that, so long as any Lender has any Commitment
hereunder or any amount payable under any Note remains unpaid:
Section 5.01. Financial Statements and Other Reports. The Company
will maintain a system of accounting established and administered in accordance
with sound business practices to permit preparation of financial statements in
accordance with GAAP, and will deliver to each of the Lenders:
(a) as soon as practicable and in any event within 45 days after the
end of each month, a consolidated balance sheet of the Company and its
Consolidated Subsidiaries as at the end of such month and the related
consolidated statements of operations and cash flows for such month, and
for the portion of the Fiscal Year ended at the end of such month setting
forth in each case in comparative form the figures for the corresponding
periods of the previous Fiscal Year and the figures for such month and for
such portion of the Fiscal Year ended at the end of such month set forth in
the annual operating and capital expenditure budgets and cash flow forecast
delivered pursuant to Section 5.01(j), all in reasonable detail and
certified by the chief financial officer of the Company as fairly
presenting the financial condition and results of operations of the Company
and its Consolidated Subsidiaries and as having been prepared in accordance
with GAAP applied on a basis consistent with the audited financial
statements of the Company, subject to changes resulting from audit and
normal year-end adjustments;
(b) as soon as available and in any event within 100 days after the
end of each Fiscal Year, a consolidated balance sheet of the Company and
its Consolidated Subsidiaries as of the end of such Fiscal Year and the
related consolidated statements of operations, stockholders' equity and
cash flows for such Fiscal Year, setting forth in each case in comparative
form the figures for the previous Fiscal Year and the figures for such
Fiscal Year set forth in the annual operating and capital expenditure
budgets and cash flow forecast delivered pursuant to Section 5.01(j),
certified (solely with respect to such consolidated statements) without
qualification by KPMG Peat Marwick L.L.P. or other independent public
accountants of nationally recognized standing;
(c) (i) together with each delivery of financial statements pursuant
to (a) and (b) above, an Officers' Certificate of the Company stating that
the officers executing such certificate have reviewed the terms of this
Agreement and have made, or caused to be made under their supervision, a
review in reasonable detail of the transactions and condition of the
Company and its Subsidiaries during the accounting period covered by such
financial statements and that such review has not disclosed the existence
during or at the end of such accounting period, and that such officers do
not have knowledge of the existence as at the date of such Officers'
Certificate, of any Default, or, if any such
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Default existed or exists, specifying the nature and period of existence
thereof and what action the Company has taken or is taking or proposes to
take with respect thereto; (ii) together with each delivery of financial
statements for each month and Fiscal Year, a compliance certificate of the
chief financial officer or treasurer of the Company (x) providing details
of all transactions between the Company and any Person referred to in
Section 6.08, (y) demonstrating in reasonable detail compliance during and
at the end of such accounting period with the covenants contained in
Sections 6.11 through 6.18 and (z) if not specified in the financial
statements delivered pursuant to (a) or (b) above, as the case may be,
specifying the aggregate amount of interest paid or accrued and the
aggregate amount of depreciation and amortization charged, during such
accounting period; and (iii) beginning with the delivery of the fiscal year
end 1998 financial statements, together with each delivery of financial
statements pursuant to (b) above, a statement setting forth in reasonable
detail the computation of Excess Cash Flow, if any, for such Fiscal Year,
certified by the chief financial officer of the Company as having been
prepared from such financial statements in accordance with this Agreement;
(d) together with each delivery of financial statements pursuant to
(b) above, a written statement by the independent public accountants giving
the report thereon (i) stating that their audit examination has included a
review of the terms of this Agreement as it relates to accounting matters,
(ii) stating whether, in connection with their audit examination, any
Default has come to their attention, and if such a condition or event has
come to their attention, specifying the nature and period of existence
thereof, and (iii) stating that based on their audit examination nothing
has come to their attention which causes them to believe that the
information contained in the certificates delivered therewith pursuant to
(c) above is not correct and that the matters set forth in the compliance
certificate delivered therewith pursuant to clause (ii) of (c) above for
the applicable Fiscal Year are not stated in accordance with the terms of
this Agreement;
(e) promptly upon receipt thereof, copies of all reports submitted to
the Company by independent public accountants in connection with each
annual, interim or special audit of the financial statements of the Company
made by such accountants, including the comment letter submitted by such
accountants to management in connection with their annual audit;
(f) promptly upon their becoming available, copies of (i) all
financial statements, reports, notices and proxy statements sent or made
available generally by the Company to its security holders, (ii) all
regular and periodic reports and all registration statements and
prospectuses filed by the Company with any securities exchange or with the
Securities and Exchange Commission or any governmental authority succeeding
to any of its functions and (iii) all press releases and other statements
made available generally by the Company to the public concerning material
developments in the business of the Company;
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(g) promptly upon any officer of the Company obtaining knowledge (i)
of the existence of any Default, or becoming aware that the holder of any
Debt of the Company or any Subsidiary that singly, or when aggregated with
all other Debt of the Company, its Subsidiaries or any other Credit Party
the holder of which has taken similar actions equals or exceeds $100,000 in
principal amount outstanding has given any notice or taken any other action
with respect to a claimed default thereunder, (ii) of any change in the
Company's certified accountant or any resignation, or decision not to stand
for re-election, by any member of the Company's board of directors, (iii)
that any Person has given any notice to the Company, any Subsidiary or any
other Credit Party or taken any other action with respect to a claimed
default under any agreement or instrument (other than the Financing
Documents) the indebtedness or obligation under which either singly or when
aggregated with all other claims or Persons taking similar action, is equal
to or greater than $100,000, to which the Company, any of its Subsidiaries
or any other Credit Party is a party or by which any of their assets are
bound or (iv) of the institution of any litigation or arbitration involving
an alleged liability of the Company, any of its Subsidiaries or any other
Credit Party equal to or greater than $100,000 or any adverse determination
in any litigation or arbitration proceedings that singly or when aggregated
with all other outstanding litigation or arbitration claims involve a
potential liability of the Company, any of its Subsidiaries or any other
Credit Party equal to or greater than $100,000, an Officers' Certificate of
the Company specifying the nature and period of existence of any such
condition or event, or specifying the notice given or action taken by such
holder or Person and the nature of such claimed default (including any
Default), event or condition, and what action the Company has taken, is
taking or proposes to take with respect thereto;
(h) if and when any member of the ERISA Group (i) 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, a copy of the notice of such
reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA
or notice that any Multiemployer Plan is in reorganization, is insolvent or
has been terminated, a copy of such notice; (iii) receives notice from the
PBGC under Title IV of ERISA of an intent to terminate, impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or
appoint a trustee to administer any Plan, a copy of such notice; (iv)
applies for a waiver of the minimum funding standard under Section 412 of
the Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice
and other information filed with the PBGC; (vi) gives notice of withdrawal
from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or
(vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could
result in the imposition of a Lien or the posting of a bond or other
security, a certificate of the chief financial officer or the chief
accounting officer of the Company setting forth
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details as to such occurrence and action, if any, which the Company or
applicable member of the ERISA Group is required or proposes to take;
(i) copies of any reports or notices related to taxes and any other
material reports or notices received by the Company, any Subsidiary or any
other Credit Party from, or filed by the Company, any Subsidiary or any
other Credit Party with, any Federal, state or local governmental agency or
body regulating the activities of the Company any subsidiary or any other
Credit Party;
(j) within 30 days prior to the conclusion of each Fiscal Year, the
Company's annual operating and capital expenditure budgets and cash flow
forecast for the following Fiscal Year presented on a monthly basis, which
shall be in a format reasonably consistent with projections, budgets and
forecasts theretofore provided to the Lenders;
(k) together with each Notice of Borrowing and on the fifth Business
Day of each month, a Borrowing Base Certificate as of the close of business
of the last Business Day of the preceding month or, in the case of a
Working Capital Loan, as of the date required under Section 3.03(a) hereof;
(l) within three Business Days after any request therefor, such
information in such detail concerning the amount, composition and manner of
calculation of the Borrowing Base as any Lender may reasonably request;
(m) within twenty days after the end of each month, a report, in form
and substance acceptable to the Required Lenders, as to all accounts
receivable of the Company, any Subsidiary or any other Credit Party
outstanding as of the last day of such month (a "Receivables Report"),
which shall set forth in summary form an aging of such Receivables and such
other information as the Agent shall reasonably request;
(n) together with the next delivery of a Receivables Report after the
Company becomes aware thereof, notice of any dispute between any Third
Party Payor and the Company, any Subsidiary or any other Credit Party with
respect to any amounts due and owing that singly, or when aggregated with
all other similar disputes with other Third Party Payors, equals or exceeds
$100,000, with an explanation in reasonable detail of the reason for the
dispute, all claims related thereto and the amount in controversy; and
(o) with reasonable promptness, such other information and data with
respect to the Company, any Subsidiary or any other Credit Party as from
time to time may be reasonably requested by any Lender.
Section 5.02. Payment of Obligations. The Company (i) shall pay and
discharge, and cause each of its Subsidiaries to pay and discharge, at or before
maturity, all of their respective material obligations and liabilities,
including tax liabilities, except where the
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same may be the subject of a Permitted Contest, (ii) shall maintain, and cause
each of its Subsidiaries to maintain, in accordance with GAAP, appropriate
reserves for the accrual of any of the same and (iii) shall not breach or permit
any of its Subsidiaries or any other Credit Party to breach, in any material
respect, or permit to exist any default under, the terms of any material lease,
commitment, contract, instrument or obligation to which it is a party, or by
which its properties or assets are bound, subject to Permitted Contests.
Section 5.03. Conduct of Business and Maintenance of Existence. The
Company will continue, and will cause each of its Subsidiaries to continue, to
engage in business of the same general type as now conducted by the Company and
its Subsidiaries, and will preserve, renew and keep in full force and effect,
and will cause each Subsidiary and each other Credit Party to preserve, renew
and keep in full force and effect their respective corporate or partnership
existence and their respective rights, privileges and franchises necessary or
desirable in the normal conduct of business; provided that nothing contained in
this Section shall be deemed to prohibit any merger or consolidation permitted
under Section 6.06.
Section 5.04. Maintenance of Property; Insurance. (a) The Company
will keep, and will cause each of its Subsidiaries to keep, all property
necessary in its business in good working order and condition, ordinary wear and
tear excepted.
(b) The Company will maintain, and will cause each of its
Subsidiaries and each other Credit Party to maintain, (i) physical damage
insurance on all real and personal property on an all risks basis (including the
perils of flood and quake where reasonably required and available at a
reasonable cost), covering the repair and replacement of all such property and
consequential loss coverage for business interruption and extra expense,
covering such risks, for amounts not less than those, and with deductible
amounts not greater than those, set forth in Part I of Schedule 5.04, (ii)
public liability insurance (including products/completed operations liability
coverage and professional malpractice insurance) covering such risks, for
amounts not less than those, and with deductible amounts not greater than those,
set forth in Part II of Schedule 5.04 and (iii) such other insurance coverage in
such amounts and with respect to such risks as the Required Lenders may
reasonably request. All such insurance shall be provided by insurers having an
A.M. Best policyholders rating of not less than B+ or such other insurers as the
Required Lenders may approve in writing.
(c) On or prior to the Closing Date, the Company shall cause the
Agent to be named as an additional insured and loss payee on each insurance
policy required to be maintained pursuant to this Section 5.04. The Company
will deliver to the Lenders (i) on or prior to the Closing Date, a certificate
from the Company's insurance broker dated such date showing the amount of
coverage as of such date, and certifying that, in the opinion of such broker,
such amounts are reasonable and customary for companies of established repute
engaged in the same or a similar business, that such policies will include
effective waivers (whether under the terms of any such policy or otherwise) by
the insurer of all claims for insurance premiums against all loss payees and
additional insureds and all rights of subrogation against all loss payees and
additional insureds, and that if all or any part of such policy is
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canceled, terminated or expires, the insurer will forthwith give notice thereof
to each additional insured and loss payee and that no cancellation, reduction in
amount or material change in coverage thereof shall be effective until at least
30 days after receipt by each additional insured and loss payee of written
notice thereof, (ii) upon the request of the Agent from time to time full
information as to the insurance carried, (iii) within five days of receipt of
notice from any insurer, a copy of any notice of cancellation, nonrenewal or
material change in coverage from that existing on the date of this Agreement and
(iv) forthwith, notice of any cancellation or nonrenewal of coverage by the
Company, any Subsidiary or any other Credit Party.
(d) The Company will maintain a term life insurance policy payable to
the Agent for the ratable benefit of the Agent and the Lenders in form and
substance and issued by a life insurance company, in each case acceptable to the
Agent in its sole good faith discretion, with respect to the life of Dr.
Lawrence F. Halpert in an amount not less than $3,000,000 (the "Key-Man Life
insurance Policy"). Any proceeds payable to the Company under the Key-Man Life
Insurance Policy shall be paid to the Agent for application in accordance with
Section 9 of the Security Agreement.
Section 5.05. Compliance with Laws. The Company will comply, and
cause each of its Subsidiaries and each other Credit Party to comply with all
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities (including Environmental Laws and ERISA and the rules
and regulations thereunder), except for such noncompliances that, individually
or when aggregated with all other noncompliances, could not reasonably be
expected to have a Material Adverse Effect.
Section 5.06. Inspection of Property, Books and Records. The Company
will keep, and will cause each of its Subsidiaries and each other Credit Party
to keep, proper books of record and account in which full, true and correct
entries shall be made of all dealings and transactions in relation to its
business and activities; and will permit, and will cause each of its
Subsidiaries and each other Credit Party to permit, representatives of any
Lender to visit and inspect any of their respective properties, subject to
applicable law and professional responsibility that may limit information that
may be disclosed to the Lenders, to examine and make abstracts or copies from
any of their respective books and records, subject to applicable law and
professional responsibility that may limit information that may be disclosed to
the Lenders, to conduct a collateral audit and analysis of their respective
inventories and accounts receivable and to discuss their respective affairs,
finances and accounts with their respective officers, employees and independent
public accountants, all at such reasonable times and as often as may reasonably
be desired.
Section 5.07. Use of Proceeds. The proceeds of Working Capital Loans
shall be used by the Company solely for working capital needs of the Company and
its Subsidiaries. The proceeds of Acquisition Loans shall be used by the
Company solely to fund Acquisitions consented to by the Agent and the Lenders in
their sole good faith discretion. None of such proceeds will be used in
violation of any applicable law or regulation.
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Section 5.08. Further Assurances. The Company will, and the Company
will cause each of its Subsidiaries and each of the other Credit Parties to, at
its own cost and expense, cause to be promptly and duly taken, executed,
acknowledged and delivered all such further acts, documents and assurances (x)
as may from time to time be necessary or as the Required Lenders may from time
to time reasonably request in order to carry out the intent and purposes of the
Financing Documents and the transactions contemplated thereby, including all
such actions to establish, preserve, protect and perfect the estate, right,
title and interest of the Lenders to the Collateral (including Collateral
acquired after the date hereof), including first priority Liens thereon, subject
only to Permitted Liens and (y) as the Lenders may from time to time reasonably
request, to establish, preserve, protect and perfect first priority Liens in
favor of the Lenders on any and all assets of the Company and its Subsidiaries
and on the accounts receivable of the other Credit Parties and the proceeds
thereof, now owned or hereafter acquired, that are not Collateral on the date
hereof. The Company shall promptly give notice to the Agent of the acquisition
after the Agreement Date by the Company or any Subsidiary of any real property
(including leaseholds in respect of real property), trademark, copyright or
patent.
Section 5.09. Lenders' Meetings. Within 45 days after the end of
each fiscal quarter, the Company will conduct a meeting of the Lenders to
discuss such fiscal quarter's results and the financial condition of the Company
at which shall be present the chief executive officer and the chief financial
officer of the Company and such other officers of the Company as the Company's
chief executive officer shall designate. Such meetings shall be held at a time
and place convenient to the Lenders and to the Company.
Section 5.10. Hedging Facilities. If the aggregate principal amount
of Revolving Credit Loans outstanding reaches at any time an amount equal to or
greater than $15,000,000, and (i) the Index Rate shall at any such time be more
than 3.00% above the Index Rate in effect as of the Agreement Date and (ii) the
Company's ratio for the immediately preceding four fiscal quarters of (x)
Consolidated Free Cash Flow to (y) pro forma Total Interest Expense (as
calculated assuming that the higher Index Rate had been in effect during such
four-quarter period) shall be less than the minimum interest coverage ratio then
required under Section 6.17 hereof plus .25:1.0, then the Lenders may require
that the Company, at its sole cost and expense, enter into and thereafter
maintain in full force and effect one or more interest rate protection
agreements for such amounts and on such terms as shall reasonably be requested
by the Agent.
Section 5.11. Hazardous Materials; Remediation. The Company will (i)
promptly give notice to the Lenders in writing of any complaint, order,
citation, notice or other written communication from any Person with respect to,
or if the Company becomes aware of, (x) the existence or alleged existence of a
violation of any applicable Environmental Law or the incurrence of any
liability, obligation, loss, damage, cost, expense, fine, penalty or sanction or
the requirement to commence any remedial action resulting from or in connection
with any air emission, water discharge, noise emission, Hazardous Material or
any other environmental, health or safety matter at, upon, under or within any
of the properties now or previously owned, leased or operated by the Company,
any of its Subsidiaries or any other
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Credit Party, or due to the operations or activities of the Company, any
Subsidiary or any other Person on or in connection with any such property or any
part thereof or (y) any release on any of such properties of Hazardous Materials
in a quantity that is reportable under any applicable Environmental Law; (ii)
promptly comply, subject to Permitted Contests, with any governmental
requirements requiring the removal, treatment or disposal of such Hazardous
Materials or Hazardous Materials Contamination and provide evidence satisfactory
to the Required Lenders of such compliance; and (iii) provide the Lenders,
within 30 days after demand therefor by the Required Lenders, with a bond,
letter of credit or similar financial assurance evidencing to the satisfaction
of the Required Lenders that sufficient funds are available to pay the cost of
removing, treating and disposing of such Hazardous Materials or Hazardous
Materials Contamination and discharging any assessment which may be established
on any such property as a result thereof where the projected cost thereof
exceeds $50,000.
Section 5.12. Collateral Reports. The Company shall keep, and shall
cause each of its Subsidiaries and each other Credit Party to keep, accurate and
complete records of its accounts receivable in at least so much detail as to
enable the Company to provide the Receivables Reports and other information
described in Section 5.01.
Section 5.13. Collections; Right to Notify Account Debtors. At any
time following the occurrence of an Event of Default and during the continuance
thereof, in addition to the Lenders' rights under the Security Documents, the
Company hereby authorizes the Agent, at any time, to (i) notify any or all
account debtors that the accounts receivable of the Company, its Subsidiaries
and the other Credit Parties have been assigned to the Agent and that the Agent
has a security interest therein and (ii) direct such account debtors to make all
payments due from them to the Company, its Subsidiaries or the other Credit
Parties upon such accounts receivable directly to the Agent or to a lockbox
designated by the Agent. The Agent shall promptly furnish the Company with a
copy of any such notice sent. Any such notice, in the Agent's sole discretion,
may be sent on the Company's, such Subsidiary's or such Credit Party's
stationery, in which event the Company, such Subsidiary or such Credit Party
shall, if requested by the Agent, co-sign such notice with the Agent. At any
subsequent time that no Events of Default are continuing, the Agent will
withdraw such notice at the Company's request.
Section 5.14. Board Meetings. The Company will notify the Lenders of
all meetings and actions by written consent of the board of directors of the
Company and each committee thereof at the same time and in the same manner as
notice of any meetings of such board or committee is required to be given to its
directors who do not waive such notice (or, if such action requires no notice,
then 5 Business Days written notice thereof describing the matters upon which
action is to be taken). The Lenders shall have the right to send two
representatives selected by them to each such meeting, who shall be permitted to
attend such meeting and any adjournments thereof (other than any portion of such
meeting devoted to discussion of the Lenders solely in their respective
capacities as holders of the Notes).
Section 5.15. Enforcement of Covenants Not to Compete. The Company,
each of its Subsidiaries and each other Credit Party shall preserve, protect and
defend, to the
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extent permitted by applicable law, all of its rights, if any, with respect to
any covenant not to compete contained in any of the material contracts of such
Person or contained in any employment agreement with any employee whose annual
salary and other compensation payable by the Company, any Subsidiary or any
other Credit Party is $100,000 or more, unless the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
Section 5.16. Landlord and Warehouseman Waivers. The Company shall
use its best efforts to deliver to the Agent waivers of contractual and
statutory landlord's, landlord's mortgagee's and warehouseman's Liens in form
and substance satisfactory to the Agent under each existing lease, warehouse
agreement or similar agreement to which the Company or any Subsidiary is a
party; provided that, if such existing landlords, landlord's mortgagees or
warehousemen shall refuse to provide such waivers with regard to existing
leases, warehouse agreements, or similar agreements, the Company shall use its
further best efforts to have such waivers incorporated when the existing lease,
warehouse agreement or similar agreement is amended, renewed or extended and the
Company will obtain waivers of both contractual and statutory landlord's,
landlord's mortgagee's and warehouseman's Liens in form and substance
satisfactory to the Agent in connection with each new lease, warehouse agreement
or similar agreement entered into by the Company or any Subsidiary.
Section 5.17. Additional Subsidiaries. Promptly after the creation
or acquisition of any Subsidiary by Company, the Company shall execute and
deliver or cause to be executed and delivered, (i) a Subsidiary Guaranty
Agreement and a Subsidiary Security Agreement from such Subsidiary, (ii) a
Pledge Agreement from the parent of such Subsidiary, pledging all of the capital
stock of such Subsidiary, and (iii) such other related documents (including
documents relating to any additional Credit Parties) as the Lender may request,
all in form and substance reasonably satisfactory to the Agent.
Section 5.18. Accreditation and Licensing. The Company shall, and
shall cause each other Credit Party to, keep itself fully licensed with all
licenses required to operate such Person's business under applicable law and
maintain such Person's qualification for participation in, and payment under,
Medicare, Medicaid, CHAMPUS, CHAMPVA and any other federal, state or local
governmental program or private program providing for payment or reimbursement
for services rendered by such Person, except to the extent that the absence,
loss or relinquishment of such qualification would not or could not reasonably
be expected to have or result in a Material Adverse Effect; provided, however,
that nothing in this Agreement shall require the Company or any other Credit
Party to participate in the CHAMPUS or CHAMPVA programs if it elects not to
accept patients covered by such programs. The Company will promptly furnish the
Agent with copies of all reports and correspondence relating to any loss or
revocation (or threatened loss or revocation) of any qualification described in
this Section.
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Article VI
Negative Covenants
The Company agrees that, so long as any Lender has any Commitment
hereunder or any amount payable under any Note remains unpaid:
Section 6.01. Debt. The Company will not, and will not permit any of
its Subsidiaries or any other Credit Party to, directly or indirectly, create,
incur, assume, guarantee or otherwise become or remain directly or indirectly
liable with respect to, any Debt, except for:
(a) Debt of the Company or its Subsidiaries outstanding on the date
of this Agreement as set forth in Schedule 6.01 and any Permitted
Refinancing thereof;
(b) Debt of the Company under the Financing Documents;
(c) Debt of the Company or any of its Subsidiaries or any other
Credit Party incurred or assumed for the purpose of financing all or any
part of the cost of acquiring any fixed asset (including through Capital
Leases), in an aggregate principal amount at any time outstanding not
greater than $850,000;
(d) Debt of the Company or any of its Subsidiaries or any other
Credit Party to the Company or a wholly-owned Subsidiary of the Company;
(e) Purchase money Debt incurred in connection with Acquisitions, to
the extent sufficient funds have been deposited in escrow for payment of
such Debt upon terms satisfactory to the Agent and the Required Lenders;
(f) Other purchase money Debt of the Company incurred in connection
with an acquisition in accordance with terms and conditions of Section
6.07, not to exceed $250,000 incurred in any Fiscal Year, which Debt shall
be subordinated in all respects to any and all Debt of the Company to the
Agent and the Lenders, upon terms and conditions satisfactory to the
Lenders;
(g) Debt constituting liabilities under letters of credit, surety
bonds or similar instruments issued in the ordinary course of business to
secure bids, purchase orders, statutory obligations such as workers'
compensation insurance or sales tax bonds, operating leases and similar
obligations (but not Debt), provided that the aggregate outstanding
obligation (whether fixed or contingent, drawn or undrawn) of the Company,
its Subsidiaries and the other Credit Parties under all such instruments
shall not at any time exceed $100,000; and
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(h) Other Debt of the Company and its Subsidiaries in an aggregate
principal amount (whether fixed or contingent, drawn or undrawn) not to
exceed at any time $100,000.
Section 6.02. Negative Pledge. None of the Company, any Subsidiary
or any other Credit Party will create, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, except:
(a) any Lien on any asset securing Debt permitted under Section
6.01(c) incurred or assumed for the purpose of financing all or any part of
the cost of acquiring such asset, provided that such Lien attaches to such
asset concurrently with or within 90 days after the acquisition thereof,
and provided further that the principal amount of the Debt secured shall
not be less than 70% of the value of the asset subject to such Lien;
(b) Liens existing on the date of this Agreement securing Debt
permitted by Section 6.01(a);
(c) Liens arising in the ordinary course of its business which (i) do
not secure Debt, (ii) do not secure any obligation in an amount exceeding
$100,000 and (iii) do not in the aggregate materially detract from the
value of its assets or materially impair the use thereof in the operation
of its business;
(d) any Lien in favor of the escrow agent or beneficiary on funds
deposited in escrow to secure Debt permitted under Section 6.01(e);
(e) Liens arising in connection with Debt incurred pursuant to
Section 6.07; provided, however such Lien shall be subordinate to any Lien
under paragraph (g) below upon terms and conditions satisfactory to the
Agent;
(f) Liens constituting encumbrances in the nature of zoning
restrictions, easements and rights or restrictions of record on the use of
real property and statutory landlord's and lessor's liens under leases on
premises rented, that do not materially detract from the value of such
property or impair the use thereof in the business of the Company or any
Subsidiary; and
(g) Liens created by the Security Documents.
Section 6.03. Capital Stock. The Company will not, and will not
permit any Subsidiary to, issue any shares of capital stock except for: (i) in
the case of any Subsidiary, shares of capital stock issued by such Subsidiary to
the Company or another wholly-owned Subsidiary which are delivered to the Agent
in pledge for the benefit of the Agent and the Lenders; (ii) shares of Common
Stock of the Company issued in a widely disbursed bona fide public offering, or
to employees pursuant to various employee stock plans or incentive arrangements;
(iii) shares of Common Stock of the Company issued as a part of the
consideration for acquisitions permitted under Section 6.07; or (iv) preferred
stock of the
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Company provided such preferred stock is subordinated to the Obligations in all
respects on terms and conditions acceptable to the Required Lenders in their
sole good faith discretion.
Section 6.04. Restricted Payments. The Company will not, and will
not permit any Subsidiary to, directly or indirectly, declare, order, pay, make
or set apart any sum for any Restricted Payment or make any payment in respect
of any Additional Acquisition Liabilities; provided that the foregoing shall not
restrict or prohibit dividends or distributions by the Company at such times or
in such amounts as are necessary to permit purchases of shares of (or options to
purchase shares of) Common Stock from employees of the Company or of any
Subsidiary upon their death, termination or retirement, so long as, (x) before
and after giving effect to any such dividend or distribution for such purpose,
no Default shall have occurred and be continuing and (y) such purchases or
payments after the date hereof do not exceed in any one Fiscal Year $100,000 and
do not exceed in the aggregate over the term of this Agreement $500,000.
Section 6.05. ERISA. The Company will not, and will not permit any
of its Subsidiaries to:
(a) engage in any transaction in connection with which the Company or
any of its Subsidiaries could be subject to any material liability arising
from either a civil penalty assessed pursuant to Section 502(i) of ERISA or
a tax imposed by Section 4975 of the Code;
(b) terminate any Plan in a manner, or take any other action, which
could result in any material liability of any member of the ERISA Group to
the PBGC;
(c) fail to make full payment when due of all amounts which, under
the provisions of any Plan, it is required to pay as contributions thereto,
or permit to exist any accumulated funding deficiency, whether or not
waived, with respect to any Plan;
(d) permit the present value of all benefit liabilities under all
Plans to exceed the fair market value of the assets of such Plans; or
(e) fail to make any payments to any Multiemployer Plan that it may
be required to make under any agreement relating to such Multiemployer Plan
or any law pertaining thereto.
Section 6.06. Consolidations, Mergers and Sales of Assets. The
Company will not, and will not permit any of its Subsidiaries to, (i)
consolidate or merge with or into any other Person, except that, if after giving
effect thereto no Default would exist, this Section 6.06 shall not apply to (x)
any merger or consolidation of the Company with any Subsidiary of the Company,
provided that the Company shall be the surviving entity, (y) any merger or
consolidation of any Subsidiary with any other Subsidiary of the Company, or any
merger of a Subsidiary with another corporation in connection with an
acquisition permitted under Section 6.07, if, after giving effect thereto, the
surviving entity is a wholly-owned Subsidiary of the
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Company that has no Debt other than Debt permitted under Section 6.01; or (ii)
sell, lease or otherwise transfer, directly or indirectly, any of its or their
assets, other than (v) sales of any asset or group of related assets, the value
of which does not exceed $10,000, (w) sales of inventory in the ordinary course
of their respective businesses, (x) dispositions of Temporary Cash Investments,
(y) the factoring of receivables prior to June 30, 1997 by DentalCo Provider
Network, Inc. arising from the practice of John Offerdahl, D.M.D., provided that
the outstanding amount of such factored receivables shall not exceed at any time
outstanding the amount of $60,000, and (z) other dispositions for cash and fair
value of assets that the board of directors of the Company determines in good
faith are no longer used or useful in the business of the Company and its
Subsidiaries, provided that immediately after any such disposition, the
aggregate fair market value of all such assets disposed of pursuant to this
clause (z) after the date hereof does not exceed $250,000 and the aggregate fair
market value of all such assets during the Fiscal Year in which such disposition
is made does not exceed $50,000.
Section 6.07. Purchase of Assets, Investments. The Company will not,
and will not permit any Subsidiary to, acquire any assets other than in the
ordinary course of business, or to make, acquire or own any Investment in any
Person other than (a) Temporary Cash Investments, (b) Investments in
Subsidiaries or the Company, and (c) (i) acquisitions of a dental practice or
the assets of a dental practice or an Investment in a dental practice which
acquisition or Investment the chief financial officer shall certify to the Agent
meets the following criteria:
(v) the dental practice or group to be acquired will not represent more
than 33% of the pro forma consolidated revenues of the Company,
(w) the purchase price is not more than seven (7) times greater than the
pro forma EBITDA (as adjusted for the normalization of dentists'
compensation and the conversion of accounting procedures and practices to
GAAP) estimated for such dental practice for the first year after the
acquisition,
(x) the sole consideration for such purchase is the issuance of Common
Stock and/or a seller note that is subordinate to the Obligations on terms
and conditions satisfactory to the Agent and/or cash on hand provided that
the cash portion of any such consideration shall not exceed $500,000 in the
aggregate for all such acquisitions, and
(y) the Service Agreement and other agreements executed in connection with
such acquisition contain terms that are identical (except for price and
payment terms and such other terms as may be customary for similar
transactions in the jurisdiction in which the dental practice being
acquired is located) in all material respects to the terms of acquisitions
made by the Company through the Agreement Date or such other terms as are
approved by the Agent and the Required Lenders upon the Company's request,
and
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(z) the Company shall provide to the Agent a certificate immediately prior
to such Acquisition demonstrating to the Agent's reasonable satisfactions
that both before and after giving effect to such acquisition no Default
will have occurred and be continuing,
or (ii) Approved Acquisitions or other Acquisitions approved by the Required
Lenders in their sole good faith discretion. Without limiting the generality of
the foregoing, the Company will not, and will not permit any Subsidiary to, (i)
acquire or create any Subsidiary without the consent of the Required Lenders and
arrangements satisfactory to the Required Lenders for (x) a pledge of the stock
of such Subsidiary to the Agent for the benefit of the Lenders, (y) a guaranty
by such Subsidiary of the obligations of the Company hereunder and (z) a grant
of a Lien on all of the assets of such Subsidiary, and on all the accounts
receivables of all Credit Parties related to such Subsidiary, to the Agent for
the benefit of the Agent and the Lenders to secure such guaranty or (ii) engage
in any joint venture or partnership with any other Person.
Section 6.08. Transactions with Affiliates. The Company will not,
and will not permit any Subsidiary or other Credit Party to, directly or
indirectly, enter into or permit to exist any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company, on terms that are less favorable to
the Company, such Subsidiary or Credit Party, as the case may be, than those
which might be obtained at the time from a Person who is not an Affiliate of the
Company.
Section 6.09. Amendments or Waivers. Without the prior written
consent of the Required Lenders, the Company will not, nor will it permit any
Subsidiary to, agree to (i) any amendment to or waiver of or in respect of the
certificate or articles of incorporation or Bylaws of the Company or any
Financing Document or (ii) any other material amendment to or waiver of any
material contract constituting a part of the Collateral.
Section 6.10. Fiscal Year. The Company shall not change its fiscal
year from a fiscal year ending December 31.
Section 6.11. Management Compensation. The Company shall not, and
shall not permit any Subsidiary to, directly or indirectly, pay or become
obligated to pay, any compensation for services in any form to or for the
account of Dr. Lawrence F. Halpert or Carl J. Sardegna, except as expressly
provided in the Employment Contracts.
Section 6.12. Investor Fees. The Company shall not, and shall not
permit any Subsidiary to, directly or indirectly, pay or become obligated to pay
any fees or other amounts to or for the account of any Investor.
Section 6.13. Capital Expenditures. The aggregate amount of
Consolidated Capital Expenditures shall not exceed, during the Company's fiscal
year ending December 31, 1997, 2.0% of Consolidated Revenue during such fiscal
year, or during any fiscal year ending thereafter, 1.0% of Consolidated Revenue
during such fiscal year.
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Section 6.14. Total Debt Service Coverage Ratio. The Company shall
not permit the ratio determined as of the last day of any fiscal quarter for the
immediately preceding four fiscal quarters of (i) Consolidated Free Cash Flow to
(ii) Total Debt Service, to be less than 1.20:1.0.
Section 6.15. Debt to Capitalization. At no time while this
Agreement is in effect or there are any obligations of the Company or any of its
Subsidiaries to the Lenders outstanding, shall the ratio of (i) Consolidated
Total Debt at such time to (ii) Consolidated Capitalization at such time exceed
at any time during any period set forth below, the amount set forth for such
period below:
Period Ratio
------ -----
Agreement Date through December 31, 1998 70%
All times thereafter 60%
Section 6.16. Debt to EBITDA. At no time while this Agreement is in
effect or there are any obligations of the Company or any of its Subsidiaries to
the Lenders outstanding, shall the ratio of (i) Consolidated Total Debt at such
time to (ii) EBITDA for the twelve-month period then most recently ended and for
which financial statements have been provided to the Agent and the Lenders
(considered as a single accounting period), exceed for any period, the amount
set forth for such period below:
Period Ratio
------ -----
Agreement Date through December 31, 1997 3.50:1.0
January 1, 1998 through December 31, 1998 3.25:1.0
All times thereafter 3.00:1.0
Section 6.17. Minimum Interest Coverage. The Company shall not permit
the ratio, calculated on the last day of any fiscal quarter for the immediately
preceding four quarters of (i) Consolidated Free Cash Flow to (ii) Total
Interest Expense to be less than the ratio set forth below opposite the period
in which such last day shall fall:
Period Ratio
------ -----
Agreement Date through December 31, 1998 2.00:1.0
January 1, 1999 through December 31, 1999 2.25:1.0
January 1, 2000 through December 31, 2000 2.75:1.0
January 1, 2001 through December 31, 2001 3.00:1.0
All times thereafter 3.25:1.0
Section 6.18. Minimum Net Worth. At no time shall Consolidated Net
Worth be less than the sum of:
(i) actual Consolidated Net Worth as of the Agreement Date, plus
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(ii) 75% of the positive amount of Consolidated Net Income for each
fiscal period ended after the Agreement Date, plus
(iii)the Net Proceeds of Capital Stock received following the
Agreement Date.
Section 6.19. Operating Lease Expense. The aggregate amount of
Consolidated Operating Lease Expense shall not exceed $1,200,000 during any
fiscal year of the Company.
Section 6.20. Pro Forma Calculations. (a) In delivering pro forma
covenant calculations for or including any entity that is the target of an
acquisition (whether such information is required pursuant to Section 3.02 or
Section 6.07 or otherwise), the Company shall use the actual EBITDA or revenues,
as the case may be, for the target over the relevant period, as if such target
had been a Subsidiary of the Company during such period.
(b) During the calendar year 1997, there shall be added to EBITDA in each
calculation thereof for purposes of Sections 6.14, 6.16 and 6.17, the Proforma
EBITDA Adjustment. For purposes of this Section 6.20(b), the "Pro Forma EBITDA
Adjustment" shall mean, at any time, an amount equal to (i) $3,200,000 (provided
such amount shall be reduced for each Approved Acquisition not consummated at
such time by the portion of such adjustment amount designated on Schedule 6.20
hereto for the target of such Acquisition), which amount shall be reduced on a
cumulative basis for each full calendar month which shall have elapsed from
January 1, 1997 to the date of such determination by an amount equal to 6.67% of
such amount for each month occurring in the first and fourth fiscal quarters of
the Company and by 10% of such amount for each month occurring in the second and
third fiscal quarters of the Company, plus (ii) $2,410,000 (provided such amount
shall be reduced by $1,600,000 if the acquisition of Nanston, Inc. is not
consummated at such time), which amount shall likewise be reduced on a
cumulative basis by one-twelfth (1/12th) of such amount for each full calendar
month which shall have elapsed from January 1, 1997 to the date of such
determination.
Upon receipt of the Company's audited financial statements pursuant to
Section 5.01(b) for the year ended December 31, 1996, the Agent and the Required
Lenders may in their good faith discretion adjust the Pro Forma EBITDA
Adjustment in the event that the actual EBITDA of the Company disclosed in such
financial statements shall be materially different from the estimated EBITDA
used for purposes of initially determining the Pro Forma EBITDA Adjustment.
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Article VII
Events of Default
Section 7.01. Events of Default. If any one or more of the following
events (each an "Event of Default") shall occur and be continuing for any reason
whatsoever (whether voluntary or involuntary, by operation of law or otherwise):
(a) the Company shall fail to pay any principal amount due hereunder
when due, or shall fail to pay any interest or premium on any Note, or any
fees or any other amount payable hereunder within 3 days following the due
date therefor;
(b) the Company or any of its Subsidiaries or any other Credit Party
shall fail to observe or perform any covenant applicable to it contained in
Section 5.13, or Article VI hereof, or the Company shall fail to perform or
observe any covenant contained in Section 5 or Sections 4(A), (E) or (I) of
the Company Security Agreement or Section 3(B) of the Company Pledge
Agreement or any Subsidiary shall fail to perform or observe any covenant
contained in Section 5 or Sections 4(A), (E) or (I) of any Subsidiary
Security Agreement or Section 3(b) of any Subsidiary Pledge Agreement or
any Credit Party shall fail to perform or observe any covenant contained in
any Professional Service Provider Security Agreement;
(c) the Company, any of its Subsidiaries or any other Credit Party
shall fail to observe or perform any covenant or agreement contained in the
Financing Documents (other than those covered by clause (a) or (b) above)
for 30 days after notice thereof has been given to the Company by the
Agent;
(d) any representation, warranty, certification or statement made by
the Company, any of its Subsidiaries or any other Credit Party in any
Financing Document or in any certificate, financial statement or other
document delivered pursuant to the Financing Documents shall prove to have
been incorrect in any respect (or in any material respect if such
representation, warranty, certification or statement is not by its terms
already qualified as to materiality) when made (or deemed made);
(e) the Company, any of its Subsidiaries or any other Credit Party
shall fail to make any payment in respect of any Debt (other than the
Notes) the aggregate outstanding principal amount of which Debt, either
singly or when aggregated with all other Debt with respect to which the
Company, any of its Subsidiaries or any other Credit Party has failed to
make a payment equals or exceeds $100,000 (such Debt, hereinafter "Material
Debt");
(f) any event or condition shall occur which (i) results in the
acceleration of the maturity of any Material Debt of the Company, any of
its Subsidiaries or any other Credit Party, or (ii) enables (or, with the
giving of notice or lapse of time or both, would enable) the holder of such
Debt or any Person acting on such holder's behalf to
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accelerate the maturity thereof, or (iii) results in a violation of, or a
default under, any provision of the certificate of incorporation of the
Company;
(g) The Company, any of its Subsidiaries or any other Credit Party
shall commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidation, custodian
or other similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become due, or
shall take any corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Company, any of its Subsidiaries or any other Credit Party
seeking liquidation, reorganization or other relief with respect to it or
its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of 90 days; or an order for
relief shall be entered against the Company, any of its Subsidiaries or any
other Credit Party under the federal bankruptcy laws as now or hereafter in
effect;
(i) any one or more members of the ERISA Group shall fail to pay when
due an amount or amounts aggregating in excess of $100,000 which it shall
have become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA
to terminate, to impose liability (other than for premiums under Section
4007 of ERISA) in respect of, or to cause a trustee to be appointed to
administer any Material Plan; or a condition shall exist by reason of which
the PBGC would be entitled to obtain a decree adjudicating that any
Material Plan must be terminated; or there shall occur a complete or
partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause one or more members of the ERISA Group to incur a current
payment obligation in excess of $100,000;
(j) a judgment or order for the payment of money which when
aggregated with other such judgments or orders equals or exceeds $100,000,
shall be rendered against, the Company, any of its Subsidiaries or any
other Credit Party and such judgment or order shall continue unsatisfied
and unstayed for a period of 10 days or any judgment shall be rendered
against the Company, any Subsidiary or any other Credit Party that exceeds
by more than $100,000 any insurance coverage applicable thereto;
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(k) except as the result of any transfer made pursuant to the Company
Pledge Agreement or a Subsidiary Pledge Agreement, the Company or a
wholly-owned Subsidiary shall fail at any time to be the record and
beneficial owner of 100% of the issued and outstanding capital stock any
Subsidiary, free and clear of any Lien; any person or group of persons
(within the meaning of Rule 13d-3 promulgated by the Securities and
Exchanges Commission under the Securities Exchange Act of 1934, as
amended), other than the current owners and dental professionals who
acquire Common Stock as consideration for acquisitions, shall have acquired
beneficial ownership (within the meaning of such Rule 13d-3) of 5% or more
of the Common Stock of the Company; or Dr. Lawrence F. Halpert and Carl J.
Sardegna (such persons, hereinafter referred to as "Management") shall
cease to perform the functions of chief executive officer and chief
operating officer, respectively, of the Company and a successor shall not
have been appointed by the Company and approved by the Required Lenders
within 90 days thereafter; or any member of Management shall cease to own
beneficially at least the number of shares (determined assuming the
exercise of all options or warrants to purchase Common Stock held by such
Person and adjusted for stock splits, combinations and similar events) of
Common Stock owned by such Person on the Agreement Date (determined as
aforesaid); or, during any period of twelve consecutive calendar months,
individuals who were directors of the Company on the first day of such
period shall cease to constitute a majority of the board of directors of
the Company;
(l) the auditor's report or reports on the audited statements
delivered pursuant to Section 5.01 shall include any material qualification
(including with respect to the scope of audit) or exception;
(m) the Lien created by any of the Security Documents shall at any
time fail to constitute a valid and perfected Lien on any portion of the
Collateral purported to be secured thereby which is deemed material by the
Agent in its good faith discretion, subject to no prior or equal Lien
except Permitted Liens, or the Company, any of its Subsidiaries or any
Credit Party shall so assert in writing;
(n) the Company, any of its Subsidiaries or any Credit Party shall be
prohibited or otherwise materially restrained from conducting the business
theretofore conducted by it by virtue of any determination, ruling,
decision, decree or order of any court or governmental authority of
competent jurisdiction and such determination, ruling, decision, decree or
order remains unstayed and in effect for any period of 10 days beyond any
period for which any business interruption insurance policy of the Company,
its Subsidiaries or such Credit Party shall provide full coverage to the
such person of any losses and lost profits; or
(o) any of the Financing Documents shall for any reason fail to
constitute the valid and binding agreement of any Credit Party thereto to
the extent described in Section 4.03, or any such party shall so assert in
writing;
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then, and in every such event and at any time thereafter during the continuance
of such event, the Agent shall if requested by the Required Lenders, (i) by
notice to the Company terminate the Commitments and they shall thereupon
terminate and/or (ii) by notice to the Company declare the Notes (together with
accrued interest thereon) to be, and the Notes shall thereupon become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Company; provided that in the
case of any of the Events of Default specified in clause (g) or (h) above with
respect to the Company, without any notice to the Company or any other act by
the Agent or the Lenders, the Commitments shall thereupon terminate and the
Notes (together with accrued interest thereon) shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Company.
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Article VIII
Fees, Expenses and Indemnities;
General Provisions relating to Payments
Section 8.01. Fees. (a) Participation Fees. On the Agreement
Date, the Company shall pay to the Agent for the ratable accounts of the
Lenders, a one time, non-refundable fee on the Revolving Credit Commitments
equal to the sum of: (i) 1.25% multiplied by the first $17,500,000 of the
Revolving Credit Commitments, plus (ii) 0.625% multiplied by the remaining
$7,500,000 of the Revolving Credit Commitments.
