AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1997
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DENTAL CARE ALLIANCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
<TABLE>
<S> <C> <C>
DELAWARE 8741 65-0555-126
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
STEVEN R. MATZKIN, D.D.S.
CHIEF EXECUTIVE OFFICER
DENTAL CARE ALLIANCE, INC.
1343 MAIN STREET, 7TH FLOOR 1343 MAIN STREET, 7TH FLOOR
SARASOTA, FLORIDA 34236 SARASOTA, FLORIDA 34236
(941) 955-3150 (941) 955-3150
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
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COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
ROBERT L. GROSSMAN, ESQ. LESLIE E. DAVIS, ESQ.
GREENBERG TRAURIG HOFFMAN TESTA, HURWITZ & THIBEAULT, LLP
LIPOFF ROSEN & QUENTEL, P.A. HIGH STREET TOWER
1221 BRICKELL AVENUE 125 HIGH STREET
MIAMI, FLORIDA 33131 BOSTON, MASSACHUSETTS 02110
(305) 579-0500 (617) 248-7000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1)(2) OFFERING PRICE(1)(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share 2,300,000 $13.00 $29,900,000 $9,060.61
==================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act.
(2) Includes 300,000 shares of Common Stock which may be purchased by the
Underwriters pursuant to an over-allotment option.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS SUBJECT TO COMPLETION, DATED AUGUST 27, 1997
2,000,000 SHARES
DENTAL CARE ALLIANCE LOGO
COMMON STOCK
----------------
THE 2,000,000 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE (THE
"COMMON STOCK"), OFFERED HEREBY ARE BEING ISSUED AND SOLD BY DENTAL CARE
ALLIANCE, INC. (THE "COMPANY"). PRIOR TO THIS OFFERING (THE "OFFERING"), THERE
HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY AND THERE CAN BE
NO ASSURANCE THAT AN ACTIVE TRADING MARKET WILL DEVELOP. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $11.00 AND
$13.00 PER SHARE. SEE "UNDERWRITING" FOR INFORMATION RELATING TO THE FACTORS TO
BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. THE COMPANY HAS
APPLIED FOR LISTING OF THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "DENT."
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ...... $ $ $
Total(3) ...... $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. In addition, the Company has paid, and
issued to, The Nassau Group, Inc. ("Nassau") and related persons fees in
the amount of $137,275, and shares of Common Stock and certain warrants to
purchase Common Stock, respectively. See "Principal and Selling
Stockholders" and "Underwriting."
(2) Before deducting estimated expenses of $900,000, which are payable by the
Company.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to 300,000 additional shares of Common Stock on the same terms
and conditions as the securities offered by the Company hereby, solely to
cover over-allotments, if any. The Company will not receive any proceeds
from the sale of additional shares by the Selling Stockholders. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Selling Stockholders will be
$ , $ and $ , respectively. If any Selling Stockholder fails to
sell to the Underwriters any such additional shares, the Company has agreed
that it will issue and sell to the Underwriters an equal number of shares of
Common Stock. In such event, the total Proceeds to the Company will increase
by $11.16 (assuming an initial public offering price of $12.00 per share)
multiplied by the number of such additional shares issued by the Company.
See "Principal and Selling Stockholders" and "Underwriting."
----------------
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN, SUBJECT TO PRIOR SALE, WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY
THEM, AND SUBJECT TO CERTAIN OTHER CONDITIONS INCLUDING THE RIGHT OF THE
UNDERWRITERS TO WITHDRAW, CANCEL, MODIFY OR REJECT ANY ORDER IN WHOLE OR IN
PART. IT IS EXPECTED THAT DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT
, 1997, AT THE OFFICES OF RAYMOND JAMES & ASSOCIATES, INC., ST.
PETERSBURG, FLORIDA.
----------------
RAYMOND JAMES & ASSOCIATES, INC.
WILLIAM BLAIR & COMPANY
The date of this Prospectus is , 1997
<PAGE>
[THE COMPANY'S STYLIZED LOGO WITH THE PHRASE "NEW SOLUTIONS FOR THE
BUSINESS OF DENTISTRY." BELOW THE LOGO IS A MAP OF UNITED STATES WITH
LARGER SCALE DETAIL MAPS OF FLORIDA AND MICHIGAN INDICATING THE
LOCATIONS OF THE COMPANY'S OFFICES IN THOSE STATES, WITH THE NAME OF
EACH LOCATION SPECIFIED UNDER THE HEADINGS "MICHIGAN MANAGED DENTAL
CENTERS," "FLORIDA MANAGED DENTAL CENTERS" AND "FLORIDA LICENSED DENTAL
CENTERS." ALSO INCLUDED ARE PICTURES OF CERTAIN MANAGED DENTAL
CENTERS.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
----------------
THE COMPANY WILL FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS CONTAINING
AUDITED FINANCIAL STATEMENTS CERTIFIED BY AN INDEPENDENT AUDITING FIRM AND
INTENDS TO DISTRIBUTE QUARTERLY REPORTS FOR THE FIRST THREE QUARTERS OF EACH
YEAR CONTAINING UNAUDITED FINANCIAL INFORMATION.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING NOTES THERETO
(THE "CONSOLIDATED FINANCIAL STATEMENTS"), APPEARING ELSEWHERE IN THIS
PROSPECTUS. DENTAL CARE ALLIANCE, INC. AND ITS SUBSIDIARIES (THE "COMPANY")
PROVIDES MANAGEMENT SERVICES TO DENTAL PRACTICES ("MANAGED DENTAL CENTERS") BY
ENTERING INTO ADMINISTRATIVE SERVICES AGREEMENTS (THE "MANAGEMENT AGREEMENTS")
WITH INDIVIDUAL DENTAL PROFESSIONAL CORPORATIONS OR PROFESSIONAL ASSOCIATIONS
(THE "PAS"). IN ADDITION, THE COMPANY PROVIDES LICENSING SERVICES TO MANAGED
DENTAL CENTERS AND CERTAIN NON-MANAGED PRACTICES (THE "LICENSED DENTAL CENTERS"
AND TOGETHER WITH THE MANAGED DENTAL CENTERS, THE "DENTAL CENTERS"). THE
GENERAL DENTAL AND SPECIALTY DENTAL PRACTITIONERS (SUCH AS ORTHODONTISTS,
PERIODONTISTS AND ORAL SURGEONS) WORKING AT THE MANAGED DENTAL CENTERS
("AFFILIATED DENTISTS") ARE EMPLOYED BY OR CONTRACT WITH THE PAS, WHICH ARE NOT
OWNED BY THE COMPANY. THE COMPANY DOES NOT EMPLOY AFFILIATED DENTISTS NOR DOES
IT CONTROL THE PRACTICE OF DENTISTRY. IMMEDIATELY PRIOR TO CONSUMMATION OF THIS
OFFERING, CERTAIN ASSETS AND LIABILITIES OF DENTAL CARE ALLIANCE, INC., WILL BE
CONTRIBUTED TO TWO WHOLLY-OWNED SUBSIDIARIES TO BE NAMED DENTAL CARE ALLIANCE
OF FLORIDA, INC. AND DENTAL CARE ALLIANCE OF MICHIGAN, INC. WHICH WILL BE
FORMED IMMEDIATELY PRIOR TO THE CONSUMMATION OF THIS OFFERING (THE
"CONTRIBUTION"). IN ADDITION, UNLESS OTHERWISE INDICATED, INFORMATION SET FORTH
IN THIS PROSPECTUS (I) ASSUMES THE CONSUMMATION OF THE CONTRIBUTION, (II)
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, (III) GIVES
EFFECT TO A -FOR- STOCK SPLIT TO BE EFFECTED PRIOR TO THE OFFERING (THE
"STOCK SPLIT") AND (IV) HAS BEEN ADJUSTED TO REFLECT THE MANDATORY CONVERSION
OF ALL OUTSTANDING SHARES OF THE COMPANY'S SERIES A PREFERRED STOCK INTO
SHARES OF COMMON STOCK (POST-STOCK SPLIT), UPON CONSUMMATION OF THE OFFERING.
INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING
"RISK FACTORS."
THE COMPANY
Dental Care Alliance, Inc. is a dental practice management company
providing management and licensing services to dental practices in Florida and
Michigan. The Company seeks to develop a significant market presence in each of
its markets by entering into Management Agreements with established dental
practices and by increasing revenues and operating income at the Managed Dental
Centers. The Company provides management and licensing services to 19 Managed
Dental Centers, 14 of which are located in Florida and five of which are
located in Michigan. Additionally, the Company provides only licensing services
to three Licensed Dental Centers in Florida. The Company's management services
include personnel, operational and financial services and its licensing
services include marketing, advertising and purchasing services.
The dental services industry in the United States is large and highly
fragmented. According to the Health Care Financing Administration ("HCFA"),
expenditures for all dental services were an estimated $45.8 billion in 1995
and are expected to reach $59.1 billion in 2000, representing a 5.2% compound
annual growth rate. The Company believes this anticipated growth is principally
due to an increase in availability of various types of dental insurance, an
increase in demand for dental services as the United States population ages, an
increase in demand for preventive and cosmetic dentistry and advances in dental
technology. According to the American Dental Association ("ADA"), in 1994
dental services in the United States were provided by approximately 153,000
dentists, 87.7% of whom practiced alone or with one other dentist. These solo
practitioners and small group practices have traditionally managed all aspects
of their dental practices, including the administrative, purchasing,
accounting, marketing, recruiting and business development functions.
Recent trends in dental service reimbursement, including the increased
activity of third-party payors, are driving dentists to form larger groups or
contract with dental practice management companies. As demand for dental
services has increased, employers have sought to provide dental benefits to
employees at moderate incremental cost. These employers have begun contracting
with
3
<PAGE>
third-party payors who have added cost-effective dental benefit programs to the
services they provide. The programs offered include various forms of dental
care reimbursement, including traditional indemnity insurance, preferred
provider plans and capitated managed care plans. The increased number and
activity of third-party payors, particularly in the area of managed care, has
contributed to the complexity of managing dental practices. In addition, the
growing presence of third-party payors has put increasing pressure on dental
providers to contain costs. Such cost containment pressures will likely place
solo practitioners and small group practices at a significant disadvantage.
The Company believes it is well-positioned to capitalize on the recent
trends driving dental provider consolidation. Dr. Steven R. Matzkin, the
Company's Chairman of the Board, President and Chief Executive Officer, has
invested over 12 years developing a flexible and analytically driven management
approach which has been applied to a wide variety of dental practices,
including urban, suburban, start-up, mature, fee-for-service and managed care
practices. The Company uses this management approach to design and implement an
integrated marketing, staffing and scheduling program to address the specific
needs of each of its Managed Dental Centers. These programs are designed to:
(i) focus the Affiliated Dentists and hygienists on the provision of high
quality dental care; (ii) maximize revenue per Managed Dental Center through
the implementation of marketing, case presentation, public relations and
patient-calling programs; (iii) increase market share by recruiting local
dental specialists (such as orthodontists, periodontists and oral surgeons) to
be employed at the Managed Dental Centers, thereby increasing total revenue per
Managed Dental Center and precluding the need to refer certain types of dental
procedures to third parties outside of the Company's network; and (iv) increase
the capacity for patient flow through incremental efficiencies, training, and
if necessary, facility expansion. The Company also uses its management approach
to customize an external expansion strategy to the characteristics of each
existing and targeted new market.
The Company's objective is to become a leading dental practice management
company in each of its target markets. To achieve this objective the Company
seeks to grow rapidly through a combination of internal growth and external
expansion. The key elements of its internal growth strategy are to: (i)
increase revenues and operating income at Managed Dental Centers primarily
through the implementation of customized marketing and productivity improvement
programs and the integration of specialty service providers into its network,
(ii) facilitate long-term patient relationships by stressing professionalism
and the provision of high quality care, and (iii) recommend adjustments to the
third-party payor mix at each Managed Dental Center to maximize productivity
and respond to local market conditions. The key elements of its external
expansion strategy are to: (i) identify potential Managed Dental Centers which
have the necessary characteristics to excel in their specific local market,
(ii) increase market share in current markets by entering into Management
Agreements with additional high quality dental practices and (iii) expand into
new markets by entering into Management Agreements with well-established
practices that can serve as platforms for further expansion.
RECENT DEVELOPMENTS
In April 1997 the Company purchased the non-dental assets of, and entered
into a Management Agreement with respect to, a dental practice in Tampa,
Florida. This practice employs one dentist and two dental hygienists, and
reported revenue for the fiscal year ended December 31, 1996 of approximately
$950,000. In July 1997, the Company entered into a Management Agreement with
respect to four dental practices located in the Detroit, Michigan area. These
practices employ six dentists and two dental hygienists and reported aggregate
revenue for the fiscal year ended December 31, 1996 of approximately $3.4
million. In July 1997, the Company also entered into a Management Agreement
with a dental practice in Flint, Michigan. This practice employs seven dentists
and 14 dental hygienists, and reported revenue for the fiscal year ended
December 31, 1996 of approximately $4.0 million. In August 1997, the Company
purchased the non-dental assets of, and
4
<PAGE>
entered into a Management Agreement with respect to, a dental practice located
in Tallahassee, Florida. This practice employs one dentist and two dental
hygienists and reported revenue for the fiscal year ended December 31, 1996 of
approximately $900,000. The Company intends for the Detroit area, Flint and
Tallahassee dental practices to be platform practices for further expansion in
their respective markets. In addition, the owners of certain PAs with which the
Company has Management Agreements have executed non-binding letters of intent
to acquire nine dental practices employing 48 dentists, many of whom are
part-time, and 19 dental hygienists, which practices reported aggregate revenue
for their respective last full fiscal years of approximately $8.0 million. If
such transactions are consummated, the acquiring PAs are expected to enter into
Management Agreements with the Company. There can be no assurance that the
Company will enter into Management Agreements with respect to such practices or
that any such practices will be integrated successfully into the Company's
network. See "Risk Factors-- Risks Associated with Expansion Strategy," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Certain Transactions."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company ......... 2,000,000 shares
Common Stock to be outstanding
after the Offering ........................... shares(1)
Use of proceeds .............................. To lend money to PAs to finance the purchase of
assets of dental practices, to acquire the non-dental
assets of additional dental practices, to purchase
the capital stock of Profit Dental Management
Corp., to provide working capital and for general
corporate purposes. See "Use of Proceeds," "The
Company" and "Certain Transactions."
Proposed Nasdaq National Market Symbol ...... DENT
</TABLE>
- ----------------
(1) Does not include (i) an aggregate of shares of Common Stock
reserved for issuance under the Company's Omnibus Executive Incentive
Compensation Plan (the "Omnibus Plan"), of which options for approximately
shares will be granted upon consummation of this Offering at a per
share exercise price equal to the public offering price per share, (ii)
shares of Common Stock to be reserved for issuance (assuming an
initial public offering price of $12.00 per share) pursuant to warrants to
be issued upon consummation of the Offering at a weighted average exercise
price equal to $ per share and (iii) shares of Common Stock
reserved for issuance pursuant to outstanding options to purchase Common
Stock at a weighted average exercise price of $ per share. See
"Management--Omnibus Executive Incentive Compensation Plan" and
"Description of Capital Stock--Warrants and Options to Purchase Common
Stock."
ALL REFERENCES IN THIS PROSPECTUS TO INDUSTRY FINANCIAL AND STATISTICAL
INFORMATION ARE BASED ON TRADE ARTICLES AND INDUSTRY REPORTS THAT THE COMPANY
BELIEVES TO BE RELIABLE AND REPRESENTATIVE OF THE DENTAL SERVICES INDUSTRY AT
THE DATE OF THIS PROSPECTUS, ALTHOUGH NO ASSURANCE TO THAT EFFECT CAN BE GIVEN.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
------------ ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (1):
Management fees .................................... $ 673,304 $ 513,705 $1,289,828 $ 405,072 $2,471,759
Consulting and licensing fees ........................ 42,763 262,769 347,600 138,812 161,885
----------- ---------- ---------- ---------- ----------
Total revenues .................................... 716,067 776,474 1,637,428 543,884 2,633,644
----------- ---------- ---------- ---------- ----------
Managed dental center expenses:
Staff salaries and benefits ........................ -- -- 233,657 -- 601,383
Dental supplies .................................... -- -- 79,448 -- 213,334
Laboratory fees .................................... 98,222 373,010
Marketing .......................................... -- -- 38,128 -- 176,627
Occupancy .......................................... -- -- 106,501 -- 333,085
Other ............................................. -- -- 57,182 -- 326,494
----------- ---------- ---------- ---------- ----------
Total managed dental center expenses ............ -- -- 603,138 -- 2,023,933
----------- ---------- ---------- ---------- ----------
716,067 776,474 1,034,290 543,884 609,711
Salaries and benefits .............................. 408,716 400,669 521,683 261,642 373,016
General and administrative ........................... 204,901 234,577 260,558 118,476 135,970
Advisory services(2) ................................. -- 127,768 -- -- --
Depreciation and amortization ........................ 15,150 22,106 27,654 10,254 41,578
----------- ---------- ---------- ---------- ----------
Operating income (loss) ........................... 87,300 (8,646) 224,395 153,512 59,147
Interest income (expense), net ..................... 22,584 6,494 20,781 (5,058) 36,464
----------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and
minority interest .............................. 109,884 (2,152) 245,176 148,454 95,611
Provision for income taxes ........................... 19,919 -- 35,500 -- 36,000
Minority interest .................................... 2,440 8,654 7,674 3,537 --
----------- ---------- ---------- ---------- ----------
Net income (loss) ................................. $ 87,525 $ (10,806) $ 202,002 $ 144,917 $ 59,611
Adjustment to redemption value of common
and preferred securities ........................ 39,951 85,709 (191,237) -- (10,500)
Cumulative preferred stock dividend ............... -- -- (6,485) -- (60,000)
----------- ---------- ---------- ---------- ----------
Net income (loss) applicable to common stock.......... $ 127,476 $ 74,903 $ 4,280 $ 144,917 $ (9,889)
=========== ========== ========== ========== ==========
Unaudited pro forma data(3):
Income (loss) before income taxes and
minority interest .............................. 109,884 (2,152) 245,176 148,454 95,611
Pro forma provision for income taxes ............... 42,000 -- 94,000 57,000 36,000
Minority interest in consolidated subsidiaries....... 1,507 5,343 4,739 2,184 --
----------- ---------- ---------- ---------- ----------
Pro forma net income (loss)........................... $ 66,377 $ (7,495) $ 146,407 $ 89,270 $ 59,611
=========== ========== ========== ========== ==========
Pro forma net income per common share(4) ............ $ 2.78 $ 1.13
========== ==========
Fully diluted pro forma net income
per common share(4) ................................. $ 3.28 $ 0.96
========== ==========
Weighted average number of common shares
outstanding(4) .................................... 52,648 52,648
Fully diluted weighted average common shares
outstanding(4) .................................... 61,540 61,540
MANAGED DENTAL CENTER DATA:
Number of Managed Dental Centers(5) ............... 7 9 12 13 13
Net patient revenue at Managed
Dental Centers(6) ................................. $3,703,430 $4,515,019 $5,576,059 $2,669,892 $3,529,242
Number of Affiliated Dentists(7) .................. 10 12 17 17 18
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------
PRO FORMA
ACTUAL AS ADJUSTED (8)
------------ ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital .................................... $ 832,186 $
Total assets ....................................... 3,370,468
Long-term debt, including current maturities ...... 190,553
Redeemable common and preferred securities ......... 1,664,299
Stockholders' equity .............................. 641,516
</TABLE>
- ----------------
(1) Effective October 1996, the Company revised the terms of all of its 12
then existing Management Agreements such that the Company is responsible
for the payment of all non-professional expenses of the Managed Dental
Centers. Ten Management Agreements were also revised to base the Company's
management fee on a percentage of net profits at each PA to a percentage
of net collected revenues from each PA. Accordingly, prior to these
revisions to such 12 Management Agreements, all non-professional expenses
of the Managed Dental Centers and related revenues were reflected in each
PA's financial statements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) Represents non-cash charges for warrants issued in consideration of certain
financial advisory services.
(3) Pro forma adjusted to reflect a 38% income tax rate as if the Company was
taxed as a C Corporation prior to October 25, 1996, when the Company was
reorganized from Limited Liability Corporation to C Corporation status.
See Notes 2 and 7 of Notes to Consolidated Financial Statements.
(4) Share information does not reflect the Stock Split.
(5) Presented as of the end of the period.
(6) Net patient revenue is the total amount of revenue recorded by the PAs
during the period. Revenue is included from and after the date on which
the relevant PA executed a Management Agreement with the Company.
(7) Presented as of the end of the period. Affiliated Dentists include both
full-time and part-time Affiliated Dentists but exclude Dental Directors.
See "Business--Dental Directors."
(8) Adjusted to give pro forma effect to the conversion of mandatorily
redeemable preferred stock to Common Stock and to the termination of put
rights associated with certain Common Stock, and adjusted for the sale of
2,000,000 shares of Common Stock offered by the Company hereby at an
assumed public offering price of $12.00 per share and the application of
the estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
7
<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE
RISKS DESCRIBED BELOW. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
SPECIFIC FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS, BEFORE DECIDING TO INVEST IN THE COMMON STOCK OFFERED HEREBY.
THE FOLLOWING DISCUSSION IDENTIFIES IMPORTANT CAUTIONARY FACTORS THAT COULD
CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN
FORWARD LOOKING STATEMENTS OF THE COMPANY APPEARING IN THIS PROSPECTUS OR
OTHERWISE MADE BY, OR ON BEHALF OF, THE COMPANY. IN PARTICULAR, SUCH FORWARD-
LOOKING STATEMENTS, INCLUDING THOSE REGARDING THE ADDITION OF MANAGED DENTAL
CENTERS, EXPANSION WITHIN EXISTING AND INTO NEW MARKETS, THE ADEQUACY OF THE
COMPANY'S CAPITAL RESOURCES, THE FUTURE PROFITABILITY OF MANAGED DENTAL CENTERS
AND OTHER STATEMENTS REGARDING TRENDS RELATING TO, AND THE COMPANY'S ABILITY TO
IMPROVE, VARIOUS REVENUE AND EXPENSE ITEMS, COULD BE AFFECTED BY A NUMBER OF
RISKS AND UNCERTAINTIES, INCLUDING THOSE DESCRIBED BELOW.
RISKS ASSOCIATED WITH EXPANSION STRATEGY. The Company is party to
Management Agreements with PAs that own 19 Managed Dental Centers. The Company
intends to continue to expand its existing Managed Dental Centers and to enter
into Management Agreements with PAs that own additional dental centers. The
ultimate success of the Company's expansion strategy will depend on factors
which include the following:
ABILITY TO IDENTIFY AND ENTER INTO MANAGEMENT AGREEMENTS WITH SUITABLE
DENTAL PRACTICES. The Company intends to continue to devote a substantial
amount of time and resources to identifying suitable dental practices and
to negotiating Management Agreements with such practices. Identifying
suitable dental practices and negotiating Management Agreements with such
practices can be a lengthy and costly process. There can be no assurance
that the Company will be able to identify suitable Managed Dental Center
candidates, or that Management Agreements will be entered into with respect
to such candidates on terms favorable to and within time frames desired by
the Company, or at all. In the event that the execution of a planned
Management Agreement fails to occur or is delayed, the Company's quarterly
financial results may be materially lower than financial analysts'
expectations, which likely would cause a decline, perhaps substantial, in
the market price of the Common Stock. The foregoing factors could have a
material adverse effect on the Company's results of operations or financial
condition and the Company's ability to continue its expansion strategy.
Moreover, in connection with entering into such Management Agreements, the
Company may be required to incur indebtedness or assume other liabilities
which could have a material adverse effect on the Company's operating
results, liquidity and capital resources, or may cause the Company to issue
shares of its capital stock which could result in dilution to stockholders.
INTEGRATION OF DENTAL PRACTICES. The integration of Managed Dental
Centers into the Company's network is a difficult, costly and time
consuming process which, among other things, requires the Company to
attract and retain competent and experienced management and administrative
personnel and to implement and integrate reporting and tracking systems,
management information systems and other operating systems. In addition,
such integration may require, among other things, the opening of new
facilities or the expansion of existing facilities, the expansion of
accounting controls and procedures and the elimination of duplicate
personnel. There can be no assurance that substantial unanticipated
problems, costs or delays associated with such integration efforts or with
such Managed Dental Centers will not arise or continue. Any such problems,
costs or delays could cause the Company's financial results in fiscal
quarters including and subsequent to the execution of the relevant
Management Agreements to be materially lower than financial analysts'
expectations, which likely would cause a decline, perhaps substantial, in
the market price of the Common Stock. In particular, the Company's expenses
related to any new Managed Dental Center may exceed the revenues it
realizes from such Managed Dental Center and, accordingly, the integration
of such Managed Dental Center may have a temporary or sustained negative
impact on the Company's
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results of operations or financial condition. As the Company pursues its
expansion strategy, there can be no assurance that the Company will be able
to successfully integrate new Managed Dental Centers in a timely manner or
at all, or that any new Managed Dental Center will have a positive impact
on the Company's results of operations and financial condition.
MANAGEMENT OF ADDITIONAL DENTAL CENTERS. The success of the Company's
expansion strategy will depend in part on the Company's ability to
effectively manage an increasing number of Managed Dental Centers, some of
which are expected to be located in markets geographically distant from
markets in which the Company presently operates. The addition of Managed
Dental Centers may impair the Company's ability to efficiently and
successfully provide management services to existing Managed Dental Centers
and to manage and supervise adequately the Company's employees. The Company
has no experience in managing more than 19 Managed Dental Centers, and the
Company's results of operations and financial condition could be materially
adversely affected if it is unable to do so effectively.
AVAILABILITY OF FUNDS FOR EXPANSION STRATEGY. The Company's expansion
strategy will require that substantial capital investment and adequate
financing be available to the Company. Capital is needed for (i) loans to
PAs to purchase the assets of dental practices, (ii) the acquisition by the
Company of the non-dental assets of dental practices, (iii) the integration
of operations of dental practices, and (iv) the purchase of additional
equipment and technology. The Company believes that the net proceeds from
this Offering, cash flow from operations and borrowings available under the
Company's existing credit facility will be adequate to meet the Company's
anticipated capital needs through 1998, although there can be no assurance
to that effect. After 1998, the Company may be required to obtain financing
through additional borrowings or the issuance of additional equity or debt
securities. There can be no assurance that the Company will be able to
obtain such financing or that, if available, such financing will be on
terms acceptable to the Company. Any inability of the Company to obtain
suitable financing could cause the Company to limit or otherwise modify its
expansion strategy, which could have a material adverse effect on the
Company's results of operations and financial condition.
ABILITY TO INCREASE REVENUES AND OPERATING INCOME OF MANAGED DENTAL
CENTERS. A key element of the Company's internal growth strategy is to
increase revenues and operating income at the Managed Dental Centers. There
can be no assurance that the Company's revenues and operating income from
new Managed Dental Centers will improve at rates comparable to the
historical improvement rates experienced by the Company's existing Managed
Dental Centers or at all, or that revenues or operating income from
existing Managed Dental Centers will continue to improve at such historical
rates or at all. Any failure by the Company in improving revenues or
operating income at its Managed Dental Centers could have a material
adverse effect on the Company's results of operations and financial
condition.
DEPENDENCE ON MANAGEMENT AGREEMENTS, THE PAS AND AFFILIATED DENTISTS. The
Company receives fees for services provided to the PAs under the Management
Agreements, but does not employ dentists, hygienists or other dental
professionals or control the practice of dentistry at the Managed Dental
Centers. The Company's revenue is dependent on revenue generated by the PAs
and, therefore, effective and continued performance of the PAs during the terms
of the Management Agreements is essential to the Company's long term success.
In any PA, the loss of an Affiliated Dentist, dental hygienist or a long-term
employee, or the inability of the PA to attract and retain dental directors,
would materially adversely affect the revenues of the PA and could have a
material adverse effect on the Company. In particular, Dr. Dennis A. Corona
owns 12 of the PAs, and any conflicts, or impairment of the Company's
relationship, with Dr. Corona could have a material adverse effect on the
Company. In addition, the Company is a party to only 19 Management Agreements
and, accordingly, the expiration or termination of one or more Management
Agreements could have a material adverse effect on the revenues of the Company.
For example, it is anticipated that the Managed Dental Center in
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Flint, Michigan, will contribute in excess of 10% of the Company's aggregate
revenue in each of 1997 and 1998. Further, the PA located in Port Charlotte,
Florida, has the right to terminate its Management Agreement during a 90-day
period beginning in October 1998. Such Managed Dental Center contributed
approximately 18% and 14% to the Company's revenues in 1996 and for the six
months ended June 30, 1997, respectively. The Management Agreement with respect
to such Managed Dental Center expires in 2003. In addition, the Management
Agreement with respect to the four Detroit area practices expires in 2005. Any
material loss of revenue by any of the PAs or the expiration or termination of
any of the Management Agreements could have a material adverse effect on the
Company's business, financial condition and results of operations. In the event
of breaches of the Management Agreements by any of the PAs, there can be no
assurance that the legal remedies available to the Company will be adequate to
compensate the Company for its damages resulting from such breaches. See
"Business-Management Agreements."
GOVERNMENTAL REGULATION. Business arrangements between dentists and
business corporations that provide dental practice management services are
regulated extensively at the state and federal levels, including regulation in
the following areas:
CORPORATE PRACTICE OF DENTISTRY. The laws of many states prohibit
corporations that are not owned entirely by dentists from employing
dentists (and in some states, dental hygienists and dental assistants),
having control over clinical decision-making, or engaging in other
activities that are deemed to constitute the practice of dentistry. Florida
law specifically prohibits non-professional corporations from employing
dentists and dental hygienists, exercising control over patient records,
and making decisions relating to clinical matters, office personnel, hours
of practice, pricing, credit, refunds, warranties and advertising. Michigan
case law imposes similar restrictions on the practice of dentistry by
non-professional corporations. The Company does not employ dentists or
dental hygienists and does not exercise control over any prohibited areas.
Some states, including Florida and Michigan, also prohibit
non-professional corporations from owning, maintaining or operating an
office for the practice of dentistry. These laws have generally been
construed to permit arrangements under which the dentists are not employed
by or otherwise controlled as to clinical matters by the party supplying
facilities and non-professional services. Both Florida and Michigan law
require that dentists or their professional corporations maintain complete
care, custody and control of all equipment and materials used in the
practice of dentistry.
FEE-SPLITTING AND ANTI-KICKBACK LAWS. Many states also prohibit
"fee-splitting" by dentists with any party except other dentists in the
same professional corporation or practice entity. In most cases, these laws
have been construed as applying to the practice of paying a portion of a
fee to another person for referring a patient or otherwise generating
business, and not to prohibit payment of reasonable compensation for
facilities and services (other than the generation of referrals), even if
the payment is based on a percentage of the practice's revenues. The
Florida and Michigan fee-splitting laws prohibit paying or receiving any
commission, bonus, kickback, or rebate, or engaging in any split-fee
arrangement in any form with a dentist for patient referrals to dentists or
other providers of health care goods and services.
In addition, most states have laws prohibiting paying or receiving any
remuneration, direct or indirect, that is intended to induce referrals for
health care items or services, including dental items and services.
Federal law also prohibits the offer, payment, solicitation or receipt of
any form of remuneration in return for the referral of patients covered by
federally funded health care programs such as Medicaid, 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.
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ADVERTISING RESTRICTIONS. Many states, including Florida and Michigan,
prohibit dentists from using advertising which includes any name other than
their own, or from advertising in any manner that is likely to lead a
person to believe that a nondentist is engaged in the practice of
dentistry. Florida law also requires all advertising to identify the
dentist who assumes total responsibility for the advertisement and may not
include the name of a person who is neither actually involved in the
practice of dentistry at the advertised location nor an owner of the
practice being advertised. Similarly, Michigan law requires that the name
of each dentist performing services at a location be clearly disclosed by
sign or lettering at such location.
LIMITATIONS ON DELEGATION. Some states, including Florida and Michigan,
regulate the manner in which dentists delegate certain tasks to
nondentists. The Company believes that it complies with these requirements
whenever such requirements apply to activities that are performed by its
employees.
These laws described above provide for civil and criminal penalties for
their violation. These laws have been subject to limited judicial and
regulatory interpretation. They are enforced by regulatory agencies that are
vested with broad discretion in interpreting their meaning. The Company's
agreements and activities have not been examined by federal or state
authorities under these laws and regulations. For these reasons, there can be
no assurance that a review of the Company's business arrangements or the
operation of the Managed Dental Centers will not result in determinations that
would adversely affect the Company's operations or that the Management
Agreements or certain of their provisions will be held valid and enforceable.
In addition, these laws and their interpretation vary from state to state. The
laws and regulations of certain states into which the Company seeks to expand
may require the Company to change the form of relationships entered into with
dentists in a manner that restricts the Company's operations in those states.
See "Business-Governmental Regulation."
NON-COMPETITION COVENANTS. The Management Agreements generally require
each PA to use its best efforts to enter into employment agreements with the
Affiliated Dentists, which agreements include covenants not to compete with the
PA within a specified geographic area (generally from one to five miles) for a
period of from one to three years after termination of employment. In most
states, including Florida and Michigan, a covenant not to compete will be
enforced only to the extent it is necessary to protect a legitimate business
interest of the party seeking enforcement, does not unreasonably restrain the
party against whom enforcement is sought, and is not contrary to the public
interest. This determination is made based on all the facts and circumstances
of the specific case at the time enforcement is sought. For this reason, it is
uncertain whether a court will enforce such a covenant in a given situation. In
addition, there is little judicial authority regarding whether a management
company's interest under a management agreement will be viewed as the type of
protectable business interest that would permit it to enforce such a covenant
or to require a PA to enforce such covenants against the Affiliated Dentists.
Since the intangible value of a Management Agreement depends primarily on the
ability of the PA to preserve its business, which could be harmed if Affiliated
Dentists went into competition with the PA, a determination that these
provisions are unenforceable could have a material adverse impact on the
Company. See "Business-Management Agreements."
COMPETITION. The dental practice management segment of the dental services
industry is highly competitive and is expected to become increasingly
competitive. The Company currently competes with other dental practice
management companies in its existing markets. There are also a number of dental
practice management companies currently operating in other parts of the country
which may enter the Company's existing markets. Many of such competitors and
potential competitors have substantially greater financial resources than the
Company, have established large dental practice networks, or otherwise enjoy
competitive advantages which may make it difficult for the Company to compete
against them or enter into additional Management Agreements on terms acceptable
to the Company. In addition, as the Company seeks to expand its operations into
new markets, it is likely to face competition from dental practice management
companies which already have established a strong presence in such markets.
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The business of providing dental services is highly competitive in each of
the markets in which the Managed Dental Centers operate or in which operations
are contemplated. The Affiliated Dentists compete with other dentists who
maintain single or satellite offices, as well as with dentists who maintain
group practices, operate in multiple offices or are members of competing dental
practice management networks. Many of these dentists have established practices
and reputations in their markets. In addition to competing against established
practices for patients, the Dental Centers compete with such practices in the
retention and recruitment of general dentists, specialists and hygienists to
staff the Dental Centers. If the availability of dentists begins to decline in
the Company's existing or targeted markets, it may become increasingly
difficult to attract and retain the professionals to staff such sites. There
can be no assurance that the Dental Centers will be able to compete effectively
with such other practices. See "Business-Competition."
POTENTIAL CONFLICTS OF INTEREST OF THE COMPANY'S PRESIDENT RELATING TO THE
PAS. In July 1997, the Company entered into a Management Agreement with a PA in
Michigan which is controlled by Dr. Steven Matzkin, the Company's President,
Chief Executive Officer and Chairman of the Board. In addition, Profit Dental
Management Corp. ("Profit"), an entity controlled by Dr. Matzkin, receives
consulting fees from PAs in Michigan relating to the four Detroit-area
practices to which the Company provides management services, as well as
payments on a note relating to the sale of these practices by Dr. Matzkin in
1993 (the "Note"). Consulting payments and payments under the Note aggregate
$216,000 per year and will continue through 2005. Shortly following
consummation of the Offering, it is anticipated that the Company will purchase
the capital stock of Profit. Dr. Matzkin and/or his affiliates also (i) own
some of the dental laboratories that perform laboratory services for the
Affiliated Dentists and (ii) are the lessors under real property and/or capital
equipment leases with certain of the PAs. As a result of the foregoing,
potential conflicts of interest may arise in certain matters including, but not
limited to, matters related to applicable Management Agreements between the
Company and Dr. Matzkin and/or the PAs and Dr. Matzkin. There can be no
assurances that the Company will not be adversely affected by matters in which
Dr. Matzkin and his affiliates have potential conflicts of interest. The
Company believes, however, that all transactions between Dr. Matzkin and his
affiliates, on the one hand, and the Company and the PAs, on the other hand,
are fair to the Company and on terms no less favorable to the Company than
would have been reached through arm's-length negotiations with unrelated third
parties. See "Business-Management Agreements" and "Certain Transactions."
RISKS ASSOCIATED WITH NOTES FROM AND ADVANCES TO PAS. The Company has made
and intends to continue to make loans to PAs to finance the purchase of the
dental assets of Managed Dental Centers. These loans are evidenced by notes and
secured by the dental assets of such Managed Dental Centers, some of which are
intangible and not readily convertible into cash, and are personally guaranteed
by the Affiliated Dentists who own the PAs. Such loans are recorded on the
Company's balance sheet as "Notes Receivable from PAs" until repaid. At
December 31, 1996 and June 30, 1997, Notes Receivable from PAs were $198,395
and $173,756, respectively. Management believes that such loans will increase
in the future as the Company expands its network of Managed Dental Centers. In
addition, in the event that the percentage of revenue retained by any PA is not
sufficient to pay its expenses, as is often the case with newly integrated
Managed Dental Centers and occurs from time to time with other Managed Dental
Centers, the Company may elect to advance funds to cover such expenses. Such
advances are recorded on the Company's balance sheet as "Advances to PAs" until
repaid. At December 31, 1996 and June 30, 1997, Advances to PAs were $16,454
and $287,127, respectively. The failure of any of the PAs to repay such notes
or advances could have a material adverse effect on the Company's results of
operations and financial condition. Further, any decision by the Company to
continually make loans or advances to PAs, or the sustained inability of any PA
to repay such loans or advances, could necessitate adjustments to the
Management Agreements to allow the PAs to retain a higher percentage of net
patient revenue or could require the Company to record additional reserves with
respect to such loans or advances, either of which events could have a material
adverse effect on the Company's results of operations and financial condition.
RISKS OF PROVIDING DENTAL SERVICES. The Affiliated Dentists provide dental
services to the public and are exposed to the risk of professional liability
and other claims. Such claims, if successful, could
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result in substantial damage awards to the claimants which may exceed the
limits of any applicable insurance coverage. The Company does not control the
practice of dentistry by the Affiliated Dentists or the compliance with
regulatory and other requirements directly applicable to the Affiliated
Dentists and their practices. Each Affiliated Dentist has undertaken, however,
to comply with all applicable regulations and requirements, and the Company is
indemnified under the Management Agreements for claims against the Company
arising from the performance of dental services provided by the Affiliated
Dentists. Each PA and Affiliated Dentist has professional liability insurance
with limits of not less than $300,000 per claim and with aggregate policy
limits of not less than $1.0 million per Affiliated Dentist and the Company is
named as an additional insured party on most such liability insurance policies.
There can be no assurance that a future claim or claims will not be successful
and, if successful, will not exceed the limits of available insurance coverage
and the financial resources of the applicable PAs and the Affiliated Dentists,
or that any such insurance coverage will continue to be available at acceptable
costs and on favorable terms. See "Business--Insurance" and "Management
Agreements."
RISKS ASSOCIATED WITH IMPLEMENTATION OF NEW MANAGEMENT INFORMATION
SYSTEMS. The Company's management information systems are not fully automated,
and therefore the Company does not have real-time access to certain information
at its Managed Dental Centers. The Company is evaluating new software packages
that will replace its existing management information systems with fully
automated systems. Failure or significant delays in achieving integration or
complications with respect to the change to new software packages could have a
material adverse effect on the Company's results of operations and financial
condition.
RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS. As an increasing percentage
of the population is covered by managed care organizations that provide dental
coverage, the Company believes that its success will, in part, be dependent
upon its ability to assist the PAs in negotiating favorable contracts with
health maintenance organizations ("HMOs"), health insurance companies and other
third party payors. Most of these contracts are terminable by either party on
90 days notice. There can be no assurance that the Company will be successful
in negotiating, managing or maintaining managed care arrangements on behalf of
the PAs. In addition, the health care industry has experienced a trend toward
cost containment as government and private third-party payors seek to impose
lower reimbursement and utilization rates and negotiate reduced payment
schedules with service providers. The Company believes that these trends may
result in a reduction from historical levels in per patient revenue of the
Managed Dental Centers. To the extent that patients or enrollees covered by
these contracts represent an increasing percentage of the revenues generated by
the PAs, the Company's operating margins may be adversely affected. Any such
reduction of operating margins could have a material adverse effect on the
Company's results of operations and financial condition.
RISKS OF BECOMING SUBJECT TO LICENSURE. Federal and state laws regulate
insurance companies, HMOs and certain other managed care organizations. Many
states also regulate the establishment and operation of networks of health care
providers. In most states, including Florida and Michigan, these laws do not
apply to discounted fee for service arrangements. The Company believes that it
is in compliance with the laws of the states of Florida and Michigan with
respect to the operation of its Dental Centers, but there can be no assurance
that interpretations of these laws by the regulatory authorities in Florida or
Michigan or in the states in which the Company expands will not require
licensure or a restructuring of some or all of the Company's operations. In the
event that the Company is required to become licensed under these laws, the
licensure process can be lengthy and time consuming and, unless the regulatory
authority permits the Company to continue to operate while the licensure
process is progressing, the Company would experience a material adverse change
in its business while the licensure process is pending. In addition, many of
the licensing requirements mandate strict financial and other requirements
which the Company may not be able to meet. Further, if licensed, the Company
would be subject to continuing oversight by, and reporting to, the relevant
regulatory agency. 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 limitation on the Company's ability
to expand could have an adverse effect on the Company. In addition, there are
state
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insurance law regulatory risks associated with the Company's role in
negotiating and administering managed care contracts on behalf of the PAs.
State insurance laws are subject to broad interpretation by regulators. In the
event that the Company or the PAs are determined to be engaged in the business
of insurance, the Company could be required to either seek licensure as an
insurance company or change the form of its relationships with the third-party
payors. There can be no assurances that the Company's operations would not be
adversely affected if the Company or the PAs were to become subject to state
insurance regulations. See "Business--Governmental Regulation."
GEOGRAPHIC CONCENTRATION. The Company's operations are concentrated in the
Florida and Michigan markets and any adverse economic or regulatory
developments or action within these markets could have a material adverse
effect on the Company's business. In addition, the Company's expansion strategy
is dependent, in part, upon entering into Management Agreements with platform
practices in new markets. The Company's strategy of focused expansion within
new markets increases the risk to the Company that adverse economic or
regulatory developments in one or more of these new markets may have a material
adverse effect on the Company's business, financial condition and operating
results.
RISKS ARISING FROM HEALTH CARE REFORM. There can be no assurance that the
laws and regulations of the states in which the Company operates or may desire
to operate in the future will not change or be interpreted in the future to
restrict or adversely affect the Company's relationships with Affiliated
Dentists or the operation of Managed Dental Centers. Proposals that may be
introduced, could, if adopted, have a material adverse effect on the Company's
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 health care reform proposals or
legislation.
ACCOUNTING TREATMENT FOR PHYSICIAN PRACTICE MANAGEMENT COMPANIES. The
Emerging Issues Task Force, an advisory committee of the Financial Accounting
Standards Board, is currently evaluating certain matters relating to accounting
practices for physician practice management companies, which the Company
expects will include a review of the consolidation of the financial statements
of professional corporations and professional associations with which such
companies have management agreements. Any required changes to the accounting
practices of physician practice management companies resulting from this review
could have a material adverse effect on the Company's reported results of
operations.
DEPENDENCE ON KEY INDIVIDUALS. The success of the Company is dependent
upon the continued services of the Company's senior management. The Company's
success is also dependent upon the continued services rendered to the PAs by
the Dental Directors. The loss of the services of these individuals, including
Dr. Steven Matzkin, the Company's Chairman of the Board, President and Chief
Executive Officer, and Mitchell Olan, the Company's Vice President and Chief
Operating Officer, or impairment of the Company's relationship with Dr. Dennis
A. Corona or any other Dental Director, could have a material adverse effect on
the Company. The Company believes that its future success also will depend in
part upon its ability to attract and retain qualified management personnel.
Competition for such personnel is intense and the Company competes for
qualified personnel with numerous other employers, some of whom have greater
financial and other resources than the Company. There can be no assurance that
the Company will be successful in attracting and retaining such personnel. See
"Management."
CONTROL BY PRINCIPAL STOCKHOLDERS. Upon completion of the Offering, the
current stockholders of the Company will own approximately % of the
outstanding shares of Common Stock. Included in this percentage are shares of
Common Stock owned by Dr. Steven Matzkin and the SRM Children's Trust, a trust
for the benefit of Dr. Matzkin's children, which in the aggregate will own
approximately % of the outstanding shares of Common Stock. Accordingly, the
Company's current stockholders, as a group, will have the ability to control
all matters requiring stockholder approval, including the election of the
Company's directors and any amendments to the Company's Amended and Restated
Certificate of Incorporation (the "Certificate") and Amended and Restated
Bylaws (the "Bylaws"), and to control the
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business of the Company. Such control could preclude any acquisition of the
Company and could adversely affect the market price of the Common Stock. See
"Principal and Selling Stockholders" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have outstanding shares of Common Stock, of which the
2,000,000 shares sold in the Offering and an additional shares will be
freely tradeable without restriction or further registration under the
Securities Act. The remaining shares (the "Restricted Shares") are
subject to certain restrictions described below. Holders of of the
Restricted Shares will be eligible to sell a portion of such shares pursuant to
Rule 144 ("Rule 144") under the Securities Act beginning January , 1998,
subject to manner of sale, volume, notice and information requirements of Rule
144. In addition, the Company has granted certain registration rights with
respect to shares of Common Stock. Notwithstanding the eligibility of
certain shares to be sold following the completion of the Offering, such shares
are subject to certain additional restrictions on transfer pursuant to certain
agreements described below. See "Description of Capital Stock--Registration
Rights."
The Company and its executive officers, directors, and current
stockholders have agreed that they will not, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of any option to purchase or other sale or disposition)
of any shares of Common Stock or any securities convertible into, or
exercisable or exchangeable for, Common Stock or other capital stock of the
Company, or any right to purchase or acquire Common Stock or other capital
stock of the Company, for a period of 180 days after the date of this
Prospectus, without the prior written consent of Raymond James & Associates,
Inc. ("Raymond James"), except for bona fide gifts or transfers effected by
such stockholders other than on any securities exchange or in the
over-the-counter market to donees or transferees that agree to be bound by
similar agreements (the "Lock-up Agreements") and except for sales made by
Selling Stockholders to the Underwriters of up to 300,000 shares to cover over-
allotments, if any. Raymond James, in its sole discretion, without notice, may
release some or all of the shares subject to Lock-up Agreements from time to
time.
Additionally, the Company intends to file registration statements under
the Securities Act to register all shares of Common Stock subject to then
outstanding stock options and Common Stock issuable pursuant to the Omnibus
Plan. The Company expects to file these registration statements following the
closing of the 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
Lock-up Agreements. Following the Offering, the Company may issue its Common
Stock from time to time in connection with the acquisition of the non-dental
assets of dental practices. Such securities may be issued in registered
transactions or in transactions exempt from registration under the Securities
Act.
Sales of substantial amounts of Common Stock in the public market, or the
availability of such shares for future sale, could adversely affect the market
price of the Common Stock and could impair the Company's future ability to
raise additional capital through an offering of its equity securities. See
"Shares Eligible for Future Sale" and "Underwriting."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
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,
if a trading market does develop, that it will continue after the Offering. The
initial public offering price has been determined by negotiations among the
Company and the Underwriters. See "Underwriting" for a description of the
factors considered in determining the initial public offering price. The market
price of the Common Stock could be subject to significant fluctuations in
response to variations in financial results or announcements of material events
by the Company or its competitors. Quarterly operating results of the Company,
changes in general conditions in the economy or the dental services industry,
or other developments affecting the Company or its competitors, could cause the
market price of the Common Stock to fluctuate substantially. The Company has
historically
15
<PAGE>
experienced seasonal fluctuation in its quarterly revenue. Specifically, the
first and fourth quarters reflect the highest volume, while the third quarter
has traditionally had the lowest volume. The Managed Dental Centers in Florida
have traditionally experienced increased patient visits in November through
March due to an increase in the population base during these months, while
patient visits decrease during the summer. In addition, the equity markets
have, on occasion, experienced significant price and volume fluctuations that
have affected the market prices for many companies' securities and that have
often been unrelated to the operating performance of these companies. Concern
about the potential effects of health care reform measures has contributed to
the volatility of stock prices of companies in health care and related
industries and may similarly affect the price of the Common Stock following the
Offering. Any such fluctuations that occur following completion of the Offering
may adversely affect the market price of the Common Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS. Certain provisions of Delaware Law and
the Certificate and Bylaws may make a change in control of the Company more
difficult to effect, even if a change in control were in the stockholders'
interest. In addition, the Certificate allows the Board of Directors to
determine the terms of preferred stock which may be issued by the Company
without approval of the holders of the Common Stock, and thereby enables the
Board of Directors to inhibit the ability of the holders of the Common Stock to
effect a change in control of the Company. See "Description of Capital
Stock-Provisions with Possible Antitakeover Effect."
The Company has entered into an employment agreement with Dr. Matzkin
which requires the Company to pay certain amounts to Dr. Matzkin upon his
termination following certain events, including a change in control of the
Company. Such agreement may inhibit a change in control of the Company. See
"Management-Employment Agreements and Termination of Employment and Change in
Control Arrangements."
BROAD DISCRETION OF MANAGEMENT IN APPLYING PROCEEDS OF OFFERING. The
Company intends to use the net proceeds of the Offering to lend money to PAs to
finance the purchase of the assets of dental practices, acquire the non-dental
assets of dental practices, to purchase the capital stock of Profit, to provide
working capital and for other general corporate purposes. Accordingly, the
Company's management will have broad discretion in applying the net proceeds of
the Offering. See "Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of shares of Common Stock
in the Offering will experience immediate and substantial dilution of
approximately $ in the pro forma net tangible book value per share of
Common Stock from the initial public offering price. See "Dilution."
ANTITRUST. The Company and the PAs with which it has Management Agreements
are subject to a range of antitrust laws that prohibit anti-competitive
conduct, including price fixing, concerted refusals to deal and divisions of
markets. Among other things, these laws may limit the ability of the Company to
enter into management agreements with separate practice groups that compete
with one another in the same geographic market. These laws do not apply to
dentists within the same practice group, such as dentists within a single PA,
but might be applicable as to Affiliated Dentists within the Company's separate
Managed Dental Centers in the same geographic market. In addition, these laws
prevent acquisitions of practices that would be integrated into existing
professional groups if such acquisitions substantially lessen competition or
tend to create a monopoly.
THE COMPANY
The Company is the successor to the businesses of Golden Care Holdings
L.C. and its majority-owned subsidiaries, Prophet Management of Florida, L.C.,
a Florida limited liability company ("Prophet"), and Golden Care Network, L.C.,
a Florida limited liability company ("Golden Care"), which were formed in 1992
and 1993, respectively, and commenced operations in 1993. Prophet provided
management services and Golden Care provided licensing services to dental
practices. These
16
<PAGE>
companies utilized the management approach developed by Dr. Matzkin, the
Company's President and Chief Executive Officer, through the management of over
25 dental practices between 1982 and 1993. Dental Care Alliance, Inc. was
incorporated in 1996. See Note 1 to the Consolidated Financial Statements of
the Company.
The address of the Company's principal executive offices is 1343 Main
Street, Sarasota, Florida 34236 and its telephone number is (941) 955-3150.
RELATIONSHIP BETWEEN THE COMPANY AND THE PAS
The Company provides management and licensing services to 19 Managed
Dental Centers, 14 of which are located in Florida and five of which are
located in Michigan. In addition, the Company provides only licensing services
to three Licensed Dental Centers in Florida. The dental practice at each of the
Managed Dental Centers is owned by a separate PA. The Company has subcontracted
the day-to-day management of four Managed Dental Centers located in Michigan to
an affiliate of the PA that owns the practices conducted at such Managed Dental
Centers. The PAs receive their revenue from payments by or for patients, while
the Company receives fees from the PAs for providing management services and
support to the Managed Dental Centers and providing licensing services to all
Dental Centers. The Affiliated Dentists and dental hygienists are employed by
or contract with, and are compensated by, the PAs. The Company, or its
subcontractor for the four Detroit-area Managed Dental Centers, employ and
compensate all administrative and support staff, including receptionists,
office managers and dental assistants located in each Managed Dental Center.
The Company provides management and administrative services to the Managed
Dental Centers allowing the Affiliated Dentists to focus exclusively on the
provision of dental care. The Affiliated Dentists provide general dentistry
services, such as examinations, cleanings, fillings, fitting of fixed and
removable dental prostheses, restorative and cosmetic dentistry, endodontics,
oral surgery and implantology, orthodontics and periodontics. The PAs maintain
full control over the dental practices of the Affiliated Dentists and set
prices for all dental services. Each PA makes all final decisions regarding
advertising and marketing programs related to its practice while the Company
assists in the development and implementation of advertising and marketing
programs. The Company purchases all non-dental inventory and supplies and, as
directed by the PAs, all dental inventory and supplies for each Managed Dental
Center.
The Company assists in marketing its network to health insurance
companies, HMOs and other third-party payors who have an established presence
in regional markets served, or expected to be served, by the PAs and supervises
the PAs' relationships with such third-party payors.
The Company has expanded and expects to continue to expand through the
addition of Dental Centers to its network. Prior to April 1997, the Company had
entered into Management Agreements with respect to PAs that had purchased both
the non-dental assets and the dental assets of such practices. In two cases
since that time, the Company has acquired the non-dental assets of dental
practices it has agreed to manage, while the PA has acquired the dental assets.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company (at an assumed initial public offering
price of $12.00 per share), after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be $21.4 million.
Such net proceeds will be used primarily (i) to lend money to PAs to finance
the purchase of the assets of dental practices, (ii) to acquire the non-dental
assets of dental practices, (iii) to purchase the capital stock of Profit, (iv)
to provide working capital and (v) for general corporate purposes. It is
currently anticipated that the Company will pay approximately $1.0 million to
purchase the capital stock of Profit. The owners of certain PAs with which the
Company has Management Agreements has executed non-binding letters of intent to
acquire nine dental practices, which practices reported aggregate revenue for
their last full fiscal year of approximately $8.0 million. It is estimated that
the aggregate purchase price for the dental and the non-dental assets of these
practices will be approximately $5.0 million. If such transactions are
consummated, the acquiring PAs are expected to enter into Management Agreements
with the Company. No assurance can be given that any such acquisitions will be
consummated by the PA owner, that the Company will enter into Management
Agreements with respect to such practices or that any such practices will be
successfully integrated into the Company's network. See "Risk Factors-Risks
Associated with Expansion Strategy." Pending such applications, the net
proceeds will be invested in investment grade, short-term, interest-bearing
securities. The Company will not receive any of the proceeds from the sale of
any Common Stock by the Selling Stockholders pursuant to the over-allotment
option, if exercised. If any Selling Stockholder fails to sell to the
Underwriters any such additional shares, the Company has agreed that it will
issue and sell to the Underwriters an equal number of shares of Common Stock.
