<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1997.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VALLEY FORGE DENTAL ASSOCIATES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8099 23-2817565
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1018 WEST NINTH AVENUE
KING OF PRUSSIA, PENNSYLVANIA 19406
(610) 992-3319
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOSEPH J. FRANK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VALLEY FORGE DENTAL ASSOCIATES, INC.
1018 WEST NINTH AVENUE
KING OF PRUSSIA, PENNSYLVANIA 19406
(610) 992-3319
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT A. OUIMETTE, ESQ. FREDERICK W. KANNER, ESQ.
HAYTHE & CURLEY DEWEY BALLANTINE LLP
237 PARK AVENUE 1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10019
(212) 880-6000 (212) 259-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock ($.01 par value) $64,400,000 $19,515.15
=========================================================================================================
</TABLE>
(1) Includes shares that the Underwriters have the option to purchase from the
Registrant to cover any over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED OCTOBER 24, 1997
SHARES
VALLEY FORGE DENTAL ASSOCIATES, INC.
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by Valley
Forge Dental Associates, Inc. ("Valley Forge" or the "Company").
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $ and $ per share. See "Underwriting"
for information related to the factors to be considered in determining the
initial public offering price. Application has been made for inclusion of the
Common Stock for quotation on the Nasdaq National Market under the symbol
"VFDA."
SEE "RISK FACTORS" ON PAGES 7 TO 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...................... $ $ $
Total(3)....................... $ $ $
========================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $3,500,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise the option in full,
Price to Public will total $ , Underwriting Discount will total
$ and Proceeds to Company will total $ . See
"Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters named herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the office of
NationsBanc Montgomery Securities, Inc. on or about , 1997.
------------------------
NATIONSBANC MONTGOMERY SECURITIES, INC.
BEAR, STEARNS & CO. INC.
, 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN ACTIVITIES
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVERALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. THESE TRANSACTIONS MAY BE EFFECTED ON
NASDAQ OR OTHERWISE AND, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------
The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements and quarterly reports
containing unaudited consolidated financial statements.
------------------
[MAP DEPICTING THE MARKETS OF THE COMPANY'S DENTAL OFFICES.]
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. This Prospectus contains forward-looking
statements that are based on management's estimates, assumptions and
projections. Important factors that could cause results to differ materially
from those expected by management include the inability of the Company to carry
out its growth strategy and the other factors discussed under "Risk Factors."
See "Risk Factors" for a discussion of certain factors to be considered by
prospective investors.
THE COMPANY
The Company is a leading provider of practice management services to
multi-specialty dental practices in selected markets in Colorado, Florida,
Georgia, Maryland, New Jersey, Ohio, Pennsylvania and Virginia. The Company
seeks to achieve significant local market share by developing networks of
prominent dental practices and pursuing growth through the introduction of
professional management, operational enhancements and acquisitions. The Company
provides its networks with operational assistance in staffing and scheduling,
purchasing, advertising and marketing, recruiting, quality assurance and managed
care contracting. By maintaining a strong focus on professional development and
clinical excellence, the Company seeks to be the preferred choice of patients
and the favored partner for dentists in each market it serves. In addition to
general dentistry, the Company's dental practices provide specialty dental
services including orthodontics, oral surgery, endodontics, periodontics and
pediatric dentistry. At October 23, 1997, the Company had 22 affiliated
practices with 178 dentists at 56 locations in nine markets.
The Health Care Financing Administration estimates that the annual
aggregate domestic market for dental services was approximately $45.9 billion
for 1995, representing 4.2% of total health care expenditures in the United
States and has grown at a compound annual growth rate of approximately 8.6% from
1980 to 1995. The size of the dental services industry is projected to reach
$79.1 billion by 2005. The Company believes that the anticipated growth in the
dental industry will be driven by several factors including: (i) an increase in
the availability and types of dental insurance; (ii) an increasing demand for
dental services from an aging population; (iii) the evolution of technology
which makes dental care less traumatic and, therefore, more attractive to
patients; (iv) an increased focus on preventive and cosmetic dentistry; and (v)
the growth of managed care organizations that offer dental coverage to their
members. According to the American Dental Association 1995 Survey of Dental
Practice, there were approximately 151,000 actively practicing dental
professionals in the United States, 88.1% of whom practiced either alone or with
one other dentist. In addition, there were approximately 4,700 dental groups of
three or more practitioners. According to industry sources, an estimated 117
million people were covered by dental benefits in 1995.
The Company's business strategy is to be the leading dental practice
management company in each of its markets. Key elements of the Company's
strategy include: (i) providing local market responsive dental services; (ii)
focusing on the provision of quality patient care; (iii) achieving leading
market share by developing comprehensive networks of leading clinical
professionals; (iv) immediately integrating acquired practices to achieve
administrative and financial control and to align professional and operational
incentives; (v) pursuing longer-term clinical, operational and financial
enhancements to acquired dental practices; and (vi) capitalizing on managed care
opportunities.
The Company's 22 affiliated practices have an average operating history of
16 years and pro forma net patient revenues of $27.8 million for the six months
ended June 30, 1997. See "Pro Forma Financial Information." Since January 1,
1997, the Company has entered five new markets. The Company has generated growth
within existing markets principally by optimizing the productivity of individual
dentists, increasing patient volume at existing dental offices, providing a
complete range of specialty dental services and by opening dental offices on a
de novo (start-up) basis.
3
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered................... shares(1)
Common Stock outstanding after the
offering................................... shares(1)(2)
Use of proceeds.............................. To repay certain indebtedness, to redeem
preferred stock, to finance future
acquisitions and capital expenditures and for
other general corporate purposes.
Proposed Nasdaq National Market Symbol....... VFDA
</TABLE>
- ---------------
(1) Excludes up to shares of Common Stock that may be sold pursuant to
the Underwriters' over-allotment option. See "Underwriting."
(2) Based on the number of shares outstanding as of October 23, 1997. Excludes
76,000 shares issuable upon exercise of stock options outstanding as of
October 23, 1997 at a weighted average exercise price of $8.58 per share and
213,992 shares issuable at a conversion price of $16.00 per share upon
conversion of currently convertible subordinated notes (the "Convertible
Notes") issued in connection with an acquisition. In connection with certain
acquisitions, assuming an initial offering price of $ , the Company is
obligated to issue additional shares of Common Stock. See "Dilution,"
and "Management -- Stock Option Plan" and Notes 8 and 14 of Notes to the
Company's Consolidated Financial Statements.
------------------------
Unless otherwise indicated, all information in this Prospectus assumes no
exercise of the Underwriters' option to purchase from the Company up to
shares of Common Stock to cover over-allotments, if any.
4
<PAGE> 6
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------ YEAR ENDED SIX MONTHS ENDED JUNE 30,
SEPTEMBER 19, 1995 DECEMBER 31, 1996 ----------------------------------------
(INCEPTION) TO -------------------------- 1997
DECEMBER 31, 1995 PRO FORMA 1996 1997 PRO FORMA
ACTUAL ACTUAL AS ADJUSTED(1) ACTUAL ACTUAL AS ADJUSTED(1)
------------------ --------- -------------- ----------- --------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net patient revenues....... $ 989 $ 15,448 $ $ 6,770 $ 13,141 $
----- ------- ------- ------ ------- -------
Network expenses:
Dental office expenses... 680 12,289 5,370 10,435
Depreciation............. 33 155 79 141
General and
administrative
expenses............... 68 922 465 644
----- ------- ------- ------ ------- -------
Total network expenses..... 781 13,366 5,914 11,220
----- ------- ------- ------ ------- -------
Network operating
income............... 208 2,082 856 1,921
Corporate general and
administrative
expenses................. 509 1,554 644 1,155
Amortization of intangible
assets................... 26 196 64 278
----- ------- ------- ------ ------- -------
Income (loss) from
operations........... (327) 332 148 488
Interest expense........... 41 495 207 595
----- ------- ------- ------ ------- -------
Income (loss) before
taxes................ (368) (163) (59) (107)
Income taxes............... -- 276 129 --
----- ------- ------- ------ ------- -------
Net income (loss)...... (368) (439) (188) (107)
----- ------- ------- ------ ------- -------
Accretion of mandatorily
redeemable common
stock.................... -- -- -- 153
----- ------- ------- ------ ------- -------
Dividends on preferred
stock.................... 16 64 32 32
----- ------- ------- ------ ------- -------
Net income (loss)
applicable to common
shares................... $ (384) $ (503) $ $ (220) $ (292) $
===== ======= ======= ====== ======= =======
Net income (loss) per
common share(2).......... $ $ $ $ $ $
===== ======= ======= ====== ======= =======
Unaudited pro forma net
income (loss) per common
share.................. $
=======
Unaudited pro forma
weighted average shares
outstanding(2)...........
===== ======= ====== =======
SELECTED STATISTICAL DATA
(AT END OF PERIOD):
Number of practices........ 2 4 22 4 9 22
Number of dentists......... 14 53 178 57 97 178
Number of offices.......... 6 16 56 16 30 56
Number of markets.......... 2 4 9 4 8 9
Number of states........... 3 5 8 5 7 8
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------------------
(IN THOUSANDS) PRO FORMA
BALANCE SHEET DATA: ACTUAL PRO FORMA(3) AS ADJUSTED(4)
-------------- ------------ --------------
<S> <C> <C> <C>
Cash and cash equivalents................................ $ 1,537 $ 1,541 $
Working capital.......................................... (3,740) (5,932)
Total assets(5).......................................... 29,395 56,362
Long-term debt........................................... 18,566 34,028
Mandatorily redeemable preferred stock................... 912 912
Stockholders' (deficit) equity........................... (411) 5,489
</TABLE>
5
<PAGE> 7
- ---------------
(1) Adjusted on a pro forma basis to give effect to acquisitions which occurred
during 1996 and 1997 as if such acquisitions had occurred as of the
beginning of the respective periods. These adjustments also include
adjustments to further give effect to the reduction in interest expense and
dividends on the Company's 8% cumulative preferred stock (the "mandatorily
redeemable preferred stock") resulting from the assumed use, as of the
beginning of the respective periods, of the estimated net proceeds of the
offering being made hereby, to retire outstanding debt and redeem the
mandatorily redeemable preferred stock as described under "Use of Proceeds."
The pro forma statement of operations data do not purport to represent what
the Company's results of operations would have been if such acquisitions had
occurred as of the beginning of the respective periods or to project the
Company's results of operations for any future period. See "Pro Forma
Financial Information."
(2) For information concerning the number of shares used in the computation of
net income (loss) per common share, see Note (g) of Notes to the Pro Forma
Consolidated Statement of Operations included under "Pro Forma Financial
Information and Note 2 of Notes to the Company's Consolidated Financial
Statements."
(3) Adjusted on a pro forma basis to give effect to acquisitions which occurred
subsequent to June 30, 1997 as if they had occurred as of June 30, 1997.
(4) Adjustments on a pro forma as adjusted basis include all pro forma
adjustments and further give effect to the sale of shares of Common Stock
offered hereby and the application of the estimated net proceeds therefrom
as described under "Use of Proceeds." See "Pro Forma Financial Information."
(5) Includes $22.3 million on an actual and $46.6 million on a pro forma and pro
forma as adjusted basis of excess of cost over fair value of net assets
acquired and other intangible assets at June 30, 1997.
6
<PAGE> 8
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating the Company and
its business before purchasing the Common Stock offered hereby. This Prospectus
contains, in addition to historical information, forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed below as well as those discussed
elsewhere in this Prospectus.
SHORT OPERATING HISTORY; NO ASSURANCE OF PROFITABLE OPERATIONS
Although certain of the Company's affiliated dental practices have long
operating histories, the Company commenced operations in September 1995 with the
acquisition from MT Associates of the assets of the Northern Virginia Dental
Group and Penn Dental practices. Prior to that acquisition, the Company
conducted no significant operations. The Company has a limited operating history
and is subject to various uncertainties and risks characteristic of development
stage companies. In addition, there can be no assurance that the Company will be
able to successfully integrate its recently completed and future acquisitions.
The Company's success will depend, to a large degree, upon the successful
implementation of its business strategy. There can be no assurance that this
strategy will yield profitable operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
POSSIBLE INABILITY TO IMPLEMENT ACQUISITION STRATEGY; RISKS ASSOCIATED WITH
INTEGRATING ACQUISITIONS
An important element of the Company's business strategy is the acquisition
of assets of additional dental practices and the establishment of long-term
management services relationships with those practices. The Company made its
first acquisition of the assets of two practices in September 1995 and has since
made 20 more acquisitions. The Company expects to make a substantial number of
additional acquisitions in 1998 and subsequent years. However, there can be no
assurance that suitable acquisition candidates will be identified by the Company
in the future, that suitable financing for any such acquisition candidates can
be obtained by the Company or that any such acquisitions will occur.
The Company's future success is dependent upon its ability to integrate
acquired businesses into the Company, to manage those acquisitions effectively,
including the ability to implement management systems that take advantage of
marketing and cost savings opportunities, and to attract and retain additional
management personnel. Moreover, the practice management systems of newly
affiliated dental practices will have to be integrated with the Company's
existing practice management systems. The financial performance of the Company
is and will be subject to various risks associated with the acquisition of
businesses and long-term management services relationships with dental
practices, including the financial impact of expenses associated with the
integration of such businesses. There can be no assurance that past or future
acquisitions will not have an adverse impact on the business operations or
potential profitability of the Company. See "Business -- Strategy."
CAPITAL REQUIREMENTS RELATED TO GROWTH STRATEGY
To take advantage of the consolidation trend in the dental industry and to
expand the geographic area in which it operates, the Company's strategy includes
growth through acquisitions. This strategy requires significant capital
resources. Capital is needed not only for acquisitions, but also for the
effective integration and expansion of such businesses. There can be no
assurance that acceptable financing for future acquisitions or for the
integration and expansion of existing businesses can be obtained. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
SUBSTANTIAL PORTION OF PROCEEDS TO BE USED FOR PAYMENTS TO PRINCIPAL
STOCKHOLDERS
The Company intends to apply approximately $ of the estimated net
proceeds from this offering for retirement of debt and the redemption of the
mandatorily redeemable preferred stock held by investment partnerships which are
principal stockholders of the Company and all or some of which Stephen F. Nagy,
7
<PAGE> 9
Chairman of the Board and a director of the Company, Timothy E. Foster, a
director of the Company, and Douglas P. Gill, a Vice President and a director of
the Company, are general partners of the general partner. Accordingly, a
substantial portion of the net proceeds will not be available for future
acquisitions or to finance internal growth. Additionally, the Company has agreed
to pay Foster Management Company a fee of $750,000 for its assistance in
effectuating this offering. Stephen F. Nagy, Chairman of the Board and a
director of the Company, is Managing Partner, Timothy E. Foster, a director of
the Company, is Managing Partner, and Douglas P. Gill, a Vice President and a
director of the Company, is General Partner, of Foster Management Company. See
Notes 8 and 12 of Notes to the Company's Consolidated Financial Statements, "Use
of Proceeds," "Capitalization," "Management -- Compensation Committee Interlocks
and Insider Participation" and "Certain Transactions."
RISKS ASSOCIATED WITH INTANGIBLE ASSETS
A substantial portion of the Company's assets consists of intangible assets
including goodwill (excess of cost over fair value of net assets acquired)
relating to the acquisition of businesses. As of June 30, 1997, the Company's
total pro forma as adjusted assets were approximately $ , of which
approximately $ , or %, were intangible assets. In the event of
any sale or liquidation of the Company or poor operating results, there can be
no assurance that the value of such intangible assets will be realized. The
Company evaluates on a regular basis whether events and circumstances have
occurred that indicate that the carrying amount of the intangible assets may
warrant revision or may not be recoverable. Any such future determination
requiring the write-off of a significant portion of unamortized intangible
assets could adversely affect the Company's financial position and results of
operations for the period in which any such write-offs occur.
DEPENDENCE ON KEY MANAGEMENT AND CLINICAL PERSONNEL; NON-COMPETITION COVENANTS
The Company is highly dependent on the services of current management. The
loss of key management personnel or an inability to attract and retain
sufficient numbers of qualified management personnel could adversely affect the
Company's operations. See "Management."
In addition, as service providers, the Company's dental practices' main
revenue-generating resource is their clinical personnel. The key members of the
clinical treatment team are the dentists and dental assistants and hygienists.
Although the Company believes that there is an adequate supply of these
clinicians, there is no assurance that the affiliated dental practices will be
able to recruit and retain qualified clinicians. See "Business." The affiliated
dentists or the dental practices are the contracting parties for managed care
contracts, preferred provider arrangements and other negotiated price
agreements, and the Company is dependent on affiliated dentists and other
specialists for the success of such relationships. Accordingly, the
profitability of such payor relationships as well as the performance of dentists
or other specialists employed by the Company's dental practices affects the
Company's profitability.
Further, certain dentists have entered into employment agreements with the
affiliated dental practices that contain covenants not to compete with the
Company and the dental practices under certain circumstances, including
termination of employment with the affiliated dental practices. In most states,
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 particular case at the time enforcement is
sought. For this reason, it cannot be determined in advance whether particular
non-competition covenants will be upheld in state courts. Failure by the Company
to be able to enforce such covenants could have a significant adverse impact on
the Company. See "Business."
COMPETITION
The dental services industry is highly competitive and subject to continual
change in the manner in which services are delivered and providers are selected.
The Company is under competitive pressures for the acquisition of the assets of,
and the provision of management services to, additional dental practices.
Certain national companies in the dental industry, some of whom may have greater
resources than the Company, are
8
<PAGE> 10
developing multi-regional networks of dental facilities in markets which include
the Company's markets. With respect to competition for patients, the Company
believes that the primary competitive factors are patient satisfaction, quality
of care, cost effectiveness and convenience. The primary competitors of the
affiliated dental practices in most markets are individual practitioners or
small, regional multi-site practices. There can be no assurance that the Company
or the affiliated dental practices will be able to compete effectively with such
competitors, that additional competitors will not enter the market or that
competition will not make it more difficult to acquire assets of, and provide
management services to, dental practices on terms beneficial to the Company. See
"Business -- Competition."
SUBSTANTIAL AND IMMEDIATE DILUTION
Investors in this offering will experience substantial and immediate
dilution in net tangible book value per share of Common Stock. Based upon the
offering price of $ per share, dilution to investors in this offering
will be $ (or %) per share and the net tangible book value of the
shares held by existing stockholders will increase on a pro forma basis by
$ per share. See "Dilution."
ACQUISITION CONSIDERATION
In connection with certain acquisitions, the Company is obligated to pay
additional consideration in the form of cash, notes and shares of Common Stock
to sellers of businesses contingent upon achievement of certain net revenues and
pre-tax earnings goals over periods of one to three years from the dates of
acquisitions (the "Contingent Payments"). The amounts of the Contingent Payments
cannot be determined until such periods terminate. If the criteria for the
Contingent Payments with respect to each of the Company's acquisitions to date
are achieved, but not exceeded, the Company will be obligated to make cash
payments of approximately $4.9 million and issue notes in an aggregate principal
amount of approximately $3.3 million and approximately 445,000 shares of Common
Stock over the next three years. A lesser amount of cash would be paid and a
lesser principal amount of notes and number of shares of Common Stock would be
issued under certain acquisition agreements if the financial criteria are not
met and a greater amount of cash would be paid and a greater number of shares of
Common Stock would be issued under certain acquisition agreements if the
financial criteria are exceeded. The maximum Contingent Payments the Company
would be obligated to make are cash payments of approximately $5.0 million,
notes in an aggregate principal amount of approximately $3.3 million and
approximately 447,000 shares of Common Stock over three years. The Company
expects to continue to enter into acquisition agreements providing for future
contingent payment arrangements based on the achievement of financial criteria.
The Company believes that it will be able to make such cash payments from cash
on hand and, if necessary, proceeds of future borrowings. In connection with
certain acquisitions, assuming an initial public offering price of $ ,
the Company is obligated to issue additional shares of Common Stock.
See "Dilution." However, there can be no assurance that the Company will
generate sufficient cash or obtain debt financing to fund such payments or that
future acquisitions will not adversely affect cash generated from operations.
CONTROL BY EXISTING STOCKHOLDERS
Upon consummation of this offering, Stephen F. Nagy, Chairman of the Board
and a director of the Company, Timothy E. Foster, a director of the Company,
Douglas P. Gill, a Vice President and director of the Company, and their
affiliates will have voting control of approximately % of the voting stock
of the Company and the executive officers and directors of the Company, as a
group, will have voting control of approximately % of the voting stock of
the Company and will, in effect, have the power to elect all the directors of
the Company and to control the Company's policies. See "Principal Stockholders."
9
<PAGE> 11
GOVERNMENT REGULATION
General
The dental industry is regulated extensively at both the state and federal
levels. Regulatory oversight includes, but is not limited to, considerations of
fee-splitting, corporate practice of dentistry, anti-kickback and anti-referral
legislation and state insurance regulation. See "Business -- Government
Regulation."
Fee-Splitting; Corporate Practice of Dentistry
The laws of many states prohibit dentists from splitting fees with
non-dentists and prohibit non-dental entities such as the Company from engaging
in the practice of dentistry or employing dentists to practice dentistry. The
specific restrictions against the corporate practice of dentistry as well as the
interpretation of those restrictions by state regulatory authorities vary from
state to state. The restrictions are generally designed to prohibit a non-dental
entity from controlling the professional practice of a dentist, employing
dentists to practice dentistry (or, in certain states, employing dental
hygienists or dental assistants), controlling the content of a dentist's
advertising or sharing professional fees. A number of states limit the ability
of a person other than a licensed dentist to own equipment or offices used in a
dental practice. Some of these states allow leasing of equipment and office
space to a dental practice under a bona fide lease. The laws of many states also
prohibit dental practitioners from paying any portion of fees received for
dental services in consideration for the referral of a patient. In addition,
many states impose limits on the tasks that may be delegated by dentists to
dental assistants.
State dental boards do not generally interpret these prohibitions as
preventing a non-dental entity from owning non-professional assets used by a
dentist in a dental practice or providing management services to a dentist
provided that the following conditions are met: a licensed dentist has complete
control and custody over the professional assets; the non-dental entity does not
employ or control the dentists (or, in some states, dental hygienists or dental
assistants); all dental services are provided by a licensed dentist; and
licensed dentists have control over the manner in which dental care is provided
and all decisions affecting the provision of dental care. In general, the state
dental practice acts do not address or provide any restrictions concerning the
manner in which companies account for revenues from a dental practice subject to
the above-noted restrictions relating to control over the professional
activities of the dental practice, ownership of the professional assets of a
dental practice and payments for management services.
Although the Company believes that its operations comply in all material
respects with the above-described laws to which it is subject, there can be no
assurance that a review of the Company's business relationships by courts or
other regulatory authorities would not result in determinations that could
prohibit or otherwise adversely affect the operations of the Company or that the
regulatory environment will not change, requiring the Company to reorganize or
restrict its existing or future operations. Any such change could have a
material adverse effect on the business and results of operations of the
Company. The laws regarding fee-splitting and the corporate practice of
dentistry and their interpretation vary from state to state and are enforced by
regulatory authorities with broad discretion. There can be no assurance that the
legality of the Company's business or its relationships with dentists or dental
practices will not be successfully challenged or that the enforceability of the
provisions of any management services agreement will not be limited.
Anti-Kickback and Anti-Referral Legislation
Federal law prohibits the offer, payment, solicitation or receipt of any
form of remuneration in return for, or in order to induce (i) the referral of a
person for services, (ii) the furnishing or arranging for the furnishing of
items or services or (iii) the purchase, lease or order or arranging or
recommending purchasing, leasing or ordering of any item, in each case,
reimbursable under Medicare, Medicaid or other federal and state health care
programs. These provisions apply to dental services covered under the Medicaid
program in which the Company participates. The federal government has increased
scrutiny of joint ventures and other transactions among health care providers in
an effort to reduce potential fraud and abuse related to Medicare and Medicaid
costs. Many states have similar anti-kickback laws, and in many cases these laws
apply to all types of patients, not just Medicare and Medicaid beneficiaries.
10
<PAGE> 12
The applicability of these federal and state laws to transactions in the
health care industry such as those to which the Company is or may be a party has
not been the subject of judicial interpretation. There can be no assurance that
judicial or administrative authorities will not find these provisions applicable
to the Company's operations, which could have a material adverse effect on the
Company's business. Under current federal law, a physician or dentist or member
of his or her immediate family is prohibited from referring Medicare or Medicaid
patients to any entity providing "designated health services" in which the
physician or dentist has an ownership or investment interest, including the
physician's or dentist's own group practice, unless such practice satisfies the
"group practice" exception. The designated health services include the provision
of clinical laboratory services, radiology and other diagnostic services
(including ultrasound services), radiation therapy services, physical and
occupational therapy services, durable medical equipment, parenteral and enteral
nutrients, certain equipment and supplies, prosthetics, orthotics, outpatient
prescription drugs, home health services and inpatient and outpatient hospital
services. A number of states also have laws that prohibit referrals for certain
services such as x-rays by dentists if the dentist has certain enumerated
financial relationships with the entity receiving the referral, unless an
exception applies. Any future expansion of these prohibitions to other health
services could restrict the Company's ability to integrate dental practices and
carry out its dental network development.
Noncompliance with, or violation of, either the anti-kickback provisions or
restrictions on referrals can result in exclusion from the Medicare and Medicaid
programs as well as civil and criminal penalties. Similar penalties apply for
violations of state law. While the Company makes every effort to comply with the
anti-kickback and anti-referral laws, a determination of violation under these
laws by the Company or its affiliated dental practices could have a material
adverse effect on the business and results of operations of the Company.
State Insurance Regulation
In addition, there are certain regulatory risks associated with the
Company's role in negotiating and administering managed care and capitation
contracts. The application of state insurance laws to reimbursement arrangements
other than various types of fee-for-service arrangements is an unsettled area of
law and is subject to interpretation by regulators with broad discretion. As the
Company or the affiliated dental practices contract with third-party payors,
including self-insured plans, for certain non-fee-for-service arrangements, the
Company or the affiliated dental practices may become subject to state insurance
laws. In the event that the Company or the dental practices are determined to be
engaged in the business of insurance, the Company or the affected practice could
be required either to seek licensure as an insurance company or to change the
form of their relationships with third-party payors and may become subject to
regulatory enforcement actions. In such event, the Company's revenues may be
adversely affected.
Health Care Reform Proposals
The United States Congress has considered various types of health care
reform, including comprehensive revisions to the current health care system. It
is uncertain what legislative proposals will be adopted in the future, if any,
or what actions federal or state legislatures or third party payors may take in
anticipation of or in response to any health care reform proposals or
legislation. Health care reform legislation adopted by Congress could have a
material adverse effect on the operations of the Company, and changes in the
health care industry, such as the growth of managed care organizations and
provider networks, may result in lower payment levels for the services of dental
practitioners affiliated with dental practices managed by the Company, and lower
profitability for affiliated practices. See "Business -- Government Regulation."
RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS; CAPITATED FEE REVENUE
The Company believes that its success will be dependent, in part, on its
ability to negotiate contracts with managed care organizations, insurance
companies, self insurance plans and other private third-party payors pursuant to
which services will be provided on some type of fee-for-service or capitated
basis by some or all of the affiliated dental practices. Under capitated
contracts, the health care provider generally accepts a predetermined amount per
patient per month as its sole payment in exchange for providing certain
necessary covered services to enrollees. These contracts shift much of the risk
of providing health care from the payor to
11
<PAGE> 13
the provider. To the extent that the Company's dental practices enter into these
types of arrangements, they are exposed to the risk that the cost of providing
dental care required by these contracts will exceed the amount that the dental
practice receives for providing such dental care. Most of these contracts are
terminable by either party on 30 to 90 days notice. To the extent the Company's
dental practices enter into additional managed care contracts, the dental
practices may expect greater predictability of revenues, the Company is subject
to greater unpredictability of expenses due to the fluctuating costs of the
services provided. The dental practices, and consequently the Company, are at
risk for additional costs which would reduce or eliminate any earnings for the
practices under these contracts. Any such reduction would have an adverse effect
on the results of operations of the Company. There can be no assurance that the
dental practices or the Company on their behalf will be able to negotiate
satisfactory arrangements on a capitated basis, regardless of the amount of
risk-sharing.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The Company's quarterly operating results may vary significantly, depending
on factors such as the timing of the consummation of acquisitions, the
successful integration of acquisitions and inclement weather. Accordingly, the
results of operations for any quarter are not necessarily indicative of the
results of operations for a full year or otherwise. There can be no assurance
that the Company will be able to achieve or maintain profitability on an annual
or quarterly basis. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PROFESSIONAL LIABILITY AND INSURANCE
Due to the nature of its business, the Company from time to time is
involved as a defendant in medical malpractice lawsuits brought against
affiliated dental practices or dentists employed by such practices. In addition,
the Company could be involved in litigation in which it is alleged that the
Company has been negligent in performing its duties under management services
agreements. The Company maintains professional and general liability insurance
and umbrella coverage in amounts deemed appropriate by the Company based upon
its assessment of historical claims and the nature and risks of its business.
There can be no assurance, however, that any existing or future claim or claims
will not exceed the limits of available insurance coverage, that any insurer
will remain solvent and able to meet its obligations to provide coverage for any
such claim or claims or that such coverage will continue to be available or
available with sufficient limits and at a reasonable cost to insure adequately
and economically the Company's operations in the future. A judgment against the
Company in excess of such coverage could have a material adverse effect on the
Company.
ABSENCE OF PUBLIC MARKET; VOLATILITY OF STOCK PRICE
Prior to the offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained upon the completion of the offering, or that the market
price of the Common Stock will not decline below the initial offering price. The
initial public offering price of the Company's Common Stock offered hereby will
be determined by negotiations between the Company and the Underwriters. See
"Underwriting." The market price for shares of the Company's Common Stock could
be subject to significant fluctuations in response to a number of factors, such
as news announcements of the Company related to quarterly operating results or
other matters, general trends in the Company's industry, changes in general
market conditions and other factors. In recent years the stock market has
experienced extreme price and volume fluctuations. These fluctuations, as well
as general economic, political and market conditions, may materially adversely
affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
this offering could adversely affect the market price of the Common Stock. The
shares sold in the offering will be freely tradeable without
restriction under the Securities Act of 1933, as amended (the "Securities Act"),
except to the extent acquired by affiliates of the Company. The Company and the
holders of approximately % of
12
<PAGE> 14
the Company's Common Stock, including all of the Company's directors and
executive officers, have agreed that, for a period of 180 days after the date of
this Prospectus (the "Lock-up Period"), they will not, without the prior written
consent of NationsBanc Montgomery Securities, Inc., offer, sell, contract to
sell or otherwise dispose of any Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock or grant any options or warrants
to purchase Common Stock, except in certain limited circumstances. Upon
expiration of the Lock-up Period, at least 4,010,819 shares of Common Stock will
be eligible for sale pursuant to Rule 144 under the Securities Act, including
89,655 shares which would be freely tradeable under paragraph (k) of Rule 144
and 3,921,164 shares subject to compliance with Rule 144 volume limitations, of
which 3,730,000 are held by officers, directors and affiliates of the Company.
In addition, 13 holders of 157,750 currently outstanding shares of the Company's
Common Stock acquired in connection with an acquisition have registration rights
obligating the Company to register such holders' shares of Common Stock on a pro
rata basis if the Company registers shares of Common Stock for any other holder
of Common Stock after the offering. Sales of a substantial amount of the shares
could have a significant adverse effect on the market price of the Common Stock.
See "Shares Eligible for Future Sale."
13
<PAGE> 15
THE COMPANY
The Company is a Delaware corporation with executive offices at 1018 West
Ninth Avenue, King of Prussia, Pennsylvania 19406, and its telephone number at
that address is (610) 992-3319. The Company transacts business directly and
through its subsidiaries. Unless the context otherwise requires, all references
in this Prospectus to the Company include its subsidiaries.
The Company does not engage in the practice of dentistry but rather enters
into long-term management or administrative services agreements with
professional corporations which operate group dental practices (the "affiliated
dental practices" or the "Company's dental practices"). These agreements
obligate the Company to provide management and administrative services to the
professional corporations in return for fees. See "Business -- Network
Development -- Management Services Agreements."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered hereby, assuming an offering price of $ per share,
are estimated to be $ (approximately $ if the Underwriters'
over-allotment option is exercised in full) after deduction of estimated
underwriting discounts and commissions and offering expenses.
The Company intends to use approximately $ of the net proceeds of
the offering to retire certain indebtedness of the Company and to redeem the
mandatorily redeemable preferred stock of the Company as follows: (i)
approximately $ to repay the entire outstanding principal amount of the
Company's 9% notes due September 18, 2005, together with accrued interest; and
(ii) approximately $ to redeem 8,000 shares of mandatorily redeemable
preferred stock of the Company, together with accrued dividends. The holders of
all such indebtedness and the mandatorily redeemable preferred stock are
Abbingdon Venture Partners Limited Partnership, Abbingdon Venture Partners
Limited Partnership-II, Abbingdon Venture Partners Limited Partnership-III and
Business Development Capital Limited Partnership-III, which are investment
partnerships, of some or all of which Stephen F. Nagy, Chairman of the Board and
a director of the Company, Timothy E. Foster, a director of the Company, and
Douglas P. Gill, a Vice President and a director of the Company, are general
partners of the general partner, and which are principal stockholders of the
Company. Substantially all of the foregoing indebtedness relates to the
Company's acquisitions, and has been used primarily to fund the cash portions of
the purchase prices for acquisitions made during 1995, 1996 and 1997 and to pay
expenses related to such acquisitions. See Notes 8 and 12 of Notes to the
Company's Consolidated Financial Statements, "Capitalization" and "Certain
Transactions" for further information concerning such indebtedness. The
remaining net proceeds will be added to working capital and will be used to
finance future acquisitions and internal growth. Pending such uses, the Company
intends to invest the net proceeds in short-term, investment grade,
interest-bearing securities, certificates of deposit or guaranteed obligations
of the United States.
The Company plans to augment its internal growth by acquiring the assets of
dental practices and entering into management or administrative services
agreements with dental practices. However, no portion of the proceeds of this
offering has been allocated for any specific acquisitions, nor has the Company
entered into any agreements or letters of intent with respect to any future
acquisitions.
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The payment of cash
dividends in the future will depend on the Company's earnings, financial
condition and capital needs, restrictions imposed by financing arrangements and
on other factors deemed pertinent by the Company's Board of Directors. It is the
current policy of the Company's Board of Directors to retain earnings to finance
the operations and expansion of the Company's business.
14
<PAGE> 16
DILUTION
On a pro forma basis to reflect acquisitions and issuances of shares of
Common Stock by the Company after June 30, 1997, the pro forma net tangible book
value of the Company as of June 30, 1997, was approximately $ or
$ per share of Common Stock. The pro forma net tangible book value per
share represents total tangible assets of the Company less total liabilities,
divided by the total number of shares of Common Stock outstanding. Without
taking into account any changes in such pro forma net tangible book value after
June 30, 1997, other than to give effect to the receipt by the Company of the
estimated net proceeds from the sale of the shares of Common Stock
offered hereby at an assumed initial public offering price of $ per share
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses, the pro forma net tangible book value of the
Company as of 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 of
$ per share to new investors in the Common Stock offered hereby. See "Use of
Proceeds." The following table illustrates the resulting dilution with respect
to the shares of Common Stock offered hereby:
<TABLE>
<S> <C> <C>
Assumed public offering price per share...................... $
Pro forma net tangible book value per share at June 30,
1997.................................................... $
Increase attributable to the offering......................
--------
Pro forma net tangible book value per share after the
offering...................................................
--------
Dilution per share to new investors.......................... $
========
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1997,
the differences between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the
consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Investors....................... % $ % $
New Investors............................
----- ----- -------- -----
Total.......................... 100.0% $ 100.0%
===== ===== ======== =====
</TABLE>
As of October 23, 1997, there were 76,000 shares issuable upon the exercise
of stock options having a weighted average exercise price of $8.58 per share. To
the extent options are exercised, there will be further dilution. In addition,
in connection with certain acquisitions, assuming an initial public offering
price of $ , the Company is obligated to issue additional
shares of Common Stock.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short- and
long-term debt and the capitalization of the Company at June 30, 1997 on an
actual basis and on a pro forma as adjusted basis to reflect acquisitions by the
Company and issuances of Common Stock after June 30, 1997 and to reflect the
sale of the shares of Common Stock offered hereby at an assumed
initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses and the
application of the net proceeds therefrom as described under "Use of Proceeds."
This table should be read in conjunction with the Company's consolidated
financial statements and notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents......................................... $ 1,537 $
======= ========
Short-term debt(1)................................................ $ 1,591 $
Long-term debt (including capital lease obligations)(2)........... 18,567
Mandatorily redeemable preferred stock, $.01 par value per share;
1,000,000 shares authorized, 8,000 issued and outstanding actual
and pro forma; no shares issued and outstanding pro forma as
adjusted(3)..................................................... 912
Mandatorily redeemable common stock(4)............................ 659
Stockholders' deficit:
Common Stock, $.01 par value per share, 20,000,000 shares
authorized; 3,836,142 shares issued and outstanding actual;
shares issued and outstanding pro forma as
adjusted(5).................................................. 38
Capital in excess of par value.................................. 730
Accumulated deficit............................................. (1,179)
------- --------
Total stockholders' equity (deficit)............................ (411)
------- --------
Total capitalization......................................... $21,318 $
======= ========
</TABLE>
- ---------------
(1) Includes current portion of long-term debt.
(2) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Notes 7 and 8 of Notes to the Company's Consolidated
Financial Statements for information concerning the Company's capital leases
and long-term debt.
(3) See "Certain Transactions," "Description of Capital Stock" and Note 12 of
Notes to the Company's Consolidated Financial Statements for information
concerning the mandatorily redeemable preferred stock.
(4) Represents shares of Common Stock issued to former sellers in connection
with acquisitions where the Company is required to repurchase shares of
Common Stock if the Company's initial public offering does not occur by
certain dates. See Note 13 of Notes to the Company's Consolidated Financial
Statements.
(5) Does not include 600,000 shares reserved for issuance under the Company's
Stock Option Plan and 213,992 shares of Common Stock reserved for issuance
upon conversion of currently convertible subordinated notes issued in
connection with an acquisition. In connection with certain acquisitions,
assuming an initial public offering price of $ , the Company is
obligated to issue additional shares of Common Stock. See
"Management -- Stock Option Plan," "Dilution" and Notes 8 and 14 of Notes to
the Company's Consolidated Financial Statements.
16
<PAGE> 18
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Combined Statement of Operations for the
year ended December 31, 1996 and the six months ended June 30, 1997 and
Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997 are based on the
historical consolidated financial statements of the Company, adjusted to give
effect, as described below, to the acquisitions of:
Horizon Group International, Inc. (including Horizon Dental Group, Inc. -- R.W.
Aros, D.D.S.)
Western Dental (including Western Dental Group of Fort Collins, Academy
Boulevard, Cascade Avenue, Denver and Leopoldo Rodriguez, D.D.S.)
The Dentistry
ENW, Inc. (d/b/a Dental Care Center, Family Dentistry -- Roswell and Virginia
Avenue Dentistry)
Century Dental Center
Comprehensive Family Dentistry, Inc.
Bernard B. Baros, D.D.S. and Bernard B. Baros, D.D.S., P.C.
Maurice E. Smith, D.D.S. and Maurice E. Smith, P.C.
Gentle Dental of Ocala, Sarasota, Clearwater, Manatee, Gentle Dental
Orthodontics, P.C. and John M. Borchers, D.D.S.
Douglass A. Quinn, D.D.S. and Douglass A. Quinn, D.D.S., P.A.
Kenneth E. Copeland, D.D.S., Inc.
Delbert B. Williamson, D.D.S.
Miller and Powell, D.M.D. d/b/a Soft Touch Dentistry
Felix W. Sibley, Jr., D.D.S. d/b/a Garden Walk Dental Associates
Kenneth Bradley Reynolds, D.D.S.
David B. Wells, D.D.S.
ProDent, Inc. (including George E. Frattali, D.D.S. & Associates Ltd., George
Frattali, D.D.S. & Associates, P.A. Village at Newtown Dentists, P.C.)
Cross Keys Dental Associates
Poller Dental Group, P.A. (including Poller Dental Group of Union, P.A. and
Dental Center of America, P.A.)
The Unaudited Pro Forma Combined Statement of Operations has been prepared
assuming the above acquisitions occurred as of the beginning of the respective
periods presented below. The Unaudited Pro Forma Combined Balance Sheet has been
prepared assuming that acquisitions which occurred subsequent to June 30, 1997,
and the offering, had occurred on June 30, 1997. The acquisitions and the
related adjustments are described in the notes thereto.
The Unaudited Pro Forma Combined Statement of Operations also gives effect
to the reduction in interest costs and dividends on the mandatorily redeemable
preferred stock resulting from the assumed use, as of the beginning of the
respective periods, of the estimated net proceeds of the offering to retire
outstanding debt, together with accrued interest, and to redeem the mandatorily
redeemable preferred stock of the Company as described under "Use of Proceeds."
The Pro Forma Financial Information does not purport to represent what the
Company's results of operations or financial position would have been had the
acquisitions occurred as of the beginning of the respective periods, or to
project the Company's results of operations or financial position for any future
period or date, nor does it give effect to any matters other than those
described in the notes thereto.
The Pro Forma Financial Information should be read in conjunction with the
Company's Consolidated Financial Statements and the financial statements of
certain of the above acquired companies appearing elsewhere in this Prospectus.
17
<PAGE> 19
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
VALLEY FORGE ACQUISITION OFFERING
DENTAL ASSOCIATES ACQUIRED PRO FORMA PRO FORMA PRO FORMA
AND SUBSIDIARIES PRACTICES(a) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
----------------- ------------ ----------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net patient revenues............ $15,448 $ 35,587 $ -- $51,035 $ $
------- ------- ------- ------- ------- -------
Network expenses:
Dental office expenses........ 12,289 32,209 (1,307)(b) 43,191
Depreciation.................. 155 741 53(c) 949
General and administrative
expenses.................... 922 634 -- 1,556
------- ------- ------- ------- ------- -------
Total network expenses.......... 13,366 33,584 (1,254) 45,696
------- ------- ------- ------- ------- -------
Network operating
income............... 2,082 2,003 1,254 5,339
Corporate general and
administrative expenses....... 1,554 -- -- 1,554
Amortization of intangible
assets........................ 196 -- 1,206(d) 1,402
------- ------- ------- ------- ------- -------
Income (loss) from
operations........... 332 2,003 48 2,383
Interest expense................ 495 416 2,722(e) 3,633 (f)
------- ------- ------- ------- ------- -------
Income (loss) before taxes...... (163) 1,587 (2,674) (1,250)
Income taxes.................... 276 635 (1,070) (159)
------- ------- ------- ------- ------- -------
Net income (loss)...... $ (439) $ 952 $(1,604) $(1,091) $ $
------- ------- ------- ------- ------- -------
Accretion of mandatorily
redeemable common stock.......
Dividends on preferred stock.... $ 64 $ -- $ -- $ 64 $ $
------- ------- ------- ------- ------- -------
Net income (loss)
applicable to common
shares............... $ (503) $ 952 $(1,604) $(1,155) $ $
======= ======= ======= ======= ======= =======
Net income (loss) per
common share(g)...... $ $ $ $ $ $
======= ======= ======= ======= ======= =======
Pro forma net income
(loss) applicable to
common shares........ $ $ $
======= ======= =======
Pro forma weighted
average number of
shares...............
======= ======= =======
</TABLE>
See accompanying notes to pro forma consolidated statement of operations.
18
<PAGE> 20
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
VALLEY FORGE ACQUISITION OFFERING
DENTAL ASSOCIATES ACQUIRED PRO FORMA PRO FORMA PRO FORMA
AND SUBSIDIARIES PRACTICES(a) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
----------------- ------------ ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net patient revenues............ $13,141 $ 14,653 $ -- $27,794 $ $
------- ------- ------- ------- ------- -------
Network expenses:
Dental office expenses........ 10,435 13,542 (236)(b) 23,741
Depreciation.................. 141 301 27(c) 469
General and administrative
expenses.................... 644 302 -- 946
------- ------- ------- ------- ------- -------
Total network expenses.......... 11,220 14,145 (209) 25,156
------- ------- ------- ------- ------- -------
Network operating
income............... 1,921 508 209 2,638
Corporate general and
administrative expenses....... 1,155 -- -- 1,155
Amortization of intangible
assets........................ 278 -- 474(d) 752
------- ------- ------- ------- ------- -------
Income (loss) from
operations........... 488 508 (265) 731
Interest expense................ 595 161 1,084(e) 1,840 (f)
------- ------- ------- ------- ------- -------
Income (loss) before taxes...... (107) 347 (1,349) (1,109)
Income taxes (benefit).......... -- 139 (540) (401)
------- ------- ------- ------- ------- -------
Net income (loss)...... $ (107) $ 208 $ (809) $ (708)
------- ------- ------- ------- ------- -------
Accretion of mandatorily
redeemable common stock....... 153 -- -- 153
------- ------- ------- ------- ------- -------
Dividends on preferred stock.... 32 -- -- 32
------- ------- ------- ------- ------- -------
Net income (loss)
applicable to common
shares............... $ (292) $ 208 $ (809) $ (893) $ $
======= ======= ======= ======= ======= =======
Net income (loss) per
common share(g)...... $ $ $ $ $ $
======= ======= ======= ======= ======= =======
Pro forma net income
(loss) applicable to
common shares........ $ $ $
======= ======= =======
Pro forma weighted
average number of
shares(g)............
======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma combined statement of operations.
19
<PAGE> 21
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
The adjustments reflected in the unaudited pro forma combined statement of
operations for the year ended December 31, 1996 and the six months ended June
30, 1997 are as follows:
(a) The historical statement of operations data for the acquired practices for
the year ended December 31, 1996 represent the results of operations of such
practices from January 1, 1996 to the earlier of the respective dates of
acquisition of such practices or December 31, 1996 (the "1996
Acquisitions"). The historical statement of operations data for the acquired
practices for the six months ended June 30, 1997 represent the results of
operations for such practices from January 1, 1997 to the earlier of the
respective dates of acquisition of such practices or June 30, 1997 (the
"1997 Acquisitions"). Each of the acquisitions has been accounted for under
the purchase method of accounting. Accordingly, the results of operations of
each such acquired practice is included in the results of operations of the
Company from the date of acquisition. See the Company's Consolidated
Financial Statements and the financial statements of certain of the above
acquired practices appearing elsewhere in this Prospectus.
(b) The adjustment to dental office expenses reflects the impact of applying (i)
the provisions of the management services agreements and (ii) adjustments in
compensation expense principally affecting the owners of the acquired
companies pursuant to the provisions of employment agreements entered into
at the time of acquisition to the historical revenues of each acquired
company, as if the management services agreements and employment agreements
were in place at the beginning of the respective periods.
(c) The adjustment to depreciation reflects additional depreciation based upon
the Company's allocation of purchase price for acquired companies as if the
1996 Acquisitions and 1997 Acquisitions were completed at the beginning of
the respective periods.
(d) The adjustment to amortization of intangible assets relates to additional
amortization based upon the Company's allocation of purchase price for
acquired companies as if the 1996 Acquisitions and 1997 Acquisitions were
completed at the beginning of the respective periods. The intangible assets
related to the 1996 Acquisitions and the 1997 Acquisitions total
approximately $24.3 million at June 30, 1997 and are being amortized over
periods of three to 40 years.
(e) The adjustment reflects the additional interest expense that would have been
incurred had the consideration in the form of cash and notes for the
acquisitions been paid at the beginning of the respective periods. The
aggregate amount of borrowings and debt issued in connection with the
acquisitions was approximately $35.8 million. Such borrowings bear interest
at annual rates of 6.0% to 9.0%.
(f) The adjustment to interest expense reflects elimination of interest expense
reflecting the retirement of certain outstanding debt of the Company and
elimination of accrued dividends reflecting the redemption of the
mandatorily redeemable preferred stock by applying a portion of the
estimated net proceeds of the offering as more fully described under "Use of
Proceeds," as if the offering had occurred at the beginning of the
respective periods. The outstanding debt, which is to be retired by applying
a portion of the estimated net proceeds, bears interest at an annual rate of
9.0%.
(g) Historical and pro forma net income (loss) per common share is computed,
using the treasury stock method, by dividing net income (loss) applicable to
common shares by the number of shares of Common Stock outstanding as of
October 23, 1997 since all such shares issued on or prior to that date were
issued at prices significantly below the offering price. The shares used in
the computation of net income (loss) per common share on a pro forma as
adjusted basis include only that portion of the shares being sold pursuant
to the offering as would be necessary to pay the estimated expenses of the
offering and to retire debt, including accrued interest, and redeem the
mandatorily redeemable preferred stock, as more fully described under "Use
of Proceeds."
20
<PAGE> 22
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------
VALLEY FORGE ACQUISITION
DENTAL ACQUIRED PRO FORMA OFFERING PRO FORMA
ASSOCIATES, INC. PRACTICES(a) ADJUSTMENTS(b) PRO FORMA ADJUSTMENTS(c) AS ADJUSTED
---------------- ------------ -------------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 1,537 $ 715 $ (711) $ 1,541 $ $
Accounts receivable, net....... 2,204 2,022 (1,531) 2,695
Prepaid expenses and other
current assets.............. 214 255 (255) 214
------- ------ ------- ------- ------- -------
Total current assets........ 3,955 2,992 (2,497) 4,450
Property and equipment, net...... 2,198 2,899 (714) 4,383
Excess of cost over fair value of
net assets acquired and other
intangible assets, net......... 22,368 283 23,998 46,649
Other assets..................... 874 64 (58) 880
------- ------ ------- ------- ------- -------
Total assets................ $ 29,395 $6,238 $ 20,729 $56,362 $ $
======= ====== ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt and obligations under
capital leases.............. $ 1,591 $1,211 $ (995) $ 1,807 $ $
Accounts payable............... 1,206 829 (829) 1,206
Accrued expenses and other
current liabilities......... 3,358 247 (240) 3,365
Other accrued liabilities...... 1,397 -- 2,464 3,861
Income taxes payable........... 143 166 (166) 143
------- ------ ------- ------- ------- -------
Total current liabilities... 7,695 2,453 234 10,382
Long-term debt, including
obligations under capital
leases......................... 18,566 1,884 13,578 34,028
Other long-term liabilities...... 1,785 -- 2,918 4,703
Deferred income taxes............ 189 23 (23) 189
Commitments and contingencies.... -- -- -- --
Mandatorily redeemable preferred
stock.......................... 912 -- -- 912
Mandatorily redeemable common
stock.......................... 659 -- -- 659
Stockholders' deficit
Common stock................... 38 84 5,816 5,938
Capital in excess of par
value....................... 730 138 (138) 730
Retained earnings (accumulated
deficit).................... (1,179) 1,656 (1,656) (1,179)
------- ------ ------- ------- ------- -------
Total stockholders' equity
(deficit)................... (411) 1,878 4,022 5,489
------- ------ ------- ------- ------- -------
Total liabilities and
stockholders' equity........ $ 29,395 $6,238 $ 20,729 $56,362 $ $
======= ====== ======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma combined balance sheet.
21
<PAGE> 23
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(a) The historical balance sheet data for the acquired practices as of June
30, 1997 represent the combined June 30, 1997 balance sheets for
practices acquired subsequent to June 30, 1997.
(b) The acquisition pro forma adjustments represent the adjustments to
reflect the Company's allocation of purchase price for practices
acquired subsequent to June 30, 1997. Amounts allocated to the excess
of cost over fair value of net assets acquired and other intangible
assets have been assigned to patient lists, assembled work force,
covenants not to compete and goodwill.
(c) The adjustments to other assets, accrued expenses and other current
liabilities, debt and mandatorily redeemable preferred stock reflect
the reclassification of certain deferred offering costs to
stockholders' equity, the retirement of certain debt together with
accrued interest, and the redemption of mandatorily redeemable
preferred stock of the Company by applying the estimated net proceeds
of the offering as described under "Use of Proceeds," as if the
offering had occurred on June 30, 1997. The adjustment to cash and cash
equivalents represents the remaining estimated net proceeds of the
offering after applying such proceeds as described under "Use of
Proceeds."
22
<PAGE> 24
SELECTED FINANCIAL DATA
The selected actual financial data as of December 31, 1995, December 31,
1996 and June 30, 1997, and for the periods then ended, have been derived from
the consolidated financial statements of the Company audited by Price Waterhouse
LLP, independent accountants. These consolidated financial statements and the
notes thereto appear elsewhere in this Prospectus.
The selected pro forma as adjusted financial data have been derived from
the pro forma financial information appearing elsewhere in this Prospectus and
give effect to 22 practices acquired through October 23, 1997. The pro forma
statement of operations data do not purport to represent what the Company's
results of operations would have been if such acquisitions had occurred as of
the beginning of the respective periods or to project the Company's results of
operations for any future period.
The following selected financial data of the Company should be read in
conjunction with the Company's consolidated financial statements and pro forma
combined financial information and related notes appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
SEPTEMBER 19, 1995 DECEMBER 31, 1996 --------------------------------------
(INCEPTION) TO ------------------------- 1997
DECEMBER 31, 1995 PRO FORMA 1996 1997 PRO FORMA
ACTUAL ACTUAL AS ADJUSTED(1) ACTUAL ACTUAL AS ADJUSTED(1)
------------------ -------- -------------- ----------- ------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net patient revenues.......... $ 989 $ 15,448 $ $ 6,770 $13,141 $
---- ------- ------- ------ ------- -------
Network expenses:
Dental office expenses...... 680 12,289 5,370 10,435
Depreciation................ 33 155 79 141
General and administrative
expenses.................. 68 922 465 644
---- ------- ------- ------ ------- -------
Total network expenses........ 781 13,366 5,914 11,220
Network operating
income.................. 208 2,082 856 1,921
Corporate general and
administrative expenses..... 509 1,554 644 1,155
Amortization of intangible
assets...................... 26 196 64 278
---- ------- ------- ------ ------- -------
Income (loss) from
operations.............. (327) 332 148 488
Interest expense.............. 41 495 207 595
---- ------- ------- ------ ------- -------
Income (loss) before
taxes................... (368) (163) (59) (107)
Income taxes................ -- 276 129 --
---- ------- ------- ------ ------- -------
Net income (loss)......... (368) (439) (188) (107)
---- ------- ------- ------ ------- -------
Accretion of mandatorily
redeemable common stock..... -- -- -- 153
---- ------- ------- ------ ------- -------
Dividends on preferred
stock....................... 16 64 32 32
---- ------- ------- ------ ------- -------
Net income (loss)
applicable to common
shares.................. $ (384) $ (503) $ $ (220) $ (292) $
==== ======= ======= ====== ======= =======
Net income (loss) per
common share(2)......... $ $ $ $ $ $
==== ======= ======= ====== ======= =======
Pro forma net income
(loss) applicable to
common shares........... $ $ $ $ $ $
==== ======= ======= ====== ======= =======
Pro forma weighted average
number of shares(2).....
==== ======= ======= ====== ======= =======
</TABLE>
23
<PAGE> 25
<TABLE>
<CAPTION>
JUNE 30, 1997
DECEMBER 31, ----------------------------------------
------------------- PRO PRO FORMA
(IN THOUSANDS) 1995 1996 ACTUAL FORMA(3) AS ADJUSTED(4)
------- ------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 100 $ 568 $ 1,537 $ 1,541 $
Working capital............................. (608) (2,339) (3,740) (5,932)
Total assets(5)............................. 3,805 12,162 29,395 56,362
Long-term debt.............................. 1,741 6,611 18,566 34,028
Mandatorily redeemable preferred stock...... 816 880 912 912
Stockholders' (deficit) equity.............. (24) (309) (411) 5,489
</TABLE>
- ---------------
(1) Adjusted on a pro forma basis to give effect to acquisitions which occurred
during 1996 and 1997 as if such acquisitions had occurred as of the
beginning of the respective periods. These adjustments also include
adjustments to further give effect to the reduction in interest expense and
dividends on the mandatorily redeemable preferred stock resulting from the
assumed use, as of the beginning of the respective periods, of the estimated
net proceeds of the offering to retire outstanding debt and redeem the
mandatorily redeemable preferred stock as described under "Use of Proceeds."
The pro forma statement of operations data do not purport to represent what
the Company's results of operations would have been if such acquisitions had
occurred as of the beginning of the respective periods or to project the
Company's results of operations for any future period. See "Pro Forma
Financial Information."
(2) For information concerning the number of shares used in the computation of
net income (loss) per common share, see Note (g) of Notes to the Pro Forma
Consolidated Statement of Operations included under "Pro Forma Financial
Information and Note 2 to the Historical Consolidated Financial Statements."
(3) Adjusted on a pro forma basis to give effect to acquisitions which occurred
subsequent to June 30, 1997 as if they had occurred as of June 30, 1997.
(4) Adjustments on a pro forma as adjusted basis include all pro forma
adjustments and further give effect to the sale of shares of Common Stock
offered hereby and the application of the estimated net proceeds therefrom
as described under "Use of Proceeds." See "Pro Forma Financial Information."
(5) Includes $22.3 million on an actual and $46.6 million on a pro forma and pro
forma as adjusted basis of excess of cost over fair value of net assets
acquired and other intangible assets at June 30, 1997.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto included elsewhere in
this Prospectus.
OVERVIEW
The Company is a leading provider of practice management services to
multi-specialty dental practices in the United States. The Company seeks to
develop networks of locally prominent dental practices in each of its markets by
acquiring a large group dental practice (pedestal acquisition) and then
densifying around it by acquiring smaller practices (densification
acquisitions), adding additional dentists, acquiring patient records and
relationships of retiring dentists and opening de novo (start-up) offices.
The Company commenced operations and made its first acquisition in
September 1995. Since its inception, the Company has acquired 22 practices with
an operating history averaging 16 years, and has opened four de novo offices. As
of October 23, 1997, the Company had 56 affiliated locations in nine markets
with 178 dentists.
The Consolidated Financial Statements include the accounts of the Company
and all wholly owned and beneficially owned subsidiaries. Because of corporate
practice of medicine laws in the states in which the Company operates, the
Company does not own dental practices but instead enters into exclusive
long-term management services agreements with professional corporations which
operate the dental practices. Through the management service agreements, the
Company has exclusive authority over decision making relating to all major
ongoing operations of the underlying professional corporations with the
exception of the professional aspects of dentistry practice as required by state
law. Under the management services agreement, the Company establishes annual
operating and capital budgets for the professional corporations and compensation
guidelines for the licensed dental professionals. In addition, the Company has
the contractual right to designate, in its sole discretion, at any time the
licensed dentist who is the owner of the capital stock of the professional
corporation at a nominal cost ("nominee arrangements"). Through the management
agreements and the nominee arrangements, the Company has significant long-term
financial interests in the professional corporations, which interests are
unilaterally saleable and transferable by the Company and fluctuate based upon
the actual performance of the operations of the professional corporations. All
significant intercompany accounts and transactions have been eliminated.
Because of the significant long-term financial interests in the affiliated
dental practices described above, the Company presents its financial results on
a consolidated basis with the dental practices. Therefore, the Company records
net patient revenues unlike other practice management companies which record
management fee revenues. Company net patient revenues represent amounts billed
by the affiliated dental practices to patients and third-party payors for dental
services rendered. Such amounts also include monthly capitation payments
received from third-party payors pursuant to managed care contracts.
Each of the Company's networks incurs expenses including dental office
expenses, depreciation and amortization, and network general and administrative
expenses. Dental office expenses consist of expenses incurred by the
professional corporations and the affiliated dental practices including (i)
compensation paid to dentists, hygienists and other dental care personnel
employed by the dental practice; (ii) employment taxes; (iii) employee benefits;
(iv) insurance costs and expenses; (v) cost of dental supplies; (vi) payments
under equipment leases; (vii) costs of management information systems; (viii)
dental laboratory fees; (ix) occupancy costs; and (x) other expenses related to
dental practice operations. Network general and administrative expenses consist
of personnel and administrative expenses incurred by the Company in connection
with maintaining local network functions that provide management, administrative
and development services to the dental practices.
25
<PAGE> 27
Corporate general and administrative expenses primarily consist of
personnel and other administrative expenses incurred by the Company in
maintaining corporate oversight and certain Company-wide administrative
functions that provide management, financial and development expertise to the
networks and practices.
The Company believes that to analyze operating profitability in comparison
to historical performance or industry benchmarks, network operating income
(loss), excluding any allocated corporate general and administrative expense,
provides a useful measurement of the network operating performance. This
measurement focuses on the core operations, without giving effect to the cost of
financing and amortization of intangibles, which may reflect differing
accounting treatment throughout the industry. When comparing the Company's
performance to industry benchmarks, the Company adjusts the benchmark data to
conform with its own practice of reporting patient revenues rather than
management fee income.
RESULTS OF OPERATIONS
As a result of the recent expansion of the Company's business through
existing market development and acquisitions, and its limited period of
affiliation with certain practices, the Company believes that the period-
to-period comparisons set forth below may not be meaningful.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Net Patient Revenues
Net patient revenues increased from $6.8 million for the six months ended
June 30, 1996 to $13.1 million for the six months ended June 30, 1997, an
increase of $6.3 million or 92.7%. Approximately $5.3 million of this increase
was due to the effect of acquisitions which were closed during 1997 and the
effect of two acquisitions which were included in the 1997 results for a
different number of months than in 1996 (the "1997 Acquisition Effect"). The
remaining $1.0 million resulted from internal growth, $600,000 of which arose
from the de novo offices in the Metro Washington, D.C. network.
Dental Compensation
Dental compensation expenses increased from $1.5 million for the six months
ended June 30, 1996 to $3.1 million for the six months ended June 30, 1997, an
increase of $1.6 million or 106.7%. The 1997 Acquisition Effect accounted for
$1.3 million of this increase. The remaining increase resulted from increased
compensation costs from the Company's 1996 base operations and from the Metro
Washington de novo offices. As a percentage of net patient revenues, dentist
compensation increased from 22.2% to 23.6% for the six months ended June 30,
1996 and 1997, respectively.
Auxiliary Compensation
Auxiliary compensation expenses increased from $1.9 million for the six
months ended June 30, 1996 to $3.3 million for the six months ended June 30,
1997, an increase of $1.4 million or 73.7%. The 1997 Acquisition Effect
accounted for the entire $1.4 million increase. As a percentage of net patient
revenues, auxiliary compensation decreased from 27.8% to 25.4% for the six
months ended June 30, 1996 and 1997, respectively.
Laboratory Fees and Dental Supplies
Laboratory fees and dental supplies increased from $875,000 for the six
months ended June 30, 1996 to $1.5 million for the six months ended June 30,
1997, an increase of $625,000 or 71.4%. The 1997 Acquisition Effect accounted
for $530,000 of this increase with the remaining increase resulting primarily
from the Metro Washington de novo offices. As a percentage of net patient
revenues, laboratory fees and dental supplies decreased from 12.9% to 11.3% for
the six months ended June 30, 1996 and 1997, respectively.
26
<PAGE> 28
Other Dental Office Expenses
Other dental office expenses increased from $1.1 million for the six months
ended June 30, 1996 to $2.5 million for the six months ended June 30, 1997, an
increase of $1.4 million or 127.3%. The 1997 Acquisition Effect accounted for
$1.0 million of this increase. The remaining increase resulted from costs which
arose from the Company's 1996 base operations and costs of $160,000 arising from
the Metro Washington, DC de novo offices in 1997. As a percentage of net patient
revenues, other dental office expenses increased from 16.4% to 19.0% for the six
months ended June 30, 1996 and 1997, respectively.
Depreciation Expense
Depreciation expense increased from $79,000 for the six months ended June
30, 1996 to $140,000 for the six months ended June 30, 1997, an increase of
$61,000 or 77.2%. Forty-eight thousand dollars of the increase arose from the
1997 Acquisition Effect, with the remaining $13,000 resulting from the de novo
offices in the Metro Washington, D.C. network. As a percentage of net patient
revenues, depreciation expense remained relatively constant at approximately
1.1% for the six months ended June 30, 1996 and 1997, respectively.
Network General and Administrative Expenses
Network general and administrative expenses increased from $465,000 for the
six months ended June 30, 1996 to $644,000 for the six months ended June 30,
1997, an increase of $179,000 or 38.5%. Approximately $60,000 of this increase
resulted from additional infrastructure expenses incurred in developing the
Metro Washington, D.C. network's administrative and regional billing office.
Network general and administrative costs associated with the 1997 Acquisition
Effect and additional investment in new Network infrastructure accounted for the
remaining $119,000 in additional expenses. As a percentage of net patient
revenues, network general and administrative expenses declined from 6.9% to 4.9%
for the six month periods ending June 30, 1996 and 1997, respectively.
Corporate General and Administrative Expenses
Corporate general and administrative expenses increased from $644,000 for
the six months ended June 30, 1996 to $1.2 million for the six months ended June
30, 1997, an increase of $556,000, or 86.3%. This increase resulted from the
expansion of the Company's corporate infrastructure to manage the current and
expected growth of the Company's businesses. The Company believes that this
infrastructure will need to be further expanded in the future to sustain the
Company's growth plans. As a percentage of net patient revenues, however,
corporate general and administrative expenses decreased from 9.5% to 8.8% for
the six months ended June 30, 1996 and 1997, respectively. This decline occurred
because the Company was able to leverage its infrastructure investment over an
increased revenue base.
Amortization of Intangible Assets
Amortization of intangible assets increased from $64,000 for the six months
ended June 30, 1996 to $278,000 for the six months ended June 30, 1997, an
increase of $214,000 or 334.4%. This increase resulted from the 1997 Acquisition
Effect. As a percentage of net patient revenues, amortization of intangible
assets increased from 0.9% to 2.1% for the six month periods ending June 30,
1996 and 1997, respectively.
Interest Expense
Interest expense increased from $207,000 for the six months ended June 30,
1996 to $595,000 for the six months ended June 30, 1997, an increase of $388,000
or 187.4%. Increased borrowings related primarily to acquisitions completed in
1997.
27
<PAGE> 29
Income Taxes
The Company's effective tax rate is higher than the statutory federal rate
primarily due to non-deductible amortization of excess cost of net assets
acquired and state income taxes. There was no tax expense recorded for the six
months ended June 30, 1997 as a result of losses for which the Company has
recorded no tax benefits.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO PERIOD ENDED DECEMBER 31, 1995
(SEPTEMBER 19, 1995 TO DECEMBER 31, 1995)
Net Patient Revenues
Net patient revenues increased from $1.0 million for the period ended
December 31, 1995 to $15.5 million for the year ended December 31, 1996, an
increase of $14.5 million. Approximately $13.8 million of this increase was due
to acquisitions completed in 1996 (the "1996 Acquisitions") and the inclusion of
a full year of results for the Company's 1995 acquisitions in the 1996 financial
results (the "1996 Acquisition Effect"). The remaining $700,000 increase
resulted from revenue contributions from the Metro Washington, D.C. network's de
novo offices.
Dental Compensation
Dental compensation expenses increased from $115,000 for the period ended
December 31, 1995 to $3.4 million for the period ended December 31, 1996, an
increase of $3.3 million. The 1996 Acquisition Effect accounted for $3.2 million
of this increase, while the Metro Washington, D.C. network's de novo offices
accounted for the remaining $100,000 increase. As a percentage of net patient
revenues, dental compensation increased from 11.6% to 22.2% for the periods
ending December 31, 1995 and 1996, respectively.
Auxiliary Compensation
Auxiliary compensation expenses increased from $252,000 for the period
ended December 31, 1995 to $4.2 million for the period ended December 31, 1996,
an increase of $3.9 million. The 1996 Acquisition Effect accounted for $3.8
million of this increase, while the Metro Washington, D.C. network's de novo
offices accounted for the remaining $100,000 increase. As a percentage of net
patient revenues, auxiliary compensation increased from 25.5% to 27.2% for the
periods ending December 31, 1995 and 1996, respectively.
Laboratory Fees and Dental Supplies
Laboratory fees and dental supplies increased from $130,000 for the period
ended December 31, 1995 to $1.9 million for the period ended December 31, 1996,
an increase of approximately $1.8 million. The 1996 Acquisition Effect accounted
for approximately $1.6 million of this increase, while the Metro Washington,
D.C. network's de novo offices accounted for the remaining $200,000 increase. As
a percentage of net patient revenues, laboratory fees and dental supply costs
decreased from 13.2% to 12.2% for the periods ending December 31, 1995 and 1996,
respectively.
Other Dental Office Expenses
Other dental office expenses increased from $182,000 for the period ended
December 31, 1995 to $2.8 million for the period ended December 31, 1996, an
increase of $2.6 million. The 1996 Acquisition Effect accounted for $2.4 million
of this increase, while the Metro Washington, D.C. network's de novo offices
accounted for the remaining $200,000 increase. As a percentage of net patient
revenues, other dental office expenses decreased from 18.4% to 17.9% for the
periods ending December 31, 1995 and 1996, respectively.
Depreciation Expense
Depreciation expense increased from $33,000 for the period ended December
31, 1995 to $156,000 for the period ended December 31, 1996, an increase of
$123,000. The 1996 Acquisition Effect accounted for
28
<PAGE> 30
$102,000 of this increase, with the remaining $21,000 resulting from
depreciation expense on additional expenditures in the Metro Washington, D.C. de
novo offices. As a percentage of net patient revenues, depreciation expense
decreased from 3.3% to 1.0% for the periods ending December 31, 1995 and 1996,
respectively.
Network general and administrative expenses increased from $68,000 for the
period ended December 31, 1995 to $922,000 for the period ended December 31,
1996, an increase of $854,000. This increase was attributable to expenses
resulting from the 1996 Acquisition Effect and to minor additional
infrastructure additions in the Metro Washington, D.C. network. As a percentage
of net patient revenues, network general and administrative expenses decreased
from 6.9% to 6.0% for the periods ending December 31, 1995 and 1996,
respectively.
Corporate General and Administrative Expenses
Corporate general and administrative expenses increased from $508,000 for
the period ended December 31, 1995 to $1.6 million for the period ended December
31, 1996, an increase of approximately $1.1 million or 216.5%. After
consideration of one time non-recurring start-up expenses in 1995, this increase
resulted from (i) additional infrastructure investment of approximately $300,000
to support the Company's growth and (ii) the inclusion of additional expenses in
1996 relating to twelve full months of reporting.
Amortization of Intangible Assets
Amortization of intangible assets increased from $27,000 for the period
ended December 31, 1995 to $196,000 for the period ended December 31, 1996, an
increase of $169,000. This increase resulted from the 1996 Acquisition Effect.
Amortization of intangible assets decreased as a percentage of net patient
revenues from 2.6% to 1.3% for the periods ending December 31, 1995 and 1996,
respectively.
Interest Expense
Interest expense increased from $41,000 for the period ending December 31,
1995 to $495,000 for the period ending December 31, 1996, an increase of
$454,000. This increase was due primarily to interest on debt associated with
the 1996 Acquisition Effect. As a percentage of net patient revenues, interest
expense decreased from 4.2% to 3.2% for the periods ending December 31, 1995 and
1996, respectively.
Income Taxes
As a result of a reported loss before taxes, there was no provision for
taxes recorded in 1995. The 1996 provision for income taxes was $276,000 or 1.8%
of revenue. The Company's effective tax rate is higher than the federal
statutory rate due primarily to non-deductible amortization of excess cost of
net assets acquired and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company's operations and its 22 acquisitions have been
financed primarily through internally generated cash and borrowings from the
Company's major stockholders. The Company has borrowed approximately $33.1
million to date under subordinated note agreements with its major stockholders
which provide for maximum borrowings of $38.0 million. In addition, the Company
has in place and available a $10.0 million secured demand credit facility with
PNC Bank, National Association ("PNC Bank") secured by all the assets of the
Company. Payment of the demand promissory note under the demand credit facility
with PNC Bank is guaranteed by certain of the Company's major stockholders.
Borrowings under the subordinated notes payable to the major stockholders and
the demand credit facility will be repaid using a portion of the net proceeds of
the offering and both facilities will be terminated effective upon consummation
of the offering. The Company is negotiating to obtain a new $30.0 million
secured credit facility effective with the consummation of the offering. The
Company has not received any commitments with respect to establishment of such a
facility and there can be no assurance that such a facility will be established.
29
<PAGE> 31
At December 31, 1995, December 31, 1996 and June 30, 1997, the Company had
a working capital deficit of approximately $607,000, $2.3 million and $3.7
million, respectively, and cash and cash equivalents, of approximately $100,000,
$568,000 and $1.5 million, respectively.
During the initial period of operations in 1995, cash used in operations
was $118,000, primarily to fund initial start-up activity. For the period ended
December 31, 1996 and the six months ended June 30, 1997, cash provided by
operations was $116,000 and $341,000, respectively.
Cash used in investing activities was $9.8 million for the six months ended
June 30, 1997. During this period, $9.2 million was utilized for acquisitions
and $600,000 was used to purchase additional property and equipment. Cash used
in investing activities was $1.7 million in 1995 and $4.2 million in 1996. In
1995, primarily all of this cash was used to finance the Company's initial
acquisition. During 1996, $3.9 million was utilized for acquisitions and
$300,000 was used to purchase additional property and equipment.