(b) Additional Usage Fee. On the first date that the aggregate
unpaid principal amount of the Loans outstanding under the Revolving Credit
Facility exceeds $17,500,000, the Company shall pay to the Agent for the ratable
accounts of the Lenders, a fee in an amount equal to 0.625% multiplied by the
product of the amount of the Revolving Credit Commitments then in effect less
$17,500,000.
(c) Unused Commitment Fee. During the period from the Closing Date
through the Availability Termination Date, the Company shall pay to the Agent
for the ratable account of the Lenders a fee equal to (i) so long as the
aggregate unpaid principal amount of the Loans shall never, during the life of
this Agreement, have exceeded $17,500,000, 1/2 of 1% per annum on the daily
average amount by which $17,500,000 (or if less, the amount of the Revolving
Credit Commitments) exceeds the aggregate outstanding principal amount of the
Loans, and (ii) in all other cases, 1/2 of 1% per annum on the daily average
amount by which the amount of the Revolving Credit Commitments exceeds the
aggregate outstanding principal amount of the Loans. Accrued fees under this
Section shall be payable quarterly in arrears on each Quarterly Date prior to
the Availability Termination Date and on such date.
Section 8.02. Computation of Interest and Fees. Commitment fees
pursuant to Section 8.01(c) and all interest hereunder and under the Notes shall
be calculated on the basis of a 360-day year for the actual number of days
elapsed.
Section 8.03. General Provisions Regarding Payments. All payments
(including prepayments) to be made by the Company under any Financing Document,
including payments of principal of and premium and interest on the Notes, fees,
expenses and indemnities, shall be made without set-off or counterclaim and in
immediately available funds. If any payment hereunder becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension. The
Company shall make all payments in immediately available funds to each Lender's
Payment Account before 11:00 A.M. (New York City time) on the date when due.
Each payment (including prepayments) by the Company on account of principal of
and interest on any Loans shall be made pro rata according to the respective
outstanding principal amounts of Loans held by each Lender. All amounts payable
by the Company hereunder or under any other Financing Document not paid when due
(other than payments of principal and interest on
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the Notes, which shall bear interest as set forth therein) shall bear interest,
payable on demand, for each day until paid at a rate per annum equal to the
Default Rate.
Section 8.04. Expenses. Whether or not the transactions contemplated
hereby shall be consummated, the Company agrees to pay on demand (i) all
reasonable costs and expenses of preparation of this Agreement, the other
Financing Documents and of the Company's, each Subsidiary's and each other
Credit Party's performance of and compliance with all agreements and conditions
contained herein and therein, (ii) the reasonable fees, expenses and
disbursements of counsel to, and independent appraisers and consultants retained
by, the Lenders in connection with the negotiation, preparation, execution and
administration of this Agreement, the other Financing Documents and any
amendments hereto or thereto and waivers hereof and thereof, (iii) all
reasonable costs and expenses of creating, perfecting and maintaining Liens
pursuant to the Financing Documents, including filing and recording fees and
expenses, the costs of any bonds required to be posted in respect of future
filing and recording fees and expenses, title investigations and fees and
expenses of such local counsel as the Agent shall request, (iv) the reasonable
fees, expenses and disbursements of independent accountants or other experts
retained by the Agent in connection with accounting and collateral audits or
reviews of the Company, its Subsidiaries and its and their affairs, and (v) if
an Event of Default occurs, all out-of-pocket expenses incurred by the Agent and
each Lender, including fees and disbursements of counsel, in connection with
such Event of Default and collection, bankruptcy, insolvency and other
enforcement proceedings resulting therefrom. The Agent shall have the right to
charge any account of the Company for amounts due under this Section, and may
cause the Company to incur a Loan in such amounts as may be necessary to repay
such Obligations.
Section 8.05. Indemnity. Whether or not the transactions
contemplated hereby shall be consummated, the Company agrees to indemnify, pay
and hold harmless the Agent and each Lender and any subsequent holder of any of
the Notes, and the officers, directors, employees and agents of the Agent, each
Lender and such holders (collectively called the "Indemnitees") from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including the fees and disbursements of counsel for such
Indemnitee) in connection with any investigative, administrative or judicial
proceeding, whether or not such Indemnitee shall be designated a party thereto
and including any such proceeding initiated by or on behalf of the Company, any
Subsidiary or any other Credit Party, and the expenses of investigation by
engineers, environmental consultants and similar technical personnel and any
commission, fee or compensation claimed by any broker (other than any broker
retained by NationsCredit) asserting any right to payment for the transactions
contemplated hereby, which may be imposed on, incurred by or asserted against
such Indemnitee as a result of or in connection with the transactions
contemplated hereby or by the other Financing Documents (including (i)(A) as a
direct or indirect result of the presence on or under, or escape, seepage,
leakage, spillage, discharge, emission or release from, any property now or
previously owned, leased or operated by the Company or any of its Subsidiaries
of any Hazardous Materials or any Hazardous Materials Contamination, (B) arising
out of or relating to the offsite disposal of any materials generated or present
on any such property or (C) arising out of or resulting from
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the environmental condition of any such property or the applicability of any
governmental requirements relating to Hazardous Materials, whether or not
occasioned wholly or in part by any condition, accident or event caused by any
act or omission of the Company or any of its Subsidiaries, and (ii) proposed and
actual extensions of credit under this Agreement) and the use or intended use of
the proceeds of the Notes, except that the Company shall have no obligation
hereunder to an Indemnitee with respect to any liability resulting solely from
the gross negligence or willful misconduct of such Indemnitee. To the extent
that the undertaking set forth in the immediately preceding sentence may be
unenforceable, the Company shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all such indemnified liabilities incurred by the Indemnitees or
any of them. Without limiting the generality of any provision of this Section,
to the fullest extent permitted by law, the Company hereby waives all rights for
contribution or any other rights of recovery with respect to liabilities,
losses, damages, costs and expenses arising under or relating to Environmental
Laws that it might have by statute or otherwise against any Indemnitee; except
to the extent that any thereof are finally determined by a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
such Indemnitee.
Section 8.06. Taxes. The Company agrees to pay all governmental
assessments, charges or taxes (except income or other similar taxes imposed on
any Lender or any holder of a Note), including any interest or penalties
thereon, at any time payable or ruled to be payable in respect of the existence,
execution or delivery of this Agreement, the other Financing Documents, or the
issuance of the Notes, and to indemnify and hold each Lender and each and every
holder of the Notes harmless against liability in connection with any such
assessments, charges or taxes.
Section 8.07. Funding Losses. If the Company fails to borrow any
Loans after notice has been given to any Lender in accordance with Section 2.04
or make any payment when due (including pursuant to a notice of optional
prepayment), the Company shall reimburse each Lender within 15 days after demand
for any resulting loss or expense incurred by it (or by an existing or
prospective participant in the related Loan), including any loss incurred in
obtaining, liquidating or employing deposits from third parties, but excluding
loss of margin for the period after any such payment or failure to borrow;
provided that such Lender shall have delivered to the Company a certificate
calculating in reasonable detail the amount of such loss or expense, which
certificate shall be conclusive in the absence of manifest error.
Section 8.08. Maximum Interest. (a) In no event shall the interest
charged with respect to the Notes or any other obligations of the Company or any
Subsidiary under the Financing Documents exceed the maximum amount permitted
under the laws of the State of Georgia or of any other applicable jurisdiction.
(b) Notwithstanding anything to the contrary herein or elsewhere, if
at any time the rate of interest payable for the account of any Lender hereunder
or under the Notes or other Financing Documents (the "Stated Rate") would exceed
the highest rate of interest
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permitted under any applicable law to be charged by such Lender (the "Maximum
Lawful Rate"), then for so long as the Maximum Lawful Rate would be so exceeded,
the rate of interest payable for the account of such Lender shall be equal to
the Maximum Lawful Rate; provided, that if at any time thereafter the Stated
Rate is less than the Maximum Lawful Rate, the Company shall, to the extent
permitted by law, continue to pay interest for the account of such Lender at the
Maximum Lawful Rate until such time as the total interest received by such
Lender is equal to the total interest which such Lender would have received had
the Stated Rate been (but for the operation of this provision) the interest rate
payable. Thereafter, the interest rate payable for the account of such Lender
shall be the Stated Rate unless and until the Stated Rate again would exceed the
Maximum Lawful Rate, in which event this provision shall again apply.
(c) In no event shall the total interest received by any Lender
exceed the amount which such Lender could lawfully have received had the
interest been calculated for the full term hereof at the Maximum Lawful Rate
with respect to such Lender.
(d) In computing interest payable with reference to the Maximum
Lawful Rate applicable to any Lender, such interest shall be calculated at a
daily rate equal to the Maximum Lawful Rate divided by the number of days in the
year in which such calculation is made.
(e) If any Lender has received interest hereunder in excess of the
Maximum Lawful Rate with respect to such Lender, such excess amount shall be
applied to the reduction of the principal balance of its Loans or to other
amounts (other than interest) payable hereunder, and if no such principal or
other amounts are then outstanding, such excess or part thereof remaining shall
be paid to the Company.
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Article IX
The Agent
Section 9.01. Appointment and Authorization. Each Lender irrevocably
appoints and authorizes the Agent to enter into each of the Security Documents
on its behalf and to take such action as agent on its behalf and to exercise
such powers under the Financing Documents as are delegated to the Agent by the
terms thereof, together with all such powers as are reasonably incidental
thereto.
Section 9.02. Agent and Affiliates.. NationsCredit shall have the
same rights and powers under the Financing Documents as any other Lender and may
exercise or refrain from exercising the same as though it were not the Agent,
and NationsCredit and its affiliates may lend money to and generally engage in
any kind of business with the Company or any Subsidiary or affiliate of the
Company as if it were not the Agent hereunder.
Section 9.03. Action by Agent. The obligations of the Agent
hereunder are only those expressly set forth herein and under the other
Financing Documents. Without limiting the generality of the foregoing, the
Agent shall not be required to take any action with respect to any Default,
except as expressly provided in Article VII.
Section 9.04. Consultation with Experts. The Agent may consult with
legal counsel (who may be counsel for the Company), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
Section 9.05. Liability of Agent. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
not taken by it in connection with the Financing Documents (i) with the consent
or at the request of the Required Lenders or (ii) in the absence of its own
gross negligence or willful misconduct. Neither the Agent nor any of its
directors, officers, agents or employees shall be responsible for or have any
duty to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with any Financing Document or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Company; (iii) the satisfaction of any condition specified in
Article III, except receipt of items required to be delivered to the Agent; or
(iv) the validity, effectiveness, sufficiency or genuineness of any Financing
Document or any other instrument or writing furnished in connection therewith.
The Agent shall not incur any liability by acting in reliance upon any notice,
consent, certificate, statement, or other writing (which may be a bank wire,
telex, facsimile transmission or similar writing) believed by it to be genuine
or to be signed by the proper party or parties.
Section 9.06. Indemnification. Each Lender shall, ratably in
accordance with its Revolving Credit Commitment (whether or not the Revolving
Credit Commitments have been terminated), indemnify the Agent (to the extent not
reimbursed by the Company) against any cost, expense (including counsel fees and
disbursements), claim, demand, action,
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loss or liability (except such as result from the Agent's gross negligence or
willful misconduct) that the Agent may suffer or incur in connection with the
Financing Documents or any action taken or omitted by the Agent hereunder or
thereunder.
Section 9.07. Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges 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 credit decisions in taking or
not taking any action under the Financing Documents.
Section 9.08. Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Lenders and the Company. Upon any such
resignation, the Required Lenders shall have the right to appoint a successor
Agent which, absent the occurrence and continuance of a Default, must be
reasonably acceptable to the Company. If no successor Agent shall have been so
appointed by the Required Lenders, and shall have accepted such appointment,
within 30 days after the retiring Agent gives notice of resignation, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which
shall be an institution organized or licensed under the laws of the United
States of America or of any State thereof. Upon the acceptance of its
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.
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Article X
Miscellaneous
Section 10.01. Survival. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement and the other Financing Documents and the execution, sale and delivery
of the Notes. The indemnities and agreements set forth in Articles VIII and IX
shall survive the payment of the Notes and the termination of this Agreement.
Section 10.02. No Waivers. No failure or delay by the Agent or any
Lender in exercising any right, power or privilege under any Financing Document
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein and therein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 10.03. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including prepaid
overnight courier, telex, facsimile transmission or similar writing) and shall
be given to such party at its address or telecopy or telex number set forth on
the signature pages hereof (or, in the case of any such Lender who becomes a
Lender after the date hereof, in a notice delivered to the Company and the Agent
by the assignee Lender forthwith upon such assignment) or at such other address
or telecopy or telex number as such party may hereafter specify for the purpose
by notice to the Agent and the Company. Each such notice, request or other
communication shall be effective (i) if given by telex or telecopy, when such
telex or telecopy is transmitted to the telex or telecopy number specified in
this Section and the appropriate answer back is received (in the case of telex)
or telephonic confirmation of receipt thereof is obtained (in the case of
telecopy) or (ii) if given by mail, prepaid overnight courier or any other
means, when received at the address specified in this Section or when delivery
at such address is refused.
Section 10.04. Severability. In case any provision of or obligation
under this Agreement or the Notes or any other Financing Document shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
Section 10.05. Amendments and Waivers. Any provision of this
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Company and the Required Lenders
(and, if the rights or duties of the Agent are affected thereby, by the Agent);
provided that no such amendment or waiver shall, unless signed by all the
Lenders, (i) increase or decrease any Revolving Credit Commitment of any Lender
(except for a ratable decrease in the Revolving Credit Commitments of all
Lenders) or subject any Lender to any additional obligation, (ii) reduce the
principal of or rate of interest on any Loan or fees hereunder, (iii) postpone
the date fixed
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for any payment of principal of any Loan pursuant to Section 2.05, or of
interest on any Loan or any fees hereunder or for any termination of any
Commitment or (iv) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes which shall be required for the Lenders or
any of them to take any action under this Section or any other provision of this
Agreement.
Section 10.06. Successors and Assigns; Registration. (a) The
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns
(including any transferee of any Note), except that the Company may not assign
or otherwise transfer any of its rights under this Agreement without the prior
written consent of all Lenders.
(b) The terms and provisions of this Agreement shall inure to the
benefit of any transferee or assignee of any Note to which the Company, in the
absence of the occurrence and continuance of an Event of Default (in which case
no consent shall be required), shall have consented (such consent not to be
unreasonably withheld) and, in the event of such transfer or assignment, the
rights and privileges herein conferred upon the assigning Lender shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof. Any assignment shall be for an
equal percentage of such assignor Lender's Loans and its Revolving Credit
Commitment, and any such assignee Lender shall, upon its registration in the
Note Register referred to below, become a "Lender" for all purposes hereunder.
Upon any such assignment, the assignor Lender shall be released from its
Revolving Credit Commitment to the extent assigned to and assumed by the
assignee Lender.
(c) Upon any assignment of any Note(s), the assigning Lender shall
surrender its Note(s) to the Company for exchange or registration of transfer,
and the Company will promptly execute and deliver in exchange therefor a new
Note or Note(s) of the same tenor and registered in the name of the assignor
Lender (if less than all of such Lender's Notes are assigned) and the name of
the assignee Lender.
(d) The Company shall maintain a register (the "Note Register") of
the Lenders and all assignee Lenders that are the holders of all the Notes
issued pursuant to this Agreement. The Company will allow any Lender to inspect
and copy such list at the Company's principal place of business during normal
business hours. Prior to the due presentment for registration of transfer of
any Note, the Company may deem and treat the Person in whose name a Note is
registered as the absolute owner of such Note for the purpose of receiving
payment of principal of and premium and interest on such Note and for all other
purposes whatsoever, and the Company shall not be affected by notice to the
contrary.
(e) Each Lender (including any assignee Lender at the time of such
assignment) represents that it (i) is acquiring its Note solely for investment
purposes and not with a view toward, or for sale in connection with, any
distribution thereof, (ii) has received and reviewed such information as it
deems necessary to evaluate the merits and risks of its investment in the Note,
(iii) is an "accredited investor" within the meaning of Rule 501(a) under the
Securities Act and (iv) has such knowledge and experience in financial and
business
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matters as to be capable of evaluating the merits and risks of its investment in
the Note, including a complete loss of its investment.
(f) Each Lender understands that the Note is being offered only in a
transaction not involving any public offering within the meaning of the
Securities Act, and that, if in the future such Lender decides to resell, pledge
or otherwise transfer the Note, the Note may be resold, pledged or transferred
only (i) to the Company, (ii) to a person who such Lender reasonably believes is
a qualified institutional buyer that purchases for its own account or for the
account of a qualified institutional buyer to whom notice is given that such
resale, pledge or transfer is being made in reliance on Rule 144A under the
Securities Act or (iii) pursuant to an exemption from registration under the
Securities Act.
(g) Each Lender understands that the Note will, unless otherwise
agreed by the Company and the holder thereof, bear a legend to the following
effect:
THIS SECURITY IS NOT BEING REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) TO THE COMPANY, (2) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
THAT IS AWARE THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT.
(h) If the Note becomes mutilated and is surrendered by the Lender
with respect thereto to the Company, or if any Lender claims that its Note has
been lost, destroyed or wrongfully taken, the Company shall execute and deliver
to such Lender a replacement Note, upon the affidavit of such Lender attesting
to such loss, destruction or wrongful taking with respect to such Note and the
written agreement of the Lender that requests the replacement Note to indemnify
and hold harmless the Company from and against any loss or liability relating to
the replacement of such Note, and such lost, destroyed, mutilated, surrendered
or wrongfully taken Note shall be deemed to be canceled for all purposes hereof.
Such affidavit shall be accepted as satisfactory evidence of the loss, wrongful
taking or destruction thereof and no other indemnity shall be required as a
condition of the execution and delivery of a replacement Note. Any costs and
expenses of the Company in replacing any such Note shall be for the account of
such Lender.
Section 10.07. Collateral. Each of the Lenders represents to the
Agent and each of the other Lenders that it in good faith is not relying upon
any Margin Stock as collateral in the extension or maintenance of the credit
provided for in this Agreement.
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Section 10.08. Headings. Headings and captions used in the Financing
Documents (including the Exhibits and Schedules hereto and thereto) are included
herein and therein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
Section 10.09. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS
AGREEMENT AND EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF GEORGIA. THE COMPANY HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF GEORGIA AND OF ANY GEORGIA COURT SITTING IN THE CITY OF ATLANTA,
GEORGIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE COMPANY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE PARTIES HERETO IRREVOCABLY
CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION
10.03. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS
AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
Section 10.10. Notice of Breach by Agent or Lender. The Company
agrees to give the Agent and the Lenders notice of any action or inaction by the
Agent or any Lender or any agent or attorney of the Agent or any Lender in
connection with this Agreement or any other Financing Document or the
obligations of the Company under this Agreement or any other Financing Document
that may be actionable against the Agent or any Lender or any agent or attorney
of the Agent or any Lender or a defense to payment of any obligations of the
Company under this Agreement or any other Financing Document for any reason,
including commission of a tort or violation of any contractual duty or duty
implied by law. The Company agrees, to the fullest extent that it may lawfully
do so, that unless such notice is given promptly (and in any event within ten
(10) days after the Company has knowledge, or with the exercise of reasonable
diligence could have had knowledge, of any such action or inaction), the Company
shall not assert, and the Company shall be deemed to have waived, any claim or
defense arising therefrom to the extent that the Agent or any Lender could have
mitigated such claim or defense after receipt of such notice.
Section 10.11. WAIVER OF JURY TRIAL. THE COMPANY, THE AGENT AND THE
LENDERS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY AND TO THE FULLEST EXTENT PERMITTED BY LAW
WAIVES ANY RIGHTS THAT IT MAY HAVE TO CLAIM OR RECEIVE
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CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL PROCEEDING ARISING
OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREBY.
Section 10.12. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement and the other Financing Documents constitute the entire agreement and
understanding among the parties hereto and supersede any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized representatives on the date
first above written.
DENTALCO, INC.
By: /s/ Lawrence F. Halpert
-----------------------
Title: Chairman and Chief Executive Officer
------------------------------------
Address:
Lake Falls Professional Building
6115 Falls Road
Baltimore, Maryland 20209
Attention: Chief Financial Officer
Telephone: (410) 377-3225
--- --- ----
Telecopier: (410) 377-3231
--- --------
Company Account Information:
NationsBank, N.A.
------------------------------------
10 Light Street
------------------------------------
Baltimore, Maryland 21202
------------------------------------
Account #3933944023
-----------
ABA #052001633
-----------
Ref. DentalCo Management Services
----------------------------
of Maryland, Inc.
<PAGE>
NATIONSCREDIT COMMERCIAL
CORPORATION, as Agent and Lender
By: /s/ R.C. Carey
------------------------------
Title: Authorized Signatory
---------------------------
Address:
1050 Crown Pointe Parkway
Suite 720
Atlanta, Georgia 30338
Attention: James M. Babcock
Telephone: (770) 551-2700
Telecopier: (770) 551-2710
Payment Account Information:
First National Bank of Chicago
Chicago, Illinois
Account #52-56933
ABA #071000013
Account Name: NationsCredit Commercial
Corporation
Reference: DentalCo, Inc.
<PAGE>
Exhibit 10.15
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT ("Agreement") is made and entered into as
of February 1, 1996, by and between Dentalco Management Services of Maryland,
INC. a Maryland corporation ("Manager"), and Halpert, Bhatia and Yigit, P.C.,
a Maryland professional services corporation (the "P.C.").
RECITALS
P.C. is a professional services corporation which provides dental and related
specialty services (the "Practice").
Manager is skilled in dental practice management, including billing and
collecting, contracting, administration, and marketing.
P.C. desires to engage the services of an experienced manager to provide
(i) all day-to-day management and business office services necessary to
support P.C. in the performance of its activities; and (ii) use of
non-professional personnel, premises, furniture, fixtures and equipment,
billing and collecting, and certain other support services of the Practice,
as more fully defined below (collectively, the "Management Services").
P.C. desires to obtain Management Services from the Manager.
Manager is capable of providing and desires to provide Management
Services to P.C.
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises herein contained, the parties hereby agree as follows:
ARTICLE ONE
MANAGEMENT SERVICES
P.C. hereby engages Manager to provide the Management Services as more
particularly described herein, and Manager hereby accepts this engagement.
The Manager's undertaking shall be comprehensive, and shall include all
Management Services necessary to carry out the efficient operation of the
business aspects of the Practice. P.C. agrees that the Manager shall have all
power and authority reasonably necessary to manage all day-to-day business
operations and policies of the Practice; provided, however, that no such
policy, action, or decision by Manager or Manager's Dental Director will be
made or construed so as to have the effect of infringing upon the discretion
of the dentists and other dental personnel of the P.C. in rendering
independent dental opinions or treatment.
<PAGE>
ARTICLE TWO
MANAGER'S OBLIGATIONS
2.1 Use of Practice Premises. Manager hereby agrees to provide to P.C.,
and P.C. hereby hires from Manager, on an exclusive basis, the use of those
certain dental office spaces as described in Exhibit A (the "Practice
Premises"). P.C.'s use of the Practice Premises is subject to the provisions
of any lease for the Practice Premises between Manager and the landlord.
P.C. agrees to conduct the Practice only in the Practice Premises or at
such other location(s) as may be mutually agreed to by the parties. Manager
shall provide Practice Premises which are adequate and customary, as
determined by P.C. and Manager, to meet the demand for services to be
provided by P.C.
2.2 Furniture, Fixtures and Equipment. Manager shall provide at the
Practice Premises those items of furniture, fixtures and equipment as
determined by P.C. and Manager to be reasonable and customary for P.C.'s
operation of the Practice (collectively, the "Practice Equipment"). Manager's
provision of the Practice Equipment is subject to the following conditions:
(a) P.C. shall have the use of the Practice Equipment only during the
term of this Agreement, and shall have no ownership interest therein.
(b) The Practice Equipment to be located at the Practice Premises
shall be as set forth in Exhibit B. From time to time during the term of
this Agreement, the parties may agree to changes in the Practice Equipment,
in which case Manager shall prepare and attach hereto a revised Exhibit B.
(c) Manager shall be responsible for all repairs, maintenance and
replacement of the Practice Equipment, except for such repairs, maintenance
and replacement necessitated by the negligence or misconduct of P.C., its
employees, contractors or agents.
2.3 Manager Personnel. Manager shall recruit, hire, train, supervise,
promote and/or terminate those non-professional and non-technical personnel
listed in Exhibit C (the "Manager Personnel"). P.C. shall have the right to
approve, based solely on professional competence, the assignment of all
non-professional support personnel who provide services at the Practice
Premises, such approval not to be unreasonably withheld. Manager will have
final authority to engage, dismiss, reprimand, reassign, or otherwise deal
with all Manager Personnel. P.C. expressly understands and agrees that such
actions with respect to the Manager Personnel shall take place in accordance
with Manager's personnel policies and pursuant to the standards of salaries
and benefits which Manager may from time to time provide and pay to its
employees.
2.4 Other Support Services.
(a) Manager shall order and purchase all dental and office
supplies required in the day-to-day operation of the Practice.
2
<PAGE>
(b) Manager shall bill and collect Gross Charges (as defined in
Section 4.2(a) below) on the following terms:
(i) Manager shall bill any patient, third
party payor or any other payment source for all
Gross Charges on the P.C.'s behalf and in P.C.'s
name as agent of P.C.;
(ii) Manager shall collect accounts
receivable generated by billings for Gross
Charges; and
(iii) Manager shall take possession of,
in the name and on behalf of P.C., and disburse
strictly in accordance with this Agreement, all
Collections (as defined in Section 4.2(b) below).
P.C. hereby appoints Manager as its true and lawful attorney-in-fact for
these purposes. Notwithstanding anything in this Agreement to the contrary,
at Manager's option, Manager may delegate any or all of the duties set forth
in this Section 2.4(b) to another person or entity designated by Manager that
is acceptable to P.C. P.C. shall not unreasonably withhold its acceptance.
(c) In order to enable Manager to accomplish its management
functions under this Agreement, Manager is authorized to open and maintain a
bank account in the name of the P.C. (the "Account") and to deposit all
Collections in the Account. Manager shall be a signatory on the Account with
the right to make deposits and withdrawals to and from the Account. The
Account shall be maintained at a financial institution mutually agreed upon
by Manager and P.C. P.C. hereby appoints Manager as its true and lawful
attorney-in-fact (i) to deposit into the Account all Collections; (ii) to
withdraw monies from the Account for refunds to payment sources; and (iii) to
withdraw monies from the Account to pay the Management Fee (as defined below)
and all other amounts due from P.C. to Manager pursuant to this Agreement.
(d) Manager shall provide all necessary computer, bookkeeping,
billing and collection services, accounts receivable and accounts payable
management services, non-financial record keeping, general administrative
services and clerical office support, office supplies (including without
limitation, stationery, forms and postage), uniforms, laundry, linen,
janitorial and cleaning services.
(e) Manager shall, pursuant to Section 7.4 hereof, establish a
system for maintaining the dental records for the Practice.
(f) Manager shall manage community relations and marketing
services for P.C.
(g) Manager shall furnish to P.C. periodic financial and
management reports reflecting the Practice's financial and operational status.
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(h) Manager shall provide accounting, tax, payroll and legal
services (including labor relations, contract preparation, and maintenance of
all necessary professional and business licenses) on behalf of the Practice.
(i) Manager shall establish business systems, reasonable policies
and procedures, and standardized clinical forms for the Practice, including:
(i) feasibility studies to determine clinical appropriateness and financial
feasibility of future expansion; (ii) coordination in the relationship
between P.C.'s performance of dental services and the overall administrative
and business functioning of the Practice; (iii) coordination regarding the
establishment of appropriate fees for professional and ancillary services;
and (iv) coordination and assistance in obtaining and maintaining malpractice
insurance. P.C. agrees to comply with such policies and procedures
established by the Manager, provided, however, that P.C. shall maintain
control and supervision over the provision of all dental services provided by
the Practice. P.C. expressly acknowledges that it shall have no property
rights in the business systems, procedures, policies or clinical forms
established by the Manager, and further agrees that such systems, procedures,
policies and forms shall be deemed to constitute Confidential Information
within the meaning of Article Nine hereof.
(j) Manager shall provide telephone, switchboard, dictation and
duplication services.
(k) Manager shall assist P.C. in recruiting dentists for the
Practice, carrying out such administrative functions as may be appropriate
such as advertising for and identifying potential candidates, checking
credentials, and arranging interviews; provided, however, that P.C. will make
the ultimate decision as to the suitability of any dentist to become
associated with the P.C. All dentists recruited by the Manager and accepted
by the P.C. shall be the employees of P.C. to the extent they are hired as
employees. Expenses incurred in the recruitment of dentists shall be an
expenses paid by the Manager pursuant to Section 2.5 hereof.
(l) Manager shall set the hours of operation of the Practice in
accordance with customary practices of similar dental practices in the area.
(m) Manager shall provide to all dentists employed by P.C. such
comprehensive health insurance and dental insurance coverage as may be agreed
to by the parties.
(n) Manager shall endeavor to seek out and negotiate contracts
("Managed Care Arrangements") with managed care companies, including, but not
limited to, health maintenance organizations and preferred provider
organizations, to provide dental services with P.C. as a participating
provider under such contracts.
2.5 Payment of Expenses. Manager shall be solely responsible for and
shall pay (or reimburse P.C. (if payment was approved by Manager) for payment
of) the following costs and expenses:
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(a) The lease and/or purchase payments of the Practice Premises.
(b) Expenses associated with the Practice Premises, including but
not limited to telephone, electric, gas and water utility expenses, and real
property taxes.
(c) The lease and/or purchase payments, as applicable, of the
Practice Equipment.
(d) Expenses associated with the Practice Equipment, including
maintenance, repair, replacement and personal property taxes.
(e) Expenses associated with the Manager Personnel pursuant to
Section 2.3, including, but not limited to, compensation, benefits, payroll
taxes and unusual payroll deductions, worker's compensation insurance and all
similar items.
(f) Expenses associated with the other support services listed in
Section 2.4.
(g) Premiums and deductibles (as applicable) for all insurance
described in Section 5.3.
ARTICLE THREE
P.C.'S OBLIGATIONS
3.1 Dental Practice.
(a) P.C. shall continuously, throughout the term of this
Agreement, conduct the Practice on a full-time basis at the Practice
Premises. As may be agreed upon in advance by the parties, P.C. shall
provide, at its own expense, sufficient dentist and hygienist staff coverage
to the Practice Premises to enable the Practice to operate in an efficient
and lawful manner at all required times during the hours of operation of the
Practice, including, without limitation, the provision of locum tenens dental
staff. P.C. shall also be responsible for the professional supervision of the
clinical aspects of services rendered by Manager Personnel.
(b) P.C. shall use the Practice Premises and the Practice
Equipment solely in accordance with the terms and conditions set forth
herein. P.C. shall, at all times, be responsible for the quality of dental
care provided at the Practice Premises. It is expressly acknowledged by the
parties that all dentist services provided at the Practice Premises shall be
performed solely by dentists licensed to practice dentistry and to provide
such services in the State of Maryland who (except on an emergency basis)
shall at all times during the term of this Agreement be employees or
independent contractors of P.C. The P.C. shall provide dental services to
patients of the Practice in compliance at all times with ethical standards,
and laws and regulations applying to the dental profession. In the event
that any disciplinary, medical malpractice or other actions are initiated
against any dentist associated with the P.C., the P.C. shall immediately
inform the Manager of such action and the underlying facts and circumstances.
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(c) P.C. shall maintain good faith efforts to control patient care
costs while providing quality dental care to patients.
(d) P.C. agrees to serve as a participating provider of dental
services pursuant to all Managed Care Arrangements entered into by Manager.
3.2 P.C. Equipment. P.C. may provide equipment at the Practice
Premises, which shall be in addition to the Practice Equipment ("P.C.
Equipment"). P.C. shall be responsible for all repairs, maintenance and
replacement of the P.C. Equipment, unless P.C. requests that Manager provide
such repairs, maintenance and replacement upon such terms and conditions as
the parties may agree. Manager shall have no ownership interest in the P.C.
Equipment. From time to time during the term of this Agreement, P.C. may
prepare and revise a schedule of the P.C. Equipment, to be attached hereto as
Exhibit D. Upon termination of this Agreement, P.C. shall, at its sole cost
and expense, remove the P.C. Equipment, and repair any damage to the Practice
Premises resulting from the installation, use, or removal of the P.C.
Equipment.
3.3 Costs and Expenses. P.C. shall be solely responsible for and shall
pay the following costs and expenses:
(a) The cost of maintaining the corporate existence of P.C., if
applicable.
(b) All P.C. income taxes.
(c) Compensation of P.C.'s shareholders, directors and officers,
for services provided in those roles, if applicable.
(d) Expenses related to compensation of all dentists and
hygienists employed by, or contracted to, P.C. for work in the Practice,
which shall include, but not be limited to, compensation, benefits, payroll
taxes and unusual payroll deductions, worker's compensation insurance and all
similar items.
(e) Expenses associated with any P.C. Equipment, pursuant to
Section 3.2.
(f) Expenses related to all license fees and association dues
required for P.C. to operate the Practice.
(g) Tuition fees and reasonable expenses for attendance by
dentists employed by the P.C. at the Practice of continuing dental education
courses and seminars deemed reasonably necessary by the P.C. to operate the
Practice.
(h) All other costs and expenses reasonably incurred by Manager in
conducting the Practice at the Practice Premises, other than costs and
expenses which are Manager's responsibility pursuant to Section 2.5.
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(i) Premiums for malpractice and other insurance
described in Sections 5.1 and 5.2.
3.4 Special Expenses. P.C., at P.C.'s option, may incur additional
expenses, in addition to those listed in Section 3.3, in connection with the
Practice. P.C. shall pay for such additional expenses either from its
profits from the Practice or from other resources.
3.5 Utilization Review; Quality Assurance. P.C. agrees to cooperate
with and participate in quality assurance/utilization review programs
established by the Manager or mandated by accreditation or licensure
standards applicable to the practice of dentistry. Deficiencies discovered
in the performance of any personnel or in the quality of professional
services shall be reported immediately to the Manager by the P.C. (if
discovered by the P.C.), and to the P.C. by the Manager (if discovered by the
Manager), and appropriate steps shall be taken by the P.C. at once to remedy
such deficiencies.
ARTICLE FOUR
THE MANAGEMENT FEE
4.1 General Intent With Respect to the Management Fee. P.C. and
Manager mutually recognize and acknowledge that:
(a) Manager has incurred and will incur substantial costs and
expenses in connection with providing the Management Services described in
this Agreement, and in performing all other obligations required of it in
accordance with this Agreement;
(b) Certain of Manager's costs and expenses can vary to a
considerable degree according to the volume of services required at the
Practice Premises;
(c) It will be impracticable to ascertain with precision all of
the costs and expenses that will be incurred by Manager from time to time in
the performance of its obligations under this Agreement; and
(d) Total Net Collections (as defined in Section 4.2(d) below) may
also vary to a considerable degree during each month of this Agreement.
It is the intent of the parties that all fees paid to Manager by P.C.
under this Agreement be reasonable and approximate Manager's actual costs and
expenses plus a reasonable profit.
4.2 Definitions. As used herein, the following terms shall have the
meanings set forth in this Section:
(a) "Gross Charges." All professional fees and charges, including
copayments charged (but not capitated payments) under Managed Care
Arrangements, for services performed by P.C. as part of the Practice during
the term of this Agreement.
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(b) "Net Collections." All proceeds received by Manager or P.C.
from Gross Charges, less patient and third party refunds due to overpayments.
Net Collections shall not include capitated payments paid to Manager under
Managed Care Arrangements entered into by Manager.
(c) "Practice Expenses." All expenses to be paid by the Manager
pursuant to Section 2.5 hereto.
4.3 Determination and Payment of the Management Fee. During the term of
this Agreement and for such period as may be required under Section 6.3(c)
hereof, P.C. shall pay to Manager by the fifteenth (15th) day of each month a
management fee (the "Management Fee") equal to a percentage of Net
Collections, determined as follows: (i) during the period commencing on the
effective date of this Agreement and continuing until the end of the first
full fiscal year of operation under this Agreement, the percentage shall be
equal to eighty percent (80%). By November 1 of the first full fiscal year
of this Agreement, and each fiscal year thereafter, Manager shall prepare and
present to the P.C. a proposed operating budget for the Practice, from which
the parties shall negotiate in good faith a percentage for the Management Fee
which will result in the fees paid to Manager for such fiscal year to be
reasonable and to approximate Manager's anticipated actual costs and expenses
plus a reasonable profit. Until an agreement on a percentage is reached, the
percentage in effect for the preceding year shall remain in effect.
As provided in Section 2.4(c) hereof, Manager is authorized to withdraw
the amount of the Management Fee from the Account as and when due.
4.4 Collateral Security.
(a) As collateral for the payment of the Management Fee due
hereunder (including any extensions, modifications and renewals hereof), P.C.
hereby grants to Manager a security interest in all of the accounts
receivable resulting from Gross Charges, together with any and all proceeds
of such accounts receivable (collectively, the "Collateral"). Upon Manager's
request, P.C., at its sole cost and expense, shall execute and deliver to
Manager such further documents and assurances and shall take such further
action as Manager may request to evidence Manager's security interest in and
to the Collateral. P.C. hereby appoints Manager as its attorney-in-fact to
execute and record in the name and on behalf of the P.C. appropriate UCC
Financing Statements evidencing the security interest in the Collateral
granted to Manager by this section.
(b) Manager shall have all rights, powers, remedies and recourses
available or permitted to Manager under law with respect to the Collateral,
including, but not limited to, the ability (i) to release, surrender, waive,
add, substitute, settle, exchange, compromise, modify, extend, or grant
indulgences with respect to the Collateral, the Management Fee or any other
amounts due to Manager hereunder; and (ii) to grant any extension or other
postponements of the
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time of payment thereof; provided however, that Manager shall not be liable
for any failure to collect or enforce the payment of the Collateral.
(c) Notwithstanding any other provision of this Agreement, and
except as otherwise prohibited by law, upon P.C.'s failure to pay any amount
due Manager hereunder and at Manager's election, P.C. hereby authorizes
Manager: (i) to take possession of the Collateral; (ii) to take possession
of and endorse in P.C.'s name any notes, checks, money orders, insurance
payments, and any other documents received in payment of the Collateral, or
any part of it; (iii) to collect, sue for, and give satisfactions for, monies
due on account of the Collateral; (iv) to institute, maintain or withdraw any
claims, suits, or proceedings pertaining to, or arising out of Manager's
and/or P.C.'s right to the Collateral; and (v) to pay all amounts due Manager.
4.5 Possession of Collateral Records. Manager shall have authority to
possess and retain for P.C. and Manager the books of the Practice with
respect to the Collateral.
4.6 Payments to P.C.
(a) Each month after payment of the Management
Fee and other monies due Manager hereunder, if any, Manager
will arrange for the transfer from the Account to any other
account P.C. designates, that amount of the Net Collections
for the previous month which was not paid to Manager.
(b) In the event that the amount payable under subsection (a)
above is insufficient for P.C. to meet those anticipated expenses for the
ensuing month for base salary, benefits, and malpractice costs which have
been approved in advance by Manager (the "Base P.C. Expenses"), Manager shall
advance such shortfall (each, an "Advance") to P.C. Each Advance shall be
treated as a loan from Manager to the P.C., and shall be repaid to Manager,
as quickly as possible, from revenues derived in subsequent months out of the
payments to be received pursuant to subsection (a) above; provided however,
that an Advance shall be forgiven if P.C. is unable to repay it within a
twelve (12) month period.
ARTICLE FIVE
INSURANCE AND INDEMNITY
5.1 Malpractice Insurance.
(a) P.C. will obtain and at all times maintain in full force and
effect professional malpractice liability insurance for all dentists and
hygienists providing dental care for P.C. pursuant to this Agreement.
(b) The malpractice insurance will have coverage limits of at
least One Million Dollars ($1,000,000) per occurrence and at least Three
Million Dollars ($3,000,000) per annual aggregate, such other higher amount
as may be required by appropriate licensing authorities or third party
payors, or such other amount as may be agreed to by the parties. Such
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malpractice insurance shall be issued to the P.C. and to each of the dentists
and hygienists employed by the P.C.
(c) The malpractice insurance may be either "occurrence" or
"claims made" insurance. If P.C. obtains "claims made" insurance, P.C. will
obtain an extended reporting endorsement (a "tail") to cover services
provided under this Agreement.
(d) P.C. shall provide to Manager written documentation evidencing
the malpractice insurance coverage required by this Section for P.C. and
P.C.'s shareholders, officers, and directors prior to the commencement date
of this Agreement and for dentist and hygienist employees of the P.C. prior
to the commencement of professional services by such employee.
(e) All malpractice insurance required by this section will
contain the written agreement of the insurer(s) to provide Manager 30 days
prior written notice before any non-renewal, termination or modification of
coverage takes effect.
5.2 Other Insurance. P.C. shall obtain and at all times maintain
workers compensation coverage for all of the dentists and hygienists employed
by the P.C., and the P.C. shall hold the Manager harmless with respect to any
worker's compensation claims made by any such employee.
5.3 Manager Insurance. Manager shall carry and at all times maintain
in full force and effect: (i) public liability insurance insuring against
claims for bodily injury, including death, and property damage occurring on,
in, or about the Practice Premises; (ii) general liability and fire insurance
for the Practice Premises; (iii) business interruption insurance for the
P.C.; and (iv) workers compensation coverage for all Manager Personnel.
Manager shall hold the P.C. harmless with respect to any workers compensation
claims made by Manager Personnel.
5.4 Indemnification of Manager. P.C. shall indemnify, hold harmless
and defend Manager, its shareholders, officers, directors, employees,
contractors, other agents and affiliates from and against any and all
liability, loss, damages, claims, causes of action and expenses associated
with them (including reasonable attorneys' fees) caused or asserted to have
been caused, directly or indirectly by or as a result of any acts or
omissions of P.C., its shareholders, officers, directors, employees,
contractors or other agents in connection with this Agreement, including, but
not limited to, claims of professional malpractice.
5.5 Indemnification of P.C. Manager shall indemnify, hold harmless and
defend P.C., its shareholders, officers, directors, employees, contractors,
other agents and affiliates from and against any and all liability, loss,
damages, claims, causes of action and expenses associated with them
(including reasonable attorneys fees) caused or asserted to have been caused,
directly or indirectly by or as a result of acts or omissions constituting
negligence or gross negligence by Manager, its shareholders, officers,
directors, employees, contractors, other agents or affiliates in connection
with this Agreement.
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ARTICLE SIX
TERM, TERMINATION AND EFFECTS OF TERMINATION
6.1 Term. This Agreement shall commence on February 1, 1996, shall be
for an initial term of forty (40) years, and shall renew automatically for an
additional term of ten (10) years unless either party gives the other party
at least one hundred eighty (180) days written notice of its intent not to
renew at the end of the initial term.
6.2 Termination.
(a) Automatic Termination; Notice by Manager. This Agreement will
automatically terminate upon written notice by Manager to P.C. upon the
occurrence of any of the following events.
(i) The Appointment of a receiver or trustee
to manage the assets of P.C.
(ii) The assignment for the benefit of
creditors of the assets of P.C.
(iii) The occurrence of any act of
bankruptcy by P.C.
(iv) P.C.'s breach of any material term of
this Agreement, provided that such breach
continues for a period of thirty (30) days after
written notice thereof has been given by the
Manager to P.C.
If Manager fails to give notice of termination within 90 days of its
becoming aware of the occurrence of an event listed in this Section 6.2(a),
Manager waives its right to terminate based on that occurrence. Manager
retains the right to give notice of termination upon any subsequent
occurrence of the same type of event, or of any other event listed in this
Section 6.2(a).
(b) Automatic Termination; Notice by P.C. This Agreement will
automatically terminate upon written notice by P.C. to Manager upon the
occurrence of any of the following events.
(i) The Appointment of a receiver or trustee
to manage the assets of Manager.
(ii) The assignment for the benefit of
creditors of the assets of Manager.
(iii) The occurrence of any act of
bankruptcy by Manager.
(iv) Manager's breach of any material term of
this Agreement, provided that such breach
continues for a period of thirty (30) days after
written notice thereof has been given by the P.C.
to the Manager.
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If P.C. fails to give notice of termination within 90 days of its
becoming aware of the occurrence of an event listed in this Section 6.2(b),
P.C. waives its right to terminate based on that occurrence. P.C. retains
the right to give notice of termination upon any subsequent occurrence of the
same type of event, or of any other event listed in this Section 6.2(b).
6.3 Effects of Termination. This Agreement will have no further effect
after the date of termination, except the following:
(a) P.C. shall immediately surrender to Manager the Practice
Premises at its sole cost and expense. This includes but is not limited to
the following:
(i) P.C. shall cause all dentist employees
to vacate the Practice Premises; and
(ii) P.C. shall remove all P.C. Equipment,
and any other P.C. property, and shall be solely
responsible for any damage caused as a result of
the removal of its property.
(b) P.C. shall pay all compensation and fees accrued and owed to
Manager through the date of termination.
(c) Manager shall be entitled to a Management Fee for all Total
Net Collections based on Gross Charges arising prior to the termination.