In such event the total proceeds to the Company will increase by $11.16
(assuming an initial public offering price of $12.00 per share) multiplied by
the number of such additional shares issued by the Company. See "Principal and
Selling Stockholders."
DIVIDEND POLICY
The Company presently intends to retain all earnings for the operation and
development of its business and does not anticipate paying any cash dividends
on the Common Stock in the foreseeable future. Any future determination as to
the payment of cash dividends will depend on a number of factors, including
future earnings, capital requirements, the financial condition and prospects of
the Company and any restrictions under credit agreements existing from time to
time, as well as such other factors as the Company's Board of Directors may
deem relevant.
18
<PAGE>
DILUTION
Purchasers of Common Stock offered hereby will experience an immediate and
substantial dilution in the pro forma net tangible book value of the Common
Stock from the initial public offering price. At June 30, 1997, the pro forma
net tangible book value of the Company was $ , or $ per share pro
forma. Net tangible book value per share is determined by dividing the
Company's net tangible book value (tangible assets less total liabilities), by
the number of shares of pro forma Common Stock outstanding. Pro forma
information gives effect to the conversion of the mandatorily convertible
Series A Preferred Stock to shares of Common Stock upon completion of
this Offering and reflects the termination of put rights relating to
shares of Common Stock. After giving effect to the sale of 2,000,000 shares of
Common Stock offered hereby (at an assumed initial public offering price of
$12.00 per share), after deducting underwriting discounts and commissions and
estimated offering expenses, the pro forma net tangible book value of the
Company at June 30, 1997 would have been $ or $ per share. This
represents an immediate increase in pro forma net tangible book value of
$ per share to existing stockholders and an immediate dilution in pro
forma net tangible book value of $ per share to new investors purchasing
shares of Common Stock in the Offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price .............................. $12.00
Pro forma net tangible book value at June 30, 1997 .................. $
Increase attributable to new investors ..............................
--------
Pro forma net tangible book value after the Offering ............... -------
Dilution in pro forma net tangible book value to new investors ...... $
=======
</TABLE>
The following table sets forth, on a pro forma basis at June 30, 1997, the
differences between the existing stockholders and the new investors purchasing
shares in the Offering with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company and the
average price per share at an assumed initial public offering price of $12.00
per share, without giving effect to underwriting discounts and commissions and
offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2) ...... % $ % $12.00
New investors ..................
------- ------- -------- -------
Total ........................ 100.0% 100.0%
======= ======= ======== =======
</TABLE>
- ----------------
(1) Assuming the Underwriters' over-allotment option is exercised in full,
existing stockholders will hold shares, or % of the total number
of shares outstanding after the Offering, and the number of shares held by
new investors will increase by 300,000 shares to 2,300,000 shares, or %
of the total shares of Common Stock outstanding after the Offering. See
"Principal and Selling Stockholders."
(2) Does not include (i) an aggregate of shares of Common Stock reserved
for issuance under the Omnibus Plan, of which options for approximately
shares will be granted upon consummation of this Offering at a per
share exercise price equal to the public offering price per share, (ii)
shares of Common Stock to be reserved for issuance (assuming an
initial public offering price of $12.00 per share) pursuant to warrants to
be issued upon consummation of the Offering at a weighted average exercise
price equal to $ per share and (iii) shares of Common
Stock reserved for issuance pursuant to outstanding options to purchase
Common Stock at a weighted average exercise price of $ per share. See
"Management-Omnibus Executive Inventive Compensation Plan" and
"Description of Capital Stock--Warrants and Options to Purchase Common
Stock."
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1997, (i) on an actual basis, and (ii) on a pro forma as adjusted
basis to give effect to the conversion of the mandatorily convertible Series A
Preferred Stock to shares of Common Stock upon completion of this
Offering and to the termination of put rights relating to shares of
Common Stock and to reflect the sale by the Company of 2,000,000 shares of
Common Stock offered hereby (at an assumed offering price of $12.00 per share),
and the application of the estimated net proceeds therefrom as described under
"Use of Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements included elsewhere herein.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
PRO FORMA,
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Current maturities of long-term debt ................................. $ 161,807 $
========== =====
Long-term debt, net of current maturities .............................. 28,746
Mandatorily redeemable preferred stock, $.01 per share, 15,000 shares,
authorized, issued and outstanding, actual; none authorized, issued or
outstanding, pro forma as adjusted ................................. 1,473,062
Put rights associated with common stock .............................. 191,237
Preferred stock, $.01 par value, no shares authorized, issued or
outstanding, actual; 5,000,000 shares authorized, no shares issued or
outstanding, pro forma as adjusted .................................
Common stock, $.01 par value, 200,000 shares authorized, 52,040 shares
issued and outstanding, actual; 50,000,000 authorized, shares
issued and outstanding, pro forma as adjusted ........................ --
Additional paid-in capital ............................................. 614,151
Retained earnings ...................................................... 26,845
---------- -----
640,996
---------- -----
$2,334,041 $
========== =====
</TABLE>
- ----------------
(1) Does not include (i) an aggregate of shares of Common Stock reserved
for issuance under the Omnibus Plan, of which options for approximately
shares will be granted upon consummation of this Offering at a per
share exercise price equal to the public offering price per share, (ii)
shares of Common Stock to be reserved for issuance (assuming an
initial public offering price of $12.00 per share) pursuant to warrants to
be issued upon consummation of the Offering at a weighted average exercise
price equal to $ per share and (iii) shares of Common
Stock reserved for issuance pursuant to outstanding options to purchase
Common Stock at a weighted average exercise price of $ per share. See
"Management-Omnibus Executive Incentive Compensation Plan" and
"Description of Capital Stock-Warrants and Options to Purchase Common
Stock."
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The Company commenced operations in November 1993. The following selected
consolidated financial data for the year ended December 31, 1993 and at
December 31, 1993 are derived from the unaudited Consolidated Financial
Statements of the predecessors of Dental Care Alliance, Inc. The following
selected consolidated financial data for the years ended December 31, 1994,
1995 and 1996 and at December 31, 1994, 1995 and 1996 are derived from the
Consolidated Financial Statements of Dental Care Alliance, Inc. and its
predecessors which have been audited by Price Waterhouse LLP, independent
certified public accountants. The financial data presented below for the six
month periods ended June 30, 1996 and 1997 and at June 30, 1997 are unaudited
and were prepared by management of the Company on the same basis as the audited
Consolidated Financial Statements included elsewhere herein, and, in the
opinion of management of the Company, include all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the information
set forth therein. The results for the six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1997 or future periods. The following information should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------- --------------------------
1993 1994 1995 1996 1996 1997
---------- ---------- ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Management fees ................................. $ 83,700 $673,304 $ 513,705 $1,289,828 $405,072 $2,471,759
Consulting and licensing fees .................. -- 42,763 262,769 347,600 138,812 161,885
--------- --------- --------- ---------- -------- ----------
Total revenues ................................. 83,700 716,067 776,474 1,637,428 543,884 2,633,644
--------- --------- --------- ---------- -------- ----------
Managed dental center expenses(1):
Staff salaries and benefits .................. -- -- -- 223,657 -- 601,383
Dental supplies .............................. -- -- -- 79,448 -- 213,334
Laboratory fees .............................. -- -- -- 98,222 -- 373,010
Marketing .................................... -- -- -- 38,128 -- 176,627
Occupancy .................................... -- -- -- 106,501 -- 333,085
Other .......................................... -- -- -- 57,182 -- 326,494
--------- --------- --------- --------- -------- ----------
Total managed dental center expenses ......... -- -- -- 603,138 -- 2,023,933
--------- --------- --------- --------- -------- ----------
83,700 716,067 776,474 1,034,290 543,884 609,711
Salaries and benefits ........................... 8,339 408,716 400,669 521,683 261,642 373,016
General and administrative ..................... 16,064 204,901 234,577 260,558 118,476 135,970
Advisory services(2) ........................... -- -- 127,768 -- -- --
Depreciation and amortization .................. -- 15,150 22,106 27,654 10,254 41,578
--------- --------- --------- --------- -------- ----------
Operating income (loss) ........................ 52,297 87,300 (8,646) 224,395 153,512 59,147
Interest income (expense), net .................. 22,584 6,494 20,781 (5,058) 36,464
--------- --------- --------- --------- -------- ----------
Income (loss) before income taxes
and minority interest ........................ 52,297 109,884 (2,152) 245,176 148,454 95,611
Provision for income taxes ..................... -- 19,919 -- 35,500 -- 36,000
Minority interest .............................. 2,440 8,654 7,674 3,537 --
--------- --------- --------- --------- -------- ----------
Net income (loss) ........................... 52,297 87,525 (10,806) 202,002 144,917 59,611
========= ========= ========= ========= ======== ==========
Adjustment to redemption value of common
and preferred securities ..................... -- 39,951 85,709 (191,237) -- (10,500)
Cumulative preferred stock dividend ............ -- -- (6,485) -- (60,000)
--------- --------- --------- --------- -------- ----------
Net income (loss) applicable to common stock ... -- $127,476 $ 74,903 $ 4,280 $144,917 $ (9,889)
========= ========= ========= ========= ======== ==========
Unaudited pro forma data:
Income (loss) before income taxes and
minority interest .............................. $109,884 $ (2,152) $ 245,176 $148,454 $ 95,611
Pro forma provision for income taxes(3) ......... 63,000 42,000 -- 94,000 57,000 36,000
--------- --------- --------- --------- -------- ----------
Minority interest in consolidated subsidiaries -- 1,507 5,343 4,739 2,184 --
--------- --------- --------- --------- -------- ----------
Pro forma net income ........................... $101,103 $ 66,377 $ (7,495) $ 146,407 $ 89,270 $ 59,611
========= ========= ========= ========= ======== ==========
Pro forma net income per common share(4) ......... $ 2.78 $ 1.13
========= ==========
Fully diluted pro forma net income per share ... $ 3.28 $ .96
========= ==========
Weighted average number of common shares
outstanding .................................... 52,648 52,648
Fully diluted weighted average
shares outstanding ........................... 61,540 61,540
========= ==========
</TABLE>
- ----------------
(1) Effective October 1996, the Company revised the terms of all of its 12 then
existing Management Agreements such that the Company is responsible for
the payment of all non-professional expenses of the Managed Dental
Centers. Ten Management Agreements were also revised to base the Company's
management fee on a percentage of net profits at each PA to a percentage
of net collected revenues from each PA. Accordingly, prior to these
revisions to such 12 Management Agreements, all non-professional expenses
of the Managed Dental Centers and related revenues were reflected in each
PA's financial statements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
21
<PAGE>
(2) Represents non-cash charges for warrants issued in consideration for
certain financial advisory services.
(3) Pro forma adjusted to reflect a 38% income tax rate as if the Company was
taxed as a C Corporation for the entire period presented due to the
conversion of the Company from Limited Liability Corporation status to C
Corporation status in October 1996. See Notes 2 and 7 of Notes to
Consolidated Financial Statements.
(4) Share information does not reflect the Stock Split.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------- AT JUNE 30,
1993 1994 1995 1996 1997
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ................................. $144,497 $113,385 $ 98,676 $ 965,853 $ 832,186
Total assets .................................... 187,203 466,820 524,543 3,122,939 3,370,468
Long-term debt, including current maturities ...... 22,100 209,437 163,745 214,002 190,553
Redeemable common & preferred securities ......... -- -- -- 1,593,799 1,664,299
Stockholders' equity .............................. 165,103 118,400 296,837 632,285 641,516
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Dental Care Alliance, Inc. is a dental practice management company
providing management and licensing services to dental practices in Florida and
Michigan. The Company provides management and licensing services to 19 Managed
Dental Centers, 14 of which are located in Florida and five of which are
located in Michigan. Additionally, the Company provides only licensing services
to three Licensed Dental Centers in Florida. Management services include
financial, accounting, billing, training, efficiency and productivity
enhancement, recruiting, team building, marketing, advertising, purchasing,
collection and other services, as well as the provision of management and
administrative personnel. Licensing services include marketing, advertising and
purchasing.
With respect to management services it provides to dental practices, the
Company enters into Management Agreements with the PAs that own the practices.
The Company commenced operations in November 1993 by providing management and
licensing services to five dental practices located in Sarasota, Palmetto,
Largo, Port Charlotte and Venice, Florida. In 1994, the Company entered into
its first Management Agreement for a newly developed practice, located in
Englewood, Florida and entered into a Management Agreement to manage an
additional existing practice in Fort Myers, Florida. In 1995, the Company
entered into four new Management Agreements, two of which were with respect to
newly developed practices located in Kissimmee and Bradenton, Florida and the
remaining two of which were with respect to existing practices located in
Sarasota and Port Richey, Florida. The Company entered into four additional
Management Agreements in 1996 to manage practices located in Orlando, Tampa,
Ocoee and Clearwater, Florida. In addition, the Company terminated its
Management Agreements with respect to the Palmetto and Venice Managed Dental
Centers in 1995 and with respect to the Port Richey Managed Dental Center in
1996.
In April 1997, the Company purchased the non-dental assets of, and entered
into a Management Agreement with respect to a dental practice in Tampa,
Florida. In July 1997, the Company entered into a Management Agreement with
respect to a dental practice in Flint, Michigan. In July 1997, the Company
entered into a Management Agreement with respect to four dental practices
located in the Detroit, Michigan area. In August 1997, the Company purchased
the non-dental assets of, and entered into a Management Agreement with respect
to, a dental practice located in Tallahassee, Florida.
Owners of certain PAs with which the Company has Management Agreements
have executed non-binding letters of intent to acquire nine dental practices
employing 48 dentists, many of whom are part-time, and 19 dental hygienists,
which practices reported aggregate revenue for their respective last full
fiscal years of approximately $8.0 million. If such transactions are
consummated, the acquiring PAs are expected to enter into Management Agreements
with the Company. There can be no assurance that the Company will enter into
Management Agreements with respect to such practices or that any such practices
will be integrated successfully into the Company's network.
Prior to October 1996, the management fee paid to the Company pursuant to
the Management Agreements had been equal to a percentage ranging from 50-90% of
the net profits of the individual Managed Dental Centers, as defined in the
Management Agreements, plus reimbursement to the Company of its
non-professional expenses. Effective October 1996 the Company revised all of
its 12 then existing Management Agreements. Ten of these agreements were
revised such that the Company is paid management fees based on 74% of total
collected revenues on a cash basis minus any patient refunds ("Net Collected
Revenue") of the Managed Dental Centers and the assumption of responsibility
for the payment of the non-professional expenses of the Managed Dental Centers
(the "Standard Management Agreements"). The remaining two Management Agreements
continue to have management fee structures based upon 50-55% of net profit of
the two related Managed Dental Centers. The Company will seek to cause future
Management Agreements to be on terms substantially similar to those of the
Standard Management Agreements. See "Business--Management Agreements."
23
<PAGE>
Period to period comparisons of the Company's results of operations set forth
below should be considered in light of the significant changes in the Company's
recognition of revenues and expenses resulting from the revisions to the
Management Agreements in October 1996.
The Company also enters into license agreements with each Dental Center
pursuant to which the Company provides licensing and advertising services to
the Dental Centers. In return for such services, the Company has collected fees
generally ranging from $800 to $1,000 per month from each Managed Dental Center
and from $600 to $1,200 from each Licensed Dental Center.
Historically, in connection with the execution of a Management Agreement,
a PA has typically acquired both the dental and the non-dental assets of a
Managed Dental Center. The Company has either made loans to the acquiring PA or
has assisted the PA in obtaining third-party financing to purchase such assets.
Recently, the Company has acquired the non-dental assets of two Managed Dental
Centers while the PAs acquired the dental assets of such Managed Dental
Centers. The Company intends to use the proceeds of this Offering in part to
make additional loans to PAs to purchase both the dental and non-dental assets
of additional Managed Dental Centers and in part for the Company to acquire the
non-dental assets of additional Managed Dental Centers.
The Company does not consolidate the balance sheets or the operating
results (including revenues and expenses) of the dental practices under the
Management Agreements since these revenues and expenses are earned and incurred
by the PAs, not the Company. Similarly, the Company does not record any
goodwill in connection with its execution of the Standard Management Agreements
or the acquisition of non-dental assets from a dental practice, since neither
of such transactions constitutes a business combination. The Company has
recorded goodwill and other intangible assets in cases where the Company has
paid a PA in consideration for a modification to an existing Management
Agreement.
Prior to October 1996, the majority of the Company's operations were
performed through limited liability companies. Except for the period from
January through September, 1994 with respect to one of the Company's
predecessors in interest, the Company's statements of operations prior to
October 1996 do not include a provision for income taxes. Included in the
Company's 1996 tax provision are amounts related to the income tax expense
associated with establishing a deferred tax liability for book/tax differences
arising from its reorganization from Limited Liability Corporation to C
Corporation status.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
MANAGEMENT FEES. Management fees consist of a percentage of the net
realizable patient-related revenue at the majority of the PAs and a percentage
of the net realizable profits earned by the remaining PAs. Management fees
increased 510.2% from $405,072 for the six months ended June 30, 1996 to $2.5
million for the six months ended June 30, 1997 primarily due to the revisions
to 10 Management Agreements in October 1996 and, to a significantly lesser
extent, to the increase in the number of Managed Dental Centers.
CONSULTING AND LICENSING FEES. Consulting and licensing fees consist of
fees earned by the Company for licensing services to the Dental Centers and
consulting services to four Managed Dental Centers in Michigan. As a result of
the Company's execution of a new Management Agreement in July 1997, effective
July 1, 1997, with respect to these four managed dental centers, income from
consulting fees will be included in management fees. Consulting and licensing
fees increased 16.6% from $138,812 for the six months ended June 30, 1996 to
$161,885 for the six months ended June 30, 1997. This increase was caused
primarily by the addition of four Managed Dental Centers in June 1996.
MANAGED DENTAL CENTER EXPENSES. Managed dental center expenses consist of
the non-professional expenses at the Managed Dental Centers. Managed dental
center expenses increased from $0 for the six months ended June 30, 1996 to
$2.0 million for the six months ended June 30, 1997 primarily the change
24
<PAGE>
in the Management Agreements in October 1996. Prior to 1996, the Company was
not responsible for any managed dental center expenses.
SALARIES AND BENEFITS. Salaries and benefits consist of costs for salaries
and benefits for employees at the Company's corporate offices. Salaries and
benefits increased 42.6% from $261,642 for the six months ended June 30, 1996
to $373,016 for the six months ended June 30, 1997. This increase in salaries
and benefits was caused primarily by the hiring of additional personnel in the
Company's accounting and business development departments.
GENERAL AND ADMINISTRATIVE. General and administrative expense consists of
expenses related to the operation of the Company's corporate offices, such as
rent, legal, accounting and travel expenses. General and administrative expense
increased 14.8% from $118,476 for the six months ended June 30, 1996 to
$135,970 for the six months ended June 30, 1997. This increase was caused
primarily by additional occupancy expenses associated with the Company's
expansion of its corporate headquarters and secondarily by additional
travel-related expense incurred in connection with business development.
DEPRECIATION AND AMORTIZATION. Depreciation consists of the depreciation
expense on capital assets owned by the Company and located at either the
corporate offices or at Managed Dental Centers. Depreciation and amortization
expense increased 305.5% from $10,254 for the six months ended June 30, 1996 to
$41,578 for the six months ended June 30, 1997. This increase was caused
primarily by amortization of Management Agreements capitalized in October 1996
in connection with the revisions to the Management Agreements at that time and
secondarily by depreciation resulting from the purchase of equipment for a
Managed Dental Center.
INTEREST INCOME (EXPENSE), NET. Interest income (expense), net increased
$41,522 from $(5,058) for the six months ended June 30, 1996 to $36,464 for the
six months ended June 30, 1997. This increase was attributable primarily to
earnings on the higher cash balance as well as earnings on a new note
receivable in February 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
MANAGEMENT FEES. Management fees increased 151.1% from $513,705 in 1995
to $1.3 million in 1996. This increase resulted primarily from the October 1996
revision to the Management Agreements and, to a significantly lesser extent,
the execution of four new Management Agreements.
CONSULTING AND LICENSING FEES. Consulting and licensing fees increased
32.3% from $262,769 in 1995 to $347,600 in 1996. This increase was attributable
primarily to an increase in the consulting fees earned from the Michigan
practices, additional license fees earned from four new Managed Dental Centers
and a full year of license fees from four Managed Dental Centers acquired in
1995.
MANAGED DENTAL CENTER EXPENSES. Managed dental center expenses increased
from $0 in 1995 to $603,138 in 1996. This increase was attributable to the
revisions to the Management Agreements in October 1996. Prior to 1996, the
Company was not responsible for any managed dental center expenses.
SALARIES AND BENEFITS. Salaries and benefits increased 30.2% from $400,669
in 1995 to $521,683 in 1996. This increase was attributable primarily to the
hiring of additional staff at four new Managed Dental Centers.
GENERAL AND ADMINISTRATIVE. General and administrative expense increased
11.1% from $234,577 in 1995 to $260,558 in 1996. This increase was attributable
to increased expense associated with the revised Management Agreements and the
cost of incorporating and recapitalizing the Company.
ADVISORY SERVICES. Advisory services expense relates to non-cash charges
for warrants issued in consideration of certain advisory services rendered to
the Company by a third party. Advisory services expense decreased from $127,768
in 1995 to $0 in 1996 as a result of a one time recognition in 1995 of such
expense.
25
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 25.1% from $22,106 in 1995 to $27,654 in 1996. This increase was
attributable to depreciation of additional equipment, amortization of
incorporation costs and amortization of Management Agreements capitalized in
October 1996 in connection with the revision of the Management Agreements.
INTEREST INCOME (EXPENSE), NET. Interest income (expense), net increased
220.0% from $6,494 in 1995 to $20,781 in 1996. This increase was attributable
primarily to earnings on increased cash balances and earnings on notes
receivable from Managed Dental Centers.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
MANAGEMENT FEES. Management fees decreased 23.7% from $673,304 in 1994 to
$513,705 in 1995. This decrease was attributable to the termination of two
Management Agreements in June 1995. The Company added four new Management
Agreements, however, management fees earned from the new Management Agreements
were insufficient to replace the lost management fees from the two terminated
agreements.
CONSULTING AND LICENSING FEES. Consulting and licensing fees increased
514.5% from $42,763 in 1994 to $262,769 in 1995. This increase was attributable
to an increase in the number of License Agreements, and the receipt of a full
year of consulting fees from four Michigan practices.
MANAGED DENTAL CENTER EXPENSES. Managed dental center expenses were $0 for
both 1994 and 1995 as the Company was not responsible for any dental center
expenses in either 1994 or 1995.
ADVISORY SERVICES. Advisory services expense increased from $0 in 1994 to
$127,768 in 1995 as a result of a one-time recognition of an expense in 1995 as
discussed above.
INTEREST INCOME (EXPENSE), NET. Interest income (expense), net decreased
71.2% from $22,584 in 1994 to $6,494 in 1995. This decrease was attributable
primarily to decreased cash balances due to repayment of long-term debt and
dividends.
SEASONALITY
The Company historically has experienced seasonal fluctuations in its
quarterly revenue. Specifically, the first and fourth quarters reflect the
highest patient volume, while the third quarter has traditionally had the
lowest patient volume. The Managed Dental Centers in Florida have traditionally
experienced increased patient visits in November through March due to an
increase in the population base during these months, while patient visits
decrease during the summer. Beginning in July 1997, the Company executed
Management Agreements with Managed Dental Centers in Michigan. The Company
expects that the seasonality in Florida will be offset to some extent by fewer
seasonal fluctuations in Michigan.
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<PAGE>
QUARTERLY FINANCIAL INFORMATION
The following table sets forth unaudited quarterly operating results for
each of the Company's last four quarters. This information has been prepared on
a basis consistent with the Company's audited financial statements and includes
all adjustments (consisting only of normal recurring adjustments) that
management considers necessary for a fair presentation of the data. These
quarterly results are not necessarily indicative of future results of
operations. This information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1997 1997
-------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Total revenue ........................ $ 208,794 $837,214 $1,204,681 $1,428,963
Managed dental center expenses ...... -- 603,138 921,142 1,102,791
Operating income ..................... (122,768) 71,649 28,707 30,440
Net income ........................... (125,383) 66,766 26,622 32,989
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through internal cash flow, the sale of equity securities and commercial bank
borrowings. Net cash (used in) provided by operations for the years ended
December 31, 1994, 1995, 1996 and the six months ended June 30, 1997 was
($82,200), $75,873, $270,121 and $83,461, respectively. Net cash (used in)
provided by operations for 1994, 1995, 1996 and the six months ended June 30,
1997 consisted primarily of net income offset by increases in consulting and
licensing fees receivable, receivables from PAs and accounts payable and
accrued expenses.
Cash used in investing activities for the years ended December 31, 1994,
1995, 1996 and the six months ended June 30, 1997 was $294,064, $5,649,
$487,858 and $186,401, respectively. Investing activities included capital
expenditures for 1994, 1995, 1996 and the six months ended June 30, 1997 of
$177,778, $4,703, $4,444 and $211,040. For the year ended December 31, 1994,
the Company made advances under notes to the PAs in the net amount of $116,286.
Subsequent to 1994, the Company has received payments under these notes or made
advances under new notes for the years ended December 31, 1995, 1996 and the
six months ended June 30, 1997 in the net amounts of $19,054, $3,075 and
$24,639.
Cash provided by (used in) financing activities for the years ending
December 31, 1994, 1995, 1996 and the six months ending June 30, 1997 was
$273,763, $(69,926), $1,428,803 and $(274,102). The financing activities
increased primarily as a result of the issuance of long-term debt of $211,584
in 1994 and the issuance of preferred stock of $1.5 million (net of issuance
costs of $105,000) in 1996, which were offset each year through the repayment
of long-term indebtedness.
In August 1997, the Company entered into a revolving line of credit (the
"Credit Agreement") which provides for an aggregate of $1.2 million. The
Company has not yet drawn upon this line of credit. Under the terms of the
Credit Agreement, the Company may use up to $600,000 of the credit line for the
purchase of non-dental assets of dental centers provided that each borrowing is
repaid within 45 days of its drawdown. The remaining $600,000 may be used for
general working capital needs. The revolving line of credit bears interest at
0.75% per annum above the lender's prime rate and is payable on demand.
Interest only is payable monthly. Amounts borrowed pursuant to the Credit
Agreement are secured by a first security interest in most of the Company's
assets, including receivables and equipment. Additionally, any outstanding
balances under the working capital line are guaranteed by Dr. Steven R.
Matzkin, the Company's Chairman of the Board, President and Chief Executive
Officer. The Company intends to use its credit line, together with its
available cash, to fund any working capital needs and to purchase non-dental
assets of dental centers.
The Company previously has made loans to various PAs in connection with
the PAs' acquisition of assets of dental practices and has made working capital
advances to various PAs for their operations.
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<PAGE>
The loans, which are evidenced by interest-bearing notes that are payable upon
demand, are being repaid in accordance with their terms. Both the loans and
advances are personally guaranteed by the PA owners.
The Company intends to enter into additional Management Agreements with
respect to, as well as purchase the non-dental assets of, additional practices.
In addition, the Company intends to lend money to PAs to fund the purchase of
the assets of dental practices. The Company plans to finance these activities
through a combination of the net proceeds of this Offering, cash flow from
operations, bank financing and issuances of Common Stock. See "Use of
Proceeds."
Based upon the Company's anticipated needs for loans and advances to PAs,
acquisition of non-dental assets of dental practices, capital expenditures, the
purchase of the capital stock of Profit and general corporate purposes,
management believes that the combination of existing cash, cash flow from
operations, available credit lines and the net proceeds received from this
Offering will be sufficient to meet its capital requirements through 1998.
INFLATION
Inflation has not had a significant impact on the Company in the past
three years nor is it expected to have a significant impact in the foreseeable
future.
28
<PAGE>
BUSINESS
GENERAL
Dental Care Alliance, Inc. provides management and licensing services to
dental practices in Florida and Michigan. The Company currently provides
services to 22 Dental Centers, 19 of which are Managed Dental Centers, and
three of which are Licensed Dental Centers. Management services include
financial, accounting, billing, training, efficiency and productivity
enhancement, recruiting, team building, marketing, advertising, purchasing,
collection and other services, as well as the provision of management and
administrative personnel. Licensing services include marketing, advertising and
purchasing. The Company currently is expanding in Florida and Michigan and
intends to selectively expand into new markets.
THE DENTAL SERVICES INDUSTRY
The dental services industry in the United States is large and highly
fragmented. According to HCFA, expenditures for all dental services were an
estimated $45.8 billion in 1995 and are expected to reach $59.1 billion in
2000, representing a 5.2% compound annual growth rate. The Company believes
this anticipated growth is principally due to an increase in availability of
various types of dental insurance, an increase in demand for dental services as
the United States population ages, an increase in demand for preventive and
cosmetic dentistry and advances in technology. According to the ADA, in 1994
dental services in the United States were provided by approximately 153,000
dentists, 87.7% of whom practiced alone or with one other dentist. These solo
practitioners and small group practices have traditionally managed all aspects
of their dental practices, including the administrative, purchasing,
accounting, marketing, recruiting and business development functions.
Several factors are contributing to the increased formation of larger
group practices. Dental practices are becoming increasingly complex to manage
due, in part, to the shift to third-party reimbursement. Other contributing
factors include the economies of scale achievable in such areas as
administration, purchasing and advertising, the need for cost-effective
management of patient care, the desire to capture revenues from higher-margin
specialty procedures which would otherwise be referred to independent
specialists, and the growing importance of capital resources to acquire and
maintain state-of-the-art dental equipment, clinical facilities and management
information systems.
A major factor driving consolidation of dental providers is the increasing
prevalence of third-party payor programs. The number of individuals covered by
private dental insurance, including various managed care and indemnity plans,
has increased and is expected to increase further as health insurers attempt to
gain a competitive advantage by offering dental insurance packages to present
and prospective members enabling employers to add dental care to benefits
packages at moderate incremental cost. According to HCFA, payment for dental
services by private insurance companies was approximately $22.0 billion in
1995.
Despite the growth in private dental insurance, according to the National
Association of Dental Plans in 1995 approximately 54% of the United States
population was not covered by any type of private or government funded dental
insurance. This uninsured population includes lower income individuals who
cannot afford a basic level of dental services and individuals who typically
obtain dental services as needed on a fee-for-service basis. To address the
dental care needs of the lower income segment of the uninsured population, some
government health care reform proposals have included provisions for increased
dental coverage and Medicaid HMOs have begun offering preventive dental
services as a standard feature to plan members.
The Company anticipates that as the number of managed care plans and
government funded programs providing dental insurance grows, pressures to
contain costs will increase, as has been the case in many other sectors of the
health care industry. Such cost containment pressures will likely place solo
practitioners and small dental group practices at a significant disadvantage.
Furthermore, in order to
29
<PAGE>
properly negotiate and administer dental managed care contracts, dental care
providers must have management expertise and sophisticated information systems
which often exceed the capabilities of sole practitioners and small dental
practice groups.
BUSINESS STRATEGY
The Company believes it is well-positioned to respond successfully to
recent trends driving dental provider consolidation. The Company's objective is
to become a leading dental practice management company in each of its target
markets. To achieve this objective the Company seeks to grow rapidly through a
combination of internal growth and external expansion. The key elements of its
internal growth strategy are to: (i) increase revenues and operating income at
Managed Dental Centers primarily through the implementation of customized
marketing and productivity improvement programs and the integration of
specialty service providers into its network, (ii) facilitate long-term patient
relationships by stressing professionalism and the provision of high quality
care, and (iii) recommend adjustments to the third-party payor mix at each
Managed Dental Center to maximize productivity and respond to local market
conditions. The key elements of its external expansion strategy are to: (i)
identify potential Managed Dental Centers which have the necessary
characteristics to excel in their specific local market, (ii) increase market
share in current markets by entering into Management Agreements with additional
high quality dental practices, and (iii) expand into new markets by entering
into Management Agreements with well-established practices that can serve as
platforms for further expansion into new markets.
INTERNAL GROWTH STRATEGY
/bullet/ INCREASE REVENUES AND OPERATING INCOME AT MANAGED DENTAL
CENTERS. The Company focuses on increasing revenues and operating income at
its Managed Dental Centers primarily through the implementation of
marketing programs and improvements in productivity and expansion into
specialty dental services. Dr. Steven R. Matzkin, the Company's Chairman of
the Board, President and Chief Executive Officer, has invested over 12
years developing a flexible and analytically driven management approach
which has been applied to a wide variety of dental practices, including
urban, suburban, start-up, mature, fee-for-service and managed care
practices. The Company uses this management approach to design and
implement an integrated marketing, staffing and scheduling program to
address the specific needs of each of its Managed Dental Centers. These
programs are designed to: (i) focus the Affiliated Dentists and dental
hygienists on the provision of high quality dental care; (ii) maximize
revenue per Managed Dental Center through the implementation of marketing,
case presentation, public relations and patient-calling programs; (iii)
increase market share by recruiting local dental specialists (such as
orthodontists, periodontists and oral surgeons) to be employed at the
Managed Dental Centers, thereby increasing total revenue per Managed Dental
Center and precluding the need to refer certain types of dental procedures
to third parties outside of the Company's network and (iv) increase the
capacity for patient flow through incremental efficiencies, training and,
if necessary, facility expansion. The Company closely monitors and analyzes
the financial and operational performance of each Managed Dental Center and
regularly makes refinements to each action plan. The Company believes that
its broad practice management experience and flexible management approach
favorably position the Company to capitalize on emerging trends in the
dental services industry and adapt to future industry changes.
/bullet/ FACILITATE LONG-TERM PATIENT RELATIONSHIPS. The Company believes
that its Managed Dental Centers can increase patient satisfaction and
retention by providing patients with high quality dental care at reasonable
fees. Accordingly, the Company stresses professionalism and quality care
from the entire staff at the Managed Dental Centers. The Company encourages
frequent training of its staff and Affiliated Dentists and other dental
professionals. The Company systematically tracks patient visits and
provides the Managed Dental Centers with detailed patient information to
assist them in their efforts to deliver consistently high quality care.
30
<PAGE>
/bullet/ RECOMMEND ADJUSTMENTS TO THE THIRD-PARTY PAYOR MIX. The Company
recommends adjustments to a Managed Dental Center's patient mix among
individuals, public and private payors. The Company generally targets
fee-for-service revenues, which include fees paid by indemnity insurers and
direct patient billings, and supplements that with managed care contract
revenue. The Company closely monitors its Managed Dental Centers' payor
mixes in an effort to maximize the productivity of the Affiliated Dentists
and other dental professionals and the utilization of the facilities.
EXTERNAL EXPANSION STRATEGY
/bullet/ IDENTIFY POTENTIAL MANAGED DENTAL CENTERS. The Company targets
dental practices that have the characteristics necessary to excel in their
specific local markets. The Company initially reviews basic information on
each candidate practice, including location, revenue, payor mix, and number
of operatories and active patients. If the initial review indicates that
the practice merits additional consideration, the Company performs an
in-depth financial and operational analysis of the practice. As part of
this review, the Company uses proprietary statistical models that it has
developed for each practice type to evaluate the performance potential of
the practice. The Company examines the results of its analysis and
considers other qualitative factors to determine whether an affiliation
would be mutually beneficial.
/bullet/ INCREASE MARKET SHARE IN CURRENT MARKETS. The Company generally
seeks to expand in its current markets by adding high quality practices and
retaining the dentists who are currently employed in such practices. The
establishment of a concentrated network of affiliated dental care providers
in each of its markets enables the Company to leverage its marketing
efforts and infrastructure. The Company seeks to utilize its brand name
recognition and reputation to attract dental professionals to its network.
The Company also seeks to increase its market share by recruiting local
specialists (such as orthodontists, periodontists and oral surgeons) to
work with the Managed Dental Centers, thereby increasing total revenue per
Managed Dental Center and precluding the need to refer certain types of
dental procedures to third parties outside of the Company's network.
/bullet/ EXPAND INTO NEW MARKETS. The Company intends to utilize its
extensive experience in entering into Management Agreements with Managed
Dental Centers to selectively expand into new markets. The Company expects
to focus primarily on contiguous areas in the Southeast and Midwest
regions. The Company has developed specific criteria consistent with its
approach to practice management for evaluating new markets. The Company
seeks to enter into Management Agreements with well-established practices
employing highly respected dental practitioners to achieve significant
market presence within a relatively short time frame, quickly understand
the new market and achieve the critical mass necessary to expand profitably
into the new market.
SERVICES AND OPERATIONS
The Company provides management and administrative services to the Managed
Dental Centers but does not provide dental care services. The Company provides,
supervises or facilitates financial, accounting, billing, training, efficiency
and productivity enhancement, recruiting, team building, marketing,
advertising, purchasing, collection and other services for the PAs and employs
the Managed Dental Centers' management and administrative personnel. The PAs
employ and maintain full control over the Affiliated Dentists, hygienists and
other dental professionals and set standards of care in order to promote the
provision of high quality dental care. The individual PAs are responsible for
compliance with state and local regulations of the practice of dentistry and
with licensing and certification requirements, and each PA is responsible for
acquiring and maintaining professional liability insurance. The Company's
services can be grouped into three broad categories: personnel services,
operational services and financial services.
31
<PAGE>
PERSONNEL SERVICES
TRAINING AND EDUCATION. The individual PAs employ, supervise and train all
dentists, dental hygienists and other dental professionals at each Managed
Dental Center. The Company, while not engaged in the practice of dentistry,
assists the individual PAs in training and educating professional personnel by
providing analyses that allow the PAs to determine training needs. All
personnel, other than dentists, dental hygienists and other dental
professionals, are supervised and trained by the Company or its subcontractor.
The Company also helps to coordinate group meetings and seminars at which the
PAs provide continuing education to their professionals. In addition, the
Company encourages and facilitates team building of the staffs through
regularly scheduled staff meetings and social events. Each individual PA
maintains full control over the practice of dentistry by the dental
professionals it employs and sets standards of practice in order to promote
quality dental care.
RECRUITING. The Company continually assists the PAs in recruiting dentists
to add to its network as Affiliated Dentists. Such recruiting takes place at
dental schools through the Company's contacts at such schools, at regional
dental conventions and through advertising in regional and national dental
publications. Recruitment of general dentists, specialists and other
professionals is the primary responsibility of the Company's Director of
Development.
HUMAN RESOURCE MANAGEMENT. The Company is responsible for the hiring,
retention, salary and bonus determination, job performance-related training and
other similar matters affecting Company employees, which include non-dental
professionals providing services to the PAs. Services provided by the Company
include (i) payroll administration, including recordkeeping, payroll
processing, making payroll tax deposits, reporting payroll, taxes and related
matters; (ii) risk management, including on-site safety inspections and
monitoring, training, and workers' compensation claim management and
administration; (iii) administering benefit plans; and (iv) the provision of
human resource materials, consulting and expertise on other human resource
issues. In Florida, a professional employer organization (the "Co-Employer")
assists the Company in providing these services. The Co-Employer arrangements
allow the Company to improve productivity and profitability by relieving it of
certain burdens associated with employee administration, helping it to manage
better certain employment-related risks, improving cash management with respect
to payroll-related expenses and enabling it to provide certain benefits on a
cost-effective basis. The Company intends to assume the responsibilities of the
Co-Employer when it becomes operationally efficient for it to do so. See
"Business--Employees."
OPERATIONAL SERVICES
MANAGEMENT INFORMATION SYSTEMS. The Company utilizes its information
systems to track data related to each Managed Dental Center's operations and
financial performance. Billing and collection information is compiled on a
daily basis, enabling the Company to monitor financial performance and
operational efficiency. The Company generates reports for each Managed Dental
Center containing information as to every visit, charge and procedure. These
reports are reviewed first by the Company's Chief Financial Officer and then by
the Operations Department which analyzes performance and efficiencies,
particularly the ratio of dollars per patient. These reports are also given to
the Dental Director who reviews them for inefficiencies and evaluates how
performance may be improved. The Company provides an analysis of these results
to the PAs and recommends specific measures to improve the financial
performance of the Managed Dental Centers. The analysis enables a Managed
Dental Center to improve its financial performance by making periodic
adjustments in marketing and operations. See "Risk Factors--Risks Associated
with Implementation of New Management Information Systems" for a discussion of
certain risks associated with the Company's implementation of new management
information systems.
QUALITY ASSURANCE. Prior to the execution of a Management Agreement with a
new PA, the Company evaluates the dental practice to determine in which areas,
if any, the proficiency level of the dental professionals employed by the PA
can be enhanced. The Company also works closely with the Dental Directors to
assure that quality dental services are being provided. While supervision of
dental
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<PAGE>
services is the responsibility of the Dental Directors, the Company provides
Dental Directors with reports that help them evaluate performance. For example,
certain dental laboratories monitor the case quality of the Affiliated Dentists
in performing particular tasks. Such monitoring allows the Company and the PAs
to notify the appropriate Dental Director if any procedure is being done
inefficiently at a particular Managed Dental Center or by a particular
Affiliated Dentist or other dental professional. The Dental Director then works
directly with the dental professionals at the Managed Dental Center to identify
the reason for the inefficiency and to implement solutions, such as additional
training, to improve performance in that area. The Company also performs
patient surveys to monitor patient satisfaction, and the Dental Directors
periodically audit patient charts and provide advice to the general dentists
and dental specialists employed by the PAs. See "Business--Services and
Operations-- Management Information Systems" and "--Dental Directors."
SCHEDULING. The Company implements patient scheduling systems at each of
the Managed Dental Centers. These systems enable the Company to devise daily
patient schedules that maximize the efficiency of the dental professionals.
Patient visits are scheduled in small time increments based upon the Company's
knowledge of the time required for each type of dental procedure. In addition,
the office hours of each Managed Dental Center are tailored to meet the needs
of its patient population. The Company believes that its scheduling systems
result in more efficient patient flow, thereby increasing productivity and
patient volume.
ADVERTISING AND MARKETING. The Company assists in developing and
implementing customized marketing plans tailored to the specific
characteristics of each Dental Center's market. Such marketing may include the
use of local radio, TV and print advertising, and other marketing promotions.
In some instances the Company seeks to promote brand name recognition of its
Managed Dental Centers through use of regional brand names. For example, in
Florida, several of the Company's Managed Dental Centers use the name "Advanced
Dental Care." In some cases, Dental Centers are marketed under the names used
by the practices prior to their affiliation with the Company to take advantage
of the practices' existing market position. Most states, including Florida and
Michigan, place certain restrictions on the ability of corporations such as the
Company to provide advertising and marketing services to the professional
associations or corporations organized in such states. See "Risk Factors--
Governmental Regulation--Advertising Restrictions."
PURCHASING AND DISTRIBUTION. The size of the Company's network enables the
Company to purchase dental supplies, laboratory services, equipment, insurance,
management information systems, advertising and office furniture at reduced
costs. Dental equipment supplies are obtained by the Company as directed by the
PAs and administrative supplies are purchased by the Company pursuant to
high-volume supply contracts with favorable price terms. The Company monitors
inventory levels and adjusts distribution to reduce carrying costs on
inventory.
FINANCIAL SERVICES
THIRD-PARTY PAYOR MANAGEMENT. The Company examines various factors to
determine which third-party payors' assignments it will recommend at each
Managed Dental Center. Factors considered by the Company in making this
recommendation include the types of procedures that are generally performed at
the Managed Dental Center, the geographic area served by the particular plan
and the demographic characteristics of the typical plan participants. Some
element of managed care is present at most Managed Dental Centers, although
generally not as the primary source of revenues. The Company assists the
Managed Dental Centers in the negotiation of contracts with third-party payors.
As a result of its size, the Company is often able to negotiate better terms
for its Managed Dental Centers with third party payors than would be available
to solo practitioners or small group dental practices.
ACCOUNTING SERVICES. The Company provides Managed Dental Centers with a
full range of accounting services, including preparation of financial
statements, management of accounts payable, oversight of accounts receivable,
verification of purchase orders, payroll administration and tax services. In
addition, the Company assists each Managed Dental Center in the preparation of
operating and financial budgets.
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<PAGE>
THIRD-PARTY FINANCING. The Company has contracts with multiple
non-recourse third-party financing companies that enable the Managed Dental
Centers to offer various third-party financing options to their patients. At
the time a patient receives dental treatment and upon credit approval of the
patient by the third-party financing company, the PA is paid at varying
discounts to the full price of its services, based upon financing terms. The
financing company is subsequently responsible for all billing and collection
and has no recourse for payment against the Managed Dental Center.
DENTAL CENTER LOCATIONS
The following table lists the locations of the Company's Managed Dental
Centers and the dates on which Management Agreements between the PAs that own
each Managed Dental Center and the Company were first entered into.
<TABLE>
<CAPTION>
DATE OF
LOCATION MANAGEMENT AGREEMENT
-------- --------------------
<S> <C>
Sarasota, Florida .................. November 1993
Largo, Florida ..................... November 1993
Port Charlotte, Florida ............ November 1993
Englewood, Florida ............... March 1994
Fort Myers, Florida ............... October 1994
Sarasota, Florida .................. March 1995
Kissimmee, Florida ............... April 1995
Bradenton, Florida ............... July 1995
Orlando, Florida .................. June 1996
Tampa, Florida ..................... June 1996
Ocoee, Florida ..................... June 1996
Clearwater, Florida ............... June 1996
Tampa, Florida (North) ............ April 1997
Flint, Michigan .................. July 1997
Detroit, Michigan (Downtown) ...... July 1997
Detroit, Michigan (East) ......... July 1997
Detroit, Michigan (North) ......... July 1997
Westland, Michigan ............... July 1997
Tallahassee, Florida ............... August 1997
</TABLE>
The following table lists the locations of the Company's Licensed Dental
Centers and the dates on which License Agreements between the PAs that own each
Licensed Dental Center and the Company were first entered into.
<TABLE>
<CAPTION>
DATE OF
LOCATION LICENSE AGREEMENT
-------- ------------------
<S> <C>
Orlando, Florida ............ September 1994
Deltona, Florida ............ September 1994
Winter Springs, Florida ...... October 1996
</TABLE>
MANAGEMENT AGREEMENTS
The Company has entered into Standard Management Agreements with 13 PAs
pursuant to which the Company or its assigns is the exclusive business manager,
to the extent allowable by law, of the associated Managed Dental Centers. The
Company plans to continue to use the Standard Management Agreement to the
extent possible as it enters into arrangements with additional dental
practices. However, the terms of future agreements may differ according to
market conditions and the statutory and regulatory requirements of the
particular state in which the dental practice is located. The Company has
entered into management agreements with respect to six additional dental
practices on
34
<PAGE>
terms different from those of the Standard Management Agreements. Descriptions
of these Management Agreements are set forth below.
Under the Standard Management Agreements, the Company provides
comprehensive administrative and business services and support to the PAs. The
Company, among other things, (i) assists in the identification of areas in
which the performance of the Managed Dental Centers and their dental
professionals can be improved to increase revenues and operating income, (ii)
provides, maintains and repairs all offices, equipment and furnishings, (iii)
employs all non-professional personnel necessary for the operation of the
Managed Dental Centers, (iv) provides payroll services, (v) implements standard
business systems and procedures and provides or facilitates systems and
efficiencies training, (vi) orders all general business inventory and supplies
required by the Managed Dental Centers and handles accounts payable, (vii)
establishes and maintains information systems and provides accounting and
bookkeeping services, (viii) monitors compliance with rules and regulations
applicable to the Managed Dental Center business, (ix) provides marketing
assistance and (x) provides assistance in billing and collections, all to the
extent permitted by law.
The Standard Management Agreements provide that the PAs are responsible
for, among other things, (i) employing and supervising all Affiliated Dentists
and dental hygienists, (ii) complying with all laws, rules and regulations
relating to Affiliated Dentists and dental hygienists, (iii) participating in
quality assurance/utilization review programs, (iv) maintaining proper dental
patient records, (v) obtaining and maintaining professional liability insurance
with limits of not less than $300,000 per claim and aggregate policy limits of
not less than $1.0 million and (vi) any other requirements to carry out the
practice of dentistry.
Under the terms of the Standard Management Agreements, the PAs are
required to indemnify, hold harmless and defend the Company from and against
any and all claims from negligent or intentional acts or omissions, including
the performance of dental services, by the PAs and their employees. The Company
is required to indemnify, hold harmless and defend the PAs from and against any
and all claims resulting from negligent or intentional acts or omissions by the
Company.
As compensation for its management services under the Standard Management
Agreements, the PAs pay the Company a management fee equal to 74% of the Net
Collected Revenues of the PA. The Company pays all of the operating and
nonoperating expenses incurred by the PAs except for (i) salaries and benefits
to the Affiliated Dentists and dental hygienists, (ii) licensing fees paid to
the Company, (iii) debt and asset carrying costs related to the acquisition of
the dental practice, and (iv) any other direct cost to the PA not covered under
the Standard Management Agreement.
The Standard Management Agreements have 25 year terms, with automatic
annual one year renewals thereof, and are terminable by either party for cause
or upon the insolvency of the other party. In the event of a material default
by the PA or the PA owner, the Company has the option to cause the sale of all
of the stock or all of the assets of the PA to a licensed dentist designated by
the Company. The PA or the PA owner may terminate the agreement without cause
provided the practice is sold to a dentist acceptable to the Company. The
Standard Management Agreements provide that they shall be amended by the
parties in the event of any regulatory matters affecting the validity of the
Standard Management Agreement in a manner necessary to bring the Standard
Management Agreements into compliance.
During the terms of the Standard Management Agreements, the Company and
the PAs agree not to disclose certain confidential and proprietary information
regarding the other. The PAs are required under the Standard Management
Agreements to use their best efforts to enter into and enforce written
employment agreements with each of their professional employees containing
covenants not to compete with the PA in a specified geographic area for a
specified period of time, generally from one to three years, after termination
of the employment agreement. The employment agreements generally provide for
injunctive relief in the event of a breach of the covenant not to compete.
However, the Company's ability to enforce such covenants is uncertain. See
"Risk Factors--Non-Competition Covenants."
35
<PAGE>
One PA in Florida is party to a Management Agreement substantially in the
same form as the Standard Management Agreement, except that (i) the PA pays the
Company a monthly management fee of 55% of its net profits (defined as total
collected revenues on a cash basis less any patient refunds and less practice
expenses, including nonprofessional staff expenses), and (ii) this agreement
expires in October 2003. In addition, the agreement provides that the PA may,
during the period commencing on October 20, 1998 and ending 90 days thereafter,
terminate the agreement by paying to the Company an amount equal to $185,460
less the amount by which the aggregate fees paid to the Company pursuant to
such Management Agreement during either or both of the successive one year
periods following October 20, 1996 exceeds $100,000, and satisfying other
conditions set forth therein. At June 30, 1997, the aggregate amount of such
fees paid was approximately $103,000.
Another PA in Florida is party to a Management Agreement substantially in
the same form as the Standard Management Agreement, except that the PA pays to
the Company a monthly management fee of 50% of its net profits (defined as
total collected revenues on a cash basis less any patient refunds and less
practice expenses, including non-professional staff expenses).
In addition, in July 1997, the Company entered into a global Management
Agreement to manage four Managed Dental Centers in Michigan substantially in
the same form as the Standard Management Agreement, except that it expires in
July 2005. The Company subcontracts the day-to-day management functions of the
four Michigan Dental Centers subject to this agreement to an affiliate of the
owner of the applicable PAs. As a result, the Company pays a fee to such
subcontractor equal to 80% of the net profits of these Managed Dental Centers
(as defined in the Administrative Service Subcontract Agreement with such
subcontractor), after certain adjustments.
LICENSE AGREEMENTS
Each of the PAs has entered into a short form license agreement and each
of the professional associations which own the three Licensed Dental Centers
has entered into a long form license agreement with the Company (collectively,
the "License Agreements"). The long form license agreements generally have
terms of five years, with automatic five year renewal terms, while the short
form license agreements have terms that are coterminous with the related
Management Agreements. In consideration for a monthly license fee, generally
ranging from $600 to $1,200, the licensee is entitled to identify its Dental
Center as a member of the Company's network, participate in marketing programs,
utilize the Company's discounted purchasing capabilities, and use one or more
of the Company's service marks, logo types and commercial symbols
(collectively, the "Licensed Symbols"). The long form license agreements also
provide for a monthly advertising fee of $1,000 which, if collected would be
used for general marketing, advertising and promotion of the Company's network
and the Licensed Symbols. The Company has not collected any such monthly
advertising fees. The manner in which the licensee intends to use the Licensed
Symbols must be approved in advance by the Company.
The short form license agreements terminate immediately upon the
termination of the related Management Agreement, and termination is governed by
the provisions thereof. The Company may terminate the long form license
agreements upon cancellation of, or failure to renew, the lease for the
premises of the related Dental Center, the bankruptcy of the associated
licensee or upon the occurrence of certain other events set forth in the
License Agreement. The long form licensees may terminate their license
agreements for cause at any time or without cause during the 30-day period
commencing on the first anniversary of the execution of the agreement. Any
other termination by the long form licensee constitutes a breach of the
agreement.
DENTAL DIRECTORS
The Company divides the markets in which it operates into regions, each of
which is under the supervision of an Affiliated Dentist (each, a "Dental
Director"). Currently, there are four regions and four Dental Directors, each
employed by PAs within their region. The Company expects that additional
regions and Dental Directors will be added by the PAs as the Company enters
into Management Agreements with additional PAs in new markets.
36
<PAGE>
The primary purpose of the Dental Directors is to promote the provision of
high quality dental care and to refine operating efficiencies at the Managed
Dental Centers. Dental Directors continually monitor and evaluate the
performance of the Affiliated Dentists and the Managed Dental Centers within
their region by identifying operational inefficiencies and implementing
solutions to address these inefficiencies. Each Dental Director performs
periodic spot checks in which the performance of each Managed Dental Center is
scrutinized in detail. The Dental Directors also assist the PAs in their region
with the hiring, training and supervision of dental professionals. The Company
believes that close relationships among the Dental Directors, the PAs they
supervise, and the Company allows for the identification of specific
inefficiencies, the quick remediation of such inefficiencies and the
realization of the benefits produced by the Company's management approach.