The Company expects that for the foreseeable future its principal uses of
funds will be in connection with acquisitions, payments to be made pursuant to
contingent payment arrangements for acquisitions, debt repayments and purchases
of property and equipment. The Company expects that net proceeds of the offering
remaining after application of net proceeds as described in "Use of Proceeds"
will be invested in short-term, investment grade, interest-bearing securities,
certificates of deposit or guaranteed obligations of the United States. See "Pro
Forma Financial Information" for additional information concerning the effects
on the financial condition of the Company of the application of the estimated
net proceeds of the offering. The Company expects that cash generated from
operations will be adequate to fund the Company's working capital requirements
for the next year, and when coupled with the proceeds of the offering, will fund
its requirements for acquisitions, Contingent Payment arrangements, debt
repayments and purchases of property and equipment.
The Company has paid cash and issued notes and shares of Common Stock to
sellers in connection with acquisitions of practices by the Company to date. The
Company is obligated to pay additional consideration to sellers of businesses
contingent upon achievement of certain net revenues and pre-tax earnings goals
over periods of one to three years from the dates of acquisition. Although the
amount of additional consideration to be issued cannot be determined until the
Contingent Payment periods terminate, the Company expects that the additional
consideration issued to sellers pursuant to these arrangements, will constitute
a substantial portion of the total consideration for such acquisitions. Payment
under these Contingent Payment arrangements will be accounted for as adjustments
to the purchase price of the acquired companies. If the criteria for the
Contingent Payments with respect to each of the Company's acquisitions to date
are achieved, but not exceeded, the Company will be obligated to make cash
payments of approximately $4.9 million. In the event that financial criteria are
not met, no cash or a lesser amount of cash would be paid. Greater amounts of
cash would be paid if the financial criteria are exceeded. If the maximum
Contingent Payments are due, the Company would be obligated to make cash
payments of $5.0 million. If, in each case the Contingent Payment goals are met,
the acquired company will generate net patient revenues and pre-tax earnings
significantly in excess of any Contingent Payments. However, there can be no
assurances that the Company will generate sufficient cash to fund such
obligations or that future acquisitions will not adversely affect cash generated
from operations. See "Risk Factors -- Acquisition Consideration."
The Company's strategy is to continue to grow its operations both through
acquisitions and internal growth. See "Business -- Strategy." Management
anticipates that the rate of acquisitions in the foreseeable future may be at
least the rate experienced during the period from January 1997 through September
1997. Management anticipates that the terms of payment in connection with future
acquisitions will continue to be a combination of cash, notes and shares of
Common Stock with a portion of the purchase price to be paid at closing and a
portion contingent upon achievement of Contingent Payment criteria. It is
anticipated that funds required for future acquisitions and the integration of
acquired practices into the Company will be provided from the proceeds of the
offering, proceeds of future borrowings and internally generated funds. However,
there can be no assurance that suitable acquisition candidates will be
identified by the Company in the future, that suitable financing can be obtained
by the Company or that any such acquisitions will occur. See "Risk
Factors -- Possible Inability to Implement Acquisition Strategy; Risks
Associated with Integrating Acquisitions; and Capital Requirements Related to
Growth Strategy."
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BUSINESS
OVERVIEW
The Company is a leading provider of practice management services to
multi-specialty dental practices in selected markets in Colorado, Florida,
Georgia, Maryland, New Jersey, Ohio, Pennsylvania and Virginia. The Company
seeks to achieve significant local market share by developing networks of
prominent dental practices and pursuing growth through the introduction of
professional management, operational enhancements and acquisitions. The Company
provides its networks with operational assistance in staffing and scheduling,
purchasing, advertising and marketing, recruiting, quality assurance and managed
care contracting. While the Company maintains a multi-regional geographic focus,
it recognizes that the delivery of dental care, like other areas of health care,
is inherently local in nature, and, therefore, implements a flexible care
delivery model which responds to local market needs and preferences.
Additionally, by maintaining a strong focus on professional development and
clinical excellence, the Company seeks to be the preferred choice of patients
and the favored partner for dentists in each market it serves. In addition to
general dentistry, the Company's dental practices provide specialty dental
services including orthodontics, oral surgery, endodontics, periodontics and
pediatric dentistry. At October 23, 1997, the Company had 22 affiliated
practices with 178 dentists at 56 locations in nine markets.
In order to accelerate its growth and take advantage of a growing trend
toward consolidation among dental providers, the Company seeks to affiliate with
prominent practices in targeted markets and to build networks around those
practices to achieve economies of scale. To effectively develop its networks,
the Company pursues both an immediate and longer-term integration strategy.
Immediately after acquisition, the Company seeks to integrate each practice into
its networks by converting the practice's financial reporting, operating, human
resources, compliance and other practices and procedures to those of its own. On
a longer-term basis, the Company strives to achieve strategic enhancements in
all clinical, operational and financial areas of the practice.
INDUSTRY
The Health Care Financing Administration estimates that the annual
aggregate domestic market for dental services was approximately $45.9 billion
for 1995, representing 4.2% of total health care expenditures in the United
States and has grown at a compound annual growth rate of approximately 8.6% from
1980 to 1995. The size of the dental services industry is projected to reach
$79.1 billion by 2005. The Company believes that the anticipated growth in the
dental industry will be driven by several factors including: (i) an increase in
the availability and types of dental insurance; (ii) an increasing demand for
dental services from an aging population; (iii) the evolution of technology
which makes dental care less traumatic and, therefore, more attractive to
patients; (iv) an increased focus on preventive and cosmetic dentistry; and (v)
the growth of managed care organizations that offer dental coverage to their
members.
The market for dental services in the United States consists of both
general and specialty dentistry services. General dentistry services include
preventive and diagnostic procedures such as cleanings, examinations and x-rays
and restorative treatments such as fillings of cavities, gum therapy and crowns.
Specialty dentistry services include orthodontics (the straightening of teeth
and remedying of occlusion), periodontics (gum care), endodontics (treatments
for diseases of tooth pulp, such as root canal therapy), oral surgery (tooth
extraction) and pedodontics (care of children's teeth). Dental care services in
the United States are generally delivered through a fragmented system of local
providers, primarily solo or duo practices. According to the American Dental
Association 1995 Survey of Dental Practice there were approximately 151,000
actively practicing dental professionals in the United States, 88.1% of whom
practiced either alone or with one other dentist. In addition, there were
approximately 4,700 dental groups of three or more practitioners.
According to industry sources, approximately 30% of the estimated 117
million people covered by dental benefits in 1995 were enrolled in managed care
programs. Enrollment in dental HMOs, according to the National Association of
Dental Plans, is estimated to have grown from 7.8 million in 1990 to 23.8
million in 1995.
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<PAGE> 33
The Company believes that the trend toward consolidation in the dental
services industry will continue and dentists will seek to affiliate with group
practices such as the Company's due to: (i) a desire on the part of dentists to
focus on the clinical aspects of practicing dentistry and to be relieved of the
growing administrative and regulatory burdens of practice, (ii) the changing
demographic make-up of dental school graduates who are seeking more flexible
working hours, (iii) increasing patient demands for more flexible evening and
weekend hours, (iv) increasing demand by managed care for competitively priced,
high quality dental care at multiple locations, and (v) reduced demand for solo
and duo practices due to recent graduates' higher levels of dental school
indebtedness and illiquidity.
BUSINESS STRATEGY
The Company's business strategy is to be the leading dental practice
management company in each of its markets by (i) providing local market
responsive dental services; (ii) focusing on the provision of quality patient
care; (iii) achieving leading market share by developing comprehensive networks;
(iv) immediately integrating acquired practices to achieve administrative and
financial control and to align professional and operational incentives; (v)
pursuing longer-term clinical, operational and financial enhancements to
acquired dental practices; and (vi) capitalizing on managed care opportunities.
- Provide Local Market Responsive Dental Services. The Company recognizes
that the delivery of dental care, like other areas of health care, is
inherently local in nature, and, therefore, the Company strives to adopt
its model to the needs of local markets. The Company believes that
different regions of the United States vary in the use of advertising,
the penetration of managed care and other aspects of dental care.
Accordingly, the Company tailors its services to the tastes, practices
and traditions of providing dental care in each of its markets.
- Focus on Quality Patient Care. To further strengthen the Company's
reputation with patients and dentists, the Company is in the process of
establishing various protocols and building clinical infrastructure to
ensure a high level of patient care. The Company has formed a Clinical
Advisory Board which is responsible for setting policy on such matters as
quality assurance, outcomes measurements and monitoring, continuing
education and training for dental professionals, evaluating new
techniques and technologies and credentialing. The Company believes that
such oversight and the resulting dialogue it will create will involve all
constituents of the Company (including patients, dentists, dental
assistants, hygienists and others) in the pursuit of clinical excellence.
- Achieve Leading Market Share Through Developing Comprehensive
Networks. The Company's strategy is to develop a comprehensive dental
network in each of its markets. The Company believes that the economies
associated with a leading market position will enable it to maintain
programs in support of its other strategic objectives. To achieve this
end, the Company seeks to align itself with clinical leaders and become
the "employer of choice" for dental practitioners, provide a
comprehensive service mix encompassing multiple dental specialties and
achieve market density.
Align with Clinical Leaders. The Company seeks to align itself with
dentists who are considered to be clinical leaders and who have
reputations for giving the highest level of care in their respective
markets. The Company believes that dentists focus on the clinical
reputation of the affiliated dental professionals when evaluating and
aligning with dental practice management companies. By establishing
clinical leadership, the Company believes it will become the dental
practice management company of choice. With this identity, the Company
believes it will be best positioned to achieve its objectives with
respect to patient care, professional development and corporate growth
and profitability.
Become "Employer of Choice". While the Company does not employ
dentists, it seeks to have its affiliated practices become the
employers of choice for dentists in each of its markets. To achieve
this, the Company's practices offer dentists more flexible working
hours and programs such as an employee benefit package including a
401(k) savings plan, continuing education, management opportunities and
an ability to relocate, all of which the Company believes is beyond the
level of benefits generally available to practitioners in solo and duo
practices. In addition, the Company
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offers the benefit of national networking of dental professionals
which, through formal and informal sharing of resources, experience and
expertise, is intended to ensure that the Company's practices develop
and employs leading dental practitioners. In so doing, the Company
expects to further attract acquisition candidates and minimize staffing
dislocations for the practices.
Provide Multi-Specialty Dental Services. The Company intends to
provide a comprehensive service mix within its networks encompassing
multiple dental specialties. In doing so, the Company believes that it
will be able to better control the service quality and patient
scheduling of all dental care services. Further, the Company believes
it can retain a significant number of specialist referrals which are
not captured by typical solo, duo or small group practices.
Achieve Market Density. The Company believes that it is important not
only to provide a comprehensive service mix, but also to provide such
services throughout a defined market. The Company believes that
location and convenience are important selection factors when choosing
dental care. On a market by market basis, the Company's strategy
includes acquiring a large group dental practice (pedestal acquisition)
and then densifying around it by either acquiring smaller practices
(densification acquisitions), adding additional dentists, acquiring
patient records and relationships of retiring dentists and opening de
novo offices, where appropriate.
- Immediately Integrate Acquired Practices. The Company seeks to integrate
acquired practices into its networks immediately after acquisition by
converting cash management, billing, receivables and payables to common
procedures; bringing dentists and practice employees into a uniform human
resource and benefits program; and installing Company-wide financial and
clinical information systems. Upon the closing of an acquisition, the
Company and the acquired practice jointly formulate a plan of integration
and corresponding time schedule, specifically designating the
responsibilities and resources needed to ensure a rapid and seamless
transition.
- Pursue Longer-Term Network Enhancements. The Company believes that
significant opportunities exist to realize clinical and operational
enhancements at acquired practices over time. These enhancements are
implemented to reduce the amount of time dentists are required to spend
on administrative matters and to enable them to dedicate their time and
efforts toward clinical excellence, patient satisfaction and the growth
of their practices.
Clinical Enhancements. Clinical enhancements are sought by the Company
to ensure the best possible care to patients and to achieve the
Company's goal of being the dental industry's clinical leader. Clinical
enhancements include the development, in cooperation with dentists, of
treatment protocols, and the institution of quality assurance and
utilization review, professional development and mentoring programs.
Operational Enhancements. The Company seeks to realize operational
enhancements to augment the integration measures taken immediately
after the closing of an acquisition. These enhancements include the
centralization of administrative functions to free dentists from tasks
that distract them from their primary responsibility of caring for
patients. Enhancements also include optimizing scheduling and patient
flow and adding specialists where appropriate to capture specialty
revenue which had previously been referred outside the practice. The
Company also seeks to realize significant network economies of scale in
such areas as purchasing, marketing and advertising and office staffing
levels and facility usage.
Leverage Integration Experience. Members of the Company's management
team and its Board of Directors have had extensive experience in the
development of companies in fragmented health care services industries,
including the development and implementation of acquisition and
integration strategies and programs and the management of rapid
internal growth in a health care services setting. The Company believes
that its clinically oriented value system is beneficial in aligning the
activities, interests and motivations of the dental professionals and
employees of the individual practices with the strategic goals of the
local network and the overall Company.
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<PAGE> 35
- Capitalize on Managed Care Opportunities. The Company markets the
services provided by its dental care networks to payors, with a focus on
the managed care community. The Company believes that its marketing
resources and contracting capabilities will allow its affiliated dental
practices to participate in certain contractual managed care
relationships in which they would not otherwise have been able to
participate. The Company believes that the financial and clinical data
generated by the Company's management information systems should enable
the Company to negotiate managed care arrangements under terms favorable
to the Company and its affiliated dental practices. The Company believes
that contracting with managed care entities will facilitate entry into
new markets and the expansion of existing networks.
THE PRACTICES
The Company's affiliated practices provide a full range of dental care
services. General dental care services provided include examinations, dental
prophylaxis (cleanings), fillings, bonding, cosmetic treatment (i.e. whitening),
placing crowns, and fitting and placing fixed or removable prostheses. Specialty
dental care services provided include orthodontics, oral surgery, endodontics,
periodontics and pediatric dentistry.
As of October 23, 1997, the Company had 22 affiliated practices with 178
dentists at 56 locations in nine markets. The following table sets forth the
markets in which the Company operates:
<TABLE>
<CAPTION>
YEAR NUMBER OF NUMBER OF
PRACTICE NAME FOUNDED OFFICES DENTISTS(1) DATE ACQUIRED
- ------------------------------------------------- ------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Metro Atlanta, Georgia
Eugene Witkin, D.D.S., d/b/a Dental Care
Center, Family Dentistry and Virginia Avenue
Dentistry................................... 1985 3 14 February 1997
Maurice E. Smith, D.D.S. ...................... 1987 1 2 July 1997
Douglass A. Quinn, D.D.S. ..................... 1981 2 3 August 1997
Felix W. Sibley, Jr., D.D.S., d/b/a Garden Walk
Dental Associates........................... 1963 1 2 September 1997
Miller & Powell, D.M.D., d/b/a Soft Touch
Dentistry................................... 1988 1 2 September 1997
David B. Wells, D.D.S. ........................ 1993 1 1 September 1997
Metro Cleveland, Ohio
Horizon Dental................................. 1976 4 27 March 1996
Metro Denver, Colorado
Western Dental................................. 1963 5 9 January 1997
Bernard B. Baros, D.D.S. ...................... 1977 1 1 July 1997
Delbert B. Williamson, D.D.S. ................. 1996 1 1 September 1997
Central Florida
United Dental Group............................ 1963 4 12 January 1996
Gentle Dental.................................. 1985 4 6 August 1997
Metro Philadelphia, Pennsylvania
Penn Dental.................................... 1982 1 3 September 1995
Century Dental................................. 1981 1 5 May 1997
ProDent........................................ 1981 4 20 October 1997
Metro Pittsburgh, Pennsylvania
The Dentistry.................................. 1981 3 7 April 1997
Northern New Jersey
Poller Dental Group............................ 1985 4 32 October 1997
Southern Virginia-Richmond
Comprehensive Family Dentistry(2).............. 1993 3 8 May 1997
Kenneth E. Copeland, D.D.S. ................... 1965 1 1 September 1997
Kenneth Bradley Reynolds, D.D.S. .............. 1993 3 3 September 1997
</TABLE>
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<PAGE> 36
<TABLE>
<CAPTION>
YEAR NUMBER OF NUMBER OF
PRACTICE NAME FOUNDED OFFICES DENTISTS(1) DATE ACQUIRED
- ------------------------------------------------- ------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Metro Washington, D.C.
Northern Virginia Dental Group(3).............. 1993 7 15 September 1995
Cross Keys Dental Associates................... 1968 1 4 October 1997
</TABLE>
- ---------------
(1) Includes part-time dentists.
(2) Represents the three dental offices of the practice of Kenneth Tralongo,
D.D.S.
(3) Consists of office locations operating as Hallmark Dental Group, Stafford
Dental Associates, Gallows Dental Group and Alexandria Dental Centre.
NETWORK DEVELOPMENT
Acquisition Criteria and Process
The Company's initial evaluation of acquisition candidates is based on its
ranking of markets across the United States. This ranking weighs such factors as
general population demographics, demographics of dental professionals, general
economic factors and other considerations. Within a given market, the Company
evaluates the attractiveness of an acquisition candidate based on its
professional standing and reputation in the community, its financial condition
and profitability, its growth and efficiency potential and its ability to
contribute to the clinical and operational objectives of the Company's network
of practitioners and offices within the market. The Company structures
acquisition consideration to promote the alignment of the practices' clinical,
operational and economic objectives with those of the local network and the
overall Company.
The Company actively seeks to identify potential acquisition candidates
through the efforts of its own personnel and by using its contacts, contacts of
existing affiliated dentists and by using outside consultants to target
practices. Once a decision is made to enter a market, the Company typically
establishes a pedestal position in the market through the acquisition of a
high-quality group practice with a history of efficient operations. The Company
then densifies the market around the pedestal through complementary acquisitions
of smaller practices sharing many of the qualities of the pedestal. After the
Company has acquired a practice in a particular market, it seeks to integrate
the practice into its network immediately after the acquisition by converting
cash management, billing, receivables and payables to common procedures.
As part of its network development, the Company provides incentive
compensation arrangements to certain of its dentists which are designed to align
the interests of the dentists with the Company's business strategy. These
arrangements may include stock option grants and other bonus arrangements
payable in cash based on practice performance.
The following table sets forth for each of the periods indicated the number
of (i) offices managed by the Company, (ii) de novo offices opened, (iii)
offices acquired and (iv) chairs at the Company's practices:
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM JANUARY 1, 1996 PERIOD FROM
SEPTEMBER 19, 1995 TO TO JANUARY 1, 1997 TO
DECEMBER 31, 1995 DECEMBER 31, 1996 OCTOBER 23, 1997
--------------------- ----------------- ------------------
<S> <C> <C> <C>
Offices at beginning of the period.......... 0 6 16
De novo offices opened...................... 1 2 0
Acquired offices............................ 5 8 40
Offices at the end of the period............ 6 16 56
Chairs at the end of period................. 30 126 404
</TABLE>
Management Services Agreements
Because of state corporate practice of medicine laws, the Company does not
own the affiliated dental practices but instead enters into a management or
administrative services agreement with each of the professional corporations
which operate its affiliated dental practices pursuant to which the Company is
the exclusive manager or administrator of all operations of the practice, except
for matters related to the professional aspects of dental practice. The Company
anticipates that it will have a similar agreement with each new affiliated
dental practice.
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<PAGE> 37
Pursuant to the management and administrative services agreements, the
Company has assumed financial and other responsibility for the following
(subject to limitations imposed by applicable state law): facilities, equipment
and supplies; advertising, marketing and sales; training and development;
operations management; provision of support services; risk management;
application and maintenance of applicable local licenses and permits;
negotiation of contracts between the affiliated dental practices and third
parties, including third-party payors, alternative delivery systems and
purchasers of group health care services; establishing and maintaining billing
and collection policies and procedures; fiscal matters, such as annual operating
and capital budgeting, maintaining financial and accounting records, and
arranging for the preparation of tax returns; and maintaining insurance. The
Company does not assume any authority, responsibility, supervision or control
over the provision of dental services to patients for diagnosis, treatment,
procedure or other health care services, or the administration of any drugs used
in connection with any dental practice.
The Company's typical management or administrative services agreement is
for an initial term of 40 years, and thereafter continues in effect unless
terminated upon one year prior notice by either the Company or the affiliated
dental practice. Additionally, the management and administrative services
agreements may be terminated by the Company or the affiliated dental practice in
the event of the bankruptcy or material default in the performance of the
material duties of the nonterminating party. The stockholder of the professional
corporation which operates an affiliated dental practice is often the leading
dentist in the network. In all cases, the Company has a contractual right to
designate another licensed dentist to own the capital stock of the professional
corporations.
The fees received by the Company for the provision of the services pursuant
to the management and administrative services agreements vary depending upon
applicable state law. The Company is paid for the services it provides based on
one of the following compensation arrangements: (i) the majority of the
agreements provide for a fee equal to cash receipts less the amounts necessary
to pay professional compensation and other professional expenses and (ii) others
provide for a fee equal to the sum of a license fee per location, reimbursement
of all of the Company's direct costs allocated to the affiliated dental
practice, reimbursement of all of the Company's direct costs incurred in
acquiring or leasing facilities, providing purchasing services and maintaining
furniture, fixtures and equipment provided to the practice, reimbursement of all
of the Company's direct costs incurred in providing marketing services with a
15% markup on the cost of providing marketing services to allow for a reasonable
profit and a flat administrative fee per location intended to compensate the
Company for its unallocated overhead and a reasonable profit. The fees are
structured to comply with state laws.
Employment Agreements
In connection with acquisitions, the Company requires the affiliated dental
practices to enter into employment agreements with the selling dentists. These
employment agreements are typically for periods ranging from three to five years
and include non-competition provisions for up to two years following termination
within a specified geographic area. The agreements typically provide the dentist
with compensation based upon a percentage of billings actually collected. When a
dentist performs management duties in addition to chairside services, the
dentist is typically paid a fixed salary for the performance of such non-dental
services plus incentive compensation.
NETWORK ENHANCEMENTS
In parallel with certain steps taken immediately after an acquisition, the
Company introduces an array of clinical and operational enhancements that
address practice fundamentals and that are intended to enable dentists to
achieve higher levels of effectiveness as clinicians.
Staffing and Scheduling
The Company believes that solo, duo and small group practices often are not
very effective in optimizing their staffing ratios and patient scheduling. The
Company has established targets for the optimal number of
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<PAGE> 38
general dentists, specialist dentists, dental assistants and hygienists so as to
provide high levels of quality care and patient confidence while practicing
within the Company's standards of efficiency. In addition, the Company assists
practices in adjusting their scheduling procedures based on the dental procedure
in order to maximize revenue per dental chair, provide immediate treatment for
emergencies and minimize the number of days for the "first available
appointment." This may involve expanding office hours, optimizing the flow of
patients through the offices and assisting dentists in the more efficient use of
dental assistants and hygienists.
Retention of Specialist Referrals
The Company believes that a significant number of specialist referrals are
not captured by typical solo, duo or small group practices. To address any voids
within a network's service mix, the Company will attempt to affiliate with
specialists such as orthodontists, periodontists, endodontists, oral surgeons
and pedodontists. If a network does not have sufficient patient volume to
support a particular specialist, the Company will arrange for a contract with a
specialist to provide services on a part-time basis. When sufficient patient
volume is achieved, the Company's network specialist, working as a member of the
network's professional staff, either rotates among offices or provides services
out of a single office. The Company is actively pursuing the concept of
specialty centers as part of its network.
Purchasing
The integration of dental practices into networks within markets enables
the Company to take advantage of economies of scale that are generally not
available to solo or duo practices. The Company is able to purchase dental
supplies, laboratory services, insurance, office furniture, equipment,
information systems and advertising at reduced costs. The Company also can
obtain employee benefits at a lower cost than solo, duo or smaller group
practices typically can obtain for themselves and their employees.
Advertising and Marketing
The Company assists the affiliated dental practices in developing and
implementing targeted advertising and marketing programs. The Company's primary
marketing programs, which include patient newsletters and patient recall
programs, are focused on the retention and reactivation of existing patients.
The Company also uses external marketing programs such as direct mailing and
yellow page advertising that are designed to identify the convenience of
individual locations, payment plans and service hours, and the high standards of
care at the practices in an attempt to generate new patients. Although to date
the practices have retained the names of the practices used prior to
acquisition, the Company is considering, on a market by market basis, the use of
regional brand names to increase the efficiency of advertising and marketing,
the awareness by the public of the Company's dental offices in the region, and
the identification of patients with the group practice rather than with
individual dentists.
Recruiting
The Company recruits dentists to both grow its practices and to ensure that
the operating lives of its practices extend beyond the tenure of the individual
dentists. The Company believes many dentists in the early stages of their
careers, being burdened by increasing levels of educational debt, face
significant financial constraints to starting their own practices or buying into
existing practices. Further, the Company believes that the practice of dentistry
in its network of affiliated dental practices offers dentists relief from the
burden of administrative and management responsibilities and the opportunity to
focus almost exclusively on practicing dentistry. An affiliation with the
Company's practices offers dentists the additional advantages of flexible
working hours and employee benefits such as health insurance, continuing
education and payment of professional membership fees. For a specialist, the
Company's networks offer the prospect of a steadier stream of referrals than he
or she may have practicing independently.
Quality Assurance
The Company requires the dentists and hygienists at each of the affiliated
offices to develop and implement clinical management procedures and treatment
protocols, as well as uniform business and
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<PAGE> 39
administrative standards under which dental services are provided. These
procedures, protocols and standards vary from region to region and are
determined by the dental directors in each region in consultation with and under
the guidance of the Clinical Advisory Board. They include treatment planning,
diagnostic screening, radiographic records, record keeping, specialty referrals
and dental hygiene protocols. State licensing authorities require dentists to
undergo annual training. As part of its clinical enhancement, the Company
institutes quality assurance and utilization review programs. The development of
treatment protocols and the provision of professional development and mentoring
programs creates an enhanced clinical environment for the practices to provide
the best possible patient care.
Capitalize on Managed Care Opportunities
The Company believes that contracting with managed care payors provides it
with an opportunity to better utilize the capacity of the existing practices and
to build new practice locations more rapidly with increased patient flow and
revenues. The Company critically evaluates every managed care contract and
relationship to ensure consistency with the Company's clinical, operational and
financial objectives.
MANAGEMENT INFORMATION SYSTEMS
The Company utilizes a leading commercially available management
information system package for dental practice management at 28 of its offices,
and plans to use the system at the other existing dental offices and at offices
the Company intends to acquire. The Company utilizes this system to track data
related to each office's operation and financial and clinical performance. Full
implementation typically takes two to three months at a newly acquired office.
The system provides patient and practitioner scheduling, clinical record-
keeping, and revenue and collection data on a year-to-date basis. The Company
uses the system to manage billing and collections, including electronic
insurance claims processing. In addition, the Company uses the system to provide
information for case management and treatment planning.
REIMBURSEMENT
One of the differentiating factors between dentistry and general medicine
is in the nature of the various forms of reimbursement. In general medicine,
reimbursement represents true insurance coverage, where actuarial based
calculations form the basis for setting premiums to cover costs and provide a
fair return to the insurer. In general medical coverage, the practice is to have
the patient first cover his or her deductible above which the insurer goes at
risk for the costs of care. The insurer is therefore at risk for the high costs
of emergency care, hospital in-patient treatment and specialist fees. In an
environment with rapidly escalating costs, the insurer attempts to reduce its
risk by increasing premiums to keep the actuarial calculation balanced in its
favor.
In dentistry, reimbursement takes the form of payment assistance and does
not attempt to provide the insured a "stop-loss" guarantee. The practice in
dental plans is to have the insurer pay for basic procedures such as diagnostic
and preventive services or for services up to a total dollar limit in a given
time period, beyond which the patient bears the cost. Thus, in general medicine
the patient pays the first dollars and the insurer bears the risk of the more
costly procedures, whereas in dentistry the insurer pays the first dollars and
the patient bears the risk of the more costly procedures. Although the dentist
must intelligently analyze the demographics of the population of a plan to
protect against exposure to adverse selection, just as is done in general
medicine, the risks of incurring substantial cost faced by the insurers and
employers in general medicine is minimal in dentistry.
While there are many hybrid sources of payment, the basic options in the
market fall into four categories: indemnity insurance and "out-of-pocket", both
of which are found in a fee-for-service ("FFS") environment, preferred provider
organizations ("PPO"), health maintenance organizations ("HMO") and capitation
(the latter three commonly referred to as "managed care"). In an FFS
environment, the payor usually reimburses for usual, customary and reasonable
charges ("UCR") for preventive care and in a lesser amount of UCR for other
procedures (the patient incurs the difference as a co-payment). In such a
setting, the patient may choose any dental provider.
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<PAGE> 40
PPOs offer plans that cover the cost of preventive care at fees that are
discounted from FFS levels. Under these plans, patients make no co-payment for
preventive care but pay substantially higher co-payments for more advanced
procedures than FFS patients. If patients choose "out-of-network" dentists, they
are required to pay a premium to the discounted FFS schedule of charges.
HMOs negotiate a set fee per member per month for all services with
dentists and prepay monthly amounts, based on this per member per month fee, to
the participating dentist for a fixed pool of patients. Typically, the per
member per month fee is based on an actuarial analysis (assessment of risk
associated with the particular demographic profile of the patient pool) and is
adjusted for changes in the profile of the patient population over time. HMO
patients generally are not required to pay co-payments for diagnostic and
preventive procedures but, may be required to pay a substantially higher
co-payment for the more advanced procedures than PPO patients. HMO patients must
visit dentists in the HMO network to obtain benefits.
Capitation plans are similar to HMOs in that there is a negotiated,
pre-paid per member per month fee paid to the participating dentist but differ
in that the dentist assumes all the risk. Under capitation plans, patients have
no deductibles. As with HMOs, patients must visit dentists on the panel to
obtain benefits.
COMPETITION
The dental services industry is highly competitive and subject to continual
change in the manner in which services are delivered and providers are selected.
The Company is under competitive pressures for the acquisition of the assets of,
and the provision of management services to, additional dental practices.
Certain national companies in the dental industry, some of which may have
greater resources than the Company, are developing multi-regional networks of
dental facilities in markets which include the Company's markets. 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 business presence in such locations. With respect to competition for
patients, the Company believes that the primary competitive factors are patient
satisfaction, quality of care, cost effectiveness and convenience. The primary
competitors of the affiliated dental practices in most markets are individual
practitioners or small, regional multi-site practices.
GOVERNMENT REGULATION
General
The practice of dentistry is regulated extensively at both state and
federal levels. Regulatory oversight includes, but is not limited to,
considerations of fee-splitting, corporate practice of dentistry, anti-kickback
and anti-referral legislation and state insurance regulation.
Every state imposes licensing and other requirements on individual dentists
and dental facilities and services. In addition, federal and state laws regulate
health maintenance organizations and other managed care organizations for which
dentists may be providers. In connection with its operations in existing markets
and expansion into new markets, the Company may become subject to compliance
with additional laws, regulations and interpretations or enforcements thereof.
The ability of the Company to operate profitably will depend in part upon the
Company and its affiliated dental practices obtaining and maintaining all
necessary licenses, certifications and other approvals and operating in
compliance with applicable health care regulations.
Dental practices must meet federal, state and local regulatory standards in
the areas of safety and health. Historically, those standards have not had any
material adverse effect on the operations of the dental practices managed by the
Company. Based on its familiarity with the operations of the dental practices
managed by the Company, management believes that it, and the practices it
manages, are in compliance in all material respects with all applicable federal,
state and local laws and regulations relating to safety and health.
Fee-Splitting; Corporate Practice of Dentistry
The laws of many states prohibit dentists from splitting fees with
non-dentists and prohibit non-dental entities such as the Company from engaging
in the practice of dentistry or employing dentists to practice
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<PAGE> 41
dentistry. The specific restrictions against the corporate practice of dentistry
as well as the interpretation of those restrictions by state regulatory
authorities vary from state to state. The restrictions are generally designed to
prohibit a non-dental entity from controlling the professional practice of a
dentist, employing dentists to practice dentistry (or, in certain states,
employing dental hygienists or dental assistants), controlling the content of a
dentist's advertising or sharing professional fees. A number of states limit the
ability of a person other than a licensed dentist to own equipment or offices
used in a dental practice. Some of these states allow leasing of equipment and
office space to a dental practice under a bona fide lease. The laws of many
states also prohibit dental practitioners from paying any portion of fees
received for dental services in consideration for the referral of a patient. In
addition, many states impose limits on the tasks that may be delegated by
dentists to dental assistants.
State dental boards do not generally interpret these prohibitions as
preventing a non-dental entity from owning non-professional assets used by a
dentist in a dental practice or providing management services to a dentist
provided that the following conditions are met: a licensed dentist has complete
control and custody over the professional assets; the non-dental entity does not
employ or control the dentists (or, in some states, dental hygienists or dental
assistants); all dental services are provided by a licensed dentist; and
licensed dentists have control over the manner in which dental care is provided
and all decisions affecting the provision of dental care. In general, the state
dental practice acts do not address or provide any restrictions concerning the
manner in which companies account for revenues from a dental practice subject to
the above-noted restrictions relating to control over the professional
activities of the dental practice, ownership of the professional assets of a
dental practice and payments for management services.
The Company does not control the clinical aspects of the practice of
dentistry or employ dentists to practice dentistry. Moreover, in states in which
it is prohibited, the Company does not employ dental hygienists or dental
assistants. The Company provides management and administrative services to
dental practices, and believes that the fees the Company charges for those
services are consistent with the laws and regulations of the jurisdictions in
which it operates. Although the Company believes that its operations comply in
all material respects with the above-described laws to which it is subject,
there can be no assurance that a review of the Company's business relationships
by courts or other regulatory authorities would not result in determinations
that could prohibit or otherwise adversely affect the operations of the Company
or that the regulatory environment will not change, requiring the Company to
reorganize or restrict its existing or future operations.
The laws regarding fee-splitting and the corporate practice of dentistry
and their interpretation vary from state to state and are enforced by regulatory
authorities with broad discretion. There can be no assurance that the legality
of the Company's business or its relationships with dentists or dental practices
will not be successfully challenged or that the enforceability of the provisions
of any management services agreement will not be limited. The laws and
regulations of certain states in which the Company may seek to expand may
require the Company to change the form of relationships entered into with dental
practices in a manner which may restrict the Company's operations or how
providers may be paid in those states or may prevent the Company from acquiring
the non-dental assets of such practices or managing dental practices in those
states. Similarly, there can be no assurance that the laws and regulations of
the states in which the Company presently maintains operations will not change
or be interpreted in the future either to restrict or adversely affect the
Company's existing or future relationships with dental practitioners in those
states. Any change in the Company's relationships with its affiliated dental
practices resulting from the interpretation of corporate practice of dentistry
and fee-splitting statutes and regulations could have a material adverse effect
on the Company's business and results of operations.
Anti-Kickback and Anti-Referral Legislation
Federal and many state laws prohibits the offer, payment, solicitation or
receipt of any form of remuneration in return for, or in order to induce (i) the
referral of a person for services, (ii) the furnishing or arranging for the
furnishing of items or services or (iii) the purchase, lease or order or
arranging or recommending purchasing, leasing or ordering of any item, in each
case, reimbursable under Medicare, Medicaid or other federal and state health
care programs. These provisions apply to dental services covered
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<PAGE> 42
under the Medicaid program in which the Company participates. The federal
government has increased scrutiny of joint ventures and other transactions among
health care providers in an effort to reduce potential fraud and abuse related
to Medicare and Medicaid costs. Many states have similar anti-kickback laws, and
in many cases these laws apply to all types of patients, not just Medicare and
Medicaid beneficiaries.
The applicability of these federal and state laws to transactions in the
health care industry such as those to which the Company is or may be a party has
not been the subject of judicial interpretation. There can be no assurance that
judicial or administrative authorities will not find these provisions applicable
to the Company's operations, which could have a material adverse effect on the
Company's business. Under current federal law, a physician or dentist or member
of his or her immediate family is prohibited from referring Medicare or Medicaid
patients to any entity providing "designated health services" in which the
physician or dentist has an ownership or investment interest, including the
physician's or dentist's own group practice, unless such practice satisfies the
"group practice" exception. The designated health services include the provision
of clinical laboratory services, radiology and other diagnostic services
(including ultrasound services), radiation therapy services, physical and
occupational therapy services, durable medical equipment, parenteral and enteral
nutrients, certain equipment and supplies, prosthesis, orthotics, outpatient
prescription drugs, home health services and inpatient and outpatient hospital
services. A number of states also have laws that prohibit referrals for certain
services such as x-rays by dentists if the dentist has certain enumerated
financial relationships with the entity receiving the referral, unless an
exception applies. Any future expansion of these prohibitions to other health
services could restrict the Company's ability to integrate dental practices and
carry out the dental network development.
Noncompliance with, or violation of, either the anti-kickback provisions or
restrictions on referrals can result in exclusion from the Medicare and Medicaid
programs as well as civil and criminal penalties. Similar penalties apply for
violations of state law. While the Company makes every effort to comply with the
anti-kickback and anti-referral laws a determination of violation of these laws
by the Company or its affiliated dental practices could have a material adverse
effect on the business and results of operations of the Company.
State Insurance Regulation
In addition, there are certain regulatory risks associated with the
Company's role in negotiating and administering managed care and capitation
contracts. The application of state insurance laws to reimbursement arrangements
other than various types of fee-for-service arrangements is an unsettled area of
law and is subject to interpretation by regulators with broad discretion. As the
Company or its affiliated practices contract with third-party payors, including
self-insured plans, for certain non-fee-for-service arrangements, the Company or
the affiliated dental practice may become subject to state insurance laws. In
the event that the Company or the affiliated practices are determined to be
engaged in the business of insurance, such parties could be required either to
seek licensure as an insurance company or to change the form of their
relationships with third-party payors and may become subject to regulatory
enforcement actions. In such event, the Company's revenues would be adversely
affected.
Health Care Reform Proposals
The United States Congress has considered various types of health care
reform, including comprehensive revisions to the current health care system. It
is uncertain what legislative proposals will be adopted in the future, if any,
or what actions federal or state legislatures or third party payors may take in
anticipation of or in response to any health care reform proposals or
legislation. Health care reform legislation adopted by Congress could have a
material adverse effect on the operations of the Company, and changes in the
health care industry, such as the growth of managed care organizations and
provider networks, may result in lower payment levels for the services of dental
practitioners affiliated with dental practices managed by the Company and lower
profitability for affiliated practices and the Company.
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<PAGE> 43
Regulatory Compliance
The Company regularly monitors developments in laws and regulations
relating to dentistry. The Company may be required to modify its agreements,
operations or marketing from time to time in response to changes in the
business, statutory and regulatory environments. The Company plans to structure
all of its agreements, operations and marketing in accordance with applicable
law, although there can be no assurance that its arrangements will not be
successfully challenged or that required changes may not have a material adverse
effect on operations or profitability.
EMPLOYEES
At October 23, 1997, the Company had 342 employees. Of these, 6 are
corporate management, 60 are field management, 259 are administrative and
clerical and 17 are laboratory personnel. At October 23, 1997, the Company's
dental practices had 533 employees. Of these, 157 are dentists and 376 are other
clinical personnel. In addition, the dental practices have independent
contractor relationships with 21 dentists. None of the Company's employees is
represented by a labor union and the Company is not aware of any current
activity to organize any of its employees. Management considers relations
between the Company and its employees to be good.
PROPERTIES
The Company's principal executive offices are located at 1018 West Ninth
Avenue, King of Prussia, Pennsylvania in approximately 4,000 square feet
occupied under a lease which expires on February 28, 2003. In addition, the
Company and the Company's dental practices lease office space at the locations
of each dental office. The Company owns the location of one dental office,
subject to a mortgage, in Voorhees, New Jersey. See Note 5 of the Company's
Consolidated Financial Statements for information concerning the Company's
leases for its facilities. The Company does not anticipate that it will
experience any difficulty in renewing any such leases upon their expiration or
obtaining different space on comparable terms if such leases are not renewed.
INSURANCE
The provision of dental services entails an inherent risk of professional
malpractice, and other similar claims. Although the Company does not practice
dentistry, the Company could be involved as a defendant in malpractice claims.
The Company believes that it and the affiliated dental practices maintain the
types and amounts of insurance customary in the dental services industry. The
Company maintains professional malpractice and general liability insurance for
itself and it or the affiliated practices maintain professional liability
insurance covering dentists, hygienists and dental assistants at the dental
offices. Certain types of risk and liabilities are not covered by insurance,
however, and there can be no assurance that coverage will continue to be
available upon terms satisfactory to the Company or that the coverage will be
adequate to cover losses. Malpractice insurance, moreover, can be expensive and
varies from state to state. Successful malpractice claims asserted against the
dentists, the practices or the Company may have a material adverse effect on the
Company's business, financial condition and operating results. While the Company
believes its insurance policies are adequate in amount and coverage for its
current operations, there can be no assurance that the coverage maintained by
the Company will be sufficient to cover all future claims or will continue to be
available in adequate amounts or at a reasonable cost.
LEGAL PROCEEDINGS
From time to time, the Company and the Company's dental practices are
parties to certain claims, suits and complaints which arise in the ordinary
course of business. The dentists employed by the affiliated dental practices are
from time to time subject to malpractice claims, which, if successful could
result in damage awards exceeding, perhaps substantially, applicable insurance
coverage. Currently, there are no such claims, suits or complaints which, in the
opinion of management, would have a material adverse effect on the financial
position, liquidity or results of operations of the Company or the Company's
dental practices, as the case may be.
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MANAGEMENT
Members of the Company's management team and its Board of Directors have
had extensive experience in the strategic development of companies in fragmented
health care services industries, including development and implementation of
acquisition and integration strategies and programs and management of rapid
internal growth in a health care services setting.
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information with respect to the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- --------------------------------------------------
<S> <C> <C>
Stephen F. Nagy(1)................. 53 Chairman of the Board and Director
Joseph J. Frank(1)(2).............. 44 President, Chief Executive Officer and Director
Robert K. Mehlman, D.D.S........... 51 Senior Vice President -- Business Development
Douglas P. Gill(1)(2).............. 48 Vice President, Secretary and Director
W. Gary Liddick.................... 43 Vice President and Chief Financial Officer
Keith Libou, D.M.D................. 39 Vice President -- Operations
Jeanne Marie Welsko................ 42 Vice President -- Human Resources
Stathis Andris(1)(3)............... 58 Director
Colin C. Blaydon(2)................ 57 Director
Timothy E. Foster(3)............... 45 Director
Stephen E. O'Neil(2)(3)............ 65 Director
</TABLE>
- ---------------
(1) Member of the Acquisition Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
The following is a brief summary of the business experience of each of the
directors and executive officers of the Company:
STEPHEN F. NAGY has been Chairman of the Board and a director of the
Company since January 1996. He also served as Chief Executive Officer of the
Company from January 1996 to October 1997. Mr. Nagy has been Chairman of the
Board and a director of CulturalAccessWorldwide, Inc., a leading outsource
marketing service company, since December 1996. He was Chairman of the Board of
The Pet Practice, Inc. ("Pet Practice"), a leading national provider of
veterinary services, from March 1995 until July 1996 and a director and officer
of Pet Practice from October 1993 until July 1996 when Pet Practice was acquired
by Veterinary Centers of America, Inc. Mr. Nagy has been Managing Partner and
Executive Vice President of Foster Management Company, an investment advisor,
and general partner of investment funds managed by it since 1989. He was
President of Foster Medical Corporation from 1982 to 1984 and Executive Vice
President of Avon Products, Inc. from 1984 to 1986, after Avon's acquisition of
Foster Medical Corporation. From 1971 to 1980, Mr. Nagy was with Booz, Allen and
Hamilton, Inc., serving as a Vice President from 1976 to 1980.
JOSEPH J. FRANK has been President and Chief Executive Officer of the
Company since October 1997. He served as President and Chief Operating Officer
of the Company from June 1996 to October 1997. Mr. Frank has been a director of
the Company since June 1996. Mr. Frank was Senior Vice President of Surgical
Care Affiliates ("SCA"), an operator of free standing surgical centers from 1990
until January 1996 when SCA was acquired by HealthSouth Corp. Mr. Frank was
responsible for development and acquisitions nationally for SCA. Mr. Frank
served as a Vice President of Operations of SCA from 1984 to 1990.
ROBERT K. MEHLMAN has been Senior Vice President -- Business Development of
the Company since September 1995. From September 1995 to December 1996, he
served as Vice President of Operations of the Company. Dr. Mehlman was in
private dental practice in Northern Virginia from April 1994 until he joined
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the Company in September 1995. Dr. Mehlman was the National Dental Director of
Aetna from 1990 until March 1994. Dr. Mehlman graduated from the University of
Southern California Dental School.
DOUGLAS P. GILL has been a director of the Company since August 1995. He
was President of the Company from August 1995 through June 1996, and has been a
Vice President of the Company since June 1996. Mr. Gill has been General Partner
and Vice President of Foster Management Company since April 1994. From June 1984
to April 1994, Mr. Gill was a First Vice President and an investment banker with
Janney Montgomery Scott, Inc.
W. GARY LIDDICK has been Vice President of Finance of the Company since
August 1995 and Chief Financial Officer of the Company since August 1997. Mr.
Liddick also served as the Controller of the Company from August 1995 until May
1997. Mr. Liddick served as Vice President of Finance and Chief Financial
Officer of Hearing Health Services, Inc. from August 1993 to October 1996. From
1991 to August 1993, Mr. Liddick was the Vice President of Operations of
Rosenbluth International, a national travel agency. Mr. Liddick earned a degree
in accounting from Lehigh University and is a Certified Public Accountant.
KEITH LIBOU, D.M.D. has been the Vice President -- Operations of the
Company since June 1997. From November 1992 to June 1997, Dr. Libou was employed
by CIGNA Corporation in a variety of positions. He most recently served as
Dental Director for the Eastern United States from January 1995 to June 1997.
JEANNE MARIE WELSKO has been the Vice President -- Human Resources of the
Company since October 1996. Prior to joining the Company, Ms. Welsko was
employed by Apria Healthcare Group, Inc., a home healthcare provider, as
Director of Human Resources from September 1995 until October 1996. Ms. Welsko
worked for The Mellon Bank Corporation from 1987 until September 1995 in a
variety of human resources positions.
STATHIS ANDRIS has been a director of the Company since June 1996. Mr.
Andris worked for American Express Company from 1981 to 1993 in a number of
management positions. In 1993, Mr. Andris founded Venture Investment Associates,
a family of private equity funds.
COLIN C. BLAYDON has been a director of the Company since June 1996. Mr.
Blaydon is the William and Josephine Buchanan Professor of Management at the
Amos Tuck School of Business Administration of Dartmouth College. He was the
interim Dean of the Amos Tuck School of Business Administration from 1994 until
July 1995 and has been on the faculty since August 1983. Mr. Blaydon has also
served as Senior Advisor to Putnam, Hayes & Bartlett, Inc., an economic and
management consulting firm, since May 1981. He served as Chairman of ITP,
Systems, Inc., a systems integration and software developer, from February 1992
to August 1993. Mr. Blaydon serves on the Board of Directors of Mercantile
Trust, N.A., ITP, Systems, Inc., The LTV Corporation and Tom's of Maine, Inc. He
is also on the Board of Trustees of the Lowell Whiteman School and the Public
Utility Policy Institute.
TIMOTHY E. FOSTER has been a director of the Company since June 1996. He
has been Chief Executive Officer of NovaCare, Inc. since May 1997. Between
October 1994 and May 1997, he was President and Chief Operating Officer of
NovaCare, Inc. He has been a director of NovaCare, Inc. since December 1984.
Prior to becoming President of NovaCare, Inc., he served in a variety of finance
and administrative roles at NovaCare, Inc. beginning in 1984. Since February
1995, he has also been a director of Apogee, Inc., a national provider of mental
health services. Mr. Foster has been Managing Partner of Foster Management
Company since June 1997.
STEPHEN E. O'NEIL has been a director of the Company since June 1996. Mr.
O'Neil has been a principal of The O'Neil Group, a private investment firm,
since 1981. He is a director of NovaCare, Inc., Brown-Forman Corporation, Castle
Convertible Fund, Inc., Spectra Fund, Inc., The Alger Fund, Inc. and The Alger
American Funds.
COMMITTEES OF THE BOARD
The Board has a Compensation Committee, an Audit Committee and an
Acquisition Committee. The members of the Compensation Committee are Colin C.
Blaydon, Joseph J. Frank, Douglas P. Gill and
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<PAGE> 46
Stephen E. O'Neil. The Compensation Committee makes recommendations to the full
Board as to the compensation of senior management. The Stock Option Committee of
the Compensation Committee administers the Company's Stock Option Plan and
determines the persons who are to receive options and the number of shares
subject to each option. The members of the Stock Option Committee are Stephen E.
O'Neil and Colin C. Blaydon.
The members of the Audit Committee are Stathis Andris, Timothy E. Foster
and Stephen E. O'Neil. The Audit Committee acts as a liaison between the Board
and the independent accountants and annually recommends to the Board the
appointment of the independent accountants. The Audit Committee reviews with the
independent accountants the planning and scope of the audits of the financial
statements, the results of those audits and the adequacy of internal accounting
controls and monitors other corporate and financial policies.
The members of the Acquisition Committee are Stathis Andris, Joseph J.
Frank, Douglas P. Gill and Stephen F. Nagy. The Acquisition Committee is
authorized to approve acquisitions of businesses having an aggregate purchase
price of less than $5 million.
The Board of Directors does not have a Nominating Committee.
DIRECTOR COMPENSATION
Directors of the Company do not receive fees for service as directors but
are reimbursed for out-of-pocket expenses.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or awarded to the Chief Executive Officer and each of the other executive
officers of the Company whose total annual salary and bonus exceeded $100,000
during fiscal 1996.
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<PAGE> 47
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ALL OTHER COMPENSATION(1)
- --------------------------------------- ------- --------- -------- -------------------------
<S> <C> <C> <C> <C>
Stephen F. Nagy........................ 1996 $40,000(3) 0 0
Chairman of the Board(2)
Joseph J. Frank........................ 1996 72,115 22,500(4) 0
President and Chief
Executive Officer(5)
Robert K. Mehlman, D.D.S............... 1996 143,577 54,000 0
Senior Vice President
Business Development(6)
</TABLE>
- ---------------
(1) The aggregate value of perquisites and other personal benefits received by
each of the named executive officers was less than the lesser of $50,000 or
10% of his total annual salary and bonus and, accordingly, has been omitted.
(2) Mr. Nagy served as Chief Executive Officer of the Company during 1996 and
until October 1997.
(3) Represents a management fee of $3,333.33 per month paid in 1996 to Foster
Management Company, of which Mr. Nagy is a Managing Partner. The agreement
to pay a monthly management fee will terminate upon the consummation of the
offering. See "Certain Transactions." Mr. Nagy and the other directors of
the Company receive reimbursement for out-of-pocket expenses incurred in
connection with their service to the Company.
(4) Represents bonus accrued in 1996 and paid on January 17, 1997.
(5) Mr. Frank served as President and Chief Operating Officer during 1996 and
until October 1997 when he became President and Chief Executive Officer of
the Company.
(6) Dr. Mehlman served as Vice President of Operations of the Company from
September 1995 to December 1996.
In May, 1996, the Company entered into an employment agreement with Mr.
Frank which provides that Mr. Frank will serve as President and Chief Operating
Officer. The agreement sets forth a base salary of $150,000 per year through the
date of this offering and a base salary subject to review of the Company's Board
of Directors thereafter. The agreement provides for a potential bonus equal to
30% of the base salary based upon Mr. Frank's achievement of certain mutually
agreed upon goals. The agreement provides for certain severance payments, the
amount of which depends upon Mr. Frank's length of service in the event Mr.
Frank is terminated by the Company without cause, as defined in the agreement.
Mr. Frank is also eligible to participate in the standard Company benefit
package in place for senior executives, and entitled to three weeks vacation in
the first three years of employment under the agreement and four weeks in
subsequent years, and is allotted a car allowance of $600 per month. The
agreement includes a non-compete covenant for the benefit of the Company where
Mr. Frank will not be able to serve as a consultant, employee, officer, director
or investor of any group dental practice or any entity engaged in the
consolidation of dental providers for a period of two years after his
termination of employment from the Company.
In addition, the Company has entered into agreements, which are terminable
at will, with each of W. Gary Liddick, Keith Libou, D.M.D. and Jeanne Marie
Welsko which set forth, among other things, the base salary, bonus, equity
participation and other employee benefit arrangements for each of them.
See "Certain Transactions" for a description of the employment agreement
between the Company and Dr. Mehlman.
STOCK OPTION PLAN
Effective October 1, 1997, the Board of Directors and stockholders adopted
the Valley Forge Dental Associates, Inc. Stock Option Plan (the "Stock Option
Plan") to attract and retain key personnel.
The following discussion of the material features of the Stock Option Plan
is qualified by reference to the
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<PAGE> 48
text of the Stock Option Plan filed as an exhibit to the Registration Statement
of which this Prospectus forms a part.
Under the Stock Option Plan, options to purchase up to an aggregate of
600,000 shares of Common Stock may be granted to key employees of the Company or
its subsidiaries or any Affiliate of the Company, and to officers, directors,
consultants and other individuals providing services to the Company.
The Stock Option Committee of the Board of Directors administers the Stock
Option Plan and determines the persons who are to receive options and the number
of shares to be subject to each option. In selecting individuals for options and
determining the terms thereof, the Stock Option Committee may consider any
factors it deems relevant, including present and potential contributions to the
success of the Company. Options granted under the Stock Option Plan must be
exercised within a period fixed by the Stock Option Committee, which may not
exceed ten years from the date of the option or, in the case of incentive stock
options granted to any holder on the date of grant of more than ten percent of
the total combined voting power of all classes of stock of the Company, five
years from the date of grant of the option. Options may be made exercisable in
whole or in installments, as determined by the Stock Option Committee.
Options may not be transferred other than by will or the laws of descent
and distribution and, during the lifetime of an optionee, may be exercised only
by the optionee, except for transfers approved by the Stock Option Committee to
certain permitted transferees (such as immediate family members and charitable
institutions). The exercise price may not be less than the market value of the
Common Stock on the date of grant of the option. In the case of incentive stock
options granted to any holders on the date of grant of more than ten percent of
the total combined voting power of all classes of stock of the Company and its
subsidiaries, the exercise price may not be less than 110% of the market value
per share of the Common Stock on the date of grant. The value of Common Stock
(determined at the time of grant) that may be subject to incentive stock options
that become exercisable in by any one employee in any one year is limited by the
Code to $100,000. Unless designated as "incentive stock options" intended to
qualify under Section 422 of the Code, options which are granted under the Stock
Option Plan are intended to be "nonstatutory stock options." The exercise price
may be paid in cash, shares of Common Stock owned by the optionee, or in a
combination of cash and shares.
The Stock Option Plan provides that, in the event of changes in the
corporate structure of the Company or certain events affecting the Common Stock,
the Stock Option Committee may, in its discretion, make adjustments with respect
to the number of shares which may be issued under the Stock Option Plan or which
are covered by outstanding options, in the exercise price per share, or both.
The Stock Option Committee may in its discretion provide that, in connection
with any merger or consolidation which results in the holders of the outstanding
voting securities of the Company (determined immediately prior to such merger or
consolidation) owning less than a majority of the outstanding securities of the
surviving corporation (determined immediately following such merger or
consolidation) or any sale or transfer by the Company of all or substantially
all its assets or any tender offer or exchange offer for or the acquisition,
directly or indirectly, by any person or group of all or a majority of the then
outstanding voting securities of the Company, outstanding options under the
Stock Option Plan will become exercisable in full or in part, notwithstanding
any other provision of the Stock Option Plan or of any outstanding options
granted thereunder, on and after (i) 15 days prior to the effective date of such
merger, consolidation, sale, transfer or acquisition or (ii) the date of
commencement of such tender offer or exchange offer, as the case may be.
As of the date hereof, the Company has granted options to purchase 45,000
shares of Common Stock at an exercise price of $12.00 per share.
The grant of a stock option under the Plan will not generally result in
taxable income for the optionee, nor in a deductible compensation expense for
the Company, at the time of grant. The optionee will have no taxable income upon
exercising an incentive stock option (except that the alternative minimum tax
may apply), and the Company will receive no deduction when an incentive stock
option is exercised. Upon exercising an nonstatutory stock option, the optionee
will recognize ordinary income in the amount by which the fair market value of
the Common Stock on the date of exercise exceeds the exercise price, and the
Company will generally be entitled to a corresponding deduction. The treatment
of an optionee's disposition of
47
<PAGE> 49
shares of Common Stock acquired upon the exercise of an option is dependent upon
the length of time the shares have been held and on whether such shares were
acquired by exercising an incentive stock option or a nonstatutory stock option.
Generally, there will be no tax consequence to the Company in connection with
the disposition of shares acquired under an option except that the Company may
be entitled to a deduction in the case of a disposition of shares acquired upon
exercise of an incentive stock option before the applicable incentive stock
option holding period has been satisfied.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors of the
Company for fiscal 1996 were Colin C. Blaydon, Joseph J. Frank, Douglas P. Gill
and Stephen E. O'Neil.
As discussed below under "Certain Transactions," the Company has engaged in
a variety of transactions with the limited partnerships of which Stephen F.
Nagy, Timothy E. Foster and Douglas P. Gill are general partners of the general
partner and Foster Management Company, an investment advisor of which Mr. Nagy
is Managing Partner, Mr. Foster is Managing Partner and Douglas P. Gill is
General Partner. For a more detailed description of such relationships and
transactions, see "Certain Transactions."
48
<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock (i) as of October 23, 1997 and (ii) as
adjusted to reflect the sale of the shares of Common Stock offered by the
Company in the offering by (a) each person known by the Company to own
beneficially more than 5% of the Company's Common Stock, (b) each director of
the Company who beneficially owns Common Stock, (c) each of the persons named in
the Summary Compensation Table and (d) all executive officers and directors of
the Company as a group. Except as indicated in the footnotes to the table, all
of such shares of Common Stock are owned with sole voting and investment power.
<TABLE>
<CAPTION>
PERCENT OF
COMMON STOCK
COMMON STOCK ---------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED OFFERING(1) OFFERING(2)
- ------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Business Development Capital
Limited Partnership-III.......................... 175,000 % %
1018 West Ninth Avenue
King of Prussia, PA 19406
Abbingdon Venture
Partners Limited Partnership..................... 472,500 % %
1018 West Ninth Avenue
King of Prussia, PA 19406
Abbingdon Venture
Partners Limited Partnership-II.................. 1,732,500 % %
1018 West Ninth Avenue
King of Prussia, PA 19406
Abbingdon Venture
Partners Limited Partnership-III................. 1,120,000 % %
1018 West Ninth Avenue
King of Prussia, PA 19406
Stephen F. Nagy.................................. 3,500,000(3) % %
Foster Management Company
1018 West Ninth Avenue
King of Prussia, PA 19406
Joseph J. Frank.................................. 150,000 % %
Valley Forge Dental Associates, Inc.
1018 West Ninth Avenue
King of Prussia, PA 19406
Robert K. Mehlman, D.D.S......................... 263,992(4) % %
Valley Forge Dental Associates, Inc.
1018 West Ninth Avenue
King of Prussia, PA 19406
Stathis Andris................................... 5,000 * *
Venture Investment Associates
1300 Mt. Kimball Avenue
Route 202
Morristown, NJ 07962
Colin C. Blaydon................................. 5,000 * *
Amos Tuck School of
Business Administration
Dartmouth College
Hanover, NH 03755
Timothy E. Foster................................ 3,500,000(3) % %
NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, PA 19406
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
PERCENT OF
COMMON STOCK
COMMON STOCK ---------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED OFFERING(1) OFFERING(2)
- ------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Douglas P. Gill.................................. 2,852,500(5) % %
Foster Management Company
1018 West Ninth Avenue
King of Prussia, PA 19406
Stephen E. O'Neil................................ 5,000 * *
805 Third Avenue
10th Floor
New York, NY 10022
Directors and Executive Officers as a group (11
persons)....................................... 3,938,992(1)(2) % %
(3)(4)
(5)
</TABLE>
- ---------------
(*) Less than one percent (1%).
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares as
to which the individual has sole or shared voting power or investment power
and also any shares which the individual has the right to acquire within 60
days after October 23, 1997 through the exercise of any stock option,
warrant or other right. The inclusion herein of such shares, however, does
not constitute an admission that the named stockholder is a direct or
indirect beneficial owner of such shares. Unless otherwise indicated, each
person or entity named in the table has sole voting power and investment
power (or shares such power with his or her spouse) with respect to all
shares of capital stock listed as owned by such person or entity.
(2) Percentage of ownership is based on shares of Common Stock outstanding
before the offering and shares of Common Stock outstanding after the
offering.
(3) Represents shares of Common Stock owned by Business Development Capital
Limited Partnership-III ("BDC-III"), Abbingdon Venture Partners Limited
Partnership ("Abbingdon"), Abbingdon Venture Partners Limited Partnership-II
("Abbingdon-II"), and Abbingdon Venture Partners Limited Partnership-III
("Abbingdon-III"), limited partnerships of which Stephen F. Nagy and Timothy
E. Foster are general partners of the general partner.
(4) Includes 213,992 shares issuable to MT Associates, a Pennsylvania
partnership, of which Dr. Mehlman is a general partner, upon conversion of
currently convertible subordinated notes.
(5) Represents shares of Common Stock owned by Abbingdon-II and Abbingdon-III,
limited partnerships of which Douglas P. Gill is a general partner of the
general partner.
50
<PAGE> 52
CERTAIN TRANSACTIONS
In connection with the Company's initial capitalization, BDC-III,
Abbingdon, Abbingdon-II and Abbingdon-III (together, the "Partnerships"),
investment partnerships operated by Foster Management Company (an investment
advisor of which Stephen F. Nagy is Managing Partner, Douglas P. Gill is General
Partner, and Timothy E. Foster is Managing Partner), purchased 3,500,000 shares
of Common Stock for $350,000, and 8,000 shares of 8% mandatorily redeemable
preferred stock for $800,000.
In connection with the Company's initial capitalization in September 1995,
the Company entered into agreements with the Partnerships whereby the
Partnerships agreed to lend the Company $1,600,000 pursuant to 9% Subordinated
Promissory Notes due September 18, 2005 (the "Original Notes"). In December
1995, the Company entered into further agreements with the Partnerships whereby
the Partnerships have agreed to lend the Company up to an additional $8,400,000
pursuant to 9% Subordinated Promissory Notes due September 18, 2005 (the "9%
Notes"). In December, 1995, the Company entered into further agreements with the
Partnerships whereby the Partnerships have agreed to lend the Company up to an
additional $20,000,000 pursuant to 9% Subordinated Promissory Notes due
September 18, 2005 (the "1995 Notes"). In October 1997, the Company entered into
further agreements with the Partnerships whereby the Partnerships have agreed to
lend the Company up to an additional $8,000,000 pursuant to 9% Subordinated
Promissory Notes due September 18, 2005 (the "1997 Notes"). To date, the Company
has borrowed approximately $33.1 million from the Partnerships pursuant to the
Original Notes, the 9% Notes, the 1995 Notes and the 1997 Notes. The Company
intends to apply a portion of the net proceeds from the offering to repay in
full the Original Notes, the 9% Notes, the 1995 Notes and the 1997 Notes and to
redeem the shares of mandatorily redeemable preferred stock held by the
Partnerships. After the offering, the Company's loan agreements with the
Partnerships will be terminated. See "Use of Proceeds."
The following table sets forth the respective interest of the Partnerships
in the Original Notes, the 9% Notes, the 1995 Notes and the 1997 Notes:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF ORIGINAL PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT
NAME OF PARTNERSHIP NOTES OF 9% NOTES OF 1995 NOTES OF 1997 NOTES
- ----------------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
BDC-III...................... $ 80,000 $ 420,000 $1,000,000 $ 400,000
Abbingdon.................... 216,000 1,134,000 2,700,000 1,080,000
Abbingdon-II................. 792,000 4,158,000 9,000,000 3,960,000
Abbingdon-III................ 512,000 2,688,000 6,400,000 2,560,000
</TABLE>
The Company sold to each of the directors and executive officers of the
Company the following shares of Common Stock in the following months for $.10
per share, which shares of Common Stock vest over a five-year period contingent
upon continued service: in September 1995, 50,000 shares of Common Stock to
Robert K. Mehlman, D.D.S., Senior Vice President -- Business Development of the
Company; in December 1995, 2,500 shares of Common Stock to W. Gary Liddick, Vice
President of Finance and Chief Financial Officer of the Company; in November
1996, 5,000 shares of Common Stock each to Stathis Andris, Colin C. Blaydon and
Stephen E. O'Neil, directors of the Company; in December 1996, 150,000 shares of
Common Stock to Joseph J. Frank, President and Chief Executive Officer and a
director of the Company, 7,500 shares to Jeanne Marie Welsko, Vice
President -- Human Resources of the Company, and 5,000 shares of Common Stock to
W. Gary Liddick. The Company entered into stock purchase agreements with each of
these directors and executive officers (the "Stock Purchase Agreements")
pursuant to which such individuals purchased their respective shares of Common
Stock. The Stock Purchase Agreements provide for restrictions on the sale of
such shares and further provide that the Company has the option to repurchase
such shares at $.10 per share upon the occurrence of certain conditions
contained therein.
Pursuant to an arrangement between the Company and Foster Management
Company, the Company pays a management fee of $3,333.33 per month. During 1996,
the Company paid Foster Management Company an Pursuant to an arrangement between
the Company and Foster Management Company, the Company pays a management fee of
$3,333.33 per month. During 1996, the Company paid Foster Management Company an
aggregate of $40,000 in management fees plus reimbursement of out-of-pocket
51
<PAGE> 53
expenses of approximately $72,683. This arrangement will terminate upon the
consummation of this offering. The Company has agreed to pay Foster Management
Company a fee of $750,000 for its assistance in effectuating this offering.
Dr. Mehlman was a partner of MT Associates, a Pennsylvania general
partnership, from which the Company acquired the assets of the Northern Virginia
Dental Group and the capital stock of Penn Dental, Inc. in September 1995. In
consideration therefor, the Company agreed to pay MT Associates $1,600,000 in
cash, a three-year 6% subordinated promissory note of the Company in the
principal amount of $135,000, and a three-year 6% convertible promissory note of
the Company in the principal amount of $800,000 (the "First Convertible Note"),
plus certain additional contingent payments payable in cash and convertible
promissory notes over a three-year period upon achievement of certain financial
goals. In October 1996, the Company issued to Dr. Mehlman, as additional
purchase price, a 6.67% promissory note in the principal amount of $137,926.48
and, in satisfaction of the Company's obligation to make contingent payments
with respect to the prior year, the Company issued to MT Associates, a
three-year 6% convertible promissory note in the principal amount of $720,000
(the "Second Convertible Note"). In October 1997, in satisfaction of the
Company's obligation to make contingent payments with respect to the prior year,
the Company issued to MT Associates a three-year 6% convertible promissory note
of the Company in the principal amount of $2,677,200 (the "Third Convertible
Note"). The First Convertible Note, the Second Convertible Note and the Third
Convertible Note are convertible at any time by MT Associates into shares of
Common Stock at a conversion price of $16.00 per share of Common Stock.
In connection with the acquisition of the assets of MT Associates in
September 1995, Dr. Mehlman entered into a five-year employment agreement with
the Company. The agreement provided for Dr. Mehlman to receive an annual base
salary of $150,000, subject to merit increases as determined by the Board of
Directors of the Company, and, to earn bonuses of up to 30% of his base salary
each year. In September 1996, the Company and Dr. Mehlman agreed to amend the
employment agreement to provide for an annual base salary of $120,000.
On October 23, 1997, the Company executed a demand secured promissory note
payable to PNC Bank in the principal amount of the lesser of the amount borrowed
or $10,000,000, with an interest rate, at the Company's option, equal to (a) the
greater of (i) PNC Bank's prime rate, which at October 23, 1997 was 8.5% or (ii)
the federal funds rate plus 0.5% or (b) the Eurodollar rate plus 2.0%. Certain
of the Partnerships guaranteed the payment of the Company's obligations to PNC
Bank under such note. All of the Partnerships have pledged their shares of
Common Stock and mandatorily redeemable preferred stock as security for
repayment of such note. See "Use of Proceeds." Upon such repayment, the demand
credit facility with PNC Bank and the guaranties by the Partnerships will
terminate.
The Company leases its executive offices from NovaCare, Inc. The lease
agreement with NovaCare, Inc. is for a term of ten years and provides for a
current monthly rental amount of $5,281. Timothy E. Foster, a director of the
Company, is the Chief Executive Officer of NovaCare, Inc.
52
<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $.01 per share, and 1,000,000 shares of preferred stock,
par value $.01 per share, issuable in series (the "Preferred Stock"). At October
23, 1997, there were shares of Common Stock and 8,000 shares of
mandatorily redeemable preferred stock issued and outstanding.
The following description of certain matters relating to the capital stock
of the Company is a summary and is qualified in its entirety by the provisions
of the Company's Certificate of Incorporation and By-Laws, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part.
COMMON STOCK
At October 23, 1997, approximately 59 persons were holders of record of the
shares of Common Stock outstanding. Each holder of record of Common
Stock is entitled to one vote for each outstanding share of Common Stock owned
by such holder, is not entitled to cumulate his votes for the election of
directors and does not have preemptive rights. The issued and outstanding shares
of Common Stock are, and all shares of Common Stock to be issued and to be sold
in the offering will be, validly issued, fully paid and nonassessable. All
shares of Common Stock have equal rights and, subject to the rights of the
holders of the Preferred Stock, are entitled to receive ratably such dividends,
if any, as the Board of Directors may declare from time to time out of funds
legally available therefor. Upon liquidation of the Company, after payment or
provision for payment of all of the Company's debts and obligations and
liquidation payments to holders of outstanding shares of Preferred Stock, the
holders of the Common Stock will share ratably in the net assets, if any,
available for distribution to holders of Common Stock upon liquidation.
PREFERRED STOCK
The Company has issued an initial series of its Preferred Stock designated
the 8% Cumulative Preferred Stock. The 8% Cumulative Preferred Stock is referred
to herein and elsewhere in this Prospectus and in the Consolidated Financial
Statements of the Company and the notes thereto as the mandatorily redeemable
preferred stock. At October 23, 1997, the Company had issued and outstanding
8,000 shares of the mandatorily redeemable preferred stock, all of which are
owned by the Partnerships. See "Certain Transactions." A portion of the proceeds
of the offering will be used to redeem such shares. See "Use of Proceeds."
Holders of the mandatorily redeemable preferred stock are entitled to receive
dividends out of any net profits or net assets of the Company legally available
for dividends at the rate of $8.00 per share per annum, payable quarterly on
March 31, June 30, September 30 and December 31. Dividends upon the mandatorily
redeemable preferred stock are cumulative, so that if dividends upon the
outstanding mandatorily redeemable preferred stock from the date on which such
dividends commence to accrue to the end of the then current quarterly dividend
period for such stock shall not have been declared and paid, the amount of the
deficiency shall be paid, but without interest, before the Company shall
declare, pay or set aside funds for any dividends or other distributions (other
than dividends payable in shares of Common Stock to all holders of Common Stock)
in respect of Common Stock or any Common Stock shall be purchased by the
Company. In the event of the liquidation of the Company, the holders of the
mandatorily redeemable preferred stock are entitled to receive payment of a
preferential amount of $100 per share plus all accrued and accumulated but
unpaid dividends before any distribution is made to holders of Common Stock. The
mandatorily redeemable preferred stock does not have any voting rights and is
not convertible. The mandatorily redeemable preferred stock may be redeemed at
any time by the Company, at its option, for $100 per share plus an amount equal
to all accrued and accumulated but unpaid dividends and is required to be
redeemed upon the earlier of the consummation of the offering or December 31,
1998.
The Company's Board of Directors may without further action by the
Company's stockholders, from time to time, direct the issuance of additional
shares of Preferred Stock in series and may, at the time of issuance, determine
the rights, preferences and limitations of each series. The rights of any such
series may include voting and conversion rights which would adversely affect the
voting power of the holders of Common Stock.
53
<PAGE> 55
Satisfaction of any dividend preferences of outstanding Preferred Stock would
reduce the amount of funds available, if any, for the payment of dividends on
Common Stock. See "Dividend Policy." Also, the holders of Preferred Stock would
normally be entitled to receive a preference payment in the event of any
liquidation, dissolution or winding-up of the Company before any payment is made
to the holders of the Common Stock. The Company does not have any present plans
to issue any additional series of Preferred Stock.
The overall effect of the ability of the Company's Board of Directors to
issue Preferred Stock may be to render more difficult the accomplishment of
mergers or other takeover or change in control attempts. To the extent that this
ability has this effect, removal of the Company's incumbent Board of Directors
and management may be rendered more difficult. Further, this may have an adverse
impact on the ability of stockholders of the Company to participate in a tender
or exchange offer for the Common Stock and in so doing diminish the market value
of the Common Stock. The Company is not aware of any proposed takeover attempt
or any proposed attempt to acquire a large block of Common Stock.