Manager shall have the right, in its sole discretion exercisable at any time
after the termination of this Agreement, to cease billing and collecting
Gross Charges arising prior to the termination. Prior to Manager's election
to cease such billing and collection, Manager shall bill and collect, make
payments and have all other rights and obligations with respect to Gross
Charges arising prior to the termination as provided in this Agreement, and
P.C. will pay Manager all compensation and fees applicable thereto, including
the Management Fee. Following Manager's election, P.C. shall make other
arrangements for billing and collection of such Gross Charges, and shall
remit to Manager all fees and charges applicable thereto, including the
Management Fee, and shall deliver a monthly statement of Total Net
Collections until billing and collection for such Gross Charges is
substantially complete.
(d) Manager shall continue to have all of its rights pursuant to
Section 4.4 and 4.5 until Manager shall be paid all monies due from P.C.
(e) P.C. shall maintain and pay for malpractice insurance pursuant
to Section 5.1.
(f) Sections 5.4, 5.5, and 6.4 shall remain in full force and
effect.
6.4 Restrictions on Competition; Injunctive Relief.
P.C. agrees that during the term hereof, and for a period of
two (2) years following the termination of this Agreement,
the P.C. shall not, without the prior written consent of
Manager, engage directly or indirectly in the
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ownership or operation of a dental practice within a five (5) mile radius of
any of the Practice Premises which may be in operation from time to time.
P.C. further agrees to cause each of the dentists employed by or under
contract with the P.C. to agree that during the term of his/her employment or
independent contract with the P.C., and for a period of two (2) years
thereafter, he/she shall not, without the prior written consent of Manager,
engage directly or indirectly in the ownership or operation of a dental
practice within a five (5) mile radius of any of the Practice Premises at
which the dentist provided services on behalf of the P.C., and that Manager
shall have the right to specifically enforce such restrictions, and to
recover damages for a violation by such dentist of such restrictions. It is
acknowledged that a remedy at law for any breach or attempted breach by the
P.C. or one of its dentists of the covenants set forth in this section will
be inadequate, and it is agreed that Manager shall be entitled to specific
performance and injunctive and other equitable relief in case of any such
breach or attempted breach. Any such remedy shall be in addition to any
damages which Manager may be legally entitled to recover.
ARTICLE SEVEN
DENTAL PRACTICE AND REIMBURSEMENT CONSIDERATIONS
7.1 Access to Books and Fees. P.C. or its designee shall have access
during normal business hours to financial records of the Practice, including
records of collections, expenses and disbursements as kept by Manager
performing its obligations under this Agreement. It is expressly understood
that the systems, methods, procedures, written materials and controls
employed by Manager in the performance of this Agreement are proprietary in
nature, shall remain the property of Manager and shall not, at any time, be
utilized, distributed, copied or otherwise employed or acquired by P.C.
unless approved in advance and in writing by Manager. Upon request, P.C.
shall, and shall cause its dentists to, execute a confidentiality agreement
to evidence its or their agreement to comply with the foregoing.
7.2 Access to Records. To the extent required by Section 1395x(v)(1)
of Title 42 of the United States Code, the clauses contained in that section
are incorporated herein by reference with like effect as though set forth at
length.
7.3 Jeopardy. Notwithstanding anything herein to the contrary, if any
event occurs, or if either party receives notice of an action or threatened
action beyond the control of either party, or if a change in any law,
regulation or policy occurs (collectively referred to herein as the "Event")
which would:
(a) in the reasonable opinion of both parties jeopardize P.C.'s or
any shareholder, officer, director, employee, contractor or agent of P.C.'s
participation in or reimbursement from any third party payor program;
(b) cause a material change in the amount of reimbursement payable
to P.C. or any shareholder, officer, director, employee, contractor or agent
of P.C. in connection with any of the services provided to patients of the
Practice from any third party payor programs;
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(c) prevent any dentist shareholder, officer, director, employee,
contractor or agent of P.C. from referring patients to or to provide services
at any of the Practice Premises;
(d) cause a material adverse effect on the operations of the
Practice and/or make the performance of this Agreement uneconomic for either
party;
(e) cause the revocation, suspension or termination of the
license(s) maintained by Manager or P.C. for the operation of the Practice
and/or maintained by any shareholder, officer, director, employee, contractor
or agent of P.C.; or
(f) make it impossible, unlawful or unethical for either party or
any shareholder, officer, director, employee, contractor or agent of Manager
or P.C. to continue to perform any term or condition under this Agreement;
then, in any such case, the parties shall immediately attempt to negotiate
amendments to this Agreement or a new Agreement which will negate the effect
of the Event and provide similar economic and other benefits to each party as
provided under this Agreement. In the event the parties are unable to
negotiate amendments or a new agreement to the reasonable satisfaction of
both parties within 30 days after the Event, then this Agreement shall
terminate immediately upon written notice by either party to the other.
7.4 Dental Records. P.C. shall have the ultimate authority and
accountability and shall be primarily responsible for the maintenance of
records with respect to patients treated at the Practice Premises. Manager
shall implement policies and procedures for the maintenance of patient
records at the Practice Premises, which shall be in accordance with all
applicable licensing and other laws, regulations and guidelines as well as
the standards, policies and procedures imposed by any malpractice insurance
carrier, accreditation agency, or any public and/or private payor pertaining
to the maintenance and confidentiality of patient dental records. Manager
shall be the owner of all patient dental and business records related to the
Practice. To the extent that such records are maintained by P.C., Manager
shall, at all times during the term of this Agreement, have reasonable access
to such records. Upon termination of this Agreement, the P.C. shall within
sixty (60) days deliver any such records in its possession in their entirety
to Manager. Thereafter, Manager shall provide P.C. with access to such
records to the extent reasonably necessary for tax purposes or legal process.
7.5 No Reciprocation. The parties hereby acknowledge and agree that
the benefits conferred upon each of them hereunder neither require nor are in
any way contingent upon:
(a) the admission, recommendation, referral or any other
arrangement for the provision of any item or service offered by Manager or
any of its affiliates to any patient of P.C., its shareholders, officers,
directors, employees, contractors or agents; or
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(b) the recommendation, referral or any other arrangement for the
provision of any item or service offered by P.C. or any of its shareholders,
officers, directors, employees, contractors or agents.
7.6 Practice of Dentistry. The parties acknowledge that Manager is not
authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of dentistry and any payments or
reimbursements of wages, costs or expenses of P.C. by Manager are solely for
the administrative convenience of the parties and are expected by the parties
to be funded from Net Cash Collections of the Practice. To the extent any
act or service herein required of Manager should be construed or deemed to
constitute the practice of dentistry, the performance of that act or service
by Manager shall be deemed waived or forever unenforceable.
ARTICLE EIGHT
DISPUTE RESOLUTION
8.1 Dispute Resolution. The parties will make good faith efforts to resolve
mutually any disputes which arise between them regarding this Agreement. As
part of this dispute resolution process, either party will, at the request of
the other party, promptly provide a short and plain written statement setting
forth that party's position regarding the dispute and that party's suggested
resolution. The other party then will respond promptly with a short and
plain written statement setting forth its position and suggested resolution
for the dispute. For a period of fifteen (15) days following the sending of
the statements, the parties shall negotiate in an effort to resolve the
controversy.
8.2 Arbitration. Any dispute which has not been resolved by the
parties under the procedure set forth in Section 8.1 shall be submitted to
and decided by arbitration in accordance with the Rules of the American
Arbitration Association, as follows:
(i) There shall be one arbitrator who shall be selected in
accordance with the Rules of the American Arbitration Association;
(ii) The authority of the arbitrator shall be limited to a
determination of the facts, and to the interpretation and application of
specific provisions of this Agreement as they may apply to the dispute. The
arbitrator shall be bound by this Agreement, and shall have no authority to
add to, subtract from, amend, or modify the provisions of this Agreement.
The arbitrator shall render an opinion and a final award, if any, which shall
be binding on both parties.
(iii) Each party shall bear its own fees, costs, and expenses
of an arbitration proceeding, including witnesses, travel, attorneys, and
other representatives; the general costs and expenses of the arbitration,
such as facilities rental and fees, costs, and expenses of the arbitrator and
the American Arbitration Association, shall be borne equally by the parties.
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8.3 The procedures set forth in Sections 8.1 and 8.2 shall not apply to
the events for automatic termination of this Agreement set forth in Section
6.2 hereunder.
ARTICLE NINE
CONFIDENTIAL INFORMATION
9.1 P.C. agrees and acknowledges that all materials provided by the
Manager to P.C. constitute "Confidential Information" and are disclosed in
confidence and with the understanding that they constitute valuable business
information developed by the Manager. P.C. further agrees that it shall not,
directly or indirectly, without the express prior written consent of the
Manager, use or disclose such Confidential Information for any purpose other
than in connection with the services to be rendered hereunder. P.C. further
agrees to impose this obligation of confidentiality on its officers,
shareholders, affiliates, partners, employees and independent contractors.
Upon the expiration or termination of this Agreement by either party for any
reason whatsoever, P.C. shall immediately return and, thereafter, not use,
and shall cause its officers, shareholders, affiliates, partners, employees
and independent contractors to return and, thereafter, not use, all
Confidential Information. P.C. further expressly acknowledges and agrees
that any such use, appropriation or reproduction of any such Confidential
Information by any of the foregoing after the expiration or termination of
this Agreement will result in irreparable injury to the Manager, that the
remedy at law for the foregoing would be inadequate, and that in the event of
such use, appropriation or reproduction, the Manager, in addition to any
other remedies or damages available to it, shall be entitled to injunctive or
other equitable relief without the necessity of proving actual damages, but
such rights to equitable relief shall not preclude the Manager from other
remedies which may be available to it hereunder.
ARTICLE TEN
GENERAL PROVISIONS
10.1 Assignment by Manager. Manager shall have the right, at its sole
discretion, to assign any or all of its rights and obligations under this
Agreement to any of its affiliates. The term affiliates for the purposes of
this Agreement shall mean any person or entity that directly or indirectly
controls, is controlled by, or is under common control with Manager, and
anyone who is the beneficial owner of 10% or more of the outstanding voting
securities of another shall be deemed in control.
10.2 Amendment. This Agreement may be amended by the parties. No
amendment will be effective unless in writing, and signed by both of the
parties.
10.3 Captions. Captions and article headings used herein are for
convenience only and are not part of this Agreement and shall not be used in
construing it.
10.4 Counterparts. This Agreement may be executed in two counterparts,
each of which will be deemed an original, but taken together will constitute
one instrument.
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10.5 Cumulation of Remedies. The various rights, options, elections,
powers, and remedies under this Agreement, or granted by law (collectively,
"Remedies"), will be construed as cumulative. No single Remedy is exclusive
of any of the other Remedies.
10.6 Force Majeure. Neither party will be liable or in default for any
delay or failure in performance under this Agreement, or for any other
interruption of service or employment resulting 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 similar or dissimilar cause beyond the reasonable control of
either party.
10.7 Further Assurances. Each party will do such further acts,
including executing and delivering additional agreements or instruments as
the other may reasonably require, to consummate, evidence or confirm the
agreements contained in this Agreement.
10.8 Governing Law. This Agreement will be construed and enforced
according to the laws of the State of Maryland applicable to agreements made
and to be performed wholly within the State.
10.9 Incorporation of Recitals and the Exhibits. All recitals and the
exhibits referred to in this Agreement are an integral part of this
Agreement. They are incorporated in this Agreement by this reference as
though at this point set forth in full.
10.10 Independent Contractor. It is mutually understood and agreed
that P.C. and Manager are at all times acting and performing hereunder as
independent contractors. Manager shall never have nor exercise control or
direction over the methods by which P.C. its shareholders, officers,
directors, employees, contractors or agents practice dentistry.
10.12 Integration. The making, execution and delivery of this
Agreement by the parties has not been induced by any representations,
statements, warranties or agreements other than those expressed in this
Agreement. This Agreement embodies the entire understanding of the parties.
There are no other agreements or undertakings, written or oral, in effect
between the parties relating to the subject matter of this Agreement, unless
expressly referenced in this Agreement.
10.13 Notices.
(a) Written Notices. All notices, demands or requests ("Notices")
which are required or permitted to be given pursuant to this Agreement will
be in writing. Notices will be delivered personally, by commercial carrier,
by fax with a machine generated confirmation sheet or by registered or
certified mail, postage prepaid, addressed to a party as stated below.
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(b) Manager's Address for Notices:
DentalCo Management Services of Maryland, Inc.
Lake Falls Professional Building
6115 Falls Road
Baltimore, Maryland 21209
Attn: Lawrence F. Halpert, Chairman and CEO
(c) P.C.'s Address for Notices:
Halpert, Bhatia and Yigit P.C.
6115 Falls Road
Baltimore, Maryland 21209
Attn: Lawrence F. Halpert, D.D.S.
(d) Effective Date. Notice given personally or by commercial
carrier is effective upon delivery. Notice given by fax with a machine
generated confirmation sheet is effective upon sending. Notice given by
United States mail is effective the third United States Post Office delivery
day after the date of mailing.
(e) Change of Address. Either party may change its address for
Notices by notice given pursuant to this section.
10.14 Partial Invalidity. If any provision of this Agreement shall
be found by a court with proper jurisdiction to be invalid or unenforceable,
in whole or in part, then such provision shall be deemed to be modified,
narrowed, or restricted only to the limited extent and in the manner
necessary to render the same valid and enforceable, as the case may require,
and this Agreement shall be construed and enforced to the maximum extent
permitted by law, as if such provision had been originally incorporated
herein as so modified, narrowed or restricted.
10.15 Statutes and Regulations. Any reference in this Agreement to
any statute, regulation, ruling, or administrative order or decree will
include, and be a reference to any successor statute, regulation, ruling, or
administrative order or decree.
10.16 Waiver of Right. No waiver of or failure by either party to
enforce a provision, covenant, condition or right under this Agreement
(collectively, "Right") will be construed as a subsequent waiver of the same
Right, or a waiver of any other Right. No extension of time for performance
of any obligations or acts will be deemed an extension of the time for
performance of any other obligations or acts.
SIGNATURES ON THE FOLLOWING PAGE
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IN WITNESS WHEREOF, the parties have signed this Agreement as of the day
and year first above written.
ATTEST: HALPERT, BHATIA and YIGIT P.C.
/s/ E. James Kuhns By: /s/ Lawrence F. Halpert
__________________________ ______________________________
E. James Kuhns, Secretary Dr. Lawrence F. Halpert
DENTALCO MANAGEMENT SERVICES
OF MARYLAND, INC.
/s/ E. James Kuhns By: /s/ Lawrence F. Halpert
__________________________ ______________________________
E. James Kuhns, Secretary Dr. Lawrence F. Halpert
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Exhibit 10.16
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is made and entered
into as of July 18, 1996, by and between DENTALCO MANAGEMENT SERVICES OF
MARYLAND, INC. a Maryland corporation ("Administrator"), and MID-ATLANTIC DENTAL
ASSOCIATES, P.A., a Maryland professional services corporation (the "P.A.").
RECITALS
P.A. is a professional services corporation which provides dental and
related specialty services (the "Practice").
Administrator is skilled in providing assistance in the management by
practitioners of dental practices, including billing and collecting,
contracting, administration, and marketing.
P.A. desires to engage the services of an experienced administrator to
provide (i) consultation in all day-to-day management and business office
services necessary to support P.A. in the performance of its activities; and
(ii) use of non-professional personnel, premises, furniture, fixtures and
equipment, billing and collecting, and certain other support services of the
Practice, as more fully defined below (collectively, the "Administrative
Services").
P.A. desires to obtain Administrative Services from the Administrator.
Administrator is capable of providing and desires to provide Administrative
Services to P.A.
NOW THEREFORE, in consideration of the foregoing and of the mutual promises
herein contained, the parties hereby agree as follows:
ARTICLE ONE
ADMINISTRATIVE SERVICES
P.A. hereby engages Administrator to provide the Administrative Services as
more particularly described herein, and Administrator hereby accepts this
engagement. The Administrator's undertaking shall be comprehensive, and shall
include all Administrative Services necessary to carry out the efficient
operation of the business aspects of the Practice. P.A. and Administrator agree
that, although Administrator shall have authority over day-to-day business
operations and policies of the Practice, the P.A. shall have final authority on
all aspects of the management of the P.A., and no policy, action, or decision by
Administrator or Administrator's Dental Director will be made or construed so as
to have the effect of infringing upon the discretion of the dentists and other
dental personnel of the P.A. in rendering independent dental opinions or
treatment.
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ARTICLE TWO
ADMINISTRATOR'S OBLIGATIONS
2.1 USE OF PRACTICE PREMISES. Administrator hereby agrees to provide to
P.A., and P.A. hereby hires from Administrator, on an exclusive basis, the use
of those certain dental office spaces as described in EXHIBIT A (the "Practice
Premises"). P.A.'s use of the Practice Premises is subject to the provisions of
any lease for the Practice Premises between Administrator and the landlord.
P.A. agrees to conduct the Practice only in the Practice Premises or at
such other location(s) as may be mutually agreed to by the parties.
Administrator shall provide Practice Premises which are adequate and
customary, as determined by P.A. and Administrator, to meet the demand for
services to be provided by P.A.
2.2 FURNITURE, FIXTURES AND EQUIPMENT. Administrator shall provide at the
Practice Premises those items of furniture, fixtures and equipment as
determined by P.A. in consultation with Administrator to be reasonable and
customary for P.A.'s operation of the Practice (collectively, the "Practice
Equipment"). Administrator's provision of the Practice Equipment is subject
to the following conditions:
(a) P.A. shall have the use of the Practice Equipment only during the term
of this Agreement, and shall have no ownership interest therein.
(b) The Practice Equipment to be located at the Practice Premises shall be
as set forth in EXHIBIT B. From time to time during the term of this Agreement,
the parties may agree to changes in the Practice Equipment, in which case
Administrator shall prepare and attach hereto a revised EXHIBIT B.
(c) Administrator shall be responsible for all repairs, maintenance and
replacement of the Practice Equipment, except for such repairs, maintenance and
replacement necessitated by the negligence or misconduct of P.A., its employees,
contractors or agents.
2.3 ADMINISTRATOR PERSONNEL. Administrator shall recruit, hire, train,
supervise, promote and/or terminate those non-professional and non-technical
personnel listed in Exhibit C (the "Administrator Personnel"). P.A. shall have
the right to approve the assignment of all non-professional support personnel
who provide services at the Practice Premises, such approval not to be
unreasonably withheld. Administrator will have final authority to engage,
dismiss, reprimand, reassign, or otherwise deal with all Administrator
Personnel, but shall take into consideration the wishes of the P.A. in this
regard. P.A. expressly understands and agrees that such actions with respect to
the Administrator Personnel shall take place in accordance with Administrator's
personnel policies and pursuant to the standards of salaries and benefits which
Administrator may from time to time provide and pay to its employees.
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2.4 OTHER SUPPORT SERVICES.
(a) Administrator shall order and purchase all dental and office supplies
required in the day-to-day operation of the Practice.
(b) Administrator shall bill and collect Gross Charges (as defined in
Section 4.2(a) below) on the following terms:
(i) Administrator shall bill any patient, third party payor or any other
payment source for all Gross Charges on the P.A.'s behalf and in P.A.'s name
as agent of P.A.;
(ii) Administrator shall use reasonable efforts to collect accounts
receivable generated by billings for Gross Charges; and
(iii) Administrator shall take possession of, in the name and on behalf
of P.A., and disburse strictly in accordance with this Agreement, all
Collections (as defined in Section 4.2(b) below).
P.A. hereby appoints Administrator as its true and lawful attorney-in-fact
for these purposes. Notwithstanding anything in this Agreement to the contrary,
at Administrator's option, Administrator may delegate any or all of the duties
set forth in this Section 2.4(b) to another person or entity designated by
Administrator that is acceptable to P.A. P.A. shall not unreasonably withhold
its acceptance.
(c) In order to enable Administrator to accomplish its functions under this
Agreement, Administrator is authorized to open and maintain a bank account in
the name of the P.A. (the "Account") and to deposit all Collections in the
Account. Administrator shall be a signatory on the Account with the right to
make deposits and withdrawals to and from the Account. The Account shall be
maintained at a financial institution mutually agreed upon by Administrator and
P.A. P.A. hereby appoints Administrator as its true and lawful attorney-in-fact
(i) to deposit into the Account all Collections; (ii) to withdraw monies from
the Account for refunds to payment sources; and (iii) to withdraw monies from
the Account to pay the Administrative Fee (as defined below) and all other
amounts due from P.A. to Administrator pursuant to this Agreement.
(d) Administrator shall provide all necessary computer, bookkeeping, billing
and collection services, accounts receivable and accounts payable management
services, non-financial record keeping, general administrative services and
clerical office support, office supplies (including without limitation,
stationery, forms and postage), uniforms, laundry, linen, janitorial and
cleaning services.
(e) Administrator shall, pursuant to Section 7.4 hereof, establish a system
for maintaining the dental records for the Practice.
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(f) Administrator shall assist the P.A. with its community relations and
marketing efforts.
(g) Administrator shall furnish to P.A. periodic financial and other reports
reflecting the Practice's financial and operational status.
(h) Administrator shall provide accounting, tax, payroll and legal services
(including labor relations, contract preparation, and maintenance of all
necessary professional and business licenses) on behalf of the Practice.
(i) Administrator shall establish for P.A.'s review and approval, business
systems, reasonable policies and procedures, and standardized clinical forms for
the Practice, including: (i) feasibility studies to determine clinical
appropriateness and financial feasibility of future expansion; (ii) coordination
in the relationship between P.A.'s performance of dental services and the
overall administrative and business functioning of the Practice; (iii)
assistance regarding the establishment of appropriate fees for professional and
ancillary services; and (iv) coordination and assistance in obtaining and
maintaining malpractice insurance. Upon approval of the foregoing by the P.A.,
which approval shall not be unreasonably withheld, P.A. agrees to comply with
such policies and procedures, provided, however, that P.A. shall maintain
control and supervision over the provision of all dental services provided by
the Practice. P.A. expressly acknowledges that it shall have no property rights
in the business systems, procedures, policies or clinical forms established by
the Administrator, and further agrees that such systems, procedures, policies
and forms shall be deemed to constitute Confidential Information within the
meaning of Article Nine hereof.
(j) Administrator shall provide telephone, switchboard, dictation and
duplication services.
(k) Administrator shall assist P.A. in recruiting dentists for the Practice,
carrying out such administrative functions as may be appropriate such as
advertising for and identifying potential candidates, checking credentials, and
arranging interviews; provided, however, that P.A. will make the ultimate
decision as to the suitability of any dentist to become associated with the P.A.
All dentists recruited by the Administrator and accepted by the P.A. shall be
the employees of P.A. to the extent they are hired as employees. Expenses
incurred in the recruitment of dentists shall be an expenses paid by the
Administrator pursuant to Section 2.5 hereof.
(l) Administrator shall recommend to the P.A. the hours of operation of the
Practice in accordance with customary practices of similar dental practices in
the area.
(m) Administrator shall endeavor to seek out and negotiate contracts
("Managed Care Arrangements") with managed care companies, including, but not
limited to, health maintenance organizations and preferred provider
organizations, to provide dental services with P.A. as a participating provider
under such contracts.
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2.5 PAYMENT OF EXPENSES. Administrator shall be solely responsible for and
shall pay (or reimburse P.A. (if payment was approved by Administrator) for
payment of) the following costs and expenses:
(a) The lease and/or purchase payments of the Practice Premises.
(b) Expenses associated with the Practice Premises, including but not
limited to telephone, electric, gas and water utility expenses, and real
property taxes.
(c) The lease and/or purchase payments, as applicable, of the Practice
Equipment.
(d) Expenses associated with the Practice Equipment, including maintenance,
repair, replacement and personal property taxes.
(e) Expenses associated with the Administrator Personnel pursuant to Section
2.3, including, but not limited to, compensation, benefits, payroll taxes and
unusual payroll deductions, worker's compensation insurance and all similar
items.
(f) Expenses associated with the other support services listed in Section
2.4.
(g) Premiums and deductibles (as applicable) for all insurance described in
Section 5.3.
ARTICLE THREE
P.A.'S OBLIGATIONS
3.1 DENTAL PRACTICE.
(a) P.A. shall continuously, throughout the term of this Agreement, conduct
the Practice on a full-time basis at the Practice Premises. As may be agreed
upon in advance by the parties, P.A. shall provide, at its own expense,
sufficient dentist and hygienist staff coverage to the Practice Premises to
enable the Practice to operate in an efficient and lawful manner at all required
times during the hours of operation of the Practice, including, without
limitation, the provision of locum tenens dental staff. P.A. shall also be
responsible for the professional supervision of the clinical aspects of services
rendered by Administrator Personnel.
(b) P.A. shall retain responsibility for all decisions related to the
employment of all licensed health care providers, including hiring, promotion,
discharge, compensation, training, and professional assignments. Administrator
shall review all personnel matters and make recommendations to P.A. on
appropriate actions or policies. P.A. shall be solely liable to such medical
personnel for their wages, compensation, and employee benefits. For purposes of
this section, the term "licensed health care providers" includes, without
limitation, dentists, dental hygienists, and any other licensed medical
personnel.
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(c) P.A. shall use the Practice Premises and the Practice Equipment solely
in accordance with the terms and conditions set forth herein. P.A. shall, at all
times, be responsible for the quality of dental care provided at the Practice
Premises. It is expressly acknowledged by the parties that all dentist services
provided at the Practice Premises shall be performed solely by dentists licensed
to practice dentistry and to provide such services in the State of Maryland who
(except on an emergency basis) shall at all times during the term of this
Agreement be employees or independent contractors of P.A. The P.A. shall provide
dental services to patients of the Practice in compliance at all times with
ethical standards, and laws and regulations applying to the dental profession.
In the event that any disciplinary, medical malpractice or other actions are
initiated against any dentist associated with the P.A., the P.A. shall
immediately inform the Administrator of such action and the underlying facts and
circumstances.
(d) P.A. shall establish schedules of patient charges for dental services
and supplies provided by P.A. that take into account the financial obligations
of P.A. and the importance of providing quality health care at a reasonable
cost.
(e) P.A. shall maintain good faith efforts to control patient care costs
while providing quality dental care to patients.
(f) P.A. agrees to serve as a participating provider of dental services
pursuant to all Managed Care Arrangements entered into by Administrator.
3.2 P.A. EQUIPMENT. P.A. may provide equipment at the Practice Premises,
which shall be in addition to the Practice Equipment ("P.A. Equipment"). P.A.
shall be responsible for all repairs, maintenance and replacement of the P.A.
Equipment, unless P.A. requests that Administrator provide such repairs,
maintenance and replacement upon such terms and conditions as the parties may
agree. Administrator shall have no ownership interest in the P.A. Equipment.
From time to time during the term of this Agreement, P.A. may prepare and
revise a schedule of the P.A. Equipment, to be attached hereto as EXHIBIT D.
Upon termination of this Agreement, P.A. shall, at its sole cost and expense,
remove the P.A. Equipment, and repair any damage to the Practice Premises
resulting from the installation, use, or removal of the P.A. Equipment.
3.3 COSTS AND EXPENSES. P.A. shall be solely responsible for and shall pay
the following costs and expenses:
(a) The cost of maintaining the corporate existence of P.A., if applicable.
(b) All P.A. income taxes.
(c) Compensation of P.A.'s shareholders, directors and officers, for
services provided in those roles, if applicable.
(d) Expenses related to compensation of all dentists and hygienists employed
by, or contracted to, P.A. for work in the Practice, which shall include, but
not be limited to,
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compensation, benefits, payroll taxes and unusual payroll deductions,
worker's compensation insurance and all similar items.
(e) Expenses associated with any P.A. Equipment, pursuant to Section 3.2.
(f) Expenses related to all license fees and association dues required for
P.A. to operate the Practice.
(g) Tuition fees and reasonable expenses for attendance by dentists employed
by the P.A. at the Practice of continuing dental education courses and seminars
deemed reasonably necessary by the P.A. to operate the Practice.
(h) All other costs and expenses reasonably incurred by Administrator in
conducting its administrative functions at the Practice Premises, other than
costs and expenses which are Administrator's responsibility pursuant to Section
2.5.
(i) Premiums for malpractice and other insurance described in Sections 5.1
and 5.2.
3.4 SPECIAL EXPENSES. P.A., at P.A.'s option, may incur additional
expenses, in addition to those listed in Section 3.3, in connection with the
Practice. P.A. shall pay for such additional expenses either from its profits
from the Practice or from other resources.
3.5 UTILIZATION REVIEW; QUALITY ASSURANCE. P.A. agrees to cooperate with
and participate in quality assurance/utilization review programs established by
third party payors or mandated by accreditation or licensure standards
applicable to the practice of dentistry. Deficiencies discovered in the
performance of any personnel or in the quality of professional services shall be
reported immediately to the Administrator by the P.A. (if discovered by the
P.A.), and to the P.A. by the Administrator (if discovered by the
Administrator), and appropriate steps shall be taken by the P.A. at once to
remedy such deficiencies.
ARTICLE FOUR
THE ADMINISTRATIVE FEE
4.1 GENERAL INTENT WITH RESPECT TO THE ADMINISTRATIVE FEE. P.A. and
Administrator mutually recognize and acknowledge that:
(a) Administrator has incurred and will incur substantial costs and expenses
in connection with providing the Administrative Services described in this
Agreement, and in performing all other obligations required of it in accordance
with this Agreement;
(b) Certain of Administrator's costs and expenses can vary to a considerable
degree according to the volume of services required at the Practice Premises;
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(c) It will be impracticable to ascertain with precision all of the costs
and expenses that will be incurred by Administrator from time to time in the
performance of its obligations under this Agreement; and
(d) Total Net Collections (as defined in Section 4.2(d) below) may also vary
to a considerable degree during each month of this Agreement.
It is the intent of the parties that all fees paid to Administrator by P.A.
under this Agreement be reasonable and approximate Administrator's actual costs
and expenses plus a reasonable profit.
4.2 DEFINITIONS. As used herein, the following terms shall have the
meanings set forth in this Section:
(a) "GROSS CHARGES." All professional fees and charges, including
copayments charged (but not capitated payments) under Managed Care
Arrangements, for services performed by P.A. as part of the Practice during
the term of this Agreement.
(b) "NET COLLECTIONS." All proceeds received by Administrator or
P.A. from Gross Charges, less patient and third party refunds due to
overpayments. Net Collections shall not include capitated payments paid to
Administrator under Managed Care Arrangements entered into by Administrator.
(c) "PRACTICE EXPENSES." All expenses to be paid by the
Administrator pursuant to Section 2.5 hereto.
4.3 DETERMINATION AND PAYMENT OF THE ADMINISTRATIVE FEE. During the term
of this Agreement and for such period as may be required under Section 6.3(c)
hereof, P.A. shall pay to Administrator by the fifteenth (15th) day of each
month a management fee (the "Administrative Fee") equal to a percentage of Net
Collections, determined as follows: (i) during the period commencing on the
effective date of this Agreement and continuing until the end of the first full
fiscal year of operation under this Agreement, the percentage shall be equal to
eighty percent (80%). By November 1 of the first full fiscal year of this
Agreement, and each fiscal year thereafter, Administrator shall prepare and
present to the P.A. a proposed operating budget for the Practice, from which the
parties shall negotiate in good faith a percentage for the Administrative Fee
which will result in the fees paid to Administrator for such fiscal year to be
reasonable and to approximate Administrator's anticipated actual costs and
expenses plus a reasonable profit. Until an agreement on a percentage is
reached, the percentage in effect for the preceding year shall remain in effect.
As provided in Section 2.4(c) hereof, Administrator is authorized to
withdraw the amount of the Administrative Fee from the Account as and when due.
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4.4 COLLATERAL SECURITY.
(a) As collateral for the payment of the Administrative Fee due hereunder
(including any extensions, modifications and renewals hereof), P.A. hereby
grants to Administrator a security interest in all of the accounts receivable
resulting from Gross Charges, together with any and all proceeds of such
accounts receivable (collectively, the "Collateral"). Upon Administrator's
request, P.A., at its sole cost and expense, shall execute and deliver to
Administrator such further documents and assurances and shall take such further
action as Administrator may request to evidence Administrator's security
interest in and to the Collateral. P.A. hereby appoints Administrator as its
attorney-in-fact to execute and record in the name and on behalf of the P.A.
appropriate UCC Financing Statements evidencing the security interest in the
Collateral granted to Administrator by this section.
(b) Administrator shall have all rights, powers, remedies and recourses
available or permitted to Administrator under law with respect to the
Collateral, including, but not limited to, the ability (i) to release,
surrender, waive, add, substitute, settle, exchange, compromise, modify, extend,
or grant indulgences with respect to the Collateral, the Administrative Fee or
any other amounts due to Administrator hereunder; and (ii) to grant any
extension or other postponements of the time of payment thereof; provided
however, that Administrator shall not be liable for any failure to collect or
enforce the payment of the Collateral.
(c) Notwithstanding any other provision of this Agreement, and except as
otherwise prohibited by law, upon P.A.'s failure to pay any amount due
Administrator hereunder and at Administrator's election, P.A. hereby authorizes
Administrator: (i) to take possession of the Collateral; (ii) to take possession
of and endorse in P.A.'s name any notes, checks, money orders, insurance
payments, and any other documents received in payment of the Collateral, or any
part of it; (iii) to collect, sue for, and give satisfactions for, monies due on
account of the Collateral; (iv) to institute, maintain or withdraw any claims,
suits, or proceedings pertaining to, or arising out of Administrator's and/or
P.A.'s right to the Collateral; and (v) to pay all amounts due Administrator.
4.5 POSSESSION OF COLLATERAL RECORDS. Administrator shall have authority
to possess and retain for P.A. and Administrator the books of the Practice with
respect to the Collateral.
4.6 PAYMENTS TO P.A.
(a) Each month after payment of the Administrative Fee and other monies due
Administrator hereunder, if any, Administrator will arrange for the transfer
from the Account to any other account P.A. designates, that amount of the Net
Collections for the previous month which was not paid to Administrator.
(b) In the event that the amount payable under subsection (a) above is
insufficient for P.A. to meet those anticipated expenses for the ensuing month
for base salary, benefits, and
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malpractice costs which have been approved in advance by Administrator (the
"Base P.A. Expenses"), Administrator shall advance such shortfall (each, an
"Advance") to P.A. Each Advance shall be treated as a loan from Administrator
to the P.A., and shall be repaid to Administrator, as quickly as possible,
from revenues derived in subsequent months out of the payments to be received
pursuant to subsection (a) above; provided however, that an Advance shall be
forgiven if P.A. is unable to repay it within a twelve (12) month period.
ARTICLE FIVE
INSURANCE AND INDEMNITY
5.1 MALPRACTICE INSURANCE.
(a) P.A. will obtain and at all times maintain in full force and effect
professional malpractice liability insurance for all dentists and hygienists
providing dental care for P.A. pursuant to this Agreement.
(b) The malpractice insurance will have coverage limits of at least One
Million Dollars ($1,000,000) per occurrence and at least Three Million Dollars
($3,000,000) per annual aggregate, such other higher amount as may be required
by appropriate licensing authorities or third party payors, or such other amount
as may be agreed to by the parties. Such malpractice insurance shall be issued
to the P.A. and to each of the dentists and hygienists employed by the P.A.
(c) The malpractice insurance may be either "occurrence" or "claims made"
insurance. If P.A. obtains "claims made" insurance, P.A. will obtain an extended
reporting endorsement (a "tail") to cover services provided under this
Agreement.
(d) P.A. shall provide to Administrator written documentation evidencing the
malpractice insurance coverage required by this Section for P.A. and P.A.'s
shareholders, officers, and directors prior to the commencement date of this
Agreement and for dentist and hygienist employees of the P.A. prior to the
commencement of professional services by such employee.
(e) All malpractice insurance required by this section will contain the
written agreement of the insurer(s) to provide Administrator 30 days prior
written notice before any non-renewal, termination or modification of coverage
takes effect.
5.2 OTHER INSURANCE. P.A. shall obtain and at all times maintain workers
compensation coverage for all of the dentists and hygienists employed by the
P.A., and the P.A. shall hold the Administrator harmless with respect to any
worker's compensation claims made by any such employee.
5.3 ADMINISTRATOR INSURANCE. Administrator shall carry and at all times
maintain in full force and effect: (i) public liability insurance insuring
against claims for bodily injury,
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including death, and property damage occurring on, in, or about the Practice
Premises; (ii) general liability and fire insurance for the Practice
Premises; (iii) business interruption insurance for the P.A.; and (iv)
workers compensation coverage for all Administrator Personnel. Administrator
shall hold the P.A. harmless with respect to any workers compensation claims
made by Administrator Personnel.
5.4 INDEMNIFICATION OF ADMINISTRATOR. P.A. shall indemnify, hold harmless
and defend Administrator, its shareholders, officers, directors, employees,
contractors, other agents and affiliates from and against any and all liability,
loss, damages, claims, causes of action and expenses associated with them
(including reasonable attorneys' fees) caused or asserted to have been caused,
directly or indirectly by or as a result of any acts or omissions of P.A., its
shareholders, officers, directors, employees, contractors or other agents in
connection with this Agreement, including, but not limited to, claims of
professional malpractice.
5.5 INDEMNIFICATION OF P.A. Administrator shall indemnify, hold harmless
and defend P.A., its shareholders, officers, directors, employees, contractors,
other agents and affiliates from and against any and all liability, loss,
damages, claims, causes of action and expenses associated with them (including
reasonable attorneys fees) caused or asserted to have been caused, directly or
indirectly by or as a result of acts or omissions constituting negligence or
gross negligence by Administrator, its shareholders, officers, directors,
employees, contractors, other agents or affiliates in connection with this
Agreement.
ARTICLE SIX
TERM, TERMINATION AND EFFECTS OF TERMINATION
6.1 TERM. This Agreement shall commence on July 18, 1996, shall be for an
initial term of forty (40) years, and shall renew automatically for an
additional term of ten (10) years unless either party gives the other party at
least one hundred eighty (180) days written notice of its intent not to renew at
the end of the initial term.
6.2 TERMINATION.
(a) AUTOMATIC TERMINATION; NOTICE BY ADMINISTRATOR. This Agreement will
automatically terminate upon written notice by Administrator to P.A. upon the
occurrence of any of the following events.
(i) The Appointment of a receiver or trustee to manage the assets of
P.A.
(ii) The assignment for the benefit of creditors of the assets of P.A.
(iii) The occurrence of any act of bankruptcy by P.A.
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(iv) P.A.'s breach of any material term of this Agreement, provided that
such breach continues for a period of thirty (30) days after written notice
thereof has been given by the Administrator to P.A.
If Administrator fails to give notice of termination within 90 days of its
becoming aware of the occurrence of an event listed in this Section 6.2(a),
Administrator waives its right to terminate based on that occurrence.
Administrator retains the right to give notice of termination upon any
subsequent occurrence of the same type of event, or of any other event listed in
this Section 6.2(a).
(b) AUTOMATIC TERMINATION; NOTICE BY P.A. This Agreement will automatically
terminate upon written notice by P.A. to Administrator upon the occurrence of
any of the following events.
(i) The Appointment of a receiver or trustee to manage the assets of
Administrator.
(ii) The assignment for the benefit of creditors of the assets of
Administrator.
(iii) The occurrence of any act of bankruptcy by Administrator.
(iv) Administrator's breach of any material term of this Agreement,
provided that such breach continues for a period of thirty (30) days
after written notice thereof has been given by the P.A. to the
Administrator.
If P.A. fails to give notice of termination within 90 days of its becoming
aware of the occurrence of an event listed in this Section 6.2(b), P.A. waives
its right to terminate based on that occurrence. P.A. retains the right to give
notice of termination upon any subsequent occurrence of the same type of event,
or of any other event listed in this Section 6.2(b).
6.3 EFFECTS OF TERMINATION. This Agreement will have no further effect
after the date of termination, except the following:
(a) P.A. shall immediately surrender to Administrator the Practice Premises
at its sole cost and expense. This includes but is not limited to the following:
(i) P.A. shall cause all dentist employees to vacate the Practice
Premises; and
(ii) P.A. shall remove all P.A. Equipment, and any other P.A. property,
and shall be solely responsible for any damage caused as a result of the
removal of its property.
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(b) P.A. shall pay all compensation and fees accrued and owed to
Administrator through the date of termination.
(c) Administrator shall be entitled to a Administrative Fee for all Total
Net Collections based on Gross Charges arising prior to the termination.
Administrator shall have the right, in its sole discretion exercisable at any
time after the termination of this Agreement, to cease billing and collecting
Gross Charges arising prior to the termination. Prior to Administrator's
election to cease such billing and collection, Administrator shall bill and
collect, make payments and have all other rights and obligations with respect to
Gross Charges arising prior to the termination as provided in this Agreement,
and P.A. will pay Administrator all compensation and fees applicable thereto,
including the Administrative Fee. Following Administrator's election, P.A. shall
make other arrangements for billing and collection of such Gross Charges, and
shall remit to Administrator all fees and charges applicable thereto, including
the Administrative Fee, and shall deliver a monthly statement of Total Net
Collections until billing and collection for such Gross Charges is substantially
complete.
(d) Administrator shall continue to have all of its rights pursuant to
Section 4.4 and 4.5 until Administrator shall be paid all monies due from P.A.
(e) P.A. shall maintain and pay for malpractice insurance pursuant to
Section 5.1.
(f) Sections 5.4, 5.5, and 6.4 shall remain in full force and effect.
6.4 RESTRICTIONS ON COMPETITION; INJUNCTIVE RELIEF. P.A. agrees to cause
each of the dentists employed by or under contract with the P.A. to agree that
during the term of his/her employment or independent contract with the P.A., and
for a period of two (2) years thereafter, he/she shall not, without the prior
written consent of P.A., engage directly or indirectly in the ownership or
operation of a dental practice within a five (5) mile radius of any of the
Practice Premises at which the dentist provided services on behalf of the P.A.
ARTICLE SEVEN
DENTAL PRACTICE AND REIMBURSEMENT CONSIDERATIONS
7.1 ACCESS TO BOOKS AND FEES. P.A. or its designee shall have access
during normal business hours to financial records of the Practice, including
records of collections, expenses and disbursements as kept by Administrator
performing its obligations under this Agreement. It is expressly understood that
the systems, methods, procedures, written materials and controls employed by
Administrator in the performance of this Agreement are proprietary in nature,
shall remain the property of Administrator and shall not, at any time, be
utilized, distributed, copied or otherwise employed or acquired by P.A. unless
approved in advance and in writing by Administrator. Upon request, P.A. shall,
and shall cause its dentists to, execute a confidentiality agreement to evidence
its or their agreement to comply with the foregoing.
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7.2 ACCESS TO RECORDS. To the extent required by Section 1395x(v)(1) of
Title 42 of the United States Code, the clauses contained in that section are
incorporated herein by reference with like effect as though set forth at length.
7.3 JEOPARDY. Notwithstanding anything herein to the contrary, if any
event occurs, or if either party receives notice of an action or threatened
action beyond the control of either party, or if a change in any law, regulation
or policy occurs (collectively referred to herein as the "Event") which would:
(a) in the reasonable opinion of both parties jeopardize P.A.'s or any
shareholder, officer, director, employee, contractor or agent of P.A.'s
participation in or reimbursement from any third party payor program;
(b) cause a material change in the amount of reimbursement payable to P.A.
or any shareholder, officer, director, employee, contractor or agent of P.A. in
connection with any of the services provided to patients of the Practice from
any third party payor programs;
(c) prevent any dentist shareholder, officer, director, employee, contractor
or agent of P.A. from referring patients to or to provide services at any of the
Practice Premises;
(d) cause a material adverse effect on the operations of the Practice and/or
make the performance of this Agreement uneconomic for either party;
(e) cause the revocation, suspension or termination of the license(s)
maintained by Administrator or P.A. for the operation of the Practice and/or
maintained by any shareholder, officer, director, employee, contractor or agent
of P.A.; or
(f) make it impossible, unlawful or unethical for either party or any
shareholder, officer, director, employee, contractor or agent of Administrator
or P.A. to continue to perform any term or condition under this Agreement;
then, in any such case, the parties shall immediately attempt to negotiate
amendments to this Agreement or a new Agreement which will negate the effect
of the Event and provide similar economic and other benefits to each party as
provided under this Agreement. In the event the parties are unable to
negotiate amendments or a new agreement to the reasonable satisfaction of
both parties within 30 days after the Event, then this Agreement shall
terminate immediately upon written notice by either party to the other.
7.4 MEDICAL RECORDS. P.A. shall be responsible for the generation of all
medical records information and shall retain ownership and control of all
medical records pertaining to its patients. Administrator shall provide clerical
and administrative support to P.A. for the preparation and maintenance of
medical records. Administrator shall implement policies and procedures for the
maintenance of patient records at the Practice Premises, which shall be in
accordance with all applicable licensing and other laws, regulations and
guidelines as well as the standards, policies and procedures imposed by any
malpractice insurance carrier, accreditation
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agency, or any public and/or private payor pertaining to the maintenance and
confidentiality of patient medical records. Administrator shall, at all times
during the term of this Agreement, have reasonable access to such records.