GOVERNMENTAL REGULATION
GENERAL OVERVIEW. The Company's operations and relationships are subject
to a variety of governmental and regulatory requirements relating to the
conduct of its business. The Company is also subject to laws and regulations
which relate to business corporations in general. The Company believes that it
exercises care in an effort to structure its practices and arrangements with
Dental Centers to comply with relevant federal and state law and believes that
such arrangements and practices comply in all material respects with all
applicable statutes and regulations. The health care industry and dental
practices are highly regulated, and there can be no assurance that the
regulatory environment in which the Company operates will not change
significantly and adversely in the future. In general, regulation of health
care providers and companies is increasing. See "Risk Factors--Governmental
Regulation."
There can be no assurance that the laws and regulations of the states in
which the Company operates or may desire to operate in the future will not
change or be interpreted in the future to restrict or adversely affect the
Company's relationships with Affiliated Dentists or the operation of Managed
Dental Centers. Proposals that may be introduced, could, if adopted, have a
material adverse effect on the Company's 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 health care reform proposals or legislation.
Every state imposes licensing requirements on dentists and on their
facilities and services. In addition, many states require regulatory approval,
including certificates of need, before establishing certain types of health
care facilities, offering certain services or making expenditures in excess of
statutory thresholds for health care equipment, facilities or programs. The
execution of a management agreement with a dental practice does not in most
states require any health care regulatory approval on the part of the
management company or the dental practice. However, in connection with the
expansion of existing operations and the entry into new markets, the Company
and the Dental Centers may become subject to additional and more restrictive
regulation. See "Risk Factors--Governmental Regulation."
HEALTH CARE REGULATIONS AFFECTING THE COMPANY. Business arrangements
between dentists and business corporations are regulated extensively at the
state and federal levels, including regulation in the following areas:
CORPORATE PRACTICE OF DENTISTRY. The laws of many states prohibit
corporations that are not owned entirely by dentists from employing
dentists (and in some states, dental hygienists and dental assistants),
having control over clinical decision-making, or engaging in other
activities that are deemed to constitute the practice of dentistry. Florida
and Michigan law prohibit non-professional corporations from employing
dentists and dental hygienists, exercising control over patient records,
and making decisions relating to clinical matters, office personnel, hours
of practice, pricing, credit, refunds, warranties and advertising. The
Company does not employ dentists or dental hygienists and does not exercise
control over any prohibited areas.
37
<PAGE>
Most states, including Florida and Michigan, also prohibit
non-professional corporations from owning, maintaining or operating an
office for the practice of dentistry. These laws have generally been
construed to permit arrangements under which the dentists are not employed
by or otherwise controlled as to clinical matters by the party supplying
facilities and non-professional services. Florida and Michigan law require
that dentists or their professional corporations maintain complete care,
custody and control of all equipment and materials used in the practice of
dentistry. The Management Agreements provide that the Company shall not
exercise control over any matters that would violate the requirements of
Florida or Michigan law, as applicable.
FEE-SPLITTING AND ANTI-KICKBACK LAWS. Many states also prohibit
"fee-splitting" by dentists with any party except other dentists in the
same professional corporation or practice entity. In most cases, these laws
have been construed as applying to the practice of paying a portion of a
fee to another person for referring a patient or otherwise generating
business, and not to provide payment of reasonable compensation for
facilities and services (other than the generation of referrals), even if
the payment is based on a percentage of the practice's revenues. Florida
and Michigan fee-splitting laws prohibit paying or receiving any
commission, bonus, kickback, or rebate, or engaging in any split-fee
arrangement in any form with a dentist for patient referrals to dentists or
other providers of health care goods and services. According to a Florida
court of appeals decision interpreting this law, it does not prohibit a
management fee that is based on a percentage of gross income of a
professional practice if the manager does not refer patients to the
practice.
In addition, most states have laws prohibiting paying or receiving any
remuneration, direct or indirect, that is intended to induce referrals for
health care items or services, including dental items and services.
Federal law prohibits the offer, payment, solicitation or receipt of any
form of remuneration in return for the referral of patients covered by
federally funded health care programs such as Medicaid, 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. The Company believes
that it operates in a manner that complies with these requirements. For this
reason, the Management Agreements provide that the Company will not engage in
direct marketing to potential sources of business, but will only assist the
individual PAs in these endeavors by providing training, marketing materials
and technical assistance.
ADVERTISING RESTRICTIONS. Most states, including Florida and Michigan,
prohibit dentists from using advertising which includes any name other than
their own, or from advertising in any manner that is likely to lead a person to
believe that a non-dentist is engaged in the practice of dentistry. Florida and
Michigan law each contain requirements with respect to the identification of
dentists. As a result, all of the advertisements for the PAs include the names
of an Affiliated Dentist or Dentists.
LIMITATIONS ON DELEGATION. Most states, including Florida and Michigan,
regulate the manner in which dentists delegate certain tasks to non-dentists.
The Company and PAs follow these requirements whenever such activities are
performed by its employees.
The above described laws have civil and criminal penalties and have been
subject to limited judicial and regulatory interpretation. They are enforced by
regulatory agencies that are vested with broad discretion in interpreting their
meaning. The Company's agreements and activities have not been examined by
federal or state authorities under these laws and regulations. For these
reasons, there can be no assurance that a review of the Company's business
arrangements or the operation of the Managed Dental Centers will not result in
determinations that adversely affect the Company's operations or that the
long-term Management Agreements or certain of their provisions will be held
valid and enforceable.
In addition, these laws and their interpretation vary from state to state.
The laws and regulations of certain states into which the Company seeks to
expand may require the Company to change the form of relationships entered into
with dental professional associations or corporations in a manner that
restricts the Company's operations in those states.
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<PAGE>
ANTI-FRAUD LAWS. State and federal laws prohibit any person from
knowingly and willfully making any false statement or misrepresentation of
a material fact in seeking payment for items or services. In addition,
federal laws impose civil monetary penalties for filing claims that the
filing party "should know" are not appropriate under rules applicable to
federally funded health care programs.
SELF-REFERRAL LAWS. Many states, subject to certain exceptions, prohibit
referrals for certain health services if the referring dentist has an
ownership interest in, and/or a compensation arrangement with, the entity
receiving the referral. Many states require the dentist to disclose such
interests to patients.
Federal law, subject to certain exceptions, prohibits certain Medicare
and Medicaid referrals to entities in which a dentist has an ownership
interest or with which the dentist has a compensation arrangement.
Significant prohibitions against dentist self-referrals for services
covered by the Medicaid program was enacted, subject to certain exceptions,
by Congress in the Omnibus Budget Reconciliation Act of 1993. These
prohibitions, commonly known as Stark II, amended prior physician and
dentist self-referral legislation known as Stark I (which applied only to
clinical laboratory referrals) by dramatically enlarging the list of
services and investment interests to which the self-referral prohibitions
apply. Effective January 1, 1995, Stark II prohibits a physician or
dentist, or a member of his or her immediate family, from making referrals
for certain "designated health services" to entities in which the physician
or dentist has an ownership or investment interest, or with which the
physician or dentist has a compensation arrangement. "Designated health
services" include, among other things, clinical laboratory services,
radiology and other diagnostic services, radiation therapy services,
durable medical equipment, prosthetics, outpatient prescription drugs, home
health services and inpatient and outpatient hospital services. Stark II
prohibitions include referrals within the physician's or dentist's own
group practice (unless such practice satisfied the "group practice"
exception) and referrals in connection with the physician's or dentist's
employment arrangements with the PA (unless the arrangement satisfies the
employment exception). Stark II also prohibits billing the Medicaid program
for services rendered following prohibited referrals. Noncompliance with,
or violation of, Stark II can result in exclusion from the Medicaid program
and civil and criminal penalties. The Company believes that its operations
as presently conducted do not pose a material risk under Stark II,
primarily because the Company does not provide "designated health
services." Even if the Company were deemed to provide "designated health
services," the Company believes its activities would be protected under the
employment and group practice exceptions to Stark II. Nevertheless, there
can be no assurance that Stark II will not be interpreted or hereafter
amended in a manner that has a material adverse effect on the Company's
operations as presently conducted.
The federal law and most state laws have exceptions for in-office
services provided under the direct supervision of the dentist. The Company
believes that its arrangements with Affiliated Dentists comply with these
laws. There is no assurance that changes in these laws or their
interpretation will not affect the Company's current or future activities.
REGULATORY COMPLIANCE. The Company believes that health care regulations
will continue to change, and as a result, regularly monitors developments
in health care law. The Company expects to modify its agreements and
operations from time to time as the business and regulatory environment
change. However, there can be no assurance that any such change will not
aversely affect the ability of the Company to operate as it does currently
or to remain profitable in doing so.
INSURANCE
The Company's business entails inherent risk of liability. The Affiliated
Dentists and dental hygienists employed by the PAs are involved in the delivery
of health care services to the public and accordingly, such individuals, the
PAs and the Company are exposed to the risk of professional liability
39
<PAGE>
claims. Claims of this nature, if successful, could result in substantial
damage awards to the claimants that may exceed the limits of any applicable
insurance coverage. Insurance against losses related to claims of this type can
be expensive and varies widely from state to state. The Company is indemnified
under the Management Agreements for claims against the Company arising from the
performance of medical and dental services provided by the PAs. Successful
malpractice claims, however, could have an adverse effect on the Company's
profitability. The PAs and the Affiliated Dentists and other dental
professionals they employ maintain professional liability insurance with limits
of not less than $300,000 per claim and with aggregate policy limits of not
less than $1 million per dentist. The Company is a named insured in most cases.
The Company does not maintain separate liability insurance. While the Company
believes that the foregoing provides adequate liability insurance coverage,
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. See "Risk Factors--Risks of Providing Dental Services."
COMPETITION
The dental practice management segment of the dental services industry is
highly competitive and is expected to become increasingly competitive. The
primary bases of competition between dental practice management companies are
management expertise and experience, the elements of its operating strategy,
the opportunity for career enhancement of potential associated dentists and
other dental professionals, the size of the dental care network, the
sophistication of management information systems, liquidity, the terms of the
management agreements and name recognition. The Company currently competes with
other dental practice management companies in its existing markets. There are
also a number of dental practice management companies currently operating in
other parts of the country which may enter the Company's existing markets in
the future. Many of such competitors and potential competitors have
substantially greater financial resources than the Company, have established
large dental practice networks, or otherwise enjoy competitive advantages which
may make it difficult for the Company to compete against them or enter into
additional Management Agreements on terms acceptable to the Company. In
addition, as the Company seeks to expand its operations into new markets, it is
likely to face competition from dental practice management companies which
already have established a strong presence in such locations.
The business of providing dental services is highly competitive in each of
the markets in which the Managed Dental Centers operate or in which operations
are contemplated. The primary bases of such competition are quality of care and
reputation, marketing exposure, convenience and traffic flow of location,
relationships with managed care entities, appearance and usefulness of
facilities and equipment, price of services and hours of operation. The
Affiliated Dentists compete with other dentists who maintain single or
satellite offices, as well as with dentists who maintain group practices,
operate in multiple offices or are members of competing dental practice
management networks. Many of those dentists have established practices and
reputations in their markets. In addition to competing against established
practices for patients, the Dental Centers compete with such practices in the
retention and recruitment of general dentists, specialists and hygienists to
staff the Dental Centers. If the availability of dentists begins to decline in
the Company's existing or targeted markets, it may become increasingly
difficult to attract and retain the dental professionals to staff the Dental
Centers. There can be no assurance that the Dental Centers will be able to
compete effectively with such other practices.
SERVICE MARKS
The Company has no registered service marks, trademarks, service names,
tradenames or logo.
EMPLOYEES
The Company has entered into an agreement with an unrelated third party
Co-Employer pursuant to which all of the Company's administrative and support
staff located in each Florida Managed Dental Center as well as the Company's
corporate office management and staff are co-employed. At August 15,
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1997, the Company co-employed 76 persons, consisting of 32 dental assistants,
36 dental office staff, and eight administrative staff. In addition, each of
the Florida PAs has entered into an agreement with the Co-Employer pursuant to
which such PA and the Co-Employer co-employ all professional staff (all
co-employees of the Company and the PAs are referred to hereinafter as the
"Co-Employees"). At August 15, 1997, such PAs, in the aggregate, co-employed 30
dental professionals, consisting of 18 dentists and 12 dental hygienists. The
Company or the PAs, as the case may be, are responsible for the hiring,
retention, salary and bonus determination, job performance-related training and
other similar matters affecting Co-Employees while the Co-Employer is
responsible for (i) payroll administration, including recordkeeping, payroll
processing, making payroll tax deposits, reporting payroll, taxes and related
matters, (ii) risk management, including on-site safety inspections,
monitoring, training and workers' compensation claim management and
administration, (iii) administering benefit plans, and (iv) human resource
consulting and expertise on other human resource issues. The agreements with
the Co-Employer are terminable by either party without cause on 30 days written
notice, or for cause on 24 hours written notice. At August 15, 1997 the Company
employed 29 non-professional staff in Michigan. In addition, at August 15, 1997
the Company's subcontractor employed 34 non-professional staff in the Detroit
area Managed Dental Centers. See "Business--Services and Operations--Human
Resource Management."
LITIGATION
There are no material pending legal proceedings involving the Company.
Affiliated Dentists and PAs are from time to time subject to malpractice
claims. To the Company's knowledge, there are no material malpractice claims
pending against any Affiliated Dentist or PA. Any such proceedings or claims,
if successful, could result in damage awards exceeding, perhaps substantially,
applicable insurance coverage. See "Risk Factors--Risks of Providing Dental
Services."
PROPERTIES
The PAs, or in some cases the Company, presently lease between 1,200 and
10,000 square feet of office space for each of the Managed Dental Centers.
Rental payments for a leased Managed Dental Center range from approximately
$18,000 per annum to $144,000 per annum. The Company plans to continue to lease
rather than purchase space for the Managed Dental Centers to preserve the
Company's available capital. The Company intends to add Managed Dental Centers
to its network, which will result in additional office space under lease. See
"Certain Transactions."
The Company leases approximately 4,625 square feet of office space in
Sarasota, Florida for its corporate headquarters at an annual rental of
approximately $67,000. This lease expires in April 2002 and the Company
believes the facility is adequate for its current needs.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dr. Steven R. Matzkin, DDS ...... 39 Chairman of the Board, Chief Executive Officer,
President and Director
Mr. Mitchell B. Olan ............ 38 Vice President, Chief Operating Officer and Director
Mr. David P. Nichols ............ 39 Chief Financial Officer
Dr. Oscar L. Hausdorff, DDS ...... 62 Director of Development
Mr. Curtis Lee Smith, Jr. ......... 70 Director
Mr. Robert F. Raucci ............ 42 Director
</TABLE>
The Company expects to add two additional non-employee directors to the
Board of Directors shortly after the consummation of this Offering.
DR. STEVEN R. MATZKIN founded the Company's predecessors in 1992 and 1993
and serves full-time as the Company's Chairman of the Board, Chief Executive
Officer and President. Dr. Matzkin has over 12 years of experience in the
administration and management of dental practices. He practiced dentistry in
Michigan for six years, during which time he owned five dental practices and
managed twenty other dental practices through an affiliate management company.
Dr. Matzkin has also been featured as a guest speaker at regional Practice
Management conferences, including the national meeting for the National
Association of Dental Plans. Dr. Matzkin earned his BA degree in 1980 from the
Indiana School of Biology and his DDS degree in 1984 from Northwestern
University.
MITCHELL B. OLAN has served as the Company's Vice President, Chief
Operating Officer, and as a director since 1994. From 1991 to 1994, Mr. Olan
served in various capacities, including area Vice President and Regional Vice
President at Optioncare Incorporated, a publicly traded national franchiser of
home infusion therapy businesses. From 1980 to 1990, Mr. Olan served in various
capacities including sales, sales management, general management and
administration with the ORMCO Division of Sybron Corporation. ORMCO is the
leading manufacturer and marketer of dental orthodontic appliances, equipment
and supplies. Mr. Olan earned a BS degree in Business Administration in 1980
from Indiana University School of Business.
DAVID P. NICHOLS has served as the Company's Chief Financial Officer since
February 1997. From October 1994 until February 1997, Mr. Nichols served as
Chief Financial Officer at BioDynamics International, a publicly traded company
in the business of processing bioimplants for tissue repairs. From May 1993
until October 1994, Mr. Nichols served as Vice President--Finance of
BioDynamics. He was also Managing Director, United States Operations, of
Biodynamics from March 1996 until February 1997. From June 1992 until May 1993
Mr. Nichols served as Chief Financial Officer of KiMed Corporation, a medical
device company. Prior to joining the Company, Mr. Nichols had over sixteen
years experience in the health care field. He served as Chief Financial Officer
of the long term care division of Trizec Corporation, Ltd., and was in public
accounting with the audit divisions of Price Waterhouse LLP and Deloitte &
Touche LLP. Mr. Nichols earned his BS Degree from the University of Florida in
1979 and a masters degree in Accounting from the University of Florida in 1980.
He is a Certified Public Accountant and a Certified Management Accountant.
DR. OSCAR L. HAUSDORFF, has served as the Company's Director of
Development since 1996. From 1988 to 1995, he served as President, Chief
Operating Officer and as a director of Princeton Dental Management Corporation,
a publicly traded dental practice management company. From 1977 to 1988, Dr.
Hausdorff held positions in sales, sales management, training, development and
recruiting for
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various firms in the stock brokerage business. From 1960 to 1977, Dr. Hausdorff
practiced General Dentistry and Orthodontics in New York. In addition, he was
an instructor in Post-Graduate orthodontics at New York University from 1960 to
1965. Dr. Hausdorff earned a DDS degree from New York University in 1958, and a
post graduate degree in Orthodontics from New York University in 1964.
CURTIS LEE SMITH, JR. has been a director of the Company since 1996.
Beginning in 1986, Mr. Smith served as Chairman of the Board and Chief
Executive Officer of Handex Corporation ("Handex"), an environmental consulting
and remediation company which became a public company in 1989. Handex acquired
New Horizons Computer Learning Centers, a software training company, in 1994.
Handex sold its environmental division in 1996 and now operates as New Horizons
Worldwide, of which Mr. Smith serves as Chairman of the Board and Chief
Executive Officer.
ROBERT F. RAUCCI has been a director of the Company since 1996. Mr. Raucci
is a managing member of Newlight Management, LLC, a technology oriented venture
capital fund. Mr. Raucci also has served as president of RAM Investment
Corporation, a venture capital investment and advisory company, since 1994.
Between 1985 and 1994 Mr. Raucci served as a private equity investment manager
for Alliance Capital Management Corporation, a global investment management
company.
DIRECTORS' COMPENSATION
The Company pays all directors who are not employees of the Company $350
for each meeting attended. The Company also reimburses directors for all
travel-related expenses incurred in connection with their activities as
directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company currently has two committees of the Board, the Audit Committee
and the Compensation Committee. Messrs. Smith and Raucci will initially serve
on the Company's Audit Committee. The Audit Committee's functions include
recommending to the Board of Directors the engagement of the Company's
independent certified public accountants, reviewing with such accountants the
plan and results of their audit of the financial statements and determining the
independence of such accountants. In addition, Messrs. Smith and Raucci will
initially serve on the Company's Compensation Committee, which reviews and
makes recommendations with respect to compensation of officers and key
employees, including the grant of options or other benefits under the Omnibus
Plan.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company during
the past fiscal year to the Chief Executive Officer and the other most highly
paid executive officer who was serving as an executive officer at the end of
1996 and whose compensation exceeded $100,000 (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------- ----------------
NUMBER OF
OTHER ANNUAL SECURITIES
SALARY BONUS COMPENSATION(1) UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS COMPENSATION(2)
- --------------------------- ---- -------- ----- ---------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Steven R. Matzkin, DDS 1996 $200,000 -- -- -- --
Chairman of the Board,
Chief Executive Officer and
President(2)
Mitchell B. Olan 1996 $126,000 -- -- -- --
Vice President, Chief Operating
Officer and Director(2)
</TABLE>
- ----------------
(1) The aggregate amount of perquisites and other personal benefits provided to
such Named Executive Officer is less than 10% of the total annual salary
and bonus of such officer.
(2) See "Management--Employment Agreements" for information regarding current
and future compensation arrangements.
EMPLOYMENT AGREEMENTS
The Company has entered into Employment Agreements with Dr. Steven R.
Matzkin, Chairman of the Board, Chief Executive Officer and President of the
Company, Mitchell B. Olan, Vice President and Chief Operating Officer of the
Company, and David P. Nichols, Chief Financial Officer of the Company. The
Employment Agreements of Messrs. Matzkin and Olan were entered into as of
October 25, 1996, and are for terms of five years and four years, respectively.
The Employment Agreement of Mr. Nichols was entered into as of January, 1997
and is for a term of four years. These agreements provide for annual base
salaries to Messrs. Matzkin, Olan and Nichols of $200,000, $120,000 and
$120,000, respectively, subject to increase at the Company's discretion. Dr.
Matzkin's, Mr. Olan's and Mr. Nichols' employment agreements entitle them to
participate in any Company stock option plan at a level commensurate with their
positions. Mr. Olan's employment agreement entitled him to warrants to purchase
shares of common stock (post-Stock Split) for an aggregate exercise price
of $272,768. These warrants were exercised in February 1997. Upon the Company's
constructive discharge of Dr. Matzkin or termination of the employment of Dr.
Matzkin without cause, as specified in his employment agreement, Dr. Matzkin
shall be entitled to receive his base salary for the period commencing on the
effective date of the termination and ending on the later to occur of (x) the
second anniversary of the date of termination or (y) the end of the five-year
term of the employment agreement. Upon the Company's termination of Mr. Olan
without cause, as specified in his employment agreement, Mr. Olan shall be
entitled to receive his base salary for the period commencing on the date of
termination and ending on the date nine months thereafter. Upon the Company's
termination of Mr. Nichols without cause as specified in his employment
agreement, Mr. Nichols shall be entitled to receive his base salary for the
period commencing on the date of termination and ending on the date six months
thereafter. Upon termination with cause or voluntary termination of either Dr.
Matzkin, Mr. Olan or Mr. Nichols, such executive shall be entitled to receive
his base salary through the effective date of such termination.
Dr. Matzkin's employment agreement also provides that upon termination of
his employment for any reason, if the Company's securities are then publicly
traded, Dr. Matzkin has the right to request
44
<PAGE>
that the Company register, as expeditiously as possible, any or all of the
Common Stock then owned by Dr. Matzkin, including all shares of Common Stock
issuable pursuant to any derivative securities of the Company then held by Dr.
Matzkin.
OMNIBUS EXECUTIVE INCENTIVE COMPENSATION PLAN
The Company will adopt, effective upon consummation of this Offering, the
Omnibus Plan, which is designed to assist the Company in attracting,
motivating, retaining and rewarding key officers, directors, independent
contractors (collectively, the "Participants") by enabling the Participants to
acquire or increase an ownership interest in the Company, as well as providing
the Participants with annual and long term performance incentives to expend
their maximum efforts in the creation of stockholder value. Pursuant to the
terms of the Omnibus Plan the Company may grant Participants stock options,
stock appreciation rights, restricted stock, deferred stock, other
stock-related awards and performance or annual incentive awards that may be
settled in cash, stock or other property (collectively, the "Awards"). The
Company's compensation committee, or in the absence thereof the Board of
Directors (the "Committee"), will administer and interpret the Omnibus Plan and
is authorized to grant Awards thereunder to all eligible Participants.
Under the Omnibus Plan, the total number of shares of Common Stock that
may be subject to the granting of Awards during the term of the Omnibus Plan
shall be equal to shares, plus the number of shares with respect to
Awards previously granted under the Omnibus Plan that terminate without being
exercised, and the number of shares of Common Stock that are surrendered in
payment of any Awards or any tax withholding requirements. The following is a
description of the Awards that may be granted under the Omnibus Plan:
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. The Committee is authorized
to grant stock options, including both incentive and non-qualified stock
options, and stock appreciation rights ("SAR") entitling the Participant to
receive the amount by which the fair market value of a share of Common Stock on
the date of exercise exceeds the grant price of the SAR. The exercise price per
share subject to an option and the grant price of an SAR are determined by the
Committee, but must not be less than the fair market value of a share of Common
Stock on the date of grant. Each option is exercisable after the period or
periods specified in the related option agreement, but no option may be
exercisable after the expiration of ten years from the date of grant. Options
granted to an individual who owns (or is deemed to own) at least 10% of the
total combined voting power of all classes of stock of the Company must have an
exercise price of at least 110% of the fair market value of the Common Stock on
the date of grant and a term of no more than five years. Options may be
exercised by payment of the exercise price in cash, shares of Common Stock,
outstanding Awards or other property having a fair market value equal to the
exercise price, as the Committee may determine from time to time. At or shortly
after consummation of the Offering, options to purchase shares will
be granted under the Omnibus Plan at the Offering price.
RESTRICTED AND DEFERRED STOCK. The Committee is authorized to grant
restricted stock and deferred stock. Restricted stock is a grant of shares of
Common Stock which may not be sold or disposed of, and which may be forfeited
in the event of termination of employment, prior to the end of a restricted
period specified by the Committee. A Participant granted restricted stock
generally has all the rights of a shareholder of the Company, unless otherwise
determined by the Committee. An Award of deferred stock confers upon the
Participant the right to receive shares of Common Stock at the end of a
specified deferral period, subject to possible forfeiture of the Award in the
event of termination of employment prior to the end of a specified restricted
period. Prior to the issuance of shares of Common Stock, an Award of deferred
stock carries no voting or dividend rights. The restricted or deferral period
for restricted stock or deferred stock Awards may not be less than three years
unless the Award is subject to performance conditions, in which case the period
will not be less than one year.
BONUS STOCK AND AWARD IN LIEU OF CASH OBLIGATIONS. The Committee is
authorized to grant shares of Common Stock as a bonus, free of restrictions, or
to grant shares of Common Stock or other Awards in lieu of cash under the
Omnibus Plan, subject to such terms as the Committee may specify.
45
<PAGE>
OTHER STOCK-BASED AWARDS. The Committee is authorized to grant Awards
that are denominated or payable in, valued by reference to, or otherwise based
on or related to, shares of Common Stock. Such Awards might include convertible
or exchangeable debt securities, other rights convertible or exchangeable into
shares of Common Stock, purchase rights for shares of Common Stock, Awards with
value and payment contingent upon performance by the Company or any other
factors designated by the Committee, and Awards valued by reference to the book
value of shares of Common Stock or the value of securities of or the
performance of specified subsidiaries or business units. The Committee
determines the terms and conditions of such Awards.
The right of a Participant to exercise or receive a grant or settlement of
an Award, and the timing thereof, may be subject to such performance conditions
(including subjective individual goals) as may be specified by the Committee.
In addition, the Omnibus Plan authorizes specific annual incentive Awards,
which represent a conditional right to receive cash, shares of Common Stock or
other Awards upon achievement of certain preestablished performance goals and
subjective individual goals during a specified fiscal year.
Awards may be settled in the form of cash, shares of Common Stock, other
Awards or other property in the discretion of the Committee. The Committee may
condition any payment relating to an Award on the withholding of taxes and may
provide that a portion of any shares of Common Stock or other property to be
distributed will be withheld (or previously acquired shares of Common Stock or
other property surrendered by the Participant) to satisfy withholding and other
tax obligations. Awards granted under the Omnibus Plan generally may not be
pledged or otherwise encumbered and are not transferable except by will or by
the laws of descent and distribution, or to a designated beneficiary upon the
Participant's death, except that the Committee may, in its discretion, permit
transfers for estate planning or other purposes subject to any applicable
restrictions.
46
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock as of August 15, 1997 after giving
effect to the Stock Split, and the conversion of the Series A Preferred Stock,
and as adjusted to reflect the sale of 2,000,000 shares of Common Stock by the
Company, and the sale of 300,000 shares of Common Stock by the Selling
Stockholders if the over-allotment option is exercised in full, by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each of the Selling Stockholders, (iii) each
director of the Company, (iv) each of the Named Executive Officers and (v) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
PERCENT OWNED AFTER
BENEFICIALLY NUMBER OF OFFERING
OWNED AFTER SHARES BEING IF OVER-ALLOTMENT
SHARES BENEFICIALLY OWNED OFFERING IF OFFERED OPTION IS EXERCISED
PRIOR TO THE OFFERING OVER-ALLOTMENT SUBJECT TO IN FULL
NAME OF ----------------------------- OPTION IS NOT OVER-ALLOTMENT -------------------
BENEFICIAL OWNER(1) NUMBER PERCENT EXERCISED OPTION NUMBER PERCENT
- ------------------- ----------------- --------- ---------------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Dr. Steven R. Matzkin(2) ...... 33.0%
SRM '93 Children's Trust ...... 33.0%
Curtis Lee Smith, Jr. ......... 10.7%
Robert F. Raucci ............... [ ](3) 13.2% (4)
Mitchell B. Olan ............... 3.3%
Crescent International
Holdings Limited ............ [ ] 12.8%
Dr. Dennis Corona ............ 1.6%
Dr. Richard Golden ............ 1.6%
Frank Wolicki .................. *
All Executive Officers and
Directors as a group (five
persons) ..................... 60.2%
</TABLE>
- ----------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is 1343 Main Street, 7th Floor, Sarasota, Florida 34236.
(2) Excludes shares held by the SRM '93 Children's Trust, which has
been established for the benefit of Dr. Matzkin's children. Dr. Matzkin
exercises no control over such trust and disclaims any beneficial interest
in such shares.
(3) Includes shares held by Crescent International Holdings Limited
("CIHL"), a corporation controlled by Mr. Raucci.
(4) Includes shares held by CIHL being offered subject to the
over-allotment option.
47
<PAGE>
CERTAIN TRANSACTIONS
In 1993, Dr. Matzkin sold four dental practices in Michigan to Dr. David
Ross Johnson, a Dental Director, for a $237,000 note under which payments
commenced in May 1997. In connection with that sale Profit, a corporation
controlled by Dr. Matzkin, agreed to provide consulting services to these
practices for $18,000 per month until May 1997 and $15,000 per month thereafter
through May 2005. In July 1997, the Company purchased the right to manage these
practices for $846,000 and entered into a global management agreement pursuant
to which it will provide management services to these practices until 2005. The
Company subcontracted the day-to-day management services to an affiliate of Dr.
Johnson, but retains most other management functions for which it retains 20%
of net profits of these practices, after certain adjustments, and Dr. Johnson's
affiliate is paid 80% of such net profits. The Company also receives $800 per
month from each practice as a licensing fee. Shortly after the consummation of
the Offering, the Company intends to purchase the capital stock of Profit for
approximately $1.0 million.
Certain of the Managed Dental Centers lease their office facilities from
entities controlled by Dr. Matzkin. Such leases terminate at various times
between 2000 and 2004. The Company paid rent pursuant to the leases in the
aggregate amounts of $108,110, $87,756 and $77,671, in 1994, 1995 and 1996,
respectively. Dr. Matzkin also owns certain dental laboratories that perform
laboratory services for the Managed Dental Centers, primarily relating to the
making of prostheses. The amount paid by the Managed Dental Centers to such
laboratories was $60,000 in 1996. Dr. Matzkin owns 33.3% of the capital stock
of Equipment Management Services, an equipment leasing company ("EMS"). Three
Managed Dental Centers have entered into capitalized equipment leases with EMS,
with the aggregate original principal amount of such leases being $122,000.
Amounts paid by such Managed Dental Centers to EMS pursuant to such leases
aggregated approximately $124,000 and $140,000 in 1995 and 1996, respectively.
The Company believes that such arrangements are no less favorable to such
Managed Dental Centers than could have been obtained in arms-length
transactions with unrelated third parties. In addition, Dr. Matzkin has
personally guaranteed an aggregate of approximately $3.3 million of
indebtedness of certain of the Managed Dental Centers and the aggregate of
approximately $100,000 of indebtedness of the Company. The Company is currently
negotiating with the lenders to whom Dr. Matzkin has given such guarantees to
release Dr. Matzkin from his obligations thereunder and to cause the Company to
guaranty such obligations.
Pursuant to a Stockholders' Agreement (the "Stockholders' Agreement")
among the Company and Dr. Matzkin, Mr. Smith, Mr. Raucci, the SRM 1993
Children's Trust and CIHL (collectively, the "Stockholders") initially entered
into in connection with the sale of the Company's Series A Preferred Stock in
October 1996, each Stockholder received (i) "piggyback" registration rights,
(ii) a right of first refusal with respect to a greater than 50% share transfer
by a Stockholder prior to a Qualified Initial Public Offering (as defined in
the Stockholders' Agreement), (iii) co-sale rights to participate on a pro rata
basis in certain resales of Common Stock by other Stockholders (other than in
connection with a Qualified Initial Public Offering) and (iv) participation
rights with respect to certain issuances of securities by the Company made
prior to a Qualified Initial Public Offering. This Offering constitutes a
"Qualified Initial Public Offering" as defined in the Stockholders' Agreement.
In addition, Stockholders other than Dr. Matzkin also were granted demand
registration rights under the Stockholders Agreement. Mitchell B. Olan has been
granted certain "piggyback" registration rights with respect to an aggregate of
shares of Common Stock pursuant to an equity holders agreement with
the Company. Pursuant to Dr. Matzkin's employment agreement, upon termination
of his employment for any reason, if the Company's securities are then publicly
traded, Dr. Matzkin has the right to request that the Company register any or
all of the Common Stock then owned by Dr. Matzkin. See "Description of Capital
Stock--Registration Rights."
For information regarding employment agreements with certain executive
officers and directors, see "Management--Employment Agreements."
The Company has adopted a policy whereby all transactions between the
Company and one or more of its affiliates must be approved in advance by a
majority of the Company's disinterested directors.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Upon consummation of the Offering, the authorized capital stock of the
Company will consist of fifty million shares of common stock, par value $0.01
per share (the "Common Stock"), and five million shares of preferred stock, par
value $0.01 per share (the "Preferred Stock"). After giving effect to the Stock
Split, and the mandatory conversion of all outstanding shares of the Company's
Series A Preferred Stock into shares of Common Stock (post-Stock Split) to
be effected prior to or simultaneously with the effective date of this
Offering, an aggregate of shares of Common Stock will be outstanding. See
"Principal and Selling Stockholders." No shares of Preferred Stock will be
outstanding. The following description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by reference to the
General Corporation Law of the State of Delaware as amended from time to time
("Delaware Law") and the Certificate and Bylaws, which are filed as exhibits to
the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
The holders of the Common Stock are entitled to one vote per share of
record on all matters to be voted upon by stockholders and to vote together as
a single class for the election of directors and in respect of other corporate
matters. At a meeting of stockholders at which a quorum is present, for all
matters other than the election of directors, a majority of the votes cast
decides all questions, unless the matter is one upon which a different vote is
required by express provision of law or the Certificate or Bylaws. Directors
will be elected by a plurality of the votes of the shares present at a meeting.
There is no cumulative voting with respect to the election of directors (or any
other matter).
The holders of Common Stock have no preemptive rights and have no rights
to convert their Common Stock into any other securities. Subject to the rights
of holders of Preferred Stock, if any, in the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to participate equally and ratably in all assets remaining after payment of
liabilities and distribution of any preferential amount.
The holders of Common Stock are entitled to receive ratably such dividends
as the Board of Directors may declare out of funds legally available therefor,
when and if so declared, subject to any preference in favor of outstanding
shares of preferred stock, if any. The payment by the Company of dividends, if
any, rests within the discretion of its Board of Directors and will depend upon
the Company's results of operations, financial condition and capital
expenditure plans, as well as other factors considered relevant by the Board of
Directors.
PREFERRED STOCK
Upon completion of the Offering, no shares of Preferred Stock will be
outstanding. The Board of Directors of the Company, without further action by
the stockholders, will be authorized to issue up to 5 million shares of
Preferred Stock in one or more series and to fix and determine as to any series
all the relative rights and preferences of shares in such series, including,
without limitation, relative voting, dividend, redemption, liquidation,
conversion and other powers, preferences, rights, qualifications and
limitations. The issuance of shares of Preferred Stock, or the issuance of
rights to purchase such shares, could be used to discourage an unsolicited
acquisition proposal that some, or a majority, of the stockholders might
believe to be in the best interests of the Company or in which stockholders
might receive a premium for their stock over the then market price of such
stock. In addition, under certain circumstances, the issuance of Preferred
Stock could adversely affect the voting power of the holders of the Common
Stock.
In October and December 1996, the Company issued an aggregate of 15,000
shares of Series A Preferred Stock. Holders of Series A Preferred Stock are
entitled to an annual dividend of $8.00 per
49
<PAGE>
share of Series A Preferred Stock. In addition, the Certificate of Designation
provides for the mandatory conversion of the Series A Preferred Stock upon the
Company's entering into a public offering of securities. Accordingly, upon
consummation of the Offering, the outstanding Series A Preferred Stock will be
converted into shares of Common Stock (post-Stock Split) and no Series A
Preferred Stock will be outstanding.
WARRANTS AND OPTIONS TO PURCHASE COMMON STOCK
Upon consummation of the Offering, the Company is to issue to Mr. Lavelle,
the sole stockholder of Nassau, a five-year warrant to purchase that number of
shares of Common Stock equal to $350,000 divided by the offering price of
shares of Common Stock in this Offering, at an exercise price equal to the
offering price and a one-year warrant to purchase shares of Common
Stock at an aggregate exercise price of $92,355. Also, David P. Nichols, the
Company's Chief Financial Officer, has a free-standing option to purchase
shares of Common Stock at a purchase price of $ per share
(post-Stock Split). Upon consummation of the Offering, options to purchase
shares will be outstanding under the Omnibus Plan. Finally, the Company
granted two options to Dr. Corona, effective April 1, 1997 and August 21, 1997,
to purchase an aggregate of 17,771 shares of Common Stock at $12.00 per share
(assuming an initial public offering price of $12.00 per share). The options
granted to Dr. Corona expire six months after consummation of the Offering. See
"Management-- Omnibus Executive Incentive Compensation Plan."
REGISTRATION RIGHTS
At any time after nine months following the consummation of the Offering,
any of Messrs. Smith or Raucci or CIHL, an affiliate of Mr. Raucci, may demand,
on any one occasion, that the Company register, as expeditiously as possible,
any or all of the Common Stock then owned by such stockholder, including all
shares of Common Stock issuable pursuant to any derivative securities then held
by such stockholder. In addition, Mr. Raucci and CIHL may demand, on any one
occasion, that the Company register their Common Stock on Form S-2 or Form S-3,
if available. In the event that the Company intends to register any of its
Common Stock, including pursuant to any such request, the Company must notify
the foregoing stockholders of such registration and offer to include therein
the shares held by such stockholders. The Company has agreed to indemnify the
stockholders against liabilities under the Securities Act in certain
circumstances in connection with any such registration statement.
Mitchell B. Olan, Nassau and Mr. Lavelle have been granted certain
"piggyback" registration rights with respect to an aggregate of shares
of Common Stock purchased or purchasable pursuant to equity holders agreements
between the Company and such persons. Such rights, subject to certain
limitations, may be exercised at any time following the Offering in the event
that the Company proposes to register any shares of Common Stock under the
Securities Act on Form S-1, S-2 or S-3 or any similar successor forms, whether
or not for its own account. The Company has agreed to indemnify the
stockholders against liabilities under the Securities Act in certain
circumstances in connection with any such registration statement.
Dr. Matzkin's employment agreement provides that upon termination of his
employment for any reason, if the Company's securities are then publicly
traded, Dr. Matzkin has the right to request that the Company register, as
expeditiously as possible, any or all of the Common Stock then owned by Dr.
Matzkin, including all shares of Common Stock issuable pursuant to any
derivative securities then held by Dr. Matzkin. The Company has agreed to
indemnify Dr. Matzkin against liabilities under the Securities Act in certain
circumstances in connection with any such registration statement.
INDEMNIFICATION
Under the Certificate, the Company may indemnify, to the full extent
permitted by Delaware law, its directors, officers, employees and agents who
are a party, or are threatened to be made a party, to an action or proceeding,
by reason of the fact that the person serves or served the Company as a
director,
50
<PAGE>
officer, employee or agent. The Company also is authorized to purchase
insurance and enter into indemnification agreements. The Company is entering
into indemnification agreements with its executive officers and directors and
may purchase directors' and officers' liability insurance coverage on their
behalf. The Certificate also eliminates the liability of directors and officers
to the Company or its stockholders for monetary damages for breach of fiduciary
duty except to the extent such exemption from liability or limitation thereof
is not permitted under applicable law. The Company believes that these
provisions of the Certificate and the Bylaws are necessary to attract and
retain qualified persons as directors and officers. These provisions do not
eliminate the duty of care or loyalty and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available under Delaware law. In addition, each director continues
to be subject to liability for monetary damages for acts or omissions involving
breach of the duty of loyalty, acts or omissions not in good faith, intentional
misconduct, knowing violations of law, unlawful distributions and any
transaction from which the director derived an improper personal benefit.
PROVISIONS WITH POSSIBLE ANTITAKEOVER EFFECT
Certain provisions of Delaware Law and of the Certificate and the Bylaws,
summarized in the following paragraphs, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including such an attempt as might result in
payment of a premium over the market price for shares held by stockholders.
These provisions may also have the effect of rendering changes in the Board of
Directors and management of the Company more difficult. Any discouraging effect
upon takeover attempts could potentially depress the market price of the Common
Stock or inhibit temporary fluctuations in the market price of the Common Stock
that otherwise could result from actual or rumored takeover attempts.
DELAWARE ANTI-TAKEOVER LAW. The Company is a Delaware corporation and is
subject to Section 203 of Delaware Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% more of a
corporation's outstanding voting stock) from engaging in a "business
combination" with certain Delaware corporations for three years following the
date that person became an interested stockholder unless (i) the corporation
has elected in its certificate of incorporation not to be governed by Section
203 (the Company has not made such an election); (ii) before that person became
an interested stockholder, the board of directors of the corporation approved
the transaction in which the interested stockholder became an interested
stockholder or approved the business combination: (iii) upon consummation of
the transaction that resulted in the interested stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
right to determine confidentially whether shares held subject to the plan will
be voted or tendered in a tender or exchange offer); or (iv) following the
transaction in which that person became an interested stockholder, the business
combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of two-thirds of the outstanding voting stock of the corporation not owned by
the interested stockholder. The restrictions in Section 203 also do not apply
to certain business combinations proposed by an interested stockholder
following the announcement or notification of an extraordinary transaction
involving the corporation and a person who had not been an interested
stockholder during the previous three years or a person who became an
interested stockholder with the approval of a majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the
assets or stock of the corporation or its majority-owned subsidiaries and
transactions which increase an interested stockholder's percentage ownership of
stock.
CLASSIFIED BOARD OF DIRECTORS. The Certificate provides for the Board of
Directors to be divided into three classes of directors denominated Class I,
Class II and Class III, with members of each class holding office for staggered
three-year terms. Mitchell B. Olan and Curtis Lee Smith are Class I
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<PAGE>
Directors whose terms expire at the 1998 annual meeting of stockholders, Robert
Raucci is a Class II Director whose term expires at the 1999 annual meeting of
stockholders and Steven R. Matzkin is a Class III Director whose term expires
at the 2000 annual meeting of stockholders (in all cases subject to election
and qualification of their successors or their earlier death, resignation or
removal.) As a result, approximately one-third of the Board of Directors will
be elected each year. Moreover, under Delaware Law, in the case of a
corporation having a classified board, stockholders may remove a director only
for cause. This provision, when coupled with the provision of the Certificate
authorizing only the Board of Directors to fill vacant directorships, will
preclude a stockholder from removing incumbent directors without cause and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.
SPECIAL MEETING OF STOCKHOLDERS. The Certificate provides that special
meetings of stockholders of the Company may be called only by a majority of the
Board of Directors or the Company's Chief Executive Officer. This provision may
make it more difficult for stockholders to take actions opposed by the Board of
Directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual or special meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Company not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that in the event that less than 70 days' notice or
prior public disclosure of the date of the meeting is given or made to the
stockholders, notice by the stockholder, to be timely, must be received no
later than the close of business on the 10th day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. The Bylaws also specify certain requirements for a stockholder's notice
to be in proper written form. These provisions may preclude some stockholders
from bringing matters before the stockholders at an annual or special meeting
or from making nominations for directors at an annual or special meeting.
VACANCIES. The Bylaws provide that a vacancy on the Board of Directors
occurring from an increase in the number of directors or otherwise may be
filled by the vote of a majority of directors then in office, though less than
a quorum, or by a sole remaining director.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, the Company will have shares
of Common Stock outstanding ( shares it the Underwriters' over-allotment
option is exercised in full), assuming no outstanding stock options or warrants
are exercised . Of these shares, the 2,000,000 shares of Common Stock sold in
this Offering (2,300,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable by persons other than affiliates of
the Company, without restriction under the Securities Act. The remaining
shares of Common Stock will be "restricted securities" within the
meaning of Rule 144 under the Securities Act, and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including the exemptions contained in Rule 144.
Commencing these shares of Common Stock will become eligible for
sale in the open market, subject to volume and other limitations imposed by
Rule 144 including all shares of Common Stock issuable pursuant to any
derivative. In addition, the Company has granted certain registration rights
with respect to shares of Common Stock and Dr. Matzkin's employment
agreement also provides that upon termination of his employment for any reason,
Dr. Matzkin has the right to request that the Company register any or all of
the Common Stock then owned by Dr. Matzkin. Sales of all or a portion of such
shares could have a material adverse effect upon the price of the Common Stock.
However, the directors, executive officers and stockholders of the Company have
agreed not to sell, contract to sell or otherwise dispose of any of these
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Raymond James.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the Company, who has
beneficially owned his or her shares for at least one year (including the prior
holding period of any prior owner other than an affiliate) is entitled to sell
within any three-month period that number of shares which does not exceed the
greater of 1% of the outstanding shares of the Common Stock, or the average
weekly trading volume during the four calendar weeks preceding each such sale.
Sales under Rule 144 also are subject to certain manner of sale provisions,
notice requirements, and the availability of current public information about
the Company. A person (or persons whose shares are aggregated) who is not or
has not been deemed an "affiliate" of the Company for at least three months,
and who has beneficially owned shares for at least 2 years (including the
holding period of any prior owner other than an affiliate) would be entitled to
sell such shares under Rule 144 without regard to the limitations discussed
above.
Prior to this offering there has been no market for the Common Stock, and
no accurate prediction can be made of the effect, if any, that market sales of
restricted securities or of shares subject to stock options or the availability
of these shares for sale will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of any of these
shares in the public market could adversely affect prevailing market prices for
the Common Stock. See "Risk Factors--Shares Eligible for Future Sale."
53
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
Raymond James & Associates, Inc. and William Blair & Company L.L.C. (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the underwriting agreement (the "Underwriting Agreement") by and among the
Company, the Selling Stockholders and the Underwriters, to purchase from the
Company the number of shares of Common Stock set forth below opposite their
respective names, at the public offering price less the underwriting discounts
and commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ----------
<S> <C>
Raymond James & Associates, Inc. ......
William Blair & Company L.L.C. .........
Total .............................. 2,000,000
=========
</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 approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if any such shares are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock directly to the public at the public offering price set forth on the
cover page of this Prospectus and to certain dealers, including the
Underwriters, at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. The Representatives
have informed the Company and the Selling Stockholders that the Underwriters do
not intend to confirm sales to any accounts over which they exercise
discretionary authority.
The Selling Stockholders have granted to the Underwriters an option,
exercisable not later than 30 days after the date of this Prospectus, to
purchase up to an aggregate of 300,000 additional shares of Common Stock, at
the public offering price, less the underwriting discounts and commissions, set
forth on the cover page of this Prospectus. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares
of Common Stock to be purchased by it shown in the above table bears to the
total shown, and the Selling Stockholders will be obligated, pursuant to the
option, to sell such shares to the Underwriters. The Underwriters may exercise
this option only to cover such over-allotments, if any, made in connection with
the sale of the shares of Common Stock offered hereby. If purchased, the
Underwriters will sell such additional shares on the same terms as those on
which the shares are being offered. If any Selling Stockholder fails to sell to
the Underwriters any such additional shares, the Company has agreed that it
will issue and sell to the Underwriters an equal number of shares of Common
Stock. In such event, the total Proceeds to the Company will increase by $11.16
(at an assumed offering price of $12.00 per share) multiplied by the number of
such additional shares issued by the Company.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against, and to contribute to losses arising out of, certain civil
liabilities in connection with this offering, including liabilities under the
Securities Act.
The Company and its executive officers, directors and current stockholders
have agreed that they will not, directly or indirectly, offer, sell, offer to
sell, contract to sell, pledge, grant any option to
54
<PAGE>
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, pledge, grant of any option to purchase or other sale
or disposition) of any shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, Common Stock or other capital stock
of the Company, or any right to purchase or acquire Common Stock or other
capital stock of the Company, for a period of 180 days after the date of this
Prospectus, without the prior written consent of Raymond James, except for bona
fide gifts or transfers effected by such stockholders other than on any
securities exchange or in the over-the-counter market to donees or transferees
that agree to be bound by the Lock-up Agreements and except for sales made by
Selling Stockholders to the Underwriters of up to 300,000 shares to cover
over-allotments, if any. Sales of substantial amounts of Common Stock in the
public market, or the availability of such shares for future sale, could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise additional capital through an offering of its
equity securities. See "Risk Factors--Shares Eligible for Future Sale."
In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the offering then
they are committed to purchase from the Company and in such case may purchase
Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 300,000 shares, by exercising the
Underwriters' over-allotment option referred to above. In addition, Raymond
James, on behalf of the Underwriters, may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or dealer participating in the offering), for the account of the
other Underwriters, the selling concession with respect to Common Stock that is
distributed in the offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if undertaken, may
be discontinued at any time.
The foregoing includes a summary of the principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made
to the copy of the Underwriting Agreement that is on file as an exhibit to the
Registration Statement of which this Prospectus forms a part.
Pursuant to a financial advisory agreement between the Company and Nassau
(as amended and clarified, the "Nassau Agreement"), Nassau, a financial advisor
to the Company, is entitled to a fee of $100,000 upon consummation of this
Offering. At such time, Nassau will also receive a warrant to purchase that
number of Shares of Common Stock equal to $350,000 divided by the offering
price of Shares of Common Stock in the Offering, at an exercise price per share
equal to the offering price and a warrant to purchase Shares of Common
Stock at an aggregate exercise of $92,355. In addition, the Company has paid to
Nassau fees in the aggregate amount of $79,587 and owes Nassau an additional
$61,621. In addition, the Company has issued an aggregate of shares
of Common Stock to Nassau and its related persons at a weighted average price
of $ per share.
Prior to the Offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock has been determined through negotiations among the Company and the
Representatives. Among the factors considered in making such determination were
prevailing market conditions, the Company's financial and operating history and
condition, its prospects and the prospects of the industry in general, the
management of the Company, and the market prices of securities for companies in
businesses similar to that of the Company.
55
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for the Company and for the Selling Stockholders by Greenberg
Traurig Hoffman Lipoff Rosen & Quentel, P.A., Miami, Florida, and for the
Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of Dental Care Alliance, Inc. as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996 included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent certified public
accountants, given on the authority of said firm as experts in auditing and
accounting.
In February 1997 the Company's Board of Directors approved a change in
accountants and the Company's predecessor subsidiaries' former accountants were
dismissed. The independent accounting firm of Price Waterhouse LLP was
subsequently engaged by the Company. The former accountants had not previously
rendered a report on the Company, however, their report on the financial
statements of the Company's predecessor subsidiaries for the years ended
December 31, 1995 and 1994 did not contain an adverse opinion, disclaimer
opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. In addition, there were no disagreements between the
Company and its former accountants on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure during
the two most recent fiscal years ended December 31, 1996 and subsequent interim
periods.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-1 (the
"Registration Statement") with the Commission under the Securities Act in
respect of the Common Stock offered hereby. For purposes of this Prospectus,
the term "Registration Statement" means the initial Registration Statement and
any and all amendments thereto. This Prospectus omits certain information
contained in the Registration Statement as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto. Statements herein
concerning the contents of any contract or other document are not necessarily
complete, and in each instance reference is made to such contract or other
document filed with the Commission as an exhibit to the Registration Statement,
or otherwise, each such statement, being qualified by and subject to such
reference in all respects.
As a result of this offering, the Company will become subject to the
informational requirements of the Exchange Act, and in accordance therewith
will file reports, proxy and information statements, and other information with
the Commission. Reports, registration statements, proxy and information
statements, and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at its regional offices located at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and Seven World Trade Center, Suite 1300,
New York, New York 10048. Copies of these material may be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The Commission maintains
a site on the World Wide Web (http://www.sec.gov) that contains reports,
registration statements, proxy and information statements, and other
information.