LIMITATIONS ON DIRECTOR AND OFFICER LIABILITY
Article Sixth of the Certificate of Incorporation of the Company provides
that the Company shall indemnify and hold harmless any director, officer,
employee or agent of the Company from and against any and all expenses and
liabilities that may be imposed upon or incurred by him in connection with, or
as a result of, any proceeding in which he may become involved, as a party or
otherwise, by reason of the fact that he is or was such a director, officer,
employee or agent of the Company, whether or not he continues to be such at the
time such expenses and liabilities shall have been imposed or incurred, to the
extent permitted by the laws of the State of Delaware, as they may be amended
from time to time.
Article Eleventh of the Certificate of Incorporation of the Company
contains a provision which eliminates the personal liability of a director of
the Company to the Company or to any of its stockholders for monetary damages
for a breach of his fiduciary duty as a director, except in the case in which
the director breached his duty of loyalty, failed to act in good faith, engaged
in intentional misconduct or knowingly violated a law, authorized the payment of
a dividend or approved a stock repurchase in violation of the Delaware General
Corporation Law, or obtained an improper personal benefit.
STATUTORY PROVISIONS
The Company, in its certificate of incorporation, has elected not to be
governed by Section 203 of the Delaware General Corporation Law, which is
considered to be an anti-takeover provision in that it imposes certain
restrictions on a publicly-held Delaware corporation engaging in business
combinations with greater than 15% stockholders of such corporation.
TRANSFER AGENT
The transfer agent for the Common Stock will be American Stock Transfer &
Trust Company.
54
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have shares of
Common Stock outstanding, of which shares (approximately % of the
shares to be outstanding) will be held by persons who acquired such shares in
transactions in which such shares were not registered under the Securities Act.
These shares may not be sold unless registered under the Securities Act or sold
pursuant to an applicable exemption from registration, such as Rule 144 under
the Securities Act ("Rule 144"). Rule 144, as currently in effect and subject to
its provisions and other applicable federal and state securities laws, permits a
person (or persons whose shares are aggregated) who has beneficially owned his
or her shares for at least one year to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the total number of
outstanding shares of Common Stock or the average weekly trading volume during
the four calendar weeks preceding the sale. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information concerning the Company. Rule 144 also
permits, under certain circumstances, such sale of shares without any quantity
limitation or current public information described above by a person who is not
an affiliate of the Company and who has satisfied a two-year holding period.
The Company and the holders of approximately % of the Company's Common
Stock, including all of the Company's directors and executive officers, have
agreed that, for a period of 180 days after the date of this Prospectus (the
"Lock-up Period") they will not, without the prior written consent of
NationsBanc Montgomery Securities, Inc., offer, sell, contract to sell or
otherwise dispose of any Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or grant any options or warrants to
purchase Common Stock except, in certain limited circumstances. See
"Underwriting." Upon expiration of the Lock-up Period, at least 4,010,819 of the
shares to be outstanding (approximately of such shares) will be eligible
for sale under Rule 144, including 89,655 shares which would be freely tradeable
under paragraph (k) of Rule 144 and 3,921,164 shares subject to compliance with
Rule 144 volume limitations, of which 3,730,000 are held by officers, directors
and affiliates of the Company. In addition, 13 holders of 157,750 currently
outstanding shares of the Company's Common Stock acquired in connection with an
acquisition have registration rights obligating the Company to register such
holder's shares of Common Stock on a pro rata basis if the Company registers
shares of Common Stock for any other holder of Common Stock after the offering.
The Company cannot predict the number of shares of Common Stock which may
be sold in the future pursuant to Rule 144 since such sales will depend upon the
market price of the Common Stock, the individual circumstances of holders
thereof and other factors. Any sales of a substantial number of shares of Common
Stock in the public market could have a significant adverse effect on the market
price of the Common Stock.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the 600,000 shares of Common Stock authorized and
reserved for issuance pursuant to the Stock Option Plan. Upon the filing of such
Form S-8, outstanding shares of Common Stock so registered may be freely sold
without restriction, except for shares held by officers, directors and other
affiliates of the Company. See "Management -- Stock Option Plan."
55
<PAGE> 57
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, represented by NationsBanc Montgomery Securities, Inc.
and Bear, Stearns & Co. Inc. (the "Representatives") have severally agreed to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters to pay
for and accept delivery of the shares of Common Stock are subject to certain
conditions precedent, and that the Underwriters are committed to purchase all of
such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------------- ----------
<S> <C>
NationsBanc Montgomery Securities, Inc. .................................
Bear, Stearns & Co. Inc. ................................................
----------
Total..........................................................
==========
</TABLE>
The Representatives have advised the Company that the Underwriters may
allow to select dealers a concession of not more than $ per share; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the offering, the price,
concessions and reallowances to dealers may be changed by the Representatives.
The Common Stock is offered subject to receipt and acceptance by the
Underwriters and to certain other conditions, including the right to reject
orders in whole or in part.
The Company has granted an option to the Underwriters exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by
the Underwriters. To the extent the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table.
The Representatives have advised the Company that the Underwriters do not
expect to make sales to accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
The holders of approximately % of the shares of the Company's Common
Stock, including all of the Company's directors and executive officers, have
agreed that, for a period of 180 days after the date of this Prospectus, they
will not, without the prior written consent of NationsBanc Montgomery
Securities, Inc., directly or indirectly, sell, offer to sell or otherwise
dispose of any shares of Common Stock or any options owned directly by such
holders or with respect to which they have the power of disposition. The Company
has agreed not to sell, offer to sell, contract to sell, grant any options to
purchase or otherwise dispose of any shares of Common Stock, or any securities
convertible into or exercisable or exchangeable for shares of Common Stock or
any rights to acquire Common Stock for a period of 180 days after the date of
this Prospectus, except, in the case of the Company, in certain limited
circumstances. The lock-up agreements may be released at any time as to all or
any portion of the shares subject to such agreements at the discretion of
NationsBanc Montgomery Securities, Inc.
Prior to the offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price will be
negotiated between the Company and the Representatives. Among the factors
considered in determining the initial public offering price of the Common Stock,
in addition to prevailing market conditions, are the Company's historical
performance, estimates of the business
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<PAGE> 58
potential and earnings prospects of the Company, an assessment of the Company's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when the Common Stock originally sold by such syndicate member
is purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transaction and
penalty bids may cause the price of the Common Stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Haythe & Curley, 237 Park Avenue, New York, New York 10017,
and for the Underwriters by Dewey Ballantine LLP, 1301 Avenue of the Americas,
New York, New York 10019.
EXPERTS
The financial statements of Valley Forge Dental Associates, Inc. as of
December 31, 1995, 1996 and June 30, 1997 and for the period from September 19,
1995 (date of inception) to December 31, 1995, the year ended December 31, 1996
and the period from January 1, 1997 to June 30, 1997 included in this Prospectus
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The combined financial statements of Penn Dental Associates, P.C., Stafford
Dental Associates, Gallows Dental Group, Hallmark Dental Group and Alexandria
Dental Center; the combined financial statements of Donald L. Kane, D.D.S., P.A.
and UDG, Melbourne, P.A.; the consolidated financial statements of Western
Dental Group; the consolidated financial statements of Horizon Group
International, Inc.; the combined financial statements of ENW, Inc.; the
financial statements of The Dentistry; the financial statements of Comprehensive
Family Dentistry, Inc.; the financial statements of Bernard B. Baros, D.D.S.,
P.C.; the financial statements of Maurice E. Smith, D.D.S., the combined
financial statements of Douglas A. Quinn, D.D.S. and Douglas A. Quinn, D.D.S.,
P.A.; the combined financial statements of Gentle Dental of Ocala, Sarasota,
Clearwater, Manatee and Gentle Dental Orthodontics, P.C.; the financial
statements of Felix W. Sibley, Jr., d/b/a/ Garden Walk Dental Associates; the
financial statements of Dr. Kenneth Bradley Reynolds, D.D.S. and the financial
statements of Miller & Powell, D.M.D. d/b/a/ Soft Touch Dentistry, have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The combined financial statements of ProDent, Inc. and Affiliates as of
December 31, 1995, 1996 and September 30, 1997 and for the three years in the
period ended December 31, 1996 and for the period from January 1, 1997 to
September 30, 1997 included in this Prospectus have been so included in reliance
on the report of Kelly, Welde & Co., independent accountants, given on the
authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. (the "Commission"), a Registration Statement on Form S-1 under
the Securities Act with respect to the shares of
57
<PAGE> 59
Common Stock offered hereby (the "Registration Statement"). This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto, certain items of which are omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus concerning the provision of any documents filed with the
Registration Statement as exhibits are necessarily summaries of such documents,
and each such statement is qualified in its entirety by reference to the copy of
the applicable document filed as an exhibit to the Registration Statement. For
further information about the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the financial statements,
schedules and exhibits filed as a part thereof.
Upon completion of the offering, the Company will be subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith will file reports and other
information with the Commission. The Registration Statement, the exhibits and
schedules forming a part thereof and the reports and other information filed by
the Company with the Commission in accordance with the Exchange Act may be
inspected without charge 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 New York Regional Office located at Seven World Trade
Center, New York, New York 10048 and its Chicago Regional Office located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, copies of such
documents can be obtained from the public reference section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the prescribed
rates. In addition, the Commission maintains a Web site (http://www.sec.gov)
that contains reports, proxy information statements and other information
regarding registrants that file electronically with the Commission through the
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"). The
Registration Statement has been filed electronically through EDGAR and may be
retrieved through the Commission's Web site on the Internet. The statements
contained in this Prospectus concerning any contract or document are not
necessarily complete; where such contract or other document is an exhibit to the
Registration Statement, each such statement is qualified in all respects by the
provisions of such exhibit.
58
<PAGE> 60
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
VALLEY FORGE DENTAL ASSOCIATES, INC.
Report of Independent Accountants.................................................. F-5
Consolidated Balance Sheet as of December 31, 1995, 1996 and June 30, 1997......... F-6
Consolidated Statement of Operations for the Period September 19, 1995 (inception)
to December 31, 1995, for the Year Ended December 31, 1996 and for the Period
from January 1, 1997 to June 30, 1997........................................... F-7
Consolidated Statement of Changes in Stockholders' Deficit for the Period September
19, 1995 (inception) to December 31, 1995, for the Year Ended December 31, 1996
and for the Period from January 1, 1997 to June 30, 1997........................ F-8
Consolidated Statement of Cash Flows for the Period September 19, 1995 (inception)
to December 31, 1995, for the Year Ended December 31, 1996 and for the Period
from January 1, 1997 to June 30, 1997........................................... F-9
Notes to Consolidated Financial Statements......................................... F-10
PENN DENTAL ASSOCIATES, P.C., STAFFORD DENTAL ASSOCIATES, GALLOWS DENTAL GROUP,
HALLMARK DENTAL GROUP AND ALEXANDRIA DENTAL CENTRE.
Report of Independent Accountants.................................................. F-22
Combined Balance Sheets as of December 31, 1994 and September 19, 1995............. F-23
Combined Statements of Operations and Changes in Owners' Equity for the Year Ended
December 31, 1994 and the Period from January 1, 1995 to September 19, 1995..... F-24
Combined Statements of Cash Flows for the Year Ended December 31, 1994 and for the
Period from January 1, 1995 to September 19, 1995............................... F-25
Notes to Combined Financial Statements............................................. F-26
DONALD L. KANE, D.D.S., PA AND UDG, MELBORNE, P.A.
Report of Independent Accountants.................................................. F-32
Consolidated Balance Sheets as of December 31, 1994 and 1995....................... F-33
Consolidated Statements of Operations and Changes in Stockholders' (Deficit) Equity
for the Years Ended December 31, 1994 and 1995.................................. F-34
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and
1995............................................................................ F-35
Notes to Consolidated Financial Statements......................................... F-36
WESTERN DENTAL GROUP
Report of Independent Accountants.................................................. F-41
Consolidated Balance Sheets as of December 31, 1994, 1995 and 1996................. F-42
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995
and 1996........................................................................ F-43
Statement of Changes in Stockholders' Equity for the Years Ended December 31, 1994,
1995 and 1996................................................................... F-44
Consolidated Statement of Cash Flows for the Years Ended December 31, 1994, 1995
and 1996........................................................................ F-45
Notes to Consolidated Financial Statements......................................... F-46
HORIZON GROUP INTERNATIONAL, INC.
Report of Independent Accountants.................................................. F-51
Consolidated Balance Sheets as of December 31, 1994 and 1995 and February 29,
1996............................................................................ F-52
Consolidated Statements of Operations for the Years Ended December 31, 1994 and
1995 and for the Period from January 1, 1996 to February 29, 1996............... F-53
</TABLE>
F-1
<PAGE> 61
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Consolidated Statement of Changes in Stockholders' Equity for the Years Ended
December 31, 1994 and 1995 and for the Period from January 1, 1996 to February
29, 1996........................................................................ F-54
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and
1995 and for the Period from January 1, 1996 to February 29, 1996............... F-55
Notes to Consolidated Financial Statements......................................... F-56
ENW, INC.
Report of Independent Accountants.................................................. F-61
Combined Balance Sheets as of December 31, 1995, 1996 and January 31, 1997......... F-62
Combined Statements of Operations for the Years Ended December 31, 1995, 1996 and
the Period from January 1, 1997 to January 31, 1997............................. F-63
Combined Statement of Changes in Stockholders' Equity for the Years Ended December
31, 1995 and 1996 and for the Period from January 1, 1997 to January 31, 1997... F-64
Combined Statements of Cash Flows for the Years Ended December 31, 1995 and 1996
and for the Period from January 1, 1997 to January 31, 1997..................... F-65
Notes to Combined Financial Statements............................................. F-66
THE DENTISTRY
Report of Independent Accountants.................................................. F-72
Balance Sheets as of December 31, 1995, 1996 and March 31, 1997.................... F-73
Statements of Operations for the Years Ended December 31, 1994, 1995, 1996 and the
Period from January 1, 1997 to March 31, 1997................................... F-74
Statement of Changes in Stockholders' Equity for the Years Ended December 31, 1994,
1995, 1996 and for the Period from January 1, 1997 to March 31, 1997............ F-75
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 and
for the Period from January 1, 1997 to March 31, 1997........................... F-76
Notes to Financial Statements...................................................... F-77
COMPREHENSIVE FAMILY DENTISTRY, INC.
Report of Independent Accountants.................................................. F-81
Balance Sheets as of December 31, 1995, 1996 and April 30, 1997.................... F-82
Statements of Operations for the Years Ended December 31, 1994, 1995, 1996 and the
Period from January 1, 1997 to April 30, 1997................................... F-83
Statement of Changes in Stockholders' Equity for the Years Ended December 31, 1994,
1995, and 1996 and for the Period from January 1, 1997 to April 30, 1997........ F-84
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 and
for the Period from January 1, 1997 to April 30, 1997........................... F-85
Notes to Financial Statements...................................................... F-86
BERNARD B. BAROS, D.D.S., P.C.
Report of Independent Accountants.................................................. F-92
Balance Sheets as of December 31, 1995, 1996 and June 30, 1997..................... F-93
Statements of Operations for the Years Ended December 31, 1995 and 1996 and the
Period from January 1, 1997 to June 30, 1997.................................... F-94
Statement of Changes in Stockholders' Equity for the Years Ended December 31, 1995
and 1996 and for the Period from January 1, 1997 to June 30, 1997............... F-95
</TABLE>
F-2
<PAGE> 62
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and for the
Period from January 1, 1997 to June 30, 1997.................................... F-96
Notes to Financial Statements...................................................... F-97
MAURICE E. SMITH, D.D.S.
Report of Independent Accountants.................................................. F-102
Balance Sheets as of December 31, 1996 and June 30, 1997........................... F-103
Statements of Operations for the Year Ended December 31, 1996 and the Period from
January 1, 1997 to June 30, 1997................................................ F-104
Statement of Changes in Owner's (Deficit) Equity for the Year Ended December 31,
1996 and for the Period from January 1, 1997 to June 30, 1997................... F-105
Statements of Cash Flows for the Year Ended December 31, 1996 and for the Period
from January 1, 1997 to June 30, 1997........................................... F-106
Notes to Financial Statements...................................................... F-107
DOUGLASS A. QUINN, D.D.S. AND DOUGLAS A. QUINN, D.D.S., P.A.
Report of Independent Accountants.................................................. F-111
Combined Balance Sheets as of December 31, 1995, 1996 and July 31, 1997............ F-112
Combined Statements of Operations and Changes in Owners' Equity for the Years Ended
December 31, 1994, 1995 and 1996 and the Period from January 1, 1997 to July 31,
1997............................................................................ F-113
Combined Statements of Cash Flows for the Year Ended December 31, 1996 and for the
Period from January 1, 1997 to July 31, 1997.................................... F-114
Notes to Combined Financial Statements............................................. F-115
GENTLE DENTAL OF OCALA, SARASOTA, CLEARWATER, MANATEE, GENTLE DENTAL ORTHODONTICS,
P.C.
Report of Independent Accountants.................................................. F-119
Combined Balance Sheets as of December 31, 1995, 1996 and July 31, 1997............ F-120
Combined Statements of Operations and Changes in Owner's Equity for the Years Ended
December 31, 1994, 1995 and 1996 and the Period from January 1, 1997 to July 31,
1997............................................................................ F-121
Combined Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and
1996 and for the Period from January 1, 1997 to July 31, 1997................... F-122
Notes to Combined Financial Statements............................................. F-123
FELIX W. SIBLEY, JR., D.D.S. D/B/A/ GARDEN WALK DENTAL ASSOCIATES
Report of Independent Accountants.................................................. F-128
Balance Sheets as of December 31, 1995, 1996 and August 31, 1997................... F-129
Statements of Operations for the Years Ended December 31, 1995 and 1996 and the
Period from January 1, 1997 to August 31, 1997.................................. F-130
Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1995
and 1996 and for the Period from January 1, 1997 to August 31, 1997............. F-131
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and for the
Period from January 1, 1997 to August 31, 1997.................................. F-132
Notes to Financial Statements...................................................... F-133
DR. KENNETH BRADLEY REYNOLDS, D.D.S.
Report of Independent Accountants.................................................. F-135
Balance Sheets as of December 31, 1996 and August 31, 1997......................... F-136
</TABLE>
F-3
<PAGE> 63
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Statements of Operations for the Year Ended December 31, 1996 and the Period from
January 1, 1997 to August 31, 1997.............................................. F-137
Statement of Changes in Owner's Equity for the Year Ended December 31, 1996 and for
the Period from January 1, 1997 to August 31, 1997.............................. F-138
Statements of Cash Flows for the Years Ended December 31, 1996 and for the Period
from January 1, 1997 to August 31, 1997......................................... F-139
Notes to Financial Statements...................................................... F-140
MILLER & POWELL, D.M.D. D/B/A SOFT TOUCH DENTISTRY
Report of Independent Accountants.................................................. F-145
Balance Sheets as of December 31, 1996 and August 31, 1997......................... F-146
Statements of Operations for the Year Ended December 31, 1996 and the Period from
January 1, 1997 to August 31, 1997.............................................. F-147
Statement of Changes in Stockholders' Equity for the Year Ended December 31, 1996
and for the Period from January 1, 1997 to August 31, 1997...................... F-148
Statements of Cash Flows for the Years Ended December 31, 1996 and for the Period
from January 1, 1997 to August 31, 1997......................................... F-149
Notes to Financial Statements...................................................... F-150
PRODENT, INC. AND AFFILIATES
Report of Independent Accountants.................................................. F-153
Combined Balance Sheet as of December 31, 1995, 1996 and September 30, 1997........ F-154
Combined Statement of Operations for the Years Ended December 31, 1994, 1995, 1996
and for the Period from January 1, 1997 to September 30, 1997................... F-155
Combined Statement of Changes in Owners' Equity for the Years Ended December 31,
1994, 1995, 1996 and for the Period from January 1, 1997 to September 30,
1997............................................................................ F-156
Combined Statement of Cash Flows for the Years Ended December 31, 1994, 1995, 1996
and for the Period from January 1, 1997 to September 30, 1997................... F-157
Notes to Combined Financial Statements............................................. F-158
</TABLE>
F-4
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Valley Forge Dental Associates, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' deficit and
of cash flows present fairly, in all material respects, the financial position
of Valley Forge Dental Associates, Inc. and its subsidiaries ("the Company") at
December 31, 1995, and 1996 and at June 30, 1997 and the results of their
operations and their cash flows for the period from September 19, 1995 (date of
inception) to December 31, 1995, for the year ended December 31, 1996 and for
the period from January 1, 1997 to June 30, 1997, 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
Philadelphia, PA
October 21, 1997
F-5
<PAGE> 65
VALLEY FORGE DENTAL ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
PROFORMA
DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1997 1997
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................. $ 100,249 $ 567,779 $ 1,536,643 $ 1,536,643
Accounts receivable, net................... 181,316 1,452,377 2,204,295 2,204,295
Prepaid expenses and other current
assets.................................. 62,163 126,400 214,200 214,200
---------- ----------- ----------- -----------
Total current assets............... 343,728 2,146,556 3,955,138 3,955,138
Property and equipment, net.................. 443,253 883,556 2,197,925 2,197,925
Excess of cost over fair value of tangible
assets acquired and other intangible
assets, net................................ 2,922,275 8,928,680 22,368,280 22,368,280
Other assets................................. 96,106 203,316 874,323 874,323
---------- ----------- ----------- -----------
$3,805,362 $12,162,108 $29,395,666 $29,395,666
========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities
Current portion of long-term debt,
including amounts due related parties of
$311,667, $743,653 and $1,240,654 at
December 31, 1995 and 1996 and at June
30, 1997, respectively.................. $ 331,271 $ 776,379 $ 1,391,834 $ 1,391,834
Current portion of obligations under
capital lease........................... 86,466 126,692 198,729 198,729
Accounts payable........................... 104,323 395,323 1,206,111 1,206,111
Accrued expenses and other current
liabilities............................. 330,728 1,744,442 3,358,118 3,358,118
Other accrued liabilities.................. 98,520 1,270,882 1,396,580 1,396,580
Income taxes payable....................... -- 172,000 143,350 143,350
---------- ----------- ----------- -----------
Total current liabilities.......... 951,308 4,485,718 7,694,722 7,694,722
Long-term debt, including amounts due related
parties of $1,403,333, $6,210,859 and
$18,029,231 at December 31, 1995, 1996 and
at June 30, 1997, respectively............. 1,455,907 6,286,616 18,113,127 18,113,127
Obligations under capital lease.............. 284,880 324,078 453,787 453,787
Other long-term liabilities.................. 164,200 167,400 1,785,200 1,785,200
Deferred income taxes........................ 157,051 327,164 188,834 188,834
---------- ----------- ----------- -----------
Total liabilities.................. 3,013,346 11,590,976 28,235,670 28,235,670
Commitments and contingencies
Mandatorily redeemable preferred stock, $.01
par value, plus accrued dividends of
$16,000, $80,000 and $112,000 at December
31, 1995 and 1996 and at June 30, 1997,
respectively; authorized: 1,000,000 shares;
issued: 8,000 shares, 8% cumulative
dividends.................................. 816,000 880,000 912,000 912,000
Mandatorily redeemable common stock (Note
13)........................................ -- -- 658,509 --
Stockholders' (deficit) equity
Common stock, $.01 par value, 20,000,000
shares authorized; 3,600,000, 3,792,500
and 3,836,142 shares issued and
outstanding at December 31, 1995 and
1996 and at June 30, 1997, respectively.
(Note 11)............................... 36,000 37,925 38,362 40,109
Capital in excess of par value............. 324,000 540,075 730,229 1,386,991
Accumulated deficit........................ (383,984) (886,868) (1,179,104) (1,179,104)
---------- ----------- ----------- -----------
Total stockholders' (deficit)
equity........................... (23,984) (308,868) (410,513) 247,996
---------- ----------- ----------- -----------
$3,805,362 $12,162,108 $29,395,666 $29,395,666
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 66
VALLEY FORGE DENTAL ASSOCIATES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SEPTEMBER 19,
1995 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED ---------------------------------
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
----------------- ------------ --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net patient revenues................... $ 989,103 $ 15,448,459 $ 6,769,757 $13,141,093
--------- ----------- ---------- ----------
Network expenses:
Dental network expenses
Dental compensation............... 115,430 3,426,740 1,503,069 3,106,351
Auxiliary compensation............ 252,430 4,209,664 1,882,526 3,340,818
Laboratory fees and dental
supplies........................ 130,181 1,880,792 875,241 1,485,982
Other dental office expenses...... 182,149 2,771,784 1,108,655 2,501,995
--------- ----------- ---------- ----------
680,190 12,288,980 5,369,491 10,435,146
Depreciation and amortization of
dental and office property and
equipment......................... 32,889 155,625 79,481 140,470
General and administrative
expenses.......................... 67,702 921,601 464,553 643,863
--------- ----------- ---------- ----------
Total network expenses................. 780,781 13,366,206 5,913,525 11,219,479
--------- ----------- ---------- ----------
Network operating income............... 208,322 2,082,253 856,232 1,921,614
Corporate general and administrative
expenses............................. 508,781 1,554,110 644,364 1,155,388
Amortization of intangible assets...... 26,342 195,885 63,663 278,316
--------- ----------- ---------- ----------
Income (loss) from operations.......... (326,801) 332,258 148,205 487,910
Interest expense:
Related parties...................... 28,465 436,442 182,679 549,555
Other................................ 12,718 58,567 24,650 45,050
--------- ----------- ---------- ----------
Loss before taxes...................... (367,984) (162,751) (59,124) (106,695)
Income taxes........................... -- 276,133 129,366 --
--------- ----------- ---------- ----------
Net loss............................... (367,984) (438,884) (188,490) (106,695)
Accretion of mandatorily redeemable
common stock (Note 13)............... 153,541
Dividends on preferred stock........... 16,000 64,000 32,000 32,000
--------- ----------- ---------- ----------
Net loss applicable to common shares... $(383,984) $ (502,884) $ (220,490) $ (292,236)
========= =========== ========== ==========
Historical Information:
Net loss per common share............ $ (.09) $ (.12) $ (.05) $ (.07)
========= =========== ========== ==========
Weighted average shares
outstanding....................... 4,360,910 4,360,910 4,360,910 4,360,910
--------- ----------- ---------- ----------
Unaudited Proforma Information:
Net loss............................. $ (138,695)
Net loss per common share............ $ (.03)
==========
Weighted average shares
outstanding....................... 4,360,910
==========
Unaudited Supplemental Pro Forma
Information:
Unaudited supplemental pro forma net
(loss) income..................... $(355,349) $ (94,507) $ (44,745) $ 354,998
========= =========== ========== ==========
Unaudited supplemental pro forma net
(loss) income per common share.... $ (.08) $ (.02) $ (.01) $ .06
========= =========== ========== ==========
Unaudited supplemental weighted
average shares outstanding........ 4,482,448 4,789,685 4,748,531 5,652,004
========= =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 67
VALLEY FORGE DENTAL ASSOCIATES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
CAPITAL
IN
COMMON STOCK EXCESS
--------------------- OF
PAR PAR ACCUMULATED
SHARES VALUE VALUE DEFICIT TOTAL
--------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Common stock issued September 19,
1995........................... 3,500,000 $35,000 $315,000 $ 350,000
Common stock issued to officers
and employees.................. 100,000 1,000 9,000 10,000
Net loss applicable to common
shares......................... (383,984) (383,984)
--------- ------- ---------- ----------- ---------
Balance, December 31, 1995....... 3,600,000 36,000 324,000 (383,984) (23,984)
Common stock issued to officers
and employees.................. 180,000 1,800 16,200 18,000
Common stock issued in connection
with acquisitions.............. 12,500 125 199,875 200,000
Net loss applicable to common
shares......................... (502,884) (502,884)
--------- ------- ---------- ----------- ---------
Balance, December 31, 1996....... 3,792,500 37,925 540,075 (886,868) (308,868)
Common stock issued in connection
with acquisitions.............. 43,642 437 190,154 190,591
Net loss applicable to common
shares......................... (292,236) (292,236)
--------- ------- ---------- ----------- ---------
Balance, June 30, 1997........... 3,836,142 $38,362 $730,229 $(1,179,104) $(410,513)
========= ======= ========== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 68
VALLEY FORGE DENTAL ASSOCIATES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SEPTEMBER 19,
1995
(INCEPTION) SIX MONTHS ENDED
TO YEAR ENDED --------------------------
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................. $ (367,984) $ (438,884) $ (188,490) $ (106,695)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization......... 59,231 353,462 143,349 428,999
Provision for doubtful accounts....... 46,401 369,646 154,111 346,126
Deferred income taxes................. -- 114,133 129,366 --
Change in assets and liabilities, net of
effects from businesses acquired:
Increase in accounts receivable....... (47,025) (1,246,744) (799,546) (820,044)
(Increase) decrease in prepaid
expenses and other current assets... (46,123) (64,237) 19,355 (87,800)
(Increase) decrease in other assets... (96,936) (107,210) 44,759 (671,007)
Increase in accounts payable.......... 74,644 206,444 178,085 810,788
Increase in accrued expenses and other
liabilities......................... 259,572 767,604 506,679 469,144
Increase (decease) in income taxes
payable............................. -- 162,000 -- (28,650)
----------- ----------- ----------- ------------
Net cash provided by (used in)
operating activities........... (118,220) 116,214 187,668 340,861
----------- ----------- ----------- ------------
Cash flows from investing activities:
Payments for purchases of businesses, net
of cash acquired of $70,000 in 1995,
$67,000 in 1996 and $0 in 1997........ (1,686,832) (3,952,500) (2,824,231) (9,217,774)
Purchases of property and equipment...... (5,367) (301,468) (199,971) (626,276)
----------- ----------- ----------- ------------
Net cash used in investing
activities..................... (1,692,199) (4,253,968) (3,024,202) (9,844,050)
----------- ----------- ----------- ------------
Cash flows from financing activities:
Issuance of common stock................. 360,000 18,000 1,500 500
Issuance of preferred stock.............. 800,000 -- -- --
Borrowings of long-term debt............. 780,000 5,199,236 3,566,251 11,148,160
Principal payments on long-term debt..... (4,688) (511,445) (217,940) (592,387)
Principal payments on capital lease
obligations........................... (24,644) (100,507) (45,682) (84,220)
----------- ----------- ----------- ------------
Net cash provided by financing
activities..................... 1,910,668 4,605,284 3,304,129 10,472,053
----------- ----------- ----------- ------------
Net increase in cash and cash
equivalents........................... 100,249 467,530 467,595 968,864
Cash and cash equivalents at beginning of
period................................ -- 100,249 100,249 567,779
----------- ----------- ----------- ------------
Cash and cash equivalents at end of
period................................ $ 100,249 $ 567,779 $ 567,844 $ 1,536,643
----------- ----------- ----------- ------------
Supplemental disclosure of cash flow
information:
Interest paid............................ $ 12,718 $ 136,025 $ 62,982 $ 129,184
=========== =========== =========== ============
Taxes paid............................... -- -- -- $ 28,650
=========== =========== =========== ============
Supplemental schedule of noncash investing
and financing activities:
Capital lease obligations entered..... $ 4,159 $ 179,931 $ 98,630 $ 285,966
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 69
VALLEY FORGE DENTAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
1. ORGANIZATION AND OPERATIONS
Valley Forge Dental Associates, Inc., a Delaware corporation (the
"Company"), was formed to provide practice management services to
multi-specialty dental practices. The Company commenced operations on September
19, 1995 with the acquisition of the assets of MT Associates, a Pennsylvania
general partnership. As of June 30, 1997, after making additional acquisitions
(see Note 4), the Company had 30 dental offices in nine markets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned and beneficially owned subsidiaries. Because of corporate
practice of medicine laws in the states in which the Company operates, the
Company does not own dental practices but instead enters into exclusive
long-term management services agreements with professional corporations which
operate the dental practices. Through the management services agreements, the
Company has exclusive authority over decision making relating to all major
ongoing operations of the underlying professional corporations with the
exception of the professional aspects of dentistry practice as required by state
law. Under the management services agreement, the Company establishes annual
operating and capital budgets for the professional corporations and compensation
guidelines for the licensed dental professionals. In addition, the Company has
the contractual right ("arrangements") to designate, in its sole discretion, at
any time the licensed dentist who is the owner of the capital stock of the
professional corporation at a nominal cost ("nominee arrangements"). Through the
management agreements and the nominee arrangements, the Company has significant
long-term financial interests in the professional corporations, which interests
are unilaterally salable and transferable by the Company and fluctuate based
upon the actual performance of the operations of the professional corporations.
All significant intercompany accounts and transactions have been eliminated.
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net patient revenues are reported when earned at the estimated amounts to
be realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Under certain managed care contracts, diagnostic and preventive dental
services are provided for a fixed rate per-member per-month capitated fee, and
other dental services as defined in the contracts are performed under an agreed
upon fee schedule to member patients. Capitated revenues are recorded in the
month for which the member is entitled to service (see Note 16).
F-10
<PAGE> 70
VALLEY FORGE DENTAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which
principally range from five to seven years. Assets under capital leases and
leasehold improvements are amortized over the lesser of the lease term or the
asset's estimated useful life.
Capital Leases
The Company has entered into various leases for office and dental equipment
which are accounted for as capital leases. At inception of the lease, the
equipment under lease and the related obligations are recorded at the net
present value of future minimum lease payments, excluding executory costs,
discounted using the lesser of the Company's incremental borrowing rate, or the
implicit rate of the lease, as appropriate.
Long-Lived and Intangible Assets
Assets and liabilities acquired in connection with business combinations
accounted for under the purchase method are recorded at their respective fair
values. Deferred taxes have been recorded to the extent of differences between
the fair value and the tax basis of the assets acquired and liabilities assumed.
The excess of the purchase price over the fair value of tangible net assets
acquired is amortized on a straight-line basis over the estimated useful life of
the intangible assets which range from three to forty years. Allocation of
intangible assets between identifiable intangibles and goodwill was performed by
Company management with the assistance of independent appraisers. Intangible
assets include patient lists, assembled workforce, covenants not to compete and
goodwill.
In 1995, the Company implemented Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
Accordingly, the carrying value of long-lived assets and certain identifiable
intangible assets are evaluated whenever changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. In performing such
review for recoverability, the Company compares the expected future undiscounted
cash flows to the carrying value of long-lived assets and identifiable
intangibles, including the related excess of cost over fair value of net assets
acquired. To date, no such change in circumstances has been noted.
If the expected future cash flows (undiscounted) are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated fair
value. In estimating future cash flows for determining whether an asset is
impaired, and in measuring assets that are impaired, assets are grouped by
geographic region.
In addition, the carrying value of the excess of cost over fair value of
net assets acquired and other intangible assets is subject to a periodic
evaluation using these guidelines.
Income Taxes
The Company accounts for certain items of income and expense in different
time periods for financial reporting and income tax purposes. Provisions for
deferred income taxes are made in recognition of such temporary differences,
where applicable. A valuation allowance is established against deferred tax
assets unless the Company believes it more likely than not that the benefit will
be realized.
Other Accrued and Other Long-Term Liabilities
The balances under other accrued and other long-term liabilities represent
amounts due to former owners, consisting of final payments of purchase price for
completed acquisitions, accruals for contingent
F-11
<PAGE> 71
VALLEY FORGE DENTAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
earnouts, and adjustments to purchase price related to working capital
guarantees as provided in the agreements.
Fair Value of Financial Instruments
Other than long-term debt, recorded balances of financial instruments at
December 31, 1995, 1996 and at June 30, 1997 approximate estimated fair market
values.
The fair value of long-term debt, including current portion, is estimated
based on quoted market prices for the same or similar issues or on the current
rates offered to the Company for debt of same maturities.
The estimated fair value of the Company's long-term debt instruments is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------------- -------------------------
1995 1996 1997
----------------------- ----------------------- -------------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C> <C> <C>
Long-term debt
including
current
portion....... $1,787,178 1,787,178 $7,062,995 $7,381,146 $19,504,961 $19,354,403
</TABLE>
Historical, Unaudited Pro Forma and Unaudited Supplemental Pro Forma Net Loss
Per Common Share
Net loss per share has been computed in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 83 ("SAB 83"). SAB 83 requires
that common shares issued by the Company in the twelve months immediately
preceding a proposed public offering plus the number of common equivalent shares
which became issuable during the same period pursuant to the grant of stock
options at prices substantially less than the initial public offering price be
included in the calculation of common stock and common stock equivalent shares,
as if they were outstanding for all periods presented, using the treasury stock
method.
Historical Net Loss Per Common Share is computed by dividing net loss
applicable to common shares by the number of shares of common stock and common
stock equivalents outstanding at October 23, 1997, the last date on which any
common stock or common stock equivalent was issued.
Unaudited Pro Forma Net Loss Per Common Share is computed by dividing net
loss applicable to common shares, without consideration to the accretion of
mandatorily redeemable common stock, by the number of shares of common stock and
common stock equivalents outstanding as of October 23, 1997.
Unaudited Supplemental Pro Forma Net (Loss) Income Per Common Share is
presented since the Company intends to use a portion of the net proceeds from
the initial public offering shares of its common stock to retire certain
indebtedness and to redeem preferred stock (see Note 17). Unaudited Supplemental
Net (Loss) Income Per Common Share is computed by dividing net income, adjusted
for the elimination of applicable interest expense related to the indebtedness
assumed to be retired with the offering proceeds, net of related income tax
effect, by total outstanding shares as of October 23, 1997 plus estimated
additional shares required to be sold to retire outstanding debt.
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128")
which the Company is required to adopt in its financial statements for the
quarter ended December 31, 1997. SFAS 128 establishes standards for computing
and presenting earnings per share by replacing the presentations of weighted
shares outstanding, inclusive of common stock equivalents, with a dual
presentation of basic earnings per share which excludes dilution ("earnings per
share") and diluted earnings per share ("earnings per share-assuming dilution")
which
F-12
<PAGE> 72
VALLEY FORGE DENTAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
includes the dilutive effect of all potentially exercisable or convertible
stock. Once adopted, SFAS 128 requires restatement of all prior period earnings
per share data.
Reclassifications
Certain 1995 and 1996 balances have been reclassified to conform with the
June 30, 1997 presentation.
Pro Forma Balance Sheet at June 30, 1997
The Pro Forma Balance Sheet at June 30, 1997 is presented to reflect the
financial position of the Company assuming the put rights in certain shares of
mandatorily redeemable common stock expire. Such rights are rendered inoperative
in all cases upon the consummation of an initial public offering of the
Company's common stock. (See Note 13)
Unaudited Financial Information
The 1996 interim financial data is unaudited; however in the opinion of the
Company, the interim unaudited data includes all adjustments, consisting only of
normal recurring adjustments which are, in the opinion of management, necessary
for the fair statement of the results for the interim period.
3. ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Accounts receivable, net of contractual
allowances of $23,165, $115,759 and $358,530
at December 31, 1995 and 1996 and at June 30,
1997, respectively............................ $260,956 $1,839,261 $3,166,922
Less: Allowance for doubtful accounts........... (79,640) (386,884) (962,627)
-------- ---------- ----------
$181,316 $1,452,377 $2,204,295
======== ========== ==========
</TABLE>
Dental services are reimbursed directly by both patients and by third party
payors, including Medicaid, managed care organizations and commercial insurance
companies. There was no Medicaid revenues in 1995. Approximately 9.3% and 4.8%
of net revenues for 1996 and for the period ending June 30, 1997 were directly
billed to a Medicaid program which is subject to Federal and state regulation.
Third party reimbursements are primarily billed at estimated amounts realizable
based upon contractually determined rates. In instances where "usual, customary
and reasonable" market rates are billed, gross billings are adjusted for
contractual allowances to reflect estimated amounts realizable from third party
payors. The allowance for doubtful accounts is estimated based on an ongoing
review of collectibility.
4. ACQUISITIONS
On September 19, 1995, the Company acquired the assets of MT Associates, a
Pennsylvania general partnership, which owned the assets of five dental offices
located in northern Virginia and Pennsylvania. Since the initial acquisition and
through June 30, 1997, the Company has made seven acquisitions consisting of
over twenty dental offices.
These acquisitions have been accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to assets and
liabilities acquired based upon their estimated fair values at the dates of
acquisition. The results of operations of the acquired companies are included in
the consolidated financial statements from the respective dates of acquisition.
F-13
<PAGE> 73
VALLEY FORGE DENTAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information with respect to businesses acquired in purchase transactions
was as follows (the allocation of purchase price for acquisitions for the period
from January 1, 1997 to June 30, 1997 is preliminary):
<TABLE>
<CAPTION>
SEPTEMBER 19, 1995 PERIOD FROM
(INCEPTION) TO YEAR ENDED JANUARY 1,
DECEMBER 31, DECEMBER 31, TO JUNE 30,
1995 1996 1997
------------------ ------------ -----------
<S> <C> <C> <C>
Cash paid (net of cash acquired of
$70,000 in 1995, $67,000 in 1996 and $0
in 1997)............................... $1,686,832 $3,499,390 $ 9,104,959
Notes issued and amounts payable to
former owners.......................... 1,197,720 588,026 1,731,364
Common and mandatorily redeemable common
stock issued........................... -- 200,000 567,488
--------- ---------- -----------
2,884,552 4,287,416 11,403,811
Liabilities assumed...................... 627,651 710,008 804,372
--------- ---------- -----------
3,512,203 4,997,424 12,208,183
Fair value of tangible assets acquired... (563,586) (511,864) (1,509,955)
--------- ---------- -----------
Excess of cost over fair value of
tangible assets acquired and other
intangible assets...................... $2,948,617 $4,485,560 $10,698,228
========= ========== ===========
</TABLE>
The following table summarizes the cash components of acquisition related
activity during the respective periods as follows:
<TABLE>
<CAPTION>
SEPTEMBER 19, YEAR ENDED
1995 DECEMBER
(INCEPTION) TO 31, JANUARY 1, 1997
DECEMBER 31, 1995 1996 TO JUNE 30, 1997
----------------- ---------- ----------------
<S> <C> <C> <C>
Cash paid for new acquisitions.......... $ 1,686,832 $3,499,390 $9,104,959
Other cash payments..................... 453,000 112,815
---------- ---------- ----------
Total cash activity..................... $ 1,686,832 $3,952,500 $9,217,774
========== ========== ==========
</TABLE>
The other cash payments represent additional consideration relating to past
acquisitions in satisfaction of contractual arrangements (see Note 16).
Subsequent to June 30, 1997, the Company made 13 acquisitions, consisting
of 25 dental offices. Purchase price relating to these acquisitions aggregated
approximately $19,860,000, consisting of cash, notes and shares of the Company's
common stock. Additional consideration could be paid in connection with these
acquisitions if specified financial criteria are attained (see Note 16). If
these criteria are attained, but not exceeded, the number of shares and notes
which could be issued, and cash which could be paid under agreements executed to
June 30, 1997 is 284,106 shares, $1,316,000 and $3,057,000, respectively. If
maximum criteria are achieved, the number of shares and notes which could be
issued and cash which could be paid is 284,106 shares, $1,316,000 and
$3,131,500, respectively.
The unaudited pro forma consolidated results of operations of the Company
give effect to each of the acquisitions as if they occurred at the beginning of
the respective periods:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1996 JUNE 30, 1997
----------------- ------------- -------------
<S> <C> <C> <C>
Revenues............................. $51,035,188 $ 24,782,103 $ 27,794,121
Net income (loss).................... (1,154,789) (886,493) (893,650)
Net loss per common share............ $ (.26) $ (.20) $ (.20)
</TABLE>
F-14
<PAGE> 74
VALLEY FORGE DENTAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The above pro forma information is not necessarily indicative of the
results of operations that would have occurred had the acquisitions been made as
of the beginning of the respective periods noted above, or the results that may
occur in the future.
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Dental equipment, including equipment
under capital lease................... $447,050 $ 726,166 $1,331,273
Furniture and fixtures, automobiles and
leasehold improvements................ 24,435 119,766 437,070
Data processing and office equipment.... 4,657 231,139 775,769
-------- ---------- ----------
476,142 1,077,071 2,544,112
Less: Accumulated depreciation and
amortization.......................... (32,889) (193,515) (346,187)
-------- ---------- ----------
$443,253 $ 883,556 $2,197,925
======== ========== ==========
</TABLE>
Depreciation and amortization expense, including amounts related to
equipment under capital lease (Note 7), for the period from September 19, 1995
to December 31, 1995, for the year ended December 31, 1996 and for the period
from January 1, 1997 to June 30, 1997 totaled $32,889, $160,626 and $152,672,
respectively.
6. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Excess of cost over fair value of net assets
acquired.................................... $2,331,017 $7,731,160 $19,299,412
Patient lists................................. 560,000 1,100,000 2,901,509
Assembled workforce........................... 53,000 302,000 624,651
Covenants not to compete...................... 4,600 14,698 38,213
---------- ---------- -----------
2,948,617 9,147,858 22,863,785
Less: Accumulated amortization................ (26,342) (219,178) (495,505)
---------- ---------- -----------
$2,922,275 $8,928,680 $22,368,280
========== ========== ===========
</TABLE>
Amortization of intangible assets for the period from September 19, 1995 to
December 31, 1995, for the year ended December 31, 1996 and for the period from
January 1, 1997 to June 30, 1997 totaled $26,342, $192,836 and $276,327,
respectively.
F-15
<PAGE> 75
VALLEY FORGE DENTAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASES
The Company has entered into various leases for office and dental equipment
accounted for as capital leases. The lease terms are from five to seven years.
Equipment under capital leases, at cost and related accumulated amortization
included in property and equipment, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Dental and office equipment...................... $362,994 $ 542,925 $ 776,047
Less: Accumulated amortization................... (27,204) (134,214) (206,637)
-------- --------- ---------
Equipment under capital leases................... $335,790 $ 408,711 $ 569,410
======== ========= =========
</TABLE>
Amortization of equipment under capital leases for the period from
September 19, 1995 to December 31, 1995, for the year ended December 31, 1996
and for the period from January 1, 1997 to June 30, 1997 was $27,204, $107,010
and $72,423, respectively.
Future minimum lease payments due under capital leases are as follows:
<TABLE>
<S> <C>
1997 (Six months)................................................ $ 132,612
1998............................................................. 251,540
1999............................................................. 197,787
2000............................................................. 141,013
2001............................................................. 61,187
---------
784,139
Less: Amount representing interest............................... (131,623)
---------
Present value of minimum lease payments.......................... 652,516
Less: Current portion............................................ (198,729)
---------
$ 453,787
=========
</TABLE>
The Company maintains leases for dental offices and for certain of its
equipment which are accounted for as operating leases. The office lease terms
range from one to ten years, while the equipment terms range from one to four
years.
Future minimum annual rentals due under noncancellable operating leases in
excess of one year are as follows:
<TABLE>
<S> <C>
1997 (Six months)................................................ $ 659,625
1998............................................................. 1,276,571
1999............................................................. 1,242,948
2000............................................................. 911,344
2001............................................................. 362,608
Thereafter....................................................... 1,012,640
----------
$5,465,736
==========
</TABLE>
Certain of the leases contain renewal options and escalation clauses which
require payments of additional rent to the extent of increases in related
operating costs.
Rent expense of $48,841, $697,481 and $624,296, was incurred during the
period from September 19, 1995 to December 31, 1995, for the year ended December
31, 1996, and for the period from January 1, 1997 to June 30, 1997,
respectively.
F-16
<PAGE> 76
VALLEY FORGE DENTAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
---------- ---------- ------------
<S> <C> <C> <C>
Subordinated notes payable to principal
stockholders, due the earlier of an initial
public offering of the Company's common
stock or September 2005; interest accrues
at 9.0%.................................... $ 780,000 $4,758,073 $ 15,904,225
6.0% -- 8.5% subordinated and subordinated
convertible notes issued in connection with
acquisitions, payable through 2002......... 935,000 2,196,462 3,365,660
10.5% -- 12.2% notes payable, secured by
equipment, payable through 2001............ 72,178 108,460 235,076
---------- ---------- ------------
1,787,178 7,062,995 19,504,961
Less: Current portion........................ (331,271) (776,379) (1,391,834)
---------- ---------- ------------
$1,455,907 $6,286,616 $ 18,113,127
========== ========== ============
</TABLE>
Scheduled maturities of long-term debt outstanding as of June 30, 1997 are
as follows:
<TABLE>
<S> <C>
1997 (Six months)............................................... $ 466,088
1998............................................................ 1,438,586
1999............................................................ 899,127
2000............................................................ 575,014
2001............................................................ 9,160
Thereafter...................................................... 16,116,986
-----------
$19,504,961
===========
</TABLE>
The subordinated notes payable to principal stockholders permit the Company
to borrow funds for acquisitions and general corporate purposes up to an
aggregate amount of $38,000,000. As of October 23, 1997, the amount outstanding
under the subordinated notes payable to principal stockholders was approximately
$34,300,000, including accrued interest.
The subordinated convertible notes provide the holders with the right at
any time to convert the outstanding principal of the note into shares of the
Company's $.01 par value common stock at $16.00 per share.
On October 23, 1997, the Company executed a $10,000,000 discretionary line
of credit agreement with a financial institution. The term of the agreement is
through the earlier of April 21, 1998 or the date of closing of an initial
public offering. Interest accrues monthly on outstanding balances based on an
adjustable rate as defined in the agreement.
F-17
<PAGE> 77
VALLEY FORGE DENTAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The components of the income tax expense (benefit) for the period from
September 19, 1995 to December 31, 1995, for the year ended December 31, 1996
and for the period from January 1, 1997 to June 30, 1997 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Current:
State............................................................... $162,000
Deferred:
Federal............................................................. 82,709
State............................................................... 31,424
--------
114,133
--------
$276,133
--------
</TABLE>
There was no provision for taxes during the period from September 19, 1995
(inception) to December 31, 1995 or during the period from January 1, 1997 to
June 30, 1997.
The reconciliation of the Federal statutory income tax rate to the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 19, 1995
(INCEPTION) TO YEAR ENDED JANUARY 1, 1997
DECEMBER 31, DECEMBER 31, TO JUNE 30,
1995 1996 1997
------------------ ------------ ----------------
<S> <C> <C> <C>
Statutory income tax rate.............. (34)% (34)% (34)%
Amortization not deductible for income
tax purposes......................... 2 22 44
Losses for which no income tax benefit
is recognized........................ 32 98 (9)
Nondeductible business expenses
nondeductible........................ -- 4 4
State taxes............................ -- 80 (5)
---- ---- ----
Effective income tax rate.............. 0% 170% 0%
==== ==== ====
</TABLE>
F-18
<PAGE> 78
VALLEY FORGE DENTAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of net deferred income tax assets and (liabilities) are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
--------- ---------- ---------
<S> <C> <C> <C>
Start up costs not currently deductible for tax
purposes...................................... $ 118,052 $ 86,572 $ 74,767
Accruals and reserves not currently deductible
for tax purposes.............................. 3,724 195,859 462,640
Deferred revenues............................... 10,686 6,728 74,854
Net operating loss carryforwards................ 24,400 80,400 53,068
--------- --------- ---------
Gross deferred tax assets....................... 156,862 369,559 665,329
Valuation allowance............................. (154,400) (340,342) (332,137)
--------- --------- ---------
2,462 29,217 333,192
--------- --------- ---------
Intangible assets............................... (149,513) (215,987) (371,965)
Other........................................... (10,000) (140,394) (150,061)
--------- --------- ---------
Gross deferred tax liabilities.................. (159,513) (356,381) (522,026)
--------- --------- ---------
Net deferred tax liabilities.......... $(157,051) $ (327,164) $(188,834)
========= ========= =========
</TABLE>
At June 30, 1997, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $130,000. Their use is limited to
future taxable earnings of the Company. The carryforwards expire in 2010. A
valuation allowance has been established against the benefit of the net
operating loss carryforwards and other deferred tax assets which the Company
does not believe are more likely than not to be realized.
10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Salaries and payroll taxes...................... $104,652 $ 831,364 $1,383,531
Professional service fees....................... 169,532 347,322 801,932
Interest........................................ 28,465 387,399 852,820
Other........................................... 28,079 178,357 319,835
--------- --------- ---------
$330,728 $1,744,442 $3,358,118
========= ========= =========
</TABLE>
11. STOCKHOLDERS' DEFICIT
At formation date, the Company issued an aggregate of 3,500,000 shares of
common stock at $.10 per share to four investment partnerships (the "principal
stockholders"); Foster Management Company is the management company for each of
the partnerships.
During the year ended December 31, 1996 and for the period from January 1,
1997 to June 30, 1997, the Company issued 12,500 and 43,642 shares respectively
of common stock in connection with acquisitions. (See Note 13 for mandatorily
redeemable common stock issued.)
Subsequent to June 30, 1997, 651,950 shares of the Company's common stock
were issued in connection with business acquisitions, and 45,000 options were
granted under the Company's stock option plan which become effective October 1,
1997 (see Note 14).
F-19
<PAGE> 79
VALLEY FORGE DENTAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. MANDATORILY REDEEMABLE PREFERRED STOCK
The Company's principal stockholders are the sole owners of all of the
outstanding $.01 par value 8% cumulative mandatorily redeemable preferred stock
("Preferred Stock").
The Preferred Stock accumulates dividends at $8.00 per share on an annual
basis, and is mandatorily redeemable for cash at $100 per share plus accumulated
dividends at the earlier of December 31, 1998 or at any time the common stock of
the Company is sold in a public offering. Accrued dividends at December 31,
1995, 1996 and June 30, 1997 totaled $16,000, $80,000 and $112,000,
respectively.
13. MANDATORILY REDEEMABLE COMMON STOCK
In connection with certain acquisitions, the Company issued 174,677 shares
of common stock in 1997 pursuant to agreements giving the holders the right to
put the shares to the Company at prices which vary from $11-$16 per share. The
puts are rendered inoperative if the Company executes an initial public offering
of the Company's common stock prior to two to five years from the dates of the
respective acquisitions.
The mandatorily redeemable common stock was recorded at the fair value at
the dates of issuance. The excess of the respective put prices over the carrying
values are being accreted by periodic charges to additional paid-in capital over
a two to five year period. As of June 30, 1997, 174,677 shares of mandatorily
redeemable common stock are outstanding. During the period from January 1, 1997
to June 30, 1997, the Company recorded $153,541 of accretion to additional
paid-in capital.
14. EMPLOYEE BENEFITS
401(k) Plan
Effective February 1, 1997, the Company sponsors a 401(k) plan which
permits participants to make contributions by salary reduction pursuant to
section 401(k) of the Internal Revenue Code. Employees may contribute up to 15%
of pretax income, subject to statutory limitations; this plan does not provide
for Company matching contributions.
Stock Option Plan
Effective October 1, 1997, the Company approved a stock option plan for key
employees and directors. The plan authorizes the grant of up to 600,000 shares
of the Company's common stock in the form of stock options. Grant prices are
determined by the Company and are established at or above the fair market value
of the Company's common stock at the date of grant.
15. RELATED PARTY TRANSACTIONS
The Company paid management fees of $5,000, $40,000 and $20,000 to Foster
Management Company and its affiliates during the period from September 19, 1995
to December 31, 1995, for the year ended December 31, 1996, and the period from
January 1, 1997 to June 30, 1997, respectively. Additionally, the Company
reimbursed Foster Management Company $209,455 in 1995, $72,683 in 1996 and
$21,599 for the period from January 1, 1997 to June 30, 1997 for outside
professional service and other fees and expenses incurred on its behalf.
Commencing December 1996, the Company leased space from an affiliated
entity. The rent expense under lease is equal to the amount paid by the
affiliated party under the leasehold agreement and was $5,283 for 1996 and
$47,054 for the period from January 1, 1997 to June 30, 1997. In addition,
starting in 1996, the Company entered into various space and equipment lease
agreements with former owners of acquired businesses; such leases are at fair
market value. In 1996, the Company paid $329,223 and $95,612, respectively,
under these agreements. For the period from January 1, 1997 to June 30, 1997,
the Company paid $41,280 for space lease agreements and $100,488 for equipment
lease agreements.
F-20
<PAGE> 80
VALLEY FORGE DENTAL ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has agreed to pay Foster Management a fee of $750,000 for its
assistance in effecting the initial public offering of the Company's common
stock, contingent upon the completion of such public offering.
16. COMMITMENTS AND CONTINGENCIES
Contingent Consideration in Business Acquisitions
In connection with certain acquisitions (see Note 4), the Company has
entered into contractual arrangements whereby shares of Company stock, notes
payable and cash may be issued to former owners of acquired businesses upon
attainment of specified financial criteria over periods of 1 - 3 years as set
forth in the respective agreements. The amount of the shares, notes and cash to
be issued cannot be fully determined until the periods expire and the attainment
of criteria is established. If the criteria are attained, but not exceeded, the
amount of shares and notes which could be issued and cash which could be paid
under all agreements executed prior to June 30, 1997 is 160,497 shares,
$1,980,000, and $1,850,021, respectively. If the maximum targets were achieved,
the amount of shares and notes which could be issued and cash which could be
paid under agreements executed prior to June 30, 1997 is 163,059 shares,
$1,980,000 and $1,850,021, respectively. The Company accounts for this
additional consideration, when the specified financial criteria are achieved and
it is probable it will be paid, as additional purchase price for the related
acquisitions.
Contracts
The Company's practices participate in agreements with corporations and
managed care organizations to provide certain dental services under capitation
contracts to members of a group at a fixed rate per-member, per-month,
regardless of the actual services performed, and certain other dental services
as defined in the contract in accordance with an agreed upon fee schedule.
During the period from September 19, 1995 (inception) through December 31, 1995,
the year ended December 31, 1996 and for the period from January 1, 1997 to June
30, 1997, approximately 30%, 20%, and 21% respectively, of the Company's net
revenues were derived from capitation contracts. Revenues under these contracts
are recorded in the month fees are earned. Expenses are recorded as incurred
including an estimate of incurred but not reported expenses.
The Company estimates the costs of providing services under these contracts
by using historical experience and anticipated utilization rates. The Company
believes the future revenues under these contracts will exceed the costs of
services it will be required to provide under the terms of the contracts.
Generally, either party to these contracts may terminate the contract without
cause at any time with thirty to ninety days written notice.
Litigation
In the normal course of operations, the Company has become party to claims,
suits and complaints relating to general and professional services provided by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. Management does not believe that any
of these claims, suits or complaints will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
17. SUBSEQUENT EVENTS
The Company plans to file a registration statement with the Securities and
Exchange Commission to register the sale of shares of its common stock. The
Company intends to use a portion of the net proceeds of the offering to retire
certain indebtedness of the Company and to redeem preferred stock of the
Company. Any remaining net proceeds will be used to finance future acquisitions
and internal growth.
F-21
<PAGE> 81
REPORT OF INDEPENDENT ACCOUNTANTS
To Owners of Penn Dental Associates, P.C.,
Stafford Dental Associates,
Gallows Dental Group,
Hallmark Dental Group
and Alexandria Dental Centre
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations and changes in owners' equity and of cash
flows present fairly, in all material respects, the financial position of Penn
Dental Associates, P.C., Stafford Dental Associates, Gallows Dental Group,
Hallmark Dental Group and Alexandria Dental Centre (collectively "MT Associates"
or the "Company") at December 31, 1994 and September 19, 1995 and the results of
their operations and their cash flows for the year ended December 31, 1994 and
for the period from January 1, 1995 to September 19, 1995, 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
Philadelphia, PA
October 14, 1997
F-22
<PAGE> 82
MT ASSOCIATES
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 19,
1994 1995
------------ -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................ $ 47,509 $ 139,133
Accounts receivable, net......................................... 268,376 186,691
Prepaid expenses and other current assets........................ 4,605 5,377
-------- --------
Total current assets..................................... 320,490 331,201
Equipment and leasehold improvements, net.......................... 432,085 412,019
-------- --------
$752,575 $ 743,220
======== ========
LIABILITIES AND OWNERS' EQUITY
Current liabilities
Current portion of long-term debt................................ $ 17,273 $ 18,962
Current portion of obligations under capital lease............... 71,635 73,349
Accounts payable................................................. 41,051 29,679
Accrued expenses and other current liabilities................... 156,256 197,967
-------- --------
Total current liabilities................................ 286,215 319,957
Long-term debt..................................................... 69,011 54,571
Obligations under capital lease.................................... 239,767 225,670
-------- --------
Total liabilities........................................ 594,993 600,198
-------- --------
Owners' equity..................................................... 157,582 143,022
-------- --------
$752,575 $ 743,220
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 83
MT ASSOCIATES
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN OWNERS' EQUITY
<TABLE>
<CAPTION>
FOR THE
YEAR
ENDED FOR THE PERIOD
DECEMBER JANUARY 1 TO
31, SEPTEMBER 19,
1994 1995
---------- --------------
<S> <C> <C>
Net revenues....................................................... $1,878,124 $2,050,782
Cost of revenues................................................... 1,261,085 1,514,930
Selling and administrative expenses................................ 470,123 412,548
Depreciation and amortization...................................... 46,899 77,571
---------- ----------
Income from operations............................................. 100,017 45,733
Non-operating expenses:
Interest expense................................................. (24,753) (32,491)
---------- ----------
Income before income taxes......................................... 75,264 13,242
Income taxes....................................................... (9,945) (5,220)
---------- ----------
Net income............................................... 65,319 8,022
Owners' equity, beginning of period................................ 104,723 157,582
Distribution to owners............................................. (12,460) (22,582)
---------- ----------
Owners' equity, end of period...................................... $ 157,582 $ 143,022
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 84
MT ASSOCIATES
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD
ENDED JANUARY 1 TO
DECEMBER 31, SEPTEMBER 19,
1994 1995
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 65,319 $ 8,022
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 46,899 77,571
Provision for doubtful accounts............................... 34,961 5,387
Change in assets and liabilities
Accounts receivable........................................... (116,209) 76,298
Prepaid expenses and other current assets..................... 18,666 (771)
Accounts payable.............................................. 9,868 (11,372)
Accrued expenses and other current liabilities................ 53,811 41,711
--------- --------
Net cash provided by operating activities................ 113,315 196,846
--------- --------
Cash flows from investing activities:
Equipment and leasehold improvements............................. (138,502) (24,356)
--------- --------
Net cash used in investing activities.................... (138,502) (24,356)
--------- --------
Cash flows from financing activities:
Borrowings of long-term debt..................................... 100,337 --
Principal payments on capital leases............................. (21,829) (45,533)
Principal payments on long-term debt............................. (14,053) (12,751)
Distributions to owners.......................................... (12,460) (22,582)
--------- --------
Net cash provided by (used in) financing activities...... 51,995 (80,866)
--------- --------
Net increase in cash and cash equivalents........................ 26,808 91,624
Cash and cash equivalents at beginning of period................. 20,701 47,509
--------- --------
Cash and cash equivalents at end of period....................... $ 47,509 $139,133
========= ========
Supplemental disclosure of cash flow information:
Interest paid.................................................... $ 24,753 $ 32,491
========= ========
Supplemental schedule of non-cash investing and financing
activities:
Capital lease obligations entered............................. $ 321,384 $ 33,150
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 85
MT ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND SEPTEMBER 19, 1995
1. ORGANIZATION AND OPERATIONS
MT Associates (the "Company") provides general dental care and related
services in the Philadelphia, Pennsylvania and Northern Virginia areas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combined Financial Statements
These financial statements represent the combined financial statements of
the following affiliated companies:
Penn Dental Associates, P.C. ("Penn Dental"),
Stafford Dental Associates,
Gallows Dental Group,
Hallmark Dental Group, and
Alexandria Dental Centre (collectively, the "Virginia Practices")
Common control, ownership and intercompany activities exist among these
companies. Therefore, combined financial statements provide a more meaningful
presentation of the financial position of these companies as a whole. All
significant intercompany balances and transactions have been eliminated.
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Under certain managed care contracts the Company provides diagnostic and
preventative dental services for a fixed rate per-member per-month fee, and
other dental services as defined in the contracts under an agreed upon fee
schedule to member patients. Revenues from the per-member, per-month fees are
recorded in the month for which the member is entitled to service (see Note 11).
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which
principally range from five to seven years. Assets under capital leases and
leasehold improvements are amortized over the lesser of the lease term or the
asset's estimated useful life.
F-26
<PAGE> 86
MT ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Capital Leases
The Company has entered into various leases for office and dental equipment
which are accounted for as capital leases. At inception of the lease, the
equipment under lease and the related obligations are recorded at the net
present value of future minimum lease payments, excluding executory costs,
discounted using the Company's incremental borrowing rate.
Long-Lived and Intangible Assets
The Company applies Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, the
carrying value of long-lived assets and certain identifiable intangible assets
are evaluated whenever changes in circumstances indicate the carrying amount of
such assets may not be recoverable. In performing such review for
recoverability, the Company compares the expected future undiscounted cash flows
to the carrying value of long-lived assets and identifiable intangibles,
including the related excess of cost over fair value of net assets acquired.
If the expected future cash flows (undiscounted) are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated fair
value. In estimating future cash flows for determining whether an asset is
impaired, and in measuring assets that are impaired, assets are grouped by
practice office.
Income Taxes
Penn Dental accounts for certain items of income and expense in different
time periods for financial reporting and income tax purposes. Provisions for
deferred income taxes are made in recognition of such temporary differences,
where applicable. A valuation allowance is established against deferred tax
assets unless the Company believes it more likely than not that the benefit will
be realized.
Fair Value of Financial Instruments
Recorded balances of financial instruments at December 31, 1994 and
September 19, 1995 approximate estimated fair market values.
3. ACCOUNTS RECEIVABLE AND THIRD PARTY REIMBURSEMENTS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 19,
1994 1995
------------ -------------
<S> <C> <C>
Accounts receivable, net of contractual allowances of
$16,148 and $13,112 at December 31, 1994, and September
19, 1995, respectively................................... $297,290 $ 210,812
Less: Allowance for doubtful accounts...................... 28,914 24,121
-------- --------
$268,376 $ 186,691
======== ========
</TABLE>
The Company's services are reimbursed directly by both patients and by
third party payors, including managed care organizations and commercial
insurance companies. Third party reimbursements are primarily billed at
estimated amounts realizable based upon contractually determined rates. In
instances where "usual, customary and reasonable" market rates are billed, gross
billings are adjusted for contractual allowances to reflect estimated amounts
realizable from third party payors. The allowance for doubtful accounts is
estimated based on an ongoing review of collectibility.
F-27
<PAGE> 87
MT ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 19,
1994 1995
------------ -------------
<S> <C> <C>
Dental and office equipment, furniture and
fixtures......................................... $487,758 $ 540,913
Leasehold improvements............................. -- 4,350
Less: Accumulated depreciation and amortization.... (55,673) (133,244)
-------- --------
$432,085 $ 412,019
======== ========
</TABLE>
Depreciation and amortization expense, including amounts related to
equipment under capital lease (Note 5), for the year ended December 31, 1994 and
for the period from September 1, 1995 to September 19, 1995 totaled $46,899 and
$77,571, respectively.
5. LEASES
The Company has entered into various leases for office and dental equipment
accounted for as capital leases. The lease terms are from 3 to 5 years.
Equipment under capital leases at cost and related accumulated amortization
included in property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 19,
1994 1995
------------ -------------
<S> <C> <C>
Dental and office equipment........................ $333,381 $ 366,531
Less: Accumulated amortization..................... 28,265 90,981
-------- --------
Equipment under capital leases..................... $305,116 $ 275,550
======== ========
</TABLE>
Amortization of equipment under capital leases for the year ended December
31, 1994 and for the period from September 1, 1995 to September 19, 1995 totaled
$28,100 and $62,716, respectively.
Future minimum lease payments due under capital leases are as follows:
<TABLE>
<S> <C>
1995 (September 20 through December 31)........................... $ 28,619
1996.............................................................. 98,573
1997.............................................................. 98,573
1998.............................................................. 91,264
1999.............................................................. 50,348
--------
367,377
Less: Amount representing interest................................ 68,358
--------
Present value of minimum lease payments........................... 299,019
Less: Current portion............................................. 73,349
--------
$225,670
========
</TABLE>
The Company maintains leases for all of its dental offices and for certain
of its equipment which are accounted for as operating leases. The office lease
terms range from one to ten years, while the equipment terms range from one to
four years.
F-28
<PAGE> 88
MT ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum annual rentals due under noncancellable operating leases in
excess of one year are as follows:
<TABLE>
<S> <C>
1995 (September 20 through December 31).......................... $ 35,180
1996............................................................. 129,207
1997............................................................. 134,151
1998............................................................. 139,288
1999............................................................. 144,626
Thereafter....................................................... 667,404
----------
$1,249,856
==========
</TABLE>
Certain of the leases contain renewal options and escalation clauses which
require payments of additional rent to the extent of increases in related
operating costs.
Rent expense of $82,863 and $88,190, was incurred during the year ended
December 31, 1994 and for the period from September 1, 1995 to September 19,
1995, respectively.
6. DEBT
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 19,
1994 1995
------------ -------------
<S> <C> <C>
11% notes payable, secured by equipment, payable
through 1999..................................... $ 86,284 $ 73,533
Less: Current portion.............................. (17,273) (18,962)
------- -------
$ 69,011 $ 54,571
======= =======
</TABLE>
Scheduled maturities of long-term debt, other than related party debt,
outstanding as of September 19, 1995 are as follows:
<TABLE>
<S> <C>
1995 (September 20 through December 31)............................ $ 4,522
1996............................................................... 19,560
1997............................................................... 22,150
1998............................................................... 25,084
1999............................................................... 2,217
Thereafter......................................................... --
-------
$73,533
=======
</TABLE>
F-29
<PAGE> 89
MT ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The components of the income tax expense for the year ended December 31,
1994 and the period ended September 19, 1995 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1995 TO
DECEMBER 31, SEPTEMBER 19,
1994 1995
------------ ------------------
<S> <C> <C>
Current:
Federal......................................... $7,754 $4,070
State........................................... 2,191 1,150
Deferred:
Federal......................................... -- --
State........................................... -- --
------ ------
$9,945 $5,220
====== ======
</TABLE>
The reconciliation of the Federal statutory income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1995
DECEMBER 31, 1994 TO SEPTEMBER 19, 1995
----------------- ---------------------
<S> <C> <C>
Statutory income tax rate.................................. (34)% (34)%
Income attributable to companies not subject to Federal and
state taxes.............................................. 24 35
State taxes................................................ (3) (14)
--- ---
(13)% (13)%
=== ===
</TABLE>
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 19,
1994 1995
------------ -------------
<S> <C> <C>
Accrued profit sharing contributions............... $ 32,504 $ 29,947
Salaries and payroll taxes......................... 29,733 71,420
Professional service fees.......................... 21,168 27,130
Interest........................................... 15,620 14,980
Income taxes....................................... 9,945 5,220
Other.............................................. 47,286 49,270
-------- --------
$156,256 $ 197,967
======== ========
</TABLE>
9. OWNERS' EQUITY
As stated in Note 1, these financial statements reflect the combined
financial statements of several practices. A summary of the ownership
characteristics of these practices follow:
Penn Dental Associates has 1,000 shares of $1 Par common stock authorized,
issued and outstanding, [and capital in excess of Par is $10,793] for all
periods presented, and retained earnings is $21,955 at December 31, 1994,
$19,594 at September 19, 1995, respectively.
Stafford Dental Associates, Gallows Dental Group, Hallmark Dental Group and
Alexandria Dental Centre have a combined owners equity of $123,834 at December
31, 1994 and $111,635 at September 30, 1995, respectively.
F-30
<PAGE> 90
MT ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS
The Virginia practices paid management fees of $83,959 and $215,915 to Star
Management Company, owned by one of the shareholders of the practices, for the
year ended December 31, 1994 and for the period from January 1, 1995 to
September 19, 1995, respectively.
11. EMPLOYEE BENEFITS
Profit Sharing Plan
The Company maintains a profit sharing plan for employees of the Penn
Dental practice intended to qualify for tax-exempt status under Section 401(a)
of the Internal Revenue Code. Substantially all full-time employees of the Penn
Dental practice over 21 years of age with two years of service who are employed
on the last day of the Plan year are eligible for participation in the Plan.
Contributions by the Company are discretionary and subject to profitability
requirements. Charges to operations for contributions to the Plan were $32,504
and $29,947 in 1994 and for the period from January 1, 1995 to September 19,
1995, respectively.
12. COMMITMENTS AND CONTINGENCIES
Contracts
The Company participates in agreements with corporations and managed care
organizations to provide certain dental services to members of a group at a
fixed rate per-member, per-month, regardless of the actual services performed,
and certain other dental services as defined in the contract in accordance with
an agreed upon fee schedule. During 1994 and for the period from January 1, 1995
to September 19, 1995, approximately 20% and 23%, respectively, of the Company's
net revenues were derived from fixed rate per-member per-month contracts.
Revenues under these contracts are recorded in the month fees are earned.
Expenses are recorded as incurred including an estimate of incurred but not
reported expenses.
The Company estimates the costs of providing services under these contracts
by using historical experience and anticipated utilization rates. The Company
believes the future revenues under these contracts will exceed the costs of
services it will be required to provide under the terms of the contracts.
Generally, either party to these contracts may terminate the contract without
cause at any time with thirty to ninety days written notice.