7.5 NO RECIPROCATION. The parties hereby acknowledge and agree that the
benefits conferred upon each of them hereunder neither require nor are in any
way contingent upon:
(a) the admission, recommendation, referral or any other arrangement for the
provision of any item or service offered by Administrator or any of its
affiliates to any patient of P.A., its shareholders, officers, directors,
employees, contractors or agents; or
(b) the recommendation, referral or any other arrangement for the provision
of any item or service offered by P.A. or any of its shareholders, officers,
directors, employees, contractors or agents.
7.6 PRACTICE OF DENTISTRY. The parties acknowledge that Administrator is
not authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of dentistry and any payments or
reimbursements of wages, costs or expenses of P.A. by Administrator are solely
for the administrative convenience of the parties and are expected by the
parties to be funded from Net Cash Collections of the Practice. To the extent
any act or service herein required of Administrator should be construed or
deemed to constitute the practice of dentistry, the performance of that act or
service by Administrator shall be deemed waived or forever unenforceable.
ARTICLE EIGHT
DISPUTE RESOLUTION
8.1 DISPUTE RESOLUTION. The parties will make good faith efforts to
resolve mutually any disputes which arise between them regarding this Agreement.
As part of this dispute resolution process, either party will, at the request of
the other party, promptly provide a short and plain written statement setting
forth that party's position regarding the dispute and that party's suggested
resolution. The other party then will respond promptly with a short and plain
written statement setting forth its position and suggested resolution for the
dispute. For a period of fifteen (15) days following the sending of the
statements, the parties shall negotiate in an effort to resolve the controversy.
8.2 ARBITRATION. Any dispute which has not been resolved by the parties
under the procedure set forth in Section 8.1 shall be submitted to and decided
by arbitration in accordance with the Rules of the American Arbitration
Association, as follows:
(i) There shall be one arbitrator who shall be selected in accordance with
the Rules of the American Arbitration Association;
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(ii) The authority of the arbitrator shall be limited to a determination of
the facts, and to the interpretation and application of specific provisions of
this Agreement as they may apply to the dispute. The arbitrator shall be bound
by this Agreement, and shall have no authority to add to, subtract from, amend,
or modify the provisions of this Agreement. The arbitrator shall render an
opinion and a final award, if any, which shall be binding on both parties.
(iii) Each party shall bear its own fees, costs, and expenses of an
arbitration proceeding, including witnesses, travel, attorneys, and other
representatives; the general costs and expenses of the arbitration, such as
facilities rental and fees, costs, and expenses of the arbitrator and the
American Arbitration Association, shall be borne equally by the parties.
8.3 The procedures set forth in Sections 8.1 and 8.2 shall not apply to
the events for automatic termination of this Agreement set forth in Section
6.2 hereunder.
ARTICLE NINE
CONFIDENTIAL INFORMATION
9.1 P.A. agrees and acknowledges that all materials provided by the
Administrator to P.A. constitute "Confidential Information" and are disclosed in
confidence and with the understanding that they constitute valuable business
information developed by the Administrator. P.A. further agrees that it shall
not, directly or indirectly, without the express prior written consent of the
Administrator, use or disclose such Confidential Information for any purpose
other than in connection with the services to be rendered hereunder. P.A.
further agrees to impose this obligation of confidentiality on its officers,
shareholders, affiliates, partners, employees and independent contractors. Upon
the expiration or termination of this Agreement by either party for any reason
whatsoever, P.A. shall immediately return and, thereafter, not use, and shall
cause its officers, shareholders, affiliates, partners, employees and
independent contractors to return and, thereafter, not use, all Confidential
Information. P.A. further expressly acknowledges and agrees that any such use,
appropriation or reproduction of any such Confidential Information by any of the
foregoing after the expiration or termination of this Agreement will result in
irreparable injury to the Administrator, that the remedy at law for the
foregoing would be inadequate, and that in the event of such use, appropriation
or reproduction, the Administrator, in addition to any other remedies or damages
available to it, shall be entitled to injunctive or other equitable relief
without the necessity of proving actual damages, but such rights to equitable
relief shall not preclude the Administrator from other remedies which may be
available to it hereunder.
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ARTICLE TEN
GENERAL PROVISIONS
10.1 ASSIGNMENT BY ADMINISTRATOR. Administrator shall have the right, at
its sole discretion, to assign any or all of its rights and obligations under
this Agreement to any of its affiliates. The term affiliates for the purposes of
this Agreement shall mean any person or entity that directly or indirectly
controls, is controlled by, or is under common control with Administrator, and
anyone who is the beneficial owner of 10% or more of the outstanding voting
securities of another shall be deemed in control.
10.2 AMENDMENT. This Agreement may be amended by the parties. No amendment
will be effective unless in writing, and signed by both of the parties.
10.3 CAPTIONS. Captions and article headings used herein are for
convenience only and are not part of this Agreement and shall not be used in
construing it.
10.4 COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which will be deemed an original, but taken together will constitute one
instrument.
10.5 CUMULATION OF REMEDIES. The various rights, options, elections,
powers, and remedies under this Agreement, or granted by law (collectively,
"Remedies"), will be construed as cumulative. No single Remedy is exclusive of
any of the other Remedies.
10.6 FORCE MAJEURE. Neither party will be liable or in default for any
delay or failure in performance under this Agreement, or for any other
interruption of service or employment resulting 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
similar or dissimilar cause beyond the reasonable control of either party.
10.7 FURTHER ASSURANCES. Each party will do such further acts, including
executing and delivering additional agreements or instruments as the other may
reasonably require, to consummate, evidence or confirm the agreements contained
in this Agreement.
10.8 GOVERNING LAW. This Agreement will be construed and enforced
according to the laws of the State of Maryland applicable to agreements made and
to be performed wholly within the State.
10.9 INCORPORATION OF RECITALS AND THE EXHIBITS. All recitals and the
exhibits referred to in this Agreement are an integral part of this Agreement.
They are incorporated in this Agreement by this reference as though at this
point set forth in full.
10.10 INDEPENDENT CONTRACTOR. It is mutually understood and agreed that
P.A. and Administrator are at all times acting and performing hereunder as
independent contractors. Administrator shall never have nor exercise control or
direction over the methods by which P.A. its shareholders, officers, directors,
employees, contractors or agents practice dentistry.
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10.12 INTEGRATION. The making, execution and delivery of this Agreement by
the parties has not been induced by any representations, statements, warranties
or agreements other than those expressed in this Agreement. This Agreement
embodies the entire understanding of the parties. There are no other agreements
or undertakings, written or oral, in effect between the parties relating to the
subject matter of this Agreement, unless expressly referenced in this Agreement.
10.13 NOTICES.
(a) WRITTEN NOTICES. All notices, demands or requests ("Notices") which are
required or permitted to be given pursuant to this Agreement will be in writing.
Notices will be delivered personally, by commercial carrier, by fax with a
machine generated confirmation sheet or by registered or certified mail, postage
prepaid, addressed to a party as stated below.
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(b) Administrator's Address for Notices:
DentalCo Administrative Services of Maryland, Inc.
Lake Falls Professional Building
6115 Falls Road
Baltimore, Maryland 21209
Attn: President
(c) P.A.'s Address for Notices:
Mid-Atlantic Dental Associates, P.A.
6115 Falls Road
Baltimore, Maryland 21209
Attn: President
(d) EFFECTIVE DATE. Notice given personally or by commercial carrier is
effective upon delivery. Notice given by fax with a machine generated
confirmation sheet is effective upon sending. Notice given by United States mail
is effective the third United States Post Office delivery day after the date of
mailing.
(e) CHANGE OF ADDRESS. Either party may change its address for Notices by
notice given pursuant to this section.
10.14 PARTIAL INVALIDITY. If any provision of this Agreement shall be
found by a court with proper jurisdiction to be invalid or unenforceable, in
whole or in part, then such provision shall be deemed to be modified, narrowed,
or restricted only to the limited extent and in the manner necessary to render
the same valid and enforceable, as the case may require, and this Agreement
shall be construed and enforced to the maximum extent permitted by law, as if
such provision had been originally incorporated herein as so modified, narrowed
or restricted.
10.15 STATUTES AND REGULATIONS. Any reference in this Agreement to any
statute, regulation, ruling, or administrative order or decree will include, and
be a reference to any successor statute, regulation, ruling, or administrative
order or decree.
10.16 WAIVER OF RIGHT. No waiver of or failure by either party to enforce
a provision, covenant, condition or right under this Agreement (collectively,
"Right") will be construed as a subsequent waiver of the same Right, or a waiver
of any other Right. No extension of time for performance of any obligations or
acts will be deemed an extension of the time for performance of any other
obligations or acts.
SIGNATURES ON THE FOLLOWING PAGE
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IN WITNESS WHEREOF, the parties have signed this Agreement as of the day and
year first above written.
ATTEST: MID-ATLANTIC DENTAL
ASSOCIATES, P.A.
/s/ E. JAMES KUHNS By: /s/ ERWIN S. RAFFEL
- ---------------------------------- --------------------------------
E. JAMES KUHNS ERWIN S. RAFFEL
Secretary President
DENTALCO MANAGEMENT SERVICES
OF MARYLAND, INC.
/s/ E. JAMES KUHNS By: /s/ LAWRENCE R. HALPERT, D.D.S.,
- ---------------------------------- ---------------------------------
E. JAMES KUHNS LAWRENCE R. HALPERT, D.D.S.,
Secretary Chairman and CEO
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Exhibit 10.17
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is made and entered
into as of January 15, 1997, by and between Nanston, Inc., a Georgia corporation
("Manager"), and Nanston Dental Group, P.C., a Georgia professional services
corporation (the "P.C.").
RECITALS
P.C. is a professional services corporation which provides dental and
related specialty services (the "Practice").
Manager is skilled in dental practice management, including billing and
collecting, contracting, administration, and marketing.
P.C. desires to engage the services of an experienced manager to provide (i)
all day-to-day management and business office services necessary to support P.C.
in the performance of its activities; and (ii) use of non-professional
personnel, premises, furniture, fixtures and equipment, billing and collecting,
and certain other support services of the Practice, as more fully defined below
(collectively, the "Management Services").
P.C. desires to obtain Management Services from the Manager.
Manager is capable of providing and desires to provide Management Services
to P.C.
NOW THEREFORE, in consideration of the foregoing and of the mutual promises
herein contained, the parties hereby agree as follows:
ARTICLE ONE
MANAGEMENT SERVICES; POLICY BOARD
1.1 IN GENERAL. P.C. hereby engages Manager to provide the Management
Services as more particularly described herein, and Manager hereby accepts this
engagement. The Manager's undertaking shall be comprehensive, and shall include
all Management Services necessary to carry out the efficient operation of the
business aspects of the Practice. P.C. agrees that the Manager shall have all
power and authority reasonably necessary to manage all day-to-day business
operations and policies of the Practice; provided, however, that no such policy,
action, or decision by Manager or Manager's Dental Director will be made or
construed so as to have the effect of infringing upon the discretion of the
dentists and other dental personnel of the P.C. in rendering independent dental
opinions or treatment.
1.2 FORMATION AND OPERATION OF THE POLICY BOARD. There shall be
established a Policy Board (the "Policy Board") which shall be responsible for
developing and implementing management and administrative policies for the
overall operation of the Practice. The Policy
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Board shall consist of four (4) members, two (2) of which shall be the
designees of the Manager, and two (2) of which shall be the designees of the
PC. The PC's designees shall be dentists who are full-time employees of the
PC. Each party's representatives to the Policy Board shall have the authority
to make decisions on behalf of his or her respective party. Except as may
otherwise be provided herein, the act of a majority of the members of the
Policy Board shall be the act of the Policy Board. The decisions,
resolutions, actions, or recommendations of the Policy Board shall be
implemented by the Manager or the PC, as appropriate. The Policy Board
meetings shall be held as mutually agreed, but at least quarterly.
1.3 DUTIES AND RESPONSIBILITIES OF THE POLICY BOARD. The Policy Board
shall have the following duties, obligations, and authority:
(a) Capital Improvements and Expansion. Any renovation and expansion plans
and capital equipment expenditures with respect to the Practice Premises 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) Marketing and Advertising. All advertising and other marketing of the
services performed at the Practice Premises shall be subject to the prior review
and approval of the Policy Board.
(c) Patient Fees; Collection Policies. As a part of the annual operating
budget, in consultation with the PC and Manager, the Policy Board shall review
and approve the fee schedule and collection policies for the PC.
(d) Ancillary Services. The Policy Board shall approve PC-provided ancillary
services based upon the pricing, access to, and quality of such services.
(e) Provider and Payor Relationships. Decisions regarding the establishment
or maintenance of relationships with institutional health care providers and
third-party payors shall be approved by the Policy Board. The Policy Board shall
review and approve discounted fee schedules, including capitated fee
arrangements.
(f) Strategic Planning. The Policy Board shall develop long-term strategic
planning objectives.
(g) Capital Expenditures. The Policy Board shall determine the priority of
major capital expenditures.
(h) Dentist Hiring. The Policy Board shall recommend to PC the number and
type of dentists required for the efficient operation of the Practice Premises.
The Policy Board shall review any variations to the restrictive covenants in any
dentist employment agreement.
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(i) Fee Dispute Resolution. Upon submission by the PC of a dispute
concerning a set-off or reduction in Management Fees, the Policy Board shall
consider, develop, and implement a resolution to the PC and Manager.
(j) Grievance Referrals. The Policy Board shall consider and make
recommendations to PC regarding grievances pertaining to matters not
specifically addressed in this Agreement as referred to it by PC or Manager.
1.4 DENTAL DECISIONS. Notwithstanding the generality of the foregoing, all
clinical dental decisions shall be made solely by licensed dentists, but
nondentist members of the Policy Board may participate in the discussion
process. The dentist members of the Policy Board shall have exclusive authority
to review and resolve issues relating to the types and levels of dental services
to be provided by the PC, and fee schedules.
1.5 OTHER DECISIONS. Except for dental decisions referred to in Section
1.4 above, all other decisions of the Policy Board, in the event of a deadlock,
will be made solely by the Manager.
ARTICLE TWO
MANAGER'S OBLIGATIONS
2.1 USE OF PRACTICE PREMISES. Manager hereby agrees to provide to P.C.,
and P.C. hereby hires from Manager, on an exclusive basis, the use of those
certain dental office spaces as described in Exhibit A (the "Practice
Premises"). P.C.'s use of the Practice Premises is subject to the provisions of
any lease for the Practice Premises between Manager and the landlord.
P.C. agrees to conduct the Practice only in the Practice Premises or at such
other location(s) as may be mutually agreed to by the parties. Manager shall
provide Practice Premises which are adequate and customary, as determined by
P.C. and Manager, to meet the demand for services to be provided by P.C.
2.2 Furniture, Fixtures and Equipment. Manager shall provide at the
Practice Premises those items of furniture, fixtures and equipment as
determined by the Policy Board to be reasonable and customary for P.C.'s
operation of the Practice (collectively, the "Practice Equipment"). Manager's
provision of the Practice Equipment is subject to the following conditions:
(a) P.C. shall have the use of the Practice Equipment only during the term
of this Agreement, and shall have no ownership interest therein.
(b) The Practice Equipment to be located at the Practice Premises shall be
as needed for the proper operation of the Practice, as may be determined from
time to time by the Policy Board. From time to time during the term of this
Agreement, the parties may agree to changes in the Practice Equipment.
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(c) Manager shall be responsible for all repairs, maintenance and
replacement of the Practice Equipment, except for such repairs, maintenance and
replacement necessitated by the negligence or misconduct of P.C., its employees,
contractors or agents.
2.3 MANAGER PERSONNEL. Manager shall recruit, hire, train, supervise,
promote and/or terminate those non-professional and non-technical personnel
listed in Exhibit B (the "Manager Personnel"). P.C. shall have the right to
approve, based solely on professional competence, the assignment of all non-
professional support personnel who provide services at the Practice Premises,
such approval not to be unreasonably withheld. Manager will have final authority
to engage, dismiss, reprimand, reassign, or otherwise deal with all Manager
Personnel. P.C. expressly understands and agrees that such actions with respect
to the Manager Personnel shall take place in accordance with Manager's personnel
policies and pursuant to the standards of salaries and benefits which Manager
may from time to time provide and pay to its employees.
2.4 OTHER SUPPORT SERVICES.
(a) Manager shall order and purchase all dental and office supplies required
in the day-to-day operation of the Practice.
(b) Manager shall bill and collect Gross Charges (as defined in Section
4.2(a) below) on the following terms:
(i) Manager shall bill any patient, third party payor or any other payment
source for all Gross Charges on the P.C.'s behalf and in P.C.'s name as agent
of P.C.;
(ii) Manager shall collect accounts receivable generated by billings for
Gross Charges; and
(iii) Manager shall take possession of, in the name and on behalf of
P.C., and disburse strictly in accordance with this Agreement, all
Collections (as defined in Section 4.2(b) below).
P.C. hereby appoints Manager as its true and lawful attorney-in-fact for
these purposes. Notwithstanding anything in this Agreement to the contrary, at
Manager's option, Manager may delegate any or all of the duties set forth in
this Section 2.4(b) to another person or entity designated by Manager that is
acceptable to P.C. P.C. shall not unreasonably withhold its acceptance.
(c) In order to enable Manager to accomplish its management functions under
this Agreement, Manager is authorized to open and maintain a bank account in the
name of the P.C. (the "Account") and to deposit all Collections in the Account.
Manager shall be a signatory on the Account with the right to make deposits and
withdrawals to and from the Account. The Account shall be maintained at a
financial institution mutually agreed upon by Manager and P.C. P.C. hereby
appoints Manager as its true and lawful attorney-in-fact (i) to deposit into the
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Account all Collections; (ii) to withdraw monies from the Account for refunds to
payment sources; and (iii) to withdraw monies from the Account to pay the
Management Fee (as defined below) and all other amounts due from P.C. to Manager
pursuant to this Agreement.
(d) Manager shall provide all necessary computer, bookkeeping, billing and
collection services, accounts receivable and accounts payable management
services, non-financial record keeping, general administrative services and
clerical office support, office supplies (including without limitation,
stationery, forms and postage), uniforms, laundry, linen, janitorial and
cleaning services.
(e) Manager shall, pursuant to Section 7.4 hereof, establish a system for
maintaining the dental records for the Practice.
(f) Manager shall manage community relations and marketing services for P.C.
(g) Manager shall furnish to P.C. periodic financial and management reports
reflecting the Practice's financial and operational status.
(h) Manager shall provide accounting, tax, payroll and legal services
(including labor relations, contract preparation, and maintenance of all
necessary professional and business licenses) on behalf of the Practice.
(i) Manager shall establish business systems, reasonable policies and
procedures (subject to the Policy Board's authority), and standardized clinical
forms for the Practice, including: (i) feasibility studies to determine clinical
appropriateness and financial feasibility of future expansion; (ii) coordination
in the relationship between P.C.'s performance of dental services and the
overall administrative and business functioning of the Practice; (iii)
coordination regarding the establishment of appropriate fees for professional
and ancillary services; and (iv) coordination and assistance in obtaining and
maintaining malpractice insurance. P.C. agrees to comply with such policies and
procedures established by the Manager or the Policy Board, provided, however,
that P.C. shall maintain control and supervision over the provision of all
dental services provided by the Practice. P.C. expressly acknowledges that it
shall have no property rights in the business systems, procedures, policies or
clinical forms established by the Manager or the Policy Board, and further
agrees that such systems, procedures, policies and forms shall be deemed to
constitute Confidential Information within the meaning of Article Nine hereof.
(j) Manager shall provide telephone, switchboard, dictation and duplication
services.
(k) Subject to the direction of the Policy Board, Manager shall assist P.C.
in recruiting dentists for the Practice, carrying out such administrative
functions as may be appropriate such as advertising for and identifying
potential candidates, checking credentials, and
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arranging interviews; provided, however, that P.C. will make the ultimate
decision as to the suitability of any dentist to become associated with the
P.C. All dentists recruited by the Manager and accepted by the P.C. shall be
the employees of P.C. to the extent they are hired as employees. Expenses
incurred in the recruitment of dentists shall be an expenses paid by the
Manager pursuant to Section 2.5 hereof.
(l) Manager shall set the hours of operation of the Practice in accordance
with customary practices of similar dental practices in the area.
(m) Manager shall provide to all dentists employed by P.C. such
comprehensive health insurance and dental insurance coverage as may be agreed to
by the parties.
(n) Manager shall endeavor to seek out and negotiate contracts ("Managed
Care Arrangements") with managed care companies, including, but not limited to,
health maintenance organizations and preferred provider organizations, to
provide dental services with P.C. as a participating provider under such
contracts.
2.5 PAYMENT OF EXPENSES. Manager shall be solely responsible for and shall
pay (or reimburse P.C. (if payment was approved by Manager) for payment of) the
following costs and expenses:
(a) The lease and/or purchase payments of the Practice Premises.
(b) Expenses associated with the Practice Premises, including but not
limited to telephone, electric, gas and water utility expenses, and real
property taxes.
(c) The lease and/or purchase payments, as applicable, of the Practice
Equipment.
(d) Expenses associated with the Practice Equipment, including maintenance,
repair, replacement and personal property taxes.
(e) Expenses associated with the Manager Personnel pursuant to Section 2.3,
including, but not limited to, compensation, benefits, payroll taxes and unusual
payroll deductions, worker's compensation insurance and all similar items.
(f) Expenses associated with the other support services listed in Section
2.4.
(g) Premiums and deductibles (as applicable) for all insurance described in
Section 5.3.
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ARTICLE THREE
P.C.'S OBLIGATIONS
3.1 DENTAL PRACTICE.
(a) P.C. shall continuously, throughout the term of this Agreement, conduct
the Practice on a full-time basis at the Practice Premises. As may be agreed
upon in advance by the parties, P.C. shall provide, at its own expense,
sufficient dentist and hygienist staff coverage to the Practice Premises to
enable the Practice to operate in an efficient and lawful manner at all required
times during the hours of operation of the Practice, including, without
limitation, the provision of locum tenens dental staff. P.C. shall also be
responsible for the professional supervision of the clinical aspects of services
rendered by Manager Personnel.
(b) P.C. shall use the Practice Premises and the Practice Equipment solely
in accordance with the terms and conditions set forth herein. P.C. shall, at all
times, be responsible for the quality of dental care provided at the Practice
Premises. It is expressly acknowledged by the parties that all dentist services
provided at the Practice Premises shall be performed solely by dentists licensed
to practice dentistry and to provide such services in the State of Georgia who
(except on an emergency basis) shall at all times during the term of this
Agreement be employees or independent contractors of P.C. The P.C. shall provide
dental services to patients of the Practice in compliance at all times with
ethical standards, and laws and regulations applying to the dental profession.
In the event that any disciplinary, medical malpractice or other actions are
initiated against any dentist associated with the P.C., the P.C. shall
immediately inform the Manager of such action and the underlying facts and
circumstances.
(c) P.C. shall maintain good faith efforts to control patient care costs
while providing quality dental care to patients.
(d) P.C. agrees to serve as a participating provider of dental services
pursuant to all Managed Care Arrangements entered into by Manager.
3.2 P.C. EQUIPMENT. P.C. may provide equipment at the Practice Premises,
which shall be in addition to the Practice Equipment ("P.C. Equipment"). P.C.
shall be responsible for all repairs, maintenance and replacement of the P.C.
Equipment, unless P.C. requests that Manager provide such repairs,
maintenance and replacement upon such terms and conditions as the parties may
agree. Manager shall have no ownership interest in the P.C. Equipment. From
time to time during the term of this Agreement, P.C. may prepare and revise a
schedule of the P.C. Equipment, to be attached hereto as Exhibit C. Upon
termination of this Agreement, P.C. shall, at its sole cost and expense,
remove the P.C. Equipment, and repair any damage to the Practice Premises
resulting from the installation, use, or removal of the P.C. Equipment.
3.3 COSTS AND EXPENSES. P.C. shall be solely responsible for and shall pay
the following costs and expenses:
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(a) The cost of maintaining the corporate existence of P.C., if applicable.
(b) All P.C. income taxes.
(c) Compensation of P.C.'s shareholders, directors and officers, for
services provided in those roles, if applicable.
(d) Expenses related to compensation of all dentists and hygienists employed
by, or contracted to, P.C. for work in the Practice, which shall include, but
not be limited to, compensation, benefits, payroll taxes and unusual payroll
deductions, worker's compensation insurance and all similar items.
(e) Expenses associated with any P.C. Equipment, pursuant to Section 3.2.
(f) Expenses related to all license fees and association dues required for
P.C. to operate the Practice.
(g) Tuition fees and reasonable expenses for attendance by dentists employed
by the P.C. at the Practice of continuing dental education courses and seminars
deemed reasonably necessary by the P.C. to operate the Practice.
(h) All other costs and expenses reasonably incurred by Manager in
conducting the Practice at the Practice Premises, other than costs and expenses
which are Manager's responsibility pursuant to Section 2.5.
(i) Premiums for malpractice and other insurance described in Sections 5.1
and 5.2.
3.4 SPECIAL EXPENSES. P.C., at P.C.'s option, may incur additional
expenses, in addition to those listed in Section 3.3, in connection with the
Practice. P.C. shall pay for such additional expenses either from its profits
from the Practice or from other resources.
3.5 UTILIZATION REVIEW; QUALITY ASSURANCE. P.C. agrees to cooperate with
and participate in quality assurance/utilization review programs established by
the Manager or mandated by accreditation or licensure standards applicable to
the practice of dentistry. Deficiencies discovered in the performance of any
personnel or in the quality of professional services shall be reported
immediately to the Manager by the P.C. (if discovered by the P.C.), and to the
P.C. by the Manager (if discovered by the Manager), and appropriate steps shall
be taken by the P.C. at once to remedy such deficiencies.
ARTICLE FOUR
THE MANAGEMENT FEE
4.1 GENERAL INTENT WITH RESPECT TO THE MANAGEMENT FEE. P.C. and Manager
mutually recognize and acknowledge that:
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(a) Manager has incurred and will incur substantial costs and expenses in
connection with providing the Management Services described in this Agreement,
and in performing all other obligations required of it in accordance with this
Agreement;
(b) Certain of Manager's costs and expenses can vary to a considerable
degree according to the volume of services required at the Practice Premises;
(c) It will be impracticable to ascertain with precision all of the costs
and expenses that will be incurred by Manager from time to time in the
performance of its obligations under this Agreement; and
(d) Total Net Collections (as defined in Section 4.2(d) below) may also vary
to a considerable degree during each month of this Agreement.
It is the intent of the parties that all fees paid to Manager by P.C. under
this Agreement be reasonable and approximate Manager's actual costs and expenses
plus a reasonable profit.
4.2 DEFINITIONS. As used herein, the following terms shall have the
meanings set forth in this Section:
(a) "Gross Charges." All professional fees and charges, including
copayments charged (but not capitated payments) under Managed Care
Arrangements, for services performed by P.C. as part of the Practice during
the term of this Agreement.
(b) "Net Collections." All proceeds received by Manager or P.C. from
Gross Charges, less patient and third party refunds due to overpayments. Net
Collections shall not include capitated payments paid to Manager under
Managed Care Arrangements entered into by Manager (the "Manager Capitated
Payments").
(c) "Practice Expenses." All expenses to be paid by the Manager pursuant
to Section 2.5 hereto.
4.3 DETERMINATION AND PAYMENT OF THE MANAGEMENT FEE. During the term of
this Agreement and for such period as may be required under Section 6.3(c)
hereof, P.C. shall pay to Manager by the fifteenth (15th) day of each month a
management fee (the "Management Fee") equal to a percentage of Net Collections,
determined as set forth in the next sentence, less a percentage of Manager
Capitated Payments, determined as set forth in the next sentence. During the
period commencing on the effective date of this Agreement and continuing until
the end of the first full fiscal year of operation under this Agreement, the
percentage of Net Collections shall be equal to sixty percent (60%), and the
percentage of Manager Capitated Payments shall be equal to forty percent (40%).
By November 1 of the first full fiscal year of this Agreement, and each fiscal
year thereafter, Manager shall prepare and present to the P.C. a proposed
operating budget for the Practice, from which the parties shall negotiate in
good faith the percentages to be used in determining the Management Fee which
will result in the fees paid to Manager for such fiscal year to be reasonable
and to approximate Manager's anticipated actual
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costs and expenses plus a reasonable profit. Until an agreement on such
percentages are reached, the percentages in effect for the preceding year
shall remain in effect.
As provided in Section 2.4(c) hereof, Manager is authorized to withdraw the
amount of the Management Fee from the Account as and when due.
4.4 COLLATERAL SECURITY.
(a) As collateral for the payment of the Management Fee due hereunder
(including any extensions, modifications and renewals hereof), P.C. hereby
grants to Manager a security interest in all of the accounts receivable
resulting from Gross Charges, together with any and all proceeds of such
accounts receivable (collectively, the "Collateral"). Upon Manager's request,
P.C., at its sole cost and expense, shall execute and deliver to Manager such
further documents and assurances and shall take such further action as Manager
may request to evidence Manager's security interest in and to the Collateral.
P.C. hereby appoints Manager as its attorney-in-fact to execute and record in
the name and on behalf of the P.C. appropriate UCC Financing Statements
evidencing the security interest in the Collateral granted to Manager by this
section.
(b) Manager shall have all rights, powers, remedies and recourses available
or permitted to Manager under law with respect to the Collateral, including, but
not limited to, the ability (i) to release, surrender, waive, add, substitute,
settle, exchange, compromise, modify, extend, or grant indulgences with respect
to the Collateral, the Management Fee or any other amounts due to Manager
hereunder; and (ii) to grant any extension or other postponements of the time of
payment thereof; provided however, that Manager shall not be liable for any
failure to collect or enforce the payment of the Collateral.
(c) Notwithstanding any other provision of this Agreement, and except as
otherwise prohibited by law, upon P.C.'s failure to pay any amount due Manager
hereunder and at Manager's election, P.C. hereby authorizes Manager: (i) to take
possession of the Collateral; (ii) to take possession of and endorse in P.C.'s
name any notes, checks, money orders, insurance payments, and any other
documents received in payment of the Collateral, or any part of it; (iii) to
collect, sue for, and give satisfactions for, monies due on account of the
Collateral; (iv) to institute, maintain or withdraw any claims, suits, or
proceedings pertaining to, or arising out of Manager's and/or P.C.'s right to
the Collateral; and (v) to pay all amounts due Manager.
4.5 POSSESSION OF COLLATERAL RECORDS. Manager shall have authority to
possess and retain for P.C. and Manager the books of the Practice with respect
to the Collateral.
4.6 PAYMENTS TO P.C.
(a) Each month after payment of the Management Fee and other monies due
Manager hereunder, if any, Manager will arrange for the transfer from the
Account to any other
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account P.C. designates, that amount of the Net Collections for the previous
month which was not paid to Manager.
(b) In the event that the amount payable under subsection (a) above is
insufficient for P.C. to meet those anticipated expenses for the ensuing month
for base salary, benefits, and malpractice costs which have been approved in
advance by Manager (the "Base P.C. Expenses"), Manager shall advance such
shortfall (each, an "Advance") to P.C. Each Advance shall be treated as a loan
from Manager to the P.C., and shall be repaid to Manager, as quickly as
possible, from revenues derived in subsequent months out of the payments to be
received pursuant to subsection (a) above; provided however, that an Advance
shall be forgiven if P.A. is unable to repay it within a twelve (12) month
period.
ARTICLE FIVE
INSURANCE AND INDEMNITY
5.1 MALPRACTICE INSURANCE.
(a) P.C. will obtain and at all times maintain in full force and effect
professional malpractice liability insurance for all dentists and hygienists
providing dental care for P.C. pursuant to this Agreement.
(b) The malpractice insurance will have coverage limits of at least One
Million Dollars ($1,000,000) per occurrence and at least Three Million Dollars
($3,000,000) per annual aggregate, such other higher amount as may be required
by appropriate licensing authorities or third party payors, or such other amount
as may be agreed to by the parties. Such malpractice insurance shall be issued
to the P.C. and to each of the dentists and hygienists employed by the P.C.
(c) The malpractice insurance may be either "occurrence" or "claims made"
insurance. If P.C. obtains "claims made" insurance, P.C. will obtain an extended
reporting endorsement (a "tail") to cover services provided under this
Agreement.
(d) P.C. shall provide to Manager written documentation evidencing the
malpractice insurance coverage required by this Section for P.C. and P.C.'s
shareholders, officers, and directors prior to the commencement date of this
Agreement and for dentist and hygienist employees of the P.C. prior to the
commencement of professional services by such employee.
(e) All malpractice insurance required by this section will contain the
written agreement of the insurer(s) to provide Manager 30 days prior written
notice before any non-renewal, termination or modification of coverage takes
effect.
5.2 OTHER INSURANCE. P.C. shall obtain and at all times maintain workers
compensation coverage for all of the dentists and hygienists employed by the
P.C., and the P.C.
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shall hold the Manager harmless with respect to any worker's
compensation claims made by any such employee.
5.3 MANAGER INSURANCE. Manager shall carry and at all times maintain in
full force and effect: (i) public liability insurance insuring against claims
for bodily injury, including death, and property damage occurring on, in, or
about the Practice Premises; (ii) general liability and fire insurance for the
Practice Premises; (iii) business interruption insurance for the P.C.; and (iv)
workers compensation coverage for all Manager Personnel. Manager shall hold the
P.C. harmless with respect to any workers compensation claims made by Manager
Personnel.
5.4 INDEMNIFICATION OF MANAGER. P.C. shall indemnify, hold harmless and
defend Manager, its shareholders, officers, directors, employees, contractors,
other agents and affiliates from and against any and all liability, loss,
damages, claims, causes of action and expenses associated with them (including
reasonable attorneys' fees) caused or asserted to have been caused, directly or
indirectly by or as a result of any acts or omissions of P.C., its
shareholders, officers, directors, employees, contractors or other agents in
connection with this Agreement, including, but not limited to, claims of
professional malpractice.
5.5 INDEMNIFICATION OF P. C. Manager shall indemnify, hold harmless and
defend P.C., its shareholders, officers, directors, employees, contractors,
other agents and affiliates from and against any and all liability, loss,
damages, claims, causes of action and expenses associated with them (including
reasonable attorneys fees) caused or asserted to have been caused, directly or
indirectly by or as a result of acts or omissions constituting negligence or
gross negligence by Manager, its shareholders, officers, directors, employees,
contractors, other agents or affiliates in connection with this Agreement.
ARTICLE SIX
TERM, TERMINATION AND EFFECTS OF TERMINATION
6.1 TERM. This Agreement shall commence on January , 1997, shall be
for an initial term of forty (40) years, and shall renew automatically for an
additional term of ten (10) years unless either party gives the other party at
least one hundred eighty (180) days written notice of its intent not to renew at
the end of the initial term.
6.2 TERMINATION.
(a) Automatic Termination; Notice by Manager. This Agreement will
automatically terminate upon written notice by Manager to P.C. upon the
occurrence of any of the following events.
(i) The Appointment of a receiver or trustee to manage the assets of
P.C.
(ii) The assignment for the benefit of creditors of the assets of P.C.
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(iii) The occurrence of any act of bankruptcy by P.C.
(iv) P.C.'s breach of any material term of this Agreement, provided that
such breach continues for a period of thirty (30) days after written notice
thereof has been given by the Manager to P.C.
If Manager fails to give notice of termination within 90 days of its
becoming aware of the occurrence of an event listed in this Section 6.2(a),
Manager waives its right to terminate based on that occurrence. Manager retains
the right to give notice of termination upon any subsequent occurrence of the
same type of event, or of any other event listed in this Section 6.2(a).
(b) Automatic Termination; Notice by P.C. This Agreement will automatically
terminate upon written notice by P.C. to Manager upon the occurrence of any of
the following events.
(i) The Appointment of a receiver or trustee to manage the assets of
Manager.
(ii) The assignment for the benefit of creditors of the assets of
Manager.
(iii) The occurrence of any act of bankruptcy by Manager.
(iv) Manager's breach of any material term of this Agreement,
provided that such breach continues for a period of thirty (30) days
after written notice thereof has been given by the P.C. to the Manager.
If P.C. fails to give notice of termination within 90 days of its becoming
aware of the occurrence of an event listed in this Section 6.2(b), P.C. waives
its right to terminate based on that occurrence. P.C. retains the right to give
notice of termination upon any subsequent occurrence of the same type of event,
or of any other event listed in this Section 6.2(b).
6.3 EFFECTS OF TERMINATION. This Agreement will have no further effect
after the date of termination, except the following:
(a) P.C. shall immediately surrender to Manager the Practice Premises at its
sole cost and expense. This includes but is not limited to the following:
(i) P.C. shall cause all dentist employees to vacate the Practice
Premises; and
(ii) P.C. shall remove all P.C. Equipment, and any other P.C.
property, and shall be solely responsible for any damage caused as a
result of the removal of its property.
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(b) P.C. shall pay all compensation and fees accrued and owed to Manager
through the date of termination.
(c) Manager shall be entitled to a Management Fee for all Total Net
Collections based on Gross Charges arising prior to the termination. Manager
shall have the right, in its sole discretion exercisable at any time after the
termination of this Agreement, to cease billing and collecting Gross Charges
arising prior to the termination. Prior to Manager's election to cease such
billing and collection, Manager shall bill and collect, make payments and have
all other rights and obligations with respect to Gross Charges arising prior to
the termination as provided in this Agreement, and P.C. will pay Manager all
compensation and fees applicable thereto, including the Management Fee.
Following Manager's election, P.C. shall make other arrangements for billing and
collection of such Gross Charges, and shall remit to Manager all fees and
charges applicable thereto, including the Management Fee, and shall deliver a
monthly statement of Total Net Collections until billing and collection for such
Gross Charges is substantially complete.
(d) Manager shall continue to have all of its rights pursuant to Section 4.4
and 4.5 until Manager shall be paid all monies due from P.C.
(e) P.C. shall maintain and pay for malpractice insurance pursuant to
Section 5.1.
(f) Sections 5.4, 5.5, and 6.4 shall remain in full force and effect.
6.4 RESTRICTIONS ON COMPETITION; INJUNCTIVE RELIEF. P.C. agrees that
during the term hereof, and for a period of two (2) years following the
termination of this Agreement, other than a termination by the P.C. for cause,
the P.C. shall not, without the prior written consent of Manager, engage
directly or indirectly in the ownership or operation of a dental practice within
a five (5) mile radius of any of the Practice Premises which may be in operation
from time to time. P.C. further agrees to cause each of the dentists employed by
or under contract with the P.C. to agree that during the term of his/her
employment or independent contract with the P.C., and for a period of two (2)
years thereafter, he/she shall not, without the prior written consent of
Manager, engage directly or indirectly in the ownership or operation of a dental
practice within a five (5) mile radius of any of the Practice Premises at which
the dentist provided services on behalf of the P.C., and that Manager shall have
the right to specifically enforce such restrictions, and to recover damages for
a violation by such dentist of such restrictions. It is acknowledged that a
remedy at law for any breach or attempted breach by the P.C. or one of its
dentists of the covenants set forth in this section will be inadequate, and it
is agreed that Manager shall be entitled to specific performance and injunctive
and other equitable relief in case of any such breach or attempted breach. Any
such remedy shall be in addition to any damages which Manager may be legally
entitled to recover.
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ARTICLE SEVEN
DENTAL PRACTICE AND REIMBURSEMENT CONSIDERATIONS
7.1 ACCESS TO BOOKS AND FEES. P.C. or its designee shall have access
during normal business hours to financial records of the Practice, including
records of collections, expenses and disbursements as kept by Manager performing
its obligations under this Agreement. It is expressly understood that the
systems, methods, procedures, written materials and controls employed by Manager
in the performance of this Agreement are proprietary in nature, shall remain the
property of Manager and shall not, at any time, be utilized, distributed, copied
or otherwise employed or acquired by P.C. unless approved in advance and in
writing by Manager. Upon request, P.C. shall, and shall cause its dentists to,
execute a confidentiality agreement to evidence its or their agreement to comply
with the foregoing.
7.2 ACCESS TO RECORDS. To the extent required by Section 1395x(v)(1) of
Title 42 of the United States Code, the clauses contained in that section are
incorporated herein by reference with like effect as though set forth at length.
7.3 JEOPARDY. Notwithstanding anything herein to the contrary, if any
event occurs, or if either party receives notice of an action or threatened
action beyond the control of either party, or if a change in any law, regulation
or policy occurs (collectively referred to herein as the "Event") which would:
(a) in the reasonable opinion of both parties jeopardize P.C.'s or any
shareholder, officer, director, employee, contractor or agent of P.C.'s
participation in or reimbursement from any third party payor program;
(b) cause a material change in the amount of reimbursement payable to P.C.
or any shareholder, officer, director, employee, contractor or agent of P.C. in
connection with any of the services provided to patients of the Practice from
any third party payor programs;
(c) prevent any dentist shareholder, officer, director, employee, contractor
or agent of P.C. from referring patients to or to provide services at any of the
Practice Premises;
(d) cause a material adverse effect on the operations of the Practice and/or
make the performance of this Agreement uneconomic for either party;
(e) cause the revocation, suspension or termination of the license(s)
maintained by Manager or P.C. for the operation of the Practice and/or
maintained by any shareholder, officer, director, employee, contractor or agent
of P.C.; or
(f) make it impossible, unlawful or unethical for either party or any
shareholder, officer, director, employee, contractor or agent of Manager or P.C.
to continue to perform any term or condition under this Agreement;
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then, in any such case, the parties shall immediately attempt to negotiate
amendments to this Agreement or a new Agreement which will negate the effect
of the Event and provide similar economic and other benefits to each party as
provided under this Agreement. In the event the parties are unable to
negotiate amendments or a new agreement to the reasonable satisfaction of
both parties within 30 days after the Event, then this Agreement shall
terminate immediately upon written notice by either party to the other.
7.4 DENTAL RECORDS. P.C. shall have the ultimate authority and
accountability and shall be primarily responsible for the maintenance of records
with respect to patients treated at the Practice Premises. Manager shall
implement policies and procedures for the maintenance of patient records at the
Practice Premises, which shall be in accordance with all applicable licensing
and other laws, regulations and guidelines as well as the standards, policies
and procedures imposed by any malpractice insurance carrier, accreditation
agency, or any public and/or private payor pertaining to the maintenance and
confidentiality of patient dental records. To the extent permitted by law,
Manager shall be the owner of all patient dental and business records related to
the Practice. To the extent that such records are maintained by P.C., Manager
shall, at all times during the term of this Agreement, have reasonable access to
such records. Upon termination of this Agreement, to the extent permitted by
law, the P.C. shall within sixty (60) days deliver any such records in its
possession in their entirety to Manager. Thereafter, Manager shall provide P.C.
with access to such records to the extent reasonably necessary for tax purposes
or legal process.
7.5 NO RECIPROCATION. The parties hereby acknowledge and agree that the
benefits conferred upon each of them hereunder neither require nor are in any
way contingent upon:
(a) the admission, recommendation, referral or any other arrangement for the
provision of any item or service offered by Manager or any of its affiliates to
any patient of P.C., its shareholders, officers, directors, employees,
contractors or agents; or
(b) the recommendation, referral or any other arrangement for the provision
of any item or service offered by P.C. or any of its shareholders, officers,
directors, employees, contractors or agents.
7.6 PRACTICE OF DENTISTRY. The parties acknowledge that Manager is not
authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of dentistry and any payments or
reimbursements of wages, costs or expenses of P.C. by Manager are solely for the
administrative convenience of the parties and are expected by the parties to be
funded from Net Cash Collections of the Practice. To the extent any act or
service herein required of Manager should be construed or deemed to constitute
the practice of dentistry, the performance of that act or service by Manager
shall be deemed waived or forever unenforceable.
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ARTICLE EIGHT
DISPUTE RESOLUTION
8.1 DISPUTE RESOLUTION. The parties will make good faith efforts to
resolve mutually any disputes which arise between them regarding this Agreement.
As part of this dispute resolution process, either party will, at the request of
the other party, promptly provide a short and plain written statement setting
forth that party's position regarding the dispute and that party's suggested
resolution. The other party then will respond promptly with a short and plain
written statement setting forth its position and suggested resolution for the
dispute. For a period of fifteen (15) days following the sending of the
statements, the parties shall negotiate in an effort to resolve the controversy.
8.2 ARBITRATION. Any dispute which has not been resolved by the parties
under the procedure set forth in Section 8.1 shall be submitted to and decided
by arbitration in accordance with the Rules of the American Arbitration
Association, as follows:
(i) There shall be one arbitrator who shall be selected in accordance with
the Rules of the American Arbitration Association;
(ii) The authority of the arbitrator shall be limited to a determination of
the facts, and to the interpretation and application of specific provisions of
this Agreement as they may apply to the dispute. The arbitrator shall be bound
by this Agreement, and shall have no authority to add to, subtract from, amend,
or modify the provisions of this Agreement. The arbitrator shall render an
opinion and a final award, if any, which shall be binding on both parties.
(iii) Each party shall bear its own fees, costs, and expenses of an
arbitration proceeding, including witnesses, travel, attorneys, and other
representatives; the general costs and expenses of the arbitration, such as
facilities rental and fees, costs, and expenses of the arbitrator and the
American Arbitration Association, shall be borne equally by the parties.
8.3 The procedures set forth in Sections 8.1 and 8.2 shall not apply to
the events for automatic termination of this Agreement set forth in Section
6.2 hereunder.