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Certified Public Accountants ...... F-2
Consolidated Balance Sheets .............................. F-3
Consolidated Statements of Operations .................. F-4
Consolidated Statements of Stockholders' Equity ......... F-5
Consolidated Statements of Cash Flows .................. F-6
Notes to Consolidated Financial Statements ............... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders' of Dental Care Alliance, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Dental Care Alliance, Inc. (the "Company") successor to Golden Care Holdings,
Inc. and its subsidiaries' at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Tampa, Florida
August 26, 1997
F-2
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- JUNE 30, JUNE 30,
1995 1996 1997 1997
----------- ------------ ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 42,193 $1,253,259 $ 876,217 $ 876,217
Consulting and license fees receivable .................. 64,842 59,000 58,352 58,352
Management fee receivable from P.A.s .................. 43,651 397,441 576,456 576,456
Advances to P.A.s ....................................... -- 16,454 287,127 287,127
Other current assets .................................... 620 27,644 15,871 15,871
Current portion of long-term notes receivable
from P.A.s .......................................... 56,375 68,460 73,266 73,266
---------- ---------- ----------- ----------
Total current assets ................................. 207,681 1,822,258 1,868,093 1,868,093
Property and equipment, net .............................. 51,294 40,230 219,910 219,910
Intangible assets, net ................................. 15,833 803,753 793,535 793,535
Long-term notes receivable from P.A.s,
less current portion .................................... 145,095 129,935 100,490 100,490
Consulting and license fees receivable, non current ...... 98,925 251,925 300,000 300,000
Other assets ............................................. 5,715 74,838 69,244 69,244
---------- ---------- ----------- ----------
Total assets .......................................... $ 524,543 $3,122,939 $3,370,468 $3,370,468
========== ========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................... $ 34,471 $ 491,509 $ 574,283 $ 574,283
Accrued payroll and payroll related costs ............... 16,391 124,236 212,572 212,572
Other accrued liabilities .............................. 2,005 67,008 87,245 87,245
Current portion of long-term debt ..................... 56,138 173,652 161,807 161,807
---------- ---------- ----------- ----------
Total current liabilities .............................. 109,005 856,405 1,035,907 1,035,907
Long-term debt, less current portion ..................... 107,607 40,350 28,746 28,746
---------- ---------- ----------- ----------
Total liabilities .................................... 216,612 896,755 1,064,653 1,064,653
---------- ---------- ----------- ----------
Commitments and contingencies
Minority interest in consolidated subsidiaries ......... 11,094 -- -- --
Mandatorily redeemable preferred stock, $.01 par value,
15,000 shares authorized, issued and outstanding ...... -- 1,402,562 1,473,062 --
Put rights associated with common stock .................. -- 191,237 191,237 --
---------- ---------- ----------- ----------
11,094 1,593,799 1,664,299 --
---------- ---------- ----------- ----------
Stockholders' equity:
Common stock, $.01 par value, 200,000 shares
authorized, 46,500, 49,000 and 52,040 issued and
outstanding at December 31, 1995, 1996, and June
30, 1997 (unaudited), respectively, 60,065 issued and
outstanding--pro forma (unaudited) .................. 465 490 520 601
Additional paid-in capital net of a $272,268 loan
receivable at June 30, 1997 ........................... 279,653 594,161 614,151 2,278,369
Retained earnings ....................................... 16,719 37,734 26,845 26,845
---------- ---------- ----------- ----------
Total stockholders' equity ........................... 296,837 632,385 641,516 2,305,815
---------- ---------- ----------- ----------
Total liabilities and stockholders' equity ............ $ 524,543 $3,122,939 $3,370,468 $3,370,468
========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ------------ ---------- ------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Management fees ....................................... $673,304 $ 513,705 $1,289,828 $405,072 $2,471,759
Consulting and licensing fees ........................ 42,763 262,769 347,600 138,812 161,885
-------- --------- --------- -------- ----------
Total revenues .................................... 716,067 776,474 1,637,428 543,884 2,633,644
-------- --------- --------- -------- ----------
Managed dental center expenses:
Staff salaries and benefits ........................ -- -- 223,657 -- 601,383
Dental supplies .................................... -- -- 79,448 -- 213,334
Laboratory fees .................................... -- -- 98,222 -- 373,010
Marketing .......................................... -- -- 38,128 -- 176,627
Occupancy .......................................... -- -- 106,501 -- 333,085
Other ................................................ -- -- 57,182 -- 326,494
-------- --------- --------- -------- ----------
Total managed dental center expenses ............... -- -- 603,138 -- 2,023,933
-------- --------- --------- -------- ----------
716,067 776,474 1,034,290 543,884 609,711
Salaries and benefits .............................. 408,716 400,669 521,683 261,642 373,016
General and administrative ........................ 204,901 234,577 260,558 118,476 135,970
Advisory services .................................... -- 127,768 -- -- --
Depreciation and amortization ........................ 15,150 22,106 27,654 10,254 41,578
-------- --------- --------- -------- ----------
Operating income (loss) ........................... 87,300 (8,646) 224,395 153,512 59,147
Interest income (expense), net ..................... 22,584 6,494 20,781 (5,058) 36,464
-------- --------- --------- -------- ----------
Income (loss) before income taxes
and minority interest .............................. 109,884 (2,152) 245,176 148,454 95,611
Provision for income taxes ........................... 19,919 -- 35,500 -- 36,000
Minority interest .................................... 2,440 8,654 7,674 3,537 --
-------- --------- --------- -------- ----------
Net income (loss) .................................... 87,525 (10,806) 202,002 144,917 59,611
Adjustment to redemption value of common and
preferred securities .............................. 39,951 85,709 (191,237) -- (10,500)
Cummulative preferred stock dividend ............... -- -- (6,485) -- (60,000)
-------- --------- --------- -------- ----------
Net income (loss) applicable to common stock ......... $127,476 $ 74,903 $ 4,280 $144,917 $ (9,889)
======== ========= ========= ======== ==========
Unaudited pro forma data:
Income (loss) before income taxes and
minority interest ................................. $109,884 $ (2,152) $ 245,176 $148,454 $ 95,611
Pro forma provision for income taxes ............... 42,000 -- 94,000 57,000 36,000
Minority interest in consolidated subsidiaries ...... 1,507 5,343 4,739 2,184 --
-------- --------- --------- -------- ----------
Pro forma net income (loss) ........................ $ 66,377 $ (7,495) $ 146,407 $ 89,270 $ 59,611
======== ========= ========= ======== ==========
Primary pro forma net income per
common share ....................................... $ 2.78 $ 1.13
========= ==========
Fully diluted pro forma net income per share ......... $ 3.28 $ .96
========= ==========
Primary weighted average common
shares outstanding ................................. 52,648 52,648
========= ==========
Fully diluted weighted average
shares outstanding ................................. 61,672 61,807
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON ADDITIONAL
COMMON STOCK PAID-IN RETAINED
STOCK ($.01 PAR) CAPITAL EARNINGS TOTAL
-------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 .................. 46,500 $ 465 $ 47,380 $ -- $ 47,845
Contribution from stockholder, net of
accretion to put value .................. (36,921) (36,921)
Common Stock--accretion to put value ...... 39,951 39,951
Net income ................................. 87,525 87,525
Dividends ................................. (20,000) (20,000)
-------- ------ ---------- ---------- ---------
Balance, December 31, 1994 ............... 46,500 465 50,410 67,525 118,400
Net loss .................................... (10,806) (10,806)
Cash contribution from stockholder ......... 15,766 15,766
Common stock--accretion to put value ...... 85,709 85,709
Issuance of warrants ........................ 127,768 127,768
Dividends ................................. (40,000) (40,000)
-------- ------ ---------- ---------- ---------
Balance, December 31, 1995 .................. 46,500 465 279,653 16,719 296,837
Net Income--January 1 to
October 25, 1996 ........................... 157,783 157,783
Purchase of minority interest ............... 18,768 18,768
Reclassification of members capital upon
C-Corporation election (see Note 1) ...... 174,502 (174,502) --
Issuance of common stock .................. 2,500 25 312,475 312,500
Common stock--accretion to put value ...... (191,237) (191,237)
Accrued dividends on mandatorily
redeemable preferred stock ............... (6,485) (6,485)
Net income--October 26 to
December 31, 1996 ........................ 44,219 44,219
-------- ------ ---------- ---------- ---------
Balance, December 31, 1996 .................. 49,000 490 594,161 37,734 632,385
Adjustment to redemption value of
preferred stock ........................ (10,500) (10,500)
Accrued dividends on mandatorily
redeemable preferred stock ............... (60,000) (60,000)
Issuance of common stock .................. 3,040 30 19,990 20,020
Net Income ................................. 59,611 59,611
-------- ------ ---------- ---------- ---------
Balance, June 30, 1997--unaudited ......... 52,040 $ 520 $ 614,151 $ 26,845 $ 641,516
======== ====== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
------------- -------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $ 87,525 $ (10,806) $ 202,002
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization .............................. 15,150 22,106 27,654
Gain on sale of equipment ................................. (16,804) -- --
Issuance of warrants for advisory services ............... -- 127,768 --
Minority interest .......................................... 2,440 8,654 7,674
(Increase) decrease in:
Consulting and license fees receivable ..................... (65,602) (72,765) (147,158)
Management fee receivable from P.A.s ........................ (16,760) 2,463 (353,790)
Other assets ................................................ (1,980) (3,580) (96,147)
Increase (decrease) in:
Accounts payable .......................................... (86,169) 13,324 457,038
Other accrued liabilities ................................. -- 1,868 65,003
Accrued payroll and payroll related costs .................. -- (13,159) 107,845
---------- ---------- ----------
Net cash (used in) provided by operating activities ...... (82,200) 75,873 270,121
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net ..................... (177,778) (4,703) (4,444)
(Advances made) payments received on notes receivable
from P.A.s ................................................ (116,286) 19,054 3,075
Increase in intangible assets .............................. -- (20,000) (486,489)
---------- ---------- ----------
Net cash used in investing activities ..................... (294,064) (5,649) (487,858)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of mandatorily redeemable
preferred stock, net ....................................... -- -- 1,395,000
Proceeds from issuance of common stock ..................... -- -- --
Contribution from stockholder .............................. 88,739 15,766 --
Proceeds on sales of equipment .............................. 4,227 -- --
Payments of long-term debt ................................. (10,787) (45,692) (67,257)
Proceeds from issuance of long-term debt ..................... 211,584 -- 117,514
Advances to P.A.s .......................................... -- -- (16,454)
Dividends ................................................... (20,000) (40,000) --
---------- ---------- ----------
Net cash provided by (used in) financing activities ...... 273,763 (69,926) 1,428,803
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents ...... (102,501) 298 1,211,066
Cash and cash equivalents at beginning of period ............ 144,396 41,895 42,193
---------- ---------- ----------
Cash and cash equivalents at end of period .................. $ 41,895 $ 42,193 $1,253,259
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for income taxes .................. $ -- $ 23,903 $ --
Cash paid during the year for interest ..................... $ 5,775 $ 19,282 $ 13,955
Issuance of common stock for non cash consideration ......... $ -- $ -- $ 312,500
Issuance of warrants for advisory services .................. $ -- $ 127,768 $ --
Assumption of accounts payable and accrued liabilities
related to revision of management service agreements ...... $ -- $ -- $ 438,300
Increase to redemption value of preferred stock ............ $ -- $ -- $ --
Increase in cumulative preferred stock dividend ............
Elimination of minority interest .............................. $ 18,768
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1996 1997
------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $ 144,917 $ 59,611
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization .............................. 10,254 41,578
Gain on sale of equipment ................................. -- --
Issuance of warrants for advisory services ............... -- --
Minority interest .......................................... 3,537 --
(Increase) decrease in:
Consulting and license fees receivable ..................... (60,226) (47,427)
Management fee receivable from P.A.s ........................ (94,921) (179,015)
Other assets ................................................ (41,097) 17,367
Increase (decrease) in:
Accounts payable .......................................... 4,129 82,774
Other accrued liabilities ................................. -- 20,237
Accrued payroll and payroll related costs .................. 7,132 88,336
---------- ----------
Net cash (used in) provided by operating activities ...... (25,775) 83,461
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net ..................... (4,444) (211,040)
(Advances made) payments received on notes receivable
from P.A.s ................................................ (15,034) 24,639
Increase in intangible assets .............................. (1,167) --
---------- ----------
Net cash used in investing activities ..................... (20,645) (186,401)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of mandatorily redeemable
preferred stock, net ....................................... -- --
Proceeds from issuance of common stock ..................... -- 20,020
Contribution from stockholder .............................. -- --
Proceeds on sales of equipment .............................. -- --
Payments of long-term debt ................................. -- (23,449)
Proceeds from issuance of long-term debt ..................... 50,459 --
Advances to P.A.s .......................................... -- (270,673)
Dividends ................................................... -- --
---------- ----------
Net cash provided by (used in) financing activities ...... 50,459 (274,102)
---------- ----------
Net (decrease) increase in cash and cash equivalents ...... 4,039 (377,042)
Cash and cash equivalents at beginning of period ............ 42,193 1,253,259
---------- ----------
Cash and cash equivalents at end of period .................. $ 46,232 $ 876,217
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for income taxes .................. $ -- $ --
Cash paid during the year for interest ..................... $ 8,659 $ 6,809
Issuance of common stock for non cash consideration ......... $ -- $ --
Issuance of warrants for advisory services .................. $ -- $ --
Assumption of accounts payable and accrued liabilities
related to revision of management service agreements ...... $ -- $ --
Increase to redemption value of preferred stock ............ $ -- $ 10,500
Increase in cumulative preferred stock dividend ............ $ 60,000
Elimination of minority interest ..............................
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND ORGANIZATION
Dental Care Alliance, Inc. ("DCA" or the "Company") was formed on October
23, 1996 with a nominal capital contribution, to effect a reorganization (the
"Reorganization") among DCA, Golden Care Holdings L.C. ("GCH"), the predecessor
entity, and its majority owned subsidiaries Golden Care Network, L.C.("GCN"),
and Prophet Management L.C. ("PM"). DCA and GCH completed the Reorganization on
October 25, 1996 by transferring substantially all of the assets, liabilities
and operations of GCH, GCN and PM to DCA. Concurrently, shares of DCA were
issued in exactly the same proportion as the shareholders of GCH.
As the shareholders of DCA and GCH, and their related ownership
percentages, were identical at the time of the Reorganization, the
Reorganization has been accounted for in a manner similar to a pooling of
interests. The effects of the Reorganization, resulting in the recording of a
charge to recognize deferred income taxes upon conversion to C corporation
status have been reflected in these financial statements.
GCH was incorporated in 1993 as a Florida Limited Liability Corporation
which held 99% of GCN and 90% of PM. Concurrent with the Reorganization, the
10% minority shareholder interest of PM transferred his ownership interest in
the assets of PM in exchange for 1,000 shares of the stock of DCA. These shares
were issued to the minority shareholder at fair market value of $125 per share
as determined by an independent third party appraisal of the common stock of
the Company as of this date. As a result this transaction, $125,000 was
capitalized and is reflected as a component of intangible assets in the
underlying financial statements and is being amortized over 15 years. No step
up in basis for the 1% minority share of GCH has been reflected, as the
shareholders and shareholders' percentages of DCA and GCH were exactly the same
on the date of the Reorganization, and the fair value of the 1% ownership
interest is not material.
The Company and its predecessor provide management, consulting and
licensing services to dental practices in Florida and Michigan. The dental
practices are owned by separate Professional Associations (the "P.A.s"), and
the Company has entered into long-term Administrative Services Agreements
("Management Agreements") with the P.A.s to provide administrative, financial
and technical support and expertise to the P.A.s in exchange for management,
consulting and licensing fees, as described in Note 3.
Each P.A. employs and directs the professional dental staff, including the
dentists and hygienists, and provides all of the clinical services to the
patients. The Company employs and directs the administrative staff and manages
in collaboration with the P.A. owner, all of the remaining administrative,
financial, marketing and professional services of the practice. As of December
31, 1996, the Company provided these management services to 12 Managed Dental
Centers, all located in Florida. For the years ended December 1996, 1995 and
1994, of the 12, 9 and 7 Managed Dental Centers, 10, 6 and 1 centers were owned
and controlled by the same individual and resulted in $1,022,000, $288,000 and
$4,000 of the Company's management fees, respectively. As further described in
Note 3, these 10 Management Agreements were modified concurrent with the
Reorganization, in exchange for 1,000 shares of the Company and assumption of
the existing working capital liabilities of the P.A.s of $438,300. The fair
value of these shares ($125,000) and the working capital liabilities assumed
have been recorded as an intangible asset and are being amortized over the 25
year life of the agreements.
F-7
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. OPERATIONS AND ORGANIZATION--(CONTINUED)
The Company also provides consulting services to other P.A.s, under
contracts in which the P.A. employs the administrative staff. Under such
agreements, the Company reviews and consults on the financial and operational
efficiencies of the practices. These consulting agreements were originally held
by an entity which is approximately 80% controlled by the Company's President
and controlling shareholder (see Note 13 Subsequent Events). The 20% minority
shareholder assigned his interest in these agreements to the Company on October
25, 1996 in exchange for 500 shares of the Company's common stock which was
valued at $125 per share, as determined by an independent third party
appraisal. As a result of this transaction, $62,500 was capitalized and is
reflected as a component of intangible assets in the underlying financial
statements and is being amortized over the 8 year remaining life of these
agreements. As of December 31, 1996, the Company provided these consulting
services to 4 Managed Dental Centers, all located in Michigan (see Note 13,
Subsequent Events).
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION/BASIS OF CONSOLIDATION. The accompanying
consolidated financial statements have been prepared on the accrual basis of
accounting and include only those operations which are under the ownership and
financial control of the Company. All intercompany accounts and transactions
have been eliminated in consolidation. The Company's predecessor subsidiaries
were consolidated for the years ended 1995 and 1994. The Company does not have
any ownership in or exercise control over the dentistry activities of the P.A.s
and accordingly, the accompanying financial statements do not consolidate the
results of the P.A.s.
The Emerging Issues Task Force, an advisory committee of the Financial
Accounting Standards Board, is currently evaluating certain matters relating to
accounting practices for physician practice management companies, which the
Company expects will include a review of the consolidation of professional
associations with which such companies have management agreements and the
financial statements. Any required changes to the accounting practices of
physician practice management companies resulting from this review could have a
material adverse effect on the Company's reported results of operations.
BASIS OF PRESENTATION--INTERIM FINANCIAL STATEMENTS (UNAUDITED). The
financial statements for the six months ended June 30, 1997 and 1996 are
unaudited and have been prepared by the Company. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the results of its operations for the six months ended June 30,
1997 and 1996 have been included herein. The results of operations for the six
month period are not necessarily indicative of the results for the full year.
UNAUDITED PRO FORMA NET INCOME PER SHARE. The Company's historical capital
structure is not indicative of its prospective structure due to the conversion
of preferred stock into common stock and the termination of the common stock
put rights that will occur concurrent with the closing of the Offering.
Accordingly, historical net income per share is not considered meaningful and
has not been presented herein.
Pro forma net income per share is based on the weighted average number of
common shares and dilutive common equivalent shares outstanding during the
periods. Pro forma net income per share also
F-8
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
assumes the conversion of preferred stock into common stock on the date of
issuance. Common stock and common equivalent shares issued within one year
prior to the filing of the Company's registration statement at prices less than
the initial public offering price have been included for all periods presented
using the treasury stock method.
REVENUE RECOGNITION. The Company records its revenue in accordance with
Management Agreements and other consulting and licensing agreements further
described in Note 3.
ADVERTISING. The costs of advertising, promotion and marketing,
aggregating $18,902, $14,437, and $42,272 for the years ended December 31,
1994, 1995, and 1996, respectively, are expensed when incurred and are included
in general and administrative expenses.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair value of amounts
reported in the financial statements have been determined by using available
market information and appropriate valuation methodologies. The carrying value
of all current assets and current liabilities approximates fair value because
of their short-term nature.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
CONSULTING AND LICENSING FEES RECEIVABLE. Consulting and licensing fees
receivable represents amounts owed to the Company from various P.A.s for
consulting and licensing fees provided under contracts. The Company reviews the
collectibility of its receivables related to consulting and license fees. This
review is based upon the cash flow of the P.A.s and the fair market value of
the collateral of the assets of the P.A.s.
MANAGEMENT FEE RECEIVABLE FROM P.A. Management fee receivable from P.A.
consists of amounts owed to the Company related to revenue recorded in
accordance with Management Agreements and is recorded based upon the net
realizable value of patient accounts receivables of the P.A.s. The Company
reviews the collectibility of the patient accounts receivables of the P.A.s and
adjusts its management fee receivable accordingly.
ADVANCES TO P.A.S. Advances to P.A.s consist of receivables from P.A.s in
connection with working capital advances made to affiliated practices. The
Company reviews the collectibility of its receivables related to advances to
P.A.s. This review is based upon the cash flow of the P.A.s, and the fair
market value of the collateral of the assets of the P.A.s. Commencing August
1997, under terms of a note agreement such advances are repayable under terms
calling for interest at 8%, maturing on June 30, 1998. Any future advances will
be due within 12 months of issuance at 8%, adjusted for any changes in the
Company's borrowing note. All advances and payables between P.A.'s under common
ownership have a right of offset included in the agreement.
NOTES RECEIVABLE FROM P.A.S. Notes receivable from P.A.s relate to
financing of capital improvements made by P.A.s covering certain medical and
non-medical assets. Notes receivables from P.A.s generally have terms of 2 to 5
years, are interest bearing with rates between 10% and 18.5% percent, and are
secured by the assets of the Managed Dental Center and personally guaranteed by
the P.A. owner.
F-9
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Expenditures for maintenance and repairs are charged to expenses as incurred
and expenditures for additions and betterments are capitalized. The cost of
assets sold or otherwise disposed of and the related accumulated depreciation
are eliminated from the accounts and any resulting gain or loss is reflected in
the statement of operations.
Depreciation is computed by using the straight-line method over the
estimated useful life of the asset, ranging from 3 to 10 years. Leasehold
improvements are amortized over their estimated useful life or the remaining
lease period, whichever is less.
INTANGIBLE ASSETS. Intangible assets includes certain organizational costs
associated with the incorporation of the Company and costs related to
consideration given to entities in exchange for (i) waiver by a minority
shareholder of any rights to receive management fees under certain management
agreements, (ii) revised terms to existing management service agreements and
(iii) the purchase of minority shareholder rights in PM. Intangible assets are
being amortized over periods of 8-25 years. Accumulated amortization related to
intangible assets was $4,167 and $7,146 at December 31, 1995 and 1996,
respectively.
CONTRIBUTION FROM SHAREHOLDER. Contribution from shareholder, net of
accretion to put value, in 1994 of $(36,911) relates to a cash contribution of
$88,750 reduced by $125,661 related to the value of the put option as an
increase in temporary equity and a reduction of additional paid-in capital.
STOCK BASED COMPENSATION. In October 1995 the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS No. 123"), which is effective
for fiscal years beginning after December 15, 1995. Under SFAS No. 123, the
Company may elect to recognize stock-based compensation expense based on the
fair value of the awards or continue to account for stock-based compensation
under Accounting Principles Board Opinion No. 25 ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES ("APB No. 25") and disclose in the financial statements the effects
of SFAS No. 123 as if the recognition provisions were adopted. The Company has
elected to continue to account for its stock based compensation under APB No.
25 and adopt the disclosure only requirements of SFAS No. 123.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
DEPENDENCE ON THE P.A.S. The Company receives fees for services provided
to the P.A.s under Management Agreements, and consulting and licensing
agreements, but does not employ dentists or control the practices of the
dentists employed by the P.A.s. The Company's revenue is dependent on revenue
generated by the P.A.s and, therefore, effective and continued performance of
the Managed Dental Centers during the term of the Agreements is essential to
the Company's long-term success.
The Management Agreements are generally for a term of 25 years beginning
on the effective date of each individual agreement and renewing each and every
year on the anniversary date of the
F-10
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
subsequent year for a period of generally 25 years and may be terminated by the
P.A., or the Company, under certain events of default "with cause" as defined
including a material default by or bankruptcy of the Company. In the event of a
material default by the P.A., or its owner, the P.A. can sell the practice to a
third party mutually agreed to or sell its assets to the Company for a preset
formula price and assign ownership interest to a P.A. agreeable to all parties.
In the event that the proper notification is given to the Company, the P.A. can
terminate the agreement at any time without cause if it sells the practice and
assigns the agreement to another party to be approved by the Company. The sales
price in such event will be determined through negotiations among the selling
P.A. and the buyer. In no event can the Company replace the P.A. at will or for
a nominal fee, except in the event of default. Any material loss of revenue by
the P.A.s would have a material adverse effect on the Company, including the
P.A.s' ability to repay their indebtedness to the Company.
AFFILIATIONS WITH PRACTICES. During the three years ended December 31,
1996, 1995 and 1994 the Company affiliated with dental practices by executing
Management Agreements. In addition to the affiliation with the five existing
Managed Dental Centers, the Company executed four, four and two new Management
Agreements for the years ended December 31, 1994, 1995 and 1996, respectively.
Net practice revenues for these practices were approximately $210,000, $491,000
and $664,000, respectively, during these periods. During this same period, the
number of affiliations with dental practices that were terminated were 1, 2 and
0, respectively. Net practice revenues for these practices were approximately
$757,000 and $102,000, for the years ended December 31, 1994 and 1995
respectively during these periods.
ADOPTION OF NEW ACCOUNTING STANDARDS. Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO DISPOSED OF ("SFAS No. 121"), was implemented by the
Company in fiscal 1996. SFAS No. 121 states that if the carrying value of
long-lived asset, including associated intangibles, exceeds the sum of the
estimated undiscounted cash flows from the operation of the asset, an
impairment loss should be recognized for the difference between the asset's
estimated fair value and carrying value. The Company has analyzed its financial
position with regards to the provisions of SFAS No. 121, and believes there is
no impact as a result of the new standard. The Company evaluates whether events
and circumstances have occurred that indicate the carrying amount of these
long-lived assets may be impaired, by comparison of undiscounted cash flows
from operations with related carrying value of the assets. At December 31,
1996, the unamortized balance of these assets are not considered to be
impaired.
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128 "Earnings Per Share" ("SFAS No. 128"), which replaces the
presentation of primary EPS with basic EPS and requires diluted EPS be
presented for entities with complex capital structures. This Statement is
effective for fiscal periods ending after December 15, 1997 and early
application is not permitted. Under SFAS No. 128 reporting requirements, basic
EPS and diluted EPS would have been $2.89 and $3.28 per share, respectively for
the year ended December 31, 1996 and $1.16 and $.96 per share, respectively,
for the six month period ended June 30, 1997.
INCOME TAXES AND PRO FORMA INCOME TAXES. Upon its incorporation on October
23, 1996, as described in Note 1, the Company terminated its predecessor status
as a Limited Liability Corporation and is now subject to federal income taxes.
As such, the financial statements in 1996, 1995 and 1994
F-11
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
include a pro forma adjustment for income taxes as if the Company had been
treated as a C Corporation. The effective rate utilized approximates the
combined statutory federal and state income tax rate, net of the tax effects of
minority interest in current earnings. Effective October 25, 1996, the Company
accounted for income taxes under the liability method in accordance with
Statement of Financial Accounting Standards, NO. 109, ACCOUNTING FOR INCOME
TAXES ("SFAS No. 109").
Due to the conversion of the preferred stock into common stock and the
termination of the common stock put rights that will occur concurrent with the
closing of the Offering, pro forma net income per share is computed using the
pro forma net income of the Company before deductions for the adjustment in
redemption value of the common and preferred securities and preferred stock
dividends.
PRO FORMA BALANCE SHEET--UNAUDITED. The pro forma balance sheet as of June
30, 1997 is presented to give effect for the anticipated initial public
offering of the Company's securities at which time the amount ascribed to
common stock put rights will be returned to permanent net equity upon
consummation of the initial public offering and mandatorily redeemable
preferred stock will be converted to common stock of the Company. The pro forma
balance sheet does not contain the proceeds estimated to be received by the
Company upon consummation of the Offering.
3. REVENUE RECOGNITION
MANAGEMENT FEES. Management fees represents revenue earned from managed
dental practices less amounts retained by the practices for those P.A.s where
the Company provides management services.
The Company earns management fees from the P.A.s under two types of
contracts: net revenue and net profits. Under the net revenue contracts,
management fees are equal to 74% of the patient revenues earned by the P.A.
Such contracts also stipulate that the Company must pay certain expenses, as
defined by the Management Agreement. Under the net profits contracts,
management fees are equal to between 50% and 90% of the practice's net profits,
as defined. Net profit is calculated by subtracting practice expenses (which
constitutes both dental and non-dental expenses), excluding depreciation and
amortization, from net collected practice revenue. Contractual revenues and
related expenses have, for purposes of the accompanying financial statements,
been reflected on an accrual basis.
The amounts contractually retained by the practices under net revenue
contracts are intended to cover amounts incurred for (1) salary and benefits to
employ the dentists, hygienists and contracted specialists; (2) licensing fees
to be paid to the Company; (3) debt and asset carrying costs on the acquisition
of the practices; and (4) any other direct costs to the P.A. not covered under
the Management Agreement.
Effective October 1996, the Company revised the term of all of its 12 then
existing Management Agreements such that the Company is responsible for the
payment of all non-professional expenses of the Managed Dental Centers. Ten
Management Agreements were also revised to base the Company's management fee
from a percentage of net profits at each PA to a percentage of net revenue from
each PA and two Management Agreements were modified to assign additional
responsibilities to the
F-12
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. REVENUE RECOGNITION--(CONTINUED)
Company. Accordingly, prior to these revisions to such 12 Management
Agreements, all non-professional expenses of the Managed Dental Centers and
related revenues were reflected in each PA's financial statements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company expects to primarily utilize net revenue contracts in
the future. Management fees for the remaining two Managed Dental Centers under
the net profits contracts are calculated based upon 50%--55% of net profits.
The PA located in Port Charlotte, Florida has the right to terminate its
Management Agreement during a 90-day period beginning in October 1998. Such
Managed Dental Center contributed approximately 18% and 14% to the Company's
revenue in 1996 and 1997, respectively. The Management Agreement expires in
2003.
The following table sets forth the gross practice revenue earned and
amounts retained by the P.A.s, and the management fees earned by the Company
for the periods ended:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1994 1995 1996
------------ ------------ ----------
<S> <C> <C> <C>
Net practice revenue .............................. $3,703,430 $4,515,019 $5,576,059
Amounts contractually retained by the P.A.s ...... 3,030,126 4,001,314 4,286,231
---------- ---------- ----------
Management fees ................................. $ 673,304 $ 513,705 $1,289,828
========== ========== ==========
</TABLE>
Had the net profits method been in effect for all of fiscal 1996,
management fees would have been $708,336. In addition, a portion of the managed
dental center expenses recorded as an expense by the Company would have been
the responsibility, and therefore, the expense of the P.A.s.
CONSULTING AND LICENSING FEES. Consulting fees related to training of
personnel and other administrative services are performed by the Company for
four managed dental centers which are not serviced under the Management
Agreements (see Note 13, Subsequent Events).
The Company also provides separate licensing services to the 16 Managed
Dental Centers. The licensing agreements typically call for terms of 8-25
years, in exchange for an annual fee from each practice of approximately
$9,600-$12,000 per year. As part of the licensing agreements, the Company will
solicit and negotiate managed care contracts for the practice and provide
opportunities for the licensed practice to participate in group purchasing and
marketing plans.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Leasehold improvements ............ $ 45,027 $ 45,027
Office equipment .................. 20,455 24,900
Vehicles ........................... 13,901 13,901
--------- ---------
79,383 83,828
Less accumulated depreciation ...... (28,089) (43,598)
--------- ---------
$ 51,294 $ 40,230
========= =========
</TABLE>
Depreciation expense for the periods ended December 31, 1994, 1995, and
1996 was $15,150, $17,939, and $15,508, respectively.
F-13
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. OPERATING LEASES
The company leases office space for its corporate offices and, under the
terms of certain Management Agreements, certain non-medical assets on behalf of
its Managed Dental Centers.
Future minimum lease payments under these agreements as of December 31,
1996 are:
<TABLE>
<S> <C>
1997 ...... $ 81,134
1998 ...... 76,921
1999 ...... 75,918
2000 ...... 71,611
2001 ...... 73,904
--------
$379,488
========
</TABLE>
Operating lease expense for the periods ended December 31, 1994, 1995, and
1996 was $28,104, $48,079, and $47,725, respectively.
6. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Note payable to financial institution, interest at prime plus 1% (9.5%
and 9.25% at December 31, 1995 and 1996, respectively), principal
and interest payable monthly, maturing in October 1999, secured by
dental equipment and the other business assets of the Company ............ $ 78,834 $57,805
Note payable to financial institution, interest at prime plus 1% (9.5%
and 9.25% at December 31, 1995 and 1996, respectively), principal
and interest payable monthly, maturing in August 1999, unsecured ......... 76,667 53,017
$60,000 line of credit to financial institution, secured principal payable
due on demand, interest paid quarterly at 9.25% per year until first
change date then rate will be prime plus 1%, guaranteed by the
Company's President and Chief Executive Officer ........................ -- 57,260
$40,000 line of credit to financial institution maturing March 26, 1997,
secured by a money market account of the Company's President and
Chief Executive Officer, principal due on demand, interest paid
quarterly at 7.25% per year until first change date than rate will be
prime plus 1% ............................................................ -- 39,899
Other ..................................................................... 8,244 6,021
-------- -------
163,745 214,002
Less current portion ...................................................... 56,138 173,652
-------- -------
$107,607 $40,350
======== =======
</TABLE>
Both lines matured in March 1997, continue to be funded and are due on
demand under substantially the same terms and conditions.
F-14
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. DEBT--(CONTINUED)
Future debt payments as of December 31, 1996 are:
1997 ...... $173,652
1998 ...... 21,262
1999 ...... 19,088
--------
$214,002
========
7. INCOME TAXES
As described in note 1, during fiscal 1994, 1995 and through October 23,
1996, the Company consisted of a group of Limited Liability Corporations
("LLCs") with one subsidiary operating as a C Corporation in 1994. As such, the
consolidated accounts reflect a tax provision in 1994 only for the operations
of the C Corporation. Because the operations of the C Corporation were assigned
to one of the LLCs in late 1994 no tax provision is reflected in 1995. As a
result of the Reorganization on October 23, 1996, a deferred tax liability of
$17,500, included in other current liabilities, was established to account for
the differences between the book and tax basis of assets, primarily property
and equipment, at the time of conversion from a limited liability corporation
to a C Corporation. This deferred tax liability at December 31, 1996 was
adjusted to $15,600 as a result of changes in the book and tax basis during the
two months ended December 31, 1996.
The provision for income tax related to the C Corporation for the period
October 23, 1996 through December 31, 1996 consists of the following:
Current:
Federal ............... $17,000
State ............... 2,900
Deferred--Federal ...... 15,600
-------
Total .................. $35,500
=======
The Company's effective tax rate of 38% (for the two month period ended
December 31, 1996) is greater than the federal statutory rate of 34% primarily
due to the impact of state income taxes, net of federal tax benefit.
A pro forma provision for income taxes for the periods ended December 31,
1994, 1995 and through October 23, 1996 has been included in the financial
statements to reflect net income had it been calculated on a basis of a C
Corporation, based on the combined statutory federal and state income tax rates
for those periods, adjusted for minority interest.
8. MANDATORILY REDEEMABLE PREFERRED STOCK AND COMMON STOCK
MANDATORILY REDEEMABLE PREFERRED STOCK. On October 25, 1996, the Company
executed a subscription agreement which provided for the issuance of $1.5
million (15,000 shares at $100/share) in mandatorily redeemable preferred
stock. Under the terms of that agreement, $500,000 of preferred stock was
issued on October 25, 1996 and $1,000,000 was issued on December 31, 1996.
Proceeds of this issuance are reflected net of $105,000 of related offering
costs paid under the advisory agreement described in Note 10.
F-15
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. MANDATORILY REDEEMABLE PREFERRED STOCK AND COMMON STOCK--(CONTINUED)
The Company had authorized 15,000 shares of Series A Convertible Preferred
Stock with a par value of $0.01 per share. The preferred stock accrues
cumulative dividends at $8/share, has voting and preemptive rights, adjustments
for dilutive effects and liquidation preferences equal to $100/share plus
accrued unpaid dividends. Dividends are payable in cash or, at holders' option,
one-half in cash and one-half in common stock. Prior to the earlier of (i) a
qualified initial public offering ("IPO") or (ii) April 25, 1998 (collectively
the "Reset Period"), each share of the preferred stock is convertible into .535
shares of common stock, unless the Company's annual revenue (based upon the two
most recent quarters prior to an IPO) equals or exceeds $15 million ("Revenue
Factor"). Subsequent to the Reset Period, or in the event the revenue factor
exceeds $15 million, the conversion ratio is reduced to .357 shares of common
stock. All of the outstanding preferred stock converts into common stock
("mandatory conversion") upon either an IPO or, at the Company's option, upon a
default as further defined in the agreement, in accordance with the ratios
described above. Also in connection with the Preferred Stock Sale, the Company
agreed to indemnify the Stockholders against certain claims and liabilities,
including claims and liabilities arising under the securities laws.
Anytime after October 25, 2001, the preferred stockholder, or anytime
after October 25, 2002, the Company may compel the redemption, for cash, of all
or any of the outstanding preferred stock. The preferred stock shall be
redeemed at $100/share plus accrued unpaid dividend. The redemption price is
payable over a two year period from the date of redemption, with payment in
four equal semi-annual installments without interest. The terms of the
preferred stock also provide for mandatory redemption by the holders in the
event the Corporation has undertaken certain defined actions or transactions
deemed unfavorable to the holders. The Company is accreting from the issuance
price less related offering costs to the stated redemption value of $1.5
million over the five year holding period to October 2001.
COMMON STOCK WITH PUT RIGHTS. In January 1994, GCH sold to a third party
an owners interest equivalent to 13%. In connection with the sale of this
owners interest, the owner became a director of the Company and the Company
attached certain put rights which are exercisable after January 1, 2001 if the
Company has not completed a public offering of its common stock by that date.
The per share price applicable to the "put rights" is 6 times pre-tax net
income for the calendar year immediately preceding the exercise of the put
times the ownership percentage that will be put back to the Company.
Concurrent with the Reorganization, this ownership interest was converted
to 6,500 shares of common stock of the Company with put rights which are
equivalent to those described above. As of December 31, 1995 and 1996 the
redemption value of these put rights has been reclassified to temporary equity,
from permanent equity on the Company's balance sheet.
9. EMPLOYEE BENEFITS
On January 26, 1994 and October 25, 1996, the Company issued to one of its
officers warrants to purchase 1,000 shares of stock (at each grant date), with
an exercise price at the then fair market value (aggregate value of $147,768
and $125,000 respectively) of the stock, as determined by an independent third
party appraisal. The options granted in January 1994 vest ratably over a period
of three years from the grant date. Of the October 1996 warrants, 750 shares
vested upon grant date and the remaining 250
F-16
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. EMPLOYEE BENEFITS--(CONTINUED)
shares vested in January 1997. All such warrants were exercised in February
1997, and the exercise price was funded by an interest bearing note from the
Company. This interest bearing note has been offset against additional paid-in
capital in shareholders' equity at June 30, 1997.
On January 21, 1997, the Company issued a stock option for 608 shares of
stock to another officer of the Company which are exercisable, in whole or in
part, immediately. The exercise price is fair market value on the grant date
($125 per share). In no event shall this option be exercisable after January
21, 2002.
The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE FAIR VALUE OF
SHARES EXERCISE PRICE OPTIONS GRANTED
----------- ------------------ ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1993 ...... -- --
Exercisable at December 31, 1993 ...... -- --
Granted during 1994 .................. 1,000 $147.77 $131.47
Exercised during 1994 .................. -- --
Outstanding at December 31, 1994 ...... 1,000 $147.77
Exercisable at December 31, 1994 ...... 250 $147.77
Granted during 1995 .................. 1,690 $142.08 $126.71
Exercised during 1995 .................. -- $ --
Outstanding at December 31, 1995 ...... 2,690 $144.20
Exercisable at December 31, 1995 ...... 1,540 $143.93
Granted during 1996 .................. 1,000 $125.00 $110.57
Exercised during 1996 .................. -- $ --
Outstanding at December 31, 1996 ...... 3,690 $138.99
Exercisable at December 31, 1996 ...... 2,540 $138.72
Granted during 1997 .................. 608 $125.00 $112.08
Exercised during 1997 .................. 3,040 $138.33
Outstanding at June 30, 1997 ......... 1,258 $133.83
Exercisable at June 30, 1997 ......... 608 $125.00
</TABLE>
The following table summarizes the stock options outstanding and
exercisable at December 31, 1996 and June 30, 1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OF CONTRACTUAL EXERCISE OF EXERCISE
PRICE OPTIONS LIFE PRICE OPTIONS PRICE
----------------- --------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996 ...... $125.00-$147.77 3,690 4 months $138.99 2,540 $138.72
June 30, 1997 ......... $125.00-$142.08 1,258 5 months $133.83 608 $125.00
</TABLE>
F-17
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. EMPLOYEE BENEFITS--(CONTINUED)
The Company has adopted the disclosure only provisions of SFAS No. 123.
Accordingly, no compensation expense has been recognized for its stock option
plan(s). Had compensation cost for the stock option plan(s) been determined
based on the fair value at the date of grant for awards in 1994, 1995 and 1996
and the six month period ending June 30, 1997 consistent with the provisions of
SFAS 123, the Company's net income and earnings per share would approximate the
following pro forma amounts:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ----------------
1994 1995 1996 1997
------- --------- -------- ----------------
<S> <C> <C> <C> <C>
Pro forma net income (loss) ......... $66,377 $(16,593) $141,304 $51,426
======= ========= ======== =======
Pro forma net income per share ...... $ 2.68 $ .98
======== =======
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the minimum value method with the following weighted average assumptions:
no dividend yield, no expected volatility, risk-free interest rates ranging
from 5.53%--6.23%, and average expected lives of two years.
10. ADVISORY SERVICES
The Company entered into an exclusive corporate development advisory
agreement (the Agreement) in September 1995 under which the Company is
committed to the following:
A retainer each quarter equal to the greater of $4,000 or 6 percent of the
Company's quarterly income before income tax expenses in excess of $75,000
beginning February 1, 1996 which is recorded as a component of general and
administrative expenses.
In addition, the Company granted the corporate development advisors (the
"Advisors") warrants to purchase an (1,040 shares) ownership interest at a
exercise price of $20,000 for services rendered in connection with business
development and other financial management advisory services. The warrants were
granted below fair market value and accordingly, the Company has recognized a
charge of $127,768 and has recorded the warrants as a component of
shareholders' equity. These warrants were exercised in June 1997. Furthermore,
upon the occurrence of an M&A Transaction, as defined in the Agreement, the
Advisor is entitled to a fee of $100,000 and five year warrants to purchase a
number of shares of common stock equal to $250,000 divided by the lesser of 80
percent of the price per share of the transaction, as defined, or $20 million
divided by the number of fully diluted shares outstanding just prior to the M&A
Transaction.
The Agreement was amended on April 25, 1996 to provide for payment of fees
in relation to Capital Raising Transactions, as defined, of between 4% and 7%
of the proceeds. As a result of the issuance of the mandatorily redeemable
preferred stock described in Note 8 a fee of $105,000 was paid to the advisor.
Upon consummation of an Offering, the Company has committed to pay the Advisors
a fee of $100,000 and to issue a 10 year warrant to purchase a number of shares
of common stock equal to $350,000 divided by the offering price of the common
stock, at an exercise price equal to the offering price, if and when an
Offering is completed. In August 1997, the Company committed to issued warrants
to the Advisors to purchase 650 shares of common stock at an exercise price of
$92,355, which
F-18
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. ADVISORY SERVICES--(CONTINUED)
will vest only upon the completion of an Initial Public Offering (Offering) for
services rendered in connection with financial and marketing consulting
administrative support related to an Offering. The agreement for these warrants
also provides that the Advisor will receive the earlier of the M&A fees and
warrants or the Offering fees and warrants, not both. The fair value of these
warrants which is anticipated to be significantly in excess of $100,000, less
the related exercise price, are anticipated to be offset against the proceeds
of the related offering because the underlying services relate to the initial
public offering.
11. RELATED PARTY TRANSACTIONS
The Company's President, Chief Executive Officer and majority shareholder
owns or controls entities which do business with the Company or its Managed
Dental Centers. The Company and its Managed Dental Centers incurred rent
totaling $77,671, $87,756 and $108,110 for the years ended December 31, 1994,
1995 and 1996, respectively, ($10,918 related to the two month period ended
December 31, 1996, under the net revenue contracts) payable to such entities.
During 1996, the Company also paid for certain laboratory costs of a related
party on behalf of the Company's President and controlling shareholder. This
amount of $60,000, which is personally guaranteed by the Company's President,
has been reflected in other assets at December 31, 1996 as such amounts have
been structured as a demand note. The Managed Dental Centers have also incurred
capital lease obligations payable to a related entity owned 33% by the
Company's President totaling approximately $119,000 and $108,000 as of December
31, 1995 and 1996, respectively. Interest expense on such obligations was
approximately $0, $16,000, and $21,000 for the years ending December 31, 1994,
1995, and 1996, respectively.
12. COMMITMENTS AND CONTINGENCIES
As described in Note 1, a majority of the Managed Dental Centers are owned
by the same individual. As of December 31, 1996 and June 30, 1997, P.A.s owned
or controlled by this individual are indebted to the Company in the amount of
approximately $16,000 and $287,000, respectively, related to working capital
advances. This individual has personally guaranteed this indebtedness in the
event the receivable cannot be paid by the P.A.s and pledged the ownership
interest rights of P.A.s subordinate to acquisition debt. This represents a
concentration of credit risk and exposes the Company to risk of loss for these
amounts should the P.A.s and the individual be unable to pay its debts.
Relevant financial data on this P.A.'s practices and the Company's commitments
on behalf of other P.A.s for each period end as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ----------------
1994 1995 1996 1997
------- ---------- ---------- ----------------
<S> <C> <C> <C> <C>
Net practice revenue ......... $75,292 $1,950,976 $4,271,228 $2,699,551
Amounts contractually retained
by the P.A. ............... 71,605 1,662,718 3,248,895 781,370
------- ---------- ---------- ----------
Management fees ............ $ 3,687 $ 288,258 $1,022,333 $1,918,181
======= ========== ========== ==========
</TABLE>
Additionally, the Company's President, Chief Executive Officer and
majority shareholder has guaranteed (subordinate to the pledge of assets of the
practice and the guarantee of the P.A. and its
F-19
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
owner) a portion of the financing related to the managed dental centers which
are owned and controlled by one of the P.A.s. As of December 31, 1996, this
amount was approximately $1,259,000. During the period ended June 30, 1997, the
Company guaranteed (subordinate to the pledge of assets of the practice and the
guarantee of the P.A. and its owner) a portion of the financing ($450,000)
related to the managed dental center which is owned and controlled by one of
the P.A.s.
The Company has entered into employment agreements with three of its
officers, one of whom is also the majority shareholder of the Company. The
terms of the agreements are from four to five years and initially expire in
1998 and 2001.
The Company has entered into a staff leasing agreement whereby all of the
Company's corporate employees and, on behalf of the Managed Dental Centers, all
of the non-medical employees of the dental centers are leased.
13. SUBSEQUENT EVENTS
ACQUISITIONS
In April 1997, the Company acquired approximately $200,000 of non-medical
assets and executed a 25 year Management Services Agreement with a dental
practice located in Temple Terrace, Florida. As part of the debt guaranty for
the P.A. owner, the Company has pledged as collateral the non-medical assets
acquired. Unaudited net practice revenue of the dental practice was
approximately $950,000 for the year ended December 31, 1996. The Management
Agreement executed is a net revenue contract. The P.A. owner had eleven P.A.s
under contract with the Company at the date of this transaction. In connection
with the execution of this Management Agreement, the Company has agreed to
issue options of common stock to the P.A. in the amount of $82,000, at an
exercise price equal to the IPO price, when and if an Offering is completed,
exercisable for a period of six months.
In July 1997, the Company's President and controlling shareholder acquired
approximately $2.4 million of non-medical assets and concurrently, the Company
executed a 25 year Management Agreement with the dental practice located in
Flint, Michigan. Unaudited net practice revenue of the dental practice was
approximately $4 million for the period ended December 31, 1996. The Management
Agreement executed is under the net revenue contract. As the P.A. owner is the
Company's President and controlling shareholder, the financial statements of
the P.A. will be combined with the Company's operations during the third
quarter because of the common control of the entities.
In July 1997, the Company acquired four Management Agreements for
$846,000, including settlement of outstanding receivables for consulting
services of $300,000, wherein it will provide management services to the
related practices for 8 years. The P.A.s were previously subject to consulting
and licensing agreements. The acquired Management Service Agreements are
executed under the net revenue contract. Unaudited net practice revenue of the
dental practice was approximately $3.4 million for the period ended December
31, 1996. The Company had previously recognized revenue of $40,000 in 1994,
$160,000 in 1995, $160,000 in 1996 and $53,000 for the six months ended June
30, 1997 for consulting and licensing services. The Company has agreed to
subcontract the day to day management of these four practices for eighty
percent of the net profits of the P.A., subject
F-20
<PAGE>
DENTAL CARE ALLIANCE, INC.
(SUCCESSOR TO GOLDEN CARE HOLDINGS L.C.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUBSEQUENT EVENTS--(CONTINUED)
to certain adjustments to a Michigan based company owned by the P.A. owner
resulting, in effect, in the acquisition of a 20% interest. The Company will
continue to receive license fees of $40,000 per year. The owner of the P.A.
does not own any other P.A.s currently under Management Agreements.
In August 1997, the Company acquired approximately $175,000 of non-dental
assets and executed a 25 year Management Agreement with a dental practice
located in Tallahassee, Florida. Unaudited net practice revenue of the dental
practice was approximately $900,000 for the year ended December 31, 1996. The
P.A. owner had twelve P.A.s under contract with the Company at the date of this
transaction. The Management Agreement executed is a net revenue contract. In
connection with the execution of this Management Agreement, the Company has
agreed to issue options for common stock to the P.A. in the amount of $131,000
at an exercise price equal to the IPO price, when and if an Offering is
completed, exercisable for a period of six months.
FINANCING
In August 1997, the Company entered into two revolving lines of credit
with a financial institution which provides for an aggregate of $1.2 million
for general working capital needs and short-term asset acquisitions. The
revolving lines of credit bear interest at prime plus .75% and is payable on
June 1, 1998, and contain limitations on acquisition activity without prior
approval.
OMNIBUS EXECUTIVE INCENTIVE COMPENSATION PLAN.
Concurrent with the consummation of an Offering the Company anticipates
establishing an Omnibus Executive Incentive Compensation Plan (the "Plan")
which is designed to attract and retain executives, directors, independent
contractors and potentially certain dentist employees of P.A.s
("Participants"). However the Company is under no obligation to establish such
a plan. Management anticipates that all such options will be accounted for
under FAS No. 123.
In connection with entering into the Temple Terrace, Florida and
Tallahassee, Florida Management Agreements the Company has agreed to issue to
the P.A. physician employees incentive options to purchase 5,000 shares of
stock vesting over a 5 year period, expiring 10 years from grant date at an
exercise price equal to the IPO price, when and if an offering is completed and
certain performance based award of shares as determined at varying levels of
collected revenue, as set forth in the employment agreement. Issuance of all
such options are conditioned on the Company establishing a stock option plan.
F-21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THIS OFFERING, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO SELL
OR SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary ..................... 3
Risk Factors ........................... 8
The Company .............................. 16
Relationship Between the Company
and the PAs ........................... 17
Use of Proceeds ........................ 18
Dividend Policy ........................ 18
Dilution ................................. 19
Capitalization ........................... 20
Selected Financial Data .................. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ........................ 23
Business ................................. 29
Management .............................. 42
Principal and Selling Stockholders ...... 47
Certain Transactions ..................... 48
Description of Capital Stock ............ 49
Shares Eligible for Future Sale ......... 53
Underwriting ........................... 54
Legal Matters ........................... 56
Experts ................................. 56
Available Information .................. 56
Index to Financial Statements ............ F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,000,000 SHARES
DENTAL CARE ALLIANCE LOGO
COMMON STOCK
------------
P R O S P E C T U S
------------
RAYMOND JAMES &
ASSOCIATES, INC.
WILLIAM BLAIR & COMPANY
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions) of
the sale of the shares of Common Stock are as follows:
<TABLE>
<S> <C>
SEC registration fee ..................... $ 9,061
NASD filing fee ........................ 3,490
Nasdaq National Market listing fee ...... *
Legal fees and expenses .................. 300,000/dagger/
Blue Sky fees and expenses ............... 15,000
Accounting fees and expenses ............ 200,000/dagger/
Printing and engraving expenses ......... 100,000/dagger/
Transfer agent and registrar fees ...... *
Miscellaneous fees and expenses ......... 272,449/dagger/
----------
Total ................................. $900,000/dagger/
==========
</TABLE>
- ----------------
/dagger/ Estimated.
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate and Bylaws will effectively provide that the
Registrant may indemnify to the full extent permitted by Delaware Law,
including Section 145 of Delaware Law ("Section 145") thereunder. In addition,
the Registrant's Certificate will eliminate personal liability of its directors
to the full extent permitted by Section 102(b)(7) of Delaware Law ("Section
102(b)(7)").
Section 145 permits a corporation to indemnify its directors, officers,
employees and agents against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by them
in connection with any action, suit or proceeding brought by a third party if
such directors or officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reason to believe
their conduct was unlawful. In a derivative action, indemnification may be made
for expenses actually and reasonably incurred by directors, officers, employees
and agents, in connection with the defense or settlement of an action or suit
and with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant officers or directors are
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.
Section 102(b)(7) provides that a corporation may eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for willful or
negligent conduct in paying dividends or repurchasing stock out of other than
lawfully available funds or (iv) for any transaction from which the director
derived an improper personal benefit. No such provisions shall eliminate or
limit the liability of a director for any act or omission occurring prior to
the date when such provision becomes effective.
The Company is entering into Indemnification Agreements with its directors
and executive officers in which the Registrant will agree to indemnify such
persons to the fullest extent now or hereafter
II-1
<PAGE>
permitted by Delaware Law. The Company may also obtain a liability insurance
policy for its officers and directors, which may extend to, among other things,
liabilities under the Securities Act.
The indemnification provided by Delaware Law and the Certificate and
Bylaws is not exclusive of any other rights to which a director or officer may
be entitled. The general effect of the foregoing provisions may be to reduce
the circumstances in which an officer or director may be required to bear the
economic burden of the foregoing liabilities and expense.
Section 9 of the Underwriting Agreement (to be filed as Exhibit 1.1 to
this Registration Statement) provides that the Underwriters severally and not
jointly will indemnify and hold harmless the Registrant and each director,
officer and controlling person of the Registrant from and against any liability
caused by any statement or omission in the Registration Statement, in the
Prospectus, in any Preliminary Prospectus or in any amendment of supplement
thereto, in each case to the extent that the statement or omission was made in
reliance upon and in conformity with written information furnished to the
Registrant by the Underwriters expressly for use therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities that were not registered under the Securities Act have been
issued or sold by the Company within the past three years except as follows(1):
<TABLE>
<CAPTION>
DATE OF SALE
AMOUNT AND TYPE OF SECURITIES OR ENTITLEMENT PURCHASER(S) CONSIDERATION
- ----------------------------- -------------- ------------ -------------
<S> <C> <C> <C>
20,000 shares of Common Stock October 1996 Steven R. Matzkin (2)
20,000 shares of Common Stock October 1996 SRM 1996 Children's Trust (2)
6,500 shares of Common Stock October 1996 Curtis Lee Smith, Jr. (3)
Warrants to Purchase 1,000 shares October 1996 Mitchell Olan (4)
of Common Stock
1,000 shares of Common Stock October 1996 Dr. Richard Golden (5)
5,000 shares of Series A October 1996 Robert F. Raucci $500,000
Preferred Stock(6) Crescent International
Holdings, Inc.
10,000 shares of Series A December 1996 Crescent International $1 million
Preferred Stock(6) Holdings Limited
Robert F. Raucci
1,000 shares of Common Stock October 1996 Dennis Corona (7)
500 shares of Common Stock October 1996 Frank Wolicki (8)
Option to purchase 608 shares of January 1997 David P. Nichols (9)
Common Stock
1,000 shares of Common Stock February 1997 Mitchell Olan (10)
Option to purchase a number of April 1997 Dennis Corona, DDS, P.C. (11)
shares equivalent to $82,000
divided by the initial public
offering price per share
520 shares of Common Stock June 1997 The Nassau Group, Inc. $10,000(12)
520 shares of Common Stock June 1997 JF Lavelle $10,000(13)
Option to purchase a number of August 1997 Dennis A. Corona, DDS, P.C. (11)
shares equivalent to $131,250
divided by the initial public
offering price per share
</TABLE>
II-2
<PAGE>
- ----------------
(1) Unless otherwise indicated, all share numbers refer to pre-Stock Split
Shares.
(2) Such shares were issued to the founding shareholders when the Company was
incorporated in exchange for the membership interests in Golden Care
Holdings, L.C., Golden Care Network, L.C. and Prophet Management of
Florida, L.C.
(3) Such securities, were purchased for $750,000 in cash and Mr. Smith's
promissory note in the amount of $1.75 million.