Litigation
In the normal course of operations, the Company has become party to claims,
suits and complaints relating to general and professional services provided by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. Management does not believe that any
of these claims, suits or complaints will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
13. SUBSEQUENT EVENTS
Effective September 19, 1995, the Company was acquired by Valley Forge
Dental Associates, Inc., a Delaware Corporation.
F-31
<PAGE> 91
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Donald L. Kane, D.D.S., P.A. and UDG, Melborne, P.A.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations and of changes in stockholders' (deficit)
equity and of cash flows present fairly, in all material respects, the financial
position of Donald L. Kane, D.D.S., P.A. and UDG, Melborne, P.A. (collectively,
"United Dental Group" or the "Company") at December 31, 1994 and 1995 and the
results of operations and their cash flows for the years then ended, 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
Philadelphia, PA
June 23, 1997
F-32
<PAGE> 92
UNITED DENTAL GROUP
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................................... $102,238 $ 53,732
Accounts receivable, net........................................... 242,161 283,645
Prepaid expenses and other current assets.......................... 5,587 5,587
-------- --------
Total current assets....................................... 349,986 342,964
Property and equipment, net.......................................... 208,463 246,334
Due from stockholder................................................. -- 123,261
-------- --------
$558,449 $712,559
======== ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities
Current portion of long-term debt, including amounts due
related parties of $143,306 and $110,572 at December 31, 1994
and 1995 respectively........................................... $164,965 $141,052
Current portion of obligations under capital lease................. 46,304 54,167
Accounts payable................................................... 69,526 70,621
Accrued expenses and other current liabilities..................... 213,238 245,973
-------- --------
Total current liabilities.................................. 494,033 511,813
Long-term debt....................................................... -- 109,748
Obligations under capital lease...................................... 85,513 42,540
-------- --------
Total liabilities.......................................... 85,513 152,288
-------- --------
Stockholders' (deficit) equity....................................... (21,097) 48,458
-------- --------
Total liabilities and stockholders' (deficit) equity....... $558,449 $712,559
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 93
UNITED DENTAL GROUP
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1994 1995
---------- ----------
<S> <C> <C>
Net revenues...................................................... $3,087,104 $3,685,374
Cost of revenues.................................................. 2,607,202 2,972,657
Selling and administrative expenses............................... 398,944 563,806
Depreciation and amortization..................................... 73,119 86,129
-------- --------
Income from operations............................................ 7,839 62,782
Non-operating expenses:
Interest expense................................................ 30,840 32,354
-------- --------
Net (loss) income................................................. (23,001) 30,428
-------- --------
Receipt of stock subscription..................................... 51,056 39,127
Stockholders' (deficit) equity, beginning of year................. (49,152) (21,097)
-------- --------
Stockholders' (deficit) equity, end of year....................... $ (21,097) $ 48,458
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 94
UNITED DENTAL GROUP
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1994 1995
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income................................................... $(23,001) $ 30,428
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization.................................... 73,119 86,129
Provision for doubtful accounts.................................. 18,290 27,211
Change in assets and liabilities:
Accounts receivable.............................................. 19,864 (68,695)
Prepaid expenses and other assets................................ -- (123,261)
Accounts payable................................................. 817 1,095
Accrued expenses and other current liabilities................... 34,741 32,735
-------- ---------
Net cash provided by (used in) operating activities......... 123,830 (14,358)
-------- ---------
Cash flows from investing activities:
Purchases of property and equipment................................. (33,418) (68,352)
-------- ---------
Net cash used in investing activities....................... (33,418) (68,352)
-------- ---------
Cash flows from financing activities:
Borrowings of long-term debt........................................ -- 149,274
Principal payments on long-term debt................................ (76,229) (106,939)
Principal payments on capital lease obligations..................... (40,042) (47,258)
Receipt of stock subscription receivable............................ 51,056 39,127
-------- ---------
Net cash (used in) provided by financing activities......... (65,215) 34,204
-------- ---------
Net increase (decrease) in cash and cash equivalents................ 25,197 (48,506)
Cash and cash equivalents at beginning of period.................... 77,041 102,238
-------- ---------
Cash and cash equivalents at end of period.......................... $102,238 $ 53,732
======== =========
Supplemental disclosure of cash flow information:
Interest paid....................................................... $ 30,840 $ 32,254
======== =========
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations entered................................ $ 70,281 $ 12,148
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 95
UNITED DENTAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. ORGANIZATION AND OPERATIONS
United Dental Group (the "Company") provides general dental care and
related services in the Orlando, Florida area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combined Financial Statements
These financial statements represent the combined financial statements of
the following affiliated companies:
Donald L. Kane, D.D.S., P.A.
UDG, Melborne, P.A.
Common control, ownership and intercompany activities exist among these
companies. Therefore, combined financial statements provide a more meaningful
presentation of the financial position of these companies as a whole. All
significant intercompany balances and transactions have been eliminated.
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Under certain managed care contracts the Company provides diagnostic and
preventative dental services for a fixed rate per-member per-month fee, and
other dental services as defined in the contracts under an agreed upon fee
schedule to member patients. Revenues from the per-member, per-month fees are
recorded in the month for which the member is entitled to service (see Note 10).
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which
principally range from five to seven years. Assets under capital leases and
leasehold improvements are amortized over the lesser of the lease term or the
asset's estimated useful life.
Capital Leases
The Company has entered into various leases for office and dental equipment
which are accounted for as capital leases. At inception of the lease, the
equipment under lease and the related obligations are recorded at the net
present value of future minimum lease payments, excluding executory costs,
discounted using the Company's incremental borrowing rate.
F-36
<PAGE> 96
UNITED DENTAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Lived Assets
The Company applies Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, the
carrying value of long-lived assets are evaluated whenever changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. In performing such review for recoverability, the Company compares
the expected future undiscounted cash flows to the carrying value of long-lived
assets.
If the expected future cash flows (undiscounted) are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated fair
value. In estimating future cash flows for determining whether an asset is
impaired, and in measuring assets that are impaired, assets are grouped by
office.
Income Taxes
The Company has elected S Corporation status with the Internal Revenue
Service. As such, all income or loss of the Company accrues directly to its
stockholders. Accordingly, no provision for income taxes has been made in these
financial statements.
Fair Value of Financial Instruments
Recorded balances of financial instruments at December 31, 1994 and 1995
approximate estimated fair values.
3. ACCOUNTS RECEIVABLE AND THIRD PARTY REIMBURSEMENTS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
--------- ---------
<S> <C> <C>
Accounts receivable, net of contractual allowances of $33,000
and $36,699 at December 31, 1994 and 1995, respectively.... $ 361,508 $ 406,445
Less: Allowance for doubtful accounts........................ (119,347) (122,800)
-------- --------
$ 242,161 $ 283,645
======== ========
</TABLE>
The Company's services are reimbursed directly by both patients and by
third party payors, including managed care organizations and commercial
insurance companies. Third party reimbursements are primarily billed at
estimated amounts realizable based upon contractually determined rates. In
instances where "usual, customary and reasonable" market rates are billed, gross
billings are adjusted for contractual allowances to reflect estimated amounts
realizable from third party payors. The allowance for doubtful accounts is
estimated based on an ongoing review of collectibility.
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
--------- ---------
<S> <C> <C>
Office furniture and dental equipment, including equipment
under capital lease of $214,984 in 1994 and $226,984 in
1995....................................................... $ 416,362 $ 529,857
Leasehold improvements....................................... 43,414 53,919
Less: Accumulated depreciation and amortization.............. (251,313) (337,442)
--------- ---------
$ 208,463 $ 246,334
========= =========
</TABLE>
F-37
<PAGE> 97
UNITED DENTAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and amortization expense for the years ended December 31, 1994
and 1995, including amounts related to equipment under capital lease, totaled
$73,119 and $86,129, respectively.
5. LEASES
The Company has entered into various leases for office and dental equipment
accounted for as capital leases. The lease terms are from 5 to 7 years.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
-------- ---------
<S> <C> <C>
Dental and office equipment................................... $214,984 $ 226,984
Less: Accumulated amortization................................ (93,535) (142,794)
-------- --------
Equipment under capital leases................................ $121,449 $ 84,190
======== ========
</TABLE>
Amortization of equipment under capital leases for the years ended December
31, 1994 and 1995 totaled $41,735 and $49,259, respectively.
Future minimum lease payments due under capital leases are as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 66,459
1997.............................................................. 24,476
1998.............................................................. 20,339
1999.............................................................. 9,019
--------
120,293
Less: Amount representing interest................................ (23,586)
--------
Present value of minimum lease payments........................... 96,707
Less: Current portion............................................. (54,167)
--------
$ 42,540
========
</TABLE>
The Company leases all of its dental office space from an affiliated
entity; these leases are considered to be at fair market value and are accounted
for as operating leases. The office leases do not have stated terms.
During the years ended December 31, 1994 and 1995, rent expense of $117,600
and $121,200, respectively, was incurred.
6. DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Notes payable to related party................................. $125,806 $110,572
Notes payable to principal stockholder......................... 17,500 --
8.00% - 12.25% notes payable, collateralized by equipment,
payable through 2000......................................... 6,827 127,124
Borrowings under $25,000 line of credit unsecured; interest
accrues at prime plus 3%..................................... 14,832 13,104
-------- --------
164,965 250,800
Less: Current portion.......................................... (45,156) (30,480)
-------- --------
$119,809 $220,320
======== ========
</TABLE>
F-38
<PAGE> 98
UNITED DENTAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The note payable to principal stockholder and the related party note
payable relate to funds borrowed for operational and general corporate purposes.
The loans do not have stated repayment terms, interest rates, or maturity dates.
Scheduled maturities of long-term debt outstanding as of December 31, 1995
are as follows:
<TABLE>
<S> <C>
Debt with no scheduled repayment terms............................ $110,572
1996.............................................................. 30,480
1997.............................................................. 30,720
1998.............................................................. 31,080
1999.............................................................. 31,560
2000.............................................................. 16,388
--------
$250,800
========
</TABLE>
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Salaries and payroll taxes............................. $114,486 $135,769
Balances due to patients............................... 47,000 51,000
Unearned revenue....................................... 18,920 17,880
Other.................................................. 32,832 41,324
-------- --------
$213,238 $245,973
======== ========
</TABLE>
8. STOCKHOLDERS (DEFICIT) EQUITY
Donald L. Kane, D.D.S., P.A. and UDG, Melbourne, P.A., combined, have
10,000 shares of $1 Common Stock authorized, issued and outstanding and paid-in
capital in excess of par of $107,218 for all periods presented. Stock
Subscriptions received were $51,056 in 1994 and $39,127 in 1995. Accumulated
deficit is $99,188 at December 31, 1994 and $68,760 at December 31, 1993.
9. RELATED PARTY TRANSACTIONS
One of the Company's practices contracts with a dental lab owned by an
affiliated party. During 1994 and 1995, the Company paid $303,044, and $338,707
to the affiliated party for dental lab fees.
From time to time, the stockholder borrows funds from the Company interest
free. The balance owed by the stockholder at December 31, 1995 is $123,261 and
is included in the accompanying balance sheet.
10. EMPLOYEE BENEFITS
Retirement Plan
On January 1, 1995, the Company established a defined contribution 401(k)
plan covering substantially all of its employees. In general, eligible employees
may contribute up to 15% of their compensation to this plan. Employee
contributions are matched at a rate of 50% up to 4% of an employee's
compensation, and Company matching contributions were $18,285 in 1995.
F-39
<PAGE> 99
UNITED DENTAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
Contracts
The Company participates in agreements with corporations and managed care
organizations to provide certain dental services to members of a group at a
fixed rate per-member, per-month, regardless of the actual services performed,
and certain other dental services as defined in the contract in accordance with
an agreed upon fee schedule. During 1994 and 1995, approximately 21% and 24%,
respectively, of the Company's net revenues were derived from fixed rate
per-member per-month contracts. Revenues under these contracts are recorded in
the month fees are earned. Expenses are recorded as incurred, including an
estimate of incurred but not reported expenses.
The Company estimates the costs of providing services under these contracts
by using historical experience and anticipated utilization rates. The Company
believes the future revenues under these contracts will exceed the costs of
services it will be required to provide under the terms of the contracts.
Generally, either party to these contracts may terminate the contract without
cause at any time with thirty to ninety days written notice.
Litigation
In the normal course of operations, the Company has become party to claims,
suits and complaints relating to general and professional services provided by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. Management does not believe that any
of these claims, suits or complaints will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
11. SUBSEQUENT EVENTS
Effective January 1, 1996, the Company was acquired by Valley Forge Dental
Associates, Inc., a Delaware Corporation.
F-40
<PAGE> 100
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Western Dental Group
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholder's (deficit)
equity and of cash flows present fairly, in all material respects, the financial
position of Western Dental Group (the "Company") at December 31, 1995 and 1996
and the results of its operations and its cash flows for 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
Philadelphia, PA
September 17, 1997
F-41
<PAGE> 101
WESTERN DENTAL GROUP
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................................... $ 23,688 $ 17,113
Accounts receivable, net........................................... 191,985 256,468
Prepaid expenses and other current assets, including due from
related party of $22,657 and $6,856 at December 31, 1995 and
1996, respectively.............................................. 29,473 13,674
-------- --------
Total current assets....................................... 245,146 287,255
Property and equipment, net.......................................... 176,667 192,627
Other assets......................................................... 34,800 33,600
-------- --------
$456,613 $513,482
======== ========
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities
Current portion of long-term debt.................................. $ 93,114 $121,017
Current portion of obligations under capital lease................. 18,755 24,924
Accounts payable................................................... 57,111 154,313
Accrued expenses and other current liabilities..................... 148,958 146,283
-------- --------
Total current liabilities.................................. 317,938 446,537
Long-term debt....................................................... 104,970 79,901
Obligations under capital lease...................................... 33,311 24,458
-------- --------
Total liabilities.......................................... 456,219 550,896
-------- --------
Stockholder's (deficit) equity
Common stock, no par value 200,000 shares authorized, 40,000 shares
issued and outstanding at December 31, 1995 and 1996............ 5,265 5,265
Accumulated deficit................................................ (4,871) (42,679)
-------- --------
Total stockholder's (deficit) equity............................... 394 (37,414)
-------- --------
$456,613 $513,482
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE> 102
WESTERN DENTAL GROUP
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues........................................... $2,362,369 $2,499,030 $2,690,534
Cost of revenues....................................... 1,529,069 1,659,422 1,814,842
Selling and administrative expenses.................... 419,693 415,705 657,522
Depreciation and amortization.......................... 33,583 48,560 34,995
---------- ---------- ----------
Income from operations................................. 380,024 375,343 183,175
Non-operating expenses:
Interest expense -- related parties.................. (12,348) (11,534) (10,482)
Interest expense -- other............................ (18,524) (12,264) (11,294)
---------- ---------- ----------
Net income............................................. $ 349,152 $ 351,545 $ 161,399
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE> 103
WESTERN DENTAL GROUP
STATEMENT OF CHANGES IN STOCKHOLDER'S (DEFICIT) EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
------ ------ ----------- ---------
<S> <C> <C> <C> <C>
Balance, January 1, 1994......................... 40,000 $5,265 $ 33,738 $ 39,003
Net income....................................... 349,152 349,152
Distributions to owner........................... (449,707) (449,707)
------ ------ --------- ---------
Balance, December 31, 1994....................... 40,000 5,265 (66,817) (61,552)
Net income....................................... 351,545 351,545
Distributions to owner........................... (289,599) (289,599)
------ ------ --------- ---------
Balance, December 31, 1995....................... 40,000 5,265 (4,871) 394
Net income....................................... 161,399 161,399
Distributions to owner........................... (199,207) (199,207)
------ ------ --------- ---------
Balance, December 31, 1996....................... 40,000 $5,265 $ (42,679) $ (37,414)
====== ====== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE> 104
WESTERN DENTAL GROUP
CONSOLIDATED STATEMENT 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............................................ $ 349,152 $ 351,545 $ 161,399
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization...................... 33,583 48,560 34,995
Provision for doubtful accounts.................... 50,245 46,520 40,125
Change in assets and liabilities:
Accounts receivable................................ (101,941) (56,551) (104,608)
Prepaid expenses and other assets.................. (24,235) 743 16,999
Accounts payable................................... (27,087) 10,879 97,202
Accrued expenses and other current liabilities..... 44,618 (10,403) (2,675)
--------- --------- ---------
Net cash provided by operating activities..... 324,335 391,293 243,437
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment................... (50,197) (44,887) (36,079)
--------- --------- ---------
Net cash used in investing activities......... (50,197) (44,887) (36,079)
--------- --------- ---------
Cash flows from financing activities:
Borrowings of long-term debt.......................... 206,440 38,636 31,946
Principal payments on long-term debt.................. (25,240) (57,726) (29,112)
Principal payments on capital leases.................. (15,500) (19,157) (17,560)
Distributions to owner................................ (449,707) (289,599) (199,207)
--------- --------- ---------
Net cash used in financing activities......... (284,007) (327,846) (213,933)
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents........................................ (9,869) 18,560 (6,575)
Cash and cash equivalents at beginning of period...... 14,997 5,128 23,688
--------- --------- ---------
Cash and cash equivalents at end of period............ $ 5,128 $ 23,688 $ 17,113
========= ========= =========
Supplemental disclosure of cash flow information:
Interest paid......................................... $ 30,872 $ 23,798 $ 11,294
========= ========= =========
Supplemental schedule of noncash investing and financing
activities:
Capital lease obligations entered............. $ 7,690 $ 2,154 $ 14,876
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE> 105
WESTERN DENTAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
1. ORGANIZATION AND OPERATIONS
Western Dental Group (the "Company") provides general dental care and
related services in the Denver, Colorado area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Under certain managed care contracts the Company provides diagnostic and
preventative dental services for a fixed rate per-member per-month fee, and
other dental services as defined in the contracts under an agreed upon fee
schedule to member patients. Revenues from the per-member, per-month fees are
recorded in the month for which the member is entitled to service (see Note 9).
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which
principally range from five to seven years. Assets under capital leases and
leasehold improvements are amortized over the lesser of the lease term or the
asset's estimated useful life.
Capital Leases
The Company has entered into various leases for office and dental equipment
which are accounted for as capital leases. At inception of the lease, the
equipment under lease and the related obligations are recorded at the net
present value of future minimum lease payments, excluding executory costs,
discounted using the Company's incremental borrowing rate.
Long-Lived and Intangible Assets
The Company applies Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ". Accordingly,
the carrying value of long-lived assets are evaluated whenever changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. In performing such review for recoverability, the Company compares
the expected future undiscounted cash flows to the carrying value of long-lived
assets.
F-46
<PAGE> 106
WESTERN DENTAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the expected future cash flows (undiscounted) are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated fair
value. In estimating future cash flows for determining whether an asset is
impaired, and in measuring assets that are impaired, assets are grouped by
office.
Income Taxes
The Company has elected S corporation status with the Internal Revenue
Service. As such, all income or loss of the Company accrues directly to its
stockholder. Accordingly, no provision for income taxes has been made in these
financial statements.
Fair Value of Financial Instruments
Recorded balances of financial instruments at December 31, 1994, 1995 and
1996 approximate estimated fair values.
3. ACCOUNTS RECEIVABLE AND THIRD PARTY REIMBURSEMENTS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
-------- --------
<S> <C> <C>
Accounts receivable, net of contractual allowances of $43,771
and $54,922 at December 31, 1995 and 1996, respectively...... $242,223 $323,027
Less: Allowance for doubtful accounts.......................... (50,238) (66,559)
-------- --------
$191,985 $256,468
======== ========
</TABLE>
The Company's services are reimbursed directly by both patients and by
third party payors, including managed care organizations and commercial
insurance companies. Patriot services are billed to third party payors at
estimated amounts realizable based upon contractually determined rates. In
instances where "usual, customary and reasonable" market rates differ from
contractually determined rates, gross billings are adjusted for contractual
allowances to reflect estimated amounts realizable from third party payors. The
allowance for doubtful accounts is estimated based on historical experience and
an ongoing review of collectibility.
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
--------- ---------
<S> <C> <C>
Equipment, furniture and fixtures and automobiles, including
equipment under capital lease.............................. $ 489,009 $ 566,312
Leasehold improvements....................................... 76,181 49,833
Less: Accumulated depreciation and amortization.............. (388,523) (423,518)
--------- ---------
$ 176,667 $ 192,627
========= =========
</TABLE>
Depreciation and amortization expense, including amounts related to
equipment under capital lease (Note 5), for the years ended December 31, 1994,
1995 and 1996 totaled $33,583, $48,560 and $34,995, respectively.
F-47
<PAGE> 107
WESTERN DENTAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES
The Company has entered into various leases for office and dental equipment
accounted for as capital leases. The lease terms are from 5 to 7 years.
Equipment under capital leases at cost and related accumulated amortization
included in property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
------- -------
<S> <C> <C>
Dental and office equipment....................................... $85,389 $93,474
Less: Accumulated amortization.................................... (49,308) (63,468)
------- -------
Equipment under capital leases.................................... $36,081 $30,006
======= =======
</TABLE>
Amortization of equipment under capital leases for the years ended December
31, 1994, 1995 and 1996 totaled $15,003, $16,778 and $14,160, respectively.
Future minimum lease payments due under capital leases are as follows:
<TABLE>
<S> <C>
1997............................................................... $27,828
1998............................................................... 22,047
1999............................................................... 3,977
2000............................................................... 1,394
2001............................................................... --
-------
55,246
Less: Amount representing interest................................. (5,864)
-------
Present value of minimum lease payments............................ 49,382
Less: Current portion.............................................. (24,924)
-------
$24,458
=======
</TABLE>
The Company maintains leases for office space and for certain of its
equipment which are accounted for as operating leases. The office lease terms
range from three to six years, while the equipment terms range from one to five
years.
Future minimum annual rentals due under noncancellable operating leases in
excess of one year are as follows:
<TABLE>
<S> <C>
1997.............................................................. $122,737
1998.............................................................. 123,001
1999.............................................................. 100,911
2000.............................................................. 40,676
2001.............................................................. 17,571
Thereafter........................................................ 18,251
--------
$423,147
========
</TABLE>
Certain of the leases contain renewal options and escalation clauses which
require payments of additional rent to the extent of increases in related
operating costs.
Rent expense of $110,094, $134,982, and $147,071, including related party
rents, respectively, was incurred during years ended December 31, 1994, 1995 and
1996, respectively. See Note 8 for related party lease arrangements.
F-48
<PAGE> 108
WESTERN DENTAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
-------- --------
<S> <C> <C>
Borrowings under $50,000 line of credit, collateralized by all
assets of the Company; interest accrues at prime plus 2%....... $ 41,421 $ 50,000
Notes payable to related party, interest accrues at prime (8.5%
at December 31, 1994 and 1995 and 8.25% at December 31,
1996).......................................................... 130,335 133,207
6.4% - 11.75% notes payable, collateralized by equipment, paid
through 2000................................................... 26,328 17,711
-------- --------
198,084 200,918
Less: Current portion............................................ 93,114 121,017
-------- --------
$104,970 $ 79,901
======== ========
</TABLE>
Scheduled maturities of long-term debt outstanding as of December 31, 1996
are as follows:
<TABLE>
<S> <C>
1997.............................................................. $121,017
1998.............................................................. 37,688
1999.............................................................. 27,343
2000.............................................................. 14,870
--------
$200,918
========
</TABLE>
The related party notes payable relate to payments to former owners in
connection with previously acquired businesses, and funds borrowed for
operational and general corporate purposes.
7. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
-------- --------
<S> <C> <C>
Balances due to patients....................................... $ 34,800 $ 47,437
Salaries and payroll taxes..................................... 22,014 31,730
Deferred revenues.............................................. 26,968 28,729
Other.......................................................... 65,176 38,387
-------- --------
$148,958 $146,283
======== ========
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company established a management company, Western Dental Management,
effective January 1, 1996. Western Dental Management is owned by the Company's
sole shareholder. For the year ended December 31, 1996, the Company paid
management fees of $173,917 to Western Dental Management.
The Company leases space from affiliated entities. The rent expense under
these leases is considered to be at fair market value and was $36,490, $43,896
and $59,721 for 1994, 1995 and 1996. Prior to January 1, 1996, no rent was
charged for one of the offices, which is owned by the Company's sole
shareholder.
The Company's contracts with a dental lab owned by the Company's sole
shareholder. During 1994, 1995 and 1996, the Company paid $39,286, $22,485 and
$115,162 for related party dental lab fees.
F-49
<PAGE> 109
WESTERN DENTAL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
Contracts
The Company participates in agreements with corporations and managed care
organizations to provide certain dental services to members of a group at a
fixed rate per-member, per-month, regardless of the actual services performed,
and certain other dental services as defined in the contract in accordance with
an agreed upon fee schedule. During 1994, 1995 and 1996, approximately 28%, 30%
and 28%, respectively, of the Company's net revenues were derived from fixed
rate per-member per-month contracts. Revenues under these contracts are recorded
in the month fees are earned. Expenses are recorded as incurred including an
estimate of incurred but not reported expenses.
The Company estimates the costs of providing services under these contracts
by using historical experience and anticipated utilization rates. The Company
believes the future revenues under these contracts will exceed the costs of
services it will be required to provide under the terms of the contracts.
Generally, either party to these contracts may terminate the contract without
cause at any time with thirty to ninety days written notice.
Litigation
In the normal course of operations, the Company has become party to claims,
suits and complaints relating to general and professional services provided by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. Management does not believe that any
of these claims, suits or complaints will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
10. SUBSEQUENT EVENTS
Effective January 1, 1997, the Company was acquired by Valley Forge Dental
Associates, Inc., a Delaware Corporation.
F-50
<PAGE> 110
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Horizon Group International, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Horizon Group International, Inc. and its subsidiary (the "Company") at December
31, 1994 and 1995 and at February 29, 1996 and the results of their operations
and their cash flows for the years ended December 31, 1994 and 1995 and for the
period from January 1, 1996 to February 29, 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
Philadelphia, PA
September 23, 1997
F-51
<PAGE> 111
HORIZON GROUP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 29,
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 1,267 $ 10,821 $ 85,398
Accounts receivable, net.................................. 837,035 925,826 875,782
Prepaid expenses and other current assets................. 119,485 21,815 --
---------- ---------- ----------
Total current assets.............................. 957,787 958,462 961,180
Equipment and leasehold improvement, net.................... 244,793 320,283 307,389
Other assets................................................ 4,074 12,098 3,496
---------- ---------- ----------
$1,206,654 $1,290,843 $ 1,272,065
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt......................... $ 34,770 $ 33,853 $ 24,908
Accounts payable.......................................... 57,226 39,532 40,875
Income tax payable........................................ 33,709 8,009 1,000
Accrued expenses and other current liabilities............ 564,058 625,834 731,461
---------- ---------- ----------
Total current liabilities......................... 689,763 707,228 798,244
Long-term debt.............................................. 11,102 103,402 97,402
Deferred income taxes....................................... 4,155 8,310 12,465
---------- ---------- ----------
Total liabilities................................. 705,020 818,940 908,111
---------- ---------- ----------
Stockholders' equity
Preferred stock, $10,000 par value, 85 shares authorized;
81 shares issued....................................... 810,000 810,000 810,000
Common stock, no par value, 665 shares authorized; 562
shares issued.......................................... 39,850 39,850 39,850
Treasury stock, 442 shares at cost........................ (124,907) (124,907) (124,907)
Accumulated deficit....................................... (223,309) (253,040) (360,989)
---------- ---------- ----------
Total stockholders' equity........................ 501,634 471,903 363,954
---------- ---------- ----------
$1,206,654 $1,290,843 $ 1,272,065
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE> 112
HORIZON GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JANUARY 1, 1996
DECEMBER 31, TO FEBRUARY 29,
1994 1995 1996
---------- ---------- ---------------
<S> <C> <C> <C>
Net revenues............................................ $5,455,732 $6,002,233 $ 1,187,984
Cost of revenues........................................ 3,283,111 3,797,228 759,130
Selling and administrative expenses..................... 2,003,703 2,141,080 517,669
Depreciation and amortization........................... 73,596 77,772 12,894
---------- ---------- ----------
Income (loss) from operations........................... 95,322 (13,847) (101,709)
Non-operating expenses:
Interest expense...................................... (8,273) (3,721) (1,086)
---------- ---------- ----------
Income (loss) before income taxes....................... 87,049 (17,568) (102,795)
Income tax expense...................................... (37,863) (12,163) (5,154)
---------- ---------- ----------
Net income (loss)............................. $ 49,186 $ (29,731) $ (107,949)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE> 113
HORIZON GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
PAR PREFERRED STOCK TREASURY STOCK ACCUMULATED
SHARES VALUE SHARES VALUE SHARES VALUE DEFICIT TOTAL
------ ------- ------ -------- ------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994.... 120 $39,850 81 $810,000 442 $(124,907) $(272,495) $ 452,448
Net income.................. 49,186 49,186
--- ------- --- -------- --- --------- --------- --------
Balance, December 31,
1994...................... 120 39,850 81 810,000 442 (124,907) (223,309) 501,634
Net loss.................... (29,731) (29,731)
--- ------- --- -------- --- --------- --------- --------
Balance, December 31,
1995...................... 120 39,850 81 810,000 442 (124,907) (253,040) 471,903
Net loss.................... (107,949) (107,949)
--- ------- --- -------- --- --------- --------- --------
Balance, February 29,
1996...................... 120 $39,850 81 $810,000 442 $(124,907) $(360,989) $ 363,954
=== ======= === ======== === ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE> 114
HORIZON GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
JANUARY
FOR THE YEARS 1, 1996
ENDED DECEMBER 31, TO
---------------------- FEBRUARY
1994 1995 29, 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 49,186 $ (29,731) $(107,949)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization........................ 73,596 77,772 12,894
Provision for doubtful accounts...................... 177,274 207,634 16,824
Loss on disposal of assets........................... 12,724 -- --
Deferred income taxes................................ 4,155 4,155 4,155
Increase (decrease) in accounts receivable........... (301,936) (296,425) 33,220
Decrease in prepaid expenses and other current
assets............................................. 17,133 89,646 30,417
(Decrease) increase in accounts payable.............. (9,547) (17,694) 1,343
Increase in accrued expenses and other current
liabilities........................................ 79,378 61,776 105,627
Increase in income taxes payable..................... (5,936) (25,700) (7,009)
--------- --------- ---------
Net cash provided by operating activities....... 96,027 71,433 89,522
--------- --------- ---------
Cash flows from investing activities:
Purchases of equipment.................................. (2,337) (153,262) --
--------- --------- ---------
Net cash used in investing activities........... (2,337) (153,262) --
--------- --------- ---------
Cash flows from financing activities:
Borrowings of long-term debt............................ -- 140,000 --
Principal payments on long-term debt.................... (93,279) (48,617) (14,945)
--------- --------- ---------
Net cash (used in) provided by financing
activities.................................... (93,279) 91,383 (14,945)
--------- --------- ---------
Net increase in cash and cash equivalents............... 411 9,554 74,577
Cash and cash equivalents at beginning of period........ 856 1,267 10,821
--------- --------- ---------
Cash and cash equivalents at end of period.............. $ 1,267 $ 10,821 $ 85,398
========= ========= =========
Supplemental disclosure of cash flow information:
Interest paid........................................... $ 8,273 $ 3,721 $ 1,086
========= ========= =========
Income taxes paid....................................... $ -- $ 33,709 $ 8,008
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE> 115
HORIZON GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND FEBRUARY 29, 1996
1. ORGANIZATION AND OPERATIONS
Horizon Group International, Inc. (the "Company") provides general dental
care and related services in the Cleveland, Ohio area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of the Company after
elimination of material intercompany balances and transactions including those
pertaining to Precise Dental Lab, a wholly-owned dental laboratory which
performs the majority of the Company's laboratory services.
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Under certain managed care contracts the Company provides diagnostic and
preventative dental services for a fixed rate per-member per-month fee, and
other dental services as defined in the contracts under an agreed upon fee
schedule to member patients. Revenues from the per-member, per-month fees are
recorded in the month for which the member is entitled to service (see Note 11).
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which
principally range from five to seven years. Leasehold improvements are amortized
over the lesser of the lease term or the asset's estimated useful life.
Long-Lived Assets
The Company applies Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, the
carrying value of long-lived assets are evaluated whenever changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. In performing such review for recoverability, the Company compares
the expected future undiscounted cash flows to the carrying value of long-lived
assets.
If the expected future cash flows (undiscounted) are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated fair
value. In estimating future cash flows for determining whether an asset is
impaired, and in measuring assets that are impaired, assets are grouped by
office.
F-56
<PAGE> 116
HORIZON GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company accounts for certain items of income and expense in different
time periods for financial reporting and income tax purposes. Provisions for
deferred income taxes are made in recognition of such temporary differences,
where applicable. A valuation allowance is established against deferred tax
assets unless the Company believes it more likely than not that the benefit will
be realized.
Fair Value of Financial Instruments
Recorded balances of financial instruments at December 31, 1994 and 1995
and February 29, 1996 approximate estimated fair values.
3. ACCOUNTS RECEIVABLE AND THIRD PARTY REIMBURSEMENTS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
FEBRUARY
DECEMBER 31, 29,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Accounts receivable, net of contractual
allowances of $279,012, $320,478 and
$307,875, at December 31, 1994 and 1995 and
February 29, 1996, respectively.............. $1,271,053 $1,459,956 $1,388,907
Less: Allowance for doubtful accounts.......... (434,018) (534,130) (513,125)
---------- ---------- ----------
$ 837,035 $ 925,826 $ 875,782
========== ========== ==========
</TABLE>
The Company's services are reimbursed directly by both patients and by
third party payors, including Medicaid, managed care organizations and
commercial insurance companies. Approximately 16%, 15% and 18% of the Company's
net revenues for the years ended December 31, 1994 and 1995 and for the period
from January 1, 1996 to February 29, 1996 were directly billed to the Medicaid
program which is subject to Federal and state regulation. Third party
reimbursements are primarily billed at estimated amounts realizable based upon
contractually determined rates. In instances where "usual, customary and
reasonable" market rates are billed, gross billings are adjusted for contractual
allowances to reflect estimated amounts realizable from third party payors. The
allowance for doubtful accounts is estimated based on an ongoing review of
collectibility.
4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
<TABLE>
<CAPTION>
FEBRUARY
DECEMBER 31, 29,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Dental equipment............................ $ 592,799 $ 602,472 $ 602,472
Furniture and fixtures, automobiles and
leasehold improvements.................... 737,310 748,711 746,697
Data processing and office equipment........ 258,714 165,266 165,266
----------- ----------- -----------
1,588,823 1,516,449 1,514,435
Less: Accumulated depreciation and
amortization.............................. (1,344,030) (1,196,166) (1,207,046)
----------- ----------- -----------
$ 244,793 $ 320,283 $ 307,389
=========== =========== ===========
</TABLE>
Depreciation and amortization expense, for the years ended December 31,
1994 and 1995 and for the period from January 1, 1996 to February 29, 1996
totaled $73,596, $77,772 and $12,894, respectively.
F-57
<PAGE> 117
HORIZON GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DEBT
<TABLE>
<CAPTION>
FEBRUARY
DECEMBER 31, 29,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
7.50% - 9.0% notes payable, collateralized by
equipment and accounts receivable, payable
through 2000..................................... $ 21,648 $126,153 $122,310
Other notes payable, interest rates and due dates
vary............................................. 24,224 11,102 --
-------- -------- --------
45,872 137,255 122,310
Less: current portion.............................. (34,770) (33,853) (24,908)
-------- -------- --------
$ 11,102 $103,402 $ 97,402
======== ======== ========
</TABLE>
Scheduled maturities of long-term debt, outstanding as of February 29, 1996
are as follows:
<TABLE>
<S> <C>
1996 (10 months).................................................. $ 18,908
1997.............................................................. 26,181
1998.............................................................. 28,625
1999.............................................................. 31,442
2000.............................................................. 17,154
--------
$122,310
========
</TABLE>
6. INCOME TAXES
The components of the income tax expense for the years ended December 31,
1994 and 1995 and for the period from January 1, 1996 to February 29, 1996 is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1996
DECEMBER 31, TO FEBRUARY 29,
1994 1995 1996
------- ------- ---------------
<S> <C> <C> <C>
Current:
State........................................... $33,709 $ 8,009 $ 1,000
Deferred:
Federal......................................... 3,011 3,011 3,011
State........................................... 1,143 1,143 1,143
------- ------- ------
$37,863 $12,163 $ 5,154
======= ======= ======
</TABLE>
At December 31, 1994, a receivable of $119,485 related to a 1993 net
operating loss carryback was included in other current assets on the balance
sheet. This amount was received in 1995.
The reconciliation of the federal statutory income tax rate to the
effective income tax rate for the years ended December 31, 1994 and 1995 and for
the period from January 1, 1996 to February 29, 1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1996
DECEMBER 31, TO FEBRUARY 29,
1994 1995 1996
---- ---- ---------------
<S> <C> <C> <C>
Statutory income tax rate............................... (34)% (34)% (34)%
Losses for which no income tax benefit is recognized.... 22 67 45
Nondeductible business expenses......................... (1) 2 1
State taxes, net of Federal tax benefit................. (33) 11 (7)
--- --- ---
46% 46% 5%
=== === ===
</TABLE>
F-58
<PAGE> 118
HORIZON GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of net deferred income tax assets and (liabilities) are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 29,
1994 1995 1996
--------- --------- ------------
<S> <C> <C> <C>
Accruals and reserves not currently deductible for tax
purposes.............................................. $ 211,074 $ 222,143 $ 222,259
Net operating loss carryforwards........................ -- 6,522 53,154
-------- -------- --------
Gross deferred tax assets............................... 211,074 228,665 275,413
Valuation allowance..................................... (211,074) (228,665) (275,413)
-------- -------- --------
-- -- --
Gross deferred tax liabilities.......................... (4,155) (8,310) (12,465)
-------- -------- --------
Net deferred tax liabilities............................ $ (4,155) $ (8,310) $ (12,465)
======== ======== ========
</TABLE>
At February 29, 1996, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $128,000. Their use is limited to
future taxable earnings of the Company. The carryforwards expire in 2010. A
valuation allowance has been established against the benefit of the net
operating loss carryforwards and other deferred tax assets which the Company
does not believe are more likely than not to be realized.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 29,
1994 1995 1996
-------- -------- ------------
<S> <C> <C> <C>
Balances due to patients.................................. $305,952 $368,278 $385,697
Salaries, payroll taxes and benefits...................... 215,795 216,937 108,202
Professional services fees................................ 23,320 22,242 162,875
Other..................................................... 18,991 18,377 74,687
-------- -------- --------
$564,058 $625,834 $731,461
======== ======== ========
</TABLE>
8. OPERATING LEASES
The Company has entered into various leases for office space accounted for
as operating leases. The office lease terms range from three to five years.
Future minimum annual rentals due under noncancelable operating leases in excess
of one year are as follows:
<TABLE>
<S> <C>
1996 (ten months)................................................. $ 38,590
1997.............................................................. 49,802
1998.............................................................. 52,375
1999.............................................................. 53,182
2000.............................................................. 34,944
Thereafter........................................................ 24,208
--------
$253,101
========
</TABLE>
The leases contain renewal options and escalation clauses which require
payments of additional rent to the extent of increases in related operating
costs.
Rent expense to unrelated parties of $46,564, $46,304 and $7,718,
respectively, was incurred during the years ended December 31, 1994 and 1995 and
for the period from January 1, 1996 to February 29, 1996, respectively. See Note
9 for related party lease arrangements.
F-59
<PAGE> 119
HORIZON GROUP INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY TRANSACTIONS
The Company leases space from an affiliated entity at rates which
management believes approximate fair market value. Rent expense under these
leases was $213,996, $214,000 and $35,666 for 1994 and 1995 and for the period
from January 1, 1996 to February 29, 1996, respectively.
10. EMPLOYEE BENEFITS
The Company maintains a profit sharing plan intended to qualify for
tax-exempt status under Section 401(a) of the Internal Revenue Code.
Substantially all employees over 21 years of age with two years of service are
eligible for participation in the Plan. Contributions by the Company are
discretionary and subject to profitability requirements. Charges to operations
for contributions to the Plan were $20,000, in both 1994 and 1995. No
contributions were made to the plan during the period from January 1, 1996 to
February 29, 1996.
11. COMMITMENTS AND CONTINGENCIES
Contracts
The Company participates in agreements with corporations and managed care
organizations to provide certain dental services to members of a group at a
fixed rate per-member, per-month, regardless of the actual services performed,
and certain other dental services as defined in the contract in accordance with
an agreed upon fee schedule. During the years ended 1994 and 1995, and for the
period from January 1, 1996 to February 29, 1996, approximately 14.4%, 14.0% and
13.7%, respectively, of the Company's net revenues were derived from fixed rate
per-member per-month contracts. Revenues under these contracts are recorded in
the month fees are earned. Expenses are recorded as incurred including an
estimate of incurred but not reported expenses.
The Company estimates the costs of providing services under these contracts
by using historical experience and anticipated utilization rates. The Company
believes the future revenues under these contracts will exceed the costs of
services it will be required to provide under the terms of the contracts.
Generally, either party to these contracts may terminate the contract without
cause at any time with thirty to ninety days written notice.
Litigation
In the normal course of operations, the Company has become party to claims,
suits and complaints relating to general and professional services provided by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. Management does not believe that any
of these claims, suits or complaints will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
12. SUBSEQUENT EVENTS
Effective March 1, 1996, the Company was acquired by Valley Forge Dental
Associates, Inc., a Delaware Corporation.
F-60
<PAGE> 120
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors, Stockholders and Owners of
ENW, Inc., Dental Care Center and Virginia Avenue Dental Associates
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, of changes in owners' equity and of cash
flows present fairly, in all material respects, the combined financial position
of ENW, Inc., Dental Care Center and Virginia Avenue Dental Associates
(collectively referred to as "ENW, Inc." or "the Company") at December 31, 1995
and 1996 and January 31, 1997 and the results of their operations and their cash
flows for the years ended December 31, 1995 and 1996 and for the period from
January 1, 1997 to January 31, 1997, 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
Philadelphia, PA
October 10, 1997
F-61
<PAGE> 121
ENW, INC.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1995 1996 1997
-------- -------- -----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................ $ 6,173 $ 10,828 $ 37,450
Accounts receivable, net................................. 63,080 90,320 93,832
Prepaid expenses and other current assets................ -- 4,322 4,322
-------- -------- --------
Total current assets............................. 69,253 105,470 135,604
Equipment, net............................................. 367,165 443,255 436,589
Excess of cost over fair value of net assets acquired and
other intangible assets, net............................. 280,720 271,121 270,473
-------- -------- --------
$717,138 $819,846 $ 842,666
======== ======== ========
LIABILITIES AND OWNERS' EQUITY
Current liabilities
Current portion of long-term debt including balances due
related parties -- See Note 8......................... $356,607 $270,974 $ 266,280
Current portion of obligations under capital lease....... 1,659 39,452 47,601
Accounts payable......................................... 26,723 10,446 40,447
Accrued expenses and other current liabilities........... 11,458 11,251 103,540
Book overdrafts.......................................... 47,785 92,349 10,314
-------- -------- --------
Total current liabilities........................ 444,232 424,472 468,182
Long-term debt including balances due related
parties -- See Note 8.................................... 91,116 117,680 111,166
Obligations under capital lease............................ 6,485 152,137 143,354
-------- -------- --------
Total liabilities................................ 541,833 694,289 722,702
Owners' equity............................................. 175,305 125,557 119,964
-------- -------- --------
$717,138 $819,846 $ 842,666
======== ======== ========
</TABLE>
The accompanying notes are an integral part of theses financial statements.
F-62
<PAGE> 122
ENW, INC.
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE YEARS ENDED JANUARY 1, 1997
DECEMBER 31, TO JANUARY 31,
1995 1996 1997
---------- ---------- ---------------
<S> <C> <C> <C>
Net revenues......................................... $1,821,619 $2,217,376 $ 233,566
Cost of revenues..................................... 1,166,043 1,479,973 153,959
Selling and administrative expenses.................. 361,189 480,726 89,077
Depreciation and amortization........................ 65,683 91,776 7,315
Loss on disposal of dental and office equipment (note
5)................................................. -- 115,524 --
---------- ---------- --------
Income (loss) from operations........................ 228,704 49,377 (16,785)
Non-operating expenses:
Interest expense................................... (8,728) (51,723) (4,132)
---------- ---------- --------
Net income (loss).................................... $ 219,976 $ (2,346) $ (20,917)
========== ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE> 123
ENW, INC.
COMBINED STATEMENT OF CHANGES IN OWNERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------
PAR RETAINED
SHARES VALUE EARNINGS TOTAL
------ ----- --------- ---------
<S> <C> <C> <C> <C>
Balance, January 1, 1995............................ 500 $ 500 $ 84,195 $ 84,695
Contributions from owners......................... -- -- 62,825 62,825
Distributions to owners........................... -- -- (192,191) (192,191)
Net Income........................................ -- -- 219,976 219,976
--- ---- --------- ---------
Balance, December 31, 1995.......................... 500 500 174,805 175,305
Contributions from owners......................... -- -- 129,966 129,966
Distributions to owners........................... -- -- (177,368) (177,368)
Net Loss.......................................... -- -- (2,346) (2,346)
--- ---- --------- ---------
Balance, December 31, 1996.......................... 500 500 125,057 125,557
Contributions from owners......................... -- -- 15,324 15,324
Net Loss.......................................... -- -- (20,917) (20,917)
--- ---- --------- ---------
Balance, January 31, 1997........................... 500 $ 500 $ 119,464 $ 119,964
=== ==== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE> 124
ENW, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
JANUARY 1, 1997
FOR THE YEARS ENDED TO
DECEMBER 31, JANUARY 31,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ 219,976 $ (2,346) $ (20,917)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................... 65,683 91,776 7,315
Provision for doubtful accounts.................. 36,125 74,867 7,525
Loss on disposal of assets....................... -- 115,524 --
Change in assets and liabilities, net of effects
from businesses acquired:
Increase in accounts receivable.................. (40,814) (102,107) (11,037)
Decrease (increase) in prepaid expenses and other
current assets................................. 21,841 (4,322) --
Increase (decrease) in accounts payable.......... 4,663 (16,277) 30,001
Increase (decrease) in book overdrafts........... 17,260 44,564 (82,035)
Increase (decrease) in expenses and other current
liabilities.................................... 760 (207) 92,289
--------- --------- --------
Net cash provided by operating activities... 325,494 201,472 23,141
--------- --------- --------
Cash flows from investing activities:
Purchases of equipment.............................. (114,332) (72,245) --
Payment for purchase of business acquired........... (25,000) -- --
--------- --------- --------
Net cash used in investing activities....... (139,332) (72,245) --
--------- --------- --------
Cash flows from financing activities:
Borrowings of long-term debt........................ 268,247 135,253 --
Principal payments on long-term debt................ (321,537) (194,321) (11,209)
Distributions to owners............................. (192,191) (177,368) --
Contributions from owners........................... 62,825 129,966 15,324
Principal payments on capital lease obligations..... (1,994) (18,102) (634)
--------- --------- --------
Net cash (used in) provided by financing
activities................................ (184,650) (124,572) 3,481
--------- --------- --------
Net increase in cash and cash equivalents........... 1,512 4,655 26,622
Cash and cash equivalents at beginning of period.... 4,661 6,173 10,828
--------- --------- --------
Cash and cash equivalents at end of period.......... $ 6,173 $ 10,828 $ 37,450
========= ========= ========
Supplemental disclosure of cash flow information:
Interest paid....................................... $ 8,278 $ 51,723 $ 4,132
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE> 125
ENW, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND JANUARY 31, 1997
1. ORGANIZATION AND OPERATIONS
The Company provides general dental care and related services in the
Atlanta, Georgia area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combined Financial Statements
These financial statements represent the combined financial statements of
the following affiliated companies (collectively referred to as the "Company"):
EWN, Inc.
Family Dentistry, a sole proprietorship
Virginia Avenue Dental, a sole proprietorship
All entities are wholly owned and controlled by Dr. Eugene N. Witkin and
intercompany activities exist among these companies. Therefore, combined
financial statements provide a more meaningful presentation of the financial
position of these companies as a whole. All significant intercompany balances
and transactions have been eliminated.
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Under certain managed care contracts, the Company provides diagnostic and
preventative dental services for a fixed rate per-member per-month fee, and
other dental services as defined in the contracts under an agreed upon fee
schedule to member patients. Revenues from the per-member, per-month fees are
recorded in the month for which the member is entitled to service (see Note 12).
Equipment
Equipment is stated at cost. Depreciation is provided on a straight-line
basis over the estimated useful lives of the assets, which principally range
from five to seven years. Assets under capital leases and leasehold improvements
are amortized over the lesser of the lease term or the asset's estimated useful
life.
Capital Leases
The Company has entered into various leases for office and dental equipment
which are accounted for as capital leases. At inception of the lease, the
equipment under lease and the related obligations are recorded at the net
present value of future minimum lease payments, excluding executory costs,
discounted using the Company's incremental borrowing rate.
F-66
<PAGE> 126
ENW, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Lived and Intangible Assets
Assets and liabilities acquired in connection with business combinations
accounted for under the purchase method are recorded at their respective fair
values. The excess of the purchase price over the fair value of tangible net
assets acquired is amortized on a straight-line basis over the estimated useful
life of the intangible assets which range from five to forty years. Segregation
of intangible assets between identifiable intangibles and goodwill was performed
by Company management with the assistance of independent appraisers. Intangible
assets include patient lists, covenants not to compete and goodwill.
In 1995, the Company implemented Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Accordingly, the carrying value of long-lived assets and certain identifiable
intangible assets are evaluated whenever changes in circumstances indicate the
carrying amount of such assets may not be recoverable. In performing such review
for recoverability, the Company compares the expected future undiscounted cash
flows to the carrying value of long-lived assets and identifiable intangibles,
including the related excess of cost over fair value of net assets acquired.
If the expected future cash flows (undiscounted) are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated fair
value. In estimating future cash flows for determining whether an asset is
impaired, and in measuring assets that are impaired, assets are grouped by
geographic region.
In addition, the carrying value of the excess of cost over fair value of
net assets acquired and other intangible assets is subject to a separate annual
evaluation using these guidelines.
Income Taxes
The combined financial statements include the accounts of a corporation
which has elected S corporation status with the Internal Revenue Service and two
sole proprietorships and, as such, all taxable income or loss of the Company
accrues directly to its stockholders or proprietor. Accordingly, no provision
for income taxes has been made in the accompanying financial statements.
Fair Value of Financial Instruments
Other than long-term debt, recorded balances of financial instruments at
December 31, 1995 and 1996 and January 31, 1997 approximate estimated fair
market values.
The estimated fair value of the Company's long-term debt instruments is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996 JANUARY 31, 1997
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt including
current portion.......... $447,723 $447,723 $338,655 $338,655 $327,446 $327,446
</TABLE>
The fair value of long-term debt, including current portion, is estimated
based on current rates offered to the Company for debt of same maturities.
F-67
<PAGE> 127
ENW, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACCOUNTS RECEIVABLE AND THIRD PARTY REIMBURSEMENTS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1995 1996 1997
--------- --------- ------------
<S> <C> <C> <C>
Accounts receivable................................. $ 271,329 $ 340,134 $ 355,005
Less: Allowance for doubtful accounts............... (208,249) (249,814) (261,173)
--------- --------- ---------
$ 63,080 $ 90,320 $ 93,832
========= ========= =========
</TABLE>
The Company's services are reimbursed directly by both patients and third
party payors, including managed care organizations and commercial insurance
companies. Third party reimbursements are primarily billed at estimated amounts
realizable based upon contractually determined rates. The allowance for doubtful
accounts is estimated based on an ongoing review of collectibility.
4. BUSINESS ACQUISITION
On November 15, 1995, the Company acquired certain assets of a dental
practice for $204,000. This acquisition has been accounted for using the
purchase method of accounting. Accordingly, the purchase price was allocated to
assets acquired based upon their estimated fair values at the date of
acquisition. The results of the acquired business are included in the combined
financial statements from the date of acquisition.
Information with respect to this acquisition is as follows:
<TABLE>
<S> <C>
Cash paid......................................................... $ 25,000
Notes issued and amounts payable to former owners................. 179,130
--------
204,130
Fair value of tangible assets acquired............................ (52,843)
--------
Excess of cost over fair value of net liabilities assumed and
other intangible assets......................................... $151,287
========
</TABLE>
5. EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Dental equipment, including equipment under
capital lease................................. $ 356,904 $ 411,642 $ 411,642
Furniture and fixtures, automobiles and
leasehold improvements........................ 36,836 54,805 54,805
Data processing and office equipment, including
equipment under capital lease................. 36,330 65,557 65,557
Leasehold improvements.......................... 107,292 107,292 107,292
--------- --------- ---------
537,362 639,295 639,296
Less: Accumulated depreciation and
amortization.................................. (170,197) (196,040) (202,707)
--------- --------- ---------
$ 367,165 $ 443,255 $ 436,589
========= ========= =========
</TABLE>
Depreciation and amortization expense, including amounts related to
equipment under capital lease (Note 7), for the years ended December 31, 1995
and 1996 and the period ended January 31, 1997 totaled $59,561, 82,177 and
$6,668, respectively.
F-68
<PAGE> 128
ENW, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1995 1996 1997
-------- -------- -----------
<S> <C> <C> <C>
Excess of cost over fair value of net assets
acquired......................................... $247,850 $247,850 $ 247,850
Patient lists and other............................ 47,280 47,280 47,280
-------- -------- --------
295,130 295,130 295,130
Less: Accumulated amortization..................... (14,410) (24,009) (24,657)
-------- -------- --------
$280,720 $271,121 $ 270,473
======== ======== ========
</TABLE>
Amortization expense of intangible assets for the years ended December 31,
1995 and 1996 and the period ended January 31, 1997 totaled $6,122, $9,598 and
$648, respectively.
7. LEASES
The Company has entered into various leases for office and dental equipment
accounted for as capital leases. The lease terms range from 3 to 7 years.
Equipment under capital leases at cost and related accumulated amortization
included in property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1995 1996 1997
------- -------- -----------
<S> <C> <C> <C>
Dental and office equipment......................... $10,992 $212,539 $ 212,539
Less: Accumulated amortization...................... (3,297) (29,610) (33,239)
------- -------- --------
Equipment under capital leases...................... $ 7,695 $182,929 $ 179,300
======= ======== ========
</TABLE>
Amortization of equipment under capital leases for the years ended December
31, 1995 and 1996 and the period ended January 31, 1997 totaled $2,198, $6,355
and $1,156, respectively.
Future minimum lease payments due under capital leases are as follows at
January 31, 1997:
<TABLE>
<S> <C>
1997............................................ $ 49,497
1998............................................ 56,931
1999............................................ 56,067
2000............................................ 56,335
2001............................................ 25,283
--------
244,113
Less: Amounts representing interest............. (53,158)
--------
Present value of minimum lease payments......... 190,955
Less: Current portion........................... (47,601)
--------
$143,354
========
</TABLE>
The Company maintains leases for three office buildings which are accounted
for as operating leases. Two of these operating leases are under month to month
with a partnership owned by the Company's principal shareholder/proprietor (Note
10).
F-69
<PAGE> 129
ENW, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments due under an operating lease with an
unrelated party are as follows at January 31, 1997:
<TABLE>
<S> <C>
1997............................................. $16,519
1998............................................. 18,562
1999............................................. 19,118
-------
$54,199
=======
</TABLE>
Rent expense of $94,809, $112,454 and $9,255, respectively, was incurred
during years ended December 31, 1995 and 1996 and for the period ended January
31, 1997, respectively.
8. DEBT
<TABLE>
<CAPTION>
JANUARY
DECEMBER 31, 31,
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
Borrowings under $150,000 bank line of credit,
collateralized by equipment, accounts receivable and
inventory; interest payable monthly at 10%; principal
balance due June 1999................................. $ 136,297 $ 112,798 $ 109,756
Borrowings under $100,000 bank line of credit, secured
by equipment, accounts receivable and inventory;
interest payable monthly at 10%; principal balance due
June 1996............................................. 72,200 -- --
Borrowings under $70,000 bank line of credit, secured by
equipment, accounts receivable and inventory; interest
payable monthly at 9.75%; principal balance due
February 1997......................................... -- 44,635 44,635
Notes payable to former owner of acquired practice;
payable in 60 monthly installments of principal and
interest at 8%; beginning December 1995 and final
maturity in November 2000............................. 120,000 100,331 98,551
Non-interest bearing notes payable to former owner of
acquired practice; no interest; due January 1996...... 59,130 -- --
Notes payable to bank; payable in 36 monthly
installments of principal and interest at 10%,
beginning June 1996 and final maturity in May 1999.... -- 51,833 51,833
Other................................................... 60,096 79,057 72,671
--------- --------- ---------
447,723 388,654 377,446
Less: Current portion................................... (356,607) (270,974) (266,280)
--------- --------- ---------
$ 91,116 $ 117,680 $ 111,166
========= ========= =========
</TABLE>
Scheduled maturities of long-term debt as of January 31, 1997 are as
follows:
<TABLE>
<S> <C>
1997.............................................. $266,280
1998.............................................. 48,985
1999.............................................. 38,969
2000.............................................. 23,212
--------
$377,446
========
</TABLE>
F-70
<PAGE> 130
ENW, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1995 1996 1997
------- ------- -----------
<S> <C> <C> <C>
Salaries and payroll taxes................... $ 1,908 $ 1,908 $ 91,109
Unearned revenue............................. 9,550 9,343 12,431
------- ------- --------
$11,458 $11,251 $ 103,540
======= ======= ========
</TABLE>
10. RELATED PARTY TRANSACTIONS
As described in Note 7, the Company leases space from partnership owned by
its principal shareholder/owner. Rent expense under this lease was $54,000,
$82,800 and $9,225 for 1995 and 1996 and the period ended January 31, 1997,
respectively.
11. RETIREMENT PLAN
The Company has a defined contribution 401(k) plan covering substantially
all of its employees. In general, eligible employees may contribute up to 20% of
their compensation to this plan. The Company pays certain administrative
expenses of the plan and does not match employee contributions.
12. COMMITMENTS AND CONTINGENCIES
Contracts
The Company participates in agreements with corporations and managed care
organizations to provide certain dental services to members of a group at a
fixed rate per-member, per-month, regardless of the actual services performed,
and certain other dental services as defined in the contract in accordance with
an agreed upon fee schedule. During 1995 and 1996, and for the period from
January 1 to January 31, 1997, approximately 41%, 44% and 43%, respectively, of
the Company's net revenues were derived from fixed rate per-member per-month
contracts. Revenues under these contracts are recorded in the month fees are
earned.
The Company estimates the costs of providing services under these contracts
by using historical experience and anticipated utilization rates. The Company
believes the future revenues under these contracts will exceed the costs of
services it will be required to provide under the terms of the contracts.
Generally, either party to these contracts may terminate the contract without
cause at any time with thirty to ninety days written notice.
Litigation
In the normal course of operations, the Company may become party to claims,
suits and complaints relating to general and professional services provided by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. At January 31, 1997, management is
not aware of any claims, suits or complaints that could have a material adverse
effect on the Company's financial position, liquidity or results of operations.
13. SUBSEQUENT EVENTS
Effective February 1, 1997, the Company was acquired by Valley Forge Dental
Associates, Inc., a Delaware Corporation.
F-71
<PAGE> 131
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
The Dentistry
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of The Dentistry, Inc.
(the "Company") at December 31, 1995 and 1996 and March 31, 1997 and the results
of its operations and its cash flows for the years ended December 31, 1994, 1995
and 1996 and for the period from January 1, 1997 to March 31, 1997, 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
Philadelphia, PA
September 18, 1997
F-72
<PAGE> 132
THE DENTISTRY
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH
DECEMBER 31, 31,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................ $225,786 $283,312 $279,283
Accounts receivable, net................................. 353,978 350,012 353,111
Prepaid expenses and other current assets................ 2,633 3,883 11,224
-------- -------- --------
Total current assets............................. 582,397 637,207 643,618
Equipment and leasehold improvements, net.................. 208,845 215,321 208,412
-------- -------- --------
$791,242 $852,528 $852,030
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt........................ $ 31,713 $ 7,617 $ 16,154
Accounts payable......................................... 38,155 58,888 72,085
Accrued expenses and other current liabilities........... 312,379 362,582 398,825
-------- -------- --------
Total current liabilities........................ 382,247 429,087 487,064
Long-term debt, net of current portion..................... 40,456 62,839 46,685
-------- -------- --------
Stockholders' equity
Common stock, $1 par value, 1,100 shares authorized,
issued and outstanding at December 31, 1995 and 1996
and March 31, 1997.................................... 1,100 1,100 1,100
Retained earnings........................................ 367,439 359,502 317,181
-------- -------- --------
Total stockholders' equity....................... 368,539 360,602 318,281
-------- -------- --------
$791,242 $852,528 $852,030
======== ======== ========
</TABLE>
F-73
<PAGE> 133
THE DENTISTRY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
FROM
JANUARY
4, 1997
TO MARCH
YEARS ENDED DECEMBER 31, 31,
1994 1995 1996 1997
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Net revenues............................... $3,023,577 $3,294,052 $3,486,106 $909,712
Cost of revenues........................... 3,050,295 3,228,109 3,385,433 885,451
Depreciation expense....................... 49,188 25,646 28,387 6,909
---------- ---------- ---------- --------
(Loss) income from operations.............. (75,906) 40,297 72,286 17,352
Non-operating income (expenses), net....... 3,909 8,921 (80,223) (59,673)
---------- ---------- ---------- --------
Net (loss) income.......................... $ (71,997) $ 49,218 $ (7,937) $(42,321)
========== ========== ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE> 134
THE DENTISTRY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------
PAR RETAINED
SHARES VALUE EARNINGS TOTAL
------ ------ -------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1994................................... 1,100 $1,100 $390,218 $391,318
Net loss................................................... (71,997) (71,997)
----- ------ -------- --------
Balance, December 31, 1994................................. 1,100 1,100 318,221 319,321
Net income................................................. 49,218 49,218
----- ------ -------- --------
Balance, December 31, 1995................................. 1,100 1,100 367,439 368,539
Net loss................................................... (7,937) (7,937)
----- ------ -------- --------
Balance, December 31, 1996................................. 1,100 1,100 359,502 360,602
Net loss................................................... (42,321) (42,321)
----- ------ -------- --------
Balance, March 31, 1997.................................... 1,100 $1,100 $317,181 $318,281
===== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE> 135
THE DENTISTRY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997
YEARS ENDED DECEMBER 31, TO MARCH 31,
1994 1995 1996 1997
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income............................... $(71,997) $ 49,218 $ (7,937) $ (42,321)
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization................ 49,188 25,646 28,387 6,909
Change in assets and liabilities:
Accounts receivable, net..................... (44,259) (38,842) 3,966 (3,099)
Prepaid expenses and other current assets.... -- -- (1,250) (7,341)
Accounts payable............................. (2,753) 2,886 20,733 13,197
Accrued expenses and other current
liabilities................................ 112,629 (26,778) 50,202 36,244
-------- -------- -------- --------
Net cash provided by operating
activities............................ 42,808 12,130 94,101 3,589
-------- -------- -------- --------
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements................................. (16,333) (68,920) (34,862) --
-------- -------- -------- --------
Net cash used in investing activities... (18,283) (68,920) (34,862) --
-------- -------- -------- --------
Cash flows from financing activities:
Borrowings of debt.............................. 10,000 41,163 30,000 --
Principal payments on debt...................... (15,171) (12,337) (31,713) (7,618)
-------- -------- -------- --------
Net cash (used in) provided by financing
activities............................ (5,171) 28,826 (1,713) (7,618)
-------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................. 21,304 (27,964) 57,526 (4,029)
Cash and cash equivalents at beginning of
period....................................... 232,446 253,750 225,786 283,312
-------- -------- -------- --------
Cash and cash equivalents at end of period...... $253,750 $225,788 $283,312 $ 279,283
======== ======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid................................... $ 3,909 $ 8,921 $ 4,710 $ 621
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE> 136
THE DENTISTRY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND MARCH 31, 1997
1. ORGANIZATION AND OPERATIONS
The Dentistry, Inc. (the "Company") provides general dental care and
related services in the Pittsburgh, Pennsylvania area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Under certain managed care contracts the Company provides diagnostic and
preventative dental services for a fixed rate per-member per-month fee, and
other dental services as defined in the contracts under an agreed upon fee
schedule to member patients. Revenues from the per-member, per-month fees are
recorded in the month for which the member is entitled to service.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which
principally range from five to seven years. Assets under capital leases and
leasehold improvements are amortized over the lesser of the lease term or the
asset's estimated useful life.
Long-Lived and Intangible Assets
The Company applies Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Accordingly, the
carrying value of long-lived assets and certain identifiable intangible assets
are evaluated whenever changes in circumstances indicate the carrying amount of
such assets may not be recoverable. In performing such review for
recoverability, the Company compares the expected future undiscounted cash flows
to the carrying value of long-lived assets and identifiable intangibles,
including the related excess of cost over fair value of net assets acquired.
If the expected future cash flows (undiscounted) are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated fair
value. In estimating future cash flows for determining whether an asset is
impaired, and in measuring assets that are impaired, assets are grouped by
geographic region.
F-77
<PAGE> 137
THE DENTISTRY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company has elected S corporation status with the Internal Revenue
Service. As such, all income or loss of the Company accrues directly to its
stockholders. Accordingly, no provision for income taxes has been made in these
financial statements.
Fair Value of Financial Instruments
The recorded balances of financial instruments at December 31, 1995 and
1996 and March 31, 1997 approximate estimated fair market values.
3. ACCOUNTS RECEIVABLE AND THIRD PARTY REIMBURSEMENTS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Accounts receivable................................. $ 532,384 $ 548,278 $ 543,247
Less: Allowance for doubtful accounts............... (178,406) (198,266) (190,136)
--------- --------- ---------
$ 353,978 $ 350,012 $ 353,111
========= ========= =========
</TABLE>
The Company's services are reimbursed directly by both patients and by
third party payors, managed care organizations and commercial insurance
companies. Third party reimbursements are primarily billed at estimated amounts
realizable based upon contractually determined rates. In instances where "usual,
customary and reasonable" market rates are billed, gross billings are adjusted
for contractual allowances to reflect estimated amounts realizable from third
party payors. The allowance for doubtful accounts is estimated based on an
ongoing review of collectibility.
4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Office furniture and dental equipment............... $ 468,983 $ 496,477 $ 496,477
Leasehold improvements.............................. 323,126 319,690 319,690
--------- --------- ---------
792,109 816,167 816,167
Less: Accumulated depreciation and amortization..... (583,264) (600,846) (607,755)
--------- --------- ---------
$ 208,845 $ 215,321 $ 208,412
========= ========= =========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1994, 1995 and 1996 and the period ended March 31, 1997 totaled $49,188,
$25,646, $28,387 and $6,909, respectively.
5. LEASES
The Company maintains leases for all of its dental offices and for certain
of its equipment which are accounted for as operating leases. The office lease
terms range from one to ten years, while the equipment terms range from five to
ten years.
F-78
<PAGE> 138
THE DENTISTRY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum annual rentals due under noncancellable operating leases in
excess of one year are as follows:
<TABLE>
<S> <C>
1997.............................................. $ 76,509
1998.............................................. 60,566
1999.............................................. 49,461
2000.............................................. 51,603
2001.............................................. 52,578
Thereafter........................................ 191,697
--------
$482,414
========
</TABLE>
Certain of the leases contain renewal options and escalation clauses which
require payments of additional rent to the extent of increases in related
operating costs.
Rent expense of $58,448, $57,048, $70,251 and $16,346, respectively, was
incurred during years ended December 31, 1994, 1995, 1996 and for the period
ended March 31, 1997, respectively.
6. DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1995 1996 1997
-------- ------- ---------
<S> <C> <C> <C>
Notes payable to principal stockholder.............. $ 41,783 $41,783 $ 41,873
Notes payable to related party...................... 25,019 28,673 21,056
Notes payable....................................... 5,367 -- --
-------- ------- --------
72,169 70,456 62,839
Less: Current portion............................... (31,713) (7,617) (16,154)
-------- ------- --------
$ 40,456 $62,839 $ 46,685
======== ======= ========
</TABLE>
The note payable to the principal stockholder and the related party note
payable relate to funds borrowed for operational and general corporate purposes.
The loans do not have stated repayment terms, interest rates, or maturity dates.
7. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Payroll and Payroll related expenses............... $193,784 $239,581 $ 345,718
Profit Sharing Plan................................ 90,000 90,000 --
Accrued time off and other expenses................ 6,000 7,823 27,021
Deferred revenue................................... 22,595 25,178 26,086
-------- -------- --------
$312,379 $362,582 $ 398,825
======== ======== ========
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company leases space from an affiliated entity. The rent expense under
this lease is considered to be at fair market value and was $21,753 and $6,134
for 1996 and the period ended March 31, 1997, respectively.
F-79
<PAGE> 139
THE DENTISTRY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. EMPLOYEE BENEFITS
Profit Sharing Plan
The Company maintains a defined contribution or profit sharing plan
intended to qualify for tax-exempt status under Section 401(a) of the Internal
Revenue Code. Substantially all employees over 21 years of age who have worked
at least two years and are employed on the last day of the Plan year are
eligible for participation in the Plan. Contributions by the Company are
discretionary and subject to profitability requirements. Charges to operations
for contributions to the Plan were $90,000, $90,000, and $90,000 in 1994, 1995
and 1996, respectively. The Plan was terminated effective January 1, 1997.
10. LITIGATION
In the normal course of operations, the Company has become party to claims,
suits and complaints relating to general and professional services provided by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. Management does not believe that any
of these claims, suits or complaints will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
11. SUBSEQUENT EVENTS
Effective April 1, 1997, the Company was acquired by Valley Forge Dental
Associates, Inc., a Delaware Corporation.