ARTICLE NINE
CONFIDENTIAL INFORMATION
9.1 P.C. agrees and acknowledges that all materials provided by the Manager
to P.C. constitute "Confidential Information" and are disclosed in confidence
and with the understanding that they constitute valuable business information
developed by the Manager. P.C. further agrees that it shall not, directly or
indirectly, without the express prior written consent of the Manager, use or
disclose such Confidential Information for any purpose other than in connection
with the services to be rendered hereunder. P.C. further agrees to impose this
obligation of confidentiality
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on its officers, shareholders, affiliates, partners, employees and
independent contractors. Upon the expiration or termination of this Agreement
by either party for any reason whatsoever, P.C. shall immediately return and,
thereafter, not use, and shall cause its officers, shareholders, affiliates,
partners, employees and independent contractors to return and, thereafter,
not use, all Confidential Information. P.C. further expressly acknowledges
and agrees that any such use, appropriation or reproduction of any such
Confidential Information by any of the foregoing after the expiration or
termination of this Agreement will result in irreparable injury to the
Manager, that the remedy at law for the foregoing would be inadequate, and
that in the event of such use, appropriation or reproduction, the Manager, in
addition to any other remedies or damages available to it, shall be entitled
to injunctive or other equitable relief without the necessity of proving
actual damages, but such rights to equitable relief shall not preclude the
Manager from other remedies which may be available to it hereunder.
ARTICLE TEN
GENERAL PROVISIONS
10.1 ASSIGNMENT BY MANAGER. Manager shall have the right, at its sole
discretion, to assign any or all of its rights and obligations under this
Agreement to any of its affiliates. The term affiliates for the purposes of this
Agreement shall mean any person or entity that directly or indirectly controls,
is controlled by, or is under common control with Manager, and anyone who is the
beneficial owner of 10% or more of the outstanding voting securities of another
shall be deemed in control. Manager anticipates merging (the "Merger") with and
into DentalCo/Southeast, Inc. ("DSE"). DSE shall change its name to Nanston,
Inc. (the "Surviving Corporation") after the Merger. P.C. acknowledges the
foregoing and agrees that this Agreement shall inure to the benefit of the
Surviving Corporation after consummation of the Merger.
10.2 AMENDMENT. This Agreement may be amended by the parties. No amendment
will be effective unless in writing, and signed by both of the parties.
10.3 CAPTIONS. Captions and article headings used herein are for
convenience only and are not part of this Agreement and shall not be used in
construing it.
10.4 COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which will be deemed an original, but taken together will constitute one
instrument.
10.5 CUMULATION OF REMEDIES. The various rights, options, elections,
powers, and remedies under this Agreement, or granted by law (collectively,
"Remedies"), will be construed as cumulative. No single Remedy is exclusive of
any of the other Remedies.
10.6 FORCE MAJEURE. Neither party will be liable or in default for any
delay or failure in performance under this Agreement, or for any other
interruption of service or employment resulting 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
similar or dissimilar cause beyond the reasonable control of either party.
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10.7 FURTHER ASSURANCES. Each party will do such further acts, including
executing and delivering additional agreements or instruments as the other may
reasonably require, to consummate, evidence or confirm the agreements contained
in this Agreement.
10.8 GOVERNING LAW. This Agreement will be construed and enforced
according to the laws of the State of Georgia applicable to agreements made and
to be performed wholly within the State.
10.9 INCORPORATION OF RECITALS AND THE EXHIBITS. All recitals and the
exhibits referred to in this Agreement are an integral part of this Agreement.
They are incorporated in this Agreement by this reference as though at this
point set forth in full.
10.10 INDEPENDENT CONTRACTOR. It is mutually understood and agreed that
P.C. and Manager are at all times acting and performing hereunder as independent
contractors. Manager shall never have nor exercise control or direction over the
methods by which P.C. its shareholders, officers, directors, employees,
contractors or agents practice dentistry.
10.12 INTEGRATION. The making, execution and delivery of this Agreement by
the parties has not been induced by any representations, statements, warranties
or agreements other than those expressed in this Agreement. This Agreement
embodies the entire understanding of the parties. There are no other agreements
or undertakings, written or oral, in effect between the parties relating to the
subject matter of this Agreement, unless expressly referenced in this Agreement.
10.13 NOTICES.
(a) Written Notices. All notices, demands or requests ("Notices") which are
required or permitted to be given pursuant to this Agreement will be in writing.
Notices will be delivered personally, by commercial carrier, by fax with a
machine generated confirmation sheet or by registered or certified mail, postage
prepaid, addressed to a party as stated below.
(b) Manager's Address for Notices:
Nanston, Inc.
Suite 200, 1590 Oakbrook Drive
Norcross, Georgia 30093
Attn: President
(c) P.C.'s Address for Notices:
Nanston Dental Group, P.C.
Suite 200, 1590 Oakbrook Drive
Norcross, Georgia 30093
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Attn: President
(d) Effective Date. Notice given personally or by commercial carrier is
effective upon delivery. Notice given by fax with a machine generated
confirmation sheet is effective upon sending. Notice given by United States mail
is effective the third United States Post Office delivery day after the date of
mailing.
(e) Change of Address. Either party may change its address for Notices by
notice given pursuant to this section.
10.14 PARTIAL INVALIDITY. If any provision of this Agreement shall be
found by a court with proper jurisdiction to be invalid or unenforceable, in
whole or in part, then such provision shall be deemed to be modified, narrowed,
or restricted only to the limited extent and in the manner necessary to render
the same valid and enforceable, as the case may require, and this Agreement
shall be construed and enforced to the maximum extent permitted by law, as if
such provision had been originally incorporated herein as so modified, narrowed
or restricted.
10.15 STATUTES AND REGULATIONS. Any reference in this Agreement to any
statute, regulation, ruling, or administrative order or decree will include, and
be a reference to any successor statute, regulation, ruling, or administrative
order or decree.
10.16 WAIVER OF RIGHT. No waiver of or failure by either party to enforce
a provision, covenant, condition or right under this Agreement (collectively,
"Right") will be construed as a subsequent waiver of the same Right, or a waiver
of any other Right. No extension of time for performance of any obligations or
acts will be deemed an extension of the time for performance of any other
obligations or acts.
{SIGNATURES APPEAR ON THE FOLLOWING PAGE}
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IN WITNESS WHEREOF, the parties have signed this Agreement as of the day and
year first above written.
ATTEST: NANSTON DENTAL GROUP, P.C.
/s/ DIANA L. LIGGIT By: /s/ JOHN C. JOHNSTON
___________________________ ______________________________
DIANA L. LIGGIT, Secretary JOHN C. JOHNSTON, PRESIDENT
NANSTON, INC.
/s/ DIANA L. LIGGIT By: /s/ KYLE E. ANDERSON
___________________________ ______________________________
DIANA L. LIGGIT, Secretary KYLE E. ANDERSON, PRESIDENT
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Exhibit 10.18
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is made and entered
into as of February 12, 1997, by and between THE DENTAL CENTER, INC., an
Indiana corporation ("Administrator"), and CHARLES H. ROSENBAUM, D.D.S., &
ASSOCIATES, P.C., a Michigan professional services corporation (the "P.C.").
RECITALS
P.C. is a professional services corporation which provides
dental and related specialty services (the "Practice").
Administrator is skilled in providing assistance in the
management by practitioners of dental practices, including
billing and collecting, contracting, administration, and
marketing.
P.C. desires to engage the services of an experienced administrator to
provide (i) consultation in all day-to-day management and business office
services necessary to support P.C. in the performance of its activities; and
(ii) use of non-professional personnel, premises, furniture, fixtures and
equipment, billing and collecting, and certain other support services of the
Practice, as more fully defined below (collectively, the "Administrative
Services").
P.C. desires to obtain Administrative Services from the Administrator.
Administrator is capable of providing and desires to provide
Administrative Services to P.C.
NOW THEREFORE, in consideration of the foregoing and of the
mutual promises herein contained, the parties hereby agree as follows:
ARTICLE ONE
ADMINISTRATIVE SERVICES
P.C. hereby engages Administrator to provide the Administrative Services
as more particularly described herein, and Administrator hereby accepts this
engagement. The Administrator's undertaking shall be comprehensive, and shall
include all Administrative Services necessary to carry out the efficient
operation of the business aspects of the Practice. P.C. and Administrator
agree that, although Administrator shall have authority over day-to-day
business operations and policies of the Practice, the P.C. shall have final
authority on all aspects of the management of the P.C., and no policy,
action, or decision by Administrator or Administrator's Dental Director will
be made or construed so as to have the effect of infringing upon the
discretion of the dentists and other dental personnel of the P.C. in
rendering independent dental opinions or treatment.
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ARTICLE TWO
ADMINISTRATOR'S OBLIGATIONS
2.1 USE OF PRACTICE PREMISES. Administrator hereby agrees to provide
to P.C., and P.C. hereby hires from Administrator, on an exclusive basis, the
use of those certain dental office spaces as described in Exhibit A (the
"Practice Premises"). P.C.'s use of the Practice Premises is subject to the
provisions of any lease for the Practice Premises between Administrator and
the landlord.
P.C. agrees to conduct the Practice only in the Practice Premises or at
such other location(s) as may be mutually agreed to by the parties.
Administrator shall provide Practice Premises which are adequate and
customary, as determined by P.C. and Administrator, to meet the demand for
services to be provided by P.C.
2.2 FURNITURE, FIXTURES AND EQUIPMENT. Administrator shall provide at
the Practice Premises those items of furniture, fixtures and equipment as
determined by P.C. in consultation with Administrator to be reasonable and
customary for P.C.'s operation of the Practice (collectively, the "Practice
Equipment"). Administrator's provision of the Practice Equipment is subject
to the following conditions:
(a) P.C. shall have the use of the Practice Equipment only during
the term of this Agreement and at such times as are mutually agreed to by the
P.C. and the Administrator, and shall have no ownership interest therein.
(b) The Practice Equipment to be located at the Practice Premises
shall be as set forth in Exhibit B. From time to time during the term of
this Agreement, the parties may agree to changes in the Practice Equipment,
in which case Administrator shall prepare and attach hereto a revised Exhibit
B.
(c) Administrator shall be responsible for all repairs, maintenance
and replacement of the Practice Equipment, except for such repairs,
maintenance and replacement necessitated by the negligence or misconduct of
P.C., its employees, contractors or agents.
2.3 ADMINISTRATOR PERSONNEL. Administrator shall recruit, hire, train,
supervise, promote and/or terminate those non-professional and non-technical
personnel listed in Exhibit C (the "Administrator Personnel"). P.C. shall
have the right to approve the assignment of all non-professional support
personnel who provide services at the Practice Premises, such approval not to
be unreasonably withheld. Administrator will have final authority to engage,
dismiss, reprimand, reassign, or otherwise deal with all Administrator
Personnel, but shall take into consideration the wishes of the P.C. in this
regard. P.C. expressly understands and agrees that such actions with respect
to the Administrator Personnel shall take place in accordance with
Administrator's personnel policies and pursuant to the standards of salaries
and benefits which Administrator may from time to time provide and pay to its
employees.
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2.4 OTHER SUPPORT SERVICES.
(a) Administrator shall order and purchase all dental and office
supplies required in the day-to-day operation of the Practice.
(b) Administrator shall bill and collect Gross Charges (as defined
in Section 4.2(a) below) on the following terms:
(i) Administrator shall bill any patient, third party payor
or any other payment source for all Gross Charges on the P.C.'s behalf and in
P.C.'s name as agent of P.C.;
(ii) Administrator shall use reasonable efforts to collect
accounts receivable generated by billings for Gross Charges; and
(iii) Administrator shall take possession of, in the name and on
behalf of P.C., and disburse strictly in accordance with this Agreement, all
Collections (as defined in Section 4.2(b) below).
P.C. hereby appoints Administrator as its true and lawful
attorney-in-fact for these purposes. Notwithstanding anything in this
Agreement to the contrary, at Administrator's option, Administrator may
delegate any or all of the duties set forth in this Section 2.4(b) to another
person or entity designated by Administrator that is acceptable to P.C. P.C.
shall not unreasonably withhold its acceptance.
(c) In order to enable Administrator to accomplish its functions under
this Agreement, Administrator is authorized to open and maintain a bank
account in the name of the P.C. (the "Account") and to deposit all
Collections in the Account. Administrator shall be a signatory on the
Account with the right to make deposits and withdrawals to and from the
Account. The Account shall be maintained at a financial institution mutually
agreed upon by Administrator and P.C. P.C. hereby appoints Administrator as
its true and lawful attorney-in-fact (i) to deposit into the Account all
Collections; (ii) to withdraw monies from the Account for refunds to payment
sources; and (iii) to withdraw monies from the Account to pay the
Administrative Fee (as defined below) and all other amounts due from P.C. to
Administrator pursuant to this Agreement.
(d) Administrator shall provide all necessary computer, bookkeeping,
billing and collection services, accounts receivable and accounts payable
management services, non-financial record keeping, general administrative
services and clerical office support, office supplies (including without
limitation, stationery, forms and postage), uniforms, laundry, linen,
janitorial and cleaning services.
(e) Administrator shall, pursuant to Section 7.4 hereof, establish a
system for maintaining the dental records for the Practice.
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(f) Administrator shall assist the P.C. with its community relations and
marketing efforts.
(g) Administrator shall furnish to P.C. periodic financial and other
reports reflecting the Practice's financial and operational status.
(h) Administrator shall provide accounting, tax, payroll and legal
services (including labor relations, contract preparation, and maintenance of
all necessary professional and business licenses) on behalf of the Practice.
(i) Administrator shall establish for P.C.'s review and approval,
business systems, reasonable policies and procedures, and standardized
clinical forms for the Practice, including: (i) feasibility studies to
determine clinical appropriateness and financial feasibility of future
expansion; (ii) coordination in the relationship between P.C.'s performance
of dental services and the overall administrative and business functioning of
the Practice; (iii) assistance regarding the establishment of appropriate
fees for professional and ancillary services; and (iv) coordination and
assistance in obtaining and maintaining malpractice insurance. Upon approval
of the foregoing by the P.C., which approval shall not be unreasonably
withheld, P.C. agrees to comply with such policies and procedures, provided,
however, that P.C. shall maintain control and supervision over the provision
of all dental services provided by the Practice. P.C. expressly acknowledges
that it shall have no property rights in the business systems, procedures,
policies or clinical forms established by the Administrator, and further
agrees that such systems, procedures, policies and forms shall be deemed to
constitute Confidential Information within the meaning of Article Nine hereof.
(j) Administrator shall provide telephone, switchboard, dictation and
duplication services.
(k) Administrator shall assist P.C. in recruiting dentists for the
Practice, carrying out such administrative functions as may be appropriate
such as advertising for and identifying potential candidates, checking
credentials, and arranging interviews; provided, however, that P.C. will make
the ultimate decision as to the suitability of any dentist to become
associated with the P.C. All dentists recruited by the Administrator and
accepted by the P.C. shall be the employees of P.C. to the extent they are
hired as employees. Expenses incurred in the recruitment of dentists shall be
an expenses paid by the Administrator pursuant to Section 2.5 hereof.
(l) Administrator shall recommend to the P.C. the hours of operation of
the Practice in accordance with customary practices of similar dental
practices in the area.
(m) Administrator shall endeavor to seek out and negotiate contracts
("Managed Care Arrangements") with managed care companies, including, but not
limited to, health maintenance organizations and preferred provider
organizations, to provide dental services with P.C. as a participating
provider under such contracts.
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2.5 PAYMENT OF EXPENSES. Administrator shall be solely responsible for
and shall pay (or reimburse P.C. (if payment was approved by Administrator)
for payment of) the following costs and expenses:
(a) The lease and/or purchase payments of the Practice Premises.
(b) Expenses associated with the Practice Premises, including but not
limited to telephone, electric, gas and water utility expenses, and real
property taxes.
(c) The lease and/or purchase payments, as applicable, of the Practice
Equipment.
(d) Expenses associated with the Practice Equipment, including
maintenance, repair, replacement and personal property taxes.
(e) Expenses associated with the Administrator Personnel pursuant to
Section 2.3, including, but not limited to, compensation, benefits, payroll
taxes and unusual payroll deductions, worker's compensation insurance and all
similar items.
(f) Expenses associated with the other support services listed in
Section 2.4.
(g) Premiums and deductibles (as applicable) for all insurance described
in Section 5.3.
ARTICLE THREE
P.C.'S OBLIGATIONS
3.1 DENTAL PRACTICE.
(a) P.C. shall, throughout the term of this Agreement, conduct the
Practice at the Practice Premises on a schedule mutually agreed to by the
P.C. and the Administrator. As may be agreed upon in advance by the parties,
P.C. shall provide, at its own expense, sufficient dentist and hygienist
staff coverage to the Practice Premises to enable the Practice to operate in
an efficient and lawful manner at all required times during the hours of
operation of the Practice, including, without limitation, the provision of
locum tenens dental staff. P.C. shall also be responsible for the
professional supervision of the clinical aspects of services rendered by
Administrator Personnel.
(b) P.C. shall retain responsibility for all decisions related to the
employment of all licensed health care providers, including hiring,
promotion, discharge, compensation, training, and professional assignments.
Administrator shall review all personnel matters and make recommendations to
P.C. on appropriate actions or policies. P.C. shall be solely liable to such
medical personnel for their wages, compensation, and employee benefits. For
purposes of
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this section, the term "licensed health care providers" includes, without
limitation, dentists, dental hygienists, and any other licensed medical
personnel.
(c) P.C. shall use the Practice Premises and the Practice Equipment
solely in accordance with the terms and conditions set forth herein. P.C.
shall, at all times, be responsible for the quality of dental care provided
at the Practice Premises. It is expressly acknowledged by the parties that
all dentist services provided at the Practice Premises shall be performed
solely by dentists licensed to practice dentistry and to provide such
services in the State of Michigan who (except on an emergency basis) shall at
all times during the term of this Agreement be employees or independent
contractors of P.C. The P.C. shall provide dental services to patients of
the Practice in compliance at all times with ethical standards, and laws and
regulations applying to the dental profession. In the event that any
disciplinary, medical malpractice or other actions are initiated against any
dentist associated with the P.C., the P.C. shall immediately inform the
Administrator of such action and the underlying facts and circumstances.
(d) P.C. shall establish schedules of patient charges for dental
services and supplies provided by P.C. that take into account the financial
obligations of P.C. and the importance of providing quality health care at a
reasonable cost.
(e) P.C. shall maintain good faith efforts to control patient care costs
while providing quality dental care to patients.
(f) P.C. agrees to serve as a participating provider of dental services
pursuant to all Managed Care Arrangements entered into by Administrator.
3.2 P.C. EQUIPMENT. P.C. may provide equipment at the Practice
Premises, which shall be in addition to the Practice Equipment ("P.C.
Equipment"). P.C. shall be responsible for all repairs, maintenance and
replacement of the P.C. Equipment, unless P.C. requests that Administrator
provide such repairs, maintenance and replacement upon such terms and
conditions as the parties may agree. Administrator shall have no ownership
interest in the P.C. Equipment. From time to time during the term of this
Agreement, P.C. may prepare and revise a schedule of the P.C. Equipment, to
be attached hereto as Exhibit D. Upon termination of this Agreement, P.C.
shall, at its sole cost and expense, remove the P.C. Equipment, and repair
any damage to the Practice Premises resulting from the installation, use, or
removal of the P.C. Equipment.
3.3 COSTS AND EXPENSES. P.C. shall be solely responsible
for and shall pay the following costs and expenses:
(a) The cost of maintaining the corporate existence of P.C., if
applicable.
(b) All P.C. income taxes.
(c) Compensation of P.C.'s shareholders, directors and officers, for
services provided in those roles, if applicable.
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(d) Expenses related to compensation of all dentists and hygienists
employed by, or contracted to, P.C. for work in the Practice, which shall
include, but not be limited to, compensation, benefits, payroll taxes and
unusual payroll deductions, worker's compensation insurance and all similar
items.
(e) Expenses associated with any P.C. Equipment, pursuant to Section 3.2.
(f) Expenses related to all license fees and association dues required
for P.C. to operate the Practice.
(g) Tuition fees and reasonable expenses for attendance by dentists
employed by the P.C. at the Practice of continuing dental education courses
and seminars deemed reasonably necessary by the P.C. to operate the Practice.
(h) All other costs and expenses reasonably incurred by Administrator in
conducting its administrative functions at the Practice Premises, other than
costs and expenses which are Administrator's responsibility pursuant to
Section 2.5.
(i) Premiums for malpractice and other insurance described in Sections
5.1 and 5.2.
3.4 SPECIAL EXPENSES. P.C., at P.C.'s option, may incur additional
expenses, in addition to those listed in Section 3.3, in connection with the
Practice. P.C. shall pay for such additional expenses either from its
profits from the Practice or from other resources.
3.5 UTILIZATION REVIEW; QUALITY ASSURANCE. P.C. agrees to cooperate
with and participate in quality assurance/utilization review programs
established by third party payors or mandated by accreditation or licensure
standards applicable to the practice of dentistry. Deficiencies discovered in
the performance of any personnel or in the quality of professional services
shall be reported immediately to the Administrator by the P.C. (if discovered
by the P.C.), and to the P.C. by the Administrator (if discovered by the
Administrator), and appropriate steps shall be taken by the P.C. at once to
remedy such deficiencies.
ARTICLE FOUR
THE ADMINISTRATIVE FEE
4.1 GENERAL INTENT WITH RESPECT TO THE ADMINISTRATIVE FEE. P.C. and
Administrator mutually recognize and acknowledge that:
(a) Administrator has incurred and will incur substantial costs and
expenses in connection with providing the Administrative Services described
in this Agreement, and in performing all other obligations required of it in
accordance with this Agreement;
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(b) Certain of Administrator's costs and expenses can vary to a
considerable degree according to the volume of services required at the
Practice Premises;
(c) It will be impracticable to ascertain with precision all of the
costs and expenses that will be incurred by Administrator from time to time
in the performance of its obligations under this Agreement; and
(d) Total Net Collections (as defined in Section 4.2(d) below) may also
vary to a considerable degree during each month of this Agreement. It is the
intent of the parties that all fees paid to Administrator by P.C. under this
Agreement be reasonable and approximate Administrator's actual costs and
expenses plus a reasonable profit.
4.2 DEFINITIONS. As used herein, the following terms shall have the
meanings set forth in this Section:
(a) "Gross Charges." All professional fees and charges, including
copayments charged (but not capitated payments) under Managed Care
Arrangements, for services performed by P.C. as part of the Practice during
the term of this Agreement.
(b) "Net Collections." All proceeds received by Administrator or P.C.
from Gross Charges, less patient and third party refunds due to overpayments.
Net Collections shall not include capitated payments paid to Administrator
under Managed Care Arrangements entered into by Administrator (the
"Administrator Capitated Payments").
(c) "Practice Expenses." All expenses to be paid by the Administrator
pursuant to Section 2.5 hereto.
4.3 DETERMINATION AND PAYMENT OF THE ADMINISTRATIVE FEE. During the
term of this Agreement and for such period as may be required under Section
6.3(c) hereof, P.C. shall pay to Administrator by the fifteenth (15th) day of
each month a management fee (the "Administrative Fee") equal to a percentage
of Net Collections, determined as set forth in the next sentence, less a
percentage of Administrator Capitated Payments, determined as set forth in
the next sentence. During the period commencing on the effective date of
this Agreement and continuing until the end of the first full fiscal year of
operation under this Agreement, the percentage of Net Collections shall be
equal to sixty percent (60%), and the percentage of Administrator Capitated
Payments shall be equal to forty percent (40%). By November 1 of the first
full fiscal year of this Agreement, and each fiscal year thereafter,
Administrator shall prepare and present to the P.C. a proposed operating
budget for the Practice, from which the parties shall negotiate in good faith
the percentages to be used in determining the Administrative Fee which will
result in the fees paid to Administrator for such fiscal year to be
reasonable and to approximate Administrator's anticipated actual costs and
expenses plus a reasonable profit. Until
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an agreement on such percentages are reached, the percentages in effect for
the preceding year shall remain in effect.
As provided in Section 2.4(c) hereof, Administrator is authorized to
withdraw the amount of the Administrative Fee from the Account as and when
due.
4.4 COLLATERAL SECURITY.
(a) As collateral for the payment of the Administrative Fee due
hereunder (including any extensions, modifications and renewals hereof), P.C.
hereby grants to Administrator a security interest in all of the accounts
receivable resulting from Gross Charges, together with any and all proceeds
of such accounts receivable (collectively, the "Collateral"). Upon
Administrator's request, P.C., at its sole cost and expense, shall execute
and deliver to Administrator such further documents and assurances and shall
take such further action as Administrator may request to evidence
Administrator's security interest in and to the Collateral. P.C. hereby
appoints Administrator as its attorney-in-fact to execute and record in the
name and on behalf of the P.C. appropriate UCC Financing Statements
evidencing the security interest in the Collateral granted to Administrator
by this section.
(b) Administrator shall have all rights, powers, remedies and recourses
available or permitted to Administrator under law with respect to the
Collateral, including, but not limited to, the ability (i) to release,
surrender, waive, add, substitute, settle, exchange, compromise, modify,
extend, or grant indulgences with respect to the Collateral, the
Administrative Fee or any other amounts due to Administrator hereunder; and
(ii) to grant any extension or other postponements of the time of payment
thereof; provided however, that Administrator shall not be liable for any
failure to collect or enforce the payment of the Collateral.
(c) Notwithstanding any other provision of this Agreement, and except as
otherwise prohibited by law, upon P.C.'s failure to pay any amount due
Administrator hereunder and at Administrator's election, P.C. hereby
authorizes Administrator: (i) to take possession of the Collateral; (ii) to
take possession of and endorse in P.C.'s name any notes, checks, money
orders, insurance payments, and any other documents received in payment of
the Collateral, or any part of it; (iii) to collect, sue for, and give
satisfactions for, monies due on account of the Collateral; (iv) to
institute, maintain or withdraw any claims, suits, or proceedings pertaining
to, or arising out of Administrator's and/or P.C.'s right to the Collateral;
and (v) to pay all amounts due Administrator.
4.5 POSSESSION OF COLLATERAL RECORDS. Administrator shall have
authority to possess and retain for P.C. and Administrator the books of the
Practice with respect to the Collateral.
4.6 PAYMENTS TO P.C.
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(a) Each month after payment of the Administrative Fee and other monies
due Administrator hereunder, if any, Administrator will arrange for the
transfer from the Account to any other account P.C. designates, that amount
of the Net Collections for the previous month which was not paid to
Administrator.
(b) In the event that the amount payable under subsection (a) above is
insufficient for P.C. to meet those anticipated expenses for the ensuing
month for base salary, benefits, and malpractice costs which have been
approved in advance by Administrator (the "Base P.C. Expenses"),
Administrator shall advance such shortfall (each, an "Advance") to P.C. Each
Advance shall be treated as a loan from Administrator to the P.C., and shall
be repaid to Administrator, as quickly as possible, from revenues derived in
subsequent months out of the payments to be received pursuant to subsection
(a) above; provided however, that an Advance shall be forgiven if P.C. is
unable to repay it within a twelve (12) month period.
ARTICLE FIVE
INSURANCE AND INDEMNITY
5.1 MALPRACTICE INSURANCE.
(a) P.C. will obtain and at all times maintain in full force and effect
professional malpractice liability insurance for all dentists and hygienists
providing dental care for P.C. pursuant to this Agreement.
(b) The malpractice insurance will have coverage limits of at least One
Million Dollars ($1,000,000) per occurrence and at least Three Million
Dollars ($3,000,000) per annual aggregate, such other higher amount as may be
required by appropriate licensing authorities or third party payors, or such
other amount as may be agreed to by the parties. Such malpractice insurance
shall be issued to the P.C. and to each of the dentists and hygienists
employed by the P.C.
(c) The malpractice insurance may be either "occurrence" or "claims
made" insurance. If P.C. obtains "claims made" insurance, P.C. will obtain
an extended reporting endorsement (a "tail") to cover services provided under
this Agreement.
(d) P.C. shall provide to Administrator written documentation evidencing
the malpractice insurance coverage required by this Section for P.C. and
P.C.'s shareholders, officers, and directors prior to the commencement date
of this Agreement and for dentist and hygienist employees of the P.C. prior
to the commencement of professional services by such employee.
(e) All malpractice insurance required by this section will contain the
written agreement of the insurer(s) to provide Administrator 30 days prior
written notice before any non-renewal, termination or modification of
coverage takes effect.
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5.2 OTHER INSURANCE. P.C. shall obtain and at all times maintain
workers compensation coverage for all of the dentists and hygienists employed
by the P.C., and the P.C. shall hold the Administrator harmless with respect
to any worker's compensation claims made by any such employee.
5.3 ADMINISTRATOR INSURANCE. Administrator shall carry and at all
times maintain in full force and effect: (i) public liability insurance
insuring against claims for bodily injury, including death, and property
damage occurring on, in, or about the Practice Premises; (ii) general
liability and fire insurance for the Practice Premises; (iii) business
interruption insurance for the P.C.; and (iv) workers compensation coverage
for all Administrator Personnel. Administrator shall hold the P.C. harmless
with respect to any workers compensation claims made by Administrator
Personnel.
5.4 INDEMNIFICATION OF ADMINISTRATOR. P.C. shall indemnify, hold
harmless and defend Administrator, its shareholders, officers, directors,
employees, contractors, other agents and affiliates from and against any and
all liability, loss, damages, claims, causes of action and expenses
associated with them (including reasonable attorneys' fees) caused or
asserted to have been caused, directly or indirectly by or as a result of any
acts or omissions of P.C., its shareholders, officers, directors, employees,
contractors or other agents in connection with this Agreement, including, but
not limited to, claims of professional malpractice.
5.5 INDEMNIFICATION OF P.C. Administrator shall indemnify, hold
harmless and defend P.C., its shareholders, officers, directors, employees,
contractors, other agents and affiliates from and against any and all
liability, loss, damages, claims, causes of action and expenses associated
with them (including reasonable attorneys fees) caused or asserted to have
been caused, directly or indirectly by or as a result of acts or omissions
constituting negligence or gross negligence by Administrator, its
shareholders, officers, directors, employees, contractors, other agents or
affiliates in connection with this Agreement.
ARTICLE SIX
TERM, TERMINATION AND EFFECTS OF TERMINATION
6.1 TERM. This Agreement shall commence on January ___, 1997, shall be
for an initial term of forty (40) years, and shall renew automatically for an
additional term of ten (10) years unless either party gives the other party
at least one hundred eighty (180) days written notice of its intent not to
renew at the end of the initial term.
6.2 TERMINATION.
(a) Automatic Termination; Notice by Administrator. This Agreement will
automatically terminate upon written notice by Administrator to P.C. upon the
occurrence of any of the following events.
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(i) The Appointment of a receiver or trustee to manage the assets
of P.C.
(ii) The assignment for the benefit of creditors of the assets of
P.C.
(iii) The occurrence of any act of bankruptcy by P.C.
(iv) P.C.'s breach of any material term of this Agreement, provided
that such breach continues for a period of thirty (30) days after written
notice thereof has been given by the Administrator to P.C.
If Administrator fails to give notice of termination within 90 days of
its becoming aware of the occurrence of an event listed in this Section
6.2(a), Administrator waives its right to terminate based on that occurrence.
Administrator retains the right to give notice of termination upon any
subsequent occurrence of the same type of event, or of any other event listed
in this Section 6.2(a).
(b) Automatic Termination; Notice by P.C. This Agreement will
automatically terminate upon written notice by P.C. to Administrator upon the
occurrence of any of the following events.
(i) The Appointment of a receiver or trustee to manage the assets of
Administrator.
(ii) The assignment for the benefit of creditors of the assets of
Administrator.
(iii) The occurrence of any act of bankruptcy by
Administrator.
(iv) Administrator's breach of any material term of this Agreement,
provided that such breach continues for a period of thirty (30) days after
written notice thereof has been given by the P.C. to the Administrator.
If P.C. fails to give notice of termination within 90 days of its
becoming aware of the occurrence of an event listed in this Section 6.2(b),
P.C. waives its right to terminate based on that occurrence. P.C. retains
the right to give notice of termination upon any subsequent occurrence of the
same type of event, or of any other event listed in this Section 6.2(b).
6.3 EFFECTS OF TERMINATION. This Agreement will have no further effect
after the date of termination, except the following:
(a) P.C. shall immediately surrender to Administrator the Practice
Premises at its sole cost and expense. This includes but is not limited to
the following:
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(i) P.C. shall cause all dentist employees to vacate the Practice
Premises; and
(ii) P.C. shall remove all P.C. Equipment, and any other P.C.
property, and shall be solely responsible for any damage caused as a result
of the removal of its property.
(b) P.C. shall pay all compensation and fees accrued and owed to
Administrator through the date of termination.
(c) Administrator shall be entitled to a Administrative Fee for all
Total Net Collections based on Gross Charges arising prior to the
termination. Administrator shall have the right, in its sole discretion
exercisable at any time after the termination of this Agreement, to cease
billing and collecting Gross Charges arising prior to the termination. Prior
to Administrator's election to cease such billing and collection,
Administrator shall bill and collect, make payments and have all other rights
and obligations with respect to Gross Charges arising prior to the
termination as provided in this Agreement, and P.C. will pay Administrator
all compensation and fees applicable thereto, including the Administrative
Fee. Following Administrator's election, P.C. shall make other arrangements
for billing and collection of such Gross Charges, and shall remit to
Administrator all fees and charges applicable thereto, including the
Administrative Fee, and shall deliver a monthly statement of Total Net
Collections until billing and collection for such Gross Charges is
substantially complete.
(d) Administrator shall continue to have all of its rights pursuant to
Section 4.4 and 4.5 until Administrator shall be paid all monies due from
P.C.
(e) P.C. shall maintain and pay for malpractice insurance pursuant to
Section 5.1.
(f) Sections 5.4, 5.5, and 6.4 shall remain in full force and effect.
6.4 RESTRICTIONS ON COMPETITION; INJUNCTIVE RELIEF. P.C. agrees to
cause each of the dentists employed by or under contract with the P.C. to
agree that, with such modification as the P.C. and such employee agree to,
during the term of his/her employment or independent contract with the P.C.,
and for a period of two (2) years thereafter, he/she shall not, without the
prior written consent of P.C., engage directly or indirectly in the ownership
or operation of a dental practice within a five (5) mile radius of any of the
Practice Premises at which the dentist provided services on behalf of the P.C.
ARTICLE SEVEN
DENTAL PRACTICE AND REIMBURSEMENT CONSIDERATIONS
7.1 ACCESS TO BOOKS AND FEES. P.C. or its designee shall have access
during normal business hours to financial records of the Practice, including
records of collections, expenses and
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disbursements as kept by Administrator performing its obligations under this
Agreement. It is expressly understood that the systems, methods, procedures,
written materials and controls employed by Administrator in the performance
of this Agreement are proprietary in nature, shall remain the property of
Administrator and shall not, at any time, be utilized, distributed, copied or
otherwise employed or acquired by P.C. unless approved in advance and in
writing by Administrator. Upon request, P.C. shall, and shall cause its
dentists to, execute a confidentiality agreement to evidence its or their
agreement to comply with the foregoing.
7.2 Access to Records. To the extent required by Section 1395x(v)(1)
of Title 42 of the United States Code, the clauses contained in that section
are incorporated herein by reference with like effect as though set forth at
length.
7.3 JEOPARDY. Notwithstanding anything herein to the contrary, if any
event occurs, or if either party receives notice of an action or threatened
action beyond the control of either party, or if a change in any law,
regulation or policy occurs (collectively referred to herein as the "Event")
which would:
(a) in the reasonable opinion of both parties jeopardize P.C.'s or any
shareholder, officer, director, employee, contractor or agent of P.C.'s
participation in or reimbursement from any third party payor program;
(b) cause a material change in the amount of reimbursement payable to
P.C. or any shareholder, officer, director, employee, contractor or agent of
P.C. in connection with any of the services provided to patients of the
Practice from any third party payor programs;
(c) prevent any dentist shareholder, officer, director, employee,
contractor or agent of P.C. from referring patients to or to provide services
at any of the Practice Premises;
(d) cause a material adverse effect on the operations of the Practice
and/or make the performance of this Agreement uneconomic for either party;
(e) cause the revocation, suspension or termination of the license(s)
maintained by Administrator or P.C. for the operation of the Practice and/or
maintained by any shareholder, officer, director, employee, contractor or
agent of P.C.; or
(f) make it impossible, unlawful or unethical for either party or any
shareholder, officer, director, employee, contractor or agent of
Administrator or P.C. to continue to perform any term or condition under this
Agreement;
then, in any such case, the parties shall immediately attempt to negotiate
amendments to this Agreement or a new Agreement which will negate the effect
of the Event and provide similar economic and other benefits to each party as
provided under this Agreement. In the event the parties are unable to
negotiate amendments or a new agreement to the reasonable satisfaction of
both parties within 30 days after the Event, then this Agreement shall
terminate immediately upon written notice by either party to the other.
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7.4 MEDICAL RECORDS. P.C. shall be responsible for the generation of
all medical records information and shall retain ownership and control of all
medical records pertaining to its patients. Administrator shall provide
clerical and administrative support to P.C. for the preparation and
maintenance of medical records. Administrator shall implement policies and
procedures for the maintenance of patient records at the Practice Premises,
which shall be in accordance with all applicable licensing and other laws,
regulations and guidelines as well as the standards, policies and procedures
imposed by any malpractice insurance carrier, accreditation agency, or any
public and/or private payor pertaining to the maintenance and confidentiality
of patient medical records. Administrator shall, at all times during the term
of this Agreement, have reasonable access to such records.
7.5 NO RECIPROCATION. The parties hereby acknowledge and agree that
the benefits conferred upon each of them hereunder neither require nor are in
any way contingent upon:
(a) the admission, recommendation, referral or any other arrangement for
the provision of any item or service offered by Administrator or any of its
affiliates to any patient of P.C., its shareholders, officers, directors,
employees, contractors or agents; or
(b) the recommendation, referral or any other arrangement for the
provision of any item or service offered by P.C. or any of its shareholders,
officers, directors, employees, contractors or agents.
7.6 PRACTICE OF DENTISTRY. The parties acknowledge that Administrator
is not authorized or qualified to engage in any activity which may be
construed or deemed to constitute the practice of dentistry in Michigan and
any payments or reimbursements of wages, costs or expenses of P.C. by
Administrator are solely for the administrative convenience of the parties
and are expected by the parties to be funded from Net Cash Collections of the
Practice. To the extent any act or service herein required of Administrator
should be construed or deemed to constitute the practice of dentistry in
Michigan, the performance of that act or service by Administrator shall be
deemed waived or forever unenforceable.
ARTICLE EIGHT
DISPUTE RESOLUTION
8.1 DISPUTE RESOLUTION. The parties will make good faith efforts to
resolve mutually any disputes which arise between them regarding this
Agreement. As part of this dispute resolution process, either party will, at
the request of the other party, promptly provide a short and plain written
statement setting forth that party's position regarding the dispute and that
party's suggested resolution. The other party then will respond promptly
with a short and plain written statement setting forth its position and
suggested resolution for the dispute. For a period of fifteen (15) days
following the sending of the statements, the parties shall negotiate in an
effort to resolve the controversy.
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8.2 ARBITRATION. Any dispute which has not been resolved by the
parties under the procedure set forth in Section 8.1 shall be submitted to
and decided by arbitration in accordance with the Rules of the American
Arbitration Association, as follows:
(i) There shall be one arbitrator who shall be selected in
accordance with the Rules of the American Arbitration Association;
(ii) The authority of the arbitrator shall be limited to a
determination of the facts, and to the interpretation and application of
specific provisions of this Agreement as they may apply to the dispute. The
arbitrator shall be bound by this Agreement, and shall have no authority to
add to, subtract from, amend, or modify the provisions of this Agreement.
The arbitrator shall render an opinion and a final award, if any, which shall
be binding on both parties.
(iii) Each party shall bear its own fees, costs, and expenses of an
arbitration proceeding, including witnesses, travel, attorneys, and other
representatives; the general costs and expenses of the arbitration, such as
facilities rental and fees, costs, and expenses of the arbitrator and the
American Arbitration Association, shall be borne equally by the parties.
8.3 The procedures set forth in Sections 8.1 and 8.2 shall not apply to
the events for automatic termination of this Agreement set forth in Section
6.2 hereunder.
ARTICLE NINE
CONFIDENTIAL INFORMATION
9.1 P.C. agrees and acknowledges that all materials provided by the
Administrator to P.C. constitute "Confidential Information" and are disclosed
in confidence and with the understanding that they constitute valuable
business information developed by the Administrator. P.C. further agrees
that it shall not, directly or indirectly, without the express prior written
consent of the Administrator, use or disclose such Confidential Information
for any purpose other than in connection with the services to be rendered
hereunder. P.C. further agrees to impose this obligation of confidentiality
on its officers, shareholders, affiliates, partners, employees and
independent contractors. Upon the expiration or termination of this
Agreement by either party for any reason whatsoever, P.C. shall immediately
return and, thereafter, not use, and shall cause its officers, shareholders,
affiliates, partners, employees and independent contractors to return and,
thereafter, not use, all Confidential Information. P.C. further expressly
acknowledges and agrees that any such use, appropriation or reproduction of
any such Confidential Information by any of the foregoing after the
expiration or termination of this Agreement will result in irreparable injury
to the Administrator, that the remedy at law for the foregoing would be
inadequate, and that in the event of such use, appropriation or reproduction,
the Administrator, in addition to any other remedies or damages available to
it, shall be entitled to injunctive or other equitable relief without the
necessity of proving actual damages, but such rights to equitable
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relief shall not preclude the Administrator from other remedies which may be
available to it hereunder.
ARTICLE TEN
GENERAL PROVISIONS
10.1 ASSIGNMENT BY ADMINISTRATOR. Administrator shall have the right,
at its sole discretion, to assign any or all of its rights and obligations
under this Agreement to any of its affiliates. The term affiliates for the
purposes of this Agreement shall mean any person or entity that directly or
indirectly controls, is controlled by, or is under common control with
Administrator, and anyone who is the beneficial owner of 10% or more of the
outstanding voting securities of another shall be deemed in control.
10.2 AMENDMENT. This Agreement may be amended by the parties. No
amendment will be effective unless in writing, and signed by both of the
parties.
10.3 CAPTIONS. Captions and article headings used herein are for
convenience only and are not part of this Agreement and shall not be used in
construing it.
10.4 COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which will be deemed an original, but taken together will constitute
one instrument.
10.5 CUMULATION OF REMEDIES. The various rights, options, elections,
powers, and remedies under this Agreement, or granted by law (collectively,
"Remedies"), will be construed as cumulative. No single Remedy is exclusive
of any of the other Remedies.
10.6 FORCE MAJEURE. Neither party will be liable or in default for any
delay or failure in performance under this Agreement, or for any other
interruption of service or employment resulting 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 similar or dissimilar cause beyond the reasonable control of
either party.
10.7 FURTHER ASSURANCES. Each party will do such further acts,
including executing and delivering additional agreements or instruments as
the other may reasonably require, to consummate, evidence or confirm the
agreements contained in this Agreement.
10.8 GOVERNING LAW. This Agreement will be construed and enforced
according to the laws of the State of Indiana applicable to agreements made
and to be performed wholly within the State.
10.9 INCORPORATION OF RECITALS AND THE EXHIBITS. All recitals and the
exhibits referred to in this Agreement are an integral part of this
Agreement. They are incorporated in this Agreement by this reference as
though at this point set forth in full.
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10.10 INDEPENDENT CONTRACTOR. It is mutually understood and agreed that
P.C. and Administrator are at all times acting and performing hereunder as
independent contractors. Administrator shall never have nor exercise control
or direction over the methods by which P.C. its shareholders, officers,
directors, employees, contractors or agents practice dentistry.
10.12 INTEGRATION. The making, execution and delivery of this Agreement
by the parties has not been induced by any representations, statements,
warranties or agreements other than those expressed in this Agreement. This
Agreement embodies the entire understanding of the parties. There are no
other agreements or undertakings, written or oral, in effect between the
parties relating to the subject matter of this Agreement, unless expressly
referenced in this Agreement.
10.13 NOTICES.
(a) WRITTEN NOTICES. All notices, demands or requests ("Notices") which
are required or permitted to be given pursuant to this Agreement will be in
writing. Notices will be delivered personally, by commercial carrier, by fax
with a machine generated confirmation sheet or by registered or certified
mail, postage prepaid, addressed to a party as stated below.
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(b) Administrator's Address for Notices:
The Dental Center, Inc.
Lake Falls Professional Building
6115 Falls Road
Baltimore, Maryland 21209
Attn: President
(c) P.C.'s Address for Notices:
Charles H. Rosenbaum, D.D.S. & Associates, P.C.
6115 Falls Road
Baltimore, Maryland 21209
Attn: President
(d) EFFECTIVE DATE. Notice given personally or by commercial carrier is
effective upon delivery. Notice given by fax with a machine generated
confirmation sheet is effective upon sending. Notice given by United States
mail is effective the third United States Post Office delivery day after the
date of mailing.
(e) CHANGE OF ADDRESS. Either party may change its address for Notices
by notice given pursuant to this section.