(4) Such Warrants were issued pursuant to an amendment to Mr. Olan's
employment agreement.
(5) Such shares were issued in exchange for the membership interest held by
Dr. Golden in Prophet Management of Florida, L.C.
(6) The Nassau Group, Inc. acted as placement agent for the sale of Series A
Preferred Stock, for which it received a fee of $105,000. All Series A
Preferred Stock will be converted into 8,025 shares of Common Stock upon
consummation of the Offering.
(7) Such shares were issued in consideration for the modification of the terms
of certain management agreements between the Company and Mr. Corona.
(8) Such shares were issued in exchange for Mr. Wolicki's ownership interest
in Profit Dental Management Corp. and any rights to receive management
fees.
(9) Such options were granted pursuant to Mr. Nichols' employment agreement
with an exercise price of $125 per share.
(10) Such shares were issued pursuant to warrants to purchase 1,000 shares of
Common Stock granted to Mr. Olan on January 26, 1994 and warrants to
purchase 1,000 shares of Common Stock granted to Mr. Olan on October 25,
1996, respectively. Mr. Olan issued promissory notes to the Company in
the amounts of $147,768 and $125,000, respectively in payment of such
shares.
(11) Granted in connection with this PA's purchase of a dental practice and
exercisable only upon consummation of an initial public offering at the
public offering price per share.
(12) Such shares were issued pursuant to warrants to purchase 520 shares of
Common Stock granted to the Nassau Group, Inc. in September 1995.
(13) Such shares were issued pursuant to warrants to purchase 520 shares of
Common Stock granted to Mr. Lavelle in September 1995.
The aforementioned issuances and sales were made in reliance upon the
exemption from the registration provisions of the 1933 Act afforded by Section
4(2) thereof and/or Regulation D promulgated thereunder, as transactions by an
issuer not involving a public offering. The purchasers of the securities
described above acquired them for their own account and not with a view to any
distribution thereof to the public. The certificates evidencing the securities
bear legends stating that the securities may not be offered, sold or
transferred other than pursuant to an effective registration statement under
the 1933 Act, or an exemption from such registration requirements. The Company
will place stop transfer instructions with its transfer agent with respect to
all such securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as exhibits to this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Articles of Incorporation of the Company.*
3.2 Amended and Restated Bylaws of the Company.*
4.1 See Exhibits 3.1 and 3.2 for provisions in the Company's Articles of Incorporation and Bylaws
defining the rights of holders of the Company's Common Stock.*
5.1 Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A. with respect to legality
of the Common Stock being issued.*
10.1 Form of Indemnification Agreement between the Company and each of its directors and
executive officers.*
10.2 Form of Standard Management Agreement.
10.3 Management Agreement between PAs owned by Dr. Dennis Corona and the Company.*
10.4 Management Agreement between Dr. Joseph Gaeta and the Company.*
10.5 Administrative Service Subcontract Agreement between the Company and Johnson Dental
Development Corporation.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.6 Administrative Services Agreement between the Company and Eight Mile Dental, P.C.;
Gratiat Avenue Dental, P.C.; Wayne Road Dental, P.C. and Washington Boulevard Dental, P.C.
10.7 Form of License Agreement.*
10.8 Employment Agreement dated as of October 25, 1996 between the Company and Dr. Steven
R. Matzkin.
10.9 Employment Agreement dated as of October 25, 1996 between the Company and Mitchell B.
Olan.*
10.10 Employment Agreement dated as of January 21, 1997 between the Company and David
Nichols.*
10.11 Equity Holders Agreement dated as of October 25, 1996 between the Company and Mitchell
B. Olan.
10.12 Equity Holders Agreement dated as of April 30, 1997 between the Company and J. Francis
Lavelle.
10.13 Equity Holders Agreement dated as of April 30, 1997 between the Company and The Nassau
Group, Inc.*
10.14 Option Agreement dated as of January 21, 1997 between the Company and David P. Nichols.*
10.15 Warrant dated as of April 29, 1996 between the Company and The Nassau Group, Inc.*
10.16 Form of IPO Warrant between the Company and The Nassau Group, Inc.*
10.17 Subscription Agreement dated as of October 25, 1996 among the Company, Robert F. Raucci
and Crescent International Holdings Limited.*
10.18 Lease Agreement dated as of April 9, 1994 between the Company and Charles E. Githler, III,
as Managing Agent for Owner, J. Kevin Drake, as Trustee Under Trust Agreement dated
April 15, 1991.
10.19 Stockholders' Agreement dated as of October 25, 1996 among the Company, Steven R.
Matzkin, Curtis Lee Smith, Jr., Robert F. Raucci and Crescent International Holdings, Limited,
as amended.*
10.20 Omnibus Executive Incentive Compensation Plan.*
10.21 Pledge Agreement, dated as of February 13, 1997 between the Company and Mitchell B.
Olan.*
10.22 Promissory Note in the original principal amount of $147,768 dated as of February 13, 1997
from Mitchell B. Olan to the Company.
10.23 Promissory Note in the original principal amount of $1.75 million dated from
Curtis Lee Smith, Jr. to the Company.*
10.24 Assignment and Assumption Agreement dated as of October 24, 1996 among the Company,
Golden Care Network, L.C. and Prophet Management of Florida, L.C.*
10.25 Agreement for Services dated as of June 1, 1997 between the Company and Modern Employer,
Inc.
10.26 Revolving Credit Agreement dated August 15, 1997 between the Company and Barnett
Bank.*
16.1 Letter of Arthur Andersen LLP re: change in independent certified public accountants.*
21.1 List of subsidiaries of the Company.*
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A. (included in its opinion
to be filed as Exhibit 5.1).*
24.1 Powers of Attorney of Directors and Executive Officers (included on the Signature Page of
this Registration Statement).*
27.1 Financial Data Schedule for the year ended December 31, 1996.
27.2 Financial Data Schedule for the six months ended June 30, 1997.
</TABLE>
- ----------------
* To be filed by amendment.
II-4
<PAGE>
(b) The following financial statement schedules have been filed with this
Registration Statement:
[All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions
or are not applicable, and therefore have been omitted.]
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(b) 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 under Item 14
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance 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 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sarasota, State of
Florida, on this 27th day of August, 1997.
DENTAL CARE ALLIANCE, INC.
By: /s/ STEVEN R. MATZKIN
-----------------------------------
Steven R. Matzkin
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned directors and officers of Dental Care Alliance, Inc.
hereby constitute and appoint Steven R. Matzkin and Mitchell Olan and each of
them, with full power to act without the other and with full power of
substitution and resubstitution, our true and lawful attorneys-in-fact and
agents with full power to execute in our name and behalf in the capacities
indicated below any and all amendments (including 462(b) Amendments,
post-effective amendments and amendments thereto) to this Registration
Statement and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully in all intents and purposes as
he might or could do in person, and hereby ratify and confirm that such
attorneys-in-fact, or either of them, or their substitutes shall lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STEVEN R. MATZKIN Chairman of the Board, Chief August 27, 1997
- ------------------------------ Executive Officer and President
Steven R. Matzkin
/s/ DAVID P. NICHOLS Chief Financial Officer August 27, 1997
- ------------------------------ (principal accounting officer)
David P. Nichols
/s/ MITCHELL B. OLAN Vice President, Chief Operating August 27, 1997
- ------------------------------ Officer and Director
Mitchell B. Olan
/s/ CURTIS LEE SMITH, JR. Director August 27, 1997
- ------------------------------
Curtis Lee Smith, Jr.
Director August 27, 1997
- ------------------------------
Robert F. Raucci
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.2 Form of Standard Management Agreement.
10.5 Administrative Service Subcontract Agreement between the Company and Johnson Dental
Development Corporation.
10.8 Employment Agreement dated as of October 25, 1996 between the Company and Dr. Steven
Matzkin.
10.11 Equity Holders Agreement dated as of October 25, 1996 between the Company and Mitchell
B. Olan.
10.12 Equity Holders Agreement dated as of April 30, 1997 between the Company and J. Francis
Lavelle.
10.18 Lease Agreement dated as of April 9, 1994 between the Company and Charles E. Githler, III,
as Managing Agent for Owner, J. Kevin Drake, as Trustee Under Trust Agreement dated
April 15, 1991.
10.22 Promissory Note in the original principal amount of $147,768 dated as of February 13, 1997
from Mitchell B. Olan to the Company.
10.25 Agreement for Services dated as of June 1, 1997 between the Company and Modern Employer,
Inc.
23.1 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule for the year ended December 31, 1996.
27.2 Financial Data Schedule for the six months ended June 30, 1997.
</TABLE>
EXHIBIT 10.2
DENTAL CARE ALLIANCE, INC.
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") effective this
__ day of _________, 1996, ("Effective Date") between and among DENTAL CARE
ALLIANCE, INC., a Delaware corporation ("DCA"); ________, a _____________ dental
professional association (the "PA"); and ____________________, a licensed
___________ dentist who is the sole stockholder, owning all of the issued and
outstanding stock of PA (the "Stockholder").
I. RECITALS
WHEREAS, DCA is a company with expertise in the provision of business
and administrative services to dental practices; and
WHEREAS, the PA is a dental professional association duly organized and
validly existing under all applicable state law and regulation, and whose stock
is owned by the Stockholder; and
WHEREAS, the PA owns and operates a dental practice (the "Practice") at
the location specified on EXHIBIT A attached hereto; and
WHEREAS, the PA desires that DCA provide it with the business and
administrative services described in this Agreement, in order for the PA to
avail itself of DCA's expertise and efficiencies, and DCA desires to provide
such services to the PA; and
WHEREAS, the parties mutually desire that the PA shall maintain
complete control over and responsibility for all aspects of the Practice's
operations that constitute the practice of dentistry under applicable state law.
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
II. DUTIES AND OBLIGATIONS OF DCA
2.1 GENERAL. DCA will provide the PA with all of the business and
administrative services required for the day-to-day operations of the Practice,
as set forth in EXHIBIT B to this Agreement, attached hereto and incorporated by
reference herein. The PA appoints DCA as its sole and exclusive agent for the
provision of the business and administrative services described in this
Agreement, and DCA hereby accepts such appointment.
<PAGE>
Notwithstanding anything else in this Agreement, the parties expressly
acknowledge that DCA is not authorized or qualified to engage in any activity
that may be deemed or construed to constitute the practice of dentistry, or
shall DCA be regarded as practicing dentistry within the meaning of applicable
state dental laws and regulations. To the extent that any act or service herein
required by DCA should be construed by a court of competent jurisdiction or by
state dental regulatory authorities with jurisdiction over this Agreement to
constitute the practice of dentistry, the requirement to perform that act or
service shall be deemed waived and unenforceable and shall not constitute a
breach or default by DCA under this Agreement, and the parties shall take the
actions contemplated by SECTION 10.11 hereof.
2.2. PROVISIONS OF OFFICE AND EQUIPMENT. DCA will consult with the PA
on its office and equipment needs, and will provide or arrange for the provision
to the PA, at the expense of the PA, the offices, and improvements requested by
the PA for the operation of the Practice, all of the aforementioned as will be
mutually agreeable to the parties (collectively referred to as the "Offices and
the Equipment"). The office space provided to the PA by DCA hereunder will be
provided pursuant to a sublease in the form of EXHIBIT C attached hereto (the
"Office Lease"). It is expressly understood and agreed that the PA shall have
complete custody and control over the Offices and Equipment, consistent with the
control over leased property that is customarily granted to lessees under
standard commercial leases.
2.3. EMPLOYMENT OF NON-DENTAL STAFF. DCA will employ and provide to the
PA the non-dental staff required for the operation of the Practice, provided
that the hiring and termination of such staff shall be at the direction of the
PA, in consultation with DCA.
2.4. BILLING AND COLLECTIONS SERVICES. DCA will supervise billing and
collections services for all patient services rendered at the Practice, provided
that all billings and collections will be done in the name of the PA. Pursuant
to its performance of the billings and collections function, DCA will take
possession of and endorse in the name of the PA all payments from patients,
insurance companies and other third party payors, and promptly deposit all such
funds in the PA Account discussed in SECTION 2.5 below. The PA hereby appoints
DCA for the term of this Agreement to be its true and lawful attorney-in-fact
for the purposes set forth in this section. DCA will prepare and submit
financial reports to the PA detailing billings and collections on a monthly
basis.
2.5. BANKING ARRANGEMENTS. All monies collected for the PA by DCA
pursuant to SECTION 2.4 above shall be deposited into an
2
<PAGE>
account in the name of and owned by the PA (the "PA account"), for which the
sole signatory shall be a duly authorized representative of DCA, with a bank
whose deposits are insured with the Federal Deposit Insurance Corporation. DCA
shall be responsible for making all disbursements from the account, which shall
be limited to the disbursements authorized by this Agreement. DCA shall make all
disbursements promptly when payable, and shall account to the PA for all funds
disbursed from the PA account, and make available to PA, upon request, and
during normal business hours at the place of business of DCA, copies of all bank
account statements.
III. DUTIES AND OBLIGATIONS OF THE PA
3.1. PROFESSIONAL RESPONSIBILITIES. The PA shall have complete
authority, responsibility, supervision and control over the provision of all
dental services to patients and all other acts that are considered to constitute
the practice of dentistry under applicable state dental laws and regulations.
3.2. EMPLOYMENT OF DENTISTS. The PA will provide dental services to the
public through the services of dentists ("Dentists") who are employed by the PA
pursuant to employment agreements ("Employment Agreements") in the form of
EXHIBIT D attached hereto.
3.3. CONTROL OF BUSINESS OPERATIONS. Notwithstanding the authority
granted to DCA pursuant to ARTICLES II AND IV of this Agreement, it is expressly
acknowledged and agreed by the parties that the PA shall have approval over the
following business decisions:
(a) The hiring and termination of the Practice's staff.
(b) The dental equipment used by the Practice.
(c) Patient scheduling.
(d) The dental supplies used by the Practice.
(e) Marketing, expressly including all policies and decisions
relating to pricing, credit, refunds, warranties and to the
content and placement of advertising.
(f) Any other aspects of the Practice's operations that are
considered to be within the practice of dentistry under
applicable state dental laws and regulations.
3
<PAGE>
3.4. HOURS OF OPERATION. The PA represents and agrees that it will be
open to the public on a full time schedule of eight hours per day, a minimum of
five days per week (except for reasonable holidays), with appropriate staffing
by Dentists, hygienists and assistants, throughout the term of this Agreement.
3.5 PATIENT RECORDS. The PA will prepare and maintain at the Practice
accurate, complete and timely records on all services rendered to patients at
the Practice. All patient records shall be the property and remain under the
control and custody of the PA at all times during and after the term of this
Agreement. The records shall be prepared and maintained in compliance with all
applicable state and federal laws and regulations. DCA shall have access to the
patient records of the PA only for the limited purposes necessary to perform its
duties under this Agreement, and subject to all applicable laws and regulations
governing the confidentiality of such records.
3.6. AGREEMENT NOT TO ENCUMBER OR ALLOW TO BE ENCUMBERED. PA and
Stockholder agree that as part of the inducement to DCA to enter into this
transaction, and related transactions, including but not necessarily limited to
loans, guaranty of loans, or leases, or license agreements, DCA has considered
and relied upon the creditworthiness and reliability of PA and Stockholder. PA
and Stockholder covenant and agree not to sell, convey, transfer, lease or
further encumber any interest in or any part of the assets of the PA, or assets
of the Stockholder including but not necessarily limited to his stock in the PA,
without the prior written consent of DCA, and any such sale, conveyance,
transfer, lease or encumbrance made without DCA's prior written consent shall be
void. If any person should obtain an interest in all or any part of the assets
or stock of the PA, pursuant to the execution or enforcement of any lien,
security interest, judgment or other right, such event shall be deemed to be a
transfer and an event of default hereunder. PA and Stockholder covenant and
agree not to effectuate or attempt to effectuate any change in ownership or
control of PA without the prior written consent of DCA, and do herein represent
and warrant to DCA that Stockholder presently owns and holds all of the issued
and outstanding shares of stock of the PA.
IV. FINANCIAL ARRANGEMENTS
4.1. PRACTICE OPERATING EXPENSES. DCA will be responsible for paying
for the Practice's operating expenses, which shall include the expenses incurred
by DCA in connection with the performance of those services discussed in ARTICLE
II and EXHIBIT E of this Agreement (the "Practice Expenses"), provided that the
PA shall reimburse DCA for such Expenses on a monthly basis.
4
<PAGE>
4.2. EXPENSES OF THE PA. The PA will be responsible for payment of the
salary and benefits and professional liability insurance for the Dentists (the
"Dentist Expenses") and any other Practice staff employed directly by the PA and
any other expenses of the Practice or the PA that are not included within the
definition of Practice Expenses. Disbursements for such expenses shall be made
by DCA from the PA Account in accordance with SECTION 2.5 of this Agreement.
4.3. SERVICE FEE. Each month DCA will deduct from the PA account a
service fee payable by the PA to DCA (the "Service Fee"), which shall be
determined according to the following formula: [to be inserted] Net profit is
defined as set forth on EXHIBIT "F".
4.4. LOANS. If requested by the PA, DCA may, but is not obligated to,
provide loans to the PA to fund the PA's working capital requirements on such
terms as are mutually satisfactory to the parties hereto. Stockholder shall be
required to personally and unconditionally guarantee all such loans.
V. INSURANCE AND INDEMNITY
5.1. INSURANCE TO BE MAINTAINED BY THE PA. The PA covenants and agrees
that throughout the term of this Agreement, it will maintain comprehensive
professional liability insurance with limits of not less than $300,000 per claim
and with aggregate policy limits of not less than $1,000,000.00 per each
Dentist, and a separate limit for the PA with the PA being an additional insured
under the policy, with separate limits as follows:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ----. The PA shall be responsible for all such liabilities in excess of the
limits of such policies. DCA agrees to negotiate for and cause premiums to be
paid with respect to such insurance. Premiums and deductibles with respect to
such policies shall be a Practice Expense of the PA.
5.2. INSURANCE TO BE MAINTAINED BY DCA. DCA agrees that throughout the
term of this Agreement, it will maintain property and casualty insurance on the
property described on EXHIBIT "A", with premiums and deductibles with respect to
such policies being a Practice Expense.
5.3. ADDITIONAL INSUREDS. The PA agrees to use its reasonable efforts
to have DCA named as an additional insured on its professional liability
insurance program.
5
<PAGE>
5.4. INDEMNIFICATION. The PA and Stockholder shall jointly and
severally indemnify, hold harmless and defend DCA and its officers, directors,
shareholders and employees, from and against any and all liability, loss,
damage, claim, causes of action, and expenses (including reasonable attorney's
fees), whether or not covered by insurance, caused or asserted to have been
caused, directly or indirectly, by or as a result of the performance of medical
or dental services or the performance of any intentional acts, negligent acts or
omissions by the PA and/or the Stockholder or P.A.'s agents, employees and/or
subcontractors (other than DCA) during the term hereof. DCA shall indemnify,
hold harmless and defend the PA and Stockholder and its or their employees, from
and against any and all liability, loss, damage, claim, causes of action, and
expenses (including reasonable attorney's fees), caused or asserted to have been
caused, directly by or as a result of intentional acts by DCA and/or its
shareholders, agents, employees and/or subcontractors (other than the PA and/or
Stockholder), in connection with the services provided or required to be
provided by DCA, during the term of this Agreement.
VI. TERM AND TERMINATION
6.1. TERM OF AGREEMENT. This Agreement shall have a term of years
beginning on the ___ day of _______,____.
6.2. TERMINATION OF AGREEMENT. This Agreement may be terminated as
provided for in this Section, it being expressly agreed that termination of this
Agreement by any party shall serve to terminate the Agreement against all
parties.
(a) TERMINATION FOR CAUSE. In the event that DCA, on one hand, or
the PA or the Stockholder, on the other hand, shall
materially default in the performance of any duty,
obligation, covenant or agreement imposed upon it, them or
him by, or made by it, them or him pursuant to this Agreement
and such default shall continue for a period of 30 days after
written notice thereof has been given to the defaulting party
by the non-defaulting party, the non-defaulting party may
terminate this Agreement immediately upon written notice to
the defaulting party. In the event Stockholder loses his
license to practice dentistry, either by revocation,
termination or suspension, same shall be deemed a material
default. In the event Stockholder is disabled (unable to
fully perform all the normal and routine dental services of a
licensed dentist, and is unable to perform all of such
services either for any continuous forty-five
6
<PAGE>
(45) day period, or for a period of forty-five (45) calendar
days within any period of one hundred eighty (180)
consecutive calendar days, excluding normal vacations), then
same shall be deemed a material default. For the purposes of
this Section, any default by the Stockholder shall be deemed
a default by the PA and any default by the PA shall be deemed
a default by the Stockholder. It is expressly agreed by the
PA and Stockholder that a default of this Agreement by PA or
Stockholder shall be deemed to be a default of the promissory
note between the PA, as "Maker" and ____________ dated
__________, and a default of the sublease for the Practice's
office, and a default between the PA and Stockholder in the
License Agreement between the parties. A copy of the License
Agreement is attached hereto and marked EXHIBIT "G". It is
further expressly agreed by the PA and Stockholder that a
default in any one of the agreements set forth above, will
constitute a default in all agreements set forth above, at
the option of DCA.
(b) TERMINATION BY REASON OF INSOLVENCY. In the event of the
filing of a petition in bankruptcy pursuant to Chapter 7 of
the federal bankruptcy laws or an assignment for the benefit
of creditors by either DCA, on one hand, or the PA or the
Stockholder on the other hand, or upon other action taken or
suffered, voluntarily or involuntarily, under any federal or
state law for the benefit of debtors by such party, except
for the filing of a petition in involuntary bankruptcy
against a party which is dismissed within thirty (30) days
thereafter, the non-defaulting party may give written notice
of the immediate termination of this Agreement.
(c) TERMINATION WITHOUT CAUSE. In the event that the PA and the
Stockholder desire to discontinue the dental practice
maintained at the Practice pursuant to this Agreement (the
"Practice") at any time during the term of this Agreement,
the PA and the Stockholder may terminate this Agreement
without cause in the event that: (i) DCA shall be provided at
least 90 days' prior written notice of such intent to
terminate this Agreement, and (ii) the Practice shall be sold
or otherwise transferred to another licensed dentist
acceptable to DCA, who as a term of such sale, personally
assumes the obligations and liabilities of the PA
8
<PAGE>
and the Stockholder under this Agreement for the then
remaining balance of the term of this Agreement, and (iii)
the continuity of the Practice is maintained throughout
negotiations for the assignment, and to the effective date of
the agreed assignee's liability under this Agreement. There
shall be no lapse in the duties and obligations of the
parties under this Administrative Services Agreement.
(d) In the event that PA or the Stockholder or both shall
materially default in the performance of any duty,
obligation, covenant or agreement imposed upon it, him or
them, pursuant to this Agreement, and/or pursuant to the
sublease, and/or pursuant to the license agreement between
the PA and Stockholder with DCA, and such default shall
continue for a period of thirty (30) days after written
notice thereof has been given to the defaulting party or
parties by the non-defaulting party, PA and Stockholder agree
that DCA or _____________, D.D.S. shall have the option to
purchase all of the stock of the Stockholder and/or all of
the assets of the PA according to the following formula:
------------------------------------------------------------
------------------------------------------------------------
-----------------------------------------------------------.
6.3. ACTIONS UPON TERMINATION OF THIS AGREEMENT
(a) Upon termination or expiration of this Agreement for any
reason:
(i) The PA shall promptly return all DCA Proprietary
Information to DCA and otherwise comply with the
covenants and agreements of SECTION 7.1, 7.3, 7.4 AND
7.5. hereof;
(ii) DCA shall return all PA Proprietary Information to the
PA, and otherwise comply with the covenants and
agreements of SECTION 7.2 hereof;
(iii) the PA and Stockholder shall promptly repay DCA all
advances, loans and other amounts due hereunder and any
interest due thereon, and assume all debt and all
contracts and payables authorized by this Agreement to
be
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<PAGE>
incurred by DCA and which relate to the performance of
DCA's obligations under this Agreement; and
(iv) DCA shall render a final accounting for monies
deposited in, and disbursed from, the PA Account.
(b) It is expressly agreed by the parties that the obligations of
this SECTION 6.3 shall survive the termination or expiration
of this Agreement.
VII. CONFIDENTIALITY AGREEMENTS
7.1. CONFIDENTIALITY AGREEMENT OF THE PA AND THE STOCKHOLDER. The PA
and the Stockholder jointly and severally acknowledge and agree that all
business information and materials provided to them by DCA pursuant to this
Agreement shall be considered the property of DCA ("DCA Proprietary
Information"), and further agree that they shall not rent, sell, give away or
otherwise utilize DCA Proprietary Information in any business activity or for
any business purpose other than as required to fulfill their obligations under
this Agreement. The PA and the Stockholder jointly and severally agree, and
shall cause their employees, agents and shareholders to agree, that DCA
Proprietary Information shall be kept confidential and, unless otherwise
required by law, regulation or valid court order, shall not be disclosed to any
person except as authorized by DCA in writing. Upon termination of this
Agreement, the PA and the Stockholder jointly and severally agree that they
shall promptly return to DCA all DCA Proprietary Information then in their
possession or control.
7.2. CONFIDENTIALITY AGREEMENT OF DCA. DCA acknowledges and agrees that
all business information and materials provided or made available to it by the
PA and the Stockholder pursuant to this Agreement shall be considered the
property of the PA and the Stockholder ("PA Proprietary Information"), and
further agrees that it shall not rent, sell, give away or otherwise utilize PA
Proprietary Information in any business activity or for any business purpose
other than as required to fulfill its obligations under this Agreement. DCA
further agrees, and shall cause its employees, agents and shareholders to agree,
the PA Proprietary Information shall be kept confidential and, unless otherwise
required by law, regulation or valid court order, shall not be disclosed to any
person except as authorized by the PA in writing. Upon termination of this
Agreement, DCA agrees that it shall promptly return to the PA all PA Proprietary
Information then it its possession or control. Notwithstanding the foregoing, it
is expressly acknowledged and agreed by the PA and the
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Stockholder that, in the event of termination of this Agreement for cause by DCA
or termination without cause by the PA or the Stockholder, the requirements of
this Section shall not prohibit DCA or dentists associated with the PA, subject
to all applicable laws governing the confidentiality of patient records and the
consent of the patients in question, arranging for the transfer of patient
records to such other dentists.
Notwithstanding the foregoing, it is further expressly acknowledged and
agreed by the PA and the Stockholder that, in the event DCA or ________________,
D.D.S exercise the option as set forth in 6.2(D), the requirements of this
Section shall not prohibit DCA or dentists associated with the PA, subject to
all applicable laws governing the confidentiality of patient records and the
consent of the patients in question, arranging for the transfer of patient
records to such other dentists.
7.3. TRADE SECRETS COVENANT. During the term of this Agreement and for
an additional five (5) year period from the termination of the same, PA and
Stockholder agree that they will not disclose to any person or entity, any trade
secrets of DCA including, but not limited to, manuals, operating systems,
reporting systems, training systems, that the PA and Stockholder have become
privy to or have used during their involvement with DCA. This covenant on the
part of PA and Stockholder shall be construed as an agreement.
7.4. NONSOLICITATION AGREEMENT. PA and Stockholder agrees that they
shall not during or at any time after termination or expiration of this
Agreement solicit any employees of DCA to leave DCA or become employed by either
of them or any entity with which either of them is directly or indirectly
related. PA and Stockholder agree that during this agreement and for one year
subsequent to the proper termination or expiration hereof, it or he will not
solicit any customers, clients, buyers, distributors or manufacturers to cease
doing business with DCA, or to do business with them or any entity, business,
corporation or partnership with which either PA and/or Stockholder are either
directly or indirectly related.
7.5. RETURN OF DCA DOCUMENT, INFORMATION OR PRODUCTS. PA and
Stockholder agrees that upon termination or expiration of this Agreement with
DCA for any reason, they shall immediately, but no longer than ten (10) business
days from such termination, return to DCA all documents or information in any
form or medium, whether written or electronic, either owned by DCA, or to which
DCA has a right of possession, including, but not limited to, customer lists,
pricing lists, commercial material, manufacturers' information, correspondence,
financial
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information, etc. In addition, PA and Stockholder shall return all products,
samples and any and all research regarding same by appropriate carrier to DCA
immediately, but no later than ten (10) business days from the termination or
expiration of this Agreement. PA and Stockholder further agree to return any and
all equipment, computers, vehicles, etc. either owned by or to which DCA has a
right of possession, immediately upon termination or expiration of this
Agreement or within ten (10) business days after termination or expiration. The
return of such documentation, information and/or products and equipment shall be
a strict condition precedent to the payment of any and all commissions/salary or
any other compensation, if any, then due and owing to PA and/or Stockholder, and
the failure to return documents, products or equipment in a timely manner shall
entitle DCA to withhold any and all payments due to PA and/or Stockholder until
compliance with these provisions.
VIII. INDEPENDENT CONTRACTORS
8.1. INDEPENDENT RELATIONSHIP. DCA intends to act and perform as an
independent contractor of the PA, and the provisions hereof are not intended to
create any partnership, joint venture, agency or employment relationship between
the parties. The PA, the Stockholder and the Dentists will not have any claim
under this Agreement, or otherwise, against DCA for vacation pay, sick leave,
unemployment insurance, worker's compensation, disability benefits or employee
or any other employment related benefits of any nature or kind.
IX. GENERAL PROVISIONS
9.1. ASSIGNMENT. DCA shall have the right to assign or sell its rights
and obligations hereunder to any person, corporation, partnership or other legal
entity. Except as set forth above, neither DCA nor the PA shall have the right
to assign their respective rights and obligations hereunder without the written
consent of the other party. Subject to this provision, this Agreement shall be
binding upon the parties hereto, and their successors and assigns.
9.2. WHOLE AGREEMENT; MODIFICATION. There are no other agreements or
understandings, written or oral, between the parties regarding this Agreement
and the Exhibits, other than as set forth herein. This Agreement shall not be
modified or amended except by a written document executed by all parties to this
Agreement.
9.3. NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will
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be deemed to have been duly given when (a) delivered by hand (with written
confirmation of receipt), (b) sent by facsimile transmission (with written
confirmation of receipt), provided that a copy is mailed by certified mail,
return receipt requested, or (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service (receipt requested), in each
case to the appropriate addresses and facsimile numbers set forth below (or to
such other addresses and facsimile numbers as a party may designate by written
notice to the other parties with such written notice to be given as set forth in
this section).
To PA
------------------------------------------
------------------------------------------
------------------------------------------
And to Stockholder:
------------------------------------------
------------------------------------------
------------------------------------------
To DCA: Dental Care Alliance, L.L.C.
1343 Main Street, 7th Floor
Sarasota, Florida 34236
Facsimile No: (941) 366-9615
Attention: Dr. Steven Matzkin
With a copy to: Abel, Band, Russell, Collier, Pitchford
and Gordon Chartered
P. O. Box 49948
Sarasota, FL 34230
Facsimile No: (941) 366-3999
Attention: Ronald L. Collier, Esquire
9.4. WAIVER OF PROVISIONS. Any waiver of any terms and conditions
hereof must be in writing, and signed by the parties hereto. The Waiver of any
of the terms and conditions of this Agreement shall not be construed as a waiver
of any other terms and conditions hereof.
9.5. GOVERNING LAW. The validity, interpretation and performance of
this Agreement shall be governed by and construed in accordance with the laws of
the State of Florida.
9.6. EVENTS EXCUSING PERFORMANCE. Neither party shall be liable to the
other party for failure to perform any of the services required herein in the
event of strikes, lock-outs, acts of God, unavailability of supplies or other
events over which
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<PAGE>
that party has no control for so long as such events continue, and for a
reasonable period of time thereafter.
9.7. COMPLIANCE WITH APPLICABLE LAWS. All parties shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of their obligations under this Agreement.
9.8. SEVERABILITY. The provisions of this Agreement shall be deemed
severally and if any portion shall be held invalid, illegal or unenforceable for
any reason, the remainder of this Agreement shall be effective and binding upon
the parties.
9.9. ADDITIONAL DOCUMENTS. Each of the parties hereto agrees to execute
any document or documents that may be requested from time to time by any other
party to implement or complete such party's obligations pursuant to this
Agreement.
9.10. ATTORNEYS' FEES. If legal action is commenced by any party to
enforce or defend its rights under this Agreement, the prevailing party in such
action shall be entitled to recover its costs and reasonable attorneys' fees in
addition to any other relief granted.
9.11. CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS. In the event
any state or federal laws or regulations, now existing or enacted or promulgated
after the effective date of this Agreement, are interpreted by judicial
decision, a regulatory agency or legal counsel for both parties in such a manner
as to indicate that the structure of this Agreement may be in violation of such
laws or regulations, the PA, Stockholder and DCA shall amend this Agreement as
necessary To the maximum extent possible, any such amendment shall preserve the
underlying economic and financial arrangements between the PA, Stockholder and
the DCA.
9.12. REMEDIES CUMULATIVE. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party by law shall be considered
exclusive of any other remedy available to any party, but the same shall be
distinct, separate and cumulative and may be exercised from time to time as
often as occasion may arise or as may be deemed expedient.
9.13. LANGUAGE CONSTRUCTION. The language in all parts of this
Agreement shall be construed, in all cases, according to parties acknowledgment
that each party and its counsel have reviewed and revised this Agreement and
that the normal rule of construction to the effect that any ambiguities are to
be resolved against the drafting party shall not be employed in the
interpretation of this Agreement.
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<PAGE>
9.14. NO OBLIGATION TO THIRD PARTIES. None of the obligations and
duties of any party under this Agreement shall in any way or in any manner be
deemed to create any obligation to, or any rights in, any person or entity not a
party to this Agreement.
9.15. ENTIRE AGREEMENT/AMENDMENTS. This Agreement supersedes all
previous contracts and agreements between the parties respecting the subject
matter of this Agreement. As between or among the parties, no oral statement or
prior written material not specifically incorporated herein shall be of any
force and effect. This Agreement may be executed in two or more counterparts,
each and all of which shall be deemed an original and all of which together
shall constitute but one and the same instrument and shall not be amended,
altered or changed except by a written amendment signed by the parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
P.A.:
---------------------------------------
By:
------------------------------------
Signature
------------------------------------
Printed Name
PRESIDENT
------------------------------------
Title
STOCKHOLDER:
---------------------------------------
By:
------------------------------------
Signature
------------------------------------
Printed Name
STOCKHOLDER
------------------------------------
Title
DCA:
DENTAL CARE ALLIANCE, INC., A Delaware
Corporation
By:
------------------------------------
Signature
STEVEN MATZKIN
------------------------------------
Printed Name
PRESIDENT
------------------------------------
Title
15
<PAGE>
EXHIBIT A
PRACTICE LOCATION
16
<PAGE>
EXHIBIT B
BUSINESS AND ADMINISTRATIVE SERVICES PROVIDED BY DCA
DCA shall be responsible for providing all business and administrative
services required for the routine day-to-day operations of the Practice'
operations, only as follows; and otherwise as deemed reasonably necessary by
DCA, or in the sole discretion of DCA as may be reasonably requested by PA.
(a) Employment and training of the Practice's non-dental staff.
(b) Payroll administration and accounting.
(c) Consulting advice on staff salaries, benefits and performance and
incentive plans.
(d) Recruitment of additional dentists.
(e) Facilitating the ordering of supplies.
(f) Bookkeeping and accounting. Preparation of monthly financial
statements providing true, correct and complete copies thereto to
PA each month, as and when same are completed.
(g) Processing and distribution of all checks, including but not
limited to, payroll, payables, taxes and rents, and provision of
copies of all bank statements to PA on a monthly basis promptly
after the same are received by DCA.
(h) Provision of business forms, and provision of consulting advice on
business procedures any systems.
(i) Establishment of administrative controls to assure against theft.
(j) Billing and collections supervision.
(k) Marketing and advertising.
(l) Installation of computer hardware and software. Training of staff
in utilization.
(m) Preparation of statistical data and analysis of office operations.
(n) Provision of consulting advice on improving office efficiency.
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(o) Provision of consulting advise on office location and layouts.
(p) Negotiation of office leases.
(q) Legal services for the Practice's routine operations (not
including professional liability or malpractice defense).
(r) Solicitation of and assistance in negotiations of managed care
contracts.
(s) Consulting services and advice (as requested) on office efficiency
and productivity.
(t) On behalf of the PA, and with the PA's funds (there is no
independent obligation of DCA to anyone to make any payments
except to the extent of the availability of PA funds) payment of
all accounts and notes payable as and when the same become due and
payable in accordance with their respective terms.
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<PAGE>
EXHIBIT C
SUBLEASE
<PAGE>
EXHIBIT D
INDEPENDENT CONTRACTOR INDEMNITY
AND COVENANT NOT TO COMPLETE AGREEMENT
THIS INDEPENDENT CONTRACTOR AND INDEMNITY AGREEMENT AND COVENANT NOT TO
COMPLETE made this ___ day of _________ 199_, by and between ______________,
("the company") and __________, D.D.S. ("the Dentist")
RECITALS
1. The Dentist is licensed to perform dental services by the State of
________.
2. The Company owns a dental office(s) ("the Dental Office") located at______
__________________________________________________________________________
__________________________________________________________________________
_________________________________________________________________________.
3. The company desires to enter into a contractual relationship with the
Dentist for the purpose of the Dentist providing dental service at the
Dental Office upon the terms and conditions hereinafter set forth.
4. The Dentist desires to be retained by the company to provide such services.
TERMS
5. The company hereby retains the Dentist as an independent contractor for the
purpose of providing dental services at the Dental Office upon the terms
and conditions hereinafter set forth, and the Dentist agrees to be so
retained.
6. The terms of this agreement shall be for a period of two (2) years,
commencing _________, 199_.
7. The Dentist shall be retained by the company as an "independent contractor"
and neither the Dentist nor any of his employees or agents, if any, shall
be subject to the control and direction of the company, its employees or
its agents, with respect to the means by which the Dentist shall perform
and accomplish the tasks assigned to him by the Company in connection with
providing dental services at the Dental Office. Neither the dentist nor his
employees or agents, if any, shall be deemed to be employees of the Company
nor eligible to participate in any employees fringe benefit program now of
hereinafter provided by the company. The Dentist's sole remuneration for
the services rendered by
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<PAGE>
him during the terms of this agreement will arise from and be determined solely
by and through his acts and efforts.
8. Subject to the terms and conditions hereinafter set forth, the Dentist
shall, during the effective term of this agreement, provide dental;
services at the Dental Office. and shall supervise all other dentists,
professional corporations and staff employed by and/or contracted with the
Company. In fulfillment of the foregoing responsibilities, the Dentist
agrees to have due regard to the number of patients to be treated at the
Dental office the high standards of professional practice associated with
the Company, and all practices pertaining to high quality patient care and
services.
9. The Dentist has obtained, and has in effect, professional liability
insurances coverage in amounts reasonably necessary to cover actions and/or
injuries which may be foreseeable in light of the service which the Dentist
performs on the premises of the Company, but in no event shall the
insurance be less than $500,000.00 per occurrence, and the Company shall be
named as an additional insured. Proof of existence of said insurance
coverage shall be provided upon the execution of this agreement.
10. The Dentist agrees to indemnify and hold harmless, to the fullest extent
permitted by law, and its officers, agents and employees from and against
all claims, damages, losses and expenses, including, but not limited to,
attorney's fees and expenses, arising out of or resulting from (a) the
actions or inaction of the Dentist contributing to bodily injury, sickness,
disease or death, and to other injury or illness including the loss of any
income resulting therefrom, to the extent caused in whole or in part by any
negligent act or omission of the Dentist or anyone directly employed by him
or anyone for whose acts he may be liable; or (b) any breech of the
representations or warranties constrained herein. Such obligation shall not
be construed to negate, or indemnity which would otherwise exist in favor
of the Company against the Dentist.
11. Either party can terminate this agreement at any time, with or without
cause, upon thirty (30) days prior written notice. Notwithstanding the
foregoing, in the event the Dentist is disqualified from practicing
dentistry in ________, This agreement shall be terminated immediately.
12. The Dentist acknowledges that he may be provided or otherwise receive
information containing confidential matters and/or trade secrets of the
Company, which, if
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revealed to him shall be done so in strict confidence, and, therefore, the
Dentist does hereby agrees not to reveal any portion thereof and to keep
the confidence hereunder imposed during the terms of this agreement and at
all times thereafter.
13. The Dentist has made certain representations as to the educational
credentials, training, job experiences and past responsibilities of the
Dentist which the Company has relied upon in retaining the Dentist's
services. Any material misrepresentations in the information provided by
the Dentist shall make this Agreement null and void.
14. It is understood and agreed by and between the parties hereto that the
following representations from a material inducement for the company to
enter into this agreement:
(a) The Dentist does hereby represent and warrant that he has complied with
all laws and regulations, violations of which may have materially adverse
effect on the operation of the Dental Office and/or the Dentists
performance hereunder, that he has the right to enter into and perform this
agreement and is not restricted or limited in any manner whatsoever by
reason of any promises, covenants, contract or other agreements, either
written or oral, that he has entered into with any other person of entity:
and,
(b) Without limiting the generality of the foregoing, the Dentist does
hereby specifically represent and warrant that he has not entered into any
contract or agreement whatsoever, either written or oral, with any (1)
former partner or partnership, (2) shareholders or professional
corporations, or (3) any other dentists with whom he may have been
associated, employed by or otherwise involved with in the practice of
dentistry which may affect the operation of the Dental Office or his
performance hereunder.
15. (a) The Dentist covenants and agrees that, during the terms of this
agreement and for a period of three years after its termination, he shall
not, directly or indirectly, for his own account or as an agent, servant,
employee, consultant, independent contractor, representative, or as a
shareholder or director of any corporation or member of any firm or
otherwise engage or attempt to engage in any dental practice within a five
mile radius of the premises of the Dental Offices located at______________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
to become effective 90 days after the date of hire.
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(b) The Dentist also covenants and agrees that he shall not solicit any
patient of the Company or request or advise any patient of the Company to
withdraw, curtail or cancel his use or employment of the Company's
services. As used in this SECTION 15, the term "patient" shall mean any
individual who received dental services from the company within three days
prior to this agreement. SECTIONS 15B will not be valid until 90 days after
original date of signature.
(c) The invalidity or non-enforceability of this SECTION 15, in any
respect, shall not affect the validity or enforceability of this SECTION 15
in any other respect, or of any other provision of this Agreement. In the
event that any other provision of this SECTION 15 shall be held invalid or
unenforceable by a court of competent jurisdiction by reason of the
business scope, or the duration thereof, or for any other reason, such
invalidity or unenforceable shall attach only to the particular aspect of
such provision found invalid or unenforceable, as applied, and shall not
affect or render invalid or unenforceable any other provision in other
circumstances, and, to the fullest extent permitted by law, this SECTION
15, shall be construed as if the business scope or the duration of such
provision or other basis on which provision has been challenged had been
more narrowly drafted so as not to be invalid or unenforceable.
(d) It is acknowledge that no adequate remedy at law exists for breach of
this SECTION 15. In addition to any other right or remedy which the Company
may have at law or in equity, the Company shall be entitled to appropriate
injunctive relief, including preliminary and mandatory injunctive relief,
without posting of any bond or other security, enjoining or restraining the
Dentist from any violation or threatened violation of this SECTION 15.
16. As remuneration for the services provided by the Dentist under the terms of
this agreement, the Company shall pay the Dentist as follows:
17. All notices to the parties hereto shall be delivered by certified or
registered mail, postage prepaid, at the respective address set forth
above, or at such other address as one party may, form time to time,
designate in writing to the other party.
18. The Dentist shall have no authority, express or implied by virtue of this
agreement, to act as a general agent of the Company, and nothing herein
shall be construed to permit or all the Dentist to bind the Company to any
contract, undertaking or other obligation
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19. This agreement is made for the benefit of and shall be binding upon, all of
the parties, their legal representatives, successors and assigns: provided,
however, that none of the rights and/or obligations of the Dentist shall be
assigned or delegated.
20. The validity and construction of, and all rights under this agreement shall
be governed by the laws of the State of ___________, and if any provisions
shall be held invalid or enforceable, in whole or in part, such provision
shall be valid to the maximum extent provided by law, and all remaining
provisions of this agreement shall be fully enforceable.
21. This agreement constitutes the entire agreement and understanding of the
parties hereto pertaining to the subject matter contained herein and
supersedes all prior and contemporaneous agreements, representation and
understanding, whether written or oral, regarding the matters herein set
forth. No supplement, modification or amendment to this agreement shall be
binding unless executed in writing and signed by all parties hereto.
22. All the Company's remedies hereunder are and shall be cumulative in nature
and not exclusive, and the exercise by the Company at any time of any
remedy hereunder shall not preclude it from later exercising any of its
other remedies hereunder (or under other applicable law), nor constitute an
election of such remedy to the exclusion of others.
THE COMPANY
By:________________________________
Its
DENTIST:
___________________________________
<PAGE>
EXHIBIT E PRACTICE EXPENSES
COST OF SALES
Dental Supplies
Implant Supplies
Lab Expense-Internal
Lab Expense-External
Materials
Contract Dentists
Hygiene Wages
Lab Tech. Wages
OPERATING EXPENSES, COMPENSATION & BENEFITS, SALARIES & WAGES
Officer Wages
Dental Assistant Wages
Administrative Wages
Bonuses
PAYROLL TAXES
FICA Tax Expense
Medicare Tax Expense
FUTA Tax Expense
SUTA Tax Expense
BENEFITS
Health Insurance
Continuing Education
FACILITIES
Rent-Office
Rent-other
Telephone
Pest Control
Cleaning Service
Utilities
REPAIRS & MAINTENANCE
Dental Equipment
Computer Equipment
Building
Office Equipment
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ADVERTISING
Television
Newspaper
Yellow Pages
Magazines
Direct Mail
Seminars
OUTSIDE SERVICES
Accounting Services
Payroll Services
Auditing Services
Legal Services
Temporary Help
Misc. Outside Services
LEASE EXPENSE
Dental Equipment Lease
Telephone Lease
Computer Lease
Office Equipment Lease
INSURANCE
Workers Compensation Ins.
Liability Insurance
Malpractice Insurance
Misc. Insurance
GENERAL OFFICE EXPENSES
Administrative Support
Vehicle Expense
Computer Expense
Contributions & Donations
Dues & Subscriptions
Office Expenses
Small Equipment Tools
Operating Supplies
Uniforms
Postage & Freight
MISCELLANEOUS EXPENSES
Bank Charges
Cash
Over/Short
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Check Guarantee Fees
Credit Card Charges
License, Fees & Permits
Taxes-Other
Property Taxes
Sales Taxes
State Taxes
Reimbursement Expenses
DCA Licensing Fees
Other Misc. Expenses
PRINCIPAL & INTEREST EXPENSE
Notes associated with practice capitalization
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<PAGE>
EXHIBIT F
DEFINITION OF NET PROFIT
Net profit shall be defined as:
Total collected revenues on a cash basis minus any patient refunds
minus practice expenses (listed in EXHIBIT E).
DCA shall then receive ____% of net profit for services rendered.
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EXHIBIT G
SHORT FORM LICENSE AGREEMENT
This License Agreement (this "Agreement") is entered into this ___ day
of _______ 19__, by and between Dental Care Alliance Inc., a Delaware
corporation, with its principal place of business located at 1343 Main Street,
7th Floor, Sarasota, Florida 34236 ("DCA"), and ____________________ an
individual/corporation residing located at _____________ ("Licensee").
RECITALS
A. As a result of time, effort, experience and the expenditure of
money, DCA has acquired unique and special skills, technique and knowledge
concerning the ownership, management and operation of dental service offices.
B. DCA has devised a unique and uniform network of entities (the
"Network"), to the members of which DCA offers a particular package of services,
including, without limitation, marketing and promotional services, discounted
products and supplies, the right to identify a dental service office in
connection with the Licensed Marks (as defined in SECTION 9 hereof, and other
services related to the operation of a dental service office.
C. DCA has the right to offer to others a license to use the Licensed
Marks in connection with the operation of a dental service office and to operate
as a member of the network.
D. Licensee desires to avail himself or itself to the benefits of using
the Licensed Marks and participating in the Network, subject to and in
accordance with the covenants, terms and conditions of this Agreement and any
and all other documents, agreements, schedules and exhibits executed in
connection herewith.
E. The Parties acknowledge executing simultaneously herewith a Dental
Care Alliance Inc. Administrative Service Agreement.
F. DCA desires to grant to Licensee a license for the right to operate
a Dental Office (as hereinafter defined).
NOW, THEREFORE, in consideration of the full and faithful performance
hereafter by Licensee of all the covenants, terms and conditions herein
contained to be performed by Licensee, and other good and valuable
consideration, the receipt and
<PAGE>
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. INCORPORATION OF RECITALS.
The Recitals are hereby incorporated into this Agreement as if set
forth more fully herein.
2. GRANT OF LICENSE.
DCA hereby grants to Licensee, for a period commencing upon the date of
execution of this Agreement and expiring simultaneously with the DCA
Administrative Service Agreement of even date unless otherwise terminated prior
thereto or extended thereafter in accordance with the terms set forth herein, a
license (the "License") for the right:
(a) To operate a single dental service office at the following
location: ________________________________________________
________________________ (the "Dental Office"); and
(b) To identify the foregoing Dental Office as a member of the
Network and to use one or more of the Licensed Marks in
connection therewith.
For the original Term of this Agreement, unless otherwise terminated
prior thereto or extended thereafter in accordance with the terms set forth
herein, the foregoing right and license shall be exclusive to Licensee for the
Territory identified as follows:_______________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(the "Exclusive Territory"). This grant, however, does not give Licensee any
exclusive rights nor impose upon DCA any obligations with respect to any other
business, licensed or otherwise, engaged in by DCA either directly or through
any other entity. Without limiting the application of the preceding sentence,
DCA specifically retains the right, in its sole discretion, and without granting
any rights to Licensee in connection therewith, to operate and grant other
licenses for the operation of Network Dental Offices outside of the Exclusive
Territory as DCA, in its sole discretion, deems appropriate.
3. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT.
As a condition to the effectiveness of this Agreement, Licensee shall
upon the execution of this Agreement, shall deliver to DCA appropriate
documentation evidencing the authority of the individual executing this
Agreement on behalf of Licensee.
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4. PAYMENT OBLIGATIONS OF LICENSEE.
In consideration of the License herein granted Licensee hereby agrees
and consents as follows:
(a) Licensee shall pay to DCA, for each month during the Original
Term, a monthly license fee (the "License Fee") in the amount
of One Thousand Dollars ($1,000), to be paid on or before the
tenth (10th) day of each calendar month for the immediately
preceding calendar month. For any renewal terms of this
Agreement, the License Fee shall be the License Fee charged
by DCA under DCA's then current form of License Agreement.
All License Fee payments shall be deemed earned by DCA upon
receipt and shall not be refundable under any circumstances.
5. OTHER OBLIGATIONS OF LICENSEE.
5.1 SIGNAGE. In the event Licensee's Dental Office is identified
with free-standing outdoor signage, Licensee may, but shall not be
required to, display one or more of the Licensed Marks on the facing of
such signage in a reasonably appropriate manner, PROVIDED, HOWEVER,
that in no event shall more than twenty percent (20%) of the facing of
any such signage be comprised of one or more Licensed Marks or
otherwise be used to identify the Dental Office's affiliation with the
Network. Notwithstanding anything contained herein to the contrary,
Licensee shall not be required to have or obtain any free-standing
outdoor signage in connection with the Dental Office.
5.2 WARRANTY PROGRAM. Licensee acknowledges that DCA requires
each and every member of the Network to extend a five (5) year limited
warranty (the "DCA Warranty") to the patients of their respective
Dental Offices. In particular, the DCA Warranty requires Licensee to
guarantee, for a period of five (5) years, all material and workmanship
on all fillings, dentures, partials, bridges and crowns provided at any
Dental Office and paid for in full by the patient. Subject to certain
exceptions to be determined by DCA from time to time in its sole
discretion the DCA Warranty requires the Licensee to repair or replace
the defective product at no extra charge to the patient. Accordingly,
by executing this Agreement, Licensee hereby agrees to honor the DCA
Warranty and to perform services to patients of the Network in full
compliance therewith. Licensee further agrees that DCA shall be
entitled, from time to time hereafter in its sole discretion, to amend
the
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DCA Warranty or to adopt additional warranty policies and that, in such
instances, Licensee shall be required to honor and otherwise fully
comply with such amended or adopted policies.
5.3 RESTRICTIONS ON OPERATIONS. Licensee's Dental Office may not
be used for any purpose other than the operation of dental service
related businesses. Licensee shall not provide any nondental related
services at the Dental Office that are not otherwise approved by DCA in
its sole and absolute discretion.
6. REPRESENTATIONS AND WARRANTIES.
Licensee represents and warrants to DCA that, for so long as this
Agreement is in effect, it will maintain its existence in good standing as a
sole proprietorship, corporation, partnership or other entity, as applicable.
7. LICENSED MARKS.
Subject to the provisions of this Agreement, DCA hereby grants to
Licensee the right and license to use one or more of DCA's trademarks, service
marks, trade names, logotypes and commercial symbols (collectively, the
"Licensed Marks") in connection with the Dental Office. Notwithstanding the
foregoing, Licensee shall only display or otherwise use the Licensed Marks in
the manner or manners approved or designated by DCA in writing. Each such
display or use of one or more of the Licensed Marks shall clearly identify
Licensee as a licensee of such Licensed Marks, and not the owner or licensor
thereof.
Nothing contained herein gives Licensee any interest in or to any of
the Licensed Marks or any component thereof, nor the goodwill now or hereafter
attached thereto, except for the right to use such Licensed Marks as authorized
by DCA, pursuant to and for the term of this Agreement, solely in connection
with the operation of Licensee's Dental Office. Licensee shall not use the
Licensed Marks as part of any other corporate or trade name or with any prefix,
suffix or other modifying words, terms, designs or symbols, or in any modified
form, nor may Licensee use any Licensed Mark in connection with sale of any
unauthorized product or serve or in any other manner not expressly authorized in
writing by DCA.
Licensee shall not engage in or permit any act calculated to prejudice,
affect, impair or destroy the title or interest of DCA in and to any of the
Licensed Marks or any related or similar name. In addition, Licensee shall
immediately notify DCA of any apparent infringement of one or more of the
Licensed Marks by any
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third party or any challenge to Licensee's use of any of the Licensed Marks.
In such instance, Licensee shall not communicate with any person other
than DCA and Licensee's counsel with respect to such infringement or challenge.
In addition, Licensee shall cooperate fully with DCA in defense and protection
of the Licensed Marks in question.
Notwithstanding the foregoing, DCA shall have sole discretion to take
such action as it deems appropriate and to exclusively control any litigation or
administrative proceedings arising out of any infringement, challenge or claim
regarding any one or more of the Licensed Marks. Licensee agrees to execute any
and all instruments and documents, render such assistance and do such acts and
things as may, in the opinion of DCA's counsel, be necessary or advisable to
protect and maintain the interests of DCA in any such proceeding or to otherwise
protect and maintain the interests of DCA in and to the Licensed Marks. Except
as specifically provided herein, DCA shall not otherwise be obligated to protect
or defend any of the Licensed Marks in any litigation or administrative
proceeding arising out of any infringement, challenge or claim if it elects not
to do so in its sole discretion.