F-80
<PAGE> 140
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Comprehensive Family Dentistry, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of
Comprehensive Family Dentistry (the "Company") at December 31, 1995 and 1996 and
April 30, 1997 and the results of its operations and its cash flows for the
three years in the period ended December 31, 1996 and for the period from
January 1, 1997 to April 30, 1997, 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
Philadelphia, PA
September 23, 1997
F-81
<PAGE> 141
COMPREHENSIVE FAMILY DENTISTRY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- APRIL 30,
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................... $180,562 $ 4,821 $ 28,684
Accounts receivable, net................................ 104,964 124,091 185,961
Deferred income taxes................................... 3,484 6,970 18,347
-------- -------- ----------
Total current assets............................ 289,010 135,882 232,992
Equipment and leasehold improvements, net................. 249,645 251,738 336,637
Excess of cost over fair value of net assets acquired and
other intangible assets, net............................ 309,287 433,278 1,160,232
Note receivable, related party............................ 84,406 90,413 90,413
-------- -------- ----------
$932,348 $911,311 $1,820,274
======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt, including amounts due
related parties of $40,223, $20,699 and $117,711 at
December 31, 1995 and 1996 and April 30, 1997,
respectively......................................... $ 83,452 $ 31,200 $ 363,393
Obligations under capital lease......................... 26,609 28,597 20,593
Accounts payable........................................ 90,127 5,847 247,685
Accrued expenses and other current liabilities.......... 20,299 34,429 83,506
Deferred income taxes................................... 3,484 6,970 18,347
-------- -------- ----------
Total current liabilities....................... 223,971 107,043 733,524
Long-term debt including amounts due to related parties of
$325,703, $474,925 and $1,001,690 at December 31, 1995
and 1996 and April 30, 1997, respectively............... 593,498 732,220 1,371,135
Facility leases payable................................... -- 18,899 22,083
-------- -------- ----------
Total liabilities............................... 817,469 858,162 2,126,742
-------- -------- ----------
Stockholders' equity (deficit)
Common stock, $1 par value, 5,000 shares authorized;
1,000 shares issued and outstanding at December 31,
1995 and 1996 and April 30, 1997..................... 1,000 1,000 1,000
Retained earnings (accumulated deficit)................. 113,879 52,149 (307,468)
-------- -------- ----------
Total stockholders' equity (deficit)............ 114,879 53,149 (306,468)
-------- -------- ----------
$932,348 $911,311 $1,820,274
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE> 142
COMPREHENSIVE FAMILY DENTISTRY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEARS ENDED DECEMBER 31, 1997 TO
------------------------------------ APRIL 30,
1994 1995 1996 1997
-------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Net revenues................................. $630,395 $796,302 $1,304,044 $ 528,687
Cost of revenues............................. 396,951 562,646 936,699 466,396
Selling and administrative expenses.......... 103,476 111,087 201,971 338,486
Depreciation and amortization................ 62,168 70,195 109,112 50,013
Loss on disposal of fixed assets............. -- 12,000 45,631 --
-------- -------- ---------- ---------
Income (loss) from operations................ 67,800 40,374 10,631 (326,208)
Non-operating expenses:
Interest expense -- related parties........ (37,508) (33,551) (44,618) (19,662)
Interest expense -- other.................. -- (3,042) (27,742) (13,747)
-------- -------- ---------- ---------
Income (loss) before income taxes............ 30,292 3,781 (61,730) (359,617)
Income taxes............................... -- -- -- --
-------- -------- ---------- ---------
Net income (loss)............................ $ 30,292 $ 3,781 $ (61,730) $ (359,617)
======== ======== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE> 143
COMPREHENSIVE FAMILY DENTISTRY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
----------------- EARNINGS
PAR (ACCUMULATED
SHARES VALUE DEFICIT) TOTAL
------ ------ ------------ ---------
<S> <C> <C> <C> <C>
Balance, January 1, 1994......................... 1,000 $1,000 $ 79,806 $ 80,806
Net income..................................... 30,292 30,292
----- ------ --------- ---------
Balance, January 1, 1995......................... 1,000 1,000 110,098 111,098
Net income..................................... 3,781 3,781
----- ------ --------- ---------
Balance, December 31, 1995....................... 1,000 1,000 113,879 114,879
Net loss....................................... (61,730) (61,730)
----- ------ --------- ---------
Balance, December 31, 1996....................... 1,000 1,000 52,149 53,149
Net loss....................................... (359,617) (359,617)
----- ------ --------- ---------
Balance, April 30, 1997.......................... 1,000 $1,000 $ (307,468) $(306,468)
===== ====== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-84
<PAGE> 144
COMPREHENSIVE FAMILY DENTISTRY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEARS ENDED DECEMBER 31, 1997 TO
------------------------------------ APRIL 30,
1994 1995 1996 1997
-------- --------- --------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 30,292 $ 3,781 $ (61,730) $ (359,617)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization........... 62,168 70,194 109,112 50,013
Loss on disposal of equipment........... -- 12,000 45,631 --
Provision for doubtful accounts......... 9,710 25,075 41,060 17,383
Change in assets and liabilities, net of
effects from businesses acquired:
Increase in accounts receivable......... (27,249) (65,309) (60,187) (79,253)
Increase in other assets................ (56,844) (18,266) (6,007) --
Increase (decrease) in accounts
payable............................... 3,107 83,585 (84,280) 241,838
Increase (decrease) in accrued expenses
and other current liabilities......... 6,789 8,310 33,029 52,261
-------- --------- --------- ----------
Net cash provided by (used in)
operating activities............. 27,973 119,370 16,628 (77,375)
-------- --------- --------- ----------
Cash flows from investing activities:
Payments for purchases of businesses....... -- (16,000) (44,000) (92,500)
Purchases of equipment..................... -- (148,537) (50,419) --
-------- --------- --------- ----------
Net cash used in investing
activities....................... -- (164,537) (94,419) (92,500)
-------- --------- --------- ----------
Cash flows from financing activities:
Borrowings of long-term debt............... -- 282,031 -- 295,272
Principal payments on long-term debt and
capital leases.......................... (42,317) (58,304) (97,950) (101,534)
-------- --------- --------- ----------
Net cash (used in) provided by
financing activities............. (42,317) 223,727 (97,950) 193,738
-------- --------- --------- ----------
Net (decrease) increase in cash and cash
equivalents............................. (14,344) 178,560 (175,741) 23,863
Cash and cash equivalents at beginning of
period.................................. 16,346 2,002 180,562 4,821
-------- --------- --------- ----------
Cash and cash equivalents at end of
period.................................. $ 2,002 $ 180,562 $ 4,821 $ 28,684
======== ========= ========= ==========
Supplemental disclosure of cash flow
information:
Interest paid.............................. $ 37,508 $ 36,593 $ 72,360 $ 33,409
======== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-85
<PAGE> 145
COMPREHENSIVE FAMILY DENTISTRY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND APRIL 30, 1997
1. ORGANIZATION AND OPERATIONS
Comprehensive Family Dentistry, Inc. (the "Company") provides general
dental care and related services in the Central Virginia area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which
principally range from five to seven years. Assets under capital leases and
leasehold improvements are amortized over the lesser of the lease term or the
asset's estimated useful life.
Capital Leases
The Company has entered into various leases for office and dental equipment
which are accounted for as capital leases. At inception of the lease, the
equipment under lease and the related obligations are recorded at the net
present value of future minimum lease payments, excluding executory costs,
discounted using the Company's incremental borrowing rate.
Long-Lived and Intangible Assets
Assets and liabilities acquired in connection with business combinations
accounted for under the purchase method are recorded at their respective fair
values. The excess of the purchase price over the fair value of tangible net
assets acquired is amortized on a straight-line basis over the estimated useful
life of the intangible assets which range from three to forty years. Segregation
of intangible assets between identifiable intangibles and goodwill was based on
estimates derived from appraisals performed with the assistance of independent
appraiser. Intangible assets include patient lists, covenants not to compete and
goodwill.
The Company applies Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ". Accordingly,
the carrying value of long-lived assets and certain identifiable intangible
assets are evaluated whenever changes in circumstances indicate the carrying
amount of such assets may not be recoverable. In performing such review for
recoverability, the Company compares the expected future
F-86
<PAGE> 146
COMPREHENSIVE FAMILY DENTISTRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
undiscounted cash flows to the carrying value of long-lived assets and
identifiable intangibles, including the related excess of cost over fair value
of net assets acquired.
If the expected future cash flows (undiscounted) are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated fair
value. In estimating future cash flows for determining whether an asset is
impaired, and in measuring assets that are impaired, assets are grouped by
geographic region.
In addition, the carrying value of the excess of cost over fair value of
net assets acquired and other intangible assets is subject to a separate annual
evaluation using these guidelines.
Income Taxes
The Company accounts for certain items of income and expense in different
time periods for financial reporting and income tax purposes. Provisions for
deferred income taxes are made in recognition of such temporary differences,
where applicable. A valuation allowance is established against deferred tax
assets unless the Company believes it more likely than not that the benefit will
be realized.
Fair Value of Financial Instruments
The recorded balances of financial instruments at December 31, 1995 and
1996 and April 30, 1997 approximate estimated fair market values.
3. BUSINESS ACQUISITIONS
During each of the years ended December 31, 1995 and 1996 and the period
ended April 30, 1997 the Company made one acquisition. These acquisitions were
accounted for as purchases and the results of the acquired companies are
included in the accompanying financial statements from the date of acquisition.
Information with respect to these acquisitions is presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, PERIOD ENDED
--------------------- APRIL 30,
1995 1996 1997
-------- -------- ------------
<S> <C> <C> <C>
Cash paid........................................ $ 16,000 $ 44,000 $ 92,500
Notes payable.................................... 64,000 180,000 753,000
-------- -------- --------
80,000 224,000 845,500
Fair value of tangible assets acquired........... (13,000) (50,600) (95,900)
-------- -------- --------
Excess of cost over fair value of net liabilities
assumed and other intangible assets............ $ 67,000 $173,400 $749,600
======== ======== ========
</TABLE>
4. ACCOUNTS RECEIVABLE AND THIRD PARTY REIMBURSEMENTS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- APRIL 30,
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Accounts receivable, net of contractual allowances
of $24,683 and $35,405 and $54,596, at December
31,
1995 and 1996, and April 30, 1997,
respectively..................................... $123,476 $150,646 $ 209,360
Less: Allowance for doubtful accounts.............. (18,512) (26,555) (23,399)
-------- -------- --------
$104,964 $124,091 $ 185,961
======== ======== ========
</TABLE>
F-87
<PAGE> 147
COMPREHENSIVE FAMILY DENTISTRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's services are reimbursed directly by both patients and by
third party payors, including commercial insurance companies. Third party
reimbursements are primarily billed at estimated amounts realizable based upon
contractually determined rates. In instances where "usual, customary and
reasonable" market rates are billed, gross billings are adjusted for contractual
allowances to reflect estimated amounts realizable from third party payors. The
allowance for doubtful accounts is estimated based on an ongoing review of
collectability.
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- APRIL 30,
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Dental equipment...................................... $126,438 $129,420 $ 245,212
Furniture and fixtures, automobiles and leasehold
improvements........................................ 163,978 215,523 205,733
--------- --------- ---------
290,416 344,943 450,945
--------- --------- ---------
Less: Accumulated depreciation and amortization....... (40,771) (93,205) (114,308)
--------- --------- ---------
$249,645 $251,738 $ 336,637
========= ========= =========
</TABLE>
Depreciation and amortization expense, including amounts related to
equipment under capital lease (Note 7), for the years ended December 31, 1995
and 1996 and the period ended April 30, 1997 totaled $26,224, $59,703 and
$27,367, respectively.
6. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- APRIL 30,
1995 1996 1997
-------- --------- ----------
<S> <C> <C> <C>
Excess of cost over fair value of net assets
acquired........................................... $ 62,000 $ 224,200 $ 773,800
Patient lists........................................ 164,100 175,300 175,300
Covenant not to compete.............................. 171,300 171,300 371,300
--------- --------- ---------
397,400 570,800 1,320,400
Less: Accumulated amortization....................... (88,113) (137,522) (160,168)
--------- --------- ---------
$309,287 $ 433,278 $1,160,232
========= ========= =========
</TABLE>
Amortization expense of intangible assets for the years ended December 31,
1995 and 1996 and the period ended April 30, 1997 totaled $43,970, $49,409 and
$22,646, respectively.
7. LEASES
The Company has entered into various leases for office and dental equipment
accounted for as capital leases. The lease terms are from 5 to 7 years.
Equipment under capital leases at cost and related accumulated amortization
included in property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ APRIL 30,
1995 1996 1997
------- -------- ---------
<S> <C> <C> <C>
Dental and office equipment.............................. $37,369 $ 49,763 $ 24,454
Less: Accumulated amortization........................... (9,447) (17,733) (2,214)
------- ------- -------
Equipment under capital leases........................... $27,922 $ 32,030 $ 22,240
======= ======= =======
</TABLE>
F-88
<PAGE> 148
COMPREHENSIVE FAMILY DENTISTRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Amortization of equipment under capital leases for the years ended December
31, 1995 and 1996 and the period ended April 30, 1997 totaled $9,447, $17,733
and $2,214, respectively. Future lease obligations under capital leases
aggregated $20,503 at April 30, 1997.
Future minimum annual rentals due under noncancellable operating leases in
excess of one year are as follows:
<TABLE>
<S> <C>
1997............................................. $ 42,805
1998............................................. 115,088
1999............................................. 90,896
2000............................................. 92,365
2001............................................. 93,867
Thereafter....................................... 840,139
----------
$1,275,160
==========
</TABLE>
Certain of the leases contain renewal options and escalation clauses which
require payments of additional rent to the extent of increases in related
operating costs.
Rent expense of $20,022, $69,859 and $27,334, respectively, was incurred
during years ended December 31, 1995 and 1996 and for the period ended April 30,
1997, respectively.
8. DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- APRIL 30,
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Notes payable to related party 9% -- 10% notes
payable through 2011............................ $676,950 $495,624 $1,119,401
Other notes payable 8% -- 100% payable through
2007............................................ -- 267,796 615,127
-------- -------- ----------
676,950 763,420 1,734,528
Less: Current portion............................. (83,452) (31,200) (363,393)
-------- -------- ----------
$593,498 $732,220 $1,371,135
======== ======== ==========
</TABLE>
Scheduled maturities of long-term debt, outstanding as of April 30, 1997
are as follows:
<TABLE>
<S> <C>
1997............................................. $ 363,393
1998............................................. 173,215
1999............................................. 188,254
2000............................................. 189,643
2001............................................. 205,268
Thereafter....................................... 614,755
----------
................................................. $1,734,528
==========
</TABLE>
The related party notes payable relate to the acquisition of practices.
F-89
<PAGE> 149
COMPREHENSIVE FAMILY DENTISTRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The reconciliation of the federal statutory income tax rate to the
effective income tax rate for the years ended December 31, 1994, 1995 and 1996
and the period ended April 30, 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- APRIL 30,
1994 1995 1996 1997
---- ---- ---- ---------
<S> <C> <C> <C> <C>
Statutory income tax rate........................... (34)% (34)% (34)% (34)%
State taxes, less federal related tax benefit....... (7) (7) (8) (7)
Losses for which no tax benefit was recognized...... 39 40 -- --
Nondeductible amortization of excess costs of net
assets acquired................................... -- -- 40 41
Other............................................... 2 1 2 --
--- --- --- ---
Effective income tax rate........................... --% --% --% --%
=== === === ===
</TABLE>
The components of net deferred income tax assets and (liabilities) are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- APRIL 30,
1995 1996 1997
------- -------- ---------
<S> <C> <C> <C>
Net operating carryforwards........................ $ -- $ -- $ 153,860
Start up costs not currently deductible for tax
purposes......................................... 7,692 36,617 38,002
------- -------- ---------
Gross deferred tax assets.......................... 7,692 36,617 191,862
Valuation allowance................................ (4,208) (29,647) (173,515)
------- -------- ---------
Total deferred tax asset........................... 3,484 6,970 18,347
------- -------- ---------
Intangible assets and other........................ (3,484) (6,970) (18,347)
------- -------- ---------
Gross deferred tax liability....................... (3,484) (6,970) (18,347)
------- -------- ---------
Net deferred tax liabilities....................... $ -- $ -- $ --
======= ======== =========
</TABLE>
At April 30, 1997, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $370,000. Their use is limited to
future taxable earnings of the Company. The carryforwards expire through 2012. A
valuation allowance has been established against the benefit of the net
operating loss carryforwards and other deferred tax assets which the Company
does not believe are more likely than not to be realized.
10. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31, APRIL
------------------- 30,
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Salaries and payroll taxes............................ $13,067 $22,351 $47,254
Unearned revenue...................................... 6,859 10,485 18,911
Other................................................. 373 1,593 17,341
------- ------- -------
$20,299 $34,429 $83,506
======= ======= =======
</TABLE>
F-90
<PAGE> 150
COMPREHENSIVE FAMILY DENTISTRY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
Litigation
In the normal course of operations, the Company has become party to claims,
suits and complaints relating to general and professional services provided by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. Management does not believe that any
of these claims, suits or complaints will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
12. SUBSEQUENT EVENTS
On May 21, 1997, the Company was acquired by Valley Forge Dental
Associates, Inc., a Delaware Corporation.
F-91
<PAGE> 151
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Bernard B. Baros, D.D.S., P.C.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Bernard B. Baros,
D.D.S., P.C. ("the Company") at December 31, 1995 and 1996 and June 30, 1997 and
the results of its operations and its cash flows for the year ended December 31,
1995 and 1996 and for the period from January 1, 1997 to June 30, 1997, 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
Philadelphia, PA
October 8, 1997
F-92
<PAGE> 152
BERNARD B. BAROS, D.D.S., P.C.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................ $ -- $ 15,360 $ 41,703
Accounts receivable, net................................. 49,824 57,267 53,248
-------- -------- --------
Total current assets............................. 49,824 72,627 94,951
Equipment and Leasehold improvements, net.................. 118,638 86,188 77,216
-------- -------- --------
$168,462 $158,815 $172,167
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt, including amounts due
related parties of $33,517, $15,009 and $1,869 at
December 31, 1995 and 1996 and June 30, 1997,
respectively.......................................... $ 33,517 $ 21,125 $ 7,985
Current portion of obligations under capital lease....... 21,880 18,688 22,703
Accounts payable......................................... 11,206 11,250 28,642
Accrued expenses and other current liabilities........... 24,048 5,206 6,642
Income taxes payable..................................... -- 4,794 5,721
-------- -------- --------
Total current liabilities........................ 90,651 61,063 71,693
Obligations under capital lease............................ 49,704 31,016 25,177
-------- -------- --------
Total liabilities................................ 140,355 92,079 96,870
-------- -------- --------
Stockholders' equity
Common stock, $1 par value, 50,000 shares authorized;
10,000 shares issued and outstanding at December 31,
1995 and 1996 and June 30, 1997, respectively......... 10,000 10,000 10,000
Retained earnings........................................ 18,107 56,736 65,297
-------- -------- --------
Total stockholders' equity....................... 28,107 66,736 75,297
-------- -------- --------
$168,462.. $158,815 $172,167
======== ======== ========
</TABLE>
F-93
<PAGE> 153
BERNARD B. BAROS, D.D.S., P.C.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1,
DECEMBER 31, 1997 TO
--------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
<S> <C> <C> <C>
Net revenues.............................................. $589,671 $556,361 $ 244,796
Cost of revenues.......................................... 377,543 299,927 100,569
Selling and administrative expenses....................... 183,007 172,461 108,528
Depreciation and amortization............................. 34,541 32,450 16,413
-------- -------- --------
(Loss) income from operations............................. (5,420) 51,523 19,286
Non-operating expenses:
Interest expense........................................ (25,724) (8,100) (5,004)
-------- -------- --------
(Loss) income before taxes................................ (31,144) 43,423 14,282
Income tax expense........................................ -- (4,794) (5,721)
-------- -------- --------
Net (loss) income......................................... $(31,144) $ 38,629 $ 8,561
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-94
<PAGE> 154
BERNARD B. BAROS, D.D.S., P.C.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------
PAR RETAINED
SHARES VALUE EARNINGS TOTAL
------ ------- -------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1995........................... 10,000 $10,000 $ 49,251 $ 59,251
Net loss........................................... (31,144) (31,144)
------ ------- -------- --------
Balance, December 31, 1995......................... 10,000 $10,000 $ 18,107 $ 28,107
Net income......................................... 38,629 38,629
------ ------- -------- --------
Balance, December 31, 1996......................... 10,000 $10,000 56,736 66,736
Net income......................................... 8,561 8,561
------ ------- -------- --------
Balance, June 30, 1997............................. 10,000 $10,000 $ 65,297 $ 75,297
====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-95
<PAGE> 155
BERNARD B. BAROS, D.D.S., P.C.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1,
DECEMBER 31, 1997 TO
--------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income....................................... $(31,144) $ 38,629 $ 8,561
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization........................ 34,541 32,450 16,413
Provision for doubtful accounts...................... 9,558 16,673 7,610
Increase in accounts receivable...................... (13,077) (24,116) (3,591)
Increase in accounts payable......................... 5,799 44 17,392
(Decrease) increase in accrued expenses and other
current liabilities................................ (12,570) (18,842) 1,436
Increase in income taxes payable..................... -- 4,794 927
-------- -------- --------
Net cash (used in) provided by operating
activities.................................... (6,893) 49,632 48,748
-------- -------- --------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements....... (11,450) -- --
-------- -------- --------
Net cash used in investing activities........... (11,450) -- --
-------- -------- --------
Cash flows from financing activities:
Increase (decrease) amounts due to stockholder.......... 6,070 (12,392) (13,140)
Principal payments on long-term debt and capital
leases............................................... (19,078) (21,880) (9,265)
-------- -------- --------
Net cash used in financing activities........... (13,008) (34,272) (22,405)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents.... (31,351) 15,360 26,343
Cash and cash equivalents at beginning of period........ 31,351 -- 15,360
-------- -------- --------
Cash and cash equivalents at end of period.............. $ -- $ 15,360 $ 41,703
======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid........................................... $ 25,724 $ 8,100 $ 5,004
======== ======== ========
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
<TABLE>
<S> <C> <C> <C>
Capital lease obligations entered....................... $ -- $ -- $ 7,441
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE> 156
BERNARD B. BAROS, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
1. ORGANIZATION AND OPERATIONS
Bernard B. Baros, D.D.S., P.C. (the "Company") provides general dental care
and related services in the Colorado Springs, Colorado area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements include the activity of Bernard B. Baros, D.D.S.,
P.C.
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which
principally range from five to seven years. Assets under capital leases and
leasehold improvements are amortized over the lesser of the lease term or the
asset's estimated useful life.
Capital Leases
The Company has entered into various leases for office and dental equipment
which are accounted for as capital leases. At inception of the lease, the
equipment under lease and the related obligations are recorded at the net
present value of future minimum lease payments, excluding executory costs,
discounted using the Company's incremental borrowing rate.
Long-Lived and Intangible Assets
The Company applies Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Accordingly, the
carrying value of long-lived assets are evaluated whenever changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. In performing such review for recoverability, the Company compares
the expected future undiscounted cash flows to the carrying value of long-lived
assets.
If the expected future cash flows (undiscounted) are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their
F-97
<PAGE> 157
BERNARD B. BAROS, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
estimated fair value. In estimating future cash flows for determining whether an
asset is impaired, and in measuring assets that are impaired, assets are grouped
by geographic region.
Amounts Due to Stockholder
The amounts due to the principal stockholder relate to funds borrowed for
operational and general corporate purposes. The advances do not have stated
repayment terms, interest rates, or maturity dates.
Income Taxes
The Company accounts for certain items of income and expense in different
time periods for financial reporting and income tax purposes. Provisions for
deferred income taxes are made in recognition of such temporary differences,
where applicable. A valuation allowance is established against deferred tax
assets unless the Company believes it more likely than not that the benefit will
be realized.
Fair Value of Financial Instruments
The recorded balances of financial instruments at December 31, 1996 and
August 31, 1997 approximate estimated fair market values.
3. ACCOUNTS RECEIVABLE AND THIRD PARTY REIMBURSEMENTS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ --------
<S> <C> <C> <C>
Accounts receivable, net of contractual
allowances of $8,202 and $8,924 and $8,022, at
December 31, 1995 and 1996 and June 30, 1997,
respectively................................... $ 56,591 $ 63,960 $ 60,123
Less: Allowance for doubtful accounts............ (6,767) (6,693) (6,875)
------- ------- -------
$ 49,824 $ 57,267 $ 53,248
======= ======= =======
</TABLE>
The Company's services are reimbursed directly by both patients and by
third party payors, including commercial insurance companies. Third party
reimbursements are primarily billed at estimated amounts realizable based upon
contractually determined rates. In instances where "usual, customary and
reasonable" market rates are billed, gross billings are adjusted for contractual
allowances to reflect estimated amounts realizable from third party payors. The
allowance for doubtful accounts is estimated based on an ongoing review of
collectibility.
4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ ---------
<S> <C> <C> <C>
Dental equipment............................... $ 239,430 $ 239,430 $ 239,430
Furniture and fixtures, automobiles and
leasehold improvements....................... 151,219 151,219 151,219
Data processing and office equipment........... 29,122 29,122 36,563
--------- --------- ---------
419,771 419,771 427,212
Less: Accumulated depreciation and
amortization................................. (301,133) (333,583) (349,996)
--------- --------- ---------
$ 118,638 $ 86,188 $ 77,216
========= ========= =========
</TABLE>
F-98
<PAGE> 158
BERNARD B. BAROS, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and amortization expense, including amounts related to
equipment under capital lease (Note 5), for the years ended December 31, 1995
and 1996 and the period ended June 30, 1997 totaled $34,541, $32,450 and
$16,413, respectively.
5. LEASES
The Company has entered into various leases for office and dental equipment
accounted for as capital leases. The lease terms are from 5 to 7 years.
Equipment under capital leases at cost and related accumulated amortization
included in property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ --------
<S> <C> <C> <C>
Dental and office equipment..................... $ 94,188 $ 94,188 $ 94,188
Less: Accumulated amortization.................. (25,930) (39,386) (46,113)
-------- -------- --------
Equipment under capital leases.................. $ 68,258 $ 54,802 $ 48,075
======== ======== ========
</TABLE>
Amortization of equipment under capital leases for the years ended December
31, 1995, 1996 and the period ended June 30, 1997 totaled $13,456, $13,456, and
$6,728, respectively.
Future minimum lease payments due under capital leases are as follows:
<TABLE>
<S> <C>
1997.............................................. $ 14,017
1998.............................................. 19,657
1999.............................................. 13,387
2000.............................................. 7,155
2001.............................................. --
--------
54,216
Less: Amount representing interest................ (6,336)
--------
Present value of minimum lease payments........... 47,880
Less: Current portion............................. (22,703)
--------
$ 25,177
========
</TABLE>
The Company maintains leases for its dental offices from a company owned by
the principal shareholder. The office lease terms are from month to month. Rent
expense of $72,000, $74,000 and $42,000, respectively, was incurred during years
ended December 31, 1995 and 1996 and for the period ended June 30, 1997,
respectively. The rent expense under this lease is considered to be at market
value.
6. DEBT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ --------
<S> <C> <C> <C>
Note payable to principal stockholder................ $ 33,517 $ 15,009 $ 1,869
Other debt........................................... -- 6,116 6,116
-------- -------- -------
33,517 21,125 7,985
Less: Current portion................................ (33,517) (21,125) (7,985)
-------- -------- -------
$ -- $ -- $ --
======== ======== =======
</TABLE>
F-99
<PAGE> 159
BERNARD B. BAROS, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The components of the income tax expense (benefit) for the years ended
December 31, 1995 and 1996 and the period ended June 30, 1997 are as follows:
<TABLE>
<CAPTION>
PERIOD
FROM
JANUARY 1,
YEARS ENDED 1997 TO
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ ----------
<S> <C> <C> <C>
Current:
Federal........................................... $ -- $3,818 $4,556
State............................................. -- 976 1,165
Deferred:
Federal........................................... -- -- --
State............................................. -- -- --
--- ------ ------
$ -- $4,794 $5,721
=== ====== ======
</TABLE>
In 1996, the company utilized net operating loss carry forwards generated
in 1995 to reduce taxable income in 1996.
8. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ --------
<S> <C> <C> <C>
Salaries and payroll taxes........................... $ 10,840 $2,143 $3,162
Bank overdraft....................................... 8,195 -- --
Other................................................ 5,013 3,063 3,480
------- ------ ------
$ 24,048 $5,206 $6,642
======= ====== ======
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company leases space from the principal shareholder. The rent expense
under this lease is considered to be at fair market value and was $72,000,
$74,000 and $42,000 for 1995, 1996 and the period ended June 30, 1997.
10. EMPLOYEE BENEFITS
Retirement Plan
The Company has a defined contribution plan covering substantially all of
its employees. In general, eligible employees may contribute up to 15% of their
compensation to this plan. Employee contributions are matched at a rate of 5% at
the discretion of management. There were no matching contributions for the year
ended December 31, 1996 and the period ended June 30, 1997.
11. COMMITMENTS AND CONTINGENCIES
Litigation
In the normal course of operations, the Company has become party to claims,
suits and complaints relating to general and professional services provided by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. Management does not believe that any
of
F-100
<PAGE> 160
BERNARD B. BAROS, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
these claims, suits or complaints will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
12. SUBSEQUENT EVENTS
On July 1, 1997, the Company was acquired by Valley Forge Dental
Associates, Inc., a Delaware Corporation.
F-101
<PAGE> 161
REPORT OF INDEPENDENT ACCOUNTANTS
To the Owner of
Maurice E. Smith, D.D.S.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in owner's (deficit) equity and of cash flows present
fairly, in all material respects, the financial position of Maurice E. Smith,
D.D.S., (the "Company") at December 31, 1996 and June 30, 1997 and the results
of its operations and its cash flows for the years ended December 31, 1996 and
for the period from January 1, 1997 to June 30, 1997, 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
Philadelphia, PA
October 17, 1997
F-102
<PAGE> 162
MAURICE E. SMITH, D.D.S.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................................... $ 2,883 $ 5,062
Accounts receivable, net........................................... 57,489 30,402
------------ --------
Total current assets....................................... 60,372 35,464
Property and equipment, net.......................................... 120,187 111,283
------------ --------
$180,559 $146,747
========== ========
LIABILITIES AND OWNER'S EQUITY
Current liabilities
Current portion of obligations under capital lease................. $ 32,996 $ 14,783
Accounts payable................................................... 21,080 13,303
Accrued expenses and other current liabilities..................... 33,863 24,400
------------ --------
Total current liabilities.................................. 87,939 52,486
Obligations under capital lease...................................... 67,657 68,228
------------ --------
Total liabilities.......................................... 155,596 120,714
------------ --------
Owner's equity....................................................... 24,963 26,033
------------ --------
$180,559 $146,747
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-103
<PAGE> 163
MAURICE E. SMITH, D.D.S.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1, 1997
DECEMBER 31, TO JUNE 30,
1996 1997
------------ ---------------
<S> <C> <C>
Net revenues..................................................... $842,531 $ 362,413
Cost of revenues................................................. 693,607 310,231
Depreciation..................................................... 21,361 12,501
-------- --------
Income from operations........................................... 127,563 39,681
Interest expense................................................. (10,955) (5,400)
-------- --------
Net income....................................................... $116,608 $ 34,281
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-104
<PAGE> 164
MAURICE E. SMITH, D.D.S.
STATEMENT OF CHANGES IN OWNER'S (DEFICIT) EQUITY
<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
Balance, January 1, 1996.......................................................... $(49,972)
Owner distribution.............................................................. (41,673)
Net income...................................................................... 116,608
--------
Balance, December 31, 1996........................................................ 24,963
Owner distributions............................................................. (33,211)
Net income...................................................................... 34,281
--------
Balance, June 30, 1997............................................................ $ 26,033
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE> 165
MAURICE E. SMITH, D.D.S., P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1, 1997
DECEMBER 31, TO JUNE 30,
1996 1997
------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................... $116,608 $ 34,281
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................ 21,361 12,501
Provision for doubtful accounts............................. 23,001 9,055
(Increase) decrease in accounts receivable.................. (39,078) 18,032
Decrease in accounts payable................................ (894) (7,777)
Decrease in accrued expenses and other current
liabilities................................................ (40,555) (9,463)
-------- --------
Net cash provided by operating activities.............. 80,443 56,629
-------- --------
Cash flows from investing activities:
Purchases of property and equipment............................ (7,023) (3,597)
-------- --------
Net cash used in investing activities.................. (7,023) (3,597)
-------- --------
Cash flows from financing activities:
Owner distributions............................................ (41,673) (33,211)
Repayments of capital lease obligations........................ (28,864) (17,642)
-------- --------
Net cash used in financing activities.................. (70,537) (50,853)
-------- --------
Net increase in cash and cash equivalents...................... 2,883 2,179
Cash and cash equivalents at beginning of period............... -- 2,883
-------- --------
Cash and cash equivalents at end of period..................... $ 2,883 $ 5,062
======== ========
Supplemental disclosure of cash flow information:
Interest paid.................................................. $ 10,955 $ 5,400
======== ========
Supplemental disclosure of noncash items:
Assets acquired under capital lease............................ $ 54,320 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE> 166
MAURICE E. SMITH, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND JUNE 30, 1997
1. ORGANIZATION AND OPERATIONS
Dr. Maurice E. Smith, D.D.S., P.C. (the "Company") provides general dental
care and related services in the Roswell, Georgia area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Under certain managed care contracts the Company provides diagnostic and
preventative dental services for a fixed rate per-member per-month fee, and
other dental services as defined in the contracts under an agreed upon fee
schedule to member patients. Revenues from the per-member, per-month fees are
recorded in the month for which the member is entitled to service (see Note 7).
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which
principally range from five to seven years. Assets under capital leases and
leasehold improvements are amortized over the lesser of the lease term or the
asset's estimated useful life.
Capital Leases
The Company has entered into various leases for office and dental equipment
which are accounted for as capital leases. At inception of the lease, the
equipment under lease and the related obligations are recorded at the net
present value of future minimum lease payments, excluding executory costs,
discounted using the Company's incremental borrowing rate.
Long-Lived and Intangible Assets
Assets and liabilities acquired in connection with business combinations
accounted for under the purchase method are recorded at their respective fair
values. The excess of the purchase price over the fair value of tangible net
assets acquired is amortized on a straight-line basis over the estimated useful
life of the intangible assets which range from five to forty years. Segregation
of intangible assets between identifiable intangibles and goodwill was based on
estimates derived from appraisals performed with the assistance of independent
appraiser. Intangible assets include patient lists, covenants not to compete and
goodwill.
F-107
<PAGE> 167
MAURICE E. SMITH, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ". Accordingly,
the carrying value of long-lived assets and certain identifiable intangible
assets are evaluated whenever changes in circumstances indicate the carrying
amount of such assets may not be recoverable. In performing such review for
recoverability, the Company compares the expected future undiscounted cash flows
to the carrying value of long-lived assets and identifiable intangibles,
including the related excess of cost over fair value of net assets acquired.
If the expected future cash flows (undiscounted) are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated fair
value. In estimating future cash flows for determining whether an asset is
impaired, and in measuring assets that are impaired, assets are grouped by
geographic region.
In addition, the carrying value of the excess of cost over fair value of
net assets acquired and other intangible assets is subject to a separate annual
evaluation using these guidelines.
Income Taxes
The Company is the sole proprietorship of Dr. Maurice E. Smith, D.D.S., and
as such, all income or loss of the Company accrues directly to him. Accordingly,
no provision for income taxes has been made in these financial statements.
Fair Value of Financial Instrument
The recorded balances of financial instruments at December 31, 1996 and
August 31, 1997 approximate estimated fair market values.
3. ACCOUNTS RECEIVABLE AND THIRD PARTY REIMBURSEMENTS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Accounts receivable, net of contractual allowances of
$57,489 and $30,402 at December 31, 1996 and June
30, 1997, respectively............................. $127,784 $ 99,070
Less: Allowance for doubtful accounts................ (70,295) (68,668)
-------- --------
$ 57,489 $ 30,402
======== ========
</TABLE>
4. PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Dental equipment..................................... $167,326 $170,923
Furniture and fixtures, automobiles and leasehold
improvements....................................... 588 588
-------- --------
167,914 171,511
Less: Accumulated depreciation and amortization...... (47,727) (60,228)
-------- --------
$120,187 $111,283
======== ========
</TABLE>
F-108
<PAGE> 168
MAURICE E. SMITH, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and amortization expense, including amounts related to
equipment under capital lease (Note 5), for the years ended December 31, 1996
and the period ended June 30, 1997 totaled $21,361 and $12,501, respectively.
5. LEASES
The Company has entered into various leases for office and dental equipment
accounted for as capital leases. The lease terms are from 2 to 5 years.
Equipment under capital leases at cost and related accumulated amortization
included in property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Dental and office equipment.......................... $160,890 $160,890
Less: Accumulated amortization....................... (47,165) (58,985)
-------- --------
Equipment under capital leases....................... $113,725 $101,905
======== ========
</TABLE>
Amortization of equipment under capital leases for the years ended December
31, 1996 and the period ended June 30, 1997 totaled $29,799 and $11,820,
respectively.
Future minimum lease payments due under capital leases are as follows:
<TABLE>
<S> <C>
1997............................................ $ 22,898
1998............................................ 32,783
1999............................................ 23,323
2000............................................ 9,430
2001............................................ --
--------
88,434
Less: Amount representing interest.............. (5,423)
--------
Present value of minimum lease payments......... 83,011
Less: Current portion........................... (14,783)
--------
$ 68,228
========
</TABLE>
The Company maintains leases for all of its dental offices on a month to
month basis from an entity owned by Dr. Maurice E. Smith. Rent expense under
this lease was $32,818 for the year ended December 31, 1996 and $15,372 for the
six month period ended June 30, 1997.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
JUNE
DECEMBER 31, 30,
1996 1997
------------ -------
<S> <C> <C>
Salaries and payroll taxes............................ $ 29,543 $19,999
Other................................................. 4,320 4,401
------- -------
$ 33,863 $24,400
======= =======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Contracts
The Company participates in agreements with corporations and managed care
organizations to provide certain dental services to members of a group at a
fixed rate per-member, per-month, regardless of the actual services performed,
and certain other dental services as defined in the contract in accordance with
an agreed upon fee schedule. During 1996 and through June 30, 1997,
approximately 35% and 42%, respectively, of the
F-109
<PAGE> 169
MAURICE E. SMITH, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's net revenues were derived from fixed rate per-member per-month
contracts. Revenues under these contracts are recorded in the month fees are
earned. Expenses are recorded as incurred including an estimate of incurred but
not reported expenses.
The Company estimates the costs of providing services under these contracts
by using historical experience and anticipated utilization rates. The Company
believes the future revenues under these contracts will exceed the costs of
services it will be required to provide under the terms of the contracts.
Generally, either party to these contracts may terminate the contract without
cause at any time with thirty to ninety days written notice.
Litigation
In the normal course of operations, the Company has become party to claims,
suits and complaints relating to general and professional services provided by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. Management does not believe that any
of these claims, suits or complaints will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
8. SUBSEQUENT EVENTS
Effective on July 1, 1997 the Company was acquired by Valley Forge Dental
Associates, Inc., a Delaware Corporation.
F-110
<PAGE> 170
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE OWNER OF DOUGLASS A. QUINN, D.D.S., P.C.
AND DOUGLASS A. QUINN, D.D.S.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and of cash flows present fairly, in all
material respects, the financial position of Douglass A. Quinn D.D.S., P.C. and
Douglass A. Quinn, D.D.S. (on a combined basis, the "Company") at December 31,
1996 and July 31, 1997 and the results of their operations and their cash flows
for the years ended December 31, 1996 and for the period from January 1, 1997 to
July 31, 1997, 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
Philadelphia, PA
October 17, 1997
F-111
<PAGE> 171
DOUGLASS A. QUINN D.D.S., P.C. AND DOUGLASS A. QUINN, D.D.S.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1997
------------ --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................................... $ 55,862 $ 72,734
Accounts receivable, net........................................... 50,219 42,015
-------- --------
Total current assets....................................... 106,081 114,749
Property and equipment, net.......................................... 56,737 47,576
-------- --------
$162,818 $162,325
======== ========
</TABLE>
LIABILITIES AND OWNER'S EQUITY
<TABLE>
<S> <C> <C>
Current liabilities
Current portion of long-term debt.................................. $ 21,098 $ 22,258
Accounts payable................................................... 16,919 11,573
Accrued expenses and other current liabilities..................... 477 539
Income taxes payable............................................... 2,849 6,942
Unearned revenue................................................... 5,929 5,412
-------- --------
Total current liabilities.................................. 47,272 46,724
Long-term debt....................................................... 77,855 63,222
-------- --------
Total liabilities.......................................... 125,127 109,946
-------- --------
Owner's equity....................................................... 37,691 52,379
-------- --------
$162,818 $162,325
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-112
<PAGE> 172
DOUGLASS A. QUINN D.D.S., P.C. AND DOUGLASS A. QUINN, D.D.S.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1, 1997
DECEMBER 31, TO JULY 31,
1996 1997
------------ ---------------
<S> <C> <C>
Net revenues....................................................... $689,898 $ 473,954
Cost of revenues................................................... 626,507 432,382
Depreciation and amortization...................................... 8,717 9,161
-------- --------
Income from operations............................................. 54,674 32,421
Non-operating expenses:
Interest expense................................................. (11,295) (10,791)
-------- --------
Income before income taxes......................................... 43,379 21,630
Income tax expense................................................. (2,849) (6,942)
-------- --------
Net income....................................................... 40,530 14,688
Owner's equity, beginning of period................................ (2,839) 17,694
-------- --------
Owner's equity, end of period...................................... $ 37,691 $ 52,379
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-113
<PAGE> 173
DOUGLASS A. QUINN D.D.S., P.C. AND DOUGLASS A. QUINN, D.D.S
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1, 1997
DECEMBER 31, TO JULY 31,
1996 1997
------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................... $ 40,530 $ 14,688
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................... 8,717 9,168
(Increase) decrease in accounts receivable.................. (24,402) 8,204
Increase (decrease) in accounts payable, accrued expenses
and deferred revenue....................................... 9,075 (5,801)
Increase (decrease) in income taxes payable................. 2,849 4,095
---------- ---------
Net cash provided by operating activities.............. 36,769 30,345
---------- ---------
Cash flows from financing activities:
Borrowings of long-term debt................................... 109,706 --
Principal payments on long-term debt........................... (109,552) (13,473)
---------- ---------
Net cash provided by (used in) financing activities.... 154 (13,473)
---------- ---------
Net increase in cash and cash equivalents...................... 36,923 16,872
Cash and cash equivalents at beginning of period............... 18,939 55,862
---------- ---------
Cash and cash equivalents at end of period..................... $ 55,862 $ 72,734
========== =========
Supplemental disclosure of cash flow information:
Interest paid.................................................. $ 11,295 $ 10,791
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-114
<PAGE> 174
DOUGLASS A. QUINN D.D.S., P.C. AND DOUGLASS A. QUINN D.D.S.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND JULY 31, 1997
1. ORGANIZATION AND OPERATIONS
The "Company," which includes Douglass A. Quinn, D.D.S., P.C. and Douglass
A. Quinn, D.D.S., provides general dental care and related services in the
Atlanta, Georgia area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combined Financial Statements
These financial statements represent the combined financial statements of
the following affiliated companies:
Douglass A. Quinn, D.D.S.. PC
Douglass A. Quinn, D.D.S.
Common control, ownership and intercompany activities exist among these
companies. Therefore, combined financial statements provide a more meaningful
presentation of the financial position of these companies as a whole. All
significant intercompany balances and transactions have been claimed.
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Under certain managed care contracts the Company provides diagnostic and
preventative dental services for a fixed rate per-member per-month fee, and
other dental services as defined in the contracts under an agreed upon fee
schedule to member patients. Revenues from the per-member, per-month fees are
recorded in the month for which the member is entitled to service (see Note 8).
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which
principally range from five to seven years. Assets under capital leases and
leasehold improvements are amortized over the lesser of the lease term or the
asset's estimated useful life.
Income Taxes
The Company accounts for certain items of income and expense in different
time periods for financial reporting and income tax purposes. Provisions for
deferred income taxes are made in recognition of such temporary differences,
where applicable. A valuation allowance is established against deferred tax
assets unless the Company believes it more likely than not that the benefit will
be realized.
F-115
<PAGE> 175
DOUGLASS A. QUINN D.D.S., P.C. AND DOUGLASS A. QUINN D.D.S.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Douglass A. Quinn DDS is a sole proprietorship entity. As such, all income
or loss of the office accrues directly to its owner. Accordingly, no provision
for income taxes has been made in these financial statements for that office.
Fair Value of Financial Instruments
The recorded balances of financial instruments at December 31, 1996 and
July 31, 1997 approximate estimated fair market values.
3. ACCOUNTS RECEIVABLE AND THIRD PARTY REIMBURSEMENTS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1997
------------ --------
<S> <C> <C>
Accounts receivable, net of contractual allowances
of $50,219 and $42,015 at December 31, 1996 and
July 31, 1997, respectively........................ $ 65,150 $ 56,020
Less: Allowance for doubtful accounts................ (14,931) (11,005)
-------- --------
$ 50,219 $ 42,015
======== ========
</TABLE>
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1997
------------ ---------
<S> <C> <C>
Dental and office equipment, furniture and
fixtures.......................................... $ 45,941 $ 45,941
Furniture and fixtures and leasehold improvements... 114,651 114,651
-------- --------
160,592 160,592
Less: Accumulated depreciation and amortization..... (103,855) (113,016)
-------- --------
$ 56,737 $ 47,576
======== ========
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1996
and the period ended July 31, 1997 totaled $8,717 and $9,168, respectively.
The Company maintains leases for all of its dental offices and for certain
of its equipment which are accounted for as operating leases. The office lease
terms range from one to ten years, while the equipment terms range from one to
four years.
Future minimum annual rentals due under noncancellable operating leases in
excess of one year are as follows:
<TABLE>
<S> <C>
1997.............................................. $ 20,025
1998.............................................. 49,687
1999.............................................. 51,391
2000.............................................. 53,181
2001.............................................. 51,772
Thereafter........................................ 62,400
--------
$288,456
========
</TABLE>
Certain of the leases contain renewal options and escalation clauses which
require payments of additional rent to the extent of increases in related
operating costs.
F-116
<PAGE> 176
DOUGLASS A. QUINN D.D.S., P.C. AND DOUGLASS A. QUINN D.D.S.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense of $46,506 and $27,468, respectively, was incurred during
years ended December 31, 1996 and for the period ended July 31, 1997,
respectively.
5. DEBT
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1997
------------ --------
<S> <C> <C>
9.8% - 10% Notes payable to financial institutions,
collateralized by equipment, payable through 2001.... $ 98,953 $ 85,480
Less: Current portion.................................. (21,098) (22,258)
------- -------
$ 77,855 $ 63,222
======= =======
</TABLE>
Scheduled maturities of long-term debt outstanding as of July 31, 1997 are
as follows:
<TABLE>
<S> <C>
1997............................................... $22,258
1998............................................... 23,283
1999............................................... 25,692
2000............................................... 14,247
-------
$85,480
=======
</TABLE>
The recorded balances for notes payable approximates the fair value.
6. INCOME TAXES
Income tax expense relates solely to one of the combined entities, Douglass
A. Quinn D.D.S., P.C.
The components of the income tax expense are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, JULY 31,
1996 1997
------------ -----------
<S> <C> <C>
Current:
Federal............................................. $2,065 $ 5,031
State............................................... 784 1,911
Deferred:
Federal............................................. -- --
State............................................... -- --
------ ------
$2,849 $ 6,942
====== ======
</TABLE>
The reconciliation of the Federal statutory income tax rate is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, JULY 31,
1996 1997
------------ -----------
<S> <C> <C>
Statutory income tax rate............................. (34)% (34)%
Income attributable to company not subject to Federal
and state taxes..................................... 30% 10%
State taxes........................................... (2)% (8)%
--- ---
(6)% (32)%
=== ===
</TABLE>
F-117
<PAGE> 177
DOUGLASS A. QUINN D.D.S., P.C. AND DOUGLASS A. QUINN D.D.S.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. OWNER'S EQUITY
Douglas A. Quinn, D.D.S., P.C. and Douglas A. Quinn, D.D.S. has 500 shares
of $1 par Common Stock authorized issued and outstanding for all periods
presented. Retained earnings is $37,191 at December 31, 1996 and $51,879 at July
31, 1997.
8. RELATED PARTY TRANSACTIONS
The Company leases space from an affiliated entity. The rent expense under
this agreement was considered to be at fair market value and was $46,506 and
$27,465 for 1996 and the period ended July 31, 1997, respectively.
9. COMMITMENTS AND CONTINGENCIES
Contracts
The Company participates in agreements with corporations and managed care
organizations to provide certain dental services to members of a group at a
fixed rate per-member, per-month, regardless of the actual services performed,
and certain other dental services as defined in the contract in accordance with
an agreed upon fee schedule. During 1996, and through July 31, 1997
approximately 14% and 11%, respectively, of the Company's net revenues were
derived from fixed rate per-member per-month contracts. Revenues under these
contracts are recorded in the month fees are earned. Expenses are recorded as
incurred including an estimate of incurred but not reported expenses.
The Company estimates the costs of providing services under these contracts
by using historical experience and anticipated utilization rates. The Company
believes the future revenues under these contracts will exceed the costs of
services it will be required to provide under the terms of the contracts.
Generally, either party to these contracts may terminate the contract without
cause at any time with thirty to ninety days written notice.
Litigation
In the normal course of operations, the Company has become party to claims,
suits and complaints relating to general and professional services provided by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. Management does not believe that any
of these claims, suits or complaints will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
10. SUBSEQUENT EVENTS
Effective August 1, 1997, the Company was acquired by Valley Forge Dental
Associates, Inc., a Delaware Corporation.
F-118
<PAGE> 178
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
GENTLE DENTAL OF OCALA, P.C., GENTLE DENTAL OF SARASOTA, P.C., GENTLE DENTAL OF
CLEARWATER, P.C., GENTLE DENTAL OF MANATEE, P.C. AND GENTLE DENTAL ORTHODONTICS,
P.C.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of changes in stockholders' deficit and of
cash flows present fairly, in all material respects, the financial position of
Gentle Dental of Ocala, P.C., Gentle Dental of Sarasota, P.C., Gentle Dental of
Clearwater, P.C., Gentle Dental of Manatee, P.C., and Gentle Dental
Orthodontics, P.C., (collectively referred to as the "Company" or "Gentle
Dental") at December 31, 1995 and 1996 and July 31, 1997 and the results of
their operations and their cash flows for the years ended December 31, 1995 and
1996 and for the period from January 1, 1997 to July 31, 1997, 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
Philadelphia, PA
October 10, 1997
F-119
<PAGE> 179
GENTLE DENTAL
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................ $ 25,720 $ 9,312 $ 76,551
Accounts receivable, net............................. 108,142 114,883 114,801
Prepaid expenses and other current assets............ 11,485 5,279 5,303
---------- ---------- ----------
Total current assets......................... 145,347 129,474 196,655
Property and equipment, net............................ 1,526,669 1,540,351 1,416,488
---------- ---------- ----------
$1,672,016 $1,669,825 $1,613,143
========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt.................... $ 85,936 $ 80,879 $ 114,990
Current portion of obligations under capital lease... 95,213 94,603 130,168
Accounts payable..................................... 87,474 87,405 183,609
Accrued payroll and payroll related liabilities...... 14,286 20,583 36,395
---------- ---------- ----------
Total current liabilities.................... 282,909 283,470 465,162
Long-term debt, net of current portion................. 1,093,506 1,095,698 1,013,667
Obligations under capital lease........................ 350,771 399,775 288,780
---------- ---------- ----------
Total liabilities............................ 1,727,186 1,778,943 1,767,609
---------- ---------- ----------
Stockholders' deficit.................................. (55,170) (109,118) (154,466)
---------- ---------- ----------
$1,672,016 $1,669,825 $1,613,143
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-120
<PAGE> 180
GENTLE DENTAL
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997
TO
YEARS ENDED DECEMBER 31, JULY 31,
1995 1996 1997
---------- ---------- ---------------
<S> <C> <C> <C>
Net revenues......................................... $2,714,525 $2,727,371 $ 1,651,478
Cost of revenues..................................... 1,984,374 1,945,695 1,091,524
Selling and administrative expenses.................. 479,721 502,143 388,360
Depreciation and amortization........................ 163,171 183,620 123,863
---------- ---------- ----------
Income from operations............................... 87,259 95,913 47,731
Interest expense..................................... (136,796) (149,861) (93,079)
---------- ---------- ----------
Net loss............................................. $ (49,537) $ (53,948) $ (45,348)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-121
<PAGE> 181
GENTLE DENTAL
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997
YEARS ENDED DECEMBER TO
31, JULY 31,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (49,537) $ (53,948) $ (45,348)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.................... 163,171 183,620 123,863
(Increase) decrease in accounts receivable....... (44,354) (6,741) 82
(Increase) decrease in prepaid expenses and other
current assets................................. (6,655) 6,206 (24)
Increase in accounts payable and accrued
payroll........................................ 8,424 6,228 112,016
--------- --------- ---------
Net cash provided by operating activities... 71,049 135,365 190,589
--------- --------- ---------
Cash flows from investing activities:
Purchases of equipment.............................. (766,975) (13,097) --
--------- --------- ---------
Net cash used in investing activities....... (766,975) (13,097) --
--------- --------- ---------
Cash flows from financing activities:
Borrowings of long-term debt........................ 997,519 153,036 --
Principal payments on long-term debt................ (201,014) (155,901) (47,920)
Payments on long-term capital leases................ (84,356) (135,811) (75,430)
--------- --------- ---------
Net cash provided by (used in) financing
activities................................ 712,149 (138,676) (123,350)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents...................................... 16,223 (16,408) 67,239
Cash and cash equivalents at beginning of period.... 9,497 25,720 9,312
--------- --------- ---------
Cash and cash equivalents at end of period.......... $ 25,720 $ 9,312 $ 76,551
========= ========= =========
Supplemental disclosure of cash flow information:
Interest paid....................................... $ 136,640 $ 127,665 $ 93,079
========= ========= =========
</TABLE>
Supplemental Disclosure of noncash investing and financing activity:
To acquire equipment aggregating $123,313 and $184,205, respectively, in
1995 and 1996 the Company executed capital leases.
The accompanying notes are an integral part of these financial statements.
F-122
<PAGE> 182
GENTLE DENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND JULY 31, 1997
1. ORGANIZATION AND OPERATIONS
Gentle Dental (the "Company") provides general dental care and related
services in the Florida area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combined Financial Statements
These financial statements represent the combined financial statements of
the following affiliated companies:
<TABLE>
<CAPTION>
SHARES ISSUED PAR VALUE
AND OUTSTANDING PER SHARE
--------------- ---------
<S> <C> <C>
Gentle Dental of Ocala, P.C........................... 50 $ .01
Gentle Dental of Sarasota, P.C........................ 50 .01
Gentle Dental of Clearwater, P.C...................... 50 .01
Gentle Dental of Manatee, P.C......................... 50 .01
Gentle Orthodontics, P.C.............................. 50 .01
---
250
</TABLE>
Common control ownership and intercompany activities exist among these
companies. Further, as described in Note 9, the companies were purchased as a
group by Valley Forge Dental Associates, Inc. Accordingly, combined financial
statements provide a more meaningful presentation of the financial position of
these companies as a whole. All significant intercompany balances and
transactions have been eliminated.
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Under certain managed care contracts the Company provides diagnostic and
preventative dental services for a fixed rate per-member per-month fee, and
other dental services as defined in the contracts under an agreed upon fee
schedule to member patients. Revenues from the per-member, per-month fees are
recorded in the month for which the member is entitled to service (see Note 8).
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which range
from five to thirty years. Assets under capital leases and leasehold
improvements are amortized over the lesser of the lease term or the asset's
estimated useful life.
F-123
<PAGE> 183
GENTLE DENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Capital Leases
The Company has entered into various leases for office and dental equipment
which are accounted for as capital leases. At inception of the lease, the
equipment under lease and the related obligations are recorded at the net
present value of future minimum lease payments, excluding executory costs,
discounted using the Company's incremental borrowing rate.
Long-Lived Assets
The Company applies Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Accordingly, the
carrying value of long-lived assets and certain identifiable intangible assets
are evaluated whenever changes in circumstances indicate the carrying amount of
such assets may not be recoverable. In performing such review for
recoverability, the Company compares the expected future undiscounted cash flows
to the carrying value of long-lived assets and identifiable intangibles,
including the related excess of cost over fair value of net assets acquired.
If the expected future cash flows (undiscounted) are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated fair
value. In estimating future cash flows for determining whether an asset is
impaired, and in measuring assets that are impaired, assets are grouped by
geographic region.
In addition, the carrying value of the excess of cost over fair value of
net assets acquired and other intangible assets is subject to a separate annual
evaluation using these guidelines.
Income Taxes
The Companies have elected S corporation status with the Internal Revenue
Service. As such, all income or loss of the Company accrues directly to its
stockholders. Accordingly, no provision for income taxes has been made in these
financial statements.
Fair Value of Financial Instruments
Recorded balances of financial instruments at December 31, 1995 and 1996
and July 31, 1997 approximate estimated fair market values.
3. ACCOUNTS RECEIVABLE AND THIRD PARTY REIMBURSEMENTS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Accounts receivable................................ $205,945 $201,829 $196,636
Less: Allowance for doubtful accounts.............. (97,803) (86,946) (81,835)
-------- -------- --------
$108,142 $114,883 $114,801
======== ======== ========
</TABLE>
Third party reimbursements are primarily billed at estimated amounts
realizable based upon contractually determined rates. In instances where "usual,
customary and reasonable" market rates are billed, gross billings are adjusted
for contractual allowances to reflect estimated amounts realizable from third
party payors. The allowance for doubtful accounts is estimated based on an
ongoing review of collectibility.
F-124
<PAGE> 184
GENTLE DENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
4. PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Dental equipment............................... $ 644,518 $ 842,709 $ 842,709
Furniture and fixtures, automobiles and
leasehold improvements....................... 575,776 574,887 574,887
Land........................................... 153,667 153,667 153,667
Property and building.......................... 538,352 538,352 538,352
---------- ---------- ----------
1,912,313 2,109,615 2,109,615
Less: Accumulated depreciation and
amortization................................. (385,644) (569,264) (693,127)
---------- ---------- ----------
$1,526,669 $1,540,351 $1,416,488
========== ========== ==========
</TABLE>
Depreciation and amortization expense, including amounts related to
equipment under capital lease (Note 5), for the years ended December 31, 1995
and 1996 and the period ended July 31, 1997 totaled $163,171, $183,620 and
$123,863, respectively.
5. LEASES
The Company has entered into various leases for office and dental equipment
accounted for as capital leases. The lease terms are from 3 to 7 years.
Equipment under capital leases at cost and related accumulated amortization
included in property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Dental and office equipment...................... $535,516 $ 690,160 $ 690,160
Less: Accumulated amortization................... (92,784) (186,095) (245,145)
-------- --------- ---------
Equipment under capital leases................... $442,732 $ 504,065 $ 445,015
======== ========= =========
</TABLE>
Amortization of equipment under capital leases for the years ended December
31, 1995 and 1996 and the period ended July 31, 1997 totaled $56,395, $93,311
and $59,050, respectively.
Future minimum lease payments due under capital leases are as follows:
<TABLE>
<S> <C>
1997............................................. $ 68,921
1998............................................. 158,285
1999............................................. 133,314
2000............................................. 76,582
Thereafter....................................... 36,095
---------
473,197
Less: Amount representing interest............... (54,249)
---------
Present value of minimum lease payments.......... 418,948
Less: Current portion............................ (130,168)
---------
$ 288,780
=========
</TABLE>
The Company maintains leases for all of its dental offices and for certain
of its equipment which are accounted for as operating leases. The office lease
terms range from one to ten years, while the equipment terms range from one to
four years.
F-125
<PAGE> 185
GENTLE DENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Future minimum annual rentals due under noncancellable operating leases in
excess of one year are as follows:
<TABLE>
<S> <C>
1997.............................................. $ 39,160
1997.............................................. 40,335
1999.............................................. 41,545
2000.............................................. 42,791
2001.............................................. 44,075
Thereafter........................................ --
---------
$ 207,906
========
</TABLE>
Certain of the leases contain renewal options and escalation clauses which
require payments of additional rent to the extent of increases in related
operating costs.
Rent expense of $81,970, $89,283 and $61,583, respectively, was incurred
during years ended December 31, 1995 and 1996 and for the period ended July 31,
1997, respectively.
6. DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JULY 31,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Notes payable, with interest ranging from 8.00% to
11.75% collateralized by various business assets
maturing from June 1998 to August 2019............... $ 893,298 $ 852,860 $ 835,749
Other notes payable, interest rates and due dates
vary................................................. 245,544 294,396 270,507
Notes payable to related parties, interest rates range
from 8% to 10%, maturing............................. 40,600 29,321 22,401
---------- ---------- ----------
1,179,442 1,176,577 1,128,657
Less: current portion.................................. (85,936) (80,879) (114,990)
---------- ---------- ----------
$1,093,506 $1,095,698 $1,013,667
========= ========= =========
</TABLE>
Scheduled maturities on a calendar year basis of long-term debt, other than
related party debt, outstanding as of July 31, 1997 are as follows:
<TABLE>
<S> <C>
1997............................................. $ 114,990
1998............................................. 84,355
1999............................................. 56,242
2000............................................. 59,475
Thereafter....................................... 813,595
----------
$1,128,657
==========
</TABLE>
The note payable to the principal stockholder and the related party note
payable relate to funds borrowed for operational and general corporate purposes.
The loans do not have stated repayment terms, interest rates, or maturity dates.
F-126
<PAGE> 186
GENTLE DENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
7. STOCKHOLDER'S DEFICIT
Gentle Dental, on a combined basis has 250 shares of $.01 par stock
authorized, issued and outstanding and $498 of capital in excess of par for all
periods presented. Accumulated deficits $(55,670), $(109,618) and $(154,966) at
December 31, 1995, 1996 and July 31, 1997, respectively.
8. RELATED PARTY TRANSACTIONS
The Company paid management fees of $160,240, $130,400 and $86,388 to Dr.
Borchers for the years ended December 31, 1995 and 1996 and the period ended
July 31, 1997, respectively.
9. COMMITMENTS AND CONTINGENCIES
Contracts
The Company participates in agreements with corporations and managed care
organizations to provide certain dental services to members of a group at a
fixed rate per-member, per-month, regardless of the actual services performed,
and certain other dental services as defined in the contract in accordance with
an agreed upon fee schedule. During 1995 and 1996, and through July 31, 1997
approximately 40%, 37% and 39%, respectively, of the Company's net revenues were
derived from fixed rate per-member per-month contracts. Revenues under these
contracts are recorded in the month fees are earned. Expenses are recorded as
incurred including an estimate of incurred but not reported expenses.
The Company estimates the costs of providing services under these contracts
by using historical experience and anticipated utilization rates. The Company
believes the future revenues under these contracts will exceed the costs of
services it will be required to provide under the terms of the contracts.
Generally, either party to these contracts may terminate the contract without
cause at any time with thirty to ninety days written notice.
Litigation
In the normal course of operations, the Company may become party to claims,
suits and complaints relating to general and professional services provided by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. Additionally, as part of its ongoing
operations, the Company is periodically reviewed by various governmental
regulator authorities. Management is not aware of any claims, suits, complaints
or regulatory review that will have a material adverse effect on the Company's
financial position, liquidity or results of operations.
10. SUBSEQUENT EVENTS
Effective on August 1, 1997, the Company was acquired by Valley Forge
Dental Associates, Inc., a Delaware Corporation.
F-127
<PAGE> 187
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
FELIX W. SIBLEY, JR. D.D.S. D/B/A GARDEN WALK DENTAL
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholder's equity and of cash flows present
fairly, in all material respects, the financial position of Felix W. Sibley,
Jr., D.D.S. d/b/a Garden Walk Dental Associates (the "Company" or "Garden Walk
Dental Associates") at December 31, 1996 and August 31, 1997 and the results of
its operations and its cash flows for the year ended December 31, 1996 and for
the period from January 1, 1997 to August 31, 1997, 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
Philadelphia, PA
October 17, 1997
F-128
<PAGE> 188
GARDEN WALK DENTAL ASSOCIATES
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
ASSETS
Current assets
Accounts receivable, net........................................... $191,428 $ 153,138
Prepaid expenses and other current assets.......................... 3,332 --
-------- --------
$194,760 $ 153,138
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable................................................... $ 75,941 $ 62,594
Accrued payroll taxes.............................................. 4,016 24,228
Income taxes payable............................................... 16,893 8,678
-------- --------
Total current liabilities.................................. 96,850 95,500
-------- --------
Stockholder's equity
Common stock, $1 par value, 1,000 shares authorized, issued and
outstanding at December 31, 1996 and August 31, 1997,
respectively.................................................... 1,000 1,000
Retained earnings.................................................. 96,910 56,638
-------- --------
Total stockholder's equity................................. 97,910 57,638
-------- --------
$194,760 $ 153,138
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-129
<PAGE> 189
GARDEN WALK DENTAL ASSOCIATES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1 TO
DECEMBER 31, AUGUST 31,
1996 1997
------------ ------------
<S> <C> <C>
Net revenues....................................................... $1,264,911 $ 1,241,979
Cost of revenues................................................... 1,222,968 1,219,945
---------- ----------
Income before taxes................................................ 41,943 22,034
Income tax expense................................................. (16,893) (8,678)
---------- ----------
Net income......................................................... $ 25,050 $ 13,356
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-130
<PAGE> 190
GARDEN WALK DENTAL ASSOCIATES
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
PAR RETAINED
SHARES VALUE EARNINGS TOTAL
------ ------ -------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1996............................. 1,000 $1,000 $121,232 $122,232
Distribution to stockholders....................... (49,372) (49,372)
Net income......................................... 25,050 25,050
----- ------ -------- --------
Balance, December 31, 1996........................... 1,000 1,000 96,910 97,910
Distribution to stockholders....................... (53,628) (53,628)
Net income......................................... 13,356 13,356
----- ------ -------- --------
Balance, August 31, 1997............................. 1,000 $1,000 $ 56,638 $ 57,638
===== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-131
<PAGE> 191
GARDEN WALK DENTAL ASSOCIATES
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE PERIOD FROM
DECEMBER 31, JANUARY 1, 1997
1996 TO AUGUST 31, 1997
------------ -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 25,050 $ 13,356
Adjustments to reconcile net loss to net cash provided by
operating activities:
Provision for doubtful accounts.......................... 37,240 17,203
Change in assets and liabilities, net of effects from
businesses acquired:
(Increase) decrease in accounts receivable............... (64,145) 21,087
(Increase) decrease in prepaid expenses and other
current................................................ (3,332) 3,332
Increase (decrease) in accounts payable.................. 28,900 (13,347)
Increase in accrued expenses and other current
liabilities............................................ 8,766 20,212
Increase (decrease) in income taxes payable.............. 16,893 (8,215)
-------- --------
Net cash provided by operating activities........... 49,372 53,628
-------- --------
Cash flows from financing activities:
Distributions to stockholders............................... (49,372) (53,628)
-------- --------
Net cash used in financing activities............... (49,372) (53,628)
-------- --------
Net increase in cash and cash equivalents................... -- --
Cash and cash equivalents at beginning of period............ -- --
-------- --------
Cash and cash equivalents at end of period.................. $ -- $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-132
<PAGE> 192
GARDEN WALK DENTAL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND AUGUST 31, 1997
1. ORGANIZATION AND OPERATIONS
Garden Walk Dental Associates (the "Company") provides general dental care
and related services in the Atlanta, Georgia area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Under certain managed care contracts the Company provides diagnostic and
preventative dental services for a fixed rate per-member per-month fee, and
other dental services as defined in the contracts under an agreed upon fee
schedule to member patients. Revenues from the per-member, per-month fees are
recorded in the month for which the member is entitled to service (see Note 8).
Fair Value of Financial Instruments
The recorded balances of financial instruments at December 31, 1996 and
August 31, 1997 approximate estimated fair market values.
Income Taxes
The Company accounts for certain items of income and expense in different
time periods for financial reporting and income tax purposes. Provisions for
deferred income taxes are made in recognition of such temporary differences,
where applicable. A valuation allowance is established against deferred tax
assets unless the Company believes it more likely than not that the benefit will
be realized.
3. ACCOUNTS RECEIVABLE AND THIRD PARTY REIMBURSEMENTS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Accounts receivable, net of contractual allowances
of $83,000 and $72,485 at December 31, 1996 and at
August 31, 1997, respectively..................... $ 293,610 $ 241,730
Less: Allowance for doubtful accounts............... (102,182) (88,592)
--------- ---------
$ 191,428 $ 153,138
========= =========
</TABLE>
F-133
<PAGE> 193
4. PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Dental equipment..................................... $ 9,245 $ 9,245
Less: Accumulated depreciation and amortization...... (9,245) (9,245)
------- -------
$ -- $ --
======= =======
</TABLE>
5. INCOME TAXES
The components of the income tax expense for the year ended December 31,
1996 and the period ended August 31, 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Current:
Federal............................................ $ 12,390 $6,365
State.............................................. 4,503 2,313
Deferred:
Federal............................................ -- --
State.............................................. -- --
------- ------
$ 16,893 $8,678
======= ======
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company leases space from an entity owned by the sole shareholder of
the Company. The rent expense under this lease is considered to be at fair
market value and was $102,000 and $59,500 for the year ended December 31, 1996
and for the period ended August 31, 1997, respectively.
7. COMMITMENTS AND CONTINGENCIES
Contracts
The Company participates in agreements with corporations and managed care
organizations to provide certain dental services to members of a group at a
fixed rate per-member, per-month, regardless of the actual services performed,
and certain other dental services as defined in the contract in accordance with
an agreed upon fee schedule. During 1996 and through August 31, 1997,
approximately 7% and 9%, respectively, of the Company's net revenues were
derived from fixed rate per-member per-month contracts. Revenues under these
contracts are recorded in the month fees are earned. Expenses are recorded as
incurred including an estimate of incurred but not reported expenses.
The Company estimates the costs of providing services under these contracts
by using historical experience and anticipated utilization rates. The Company
believes the future revenues under these contracts will exceed the costs of
services it will be required to provide under the terms of the contracts.
Generally, either party to these contracts may terminate the contract without
cause at any time with thirty to ninety days written notice.
Litigation
In the normal course of operations, the Company has become party to claims,
suits and complaints relating to general and professional services provided by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. Management does not believe that any
of these claims, suits or complaints will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
8. SUBSEQUENT EVENTS
Effective September 1, 1997, the Company was acquired by Valley Forge
Dental Associates, Inc., a Delaware Corporation.
F-134
<PAGE> 194
REPORT OF INDEPENDENT ACCOUNTANTS
To the Owner of
Dr. Kenneth Bradley Reynolds, D.D.S.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in owner's equity and of cash flows present fairly, in
all material respects, the financial position of Dr. Kenneth Bradley Reynolds,
D.D.S. (the "Company") at December 31, 1996 and August 31, 1997 and the results
of its operations and its cash flows for the year ended December 31, 1996 and
for the period from January 1, 1997 to August 31, 1997, 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
Philadelphia, PA
October 15, 1997
F-135
<PAGE> 195
DR. KENNETH BRADLEY REYNOLDS D.D.S.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................ $ 9,103 $ 6,428
Accounts receivable, net............................................. 56,616 75,147
-------- --------
Total current assets......................................... 65,719 81,575
Property and equipment, net............................................ 342,254 293,558
Excess of cost over fair value of net assets acquired and other
intangible assets, net............................................... 315,621 282,695
-------- --------
$723,594 $ 657,828
======== ========
LIABILITIES AND OWNER'S EQUITY
Current liabilities
Current portion of long-term debt.................................... $ 63,309 $ 64,949
Current portion of obligations under capital lease................... 68,790 77,230
Accounts payable..................................................... 6,863 22,031
Accrued expenses and other current liabilities....................... 9,981 16,140
-------- --------
Total current liabilities.................................... 148,943 180,350
Long-term debt......................................................... 269,521 226,713
Obligations under capital lease........................................ 147,512 94,551
-------- --------
Total liabilities............................................ 565,976 501,614
-------- --------
Owner's equity......................................................... 157,618 156,214
-------- --------
$723,594 $ 657,828
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-136
<PAGE> 196
DR. KENNETH BRADLEY REYNOLDS, D.D.S.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, AUGUST 31,
1996 1997
------------ --------------
<S> <C> <C>
Net revenues...................................................... $977,257 $624,840
Cost of revenues.................................................. 557,604 371,021
Depreciation and amortization..................................... 122,434 81,623
-------- --------
Income from operations............................................ 297,219 172,196
Non-operating expenses:
Interest expense.................................................. (78,366) (44,896)
-------- --------
Net income........................................................ $218,853 $127,300
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-137
<PAGE> 197
DR. KENNETH BRADLEY REYNOLDS, D.D.S.
STATEMENT OF CHANGES IN OWNER'S EQUITY
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
Balance, January 1, 1996......................................................... $ 103,025
Distribution to owner.......................................................... (164,260)
Net income..................................................................... 218,853
---------
Balance, December 31, 1996....................................................... 157,618
Distribution to owner.......................................................... (128,704)
Net income..................................................................... 127,300
---------
Balance, August 31, 1997......................................................... $ 156,214
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-138
<PAGE> 198
DR. KENNETH BRADLEY REYNOLDS, D.D.S
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, AUGUST 31,
1996 1997
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 218,853 $ 127,300
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization................................ 122,434 81,623
Provision for doubtful accounts.............................. 22,948 24,040
Change in assets and liabilities, net of effects from businesses
acquired:
Increase in accounts receivable.............................. (3,115) (42,572)
Increase in accounts payable................................. 2,378 15,168
Increase in accrued expenses and other current liabilities... 421 6,159
--------- ---------
Net cash provided by operating activities............... 363,919 211,718
--------- ---------
Cash flows from investing activities:
Payments for purchase of a business............................. (28,000) --
--------- ---------
Net cash used in investing activities................... (28,000) --
--------- ---------
Cash flows from financing activities:
Payments on capital lease obligations........................... (57,838) (44,521)
Principal payments on long-term debt............................ (116,773) (41,168)
Distributions to owner.......................................... (164,260) (128,704)
--------- ---------
Net cash used in financing activities................... (338,871) (214,393)
--------- ---------
Net decrease in cash and cash equivalents....................... (2,952) (2,675)
Cash and cash equivalents at beginning of period................ 12,055 9,103
--------- ---------
Cash and cash equivalents at end of period...................... $ 9,103 $ 6,428
========= =========
Supplemental disclosure of cash flow information:
Interest paid................................................... $ 78,366 $ 44,896
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-139
<PAGE> 199
DR. KENNETH BRADLEY REYNOLDS, D.D.S.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND AUGUST 31, 1997
1. ORGANIZATION AND OPERATIONS
Dr. Kenneth Bradley Reynolds, D.D.S., (the "Company") provides general
dental care and related services in the Norfolk, Virginia area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which
principally range from five to seven years. Assets under capital leases and
leasehold improvements are amortized over the lesser of the lease term or the
asset's estimated useful life.
Capital Leases
The Company has entered into various leases for office and dental equipment
which are accounted for as capital leases. At inception of the lease, the
equipment under lease and the related obligations are recorded at the net
present value of future minimum lease payments, excluding executory costs,
discounted using the Company's incremental borrowing rate.
Long-Lived and Intangible Assets
Assets and liabilities acquired in connection with business combinations
accounted for under the purchase method are recorded at their respective fair
values. The excess of the purchase price over the fair value of tangible net
assets acquired is amortized on a straight-line basis over the estimated useful
life of the intangible assets which range from five to forty years. Segregation
of intangible assets between identifiable intangibles and goodwill was based on
estimates derived from appraisals performed with the assistance of an
independent appraiser. Intangible assets include patient lists, covenants not to
compete and goodwill.
The Company applies Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ". Accordingly,
the carrying value of long-lived assets and certain identifiable intangible
assets are evaluated whenever changes in circumstances indicate the carrying
amount of such assets may not be recoverable. In performing such review for
recoverability, the Company compares the expected future
F-140
<PAGE> 200
DR. KENNETH BRADLEY REYNOLDS, D.D.S.