10.14 PARTIAL INVALIDITY. If any provision of this Agreement shall be
found by a court with proper jurisdiction to be invalid or unenforceable, in
whole or in part, then such provision shall be deemed to be modified,
narrowed, or restricted only to the limited extent and in the manner
necessary to render the same valid and enforceable, as the case may require,
and this Agreement shall be construed and enforced to the maximum extent
permitted by law, as if such provision had been originally incorporated
herein as so modified, narrowed or restricted.
10.15 STATUTES AND REGULATIONS. Any reference in this Agreement to any
statute, regulation, ruling, or administrative order or decree will include,
and be a reference to any successor statute, regulation, ruling, or
administrative order or decree.
10.16 WAIVER OF RIGHT. No waiver of or failure by either party to
enforce a provision, covenant, condition or right under this Agreement
(collectively, "Right") will be construed as a subsequent waiver of the same
Right, or a waiver of any other Right. No extension of time for performance
of any obligations or acts will be deemed an extension of the time for
performance of any other obligations or acts.
SIGNATURES ON THE FOLLOWING PAGE
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IN WITNESS WHEREOF, the parties have signed this Agreement as of the day
and year first above written.
ATTEST: THE DENTAL CENTER, INC.
/s/ E. James Kuhns /s/ Lawrence F. Halpert
_________________________ By: ______________________________________
E. James Kuhns, Secretary Lawrence F. Halpert, D.D.S., President
CHARLES H. ROSENBAUM, D.D.S., &
ASSOCIATES, P.C.
/s/ E. James Kuhns /s/ Erwin S. Raffel
_________________________ By:_______________________________________
E. James Kuhns, Secretary Erwin S. Raffel, D.D.S., President
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Exhibit 10.19
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is made and entered
into as of August 31, 1997, by and between DentalCo of North Carolina, Inc., a
Maryland corporation ("Manager"), and Raymond Garrison, D.D.S., P.A., a North
Carolina professional services corporation (the "P.A.").
RECITALS
P.A. is a professional services corporation which provides dental and
related specialty services (the "Practice").
Manager is skilled in dental practice management, including billing and
collecting, contracting, administration, and marketing.
P.A. desires to engage the services of an experienced manager to provide
(i) all day-to-day management and business office services necessary to
support P.A. in the performance of its activities; and (ii) use of
non-professional personnel, premises, furniture, fixtures and equipment,
billing and collecting, and certain other support services of the Practice,
as more fully defined below (collectively, the "Management Services").
P.A. desires to obtain Management Services from the Manager.
Manager is capable of providing and desires to provide Management
Services to P.A.
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises herein contained, the parties hereby agree as follows:
ARTICLE ONE
MANAGEMENT SERVICES
P.A. hereby engages Manager to provide the Management Services as more
particularly described herein, and Manager hereby accepts this engagement.
The Manager's undertaking shall include all Management Services necessary to
carry out the efficient operation of the business aspects of the Practice.
P.A. agrees that the Manager shall have all power and authority reasonably
necessary to manage all day-to-day business operations and policies of the
Practice; provided, however, that no such policy, action, or decision by
Manager or Manager's Dental Director will be made or construed so as to have
the effect of influencing or infringing upon the discretion of the dentists
and other dental personnel of the P.A. in rendering independent dental
opinions or treatment.
<PAGE>
ARTICLE TWO
MANAGER'S OBLIGATIONS
2.1 Use of Practice Premises. Manager hereby agrees to provide to P.A.,
and P.A. hereby hires from Manager, on an exclusive basis, the use of those
certain dental office spaces as described in Exhibit A (the "Practice
Premises"). P.A.'s use of the Practice Premises is subject to the provisions
of any lease for the Practice Premises between Manager and the landlord.
P.A. agrees to conduct the Practice only in the Practice Premises or at
such other location(s) as may be mutually agreed to by the parties. Manager
shall provide Practice Premises which are adequate and customary, as
determined by P.A. and Manager, to meet the demand for services to be
provided by P.A.
2.2 Furniture, Fixtures and Equipment. Manager shall provide at the
Practice Premises those items of furniture, fixtures and equipment as
determined by P.A. and Manager to be reasonable and customary for P.A.'s
operation of the Practice (collectively, the "Practice Equipment").
Manager's provision of the Practice Equipment is subject to the following
conditions:
(a) P.A. shall have the use of the Practice Equipment only during
the term of this Agreement, and shall have no ownership interest therein.
(b) The Practice Equipment to be located at the Practice Premises
shall be as needed for the proper operation of the Practice, as may be
determined from time to time by the Manager and the P.A. From time to time
during the term of this Agreement, the parties may agree to changes in the
Practice Equipment.
(c) Manager shall be responsible for all repairs, maintenance and
replacement of the Practice Equipment, except for such repairs, maintenance
and replacement necessitated by the negligence or misconduct of P.A., its
employees, contractors or agents.
2.3 Manager Personnel. Manager shall recruit, hire, train, supervise,
promote and/or terminate those non-professional and non-technical personnel
listed in Exhibit B (the "Manager Personnel"). P.A. shall have the right to
approve, based solely on competence, the assignment of all non-professional
support personnel who provide services at the Practice Premises, such
approval not to be unreasonably withheld. Subject to P.A.'s approval as set
forth above, Manager will have authority to engage, dismiss, reprimand,
reassign, or otherwise deal with all Manager Personnel. P.A. expressly
understands and agrees that such actions with respect to the Manager
Personnel shall take place in accordance with Manager's personnel policies
and pursuant to the standards of salaries and benefits which Manager may from
time to time provide and pay to its employees.
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2.4 Other Support Services.
(a) Manager shall order and purchase all dental and office supplies
required in the day-to-day operation of the Practice.
(b) Manager shall bill and collect Gross Charges (as defined in
Section 4.2(a) below) on the following terms:
(i) Manager shall bill any patient, third party payor or any
other payment source for all Gross Charges on the P.A.'s behalf and in
P.A.'s name as agent of P.A.;
(ii) Manager shall collect accounts receivable generated by
billings for Gross Charges; and
(iii) Manager shall take possession of, in the name and on
behalf of P.A., and disburse strictly in accordance with this Agreement,
all Collections (as defined in Section 4.2(b) below).
P.A. hereby appoints Manager as its true and lawful attorney-in-fact for
these purposes. Notwithstanding anything in this Agreement to the contrary,
at Manager's option, Manager may delegate any or all of the duties set forth
in this Section 2.4(b) to another person or entity designated by Manager that
is acceptable to P.A. P.A. shall not unreasonably withhold its acceptance.
(c) P.A. shall open and maintain a bank account in the name of the
P.A. into which Manager shall deposit all Collections in the Account. In
order to enable Manager to accomplish its management functions under this
Agreement, such account shall be swept on a daily basis, and such funds shall
be deposited into a bank account opened and maintained in the name of the
P.A. (the "Account"). Manager shall be a signatory on the Account with the
right to make deposits and withdrawals to and from the Account. The Account
shall be maintained at a financial institution mutually agreed upon by
Manager and P.A. P.A. hereby appoints Manager as its true and lawful
attorney-in-fact (i) to withdraw monies from the Account for refunds to
payment sources; and (ii) to withdraw monies from the Account to pay the
Management Fee (as defined below) and all other amounts due from P.A. to
Manager pursuant to this Agreement.
(d) Manager shall provide all necessary computer, bookkeeping,
billing and collection services, accounts receivable and accounts payable
management services, non-financial record keeping, general administrative
services and clerical office support, office supplies (including without
limitation, stationery, forms and postage), uniforms, laundry, linen,
janitorial and cleaning services.
(e) Manager shall, pursuant to Section 7.4 hereof, establish a
system for maintaining the dental records for the Practice.
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(f) Manager shall manage community relations and marketing services
for P.A.
(g) Manager shall furnish to P.A. periodic financial and management
reports reflecting the Practice's financial and operational status.
(h) Manager shall provide accounting, tax, payroll and legal
services (including labor relations, contract preparation, and maintenance of
all necessary professional and business licenses) on behalf of the Practice.
(i) Manager shall establish business systems, reasonable policies
and procedures, and standardized clinical forms for the Practice, including:
(i) feasibility studies to determine clinical appropriateness and financial
feasibility of future expansion; (ii) coordination in the relationship
between P.A.'s performance of dental services and the overall administrative
and business functioning of the Practice; (iii) coordination regarding the
establishment of appropriate fees for professional and ancillary services;
and (iv) coordination and assistance in obtaining and maintaining malpractice
insurance. P.A. agrees to comply with such policies and procedures
established by the Manager, provided, however, that P.A. shall maintain
control and supervision over the provision of all dental services provided by
the Practice. P.A. expressly acknowledges that it shall have no property
rights in the business systems, procedures, policies or clinical forms
established by the Manager, and further agrees that such systems, procedures,
policies and forms shall be deemed to constitute Confidential Information
within the meaning of Article Nine hereof.
(j) Manager shall provide telephone, switchboard, dictation and
duplication services.
(k) Manager shall assist P.A. in recruiting dentists for the
Practice, carrying out such administrative functions as may be appropriate
such as advertising for and identifying potential candidates, checking
credentials, and arranging interviews; provided, however, that P.A. will make
the ultimate decision as to the suitability of any dentist to become
associated with the P.A. All dentists recruited by the Manager and accepted
by the P.A. shall be the employees of P.A. to the extent they are hired as
employees. Expenses incurred in the recruitment of dentists shall be an
expenses paid by the Manager pursuant to Section 2.5 hereof.
(l) Manager shall set the hours of operation of the Practice in
accordance with customary practices of similar dental practices in the area.
(m) Manager shall provide to all dentists employed by P.A. such
comprehensive health insurance and dental insurance coverage as may be agreed
to by the parties.
(n) Manager shall endeavor to seek out and negotiate contracts
("Managed Care Arrangements") with managed care companies, including, but not
limited to, health
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maintenance organizations and preferred provider organizations, to provide
dental services with P.A. as a participating provider under such contracts.
2.5 Payment of Expenses. Manager shall be solely responsible for and
shall pay (or reimburse P.A. (if payment was approved by Manager) for payment
of) the following costs and expenses:
(a) The lease and/or purchase payments of the Practice Premises.
(b) Expenses associated with the Practice Premises, including but
not limited to telephone, electric, gas and water utility expenses, and real
property taxes.
(c) The lease and/or purchase payments, as applicable, of the
Practice Equipment.
(d) Expenses associated with the Practice Equipment, including
maintenance, repair, replacement and personal property taxes.
(e) Expenses associated with the Manager Personnel pursuant to
Section 2.3, including, but not limited to, compensation, benefits, payroll
taxes and unusual payroll deductions, worker's compensation insurance and all
similar items.
(f) Expenses associated with the other support services listed in
Section 2.4.
(g) Premiums and deductibles (as applicable) for all insurance
described in Section 5.3.
ARTICLE THREE
P.A.'S OBLIGATIONS
3.1 Dental Practice.
(a) P.A. shall continuously, throughout the term of this Agreement,
conduct the Practice on a full-time basis at the Practice Premises. As may
be agreed upon in advance by the parties, P.A. shall provide, at its own
expense, sufficient dentist and hygienist staff coverage to the Practice
Premises to enable the Practice to operate in an efficient and lawful manner
at all required times during the hours of operation of the Practice,
including, without limitation, the provision of locum tenens dental staff.
P.A. shall also be responsible for the professional supervision of the
clinical aspects of services rendered by Manager Personnel.
(b) P.A. shall use the Practice Premises and the Practice Equipment
solely in accordance with the terms and conditions set forth herein. P.A.
shall, at all times, be responsible for the quality of dental care provided
at the Practice Premises. It is expressly acknowledged by the parties that
all dentist services provided at the Practice Premises shall be performed
solely by dentists licensed to practice dentistry and to provide such
services in the State of North Carolina
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who (except on an emergency basis) shall at all times during the term of this
Agreement be employees or independent contractors of P.A. The P.A. shall
provide dental services to patients of the Practice in compliance at all
times with ethical standards, and laws and regulations applying to the dental
profession. In the event that any disciplinary, medical malpractice or other
actions are initiated against any dentist associated with the P.A., the P.A.
shall immediately inform the Manager of such action and the underlying facts
and circumstances.
(c) P.A. shall maintain good faith efforts to control patient care
costs while providing quality dental care to patients.
(d) P.A. agrees to serve as a participating provider of dental
services pursuant to all Managed Care Arrangements entered into by Manager.
3.2 P.A. Equipment. P.A. may provide equipment at the Practice
Premises, which shall be in addition to the Practice Equipment ("P.A.
Equipment"). P.A. shall be responsible for all repairs, maintenance and
replacement of the P.A. Equipment, unless P.A. requests that Manager provide
such repairs, maintenance and replacement upon such terms and conditions as
the parties may agree. Manager shall have no ownership interest in the P.A.
Equipment. From time to time during the term of this Agreement, P.A. may
prepare and revise a schedule of the P.A. Equipment, to be attached hereto as
Exhibit C. Upon termination of this Agreement, P.A. shall, at its sole cost
and expense, remove the P.A. Equipment, and repair any damage to the Practice
Premises resulting from the installation, use, or removal of the P.A.
Equipment.
3.3 Costs and Expenses. P.A. shall be solely responsible for and shall
pay the following costs and expenses:
(a) The cost of maintaining the corporate existence of P.A., if
applicable.
(b) All P.A. income taxes.
(c) Compensation of P.A.'s shareholders, directors and officers,
for services provided in those roles, if applicable.
(d) Expenses related to compensation of all dentists and hygienists
employed by, or contracted to, P.A. for work in the Practice, which shall
include, but not be limited to, compensation, benefits, payroll taxes and
unusual payroll deductions, worker's compensation insurance and all similar
items.
(e) Expenses associated with any P.A. Equipment, pursuant to
Section 3.2.
(f) Expenses related to all license fees and association dues
required for P.A. to operate the Practice.
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(g) Tuition fees and reasonable expenses for attendance by dentists
employed by the P.A. at the Practice of continuing dental education courses
and seminars deemed reasonably necessary by the P.A. to operate the Practice.
(h) All other costs and expenses reasonably incurred by Manager in
conducting the Practice at the Practice Premises, other than costs and
expenses which are Manager's responsibility pursuant to Section 2.5.
(i) Premiums for malpractice and other insurance described in
Sections 5.1 and 5.2.
3.4 Special Expenses. P.A., at P.A.'s option, may incur additional
expenses, in addition to those listed in Section 3.3, in connection with the
Practice. P.A. shall pay for such additional expenses either from its
profits from the Practice or from other resources.
3.5 Utilization Review; Quality Assurance. P.A. agrees to cooperate
with and participate in quality assurance/utilization review programs
established by the Manager or mandated by accreditation or licensure
standards applicable to the practice of dentistry. Deficiencies discovered
in the performance of any personnel or in the quality of professional
services shall be reported immediately to the Manager by the P.A. (if
discovered by the P.A.), and to the P.A. by the Manager (if discovered by the
Manager), and appropriate steps shall be taken by the P.A. at once to remedy
such deficiencies.
ARTICLE FOUR
THE MANAGEMENT FEE
4.1 General Intent With Respect to the Management Fee. P.A. and Manager
mutually recognize and acknowledge that:
(a) Manager has incurred and will incur substantial costs and
expenses in connection with providing the Management Services described in
this Agreement, and in performing all other obligations required of it in
accordance with this Agreement;
(b) Certain of Manager's costs and expenses can vary to a
considerable degree according to the volume of services required at the
Practice Premises;
(c) It will be impracticable to ascertain with precision all of the
costs and expenses that will be incurred by Manager from time to time in the
performance of its obligations under this Agreement; and
(d) Total Net Collections (as defined in Section 4.2(d) below) may
also vary to a considerable degree during each month of this Agreement.
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It is the intent of the parties that all fees paid to Manager by P.A.
under this Agreement be reasonable and approximate Manager's actual costs and
expenses plus a reasonable profit.
4.2 Definitions. As used herein, the following terms shall have the
meanings set forth in this Section:
(a) "Gross Charges." All professional fees and charges, including
copayments charged (but not capitated payments) under Managed Care
Arrangements, for services performed by P.A. as part of the Practice during
the term of this Agreement.
(b) "Net Collections." All proceeds received by Manager or P.A.
from Gross Charges, less patient and third party refunds due to overpayments.
Net Collections shall not include capitated payments paid to Manager under
Managed Care Arrangements entered into by Manager (the "Manager Capitated
Payments").
(c) "Practice Expenses." All expenses to be paid by the Manager
pursuant to Section 2.5 hereto.
4.3 Determination and Payment of the Management Fee. During the term of
this Agreement and for such period as may be required under Section 6.3(c)
hereof, P.A. shall pay to Manager by the fifteenth (15th) day of each month a
management fee (the "Management Fee"). During the period commencing on the
effective date of this Agreement and continuing until the end of the first
full fiscal year of operation under this Agreement the Management fee shall
be $ ________ per month, payable monthly. The amount of the consideration
shall be reviewed on an annual basis. By November 1 of the first full fiscal
year of this Agreement, and each fiscal year thereafter, Manager shall
prepare and present to the P.A. a proposed operating budget for the Practice,
which the parties shall use to set the Management Fee. The parties agree to
negotiate in good faith to determine a fee that shall be reasonable and to
approximate Manager's anticipated actual costs and expenses plus a reasonable
profit. In the event the parties are unable to agree on a new compensation
schedule by the anniversary date of the effective date hereof, the then
existing compensation shall remain in effect, and the parties agree to abide
by the dispute resolution and arbitration provisions of Article VIII hereof.
As provided in Section 2.4(c) hereof, Manager is authorized to withdraw
the amount of the Management Fee from the Account as and when due.
4.4 Collateral Security.
(a) As collateral for the payment of the Management Fee due
hereunder (including any extensions, modifications and renewals hereof), to
the extent permitted by law, P.A. hereby grants to Manager a security
interest in all of the accounts receivable resulting from Gross Charges,
together with any and all proceeds of such accounts receivable (collectively,
the "Collateral"). Upon Manager's request, P.A., at its sole cost and
expense, shall execute and
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deliver to Manager such further documents and assurances and shall take such
further action as Manager may request to evidence Manager's security interest
in and to the Collateral. P.A. hereby appoints Manager as its
attorney-in-fact to execute and record in the name and on behalf of the P.A.
appropriate UCC Financing Statements evidencing the security interest in the
Collateral granted to Manager by this section.
(b) Manager shall have all rights, powers, remedies and recourses
available or permitted to Manager under law with respect to the Collateral,
including, but not limited to, the ability (i) to release, surrender, waive,
add, substitute, settle, exchange, compromise, modify, extend, or grant
indulgences with respect to the Collateral, the Management Fee or any other
amounts due to Manager hereunder; and (ii) to grant any extension or other
postponements of the time of payment thereof; provided however, that Manager
shall not be liable for any failure to collect or enforce the payment of the
Collateral.
(c) Notwithstanding any other provision of this Agreement, and
except as otherwise prohibited by law, upon P.A.'s failure to pay any amount
due Manager hereunder and at Manager's election, P.A. hereby authorizes
Manager: (i) to take possession of the Collateral; (ii) to take possession
of and endorse in P.A.'s name any notes, checks, money orders, insurance
payments, and any other documents received in payment of the Collateral, or
any part of it; (iii) to collect, sue for, and give satisfactions for, monies
due on account of the Collateral; (iv) to institute, maintain or withdraw any
claims, suits, or proceedings pertaining to, or arising out of Manager's
and/or P.A.'s right to the Collateral; and (v) to pay all amounts due Manager.
4.5 Possession of Collateral Records. Manager shall have authority to
possess and retain for P.A. and Manager the books of the Practice with
respect to the Collateral.
4.6 Payments to P.A.
(a) Each month after payment of the Management Fee and other monies
due Manager hereunder, if any, Manager will arrange for the transfer from the
Account to any other account P.A. designates, that amount of the Net
Collections for the previous month which was not paid to Manager.
(b) In the event that the amount payable under subsection (a) above
is insufficient for P.A. to meet those anticipated expenses for the ensuing
month for base salary, benefits, and malpractice costs which have been
approved in advance by Manager (the "Base P.A. Expenses"), Manager shall,
upon the request of the P.A., advance such shortfall (each, an "Advance") to
P.A. Each Advance shall be treated as a loan from Manager to the P.A., and
shall be repaid to Manager, as quickly as possible, from revenues derived in
subsequent months out of the payments to be received pursuant to subsection
(a) above; provided however, that an Advance shall be forgiven if P.A. is
unable to repay it within a twelve (12) month period.
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ARTICLE FIVE
INSURANCE AND INDEMNITY
5.1 Malpractice Insurance.
(a) P.A. will obtain and at all times maintain in full force and
effect professional malpractice liability insurance for all dentists and
hygienists providing dental care for P.A. pursuant to this Agreement.
(b) The malpractice insurance will have coverage limits of at least
One Million Dollars ($1,000,000) per occurrence and at least Three Million
Dollars ($3,000,000) per annual aggregate, such other higher amount as may be
required by appropriate licensing authorities or third party payors, or such
other amount as may be agreed to by the parties. Such malpractice insurance
shall be issued to the P.A. and to each of the dentists and hygienists
employed by the P.A.
(c) The malpractice insurance may be either "occurrence" or "claims
made" insurance. If P.A. obtains "claims made" insurance, P.A. will obtain an
extended reporting endorsement (a "tail") to cover services provided under
this Agreement.
(d) P.A. shall provide to Manager written documentation evidencing
the malpractice insurance coverage required by this Section for P.A. and
P.A.'s shareholders, officers, and directors prior to the commencement date
of this Agreement and for dentist and hygienist employees of the P.A. prior
to the commencement of professional services by such employee.
(e) All malpractice insurance required by this section will contain
the written agreement of the insurer(s) to provide Manager 30 days prior
written notice before any non-renewal, termination or modification of
coverage takes effect.
5.2 Other Insurance. P.A. shall obtain and at all times maintain
workers compensation coverage for all of the dentists and hygienists employed
by the P.A., and the P.A. shall hold the Manager harmless with respect to any
worker's compensation claims made by any such employee.
5.3 Manager Insurance. Manager shall carry and at all times maintain in
full force and effect: (i) public liability insurance insuring against
claims for bodily injury, including death, and property damage occurring on,
in, or about the Practice Premises; (ii) general liability and fire insurance
for the Practice Premises; (iii) business interruption insurance for the
P.A.; and (iv) workers compensation coverage for all Manager Personnel.
Manager shall hold the P.A. harmless with respect to any workers compensation
claims made by Manager Personnel.
5.4 Indemnification of Manager. P.A. shall indemnify, hold harmless and
defend Manager, its shareholders, officers, directors, employees,
contractors, other agents and affiliates from and against any and all
liability, loss, damages, claims, causes of action and expenses
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associated with them (including reasonable attorneys' fees) caused or
asserted to have been caused, directly or indirectly by or as a result of any
acts or omissions of P.A., its shareholders, officers, directors, employees,
contractors or other agents in connection with this Agreement, including, but
not limited to, claims of professional malpractice.
5.5 Indemnification of P.A. Manager shall indemnify, hold harmless and
defend P.A., its shareholders, officers, directors, employees, contractors,
other agents and affiliates from and against any and all liability, loss,
damages, claims, causes of action and expenses associated with them
(including reasonable attorneys fees) caused or asserted to have been caused,
directly or indirectly by or as a result of acts or omissions constituting
negligence or gross negligence by Manager, its shareholders, officers,
directors, employees, contractors, other agents or affiliates in connection
with this Agreement.
ARTICLE SIX
TERM, TERMINATION AND EFFECTS OF TERMINATION
6.1 Term. This Agreement shall commence on January __, 1997, shall be
for an initial term of twenty (20) years, and shall renew automatically for
an additional term of ten (10) years unless either party gives the other
party at least one hundred eighty (180) days written notice of its intent not
to renew at the end of the initial term.
6.2 Termination.
(a) Automatic Termination; Notice by Manager. This Agreement will
automatically terminate upon written notice by Manager to P.A. upon the
occurrence of any of the following events.
(i) The Appointment of a receiver or trustee to manage the
assets of P.A.
(ii) The assignment for the benefit of creditors of the assets
of P.A.
(iii) The occurrence of any act of bankruptcy by P.A.
(iv) P.A.'s breach of any material term of this Agreement,
provided that such breach continues for a period of thirty (30) days
after written notice thereof has been given by the Manager to P.A.
If Manager fails to give notice of termination within 90 days of its
becoming aware of the occurrence of an event listed in this Section 6.2(a),
Manager waives its right to terminate based on that occurrence. Manager
retains the right to give notice of termination upon any subsequent
occurrence of the same type of event, or of any other event listed in this
Section 6.2(a).
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(b) Automatic Termination; Notice by P.A. This Agreement will
automatically terminate upon written notice by P.A. to Manager upon the
occurrence of any of the following events.
(i) The Appointment of a receiver or trustee to manage the
assets of Manager.
(ii) The assignment for the benefit of creditors of the assets
of Manager.
(iii) The occurrence of any act of bankruptcy by Manager.
(iv) Manager's breach of any material term of this Agreement,
provided that such breach continues for a period of thirty (30) days
after written notice thereof has been given by the P.A. to the Manager.
If P.A. fails to give notice of termination within 90 days of its
becoming aware of the occurrence of an event listed in this Section 6.2(b),
P.A. waives its right to terminate based on that occurrence. P.A. retains
the right to give notice of termination upon any subsequent occurrence of the
same type of event, or of any other event listed in this Section 6.2(b).
6.3 Effects of Termination. This Agreement will have no further effect
after the date of termination, except the following:
(a) P.A. shall immediately surrender to Manager the Practice
Premises at its sole cost and expense. This includes but is not limited to
the following:
(i) P.A. shall cause all dentist employees to vacate the
Practice Premises; and
(ii) P.A. shall remove all P.A. Equipment, and any other P.A.
property, and shall be solely responsible for any damage caused as a
result of the removal of its property.
(b) P.A. shall pay all compensation and fees accrued and owed to
Manager through the date of termination.
(c) Manager shall be entitled to a Management Fee arising prior to
the termination. Manager shall have the right, in its sole discretion
exercisable at any time after the termination of this Agreement, to cease
billing and collecting Gross Charges arising prior to the termination. Prior
to Manager's election to cease such billing and collection, Manager shall
bill and collect, make payments and have all other rights and obligations
with respect to Gross Charges arising prior to the termination as provided in
this Agreement, and P.A. will pay Manager all compensation and fees
applicable thereto, including the Management Fee. Following Manager's
election, P.A. shall make other arrangements for billing and collection of
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such Gross Charges, and shall remit to Manager all fees and charges
applicable thereto, including the Management Fee, and shall deliver a monthly
statement of Total Net Collections until billing and collection for such
Gross Charges is substantially complete.
(d) Manager shall continue to have all of its rights pursuant to
Section 4.4 and 4.5 until Manager shall be paid all monies due from P.A.
(e) P.A. shall maintain and pay for malpractice insurance pursuant
to Section 5.1.
(f) Sections 5.4, 5.5, and 6.4 shall remain in full force and
effect.
6.4 Restrictions on Competition; Injunctive Relief. P.A. agrees that
during the term hereof, and for a period of two (2) years following the
termination of this Agreement (other than by the P.A. for a breach thereof by
Manager), the P.A. shall not, without the prior written consent of Manager,
engage directly or indirectly in the ownership or operation of a dental
practice within a five (5) mile radius of any of the Practice Premises which
may be in operation from time to time. P.A. further agrees to cause each of
the dentists employed by or under contract with the P.A. to agree that during
the term of his/her employment or independent contract with the P.A., and for
a period of two (2) years thereafter, he/she shall not, without the prior
written consent of Manager, engage directly or indirectly in the ownership or
operation of a dental practice within a five (5) mile radius of any of the
Practice Premises at which the dentist provided services on behalf of the
P.A., and that Manager shall have the right to specifically enforce such
restrictions, and to recover damages for a violation by such dentist of such
restrictions. It is acknowledged that a remedy at law for any breach or
attempted breach by the P.A. or one of its dentists of the covenants set
forth in this section will be inadequate, and it is agreed that Manager shall
be entitled to specific performance and injunctive and other equitable relief
in case of any such breach or attempted breach. Any such remedy shall be in
addition to any damages which Manager may be legally entitled to recover.
ARTICLE SEVEN
DENTAL PRACTICE AND REIMBURSEMENT CONSIDERATIONS
7.1 Access to Books and Fees. P.A. or its designee shall have access
during normal business hours to financial records of the Practice, including
records of collections, expenses and disbursements as kept by Manager
performing its obligations under this Agreement. It is expressly understood
that the systems, methods, procedures, written materials and controls
employed by Manager in the performance of this Agreement are proprietary in
nature, shall remain the property of Manager and shall not, at any time, be
utilized, distributed, copied or otherwise employed or acquired by P.A.
unless approved in advance and in writing by Manager. Upon request, P.A.
shall, and shall cause its dentists to, execute a confidentiality agreement
to evidence its or their agreement to comply with the foregoing.
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7.2 Access to Records. To the extent required by Section 1395x(v)(1) of
Title 42 of the United States Code, the clauses contained in that section are
incorporated herein by reference with like effect as though set forth at
length.
7.3 Jeopardy. Notwithstanding anything herein to the contrary, if any
event occurs, or if either party receives notice of an action or threatened
action beyond the control of either party, or if a change in any law,
regulation or policy occurs (collectively referred to herein as the "Event")
which would:
(a) in the reasonable opinion of both parties jeopardize P.A.'s or
any shareholder, officer, director, employee, contractor or agent of P.A.'s
participation in or reimbursement from any third party payor program;
(b) cause a material change in the amount of reimbursement payable
to P.A. or any shareholder, officer, director, employee, contractor or agent
of P.A. in connection with any of the services provided to patients of the
Practice from any third party payor programs;
(c) prevent any dentist shareholder, officer, director, employee,
contractor or agent of P.A. from referring patients to or to provide services
at any of the Practice Premises;
(d) cause a material adverse effect on the operations of the
Practice and/or make the performance of this Agreement uneconomic for either
party;
(e) cause the revocation, suspension or termination of the
license(s) maintained by Manager or P.A. for the operation of the Practice
and/or maintained by any shareholder, officer, director, employee, contractor
or agent of P.A.; or
(f) make it impossible, unlawful or unethical for either party or
any shareholder, officer, director, employee, contractor or agent of Manager
or P.A. to continue to perform any term or condition under this Agreement;
then, in any such case, the parties shall immediately attempt to negotiate
amendments to this Agreement or a new Agreement which will negate the effect
of the Event and provide similar economic and other benefits to each party as
provided under this Agreement. In the event the parties are unable to
negotiate amendments or a new agreement to the reasonable satisfaction of
both parties within 30 days after the Event, then this Agreement shall
terminate immediately upon written notice by either party to the other.
7.4 Dental Records. P.A. shall have the ultimate authority and
accountability and shall be primarily responsible for the maintenance of
records with respect to patients treated at the Practice Premises. Manager
shall implement policies and procedures for the maintenance of patient
records at the Practice Premises, which shall be in accordance with all
applicable licensing and other laws, regulations and guidelines as well as
the standards, policies and procedures imposed by any malpractice insurance
carrier, accreditation agency, or any public and/or private payor pertaining
to the maintenance and confidentiality of patient dental records.
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To the extent permitted by law, Manager shall be the owner of all patient
dental and business records related to the Practice. To the extent that such
records are maintained by P.A., Manager shall, at all times during the term
of this Agreement, have reasonable access to such records. Upon termination
of this Agreement, to the extent permitted by law, the P.A. shall within
sixty (60) days deliver any such records in its possession in their entirety
to Manager. Thereafter, Manager shall provide P.A. with access to such
records to the extent reasonably necessary for tax purposes or legal process.
7.5 No Reciprocation. The parties hereby acknowledge and agree that the
benefits conferred upon each of them hereunder neither require nor are in any
way contingent upon:
(a) the admission, recommendation, referral or any other
arrangement for the provision of any item or service offered by Manager or
any of its affiliates to any patient of P.A., its shareholders, officers,
directors, employees, contractors or agents; or
(b) the recommendation, referral or any other arrangement for the
provision of any item or service offered by P.A. or any of its shareholders,
officers, directors, employees, contractors or agents.
7.6 Practice of Dentistry. The parties acknowledge that Manager is not
authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of dentistry and any payments or
reimbursements of wages, costs or expenses of P.A. by Manager are solely for
the administrative convenience of the parties and are expected by the parties
to be funded from Net Cash Collections of the Practice. To the extent any
act or service herein required of Manager should be construed or deemed to
constitute the practice of dentistry, the performance of that act or service
by Manager shall be deemed waived or forever unenforceable.
ARTICLE EIGHT
DISPUTE RESOLUTION
8.1 Dispute Resolution. The parties will make good faith efforts to
resolve mutually any disputes which arise between them regarding this
Agreement. As part of this dispute resolution process, either party will, at
the request of the other party, promptly provide a short and plain written
statement setting forth that party's position regarding the dispute and that
party's suggested resolution. The other party then will respond promptly
with a short and plain written statement setting forth its position and
suggested resolution for the dispute. For a period of fifteen (15) days
following the sending of the statements, the parties shall negotiate in an
effort to resolve the controversy.
8.2 Arbitration. Any dispute which has not been resolved by the parties
under the procedure set forth in Section 8.1 shall be submitted to and
decided by arbitration in accordance with the Rules of the American
Arbitration Association, as follows:
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(i) There shall be one arbitrator who shall be selected in
accordance with the Rules of the American Arbitration Association;
(ii) The authority of the arbitrator shall be limited to a
determination of the facts, and to the interpretation and application of
specific provisions of this Agreement as they may apply to the dispute.
The arbitrator shall be bound by this Agreement, and shall have no
authority to add to, subtract from, amend, or modify the provisions of
this Agreement. The arbitrator shall render an opinion and a final award,
if any, which shall be binding on both parties.
(iii) Each party shall bear its own fees, costs, and expenses
of an arbitration proceeding, including witnesses, travel, attorneys, and
other representatives; the general costs and expenses of the arbitration,
such as facilities rental and fees, costs, and expenses of the arbitrator
and the American Arbitration Association, shall be borne equally by the
parties.
(iv) Unless the parties otherwise agree, the arbitration shall
be held in Winston-Salem, North Carolina.
8.3 The procedures set forth in Sections 8.1 and 8.2 shall not apply to
the events for automatic termination of this Agreement set forth in Section
6.2 hereunder.
ARTICLE NINE
CONFIDENTIAL INFORMATION
9.1 P.A. agrees and acknowledges that all materials provided by the
Manager to P.A. constitute "Confidential Information" and are disclosed in
confidence and with the understanding that they constitute valuable business
information developed by the Manager. P.A. further agrees that it shall not,
directly or indirectly, without the express prior written consent of the
Manager, use or disclose such Confidential Information for any purpose other
than in connection with the services to be rendered hereunder. P.A. further
agrees to impose this obligation of confidentiality on its officers,
shareholders, affiliates, partners, employees and independent contractors.
Upon the expiration or termination of this Agreement by either party for any
reason whatsoever, P.A. shall immediately return and, thereafter, not use,
and shall cause its officers, shareholders, affiliates, partners, employees
and independent contractors to return and, thereafter, not use, all
Confidential Information. P.A. further expressly acknowledges and agrees
that any such use, appropriation or reproduction of any such Confidential
Information by any of the foregoing after the expiration or termination of
this Agreement will result in irreparable injury to the Manager, that the
remedy at law for the foregoing would be inadequate, and that in the event of
such use, appropriation or reproduction, the Manager, in addition to any
other remedies or damages available to it, shall be entitled to injunctive or
other equitable relief without the necessity of proving actual damages, but
such rights to equitable relief shall not preclude the Manager from other
remedies which may be available to it hereunder.
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ARTICLE TEN
GENERAL PROVISIONS
10.1 Assignment by Manager. Manager shall have the right, at its sole
discretion, to assign any or all of its rights and obligations under this
Agreement to any of its affiliates. The term affiliates for the purposes of
this Agreement shall mean any person or entity that directly or indirectly
controls, is controlled by, or is under common control with Manager, and
anyone who is the beneficial owner of 10% or more of the outstanding voting
securities of another shall be deemed in control. This shall not limit
Manager's right to assign specified duties hereunder to others who are not
affiliates, as provided elsewhere herein.
10.2 Amendment. This Agreement may be amended by the parties. No
amendment will be effective unless in writing, and signed by both of the
parties.
10.3 Captions. Captions and article headings used herein are for
convenience only and are not part of this Agreement and shall not be used in
construing it.
10.4 Counterparts. This Agreement may be executed in two counterparts,
each of which will be deemed an original, but taken together will constitute
one instrument.
10.5 Cumulation of Remedies. The various rights, options, elections,
powers, and remedies under this Agreement, or granted by law (collectively,
"Remedies"), will be construed as cumulative. No single Remedy is exclusive
of any of the other Remedies.
10.6 Force Majeure. Neither party will be liable or in default for any
delay or failure in performance under this Agreement, or for any other
interruption of service or employment resulting 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 similar or dissimilar cause beyond the reasonable control of
either party.
10.7 Further Assurances. Each party will do such further acts, including
executing and delivering additional agreements or instruments as the other
may reasonably require, to consummate, evidence or confirm the agreements
contained in this Agreement.
10.8 Governing Law. This Agreement will be construed and enforced
according to the laws of the State of North Carolina applicable to agreements
made and to be performed wholly within the State.
10.9 Incorporation of Recitals and the Exhibits. All recitals and the
exhibits referred to in this Agreement are an integral part of this
Agreement. They are incorporated in this Agreement by this reference as
though at this point set forth in full.
10.10 Independent Contractor. It is mutually understood and agreed that
P.A. and Manager are at all times acting and performing hereunder as
independent contractors. Manager
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shall never have nor exercise control or direction over the methods by which
P.A. its shareholders, officers, directors, employees, contractors or agents
practice dentistry.
10.12 Integration. The making, execution and delivery of this Agreement
by the parties has not been induced by any representations, statements,
warranties or agreements other than those expressed in this Agreement. This
Agreement embodies the entire understanding of the parties. There are no
other agreements or undertakings, written or oral, in effect between the
parties relating to the subject matter of this Agreement, unless expressly
referenced in this Agreement.
10.13 Notices.
(a) Written Notices. All notices, demands or requests
("Notices") which are required or permitted to be given pursuant to this
Agreement will be in writing. Notices will be delivered personally, by
commercial carrier, by fax with a machine generated confirmation sheet or by
registered or certified mail, postage prepaid, addressed to a party as stated
below.
(b) Manager's Address for Notices:
DentalCo of North Carolina, Inc.
6115 Falls Road
Baltimore, Maryland 21209
Attn: President
(c) P.A.'s Address for Notices:
Raymond Garrison, D.D.S., P.A.
___________________________
___________________________
___________________________
Attn: ____________________
(d) Effective Date. Notice given personally or by commercial
carrier is effective upon delivery. Notice given by fax with a machine
generated confirmation sheet is effective upon sending. Notice given by
United States mail is effective the third United States Post Office delivery
day after the date of mailing.
(e) Change of Address. Either party may change its address for
Notices by notice given pursuant to this section.
10.14 Partial Invalidity. If any provision of this Agreement shall be
found by a court with proper jurisdiction to be invalid or unenforceable, in
whole or in part, then such provision shall be deemed to be modified,
narrowed, or restricted only to the limited extent and in the manner
necessary to render the same valid and enforceable, as the case may require,
and this
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Agreement shall be construed and enforced to the maximum extent permitted by
law, as if such provision had been originally incorporated herein as so
modified, narrowed or restricted.
10.15 Statutes and Regulations. Any reference in this Agreement to any
statute, regulation, ruling, or administrative order or decree will include,
and be a reference to any successor statute, regulation, ruling, or
administrative order or decree.
10.16 Waiver of Right. No waiver of or failure by either party to
enforce a provision, covenant, condition or right under this Agreement
(collectively, "Right") will be construed as a subsequent waiver of the same
Right, or a waiver of any other Right. No extension of time for performance
of any obligations or acts will be deemed an extension of the time for
performance of any other obligations or acts.
{SIGNATURES APPEAR ON THE FOLLOWING PAGE}
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IN WITNESS WHEREOF, the parties have signed this Agreement as of the day and
year first above written.
ATTEST: RAYMOND GARRISON, D.D.S., P.A.
/s/ James Kuhns
- ------------------------------ By: /s/ Raymond Garrison
James Kuhns, Secretary -------------------------------
Raymond Garrison, President
DENTALCO OF NORTH CAROLINA, INC.
/s/ E. James Kuhns
- ------------------------------- By: /s/ Carl J. Sardegna
E. James Kuhns, Secretary -----------------------------------
Title: Carl J. Sardegna, Vice President
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Exhibit 10-20
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is made and entered into
as of May 30, 1997, by and between DENTALCO MANAGEMENT SERVICES OF
PENNSYLVANIA, Inc. a Maryland corporation ("Administrator"), and AYES & RUSH
DENTAL ASSOCIATES OF PENNSYLVANIA, P.C., a Pennsylvania professional services
corporation (the "PC").
RECITALS
PC is a professional services corporation which provides dental and
related specialty services (the "Practice").
Administrator is skilled in providing assistance in the management by
practitioners of dental practices, including billing and collecting,
contracting, administration, and marketing.
PC desires to engage the services of an experienced administrator to
provide (i) all day-to-day management and business office services necessary
to support PC in the performance of its activities; and (ii) use of
non-professional personnel, premises, furniture, fixtures and equipment,
billing and collecting, and certain other support services of the Practice,
as more fully defined below (collectively, the "Administrative Services").
PC desires to obtain Administrative Services from the Administrator.
Administrator is capable of providing and desires to provide
Administrative Services to PC.
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises herein contained, the parties hereby agree as follows:
ARTICLE ONE
ADMINISTRATIVE SERVICES
PC hereby engages Administrator to provide the Administrative Services as
more particularly described herein, and Administrator hereby accepts this
engagement. The Administrator's undertaking shall be comprehensive, and
shall include all Administrative Services necessary to carry out the
efficient operation of the business aspects of the Practice. PC agrees that
the Administrator shall have authority over day-to-day business operations
and policies of the Practice, provided, however, that no policy, action, or
decision by Administrator or Administrator's Dental Director will be made or
construed so as to have the effect of influencing or infringing upon the
discretion of the dentists and other dental personnel of the PC in rendering
independent dental opinions or treatment.
<PAGE>
ARTICLE TWO
ADMINISTRATOR'S OBLIGATIONS
2.1 Use of Practice Premises. Administrator hereby agrees to provide to
PC, and PC hereby hires from Administrator, on an exclusive basis, the use of
those certain dental office spaces as described in Exhibit A (the "Practice
Premises"). PC's use of the Practice Premises is subject to the provisions
of any lease for the Practice Premises between Administrator and the landlord.
PC agrees to conduct the Practice only in the Practice Premises or at
such other location(s) as may be mutually agreed to by the parties.
Administrator shall provide Practice Premises which are adequate and
customary, as determined by PC and Administrator, to meet the demand for
services to be provided by PC.
2.2 Furniture, Fixtures and Equipment. Administrator shall provide at
the Practice Premises those items of furniture, fixtures and equipment as
determined by PC in consultation with Administrator to be reasonable and
customary for PC's operation of the Practice (collectively, the "Practice
Equipment"). Administrator's provision of the Practice Equipment is subject
to the following conditions:
(a) PC shall have the use of the Practice Equipment only during the term
of this Agreement, and shall have no ownership interest therein.
(b) The Practice Equipment to be located at the Practice Premises shall
be as needed for the proper operation of the Practice, as may be determined
from time to time by the Administrator and the PC. From time to time during
the term of this Agreement, the parties may agree to changes in the Practice
Equipment.
(c) Administrator shall be responsible for all repairs, maintenance and
replacement of the Practice Equipment, except for such repairs, maintenance
and replacement necessitated by the negligence or misconduct of PC, its
employees, contractors or agents.
2.3 Administrator Personnel. Administrator shall recruit, hire, train,
supervise, promote and/or terminate those non-professional and non-technical
personnel listed in Exhibit B (the "Administrator Personnel"). PC shall have
the right to approve, based solely on competence, the assignment of all
non-professional support personnel who provide services at the Practice
Premises, such approval not to be unreasonably withheld. Administrator will
have final authority to engage, dismiss, reprimand, reassign, or otherwise
deal with all Administrator Personnel, but shall take into consideration the
wishes of the PC in this regard. PC expressly understands and agrees that
such actions with respect to the Administrator Personnel shall take place in
accordance with Administrator's personnel policies and pursuant to the
standards of salaries and benefits which Administrator may from time to time
provide and pay to its employees.
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2.4 Other Support Services.
(a) Administrator shall order and purchase all dental and office
supplies required in the day-to-day operation of the Practice.
(b) Administrator shall bill and collect Gross Charges (as defined in
Section 4.2(a) below) on the following terms:
(i) Administrator shall bill any patient, third party payor or any
other payment source for all Gross Charges on the PC's behalf and in
PC's name as agent of PC;
(ii) Administrator shall use reasonable efforts to collect accounts
receivable generated by billings for Gross Charges; and
(iii) Administrator shall take possession of, in the name and on
behalf of PC, and disburse strictly in accordance with this Agreement, all
Collections (as defined in Section 4.2(b) below).
PC hereby appoints Administrator as its true and lawful attorney-in-fact
for these purposes. Notwithstanding anything in this Agreement to the
contrary, at Administrator's option, Administrator may delegate any or all of
the duties set forth in this Section 2.4(b) to another person or entity
designated by Administrator that is acceptable to PC. PC shall not
unreasonably withhold its acceptance.