If for any reason DCA or Licensee is ultimately prohibited from using
any one or more of the Licensed Marks, Licensee shall not be entitled to any
compensation therefor, nor shall compensation be paid by DCA to Licensee as a
result thereof. Further, Licensee may, immediately upon the request of DCA, be
required to modify or discontinue the use of one or more of the Licensed Marks,
or to use one or more additional or substitute trademarks, service marks, trade
names, logotypes or other commercial symbols in lieu of one or more of the
Licensed Marks, in connection with the Dental Office.
8. NO EMPLOYMENT INTENDED.
Nothing herein contained shall in any way be construed as constituting
Licensee, its Dentist in charge or any other employee or representative of
Licensee as an employee, agent, partner, subsidiary or joint venturer of DCA.
Licensee shall perform hereunder as an independent contractor at its sole
expense and risk and shall advertise this fact to the public, and assumes full
responsibility and liability for, and agrees to hold DCA harmless from any
claims, suits, actions, losses, expenses, injury or damage, including, but not
limited to, attorneys' fees and other expenses incident thereto, incurred at any
time by DCA as a result of Licensee's activities in operating the Dental Office
or arising out of this Agreement.
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NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, DCA IS NOT,
AND SHALL NOT BE DEEMED TO BE, PROVIDING TO LICENSEE, OR TO ANY OF MEMBERS OF
LICENSEE'S STAFF, ANY TRAINING, ADVICE OR CONSOLATION IN, NOR PRESCRIBING ANY
STANDARDS OR GUIDELINES PERTAINING TO, THE PROVISION OF DENTAL OR OTHER MEDICAL
CARE TO THE PATIENTS OF LICENSEE. CONSEQUENTLY, IN NO EVENT SHALL DCA IN ANY WAY
BE HELD LIABLE TO ANY THIRD PARTY FOR OR AS A RESULT OF THE PROVISION OF DENTAL
OR OTHER MEDICAL CARE BY LICENSEE OR BY ANY MEMBERS OF LICENSEE'S STAFF.
9. TERMINATION.
This License Agreement shall terminate immediately upon the termination
of DCA's Administrative Service Agreement attached hereto. The terms and
conditions of paragraph 6 of DCA's Administrative Service Agreement shall
control the termination of this License Agreement.
10. LICENSEE'S OBLIGATIONS UPON TERMINATION OR EXPIRATION.
Upon termination of the License, whether by DCA or Licensee, or upon
expiration of the term of the License or any renewal term thereof, Licensee
shall have the following obligations:
(a) Licensee shall immediately discontinue use of all Licensed
Marks, signs, structures literature, forms, promotional
advertising materials and any other article of personally
indicative of DCA or the Network, or which may be confusingly
similar thereto, or any designation indicating the existence
of an affiliation between Licensee and DCA or the Network.
The foregoing shall include immediately taking such action as
may be required to cancel any and all assumed names or
equivalent registrations relating to or in any way utilizing
one or more of the Licensed Marks.
(b) Licensee shall take immediate steps to cancel or otherwise
discontinue its use or display of any references to the
Licensed Marks in any telephone or trade directories or in
any advertising.
(c) Licensee shall return to DCA any materials, signs and
displays loaned or leased to Licensee by DCA in connection
with this Agreement.
(d) Licensee shall, as DCA so directs, either destroy or
surrender to DCA all other items containing or displaying the
Licensed Marks.
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(e) Licensee shall pay to DCA or the appropriate DCA Affiliate,
within ten (10) calendar days after the effective date of
termination or expiration of the License (or such later date
on which the amounts due to DCA or the DCA Affiliate are
determined), all amounts due under this Agreement and any
other agreement, instrument or document executed in
connection herewith, including, without limitation, any and
all outstanding License Fees, rent, amounts owed for items
leased or purchased from DCA or any of the foregoing, and all
other amounts owed by Licensee to DCA or any DCA Affiliate
that remain unpaid as of such date.
(f) Upon termination or expiration of the License for any reason,
all rights and privileges accruing or granted to Licensee
under this Agreement and in connection with the License shall
immediately cease and terminate.
11. REMEDIES OF DCA: ENFORCEMENT.
11.1 LATE PAYMENTS. If any sums required to be paid by Licensee to DCA
or any DCA Affiliate under this Agreement are not paid when due, DCA shall have
the right to charge interest on such unpaid sums, such interest to begin
accruing on the day immediately following the date on which such sums are due,
at the highest rate allowed by law, or, if no such rate exists, at a rate of two
percent (1.5%) per month. All such payments received shall be credited, first,
against interest payments due and, second, against principal payments due. In
addition, DCA may discontinue Licensee's right to identify itself as a member of
the Network and to lease or purchase equipment, instruments, supplies and
products under any national marketing contracts entered into by DCA for the
benefit of the Network and its members if Licensee is delinquent in any
payments. In addition, in the event Licensee fails to make prompt payment to DCA
or any DCA Affiliate or any amounts required under this Agreement, DCA shall be
entitled to terminate the License granted hereunder.
11.2 EQUITABLE REMEDIES. Licensee agrees that any breach or threatened
breach of this Agreement by Licensee would cause irreparable and immediate harm
to DCA and that money would not be an adequate remedy in the event of any such
breach. By reason of the foregoing, Licensee acknowledges and agrees that DCA
shall be entitled to injunctive or other equitable relief, including, without
limitation, entry of temporary restraining orders and temporary and permanent
injunctions, in the event of any breach or threatened breach of this Agreement.
Licensee hereby irrevocably waives any claim or defense that an adequate remedy
is available at law, and agrees not to interpose any claim or defense that an
adequate remedy
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at law exists. Nothing in this Agreement shall prevent DCA from electing to seek
any monetary or other relief in addition to any equitable relief for breach or
threatened breach of this Agreement. The failure of DCA to institute a legal
action promptly upon any such breach shall not constitute a waiver of that or
any other breach hereof. In the event it is necessary for DCA to employ legal
counsel to enforce any provision of this Agreement, Licensee shall reimburse DCA
for all legal expenses associated therewith and in addition thereto, to the
extent legal action is taken, Licensee shall reimburse DCA for all costs of such
action including court costs or other expenses of litigation including
reasonable attorneys' fees.
12. ASSIGNMENT.
12.1 BY LICENSEE. Licensee agrees that, during the Original Term of the
License and for any renewal terms thereof, Licensee shall not sell, assign,
transfer, pledge or mortgage the License or any interest therein, without the
prior written consent of DCA, which consent (i) shall be at DCA's sole and
absolute discretion and (ii) may be subject to the satisfaction by Licensee or
the prospective transferee of the License, or both, of specific terms and
conditions, including, without limitation, executing DCA's current standard
license agreements, documents and instruments.
12.2 BY DCA. Licensee acknowledges and agrees that DCA may at any time
sell or assign, in whole or in part, its interest in the License or any part
thereof, without the consent of Licensee. In addition, Licensee acknowledges and
agrees that DCA may, at any time during the term of the License, offer any of
its securities in connection with a public offering by filing an effective
registration statement under the Securities Act of 1933, as amended, or any
similar federal law then in force.
13. COVENANTS AND RESTRICTIONS.
13.1 Licensee acknowledges that by and through this Agreement it shall
receive confidential business information of Licensor, copyrighted information
of Licensor, trade secrets of Licensor, as well as other valuable business,
proprietary and professional information. In addition, through this license
agreement and by the use of license marks, network materials and network
affiliation, Licensee will establish substantial relationship with prospective
or existing patients, customers, vendors, manufacturers, dental equipment
suppliers, advertisers, managed care contractors, and insurance providers.
Licensee will have the benefit of the good will associated with the license mark
and by being a network provider obtain goodwill specifically
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in the tradename, trademark and service mark of Dental Care Alliance and the
marks as described in Paragraph 9 above and any subsequent license marks adopted
by Licensor.
Licensee hereby agrees that it will not, during the course of this
License Agreement and for a period of three years from the effective date of
termination of this agreement, or if Licensee continues as a licensed operation
subsequent to the expiration of any written agreement three years from the
effective date that Licensee ceases to be affiliated with the Licensor, engaged
directly or indirectly in a business competitive with Licensor. Licensee further
agrees that during the said three year period that it will not directly or
indirectly be connected with any person, corporation, or business entity in
competition with Licensor. Licensee, its officers, directors and shareholders
shall have no financial interest in or in any business which is competitive with
Licensor.
Further, Licensee will cause each of its professional employees to
execute a covenant not to compete as set forth in attached EXHIBIT "D" and
agrees to cause such professional employees to refrain from engaging in any
competitive businesses either as a principal, investor, consultant or employee
that is similar to or competes with business conducted by Licensor.
13.2 COVENANT NOT TO DISCLOSE TRADE SECRET. During the term of this
Agreement and for an additional five year period from the termination of the
same Licensee agrees that it will not disclose to any person or entity any trade
secrets of Licensor, including but not limited to promotional materials,
marketing materials, assurance contracts, customer lists, pricing information,
advertising information, management materials, preferred provider contracts, or
insurance agreements, or like materials relating to the Licensor or the business
of the Licensee that the Licensee has become privy to or has used during its
involvement with Licensor.
13.3 ENFORCEMENT OF COVENANTS. Licensee acknowledges that the
restraints set forth in the above paragraphs are reasonable and necessary for
the protection of legitimate business interests of Licensor and that these
covenants on the part of the Licensee shall be construed as an Agreement. The
existence of any claim or cause of action of the Licensee shall not be construed
as a defense to the enforcement by the Licensor of the covenants. It is agreed
by the Licensor and Licensee that if any portion of the restrictive covenants is
held unreasonable, arbitrary or against public policy these covenants shall be
considered to be diminishable both as to time and geographical area. To the
extent necessary to make it enforceable. These covenants shall not be construed
narrowly against the drafter but shall be given their
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fullest, broadest interpretation to protect the legitimate business interest or
Licensor.
It is understood that a court of competent jurisdiction shall enforce
the restrictive covenants by any appropriate and effective remedy, including,
but not limited to, temporary and permanent injunctions. The violation of these
restrictive covenants creates a presumption of irreparable injury to Licensor on
seeking its enforcement. Licensor will post a proper bond as set by the court if
an injunction is entered. In the event it becomes necessary for Licensor to
retain the services of an attorney to enforce this restrictive covenant, it is
agreed that the prevailing party shall be entitled to reasonable attorney's fees
and costs in any legal proceeding, both at the trial or appellate level.
Licensee agrees that this License Agreement and the restrictive
covenants contained herein are freely assignable by Licensor, in its sole
discretion, and any assignee, successor or third-party beneficiary to this
agreement may enforce these restrictive covenants.
The laws of the State of Florida shall control the interpretation of
these restrictive covenants. Licensee specifically agrees that the Twelfth
Judicial Circuit in and for Sarasota County, Florida, has jurisdiction over the
enforcement of these restrictive covenants, and that the Twelfth Judicial
Circuit in and for Sarasota County, Florida, will be the appropriate venue for
any action brought pursuant to this restrictive covenant.
14. INDEMNIFICATION.
Licensee shall indemnify, defend and hold harmless as set forth in
Paragraph 5.4 in the Administrative Services Agreement attached hereto.
15. NOTICES.
Any notice or other communication required or permitted under this
Agreement shall be valid and effective only if given by written instrument that
is personally delivered by courier or sent by telegraph, telecopier, or
registered or certified mail, postage prepaid, addressed in accordance with the
addresses set forth below. Notice shall be deemed to be given upon the date of
transmission or, if mailed, three (3) calendar days after the date of deposit in
the U.S. Mail.
If to Licensee, to:
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If to DCA, to:
Dental Care Alliance, L.C.
1343 Main Street, 7th Floor
Sarasota, Florida 34236
Telephone number: (941) 955-3150
Attention: Dr. Steven R. Matzkin, President
Any party may change the address at which it is to be given notice
hereunder by giving notice hereunder by giving notice thereof to the other party
in accordance with this SECTION 19.
16. APPLICABLE LAW.
This Agreement has been executed and delivered in, and shall be
governed by and construed in accordance with the internal laws of the State of
Florida, without application of such State's conflicts of laws provisions.
17. WAIVER.
No failure of DCA to exercise any right given to it hereunder, or to
insist upon strict compliance by Licensee of any obligation hereunder, and no
custom or practice of the parties at variance with the terms hereof shall
constitute a waiver of DCA's right to demand exact compliance with the terms
hereof. Waiver by DCA of any particular default by Licensee shall not affect or
impair DCA's rights in respect to any subsequent default of the same or of a
different nature, nor shall any delay or omission of DCA to exercise any rights
arising from such default, affect or impair DCA's right as to such default or
any subsequent default.
18. SEVERABILITY.
If any applicable and binding law or rule of any jurisdiction requires
a greater prior notice of the termination of or refusal to renew the License
than is required hereunder, or the taking of some other action not required
hereunder, or if under any applicable and binding law or rule of any
jurisdiction any provision of this Agreement or any specification or standard
prescribed by DCA is invalid or unenforceable, the prior notice or other action
required by such law or rule shall be substituted for the comparable provisions
hereof, and DCA shall have the right, in its sole discretion, to modify such
invalid or unenforceable provision, specification, standard or operating
procedure to the extent required to be valid and enforceable.
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19. ENTIRE AGREEMENT.
This Agreement contains the entire understanding of the parties hereto.
DCA has not authorized, nor will it authorize, any representations, whether
pertaining to anticipated volume of sales or the amount of profit to be realized
from the operation of the Dental Office, the desirability of the Dental Office's
location, or otherwise, or any other inducements, promises or agreements, oral
or otherwise, to be made to Licensee in any form whatsoever. Accordingly,
Licensee shall not be entitled to rely upon any such representations, if any
made by DCA, its agents, representatives or employees, or by any third party.
Licensee acknowledges that it has conducted an independent investigation of the
business contemplated by this Agreement and recognizes that, like any other
business, the nature of the business conducted by DCA may evolve and change over
time, that an investment in a Dental Office involves business risks, and that
the success of the venture is largely dependent upon the business abilities and
efforts of Licensee.
20. FULL FORCE AND EFFECT.
All obligations of DCA and Licensee which expressly or by their nature
survive the expiration or termination of this Agreement shall continue in full
force and effect subsequent to and notwithstanding such expiration or
termination, until such time as they are satisfied or by their nature expire.
21. EFFECTIVE DATE.
This Agreement shall not be effective until executed by DCA.
22. ONGOING OBLIGATIONS.
Licensee agrees that it will not, on grounds of the alleged
nonperformance by DCA or any DCA Affiliate of any of their respective
obligations hereunder, withhold payment of any License Fees, Advertising Fees,
amounts due to DCA or any DCA Affiliate for purchases by Licensee, or any other
amounts due DCA or any DCA Affiliate hereunder or in connection herewith.
23. JOINT AND SEVERAL OBLIGATIONS.
If two (2) or more persons at any time constitute Licensee hereunder,
their obligations and liabilities to DCA hereunder shall be joint and several.
24. CERTIFICATION BY LICENSEE.
Licensee hereby certifies that it has had the opportunity to seek
advice of counsel prior to its execution of this Agreement,
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and that it has opportunity to inspect the Network's business concept and review
information made available to it by DCA concerning the same. Licensee
acknowledges that the success of the business herein licensed is primarily
dependent on Licensee's skill and business acumen.
25. BREACH OF LICENSE AGREEMENT. A breach of Dental Care Alliance,
Inc.'s Administrative Service Agreement by Licensee shall be considered a breach
of this License Agreement and a breach by the Licensee of the Dental Care
Alliance License Agreement shall be considered a breach of the Dental Care
Alliance, Inc.'s Administrative Service Agreement.
IN WITNESS WHEREOF, the parties hereto have executed or caused their
duly authorized representatives to execute this License Agreement on the day and
year first above written.
DENTAL CARE ALLIANCE, L.C.
By:________________________________
Title:_____________________________
By:________________________________
Signature of LICENSEE
Printed Name:
By:________________________________
Signature of LICENSEE
Printed Name:
Address of Dental Office:
[Notarization of Licensee's Signature]
STATE OF ____________
COUNTY OF____________
On this ___ day of _______________, 19___ before me personally appeared
__________________________ to me known to be the person described in and who
executed the foregoing Agreement and acknowledged that
_____________________________ executed the same as free act and deed.
_________________________________
Notary Public
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[Seal]
<PAGE>
STATE OF
COUNTY OF
On this day of , 19 before me personally appeared to me known to be the
person described in and who executed the foregoing Agreement and acknowledged
that executed the same as free act and deed.
________________________________
Notary Public
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EXHIBIT J
PRACTICE EXPENSE
COST OF SALES
Dental Supplies
Implant Supplies
Lab Expense-Internal
Lab Expense-External
Materials
Contract Dentists
Stockholder Salary (excluding his profit distribution)
Hygiene Wages
Lab Tech. Wages
OPERATING EXPENSES, COMPENSATION & BENEFITS, SALARIES & WAGES
Dental Assistant Wages
Administrative Personnel Wages
Bonuses
PAYROLL TAXES
FICA Tax Expense
Medicare Tax Expense
FUTA Tax Expense
SUTA Tax Expense
BENEFITS
Health Insurance
Continuing Education
Fringe benefits for the Stockholder up to an aggregate of $1,000 per
month
FACILITIES
Rent-Office
Rent-other
Telephone
Pest Control
Cleaning Service Utilities
REPAIRS & MAINTENANCE
Dental Equipment
Computer Equipment
Building Office Equipment
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ADVERTISING
Television
Newspaper
Yellow Pages
Magazines
Direct Sales
Seminars for the Stockholder
OUTSIDE SERVICES
Accounting Services
Payroll Services
Auditing Services
Legal Services
Temporary Help
Misc. Outside Services
LEASE EXPENSE
Dental Equipment Lease
Telephone Lease
Computer Lease
Office Equipment Lease
INSURANCE
Workers Compensation Insurance
Liability Insurance
Malpractice Insurance
Misc. Insurance
Property and Casualty Insurance (office, Building)
Personal Property (contents)
Coverage Insurance
GENERAL OFFICE EXPENSES
Administrative Support
Vehicle Expense
Computer Expense
Dues & Subscriptions
Office Expenses
Small Equipment Tools
Operating Supplies
Uniforms
Postage & Freight
MISCELLANEOUS EXPENSES
Bank Charges
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Cash Over/Short
Credit Guarantee Fees
Credit Card Charges
License, Fees & Permits
Taxes-Others
Property Taxes
Sales Taxes
State Taxes
Reimbursement Expenses
DCA Licensing Fees up to $1,000 per month
Other Misc. Expenses
PRINCIPAL & INTEREST EXPENSE
Notes associated with practice capitalization
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SCHEDULE 7(G)
NONE
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SCHEDULE 7(I)
1. Option to purchase the Company's common stock as set forth in Letter
Agreement, dated September 29, 1995, between The Nassau Group, Inc. and the
Company as amended on April 25, 1996 (the "Nassau Agreement") attached
hereto.
2. Commitment to issue, upon satisfaction of certain conditions, warrant
exercisable to purchase common stock of the Company as set forth in the
Nassau Agreement.
3. Agreement to issue and sell to J. Francis Lavelle shares of common stock as
set forth in the Letter Agreement, dated September 29, 1995, between the
Company and J. Francis Lavelle attached hereto.
4. Mitchell B. Olan Employment Agreement
5. Warrant to purchase the Company's common stock as set forth in the
amendment to the Mitchell B. Olan Employment Agreement, dated as of October
24, 1996.
6. Steven R. Matzkin Employment Agreement.
7. The Company's Stock Option Plan.
8. It is contemplated that in the event an employee leaves or is terminated
from employment by the Company, the Company will repurchase shares from
such employee.
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EXHIBIT 10.5
ADMINISTRATIVE SERVICE SUBCONTRACT AGREEMENT
THIS ADMINISTRATIVE SERVICE SUBCONTRACT AGREEMENT (hereinafter
"Subcontract Agreement") effective this 1st day of May, 1997, ("Effective Date")
between and among DENTAL CARE ALLIANCE, INC., a Delaware corporation
(hereinafter "DCA") and JOHNSON DENTAL DEVELOPMENT CORPORATION, a Michigan
corporation (hereinafter "JDDC").
I. RECITALS
WHEREAS, DCA and Eight Mile Dental, P.C., Gratiot Avenue Dental, P.C.,
Wayne Road Dental, P.C. and Washington Boulevard Dental, P.C. (collective, the
"P.C.s) are parties to an Administrative Services Agreement dated as of May 1,
1997 (the "Agreement");
WHEREAS, because DCA has limited current operations in the State of
Michigan DCA is desirous of subcontracting out its rights, duties and
obligations pursuant to the Agreement;
WHEREAS, JDDC is desirous of managing through subcontract with DCA the
four dental practices set forth above.
NOW, THEREFORE, in consideration of the foregoing mutual covenants and
agreements herein contained, the parties hereto agree as follows:
II DUTIES AND OBLIGATIONS OF THE JDDC
2.1 DCA hereby appoints JDDC to act and serve as the sole and exclusive
subcontractor for DCA in connection with the Agreement and irrevocably assigns
to JDDC, and JDDC hereby fully assumes, all of DCA's rights, powers, duties,
responsibilities and obligations pursuant to and in connection with the
Agreement, including specifically, without limitation, all rights, powers,
duties, responsibilities and obligations of DCA under Article II and Sections
4.1, 4.3 and 5.2 of the Agreement, with the same force and effect as if JDDC
were substituted for DCA thereunder.
2.2 JDDC shall report to DCA on a monthly basis with a complete
accounting of all matters in furtherance of this Subcontract Agreement.
2.3 JDDC shall maintain an appropriate account in the name of JDDC for
the benefit of DCA in the State of Michigan for the deposit of revenues and
payment of expenses for the P.C's. JDDC shall maintain a cash reserve balance in
the account, after payment of all expenses to be paid therefrom and prior to
payment of any service fees or disbursements to DCA pursuant to Section
<PAGE>
3.2 below, as shall be sufficient, in its reasonable discretion, to fund working
capital and other funding requirements of the P.C's and their respective
businesses.
2.4 JDDC shall maintain appropriate books and records which shall be
available to DCA within a reasonable time after request and DCA shall have the
right to audit the records of JDDC at any time with twenty four (24) hours'
advance notice.
2.5 JDDC shall use its best efforts to perform all the duties and
obligations of DCA under its the Agreement and shall be responsible for all
expenses and the performance of its subcontracted obligations.
III FINANCIAL ARRANGEMENTS
3.1 JDDC shall be responsible to pay the practices operating expenses
from the account pursuant to Section 2.3 above, which shall include the expenses
incurred by JDDC in connection with the performance of those services as set
forth in Article II of the Agreement dated May 1, 1997.
3.2 In consideration of its duties, responsibilities and obligations
assumed and performed hereunder, JDDC shall be paid a service fee as set forth
in the attached Exhibit A. JDDC shall have the right to withdraw from the
account maintained pursuant to Section 2.3 above the full amount of its service
fees and pay all disbursements to DCA as and when JDDC shall reasonably
determine appropriate, subject to compliance with the provisions of Section 2.3
above. Provided that such services fees and disbursements to DCA shall be made
at the same time and in the same manner.
IV. INSURANCE AND INDEMNITY
4.1 JDDC shall be added as an additional insured on the P.C's
policy. JDDC shall hold harmless and defend DCA, its officers, directors,
shareholders and employees, from and against any and all liability, loss,
damage, claim, causes of action, and expenses (including reasonable attorneys'
fees), whether or not covered by insurance, caused or asserted to have been
caused, directly or indirectly, by or as a result of the performance of JDDC's
intentional or negligent acts or omissions or that of its agents, officers,
directors, shareholders or employees during the term hereof.
2
<PAGE>
V. TERM AND TERMINATION
5.1 This Agreement shall be effective for the same term as the
Agreement.
5.2 TERMINATION OF AGREEMENT. This Agreement will automatically
terminate and cease if the Agreement is properly terminated.
This Agreement may be terminated by DCA solely in the event JDDC fails
to pay DCA any amount due and payable to DCA pursuant to the terms of Exhibit A
hereof and such payment default shall continue for a thirty (30) day period
after written notice thereof has been given by DCA to JDDC. DCA acknowledges
that this Agreement is non-cancelable and non-terminable.
This Agreement may also be terminated by DCA if a payment default
occurs under the Promissory Note dated September 1, 1993 issued by David Ross
Johnson to Profit Dental Management, Inc. or the Consulting Agreement dated
September 1, 1993 between JDDC and Steven Matzkin and any such default continues
after the expiration of all applicable cure periods.
5.3 ACTIONS UPON TERMINATION OF THIS AGREEMENT.
(a) Upon termination or expiration of this Agreement for any
reason:
(i) JDDC shall promptly return all DCA Proprietary
Information to DCA and otherwise comply with this
Agreement;
(ii) JDDC shall promptly pay DCA all advances, loans and
other amounts due hereunder and any interest due
thereon; and
(iii) JDDC shall render a final accounting for all monies
deposited in, and disbursed from account ~ established
pursuant to this Agreement.
VI. CONFIDENTIALITY AGREEMENTS
JDDC shall have all the same confidentiality agreements as set forth in
paragraph 7.1 through 7.4 of Administrative Services Agreement dated May 1,
1997.
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VII. INDEPENDENT CONTRACTORS
JDDC intends to perform and act as an independent subcontractor for
DCA.
VIII. GENERAL PROVISIONS
8.1 WHOLE AGREEMENT; MODIFICATION. There are no other agreements or
understandings, written or oral, between the parties regarding this Agreement
and the Exhibits, other than as set forth herein. This Agreement shall not be
modified or amended except by a written document executed by all parties to this
Agreement.
8.2 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by facsimile transmission (with written confirmation of receipt), provided
that a copy is mailed by certified mail, return receipt requested, or (c) when
received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by written notice to the other parties with
such written notice to be given as set forth in this section).
TO JDDC: Johnson Dental Development Corporation
3872 Vista Lane
Orchard Lake, Michigan 48323
TO DCA: Dental Care Alliance, Inc.
1343 Main Street, 7th Floor
Sarasota, Florida 34236
Facsimile No: (941) 366-9615
Attention: Dr. Steven Matzkin
With a copy to: Abel, Band, Russell, Collier, Pitchford and
Gordon, Chartered
P.O. Box 49948
Sarasota, Florida 34230
Facsimile No: (941) 366-3999
Attention: Michael S. Taaffe, Esq.
8.3 WAIVER OF PROVISIONS. Any waiver of any terms and conditions
hereof must be in writing, and signed by the parties hereto. The Waiver of any
of the terms and conditions of this
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Agreement shall not be construed as a waiver of any other terms and conditions
hereof.
8.4 GOVERNING LAW. The validity, interpretation and performance of
this Agreement shall be governed by and construed in accordance with the laws of
the State of Florida.
8.5 EVENTS EXCUSING PERFORMANCE. Neither party shall be liable to the
other party for failure to perform any of the services required herein in the
event of strikes, lock-outs, acts of God, unavailability of supplies or other
events over which that party has no control for so long as such events continue,
and for a reasonable period of time thereafter.
8.6 COMPLIANCE WITH APPLICABLE LAWS. All parties shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of their obligations under this Agreement.
8.7 SEVERABILITY. The provisions of this Agreement shall be deemed
severally and if any portion shall be held invalid, illegal or unenforceable for
any reason, the remainder of this Agreement shall be effective and binding upon
the parties.
8.8 ADDITIONAL DOCUMENTS. Each of the parties hereto agrees to execute
any document or documents that may be requested from time to time by any other
party to implement or complete such party's obligations pursuant to this
Agreement.
8.9 ATTORNEYS' FEES. If legal action is commenced by any party to
enforce or defend its rights under this Agreement, the prevailing party in such
action shall be entitled to recover its costs and reasonable attorneys' fees in
addition to any other relief granted.
8.10 CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS. JDDC and DCA
shall amend the Agreement as necessary to comply changes in laws apply to this
Agreement. To the maximum extent possible, any such amended shall preserve the
underlying economic and financial arrangements between the DCA and JDDC.
8.11 REMEDIES CUMULATIVE. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party by law shall be considered
exclusive of any other remedy available to any party, but the same shall be
distinct, separate and cumulative and may be exercised from time to time as
often as occasion may arise or as may be deemed expedient.
8.12 LANGUAGE CONSTRUCTION. The language in all parties of this
Agreement shall be construed, in all cases, according to parties acknowledgment
that each party and its counsel have
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reviewed and revised this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement.
8.13 NO OBLIGATION TO THIRD PARTIES. None of the obligations and
duties of any party under this Agreement shall in any way or in any manner be
deemed to create any obligation to, or any rights in, any person or entity not a
party to this Agreement.
8.14 ENTIRE AGREEMENT/AMENDMENTS. This Agreement supersedes all
previous contracts and agreements between the parties respecting the subject
matter of this Agreement. As between or among the parties, no oral statement or
prior written material not specifically incorporated herein shall be of any
force and effect. This Agreement may be executed in two or more counterparts,
each and all of which shall be deemed to be an original and all of which
together shall constitute but one and the same instrument and shall not be
amended, altered or changed except by a written amendment signed by the parties
hereto.
8.15 Assignment. DCA and the PCs shall not have the right to assign,
subcontract or sell their representative rights and obligations hereunder to any
person, corporation, partnership or other legal entity without prior written
consent of the other, which consent shall not unreasonably be withheld. Subject
to this provision, this Agreement shall be binding upon the parties hereto, and
their successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
DCA:
DENTAL CARE ALLIANCE, INC., a
Delaware corporation
BY:
-------------------------------
Signature
STEVEN MATZKIN
----------------------------------
Printed Name
PRESIDENT
----------------------------------
Title
JDDC:
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<PAGE>
JOHNSON DENTAL DEVELOPMENT
CORPORATION, a Michigan
corporation
BY:
-----------------------------
Signature
---------------------------------
Printed Name
PRESIDENT
----------------------------------
Title
7
<PAGE>
EXHIBIT A
SERVICE FEE
As a fee for services performed pursuant to the Subcontract Agreement,
Johnson Dental Development Corporation shall be entitled to retain 80% of the
"net profits" (as described below) on a monthly basis. "Net profits" are defined
as 74% of all revenues received from the operation of the PCs, pursuant to DCA's
Administrative Services Agreement with the PCs, less the following amounts: 1)
all normal operating expenses of the PCs including, without limitation, the
Practice expenses (as defined in the Agreement); 2) all licensing fees owed by
the PCs to DCA; 3) all Note payments due under the Promissory Note and the Asset
Purchase Agreement between DCA and Ross Management Company each dated May 1,
1997; 4) all Note payments due under the Note and Stock Purchase Agreement dated
September 1, 1993 between Steve Matzkin, D.D.S. and David Ross Johnson, D.D.S.;
4) the payment of Consulting Fees by JDDC to Profit Dental Management Company
under the Consulting Agreement dated May 1, 1997; 5) Ross Management loans
relating to practice expenses and acquisition costs; and 6) this Service Fee
(80% of net profits after payment of practice expenses itemized above), shall be
adjusted by $96,000 a year of additional compensation paid to David Ross Johnson
for Dental Services and the $96,000 a year Note payment from DCA to Ross
Management. The remaining 20% shall be paid to DCA on a monthly basis.
[example of adjustments]
Net profit $1,000,000.00 after all practice expenses itemized above.
Adjustments = $1,000,000.00
+ 96,000.00 Additional Compensation
-------------
1,096,000.00
+96,000.00 Note Payments
Adjusted Net Profits $1,192,000.00
JDDC receives 80%
of $1,192,000 = $953,600.00
- 96,000.00 (Additional Compensation)
857,600.00
- 96,000.00 (Note payments)
JDDC Revenues $761,600.00 (as service fee)
DCA receives 20%
of $1,192,000 = $238,400
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<PAGE>
EXHIBIT B
[Insert Administrative Services Agreement dated May 1, 1997]
9
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of the 25th day of October, 1996 by and between Dental Care Alliance, Inc., a
Delaware corporation (the "Company"), and Steven R. Matzkin, an individual
resident of the State of Florida ("Executive").
RECITALS:
A. Pursuant to the certain Assignment and Assumption Agreement dated as
of October 24, 1996 by and between the Company and each of Golden Care Network,
L.C., a Florida limited liability company ("Network") and Prophet Management of
Florida, L.C., a Florida limited liability company ("Prophet" and together with
Network, the "Predecessor Entities"), the Company accepted the transfer of all
of the Predecessor Entities' assets, subject to all debts, obligations and
liabilities of the Predecessor Entities and including, without limitation, an
employment agreement between Network and Executive dated as of January 1, 1996
having the same terms and conditions as set forth in this Agreement.
B. The Company is and the Predecessor Entities have been engaged in the
business of, among other things, providing management and consulting services to
dental offices throughout the United States (the "Business"). Executive has
particular expertise and knowledge concerning the Business and its operations.
C. The Company desires to employ Executive, and Executive desires to be
employed by the Company, subject to the terms and conditions set forth below and
this Agreement is intended by the parties to constitute a reaffirmation and
restatement of Executive's employment agreement with the Network.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. TERM. The term of this Agreement shall commence on the date hereof
and shall continue until the fifth (5th) anniversary of such date, unless
otherwise terminated in accordance with the terms hereof.
2. ENGAGEMENT AND SERVICES.
2.1 DUTIES. For the Term of this Agreement, including any and all
renewal terms hereof, unless otherwise terminated as provided herein, Executive
shall be the President and Chief
<PAGE>
Executive Officer of the Company. In such capacity, Executive, subject to the
direction of the board of directors of the Company (the "Board"), shall
supervise the overall management and operations of the Company and its sales and
marketing activities, as well as develop business strategies for the Company.
2.2 EMPLOYMENT. During the term of this Agreement, Executive shall
devote as much of his business time, attention and efforts as reasonably
required to perform his duties as set forth in SECTION 2.1 and shall use his
best endeavors in the performance thereof, as well as to the promotion of the
general interests and welfare of the Company. As such, Executive agrees that he
will not represent, accept any other employment from or render or perform any
services for, whether or not for compensation, any employer or entity other than
the Company, which representation or employment interferes with the performance
of his duties under this Agreement or is competitive with the business of the
Company. The foregoing shall not be construed as prohibiting Executive from
making personal investments in such form or manner as will not violate the terms
of SECTION 9.
3. COMPENSATION AND RELATED MATTERS.
3.1 BASE SALARY. The base salary (the "Base Salary") of Executive
for each calendar year of this Agreement shall be Two Hundred Thousand Dollars
($200,000) (or a proportionate amount for a shorter period), payable in
installments consistent with the Company's normal payroll schedule (subject to
applicable taxes and withholdings), or such greater amount as may be determined
each year by the Company at the annual review of Executive. In addition, the
Base Salary may be adjusted from time to time by the Company to reflect salaries
paid to executives with comparable responsibilities, the quality of Executive's
performance and other merit-based considerations. In no event, however, shall
the Base Salary be decreased. Notwithstanding anything contained herein to the
contrary, nothing in this Agreement shall be deemed to require the Company to
increase Executive's Base Salary during the term of this Agreement.
3.2 BONUS. Executive shall be eligible to receive a performance
bonus for each fiscal year of this Agreement. Pursuant thereto, the Company
shall, no later than ninety (90) days following the last day of the most
recently completed fiscal year], pay to Executive, as additional incentive
compensation for the services to be rendered by Executive hereunder, assuming
Executive is then employed by the Company on such date, a performance bonus in
cash in an amount equal to the lesser of (a) ten percent (10%) of the
consolidated net income of the Company for the most recently completed fiscal
year, calculated in accordance with generally accepted accounting principles,
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consistently applied by the Company's regularly engaged independent certified
public accounts and (b) Two Hundred Thousand Dollars ($200,000). In addition to
the foregoing, Executive shall be eligible to participate in such other
performance bonus programs as may from time to time be established by the
Company for the benefit of Executive.
3.3 STOCK OPTIONS. In the event the Company adopts an employee
stock option plan for its employees, Executive shall, subject to the terms and
conditions thereof, be eligible to participate therein at a level commensurate
with Executive's position with the Company; provided, that in no event shall the
number of options granted to Executive, combined with all stock options,
warrants or other derivative securities issued by the Company to Matzkin exceed
eight percent (8%) of the outstanding Common Stock as of the date of the date
hereof. It is contemplated that awards under such stock option plan will be
subject to individual and Company performance targets being attained.
4. EXPENSES.
4.1 AUTOMOBILE ALLOWANCE. Except as otherwise provided herein, the
Company shall pay to Executive, during the term of this Agreement, One Thousand
Dollars ($1,000) per month to be used by Executive, in his sole discretion, for
expenses paid or incurred by Executive in connection with the acquisition, use
and maintenance of an automobile by Executive.
4.2 RELOCATION. Except as otherwise provided herein, in the event
Executive is required by the Company to move himself and his family and their
personal property from Sarasota, Florida to any location more than one hundred
(100) miles from Sarasota, Florida (the "Other Location"), the Company shall
reimburse Executive for the following expenses:
4.2.1 The Company shall reimburse Executive for any and all
reasonable and necessary, actual out-of-pocket expenses paid or incurred by
Executive for himself and his family in connection with up to four (4)
round-trip excursions between Sarasota, Florida and the Other Location taken
solely for the purpose of locating a suitable residence in Other Location for
purchase or rental by Executive.
4.2.2 The Company shall reimburse Executive for any and all
reasonable and necessary, actual out-of-pocket expenses paid or incurred by
Executive in connection with moving Executive and his family and their personal
property from Sarasota, Florida to the Other Location. Relocation expenses that
are subject to reimbursement by the Company pursuant to this
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<PAGE>
SECTION 4.2.2 shall include expenses incurred in connection with the following:
(a) physical packing, moving and unpacking of household
goods;
(b) up to three (3) months of storage of household
goods, if necessary;
(c) closing costs and reasonable attorney's fees (if
any) in connection with the purchase of a residence in the Other Location; and
(d) the physical transport of two (2) vehicles from
Sarasota, Florida to the Other Location.
4.3 EMPLOYMENT RELATED EXPENSE. The Company shall reimburse
Executive for all reasonable and necessary, out-of-pocket expenses paid or
incurred by Executive in connection with and in the course of the performance of
his duties under this Agreement consistent with Company policy.
4.4 DETERMINATION OF REIMBURSABLE EXPENSES. All expenses for which
reimbursement is sought pursuant to this SECTION 4 shall be supported by
receipts or other appropriate back-up documentation submitted by Executive to
the Company. Such reimbursement of expenses shall be paid by the Company to
Executive within thirty (30) days after Executive submits the receipts or other
appropriate back-up documentation therefor to the Company.
5. BENEFITS.
5.1 EMPLOYEE BENEFIT PROGRAMS. In addition to the compensation to
be paid by the Company to Executive pursuant to SECTION 3 hereof, during the
term of this Agreement, Executive shall also be entitled to receive the
following benefits: (i) participation in a comprehensive group medical and
dental insurance plan of the Company on the same basis as is provided to the
other full-time employees of the Company; (ii) participation in such other
benefit programs of the Company to the extent such programs are provided to the
other full-time employees of the Company; (iii) paid holidays given by the
Company to all of its employees; and (iv) fifteen (15) paid vacation days for
each full year of Executive's employment with the Company to be taken at such
time or times as do not interfere with Executive's duties to the Company and in
accordance with the Company's then-current policies regarding vacation time for
its full-time officers and executives.
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<PAGE>
5.2 LIFE INSURANCE. During the term of this Agreement, the Company
agrees to maintain a life insurance policy on the life of Executive provided
Executive is then insurable, the amount of such policy to be not less than
$400,000. Executive shall have the right to designate the beneficiary of such
policy.
6. TERMINATION.
6.1 TERMINATION FOR CAUSE. Notwithstanding anything contained in
this Agreement to the contrary, the Company, by written notice to Executive,
shall at all times have the right to terminate Executive's employment hereunder
for "Cause," as hereinafter defined, effective immediately upon Executive's
receipt of the Company's written notice of such termination. For purposes of
this SECTION 6, "Cause" shall mean:
(i) Any material violation by Executive of any local, state or
federal law or regulation, provided that Executive's compliance
with such law or regulation is material to the performance of his
duties under this Agreement, or any conviction of a felony by
Executive;
(ii) Executive's refusal or willful failure to fulfill any
material duties or obligations required to be performed for the
Company hereunder for any reason, or Executive's refusal or
repeated failure to perform or adhere to the reasonable rules and
regulations of the Company established by the Company from time to
time, which refusal or failure is not cured within fourteen (14)
days after written notice thereof is given by the Company to
Executive;
(iii) Conduct involving drug addiction or habitual intoxication
where such conduct adversely affects Executive's ability to perform
his duties under this Agreement; provided that such conduct occurs
subsequent to written notice by the Company to Executive concerning
such activity; or
(iv) Any intentional theft, fraud or embezzlement committed by
Executive involving the misappropriation of Company funds or other
assets of the Company.
On the effective date of the termination of Executive for Cause
pursuant hereto, the Company shall have no further obligations or liabilities to
or for the benefit of Executive under this Agreement, except as provided in
SECTION 6.5 and SECTION 6.6 of this Agreement.
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6.2 TERMINATION IN CONNECTION WITH CERTAIN EVENTS.
(i) DEATH. Notwithstanding anything contained in this
Agreement to the contrary, Executive shall be deemed to have
terminated his employment with the Company as of the end of the
month in which Executive dies.
(ii) CHANGE IN CONTROL. In the event that (i) the Company
sells all or substantially all of its assets to a third party, or
(ii) majority control of the Company is transferred to any third
party, Executive shall have the right and option to voluntarily
terminate his employment hereunder by giving the Company at least
sixty (60) calendar days' prior written notice of his intent to so
terminate. In the event of Executive's election to so terminate his
employment hereunder pursuant to this SECTION 6.2(ii), such
employment shall immediately and automatically terminate upon the
expiration of the sixty (60) calendar day notice period, without
any further notification or action on the part of Executive, unless
Executive gives the Company reason to terminate Executive for
"Cause" in which case the effective date of termination shall be
immediate.
(iii) CONSTRUCTIVE DISCHARGE. In the event that the Company
(i) reduces or alters in any material respect Executive's
responsibilities, duties or authorities as President and Chief
Executive Officer, (ii) reduces in any material respect the
benefits and perquisites granted to Executive hereunder, (iii)
reduces or alters in any material respect, or prevents Executive
from using, the resources that he reasonably needs to competently
perform his duties hereunder or otherwise creates a hostile work
environment that makes it unreasonably difficult for Executive to
perform his duties hereunder or (iv) requires Executive to relocate
more than 30 miles outside Sarasota, Florida, Executive shall have
the right and option to voluntarily terminate his employment
hereunder by giving the Company at least sixty (60) calendar days'
prior written notice of his intent to so terminate. In the event of
Executive's election to so terminate his employment hereunder
pursuant to this SECTION 6.2(iii), such employment shall
immediately and automatically terminate upon the expiration of the
sixty (60) calendar day notice period, without any further
notification or action on the part of Executive, unless Executive
gives the Company reason to terminate
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<PAGE>
Executive for "Cause" in which case the effective date of
termination shall be immediate.
On the effective date of the termination of Executive pursuant to this
SECTION 6.2, the Company shall have no further obligations or liabilities to or
for the benefit of Executive under this Agreement, except as provided in SECTION
6.5 and SECTION 6.6 of this Agreement.
6.3 TERMINATION WITHOUT CAUSE. Notwithstanding anything contained
in this Agreement to the contrary, the Company shall at all times have the right
to terminate Executive's employment hereunder without "Cause" and for any reason
whatsoever by giving Executive at least ninety (90) calendar days' prior written
notice of its intent to so terminate. In the event of the Company's election to
terminate Executive's employment hereunder pursuant to this SECTION 6.3 such
employment shall immediately and automatically terminate upon the expiration of
the thirty (30) calendar day notice period, without any further notification or
action on the part of the Company, unless Executive gives the Company reason to
terminate Executive for "Cause" in which case the effective date of termination
shall be immediate.
On the effective date of the termination of Executive without Cause
pursuant to this SECTION 6.3, the Company shall have no further obligations or
liabilities to or for the benefit of Executive under this Agreement, except as
provided in SECTION 6.5 and SECTION 6.6 of this Agreement.
6.4 VOLUNTARY TERMINATION BY EXECUTIVE. Notwithstanding anything
contained in this Agreement to the contrary, Executive shall at all times have
the right to voluntarily terminate his employment hereunder by giving the
Company at least sixty (60) calendar days' prior written notice of his intent to
so terminate. In the event of Executive's election to so terminate his
employment hereunder pursuant to this SECTION 6.4, such employment shall
immediately and automatically terminate upon the expiration of the sixty (60)
calendar day notice period, without any further notification or action on the
part of Executive, unless Executive gives the Company reason to terminate
Executive for "Cause" in which case the effective date of termination shall be
immediate.
On the effective date of the voluntary termination of Executive
pursuant to this SECTION 6.4, the Company shall have no further obligations or
liabilities to or for the benefit of Executive under this Agreement, except as
provided in SECTION 6.5 and SECTION 6.6 of this Agreement.
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6.5 PAYMENTS TO EXECUTIVE UPON TERMINATION.
(i) Upon the termination of Executive's employment pursuant to
SECTION 6.1, SECTION 6.2(i), SECTION 6.2(ii) or SECTION 6.4, the
Company shall be obligated to pay to Executive, and Executive shall
be entitled to receive from the Company: (i) Executive's Base
Salary, prorated for completed months of employment in the relevant
fiscal year of the Company to the effective date of termination;
(ii) accrued vacation to the effective date of termination; (iii) a
termination bonus calculated pursuant to the formula described in
SECTION 3.2 hereof prorated for the number of completed months of
employment in the relevant fiscal year of the Company to the
effective date of termination, based on the annualized net income
of the Company derived by multiplying (X) the fiscal year-to-date
(completed months only) consolidated net income of the Company as
shown in the Company's regularly prepared internal financial
statements, by (Y) the quotient obtained by dividing twelve (12)
months by the number of completed months of employment of Executive
in the relevant fiscal year in which termination of employment
occurs; (iv) any amounts for which Executive is entitled to, but
has not received, reimbursement in accordance with SECTION 4
hereof, provided that such amounts were incurred prior to the
effective date of termination; and (v) the release of, or in the
alternative thereto, the amounts(s) equal to the aggregate amount
of any personal guaranties of debts of the Company or other
entities or persons made by Executive on behalf of or at the
request of the Company or its affiliates.
(ii) Upon the termination of Executive's employment pursuant
to SECTION 6.2(iii) or SECTION 6.3, the Company shall be obligated
to pay to Executive, and Executive shall be entitled to receive
from the Company, each of the items described in SECTION 6.5(i). In
addition, the Company agrees to continue to pay the Base Salary to
Executive for the period commencing on the effective date of
termination and ending on the later to occur of (i) the second
anniversary of such date of termination or (ii) the fifth
anniversary of the date of this Agreement (the "Salary Continuation
Period"). Further, during the Salary Continuation Period, Executive
shall be entitled to such performance bonus described in SECTION
3.2 hereof that he otherwise would have been entitled to receive
had his employment by the Company not been terminated pursuant to
SECTION 6.2(iii) or SECTION 6.3.
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(iii) Upon payment to Executive of the foregoing items and
except as set forth in SECTION 6.6, the Company shall have no
further obligations or liability to or for the benefit of Executive
whatsoever.
6.5.1 Off-Set. The parties hereto agree that the Company shall
have the right to off-set from any amounts otherwise due and owing to Executive
pursuant to this Agreement, any and all undisputed amounts legitimately owed by
Executive to the Company or any of its Affiliates (as hereinafter defined),
whether pursuant to this Agreement or to any other agreement or obligation.
6.6 DEMAND REGISTRATION AND PUT RIGHT.
(i) Upon termination of Executive's employment pursuant to
SECTION 6.2(ii), SECTION 6.2(iii) or SECTION 6.3, any and all of
Executive's options, warrants or other securities exercisable or
convertible into capital stock or equity securities of the Company
("Underlying Securities") will immediately and fully vest.
Executive shall be obligated to exercise or convert into common
stock of the Company with $1.00 par value per share ("Common
Stock"), all Underlying Securities in connection with exercising
his rights pursuant to SECTION 6.6(ii)-(iii).
(ii) Upon termination of Executive's employment, for any
reason, and if, on or prior to such termination, the Company, has
consummated an initial public offering of its Common Stock,
Executive shall have the right and option to request in writing
that the Company effect the registration of any or all Common Stock
then owned by Executive and the Company will, as expeditiously as
possible, use its best efforts to effect such registration, under
the Securities Act of 1933, as amended (the "Securities Act"). In
addition, the Company shall use its best efforts to register or
qualify the Common Stock under the state securities or blue sky
laws of such jurisdictions as Executive shall reasonably request.
The demand registration rights provided for in this SECTION 6.6(ii)
shall be deemed satisfied by the Company when two (2) registration
statements shall have been filed by the Company with and made
effective by the Securities and Exchange Commission under the
Securities Act pursuant to requests made pursuant to this SECTION
6.6(ii). The Company shall have no obligation to attempt
registration of any offering of Executive's Common Stock under the
Securities Act more often than once in any twelve (12) month
period. The
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Company shall pay, to the fullest extent allowable under
applicable state securities and blue sky laws, all expenses
incurred in effecting the registrations provided for in this
SECTION 6.6(ii), including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements of one
law firm serving as counsel for Executive, underwriting expenses
(other than underwriting discounts and commissions), expenses of
any audits incident to or required by any such registration and
expenses of complying with state securities or blue sky laws.
(iii) Upon termination of Executive's employment pursuant to
SECTION 6.2(iii) or SECTION 6.3, and if, on or prior to such
termination, the Company has not consummated an initial public
offering of its Common Stock, Executive shall, upon written notice
to the Company within sixty (60) days of such termination, have the
right and option to sell to the Company, and the Company shall be
required to purchase, all but not less than all, of the Common
Stock then owned by Executive at a price equal to the (a) two (2)
times the consolidated revenue of the Company, which shall be
calculated in accordance with generally accepted accounting
principles, consistently applied by the Company's regularly engaged
independent certified public accountants, as of the calendar year
end immediately preceding the date of termination of Executive's
employment, multiplied by (b) the ratio of (X) the number of Common
Stock being sold by Executive pursuant to this SECTION 6.6 (iii) to
(Y) the total number of outstanding shares of Common Stock
calculated on a fully diluted basis as of the date of termination
of Executive is employment Payment of the purchase price for the
shares purchased pursuant to this SECTION 6.6 (iii) (the "Purchase
Price") shall be paid in cash in five consecutive equal annual
installments, the first installment due ten (10) days after the
date written notice is given to the Company pursuant to this
SECTION 6.6(iii), and the second, third, fourth and fifth
installments due on the first, second, third and fourth
anniversaries of such date; provided, however, that in the event
the Company cannot arrange using its best efforts in good faith
sufficient financing to accommodate such payment schedule, then any
such annual installment payment required to be paid by the Company
to Executive, excluding the first such installment payment, shall
be not required to exceed an amount equal to fifty percent (50%) of
the Company's
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<PAGE>
consolidated net income before interest, taxes, depreciation and
amortization for the immediately preceding twelve (12) month period
prior to the date of such installment payment. In such event, the
installment payment period for payment of the Purchase Price
provided for herein shall be extended by such additional annual
payments as may be necessary to satisfy the obligation of the
Company to pay Executive the full amount of the Purchase Price
together with all accrued interest thereon required by this SECTION
6.6(iii). Interest shall accrue on the unpaid Purchase Price from
time to time outstanding at the rate of interest per annum equal to
the "prime" rate of interest identified from time to time by
Citibank, N.A., New York, New York or its successor, whether or not
such announced rate is the best rate available from such financial
institution.
7. WITHHOLDING. All compensation payable to Executive pursuant to this
Agreement shall be subject to customary withholding taxes and such other
employment taxes as are required under federal law or the law of any state or
governmental body to be collected with respect to compensation paid by an
employer to an employee.
8. CONFIDENTIAL INFORMATION. Executive acknowledges and agrees that he
has been given, and by virtue of his employment by the Company pursuant hereto
will be given, access to and possession of certain valuable and confidential
information, both verbal and written, Proprietary to the Company, including,
without limitation, information regarding technical and non-technical data,
compilations, programs, methods, techniques, processes and financial data, all
of which is sufficiently secret to derive economic value, actual or potential,
from not being generally known to other persons who can obtain economic value
from its disclosure or use, and which is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy or confidentiality.
Such proprietary and confidential information specifically includes, without
limitation: (a) instruction in and experience regarding the methods of operation
practiced by the Company; (b) lists of, or access to, actual or potential
customers and suppliers of the Company or the Business; (c) trade secrets; (d)
information contained in any memoranda, discussions, notes, correspondence,
surveys, investigations and the like by or between the employees of the Company;
(e) information received from employees, associates, officers or consultants
employed or retained by the Company pertaining to the Business or the general
operations of the Company; and (f) the Company's proprietary advertising and
marketing campaigns and strategies regarding the Business or the Company.
-11-
<PAGE>
All of such proprietary and confidential information and business
relationships, including, without limitation, that information and those
business relationships specified in this SECTION 8, are hereinafter collectively
referred to as "Confidential Information". Confidential Information, however,
shall not include any information that, through no act of Executive, has become
available to the general public. Executive shall hold in confidence and not use
or disclose, either for his own benefit or the benefit of any third party,
either during or after Executive's employment with the Company, except as
specifically authorized by the Company in writing for the Company's own benefit,
any Confidential Information that Executive may obtain or has obtained or may
create or has created during the period of Executive's employment hereunder.
Upon termination of Executive's employment with the Company for any reason,
Executive shall promptly return and deliver to the Company all documents,
manuals, letters, notes, records, reports and all other materials of a secret or
confidential nature either obtained or arising as a result of Executive's
employment hereunder, including, without limitation, any and all forms and
stages of Confidential Information, that remain in his possession. The terms of
this SECTION 8 shall survive the termination of this Agreement for whatever
reason.
9. NON-COMPETITION: NON-SOLICITATION. Executive agrees that, by virtue
of his employment with the Company, he has and will develop and obtain knowledge
and familiarity with the operations of the Company, its Affiliates and their
respective businesses, operating and marketing procedures and the identity of
their respective customers, the disclosure of which would result in a
significant economic detriment to the Company. To protect the Company, for a
period of one (1) year commencing on the effective date of termination of
Executive's employment with the Company for any reason, Executive shall not:
(i) Directly or indirectly, own, manage, operate, control or
participate in, or have any financial interest in or aid or assist
anyone in the conduct of, or otherwise engage in, any business
(whether it be a sole proprietorship, partnership, corporation or
other entity) that (a) in any way competes with the Company or its
Affiliates or any successor thereto, or their respective
businesses, or otherwise calls upon, solicits, advises, or does, or
attempts to do, business with any client, customer or patient of
the Company or any of its Affiliates or any successor thereto, and
(b) is located or operating anywhere within the defined licensed
and/or franchised-territory of the Company or any of its Affiliates
or any successor thereto, including, without limitation, any office
or location
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<PAGE>
of any franchisee of the Company or any of its Affiliates or any
successor thereto; or
(ii) Solicit or otherwise encourage any employee of Company or
any of its Affiliates or any successor thereto to terminate his or
her employment with the Company or any of its Affiliates or any
successor thereto, or to enter into employment with any other
person, firm or corporation.