NOTES TO FINANCIAL STATEMENTS
undiscounted cash flows to the carrying value of long-lived assets and
identifiable intangibles, including the related excess of cost over fair value
of net assets acquired.
If the expected future cash flows (undiscounted) are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated fair
value. In estimating future cash flows for determining whether an asset is
impaired, and in measuring assets that are impaired, assets are grouped by
geographic region.
In addition, the carrying value of the excess of cost over fair value of
net assets acquired and other intangible assets is subject to a separate annual
evaluation using these guidelines.
Income Taxes
The Company is the sole proprietorship of Dr. Kenneth Bradley Reynolds,
D.D.S. and as such, all income or loss of the Company accrues directly to him.
Accordingly, no provision for income taxes has been made in these financial
statements.
Fair Market Value of Financial Instruments
The recorded balances of financial instruments at December 31, 1996 and
August 31, 1997 approximate estimated fair market values.
3. BUSINESS ACQUISITIONS
In April 1996, the Company acquired certain assets of the Bane practice.
The acquisition has been accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to assets and liabilities acquired
based upon their estimated fair values at the date of acquisition. The results
of the acquired business are included in the financial statements from the date
of acquisition.
Information with respect to this acquisition is presented below:
<TABLE>
<S> <C>
Cash Paid....................................................... $ 28,000
Note issued..................................................... 33,750
--------
61,750
Fair value of tangible assets acquired.......................... (47,000)
--------
Excess of cost over fair value of assets acquired and other
intangible assets, net........................................ $ 14,750
========
</TABLE>
4. ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Accounts receivable, net of contractual allowances
of $20,479 and $25,415 at December 31, 1996 and
August 31, 1997, respectively...................... $ 68,644 $ 90,073
Less: Allowance for doubtful accounts................ (12,028) (14,926)
-------- --------
$ 56,616 $ 75,147
======== ========
</TABLE>
The Company's services are reimbursed directly by both patients and by
third party payors, including commercial insurance companies. Third party
reimbursements are primarily billed at estimated amounts realizable based upon
contractually determined rates. In instances where "usual, customary and
reasonable"
F-141
<PAGE> 201
DR. KENNETH BRADLEY REYNOLDS, D.D.S.
NOTES TO FINANCIAL STATEMENTS
market rates are billed, gross billings are adjusted for contractual allowances
to reflect estimated amounts realizable from third party payors. The allowance
for doubtful accounts is estimated based on an ongoing review of collectibility.
5. PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Dental and office equipment......................... $ 503,088 $ 503,088
Furniture and fixtures and leasehold improvements... 68,514 68,514
--------- ---------
571,602 571,602
Less: Accumulated depreciation and amortization..... (229,348) (278,044)
--------- ---------
$ 342,254 $ 293,558
========= =========
</TABLE>
Depreciation and amortization expense, including amounts related to
equipment under capital lease (Note 7), for the year ended December 31, 1996 and
the period ended August 1, 1997 totaled $73,045 and $48,697, respectively.
6. EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED AND OTHER INTANGIBLE
ASSETS, NET
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Excess of cost over fair value of net assets
acquired........................................... $ 210,550 $ 210,550
Patient lists........................................ 10,700 10,700
Covenant not to compete.............................. 219,500 219,500
--------- --------
440,750 440,750
Less: Accumulated amortization....................... (125,129) (158,055)
--------- --------
$ 315,621 $ 282,695
========= ========
</TABLE>
Amortization expense of other assets for the year ended December 31, 1996
and the period ended August 31, 1997 totaled $49,389 and $32,926, respectively.
7. LEASES
The Company has entered into various leases for office and dental equipment
accounted for as capital leases. The lease terms expire at various dates during
the years 1998 to 2000. Equipment under capital leases at cost and related
accumulated amortization included in property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Dental and office equipment......................... $324,795 $ 324,795
Less: Accumulated amortization...................... (98,878) (130,811)
-------- ---------
Equipment under capital leases...................... $225,917 $ 193,984
======== =========
</TABLE>
Amortization of equipment under capital leases for the year ended December
31, 1996 and the period ended August 31, 1997 totaled $46,400 and $30,933,
respectively.
F-142
<PAGE> 202
DR. KENNETH BRADLEY REYNOLDS, D.D.S.
NOTES TO FINANCIAL STATEMENTS
Future minimum lease payments due under capital leases are as follows:
<TABLE>
<S> <C>
1997.............................................. $ 33,972
1998.............................................. 92,787
1999.............................................. 65,647
2000.............................................. 18,924
2001.............................................. --
--------
211,330
Less: Amount representing interest................ (39,549)
--------
Present value of minimum lease payments........... 171,781
Less: Current portion............................. (77,230)
--------
$ 94,551
========
</TABLE>
The Company maintains leases for all of its dental offices which are
accounted for as operating leases. The office lease terms expire at various
dates in 1997 and 1998.
Future minimum annual rentals due under noncancellable operating leases in
excess of one year are as follows:
<TABLE>
<S> <C>
1997............................................... $20,612
1998............................................... 9,274
-------
$29,886
=======
</TABLE>
Rent expense of $83,800 and $62,800, respectively, was incurred during year
ended December 31, 1996 and for the period ended August 31, 1997, respectively.
8. DEBT
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Notes payable to prior owners, 10.0%-11.50% interest
payable, secured by practice assets through 2005... $250,474 $ 224,976
Notes payable to Princess Anne Bank, 9.5%-10.0%
interest payable, secured by equipment through
2000............................................... 82,356 66,686
-------- --------
332,830 291,662
Less: Current portion................................ (63,309) (64,949)
-------- --------
$269,521 $ 226,713
======== ========
</TABLE>
Scheduled maturities of long-term debt outstanding as of August 31, 1997
are as follows:
<TABLE>
<S> <C>
1997.............................................. $ 21,779
1998.............................................. 64,831
1999.............................................. 50,887
2000.............................................. 41,142
2001.............................................. 23,253
Thereafter........................................ 89,770
--------
$291,662
========
</TABLE>
F-143
<PAGE> 203
DR. KENNETH BRADLEY REYNOLDS, D.D.S.
NOTES TO FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES
Litigation
In the normal course of operations, the Company has become party to claims,
suits and complaints relating to general and professional services provided by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. Management does not believe that any
of these claims, suits or complaints will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
10. SUBSEQUENT EVENTS
Effective September 1, 1997, the Company was acquired by Valley Forge
Dental Associates, Inc., a Delaware Corporation.
F-144
<PAGE> 204
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Miller & Powell, DMD, P.C.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Miller &
Powell, DMD, P.C. ("the Company") at December 31, 1996 and August 31, 1997 and
the results of its operations and its cash flows for the year ended December 31,
1996 and for the period from January 1, 1997 to August 31, 1997, 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
Philadelphia, PA
October 16, 1997
F-145
<PAGE> 205
MILLER & POWELL, DMD, P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................................... $ 51,375 $ 53,545
Accounts receivable, net........................................... 94,825 76,070
-------- --------
Total current assets....................................... 146,200 129,615
Property and equipment, net.......................................... 1,151 844
-------- --------
$147,351 $ 130,459
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses.............................. $ 78,435 $ 49,755
Deferred revenues.................................................. 8,993 8,326
-------- --------
Total current liabilities.................................. 87,428 58,081
Stockholders' equity
Common stock, $1 par value, 9,335 shares authorized, issued and
outstanding..................................................... 9,335 9,335
Retained earnings.................................................. 50,588 63,043
-------- --------
Total stockholders' equity................................. 59,923 72,378
-------- --------
$147,351 $ 130,459
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-146
<PAGE> 206
MILLER & POWELL, DMD, P.C.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, AUGUST 31,
1996 1997
------------ --------------
<S> <C> <C>
Net revenues........................................................ $1,179,457 $725,864
Cost of revenues.................................................... 967,121 639,459
Selling and administrative expenses................................. 150,726 74,844
Depreciation and amortization....................................... 460 307
---------- --------
Income from operations.............................................. 61,150 11,254
Non-operating income:
Interest income................................................... 947 1,201
---------- --------
Net income.......................................................... $ 62,097 $ 12,455
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-147
<PAGE> 207
MILLER & POWELL, DMD, P.C.
STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------
PAR RETAINED
SHARES VALUE EARNINGS (DEFICIT) TOTAL
------ ------ ------------------ -------
<S> <C> <C> <C> <C>
Balance, January 1, 1996.............................. 9,335 $9,335 $(11,509) $(2,174)
Net income............................................ 62,097 62,097
----- ------ ------- -------
Balance, December 31, 1996............................ 9,335 9,335 50,588 59,923
Net income............................................ 12,455 12,455
----- ------ ------- -------
Balance, August 31, 1997.............................. 9,335 $9,335 $ 63,043 $72,378
===== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-148
<PAGE> 208
MILLER & POWELL, DMD, P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE YEAR JANUARY 1,
ENDED 1997 TO
DECEMBER 31, AUGUST 31,
1996 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $ 62,097 $ 12,455
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization.................................... 460 307
(Increase) decrease in accounts receivable....................... (25,643) 18,755
Decrease in accounts payable..................................... (2,727) (28,680)
Increase (decrease) in deferred revenue.......................... 1,604 (667)
-------- --------
Net cash provided by operating activities................... 35,791 2,170
-------- --------
Net increase in cash and cash equivalents........................... 35,791 2,170
Cash and cash equivalents at beginning of period.................... 15,584 51,375
-------- --------
Cash and cash equivalents at end of period.......................... $ 51,375 $ 53,545
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-149
<PAGE> 209
MILLER & POWELL, DMD, P.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND AUGUST 31, 1997
1. ORGANIZATION AND OPERATIONS
Miller & Powell, DMD, P.C. (the "Company") provides general dental care and
related services in the Atlanta area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90 days or
less.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which
principally range from five to seven years. Assets under capital leases and
leasehold improvements are amortized over the lesser of the lease term or the
asset's estimated useful life.
Capital Leases
The Company has entered into various leases for office and dental equipment
which are accounted for as capital leases. At inception of the lease, the
equipment under lease and the related obligations are recorded at the net
present value of future minimum lease payments, excluding executory costs,
discounted using the Company's incremental borrowing rate.
Long-Lived Assets
Assets and liabilities acquired in connection with business combinations
accounted for under the purchase method are recorded at their respective fair
values. The excess of the purchase price over the fair value of tangible net
assets acquired is amortized on a straight-line basis over the estimated useful
life of the intangible assets which range from five to forty years. Segregation
of intangible assets between identifiable intangibles and goodwill was based on
estimates derived from appraisals performed with the assistance of independent
appraiser. Intangible assets include patient lists, covenants not to compete and
goodwill.
The Company applies Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, the
carrying value of long-lived assets and certain identifiable intangible assets
are evaluated whenever changes in circumstances indicate the carrying amount of
such assets may not be recoverable. In performing such review for
recoverability, the Company compares the expected future
F-150
<PAGE> 210
MILLER & POWELL, DMD, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
undiscounted cash flows to the carrying value of long-lived assets and
identifiable intangibles, including the related excess of cost over fair value
of net assets acquired.
If the expected future cash flows (undiscounted) are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated fair
value. In estimating future cash flows for determining whether an asset is
impaired, and in measuring assets that are impaired, assets are grouped by
geographic region.
In addition, the carrying value of the excess of cost over fair value of
net assets acquired and other intangible assets is subject to a separate annual
evaluation using these guidelines.
Income Taxes
The Company has elected S corporation status with the Internal Revenue
Service. As such, all income or loss of the Company accrues directly to its
stockholders. Accordingly, no provision for income taxes has been made in these
financial statements.
Fair Value of Financial Instruments
The recorded balances of financial instruments at December 31, 1996 and
August 31, 1997 approximate estimated fair market values.
3. ACCOUNTS RECEIVABLE AND THIRD PARTY REIMBURSEMENTS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Accounts receivable.................................... $131,934 $ 121,853
Less: Allowance for doubtful accounts.................. (37,109) (45,783)
--------- ---------
$ 94,825 $ 76,070
========= =========
</TABLE>
4. PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Dental and office equipment, furniture and fixtures.... $ 19,799 $ 19,799
Leasehold improvements................................. 22,502 22,502
-------- --------
42,301 42,301
Less: Accumulated depreciation and amortization........ (41,150) (41,457)
-------- --------
$ 1,151 $ 844
======== ========
</TABLE>
Depreciation and amortization expense for the year ended December 31, 1996
and the period ended August 31, 1997 totaled $460 and $307, respectively.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Accounts Payable....................................... $ 78,435 $ 17,912
Salaries and payroll taxes............................. -- 31,843
------- -------
$ 78,435 $ 49,755
======= =======
</TABLE>
F-151
<PAGE> 211
MILLER & POWELL, DMD, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. RELATED PARTY TRANSACTIONS
The Company leases office space under a month to month arrangement from an
affiliated entity. The rent expense under this lease arrangement was considered
to be at fair market value and was $46,877 and $27,345 for 1996 and the period
ended August 31, 1997, respectively.
The Company leases dental equipment under a month to month arrangement from
an affiliated entity. The rent expense under this agreement was considered to be
at fair market value and was $56,621 and $37,351 for 1996 and the period ended
August 31, 1997, respectively.
7. EMPLOYEE BENEFITS
Profit Sharing Plan
The Company maintains a defined contribution or profit sharing plan
intended to qualify for tax-exempt status under Section 401(a) of the Internal
Revenue Code. Substantially all employees over 21 years of age working in excess
of 1,000 hours per plan year and who is employed on the last day of the Plan
year are eligible for participation in the Plan. Contributions by the Company
are discretionary and subject to profitability requirements. Charges to
operations for contributions to the Plan were $50,000 in 1996. No contribution
was made to the Plan for the period from January 1, 1997 to August 31, 1997,
respectively.
8. COMMITMENTS AND CONTINGENCIES
Litigation
In the normal course of operations, the Company has become party to claims,
suits and complaints relating to general and professional services performed by
the Company. The Company has purchased general and professional liability
insurance to cover claims which may arise. Management does not believe that any
of these claims, suits or complaints will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
9. SUBSEQUENT EVENTS
Effective September 1, 1997, the Company was acquired by Valley Forge
Dental Associates, Inc., a Delaware Corporation.
F-152
<PAGE> 212
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
ProDent, Inc. and Affiliates
Bensalem, Pennsylvania
We have audited the accompanying combined balance sheets of Pro Dent, Inc.
and Affiliates (the "Company"), as of December 31, 1995, 1996 and September 30,
1997 and the related combined statements of income, combined changes in
stockholders' equity, and combined cash flows for the years ended December 31,
1994, 1995, 1996 and the period from January 1 to September 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Pro Dent, Inc. and
Affiliates as of December 31, 1995, 1996 and September 30, 1997, and the results
of their operations and their cash flows for the years ended December 31, 1994,
1995, 1996 and the period from January 1 to September 30, 1997 in conformity
with generally accepted accounting principles.
Kelly, Welde & Co.
October 16, 1997
F-153
<PAGE> 213
PRODENT, INC. AND AFFILIATES
COMBINED BALANCE SHEET
DECEMBER 31, 1995, 1996 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1995 1996 1997
ASSETS ---------- --------- ----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................ $ 29,711 $ 46,460 $ 179,978
Accounts receivable (net)............................ 421,628 428,151 481,572
Prepaid expenses and other current assets............ 184,680 90,430 60,711
---------- --------- ----------
Total current assets......................... 636,019 565,041 722,261
EQUIPMENT AND LEASEHOLD IMPROVEMENTS (net)............. 355,458 369,081 306,779
NOTES RECEIVABLE -- STOCKHOLDERS....................... 118,694 -- --
OTHER ASSETS........................................... 50,123 47,292 39,453
---------- --------- ----------
Total assets................................. $1,160,294 $ 981,414 $1,068,493
========== ========= ==========
CURRENT LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable -- bank -- demand....................... $ 130,000 $ 245,552 $ 205,552
Current portion of long-term debt.................... 44,170 21,442 2,779
Current portion of obligations under capital lease... 20,360 34,791 36,903
Accounts payable and accrued expenses................ 128,352 162,523 207,879
Deferred income taxes................................ 173,224 123,901 132,167
Corporate income taxes payable....................... -- -- 9,664
---------- --------- ----------
Total current liabilities.................... 496,106 588,209 594,944
---------- --------- ----------
LONG-TERM LIABILITIES
Long-term debt net of current portion above............ 21,443 -- --
Obligations under capital lease...................... 39,983 67,109 39,194
Deferred income taxes................................ -- -- 22,201
---------- --------- ----------
Total long-term liabilities.................. 61,426 67,109 61,395
---------- --------- ----------
Total liabilities............................ 557,532 655,318 656,339
---------- --------- ----------
STOCKHOLDERS' EQUITY
Capital stock.......................................... 2,899 2,899 2,774
Capital in excess of par value....................... 300,071 300,071 112,696
Retained earnings.................................... 299,792 210,626 296,684
Less: Cost of 12,500 shares held in treasury......... -- (187,500) --
---------- --------- ----------
Total stockholders' equity................... 602,762 326,096 412,154
---------- --------- ----------
Total liabilities and stockholders' equity... $1,160,294 $ 981,414 $1,068,493
========== ========= ==========
</TABLE>
See accompanying notes and accountants' report.
F-154
<PAGE> 214
PRODENT, INC. AND AFFILIATES
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, 1996 AND
THE PERIOD FROM JANUARY 1 TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1994 1995 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET REVENUES.............................. $4,809,992 $5,140,930 $5,417,616 $4,633,740
---------- ---------- ---------- ----------
COSTS OF REVENUES......................... 3,297,200 3,558,729 3,824,632 3,123,236
SELLING AND ADMINISTRATIVE EXPENSES....... 1,414,750 1,521,867 1,664,883 1,328,383
DEPRECIATION AND AMORTIZATION............. 87,977 60,366 57,943 43,403
---------- ---------- ---------- ----------
TOTAL EXPENSES............................ 4,799,927 5,140,962 5,547,458 4,495,022
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES................................... 10,065 (32) (129,842) 138,718
INCOME TAX EXPENSE (BENEFITS)............. 8,426 (11,739) (40,676) 52,660
---------- ---------- ---------- ----------
NET INCOME (LOSS)......................... $ 1,639 $ 11,707 $ ( 89,166) $ 86,058
========== ========== ========== ==========
</TABLE>
See accompanying notes and accountants' report.
F-155
<PAGE> 215
PRODENT, INC. AND AFFILIATES
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, 1996 AND
THE PERIOD FROM JANUARY 1 TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1994 1995 1996 1997
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
COMMON STOCK
Balance at beginning of year................ $ 2,899 $ 2,899 $ 2,899 $ 2,899
Retirement of Treasury Stock................ -- -- -- (125)
-------- -------- --------- ---------
Balance at end of year.............. $ 2,899 $ 2,899 $ 2,899 $ 2,774
======== ======== ========= =========
CAPITAL IN EXCESS OF PAR
Balance at beginning of year................ $300,071 $300,071 $ 300,071 $ 300,071
Retirement of Treasury Stock................ -- -- -- (187,375)
-------- -------- --------- ---------
Balance at end of year.............. $300,071 $300,071 $ 300,071 $ 112,696
======== ======== ========= =========
TREASURY STOCK
Balance at beginning of year................ $ -- $ -- $ -- $(187,500)
Purchase of Treasury Stock.................. -- -- (187,500) --
Retirement of Treasury Stock................ -- -- -- 187,500
-------- -------- --------- ---------
Balance at end of year.............. $ -- $ -- $(187,500) $ --
======== ======== ========= =========
RETAINED EARNINGS
Balance at beginning of year................ $286,446 $288,085 $ 299,792 $ 210,626
Net income (loss)........................... 1,639 11,707 (89,166) 86,058
-------- -------- --------- ---------
Balance at end of year.............. $288,085 $299,792 $ 210,626 $ 296,684
======== ======== ========= =========
</TABLE>
See accompanying notes and accountants' report.
F-156
<PAGE> 216
PRODENT, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, 1996 AND
THE PERIOD FROM JANUARY 1 TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1994 1995 1996 1997
--------- --------- --------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................... $ 1,639 $ 11,707 $ (89,166) $ 86,058
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for doubtful accounts.................. 48,258 40,601 66,604 34,759
Depreciation and amortization.................... 87,977 60,366 57,943 43,403
Loss on sale of equipment........................ -- -- -- 18,800
Change in assets and liabilities:
Decrease (Increase) in accounts receivable....... 11,510 (69,911) (73,127) (88,180)
Decrease (Increase) in prepaid expenses and other
current assets................................. 2,056 (54,059) 94,250 29,719
Increase (Decrease) in accounts payable and
accrued expenses............................... 14,205 (45,517) 34,171 45,356
(Increase) Decrease in other assets.............. -- (7,748) (7,294) (3,728)
Increase (Decrease) in deferred income taxes..... 225 (13,553) (41,798) 40,896
Increase in corporate income taxes payable....... -- -- -- 9,664
--------- --------- --------- --------
Net cash provided by (used in) operating
activities................................ 165,870 (78,114) 41,583 216,747
--------- --------- --------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
(Increase) Decrease in note receivable.............. (5,894) (5,894) 118,694 --
Purchases of equipment and leasehold improvements... -- (84,575) -- --
Proceeds from sale of equipment..................... -- -- -- 100
--------- --------- --------- --------
Net cash provided by (used in) investing
activities................................ (5,894) (90,469) 118,694 100
--------- --------- --------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Purchase of Treasury Stock.......................... -- -- (187,500) --
Principal payments on long-term debt................ (98,405) (228,130) (41,571) (17,526)
Borrowings -- Note payable -- bank -- demand........ -- 130,000 245,552 --
Repayments -- Note payable -- bank -- demand........ -- -- (130,000) (40,000)
Repayments of capital lease obligations............. (55,359) (32,708) (30,009) (25,803)
--------- --------- --------- --------
Net cash provided by (used in) financing
activities................................ (153,764) (130,838) (143,528) (83,329)
--------- --------- --------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS............... 6,212 (299,421) 16,749 133,518
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD...... 322,920 329,132 29,711 46,460
--------- --------- --------- --------
CASH AND CASH EQUIVALENTS -- END OF PERIOD............ $ 329,132 $ 29,711 $ 46,460 $179,978
========= ========= ========= ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest......................................... $ 41,087 $ 20,311 $ 23,682 $ 21,805
========= ========= ========= ========
Income taxes..................................... $ 15,175 $ 201 $ 2,363 $ 429
========= ========= ========= ========
Supplemental Schedule of Noncash Investing
Transactions:
Property and equipment acquired through capital
lease obligation................................. $ -- $ -- $ 71,566 $ --
Retirement of Treasury Stock........................ $ -- $ -- $ -- $187,375
</TABLE>
See accompanying notes and accountants' report.
F-157
<PAGE> 217
PRODENT, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
Pro Dent, Inc. and Affiliates (collectively as the "Company") operate
dental centers in four locations in the suburbs of Philadelphia, Pennsylvania.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The financial statements represent the combined financial position of the
following affiliated Companies:
George E. Frattali, D.D.S. and Assoc., Ltd.
George E. Frattali, D.D.S. and Assoc., PA
Village of Newtown Dentists, Inc.
Pro Dent, Inc.
Common ownership and intercompany activities exist among these four
Companies. Therefore, combined financial statements provide a more meaningful
presentation of the financial position of these Companies as a whole. All
significant intercompany balances and transactions have been eliminated.
Revenue Recognition
Net revenues are reported when earned at the estimated amounts to be
realized through payments from patients, third party payors and others for
services rendered. Revenues related to multiple visit procedures are recognized
on a pro-rata basis as services are performed.
Equipment and Leasehold Improvements
Capital additions are stated at cost. Maintenance, repairs and minor
renewals are charged to operations as incurred. Depreciation and amortization is
provided over the estimated useful lives of the assets using the straight-line
method. The estimated useful lives of the assets range from 5 to 12 years.
Capital Leases
The Company has entered into various leases for office and dental equipment
which are accounted for as capital leases. At inception of the lease, the
equipment under lease and the related obligations are recorded at the net
present value of future minimum lease payments, excluding executory costs,
discounted using the Company's incremental borrowing rate.
Income Taxes
The Company provides for federal and state income taxes currently payable
and for deferred income taxes which result from the difference in reporting
certain income and expense items for financial statement and income tax purposes
according to Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes".
Disclosure of Cash Flows Information
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
F-158
<PAGE> 218
PRODENT, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Fair Value of Financial Instruments
The recorded balances of all assets and liabilities which represent
financial instruments at December 31, 1995, 1996 and September 30, 1997
approximate estimated fair market values.
Reclassifications
Certain prior years' balances have been reclassified to conform with the
current period's presentation.
Property and Equipment
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Vehicles........................................... $ 45,573 $ 45,573 $ --
Leasehold improvements............................. 300,880 300,880 300,880
Equipment.......................................... 498,646 570,211 570,211
Furniture and fixtures............................. 274,457 274,457 274,457
---------- ---------- ----------
1,119,556 1,191,121 1,145,548
Less: Accumulated depreciation and amortization.... 764,098 822,040 838,769
---------- ---------- ----------
Total.................................... $ 355,458 $ 369,081 $ 306,779
========== ========== ==========
</TABLE>
3. LEASE COMMITMENTS
Operating Leases
The Company has entered into various leases for dental center space. The
lease terms are from 6 to 15 years.
Minimum annual rental commitments under noncancelable leases are as
follows:
<TABLE>
<S> <C>
1998............................................. $ 222,490
1999............................................. 226,510
2000............................................. 230,530
2001............................................. 235,021
2002............................................. 181,528
Thereafter.................................. 922,816
----------
$2,018,895
==========
</TABLE>
Capital Leases
The Company has entered into various leases for equipment accounted for as
capital leases.
F-159
<PAGE> 219
PRODENT, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of property held under capital lease included in
property and equipment on the balance sheet:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Equipment.......................................... $104,666 $176,232 $176,232
Less: Accumulated depreciation..................... (15,700) (29,745) (42,961)
-------- -------- --------
$ 88,966 $146,487 $133,271
======== ======== ========
</TABLE>
Depreciation of assets under capital leases included in depreciation
expense for the years ended December 31, 1994, 1995, 1996 and the period January
1 to September 30, 1997 was $12,671, $5,233, $14,045 and $13,216, respectively.
Future minimum lease payments under capital lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 AMOUNT
------------------------------------------------------------------- -------
<S> <C>
1998............................................................... $42,785
1999............................................................... 18,144
2000............................................................... 18,143
2001............................................................... 7,560
2002............................................................... --
-------
Net minimum lease payments......................................... 86,632
Less: Amount representing interest................................. 10,535
-------
Present value of net minimum lease payments........................ 76,097
Less: Current portion.............................................. 36,903
-------
Long-term portion.................................................. $39,194
=======
</TABLE>
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- ------
<S> <C> <C> <C>
Notes Payable -- Bank
First National Bank of West Chester Various term loans
payable in monthly installments Interest
rate -- range from 8.8315% to 11.91% Balance......... $65,613 $21,442 $2,779
These notes are guaranteed by substantially all of the
assets of the Company.
------- ------- ------
Total................................................ $65,613 $21,442 $2,779
Less: Current Portion................................ 44,170 21,442 2,779
------- ------- ------
Long Term Portion.................................... $21,443 $ -- $ --
======= ======= ======
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998................................................ $2,779
1999................................................ --
2000................................................ --
2001................................................ --
2002................................................ --
Thereafter.....................................
------
$2,779
======
</TABLE>
F-160
<PAGE> 220
PRODENT, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
Deferred income taxes arise from timing differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. The principal sources of timing differences are different
accounting methods for recognition of income and expenses, depreciation expense
and net operating losses for financial accounting and tax purposes.
The components of income tax expense are:
<TABLE>
<CAPTION>
1994 1995 1996 1997
------ ------- ------- --------
<S> <C> <C> <C> <C>
Currently payable................................... $7,036 $ 2,233 $ 1,122 $ 83,501
Deferred taxes due to timing differences............ 2,298 (4,395) 52,914 40,897
Current benefit of net operating loss carryover..... -- (419) -- (71,738)
------ ------- ------- -------
$9,334 $(2,581) $54,036 $ 52,660
====== ======= ======= =======
</TABLE>
The Company has unused Federal net operating losses of $154,496 which will
expire in the years 2006 through 2011 and state net operating losses of $138,193
which will expire in 1997 and 1999.
6. CAPITAL STOCK
<TABLE>
<CAPTION>
VILLAGE OF GEORGE E. GEORGE E.
PRO DENT, NEWTOWN FRATTALI DDS FRATTALI DDS
INC. DENTISTS & ASSOC. LTD & ASSOC. PA TOTAL
--------- ---------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Common Stock Par Value per share........ $ .01 $ 1.00 $ .01 $ .01
Authorized shares....................... 1,000,000 100 1,000,000 1,000
Shares issued........................... 265,975 100 1,000 400
Par Value of shares issued.............. $ 2,660 $ 100 $ 10 $ 4 $ 2,774
Additional paid-in capital.............. $111,310 $ -- $990 $396 $112,696
</TABLE>
As of September 30, 1997, Pro Dent, Inc. permanently retired 125 shares of
its treasury stock which was originally purchased during 1996.
7. INTEREST EXPENSE
The amount of interest expense incurred, all of which was charged to
operations for the years ended December 31, 1994, 1995, 1996 and the period
January 1 to September 30, 1997, was $41,088, $20,311, $23,682 and $21,805,
respectively.
8. CONTINGENCIES
Guarantees
The Corporation has guaranteed loans from financial institutions for
purchases of stock by shareholders of Pro Dent, Inc. The loan balances at
September 30, 1997 approximate $250,000 of which 75% is guaranteed by Pro Dent,
Inc.
Litigation
In the normal course of operations, the Company and/or its affiliates have
become party to claims, suits and complaints relating to general and
professional services provided by the Company. The Company has purchased general
and professional liability insurance to cover claims which may arise. Management
does not believe that any of these claims, suits or complaints will have a
material adverse effect on the Company's financial position, liquidity or
results of operations.
F-161
<PAGE> 221
PRODENT, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY TRANSACTIONS
Pro Dent, Inc. leases equipment and leasehold improvements to the dental
centers and provides management of these centers. The centers were charged the
following:
<TABLE>
<CAPTION>
EQUIPMENT RENTAL
-----------------------------------------
1994 1995 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
George E. Frattali, DDS & Assoc., Ltd.
Exton....................................... $ 52,871 $ 52,871 $ 52,871 $ 39,653
Neshaminy................................... 51,304 51,304 51,304 38,478
George E. Frattali, DDS & Assoc., PA
Voorhees.................................... 57,607 57,607 57,607 43,205
Village of Newtown Dentists................... 41,145 41,145 41,145 30,859
-------- -------- -------- --------
$202,927 $202,927 $202,927 $152,195
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MANAGEMENT FEES
-----------------------------------------
1994 1995 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
George E. Frattali, DDS & Assoc., Ltd.
Exton....................................... $104,097 $ -- $120,679 $142,819
Neshaminy................................... 72,127 34,787 184,962 153,918
George E. Frattali, DDS & Assoc., PA
Voorhees.................................... 126,201 267,129 161,526 195,770
Village of Newtown Dentists................... -- -- -- 82,605
-------- -------- -------- --------
$302,425 $301,916 $467,167 $575,112
======== ======== ======== ========
</TABLE>
These intercompany charges were eliminated in the combined statement of
income.
10. NOTE PAYABLE -- DEMAND -- BANK
The Company has a $500,000 line of credit with a bank with interest accrued
on outstanding balances at prime (8.5% at September 30, 1997) and is payable
monthly. The note is collateralized by the Company. The outstanding balance as
of September 30, 1997 was $205,552.
11. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Accounts receivable.................................... $427,228 $433,751 $487,172
Less: Allowance for doubtful accounts.................. 5,600 5,600 5,600
-------- -------- --------
$421,628 $428,151 $481,572
======== ======== ========
</TABLE>
F-162
<PAGE> 222
PRODENT, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. PREPAID EXPENSES
Prepaid expenses consist of the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Commissions.......................................... $ 65,664 $21,048 $27,932
Insurance............................................ 55,273 57,330 18,799
Postage.............................................. 1,615 1,058 2,011
Miscellaneous receivables............................ 55,752 10,224 11,969
Corporate taxes...................................... 6,376 770 --
-------- ------- -------
$184,680 $90,430 $60,711
======== ======= =======
</TABLE>
13. SUBSEQUENT EVENTS
On October 1, 1997, 80% of the Company's stock was acquired by Valley Forge
Dental Associates, Inc., a Delaware Corporation.
F-163
<PAGE> 223
======================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the shares of Common Stock offered hereby, nor does it constitute an
offer to sell or a solicitation of an offer to buy any of the securities offered
hereby to any person in any jurisdiction in which it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sales
made hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 14
Use of Proceeds....................... 14
Dividend Policy....................... 14
Dilution.............................. 15
Capitalization........................ 16
Pro Forma Financial Information....... 17
Unaudited Selected Financial Data..... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 31
Management............................ 43
Principal Stockholders................ 49
Certain Transactions.................. 51
Description of Capital Stock.......... 53
Shares Eligible for Future Sale....... 55
Underwriting.......................... 56
Legal Matters......................... 57
Experts............................... 57
Additional Information................ 57
Index to Financial Statements......... F-1
</TABLE>
----------------------------
Until , 1998 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotments or
subscriptions.
======================================================
======================================================
SHARES
VALLEY FORGE DENTAL
ASSOCIATES, INC.
COMMON STOCK
----------------------------
PROSPECTUS
----------------------------
NATIONSBANC MONTGOMERY
SECURITIES, INC.
BEAR, STEARNS & CO. INC.
, 1997
======================================================
<PAGE> 224
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses in connection with the
distribution of the securities being registered hereunder, other than
underwriting discounts and commissions.
<TABLE>
<S> <C>
S.E.C. registration fee*................................................ $ 19,515.15
NASD filing fee*........................................................ 6,940.00
Fee to Foster Management Company*....................................... 750,000.00
NASDAQ application fee.................................................. **
Accounting fees and expenses............................................ **
Legal fees and expenses................................................. **
Printing and engraving expenses......................................... **
Blue sky fees and expenses.............................................. **
Transfer agent fees..................................................... **
Miscellaneous expenses.................................................. **
--------
Total......................................................... $ **
========
</TABLE>
- ---------------
* Actual fee.
** To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Sixth of the Certificate of Incorporation of the Company provides
that the Company shall indemnify and hold harmless any director, officer,
employee or agent of the Company from and against any and all expenses and
liabilities that may be imposed upon or incurred by him in connection with, or
as a result of, any proceeding in which he may become involved, as a party or
otherwise, by reason of the fact that he is or was such as director, officer,
employee or agent of the Company, whether or not he continues to be such at the
time such expenses and liabilities shall have been imposed or incurred, to the
extent permitted by the laws of the State of Delaware, as they may be amended
from time to time.
Article Eleventh of the Certificate of Incorporation of the Company
contains a provision which eliminates the personal liability of a director of
the Company to the Company or to any of its stockholders for monetary damages
for a breach of his fiduciary duty as a director, except in the case in which
the director breached his duty of loyalty, failed to act in good faith, engaged
in intentional misconduct or knowingly violated a law, authorized the payment of
a dividend or approved a stock repurchase in violation of the Delaware General
Corporation Law, or obtained an improper personal benefit.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons on the one hand and the Underwriters and
their respective controlling persons on the other hand against certain
liabilities in connection with this offering, including liabilities under the
Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On August 11, 1995, in connection with the Registrant's initial
capitalization, the Registrant issued 175,000 shares of Common Stock to Business
Development Capital Limited Partnership-III ("BDC-III"), 472,500 shares of
Common Stock to Abbingdon Venture Partners Limited Partnership ("Abbingdon-I"),
1,732,500 shares of Common Stock to Abbingdon Venture Partners Limited
Partnership-II ("Abbingdon-II) and 1,120,000 shares of Common Stock to Abbingdon
Venture Partners Limited Partnership-III ("Abbingdon-III, together with BDC-III,
Abbingdon-I and Abbingdon-II, the "Partnerships") for an aggregate
II-1
<PAGE> 225
purchase price of $350,000 and 400 shares of Preferred Stock to BDC-III, 1,080
shares of Preferred Stock to Abbingdon-I, 3,960 shares of Preferred Stock to
Abbingdon-II and 2,560 shares of Preferred Stock to Abbingdon-III for an
aggregate purchase price of $800,000.
On December 31, 1995, the Registrant sold 2,500 shares of Common Stock to
W. Gary Liddick, the Chief Financial Officer of the Registrant for $250.
On November 25, 1996, the Registrant sold 5,000 shares of Common Stock to
each of Stathis Andris, Stephen E. O'Neil and Colin C. Blaydon, directors of the
Registrant for an aggregate purchase price of $1,500.
On December 17, 1996, the Registrant sold 150,000 shares of Common Stock to
Joseph J. Frank, the Chief Executive Officer and President of the Registrant for
a purchase price of $15,000, 7,500 shares of Common Stock to Jeanne Marie
Welsko, the Vice President -- Human Resources and 5,000 shares of Common Stock
to W. Gary Liddick, the Chief Financial Officer of the Registrant for a purchase
price of $500.
On January 15, 1997, the Registrant sold 5,000 shares of Common Stock to
Allan M. Dworkin, a consultant to the Registrant for a purchase price of $500.
Information concerning the sale or issuance of the Registrant's securities
in connection with acquisitions is set forth below:
On September 19, 1995, the Registrant issued a 6% subordinated convertible
promissory in the aggregate principal amount of $800,000 (the "Convertible
Note") to the order of MT Associates, a Pennsylvania general partnership ("MT
Associates"), in connection with the acquisition of certain assets of MT
Associates. The Convertible Note is convertible into shares of Common Stock at a
price of $16.00 per share. As of October 23, 1997, the outstanding principal
amount was $266,666.67. In addition to the issuance of the Convertible Note, the
Registrant issued an aggregate of 100,000 shares of Common Stock to Bruce L.
Talus, D.M.D. and Robert K. Mehlman, D.D.S. for $10,000 in connection with their
employment by the Registrant. On October 1, 1996, the Registrant issued an
additional 6% subordinated convertible promissory note in the principal amount
of $720,000 to MT Associates as deferred purchase price on the same terms as the
Convertible Note. On October 1, 1997, the Registrant issued an additional 6%
Subordinated Convertible Promissory Note in the principal amount of $2,667, 200
to MT Associates as deferred purchase price on the same terms as the Convertible
Note.
On January 31, 1996, the Registrant issued an aggregate of 12,500 shares of
Common Stock to Donald L. Kane, D.D.S. ("Kane"), a nonaccredited investor in
connection with the purchase of the assets of United Dental Group ("UDG
Acquisition"). Subsequently, on May 14, 1997, the Registrant issued an
additional 5,887 shares of Common Stock to Kane as deferred purchase price in
connection with the UDG Acquisition.
On January 29, 1997, the Registrant issued an aggregate of 4,688 shares of
Common Stock to Western Dental Group of Fort Collins, P.C., Western Dental Group
of Cascade Avenue, P.C., Western Dental Group of Academy Boulevard, P.C. and
Western Dental Group of Denver, P.C. (collectively "Western") in connection with
the acquisition of certain assets of Western.
On February 19, 1997, the Registrant issued an aggregate of 62,500 shares
to Eugene N. Witkin, D.D.S. and ENW, Inc. in connection with purchase of certain
assets of ENW, Inc.
On April 18, 1997, the Registrant issued an aggregate of 90,909 shares to
John E. Tiano, D.D.S., Lawrence P. Rudolph, D.M.D. and Timothy J. Runco, D.M.D.
in connection with the acquisition of 100% of the issued and outstanding capital
stock of John E. Tiano, D.D.S. and Lawrence P. Rudolph, D.M.D., P.C. n/k/a VFD
of Pittsburgh, Inc.
On May 21, 1997, the Registrant issued an aggregate of 28,067 shares of
Common Stock to Kenneth Tralongo, D.D.S., Frederick W. Meyer, Jr., D.D.S. and
Harvey C. Lloyd, D.D.S. in connection with the acquisition of certain assets of
Comprehensive Family Dentistry, Inc.
II-2
<PAGE> 226
On June 11, 1997, the Registrant issued an aggregate of 21,268 shares of
Common Stock to Richard W. Aros, D.D.S. and Roberta K. Aros as part of the
deferred purchase price in connection with the acquisition of 100% of the issued
and outstanding capital stock of Horizon Group International, Inc.
On July 2, 1997, the Registrant issued 3,667 shares of Common Stock to
Maurice E. Smith, D.D.S. ("Dr. M. Smith") in connection with the acquisition of
certain assets of the dental practice of Dr. M. Smith.
On July 28, 1997, the Registrant issued 3,333 shares of Common Stock to
Bernard B. Baros, D.D.S. ("Dr. Baros") in connection with the acquisition of
certain assets of the dental practice owned by Dr. Baros.
On August 15, 1997, the Registrant issued 15,000 shares of Common Stock to
Douglass A. Quinn, D.D.S. in connection with the acquisition of certain assets
of Douglass A. Quinn, D.D.S., P.A.
On September 8, 1997, the Registrant issued 2,667 shares of Common Stock to
Delbert B. Williamson, D.D.S. ("Dr. Williamson") in connection with the
acquisition of certain assets of the dental practice owned by Dr. Williamson.
On September 17, 1997, the Registrant issued 10,833 shares of Common Stock
to David B. Wells, D.D.S. ("Dr. Wells") in connection with the acquisition of
certain assets of the dental practice owned by Dr. Wells.
On September 22, 1997, the Registrant issued 13,333 shares of Common Stock
to Kenneth E. Copeland, D.D.S. ("Dr. Copeland") in connection with the
acquisition of certain assets of the dental practice owned by Dr. Copeland.
On September 30, 1997, the Registrant issued 2,917 shares of Common Stock
to Felix W. Sibley, D.D.S. ("Dr. Sibley") in connection with the acquisition of
certain assets of the dental practice owned by Dr. Sibley.
On September 30 1997, the Registrant issued an aggregate of 5,334 shares of
Common Stock to Larry J. Miller, D.M.D. and James H. Powell D.D.S. ("Drs. Miller
and Powell") in connection with the acquisition of certain assets of the dental
practice owned by Drs. Miller and Powell.
On September 30, 1997, the Registrant issued 4,200 shares of Common Stock
to Kenneth Bradley Reynolds, D.D.S. ("Dr. Reynolds") in connection with the
acquisition of certain assets of the dental practice owned by Dr. Reynolds.
On September 30, 1997, the Registrant issued 1,333 shares of Common Stock
to Charles L. Smith, D.D.S. ("Dr. C. Smith") in connection with the acquisition
of certain assets of the dental practice owned by Dr. C. Smith.
On October 1, 1997, the Registrant issued an aggregate of 157,750 shares of
Common Stock to Mark Perecman, D.M.D., George E. Frattali, D.D.S., Gary W. Mink,
Norman Kurtzman, D.D.S., Kevin O'Meara, D.D.S., Jeffrey Leiss, D.D.S., James
Dyen, D.M.D., Michael Pavel, D.M.D., Richard Valenci, D.M.D., Eleanore Meredith,
Mark Carleton, D.M.D., Edward Balling, D.M.D. and Cemil Yesiloy, D.M.D. in
connection with the acquisition of 80% of the issued and outstanding capital
stock of ProDent, Inc.
On October 23, 1997, the Registrant issued an aggregate of 18,750 shares of
Common Stock to Allan M. Dworkin, D.D.S. and Douglas K. Clemens, D.M.D. ("Drs.
Dworkin and Clemens") in connection with the acquisition of certain assets of
the dental practice owned by Drs. Dworkin and Clemens.
On October 23, 1997, the Registrant issued an aggregate of 412,833 shares
of Common Stock to Union Marketing Associates, Inc., James A. Russo, Robert
Perri, Richard Poller and Craig Abromowitz in connection with the acquisition of
certain assets of the dental practice owned by Poller Group of Union, P.A. and
Dental Center of America P.A.
Registration under the Securities Act of the securities issued in the
transactions described in this Item was not required because such securities
were issued in transactions not involving any "public offering" within the
meaning of Section 4(2) of said Act, in reliance of Rule 506 under said Act. In
connection therewith, the Registrant has obtained representations from all such
acquirors except one to the effect that they are "accredited investors" as
defined in Rule 501(a) under said Act. In addition, there was no general
solicitation
II-3
<PAGE> 227
or general advertising in connection with such issuances. With respect to the
sale to the one nonaccredited investor, the Registrant provided the information
required under Rule 502 of said Act to the nonaccredited investor.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The Exhibits required to be filed as part of this Registration Statement
are listed in the attached Index to Exhibits.
(b) Financial Statement Schedules:
Financial Statement Schedules have been omitted because they are
inapplicable or the information is provided in the Financial Statements,
including the Notes thereto, included in the Prospectus.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes with respect to shares allocated to cover
over-allotments by the Underwriters to deregister any shares remaining unsold
upon the completion of the offering by means of a post-effective amendment to
the Registration Statement.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions of its
Certificate of Incorporation or By-laws or the laws of the State of Delaware, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, 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-4
<PAGE> 228
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby
appoints Joseph J. Frank, Stephen F. Nagy and Douglas P. Gill as
attorneys-in-fact with full power of substitution, severally, to execute in the
name and on behalf of the issuer and each such person, individually, and in each
capacity stated below, one or more amendments (including posteffective
amendments) to the registration statement as the attorney-in-fact acting in the
premises deems appropriate and to file any such amendment to the Registration
Statement with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia. Commonwealth of Pennsylvania, on the 24th day of October, 1997.
VALLEY FORGE DENTAL ASSOCIATES, INC.
By /s/ JOSEPH J. FRANK
------------------------------------
(Joseph J. Frank, President
and Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ----------------------------------- ----------------
<C> <S> <C>
/s/ STEPHEN F. NAGY Chairman of the Board and Director October 24, 1997
- ----------------------------------------
(Stephen F.Nagy)
/s/ JOSEPH J. FRANK President and Chief Executive October 24, 1997
- ---------------------------------------- Officer and Director (principal
(Joseph J. Frank) executive officer)
/s/ W. GARY LIDDICK Vice President of Finance and Chief October 24, 1997
- ---------------------------------------- Financial Officer (principal
(W. Gary Liddick) financial and accounting officer)
/s/ STATHIS ANDRIS Director October 24, 1997
- ----------------------------------------
(Stathis Andris)
/s/ COLIN C. BLAYDON Director October 24, 1997
- ----------------------------------------
(Colin C. Blaydon)
Director October , 1997
- ----------------------------------------
(Timothy E. Foster)
/s/ DOUGLAS P. GILL Director October 24, 1997
- ----------------------------------------
Douglas P. Gill
/s/ STEPHEN E. O'NEIL Director October 24, 1997
- ----------------------------------------
Stephen E. O'Neil
</TABLE>
II-5
<PAGE> 229
CONSENT OF COUNSEL
The consent of Haythe & Curley is contained in its opinion filed as Exhibit
5 to the Registration Statement.
II-6
<PAGE> 230
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports as of the dates and relating
to the financial statements of the companies listed below, which appear in such
Prospectus:
<TABLE>
<CAPTION>
COMPANY DATE OF REPORT
- ------------------------------------------------------------------------- ------------------
<S> <C>
Valley Forge Dental Associates, Inc. October 21, 1997
Penn Dental Associates, P.C., Stafford Dental Associates, Gallows Dental
Group, Hallmark Dental Group, Alexandria Dental Centre October 14, 1997
Dr. Donald L. Kane, D.D.S., P.A. and UDG, Melborne, P.A. June 23, 1997
Horizon Group International, Inc., September 23, 1997
Western Dental Group, Dental Care Center and Virginia Avenue
Dental Associates September 17, 1997
EWN, Inc. October 10, 1997
The Dentistry, Inc. September 18, 1997
Comprehensive Family Dentistry, Inc. September 23, 1997
Bernard B. Baros, D.D.S., P.C. October 8, 1997
Dr. Maurice Smith, D.D.S. October 17, 1997
Douglas A. Quinn, D.D.S., P.C. and Dr. Douglas A. Quinn, D.D.S. October 17, 1997
Gentle Dental of Ocala, P.C., Gentle Dental of Sarasota, P.C. Gentle
Dental of Clearwater, P.C. Gentle Dental of Manatee, P.C. and Gentle
Dental Orthodontics, P.C. October 10, 1997
Felix W. Sibley, Jr., D.D.S. d/b/a Garden Walk Dental Associates October 17, 1997
Dr. Kenneth Bradley Reynolds, D.D.S. October 15, 1997
Miller & Powell, D.M.D., P.C. October 16, 1997
</TABLE>
We also consent to the references to us under the headings "Experts" and
"Selected Consolidated 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
Philadelphia, PA
October 23, 1997.
II-7
<PAGE> 231
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated October 16, 1997 relating
to the financial statements of ProDent, Inc. and Affiliates which appear in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
Kelly, Welde & Co.
Broomall, PA
October 23, 1997
II-8
<PAGE> 232
SCHEDULE VIII
VALLEY FORGE DENTAL ASSOCIATES, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND AT JUNE 30, 1997
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES OTHER DEDUCTIONS OF PERIOD
- -------------------------------------- ---------- ---------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
Allowance for uncollectible
accounts......................... 34,767 46,401 (1,728) 79,440
Allowance for contractual
allowances....................... 15,491 11,698(2) (4,024) 23,165
Year Ended December 31, 1996
Allowance for uncollectible
accounts......................... 79,440 369,646 51,066(1) (113,468) 386,684
Allowance for contractual
allowances....................... 23,165 162,537(2) (69,943) 115,759
Period ended June 30, 1997
Allowance for uncollectible
accounts......................... 386,884 346,126 337,671(1) (108,054) 962,627
Allowance for contractual
allowances....................... 115,759 608,964(2) (366,193) 358,530
</TABLE>
- ---------------
(1) Allowances for doubtful accounts related to acquired receivables.
(2) Charged against net revenues.
S-1
<PAGE> 233
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
- ------- ------
<S> <C> <C>
1 Form of Underwriting Agreement (to be filed by amendment)...................
2(a) Agreement of Purchase and Sale dated as of September 1, 1995 (the "MT
Associates Purchase Agreement") by and among the Company, MT Associates,
Bruce L. Talus, D.M.D. and Robert K. Mehlman, D.D.S. ("Mehlman") (the
exhibits to the MT Associates Purchase Agreement are not filed as part of
this Registration Statement on Form S-1. A list briefly identifying the
contents of the omitted exhibits appears in the table of contents to the
agreement. The Registrant undertakes to furnish supplementally a copy of any
omitted exhibit or schedule to the Commission upon request) ................
2(b) Amendment No. 1 to the MT Associates Purchase Agreement.....................
2(c) Amendment No. 2 to MT Associates Purchase Agreement. (to be filed by
amendment) .................................................................
3(a) Certificate of Incorporation of the Company, as amended to date. ...........
3(b) By-Laws of the Company. ....................................................
4(a) Valley Forge Dental Associates, Inc. 1997 Stock Option Plan. ...............
4(b) Stock Option Certificate dated February 6, 1997 issued by the Company to W.
Gary Liddick for options on 15,000 shares of Common Stock. .................
4(c) Stock Option Certificate dated May 21, 1997 issued by the Company to Keith
Libou, D.M.D. for options on 16,000 shares of Common Stock. ................
4(d) Shareholders Agreement dated October 1, 1997 by and between the Company and
the shareholders of ProDent, Inc.
5 Opinion of Haythe & Curley (to be filed by amendment). .....................
10(a) 9% Subordinated Promissory Note of the Company dated September 18, 1995
payable to Abbingdon Venture Partners Limited Partnership ("Abbingdon") in
the aggregate principal amount of $216,000. ................................
10(b) 9% Subordinated Promissory Note of the Company dated September 18, 1995
payable to Abbingdon Venture Partners Limited Partnership-II (Abbingdon-II)
in the aggregate principal amount of $792,000. .............................
10(c) 9% Subordinated Promissory Note of the Company dated September 18, 1995
payable to Abbingdon Venture Partners Limited Partnership-III
(Abbingdon-III) in the aggregate principal amount of $512,000. .............
10(d) 9% Subordinated Promissory Note of the Company dated September 18, 1995
payable to Business Development Capital Limited Partnership-III (BDC-III) in
the aggregate principal amount of $80,000. .................................
10(e) 9% Subordinated Promissory Note of the Company and Riverhearst, Inc., a
Delaware corporation wholly owned by the Company ("Riverhearst"), dated
December 12, 1995 payable to Abbingdon in the aggregate principal amount of
$1,134,000. ................................................................
10(f) 9% Subordinated Promissory Note of the Company and Riverhearst dated
December 12, 1995 payable to Abbingdon-II in the aggregate principal amount
of $4,158,000. .............................................................
10(g) 9% Subordinated Promissory Note of the Company and Riverhearst dated
December 12, 1995 payable to Abbingdon-III in the aggregate principal amount
of $2,688,000. .............................................................
10(h) 9% Subordinated Promissory Note of the Company and Riverhearst dated
December 12, 1995 payable to BDC-III in the aggregate principal amount of
$420,000. ..................................................................
</TABLE>
<PAGE> 234
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
- ------- ------
<S> <C> <C>
10(i) 9% Subordinated Promissory Note of the Company and Riverhearst dated
December 31, 1995 payable to Abbingdon in the aggregate principal amount of
$2,700,000. ................................................................
10(j) 9% Subordinated Promissory Note of the Company and Riverhearst dated
December 31, 1995 payable to Abbingdon-II in the aggregate principal amount
of $9,900,000. .............................................................
10(k) 9% Subordinated Promissory Note of the Company and Riverhearst dated
December 31, 1995 payable to Abbingdon-III in the aggregate principal amount
of $6,400,000. .............................................................
10(l) 9% Subordinated Promissory Note of the Company and Riverhearst dated
December 31, 1995 payable to BDC-III in the aggregate principal amount of
$1,000,000. ................................................................
10(m) 9% Subordinated Promissory Note of the Company and Riverhearst dated October
20, 1997 payable to Abbingdon in the aggregate principal amount of
$1,080,000. ................................................................
10(n) 9% Subordinated Promissory Note of the Company and Riverhearst dated October
20, 1997 payable to Abbingdon-II in the aggregate principal amount of
$3,960,000. ................................................................
10(o) 9% Subordinated Promissory Note of the Company and Riverhearst dated October
20, 1997 in the aggregate principal amount of $2,560,000. ..................
10(p) 9% Subordinated Promissory Note of the Company and Riverhearst dated October
20, 1997 in the aggregate principal amount of $400,000. ....................
10(q) Stock Purchase Agreement dated September 19, 1995 between the Company and
Robert K. Mehlman, D.D.S. ..................................................
10(r) Stock Purchase Agreement dated September 19, 1995 between the Company and
Bruce C. Talus, D.M.D. .....................................................
10(s) Stock Purchase Agreement dated December 31, 1995 between the Company and W.
Gary Liddick. ..............................................................
10(t) Stock Purchase Agreement dated November 25, 1996 between the Company and
Stephen O'Neil. ............................................................
10(u) Stock Purchase Agreement dated November 25, 1996 between the Company and
Stathis Andris. ............................................................
10(v) Stock Purchase Agreement dated November 25, 1996 between the Company and
Colin C. Blaydon. ..........................................................
10(w) Stock Purchase Agreement dated December 17, 1996 between the Company and W.
Gary Liddick. ..............................................................
10(x) Stock Purchase Agreement dated December 17, 1996 between the Company and
Jeanne Marie Welsko. .......................................................
10(y) Stock Purchase Agreement dated December 17, 1996 between the Company and
Joseph J. Frank. ...........................................................
10(z) Stock Purchase Agreement dated January 15, 1997 between the Company and
Allan M. Dworkin, D.D.S. ...................................................
10(aa) Convertible Promissory Note of the Company payable to MT Associates in the
principal amount of $800,000. ..............................................
10(bb) Promissory Note of the Company payable to MT Associates in the principal
amount of $135,000. ........................................................
10(cc) Convertible Promissory Note of the Company payable to MT Associates in the
principal amount of $720,000. ..............................................
</TABLE>
<PAGE> 235
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
- ------- ------
<S> <C> <C>
10(dd) Promissory Note of the Company payable to Mehlman in the principal amount of
$137,926.48. ...............................................................
10(ee) Convertible Promissory Note of the Company payable to MT Associates in the
principal amount of $2,677,200 (to be filed by amendment). .................
10(ff) Discretionary Line of Credit Letter Agreement dated October , 1997 by and
among the Company, BDC-III, Abbingdon, Abbingdon II, Abbingdon-III, certain
subsidiaries of the Company and PNC Bank, National Association ("PNC"). ....
10(gg) Demand Note of the Company dated October 21, 1997 payable to PNC in the
principal amount of $10,000,000. ...........................................
10(hh) Guaranty and Suretyship Agreement dated October 21, 1997 made by certain of
the Company's subsidiaries in favor of PNC. ................................
10(ii) Guaranty and Suretyship Agreement dated October 21, 1997 made by the
partnerships in favor of PNC. ..............................................
10(jj) Pledge Agreement dated October 21, 1997 made by certain of the Company's
subsidiaries and the partnerships in favor of PNC. .........................
10(kk) Security Agreement dated October 21, 1997 by the Company and certain of the
Company's subsidiaries in favor of PNC (the exhibits to the Security
Agreement are not filed as part of this Registration Statement on Form S-1.
The Registrant undertakes to furnish supplementally a copy of any omitted
exhibit or schedule to the Commission upon request). .......................
10(ll) Employment Letter dated May 28, 1996 between the Company and Joseph J.
Frank. .....................................................................
10(mm) Employment Letter dated November 16, 1995 between the Company and W. Gary
Liddick. ...................................................................
10(nn) Employment Letter dated October 7, 1997 between the Company and
Jeanne Marie Welsko. .......................................................
10(oo) Employment Letter dated July 31, 1997 between the Company and Keith
Libou. .....................................................................
10(pp) Employment Agreement dated September 19, 1995 between the Company and
Mehlman (the "Mehlman Employment Agreement"). ..............................
10(qq) Amendment No. 1 dated October 1, 1996 to Mehlman Employment Agreement (to be
filed by amendment).........................................................
10(rr) Form of management/administrative services agreement. ......................
10(ss) Form of management/administrative services agreement. ......................
10(tt) Form of option letter. .....................................................
11 Statement re computation of per share earnings. ............................
21 Subsidiaries of the Company. ...............................................
23(a) Consent of Price Waterhouse LLP (see "Consent of Independent Accountants" in
the Registration Statement). ...............................................
23(b) Consent of Kelly, Welde & Co. (see "Consent of Independent Accountants" in
the Registration Statement). ...............................................
23(c) Consent of Haythe & Curley (included in Exhibit 5). ........................
24 Power of Attorney (see "Power of Attorney" in the Registration
Statement). ................................................................
27(a) Financial Data Schedule. ...................................................
27(b) Financial Data Schedule. ...................................................
</TABLE>
<PAGE> 1
EXHIBIT 2(a)
================================================================================
AGREEMENT OF PURCHASE AND SALE
By and Among
MT ASSOCIATES,
ROBERT K. MEHLMAN, D.D.S,
BRUCE L. TALUS, D.M.D.
and
VALLEY FORGE DENTAL ASSOCIATES, INC.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
-----------------
SECTION PAGE
- ------- ----
Recitals ...................................... 1
I Purchase and Sale of the Assets and the Shares........ 2
II Representations, Warranties, Covenants
and Agreements of the Partnership,
Talus and Mehlman................................... 9
III Representations, Warranties, Covenants
and Agreements of Talus and Mehlman................. 28
IV Representations, Warranties, Covenants
and Agreements of the Purchaser..................... 31
V [Intentionally Omitted]............................... 32
VI Additional Covenants of the
Partnership, Talus and Mehlman...................... 32
VII Closing ...................................... 36
VIII Conditions to the Partnership's
Obligation to Close................................. 37
IX Conditions to the Purchaser's
Obligation to Close................................. 39
X Indemnification....................................... 42
XI Non-Competition Agreement............................. 46
XII Brokers and Finders................................... 49
XIII Transfer of Name...................................... 49
XIV Miscellaneous......................................... 49
Signatures............................................ 55
SCHEDULES
I. EXCLUDED ASSETS
II. ASSUMED LIABILITIES
III. CONTINGENT PAYMENTS
IV. CONTINGENT PAYMENT MATRIX
V. ALLOCATION OF PURCHASE PRICE
EXHIBITS
A-1 FORM OF CONVERTIBLE SUBORDINATED NOTE
A-2 FORM OF CLOSING SUBORDINATED NOTE
A-3 FORM OF CONTINGENT PAYMENT SUBORDINATED NOTE
B. [INTENTIONALLY OMITTED]
C. CERTAIN CONSENTS, LIENS, CONTRACTS, PERMITS
AND OTHER MATTERS
D. FINANCIAL STATEMENTS
E. CERTAIN EMPLOYEES OF THE BUSINESS
F. EMPLOYEE BENEFIT PLANS
G. INTELLECTUAL PROPERTY RIGHTS
H. BANK ACCOUNTS
I-1 FORM OF EMPLOYMENT AGREEMENT - ROBERT K. MEHLMAN, D.D.S.
I-2 FORM OF EMPLOYMENT AGREEMENT - BRUCE L. TALUS, D.M.D.
(i)
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J-1 FORM OF STOCKHOLDERS AGREEMENT
J-2 FORM OF STOCKHOLDERS AGREEMENT
K. FORM OF MANAGEMENT AGREEMENT
L. FORM OF ESCROW AGREEMENT
M. FORM OF OPTION AGREEMENT
(ii)
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AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT made as of the 1st day of September, 1995 by
and among MT Associates, a Pennsylvania general partnership (the "Partnership"),
Robert K. Mehlman, D.D.S. ("Mehlman"), Bruce L. Talus, D.M.D. ("Talus"), and
Valley Forge Dental Associates, Inc., a Delaware corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Partnership is engaged in the business of
providing dental services and related activities (i) through its wholly owned
subsidiary Penn Dental Associates, P.C., a Pennsylvania professional corporation
("Penn Dental"), at one facility in the Commonwealth of Pennsylvania, (such
activities being hereinafter referred to as the "Pennsylvania Business") and
(ii) at four locations in the Commonwealth of Virginia under the business names
"Hallmark Dental Group", "Stafford Dental Associates", "Gallows Dental Group",
and "Alexandria Dental Centre" (such activities being hereinafter referred to as
the "Virginia Business", and together with the Pennsylvania Business, the
"Business");
WHEREAS, each of Mehlman and Talus is the holder of a general
partnership interest in the Partnership together equaling an aggregate of one
hundred percent (100%) of the partnership interests (such partnership interests
are hereinafter referred to as the "Interests");
WHEREAS, the Partnership is the holder of 100 shares of common
stock, $1.00 par value (the "Penn Common Stock"), of Penn Dental, which shares
constitute all of the issued and outstanding shares of capital stock of Penn
Dental (the "Shares");
WHEREAS, the Purchaser (or its designee) desires to acquire
from the Partnership all of the Shares, and the Partnership desires to sell all
of the Shares to the Purchaser, on the terms and subject to the conditions
hereafter set forth; and
WHEREAS, the Purchaser (or its designee) desires to acquire
from the Partnership certain assets of the Virginia Business described in
Section I(C)(i) hereof (the "Assets") and to assume certain liabilities and
contractual obligations of the Business as described in Section I(C)(ii) hereof
(the "Assumed Liabilities"), and the Partnership
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desires to sell or assign the Assets and to assign the Assumed Liabilities to
the Purchaser (or its designee), on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, and intending to be
legally bound, the parties hereto hereby agree as follows:
SECTION I
PURCHASE AND SALE OF
THE ASSETS AND THE SHARES
A. Purchase and Sale of the Assets and the Shares. Subject to
the terms and conditions of this Agreement and on the basis of the
representations, warranties, covenants and agreements herein contained, at the
Closing (as hereinafter defined):
(i) The Partnership agrees to sell, assign and convey to the
Purchaser (or its designee), and the Purchaser (or its designee) agrees to
purchase, acquire and accept from the Partnership, the Assets.
(ii) The Partnership agrees to assign to the Purchaser (or its
designee) and the Purchaser (or its designee) agrees to accept and assume from
the Partnership, the Assumed Liabilities. The Purchaser (and its designee) shall
not assume and shall have no responsibility with respect to, and shall be
indemnified by each of the Partnership, Mehlman and Talus, jointly and
severally, against, any and all liabilities or obligations of the Partnership,
Penn Dental, the Virginia Business, Talus and Mehlman, except for the Assumed
Liabilities.
(iii) The Partnership agrees to sell, assign and convey to the
Purchaser, and the Purchaser agrees to purchase, acquire and accept from the
Partnership, the Shares. It is understood and agreed that after the date of the
Closing the Purchaser (or its designee) shall not be responsible for any
liability or obligation of Penn Dental accruing prior to the date of the Closing
except for those liabilities specifically set forth in the list of Assumed
Liabilities on Schedule II hereto.
B. Purchase Price. The aggregate purchase price (the "Purchase
Price") for the Assets and the Shares is (i) $2,535,000, and (ii) the contingent
payments, if earned
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(the "Contingent Payments"), provided for in Section I(D) hereof. The Purchase
Price payable at the Closing shall be made by delivery to (i) the Partnership of
(a) $1,600,000, in cash, by means of wire transfer to an account designated by
the Partnership, (b) a three-year 6% convertible subordinated promissory note of
the Purchaser in the form of Exhibit A-1 attached hereto, payable to the order
of the Partnership in the principal amount of $800,000 (the "Convertible Note"),
and (c) a three-year 6% subordinated promissory note of the Purchaser in the
form of Exhibit A-2 attached hereto payable to the order of the Partnership in
the principal amount of $135,000 (the "Subordinated Note"; and together with the
Convertible Note, the "Closing Notes").
C. Assets; Assumed Liabilities.
(i) The Assets shall consist of all assets, business, contract
rights, patient records, financial books and financial records, other books and
records and good will, of every kind and nature, real, personal, and mixed,
tangible and intangible, wherever located, of the Partnership, Talus and Mehlman
used in or in any way related to the Virginia Business as conducted by the
Partnership, Talus and Mehlman, including, but not limited to, accounts
receivable, inventory and supplies, furniture and equipment, prepaid expenses,
deposits, tradenames, trademarks, patents, copyrights, inventions, books and
records, patient files, operating and management systems, and all other
agreements and arrangements necessary for the uninterrupted and continuing
operation of the Virginia Business, except for the assets listed in Schedule I
hereto (the "Excluded Assets").
(ii) The Assumed Liabilities shall consist of and shall be
limited solely to the obligations and liabilities of the Company, Penn Dental,
Talus, Mehlman and the Virginia Business listed in Schedule II hereto. The
Purchaser (and its designee) shall not assume, shall have no responsibility with
respect to, and shall be indemnified, by each of the Partnership, Talus and
Mehlman, jointly and severally, against, any liabilities or obligations of the
Partnership, Penn Dental, the Virginia Business, Talus and Mehlman, except for
the Assumed Liabilities set forth in Schedule II hereto. Each of the
Partnership, Talus and Mehlman, jointly and severally, shall remain liable for,
and shall pay when due, any and all obligations and liabilities of the
Partnership, Penn Dental, the Virginia Business, Talus and Mehlman other than
the Assumed Liabilities.
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(iii) It is specifically understood and agreed that the
Assumed Liabilities shall not include (a) liabilities of the Partnership, Penn
Dental, the Virginia Business, Talus and Mehlman for expenses incurred or
accrued, at any time, in connection with the transactions contemplated by this
Agreement or in any other connection not in the ordinary course of business, (b)
except as specifically set forth in Schedule II hereto, liabilities of the
Company, Penn Dental, the Virginia Business, Talus and Mehlman for federal,
state and municipal income, sales, franchise and other taxes, including any
interest, penalties and assessments thereon, and (c) liabilities of the
Partnership, Penn Dental, the Virginia Business, Talus and Mehlman arising out
of or relating to any governmental or private payor claims, returns, invoices,
cost reports, late filings or billing practices which relate to any period prior
to the date of Closing. Neither the Purchaser nor any designee of the Purchaser
assuming the Assumed Liabilities shall assume any liabilities of the
Partnership, Penn Dental, the Virginia Business, Talus or Mehlman in connection
with any understanding or agreement, whether written or oral, with respect to
any retirement plan, including, but not limited to, any profit sharing, 401(k)
or defined benefit plan (as defined in Section 414(j) of the Internal Revenue
Code of 1986, as amended (the "Code").
D. Contingent Payments. Each of the Partnership, Mehlman,
Talus and the Purchaser acknowledges and agrees that because many of the
locations of the Business have short operating histories, the full value of the
Shares and the Virginia Business on the date of the Closing is difficult to
ascertain with any degree of certainty on the date of Closing. Accordingly, the
parties to this Agreement agree that it is appropriate to provide for the
Contingent Payments set forth in this Section I(D) to reflect more accurately
the full value of the Shares and the Virginia Business on the date of Closing.
Subject to the conditions set forth herein and in Schedule IV hereto, within
ninety (90) days after September 30, 1996, September 30, 1997 and September 30,
1998, the Purchaser shall deliver to the Partnership, the Contingent Payments,
if any, payable with respect to the twelve-month periods ending September 30,
1996, September 30, 1997 and September 30, 1998, respectively. The amount of the
Contingent Payments payable to the Partnership with respect to each such
twelve-month period (each, a "Contingent Period") (i) shall be based upon the
achievement by the Business of targeted "net revenues" (as hereinafter defined)
during such Contingent Period and the achievement by the Business of targeted
"pre-tax earnings" (as hereinafter defined) as a percentage of net revenues of
the Business
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during such Contingent Period and (ii) shall be determined in accordance with
the provisions hereof, Schedule III hereto and the terms of the contingent
payment matrix set forth in Schedule IV hereto (the "Contingent Payment
Matrix"). Each of the Contingent Payments, if earned, shall be made by delivery
to the Partnership of (i) certified or official bank checks payable to the order
of the Partnership and (ii) three-year convertible subordinated promissory notes
of the Purchaser in the form of Exhibit A-3 hereto (the "Contingent Notes"; and
together with the Closing Notes, the "Notes"), in each case, in such amounts of
cash and such principal amounts as are determined in accordance with Schedule
III hereto and Schedule IV hereto. The Purchaser agrees to pay the Partnership
interest at the rate of eleven percent (11%) per annum on any undisputed cash
Contingent Payments which are not paid within ninety (90) days of September 30,
1996, September 30, 1997 and September 30, 1998, as the case may be. Such
interest shall accrue from the date which is ninety (90) days after the
applicable September 30 until the date payment is received.
E. Computation of Net Revenues and Pre-Tax Earnings; Certain
Adjustments. The Purchaser shall, within ninety (90) days after the end of each
Contingent Period, compute the amount of the net revenues and pre-tax earnings
of the Business for such Contingent Period. For purposes of calculating net
revenues and pre-tax earnings, the Business (which shall consist of the current
Philadelphia, Pennsylvania facility and the four facilities in Virginia) shall
be accounted for as a separate business enterprise with separate financial books
and accounting records, notwithstanding that the Business is owned or operated
by one or more legal entities. The amount so computed shall be the net revenues
and pre-tax earnings for purposes of determining whether or not Contingent
Payments shall be due and payable. Notwithstanding the determination of net
revenues and pre-tax earnings for any applicable period by the Purchaser, the
Partnership shall receive within each such ninety (90) day period the
information upon which such determination was made, and shall, in the event of a
dispute as to the amount or method of calculation of such net revenues and
pre-tax earnings have the right, together with its representatives, to review
and make appropriate copies of all applicable books, records and work papers
relating to the determination of net revenues and pre-tax earnings. For purposes
of this Agreement, (i) "net revenues" of the Business shall mean gross charges
billed for all services provided by the Business (or, in the event that all or
substantially all of the assets and business of the Business shall have been
transferred to another entity or entities, the allocable portion of the gross
charges of such other
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entity or entities attributable to the Business) during the applicable
Contingent Period less any necessary adjustments to reflect patient refunds and
amounts which are determined to be uncollectible at the time of billing
(contractual allowances) or in the future (billing errors) as determined in
accordance with generally accepted accounting principles consistent with the
Purchaser's accounting practices; and (ii) "pre-tax earnings" shall mean the
earnings before income taxes of the Business (or, in the event that all or
substantially all the assets and business of the Business shall have been
transferred to another entity or entities, the allocable portion of the pre-tax
earnings of such other entity or entities) for the applicable Contingent Period
as determined in accordance with generally accepted accounting principles
consistent with the Purchaser's accounting practices; provided, however, that
all revenues and earnings of the Business received from the Medicare or Medicaid
programs or from the Office of Civilian Health and Medical Program of the
Uniformed Services ("CHAMPUS") programs shall be excluded from "net revenues"
and "pre-tax earnings" for the purposes of this Agreement. The Purchaser agrees
that the Purchaser will provide the Business with working capital at a level and
take such other actions which, in the Purchaser's reasonable judgment, will
permit the Business to maximize its net revenues and pre-tax earnings, subject
at all times to the Purchaser's obligations to its shareholders and any
applicable statutory or regulatory requirements. Operating expenses will include
all charges directly related to the daily operations of the Business and will
include the following:
- Clinical salaries and benefits.