(c) In order to enable Administrator to accomplish its functions under
this Agreement, Administrator is authorized to open and maintain a bank
account in the name of the PC (the "Account") and to deposit all Collections
in the Account. Administrator shall be a signatory on the Account with the
right to make deposits and withdrawals to and from the Account. The Account
shall be maintained at a financial institution mutually agreed upon by
Administrator and PC. PC hereby appoints Administrator as its true and
lawful attorney-in-fact (i) to deposit into the Account all Collections; (ii)
to withdraw monies from the Account for refunds to payment sources; and (iii)
to withdraw monies from the Account to pay the Administrative Fee (as defined
below) and all other amounts due from PC to Administrator pursuant to this
Agreement.
(d) Administrator shall provide all necessary computer,
bookkeeping, billing and collection services, accounts receivable and
accounts payable management services, non-financial record keeping, general
administrative services and clerical office support, office supplies
(including without limitation, stationery, forms and postage), uniforms,
laundry, linen, janitorial and cleaning services.
(e) Administrator shall, pursuant to Section 7.4 hereof, establish
a system for maintaining the patient records for the Practice.
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(f) Administrator shall administer community relations and
marketing services for the PC.
(g) Administrator shall furnish to PC periodic financial and other
reports reflecting the Practice's financial and operational status.
(h) Administrator shall provide accounting, tax, payroll and legal
services (including labor relations, contract preparation, and maintenance of
all necessary professional and business licenses) on behalf of the Practice.
(i) Administrator shall establish business systems, reasonable
policies and procedures, and standardized clinical forms for the Practice,
including: (i) feasibility studies to determine clinical appropriateness and
financial feasibility of future expansion; (ii) coordination in the
relationship between PC's performance of dental services and the overall
administrative and business functioning of the Practice; (iii) assistance
regarding the establishment of appropriate fees for professional and
ancillary services; and (iv) coordination and assistance in obtaining and
maintaining malpractice insurance. Upon approval of the foregoing by the PC,
which approval shall not be unreasonably withheld, PC agrees to comply with
such policies and procedures, provided, however, that PC shall maintain
control and supervision over the provision of all dental services provided by
the Practice. PC expressly acknowledges that it shall have no property
rights in the business systems, procedures, policies or clinical forms
established by the Administrator, and further agrees that such systems,
procedures, policies and forms shall be deemed to constitute Confidential
Information within the meaning of Article Nine hereof.
(j) Administrator shall provide telephone, switchboard, dictation
and duplication services.
(k) Administrator shall assist PC in recruiting dentists for the
Practice, carrying out such administrative functions as may be appropriate
such as advertising for and identifying potential candidates, checking
credentials, and arranging interviews; provided, however, that PC will make
the ultimate decision as to the suitability of any dentist to become
associated with the PC. All dentists recruited by the Administrator and
accepted by the PC shall be the employees of PC to the extent they are hired
as employees. Expenses incurred in the recruitment of dentists shall be an
expenses paid by the Administrator pursuant to Section 2.5 hereof.
(l) Administrator shall recommend to the PC the hours of operation
of the Practice in accordance with customary practices of similar dental
practices in the area.
(m) Administrator shall endeavor to seek out and negotiate
contracts ("Managed Care Arrangements") with managed care companies,
including, but not limited to, health maintenance organizations and preferred
provider organizations, to provide dental services with PC as a participating
provider under such contracts.
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2.5 Payment of Expenses. Administrator shall be solely responsible for
and shall pay (or reimburse PC (if payment was approved by Administrator) for
payment of) the following costs and expenses:
(a) The lease and/or purchase payments of the Practice Premises.
(b) Expenses associated with the Practice Premises, including but
not limited to telephone, electric, gas and water utility expenses, and real
property taxes.
(c) The lease and/or purchase payments, as applicable, of the
Practice Equipment.
(d) Expenses associated with the Practice Equipment, including
maintenance, repair, replacement and personal property taxes.
(e) Expenses associated with the Administrator Personnel pursuant
to Section 2.3, including, but not limited to, compensation, benefits,
payroll taxes and unusual payroll deductions, worker's compensation insurance
and all similar items.
(f) Expenses associated with the other support services listed in
Section 2.4.
(g) Premiums and deductibles (as applicable) for all insurance
described in Section 5.3.
ARTICLE THREE
PC'S OBLIGATIONS
3.1 Dental Practice.
(a) PC shall continuously, throughout the term of this Agreement,
conduct the Practice on a full-time basis at the Practice Premises. As may
be agreed upon in advance by the parties, PC shall provide, at its own
expense, sufficient dentist and hygienist staff coverage to the Practice
Premises to enable the Practice to operate in an efficient and lawful manner
at all required times during the hours of operation of the Practice,
including, without limitation, the provision of locum tenens dental staff.
PC shall also be responsible for the professional supervision of the clinical
aspects of services rendered by Administrator Personnel.
(b) PC shall retain responsibility for all decisions related to the
employment of all licensed health care providers, including hiring,
promotion, discharge, compensation, training, and professional assignments.
Administrator shall review all personnel matters and make recommendations to
PC on appropriate actions or policies. PC shall be solely liable to such
dental personnel for their wages, compensation, and employee benefits. For
purposes of this section, the term "licensed health care providers" includes,
without limitation, dentists, dental hygienists, and any other licensed
dental personnel.
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(c) PC shall use the Practice Premises and the Practice Equipment
solely in accordance with the terms and conditions set forth herein. PC
shall, at all times, be responsible for the quality of dental care provided
at the Practice Premises. It is expressly acknowledged by the parties that
all dentist services provided at the Practice Premises shall be performed
solely by dentists licensed to practice dentistry and to provide such
services in the Commonwealth of Pennsylvania who (except on an emergency
basis) shall at all times during the term of this Agreement be employees or
independent contractors of PC. The PC shall provide dental services to
patients of the Practice in compliance at all times with ethical standards,
and laws and regulations applying to the dental profession. In the event
that any disciplinary, medical malpractice or other actions are initiated
against any dentist associated with the PC, the PC shall immediately inform
the Administrator of such action and the underlying facts and circumstances.
(d) PC shall establish schedules of patient charges for dental
services and supplies provided by PC that take into account the financial
obligations of PC and the importance of providing quality health care at a
reasonable cost.
(e) PC shall maintain good faith efforts to control patient care
costs while providing quality dental care to patients.
(f) PC agrees to serve as a participating provider of dental
services pursuant to all Managed Care Arrangements entered into by
Administrator.
3.2 PC Equipment. PC may provide equipment at the Practice Premises,
which shall be in addition to the Practice Equipment ("PC Equipment"). PC
shall be responsible for all repairs, maintenance and replacement of the PC
Equipment, unless PC requests that Administrator provide such repairs,
maintenance and replacement upon such terms and conditions as the parties may
agree. Administrator shall have no ownership interest in the PC Equipment.
From time to time during the term of this Agreement, PC may prepare and
revise a schedule of the PC Equipment, to be attached hereto as Exhibit C.
Upon termination of this Agreement, PC shall, at its sole cost and expense,
remove the PC Equipment, and repair any damage to the Practice Premises
resulting from the installation, use, or removal of the PC Equipment.
3.3 Costs and Expenses. PC shall be solely responsible for and shall
pay the following costs and expenses:
(a) The cost of maintaining the corporate existence of PC, if
applicable.
(b) All PC income taxes.
(c) Compensation of PC's shareholders, directors and officers, for
services provided in those roles, if applicable.
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(d) Expenses related to compensation of all dentists and hygienists
employed by, or contracted to, PC for work in the Practice, which shall
include, but not be limited to, compensation, benefits, payroll taxes and
unusual payroll deductions, worker's compensation insurance and all similar
items.
(e) Expenses associated with any PC Equipment, pursuant to Section
3.2.
(f) Expenses related to all license fees and association dues
required for PC to operate the Practice.
(g) Tuition fees and reasonable expenses for attendance by dentists
employed by the PC at the Practice of continuing dental education courses and
seminars deemed reasonably necessary by the PC to operate the Practice.
(h) All other costs and expenses reasonably incurred by
Administrator in conducting its administrative functions at the Practice
Premises, other than costs and expenses which are Administrator's
responsibility pursuant to Section 2.5.
(i) Premiums for malpractice and other insurance described in
Sections 5.1 and 5.2.
3.4 Special Expenses. PC, at PC's option, may incur additional
expenses, in addition to those listed in Section 3.3, in connection with the
Practice. PC shall pay for such additional expenses either from its profits
from the Practice or from other resources.
3.5 Utilization Review; Quality Assurance. PC agrees to cooperate with
and participate in quality assurance/utilization review programs established
by third party payors or mandated by accreditation or licensure standards
applicable to the practice of dentistry. Deficiencies discovered in the
performance of any personnel or in the quality of professional services shall
be reported immediately to the Administrator by the PC (if discovered by the
PC), and to the PC by the Administrator (if discovered by the Administrator),
and appropriate steps shall be taken by the PC at once to remedy such
deficiencies.
ARTICLE FOUR
THE ADMINISTRATIVE FEE
4.1 General Intent With Respect to the Administrative Fee. PC and
Administrator mutually recognize and acknowledge that:
(a) Administrator has incurred and will incur substantial costs and
expenses in connection with providing the Administrative Services described
in this Agreement, and in performing all other obligations required of it in
accordance with this Agreement;
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(b) Certain of Administrator's costs and expenses can vary to a
considerable degree according to the volume of services required at the
Practice Premises;
(c) It will be impracticable to ascertain with precision all of the
costs and expenses that will be incurred by Administrator from time to time
in the performance of its obligations under this Agreement; and
(d) Total Net Collections (as defined in Section 4.2(d) below) may
also vary to a considerable degree during each month of this Agreement. It is
the intent of the parties that all fees paid to Administrator by PC under
this Agreement be reasonable and approximate Administrator's actual costs and
expenses plus a reasonable profit.
4.2 Definitions. As used herein, the following terms shall have the
meanings set forth in this Section:
(a) "Gross Charges." All professional fees and charges, including
copayments charged (but not capitated payments) under Managed Care
Arrangements, for services performed by PC as part of the Practice during the
term of this Agreement.
(b) "Net Collections." All proceeds received by Administrator or
PC from Gross Charges, less patient and third party refunds due to
overpayments. Net Collections shall not include capitated payments paid to
Administrator under Managed Care Arrangements entered into by Administrator.
(c) "Practice Expenses." All expenses to be paid by the
Administrator pursuant to Section 2.5 hereto.
4.3 Determination and Payment of the Administrative Fee. During the
term of this Agreement and for such period as may be required under Section
6.3(c) hereof, PC shall pay to Administrator by the fifteenth (15th) day of
each month a management fee (the "Administrative Fee") equal to a percentage
of Net Collections, determined as follows: (i) during the period commencing
on the effective date of this Agreement and continuing until the end of the
first full fiscal year of operation under this Agreement, the percentage
shall be equal to eighty percent (80%). By November 1 of the first full
fiscal year of this Agreement, and each fiscal year thereafter, Administrator
shall prepare and present to the PC a proposed operating budget for the
Practice, from which the parties shall negotiate in good faith a percentage
for the Administrative Fee which will result in the fees paid to
Administrator for such fiscal year to be reasonable and to approximate
Administrator's anticipated actual costs and expenses plus a reasonable
profit. Until an agreement on a percentage is reached, the percentage in
effect for the preceding year shall remain in effect.
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As provided in Section 2.4(c) hereof, Administrator is authorized to
withdraw the amount of the Administrative Fee from the Account as and when
due.
4.4 Collateral Security.
(a) As collateral for the payment of the Administrative Fee due
hereunder (including any extensions, modifications and renewals hereof), PC
hereby grants to Administrator a security interest in all of the accounts
receivable resulting from Gross Charges, together with any and all proceeds
of such accounts receivable (collectively, the "Collateral"). Upon
Administrator's request, PC, at its sole cost and expense, shall execute and
deliver to Administrator such further documents and assurances and shall take
such further action as Administrator may request to evidence Administrator's
security interest in and to the Collateral. PC hereby appoints Administrator
as its attorney-in-fact to execute and record in the name and on behalf of
the PC appropriate UCC Financing Statements evidencing the security interest
in the Collateral granted to Administrator by this section.
(b) Administrator shall have all rights, powers, remedies and
recourses available or permitted to Administrator under law with respect to
the Collateral, including, but not limited to, the ability (i) to release,
surrender, waive, add, substitute, settle, exchange, compromise, modify,
extend, or grant indulgences with respect to the Collateral, the
Administrative Fee or any other amounts due to Administrator hereunder; and
(ii) to grant any extension or other postponements of the time of payment
thereof; provided however, that Administrator shall not be liable for any
failure to collect or enforce the payment of the Collateral.
(c) Notwithstanding any other provision of this Agreement, and
except as otherwise prohibited by law, upon PC's failure to pay any amount
due Administrator hereunder and at Administrator's election, PC hereby
authorizes Administrator: (i) to take possession of the Collateral; (ii) to
take possession of and endorse in PC's name any notes, checks, money orders,
insurance payments, and any other documents received in payment of the
Collateral, or any part of it; (iii) to collect, sue for, and give
satisfactions for, monies due on account of the Collateral; (iv) to
institute, maintain or withdraw any claims, suits, or proceedings pertaining
to, or arising out of Administrator's and/or PC's right to the Collateral;
and (v) to pay all amounts due Administrator.
4.5 Possession of Collateral Records. Administrator shall have
authority to possess and retain for PC and Administrator the books of the
Practice with respect to the Collateral.
4.6 Payments to PC.
(a) Each month after payment of the Administrative Fee and other
monies due Administrator hereunder, if any, Administrator will arrange for
the transfer from the Account to any other account PC designates, that amount
of the Net Collections for the previous month which was not paid to
Administrator.
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(b) In the event that the amount payable under subsection (a) above
is insufficient for PC to meet those anticipated expenses for the ensuing
month for base salary, benefits, and malpractice costs which have been
approved in advance by Administrator (the "Base PC Expenses"), Administrator
shall advance such shortfall (each, an "Advance") to PC Each Advance shall
be treated as a loan from Administrator to the PC, and shall be repaid to
Administrator, as quickly as possible, from revenues derived in subsequent
months out of the payments to be received pursuant to subsection (a) above;
provided however, that an Advance shall be forgiven if PC is unable to repay
it within a twelve (12) month period.
ARTICLE FIVE
INSURANCE AND INDEMNITY
5.1 Malpractice Insurance.
(a) PC will obtain and at all times maintain in full force and
effect professional malpractice liability insurance for all dentists and
hygienists providing dental care for PC pursuant to this Agreement.
(b) The malpractice insurance will have coverage limits of at least
One Million Dollars ($1,000,000) per occurrence and at least Three Million
Dollars ($3,000,000) per annual aggregate, such other higher amount as may be
required by appropriate licensing authorities or third party payors, or such
other amount as may be agreed to by the parties. Such malpractice insurance
shall be issued to the PC and to each of the dentists and hygienists employed
by the PC
(c) The malpractice insurance may be either "occurrence" or "claims
made" insurance. If PC obtains "claims made" insurance, PC will obtain an
extended reporting endorsement (a "tail") to cover services provided under
this Agreement.
(d) PC shall provide to Administrator written documentation
evidencing the malpractice insurance coverage required by this Section for PC
and PC's shareholders, officers, and directors prior to the commencement date
of this Agreement and for dentist and hygienist employees of the PC prior to
the commencement of professional services by such employee.
(e) All malpractice insurance required by this section will contain
the written agreement of the insurer(s) to provide Administrator 30 days
prior written notice before any non-renewal, termination or modification of
coverage takes effect.
5.2 Other Insurance. PC shall obtain and at all times maintain workers
compensation coverage, at a minimum in an amount required by law, for all of
the dentists and hygienists employed by the PC, and the PC shall hold the
Administrator harmless with respect to any worker's compensation claims made
by any such employee.
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5.3 Administrator Insurance. Administrator shall carry and at all times
maintain in full force and effect: (i) public liability insurance insuring
against claims for bodily injury, including death, and property damage
occurring on, in, or about the Practice Premises; (ii) general liability and
fire insurance for the Practice Premises; (iii) business interruption
insurance for the PC; and (iv) workers compensation coverage for all
Administrator Personnel. Administrator shall hold the PC harmless with
respect to any workers compensation claims made by Administrator Personnel.
5.4 Indemnification of Administrator. PC shall indemnify, hold harmless
and defend Administrator, its shareholders, officers, directors, employees,
contractors, other agents and affiliates from and against any and all
liability, loss, damages, claims, causes of action and expenses associated
with them (including reasonable attorneys' fees) caused or asserted to have
been caused, directly or indirectly by or as a result of any acts or
omissions of PC, its shareholders, officers, directors, employees,
contractors or other agents in connection with this Agreement, including, but
not limited to, claims of professional malpractice.
5.5 Indemnification of PC Administrator shall indemnify, hold harmless
and defend PC, its shareholders, officers, directors, employees, contractors,
other agents and affiliates from and against any and all liability, loss,
damages, claims, causes of action and expenses associated with them
(including reasonable attorneys fees) caused or asserted to have been caused,
directly or indirectly by or as a result of acts or omissions constituting
negligence or gross negligence by Administrator, its shareholders, officers,
directors, employees, contractors, other agents or affiliates in connection
with this Agreement.
ARTICLE SIX
TERM, TERMINATION AND EFFECTS OF TERMINATION
6.1 Term. This Agreement shall commence on May 30, 1997, shall
be for an initial term of forty (40) years, and shall renew automatically for
an additional term of ten (10) years unless either party gives the other
party at least one hundred eighty (180) days written notice of its intent not
to renew at the end of the initial term.
6.2 Termination.
(a) Automatic Termination; Notice by Administrator. This Agreement
will automatically terminate upon written notice by Administrator to PC upon
the occurrence of any of the following events.
(i) The Appointment of a receiver or trustee to manage the
assets of PC.
(ii) The assignment for the benefit of creditors of the
assets of PC.
(iii) The occurrence of any act of bankruptcy by PC.
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(iv) PC's breach of any material term of this
Agreement, provided that such breach continues for a period of thirty
(30) days after written notice thereof has been given
by the Administrator to PC.
If Administrator fails to give notice of termination within 90 days
of its becoming aware of the occurrence of an event listed in this Section
6.2(a), Administrator waives its right to terminate based on that occurrence.
Administrator retains the right to give notice of termination upon any
subsequent occurrence of the same type of event, or of any other event listed
in this Section 6.2(a).
(b) Automatic Termination; Notice by PC This Agreement will
automatically terminate upon written notice by PC to Administrator upon the
occurrence of any of the following events.
(i) The Appointment of a receiver or trustee to manage the assets of
Administrator.
(ii) The assignment for the benefit of creditors of the assets of
Administrator.
(iii) The occurrence of any act of bankruptcy by Administrator.
(iv) Administrator's breach of any material term of this Agreement,
provided that such breach continues for a period of thirty (30) days after
written notice thereof has been given by the PC to the Administrator.
If PC fails to give notice of termination within 90 days of its becoming
aware of the occurrence of an event listed in this Section 6.2(b), PC waives its
right to terminate based on that occurrence. PC retains the right to give
notice of termination upon any subsequent occurrence of the same type of event,
or of any other event listed in this Section 6.2(b).
6.3 Effects of Termination. This Agreement will have no further effect
after the date of termination, except the following:
(a) PC shall immediately surrender to Administrator the Practice
Premises at its sole cost and expense. This includes but is not limited to
the following:
(i) PC shall cause all dentist employees to vacate the Practice
Premises; and
(ii) PC shall remove all PC Equipment, and any other PC property,
and shall be solely responsible for any damage caused as a result of the
removal of its property.
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(b) PC shall pay all compensation and fees accrued and owed to
Administrator through the date of termination.
(c) Administrator shall be entitled to a Administrative Fee for all
Total Net Collections based on Gross Charges arising prior to the termination.
Administrator shall have the right, in its sole discretion exercisable at any
time after the termination of this Agreement, to cease billing and collecting
Gross Charges arising prior to the termination. Prior to Administrator's
election to cease such billing and collection, Administrator shall bill and
collect, make payments and have all other rights and obligations with respect
to Gross Charges arising prior to the termination as provided in this
Agreement, and PC will pay Administrator all compensation and fees applicable
thereto, including the Administrative Fee. Following Administrator's election,
PC shall make other arrangements for billing and collection of such Gross
Charges, and shall remit to Administrator all fees and charges applicable
thereto, including the Administrative Fee, and shall deliver a monthly
statement of Total Net Collections until billing and collection for such Gross
Charges is substantially complete.
(d) Administrator shall continue to have all of its rights pursuant
to Section 4.4 and 4.5 until Administrator shall be paid all monies due
from PC.
(e) PC shall maintain and pay for malpractice insurance pursuant to
Section 5.1.
(f) Sections 5.4, 5.5, and 6.4 shall remain in full force and effect.
6.4 Restrictions on Competition; Injunctive Relief. PC agrees that
during the term hereof, and for a period of two (2) years following the
termination of this Agreement (other than by the PC for a breach thereof by
Manager), the PC shall not, without the prior written consent of the
Administrator, engage directly or directly in the ownership or operation of a
dental practice within a five mile radius of any of the Practice Premises
which may be in operation from time to time. PC further agrees to cause each
of the dentists employed by or under contract with the PC to agree that (i)
during the term of his/her employment or independent contract with the PC,
and for a period of two (2) years thereafter, he/she shall not, without the
prior written consent of PC, engage directly or indirectly in the ownership
or operation of a dental practice or in the practice of dentistry within a
five (5) mile radius of any of the Practice Premises at which the dentist
provided services on behalf of the PC, and (ii) that the Administrator shall
have the right to specifically enforce such restrictions, and to recover
damages for a violation by such dentist of such restrictions. It is
acknowledged that a remedy at law for any breach or attempted breach by the
PC or one of its dentists of the covenants set forth in this section will be
inadequate, and it is agreed that Administrator shall be entitled to specific
performance and injunctive and other equitable relief in case of any such
breach or attempted breach. Any such remedy shall be in addition to any
damages which Administrator may be legally entitled to recover.
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ARTICLE SEVEN
DENTAL PRACTICE AND REIMBURSEMENT CONSIDERATIONS
7.1 Access to Books and Fees. PC or its designee shall have access
during normal business hours to financial records of the Practice, including
records of collections, expenses and disbursements as kept by Administrator
performing its obligations under this Agreement. It is expressly understood
that the systems, methods, procedures, written materials and controls
employed by Administrator in the performance of this Agreement are
proprietary in nature, shall remain the property of Administrator and shall
not, at any time, be utilized, distributed, copied or otherwise employed or
acquired by PC unless approved in advance and in writing by Administrator.
Upon request, PC shall, and shall cause its dentists to, execute a
confidentiality agreement to evidence its or their agreement to comply with
the foregoing.
7.2 Access to Records. To the extent required by Section 1395x(v)(1) of
Title 42 of the United States Code, the clauses contained in that section are
incorporated herein by reference with like effect as though set forth at
length.
7.3 Jeopardy. Notwithstanding anything herein to the contrary, if any
event occurs, or if either party receives notice of an action or threatened
action beyond the control of either party, or if a change in any law,
regulation or policy occurs (collectively referred to herein as the "Event")
which would:
(a) in the reasonable opinion of both parties jeopardize PC's or
any shareholder, officer, director, employee, contractor or agent of PC's
participation in or reimbursement from any third party payor program;
(b) cause a material change in the amount of reimbursement payable to PC
or any shareholder, officer, director, employee, contractor or agent of PC in
connection with any of the services provided to patients of the Practice from
any third party payor programs;
(c) prevent any dentist shareholder, officer, director, employee,
contractor or agent of PC from referring patients to or to provide services
at any of the Practice Premises;
(d) cause a material adverse effect on the operations of the Practice
and/or make the performance of this Agreement uneconomic for either party;
(e) cause the revocation, suspension or termination of the license(s)
maintained by Administrator or PC for the operation of the Practice and/or
maintained by any shareholder, officer, director, employee, contractor or
agent of PC; or
(f) make it impossible, unlawful or unethical for either party or any
shareholder, officer, director, employee, contractor or agent of
Administrator or PC to continue to perform any term or condition under this
Agreement;
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then, in any such case, the parties shall immediately attempt to negotiate
amendments to this Agreement or a new Agreement which will negate the effect
of the Event and provide similar economic and other benefits to each party as
provided under this Agreement. In the event the parties are unable to
negotiate amendments or a new agreement to the reasonable satisfaction of
both parties within 30 days after the Event, then this Agreement shall
terminate immediately upon written notice by either party to the other.
7.4 Patient Records. PC shall have the ultimate authority and
accountability and shall be responsible for the maintenance of all patient
records with respect to patients treated at the Practice Premises.
Administrator shall provide clerical and administrative support to PC for the
preparation and maintenance of patient records. Administrator shall
implement policies and procedures for the maintenance of patient records at
the Practice Premises, which shall be in accordance with all applicable
licensing and other laws, regulations and guidelines as well as the
standards, policies and procedures imposed by any malpractice insurance
carrier, accreditation agency, or any public and/or private payor pertaining
to the maintenance and confidentiality of patient dental records. To the
extent permitted by law, Administrator shall be the owner of all patient
dental and business records related to the Practice. To the extent that such
records are maintained by PC, Administrator shall, at all times during the
term of this Agreement have reasonable access to such records. Upon
termination of this Agreement, to the extent permitted by law, the PC shall
within sixty (60) days deliver any such records in its possession in their
entirety to Administrator. Thereafter, Administrator shall provide PC with
access to such records to the extent reasonably necessary for tax purposes or
legal process.
7.5 No Reciprocation. The parties hereby acknowledge and agree that the
benefits conferred upon each of them hereunder neither require nor are in any
way contingent upon:
(a) the admission, recommendation, referral or any other
arrangement for the provision of any item or service offered by Administrator
or any of its affiliates to any patient of PC, its shareholders, officers,
directors, employees, contractors or agents; or
(b) the recommendation, referral or any other arrangement for the
provision of any item or service offered by PC or any of its shareholders,
officers, directors, employees, contractors or agents.
7.6 Practice of Dentistry. The parties acknowledge that Administrator
is not authorized or qualified to engage in any activity which may be
construed or deemed to constitute the practice of dentistry and any payments
or reimbursements of wages, costs or expenses of PC by Administrator are
solely for the administrative convenience of the parties and are expected by
the parties to be funded from Net Cash Collections of the Practice. To the
extent any act or service herein required of Administrator should be
construed or deemed to constitute the practice of dentistry, the performance
of that act or service by Administrator shall be deemed waived or forever
unenforceable.
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ARTICLE EIGHT
DISPUTE RESOLUTION
8.1 Dispute Resolution. The parties will make good faith efforts to
resolve mutually any disputes which arise between them regarding this
Agreement. As part of this dispute resolution process, either party will, at
the request of the other party, promptly provide a short and plain written
statement setting forth that party's position regarding the dispute and that
party's suggested resolution. The other party then will respond promptly
with a short and plain written statement setting forth its position and
suggested resolution for the dispute. For a period of fifteen (15) days
following the sending of the statements, the parties shall negotiate in an
effort to resolve the controversy.
8.2 Arbitration. Any dispute which has not been resolved by the parties
under the procedure set forth in Section 8.1 shall be submitted to and
decided by arbitration in accordance with the Rules of the American
Arbitration Association, as follows:
(i) There shall be one arbitrator who shall be selected in
accordance with the Rules of the American Arbitration Association;
(ii) The authority of the arbitrator shall be limited to a
determination of the facts, and to the interpretation and application of
specific provisions of this Agreement as they may apply to the dispute. The
arbitrator shall be bound by this Agreement, and shall have no authority to
add to, subtract from, amend, or modify the provisions of this Agreement.
The arbitrator shall render an opinion and a final award, if any, which shall
be binding on both parties.
(iii) Each party shall bear its own fees, costs, and expenses of an
arbitration proceeding, including witnesses, travel, attorneys, and other
representatives; the general costs and expenses of the arbitration, such as
facilities rental and fees, costs, and expenses of the arbitrator and the
American Arbitration Association, shall be borne equally by the parties.
(c) Unless the parties otherwise agree, the arbitration shall be
held in Philadelphia, Pennsylvania.
8.3 The procedures set forth in Sections 8.1 and 8.2 shall not apply to
the events for automatic termination of this Agreement set forth in Section
6.2 hereunder.
ARTICLE NINE
CONFIDENTIAL INFORMATION
9.1 PC agrees and acknowledges that all materials provided by the
Administrator to PC constitute "Confidential Information" and are disclosed
in confidence and with the understanding that they constitute valuable
business information developed by the Administrator.
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PC further agrees that it shall not, directly or indirectly, without the
express prior written consent of the Administrator, use or disclose such
Confidential Information for any purpose other than in connection with the
services to be rendered hereunder. PC further agrees to impose this
obligation of confidentiality on its officers, shareholders, affiliates,
partners, employees and independent contractors. Upon the expiration or
termination of this Agreement by either party for any reason whatsoever, PC
shall immediately return and, thereafter, not use, and shall cause its
officers, shareholders, affiliates, partners, employees and independent
contractors to return and, thereafter, not use, all Confidential Information.
PC further expressly acknowledges and agrees that any such use,
appropriation or reproduction of any such Confidential Information by any of
the foregoing after the expiration or termination of this Agreement will
result in irreparable injury to the Administrator, that the remedy at law for
the foregoing would be inadequate, and that in the event of such use,
appropriation or reproduction, the Administrator, in addition to any other
remedies or damages available to it, shall be entitled to injunctive or other
equitable relief without the necessity of proving actual damages, but such
rights to equitable relief shall not preclude the Administrator from other
remedies which may be available to it hereunder.
ARTICLE TEN
GENERAL PROVISIONS
10.1 Assignment by Administrator. Administrator shall have the right, at
its sole discretion, to assign any or all of its rights and obligations under
this Agreement to any of its affiliates. The term affiliates for the
purposes of this Agreement shall mean any person or entity that directly or
indirectly controls, is controlled by, or is under common control with
Administrator, and anyone who is the beneficial owner of 10% or more of the
outstanding voting securities of another shall be deemed in control. PC
shall not assign any of its rights or obligations under this Agreement.
10.2 Amendment. This Agreement may be amended by the parties. No
amendment will be effective unless in writing, and signed by both of the
parties.
10.3 Captions. Captions and article headings used herein are for
convenience only and are not part of this Agreement and shall not be used in
construing it.
10.4 Counterparts. This Agreement may be executed in two counterparts,
each of which will be deemed an original, but taken together will constitute
one instrument.
10.5 Cumulation of Remedies. The various rights, options, elections,
powers, and remedies under this Agreement, or granted by law (collectively,
"Remedies"), will be construed as cumulative. No single Remedy is exclusive
of any of the other Remedies.
10.6 Force Majeure. Neither party will be liable or in default for any
delay or failure in performance under this Agreement, or for any other
interruption of service or employment
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resulting 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 similar or
dissimilar cause beyond the reasonable control of either party.
10.7 Further Assurances. Each party will do such further acts, including
executing and delivering additional agreements or instruments as the other
may reasonably require, to consummate, evidence or confirm the agreements
contained in this Agreement.
10.8 Governing Law. This Agreement will be construed and enforced
according to the laws of the Commonwealth of Pennsylvania applicable to
agreements made and to be performed wholly within the State.
10.9 Incorporation of Recitals and the Exhibits. All recitals and the
exhibits referred to in this Agreement are an integral part of this
Agreement. They are incorporated in this Agreement by this reference as
though at this point set forth in full.
10.10 Independent Contractor. It is mutually understood and agreed
that PC and Administrator are at all times acting and performing hereunder as
independent contractors. Administrator shall never have nor exercise control
or direction over the methods by which PC its shareholders, officers,
directors, employees, contractors or agents practice dentistry.
10.12 Integration. The making, execution and delivery of this
Agreement by the parties has not been induced by any representations,
statements, warranties or agreements other than those expressed in this
Agreement. This Agreement embodies the entire understanding of the parties.
There are no other agreements or undertakings, written or oral, in effect
between the parties relating to the subject matter of this Agreement, unless
expressly referenced in this Agreement.
10.13 Notices.
(a) Written Notices. All notices, demands or requests
("Notices") which are required or permitted to be given pursuant to this
Agreement will be in writing. Notices will be delivered personally, by
commercial carrier, by fax with a machine generated confirmation sheet or by
registered or certified mail, postage prepaid, addressed to a party as stated
below.
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(b) Administrator's Address for Notices:
DentalCo Administrative Services of Pennsylvania, Inc.
Lake Falls Professional Building
6115 Falls Road
Baltimore, Maryland 21209
Attn: President
(c) PC's Address for Notices:
Ayes & Rush, PC
___________________
_____________________
Attn: President
(d) Effective Date. Notice given personally or by commercial
carrier is effective upon delivery. Notice given by fax with a machine
generated confirmation sheet is effective upon sending. Notice given by
United States mail is effective the third United States Post Office delivery
day after the date of mailing.
(e) Change of Address. Either party may change its address for
Notices by notice given pursuant to this section.
10.14 Partial Invalidity. If any provision of this Agreement shall
be found by a court with proper jurisdiction to be invalid or unenforceable,
in whole or in part, then such provision shall be deemed to be modified,
narrowed, or restricted only to the limited extent and in the manner
necessary to render the same valid and enforceable, as the case may require,
and this Agreement shall be construed and enforced to the maximum extent
permitted by law, as if such provision had been originally incorporated
herein as so modified, narrowed or restricted.
10.15 Statutes and Regulations. Any reference in this Agreement to
any statute, regulation, ruling, or administrative order or decree will
include, and be a reference to any successor statute, regulation, ruling, or
administrative order or decree.
10.16 Waiver of Right. No waiver of or failure by either party to
enforce a provision, covenant, condition or right under this Agreement
(collectively, "Right") will be construed as a subsequent waiver of the same
Right, or a waiver of any other Right. No extension of time for performance
of any obligations or acts will be deemed an extension of the time for
performance of any other obligations or acts.
SIGNATURES APPEAR ON THE FOLLOWING PAGE
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IN WITNESS WHEREOF, the parties have signed this Agreement as of the day and
year first above written.
ATTEST: AYES & RUSH DENTAL ASSOCIATES OF
PENNSYLVANIA, P.C.
/s/ Marc W. Ayes By: /s/ Michael S. Ayes
- ------------------------------ -------------------------------
Marc W. Ayes Michael S. Ayes, D.D.S.
Secretary President
DENTALCO MANAGEMENT SERVICES
OF PENNSYLVANIA, INC.
/s/ E. James Kuhns By: /s/ Lawrence F. Halpert
- ------------------------------ -------------------------------
E. James Kuhns Lawrence F. Halpert,
Secretary President
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Exhibit 10.25
OPTION AGREEMENT
This Option Agreement (this "Agreement") is dated this 30th day of May,
1997, and is by and among DentalCo Modern Acquisition Corp., a Maryland
corporation ("DMAC"), Howard M. Koff, D.D.S. and Associates, P.C., a
Pennsylvania professional services corporation ("HMK-PA"), Howard M. Koff,
D.D.S. and Associates of New Jersey, P.A., a New Jersey professional services
corporation ("HMK-NJ", and together with HMK-PA, "HMK"), Michael S. Ayes,
D.D.S., an individual ("Michael Ayes"), Mitchel Blumenthal, D.D.S., an
individual ("Blumenthal"), Howard M. Koff, D.D.S., an individual ("Koff"), and
Richard L. Rush, D.D.S., an individual ("Rush") (Michael Ayes, Blumenthal, Koff,
and Rush are sometimes individually referred to herein as a "Stockholder" and
collectively as the "Stockholders").
RECITALS
A. The Stockholders own all of the issued and outstanding shares of
capital stock of HMK.
B. A condition precedent, among others, to that certain Asset Purchase
Agreement (the "Asset Purchase Agreement") of even date herewith by and among
DMAC, Modern Dental Concepts, Inc. ("MDC"), Modern Dental Concepts-PA, Inc.
("MDC-PA"), Modern Dental Concepts-NJ, Inc. ("MDC-NJ", and together with MDC and
MDC-PA, "Modern"), Marc V. Ayes ("Marc Ayes") and the Stockholders, is the grant
by HMK and the Stockholders to DMAC or its designee of an irrevocable option,
coupled with an interest (the "Option"), to acquire substantially all of the
assets of HMK-PA and all of the assets of HMK-NJ excluding HMK-NJ's professional
assets (i.e., dental records) (the "Option Assets") (alternatively, and at the
sole discretion of DMAC or its affiliates, some or all of the assets of HMK-NJ
may remain at HMK-NJ, and DMAC and HMK-NJ may enter into a Stock Restriction
Agreement in form and substance satisfactory to DMAC or its affiliates, in their
sole and absolute discretion. This is the Agreement by which the Option is
granted. Capitalized terms not herein defined shall have the meanings ascribed
to them by the Asset Purchase Agreement.
C. In conjunction with the execution of this Agreement, the parties
hereto, MDC, Marc Ayes and Piper & Marbury L.L.P., as escrow agent, are entering
into an Escrow Agreement, of even date herewith (the "Escrow Agreement"),
whereby 145,000 of the DentalCo Shares (the "Escrow Shares") payable to MDC
pursuant to the Asset Purchase Agreement, shall be delivered into escrow (the
"Escrow") to secure certain obligations of HMK to DMAC hereunder and to fund any
WC Deficit pursuant to the provisions of Section 1.09 of the Asset Purchase
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, DMAC, HMK and the Stockholders
agree as follows:
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1. Grant of Option; Option Period.
HMK and the Stockholders hereby grant to DMAC or its designee the Option to
acquire the Option Assets, free and clear of all liens, encumbrances, security
interests or restrictions of any kind, except for the liens securing the J&J
Loan (as hereinafter defined). The Option shall be exercisable at any time on or
prior to the second anniversary of the date hereof (the "Option Period"). The
exercise price for the Option shall be $3,300,000 (the "Exercise Price"),
subject to adjustment and payable in accordance with the provisions of Section 4
hereof.
2. J&J Liens and Advances by DMAC.
(a) Principal Amount of J&J Loan. The assets of HMK are currently
encumbered by liens of Johnson & Johnson Finance Corporation ("J&J") securing a
loan (the "J&J Loan") by J&J to HMK and others in the amount of $4,574,444.36.
On May 27, 1997, the principal amount outstanding under the J&J Loan was
$4,155,713.02, and $329,659.41 was due on account of accrued and unpaid
interest, penalties, attorneys fees and other amounts (collectively, the
"Fees"). On or shortly after the date hereof, MDC shall make a payment to J&J of
$600,000 to be first applied against the Fees, with the remainder being applied
to reduce the outstanding principal amount under the J&J Loan to approximately
$3,890,000, with such outstanding principal amount being further reduced by the
payments (the "Principal Payments") of Benton Dental Supply Company of $128,255
on the Subsequent Closing Date (as defined in the Asset Purchase Agreement).
Also on the Subsequent Closing Date, a DMAC affiliate will make a payment of
approximately $241,381 to J&J as part of its assumption of certain debt of MDC.
The principal amount outstanding to J&J after these principal payments will
equal approximately $3,520,000. HMK and the Stockholders agree that until 60
days after the expiration of the Option Period, the principal amount of the J&J
Loan shall in no event exceed $3,520,000.
(b) Advances. During the Option Period, if HMK does not have funds
available to make required monthly principal or interest payments pursuant to
the J&J Loan, then DMAC or an affiliate shall advance funds directly to J&J (the
"Advances") on HMK's behalf, to make such payments. Prior to the Principal
Prepayments, commencing on the date hereof and through the date of the last
required monthly payment of principal and interest payable in calendar year
1997, the amount of required monthly payments of principal and interest to J&J
are $130,000. Prior to the Principal Prepayments, commencing with the first
payment of principal and interest due to J&J in calendar year 1998 and through
February 26, 1999, monthly payments of principal and interest to J&J are
$190,415.06, with a balloon payment of $772,877.31 due on March 26, 1999.
(c) Security for Advances. To secure, among other things, the
repayment obligation of HMK for the Advances and any amount payable by HMK as an
Excess Option Amount, the Stockholders have agreed to deposit into Escrow the
Escrow Shares.
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3. Exercise of the Option.
To exercise the Option, DMAC shall deliver to HMK, at their principal
executive offices, written notice (the "Option Notice") stating its desire to
exercise the Option, and the closing date therefor, which date shall not be less
than 30 days nor more than 60 days after the date of the Option Notice (the
"Option Closing Date"). The exercise of the Option and the acquisition of the
Option Assets shall be structured, to the extent feasible and to the extent not
causing an increase in cost to DMAC, as a tax-free reorganization described
under Section 368(a) of the Internal Revenue Code of 1986, as amended. At the
Option closing, HMK and their stockholders shall execute and deliver to DMAC or
its designee a stock restriction agreement with respect to the disposition of
the capital stock of HMK, in form and substance as is acceptable to DMAC, in its
sole discretion.
4. Payment of the Exercise Price.
On the Option Closing Date, DMAC or its affiliate shall pay the Exercise
Price as follows:
DMAC or its affiliate shall assume the principal amount of the J&J
Loan outstanding on the Option Closing Date and the obligation to pay
accrued but unpaid interest thereon existing on such date (the
principal amount outstanding plus the amount of interest accrued and
unpaid on such date being called, the "Assumed Amounts"), provided,
however, that in no event shall the principal amount of the J&J Loan
on the Option Closing Date exceed $3,520,000. If the Assumed Amount,
on the Option Closing Date plus the sum of (a) the aggregate amount of
all Advances made through such date and (b) the amount by which
current liabilities of HMK exceed current assets of HMK, both as
determined in accordance with GAAP and as set forth on HMK's unaudited
balance sheet (the "HMK Option Closing Date Balance Sheet") as of a
date within not more than 10 days prior to the Option Closing Date
(the sum of the Assumed Amounts plus the amounts set forth in (a) and
(b) above being called, the "Payment Threshold Amount") exceed
$3,300,000 (the amount, if any, of such excess being called, the
"Excess Option Amount"), then at the closing (the "Option Closing"),
HMK shall remit to DMAC, in immediately available funds, the Excess
Option Amount or, alternatively and in lieu of the delivery of
immediately available funds to DMAC, HMK shall direct the Escrow Agent
to deliver to DMAC that number of Escrow Shares equal to the Excess
Option Amount divided by greater of (i) $12.00 or, (ii) if the stock
of DentalCo (as herein after defined) is publicly traded at such time,
the average of the closing price of such stock for the prior 20-day
period (the "Average 20-Day Closing Price") (any deficiency shall be
paid in immediately available funds). If $3,300,000 exceeds the
Payment Threshold Amount, then DMAC shall pay to HMK, at the Option
Closing, the excess in immediately available funds. Upon the payment
of the full Exercise Price as aforesaid and upon the satisfaction of
any WC Deficit (as defined in Section 1.09
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of the Asset Purchase Agreement), any Escrow Shares remaining in the
Escrow shall be released to the Stockholders.
5. Automatic Exercise of Option. Upon the occurrence of the event listed
in subsection (a) below, the Option shall be deemed to have been exercised,
without any further action of the parties hereunder (an "Automatic Option
Exercise"), the closing of the Automatic Option Exercise (the "Automatic
Exercise Closing") shall occur not later than 30 days after the occurrence of
the event triggering the Automatic Option Exercise, and DMAC or its affiliate
shall pay to HMK the Automatic Exercise Price (defined below) in accordance with
the provisions of subsection (b) below:
(a) the expiration of the Option Period, but only if the sum of (a)
95% of HMK's current accounts receivable on such date plus (b) HMK's aggregate
collected revenues for the 12-month period preceding such date (the "Revenues"),
equal or exceed $2,000,000.
(b) Exercise Price for Automatic Option Exercise. At the Automatic
Exercise Closing, DMAC shall pay to HMK, in accordance with the provisions of
Section 6 below, the exercise price (the "Automatic Exercise Price") equal to
$3,300,000 reduced by $1.10 for every dollar that the Revenues are less than
$3,000,000, and increased by $1.10 for every dollar that the Revenues exceed
$3,000,000.
6. Payment of the Automatic Exercise Price.
On the date of the Automatic Exercise Closing (the "Automatic Exercise
Closing Date"), DMAC or its affiliate shall pay the Automatic Exercise Price as
follows:
DMAC shall assume the principal amount of the J&J Loan outstanding on
the Automatic Exercise Closing Date and the obligation to pay accrued
but unpaid interest thereon existing on such date (the principal
amount outstanding plus the amount of interest accrued and unpaid on
such date being called, the "Automatic Exercise Amounts"), provided,
however, that in no event shall the principal amount of the J&J Loan
on the Automatic Exercise Closing Date exceed $3,520,000. If the
Automatic Exercise Amounts, on the Automatic Exercise Closing Date,
plus the sum of (a) the aggregate amount of all Advances made through
such date and (b) the amount by which current liabilities of HMK
exceed current assets of HMK, both as determined in accordance with
GAAP and as set forth on HMK's unaudited balance sheet (the "Automatic
Exercise Closing Date Balance Sheet") as of a date within not more
than 10 days prior to the Automatic Exercise Closing Date (the sum of
the Automatic Exercise Amounts plus the amounts set forth in (a) and
(b) above being called, the "Automatic Exercise Threshold Amount")
exceed the Automatic Exercise Price (the amount, if any, of such
excess being called, the "Excess Automatic Exercise Amount"), then at
the Automatic Exercise Closing, HMK shall remit to DMAC, in
immediately available funds, the Excess Automatic Exercise Amount or,
alternatively and in
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lieu of the delivery of immediately available funds to DMAC, HMK shall
direct the Escrow Agent to deliver to DMAC that number of Escrow
Shares equal to the Excess Automatic Exercise Amount divided by
greater of $12.00 or the Average 20-Day Closing Price (any deficiency
shall be paid in immediately available funds). If the Automatic
Exercise Price exceeds the Automatic Exercise Threshold Amount, then
DMAC shall pay to HMK, at the Automatic Exercise Closing, the excess
in immediately available funds. Upon the payment of the full Automatic
Exercise Price as aforesaid and upon the satisfaction of any WC
Deficit, any Escrow Shares remaining in the Escrow shall be released
to the Stockholders.