The restrictions in SECTIONS 9(i)-(ii) shall be null and void and of no
force or effect in the event that Executive is terminated without "Cause"
pursuant to SECTION 6.3 hereof.
In addition, Executive agrees that he shall not, in any way, slander,
libel or through any other improper means take any action that is intended to be
detrimental to the Company or any of its Affiliates or any successor thereto, or
their respective businesses, services, officers, personnel or operations.
For purposes of this Agreement, an "Affiliate" of an entity shall mean
any person, corporation, proprietorship, partnership, trust, limited liability
company or other business entity that, directly or indirectly, owns or controls,
is under common ownership or control with, or is owned or controlled by, such
entity. For purposes of this definition, "control" means the possession of the
power to direct or cause the direction of management and policies of such
entity, whether through the ownership of voting securities, by contract or
otherwise.
If any provision or part of this SECTION 9 is held to be unenforceable
because of the duration of such provision or the area covered thereby, Executive
agrees that the court making such determination shall have the power to modify
such provision, to reduce the duration or area of such provision, or both, or to
delete specific words or phrases herefrom ("blue-penciling,) in a manner that
would provide the greatest possible protection to the Company, and then, in its
reduced or blue-penciled form, such provision shall then be enforceable and
shall be enforced.
10. EQUITABLE REMEDIES. Executive agrees that the covenants contained
in SECTIONS 8 AND 9 hereof are vital to the viability of the Company, its
Affiliates and each of their respective businesses. In that regard, Executive
agrees that any breach of SECTION 8 OR 9 hereof would cause irreparable and
immediate harm to the Company and that money would not be an adequate remedy in
the event of any such breach. By reason of the foregoing, Executive agrees that
the Company shall be entitled to injunctive relief in the event of any breach of
SECTION 8 OR 9 hereof. In addition, Executive agrees to reimburse the Company
and its Affiliates for any and all reasonable costs and expenses
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<PAGE>
(including, without limitation, attorneys, fees and costs) incurred by the
Company or any of its Affiliates as a result of their enforcing the terms and
provisions of this Agreement and their instituting or defending any litigation,
contest, dispute, suit or proceeding against Executive in any way relating to
this Agreement, provided that the Company prevails in such action. Nothing
herein shall prevent the Company or any of its Affiliates from electing to seek
any monetary or other relief in addition to or in lieu of any equitable relief
for breach of SECTION 8 OR 9 hereof. The failure of the Company or any of its
Affiliates to promptly institute legal action upon any such breach shall not
constitute a waiver of that or any other breach hereof.
11. NOTICES. Any notices, demands, requests, consents or approvals to
be given hereunder shall be in writing and shall be deemed given when delivered
personally to the person to whom intended, two (2) days after deposit in the
United States mail, certified, postage prepaid, return receipt requested, one
(1) day after deposit with a commercial courier sent for next day delivery, or
upon transmittal if telecopied, to the following addresses:
If to Executive, to: Steven R. Matzkin
1143 Casey Key Road
Nokomis, Florida 34275
If to the Company, to: Dental Care Alliance, Inc.
1343 Main Street, 5th Floor
Sarasota, Florida 34236
Attention: President
Telecopier Number: (813) 366-9615
Any party hereto may change his or its address for notice by
communicating such change of address to the other party.
12. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida.
13. NONASSIGNABLE RIGHTS. This Agreement and all rights and benefits
hereunder are binding upon and shall inure to the benefit of Executive and the
Company, as well as to the benefit of the Company's successors. The obligations
of Executive hereunder are personal to Executive; accordingly, neither this
Agreement nor any right or interest of Executive herein, or arising hereunder,
shall be voluntarily or involuntarily sold, transferred or assigned by Executive
without the prior written consent of the Company or its successor in interest.
This Agreement shall be assignable by the Company, provided, however, that in
the event (i) the Company sells all or substantially all of its assets to a
third party or (ii) majority control of the
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<PAGE>
Company is transferred to any third party, Executive shall have the right and
option to terminate his employment pursuant to SECTION 6.2.
14. SEVERABILITY. In the event that any provision of this Agreement is
determined to be invalid or unenforceable, the remaining terms and provisions of
this Agreement shall be unaffected and shall remain in full force and effect,
and any such determination of invalidity or unenforceability shall in no way
affect the validity or enforceability of any other provision of this Agreement.
15. WAIVER. No delay on the part of any party in exercising any right,
power or privilege shall operate as a waiver thereof, nor shall any waiver of
any right, power or privilege operate as a waiver of any other right, power or
privilege, nor shall any single or partial exercise of any right, power or
privilege preclude any other or further exercise thereof or of any other right,
power or privilege. The rights and remedies herein provided are cumulative and
are not exclusive of any rights or remedies which the parties otherwise may have
at law or in equity.
16. HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or construction hereof.
17. ENTIRE AGREEMENT. This instrument sets forth the entire agreement
and understanding between the parties hereto with respect to Executive's
employment by the Company and supersedes all prior and contemporaneous
discussions and agreements with respect thereto. This Agreement may only be
modified in a writing signed by both parties hereto.
18. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written.
DENTAL CARE ALLIANCE INC.
By:
-----------------------------
Its:
-----------------------------
----------------------------------
Steven R. Matzkin
-16-
EXHIBIT 10.11
EQUITY HOLDERS AGREEMENT
THIS EQUITY HOLDERS AGREEMENT (this "Agreement") is made as of October
25, 1996 by and between Mitchell B. Olan, an individual residing in the State
of Florida (the "Equity Holder") and Dental Care Alliance, Inc., a Delaware
corporation (the "Company")
RECITALS:
WHEREAS, the authorized capital stock of the Company consists of
200,000 shares of common stock, par value $0.01 per share, and 15,000 shares of
Class A Preferred Stock, par value $0.01 per share (collectively, the
"Shares").
WHEREAS, the Equity Holder holds warrants to acquire Two Thousand
(2,000) Shares pursuant to that certain Warrant Agreement dated as of the date
hereof between the Company and the Equity Holder (the "Warrant Agreement").
WHEREAS, the Equity Holder and the Company wish to establish certain
rights and obligations with respect to the Equity Holder's Shares, including any
Shares issued or issuable to the Equity Holder upon the exercise of any option
or warrant ("Equity Securities").
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. RESTRICTION ON TRANSFER OF SHARES. The Equity Holder may not
transfer (other than to the Company) any Equity Securities whether presently
owned or hereafter acquired by him without the prior written consent of the
Company, except as permitted in accordance with the terms of this Agreement. Any
purported transfer of any Shares in any other manner shall be void. As used in
this Agreement, the word "transfer" includes any sale, bequest, exchange,
assignment or gift, the creation of any security interest or other encumbrance
and any other disposition of any kind, whether voluntary or involuntary,
affecting title to or possession of any of the Shares.
2. PERMITTED TRANSFERS. Notwithstanding anything to the contrary in
this Agreement, the Equity Holder may at any time make any of the following
transfers:
(a) a transfer of Equity Securities to the executor or
administrator of the estate of a deceased Equity Holder upon his
<PAGE>
death for purposes of the administration or such Equity Holder's estate, and to
the devise, legatee or beneficiary of the estate;
(b) a transfer by Equity Securities by an Equity Holder to his
spouse or issue or any trust for the benefit of himself, his spouse or issue,
PROVIDED that any Shares transferred to his spouse or trust for the benefit of
his spouse shall be immediately transferred back to such Equity Holder should
his spouse cease to be his spouse;
(c) a transfer of Equity Securities pursuant to a public offering;
PROVIDED, HOWEVER, in the case of a transfer pursuant to paragraph (a) or (b),
any transferee shall have executed and delivered an agreement, in form and
substance reasonably satisfactory to the Company, to be bound by the terms of
this Agreement as if the transferee were the applicable Equity Holder.
3. PIGGYBACK REGISTRATION RIGHTS.
(a) RIGHT OF EQUITY HOLDER TO INCLUDE SHARES. Whenever the Company
proposes to register any of its Shares under the Securities Act of 1933, as
amended on Form S-1, S-2, S-3 or any similar form then in effect (a
"Registration Statement"), whether or not for its own account, the Company
shall, except with respect to the initial public offering by the Company of any
class of equity securities (but this exception sahll apply only if no other
holders of Shares are permitted to participate in such offering as selling
stockholders), give written notice, thereof to the Equity Holder at least 30
days before such filing, if practicable (but in no event less than 20 days
before such filing), offering the Equity Holder the opportunity to register on
such Registration Statement such number of Shares as such Equity Holder may
request in writing, subject to the provisions of SECTION 3 (b), not later than
10 days before such filing (a "Piggyback Registration"). Upon receipt by the
Company of any such request, the Company shall use reasonable efforts to, or in
the case of an offering that is underwritten (an "Underwritten Registration"),
to cause the managing underwriter or underwriters to, include such Shares in
such Registration Statement (or in a separate Registration Statement
concurrently filed) and to cause such Registration Statement to become effective
with respect to such Shares. If the Company's registration is to be effected
pursuant to an Underwritten Offering, Shares registered pursuant to the SECTION
3 shall be distributed in accordance with such offering. Notwithstanding the
foregoing, if at any time after giving written notice of its intention to
register its Shares and before the effectiveness of the Registration Statement
filed in connection with such registration, the Company determines for any
2
<PAGE>
reason either not to effect such registration or to delay such registration, the
Company may, at its election, by delivery of written notice to the Equity
Holder (i) in the case of a determination not to effect registration, relieve
itself of its obligation to register the Shares in connection with such
registration or (ii) in the case of a determination to delay registration, delay
the registration of such Shares of the Equity Holder for the same period as the
delay in the registration of such other Shares. If the Equity Holder requests
inclusion in a registration pursuant to this SECTION 3, he may, at any time
before the effective date of the Registration Statement relating to such
registration, revoke such request by delivering written notice of such
revocation to the Company (which notice shall be effective only upon receipt by
the Company, notwithstanding the provisions of SECTION 4 (d); PROVIDED, HOWEVER,
that if the Company, in consultation with its financial and legal advisors,
determines that such revocation would materially delay the registration or
otherwise require a recirculation of the prospectus contained in the
Registration Statement, then such Equity Holder shall have no right to so revoke
his request.
(b) UNDERWRITTEN REGISTRATION.
(i) Notwithstanding anything herein to the contrary, the Equity
Holder any not participate in any Underwritten Registration hereunder unless he
(a) agrees to sell his Shares on the same terms and conditions provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangement and (b) accurately completes and executes in a timely manner
all questionnaires, powers of attorney, indemnities, custody agreements,
underwriting agreements and other documents required under the terms of such
underwriting arrangements. Notwithstanding (a) above, the Equity Holder shall
be required to pay his proportionate share of expenses borne by other
stockholders (as opposed to the Company) with respect to the registration and
offering of the Shares only if the Registration Statement relating to such
registration is declared effective, and shall be reimbursed for any such amounts
paid if the Registration Statement does not become effective or if there is a
suspension of its effectiveness.
(ii) If any Piggyback Registration is in the form of an
Underwritten Offering, the managing underwriter or underwriters and any
additional investment bankers and managers to be used in connection with such
registration shall be selected by the Company (subject to any separate
agreement with the holders on behalf of which a secondary Underwritten Offering
is being made).
3
<PAGE>
(c) PRIORITY IN PIGGYBACK REGISTRATION.
(i) If any of the Shares to be included in a Piggyback
Registration are to be sold in one or more Underwritten Offerings and the
managing underwriter or underwriters advise the Company in writing that the
total amount of Shares requested to be included in such offering would exceed
the maximum amount of securities which can be marketed at a price reasonable
related to the current fair market value of such securities without adversely
affecting such offering (the "Underwriters' Maximum Number"), then the Company
will so notify all holders of Shares requesting inclusion in such registration
and will be required to include in such registration, to the extent of the
Underwriters' Maximum Number; FIRST, if the Underwritten Registration is an
underwritten registration on behalf of the stockholders of the Company, the
Shares requested by such stockholders to be included in such registration, PRO
RATA among such stockholders on the basis of the number of Shares held by such
stockholders) SECOND, any Shares that the Company proposes to sell for its own
account; and THIRD, other securities requested to be included in such
registration; PROVIDED, HOWEVER, that if the Underwritten Registration is an
underwritten registration on behalf of the Company, the Company will include in
such registration, in lieu of the first and second priorities described above,
to the extent of the Underwriters' Maximum Number; FIRST, the Shares the Company
proposes to sell and SECOND, the Shares requested by the stockholders of the
Company to be included in such registration, pro rata among such Stockholders on
the basis of the number of Shares held by such stockholders.
(ii) If any of the Shares to be included in a Piggyback
Registration are to be sold in a non-underwritten offering, but the Company,
after consultation with an investment banking firm of nationally recognized
standing (including a regional firm of recognized standing), reasonably
determines the amount of Shares to be included in such registration exceeds the
amount of securities that can be sold within a price range acceptable to the
Company or the initiating holders and notifies all holders of Shares requesting
inclusion in such registration of such determination ("Company's Maximum
Number"), then the Company will be required to included in such registration, to
the extent of the Company's Maximum Number, Shares in accordance with the
priorities set forth in paragraph (i) above.
(d) DELIVERY OF REGISTRATION STATEMENT. In connection with a Piggyback
Registration, the Company shall deliver to the selling Equity Holder, its
counsel and the underwriter, if any, without charge, at least one signed copy of
the Registration Statement, upon request, and such number of conformed copies
4
<PAGE>
thereof and such number of copies of the Prospectus (including the preliminary
Prospectus) included in such Registration Statement and any amendment or
supplement thereto or any other document as such persons may reasonably request
and as promptly as practicable after the filing with the Securities and
Exchange Commission of any document which is incorporated by reference into a
Registration Statement, a copy of such document.
(e) EQUITY HOLDER INFORMATION. If Shares owned by the Equity Holder are
included in a Piggyback Registration, such Equity Holder shall furnish promptly
to the Company such information regarding himself and the distribution of such
securities as the Company may from time to time reasonably request in writing.
(f) INDEMNIFICATION.
(i) The Company agrees to indemnify, to the extent permitted by
law, each holder of Shares to be registered pursuant to SECTION 3 against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for
use therein or by such holder's failure to deliver copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same.
(ii) In connection with any registration statement in which a
holder of Shares to be registered pursuant to SECTION 3 is participating, each
such holder shall, to the extent permitted by law, indemnify the Company, its
directors and officers and each person who controls the Company (within the
meaning of the Securities Act of 1933, as amended) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein to be misleading, but only to the
extent that such untrue statement or omission is contained in any information
or affidavit so furnished in writing by such holder; provided that the
obligation to indemnify shall be individual, not joint and several, for each
5
<PAGE>
holder and shall be limited to the net amount of proceeds received by such
holder from the sale of Shares pursuant to such registration statement.
4. MISCELLANEOUS.
(a) LEGENDS. Each certificate representing Shares from time to
time owned by the Equity Holder shall bear legends substantially as follows:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and may not be sold or transferred
in violation of such Act."
"Transfer of the shares represented by this certificate is restricted
by an Equity Holders Agreement, dated October 25, 1996, a copy of
which is on file at the office of Dental Care Alliance, Inc."
(b) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to performed in Delaware.
(c) ASSIGNMENT, MERGER OR CONSOLIDATION. This Agreement shall not be
assignable, but shall be binding upon and inure to the benefit of the successors
of the Company and the respective heirs and legal representatives of the Equity
Holder. If the Company is merged into or consolidated with another corporation,
or all or substantially all of the assets of the Company are transferred to
another entity, then the term "Company" for all purposes of this Agreement shall
include such successor corporation and the term "Shares" shall include any stock
and warrants of the successors corporation.
(d) NOTICES. Any notice or other communication under this Agreement
shall be considered given and received when (i) delivered personally in
writing, (ii) received by registered mail, return receipt requested or (iii)
sent by telecopier, with a copy confirmed by registered mail, return receipt
requested, by the parties at the following addresses and telecopier numbers
(or at such other addresses and telecopier numbers as a party may specify by
notice to the others):
6
<PAGE>
If to the Company:
Dental Care Alliance, Inc.
1343 Main Street, 7th Floor
Sarasota, Florida 34236
Attention: President
Telecopier No: (941) 366-9615
If to the Equity Holder:
Mitchell B. Olan
1310 Robert Bay Lane
Sarasota, Florida 34242
Telecopier No:
(e) APPOINTMENT OF PERSONAL REPRESENTATIVE. The executor or
administrator of the estate of any deceased party ("Personal Representative")
shall give the Company and the other parties prompt notice of his appointment,
stating the address at which notices under this Agreement shall be given to
him.
(f) WAIVER. The Company shall have the right to waive any of its
rights or any obligations owing to it hereunder without the consent of the
other parties to this Agreement.
(g) COUNTERPARTS: FACSIMILE. This Agreement may be executed in one
or more 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
instrument.
(h) COMPLETE AGREEMENT, MODIFICATION AND TERMINATION. This
Agreement contains a complete statement of all the arrangements among the
parties with respect to its subject matter, supersedes all existing agreements
among them concerning that subject matter and cannot be changed or terminated
except in writing signed by all of the parties.
(signature page follows)
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
DENTAL CARE ALLIANCE, INC.
By:------------------------------------
Title:---------------------------------
MITCHELL B. OLAN
---------------------------------------
8
EXHIBIT 10.12
EQUITY HOLDERS AGREEMENT
THIS EQUITY HOLDERS AGREEMENT (this "Agreement") is made as of April 3O
, 1997 by and between J. Francis Lavelle (the "Equity Holder") and Dental Care
Alliance, Inc., a Delaware corporation (the "Company").
RECITALS:
WHEREAS, the authorized capital stock of the Company consists of
200,000 shares of common stock, par value $0.01 per share (the "Common Stock"),
and 15,000 shares of Class A Preferred Stock, par value $0.01 per share
(collectively, the "Shares").
WHEREAS, the Equity Holder has exercised his right to acquire 520
shares of Common Stock for $10,000, pursuant to that certain Letter Agreement
dated September 29, 1995 between the Company and the Equity Holder (the "Letter
Agreement").
WHEREAS, the Equity Holder and the Company wish to establish certain
rights and obligations with respect to the Common Stock acquired by the Equity
Holder and any Shares which may be issued or issuable in the future to the
Equity Holder.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. RESTRICTION ON TRANSFER OF SHARES.
The Equity Holder may not transfer (other than to the Company) any
Shares whether presently owned or hereafter acquired by him without the prior
written consent of the Company, except as permitted in accordance with the terms
of this Agreement. Any purported transfer of any Shares in any other manner
shall be void. As used in this Agreement, the word "transfer" includes any sale,
bequest, exchange, assignment or gift, the creation of any security interest or
other encumbrance and any other disposition of any kind, whether voluntary or
involuntary, affecting title to or possession of any of the Shares.
2. PERMITTED TRANSFER. Notwithstanding anything to the contrary in this
Agreement, the Equity Holder may at any time make any of the following
transfers:
(a) a transfer of Shares to the executor or administrator of
the estate of a deceased Equity Holder upon his death for purposes of
the administration of such Equity
<PAGE>
Holder's estate, and to the devisee, legatee or beneficiary of the
estate;
(b) a transfer by Shares by an Equity Holder to his spouse or
issue or any trust for the benefit of himself, his spouse or issue,
provided that any Shares transferred to his spouse or a trust for the
benefit of his spouse shall be immediately transferred back to such
Equity Holder should his spouse cease to be his spouse;
(c) a transfer of Shares pursuant to a public offering;
PROVIDED, HOWEVER, in the case of a transfer pursuant to paragraph (a) or (b),
any transferee shall have executed and delivered an agreement, in form and
substance reasonably satisfactory to the Company, to be bound by the terms of
this Agreement as if the transferee were the applicable Equity Holder.
3. PIGGYBACK REGISTRATION RIGHTS.
(a) RIGHT OF EQUITY HOLDER TO INCLUDE SHARES. Whenever the
Company proposes to register any of its Shares under the Securities Act
of 1933, as amended ("Securities Act") on Form S-1, S-2, S-3 or any
similar form then in effect (a "Registration Statement"), whether or
not for its own account, the Company shall, except with respect to the
initial public offering by the Company of any class of equity
securities (but this exception shall apply only if no other holders of
Shares are permitted to participate in such offering as selling
stockholders), give written notice, thereof to the Equity Holder at
least 30 days before such filing, if practicable (but in no event less
than 20 days before such filing), offering the Equity Holder the
opportunity to register on such Registration Statement such number of
Shares as such Equity Holder may request in writing, subject to the
provisions of Section 3(b), not later than 10 days before such filing
(a "Piggyback Registration"). Upon receipt by the Company of any such
request, the Company shall use reasonable efforts to, or in the case of
an offering that is underwritten (an "Underwritten Registration"), to
cause such Shares to be included in such Registration Statement (or in
a separate Registration statement concurrently filed) and to cause such
Registration Statement to become effective with respect to such Shares.
If the Company's registration is to be effected pursuant to an
Underwritten Offering, Shares registered pursuant to this Section 3
shall be distributed in accordance with such offering. Notwithstanding
the foregoing, if at any time after giving written notice of its
intention to register its Shares and before the
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effectiveness of the registration Statement filed in connection with
such registration, the Company determines for any reason either not to
effect such registration or to delay such registration, the Company
may, at its election; by delivery of written notice to the Equity
Holder (i) in the case of a determination not to effect registration,
relieve itself of its obligation to register the Shares in connection
with such registration or (ii) in the case of a determination to delay
registration, delay the registration of such Shares of the Equity
Holder for the same period as the delay in the registration of such
other Shares. If the Equity Holder requests inclusion in a registration
pursuant to this Section 3, he may, at any time before the effective
date of the Registration Statement relating to such registration,
revoke such request by delivering written notice of such revocation to
the Company (which notice shall be effective only upon receipt by the
Company, notwithstanding the provisions of Section 4(d)); provided,
however, that if the Company, in consultation with its financial and
legal advisors, determines that such revocation would materially delay
the registration or otherwise require a recalculation of the prospectus
contained in the Registration Statement, then such Equity Holder shall
have no right to so revoke his request.
(b) UNDERWRITTEN REGISTRATION.
(i) Notwithstanding anything herein to the contrary,
the Equity Holder may not participate in any Underwritten
Registration hereunder unless he (a) agrees to sell his Shares
on the same terms and conditions provided in any underwriting
arrangements approved by the persons entitled hereunder to
approve such arrangement and (b) accurately completes and
executes in a timely manner all questionnaires, powers of
attorney, indemnities, custody agreements, underwriting
agreements and other documents required under the terms of
such underwriting arrangements. Notwithstanding (a) above, the
Equity Holder shall be required to pay his proportionate share
of any underwriting discount and related expenses of the
underwriters borne by other stockholders (as opposed to the
Company) with respect to the registration and offering of the
Shares only if the Registration Statement relating to such
registration is declared effective, and shall be reimbursed
for any such amounts paid if the Registration Statement does
not become effective or if there is a suspension of its
effectiveness. In addition, the Equity Holder shall be
responsible for any legal, accounting or other professional
fees and expenses incurred by such Equity
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(ii) If any Piggyback Registration is in the form of
an Underwritten Offering, the managing underwriter or
underwriters and any additional investment bankers and
managers to be used in connection with such registration shall
be selected by the Company (subject to any separate agreement
with the holders on behalf of which a secondary Underwritten
Offering is being made).
(c) PRIORITY IN PIGGYBACK REGISTRATION.
(i) If any of the Shares to be included in a
Piggyback Registration are to be sold in one or more
Underwritten Offerings and the managing underwriter or
underwriters advise the Company in writing that the total
amount of Shares requested to be included in such offering
would exceed the maximum amount of securities which can be
marketed at a price reasonably related to the current fair
market value of such securities without adversely affecting
such offering (the "Underwriters' Maximum Number"), then the
Company will so notify all holders of Shares requesting
inclusion in such registration and will be required to include
in such registration, to the extent of the Underwriters'
Maximum Number: first, if the Underwritten Registration is an
underwritten registration on behalf of the stockholders of the
Company, the Shares requested by such stockholders to be
included in such registration, pro rata among such
stockholders on the basis of the number of Shares held by such
stockholders; second, any Shares that the Company proposes to
sell for its own account; and third, other securities
requested to be included in such registration; provided,
however, that if the Underwritten Registration is an
underwritten registration on behalf of the Company, the
Company will include in such registration, in lieu of the
first and second priorities described above, to the extent of
the Underwriters' Maximum Number: first, the Shares the
Company proposes to sell and second, the Shares requested by
the stockholders of the Company to be included in such
registration, pro rata among such Stockholders on the basis of
the number of Shares held by such stockholders.
(ii) If any of the Shares to be included in a
Piggyback Registration are to be sold in a non-underwritten
offering, but the Company, after consultation with an
investment banking firm of nationally recognized standing
(including a regional firm of recognized standing), reasonably
determines the amount of Shares to be included in such
registration exceeds the amount of securities that can be sold
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within a price range acceptable to the Company or the
initiating holders and notifies all holders of Shares
requesting inclusion in such registration of such
determination ("Company's Maximum Number"), then the Company
will be required to include in such registration, to the
extent of the Company's Maximum Number, Shares in accordance
with the priorities set forth in paragraph (i) above.
(d) DELIVERY OF REGISTRATION STATEMENT. In connection with a
Piggyback Registration, the Company shall deliver to the selling Equity
Holder, its counsel and the underwriters, if any, without charge, at
least one signed copy of the Registration Statement, upon request, and
such number of conformed copies thereof and such number of copies of
the Prospectus (including the preliminary Prospectus) included in such
Registration Statement and any amendment or supplement thereto or any
other document as such persons may reasonably request and as promptly
as practicable after the filing with the Securities and Exchange
Commission of any document which is incorporated by reference into a
Registration Statement, a copy of such document.
(e) EQUITY HOLDER INFORMATION. If Shares owned by the Equity
Holder are included in a Piggyback Registration, such Equity Holder
shall furnish promptly to the Company such information regarding
himself and the distribution of such securities as the Company may from
time to time reasonably request in writing in order that the Company
may comply with applicable securities laws.
(f) INDEMNIFICATION.
(i) The Company agrees to indemnify, to the extent
permitted by law, each holder of Shares to be registered
pursuant to Section 3 against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged
untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus
or any amendment thereof or supplement thereto or any omission
or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or
contained in any information furnished in writing to the
Company by such holder expressly for use therein or by such
holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements
thereto to a prospective purchaser after the Company has
furnished such holder with a sufficient number of copies of
the same.
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(ii) In connection with any registration statement in
which a holder of Shares to be registered pursuant to Section
3 is participating, each such holder shall, to the extent
permitted by law, indemnify the Company, its directors and
officers and each person who controls the Company (within the
meaning of the Securities Act of 1933, as amended) against any
losses, claims, damages, liabilities and expenses resulting
from any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or
preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that
such untrue statement or omission is contained in any
information or affidavit so furnished in writing by such
holder; provided that the obligation to indemnify shall be
individual, not joint and several, for each holder and shall
be limited to the net amount of proceeds received by such
holder from the sale of Shares pursuant to such registration
statement.
4. PUT OPTION.
The Company hereby grants the Equity Holder the personal and
non-transferable right and option to sell to the Company and the Company hereby
agrees to purchase from the Equity Holder all but not less than all the Shares
(together with any and all distributions, if any, on such Shares in the form of
additional Shares or other shares of capital stock of the Company) issued to the
Equity Holder pursuant to this Agreement in the event the Company has not
entered into a firm commitment underwritten public offering of its common stock
pursuant to a Registration Statement chosen by the Company and its counsel under
the Securities Act (a "Public Offering") on or before January 1. 2001 (the
"Measurement Date"). The purchase price for the purchase and sale described in
this Section 4 shall be $10,000. In the event the Equity Holder elects to sell
its Shares under this Section 4, (i) it shall notify the Company in writing of
its desire to sell the Shares within sixty (60) days after the Measurement Date
provided no Public Offering has occurred on or prior to the Measurement Date,
and (ii) it shall deliver to the Company certificate(s) representing all but not
less than all the Shares subject to sale hereunder duly endorsed for transfer in
blank together with such assignment and transfer documentation as is reasonably
requested by the Company. Upon receipt by the Company of the items described in
subparagraphs (i) and (ii) above, the Company shall pay the purchase price to
the Equity Holder in cash or in certified bank funds. The closing of the
purchase and sale contemplated in this Section 4 shall occur on the later of (i)
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ten (10) days after the Equity Holder delivers to the Company the items required
in this Section 4; or (ii) thirty (30) days after the date of written notice to
the Company by the Equity Holder of its election to sell Shares under this
Section 4. Any failure by the Equity Holder to comply strictly with the terms
and provisions described in this Section 4 for sale shall invalid and terminate
the put option set forth herein.
5. REPRESENTATIONS AND WARRANTIES OF EQUITY HOLDER.
In connection with the subscription for Shares, the Equity Holder
hereby represents and warrants to the Company as follows (with the understanding
that the Company is relying materially on such representations and warranties in
issuing Shares to the Equity Holder):
(a) The Equity Holder is a bona fide resident in the State of
Connecticut, is legally competent to execute this Agreement.
(b) The Equity Holder confirms that no representations or
warranties have been made to the Equity Holder by the Company or by any
officer, director, agent or employee thereof (collectively, the
"Company Affiliates") other than those representations specifically set
forth in this Agreement. The Equity Holder has not relied upon any
representation or warranty of the Company Affiliates, except as set
forth in this Agreement, in making the investment decision to purchase
the Shares. The Equity Holder has conducted such investigation of the
Company he has deemed necessary or desirable and has relied on his own
legal, financial and business advisors and consultants in analyzing the
data provided to him.
(c) The Equity Holder is an "accredited investor," as that
term is defined in Rule 501 of Regulation D promulgated by the
Securities and Exchange Commission under the Securities Act of 1933, as
amended.
(d) The Shares hereby subscribed for are being acquired by the
Equity Holder in good faith solely for the Equity Holder's own account,
for investment purposes only, and not with a view to resale,
distribution, subdivision or fractionalization thereof. The Equity
Holder agrees that the Shares purchased by him will not be transferred
except in compliance with the Securities Act and applicable state
securities laws and the restrictions of this Agreement. The Equity
Holder is not participating, directly or indirectly, in a distribution
of the Shares purchased by him and will not take, or cause to be taken,
any action that would cause any of such parties to be deemed an
"underwriter" of such
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Shares as defined in section 2(11) of the Securities Act. The Equity
Holder understands that any sale, transfer, pledge, hypothecation or
other disposition of the Shares purchased by may require in some states
specific approval by the appropriate governmental agency in such
states.
(e) No person has made any direct or indirect representation
or warranty of any kind to the Equity Holder with respect to the
economic return which may accrue to such Persons, and each of such
Persons has consulted with his or its own tax counsel and other
advisors with respect to an investment in the Company.
(f) The Equity Holder confirms that all documents, records,
books, and other information deemed material by the Equity Holder for
the purposes of purchasing the Shares have been made available to the
Equity Holder, and the Equity Holder also confirms that the Equity
Holder has been given an opportunity to make any further inquiries of
and receive satisfactory answers from the Company and its
representatives with respect to the Shares purchased hereunder, and to
obtain any additional information that the Company either possesses or
can acquire without unreasonable effort or expense that is necessary to
verify the accuracy of the information furnished.
(g) The Equity Holder is aware of and understands that the
Shares have not been registered under the Securities Act or any of the
applicable state securities laws, in reliance on an exemption therefrom
for private offerings.
(h) There are no actions, suits, proceedings, orders,
investigations or claims pending or, to the best of the Equity Holder's
knowledge threatened against or affecting the Equity Holder at law or
equity, or before or by any governmental department, commission, board,
bureau, agency or instrumentality which will have any material effect
on the Equity Holder's ability to consummate the transactions
contemplated by this Agreement.
(i) There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the purchase of the
Shares based on any arrangement or agreement binding upon the Equity
Holder.
6. MISCELLANEOUS.
(a) LEGENDS. Each certificate representing Shares from time to
time owned by the Equity Holder shall bear legends substantially as
follows:
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"The shares; represented by this certificate have not been registered
under the Securities Act of 1933 and may not be sold or transferred in
violation of such Act."
"Transfer of the shares represented by this certificate is restricted
by an Equity Holders Agreement, dated April 30, 1997, a copy of which
is on file at the office of Dental Care Alliance, Inc."
(b) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware
applicable to agreements made and to be performed in Delaware.
(c) ASSIGNMENT. Merger or Consolidation. This Agreement shall
not be assignable, but shall be binding upon and inure to the benefit
of the successors of the Company and the respective heirs and legal
representatives of the Equity Holder. If the Company is merged into or
consolidated with another corporation, or all or substantially all of
the assets of the Company are transferred to another entity, then the
term "Company" for all purposes of this Agreement shall include such
successor corporation and the term "Shares" shall include any stock and
warrants of the successor corporation.
(d) NOTICES. Any notice or other communication under this
Agreement shall be considered given and received when (i) delivered
personally in writing, (ii) received by registered mail, return receipt
requested or (iii) sent by telecopier, with a copy confirmed by
registered mail, return receipt requested, by the parties at the
following addresses and telecopier numbers (or at such other addresses
and telecopier numbers as a party may specify by notice to the others):
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If to the Company:
Dental Care Alliance, Inc.
1343 Main Street
7th Floor
Sarasota, Florida 34236
Attention: President
Telecopier No: (941) 955-3150
If to the Equity Holder:
J. Francis Lavelle
Nine Riverfield Drive
Westport, Connecticut 06883
Telecopier No: (203) 227-4718
(e) APPOINTMENT OF PERSONAL REPRESENTATIVE. The executor or
administrator of the estate of any deceased party ("Personal
Representative") shall give the company and the other parties prompt
notice of his appointment, stating the address at which notices under
this Agreement shall be given to him.
(f) WAIVER. The Company shall have the right to waive any of
its rights or any obligations owing to it hereunder without the consent
of the other parties to this Agreement.
(g) COUNTERPARTS; FACSIMILE. This Agreement may be executed in
one or more 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 instrument.
(h) COMPLETE AGREEMENT; MODIFICATION AND TERMINATION. This
Agreement contains a complete statement of all the arrangements among
the parties with respect to its subject matter and cannot be changed or
terminated except in writing signed by all o(pound) the parties. This
Agreement gives effect to the issuance by the Company to the Equity
Holder of capital stock under letter dated September 29, 1995 between
the Equity Holder and the Company, and fully satisfies all of the
Company's obligations therein.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
DENTAL CARE ALLIANCE, INC.
By:
-------------------------------
Name: Steven R. Matzkin
Title: President
EQUITY HOLDER
-------------------------------
J. Francis Lavelle
-11-
EXHIBIT 10.18
PALM TOWERS LEASE
This Lease is made and entered into as of this 9th day of April, 1994, by and
between Landlord and Tenant identified below:
1. INFORMATIONAL PROVISIONS AND DEFINITIONS.
LANDLORD: CHARLES E. GITHLER, III, as Managing Agent for
Owner, J. Kevin Drake, as Trustee Under Trust
Agreement, dated April 15, 1991
Address: The Githler Center
1258 North Palm Avenue
Sarasota, FL 34236
TENANT: DENTAL CARE ALLIANCE f/k/a Golden Care Network
Address: The Palm Towers, Penthouse 1343 Main Street
Sarasota, FL 34236
BUILDING: The Palm Tower Office Building, 1343 Main Street,
Sarasota, Florida 34236
PREMISES: The Penthouse, 4,625 sq. ft.
The location of the Premises within the Building is more
particularly depicted on the attached Exhibit "A."
COMMENCEMENT DATE: May 1, 1997
TERMINATION DATE: April 30, 2002
INITIAL TERM RENT:
Lease Year(s) Annual Rent Monthly Rate/Sq. Ft.
1 $67,571.25 $5,630.93 $14.61
2 $68,866.25 $5,738.85 $14.89
3 $69,375.00 $5,781.25 $15.00
4 $72,150.00 $6,012.50 $15.60
5 $75,156.25 $6,263.02 $16.25
PERMITTED USE: Professional office space with 24-hour access.
SECURITY DEPOSIT: $500
PARKING SPACE(S): 10 (ten)
2. TERM. Landlord hereby Leases to Tenant the above described Premises
for a term beginning on the Commencement Date and ending at 5:00 p.m. on the
Termination Date ("Initial Term") subject to all of the terms and conditions of
this Lease. This is
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not a month-to-month or year-to-year Lease. Landlord shall give Tenant
possession of the Premises on the Commencement Date.
3. RENT. Tenant shall pay to Landlord, as rent for the Initial Term
and the Renewal Term(s), if any, without offset, demand, setoff or counterclaim,
at the address from time to time provided by Landlord, the Annual Rent for the
applicable Lease Year in Monthly Installments plus sales tax as follows:
(a) The first Monthly Installment (or a pro-rated portion thereof
if the Commencement Date is not the first day of the month) plus applicable
sales tax shall be paid to Landlord simultaneously with Tenant's execution of
this Lease. Thereafter, each Monthly Installment plus applicable sales tax shall
be paid in advance on or before the first day of each month. Tenant may or may
not be invoiced for rent and the failure to receive an invoice shall not excuse
timely rent payment.
(b) If Tenant defaults in the payment of any installment of rent
hereunder, such installment shall bear interest at the rate of eighteen percent
(18%) per annum from ten (10) days after the day it is due until actually paid.
In like manner, all other obligations, benefits, and monies which may become due
to Landlord from Tenant under the terms hereof, or which are paid by Landlord
because of Tenant's default hereunder, shall bear interest at the rate of
eighteen percent (18%) per annum, from ten (10) days after the due date until
paid, or, in the case of sums paid by Landlord, because of Tenant's default
hereunder, from the date such payments are made by Landlord until the date
Landlord is reimbursed by Tenant therefor. In addition, Tenant shall pay
Landlord a ten percent (10%) late charge on all rent payments not made and
received in advance of the fifth (5th) day of each month. Should Tenant remit a
partial payment for any rent or other charges due hereunder, Landlord may apply
said partial payment to any rent or other charges owed by Tenant to Landlord as
Landlord deems necessary or appropriate in its sole discretion.
(c) Tenant shall pay any increases in the applicable sales tax
during this Lease period or any renewal thereof.
(d) The acceptance of partial payments of rent shall not, under
any circumstances, constitute a waiver by Landlord of the right to collect the
balance of rent due nor affect any notice or legal proceedings which may have
been commenced pursuant to this Lease or Florida Statutes.
(e) Tenant agrees to pay a service charge of $25.00 or five
percent (5%) of the amount of the check, whichever is greater, for all
dishonored or returned checks. In the event
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Tenant tenders a check which is returned or dishonored, all future rental
payments shall be made in the form of a cashier's check or money order. All
rents lost in the mail shall be treated as if unpaid until received by Landlord.
(f) All costs, expenses and obligations, together with all taxes,
interest and penalties thereon, required to be paid by Tenant under this Lease,
and all expenses Landlord incurs because of Tenant's default under any of the
terms or conditions of this Lease, including but not limited to, (i) attorney's
fees and costs through appellate proceedings; (ii) all charges for labor,
services and materials used in connection with any improvements or repairs to
the Premises undertaken by Tenant; and/or (iii) taxes and assessments now or
hereafter taxed, assessed, imposed or levied by law upon all fixtures and
personal property of Tenant placed on, attached to or used in connection with
the Premises, shall be deemed Additional Rent and Landlord shall have all rights
and remedies with respect to such Additional Rent as are provided herein for
nonpayment of the base rental. Any Additional Rent that relates to any delayed
performance, nonperformance, or any default by Tenant, shall be deemed payable
on the first day of the month next following such occurrence or nonoccurrence,
unless otherwise stated in this Lease.
4. SECURITY DEPOSIT AND LAST MONTH'S RENT.
(a) A Security Deposit and Last Month's Rent equal to the sums set
forth in paragraph 1 shall be deposited with Landlord simultaneously with
Tenant's execution of this Lease. The foregoing amount will be held by Landlord,
without liability for interest, as security for the full and faithful
performance by Tenant of each and every term, covenant and condition of this
Lease on the part of Tenant to be observed and performed.
(b) If any payment by Tenant under this Lease shall be overdue and
unpaid, or should Landlord make payments on behalf of Tenant, or should Tenant
fail to perform any of the terms of this Lease, then Landlord may, at its
option, and without prejudice to any other remedy which Landlord may have on
account thereof, appropriate and apply the entire Security Deposit and Last
Month's Rent, and any other monies of Tenant held by Landlord, or so much
thereof as may be necessary to compensate Landlord toward the payment of any
amount then due from Tenant, or toward any loss, damage or expense sustained by
Landlord resulting from such default on the part of Tenant, and in such event,
Tenant shall forthwith, upon demand by Landlord, restore the Security Deposit
and Last Month's Rent to its original sum. In the event Tenant shall fully and
faithfully comply with all of the terms, covenants and conditions, of this Lease
and promptly pay all sums as they fall due, the Security Deposit shall be
returned in full
Landlord _______ Page 3
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to Tenant following the Termination Date and the surrender of the Premises by
Tenant in compliance with the provisions of this Lease, less any sum or sums
retained by Landlord on account of loss or damage to real or personal property.
(c) Landlord may deliver the Security Deposit and Last Month's
Rent to any purchaser, grantee, assignee, or successor of Landlord's interest in
the Premises in the event such interest is sold, transferred or conveyed; and
thereupon Landlord shall be discharged and released from all further liability
with respect to the Security Deposit Landlord and Last Month's Rent or their
return to Tenant, and Tenant agrees to look solely to the new Landlord for the
return of the Security Deposit and Last Month's Rent, and this provision shall
also apply to any subsequent transferees.
5. PARKING AND COMMON AREAS. Subject to the terms and conditions of
this Lease, and to reasonable rules and regulations regarding use as prescribed
from time to time by Landlord, Tenant shall have the use of the number of
parking spaces set forth in Paragraph 1, if any. Landlord may assign particular
parking spaces for Tenant's use or may provide a parking area with unassigned
parking spaces. Landlord reserves the right to temporarily or permanently
relocate Tenant's parking space within a one block radius of the property and
Tenant agrees to cooperate with Landlord's need to relocate its parking herein.
Landlord may from time to time assign limited and particular parking
spaces for the sole and exclusive use of Landlord, Tenant or other tenants of
the Building, their officers, agents, employees or invitees in such manner as
Landlord may deem necessary or appropriate. Tenant agrees that it will, within
five (5) days of written request by Landlord, furnish to Tenant the state
automobile license number assigned to its cars and the cars of each of its
employees. Tenant shall not park any truck or delivery vehicle in the parking
areas, nor permit deliveries at any place other than as designated by Landlord.
The Common Areas referred to in this Lease shall mean all common
parking areas, driveways, landscaping areas, elevator and stairway areas,
lighting, delivery areas, utility areas, lobby areas and those portions of the
Building shared by more than one tenant of the Building and with respect to
which one tenant does not have exclusive use or rights. Landlord shall provide
maintenance and janitorial service to such Common Areas. None of the parking and
Common Areas will be supervised by Landlord, and Landlord shall not be liable
for any injuries, damages, theft or loss to persons or property which may occur
on or near such areas.
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Neither the parking area nor any portion of the common Areas in the
Building shall be used by Tenant, or any agent or employee of Tenant, for any
advertising, political campaigning or other similar use, including, without
limitation, the dissemination of advertising or campaign leaflets or flyers.
6. NO LIENS. Tenant shall keep the Premises free of liens and
encumbrances. Tenant has no authority to create an encumbrance or construction
lien on the Premises. If an encumbrance or lien is placed against the Premises
and is not removed within sixty (60) days, Landlord may require Tenant to give
satisfactory security for its removal in an amount equal to that of the
encumbrance or lien with costs, expenses, interest and attorney's fees,
including appellate proceedings. Tenant may contest the validity of the
encumbrance or lien, but if Tenant fails to do so or to diligently prosecute the
contest or to have the encumbrance or lien released, Landlord may release it,
with the right in his controlled discretion to compromise it, but with no duty
to do so. Tenant shall reimburse Landlord on demand for any sums so expended.
7. USE. Tenant, its successors and assigns shall use the Premises
exclusively for the Permitted Use stated at the beginning of this Lease and for
no other use or purpose whatsoever. No use of the Premises by Tenant shall
violate the terms of any restrictive covenant affecting the Building on the
Commencement Date or the terms of any Lease with respect to any portion of the
Building and any violation thereof shall constitute a default hereunder. Tenant
shall comply with all applicable laws, ordinances, rules and regulations of all
governmental authorities respecting the use, operation and activities of the
Premises, the Building, the Common Areas and all portions thereof (including,
without limitation, the use of side-walks, streets, approaches, drives,
entrances and other Common Areas serving the Premises, by itself, its employees,
invitees and licensees), and Tenant shall, at its own expense and subject to
Landlord's prior written approval, promptly install any alteration, addition, or
improvement to the Premises required by any laws, ordinances, rules, and
regulations of governmental authorities. Tenant shall not make, suffer or permit
any unlawful, offensive or improper use of the Premises, or such other areas, or
any part thereof, or permit any nuisance in the Premises or other areas. Tenant
agrees to abide by and cause its employees, customers, servants, agents,
visitors, licensees, assignees, sublessees and representatives to abide by any
rules or regulations promulgated by Landlord, which rules and regulations shall
treat all tenants equally, shall not discriminate against Tenant, and shall not
unreasonably interfere with the conduct of Tenant's business. Landlord may from
time to
Landlord _______ Page 5
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<PAGE>
time during the term of this Lease make reasonable changes and additions to said
rules and regulations provided such changes and additions are applicable to all
other tenants in the Building. Landlord's failure to enforce any existing or
future rules and regulations, either against Tenant or any other tenant in the
Building, shall not constitute a breach hereunder or waiver of any rules and
regulations. However, any rule or regulation not generally enforced against
other tenants in the Building will not be discriminatorily enforced against
Tenant. Tenant's failure to abide by such rules and regulations shall constitute
a default under the terms of this Lease in the same manner as if the same were
contained herein as covenants.
8. OBSTRUCTIONS. Tenant shall not store or place any materials of
whatsoever kind or nature or any obstructions in the lobby, passageways, stairs
or sidewalks abutting the Building or in any of its public portions.
9. SIGNS. Landlord reserves the exclusive right to control the
exterior appearance of the Premises and the Building, including, but not limited
to signs, decorations, and advertising of any type visible from the exterior of
the Premises or the Building (including those on the interior or on windows or
doors), shades, awnings, window coverings or anything whatsoever affecting the
visual appearance of the outside of the Premises or Building. No sign shall be
placed by Tenant on the exterior of the Building. However, Landlord shall
arrange for Tenant's name to be placed on the lobby directory. Such listing
shall be consistent with those for other tenants of the Building and Tenant
shall reimburse Landlord the cost of such listing. Tenant shall be entitled to
affix one sign to the passageway wall adjacent to the entry door to the Premises
provided its design and location have the prior written approval of Landlord.
10. ENTRY. Tenant covenants and agrees, all without liability to
Landlord and without abatement of Rent, (i) to permit Landlord and the holder of
any mortgage on the Building, and their respective representatives, to enter the
Premises at all reasonable hours in order to inspect the Premises, to make
repairs, replacements or improvements in or to the Premises or the Building, to
comply with any laws, orders and requirements of governmental or other authority
or to exercise any right reserved to Landlord by this Lease (including the right
during the progress of any such repairs, replacements or improvements or while
performing work and furnishing materials in connection with compliance with any
such laws, order or requirements to keep and store within the Premises all
necessary materials, tools and equipment); (ii) to permit Landlord, at all
reasonable hours, to show the Premises in connection with any prospective sale
of the
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Building, or any prospective mortgage, or other method of financing or
refinancing of the Building; and (iii) that Landlord may, but shall not be
obligated to, permit access to the Premises and open the same, whether or not
Tenant shall be present, upon demand of any receiver, trustee, assignee for the
benefit of creditors, sheriff, marshal or court officer entitled to, or
reasonably purporting to be entitled to such access for the purpose of taking
possession of or removing, Tenant's property, or for any lawful purposes (but
this provision and any action by Landlord hereunder shall not be deemed a
recognition by Landlord that the person or official making such demand has any
right or interest in or to this Lease, or in or to the Premises), or upon demand
of any representative of the fire, police, building, sanitation, or other
department of their city, state or federal governments or any other governmental
authority. During the six months prior to the expiration of the term of this
Lease or any renewal term, and at reasonable hours, Landlord may exhibit the
Premises to prospective tenants. Landlord shall be permitted access to the
Premises upon any emergency. If Tenant shall not be personally present to open
and permit an entry into the Premises, at any time when for any reason an entry
therein shall be necessary or permissible, Landlord or Landlord's agent may
enter the same by a master key, or may forcibly enter the same, without
rendering Landlord or such agents liable therefor, and without in any manner
affecting the obligations and covenants of this Lease. Nothing herein contained,
however, shall be deemed or construed to impose upon Landlord any obligation,
responsibility or liability whatsoever, for the care, maintenance or repair of
the Premises or of the Building, except as otherwise herein specifically
provided.
11. UTILITIES AND JANITORIAL SERVICE. Landlord shall pay for all
electricity, water, sewer, refuse collection, heating and air conditioning used
on the Premises or Common Areas unless such services are separately metered or
charged to the Premises. Tenant shall pay for telephone service and all other
utilities used on the Premises. Landlord shall provide regular janitorial
service consistent with the service as from time to time provided the other
tenants of the building.
12. TENANT IMPROVEMENTS AND ACCEPTANCE OF THE PREMISES. Tenant, at
Tenant's sole cost and expense, shall perform and complete all such
improvements, painting and decorating, in an amount that will exceed $40,000.
All of the Tenant Improvements shall be performed and completed at Tenant's sole
cost and expense and shall be completed in good, first class and workmanlike
manner. Landlord's approval of the plans, specifications and working drawings
(all of which are required to be submitted to landlord) for the Tenant
Improvements shall
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create no responsibility or liability on the part of Landlord for their
completeness, design sufficiency or compliance with all laws, ordinances, rules
and regulations of governmental authorities. Tenant shall, at its own expense,
apply for and obtain any required building permits. Landlord has agreed to
contribute $18,000 toward these improvements, which is Landlord's sole
responsibility in this regard, except for general cooperation. Landlord shall
inspect the Premises upon completion and Tenant shall provide Landlord with
copies of paid invoices and other records relating to these improvements. No
representations or warranties, express or implied, have been made by or on
Landlord's behalf about its condition or compliance with laws, ordinances,
rules, and regulations of governmental authorities. Tenant shall take any step
necessary to ensure that Tenant improvements are made in compliance with all
building codes and safety requirements. Tenant shall be deemed to have accepted
the premises in its existing condition and state of repair throughout the
improvement process, whether or not Tenant temporarily surrenders occupancy.
13. TENANT'S CARE OF THE PREMISES.
(a) Tenant shall not make any alterations in or additions or
improvements to the Premises without the prior express written consent of the
Landlord. Landlord's refusal to grant such consent shall be conclusive.
(b) Tenant shall keep the Premises in a clean, safe and sanitary
condition and shall permit no waste to occur to the Premises or fixtures therein
or to any additions, alterations or improvements thereto, whether installed by
Landlord or Tenant, and shall maintain all interior halls, doors, and windows,
if any, in a neat and clean condition and shall not permit rubbish, refuse or
garbage to accumulate or any fire or health hazard to exist upon or about the
Premises or other areas. All waste or injury to the Building, Premises or
fixtures or to any additions, alterations or improvements thereto, caused by
moving the property of Tenant or its agents in or out of the Building, or any
waste or injury whatsoever done by Tenant, its agents, servants, employees,
independent contractors, licensees, invitees or visitors, as well as any damage
done by water, electricity, fire or other substance due to the neglect of the
aforesaid, shall be promptly repaired by Tenant. In the event Tenant fails to
comply with the foregoing provisions, Landlord shall have the right, but not the
obligation, to enter upon the Premises and to make all necessary repairs, the
cost of which shall be borne by Tenant and which shall become due and payable
upon delivery of a statement of such costs by Landlord to Tenant or mailing the
same, postage prepaid, to Tenant at his last known address.
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(c) Tenant agrees to make no alterations, additions or improvements
to the Premises without Landlord's prior written consent and all such
alterations, additions and improvements shall be performed and completed at
Tenant's sole cost and expense and shall be completed in good, first class,
workmanlike manner. Landlord's approval of the plans, specifications, and
working drawings (all of which are required to be submitted to Landlord) for the
alteration, addition or improvement shall create no responsibility or liability
on the part of Landlord for their completeness, design sufficiency or compliance
with all laws, ordinances, rules and regulations of governmental authorities.
All alterations, additions, or improvements upon or affixed to or in the
Premises (including, but not limited to, floor coverings, wall coverings, window
treatments, and anything bolted, nailed, plumbed or otherwise secured in a
matter customarily deemed to be permanent), whether installed by Landlord or
Tenant, shall be deemed to be a fixture inuring to the Building, and shall not
be subject to attachment or a construction, materialmen's or similar lien, and
shall in any event be and become the property of Landlord and remain upon the
Premises and be surrendered at the end of this Lease, or Landlord, at its sole
option, may require Tenant, at Tenant's expense, to promptly remove any or all
of such alterations, additions or improvements and restore the Premises to the
same condition as exists either on the Commencement Date or prior to the date of
the alteration, addition or improvement. Business machines and such equipment
are excluded from this subparagraph.
(d) Tenant shall not use the Premises in any manner which shall
invalidate or be in conflict with fire insurance policies covering the Building,
or increase the rate of fire insurance on the Building over that in effect prior
to this Lease. If, by any reason of failure of Tenant to comply with the
provisions of this subparagraph, then the fire insurance rate shall at the
beginning of this Lease or at any time thereafter be higher than it otherwise
would be, then Tenant shall reimburse Landlord as additional rent hereunder for
that part of all fire insurance premiums thereafter paid by Landlord, which
shall have been charged because of such failure or use by Tenant and shall make
such reimbursement upon the first day of the month following such payment by
Landlord.
(e) Tenant shall cooperate fully with Landlord to assure the
efficient and economic operation of the Building's heating, air conditioning and
plumbing systems.
(f) Tenant shall not install any equipment which uses a substantial
amount of electricity without the prior express consent of Landlord. Tenant
shall ascertain from Landlord the maximum amount of electrical current which can
be safely used in
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the Premises. Landlord's consent to the installation of electrical equipment
shall be construed to relieve Tenant from the obligation not to use more
electricity than the safe capacity. Tenant shall not place a load upon any floor
of the Premises which exceeds the loan per square foot which the floor is
designed to carry. All machines and equipment shall be installed in such a
manner by Tenant so as to eliminate the transmission of noise, vibration or
electrical or other interference from the Premises to other areas of the
Building.