- Administrative salaries and benefits.
- Amounts paid to independent contractors.
- Expenses for office supplies consumed.
- Telephone expenses.
- Depreciation costs related to specific assets used in
connection with the operation of the Business.
- Insurance costs directly related to the worker's
compensation, professional and general liability or
property insurance associated with the Business.
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- Testing supplies consumed by the Business.
- Travel and entertainment expenses incurred, except
for those expenses required to attend any of the
Purchaser's corporate or regional meetings.
- Expenses for the lease or rental of any equipment
used in the office or directly by employees or
independent contractors.
- Rents and other charges for facilities used in the
operation of the Business.
- Charges incurred for the processing of payroll.
- Advertising expenses in local newspapers and
publications.
- Amounts related to the write-off or reserving of bad
debts.
- Expenses related to the collection of bad debts and
the income therefrom.
- Expenses relating to clinical supervision.
- Talus's salary and bonus up to $150,000.
For purposes of calculating pre-tax earnings, operating expenses will not
include the following charges:
- Corporate overhead allocations.
- Acquisition-related interest expense.
- Legal and accounting fees.
- Amortization of goodwill or other intangibles arising
in connection with the transactions contemplated by
this Agreement.
- Mehlman's salary, bonus and expenses.
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- Talus's expenses and his salary and bonus in excess
of aggregate of $150,000.
- Management fees.
- Any expenses incurred in connection with the
operations of the Start-Up Business (as hereinafter
defined).
For purposes of determining the net revenues and pre-tax
earnings of the Business pursuant to this Section I(E), the Business shall not
include any net revenues, pre-tax earnings or expenses in connection with the
operation of the two (2) facilities in Sterling and Fredricksburg, Virginia and
the one (1) facility in Fredrick, Maryland by Mid Atlantic MSO, LLC
(collectively, the "Start-Up Business").
F. Allocation. The Purchase Price attributable to the Assets
(including the Assumed Liabilities) shall be allocated as set forth in Schedule
V hereto. The parties hereto agree that the allocation of the Purchase Price is
intended to comply with the allocation method required by Section 1060 of the
Code. The parties shall cooperate to comply with all substantive and procedural
requirements of Section 1060 of the Code and any regulations thereunder, and the
allocation shall be adjusted if, and to the extent, necessary to comply with the
requirements of Section 1060 of the Code. The Purchaser, the Partnership, Talus
and Mehlman will not take or permit any affiliated person to take, for federal,
state or local income tax purposes, any position inconsistent with the
allocation set forth in Schedule V hereto, or, if applicable, such adjusted
allocation, except as otherwise may be required by law. Each of the Purchaser
and the Partnership agrees that each of them shall attach to its tax returns for
the tax year in which the Closing shall occur an information statement on Form
8594, which shall be completed in accordance with allocations set forth in
Schedule V hereto and with respect to subsequent years in which any Contingent
Payments are made shall file supplementary statements as required under Section
1060 of the Code.
G. Assignment. The parties hereto agree that the Purchaser may
designate one or more direct or indirect wholly owned subsidiaries of the
Purchaser to acquire the Assets and the Shares and to assume the Assumed
Liabilities; provided, however, that the Purchaser's payment obligations
hereunder shall not be affected by any such designations by the Purchaser.
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SECTION II
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE PARTNERSHIP, TALUS AND MEHLMAN
Each of the Partnership, Talus and Mehlman, jointly and
severally, hereby represents and warrants to, and covenants and agrees with, the
Purchaser, as of the date hereof and as of the date of the Closing, that:
A. Organization and Qualification. (i) The Partnership is duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has full partnership power and authority to own
its properties and to conduct the businesses in which it is now engaged. The
Partnership is in good standing in each other jurisdiction where it is presently
conducting business wherein the failure so to qualify would have a material
adverse effect on its businesses or properties. Other than Penn Dental, the
Partnership does not have any subsidiaries, or own any capital stock or other
proprietary interest, directly or indirectly, in any other corporation,
association, trust, partnership, joint venture or other entity, nor does the
Partnership have any agreement with any person, firm or corporation to acquire
any such capital stock or other proprietary interest. The Partnership has full
power, authority and legal right and all necessary approvals, permits, licenses
and authorizations to own its properties and to conduct its businesses and to
enter into and consummate the transactions contemplated under this Agreement.
The copies of the agreement of general partnership of the Partnership which has
been delivered to the Purchaser are complete and correct.
(ii) Penn Dental is duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania and has full
corporate power and authority to own its properties and to conduct the
businesses in which it is now engaged. Penn Dental is in good standing in each
other jurisdiction wherein the failure so to qualify would have a material
adverse effect on its businesses or properties. Penn Dental owns no
subsidiaries, owns no capital stock or other proprietary interest, directly or
indirectly, in any other corporation, association, trust, partnership, joint
venture or other entity and does not have any agreement with any person, firm or
corporation to acquire any such capital stock or other proprietary interest.
Penn Dental has full power, authority and legal right and all necessary
approvals, permits, licenses and authorizations to own its properties and to
conduct the Pennsylvania Business and to enter into and
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consummate the transactions contemplated under this Agreement. The copies of the
certificate of incorporation and by-laws of Penn Dental which have been
delivered to the Purchaser are complete and correct.
B. Authority. The execution and delivery of this Agreement by
the Partnership, the performance by the Partnership of its covenants and
agreements hereunder and the consummation by the Partnership of the transactions
contemplated hereby have been duly authorized by all necessary partnership
action. This Agreement constitutes a valid and legally binding obligation of the
Partnership, enforceable against the Partnership in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors rights generally or by
general principles of equity.
C. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement by the Partnership, Mehlman and Talus, nor the consummation of
the transactions contemplated hereby by the Partnership, Mehlman and Talus,
violates any provision of the certificate of incorporation or by-laws of Penn
Dental or the governing documents of the Partnership or any statute, ordinance,
regulation, order, judgment or decree of any court or governmental agency or
board applicable to the Partnership, Penn Dental, Mehlman and Talus, or
conflicts with or will result in any breach of any of the terms of or constitute
a default under or result in the termination of or the creation of any lien
pursuant to the terms of any contract or agreement to which the Partnership,
Penn Dental, Talus or Mehlman is a party or by which the Partnership, Penn
Dental, Talus, Mehlman or any of the Assets or any of the assets and properties
of the Partnership, Penn Dental or the Business is bound. No consents, approvals
or authorizations of, or filings with, any governmental authority or any other
person or entity are required in connection with the execution and delivery by
the Partnership, Mehlman or Talus of this Agreement, the consummation of the
transactions by the Partnership, Mehlman or Talus contemplated hereby and the
operation of the Business by the Purchaser (or its designee) subsequent to the
Closing, except for required consents, if any, to assignment of contracts,
leases and other agreements as set forth in Exhibit C.
D. Capitalization. (i) The Interests constitute all of the
issued and outstanding partnership interests of the Partnership. All of the
outstanding Interests have been validly issued and are fully paid and are owned
by Talus and Mehlman. There are no issued and
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outstanding subscriptions, warrants, options, calls, commitments or other rights
or agreements to which the Partnership, Talus or Mehlman is bound relating to
the issuance or sale of interests in the Partnership and no persons other than
Talus and Mehlman have any interest in the Partnership or the Interests.
(ii) The authorized capital stock of Penn Dental consists of
1,000 shares of Penn Common Stock, of which 100 shares are issued and
outstanding. All of the issued and outstanding shares of Penn Common Stock have
been duly and validly authorized and issued and are fully paid and
non-assessable and are owned beneficially and of record by the Partnership, free
and clear of any lien, encumbrance, charge, security interest or claim
whatsoever. There are no outstanding subscriptions, warrants, options, calls,
commitments or other rights or agreements to which the Partnership or Penn
Dental is bound relating to the issuance, sale or redemption of shares of Penn
Common Stock or other securities of Penn Dental and no person other than the
Partnership has any interest in the Shares. No shares of capital stock or other
securities of Penn Dental are reserved for any purpose.
E. Financial Statements; No Undisclosed Liabilities. The
Partnership, Talus and Mehlman have delivered to the Purchaser (i) the balance
sheet of Penn Dental as of July 31, 1995, together with the related statement of
income and expenses, if any, for the period then ended, which financial
statements (the "Penn Dental Financial Statements") have been prepared by Penn
Dental and (ii) the balance sheets of the offices of the Virginia Business as of
June 30, 1995, together with the related statements of earnings-cash basis for
the period then ended, which financial statements (the "Virginia Financial
Statements"; and together with the Penn Dental Financial Statements, the
"Financial Statements") have been prepared by Mehlman. The Financial Statements
are true and correct in all material respects and have been prepared in
accordance with a cash basis method of accounting applied consistently
throughout the periods involved. The Financial Statements fully and fairly
present the financial condition of Penn Dental and the Virginia Business as at
the dates thereof and the results of the operations of Penn Dental and the
Virginia Business for the periods indicated. The balance sheets contained in the
Financial Statements fairly reflect all liabilities of the Business of the types
normally reflected in cash basis balance sheets at the dates thereof and except
to the extent set forth in or provided for in the balance sheet of Penn Dental
as of July 31, 1995 and the balance sheets of the offices of the Virginia
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Business as of June 30, 1995 (collectively, the "1995 Balance Sheet") included
in the Financial Statements or as identified in Exhibit C, and except for
current liabilities incurred in the ordinary course of business consistent with
past practices (and not materially different in type or amount), none of the
Partnership, the Virginia Business or Penn Dental has any material liabilities
or obligations of any nature, whether absolute, contingent or otherwise, whether
due or to become due, whether properly reflected under generally accepted
accounting principles as a liability or a charge or reserve against an asset or
equity account, and whether the amount thereof is readily ascertainable or not;
provided, however, that no obligations of either the Virginia Business or Penn
Dental are reflected in the Financial Statements, which would be reflected on
accrual basis financial statements but not cash basis financial statements. The
Partnership, Talus and Mehlman are not aware of any material omissions in the
Financial Statements. The books and records of Penn Dental are auditable by
Schotz, Miller, Footer & Magarick and the books and records of the Virginia
Business are auditable by Stoy, Malone & Company. A true and correct copy of the
Financial Statements is attached hereto as Exhibit D.
F. Absence of Certain Changes. Except as set forth in Exhibit
C, subsequent to June 30, 1995, there has not been any (i) material adverse or
prospective change in the condition of the Business, financial or otherwise, or
in the results of the operations of the Business; (ii) damage or destruction
(whether or not insured) affecting the properties or business operations of the
Business or the Assets exceeding $25,000 in the aggregate; (iii) labor dispute
or, threatened labor dispute involving the employees of the Business or any
resignations or threatened resignations of dentists, orthodontists, or other
professional employees, or notice that dentists, orthodontists, or other
professional employees intend to take leaves of absence, with or without pay;
(iv) actual or threatened disputes pertaining to the Business with any major
accounts or referral sources of the Business, or actual or threatened loss of
business from any of the major accounts or referral sources of the Business
which disputes or threatened losses would have a material adverse effect on the
Business or the properties and assets of the Business; or (v) changes in the
methods or procedures for billing or collection of customer accounts or
recording of customer accounts receivable or reserves for doubtful accounts with
respect to the Business.
G. No Dividends, Loans, Etc. Except as set forth in Exhibit C,
subsequent to June 30, 1995, Penn Dental
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has not declared or paid any dividend or made any other distribution in respect
of its capital stock, or obligated itself to pay dividends or make
distributions, or purchased, redeemed or otherwise acquired or disposed of any
shares of capital stock and the Partnership has not made any distribution of any
kind or obligated itself to make any distribution of any kind, to Talus or
Mehlman; and the Partnership, Penn Dental, Talus and Mehlman have not, except in
the normal course of business, paid or discharged any outstanding indebtedness.
Subsequent to June 30, 1995, the Partnership, Penn Dental, Talus and Mehlman, in
the conduct of the Business, have paid all normal and recurring installments (i)
of bank indebtedness, (ii) under leases and contractual obligations and (iii) of
other amounts due and payable to any persons. Subsequent to June 30, 1995, none
of the Partnership, Penn Dental, Talus or Mehlman, in the conduct of the
Business, has incurred any bank indebtedness, entered into any leases, loan
agreements or contracts, obligations or arrangements for the payment of money or
property to any person, or permitted any liens or encumbrances to attach to any
of its assets. Subsequent to June 30, 1995, neither the Partnership nor Penn
Dental has (i) made any loans or advances to Talus or Mehlman or members of the
families of either of Talus or Mehlman, (ii) repaid the principal of or interest
on any indebtedness of the Partnership or Penn Dental to either of Talus or
Mehlman or members of the families of either of Talus or Mehlman, or (iii)
forgiven any principal of or interest on any indebtedness of either of Talus or
Mehlman or members of the families of either of Talus or Mehlman to the
Partnership or Penn Dental.
H. Real Property Owned or Leased. A list and brief description
of all real property owned by or leased to or by the Business or in which the
Partnership, Penn Dental or Talus or Mehlman, in the conduct of Business, has
any interest is set forth in Exhibit C. All such leased real property is held
subject to written leases or other agreements (a description of which, including
the expiration date of all leases, is set forth in Exhibit C) which are valid
and effective in accordance with their respective terms, and there are no
existing defaults or events of default, or events which with notice or lapse of
time or both would constitute defaults, thereunder on the part of the
Partnership, Penn Dental, Talus or Mehlman, in the conduct of the Business,
except for defaults, if any, as are not material in character, amount or extent
and do not, severally or in the aggregate, materially detract from the value or
interfere with the present use of the property subject to such lease or affect
the validity, enforceability or assignability of such lease or otherwise
materially
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impair the Business or its operations. None of the Partnership, Penn Dental,
Talus or Mehlman has any knowledge of any default or claimed or purported or
alleged default or state of facts which with notice or lapse of time or both
would constitute a material default on the part of any other party in the
performance of any obligation to be performed or paid by such other party under
any lease referred to in Exhibit C. None of the Partnership, Penn Dental, Talus
or Mehlman has received any written or oral notice to the effect that any lease
will not be renewed at the termination of the term thereof or that any such
lease will be renewed only at a substantially higher rent.
I. Title to Assets; Condition of Property.
(i) Each of the Partnership and Penn Dental has good and valid
title to all the assets and properties owned by it, including, without
limitation, the properties and assets reflected in the 1995 Balance Sheet
(except for assets leased under leases set forth in Exhibit C, inventory and
other assets sold or retired and accounts receivable collected upon, since the
dates of the balance sheets constituting the 1995 Balance Sheet in the ordinary
course of business consistent with past practices), free and clear of all liens,
charges, encumbrances, security interests or claims whatsoever, except as set
forth in Exhibit C. The Partnership has the right, power and authority to sell
and transfer the Assets and the Shares to the Purchaser (or its designee), and
upon such transfer the Purchaser (or its designee) will acquire good and
marketable title to the Assets and the Shares, free and clear of all liens,
charges, encumbrances, security interests or claims whatsoever, except for any
claims arising from the Partnership's failure to obtain required consents to
assignment as set forth in Exhibit C.
(ii) The properties and assets of the Partnership and Penn
Dental and those leased by them include all properties and assets used in the
operations of the Business as currently conducted. All such properties and
assets of the Business are in operating condition and repair, consistent with
their respective ages, and have been maintained and serviced in accordance with
the normal practices of the Business. None of such properties or assets is
subject to any liens, charges, encumbrances or security interests, except as set
forth in Exhibit C. None of such properties or assets (including the Assets) (or
uses to which they are put) fails to conform with any applicable agreement, law,
ordinance or regulation in a manner which is likely to be material to the
operation of the Business. The Partnership and Penn Dental own or lease all the
<PAGE> 18
15
properties and assets which have been located at or on any of the leased
premises of the Business at any time since July 1, 1995.
J. Taxes. The Partnership, Penn Dental and Talus and Mehlman,
in connection with the Business, have filed or caused to be filed on a timely
basis, all federal, state, local, foreign and other tax returns, reports and
declarations (collectively, "Tax Returns") required to be filed by the
Partnership, Penn Dental and the Business where the failure to file would have a
material adverse effect on the Business. All Tax Returns filed by the
Partnership, Penn Dental and Mehlman and Talus in connection with the Business
are true, complete and correct in all material respects. The Partnership, Penn
Dental and Talus and Mehlman, in the conduct of the Business, have paid all
income, estimated, excise, franchise, gross receipts, capital stock, profits,
stamp, occupation, sales, use, transfer, value added, property (whether real,
personal or mixed), employment, unemployment, disability, withholding, social
security, workers' compensation and other taxes, and interest, penalties, fines,
costs and assessments (collectively, "Taxes"), due and payable with respect to
the periods covered by such Tax Returns (whether or not reflected thereon).
Except as to those which arise in the ordinary course of business in respect of
Taxes not yet due and payable, there are no tax liens on any of the properties
or assets, real, personal or mixed, tangible or intangible, of the Business.
Since July 1, 1995, none of the Partnership, Penn Dental and Mehlman or Talus,
in connection with the Business, has incurred any tax liability other than in
the ordinary course of business. Except as set forth in Exhibit C, no Tax Return
of the Partnership, Penn Dental or Talus and Mehlman, in connection with the
Business, has ever been audited. No deficiency in Taxes for any period has been
asserted by any taxing authority which remains unpaid at the date hereof (the
results of any settlement being set forth on Exhibit C hereto), no written
inquiries or notices have been received by the Partnership, Penn Dental, Talus
or Mehlman from any taxing authority with respect to possible claims for Taxes
and none of the Partnership, Penn Dental or Talus and Mehlman has any reason to
believe that such an inquiry or notice is pending or threatened, and, to the
best of the knowledge of the Partnership, Penn Dental, Talus and Mehlman, there
is no basis for any additional claims or assessments for Taxes. None of the
Partnership, Penn Dental or Talus and Mehlman, in connection with the Business,
has agreed to the extension of the statute of limitations with respect to any
Tax Return or tax period. The Partnership, Penn Dental, Talus and Mehlman have
delivered to the Purchaser copies of the federal and state income or
<PAGE> 19
16
franchise or other type of Tax Returns filed by the Partnership, Penn Dental and
Talus and Mehlman, in connection with the Business, for the past three years
and, to the best knowledge of the Partnership, Penn Dental, Talus and Mehlman,
for all other past periods as to which the appropriate statute of limitations
has not lapsed.
The Partnership at its own expense, shall be responsible for
preparing and filing when due, any and all federal, state, municipal and other
Tax Returns of Penn Dental required to be filed by Penn Dental in respect of any
and all periods which end prior to or with the date of the Closing (including,
without limitation, Penn Dental's federal income Tax Returns for the short
taxable year ending with the date of the Closing) to the extent not already
filed, whether or not required to be filed on or before the date of the Closing,
and shall pay all Taxes (and interest, penalties, fines or assessments thereon)
due and payable by Penn Dental for all periods up to and including the Closing
to the extent not already paid (including, without limitation, the federal
income Taxes due and payable with respect to the short taxable year ending with
the date of the Closing). For its taxable year which ends with the date of the
Closing, Penn Dental's and the Purchaser's Tax Returns shall be based on the
closing of Penn Dental's books at the close of business on the date of the
Closing and without any ratable allocation of items. The Partnership shall
review all such Tax Returns with the Purchaser prior to filing and shall submit
such proof of payment of the Taxes due as the Purchaser shall reasonably request
and, if requested by the Partnership, the Purchaser shall review its Tax Returns
which include the day after the date of the Closing with the Partnership prior
to the filing and shall submit proof of filing such Tax Returns consistently
with the Tax Returns filed by Penn Dental and referred to in the prior sentence.
K. Permits; Compliance with Applicable Law.
(i) General. None of the Partnership, Penn Dental or Talus or
Mehlman, in the conduct of the Business, is in default under any, and each has
complied with all, statutes, ordinances, regulations, orders, judgments and
decrees of any court or governmental entity or agency, relating to the
Partnership, Penn Dental, the Business, the Assets or the assets or properties
of Penn Dental as to which a default or failure to comply might result in a
material adverse effect on the Partnership, Penn Dental, the Business, the
Assets or the assets or properties of Penn Dental. None of the Partnership, Penn
Dental, Talus or Mehlman has any knowledge of any basis for assertion of any
<PAGE> 20
17
violation of the foregoing or for any claim for compensation or damages or
otherwise arising out of any violation of the foregoing. None of the
Partnership, Penn Dental, Talus nor Mehlman has received any notification of any
asserted present or past failure to comply with any of the foregoing which has
not been satisfactorily responded to in the time period required thereunder.
(ii) Permits. Set forth in Exhibit C is a complete and
accurate list of all permits, licenses, approvals, franchises and authorizations
issued by governmental entities or other regulatory authorities, federal, state
or local (collectively the "Permits"), held by the Partnership, Penn Dental,
Talus or Mehlman and material to the conduct of the Business. The Permits set
forth in Exhibit C are all the Permits required for the conduct of the Business.
All the Permits set forth in Exhibit C are in full force and effect, and none of
the Partnership, Penn Dental Talus or Mehlman has engaged in any activity which
would cause or permit revocation or suspension of any such Permit, and no action
or proceeding looking to or, contemplating the revocation or suspension of any
such Permit is pending or threatened. There are no existing defaults or events
of default or events or state of facts which with notice or lapse of time or
both would constitute a default by the Partnership, Penn Dental, Talus or
Mehlman under any such Permit. None of the Partnership, Penn Dental, Talus or
Mehlman has any knowledge of any default or claimed or purported or alleged
default or state of facts which with notice or lapse of time or both would
constitute a default on the part of any party in the performance of any
obligation to be performed or paid by any party under any Permit set forth in
Exhibit C. Except as set forth in Exhibit C, the consummation of the
transactions contemplated hereby will in no way affect the continuation,
validity or effectiveness of the Permits set forth in Exhibit C or require the
consent of any person.
(iii) Environmental. (a) To the best of the knowledge of the
Partnership, Penn Dental, Talus and Mehlman, the Partnership, Penn Dental, Talus
and Mehlman, in the conduct of the Business, in all material respects, have duly
complied with all federal, state and local environmental, health and safety
laws, codes and ordinances and all rules and regulations promulgated thereunder.
(b) To the best of the knowledge of the Partnership,
Penn Dental, Talus and Mehlman, the Partnership, Penn Dental and Talus and
Mehlman, in the conduct of the Business, have been issued, and will maintain
until the date of the Closing, all required federal, state
<PAGE> 21
18
and local permits, licenses, certificates and approvals relating to (i) air
emissions, (ii) discharges to surface water or ground water, (iii) noise
emissions, (iv) solid or liquid waste disposal, (v) the use, generation,
storage, transportation or disposal of toxic or hazardous substances or wastes
(intended hereby and hereafter to include any and all such materials listed in
any federal, state or local law, code or ordinance and all rules and regulations
promulgated thereunder, as hazardous or potentially hazardous), or (vi) other
environmental, health and safety matters.
(c) To the best of the knowledge of the Partnership,
Penn Dental, Talus and Mehlman, none of the Partnership, Penn Dental, Talus or
Mehlman has received any notice of, and none of the Partnership, Penn Dental,
Talus or Mehlman knows of any facts which might constitute violations of, any
federal, state or local environmental, health or safety laws, codes or
ordinances, and any rules or regulations promulgated thereunder, which relate to
the use, ownership or occupancy of any of the Premises owned, leased or occupied
by the Partnership, Penn Dental or Talus and Mehlman, in the conduct of the
Business. None of the Partnership, Penn Dental, Talus or Mehlman, in the conduct
of the Business, is in violation of any rights-of-way or restrictions affecting
any of the Premises or any rights appurtenant thereto the violation of which
would have a material adverse effect on the Business.
(iv) Medicare, Medicaid and CHAMPUS. Each of the Partnership,
Penn Dental, Talus and Mehlman, in the conduct of the Business, has complied in
all material respects with all applicable laws, rules and regulations of the
Medicare, Medicaid, CHAMPUS and other governmental healthcare programs, and has
filed all required claims, invoices, returns, cost reports and other forms in
the manner prescribed and all such claims, returns, invoices, cost reports and
other forms made or filed are in all material respects true, complete, correct
and accurate. No material deficiency (either individually or in the aggregate)
in any such claims, returns, invoices, cost reports and other filings, including
claims for over-payments or deficiencies for late filings, has been asserted or
threatened by any federal or state agency or instrumentality or other provider
reimbursement entities relating to Medicare, Medicaid or CHAMPUS claims or any
other third party payor and there is no basis for any claims or requests for
reimbursement. None of the Partnership, Penn Dental, Talus or Mehlman, in the
conduct of the Business, has been subject to any audit relating to fraudulent
Medicare, Medicaid or CHAMPUS procedures or
<PAGE> 22
19
practices. There is no basis for any claim or request for recoupment or payment
by or on behalf of any state or federal agency or other instrumentality or other
provider reimbursement entities relating to Medicare, Medicaid or CHAMPUS claims
filed or made by the Partnership, Penn Dental, Talus or Mehlman, in the conduct
of the Business and no such claim has been asserted. Net revenues for the
CHAMPUS program represented less than 1% of the net revenues of the Business
during the calendar years 1991, 1992, 1993 and 1994 and the first eight (8)
months of 1995. The Business has not received directly any net revenues from the
Medicare and Medicaid programs during the calendar years 1991, 1992, 1993 and
1994 and the first eight (8) months of 1995.
L. Licenses. None of the Partnership, Penn Dental, Talus or
Mehlman produces or distributes any product nor do they perform any service
under a proprietary license granted by another entity and none of them has
licensed its or his rights in any current or planned products, designs or
services to any other entities. Each of the Partnership, Penn Dental, Talus and
Mehlman, in the conduct of the Business, has the right to use all computer
software, including all property rights constituting part of that computer
software, used in connection with the Business (the "Computer Software"). A list
of all written licenses pertaining to the Computer Software is set forth in
Exhibit C (the "Licenses"). None of the Partnership, Penn Dental, Talus or
Mehlman has any knowledge that any of the Licenses may not be valid or
enforceable by the Partnership, Penn Dental, Talus or Mehlman or that the use of
the Computer Software or any of the Licenses may infringe upon or conflict with
the rights of any third party. None of the Partnership, Penn Dental, Talus or
Mehlman, in the conduct of the Business, has granted any licenses to use the
Computer Software or any sub-licenses with respect to any of the Licenses.
M. Accounts Receivable; Inventories. The accounts receivable
of the Business are in their entirety valid accounts receivable, arising in the
ordinary course of business, subject to reserves for bad debts, if any, shown in
the Financial Statements. The inventories and equipment of the Business are
fully usable in the ordinary course of business. The Business shall have
unrestricted cash and cash equivalents available to the Purchaser at the date of
the Closing of at least $70,000.
N. Contractual and Other Obligations. Set forth in Exhibit C
is a list and brief description of all (i) material (material shall mean that
the remaining obligations
<PAGE> 23
20
of any party thereto are in excess of $2,500) contracts, agreements, licenses,
leases, arrangements (written or oral) and other documents to which the
Partnership, Penn Dental, Talus or Mehlman, in the conduct of the Business, is a
party or by which the Partnership, Penn Dental, Talus and Mehlman, in the
conduct of the Business, are bound (including, in the case of loan agreements, a
description of the amounts of any outstanding borrowings thereunder and the
collateral, if any, for such borrowings); (ii) obligations and liabilities of
the Business pursuant to uncompleted orders for the purchase of materials,
supplies, equipment and services for the requirements of the Business with
respect to which the remaining obligation of the Business is in excess of
$2,500; and (iii) material contingent obligations and liabilities of the
Partnership, Penn Dental, Talus and Mehlman, in the conduct of the Business; all
of the foregoing being hereinafter referred to as the "Contracts." None of the
Partnership, Penn Dental, the Business, Talus or Mehlman, nor, to the best of
the knowledge of the Company, Penn Dental, Talus or Mehlman, any other party is
in default in the performance of any covenant or condition under any Contract
and no claim of such a default has been made and no event has occurred which
with the giving of notice or the lapse of time would constitute a material
default under any covenant or condition under any Contract. None of the
Partnership, Penn Dental, Talus or Mehlman, in the conduct of the Business, is a
party to any Contract which would terminate or be materially adversely affected
by the consummation of the transactions contemplated by this Agreement, except
for the failure to obtain the necessary consents to assignment set forth in
Exhibit C. None of the Partnership, Penn Dental, Talus or Mehlman, in the
conduct of the Business, is a party to any Contract expected to be performed at
a material loss. Originals or true, correct and complete copies of all written
Contracts have been provided to the Purchaser.
O. Compensation. Set forth in Exhibit E attached hereto is a
list of all written or oral agreements between the Partnership, Penn Dental,
Talus or Mehlman, in the conduct of the Business, and each person employed by or
independently contracting with the Partnership, Penn Dental or the Business with
regard to compensation, whether individually or collectively, and set forth in
Exhibit E is a list of all employees or independent contractors of the Business
entitled to receive annual compensation in excess of $20,000 and their
respective positions, job categories and salaries. The transactions contemplated
by this Agreement will not result in any liability for severance pay to any
employee or independent contractor of the Partnership, Penn Dental or the
Business. None of the
<PAGE> 24
21
Partnership, Penn Dental, Talus or Mehlman has informed any employee or
independent contractor providing services to the Partnership, Penn Dental or the
Business that such person will receive any increase in compensation or benefits
or any ownership interest in the Partnership, Penn Dental or the Business.
P. Employee Benefit Plans. Except as set forth in Exhibit F
attached hereto, none of the Partnership, Penn Dental, Talus or Mehlman, in the
conduct of the Business, maintains or sponsors, or contributes to, any pension,
profit-sharing, savings, bonus, incentive or deferred compensation, severance
pay, medical, life insurance, welfare or other employee benefit plan. All
pension, profit-sharing, savings, bonus, incentive or deferred compensation,
severance pay, medical, life insurance, welfare or other employee benefit plans
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended (hereinafter referred to as "ERISA"), in which the
employees participate (such plans and related trusts, insurance and annuity
contracts, funding media and related agreements and arrangements being
hereinafter referred to as the "Benefit Plans") comply in all material respects
with all requirements of the Department of Labor and the Internal Revenue
Service, and with all other applicable laws, and none of the Partnership, Penn
Dental, Talus or Mehlman, in the conduct of the Business, has taken or failed to
take any action with respect to the Benefit Plans which might create any
liability on the part of the business or the Purchaser. Each "fiduciary" (within
the meaning of Section 3(21)(A) of ERISA) as to each Benefit Plan has complied
with all requirements of ERISA and all other applicable laws in respect of each
such Benefit Plan. The Partnership, Penn Dental, Talus and Mehlman have
furnished to the Purchaser copies of all Benefit Plans and all financial
statements, actuarial reports and annual reports and returns filed with the
Internal Revenue Service with respect to such Benefit Plans for a period of
three years prior to the date hereof. Such financial statements and actuarial
reports and annual reports and returns are true and correct in all material
respects, and none of the actuarial assumptions underlying such documents have
changed since the respective dates thereof. In addition:
(i) Each Benefit Plan intended to qualify under Section 401(a)
of the Code has received a favorable determination letter from the
Internal Revenue Service as to its qualification;
<PAGE> 25
22
(ii) None of the Partnership, Penn Dental, Talus or Mehlman,
in the conduct of the Business, maintains sponsors or contributes to,
and has never maintained, sponsored or contributed to a "defined
benefit plan" (within the meaning of Section 3(35) of ERISA) or a
Multiemployer Plan (within the meaning of Section 3(37) of ERISA);
(iii) No "prohibited transaction" (within the meaning of
Section 406 of ERISA or Section 4975(c) of the Code) has occurred with
respect to any Benefit Plan;
(iv) No provision of any Benefit Plan or of any agreement, and
no act or omission of the Partnership or Mehlman, in the conduct of the
Business, in any way limits, impairs, modifies or otherwise affects the
right of the Partnership, Penn Dental, Talus, Mehlman or the Purchaser
unilaterally to amend or terminate any Benefit Plan after the Closing,
subject to the requirements of applicable law;
(v) There are no contributions which are or hereafter will be
required to have been made to trusts in connection with any Benefit
Plan that would constitute a "defined contribution plan" (within the
meaning of Section 3(34) of ERISA);
(vi) Other than claims in the ordinary course for benefits
with respect to the Benefit Plans, there are no actions, suits or
claims (including claims for income taxes, interest, penalties, fines
or excise taxes with respect thereto) pending with respect to any
Benefit Plan, or any circumstances which might give rise to any such
action, suit or claim (including claims for income taxes, interest,
penalties, fines or excise taxes with respect thereto);
(vii) All reports, returns and similar documents with respect
to the Benefit Plans required to be filed with any governmental agency
have been so filed on or before their due date; and
(viii) None of the Partnership, Penn Dental, Talus or Mehlman,
in the conduct of the Business, has any obligation to provide health or
other welfare benefits to former, retired or terminated employees,
except as specifically required under Section 4980B of the Code or
Section 601 of ERISA. Each of the Partnership, Penn Dental and Talus
and Mehlman, in the conduct of the Business, has complied with the
notice and continuation
<PAGE> 26
23
requirements of Section 4980B of the Code or Section 601 of ERISA and
the regulations thereunder.
Each of Talus and the Partnership hereby agrees that he or it
will take any and all steps necessary to terminate and effectuate promptly the
termination of Penn Dental's Profit Sharing Plan (the "Plan") in accordance with
all requirements of the Code, ERISA and the Department of Labor ("DOL") and any
rules or regulations applicable to the termination of the Plan, including, but
not limited to, the filing of an Application for Determination Upon Termination
(Form 5310), and will file all applicable or required forms with the Internal
Revenue Service and the DOL, and will timely distribute, in the required manner,
any and all notices required to be delivered to employees, and will continue to
file any and all information reports, including but not limited to, annual
returns required with respect to the Plan, until the completion of the
termination of the Plan and the distribution of all participants' accounts
thereunder.
As soon as practicable following the receipt of a favorable
determination letter upon termination from the Internal Revenue Service with
respect to the Plan, and in accordance with the time periods set forth in ERISA
or the Code or any rules or regulations applicable to the termination of the
Plan, the trustees will promptly distribute all participants' accounts in
accordance with the terms of the Plan and any applicable laws, rules and
regulations, and will file all notices required by the Internal Revenue Service
and the DOL, and will close out the Plan. Following the Closing, the Purchaser
will cooperate and will cause Penn Dental to cooperate in terminating the Plan.
Each of Talus and the Partnership agrees that any
contributions now due or that may become due to the Plan shall be the sole
responsibility of Talus and the Partnership and shall be immediately paid, when
due, by Talus and the Partnership. Talus agrees that all costs of terminating
the Plan, including the cost of filing all notices, amendments, returns, reports
and determination letter requests, shall be borne by Talus and the Partnership.
None of the expenses of terminating the Plan will be paid by Penn Dental.
Q. Labor Relations. There have been no violations of any
federal, state or local statutes, laws, ordinances, rules, regulations, orders
or directives with respect to the employment of individuals by, or the
employment practices or work conditions of the Partnership,
<PAGE> 27
24
Penn Dental, Talus or Mehlman, in the conduct of the Business, or the terms and
conditions of employment, wages and hours, which violations would have either,
individually or in the aggregate, a material adverse effect on the condition,
financial or otherwise, or operations of the Partnership, Penn Dental or the
Business. None of the Partnership, Penn Dental, Talus or Mehlman, in the conduct
of the Business, is engaged in any unfair labor practice or other unlawful
employment practice and there are no charges of unfair labor practices or other
employee-related complaints pending or, threatened against the Partnership, Penn
Dental, Talus or Mehlman, in the conduct of the Business, before the National
Labor Relations Board, the Equal Employment Opportunity Commission, the
Occupational Safety and Health Review Commission, the Department of Labor or any
other federal, state, local or other governmental authority. There is no strike,
picketing, slowdown or work stoppage or organizational attempt pending or
threatened against or involving the Partnership, Penn Dental or the Business. No
issue with respect to union representation is pending or threatened with respect
to the employees of the Partnership, Penn Dental or the Business. No union or
collective bargaining unit or other labor organization has ever been certified
or recognized by the Partnership, Penn Dental, Talus or Mehlman, in the conduct
of the Business, as the representative of any of the employees of the
Partnership, Penn Dental or the Business.
R. Increases in Compensation or Benefits. Except as set forth
in Exhibit E, subsequent to June 30, 1995, except in the ordinary course of
business consistent with past practice, there have been no increases in the
compensation payable or to become payable to any of the employees of the
Partnership, Penn Dental or the Business and there have been no payments or
provisions for any awards, bonuses, stock options, loans, profit sharing,
pension, retirement or welfare plans or similar or other disbursements or
arrangements for or on behalf of such employees (or related parties thereof), in
each case, other than pursuant to currently existing plans or arrangements, if
any, set forth in Exhibit F; provided, however, that in no event was any such
increase in compensation or any such payment or provision made with respect to
(i) either of Talus or Mehlman (or any members of the families of either of
Talus or Mehlman except for an increase in the salary of Jill Talus to no more
than $25,000 and of Marina Mehlman to no more than $50,000) or (ii) any
employees earning in excess of $20,000 per annum. All bonuses heretofore granted
to employees of the Business have been paid in full to such employees. The
vacation policy of the Business is set forth in Exhibit E. Except as set forth
in Exhibit E, no employee
<PAGE> 28
25
of the Business is entitled to vacation time in excess of three weeks during the
current calendar year and no employee of the Business has any accrued vacation
or sick time with respect to any prior period.
S. Insurance. A complete list of the insurance policies
maintained by the Business is set forth in Exhibit C. Such policies are in full
force and effect and all premiums due thereon prior to or on the date of the
Closing have been paid in full. Each of the Partnership, Penn Dental, Talus and
Mehlman, in the conduct of the Business, have complied in all respects with all
the provisions of such policies. There are no notices of any pending or
threatened termination or premium increases with respect to any of such
policies. The Business has not had any casualty loss or occurrence which may
give rise to any claim of any kind not covered by insurance and none of the
Partnership, Penn Dental, Talus or Mehlman is aware of any occurrence which may
give rise to any claim of any kind not covered by insurance. No third party has
filed any claim against the Business for personal injury or property damage of a
kind for which liability insurance is generally available which is not fully
insured, subject only to the standard deductible. All claims against the
Business covered by insurance have been reported to the insurance carrier on a
timely basis.
T. Conduct of Business. None of the Partnership, Penn Dental,
Talus or Mehlman, in the conduct of the Business, is restricted from conducting
the Business in any location by agreement or court decree.
U. Allowances. None of the Partnership, Penn Dental, Talus or
Mehlman, in the conduct of the Business, has any obligation to make allowances
to any of its customers or patients, except allowances which are consistent with
its past practices.
V. Patents, Trademarks, etc. Set forth in Exhibit G attached
hereto is a list and brief description of all of the patents, registered and
common law trademarks, service marks, tradenames, copyrights, licenses and other
similar rights of the Business and applications for each of the foregoing.
Either the Partnership, Penn Dental, Talus or Mehlman, owns all right, title and
interest in and to all such proprietary rights. The proprietary rights listed
are all such rights necessary to the conduct of the Business as currently
conducted by the Partnership, Penn Dental, Talus or Mehlman; no adverse claims
have been made and, except as set forth in Exhibit C, no dispute has arisen with
respect to any of the said proprietary rights; and the operations of
<PAGE> 29
26
the Business and the use by the Partnership, Penn Dental, Talus or Mehlman of
such proprietary rights do not involve infringement or claimed infringement of
any patent, trademark, service mark, tradename, copyright, license or similar
right.
W. Power of Attorney. None of the Partnership, Penn Dental,
Talus or Mehlman, in the conduct of the Business, has granted any power of
attorney (revocable or irrevocable) to any person, firm or corporation for any
purpose whatsoever.
X. Use of Names. All names under which the Business is
currently conducted are listed in Exhibit G. Except as set forth in Exhibit C,
to the best of the knowledge of the Partnership, Penn Dental, Talus and Mehlman,
there are no other persons or businesses conducting businesses similar to those
of the Business in the Commonwealths of Pennsylvania and Virginia or the State
of Maryland having the right to use or using any of the names set forth in
Exhibit G or any variants of such names; and no other person or business has
ever attempted to restrain the Partnership, Penn Dental, Talus or Mehlman from
using such names or any variants thereof.
Y. Accounts Payable, Indebtedness, Etc. The accounts and notes
payable and accrued expenses reflected in the Financial Statements, and the
accounts and notes payable and accrued expenses incurred by the Business
subsequent to the date of the Financial Statements, are in all respects valid
claims that arose in the ordinary course of business. Since June 30, 1995, the
accounts and notes payable, accrued expenses and debt of the Business has been
paid in a manner consistent with past practice. The aggregate amount of the
accounts payable and accrued expenses of Penn Dental and the Virginia Business
as of the date of the Closing shall not exceed $100,000.
Z. No Foreign Person. Neither of Talus or Mehlman is a foreign
person within the meaning of Section 1445(b)(2) of the Code.
AA. Licensure, etc. Each individual employed or contracted
with by the Partnership, Penn Dental, Talus or Mehlman, in the conduct of the
Business, to provide professional services is duly licensed to provide such
services and, to the best knowledge of the Partnership, Penn Dental, Talus and
Mehlman, is otherwise in compliance with all federal, state and local laws,
rules and regulations relating to such professional licensure. To the best of
the knowledge of the Partnership, Penn Dental, Talus and
<PAGE> 30
27
Mehlman, each individual now or formerly employed or contracted with by the
Partnership, Penn Dental, Talus or Mehlman, in the conduct of the Business, to
provide professional services was duly licensed to provide such services during
all periods prior to the Closing when such employee or independent contractor
provided such services on behalf of the Partnership or the Business. Each of the
Partnership, Penn Dental, Talus and Mehlman, in the conduct of the Business, is
in compliance in all material respects with all relevant state laws and
precedents relating to the corporate practice of the learned or licensed
professions, and there are no material claims, disputes, actions, suits,
proceedings or investigations currently pending, threatened or filed or
commenced against or affecting the Partnership, Penn Dental or the Business
relating to such laws and precedents, and no such material claim, dispute,
action, suit, proceeding or investigation has been filed or commenced during the
five-year period preceding the date of this Agreement, and none of the
Partnership, Penn Dental, Talus or Mehlman is aware of any basis for such a
valid claim. The acquisition of the Assets and the Shares by the Purchaser (or
its designee) as contemplated by this Agreement will not affect the ability of
the Purchaser to operate the Business as heretofore operated in compliance with
all applicable laws.
BB. Books and Records. The books and records of the
Partnership, Penn Dental and the Business are in all material respects complete
and correct, have been maintained in accordance with good business practices and
accurately reflect the basis for the financial position and results of
operations of the and the Business set forth in the Financial Statements. All of
such books and records, including true and complete copies of all written
Contracts, have been made available for inspection by the Purchaser and its
representatives.
CC. Litigation; Disputes. Except as set forth in Exhibit C,
there are no claims, disputes, actions, suits, proceedings or governmental
investigations pending or, to the best of the knowledge of the Partnership, Penn
Dental, Talus and Mehlman, threatened against or affecting the Partnership, Penn
Dental, the properties or assets of the Business, or either of Talus or Mehlman.
No such claim, dispute, action, suit, proceeding or investigation has been
pending or threatened during the five-year period preceding the date of this
Agreement. To the best of the knowledge of the Partnership, Penn Dental, Talus
and Mehlman, there is no basis for any such claim, dispute, action, suit,
investigation or proceeding which would result in a material adverse effect on
the Partnership, Penn Dental, the Business
<PAGE> 31
28
or the properties and assets of the Business. None of the Partnership, Penn
Dental, Talus or Mehlman in the conduct of the Business, is in default in
respect of any judgment, order, writ, injunction or decree of any court or of
any federal, state, municipal or other government department, commission,
bureau, agency or instrumentality or any arbitrator.
DD. Location of Business and Assets. Set forth in Exhibit C is
each location (specifying state, county and city) where the Business (i) has a
place of business, (ii) owns or leases real property and (iii) owns or leases
any other property, including inventory, equipment and furniture.
EE. Bank Accounts. Set forth in Exhibit H attached hereto is a
list of all bank accounts maintained in the name of the Business, and a brief
description of the persons having power to sign with respect to each such
account.
FF. Disclosure. No representation or warranty made under any
Section hereof and none of the information furnished by the Partnership, Penn
Dental, Talus or Mehlman set forth herein, in the exhibits hereto or in any
document delivered by the Partnership, Penn Dental, Talus or Mehlman to the
Purchaser, or any authorized representative of the Purchaser, pursuant to this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.
SECTION III
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF TALUS AND MEHLMAN
Each of Talus and Mehlman, jointly and severally, hereby
represents and warrants to, and covenants and agrees with, the Purchaser, as of
the date hereof and as of the date of the Closing, that:
A. Authority. Each of Talus and Mehlman is fully able to
execute and deliver this Agreement and to perform his covenants and agreements
hereunder, and this Agreement constitutes a valid and legally binding obligation
of each of Talus or Mehlman, enforceable against him in accordance with its
terms.
<PAGE> 32
29
B. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement by Mehlman or Talus, nor the consummation by Mehlman or Talus
of the transactions contemplated hereby, violates any statute, ordinance,
regulation, order, judgment or decree of any court or governmental agency
applicable to Talus and Mehlman, or conflicts with or will result in any breach
of any of the terms of or constitute a default under or result in the
termination of or the creation of any lien pursuant to the terms of any contract
or agreement to which either of Talus or Mehlman is a party or by which either
of Talus or Mehlman or the assets of either of them is bound, except for the
failure to obtain the necessary consents to assignment set forth in Exhibit C.
C. Other Interests. Neither Talus nor Mehlman has any
ownership interests in any dental businesses other than the Partnership, Penn
Dental or the Virginia Business, and, neither Talus nor Mehlman performs any
employment, consulting or other services, paid or unpaid, for any for-profit or
not-for-profit dental enterprise.
D. Ownership of Interests, Shares, etc. (i) The Partnership
owns the Shares, and the Shares represent all of the issued and outstanding
shares of Penn Common Stock, free and clear of any lien, encumbrance, charge,
security interest or claim whatsoever (including any restriction on the right to
vote, sell or otherwise dispose of the Shares), and the Partnership has the
right to transfer the Shares to the Purchaser and, upon transfer of the Shares
to the Purchaser hereunder, the Purchaser will acquire good and marketable title
to the Shares, free and clear of any lien, encumbrance, charge, security
interest or claim whatsoever.
(ii) Each of Talus and Mehlman owns all the Interests, free
and clear of any lien, encumbrance, charge, security interest or claim
whatsoever.
E. Investment. (i) Each of the Partnership, Talus and Mehlman
has had access to such information relating to the business and affairs of the
Purchaser which each of them has reasonably requested, and all additional
information which each of them has considered necessary to verify the accuracy
of the information so received. Each of Talus and Mehlman has had the
opportunity to ask questions of and receive answers from the Purchaser
concerning the terms and conditions of the transactions contemplated by this
Agreement. On the basis of the foregoing, each of the Partnership, Talus and
Mehlman is familiar with the operations, business plans and financial condition
of the Purchaser.
<PAGE> 33
30
(ii) Each of the Partnership, Talus and Mehlman understands
that the Purchaser may issue and deliver to the Partnership, shares of common
stock, $.01 par value ("Purchaser Common Stock"), of the Purchaser upon the
conversion of the Convertible Notes pursuant to this Agreement, without
compliance with the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"); that for such purpose the Purchaser will rely
upon the representations, warranties, covenants and agreements contained herein;
and that such non-compliance with registration is not permissible unless such
representations and warranties are correct and such covenants and agreements
performed. Each of the Partnership, Talus and Mehlman is an "accredited
investor" as such term is defined in Rule 501 under the Securities Act.
(iii) Each of the Partnership, Talus and Mehlman understands
that, under existing rules of the Securities and Exchange Commission (the "SEC")
the Partnership may be unable to sell its shares of Purchaser Common Stock
except to the extent that its shares of Purchaser Common Stock may be sold (i)
pursuant to an effective registration statement covering such shares pursuant to
the Securities Act or (ii) in a bona fide private placement to a purchaser who
shall be subject to the same restrictions on any resale or (iii) subject to the
restrictions contained in Rule 144 under the Securities Act ("Rule 144"). Each
of the Partnership, Talus and Mehlman understands that the Purchaser is under no
obligation to effect a registration of their shares of Purchaser Common Stock
under the Securities Act.
(iv) Each of the Partnership, Talus and Mehlman is familiar
with the provisions of Rule 144 and the limitations upon the availability and
applicability of such rule.
(v) Each of the Partnership, Talus and Mehlman is a
sophisticated investor familiar with the type of risks inherent in the
acquisition of restricted securities such as the shares of Purchaser Common
Stock and their financial position is such that the Partnership can afford to
retain its shares of Purchaser Common Stock for an indefinite period of time
without realizing any direct or indirect cash return on their investment.
(vi) The Partnership is acquiring the shares of Purchaser
Common Stock for its account and not with a view to, or for sale in connection
with, the distribution thereof within the meaning of the Securities Act.
<PAGE> 34
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SECTION IV
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE PURCHASER
The Purchaser hereby represents and warrants to, and covenants
and agrees with, the Partnership and each of Talus and Mehlman, as of the date
hereof and as of the date of the Closing, that:
A. Organization and Qualification. The Purchaser is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to purchase the Assets and
the Shares.
B. Authority. The execution and delivery of this Agreement by
the Purchaser, the performance by the Purchaser of its covenants and agreements
hereunder and the consummation by the Purchaser of the transactions contemplated
hereby have been duly authorized by all necessary corporate action. This
Agreement constitutes a valid and legally binding obligation of the Purchaser,
enforceable against it in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors rights generally or by general principles of equity.
C. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement by the Purchaser, nor the consummation by the Purchaser of the
transactions contemplated hereby, violates any provision of the certificate of
incorporation or by-laws of the Purchaser or any statute, ordinance, regulation,
order, judgment or decree of any court or governmental agency or board
applicable to it, or conflicts with or will result in any breach of any of the
terms of or constitute a default under or result in the termination of or the
creation of any lien pursuant to the terms of any contract or agreement to which
the Purchaser is a party or by which the Purchaser or any of its assets is
bound.
D. Ownership. As of the date of the Closing, the Purchaser
will have outstanding 8,000 shares of 8% cumulative preferred stock, $.01 par
value, of which 400 shares will be owned by Business Development Capital Limited
Partnership-III, a Massachusetts limited partnership ("BDC-III"), 1,080 shares
will be owned by Abbingdon Venture Partners Limited Partnership, a Connecticut
limited partnership ("Abbingdon-I"), 3,960 shares will be owned by Abbingdon
Venture Partners Limited Partnership-II, a
<PAGE> 35
32
Delaware limited partnership ("Abbingdon-II), and 2,560 shares will be owned by
Abbingdon Venture Partners Limited Partnership-III, a Delaware limited
partnership (Abbingdon-III") and 3,600,000 shares of common stock, $.01 par
value, of which 175,000 shares will be owned by BDC-III, 472,500 shares will be
owned by Abbingdon-I, 1,732,500 shares will be owned by Abbingdon-II, 1,120,000
shares will be owned by Abbingdon-III, 50,000 shares will be owned by Talus and
50,000 shares will be owned by Mehlman. Foster Management Company or an
affiliate thereof is the manager of BDC-III, Abbingdon, Abbingdon-II and
Abbingdon-III. The Purchaser owns all of the issued and outstanding capital
stock of VFD of Pennsylvania, Inc., a Delaware corporation ("VFDP").
SECTION V
[Intentionally Omitted.]
SECTION VI
ADDITIONAL COVENANTS OF THE PARTNERSHIP,
TALUS AND MEHLMAN AND THE PURCHASER
A. Partnership Acquisition Proposal. Each of the Partnership
and each of Talus and Mehlman covenants and agrees that, from and after the date
of this Agreement and until the Closing, it or he shall not directly or
indirectly (i) take any action to solicit, initiate or encourage any Partnership
Acquisition Proposal (as hereinafter defined) or (ii) engage in negotiations
with, or disclose any nonpublic information relating to the Partnership, Penn
Dental or the Business or afford access to the properties, books or records of
the Partnership, Penn Dental or the Business to, any person or entity that may
be considering making, or has made, a Partnership Acquisition Proposal. Each of
the Partnership and each of Talus and Mehlman shall promptly notify the
Purchaser after receipt of any Partnership Acquisition Proposal or any
indication that any person or entity is considering making a Partnership
Acquisition Proposal or any request for nonpublic information relating to the
Partnership, Penn Dental or the Business or for access to the properties, books
or records of the Partnership, Penn Dental or the Business by any person or
entity that may be considering making, or has made, a Partnership Acquisition
Proposal. For purposes of this Agreement, "Partnership Acquisition Proposal"
means any
<PAGE> 36
33
offer or proposal for, or any indication of interest in, the acquisition of any
interest in, a merger or other business combination involving the Partnership,
Penn Dental or the acquisition of any equity interest in, or a substantial
portion of the assets of, the Partnership or Penn Dental, other than the
transactions contemplated by this Agreement.
B. Goodwill; Publicity. Each of the Partnership and each of
Talus and Mehlman also covenants and agrees that it or he will not take or omit
to take any action, after the Closing and also represents that it or he has not
taken or omitted to take any action prior to the date hereof, which is
reasonably likely to, directly or indirectly, materially impair the goodwill of
the Partnership or the Business or the business reputation or good name of the
Partnership or the Business, except in connection with the enforcement by the
Partnership, Talus or Mehlman of rights under this Agreement or under any
related documents, and that any and all publicity (whether written or oral) and
notices to third parties (other than employees of the Business) concerning the
sale of the Assets and the Shares and other transactions contemplated by this
Agreement shall be subject to the prior written approval of the Purchaser, which
approval be withheld at the sole discretion of the Purchaser.
C. Correspondence, Etc. Each of the Partnership and each of
Talus and Mehlman covenants and agrees that, subsequent to the Closing it or he
will deliver to the Purchaser, promptly after the receipt thereof, all
inquiries, correspondence and other materials received by it or him from any
person or entity relating to the Partnership or the Business.
D. Books and Records. (i) Each of the Partnership, Talus and
Mehlman covenants and agrees that, subsequent to the Closing, it or he shall
give the Purchaser, reasonable access to the historical financial books and
records and patient files of the Virginia Business, to the extent such books and
records and files are not included in the Assets, for a period of five years
from the date of the Closing. Each of Talus and Mehlman shall retain all such
books and records and files in substantially their condition at the time of the
Closing. None of such books and records and files shall be destroyed during such
five-year period without the prior written approval of the Purchaser or without
first offering such books and records and files to the Purchaser.
(ii) The Purchaser covenants and agrees that, subsequent to
the Closing, it shall maintain the books and records and patient files of the
Business in a manner
<PAGE> 37
34
substantially consistent with the past practices of the Business and applicable
law and, subject to applicable laws governing patient confidentiality, shall
give Talus and Mehlman reasonable access to, and the right to make copies of,
such books, records and patient files and shall inform Talus and Mehlman of any
change in the location of such books, records and patient files.
E. Discharge of Obligations. Each of the Partnership, Talus
and Mehlman covenants and agrees, subsequent to the Closing, to pay promptly and
to otherwise fulfill and discharge all obligations and liabilities of the
Business which are not Assumed Liabilities hereunder when due and payable and
otherwise prior to the time at which any of such obligations or liabilities
could in any way result in or give rise to a claim against the Assets, or the
assets and properties of Penn Dental or the Business, the Business or the
Purchaser, result in the imposition of any lien, charge or encumbrance on any of
the Assets, or the assets and properties of Penn Dental or the Business or
adversely affect the Purchaser's title to or use of any of the Assets, or the
assets and properties of Penn Dental or the Business. The Purchaser covenants
and agrees, subsequent to the Closing, to pay promptly and to otherwise fulfill
and discharge all obligations and liabilities of the Business which are Assumed
Liabilities prior to the time at which any of such obligations or liabilities
could in any way result in a claim against Talus and Mehlman.
F. Delivery of Funds. Subsequent to the Closing, each of Talus
and Mehlman shall deliver on a daily basis any funds and any checks, notes,
drafts and other instruments for the payment of money, duly endorsed to the
Purchaser, received by any of them comprising payment of any amounts due from
customers of the Virginia Business or others for services rendered by the
Virginia Business, including pursuant to any provider agreements constituting
part of the Assets.
G. Employees. The Purchaser covenants and agrees to offer or
cause one of its subsidiaries or managed entities to offer employment to all
employees of the Business at a base salary rate comparable to the base salary
rate such employees currently receive from the Business.
Nothing herein shall be deemed either to affect or to limit in
any way the management prerogatives of the Purchaser (or its designee) with
respect to employees of the Business who accept an offer of employment
(including, without limitation, the right of the Purchaser to terminate the
employment of any such employee), or to create or to
<PAGE> 38
35
grant to such employees any third-party beneficiary rights or claims or causes
of action of any kind or nature against the Purchaser, its designee or any of
its other affiliates. Nothing herein shall prevent the Purchaser from
terminating any such employee at any time as determined by the Purchaser in its
sole discretion.
H. Pass Through of Rights and Obligations. In the event that
the Partnership, Penn Dental, Talus or Mehlman is unable to obtain the necessary
consents set forth in Exhibit C prior to the Closing, each of Talus and Mehlman
agrees to use his best efforts subsequent to the Closing to obtain such
consents. Talus and Mehlman agree that until such time as such consents are
obtained or in the event that either Talus or Mehlman is unable to obtain such
consents, the Talus and Mehlman shall pass through to the Purchaser (or its
designee) the benefits and the obligations arising under the agreements listed
under "Contracts" in Exhibit C as if such agreements were assigned to the
Purchaser (or its designee) pursuant to this Agreement. Mehlman agrees that he
will, if required by any lessor under any of the real property leases set forth
in Exhibit C, personally guaranty the obligations of the Purchaser (or its
designee) as tenant under any such lease in order to obtain the lessor's consent
to the assignment of the lease to the Purchaser (or its designee) at or
subsequent to the Closing.
I. Working Capital. On or before 270 days from the date of the
Closing (the "Reconciliation Date"), the Purchaser shall calculate the amount of
the actual collections by the Purchaser after the date of the Closing and prior
to 180 days from the date of Closing (the "Collection Period") of the accounts
receivable of the Business which were outstanding on the date of the Closing
(the "Pre-Closing Receivables"). In the event that the sum of the collections of
Pre-Closing Receivables during the Collection Period plus the amount of cash of
the Business on the date of the Closing available to the Purchaser (the "Closing
Cash") exceeds the sum of $190,000 plus the aggregate amount of the cost of the
currently planned Stafford fit-out and the accounts payable and accrued expenses
of Penn Dental and the Virginia Business included in the Assumed Liabilities as
of the date of the Closing (such sum is herein after referred to as the "Target
Amount"), the Purchaser shall pay to the Partnership the amount of such excess
on or before the Reconciliation Date. In the event that the sum of the amount
collected plus the Closing Cash shall be less than the Target Amount, the
Partnership, Talus and Mehlman, jointly and severally, shall be obligated to pay
on or before the Reconciliation Date to the Purchaser the amount by which the
sum of the amounts of
<PAGE> 39
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such collections and of Closing Cash are less than the Target Amount. The
Purchaser shall permit the Partnership, Talus and Mehlman to review the
Purchaser's calculations of collections of Pre-Closing Receivables and the
amounts of the Closing Cash, the accounts payable and accrued expenses of Penn
Dental and the Virginia Business and the parties agree to negotiate in good
faith to resolve any controversies relating to such calculations.
Notwithstanding the foregoing, the parties agree that for a period of 180 days
after the Collection Period, the Purchaser shall be able to monitor and adjust
the amounts of the accounts payable and accrued expenses of Penn Dental and the
Virginia Business outstanding on the date of Closing and the parties agree that
the working capital calculation contained herein may be adjusted accordingly if
there are any adjustments to accounts payable and accrued expenses subject to
the provisions of this Section VI(I). The parties agree to reimburse each other
as applicable if the working capital calculation should change.
J. Security Deposits. The parties understand and agree that
the Partnership and Mehlman shall be entitled to any security deposits provided
for in any lease in connection with the Virginia Business for which the
Purchaser (or its designee) has received the necessary consents to assignment of
any such lease from the lessor under any such lease, and any other security
deposits shall, upon the return thereof, remain the property of Mehlman or the
Partnership and shall not be transferred to the Purchaser.
SECTION VII
CLOSING
A. Time and Place of Closing. The closing of the purchase and
sale of the Assets and the Shares as set forth herein (the "Closing") shall be
held at the offices of Haythe & Curley, 237 Park Avenue, New York, New York, at
10:00 A.M. local time on September 19, 1995.
B. Delivery of Assets. Delivery of the Assets shall be made by
the Partnership to the Purchaser (or its designee) at the Closing by delivering
such deeds, bills of sale, assignments and other instruments of conveyance and
transfer, and such powers of attorney, as shall be effective to vest in the
Purchaser (or its designee) title to or other interest in, and the right to full
custody and control of, the Assets, free and clear of all liens, charges,
encumbrances and security interests whatsoever.
<PAGE> 40
37
C. Delivery of the Shares. Delivery of the Shares shall be
made by the Partnership to the Purchaser (or its designee) at the Closing by
delivering one or more certificates in negotiable form representing all of the
Shares, each such certificate to be accompanied by any requisite documentary or
stock transfer taxes.
D. Tax Matters. All sales and use taxes incurred in connection
with this Agreement shall be borne and paid by the Purchaser when due.
E. Assumption of Liabilities. At the Closing, the Purchaser
(or its designee) shall deliver to the Partnership such instruments as shall be
sufficient to effect the assumption by the Purchaser (or its designee) of the
Assumed Liabilities.
F. Contracts and Books. At the Closing, each of the
Partnership, Talus and Mehlman shall make available to the Purchaser the
Contracts and the books and records of the Business constituting a part of the
Assets.
G. Additional Steps. At the Closing, each of the Partnership,
Talus and Mehlman shall take all steps required to put the Purchaser (or its
designee) in actual possession and control of the Assets.
SECTION VIII
CONDITIONS TO THE
PARTNERSHIP'S OBLIGATION TO CLOSE
The obligations of the Partnership to sell the Assets and the
Shares and otherwise consummate the transactions contemplated by this Agreement
at the Closing are subject to the following conditions precedent, any or all of
which may be waived by the Partnership in its sole discretion, and each of which
the Purchaser hereby agrees to use its best efforts to satisfy at or prior to
the Closing:
A. No Litigation. No action, suit or proceeding against the
Partnership, Penn Dental, either of Talus and Mehlman or the Purchaser relating
to the consummation of any of the transactions contemplated by this Agreement or
any governmental action seeking to delay or enjoin any such transactions shall
be pending or threatened.
B. Representations and Warranties. The representations and
warranties made by the Purchaser herein shall be correct as of the date of the
Closing in all
<PAGE> 41
38
material respects with the same force and effect as though such representations
and warranties had been made as of the date of the Closing, and on the date of
the Closing, the Purchaser shall deliver to the Partnership a certificate dated
the date of the Closing to such effect. All the terms, covenants and conditions
of this Agreement to be complied with and performed by the Purchaser on or
before the date of the Closing shall have been duly complied with and performed
in all respects, and, on the date of the Closing, the Purchaser shall deliver to
the Partnership a certificate dated the date of the Closing to such effect.
C. Opinion of the Purchaser's Counsel. The Partnership, Talus
and Mehlman shall have received an opinion of Messrs. Haythe & Curley, counsel
for the Purchaser, dated the date of the Closing, in form and substance
satisfactory to the Partnership, Talus and Mehlman and their counsel, Messrs.
Wolf, Block, Schorr and Solis-Cohen, to the effect that:
(i) The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has full power and authority to own its properties and to conduct
the businesses in which it is now engaged.
(ii) This Agreement and the Closing Notes have been duly
authorized, executed and delivered by the Purchaser, and constitutes
the valid and legally binding obligation of the Purchaser, enforceable
against the Purchaser in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting creditors' rights
generally or by general principles of equity.
(iii) Neither the execution and delivery of this Agreement and
the Closing Notes, nor the consummation of the transactions
contemplated hereby, violates any provision of the certificate of
incorporation or by-laws of the Purchaser or any statute, ordinance or
regulation.
D. Other Certificates. The Partnership, Talus and Mehlman
shall have received such additional certificates, instruments and other
documents, in form and substance satisfactory to them and their counsel, as it
shall have reasonably requested in connection with the transactions contemplated
hereby.
<PAGE> 42
39
E. Employment Agreements. The Purchaser (or its designee) and
Talus and the Purchaser and Mehlman shall have entered into an employment
agreement in the form of Exhibits I-1 and I-2 attached hereto (the "Employment
Agreements").
F. Stockholders Agreements. The Purchaser, Talus and Mehlman
shall have entered into a stockholders agreement in the form of Exhibits J-1 and
J-2 attached hereto (the "Stockholders Agreements").
G. Option Agreement. The Purchaser, Talus, Mehlman, and Mid
Atlantic MSO, L.L.C., a Pennsylvania limited liability company (the "LLC") shall
have entered into an option agreement in the form of Exhibit M attached hereto.
SECTION IX
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
The obligation of the Purchaser to purchase the Assets and the
Shares and otherwise consummate the transactions contemplated by this Agreement
at the Closing is subject to the following conditions precedent, any or all of
which may be waived by the Purchaser in its sole discretion, and each of which
each of the Partnership, Talus and Mehlman hereby agrees to use its or his best
efforts to satisfy at or prior to the Closing:
A. Opinion of Counsel. The Purchaser shall have received an
opinion of Messrs. Wolf, Block, Schorr and Solis-Cohen, counsel for the
Partnership, Talus and Mehlman, delivered to the Purchaser pursuant to the
instructions of the Partnership, Talus and Mehlman, dated the date of the
Closing, in form and substance satisfactory to the Purchaser and its counsel,
Messrs. Haythe & Curley, to the effect that:
(i) The Partnership is a general partnership duly organized
and validly existing under the laws of the Commonwealth of Pennsylvania
and has full partnership power and authority to own its properties and
to conduct the Business in which it is now engaged.
(ii) Penn Dental is a corporation duly organized and validly
existing under the laws of the Commonwealth of Pennsylvania and has
full corporate power and authority to own its properties and to conduct
the businesses in which it is now engaged.
<PAGE> 43
40
(iii) Based solely upon a review of Penn Dental's stock
records, the authorized capital stock of Penn Dental consists of 1,000
shares of Penn Common Stock, of which 100 shares are issued and
outstanding. All of the issued and outstanding shares of Penn Common
Stock have been validly issued and are fully paid and non-assessable
and are owned by the Partnership.
(iv) This Agreement has been duly authorized, executed and
delivered by the Partnership and duly executed and delivered by each of
Talus and Mehlman and constitutes the valid and legally binding
obligation of the Partnership and each of Talus and Mehlman,
enforceable against the Partnership and each of Talus and Mehlman in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, or other similar laws affecting
creditors' rights generally or by general principles of equity.
(v) Neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, violates any
provision of the certificate of incorporation or by-laws of Penn Dental
or the governing instruments of the Partnership or any statute,
ordinance or regulation or, to such counsel's knowledge, any order,
judgment or decree of any court or governmental agency, or conflicts
with or will result in any breach of any of the terms of or constitute
a default under or result in the termination of or the creation of any
lien pursuant to the terms of any contract or agreement to which the
Partnership, Penn Dental or either of Talus and Mehlman is a party or
by which the Partnership, Penn Dental or either of Talus and Mehlman or
the assets of the Partnership, Penn Dental, the Business, Talus or
Mehlman are bound.
(vi) The deeds, bills of sale, assignments and other
instruments of transfer of ownership delivered by Talus and Mehlman to
the Partnership and then delivered by the Partnership have been duly
executed and delivered, are valid and binding in accordance with their
terms, and are sufficient to convey to the Purchaser (or its designee)
all the right, title and interest of the Partnership in and to the
Shares and the Assets.
(vii) To the best of the knowledge of such counsel, there are
no claims, disputes, actions, suits or proceedings pending or
threatened against the Partnership, Penn Dental, either of Talus or
Mehlman or
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41
the assets or properties of the Partnership or the Business.
B. No Litigation. No action, suit or proceeding against the
Partnership, Penn Dental, either of Talus and Mehlman or the Purchaser relating
to the consummation of any of the transactions contemplated by this Agreement
nor any governmental action seeking to delay or enjoin any such transactions
shall be pending or threatened.
C. Representations and Warranties. The representations and
warranties made by the Partnership and each of Talus and Mehlman herein shall be
correct as of the date of the Closing in all material respects with the same
force and effect as though such representations and warranties had been made as
of the date of the Closing, and on the date of the Closing, the Partnership and
each of Talus and Mehlman shall deliver to the Purchaser a certificate dated the
date of the Closing to such effect. All the terms, covenants and conditions of
this Agreement to be complied with and performed by the Partnership and each of
Talus and Mehlman on or before the date of the Closing shall have been duly
complied with and performed in all respects, and on the date of the Closing, the
Partnership and each of Talus and Mehlman shall deliver to the Purchaser a
certificate dated the date of the Closing to such effect.
D. Other Certificates. The Purchaser shall have received such
other certificates, instruments and other documents, in form and substance
satisfactory to the Purchaser and counsel for the Purchaser, as it shall have
reasonably requested in connection with the transactions contemplated hereby.
E. Sale of All the Assets; Sale of All the Shares. All of the
Assets of the Business, with the exception of the Excluded Assets, shall be sold
to the Purchaser (or its designee) at the Closing. All of the Shares shall be
sold to the Purchaser (or its designee) at the Closing.
F. Assignments; Third Party Consents. The Purchaser shall have
received evidence satisfactory to it of the assignment to the Purchaser (or its
designee) of the leases, contracts, agreements and other instruments of the
Business set forth in Exhibit C from the Partnership, Penn Dental, Talus,
Mehlman or any other party to such leases, contracts, agreements and other
instruments, including Dr. Treacy. The Purchaser shall have received all
necessary consents of third parties under the contracts, agreements, leases,
insurance policies and other instruments of the
<PAGE> 45
42
Business, which consents shall not provide for the acceleration of any
liabilities or any other detriment to the Purchaser or the Business.
G. Employment Agreements. The Purchaser (or its designee) and
each of Talus and Mehlman shall have entered into the Employment Agreements.
H. Stockholders Agreements. The Purchaser, Talus and Mehlman
shall have entered into the Stockholders Agreements.
I. Governmental Licenses and Permits. The Purchaser (and its
designee) have obtained all required authorizations, permits and licenses
required for it to operate the Business.
J. Management Agreements; Escrow Agreements. The Purchaser and
each of Talus and Hong Cao, D.M.D. shall have entered into a Management
Agreement in the form of Exhibit K attached hereto and an Escrow Agreement in
the form of Exhibit L attached hereto.
K. Establishment of New Professional Corporations. Talus and
Hong Cao, D.M.D. shall have established one or more professional corporations in
the Commonwealths of Virginia and Pennsylvania as required to employ licensed
professional employees of the Business.
L. Amendment to Penn Dental's Certificate of Incorporation.
Penn Dental shall have amended its certificate of incorporation so as to become
a business corporation under the laws of the Commonwealth of Pennsylvania.
M. Option Agreement. The Purchaser, the LLC, Talus and Mehlman
shall have entered into the Option Agreement.
SECTION X
INDEMNIFICATION
A. Indemnification by each of the Partnership, Talus and
Mehlman. Each of the Partnership, Talus and Mehlman, jointly and severally,
shall indemnify and hold harmless the Purchaser from and against all losses,
claims, taxes, assessments, demands, damages, liabilities, obligations, costs
and/or expenses (hereinafter referred to collectively as the "Purchaser's
Damages"), including,
<PAGE> 46
43
without limitation, reasonable fees and disbursements of counsel, sustained or
incurred by the Purchaser (or its designee) in any action, claim or proceeding
(i) between the Purchaser and Mehlman and/or Talus or (ii) between the Purchaser
and any third party or (iii) otherwise (a) arising out of or relating to the
breach of any of the obligations, covenants or provisions of, or the inaccuracy
of any of the representations or warranties made by, the Partnership or either
of Talus and Mehlman herein and (b) arising out of or relating to any
liabilities or obligations of the Partnership, Penn Dental, Talus and Mehlman
which are not Assumed Liabilities and (c) resulting from the failure by the
Partnership, Penn Dental, Talus or Mehlman to obtain the necessary consents to
assignment to the Purchaser (or VFDP) of the real estate leases set forth in
Exhibit C and (d) arising out of or relating to any claims or demands made by
Sheila Treacy, Scheherazad Anoushfar, or Mohsen Izadideh Kordi against the
Purchaser (or VFDP), Mehlman, the Partnership, the Virginia Business or the
Assets relating to the transactions contemplated by this Agreement, the transfer
of the Assets to the Purchaser (or its designee) or the dissolution of
Alexandria Dental Centre or Northern Virginia Dental Group or any other business
relationships between Mehlman and Sheila Treacy, Scheherazad Anoushfar or Mohsen
Izadideh Kordi. In addition to the right of the Purchaser to indemnification
hereunder, the Purchaser shall have the right from time to time to set off the
amount of any of the Purchaser's Damages with respect to which there has been a
final determination (as hereinafter defined) that the Purchaser is entitled to
indemnification thereof, except for any Purchaser's Damages arising from a
breach of Section XI hereof, against any Contingent Payments (including
promissory notes delivered as part of the Contingent Payments) and the principal
and interest on the Closing Notes.