7. Expiration of Option Without Exercise. If the Option Period expires
without DMAC exercising the Option or an Automatic Option Exercise being
triggered, then HMK promptly shall pay DMAC, in immediately available funds, the
aggregate amount of all Advances or, alternatively and in lieu of the delivery
of immediately available funds to DMAC, HMK shall direct the Escrow Agent to
deliver to DMAC that number of Escrow Shares equal to all Advances divided by
$12.00 (any deficiency shall be paid in immediately available funds). Any Escrow
Shares thereafter remaining in Escrow (upon the satisfaction of any WC Deficit)
shall be released to the Stockholders.
8. Representations and Warranties; Covenants; Conditions Precedent;
Indemnification.
(a) General Rules Regarding Provisions Incorporated by Reference.
With respect to any provisions of the Asset Purchase Agreement
that are incorporated herein by reference, the following rules of construction
shall govern:
(i) With respect to provisions incorporated herein by reference
from Articles II, IV, and VI, any reference to entities other than HMK shall
(except for references to the Buyer or DentalCo, which shall not be given
effect), be deemed to be a reference to HMK and any reference to individuals
other than the Stockholders shall be deemed to be a reference to the
Stockholders;
(ii) Any reference to the "Transactions" shall be deemed to be a
reference to the transactions herein contemplated;
(iii) Any reference to the "Business" shall be deemed to be a
reference to the business of HMK conducted on the date hereof;
(iv) Any reference to the "Buyer" or "DentalCo" shall be deemed
to be a reference to DMAC;
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<PAGE>
(v) Any reference to the "Purchased Assets" shall be deemed to
be a reference to the Option Assets;
(vi) Any reference to the "Closing Date" or the "Subsequent
Closing Date" shall be deemed to be a reference to the Option Closing Date or
the Automatic Exercise Closing Date, as applicable; and
(vii) Any reference in Article VIII to (A) the "Seller
Parties" or the "Ancillary Seller Parties" shall be deemed to be a reference to
HMK and the Stockholders, (B) "pre-Closing" shall be deemed to be a reference to
all periods prior to the Option Closing Date or Automatic Exercise Closing Date,
as applicable, (C) "Broad Group Companies" shall be deemed to be a reference to
HMK, and (D) the "Assumed Liabilities" shall be deemed to be a reference to that
portion of the J&J Loan assumed by DMAC at the Option Closing Date or Automatic
Exercise Closing Date, as applicable.
(b) Representations and Warranties of HMK and the Stockholders.
As a material inducement to DMAC to enter into this Agreement,
HMK and the Stockholders hereby jointly and severally make those representations
and warranties, as of the date hereof, as amended by HMK and disclosed to DMAC
after the date hereof pursuant to Section 11(g) hereof, and as of the Option
Closing Date or Automatic Exercise Closing Date, as applicable (except for any
representation or warranty expressly stated to have been made or given as of a
specified date, which, at the Option Closing Date or Automatic Exercise Closing
Date, as applicable, shall be true and correct in all material respects as of
the date expressly stated), to DMAC as set forth in Article II of the Asset
Purchase Agreement, which are incorporated herein by reference in their
entirety, except that Section 2.04 of the Asset Purchase Agreement is not
incorporated herein by reference, and in lieu thereof, the following is made a
part of this Agreement:
"Section 2.04 Financial Statements. (a) Each of HMK-PA and MHK-NJ has
furnished to DMAC its unaudited balance sheet for its fiscal year
ended December 31, 1996 (the "1996 Balance Sheet"), and the related
unaudited statements of income and retained earnings and cash flows
for the fiscal year then ended, including the related notes thereto,
all of which have been compiled (collectively, the "HMK Financial
Statements"). The HMK Financial Statements have been prepared in
accordance with GAAP, and fairly present the financial position of HMK
as of the dates stated and the results of operations of HMK for the
periods then ended.
(b) Each of HMK-PA and MHK-NJ has delivered to the Buyer its
unaudited balance sheet as at March 31, 1997, and its unaudited
related statements of income and retained earnings and cash flows for
the period beginning on the first day of HMK's current fiscal year and
ending on March
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31, 1997 (collectively, the "HMK Interim Statements"). The HMK Interim
Statements have been prepared in conformity with GAAP, and fairly
present (subject to normal, recurring audit adjustments) the unaudited
financial position of HMK as at such date and the results of
operations of HMK for such period then ended. The business conducted
by HMK prior to the Reorganization is substantially similar in scope,
financial position and results of operations as that conducted by HMK
after the Reorganization. The Reorganization has not had a Material
Adverse Effect on the financial position and results of operations of
HMK, and none is reasonably likely to occur as the direct result of
the Reorganization. HMK has no subsidiaries, and is not required,
pursuant to GAAP, to consolidate the financial position and results of
operations of any other entity with its own."
To the extent delivered pursuant to the provisions of Section 4 or Section 6
hereof, the HMK Option Closing Date Balance Sheet or Automatic Exercise Closing
Date Balance Sheet will be prepared in conformity with GAAP, and will fairly
present (subject to normal, recurring audit adjustments) the unaudited financial
position of HMK as at such date.
As used in this Agreement (including as incorporated herein by reference
from the Asset Purchase Agreement), the phrase "to the best of the Stockholders'
knowledge" and any similar phrase shall mean the actual knowledge as of the date
of this Agreement of the Stockholders after reasonable inquiry and
investigation.
(c) Representations and Warranties of DMAC.
As a material inducement to HMK and the Stockholders to enter
into this Agreement, DMAC makes those representations and warranties, as of the
date hereof, as amended by DMAC and disclosed to HMK and the Stockholders after
the date hereof pursuant to Section 11(g) hereof, and as of the Option Closing
Date or Automatic Exercise Closing Date, as applicable (except for any
representation or warranty expressly stated to have been made or given as of a
specified date, which, at the Option Closing Date or Automatic Exercise Closing
Date, as applicable, shall be true and correct in all material respects as of
the date expressly stated), to HMK and the Stockholders as set forth in Sections
3.01, 3.02, and 3.04 of the Asset Purchase Agreement, which are incorporated
herein by reference in their entirety.
(d) Covenants of HMK and the Stockholders. The provisions of Article
IV and Section 5.01 of the Asset Purchase Agreement are incorporated herein by
reference in their entirety.
(e) Conditions to DMAC's Obligations. Unless waived by DMAC in
writing, in its sole discretion, all obligations of DMAC under this Agreement
are subject to the fulfillment, prior to or at the Option Closing or Automatic
Exercise Closing, as applicable, of each of the conditions set forth in Article
VI of the Asset Purchase Agreement, each of which is
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<PAGE>
incorporated herein by reference, except that the provisions of Section 6.10 of
the Asset Purchase Agreement are not incorporated herein by reference.
(f) Conditions to HMK's and the Stockholders' Obligations. Unless
waived by HMK in writing, in its sole discretion, all obligations of HMK and the
Stockholders under this Agreement are subject to the fulfillment, prior to or at
the Option Closing or Automatic Exercise Closing, as applicable, of each of the
conditions set forth in Article VII of the Asset Purchase Agreement, each of
which is incorporated herein by reference, except that the provisions of Section
7.05 of the Asset Purchase Agreement are not incorporated herein by reference.
(g) Indemnification. The provisions of Article VIII of the Asset
Purchase Agreement are incorporated herein by reference, except (i) that any
reference to the limitation of liability of any of the parties until the
aggregate amount of Damages with respect to an Indemnifiable Claim or
Indemnifiable Claims exceeds $100,000, and then only for the excess, shall be
deemed to refer to Damages exceeding $30,000, and then only for the excess, and
(ii) the provisions of Section 8.03(f) of the Asset Purchase Agreement are not
incorporated herein by reference.
9. Additional Covenant of HMK. Prior to the earliest to occur of (a) the
Option Closing Date, (b) the Automatic Exercise Closing Date, and (c) 45 days
after the expiration of the Option Period, HMK agrees not to (i) amend, without
DMAC's prior written consent, which consent may be unreasonably withheld, the
loan agreement under which the J&J Loan was made or the promissory note
evidencing the J&J Loan (together with any ancillary J&J Loan agreements, the
"J&J Loan Documents"), or (ii) voluntarily cause a default under the J&J Loan
Documents.
10. Specific Performance. The parties hereto acknowledge and agree that if
any of the provisions of this Agreement were not performed by DMAC, HMK, or the
Stockholders in accordance with their specific terms or were otherwise breached,
DMAC, HMK, or the Stockholders, as applicable, would not have an adequate remedy
at law and would be harmed irreparably and that the damages therefor would be
difficult to determine. Accordingly, it is agreed that DMAC, HMK, or the
Stockholders, as the case may be, shall be entitled to injunctive relief to
prevent breaches of this Agreement by the other party and specifically to
enforce the terms and provisions hereof, in addition to any other remedy to
which DMAC or HMK, as the case may be, may be entitled, at law or in equity.
11. Miscellaneous.
(a) This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of Maryland, without reference to the
conflicts of laws principles in effect therein.
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<PAGE>
(b) If any provision of this Agreement shall be declared void or
unenforceable by any judicial or administrative authority, the validity of any
other provision and of the entire Agreement shall not be affected thereby.
(c) Any notices required to be given hereunder shall be in writing
and shall be sufficient in all respects if (i) delivered personally, (ii) mailed
by certified or registered mail, return receipt requested and postage prepaid,
(iii) sent via a nationally recognized overnight courier or (iv) sent via
facsimile confirmed in writing by the recipient, in the case of the
Stockholders, at the Stockholders' home addresses listed in the corporate
records of HMK and, in the case of either DMAC or HMK, as follows:
If to DMAC:
DentalCo Modern Acquisition Corp.
Lake Falls Professional Building
6115 Falls Road
Baltimore, Maryland 21209
Facsimile Number: (410) 377-3231
Attention: President
If to HMK:
Howard M. Koff, D.D.S and Associates, P.C.
714 Market Street
Philadelphia, Pennsylvania 19106
Facsimile Number: (215) 922-2651
Attention: President
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
(d) This Agreement may not be amended or modified without the prior
written consent of DMAC, HMK and the Stockholders.
(e) This Agreement may be executed in counterparts, each of which
when executed and delivered shall be deemed an original and all of which
together shall be deemed to constitute one and the same instrument. This
Agreement shall become binding when one or more counterparts taken together
shall have been executed and delivered by the parties hereto.
(f) The Recitals hereto are specifically incorporated herein by
reference and made a part of this Agreement.
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<PAGE>
(g) Notwithstanding anything to the contrary set forth in this
Agreement, the parties hereto shall have the continuing obligation (which shall
terminate on the earliest of (i) the Option Closing Date, (ii) the Automatic
Exercise Closing Date, or (iii) 45 days after the expiration of the Option
Period), promptly to supplement or amend the Schedules hereto with respect to
any matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or described in
such Schedules; provided, however, that for the purpose of the rights and
obligations of the parties hereunder, any such supplemental or amended
disclosure shall be deemed to have been disclosed as of the date of this
Agreement if provided to the other party hereto not later than five (5) business
days prior to the Option Closing Date or Automatic Exercise Closing Date, as
applicable, and, provided, further, that to the extent that any such disclosure
would or would likely have a Material Adverse Effect, then DMAC shall have the
option not to proceed to the Option Closing and to cause the Automatic Option
Exercise not to occur.
{signature pages appear on following page}
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first above written.
WITNESS: DENTALCO MODERN ACQUISITION CORP.
/s/ E. James Kuhns By: /s/ Lawrence F. Halpert (SEAL)
- -------------------------- ---------------------------------
E. James Kuhns, Secretary Lawrence F. Halpert, D.D.S., President
WITNESS: HOWARD M. KOFF, D.D.S. AND
ASSOCIATES, P.C.
By: /s/ Howard M. Koff (SEAL)
- -------------------------- ---------------------------------
Howard M. Koff, D.D.S., President
WITNESS: HOWARD M. KOFF, D.D.S. AND
ASSOCIATES OF NEW JERSEY, P.A.
By: /s/ Howard M. Koff (SEAL)
- -------------------------- ---------------------------------
Howard M. Koff, D.D.S., President
WITNESS:
By: /s/ Howard M. Koff (SEAL)
- -------------------------- ---------------------------------
Howard M. Koff, D.D.S., Stockholder
WITNESS:
By: /s/ Michael S. Ayes (SEAL)
- -------------------------- ---------------------------------
Michael S. Ayes, D.D.S., Stockholder
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WITNESS:
By: /s/ Richard L. Rush (SEAL)
- -------------------------- ---------------------------------
Richard L. Rush, D.D.S., Stockholder
WITNESS:
By: /s/ Mitchel Blumenthal (SEAL)
- -------------------------- ---------------------------------
Mitchel Blumenthal, D.D.S., Stockholder
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Exhibit 10.26
FIRST AMENDMENT
TO
EXECUTIVE EMPLOYMENT AGREEMENT
This First Amendment to Executive Employment Agreement is made this 1st
day of April, 1997, by and between Lawrence F. Halpert (the "Executive"), a
Maryland resident, and DentalCo. Inc., a Maryland corporation (the "Company").
WHEREAS the Executive and Company entered into an Executive Employment
Agreement (the "Agreement"), effective July 18, 1995; and
WHEREAS the Executive entered into an employment agreement with Mid
Atlantic Dental Association (the "PA"), a professional association also dated
July 18, 1995; and
WHEREAS the Executive's time commitment to the Company has expanded, and
the Company and the Executive deem it appropriate to amend certain terms and
conditions of the Agreement:
IN CONSIDERATION of the covenants set forth herein and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Section 3A of the Agreement is hereby deleted, and the following is
substituted, in lieu thereof:
"A. Subject to adjustment as hereinbelow set fort in Section 3C,
base salary, ("Base Salary"), payable in equal bi-weekly installments, at the
rate of Four Hundred Seventy-four Thousand Seven Hundred Sixteen Dollars
($474,716.00) per annum."
2. Section 3C is added to the Agreement immediately following Section 3B
as follows:
"C. Notwithstanding the provisions of Section 3A hereinabove to the
contrary, to the extent the Executive engages in the active practice of
dentistry with the P.A., the Base Salary shall be reduced by the gross amount
of such compensation received by Executive from the P.A."
3. In all other respects the Agreement as hereby amended shall remain in
full force.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
to Executive Employment Agreement, under seal as of the day and year first
hereinabove written.
ATTEST: DENTALCO, INC.
/s/ E. JAMES KUHNS /s/ CARL SARDEGNA
_________________________ By: ________________________(Seal)
E. James Kuhns, Secretary Carl Sardegna, President
WITNESS:
/s/ E. JAMES KUHNS /s/ LAWRENCE F. HALPERT
________________________ _________________________(Seal)
Lawrence F. Halpert
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<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is made as of the
18th day of July, 1995, by and between Lawrence F. Halpert (hereinafter, the
"Executive"), a Maryland resident, and DentalCo, Inc., a Maryland corporation
(hereinafter, the "Company").
IN CONSIDERATION of the covenants set forth herein and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive and the
Executive hereby accepts such employment by the Company upon the terms and
subject to the conditions hereinafter set forth for a three (3) year term
commencing on July 18, 1995, which initial three-year term shall be extended on
July 17, 1996 and on each anniversary of that date thereafter for a further
period of one year, unless otherwise terminated in accordance with the
provisions of Section 7 hereof.
2. DUTIES.
A. During the term of employment hereunder, the Executive shall
serve as the Company's (i) Chairman of the Board (officer), (ii) Chief Executive
Officer, and (iii) Chairman of the Board of Directors (hereinafter, the
"Board"), and he shall perform such other executive and administrative duties
and functions commensurate with such positions as he may be called upon to
perform, from time to time, by the Board. The Executive shall devote
substantially all of his time to his duties hereunder and he shall exert his
best efforts in the performance of his duties so as to promote the profit,
benefit and advantage of the business of the Company; provided, however, that
the Executive shall be permitted to continue the practice of periodontal
medicine to the same extent as prior to the date of this Agreement.
B. The Executive immediately shall notify the Company of (i) his own
illness and consequent absence from work or (ii) any intended significant change
in his plans to work for the Company.
C. During the term of this Agreement, the Executive shall serve in
any additional offices or positions (commensurate in status with his positions
hereunder) of the Company and its affiliates (including, as a member of any
committees of the Board), to which he may be elected or appointed by appropriate
action of the Company. The Executive shall serve in any such additional
capacities without separate compensation for so serving, unless otherwise
authorized by the Board.
3. COMPENSATION. The Company agrees to pay to the Executive as
compensation for all duties performed by him in any capacity during the period
of his employment under this Agreement:
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A. Base salary ("Base Salary"), payable in equal bi-weekly
installments, at the rate of Two Hundred Fifty-Two Thousand Eight Hundred Ten
Dollars ($252,810.00) per annum, subject to an adjustment of up to Five Percent
(5%) if it is determined that the Base Salary does not equal at least Sixty
Percent (60%) of the Executive's salary immediately prior to the date hereof.
B. In addition, the Executive shall be eligible to receive a bonus
(the "Bonus") for each full fiscal year of the Executive's employment in an
amount determined by the Board, in its sole discretion, provided, however, that
in no event shall the Bonus be in an amount greater than Fifty percent (50%) of
the Executive's Base Salary and provided, further, that the Company's net income
for such fiscal year, giving effect to the Bonus (and other bonus compensation
paid with respect to that fiscal year) as if paid during such fiscal year, shall
equal or exceed the net income for the period as set forth in the Company's
financial projections dated January 25, 1995 (the "Projections") and provided to
Grotech Partners IV, L.P. The Bonus, if any, shall be paid to the Executive not
later than fifteen (15) days after publication of the audited financial
statements of the Company for each year of employment.
The Base Salary shall be subject to review for increase (but not decrease)
annually by the Board. The Company shall be entitled to deduct from the
compensation of the Executive such sums as are required by law to be deducted or
withheld.
4. REIMBURSEMENT OF EXPENSES; FRINGE BENEFITS; ETC.
A. The Company shall reimburse the Executive, from time to time, for
all reasonable and customary business expenses incurred by him in the
performance of his duties hereunder, provided, however, that the Executive shall
submit vouchers and other supporting data to substantiate the amount of said
expenses and as otherwise required by the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder from time to time.
B. The Executive shall be entitled to that number of weeks paid
vacation for each year of employment hereunder as shall be mutually determined
by the Executive and the Board. Unused vacation time shall not accumulate from
year to year. The Executive may take his vacation at such time or times as
shall not interfere with the performance of his duties under this Agreement.
C. The Executive shall be entitled to paid sick leave and holidays
in accordance with the Company's announced policy for executive employees, as in
effect from time to time.
D. For so long as the Executive remains an employee of the Company,
he shall be entitled to participate in any and all fringe benefit plans,
programs and practices
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<PAGE>
sponsored by the Company for the benefit of its executive employees,
including, without limitation, health insurance. In addition, the Company
shall pay up to Seven Thousand Eight Hundred Dollars ($7,800.00) per annum in
premiums to provide the Executive with disability insurance selected by the
Executive.
E. For so long as the Executive remains an employee of the Company,
the Company shall, in recognition that the Executive will be required to drive
an automobile in connection with his duties hereunder, provide the Executive
with the automobile (or a comparable automobile) (the "Automobile") currently
being used by the Executive, at the Company's expense, and pay for the operation
and maintenance of the Automobile (including the payment of insurance for the
Automobile) in connection with the use by the Executive of the Automobile for
Company business. In addition, the Company shall provide the Executive, during
such period, with the use of the car phones currently being used by him, and pay
for the operation of such car phones in connection with Company business. From
and after the occurrence of a Section 7A Event, as hereinafter defined,
Executive shall have the option to acquire the Automobile, free and clear of any
and all liens or encumbrances or obligations to make any payment of money,
whatsoever, for One Dollar ($1.00).
5. DISABILITY.
A. As used in this Agreement, the term "disabled" shall mean the
continuous and uninterrupted inability to perform the Executive's duties on
behalf of the Company, by reason of accident, illness, or disease, and the
"onset of his disability" shall mean the first day of such inability to perform
his duties.
B. If the Executive is disabled, he shall be entitled to receive the
Base Salary to which he otherwise would have been entitled, were he not
disabled, for a period of twelve (12) months from the onset of his disability.
C. If the Executive remains disabled throughout the twelve
(12)-month period beginning with the onset of his disability, then his
employment shall thereafter be deemed terminated, and he will not be entitled to
any further payments under this Agreement, other than receipt of disability
payments under any disability insurance policy acquired by the Company for his
benefit.
6. DEATH. If the Executive dies during the term of his employment
hereunder, the Company shall pay to the estate of the Executive such
compensation as would otherwise be payable to the Executive for the period
ending at the end of the month of his death, and no further payments shall be
due under this Agreement.
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<PAGE>
7. TERMINATION.
A. By the Company Without Cause. The Company may terminate the
employment of the Executive at any time without Cause (as hereinafter defined).
In such event, the Executive shall be entitled to receive, for a period of three
(3) years after the date of his termination, in equal bi-weekly installments in
arrears, an amount per annum equal to the aggregate of his Salary at the time of
his termination. Notwithstanding the foregoing, if the Executive's employment
is terminated without Cause (as defined in Section 7B hereof) after a Change of
Control (as hereinafter defined) or after the Company's successful completion of
an underwritten initial public offering of its common stock in which the
post-offering equity valuation of the Company (that is, the Company's market
capitalization) exceeds Fifty Million Dollars ($50,000,000) (such events being
called, "Section 7A Events"), then in addition to the payment of Base Salary for
the three-year period set forth above, the Company shall pay to the Executive,
for the same period and in equal bi-weekly installments in arrears, an amount
per annum equal to the Bonus for the Company's last full fiscal year prior to
the date of his termination. For purposes of the foregoing, "Change of Control"
shall mean any sale, transfer or issuance or series of sales, transfers and/or
issuances of capital stock of the Company ("Capital Stock") by the Company or
any holders thereof that results in any person or group of persons, other than
the holders of Capital Stock (except for the holders of the Company's 8% Class A
Convertible Preferred Stock) as of the date hereof owning more than 50% of the
outstanding Capital Stock or owning the right to acquire more than 50% of the
Capital Stock. "Change of Control" shall also include the sale of all or
substantially all of the assets of the Company.
In addition to the foregoing termination payments, the Executive also shall
be entitled to receive, for a period of three (3) years after the date of his
termination hereunder, the fringe benefits set forth in Sections 4D and 4E
hereof (or, if such benefits are not available to the Executive because he is
not employed by the Company, then the Company shall pay the cost of the
Executive obtaining comparable benefits). The Company shall deduct from all
such amounts provided for in this Section 7A such sums as are required by law to
be deducted or withheld.
B. By Company, With Cause. Notwithstanding the provisions of
Section 7A hereof, the Executive's employment and all of his rights and
benefits, but not his obligations, under this Agreement (except for the right to
receive Salary earned through the date of his termination with Cause) shall
terminate immediately upon notice from the Company of the occurrence of any one
or more of the following events (collectively, "Cause"):
(i) The Executive is convicted of a criminal offense involving
moral turpitude, or involving dishonest conduct pertaining to the business or
affairs of the Company, including, without limitation, peculation, or is guilty
of any act or omission, the intended consequence of which is material injury to
the Company's business, property or reputation; or
-4-
<PAGE>
(ii) The Executive persists, for a period of thirty (30) days
after written notice from the Board, in a course of conduct determined by the
Board to be in material violation of his duties to the Company under this
Agreement.
C. Other Remedies. Neither the grant nor the exercise of a right of
termination hereunder shall preclude any other legal relief or remedy available
to any party.
8. NON-COMPETITION.
A. The Executive agrees that, during the term of his employment with
the Company, and for the period during which the Executive is receiving payments
pursuant to Section 7 hereof (or, if he voluntarily terminates his employment
within the Company or is terminated for Cause, then for two (2) years after the
date of his termination hereunder), he shall not, within the geographic area in
which the Company operates on the date of termination hereunder, participate or
engage in any business, or own any interest in any entity that (except that the
ownership of five percent (5%) or less of the stock of a public entity shall not
be prohibited hereby), that (i) provides, directly or indirectly, administrative
services to dental practices, or owns and leases to providers of dental services
the fixed assets used to provide such services, (ii) engages in the
administration of contracts for delivery of services on behalf of HMOs, health
plans, insurers or other third-party payors or acts as a contracting entity with
third-party payors on behalf of dental practices, or (iii) provides dental
insurance; provided, however, that the foregoing shall not prohibit the
Executive from engaging in the following activities:
(a) the ownership of an entity of not more than ten (10)
dentists or the delivery of professional dental services from an entity of not
more than thirty-five (35) dentists, provided that he has no ownership interest
in such entity; or
(b) the ownership of, and delivery and administration of
professional dental services from, any entity in a geographic region in which
the Company is not doing business on the termination date.
The Executive further agrees that for the period during which the
Executive is receiving payments pursuant to Section 7 hereof (or, if he is
terminated for Cause, then for two (2) years after the date of his termination
hereunder,) he shall not, directly or indirectly, for himself or on behalf of
any other person or entity, solicit, hire, encourage or entice away (or attempt
to do so) from the Company or any of its affiliates any officer or employee who,
at the time of such solicitation or hire or within twelve (12) months prior to
the time of such solicitation or hire, was an employee of the Company or an
affiliate thereof (whether or not such person would commit a breach of contract
by so doing).
B. The Executive expressly acknowledges and agrees that the (i)
restrictions set forth herein are reasonable in terms of scope, duration,
geographic area, and otherwise, (ii) protections afforded to the Company
hereunder are necessary to protect its legitimate business
-5-
<PAGE>
interests and (iii) agreement to observe such restrictions forms a material
part of the consideration for this Agreement and the Executive's employment
by the Company.
C. Notwithstanding the provisions of Section 12C hereof, if any
provision of this Section 8 is adjudicated to exceed the time, geographic area,
scope of business or other limitations permitted by applicable law in any
applicable jurisdiction, then such provision shall be deemed reformed in such
jurisdiction to the maximum time, geographic or other limitations permitted by
law.
9. CONFIDENTIAL INFORMATION. The Executive agrees that, during the term
of his employment with the Company, and after the termination of his employment
for any reason whatsoever, he shall not disclose to any person, other than in
the discharge of his duties under this Agreement, any information or knowledge
relating to (i) the business operations or internal structure of the Company,
(ii) any method and/or procedure (such as records, programs, systems,
correspondence, or other documents), relating or pertaining to projects
developed by the Company or contemplated to be developed by the Company or (iii)
the Company's business, which information or knowledge the Executive shall have
obtained during the term of this Agreement, and which is otherwise of a secret
or confidential nature. Further, upon leaving the employment of the Company for
any reason whatsoever, the Executive shall not take with him, without the prior
written consent of the Board, any documents, forms or other reproductions of any
data or any information relating to or pertaining to the Company or any other
confidential information or trade secrets.
10. INSURANCE.
A. The Company may, in its discretion at any time, apply for and
procure, as owner and for its own benefit, insurance on the life of the
Executive in such amounts and in such form as the Company deems appropriate.
The Executive shall have no interest in any such policy, but he shall, at the
request of the Company, submit to such medical examination, supply such
information and execute such documents as may be required by the insurer or any
proposed insurer.
B. If the Company obtains the $3 million life insurance policy (the
"Policy") on the life of the Executive as set forth in Section 5.07 of the
Preferred Stock Purchase Agreement dated as of July 18, 1995 by and between
DentalCo, Inc., Grotech Partners IV, L.P., and Merchant Partners, L.P. (the
"SPA"), then upon the earliest to occur of the consummation of an initial public
offering of the Company's common stock, the Executive's termination hereunder
without Cause, or the Executive's voluntary termination after July 17, 1998, the
Policy shall be transferred to the Executive, and the Company shall continue to
pay the premiums thereon for a period of three years after such date.
11. OTHER DOCUMENTS. Any earlier employment agreements or other
agreements or understandings between the Executive and the Company relating to
the subject
-6-
<PAGE>
matter hereof, whether in writing or oral, are hereby terminated and shall be
of no further effect after the effective date hereof.
12. MISCELLANEOUS.
A. Any notices required by this Agreement shall (i) be made in
writing and mailed by certified mail, return receipt requested, with adequate
postage prepaid; (ii) be deemed given when so mailed; (iii) be deemed received
by the addressee within ten (10) days after given or when the certified mail
receipt for such mail is executed, whichever is earlier and (iv) in the case of
the Company, be mailed to its principal office, or in the case of the Executive,
be mailed to the last address that the Executive has given to the Company.
B. This Agreement shall be binding upon and inure to the benefit of,
the parties, their successors, assigns, personal representatives, distributees,
heirs, and legatees; provided, however, that the Executive shall not assign his
duties hereunder.
C. If any term or provision of this Agreement is held to be illegal
or invalid, said illegality or invalidity shall not affect the remaining terms
or provisions hereof, and each term and provision of this Agreement shall be
enforced to the fullest extent permitted by law.
D. As monetary damages may not be an adequate remedy for the breach
by either party of its obligations under this Agreement, each party agrees that
it may be subjected to a decree of specific performance, injunction, or other
appropriate equitable or legal relief, for the enforcement of its obligations
hereunder.
E. This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of Maryland, without giving effect to its
conflicts of laws provisions. The parties hereto agree that all claims of any
kind arising from or relating to this Agreement shall be brought in a court of
competent jurisdiction in the State of Maryland and agree to the jurisdiction of
the Maryland courts (including the United States District Court for the District
of Maryland) in all such matters. The parties hereto waive all objections to
venue.
F. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of which, when
construed together, shall be deemed to be one and the same instrument.
G. For so long as the Executive is employed by Halpert & Associates,
P.A. (or its successor, "H&A") and H&A and the Company continue to be parties to
the Management Service Agreement, dated as of July 18, 1995, then the Company
shall pay the premium (grossed up for tax purposes) on the life insurance policy
on the Executive's life identified in Schedule IV to the SPA.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
under seal, as of the day and year first hereinabove written.
ATTEST: DENTALCO, INC.
/s/ Anita Logue By: /s/ Carl Sardegna
- -------------------------- ------------------------- (SEAL)
Anita Logue, Secretary Carl Sardegna, President
WITNESS:
/s/ Lawrence F. Halpert
- --------------------------- ------------------------- (SEAL)
Lawrence F. Halpert
-8-
<PAGE>
Exhibit 10.27
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is made as of the
18th day of July, 1995, by and between Carl J. Sardegna (hereinafter, the
"Executive"), a Maryland resident, and DentalCo, Inc., a Maryland corporation
(hereinafter, the "Company").
IN CONSIDERATION of the covenants set forth herein and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive and the
Executive hereby accepts such employment by the Company upon the terms and
subject to the conditions hereinafter set forth for a two (2) year term
commencing on July 18, 1995, which initial two-year term shall be extended on
July 17, 1996 and on each anniversary of that date thereafter for a further
period of one year, unless otherwise terminated in accordance with the
provisions of Section 7 hereof.
2. DUTIES.
A. During the term of employment hereunder, the Executive shall
serve as the Company's President, and he shall perform such other executive and
administrative duties and functions commensurate with such position as he may be
called upon to perform, from time to time, by the Company's Board of Directors
(the "Board"). The Executive shall devote substantially all of his time to his
duties hereunder and he shall exert his best efforts in the performance of his
duties so as to promote the profit, benefit and advantage of the business of the
Company.
B. The Executive immediately shall notify the Company of (i) his own
illness and consequent absence from work or (ii) any intended significant change
in his plans to work for the Company.
C. During the term of this Agreement, the Executive shall serve in
any additional offices or positions (commensurate in status with his position
hereunder) of the Company and its affiliates (including, as a member of any
committees of the Board), to which he may be elected or appointed by appropriate
action of the Company. The Executive shall serve in any such additional
capacities without separate compensation for so serving, unless otherwise
authorized by the Board.
3. COMPENSATION. The Company agrees to pay to the Executive as
compensation for all duties performed by him in any capacity during the period
of his employment under this Agreement:
1
<PAGE>
A. Base salary ("Base Salary"), payable in equal bi-weekly
installments, at the rate of One Hundred Fifty Thousand Dollars ($150,000.00)
per annum.
B. In addition, the Executive shall be eligible to receive a bonus
(the "Bonus") for each full fiscal year of the Executive's employment in an
amount determined by the Board, in its sole discretion, provided, however, that
in no event shall the Bonus be in an amount greater than Fifty percent (50%) of
the Executive's Base Salary, and provided, further, that the Company's net
income for such fiscal year, giving effect to the Bonus (and other bonus
compensation paid with respect to that fiscal year) as if paid during such
fiscal year, shall equal or exceed the net income for the period as set forth in
the Company's Financial Projections dated January 25, 1995 (the "Projections")
and provided to Grotech Partners IV, L.P. and Merchant Partners, L.P. The
Bonus, if any, shall be paid to the Executive not later than fifteen (15) days
after publication of the audited financial statements of the Company for each
year of employment.
The Base Salary shall be subject to review for increase (but not decrease)
annually by the Board. The Company shall be entitled to deduct from the
compensation of the Executive such sums as are required by law to be deducted or
withheld.
4. REIMBURSEMENT OF EXPENSES; FRINGE BENEFITS; ETC.
A. The Company shall reimburse the Executive, from time to time, for
all reasonable and customary business expenses incurred by him in the
performance of his duties hereunder, provided, however, that the Executive shall
submit vouchers and other supporting data to substantiate the amount of said
expenses and as otherwise required by the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder from time to time.
B. The Executive shall be entitled to a total of four weeks paid
vacation for each year of employment hereunder. Unused vacation time shall not
accumulate from year to year. The Executive may take his vacation at such time
or times as shall not interfere with the performance of his duties under this
Agreement.
C. The Executive shall be entitled to paid sick leave and holidays
in accordance with the Company's announced policy for executive employees, as in
effect from time to time.
D. For so long as the Executive remains an employee of the Company,
he shall be entitled to participate in any and all fringe benefit plans,
programs and practices sponsored by the Company for the benefit of its executive
employees, including, without limitation, health insurance.
2
<PAGE>
E. For so long as the Executive remains an employee of the Company,
the Company shall, in recognition that the Executive will be required to drive
an automobile in connection with his duties hereunder, pay the Executive a
monthly automobile and automobile insurance allowance of Five Hundred Dollars
($500.00) and reimburse the Executive in connection with the reasonable
operation thereof for business purposes incurred in connection with Company
business (excluding insurance, which shall be paid from the $500.00 monthly
allowance).
5. DISABILITY.
A. As used in this Agreement, the term "disabled" shall mean the
continuous and uninterrupted inability to perform the Executive's duties on
behalf of the Company, by reason of accident, illness, or disease, and the
"onset of his disability" shall mean the first day of such inability to perform
his duties.
B. If the Executive is disabled, he shall be entitled to receive the
Base Salary to which he otherwise would have been entitled, were he not
disabled, for a period of six (6) months from the onset of his disability.
C. If the Executive remains disabled throughout the six-month period
beginning with the onset of his disability, then his employment shall thereafter
be deemed terminated, and he will not be entitled to any further payments under
this Agreement, other than receipt of disability payments under any disability
insurance policy acquired by the Company for his benefit.
6. DEATH. If the Executive dies during the term of his employment
hereunder, the Company shall pay to the estate of the Executive such
compensation as would otherwise be payable to the Executive for the period
ending at the end of the month of his death, and no further payments shall be
due under this Agreement.
7. TERMINATION.
A. By the Company Without Cause. The Company may terminate the
employment of the Executive at any time without Cause (as hereinafter defined).
In such event, the Executive shall be entitled to receive, for a period of two
(2) years after the date of his termination, in equal bi-weekly installments in
arrears, an amount per annum equal to the aggregate of his Salary at the time of
his termination.
In addition to the foregoing termination payments, the Executive also shall
be entitled to receive, for a period of two (2) years after the date of his
termination, the fringe benefits set forth in Sections 4D and 4E hereof (or, if
such benefits are not available to the Executive because he is not employed by
the Company, then the Company shall pay the cost of the Executive obtaining
3
<PAGE>
comparable benefits). The Company shall deduct from all such amounts provided
for in this Section 7A such sums as are required by law to be deducted or
withheld.
B. By Company, With Cause. Notwithstanding the provisions of
Section 7A hereof, the Executive's employment and all of his rights and
benefits, but not his obligations, under this Agreement (except for the right to
receive Salary earned through the date of his termination with Cause) shall
terminate immediately upon notice from the Company of the occurrence of any one
or more of the following events (collectively, "Cause"):
(i) The Executive is convicted of a criminal offense involving
moral turpitude, or involving dishonest conduct pertaining to the business or
affairs of the Company, including, without limitation, peculation, or is guilty
of any act or omission, the intended consequence of which is material injury to
the Company's business, property or reputation; or
(ii) The Executive persists, for a period of thirty (30) days
after written notice from the Board, in a course of conduct determined by the
Board to be in material violation of his duties to the Company under this
Agreement.
C. Other Remedies. Neither the grant nor the exercise of a right of
termination hereunder shall preclude any other legal relief or remedy available
to any party.
8. NON-COMPETITION.
A. The Executive agrees that, during the term of his employment with
the Company, and for a period of two (2) years after the date of his termination
hereunder, for any reason, including voluntary termination by him, or for no
reason, he shall not, within the geographic area in which the Company operates,
participate or engage in any business, or own any interest in any entity that
(except that the ownership of Five percent (5%) or less of the stock of a public
entity shall not be prohibited hereby), that (i) provides, directly or
indirectly, administrative services to dental practices, or owns and leases to
providers of dental services the fixed assets used to provide such services,
(ii) engages in the administration of contracts for delivery of dental services
on behalf of HMOs, health plans, insurers or other third-party payors or acts as
a contracting entity with third-party payors on behalf of dental practices, or
(iii) provides dental insurance; provided, however, that the Executive may be
employed by an entity that provides dental insurance so long as he is not
employed by a division of such entity that directly or indirectly competes with
the Company. The Executive further agrees that for two (2) years following the
termination of his employment hereunder, he shall not, directly or indirectly,
for himself or on behalf of any other person or entity, solicit, hire, encourage
or entice away (or attempt to do so) from the Company or any of its affiliates
any officer or employee who, at the time of such solicitation or hire or within
twelve (12) months prior to the time of such solicitation or hire, was an
employee of the Company or an affiliate thereof (whether or not such person
would commit a breach of contract by so doing).
4
<PAGE>
B. The Executive expressly acknowledges and agrees that the (i)
restrictions set forth herein are reasonable in terms of scope, duration,
geographic area, and otherwise, (ii) protections afforded to the Company
hereunder are necessary to protect its legitimate business interests and (iii)
agreement to observe such restrictions forms a material part of the
consideration for this Agreement and the Executive's employment by the Company.
C. Notwithstanding the provisions of Section 12C hereof, if any
provision of this Section 8 is adjudicated to exceed the time, geographic area,
scope of business or other limitations permitted by applicable law in any
applicable jurisdiction, then such provision shall be deemed reformed in such
jurisdiction to the maximum time, geographic or other limitations permitted by
law.
9. Confidential Information. The Executive agrees that, during the term
of his employment with the Company, and after the termination of his employment
for any reason whatsoever, he shall not disclose to any person, other than in
the discharge of his duties under this Agreement, any information or knowledge
relating to (i) the business operations or internal structure of the Company,
(ii) any method and/or procedure (such as records, programs, systems,
correspondence, or other documents), relating or pertaining to projects
developed by the Company or contemplated to be developed by the Company or (iii)
the Company's business, which information or knowledge the Executive shall have
obtained during the term of this Agreement, and which is otherwise of a secret
or confidential nature. Further, upon leaving the employment of the Company for
any reason whatsoever, the Executive shall not take with him, without the prior
written consent of the Board, any documents, forms or other reproductions of any
data or any information relating to or pertaining to the Company or any other
confidential information or trade secrets.
10. INSURANCE. The Company may, in its discretion at any time, apply for
and procure, as owner and for its own benefit, insurance on the life of the
Executive in such amounts and in such form as the Company deems appropriate.
The Executive shall have no interest in any such policy, but he shall, at the
request of the Company, submit to such medical examination, supply such
information and execute such documents as may be required by the insurer or any
proposed insurer.
11. OTHER DOCUMENTS. Any earlier employment agreements or other
agreements or understandings between the Executive and the Company relating to
the subject matter hereof, whether in writing or oral, are hereby terminated and
shall be of no further effect after the effective date hereof.
12. MISCELLANEOUS.
A. Any notices required by this Agreement shall (i) be made in
writing and mailed by certified mail, return receipt requested, with adequate
postage prepaid; (ii) be deemed given when so mailed; (iii) be deemed received
by the addressee within ten (10) days after given
5
<PAGE>
or when the certified mail receipt for such mail is executed, whichever is
earlier and (iv) in the case of the Company, be mailed to its principal
office, or in the case of the Executive, be mailed to the last address that
the Executive has given to the Company.
B. This Agreement shall be binding upon and inure to the benefit of,
the parties, their successors, assigns, personal representatives, distributees,
heirs, and legatees; provided, however, that the Executive shall not assign his
duties hereunder.
C. If any term or provision of this Agreement is held to be illegal
or invalid, said illegality or invalidity shall not affect the remaining terms
or provisions hereof, and each term and provision of this Agreement shall be
enforced to the fullest extent permitted by law.
D. As monetary damages may not be an adequate remedy for the breach
by either party of its obligations under this Agreement, each party agrees that
it may be subjected to a decree of specific performance, injunction, or other
appropriate equitable or legal relief, for the enforcement of its obligations
hereunder.
E. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Maryland, without giving
effect to its conflicts of laws provisions. The parties hereto agree that
all claims of any kind arising from or relating to this Agreement shall be
brought in a court of competent jurisdiction in the State of Maryland and
agree to the jurisdiction of the Maryland courts (including the United States
District Court for the District of Maryland) in all such matters. The
parties hereto waive all objections to venue.
F. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of which, when
construed together, shall be deemed to be one and the same instrument.
G. Option. The Company hereby grants to the Executive an option
(the "Option") to purchase up to 12,139 shares of its common stock, $0.0001 par
value per share (the "Common Stock"), at a per share exercise price of $74.71
(the "Exercise Price"). The Option shall be exercisable at any time until July
17, 2000, at which time, if it is not exercised in whole, it shall expire. The
number of shares subject to the Option shall be appropriately adjusted in the
event of the Company's declaration of a Common Stock dividend, a
recapitalization of its Capital Stock, a stock split, or the occurrence of a
similar recapitalization event. The Executive shall exercise the Option in
whole or in part by providing written notice to the Company, at its principal
executive offices, of the exercise thereof, which shall include the number of
shares of Common Stock as to which the Executive is exercising the Option. The
written notice of exercise shall be accompanied by a certified check in the
amount of the aggregate Exercise Price for the number of shares of Common Stock
for which the Option is being exercised.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
under seal, as of the day and year first hereinabove written.
ATTEST: DENTALCO, INC.
/s/ Anita Logue By: /s/ Lawrence F. Halpert
______________________ __________________________(SEAL)
Anita Logue, Secretary Lawrence F. Halpert, Chairman and CEO
WITNESS:
/s/ Anita Logue /s/ Carl J. Sardegna
_________________________ _____________________________(SEAL)
Carl J. Sardegna
7
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Name State of Incorporation Foreign Qualifications
- ---------------------------------------------------------- ---------------------- ---------------------------
<S> <C> <C>
DentalCo Management Services of Maryland, Inc. Maryland Virginia
DentalCo Provider Network, Inc. Colorado None
DentalCo Management Services of Missouri, Inc. Maryland Missouri, Michigan, Indiana
The Dental Center, Inc. Indiana Michigan
The Dental Center Adult, Inc. Indiana None
Nanston, Inc. Maryland Georgia, North Carolina
Nanston-North Carolina, Inc. North Carolina None
DentalCo of North Carolina, Inc. Maryland North Carolina
DentalCo Modern Acquisition Corp. Maryland None
DentalCo Management Services of New Jersey, Inc. Maryland New Jersey
DentalCo Management Services of Pennsylvania, Inc. Maryland Pennsylvania
Total Dental Plan, Inc. Maryland None
HealthMaster Information Technologies, Inc. Maryland None
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
DentalCo, Inc.:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Baltimore, Maryland
September 10, 1997
<PAGE>
Exhibit 23.3
To the Board of Directors
Nanston, Inc. and Subsidiary
We consent to the use of our report dated October 11, 1996, included herein
and to the reference to our firm under the heading "Experts" in the
prospectus.
Smith & Radigan, P.C.
Atlanta, Georgia
September 10, 1997