(g) Tenant shall not penetrate the roof of the Building or place
anything thereon without the prior written consent of Landlord. Any roof
penetrations must be made by a contractor approved by Landlord. Tenant shall
promptly repair any damage or wear to the roof resulting in whole or in part
from such use or caused by penetrations made during installation of equipment or
by vibration of said equipment. Furthermore, Tenant shall assume and pay for
damages of any type suffered by anyone as a result of the above acts.
(h) Tenant agrees to strictly comply with all pertinent laws,
ordinances, statutes and regulations whatsoever, of any governmental body of
subdivision, incident to its occupancy of the Premises and its use thereof.
(i) At the end of the term or upon termination of this Lease,
Tenant shall deliver up the Premises, without delay, in good condition and
repair, reasonable wear and tear excepted, and in a broom-clean condition with
all glass, doors and windows intact. Any personal property left on the Premises
after the termination of this Lease shall be deemed to have been abandoned and
Landlord may retain or dispose of same without accountability.
14. QUIET POSSESSION. Landlord shall, on the Commencement Date of the
term of this Lease, as hereinabove set forth, place Tenant in quiet possession
of the Premises and shall secure it in the quiet possession thereof against all
persons lawfully claiming the same during the entire lease term and each
extension thereof.
15. INSURANCE. Throughout the term of this Lease and any extension or
renewal thereof, Tenant shall maintain in force a policy or policies of public
liability insurance (including broad form general liability extension
endorsement) insuring Tenant against the claims of all persons or personal
injuries or property damage, or both, arising out of or incident to Tenant's use
or occupancy of said Premises. Landlord shall be named as additional insured
under said policies and Tenant shall deliver certificates evidencing such
coverage in an amount of not less
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than One Million Dollars ($1,000,000.00) for any property damage or loss from
any one accident, and not less than One Million Dollars ($1,000,000.00) for
injury to any one person from any one accident. Such certificates shall provide
that the coverage cannot be canceled without at least thirty (30) days written
notice to Landlord. Tenant, at its sole cost and expense, shall at all times
insure and keep insured for the benefit of Landlord and Tenant, as their
respective interests shall appear, all of Tenant's fixtures, equipment, signs
and tenant improvements in or appurtenant to the Premises, including, but not
limited to, all those items installed in or affixed to the Premises as a part of
Tenant's work, to the full insurable value thereof against loss or damage by
fire, water and other perils ordinarily covered by an extended coverage
endorsement. This requirement is promulgated to protect Tenant in the event of
roof leaks, among other things. Tenant shall further maintain all such workmen's
compensation insurance and other policies of insurance as Landlord may require
or as may be required by law.
16. TAXES. All real property taxes and assessments levied on the
Building and all other similar charges shall be paid by Landlord. All personal
property taxes levied on any property located in the Premises shall be paid by
Tenant. If any taxes for which Tenant is liable are levied or assessed against
Landlord or Landlord's property, and if Landlord elects to pay the same or if
the assessed value of Landlord's property is increased by inclusion of personal
property, furniture or fixtures placed by Tenant in the Premises, and Landlord
elects to pay the taxes based on such increase, Tenant shall pay to Landlord
upon demand, that part of such taxes for which Tenant is primarily liable
hereunder.
17. CASUALTY LOSS. Landlord has the option to repair or restore the
Premises or to terminate this Lease if all or a substantial part of the Premises
is destroyed by casualty. If Landlord elects to terminate, Landlord shall notify
Tenant of said termination in writing within thirty (30) days after the
casualty. If Landlord elects to repair or restore, the rent abates in proportion
to the impairment of use that can be reasonably made of the Premises until it is
repaired or restored. If the repairs or restorations are not made within one
hundred eighty (180) days after the casualty or if a licensed architect in the
county certifies that the repairs or restorations cannot be made within that
time with reasonable diligence, this Lease may be terminated by Tenant by
written notice to Landlord within thirty (30) days thereafter.
18. CONDEMNATION. If all or a substantial part of the Premises is taken
under eminent domain, this Lease shall
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terminate at the option of either party on the date when the condemning
authority takes possession. Tenant has no claim to the condemnation award. If
the lease is not terminated, the rent abates in proportion to the impairment of
use that can be made of the Premises.
19. DEFAULT BY TENANT. The occurrence of one or more of the following
is a default under this Lease by Tenant:
(a) Failure to pay rent or make any other payment required under
this Lease within ten (10) days following a due date;
(b) Failure to comply with any provision of this Lease other than
subparagraph (a) if the failure continues for ten (10) days after written notice
from Landlord to Tenant; but if the default is one that requires more than ten
(10) days to cure, Tenant shall have a reasonable time to cure it if he begins
curing within ten (10) days after the notice and diligently prosecutes it to
completion;
(c) Assignment of this Lease by Tenant, or the subletting or all or
any portion of the Premises without first obtaining the written consent of
Landlord as required by the terms of this Lease;
(d) Making a general assignment or arrangement for the benefit of
creditors; or being adjudicated a bankrupt; or receiving the benefit of any
insolvency, readjustment of debts, reorganization or bankruptcy law, or entering
into an agreement of composition with creditors; or having a receiver or trustee
appointed to take possession of Tenant's assets on the Premises or his interest
in this Lease when possession is not restored to him within thirty (30) days; or
the seizing under legal process of Tenant's assets on the Premises or his
interest in this Lease when the seizure is not discharged within thirty (30)
days;
(e) Vacating or abandoning the Premises for more than fifteen (15)
consecutive days;
(f) Ceasing its business operations on the Premises; or
(g) Allowing a lien to be placed on the Premises for services
performed or materials provided.
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20. REMEDIES ON DEFAULT.
(a) If a default by Tenant occurs, Landlord may:
(1) Immediately re-enter and remove all persons and property
from the Premises and place said property in a public warehouse or
elsewhere at Tenant's expense without liability;
(2) Relet the Premises or any part of it, for the account of
Tenant for the remainder of the terms to any tenant at rent and
conditions that Landlord deems advisable. Landlord shall credit the
rent received on the balance due from Tenant first to any expenses
incurred because of the repossession, next to interest and the
balance to principal. Landlord may repair or restore the premises
if required for reletting. Repossession shall not terminate this
Lease unless Landlord given written notice of termination to
Tenant;
(3) Collect each installment of rent or other sum due under
this Lease as it becomes due or otherwise enforce any of its
provisions that are not being complied with by Tenant;
(4) Await the end of the term of this Lease and then collect
all rent or other sums due under it;
(5) Terminate this Lease by written notice to Tenant in which
event Tenant shall immediately surrender possession of the Premises
and pay Landlord all loss or damages incurred because of Tenant's
default including all rent due or to become due, all of which shall
become due forthwith.
(b) Notice or demand is not a prerequisite to any remedy unless
another part of this Lease provides for notice or demand in which event that
provision shall prevail.
(c) In addition to any other loss or damages that Landlord sustains
because of Tenant's default, Tenant shall pay all reasonable expenses of repair,
alteration, renovation or addition to the Premises required as a result of his
tenancy or required to relet the Premises, transfer and storage charges for
Tenant's personal property removed from the Premises, and brokers' commissions
incurred by Landlord in reletting the Premises.
(d) Tenant grants Landlord a lien on Tenant's property located
within the Premises to secure all sums due or to become due under this Lease in
addition to any statutory lien or right
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to distrain. Tenant shall not remove his property from the Premises until all
money due Landlord is paid. If Tenant's property is removed, the lien continues
for a period of six (6) months during which Landlord may seize Tenant's property
wherever found and sell it or so much of it as will satisfy all money due
Landlord without process. This lien may be enforced by distress regardless of
the nature of the money due.
(e) All remedies of Landlord are cumulative to each other and to
any other remedies given by law. All rights of Landlord on Tenant's default
apply to a renewal or extension of this Lease. By making a payment for Tenant or
from any security deposit, Landlord does not waive Tenant's default or any right
Landlord has because of this default.
(f) Notwithstanding any termination and/or expiration of Tenant's
interest under this Lease, Tenant's liability, including but not limited to the
payment of all rents and other payments required of Tenant, whether accruing
prior to or after the date of termination and/or expiration of this Lease, shall
survive and continue, and shall not affect Landlord's right to collect said
sums.
21. EXCULPATION. Landlord shall not be liable for any injury to
Tenant's business or loss of income from it, or for damage to his personal
property or that of his employees, invitees, customers or any other person in or
on the Premises, or for injury to Tenant or his employees, agents or contractors
caused by casualty or accident, whether the loss, damage or injury in any case
results from conditions on the Premises or on other parts of any building of
which the Premises is a part or from other sources and regardless of whether the
cause or means of rectifying it is inaccessible to Tenant. Landlord shall not be
liable to Tenant for any claim or demand arising from any act or omission of any
other tenant in any building in which the Premises is located. Landlord and
Tenant waive all claims and demands against each other for loss or damages to
the property of either located on the Premises or to the Premises caused by any
hazard covered by insurance and for which subrogation may be waived under the
insurance policies. Both parties shall obtain insurance policies on their
respective property or the Premises, as the case may be, that contain provisions
permitting waiver of subrogation before loss.
22. INDEMNITY. Tenant shall indemnify Landlord and hold him harmless
from any claims or demands arising from:
(a) Tenant's use or possession of the Premises and the conduct of
any business by Tenant on the property and anything
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done or permitted by Tenant in or about the Premises, or any of them;
(b) Any default of Tenant under this Lease;
(c) The negligence of Tenant and his agents, contractors or
employees or any of them;
(d) Any damage to the property of Tenant or others or injury to any
person on or about the Premises from any cause;
(e) Any legal or administrative proceeding in which Landlord is
made a party without his fault;
(f) All costs and expenses incurred by Landlord in connection with
items indemnified against. Tenant shall defend any legal action or proceeding
resulting from a claim or demand indemnified against him at his expense by
attorneys satisfactory to Landlord on receipt of written notice from Landlord to
do so.
23. HOLDING OVER. If Tenant retains possession of the Premises after
expiration of this Lease or a renewal or extension, Tenant shall be a tenant
from month to month and shall comply with this Lease as though it remained in
force and pay the rent specified for the last month of this Lease during each
month of the retention of possession. Payment and acceptance of rent is not a
renewal or extension of this Lease. Landlord may terminate the retention on
three (3) days written notice to Tenant before the end of a rent payment period
and resume possession of the Premises.
24. ASSIGNMENT AND SUBLEASE.
(a) Tenant shall not assign this Lease nor sublet all or any
portion of the Premises without the prior written consent of the Landlord.
Landlord's consent shall not be unreasonably withheld. Without limiting
Landlord's right to withhold consent at its own discretion, Landlord
specifically may withhold consent (i) if Tenant is in default under the terms of
this Lease regardless of significance; (ii) if the proposed assignee's or
subtenant's projected use of the Premises involves the use, storage, generation
or disposal of Hazardous Substances, as that term is defined in this Lease; or
(iii) if as a result of the proposed assignment or sublease, Landlord would be
subjected to compliance with additional requirements of law or governmental
regulations beyond those requirements which are applicable to the assignee or
subtenant, including, without limitation, the "Americans With Disabilities Act."
In the event Tenant shall seek Landlord's permission to assign this Lease or
sublet all or a portion of the Premises, Tenant shall provide to Landlord, the
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name, address and financial statement of the proposed assignee or subtenant and
such other information concerning the proposed assignee or subtenant as Landlord
may require. This information shall be in writing and shall be received by
Landlord no less than thirty (30) days prior to the effective date of the
proposed Assignment or Sublease. Landlord and Tenant agree that Landlord is
expressly relying upon the credit and reputation of Tenant.
(b) In the event Landlord shall consent to a requested Assignment
or Sublease, such Assignment or Sublease shall be evidenced by a written
instrument in form and substance reasonably satisfactory to Landlord and a
duplicate original of such instrument shall be delivered to Landlord. Any
instrument of Assignment shall contain a specific assumption by the assignee of
all obligations of the Tenant hereunder. Any Sublease shall provide that it is
expressly subject and subordinate to this Lease, and shall contained the written
consent of the subtenant to the terms and conditions of this Lease and to the
direct enforcement thereof by Landlord against subtenant. At Landlord's request,
subtenant shall enter into a direct lease with Landlord in lieu of a sublease
with Tenant. Tenant hereby assigns absolutely and unconditionally to Landlord
all of its right, title and interest in and to all subleases now or hereafter in
effect including, without limitation, all rents due or to become due from any
present or future subtenant, subject to permission hereby given by Landlord to
collect subrents for as long as this Lease is current, in good standing, and not
in default. Tenant will not directly or indirectly collect or accept or accept
any payment of subrent (excluding a security deposit) under any sublease more
than one month on advance of the date when same shall become due. In the event
Tenant shall sublease all or part of the Premises for rentals in excess of those
rentals payable hereunder, Tenant shall pay to Landlord, as additional rent
hereunder, all such excess rentals.
(c) Landlord is expressly given the right to assign any or all of
its interest or rights under the terms of this Lease.
(d) In the event of a sublease or assignment, and in the event that
Landlord accepts the new tenant, Tenant shall not be released from the
obligations of this Lease and shall remain primarily liable thereon. No
acceptance by Landlord of any rent from an assignee or subtenant shall
constitute a waiver of any of the provisions of this paragraph, or an acceptance
by Landlord of the assignee or subtenant, or a release of Tenant from its
obligations to Landlord under this Lease. Furthermore, such acceptance shall not
constitute a waiver of the necessity of obtaining consent as to any subsequent
sublease or assignment. Tenant will perform and observe each and every term and
condition
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to be performed or observed by Tenant as sublessor under all subleases and does
hereby indemnify and agree to hold Landlord harmless from and against any and
all liabilities, claims and causes arising thereunder in connection therewith.
(e) If Tenant is a corporation and any transfer, sale, pledge or
other disposition of any portion of the stock of Tenant shall occur, or power to
vote any portion of the stock of Tenant be changed, such action shall be
considered an assignment under the terms of this Lease. If Tenant is a trust or
a partnership, the addition or withdrawal of any partner or change in the
beneficial ownership of Tenant shall be considered an assignment under the terms
of this Lease.
25. NOTICES. Until advised otherwise in writing, all notices under this
Lease shall be given to Landlord at Landlord's address: c/o Charles E. Githler,
III, The Githler Center, 1258 North Palm Avenue, Sarasota, Florida 34236, with a
copy to J. Kevin Drake, Esquire, 1343 Main Street, Suite 204, Sarasota, Florida
34236. All notices under this Lease to Tenant shall be given to Tenant at
Tenant's business address at the Premises as described on page 1.
26. ESTOPPEL CERTIFICATE. At any time on not less than three (3) days
written request by Landlord, Tenant shall execute and deliver a written
statement certifying that this Lease is unmodified and in full force or, if
modified, that it is in full force as modified, setting forth the modifications,
and the dates to which rent and other charges have been paid in advance and
whether Tenant has any claims or demands against the Landlord and, if so, the
nature and extent of them. The statement may be relied on by a prospective
purchaser or encumbrancer of the Premises. The failure of the Tenant to execute
and deliver to Landlord the Estoppel Certificate in accordance with the
foregoing provisions of this paragraph within the said three (3) day period
shall constitute an acknowledgment by the Tenant to any person entitled, as
aforesaid, to rely thereupon that this Lease is unmodified and in full force and
effect and that the Rent and other charges have been duly and fully paid to and
including the respective due dates immediately preceding the date of such notice
and the amount of the balance of the Security Deposit (if any) held by Landlord,
and shall constitute, as to any person entitled as aforesaid to reply upon such
statements, a waiver of any defaults of Landlord which may exist prior to the
date of such notice.
27. SUBORDINATION AND ATTORNMENT. Landlord may sell or encumber the
Building of which the Premises is a part, or this Lease, at any time, subject to
Tenant's rights and interest which
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shall be subordinate to any mortgage now or hereafter encumbering the Building.
Tenant shall subordinate his interest under this Lease to any mortgage placed on
part or all of the property by Landlord and shall execute any instruments
required for this purpose. Tenant shall attorn and establish direct privity of
estate and contract with and recognize any purchaser of the Building as the
Landlord under this Lease. Upon the absolute transfer of the Building to any
party assuming Landlord's obligations hereunder, Landlord shall be relieved of
any and all obligations to Tenant hereunder.
28. SEVERABILITY. In case one or more of the provisions contained in
this Lease shall be for any reason held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions thereof and this Lease shall be construed as if such
invalid, illegal, or unenforceable provision had never been contained herein.
29. ENTIRE AGREEMENT. This Lease constitutes the sole and only
agreement of the parties hereto and supersedes any prior understandings or
written or oral agreements between the parties respecting the subject matter
within it. No oral promises, representations or affirmation, made
contemporaneously with the execution of this Lease shall operate to modify,
enlarge, or contradict its express terms. This Lease may be executed in
duplicate, each of which shall serve as an original.
30. MODIFICATION. No amendment, modification, or alteration of the
terms hereof shall be binding unless the same be in writing, dated subsequent to
the date hereof, and duly executed by the parties hereto.
31. WAIVER. No waiver by the parties hereto of any default or breach of
any term, condition or covenant of this Lease shall be deemed to be a waiver of
any other breach of the same for any other term, condition, or covenant
contained herein.
32. BROKERAGE. Except for brokers employed by Landlord or brokers
representing Tenant acknowledged by separate writing by Landlord, Tenant
covenants, warrants and represents to Landlord that there was no broker
instrumental in consummating this Lease and that no conversations or prior
negotiations were had by Tenant with any such broker concerning the renting of
the Premises. Landlord acknowledges its responsibility for compensation for
commissions due, if any, for brokers employed or acknowledged by it in writing,
if any. Tenant agrees to indemnify and hold Landlord harmless against and from
all liabilities,
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<PAGE>
including attorney's fees, arising from any claims for brokerage commissions or
finder's fees resulting from any conversation or negotiations had by Tenant with
any broker or any other person, other than a broker employed or acknowledged in
writing by Landlord.
33. ATTORNEYS' FEES. In the event Tenant breaches any of the terms of
this Lease whereby Landlord employs attorneys to protect or enforce its rights
hereunder and prevails, then Tenant shall reimburse Landlord for the Landlord's
reasonable attorneys' fees as well as court costs and any and all other expenses
incurred by Landlord in protecting or securing its rights hereunder.
34. PARTIES BOUND. This agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns when permitted by
this agreement. This Lease does not confer any right, claim or privilege on a
person or governmental authority not a party.
35. APPLICABLE LAW. This agreement shall be construed under and in
accordance with the laws of the State of Florida. This agreement shall not be
construed against a party solely because that party prepared it.
36. OPTION TO RENEW. Provided Tenant is not in default under this
Lease, Tenant shall have the option to renew this Lease for the number of
Renewal Terms set forth in Paragraph 1, if any. Subject to Tenant's exercise of
same as hereinafter provided, each Renewal Term will be for the number of years
set forth in Paragraph 1, after the expiration of the Initial Term or the
immediately preceding Renewal Term. In order to exercise its option to renew, or
any of them, Tenant shall mail written notice of the exercise of each renewal
option to Landlord at least six (6) months prior to the expiration of the
Initial Term or the then existing Renewal Term, as the case may be, but no
earlier than Nine (9) months prior to the expiration of the Initial Term or the
then existing Renewal Term as the case may be. Where applicable, it shall be a
condition to Tenant's right to any Renewal Term that Tenant has exercised its
right to the immediately preceding Renewal Term. All of the terms, provisions,
covenants, conditions and obligations of this Lease pertaining to the Initial
Term shall automatically apply to any Renewal Term. The "Term" of this Lease
shall mean and refer to the Initial Term and any Renewal Term(s) which are
provided to and properly exercised by Tenant, as hereinabove described.
Landlord _______ Page 19
Tenant _________
<PAGE>
37. COMMON AREA MODIFICATION AND NAME OF BUILDING. Notwithstanding
anything to the contrary contained in this Lease, Landlord reserves the right to
increase, decrease or otherwise modify or alter the Common Areas. Landlord
reserves the right to change the name of the Building at any time, and from time
to time, at Landlord's sole discretion.
38. RECORDING. Tenant shall not record this Lease or a memorandum
thereof in the public records of any county. Any such recordation shall
constitute a breach of this Lease.
39. HEADINGS AND CONSTRUCTION. Headings used in this Lease are for
convenience only and shall not be used to interpret or construe its provisions.
Each term and provision of this Lease to be performed by Tenant shall be
construed to be both a covenant and a condition. Time is of the essence of this
Lease. Masculine gender is used in this Lease and includes other genders as the
context requires.
40. LANDLORD'S WARRANTY. Landlord represents and warrants that it is
the lawful owner of the entire Building and the underlying real estate and is in
quiet, peaceful and lawful possession of the entire Building and real estate and
has the legal right to enter into this Lease.
41. LANDLORD AS TRUSTEE. The parties understand and agree that the
person who signed this Lease, Charles E. Githler, III, is a managing agent for
the Building, and the owner of the Building owns the Building as trustee and
that neither the managing agent nor the trustee shall have any personal
liability for any reason whatsoever arising under this
42. RADON GAS. RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT,
WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT
HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT
EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA.
ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE OBTAINED FROM
YOUR COUNTY PUBLIC HEALTH UNIT.
43. HAZARDOUS SUBSTANCES. Tenant shall not cause or permit any
Hazardous Substance to be used, stored, generated, or disposed of on or in the
Premises by Tenant or by Tenant's agents, employees, contractors, or invitees
without first obtaining Landlord's written consent. If Hazardous Substances are
used, stored, generated, or disposed of on or in the Premises except as
permitted above, or if the Premises become contaminated in any manner for which
Tenant is liable, Tenant shall indemnify
Landlord _______ Page 20
Tenant _________
<PAGE>
and hold harmless the Landlord from any and all claims, damages, fines,
judgments, penalties, costs, liabilities or losses (including, without
limitation, a decrease in value of the Building, damages caused by loss or
restriction of renewable or usable space or any damages caused by adverse impact
on marking of the space, and any and all sums paid for settlement of claims,
attorneys' fees, consultant and expert fees) arising during or after the Lease
term and arising as a result of that contamination by Tenant. This
indemnification includes, without limitation, any and all costs incurred because
of any investigation of the site or any cleanup, removal, or restoration
mandated by a federal, state or local agency or political subdivision. Without
limitation of the foregoing, if Tenant causes or permits the presence of any
Hazardous Substance on the Premises and that results in contamination, Tenant
shall promptly, at its sole expense, take any and all necessary actions to
return the Premises to the condition existing prior to the presence of any such
Hazardous Substance on the Premises. Tenant shall first obtain Landlord's
approval for any such remedial action.
As used herein, "Hazardous Substance" means any substance that is
toxic, ignitable, reactive or corrosive and that is regulated by any
local government, the State of Florida or the United States government.
"Hazardous Substance" includes any and all material or substances that
are defined as "hazardous waste," "extremely hazardous waste," or a
"hazardous substance," pursuant to state, federal or local governmental
law. "Hazardous Substance" includes, but is not restricted to, asbestos,
polychlorobiphenyls ("PCBs"), and petroleum.
44. EXHIBITS. The exhibits attached to this Lease are hereby
incorporated herein and made a part hereof. Notwithstanding anything to the
contrary contained in this Lease, the terms of the Exhibits shall control.
45. ADA COMPLIANCE. Tenant acknowledges that the Premises may
constitute a place of public accommodation or a commercial facility under Title
III of the American's with Disabilities Act ("ADA") and that the ADA is
applicable to both an owner and a lessee of a place of public accommodation or
commercial facility. Tenant further acknowledges that, under the ADA any
structural alteration to the leased premises must comply with accessibility
standards set forth in the rules promulgated by the Department of Justice, 28
C.F.R. Sec. 36.101 et. seq. In the event Tenant makes any structural alteration
to the Premises which would require compliance with Title III of the ADA and the
accessibility standards promulgated by the Department of Justice, Tenant agrees
to design and build such structural alterations so as to comply
Landlord _______ Page 21
Tenant _________
<PAGE>
with the ADA and the accessibility standards. Tenant hereby agrees to indemnify
and hold Landlord harmless from and against any and all liabilities, claims,
demands, damages, expenses, fees, fines, penalties, suits, proceedings, actions,
or causes of action of any and every kind and nature arising or growing out of
or in any way connected with any structural alteration of the Premises by
Tenant. Nothing contained herein shall be construed to modify the requirement
that any alteration to the Premises must have the prior written approval of
Landlord, and such approval, if given, shall not be construed to be a waiver by
Landlord of Tenants obligations and agreements as set forth in this paragraph.
46. WAIVER OF JURY TRIAL. LANDLORD AND TENANT WAIVE THE RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT
MATTER OF THIS LEASE. THE PARTIES HERETO AGREE THAT VENUE SHALL BE SARASOTA
COUNTY. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY TENANT
AND TENANT ACKNOWLEDGES THAT NEITHER LANDLORD NOR ANY PERSON ACTING ON BEHALF OF
LANDLORD HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY
JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. TENANT FURTHER ACKNOWLEDGES
THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN
THE SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL
COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO
DISCUSS THIS WAIVER WITH COUNSEL. TENANT FURTHER ACKNOWLEDGES THAT IT HAS READ
AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION AND AS
EVIDENCE OF THIS FACT SIGNS ITS INITIALS.
------------------------------------
INITIALS OF TENANT
IN WITNESS WHEREOF, the undersigned parties hereto have executed this
Lease effective the date first above written.
LANDLORD:
PALM TOWERS OFFICE BUILDING
Witnesses: By:
--------------------------------
Charles E. Githler as Managing
- ----------------------------------------- Agent for Owner, J. Kevin Drake,
Trustee Under Trust Agreement
dated April 15, 1991
TENANT:
Landlord _______ Page 22
Tenant _________
<PAGE>
DENTAL CARE ALLIANCE, a Florida
corporation
By:
- ---------------------------------------- --------------------------------
Steven Matzkin
As its President
- ---------------------------------------- [CORPORATE SEAL]
Landlord _______ Page 23
Tenant _________
<PAGE>
ADDENDUM
DCA ("Tenant") shall have first right of refusal if Signage becomes available
during the term of this lease.
GUARANTY
FOR VALUE RECEIVED, and in consideration for and as an inducement to
Landlord to Lease the Premises referred to in the annexed Lease to Tenant
therein named, the undersigned does jointly and severally if more than one,
hereby guaranty to Landlord the punctual payment of the rent, additional rents,
and other charges (hereinafter collectively called "Rents"), and the due
performance of all the other terms, covenants, and conditions contained in said
Lease on the part of Tenant to be paid and/or to be performed thereunder, and if
any default shall be made by Tenant under said Lease, the undersigned does
hereby covenant and agree to pay to Landlord in each and every instance such sum
or sums of money as Tenant is and shall become liable for and/or obliged to pay
under said Lease and/or fully to satisfy and perform such other terms,
covenants, and conditions of said Lease on the part of Tenant to be performed
thereunder and to pay also any and all damages, expenses, and attorneys' fees
(hereafter collectively called "Damages") that may be suffered or incurred by
Landlord in consequence of the nonpayment of said Rents or the nonperformance of
any such other terms, covenants, and conditions of said Lease; such payments of
Rents to be made monthly or at such other intervals as the same shall or may
become payable under said Lease, including any accelerations thereof, such
performance of said other terms, covenants, and conditions to be made when due
under said Lease and such Damages to be paid when incurred by Landlord, all
without requiring any notice from Landlord of such nonpayments, nonperformance,
or nonobservance, or proof of notice or demand, all of which the undersigned
hereby expressly waives; and the maintenance of any action or proceeding by
Landlord to recover any sum or sums that may be or become due under said Lease,
or to secure the performance of any of the other terms, covenants, and
conditions of said Lease or to recover damages, shall not preclude Landlord from
thereafter instituting and maintaining subsequent actions or proceedings for any
subsequent default or defaults of Tenant under said Lease. The undersigned does
hereby consent that without affecting the liability of the undersigned under
this Guaranty and without notice to the undersigned, time may be given by
Landlord to Tenant for payment of Rents and performance of said other terms,
covenants, and conditions, or any of them and such time extended
Landlord _______ Page 24
Tenant _________
<PAGE>
and indulgences granted, from time to time, or the Tenant may be dispossessed or
the Landlord may avail itself of or exercise any or all of the rights and/or
remedies against Tenant provided by law or by said Lease, and may proceed either
against Tenant alone or jointly against Tenant and the undersigned or against
the undersigned along without proceeding against Tenant. The undersigned does
hereby further consent to any subsequent change, modification, and/or amendment
of said Lease in any of its terms, covenants, or conditions, or in the Rents
payable thereunder, and/or to any assignment or assignments of said Lease,
and/or to any renewals or extensions thereof (Option Periods), all of which may
be made without notice to or consent of the undersigned and without in any
manner releasing or relieving the undersigned from liability under this
Guaranty. The undersigned does hereby further agree that in respect of any
payments made by the undersigned hereunder, the undersigned shall not have any
rights based on suretyship or otherwise to stand in the place of Landlord so as
to compete with Landlord as a creditor of Tenant, unless and until all claims of
Landlord under said Lease shall have been fully paid and satisfied. As a further
inducement to Landlord to make said Lease and in consideration therefor,
Landlord and the undersigned hereby agree that in any action, proceeding, or
counter-claim brought by either Landlord or the undersigned against the other on
any matters whatsoever arising out of or in any way connected with said Lease or
this Guaranty, that Landlord and the undersigned shall and do hereby waive trial
by jury. This Guaranty or any of the provisions hereof cannot be modified,
waived, or terminated, unless in writing, signed by the parties hereto. The
provisions of this Guaranty shall apply to and bind and inure to the benefit of
the undersigned and Landlord and their respective heirs, legal representatives,
successors and assigns.
Landlord _______ Page 25
Tenant _________
<PAGE>
IN WITNESS WHEREOF, Guarantors have executed, or caused to be executed,
this Guaranty this ___ day of _______, 19__.
WITNESSES: Guarantors:
_______________________________ By:_______________________________________
Individually
SSN:
Home Address:
Tel:
Drivers Lic.
_______________________________ By:_______________________________________
Individually
SSN:
Home Address:
Tel:
Drivers Lic.
STATE OF FLORIDA
COUNTY OF SARASOTA
I HEREBY CERTIFY that on this day, before me, a Notary Public duly
authorized in the State and County aforesaid to take acknowledgments, personally
appeared ___________________ and ________________, who are personally known to
me or who have produced ____________________ as identification and who did take
an oath, to be the persons described in and who executed the foregoing
instrument, and who acknowledged before me that they executed said instrument.
WITNESS my hand and official seal in the county and state named above
this ___ day of _______, 19__.
--------------------------------------
Print Name:
--------------------------
Notary Public
My commission expires:
[SEAL]
Landlord _______ Page 26
Tenant _________
EXHIBIT 10.22
EXHIBIT A
SECURED PROMISSORY NOTE
$147,768 As of February 13, 1997
Sarasota, Florida
FOR VALUE RECEIVED, the undersigned, MITCHELL B. OLAN (the "Maker"),
hereby promises to pay to the order of DENTAL CARE ALLIANCE, INC., a Delaware
corporation (the "Payee"), at 1343 Main Street, 7th Floor, Sarasota, Florida
34236, or at such other address as the Payee may from time to time designate in
writing to the Maker, in lawful money of the United States of America, the
principal sum of One Hundred Forty-Seven Thousand Seven Hundred Sixty Eight
Dollars ($147,768), together with interest on the outstanding principal balance
thereof at the rate of eight percent (8%) per annum.
1. COMMON STOCK WARRANT. This Secured Promissory Note (this "Note") is
being issued pursuant to that certain Warrant Agreement dated as of October 25,
1996, between Maker and Payee (the "Warrant Agreement"), in payment of the
purchase price for 1,000 shares (the "Shares") of common stock, $.01 par value,
of Payee upon the exercise of certain of the Warrants issued pursuant thereto.
2. PLEDGE AGREEMENT. This Note is secured by the pledge by Maker to
Payee of the Shares, pursuant to a Stock Pledge (the "Pledge Agreement") by and
between Maker and Payee dated as of February 13, 1997.
3. PAYMENTS. The outstanding principal balance of this Note, together
with interest accrued and unpaid thereon, shall be due and payable in full on
the earlier of (a) February 13, 2002 or (b) upon termination of Maker's
employment with Payee.
<PAGE>
4. PREPAYMENTS. This Note may be prepaid in whole or in part at any
time without premium or penalty of any kind. All proceeds from the sale of the
Shares shall be applied to prepay, first, accrued interest, and then, the
principal on this Note until paid in full.
5. EVENT OF DEFAULT; REMEDIES. Upon the occurrence of an Event of
Default (as defined in the Pledge Agreement), the entire unpaid principal amount
hereto, together with interest accrued and unpaid thereon, shall automatically
become due and payable. In the event that an Event of Default shall occur, then,
in any such event the Maker shall pay reasonable costs and expenses of
collection of this Note, including without limitation reasonable attorneys'
fees, costs and expenses, paid or incurred by the Payee, whether paid or
incurred in connection with collection by suit or otherwise.
6. NOTICE. The Maker hereby severally waives demand, protest,
presentment and notice of maturity, non-payment or protest and any and all
requirements necessary to hold him liable as a Maker of this Note.
7. WAIVER. The waiver by the Payee of the Maker's prompt and complete
performance of, or default under, any provision of this Note shall not operate
nor be construed as a waiver of any subsequent breach or default and the failure
by the Payee to exercise any right or remedy which it may possess hereunder
shall not operate nor be construed as a bar to the exercise of any such right or
remedy upon the occurrence of any subsequent breach or default.
8. GOVERNING LAW. This Note shall be governed by, and construed in
accordance with, the laws of the State of Florida.
9. AMENDMENTS. This Note may not be modified or amended, except by a
written instrument executed by the Maker and the Payee.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned Maker has executed and delivered
this Note as of the _____ day of ____________, 1997.
Witnessed by:
- ------------------------------- -----------------------------------
Mitchell B. Olan
- -------------------------------
3
EXHIBIT 10.25
Client Name: DENTAL CARE ALLIANCE FL. LIC. #GL10
MEI AGREEMENT FOR SERVICES
In Consideration of the payment of a service Fee, by Client to Modern Employers
Inc. (hereinafter MEI") the Parties agree as follows
1. MEI agrees to furnish Client, and Client agrees to accept MEI personnel
((hereafter referred to as "leased employees") for all job functions
identified by Workers Compensation Code Classifications as set forth in
that certain Confidential Data Sheet attached hereto and incorporated
herein by reference. MEI does not assume any responsibility for, and
makes to assurances, warranties, or guarantees as to the ability or
competence of any leased employee.
2. Client expressly agrees and understands that no employees shall be
employed by MEI, or issued a payroll check prior to client providing
MEI with that person's name address and social security number and
advises MEI he/she has completed an employment application W-4
withholding form, health questionnaire (to be completed only after a
conditional job offer has been made), Form I-9 all to be delivered to
MEI immediately. Written notice of the relationship between MEI and the
Client shall be given to each leased employee assigned to perform
services at the Client s worksite All forms must be signed. MEI shall
be responsible for payment of employee wages for individuals at minimum
wage rate deemed to be leased employees of MEI, without regard to
payments by the Client to MEI.
3. Contract does not have a fixed expiration date. Contract may be
terminated as follows. Either party may terminate this Agreement
without cause by giving thirty (30) days written notice,
notwithstanding anything to the contrary contained herein; provided
however, that in the event of Client's breach of terms of payment, or
any other material breach by either party, either party may terminate
this Agreement upon twenty-four (24) hours written notice.
4. The parties agree and understand the service fee noted on Confidential
Data Sheet may be adjusted for increases in statutory employment taxes
insurance change in job function, change in size of Client's work
force, and payroll frequency or volume.
5. Without regard to the fault or negligence of any party Client hereby
unconditionally indemnifies, holds harmless, protects and defends MEI
and all subsidiary, affiliate, related, and parent companies, their
respective shareholders non-leased employees, attorneys, officers,
directors, agents and representatives (all indemnified parties referred
to as "MEI Indemnified Parties") from and any and all claims, demands,
damages (including liquidated, punitive and compensatory) injuries,
deaths, actions, and causes of actions, costs and expenses (including
attorney's fees and expenses at all levels of proceedings), losses and
liabilities of whatever nature (including liability to third parties),
and all other consequences of any sort, without limit and without
regard to the cause or causes thereof or the negligence of MEI, that
may be asserted or brought against any MEI Indemnified Party which is
in any way related to this Agreement, the actions of any leased
employee, the actions of any non-leased employee employed by Client, or
of any other individual, including without limitation any violation of
any local, state and/or federal law, regulation, ordinance, directive
or rule whatsoever, and all employment related claims. All
indemnifications set forth in this Agreement shall survive she
termination of this Agreement.
1
<PAGE>
6. MEI's responsibility and liability specifically limited and conditioned
upon the information received from the client, timeliness of same and
client's compliance with its payment obligations under this contract.
7. Client shall pay MEI a service fee equal to that fee rate percentages
specified In the Confidential Data Sheet multiplied by the gross
earnings of the leased employees filling job function positions for the
Client.
8. FINANCIAL CONSIDERATIONS
a. MEI reserves the right at any time during the term of the
Agreement to require Client to deposit such sums as MEI may
determine from time to time to guarantee the performance of
Client. The waiver by MEI of this requirement at any time
shall not stop or act as a waiver of MEI's rights to require a
deposit at any subsequent time during the term of this
Agreement.
b. MEI shall require prepayment equal to the estimated first
payroll plus fees or $1,000.00, whichever is greater, if
Workers' Compensation certificates are issued prior to the
first payroll.
c. In the event Client fails to maintain the required deposit
from time to time as determined at the sole discretion of MEI,
the same shall be termed to be a material breach of this
agreement and client shall immediately pay MEI an amount
sufficient to establish the required deposit.
d. On termination of this Agreement, any balance remaining in the
account of Client shall be remitted to Client on or before
sixty (60) days after termination of this Agreement provided
that Client has performed all of its obligations under the
terms of this Agreement where all obligations of the Client
are ascertained and satisfied. Any monies of Client in
possession of MEI hereunder shall be applied by MEI to any
obligation of Client to MEI, including, without limitation, to
any default in payment by Client under the Terms of this
Agreement.
e. A minimum Management Fee per payroll period will apply.
Notwithstanding anything to the contrary, Client's failure to
call in a payroll during any payroll period shall be a basis
for MEI, at its option, to immediately terminate this
Agreement. The amount of the minimum fee is indicated on the
Confidential Data Sheet. This fee will also apply when no
payroll checks are prepared for a given payroll period.
f. An enrollment fee may be charged for each new employee as
specified in the Confidential Data Sheet. A delivery fee for
each client location may be charged.
g. A returned check charge of $100 will be imposed as specified
in the Confidential Data Sheet.
h. Should payment of any amounts due MEI not be made when due,
Client shall pay a monthly service charge on the unpaid
balance which in no event shall exceed the lawful rate of
interest.
9. CONTRACT OBLIGATIONS
a. Client expressly recognizes and acknowledges that MEI is the
co-employer.
b. Client expressly acknowledges the MEI Indemnified Parties
shall not be liable for Client's loss of business goodwill,
profits or other consequential, special, or incidental damages
2
<PAGE>
and Client shall hold harmless and indemnify MEI Indemnified
Parties for any loss of the same.
c. Client agrees to hold MEI Indemnified Parties harmless from
liability arising out of Client's products and services.
d. Client agrees to periodically assist MEI in the evaluation of
the payment of MEI employees. MEI shall use these evaluations
to determine salary and rate adjustments
e. Client agrees that leased employees will be compensated in
accordance with federal and state laws.
f. MEI assumes all responsibility for the payment of payroll
taxes and collection of taxes from payroll on leased
employees.
g. MEI does hereby hold harmless Client from direct out-of-pocket
expenses of Client which may result from MEI's failure to
withhold taxes
h. MEI shall have sufficient authority so as to maintain a right
of direction and control over leased employees assigned to
Client's location and shall retain authority to hire,
terminate, discipline and reassign leased employees. Client
shall, however, retain such sufficient direction and control
over the leased employees as is necessary to conduct Client's
business, and without which Client would be unable to conduct
its business, discharge any fiduciary responsibility that it
may have, or comply with any applicable licensure, regulatory
or statutory requirement of Client.
i. If MEI is leasing any supervisory employees to Client, such
supervisory employees' scope of employment Is strictly
limited. Supervisors' actions which are in violation of law or
which result in liability will be outside the scope of their
responsibility as MEI leased employees and in such an event
supervisory employees will be acting solely as the agents of
Client.
j. Client acknowledges that it Is essential to MEI's performance
under this Agreement that MEI have complete knowledge of any
government investigation or inquiry or private adversary
action which could in any manner impact upon the types of
duties contemplated by this Agreement. For example but not by
limitation, an audit by the Bureau of Workers' Compensation
could affect the performance of functions under this
Agreement. Thus, Client hereby makes complete and full
disclosure of any such administrative proceeding (including
but not limited to EEOC, NLRB, OSHA or Wage and Hour matters),
investigation, lawsuit or other adversary proceeding including
those which are threatened as well as those not yet asserted
in which Client has been involved during the last five (5)
years.
k. MEI shall not be considered to be a responsible employer of
leased employees for purposes of claims of discrimination
involving disability race, sex, sexual harassment religion,
color, national origin, marital status, veteran status
retaliation, or any other type of employment discrimination,
unless the action is taken by Client in compliance with a
written corporate MEI policy, procedure or direction which is
illegal under any applicable local, state or federal law.
l. Client agrees that since it is in overall control of the
location where leased employees are performing their services,
it will obtain and provide to MEI at the end of each pay
period records of actual time worked by each employee and
verify that all hours worked by employees that are reported to
MEI are accurate and are in accordance with the requirements
of the Fair Labor Standards Act and other laws administered by
the U.S.
3
<PAGE>
Department of Labor's Wage and Hour Division and any
applicable state law. These records submitted to MEI shall
become that basis for MEI to issue all payroll checks MEI
shall not be responsible for incorrect improper or fraudulent
records of hours worked or for improper determination of
exempt status.
m. Client further agrees comply with MEI's workers' compensation
light duty requirements, the Family and Medical Leave Act, and
shall comply with such Drug Free Workplace policies, if any,
as may be implemented by MEI. Client's responsibilities to
reinstate employees and in all other manner to comply with the
Family and Medical Leave Act shall survive termination of this
Agreement.
n. Client acknowledges and agrees that MEI is not engaged in the
practice of law or the Provision of legal service, and that
Client alone is completely and independently responsible for
its own legal rights and obligations.
10. LIABILITY INSURANCE
a. If any leased employee filling a job function is to drive a
vehicle of any kind for Client, Client shall furnish vehicle
liability insurance. The policy shall insure against public
liability for bodily injury and property damage with a minimum
combined single limit of five hundred thousand dollars
($500,000); in states where "no-fault" laws apply, P.I.P. or
equivalent coverage shall apply. Client shall cause its
Insurance carrier to issue a Certificate of Insurance to MEI
allowing not less than ten ( 10) days advance notice of
cancellation or material change. Failure to provide Proof of
Insurance is a material breach and grounds for immediate
termination of contract Client agrees to keep In full force
and effect at all times during that term of this Agreement all
insurance required under this Agreement
b. If any MEI employee participates in actions that result in
bodily injury, property damage or any type of loss, Client
shall file for recovery against its own liability insurance
policy. Client Is required to secure such insurance, including
professional malpractice insurance, as the nature of Client's
business in MEI's judgment is necessary. Client shall
indemnify and hold MEI Indemnified Parties harmless against
any and all claims involving MEI leased employees.
c. Each party hereby waives any claim in its favor against the
other party by way of subrogation or otherwise, which arises
during the Initial or Extended Term of this Agreement, for any
and all loss of or damage of any of its property which loss or
damage is recovered under such polices of insurance, to the
extent that such loss or damage is recovered under such
policies of insurance.
d. Client agrees that during the term of this Agreement it shall
maintain general business liability insurance, including
professional malpractice, with a minimum amount of $500,000
for bodily injury and property damage. Client shall provide
MEI with a Certificate of Insurance, allowing not less than 10
days notice of cancellation or material change.
11. HEALTH BENEFITS PROGRAM
a. MEI may offer a Benefit plan which includes major medical
coverage for all eligible MEI employees who have complied with
MEI's carrier's underwriting requirements and with the
provisions of their employment agreement. Offered benefits are
conditioned upon Client's compliance with this agreement. MEI
reserves the right to refuse to issue medical Insurance to
applicants who do not meet MEI and/or MEI's carrier's
underwriting requirements.
4
<PAGE>
b. Client/employee shall pay health care contributions when due.
The failure to pay health care contributions when due will
result in the termination of coverage to Client/employee.
MEI reserves the right to require prepayment of health care
contributions.
c. In the event of temporary layoff, Client/employee shall
continue to pay health care contribution payments. If heath
care contributions are not paid promptly, insurance coverage
will lapse pursuant to the terms of that insurance plan. If
coverage is terminated and subsequently the employee returns
to full-time work, he/she will be required to submit proof of
insurability acceptable to MEI and shall be subject to such
other matters as the Insurance company may require.
d. MEI shall comply with the requirement of COBRA for all
eligible employees based upon Federal Regulations. If COBRA
premiums are not paid by the due date, COBRA coverage will
terminate The compliance of MEI shall be conditioned upon
timely reporting requirements of Client. Losses incurred due
to Client's failure to comply shall be at the sole cost and
expense of Client.
e. Insurance coverage shall be subject to the terms and
conditions and modifications thereto, of MEI's group plan,
and/or insurers of the employees of MEI.
12. WORKERS' COMPENSATION INSURANCE AND SAFE WORK ENVIRONMENT
a. MEI shall secure workers' compensation coverage in such
amounts as is required by applicable law and shall be
responsible for the management of workers' compensation
claims, claims filing and related procedures for its leased
employees for services which they perform as leased employees.
b. MEI agrees to furnish Client employees to perform job
functions identified by workers' compensation code
classifications as set forth on the Confidential Data Sheet.
Client warrants that the list of workers' compensation
classifications specified on the Confidential Data Sheet is
accurate and complete; that employees performing these job
functions do so at the location specified in this Agreement as
Client's address. Client understands and agrees that prior
written approval from MEI's workers' compensation carrier must
be obtained prior to the addition of any workers' compensation
classification or location to this Agreement. Client further
agrees that in order for an employee to be covered by workers'
compensation coverage, all the provisions of Section 2 must be
complied with. Client assumes full responsibility for workers'
compensation claims of other Parties hired by party working
for Client, whether as an employee, independent contractor or
in any other status.
c. While MEI shall retain a right of direction and control over
the management of safety risk and hazard control involving
leased employees performing work at Client work sites, as may
be required by applicable state ant federal laws, compliance
with all applicable laws related to such matters is a
responsibility of Client. Client acknowledges that it is
responsible to maintain a safe working environment, provide
proper training in compliance with state and federal OSHA
standards and establish and maintain such safety committees as
may be required by law or by MEI. MEI shall provide such
assistance and maintain such responsibility for performing
safety inspections of Client equipment and premises and
assistance and responsibility for the promulgation and
administration of employment and safety policies as is
required by applicable law; however, Client acknowledges and
MEI in either providing or not providing such assistance and
responsibility assumes no liability.
5
<PAGE>
d. Client shall provide MEI employees a safe work environment,
and shall comply with all health, safety laws, directives and
rules imposed by any governmental agencies. Client shall
immediately report all accidents and injuries to MEI. Client
agrees to comply at its expense, with specific safety
directives from MEI and/or Clients Workers' Compensation
carrier or any governmental agency having jurisdiction over
the health and safety and work environment of MEI's employees.
e. Client shall provide, keep in good working order and require
use of all protective equipment as required by any
governmental agencies, or regulations, ordinances or
directives, or rules as deemed necessary by MEI or Clients
Workers' compensation carrier. MEI shall have the right to
inspect Client's premises at all reasonable times. Client
shall ensure that all employees follow MEI's safety rules at
all times.
f. Client must notify MEI by telephone as soon as there is an
injury. The failure to timely report an injury may result in a
substantial fine pursuant to applicable law. Any fines or any
other cost incurred due the failure of that Client to timely
adhere to the requirements of injury reporting shall be me
sole and absolute cost and responsibility of Client.
13. MATERIAL BREACH
The following shall be deemed material breaches under the terms of
this Agreement as follows:
a. Failure to pay any monies required under the terms and
conditions of this agreement when due.
b. Client's failure to comply with any directive regarding health
and safety from MEI, or any government agencies.
c. Committing any act that affects MEI's' rights as an employer
of MEI leased employees provided to Client under this
Agreement.
d. Failure to maintain any insurance required under the terms of
this Agreement.
e. A change in the type of business conducted by Client as
determined in the sole and absolute opinion of MEI, or where
at any time, MEI in its sole discretion, determines that a
material adverse change has occurred in the financial
condition of Client, or that Client is unable to pay its debts
as they become due in the ordinary course of business.
f. Client filing for insolvency, bankruptcy or making assignment
for benefit of creditors
g. Misrepresentation or inaccurate reporting of employee payroll
hours is cause for immediate termination of this contract.
14. WHOLE AGREEMENT
This Agreement constitutes the entire Agreement between the parties.
Any other agreement, statement, promise between the parties relating to
that Agreement shall not be modified except by written amendment
executed by both parties. No rights of any third party are created by
this Agreement and no person not a party to this Agreement may rely on
any aspect of this Agreement notwithstanding any representation,
written or oral, to the contrary.
6
<PAGE>
15. WAIVER
The failure of either party to this Agreement to require performance by
the other party to fail to claim a breach of any provision of this
Agreement shall not be constituted or construed as a waiver of any
subsequent breach nor affect the effectiveness of this Agreement or any
part thereof or prejudice either party as regards to any subsequent
action.
16. VALIDITY
In the event any term of this contract or provision of the Agreement
shall be held to be invalid or unenforceable, the balance of this
Agreement shall remain in full effect.
17. NOTICES
Any and all notices required under the terms of this Agreement shall be
effected by personal delivery, in writing or by registered mail, return
receipt requested. Notices shall be addressed to the parties' principal
places of business or such other address as each party designates in
writing in accordance with this Agreement.
18. DISPUTE RESOLUTION AND GOVERNING LAW
If a dispute arises concerning this agreement it shall be resolved by
arbitration pursuant to the Florida Arbitration Code and the rules of
the American Arbitration Association. This Agreement shall be subject
to the laws of the State of Florida, and that venue shall be Bradenton,
Manatee County, Florida.
19. TIME IS OF ESSENCE
Time is of the utmost essence under the terms and conditions of this
Agreement.
<TABLE>
<CAPTION>
<S> <C>
CLIENT NAME:________________________________________________ ______________________________________________________
BY X:_________________________________ _______________ ________________________________ _____________________
CLIENT DATE MEI DATE
BY X:___________________________________________________ ________________________________________________________
OFFICER/CONTROLLING PERSON OFFICER/CONTROLLING PERSON
BY X:_________________________________ _______________
CLIENT DATE
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL DATA SHEET
Client Name: Dental Care Alliance, Inc.
OCCUPATIONAL CLASS EST. NO. ESTIMATED SEMI-MONTHLY MEI SERVICE FEE %
CLASSIFICATION CODE OF EE'S PAYROLL RATE
- -------------------------------------- ------ -------- ---------------------- -----------------
<S> <C> <C> <C> <C>
8810 73 $71,412 110.29%
</TABLE>
*NOTES:
1. The MEI Invoice Rate Will Decline as Employees Reach Designated Payroll Wage
Caps Reflected Below:
Wage Cap
-----------------------
Social Security $65,400
Medicare Unlimited
Federal Unemployment $7,000
State Unemployment** $0
**If The State Unemployment Wage Cap is Zero, Then Operations Are In More Than
One State. The Specific State Wage Cap Will Be Utilized.
2. MINIMUM SERVICE FEE PER PAY PERIOD: $50.00
3. ENROLLMENT FEE: Waived
4. INSUFFICIENT FUNDS FEE: $100 Fee Will Be Charged Per Insufficient Fund
Occurrence.
INVOICE PAYMENT METHOD
- -------------------------------------------------------------------------------
Each Pay Period The Client Will Receive An Invoice Utilizing The Above Service
Fee Percentages Plus Any Applicable Benefit Fees, Delivery Fees Or Invoice
Adjustments. MEI Will Receive Invoice Payment Via Automatic Clearing House (ACH)
Transfer. In Order To Assure Timely Invoice Payment And Payroll Delivery, Client
Agrees To Notify MEI Of All Payroll Hours, Salary Changes, Or Any Invoice
Adjustments By 10:00 AM, Two (2) Days Prior To Desired Payroll Delivery.
EFFECTIVE DATE OF CLIENT AGREEMENT: 6-1-97
THE ABOVE MEI RATES ARE NOT BINDING UPON MEI UNTIL ACCEPTED AND INITIALED BELOW
BY AN OFFICER OF MEI.
ACCEPTED BY CLIENT (Initial) ____________ Date: 5-9-97
ACCEPTED BY MEI (Initial) ____________ Date: 6-3-97
8
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 26, 1997, relating
to the financial statements of Dental Care Alliance, Inc., which appears in such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Financial Data" in such Prospectus. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected Financial
Data."
Price Waterhouse LLP
Tampa, Florida
August 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,253,259
<SECURITIES> 0
<RECEIVABLES> 472,895
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,822,258
<PP&E> 83,828
<DEPRECIATION> (43,598)
<TOTAL-ASSETS> 3,122,939
<CURRENT-LIABILITIES> 856,405
<BONDS> 0
1,402,562
0
<COMMON> 490
<OTHER-SE> 631,895
<TOTAL-LIABILITY-AND-EQUITY> 3,122,939
<SALES> 1,637,428
<TOTAL-REVENUES> 1,637,482
<CGS> 603,138
<TOTAL-COSTS> 1,413,035
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 237,502
<INCOME-TAX> 35,500
<INCOME-CONTINUING> 202,002
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202,002
<EPS-PRIMARY> 2.78
<EPS-DILUTED> 2.78
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 876,217
<SECURITIES> 0
<RECEIVABLES> 921,935
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,868,093
<PP&E> 294,868
<DEPRECIATION> (74,958)
<TOTAL-ASSETS> 3,370,468
<CURRENT-LIABILITIES> 1,035,907
<BONDS> 0
1,473,062
0
<COMMON> 520
<OTHER-SE> 640,996
<TOTAL-LIABILITY-AND-EQUITY> 3,370,468
<SALES> 2,633,644
<TOTAL-REVENUES> 2,633,644
<CGS> 2,023,933
<TOTAL-COSTS> 2,574,497
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 95,611
<INCOME-TAX> 36,000
<INCOME-CONTINUING> 59,611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,611
<EPS-PRIMARY> 1.13
<EPS-DILUTED> .97
</TABLE>