B. Indemnification by the Purchaser. Each of the Purchaser and
VFDP shall, jointly and severally, indemnify and hold harmless each of the
Partnership and Talus and Mehlman from and against any and all losses, claims,
assessments, demands, damages, liabilities, obligations, costs and/or expenses
(hereinafter referred to collectively as the "Shareholder's Damages"; the
Shareholder's Damages and the Purchaser's Damages are sometimes referred to
herein as the "Damages"), including, without limitation, reasonable fees and
disbursements of counsel, sustained or incurred by any of the Partnership, Talus
and Mehlman in any action or proceeding between (i) the Partnership and/or
Mehlman and/or Talus and the Purchaser or (ii) the Partnership and/or Mehlman
and/or Talus and any third party or (iii) otherwise (a) by reason
<PAGE> 47
44
of the breach of any of the obligations, covenants or provisions of, or the
inaccuracy of any of the representations or warranties made by, the Purchaser
herein, or (b) arising out of or relating to any liabilities or obligations
which are Assumed Liabilities.
C. Procedure for Indemnification. In the event that any party
hereto shall incur (or anticipates that it may incur in the case of third party
claims) any Damages in respect of which indemnity may be sought by such party
pursuant to this Agreement, the party indemnified hereunder (the "Indemnitee")
shall notify the party or parties providing indemnification (the "Indemnitor")
promptly; in the case of third party claims, such notice shall in any event be
given within thirty (30) days of the filing or assertion of any claim against
the Indemnitee stating the nature and basis of such claim; provided, however,
that any delay or failure to notify any Indemnitor of any claim shall not
relieve it from any liability except to the extent that the Indemnitor
demonstrates that the defense of such action is materially prejudiced by such
delay or failure to notify. In the case of third party claims, the Indemnitor
shall, within ten (10) days of receipt of notice of such claim, notify the
Indemnitee of its intention to assume the defense of such claim at its own
expense. If the Indemnitor shall assume the defense of any claim or litigation,
the Indemnitor may settle such claim or litigation on such terms as it may deem
appropriate without the consent of the Indemnitee so long as the settlement
involves solely the payment of money damages for which the Indemnitor is solely
responsible. If the Indemnitor shall not assume the defense of any such claim or
litigation resulting therefrom, the Indemnitee may defend against any such claim
or litigation in such manner as it may deem appropriate and the Indemnitee may
settle such claim or litigation on such terms as it may deem appropriate. In the
event that a dispute arises concerning the obligation of the Indemnitor to
assume the defense of a claim, or a dispute arises concerning a claim hereunder
which does not involve a third party claim, or in the event that there is any
other dispute relating to indemnification, the parties shall submit any such
dispute to arbitration pursuant to Section XIV(G); provided, however, that the
parties agree to negotiate in good faith for a period of at least sixty (60)
days prior to initiating arbitration to resolve any dispute. If it shall be
finally determined that the Indemnitor failed to assume the defense of any claim
for which the Indemnitor is liable to the Indemnitee for Damages, then the
expense of defending the claim shall be borne by the Indemnitor. Payment of the
Damages shall be made within ten (10) days of a final determination of a claim.
<PAGE> 48
45
A final determination of a claim shall be (i) a judgment of
any court determining the validity of a disputed claim, if no appeal is pending
from such judgment or if the time to appeal therefrom has elapsed, (ii) an award
of any arbitration determining the validity of such disputed claim, it there is
not pending any motion to set aside such award or if the time within which to
move to set such award aside has elapsed, (iii) a written termination of the
dispute with respect to such claim signed by all of the parties thereto or their
attorneys, (iv) a written acknowledgement of the Indemnitor that he or it no
longer disputes the validity of such claim, or (v) such other evidence of final
determination of a claim as shall be acceptable to the parties.
D. Agreements Concerning Indemnification. It is specifically
understood and agreed that:
(i) The Partnership, Talus and Mehlman shall
not be obligated to indemnify the Purchaser for the Purchaser's Damages unless
and until the aggregate amount of such Damages exceeds $25,000 (the
"Deductible"); provided, however, that if such Purchaser's Damages exceed the
Deductible, then the Partnership, Talus and Mehlman shall be obligated to
indemnify the Purchaser for all such Purchaser's Damages which exceed $10,000
and provided further that any Purchaser's Damages arising from any breach of any
representations and warranties contained in Section II(I)(i) or Section II(J)
shall not be subject to the Deductible; and
(ii) The Partnership, Talus and Mehlman shall
not be obligated to indemnify the Purchaser for the Purchaser's Damages in
excess of the aggregate amount actually received by the Partnership in cash or
shares of Purchaser Common Stock (valued at the fair market value thereof at
time of conversion of any convertible note) as part of the Purchase Price,
including as payment of any principal of or interest on any notes issued as part
of the Purchase Price (the "Cap"); provided, however, that any such Purchaser's
Damages arising from any breach of any representations and warranties contained
in Section II(I)(i) or Section II(J) shall not be subject to the Cap.
(iii) Notwithstanding the foregoing, the
Purchaser shall be entitled to set off the amount of any increase in rent under
the current real estate leases for the four (4) facilities of the Virginia
Business resulting from the failure by Mehlman or the Partnership to obtain the
required consents to assignment of such leases against any Contingent Payments
and the principal and interest on the
<PAGE> 49
46
Closing Notes (a "Lease Consent Set-off") without the necessity of obtaining a
final determination prior to the set-off. The Purchaser shall make any Lease
Consent Set-off on an annual basis only with respect to rent increases required
to be paid to a lessor during the prior one year period as a result of the
failure to obtain any lessor's consent. The Purchaser may continue to make such
set-offs until Purchaser is fully compensated for any such rent increases
notwithstanding any limitations on the restrictions on the survival of the
representations, warranties or covenants in this Agreement set forth in Section
XIV(B) hereof, which shall not apply to any Lease Consent Set-off.
E. Contribution. The Purchaser shall not be required to make
any claim against Penn Dental or any other party in order to pursue any claim
hereunder against the Partnership, Talus or Mehlman and neither the Partnership,
Talus nor Mehlman shall be entitled to any indemnification or right of
contribution from Penn Dental in connection with any claim made hereunder by the
Purchaser.
SECTION XI
NON-COMPETITION AGREEMENT
Following the consummation of the transactions contemplated
hereby, and in consideration thereof, neither the Partnership nor either of
Talus and Mehlman shall, (a) subsequent to the date of the Closing and until
five (5) years after the date of the Closing, directly or indirectly, (i) (x)
engage, whether as principal, agent, investor, distributor, representative,
stockholder, employee, consultant, volunteer or otherwise, with or without pay,
in any activity or business venture anywhere within a ten (10) mile radius of
any facility or business location operated by the Purchaser or by any other
member of the Purchaser Group (as hereinafter defined) of which facility or
location it or he has received notice from the Purchaser which is competitive
with the business of the Purchaser and the other members of the Purchase Group
of providing dental services and related activities or (y) engage, whether as
principal, agent, investor, distributor, representative, stockholder, employee,
consultant, volunteer or otherwise, with or without pay, in any business or
activity which has as a purpose the acquisition, start-up and development of
dental practices (not including the practice of dentistry by Mehlman and Talus
after the termination of their employment by the Purchaser or any other member
of the Purchaser Group permitted by this Section XI) anywhere within any state
in
<PAGE> 50
47
which the Purchaser or any other member of the Purchaser Group is engaged in
business or has plans evidenced in writing of which Mehlman, Talus or the
Partnership has received notice, to engage in business as of the date of
termination of the employment of Talus or Mehlman, as the case may be, (ii)
solicit or entice or endeavor to solicit or entice away from any member of the
Purchaser Group any person who was a director, officer, employee, agent or
consultant of such member of the Purchaser Group, either on the Partnership's or
either of Talus' or Mehlman's own account or for any person, firm, corporation
or other organization, whether or not such person would commit any breach of
such person's contract of employment by reason of leaving the service of such
member of the Purchaser Group, (iii) solicit or entice or endeavor to solicit or
entice away any of the clients or customers of any member of the Purchaser
Group, either on the Partnership's or either of Talus' or Mehlman's own account
or for any other person, firm, corporation or organization, or (iv) employ any
person who was a director, officer or employee of any member of the Purchaser
Group or any person who is or may be likely to be in possession of any
confidential information or trade secrets relating to the business of any member
of the Purchaser Group, or (b) except in connection with the enforcement of any
of their rights hereunder, at any time take any action or make any statement the
effect of which would be directly or indirectly, to impair the goodwill of any
member of the Purchaser Group or the business reputation or good name of any
member of the Purchaser Group, or be otherwise detrimental to the Purchaser,
including any action or statement intended, directly or indirectly, to benefit a
competitor of any member of the Purchaser Group. Because the remedy at law for
any breach of the foregoing provisions of this Section XI would be inadequate,
each of the Partnership and each of Talus and Mehlman hereby consents, in case
of any such breach, to the granting by any court of competent jurisdiction of
specific enforcement, including, but not limited to pre-judgment injunctive
relief, of such provisions, as provided for in Section XIV(F) hereof.
The parties hereto agree that if, in any proceeding, the court
or other authority shall refuse to enforce the covenants herein set forth
because such covenants cover too extensive a geographic area or too long a
period of time, any such covenant shall be deemed appropriately amended and
modified in keeping with the intention of the parties to the maximum extent
permitted by law.
Each of the parties hereto expressly acknowledges and agrees
that the covenants and agreements of the
<PAGE> 51
48
Partnership and each of Talus or Mehlman set forth in this Section XI are
reasonable in all respects, and necessary in order to protect, maintain and
preserve the value and goodwill of the Purchaser and the Business, as well as
the proprietary and other legitimate business interests of the members of the
Purchaser Group.
For purposes hereof, "Purchaser Group" shall mean,
collectively, the Purchaser, Penn Dental, and their subsidiaries, affiliates and
parent entities and entities managed by the Purchaser and its subsidiaries,
affiliates and parent entities operating from time to time in the same lines of
business.
Notwithstanding the foregoing, in the event that (i) the
Purchaser (or its designee) has failed to make any undisputed Contingent
Payments within thirty (30) days of receipt by the Purchaser of written notice
to the effect that such Contingent Payments are due and payable, or (ii) a
payment event of default under any of the Notes has occurred, or (iii) the
Purchaser (or its designee) fails to make salary payments to Talus or Mehlman
pursuant to Section 3.1 of their Employment Agreements within ten (10) days of
receipt by the Purchaser of written notice to the effect that such payments are
due and payable, Talus or Mehlman shall be permitted thereafter to engage in the
private practice of dentistry at no more than 2 offices without being considered
to be in violation of the covenants contained herein. It is understood and
agreed that Talus shall not be released from the provisions of paragraphs (a)
and (b) above for any failure of the Purchaser (or its designee) to meet its
payment obligations to Mehlman and it is understood and agreed that Mehlman
shall not be released from the provisions of paragraphs (a) and (b) above for
the failure of the Purchaser (or its designee) to meet its payment obligations
to Talus. In the event that the employment of Mehlman or Talus has been
terminated by the Purchaser or any other member of the Purchaser Group pursuant
to Section 6.4 of his Employment Agreement, then Talus or Mehlman, as the case
may be, shall be permitted thereafter to engage in the private practice of
dentistry at no more than 2 offices anywhere outside a ten (10) mile radius of
any facility or business location operated by the Purchaser or any member of the
Purchaser Group of which facility or location he has received notice from the
Purchaser.
<PAGE> 52
49
SECTION XII
BROKERS AND FINDERS
A. The Partnership's, Talus's and Mehlman's Obligations. The
Purchaser shall not have any obligation to pay any fee or other compensation to
any person, firm or corporation dealt with by the Partnership, Penn Dental or
either of Talus or Mehlman in connection with this Agreement and the
transactions contemplated hereby and each of the Partnership, Talus and Mehlman,
jointly and severally, hereby agree to indemnify and save the Purchaser (or its
designee) harmless from any liability, damage, cost or expense arising from any
claim for any such fee or other compensation.
B. The Purchaser's Obligations. None of the Partnership, Talus
nor Mehlman shall have any obligation to pay any fee or other compensation to
any person, firm or corporation dealt with by the Purchaser in connection with
this Agreement and the transactions contemplated hereby and the Purchaser agrees
to indemnify and save and each of Talus and Mehlman harmless from any liability,
damage, cost or expense arising from any claim for any such fee or other
compensation.
SECTION XIII
TRANSFER OF NAME
At the Closing, the Partnership, Mehlman and Talus shall
deliver to the Purchaser a written consent duly executed by each of the
Partnership, Talus and Mehlman evidencing its or his consent to the use by the
Purchaser and any subsidiaries, affiliated companies or assigns of the Purchaser
of all names currently used in the conduct of the Virginia Business and all
variants thereof.
SECTION XIV
MISCELLANEOUS
A. Notices. All notices, requests or instructions hereunder
shall be in writing and delivered personally, sent by telecopy or sent by
registered or certified mail, postage prepaid, as follows:
<PAGE> 53
50
(1) If to the Partnership or Penn Dental
(prior to the Closing):
to the addresses for Talus and
Mehlman set forth below
with a copy to:
Wolf, Block, Schorr and Solis-Cohen
Twelfth Floor, Packard Building
S.E. Corner 15th and Chestnut Streets,
Philadelphia, Pennsylvania 19102-2678
Attention: Michael M. Sherman, Esq.
Telecopy No.: (215) 977-2334
Telephone No.: (215) 977-2000
(2) If to Talus:
709 Meadowcreek Circle
Lower Gwynedd, Pennsylvania 19002
Telecopy No.: (215) 646-8241
Telephone No.: (215) 646-5486
with a copy to:
Wolf, Block, Schorr and Solis-Cohen
Twelfth Floor, Packard Building
S.E. Corner 15th and Chestnut Streets,
Philadelphia, Pennsylvania 19102-2678
Attention: Michael M. Sherman, Esq.
Telecopy No.: (215) 977-2334
Telephone No.: (215) 977-2000
(3) If to Mehlman:
8171 Madrillon Court
Vienna, Virginia 22182
Telecopy No.: (703) 821-6930
Telephone No.: (703) 821-6928
<PAGE> 54
51
with a copy to:
Wolf, Block, Schorr and Solis-Cohen
Twelfth Floor, Packard Building
S.E. Corner 15th and Chestnut Streets,
Philadelphia, Pennsylvania 19102-2678
Attention: Michael M. Sherman, Esq.
Telecopy No.: (215) 977-2334
Telephone No.: (215) 977-2000
(4) If to the Purchaser or Penn Dental
(subsequent to the Closing):
c/o Foster Management Company
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Mr. Douglas P. Gill
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Robert A. Ouimette, Esq.
Telecopy No.: (212) 682-0200
Telephone No.: (212) 880-6000
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and five business days after the date of
mailing, if mailed.
B. Survival of Representations. Each representation, warranty,
covenant and agreement of the parties hereto herein contained shall survive the
Closing, notwithstanding any investigation at any time made by or on behalf of
any party hereto, for a period of two (2) years from the date of the Closing;
except (a) for covenants and agreements to be performed subsequent to the
Closing and (b) that nothing in the foregoing shall be deemed to diminish any
Indemnitor's indemnification obligations to an Indemnitee respecting (i) claims
for Damages made prior to the second anniversary of the date of the Closing or
the applicable statutes of limitations period for claims for Damages based on
the matters set forth in (ii) and (iii) below, (ii) claims for indemnification
under Section X(A)(c)
<PAGE> 55
52
and those based on breaches of Section II(I)(i) and Section II(J) and common law
fraud, which shall survive for the duration of the applicable statutes of
limitations periods and (iii) claims based on the Purchaser's failure to pay
Assumed Liabilities and the Partnership's, Talus's and Mehlman's failure to pay
liabilities which are not Assumed Liabilities, which shall survive for the
duration of any applicable statutes of limitations governing third party claims
made with respect to such liabilities.
C. Entire Agreement. This Agreement and the documents referred
to herein contain the entire agreement among the parties hereto with respect to
the transactions contemplated hereby, and no modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.
D. Further Assurances. Each of the parties hereto shall use
such party's best efforts to take such actions as may be necessary or reasonably
requested by the other parties hereto to carry out and consummate the
transactions contemplated by this Agreement.
E. Expenses. Each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the transactions
contemplated hereby.
F. Injunctive Relief. Notwithstanding the provisions of
Section XIV(G) hereof, in the event of a breach or threatened breach by any of
the Partnership, Talus and Mehlman of the provisions of Section XI of this
Agreement, each of the Partnership, Talus and Mehlman hereby consents and agrees
that the Purchaser shall be entitled to an injunction or similar equitable
relief restraining any of the Partnership, Talus or Mehlman from committing or
continuing any such breach or threatened breach or granting specific performance
of any act required to be performed by each of the Partnership, Talus and
Mehlman, as the case may be, under any such provision, without the necessity of
showing any actual damage or that money damages would not afford an adequate
remedy and without the necessity of posting any bond or other security. The
parties hereto hereby consent to the jurisdiction of the federal courts for the
Eastern District of Pennsylvania and the Pennsylvania commonwealth courts
located in such district for any proceedings under this Section XIV(F). The
parties hereto agree that the availability of arbitration in Section XIV(G)
hereof shall not be used by any party as grounds for the dismissal of any
injunctive actions instituted by the Purchaser pursuant to this Section XIV(F).
Nothing herein shall be construed as prohibiting the Purchaser from
<PAGE> 56
53
pursuing any other remedies at law or in equity which it may have.
G. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach hereof, shall, except as provided in
Section XIV(F) hereof, be settled by arbitration in accordance with the rules of
the American Arbitration Association then in effect and judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be held in Philadelphia, Pennsylvania.
H. Regulatory Matters. Each of the Partnership, Talus and
Mehlman agrees that if as a result of a regulatory change or for any other
reason, the Purchaser shall determine that it is necessary to restructure the
manner in which the Business is conducted or the manner in which services are
provided, each of the Partnership, Talus and Mehlman shall, upon thirty (30)
days' prior written notice of the Purchaser, assist the Purchaser to take
promptly all necessary steps (as set forth in such notice) to carry out such
restructuring; provided, however, that no such restructuring shall diminish any
payments or other consideration to be received by the Partnership, Mehlman or
Talus and that none of the Partnership, Mehlman or Talus will be required to
expend any funds or waive or give up any rights to carry out such restructuring.
The expenses related to such restructuring shall be borne by the Purchaser.
I. Invalidity. Should any provision of this Agreement be held
by a court or arbitration panel of competent jurisdiction to be enforceable only
if modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by such court or arbitration panel shall
be binding upon and enforceable against each of them. In any event, should one
or more of the provisions of this Agreement be held to be
<PAGE> 57
54
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions hereof, and if such
provision or provisions are not modified as provided above, this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been set forth herein.
J. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of each of the
Partnership and the Purchaser, respectively, and the legal representatives and
heirs of each of the Shareholders.
K. Governing Law. The validity of this Agreement and of any of
its terms or provisions, as well as the rights and duties of the parties under
this Agreement, shall be construed pursuant to and in accordance with the laws
of the Commonwealth of Pennsylvania.
L. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
* * *
<PAGE> 58
55
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first above written.
MT ASSOCIATES
By /s/ Robert K. Mehlman, D.D.S.
--------------------------------
General Partner
/s/ Robert K. Mehlman, D.D.S.
--------------------------------
Robert K. Mehlman, D.D.S.
/s/ Bruce L. Talus, D.M.D.
--------------------------------
Bruce L. Talus, D.M.D.
VALLEY FORGE DENTAL
ASSOCIATES, INC.
By /s/ Douglas P. Gill
-------------------------------
Douglas P. Gill
President
The undersigned joins in this
Agreement for the purposes of
Section X only.
VFD OF PENNSYLVANIA, INC.
By /s/ Douglas P. Gill
- -----------------------------
President
<PAGE> 59
Schedule I
EXCLUDED ASSETS
1. Cash on hand or cash equivalents in excess of $70,000.
2. Entitlement to all tax refunds (except for refunds for
taxes included in the Assumed Liabilities).
3. Tax returns and similar business records dealing with non-Virginia
Business matters, or unrelated to the delivery of dental services by
the Virginia Business.
4. Claim for $2,000 in cash stolen from the Penn Dental
office.
5. Claims of the Virginia Business which are not related
to the Assets or the Assumed Liabilities.
6. Computer, fax machine, filing cabinets, desks and
shelving located in Talus's home.
<PAGE> 60
Schedule II
LIABILITIES TO BE ASSUMED
1. Obligations and liabilities accruing from and after the date of the
Closing under the real estate leases, equipment leases and contracts
listed in Exhibit C.
2. Accounts payable and accrued expenses of the Business
listed on the attached schedule.
<PAGE> 61
Schedule III
CONTINGENT PAYMENTS
The Target 100% net revenues and pre-tax earnings percentages
set forth below for each Contingent Period correspond to the Target 100%
headings for net revenues and pre-tax earnings in the Contingent Matrix.
The Target 100% net revenues, pre-tax earnings percentages and
Contingent Payments are as follows:
<TABLE>
<CAPTION>
(1) Contingent Period Ending September 30, 1996:
<S> <C>
Target 100% net revenues $3,365,000
Target 100% pre-tax earnings
(as a percentage of net 21.6%
revenues)
Target 100% Contingent Payments $300,000 and a
Convertible
subordinated
promissory note
in the principal
amount of
$500,000.
</TABLE>
<TABLE>
<CAPTION>
(2) Contingent Period Ending September 30, 1997:
<S> <C>
Target 100% net revenues $3,900,000
Target 100% pre-tax earnings
(as a percentage of net 23.8%
revenues)
Target 100% Contingent Payments $300,000 and a
Convertible
subordinated
promissory note
in the principal
amount of
$500,000.
</TABLE>
<PAGE> 62
2
<TABLE>
<CAPTION>
(3) Contingent Period Ending September 30, 1998:
<S> <C>
Target 100% net revenues $4,400,000
Target 100% pre-tax earnings
(as a percentage of net
revenues) 25.0%
Target 100% Contingent Payments $550,000 and a
Convertible
subordinated
promissory note
in the principal
amount of
$750,000.
</TABLE>
In order to calculate the Contingent Payments for a Contingent
Period, the net revenues and pre-tax earnings of the Business shall be computed
in accordance with Section I(E) and a contingent payment multiplier for such
period which shall be determined by reference to the Contingent Matrix. The
percentages set forth in the headings of the Contingent Matrix are benchmarks
only. The aggregate amount of the cash and the principal amount of the
Contingent Notes which comprise the Contingent Payments payable to the
Partnership and Mehlman shall be determined by multiplying the Target 100% cash
and the Target 100% aggregate principal amount of the Contingent Notes for the
applicable Contingent Period by the applicable contingent multiplier.
The maximum Contingent Payments for any Contingent Period
shall be 144% of the Target 100% Contingent Payments for such Contingent Period.
<PAGE> 63
Schedule IV
CONTINGENT PAYMENT MATRIX
REVENUES
<TABLE>
<CAPTION>
TARGET
10% 20% 40% 60% 80% 100% 120%
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
P E 10% 0.01 0.02 0.04 0.06 0.08 0.10 0.12
R A --------------------------------------------------------------------------------------------------
E R 20% 0.02 0.04 0.08 0.12 0.16 0.20 0.24
T N --------------------------------------------------------------------------------------------------
A I 40% 0.04 0.08 0.16 0.24 0.32 0.40 0.48
X N --------------------------------------------------------------------------------------------------
G 60% 0.06 0.12 0.24 0.36 0.48 0.60 0.72
S --------------------------------------------------------------------------------------------------
80% 0.08 0.16 0.32 0.48 0.64 0.80 0.96
--------------------------------------------------------------------------------------------------
TARGET 0.10 0.20 0.40 0.60 0.80 1.00 1.20
100%
--------------------------------------------------------------------------------------------------
120% 0.12 0.24 0.48 0.72 0.96 1.20 1.44
--------------------------------------------------------------------------------------------------
</TABLE>
Contingent Payments will be pro-rated for net revenues and pre-tax
earnings that are between matrix benchmarks.
<PAGE> 64
Schedule V
ALLOCATION OF PURCHASE PRICE
The Purchase Price shall be allocated to the Shares and the Assets in
accordance with the following:
1. to the Shares, the sum of $1,000,000;
2. to the Assets the remainder as follows:
a. to fixed assets at their fair market value;
b. to accounts receivable at their net collectible
value;
c. to cash in an amount equal to the aggregate amount
thereof; and
d. remainder to goodwill.
<PAGE> 1
EXHIBIT 2(b)
AMENDMENT NO. 1 TO
PURCHASE AGREEMENT
AMENDMENT AGREEMENT made the 1st day of October, 1996 by and among MT
ASSOCIATES, a Pennsylvania general partnership (the "Partnership"), Robert K.
Mehlman, D.D.S. ("Mehlman"), Bruce L. Talus, D.M.D. ("Talus"), and Valley Forge
Dental Associates, Inc., a Delaware corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Partnership, Mehlman, Talus and the Purchaser entered into
an Agreement of Purchase and Sale (the "Purchase Agreement") dated as of
September 1, 1995, which provided, among other things, for the purchase by the
Purchaser of certain of the assets of the Partnership; and
WHEREAS, the parties hereto desire to amend the Purchase Agreement as
hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Defined Terms. All capitalized terms used but not otherwise
defined herein shall have the respective meanings ascribed thereto in the
Purchase Agreement.
2. Amendments to Purchase Agreement.
<PAGE> 2
2
(a) Section I(B) of the Purchase Agreement is hereby amended by
deleting Section I(B) in its entirety and substituting therefor the following
new Section I(B):
"B. Purchase Price. The aggregate purchase price (the
"Purchase Price") for the Assets and the Shares is (i) $2,902,803.94,
and (ii) the contingent payments, if earned (the "Contingent
Payments"), provided for in Section I(D) hereof. The Purchase Price
payable at the Closing shall be made by delivery to (i) the Partnership
of (a) $1,600,000, in cash, by means of wire transfer to an account
designated by the Partnership, (b) a three-year 6% convertible
subordinated promissory note of the Purchaser in the form of Exhibit
A-1 attached hereto, payable to the order of the Partnership in the
principal amount of $800,000 (the "Convertible Note"), and (c) a
three-year 6% subordinated promissory note of the Purchaser in the form
of Exhibit A-2 attached hereto payable to the order of the Partnership
in the principal amount of $135,000 (the "Subordinated Note"). In
additional payment of the Purchase Price, the Purchaser shall deliver
to Mehlman a 6.67% subordinated promissory note of the Purchaser in the
principal amount of $137,926.48 in the form of Exhibit A-4 attached
hereto (the "Mehlman Note") and to Talus a 6.67% subordinated
promissory note of the Purchaser in the principal amount of $229,877.46
in the form of Exhibit A-5 attached hereto (the "Talus Note"). The
Convertible Note, the Subordinated Note, the Mehlman Note and the Talus
Note are hereinafter referred to as the "Closing Notes"."
(b) The Purchase Agreement is hereby further amended by amending
the last "bullet point" of the seventh sentence of Section I(E) as set forth
below and by adding the additional "bullet point" as set forth below:
"- Talus's salary and bonus up to $150,000; except, commencing
with the twelve-month period ending September 30, 1997,
Talus's salary and bonus up to $85,000"
"- All principal and interest payments on the Talus Note."
<PAGE> 3
3
(c) The Purchase Agreement is hereby further amended by adding to
the eighth sentence of Section I(E) thereof the following new "bullet point":
"- All principal and interest payments on the Mehlman Note."
(d) The Purchase Agreement is hereby further amended by adding
thereto Exhibits A-4 and A-5 in the form of Exhibits A-4 and A-5 attached to
this Amendment Agreement.
3. Miscellaneous.
(a) The parties hereto further agree that all notices, requests or
instructions under this Amendment Agreement or any other agreement made between
the parties hereto in connection with the Purchase Agreement shall be in writing
and delivered personally, sent by telecopy or sent by registered or certified
mail, postage prepaid, to the addresses set forth in Section XIV(A) of the
Purchase Agreement.
(b) Except as specifically amended herein, the Purchase Agreement
shall remain in full force and effect in accordance with its terms.
(c) The provisions of this Amendment Agreement are severable, and
if any clause or provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in
<PAGE> 4
4
such jurisdiction and shall not in any manner affect such clause or provision in
this Amendment Agreement in any jurisdiction.
(d) This Amendment Agreement shall be binding upon the parties
hereto and their respective heirs, executors, administrators, successors and
assigns.
(e) This Amendment Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
* * *
<PAGE> 5
5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed on the date first above written.
MT ASSOCIATES
By___________________________
General Partner
______________________________
Robert K. Mehlman, D.D.S.
______________________________
Bruce L. Talus, D.M.D.
VALLEY FORGE DENTAL ASSOCIATES,
INC.
By______________________________
<PAGE> 1
EXHIBIT 3(a)
CERTIFICATE OF INCORPORATION
OF
VALLEY FORGE DENTAL ASSOCIATES, INC.
THE UNDERSIGNED, for the purpose of forming a corporation pursuant to
the provisions of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
FIRST: The name of the corporation is Valley Forge Dental Associates,
Inc. (the "Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is 32 Loockerman Square, Suite L-100, Dover, Delaware 19901, which
address is located in the County of Kent, and the name of the Corporation's
registered agent at such address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose for which the Corporation is organized is to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 1,000,000 shares of Preferred
Stock, $.01 par value per share (the "Preferred Stock"), and 5,000,000 shares of
Common Stock, $.01 par value per share (the "Common Stock"). The powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions of the Preferred Stock and
the Common Stock shall be as follows:
1. (a) The Preferred Stock may be issued from time to
time as shares of one or more series of Preferred Stock, and in the
resolution or resolutions providing for the issue of shares of each
particular series, before issuance, the Board of Directors of the
Corporation is expressly authorized to fix:
(i) the distinctive designation of such series and the
number of shares which shall constitute such series, which number
<PAGE> 2
2
may be increased (except where otherwise provided by the Board of
Directors in creating such series) or decreased (but not below the
number of shares thereof then outstanding) from time to time by like
action of the Board of Directors;
(ii) the rate of dividends payable on such series, whether
or not dividends shall be cumulative, the date or dates from which
dividends shall accrue and, if cumulative, the relationship which such
dividends shall bear to dividends payable on any other series;
(iii) whether or not the shares of such series shall be
subject to redemption by the Corporation and, if so, the times, prices
and other terms and conditions of such redemption;
(iv) whether or not the shares of such series shall be
subject to the operation of a sinking fund or a fund of a similar
nature and, if so, the terms thereof;
(v) the rights of the shares of each series in case of
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, or upon any distribution of its assets;
(vi) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other series or
class of stock of the Corporation and, if so, the terms of conversion
or exchange;
(vii) whether or not the shares of such series shall have
voting rights in addition to the voting rights provided by law and in
paragraph 5 below and, if so, the nature and extent thereof; and
(viii) the consideration to be received by the Corporation
for the shares of such series.
(b) The shares of the Preferred Stock of any one series
shall be identical with each other in all respects except as to the dates
<PAGE> 3
3
from which dividends thereon shall accrue or be cumulative.
(c) In case the stated dividends and the amounts, if any,
payable on liquidation, dissolution or winding up of the Corporation are not
paid in full, the shares of each series of the Preferred Stock, after the
payment in full of such dividends and amounts to all series of the Preferred
Stock ranking senior to such series and before any payment to any series ranking
junior thereto, shall share ratably in the payment of dividends, including
accumulations, if any, in accordance with the sums which would be payable on
said shares if all dividends were declared and paid in full, and in any
distribution of assets other than by way of dividends, in accordance with the
sums which would be payable on such distribution if all sums payable were
discharged in full.
(d) Upon the issuance of any series of Preferred Stock, a
certificate setting forth the resolution or resolutions (including the
designation, description and terms of such series) adopted by the Board of
Directors with respect to such series shall be made and filed in accordance with
the then applicable requirements, if any, of the laws of the State of Delaware,
or, if no certificate is then so required, such certificate shall be signed and
acknowledged on behalf of the Corporation by its President or a Vice President,
and its corporate seal shall be affixed thereto and attested by its Secretary or
an Assistant Secretary, and such certificate shall be filed and kept on file at
the principal office of the Corporation in the State of Delaware or at such
other place or places as the Board of Directors shall designate.
2. The holders of each series of the Preferred Stock
shall be entitled to receive, when and as declared by the Board of
Directors, but only out of funds of the Corporation legally available
for the payment of dividends, dividends in cash at the annual rate for
such series provided by the Board of Directors in the certificate made
pursuant to subparagraph (d) of paragraph 1 with respect to such
series, before any dividends, other than dividends payable in shares of
Common Stock to all holders of Common
<PAGE> 4
4
Stock, shall be declared and paid upon or set apart for the holders of
any series of the Preferred Stock ranking junior to such series as to
dividends or of any Junior Stock (as hereinafter defined), payable in
respect of each calendar quarter on a date, which shall be provided by
the Board of Directors in such certificate with respect to such series,
within fifty (50) days following the end of such quarter. Such
dividends on the Preferred Stock shall be payable to holders of such
series of record on the date, not exceeding fifty (50) days preceding
the dividend payment date, fixed for such purpose by the Board of
Directors with respect to such series in advance of the payment of each
particular dividend.
3. If so provided by the Board of Directors in the
certificate made pursuant to subparagraph (d) of paragraph 1 with
respect to any series of the Preferred Stock, the Corporation may
redeem the whole or any part of such series, at such time or times and
from time to time and at such redemption price or prices as may be
provided by the Board of Directors in such certificate and otherwise
upon the terms and conditions fixed by the Board of Directors in such
certificate for any such redemptions.
4. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the
holders of each series of the Preferred Stock then outstanding shall be
entitled to receive, after the payment in full of all amounts to which
the holders of all series of the Preferred Stock ranking senior thereto
are entitled, out of the assets of the Corporation, before any
distribution or payment shall be made to the holders of any series of
the Preferred Stock ranking junior to such series upon liquidation,
dissolution or winding up of the Corporation, or of any Junior Stock,
the amount, if any, for each share provided by the Board of Directors
in the certificate made pursuant to subparagraph (d) of paragraph 1. If
payment shall have been made in full to the holders of each series of
the Preferred Stock, the remaining assets of the Corporation shall be
distributed among the holders of the Junior Stock, according to their
respective rights and
<PAGE> 5
5
preferences and pro rata in accordance with their respective holdings.
5. On all matters with respect to which holders of the
Preferred Stock or of certain series thereof are entitled to vote as a
single class, each holder of Preferred Stock afforded such class voting
right shall be entitled to one vote for each share held.
6. For purposes of this Article FOURTH, the term "Junior
Stock" shall mean the Common Stock and any other class of stock of the
Corporation hereafter authorized which shall rank junior to all series
of the Preferred Stock as to all dividends or preference on
dissolution, liquidation or winding up of the Corporation.
7. Subject to all rights of the Preferred Stock,
dividends may be paid on the Common Stock as and when declared by the
Board of Directors of the Corporation out of any funds of the
Corporation legally available for the payment thereof.
8. After payment shall have been made in full to the
holders of the Preferred Stock in the event of any liquidation,
dissolution or winding-up of the affairs of the Corporation, the
remaining assets of the Corporation shall be distributed to the holders
of the Common Stock on a pro rata basis.
9. Unless the Board of Directors shall provide in any
certificate made pursuant to subparagraph (d) of paragraph 1 with
respect to a series of the Preferred Stock that the holders of shares
of such series shall have voting rights for the election of directors
and for all other purposes, the holders of the Common Stock shall
possess full voting power for the election of directors and for all
other purposes, each holder of Common Stock entitled to vote being
entitled to one vote for each share of Common Stock held of record by
such holder.
FIFTH: Subject to the provisions of the General Corporation
Law of the State of Delaware, the number of Directors of the Corporation shall
be determined as provided by the By-Laws.
<PAGE> 6
6
SIXTH: To the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, or any comparable successor law, as the same
may be amended and supplemented from time to time, the Corporation (i) may
indemnify all persons whom it shall have power to indemnify thereunder from and
against any and all of the expenses, liabilities or other matters referred to in
or covered thereby, (ii) shall indemnify each such person if he is or is
threatened to be made a party to an action, suit or proceeding by reason of the
fact that he is or was a director, officer, employee or agent of the Corporation
or because he was serving the Corporation or any other legal entity in any
capacity at the request of the Corporation while a director, officer, employee
or agent of the Corporation and (iii) shall pay the expenses of such a current
or former director, officer, employee or agent incurred in connection with any
such action, suit or proceeding in advance of the final disposition of such
action, suit or proceeding. The indemnification and advancement of expenses
provided for herein shall not be deemed exclusive of any other rights to which
those entitled to indemnification or advancement of expenses may be entitled
under any by-law, agreement, contract or vote of stockholders or disinterested
directors or pursuant to the direction (however embodied) of any court of
competent jurisdiction or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
SEVENTH: In furtherance and not in limitation of the general
powers conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to make, alter or repeal the By-Laws of the Corporation,
except as specifically stated therein.
EIGHTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors,
<PAGE> 7
7
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of this Corporation, as the case may be,
and also on this Corporation.
NINTH: Except as otherwise required by the laws of the State
of Delaware, the stockholders and directors shall have the power to hold their
meetings and to keep the books, documents and papers of the Corporation outside
of the State of Delaware, and the Corporation shall have the power to have one
or more offices within or without the State of Delaware, at such places as may
be from time to time designated by the By-Laws or by resolution of the
stockholders or directors. Elections of directors need not be by ballot unless
the By-Laws of the Corporation shall so provide.
TENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ELEVENTH: A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the 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 the unlawful payment of
dividends or unlawful stock purchases under Section 174 of the General
Corporation Law of Delaware, or (iv) for any transaction from which the director
derived any improper personal benefit. If the General Corporation Law of
Delaware is amended to further eliminate or limit the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law of Delaware, as so amended. Any repeal or modification
<PAGE> 8
8
of this Article by the stockholders of the Corporation shall be prospective only
and shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
TWELFTH: The Corporation expressly elects not to be governed
by the provisions of Section 203 of the General Corporation Law of the State of
Delaware.
THIRTEENTH: The name and address of the incorporator is Lee J.
Hirsch, 237 Park Avenue, New York, New York 10017.
IN WITNESS WHEREOF, the undersigned, being the incorporator
hereinabove named, does hereby execute this Certificate of Incorporation this
11th day of August, 1995.
/s/ Lee J. Hirsch
---------------------------------
Lee J. Hirsch
Incorporator
<PAGE> 9
CERTIFICATE OF DESIGNATION OF
8% CUMULATIVE PREFERRED STOCK
OF
VALLEY FORGE DENTAL ASSOCIATES, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
We, Douglas P. Gill, President, and Robert A. Ouimette,
Assistant Secretary, of Valley Forge Dental Associates, Inc., a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "Corporation"), in accordance with the provisions of Section 103
thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by Article Fourth of the Certificate of Incorporation of the
Corporation, and in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, on August 11, 1995, the Board of
Directors of the Corporation adopted the following resolution creating a class
of its Preferred Stock, $.01 par value, designated as 8% Cumulative Preferred
Stock:
RESOLVED, that pursuant to the authority vested in
the Board of Directors of this Corporation in accordance with
the provisions of Article Fourth of its Certificate of
Incorporation (the "Certificate of Incorporation"), a class of
Preferred Stock, $.01 par value, of the Corporation be, and it
hereby is, created, and that the designation and amount
thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares
of such class, and the qualifications, limitations or
restrictions thereof, are as follows:
(1) Designation and Amount. An aggregate of 10,000
shares of Preferred Stock, $.01 par value, of the Corporation
are hereby constituted as a class designated as "8% Cumulative
Preferred Stock." Such number of shares
<PAGE> 10
2
may be increased or decreased by resolution of the Board of
Directors; provided, that no decrease shall reduce the number
of shares of such class to a number less than the number of
shares of such class then outstanding plus the number of
shares of such class reserved for issuance upon the exercise
of outstanding options, rights or warrants or upon the
conversion of any outstanding securities issued by the
Corporation convertible into shares of such class.
(2) Dividends. The holders of the 8% Cumulative
Preferred Stock shall be entitled to receive dividends in
cash, when and as declared by the Board of Directors, but only
out of any funds of the Corporation legally available
therefor. The dividend rate for the 8% Cumulative Preferred
Stock shall be $8.00 per share per annum, and shall be payable
quarterly on March 31, June 30, September 30 and December 31
in each year commencing September 30, 1995. If dividends with
respect to the 8% Cumulative Preferred Stock are to be
declared for any dividend period, then not less than 20 days
prior to the date for payment of such dividend, the Board of
Directors shall by resolution declare a dividend for such
quarterly period, out of funds legally available therefor, at
the rate prescribed herein. Dividends shall be cumulative on
shares of 8% Cumulative Preferred Stock from the date of
original issuance thereof. If the full amount of the dividends
on the 8% Cumulative Preferred Stock, including all
accumulated and unpaid dividends, payable upon any quarterly
payment date is not so paid, then such dividends shall
cumulate until so paid. No interest, or sum of money in lieu
of interest, shall be payable in respect of any dividend
payment or payments on the 8% Cumulative Preferred Stock that
may be in arrears. If full cumulative dividends are not paid
on the 8% Cumulative Preferred Stock, all
<PAGE> 11
3
dividends declared on shares of the 8% Cumulative Preferred
Stock shall be paid pro rata to the holders of the outstanding
8% Cumulative Preferred Stock. So long as any shares of 8%
Cumulative Preferred Stock are outstanding, the Corporation
shall not declare, pay or set aside for payment any dividends
or other distributions in respect of Junior Stock (as
hereinafter defined), other than dividends payable in shares
of Common Stock to all holders of Common Stock, or call for
redemption or redeem any shares of Junior Stock unless full
cumulative dividends for all past dividend periods shall have
been declared and paid on the 8% Cumulative Preferred Stock.
(3) Liquidation, Dissolution or Winding Up. The
amount payable on the 8% Cumulative Preferred Stock in the
event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, shall be $100
per share plus an amount equal to all dividends per share
accrued (whether or not declared) during the dividend period
in which such liquidation, dissolution or winding up occurs
and all cumulated and unpaid dividends per share accrued
during prior dividend periods. The merger or consolidation of
the Corporation into or with another corporation, the merger
or consolidation of any other corporation into or with the
Corporation, or the sale, transfer, mortgage, pledge or lease
of all or substantially all the assets of the Corporation
shall not be deemed to be a liquidation, dissolution or
winding up of the Corporation.
(4) Redemption. (a) The Corporation shall have the
right, but not the obligation, to redeem all or part of the
outstanding shares of the 8% Cumulative Preferred Stock at any
time or from time to time. The price at which such stock shall
be redeemed shall be $100 per share plus an amount equal
<PAGE> 12
4
to all dividends per share accrued (whether or not declared)
during the dividend period in which the redemption occurs and
all cumulated and unpaid dividends per share, if any, accrued
during prior dividend periods. If less than all of the
outstanding shares of the 8% Cumulative Preferred Stock shall
be redeemed, the particular shares to be redeemed shall be
allocated among the holders of the 8% Cumulative Preferred
Stock on a pro rata basis.
(b) Notice of any redemption specifying the
date fixed for said redemption and the place where the amount
to be paid upon redemption is payable shall be mailed, postage
prepaid, at least 30 days, but not more than 60 days, prior to
said redemption date to the holders of record of the 8%
Cumulative Preferred Stock to be redeemed at their respective
addresses as the same shall appear on the books of the
Corporation. If such notice of redemption shall have been so
mailed, and if on or before the redemption date specified in
such notice all funds necessary for such redemption shall have
been set aside by the Corporation separate and apart from its
other funds, in trust for the account of the holders of the
shares to be redeemed (and so as to be and continue to be
available therefor), then, on and after said redemption date,
notwithstanding that any certificate for shares of the 8%
Cumulative Preferred Stock so called for redemption shall not
have been surrendered for cancellation, the shares represented
thereby so called for redemption shall be deemed to be no
longer outstanding, the right to receive dividends thereon
shall cease to accrue, and all rights with respect to such
shares of the 8% Cumulative Preferred Stock so called for
redemption shall forthwith cease and terminate, except only
the right of the holders thereof to receive out of the funds
so set aside in trust, the amount payable on redemption
<PAGE> 13
5
thereof, but without interest. However, if such notice of
redemption shall have been so mailed, and if prior to the date
of redemption specified in such notice said funds shall be
deposited in trust for the account of the holders of the
shares to be redeemed (and so as to be and continue to be
available therefor), with a bank or trust company named in
such notice doing business in the Borough of Manhattan in the
City of New York and having capital, surplus and undivided
profits of at least $50,000,000, thereupon and without
awaiting the redemption date, all shares of 8% Cumulative
Preferred Stock with respect to which such notice shall have
been mailed and such deposit shall have been so made shall be
deemed to be no longer outstanding, and all rights with
respect to such shares of 8% Cumulative Preferred Stock shall
forthwith, upon such deposit in trust, cease and terminate,
except only the right of the holders thereof on or after the
redemption date to receive from such deposit the amount
payable on redemption thereof, but without interest. In case
the holders of shares of 8% Cumulative Preferred Stock which
shall have been redeemed shall not within three years after
the redemption date claim any amount so deposited in trust for
the redemption of such shares, such bank or trust company
shall, upon demand, pay over to the Corporation any such
unclaimed amount so deposited with it, and shall thereupon be
relieved of all responsibility in respect thereof, and
thereafter the holders of such shares shall look only to the
Corporation for payment of the redemption price thereof, but
without interest.
(c) Any then outstanding shares of 8%
Cumulative Preferred Stock shall be redeemed by the
Corporation on December 31, 1998. Such redemption shall be at
a redemption price and shall be effected in the same manner
and with
<PAGE> 14
6
the same effect as provided in paragraphs (a) and (b) hereof
for the redemption of shares of 8% Cumulative Preferred Stock
at the option of the Corporation.
(d) Any then outstanding shares of 8%
Cumulative Preferred Stock shall be redeemed by the
Corporation upon the closing of the initial sale to the public
by the Corporation of shares of its capital stock pursuant to
a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities
Act of 1933, as amended. Such redemption shall be at a
redemption price and shall be effected in the same manner and
with the same effect as provided in paragraphs (a) and (b)
hereof for the redemption of shares of 8% Cumulative Preferred
Stock at the option of the Corporation.
(e) For purposes hereof:
"Junior Stock" shall mean the Common Stock of the
Corporation, any other stock over which the 8% Cumulative
Preferred Stock has a preference as to payment of dividends or
as to distribution of assets and any securities of whatever
form which are convertible into or exchangeable for Junior
Stock.
(5) Amendment. The consent of the holders of at least
two-thirds of the
<PAGE> 15
7
outstanding shares of the 8% Cumulative Preferred Stock, given
in person or by proxy, either in writing or at a special
meeting called for the purpose, shall be necessary to effect
or validate any one or more of the following:
(a) the authorization of, or any increase in the
authorized amount of, any additional class of stock of the
Corporation ranking prior to or on a parity with the 8%
Cumulative Preferred Stock; or
(b) the amendment, change or alteration of the
Certificate of Incorporation of the Corporation so as to
affect adversely the rights or preferences of the 8%
Cumulative Preferred Stock or the holders thereof.
This Certificate of Designation was authorized by resolution
duly adopted by the Board of Directors of the Corporation at a meeting duly held
on August 11, 1995.
IN WITNESS WHEREOF, the Corporation has caused its corporate
seal to be hereunder affixed and this Certificate of Designation to be signed by
Douglas P. Gill, its President, and attested to by Robert A. Ouimette, its
Assistant Secretary, as of the 11th day of August, 1995.
VALLEY FORGE DENTAL ASSOCIATES, INC.
/s/ Douglas P. Gill
----------------------------------------
Douglas P. Gill
President
[SEAL]
Attest:
/s/ Robert A. Ouimette
- ----------------------------------------
Robert A. Ouimette
Assistant Secretary
<PAGE> 16
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION OF
VALLEY FORGE DENTAL ASSOCIATES, INC.
Pursuant to Section 242 of
the General Corporation Law of
the State of Delaware
Valley Forge Dental Associates, Inc., a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: The Certificate of Incorporation of the Corporation is
hereby amended by deleting the first sentence of Article FOURTH of the
Certificate of Incorporation in its present form and substituting in lieu
thereof the following:
"FOURTH: The total number of shares of capital stock
which the Corporation shall have authority to issue is
1,000,000 shares of Preferred Stock, $.01 par value per share
(the "Preferred Stock"), and 20,000,000 shares of Common
Stock, $.01 par value per share (the "Common Stock")."
Except as specifically amended above, in all other respects
the Certificate of Incorporation of the Corporation, together with any
Certificates of Designation a part thereof, remains in full force and effect.
SECOND: The amendment to the Certificate of Incorporation of
the Corporation set forth in this Certificate of Amendment has been duly adopted
in accordance with the applicable provisions of Section 242 of the General
Corporation Law of the
<PAGE> 17
2
State of Delaware, (a) the Board of Directors of the Corporation having duly
adopted a resolution setting forth such amendment and declaring its advisability
at a meeting of the Board of Directors of the Corporation duly called and held
on October 1, 1997 in conformity with the By-laws of the Corporation and (b) in
lieu of a meeting and vote of stockholders, the holders of the capital stock of
the Corporation having not less than the minimum number of votes that would have
been necessary to adopt such an amendment at a meeting at which all stockholders
having a right to vote thereon were present and voted having duly consented in
writing to the adoption of such amendment and written notice thereof in
accordance with Section 228(d) of the General Corporation Law of the State of
Delaware having been given to the holders who did not so consent.
IN WITNESS WHEREOF, the undersigned have executed and affixed
the corporate seal of the Corporation to this Certificate of Amendment as of the
15th day of October, 1997.
/s/ W. Gary Liddick
----------------------------------------
W. Gary Liddick
Vice President
[Corporate Seal]
ATTEST:
/s/ Robert A. Ouimette
- ----------------------------------------
Robert A. Ouimette
Assistant Secretary
<PAGE> 1
EXHIBIT 3(b)
August 11, 1995
VALLEY FORGE DENTAL ASSOCIATES, INC.
BY-LAWS
ARTICLE I
Offices
The registered office of the Corporation shall be in the City
of Dover, County of Kent, State of Delaware.
The Corporation may also have offices at such other places,
both within and without the State of Delaware, as may from time to time be
designated by the Board of Directors.
ARTICLE II
Books
The books and records of the Corporation may be kept (except
as otherwise provided by the laws of the State of Delaware) outside of the State
of Delaware and at such place or places as may from time to time be designated
by the Board of Directors.
ARTICLE III
Stockholders
Section 1. Annual Meetings. The annual meeting of the
stockholders of the Corporation for the election of Directors and the
transaction of such other business as may properly come before said meeting
shall be held at the principal business office of the Corporation or at such
other place or places either within or without the State of
<PAGE> 2
2
Delaware as may be designated by the Board of Directors and stated in the notice
of the meeting, on the first Monday of May in each year, if not a legal holiday,
and, if a legal holiday, then on the next day not a legal holiday, at 10:00
o'clock in the forenoon, or such other day as shall be determined by the Board
of Directors.
Written notice of the place designated for the annual meeting
of the stockholders of the Corporation shall be delivered personally or mailed
to each stockholder entitled to vote thereat not less than ten (10) and not more
than sixty (60) days prior to said meeting, but at any meeting at which all
stockholders shall be present, or of which all stockholders not present have
waived notice in writing, the giving of notice as above described may be
dispensed with. If mailed, said notice shall be directed to each stockholder at
his address as the same appears on the stock ledger of the Corporation unless he
shall have filed with the Secretary of the Corporation a written request that
notices intended for him be mailed to some other address, in which case it shall
be mailed to the address designated in such request.
Section 2. Special Meetings. Special meetings of the
stockholders of the Corporation shall be held whenever called in the manner
required by the laws of the State of Delaware for purposes as to which there are
special statutory provisions, and for other purposes whenever called
<PAGE> 3
3
by resolution of the Board of Directors, or by the Chairman of the Board, or by
the President, or by the holders of a majority of the outstanding shares of
capital stock of the Corporation the holders of which are entitled to vote on
matters that are to be voted on at such meeting. Any such special meeting of
stockholders may be held at the principal business office of the Corporation or
at such other place or places, either within or without the State of Delaware,
as may be specified in the notice thereof. Business transacted at any special
meeting of stockholders of the Corporation shall be limited to the purposes
stated in the notice thereof.
Except as otherwise expressly required by the laws of the
State of Delaware, written notice of each special meeting, stating the day, hour
and place, and in general terms the business to be transacted thereat, shall be
delivered personally or mailed to each stockholder entitled to vote thereat not
less than ten (10) and not more than sixty (60) days before the meeting. If
mailed, said notice shall be directed to each stockholder at his address as the
same appears on the stock ledger of the Corporation unless he shall have filed
with the Secretary of the Corporation a written request that notices intended
for him be mailed to some other address, in which case it shall be mailed to the
address designated in said request. At any special meeting at which all
stockholders shall be present, or of which all
<PAGE> 4
4
stockholders not present have waived notice in writing, the giving of notice as
above described may be dispensed with.
Section 3. List of Stockholders. The officer of the
Corporation who shall have charge of the stock ledger of the Corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 4. Quorum. At any meeting of the stockholders of the
Corporation, except as otherwise expressly provided by the laws of the State of
Delaware, the Certificate of Incorporation or these By-Laws, there must be
present, either in person or by proxy, in order to constitute a quorum,
stockholders owning a majority of the issued and outstanding shares of the
capital stock of the
<PAGE> 5
5
Corporation entitled to vote at said meeting. At any meeting of stockholders at
which a quorum is not present, the holders of, or proxies for, a majority of the
stock which is represented at such meeting, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 5. Organization. The Chairman of the Board, or in his
absence the President, or in his absence any Vice President, shall call to order
meetings of the stockholders and shall act as chairman of such meetings. The
Board of Directors or the stockholders may appoint any stockholder or any
Director or officer of the Corporation to act as chairman of any meeting in the
absence of the Chairman of the Board, the President and all of the Vice
Presidents.
The Secretary of the Corporation shall act as secretary of all
meetings of the stockholders, but in the
<PAGE> 6
6
absence of the Secretary the presiding officer may appoint any other person to
act as secretary of any meeting.
Section 6. Voting. Except as otherwise provided in the
Certificate of Incorporation or these By-Laws, each stockholder of record of the
Corporation shall, at every meeting of the stockholders of the Corporation, be
entitled to one (l) vote for each share of stock standing in his name on the
books of the Corporation on any matter on which he is entitled to vote, and such
votes may be cast either in person or by proxy, appointed by an instrument in
writing, subscribed by such stockholder or by his duly authorized attorney, and
filed with the Secretary before being voted on, but no proxy shall be voted
after three (3) years from its date, unless said proxy provides for a longer
period. If the Certificate of Incorporation provides for more or less than one
(l) vote for any share of capital stock of the Corporation, on any matter, then
any and every reference in these By-Laws to a majority or other proportion of
capital stock shall refer to such majority or other proportion of the votes of
such stock.
The vote on all elections of Directors and on any other
questions before the meeting need not be by ballot, except upon demand of any
stockholder.
When a quorum is present at any meeting of the stockholders of
the Corporation, the vote of the holders of a majority of the capital stock
entitled to vote at such
<PAGE> 7
7
meeting and present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which, under any
provision of the laws of the State of Delaware or of the Certificate of
Incorporation, a different vote is required in which case such provision shall
govern and control the decision of such question.
Section 7. Consent. Except as otherwise provided by the
Certificate of Incorporation, whenever the vote of the stockholders at a meeting
thereof is required or permitted to be taken in connection with any corporate
action by any provision of the laws of the State of Delaware or of the
Certificate of Incorporation, such corporate action may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
capital stock of the Corporation having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented
thereto in writing.
Section 8. Judges. At every meeting of the stockholders of the
Corporation at which a vote by ballot is
<PAGE> 8
8
taken, the polls shall be opened and closed, the proxies and ballots shall be
received and taken in charge, and all questions touching the qualifications of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided by, two (2) judges. Said judges shall be appointed by the Board of
Directors before the meeting, or, if no such appointment shall have been made,
by the presiding officer of the meeting. If for any reason any of the judges
previously appointed shall fail to attend or refuse or be unable to serve,
judges in place of any so failing to attend, or refusing or unable to serve,
shall be appointed in like manner.
ARTICLE IV
Directors
Section 1. Number, Election and Term of Office. The business
and affairs of the Corporation shall be managed by the Board of Directors. The
number of Directors which shall constitute the whole Board shall be between one
(1) and twelve (12). Within such limits, the number of Directors may be fixed
from time to time by vote of the stockholders or of the Board of Directors, at
any regular or special meeting, subject to the provisions of the Certificate of
Incorporation. Directors need not be stockholders. Directors shall be elected at
the annual meeting of the stockholders of the Corporation, except as provided in
Section 2 of this Article, to serve until the
<PAGE> 9
9
next annual meeting of stockholders and until their respective successors are
duly elected and have qualified.
In addition to the powers by these By-Laws expressly conferred
upon them, the Board may exercise all such powers of the Corporation as are not
by the laws of the State of Delaware, the Certificate of Incorporation or these
By-Laws required to be exercised or done by the stockholders.
Section 2. Vacancies and Newly Created Directorships. Except
as hereinafter provided, any vacancy in the office of a Director occurring for
any reason other than the removal of a Director pursuant to Section 3 of this
Article, and any newly created Directorship resulting from any increase in the
authorized number of Directors, may be filled by a majority of the Directors
then in office or by a sole remaining Director. In the event that any vacancy in
the office of a Director occurs as a result of the removal of a Director
pursuant to Section 3 of this Article, or in the event that vacancies occur
contemporaneously in the offices of all of the Directors, such vacancy or
vacancies shall be filled by the stockholders of the Corporation at a meeting of
stockholders called for the purpose. Directors chosen or elected as aforesaid
shall hold office until the next annual meeting of stockholders and until their
respective successors are duly elected and have qualified.
<PAGE> 10
10
Section 3. Removals. At any meeting of stockholders of the
Corporation called for the purpose, the holders of a majority of the shares of
capital stock of the Corporation entitled to vote at such meeting may remove
from office, with or without cause, any or all of the Directors.
Section 4. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place, either within or
without the State of Delaware, as shall from time to time be determined by
resolution of the Board.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or by the President or any
two Directors on notice given to each Director, and such meetings shall be held
at the principal business office of the Corporation or at such other place or
places, either within or without the State of Delaware, as shall be specified in
the notices thereof.
Section 6. Annual Meetings. The first meeting of each newly
elected Board of Directors shall be held as soon as practicable after each
annual election of Directors and on the same day, at the same place at which
regular meetings of the Board of Directors are held, or at such other time and
place as may be provided by resolution of the Board. Such meeting may be held at
any other time or place which shall be specified in a notice given, as
hereinafter provided, for special meetings of the Board of Directors.
<PAGE> 11
11
Section 7. Notice. Notice of any meeting of the Board of
Directors requiring notice shall be given to each Director by mailing the same,
addressed to him at his residence or usual place of business, at least
forty-eight (48) hours, or shall be sent to him at such place by facsimile
transmission, courier, telegraph, cable or wireless, or shall be delivered
personally or by telephone, at least twelve (12) hours, before the time fixed
for the meeting. At any meeting at which every Director shall be present or at
which all Directors not present shall waive notice in writing, any and all
business may be transacted even though no notice shall be given.
Section 8. Quorum. At all meetings of the Board of Directors,
the presence of one-third or more of the Directors constituting the Board shall
constitute a quorum for the transaction of business. Except as may be otherwise
specifically provided by the laws of the State of Delaware, the Certificate of
Incorporation or these By-Laws, the affirmative vote of a majority of the
Directors present at the time of such vote shall be the act of the Board of
Directors if a quorum is present. If a quorum shall not be present at any
meeting of the Board of Directors, the Directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
<PAGE> 12
12
Section 9. Consent. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting, if all members of the Board consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board.
Section 10. Telephonic Meetings. Unless otherwise restricted
by the Certificate of Incorporation or these By-Laws, members of the Board of
Directors may participate in a meeting of the Board by means of conference
telephone or similar communications equipment by means of which all persons
participating in such meeting can hear each other, and participation in a
meeting pursuant to this Section 10 shall constitute presence in person at such
meeting.
Section 11. Compensation of Directors. Directors, as such,
shall not receive any stated salary for their services, but, by resolution of
the Board, a fixed sum and expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the Board; provided that
nothing herein contained shall be construed to preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor.
Section 12. Resignations. Any Director of the Corporation may
resign at any time by giving written notice
<PAGE> 13
13
to the Board of Directors or to the Chairman of the Board or to the President or
the Secretary of the Corporation. Any such resignation shall take effect at the
time specified therein, or, if the time be not specified, upon receipt thereof;
and unless otherwise specified therein, acceptance of such resignation shall not
be necessary to make it effective.
ARTICLE V
Officers
Section 1. Number, Election and Term of Office. The officers
of the Corporation shall be a Chairman of the Board, a President, one or more
Vice Presidents, a Secretary and a Treasurer, and may at the discretion of the
Board of Directors include one or more Assistant Treasurers and Assistant
Secretaries. The officers of the Corporation shall be elected annually by the
Board of Directors at its meeting held immediately after the annual meeting of
the stockholders, and shall hold their respective offices until their successors
are duly elected and have qualified. Any number of offices may be held by the
same person. The Chairman of the Board may from time to time appoint such other
officers and agents as the interest of the Corporation may require and may fix
their duties and terms of office.
Section 2. Chairman of the Board. The Chairman of the Board
shall be the chief executive officer of the Corporation and shall have general
and active management of
<PAGE> 14
14
the business of the Corporation, and shall see that all orders and resolutions
of the Board are carried into effect. He shall ensure that the books, reports,
statements, certificates and other records of the Corporation are kept, made or
filed in accordance with the laws of the State of Delaware. He shall preside at
all meetings of the Board of Directors and at all meetings of the stockholders.
He shall cause to be called regular and special meetings of the stockholders and
of the Board of Directors in accordance with these By-Laws. He may sign, execute
and deliver in the name of the Corporation all deeds, mortgages, bonds,
contracts or other instruments authorized by the Board of Directors, except in
cases where the signing, execution or delivery thereof shall be expressly
delegated by the Board of Directors or by these By-Laws to some other officer or
agent of the Corporation or where any of them shall be required by law otherwise
to be signed, executed or delivered. He may sign, with the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary, certificates of
stock of the Corporation. He shall appoint and remove, employ and discharge, and
fix the compensation of all servants, agents, employees and clerks of the
Corporation other than the duly elected or appointed officers, subject to the
approval of the Board of Directors. In addition to the powers and duties
expressly conferred upon him by these By-Laws, he shall, except as otherwise
<PAGE> 15
15
specifically provided by the laws of the State of Delaware, have such other
powers and duties as shall from time to time be assigned to him by the Board of
Directors.
Section 3. President. The President shall be the chief
operating officer, or, if the office of Chairman of the Board shall be vacant,
the chief executive officer of the Corporation. At the request of the Chairman
of the Board, or in the case of his absence or inability to act, or if the
office of Chairman of the Board shall be vacant, the President shall perform the
duties of the Chairman of the Board, and when so acting, shall have all the
powers of the Chairman of the Board. He may sign, with the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary, certificates of
stock of the Corporation. In addition to the powers and duties expressly
conferred upon him by these By-Laws, he shall, except as otherwise specifically
provided by the laws of the State of Delaware, have such other powers and duties
as shall from time to time be assigned to him by the Chairman of the Board or by
the Board of Directors.
Section 4. Vice Presidents. The Vice Presidents shall perform
such duties as the Chairman of the Board, the President or the Board of
Directors shall require. Any Vice President shall, during the absence or
incapacity of the President, assume and perform his duties.
<PAGE> 16
16
Section 5. Secretary. The Secretary may sign all certificates
of stock of the Corporation. He shall record all the proceedings of the meetings
of the Board of Directors and of the stockholders of the Corporation in books to
be kept for that purpose. He shall have custody of the seal of the Corporation
and may affix the same to any instrument requiring such seal when authorized by
the Board of Directors, and when so affixed he may attest the same by his
signature. He shall keep the transfer books, in which all transfers of the
capital stock of the Corporation shall be registered, and the stock books, which
shall contain the names and addresses of all holders of the capital stock of the
Corporation and the number of shares held by each; and he shall keep such stock
and transfer books open daily during business hours to the inspection of every
stockholder and for transfer of stock. He shall notify the Directors and
stockholders of their respective meetings as required by law or by these
By-Laws, and shall perform such other duties as may be required by law or by
these By-Laws, or which may be assigned to him from time to time by the Board of
Directors.
Section 6. Assistant Secretaries. The Assistant Secretaries
shall, during the absence or incapacity of the Secretary, assume and perform all
functions and duties which the Secretary might lawfully do if present and not
under any incapacity.
<PAGE> 17
17
Section 7. Treasurer. The Treasurer shall have charge of the
funds and securities of the Corporation. He may sign all certificates of stock.
He shall keep full and accurate accounts of all receipts and disbursements of
the Corporation in books belonging to the Corporation and shall deposit all
monies and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors.
He shall disburse the funds of the Corporation as may be ordered by the Board,
and shall render to the Chairman of the Board or the President or the Directors,
whenever they may require it, an account of all his transactions as Treasurer
and an account of the business and financial position of the Corporation.
Section 8. Assistant Treasurers. The Assistant Treasurers
shall, during the absence or incapacity of the Treasurer, assume and perform all
functions and duties which the Treasurer might lawfully do if present and not
under any incapacity.
Section 9. Treasurer's Bond. The Treasurer and Assistant
Treasurers shall, if required so to do by the Board of Directors, each give a
bond (which shall be renewed every six (6) years) in such sum and with such
surety or sureties as the Board of Directors may require.
Section 10. Transfer of Duties. The Board of Directors or the
Chairman of the Board in its or his
<PAGE> 18
18
absolute discretion may transfer the power and duties, in whole or in part, of
any officer to any other officer, or persons, notwithstanding the provisions of
these By-Laws, except as otherwise provided by the laws of the State of
Delaware.
Section 11. Vacancies. If the office of Chairman of the Board,
President, Vice President, Secretary or Treasurer, or of any other officer or
agent becomes vacant for any reason, the Board of Directors may choose a
successor to hold office for the unexpired term.
Section 12. Removals. At any meeting of the Board of Directors
called for the purpose, any officer or agent of the Corporation may be removed
from office, with or without cause, by the affirmative vote of a majority of the
entire Board of Directors.
Section 13. Compensation of Officers. The officers shall
receive such salary or compensation as may be determined by the Board of
Directors.
Section 14. Resignations. Any officer or agent of the
Corporation may resign at any time by giving written notice to the Board of
Directors or to the Chairman of the Board or the President or the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein or, if the time be not specified, upon receipt thereof; and unless
otherwise specified therein, acceptance
<PAGE> 19
19
of such resignation shall not be necessary to make it effective.
ARTICLE VI
Contracts, Checks and Notes
Section 1. Contracts. Unless the Board of Directors shall
otherwise specifically direct, all contracts of the Corporation shall be
executed in the name of the Corporation by the Chairman of the Board, the
President or a Vice President.
Section 2. Checks and Notes. All checks, drafts, bills of
exchange and promissory notes and other negotiable instruments of the
Corporation shall be signed by such officers or agents of the Corporation as may
be designated by the Board of Directors.
ARTICLE VII
Stock
Section 1. Certificates of Stock. The certificates for shares
of the stock of the Corporation shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be prepared or approved by the Board of
Directors. Every holder of stock in the Corporation shall be entitled to have a
certificate signed by, or in the name of the Corporation by, the Chairman of the
Board, the President or a Vice President, and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary certifying the number of
shares owned by
<PAGE> 20
20
him and the date of issue; and no certificate shall be valid unless so signed.
All certificates shall be consecutively numbered and shall be entered in the
books of the Corporation as they are issued.
Where a certificate is countersigned (l) by a transfer agent
other than the Corporation or its employee, or, (2) by a registrar other than
the Corporation or its employee, any other signature on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
All certificates surrendered to the Corporation shall be
cancelled and, except in the case of lost or destroyed certificates, no new
certificates shall be issued until the former certificates for the same number
of shares of the same class of stock shall have been surrendered and cancelled.
Section 2. Transfer of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a
<PAGE> 21
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new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
ARTICLE VIII
Registered Stockholders
The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to, or
interest in, such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, save as expressly provided by
the laws of the State of Delaware.
ARTICLE IX
Lost Certificates
Any person claiming a certificate of stock to be lost or
destroyed, shall make an affidavit or affirmation of the fact and advertise the
same in such manner as the Board of Directors may require, and the Board of
Directors may, in its discretion, require the owner of the lost or destroyed
certificate, or his legal representative, to give the Corporation a bond in a
sum sufficient, in the opinion of the Board of Directors, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of any such certificate. A new certificate of the same tenor and
for the same number of shares as the one alleged to be lost or destroyed may be
issued without
<PAGE> 22
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requiring any bond when, in the judgment of the Directors, it is proper so to
do.
ARTICLE X
Fixing of Record Date
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
ARTICLE XI
Dividends
Subject to the relevant provisions of the Certificate of
Incorporation, dividends upon the capital stock of the Corporation may be
declared by the Board of Directors at any regular or special meeting, pursuant
to
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law. Dividends may be paid in cash, in property, or in shares of the capital
stock of the Corporation, subject to the provisions of the Certificate of
Incorporation.
Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sums as the Directors
from time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other purpose as the
Directors shall think conducive to the interest of the Corporation, and the
Directors may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE XII
Waiver of Notice
Whenever any notice whatever is required to be given by
statute or under the provisions of the Certificate of Incorporation or these
By-Laws, a waiver thereof in writing signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be
equivalent thereto.
ARTICLE XIII
Seal
The corporate seal of the Corporation shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware."
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ARTICLE XIV
Amendments
Subject to the provisions of the Certificate of Incorporation,
these By-Laws may be altered, amended or repealed or new By-Laws may be adopted
by the stockholders or by the Board of Directors, at any regular meeting of the
stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment or repeal of the By-Laws or of adoption of new By-Laws be contained in
the notice of such special meeting.
<PAGE> 1
EXHIBIT 4(a)
VALLEY FORGE DENTAL ASSOCIATES, INC.
1997 STOCK OPTION PLAN
1. Purposes of Plan. The purposes of this Plan, which shall be known
as the Valley Forge Dental Associates, Inc. 1997 Stock Option Plan and is
hereinafter referred to as the "Plan", are (i) to provide incentives for key
employees, directors, consultants and other individuals providing services to
Valley Forge Dental Associates, Inc. (the "Company") and its subsidiary or
parent corporations (within the respective meanings of Sections 424(f) and
424(e) of the Internal Revenue Code of 1986, as amended (the "Code"), and
referred to herein as "Subsidiary" and "Parent", respectively) and to
professional corporations managed by the Company or any Parent or Subsidiary
(such professional corporations, Parent and Subsidiaries referred to herein
collectively as "Affiliates") by encouraging their ownership of the common
stock, $.01 par value, of the Company (the "Stock") and (ii) to aid the Company
in retaining such key employees, directors, consultants and other individuals
upon whose efforts the Company's success and future growth depends, and
attracting other such employees, directors, consultants and other individuals.
2. Administration. The Plan shall be administered by the Compensation
Committee of the Board of Directors or a subcommittee of the Compensation
Committee, as hereinafter provided (the committee or subcommittee administering
the Plan is hereinafter referred to as the "Committee"). For purposes of
administration, the Committee, subject to the terms of the Plan, shall have
plenary authority to establish such rules and regulations, to make such
determinations and interpretations, and to take such other administrative
actions as it deems necessary or advisable. All determinations and
interpretations made by the Committee shall be final, conclusive and binding on
all persons, including Optionees (as hereinafter defined) and their legal
representatives and beneficiaries.
The Committee shall consist of not fewer than two members of the Board
of Directors. Unless otherwise determined by the Board of Directors, all members
of the Board of Directors who serve on the Committee shall be "Non-Employee
Directors" (as defined in Rule 16b-3 under the Securities Exchange Act of 1934,
as amended) and "outside directors" as defined in Treasury Regulation Section
1.162-27(e)(3). The Compensation Committee shall designate one of the members of
the Committee as its Chairman. The Committee shall hold its meetings at such
times and places as it may determine. A majority of its members shall constitute
a quorum. All determinations of the Committee shall be made by a
<PAGE> 2
2
majority of its members. Any decision or determination reduced to writing and
signed by all members shall be as effective as if it had been made by a majority
vote at a meeting duly called and held. The Committee may appoint a secretary
(who need not be a member of the Committee). No member of the Committee shall be
liable for any act or omission with respect to his service on the Committee, if
he acts in good faith and in a manner he reasonably believes to be in or not
opposed to the best interests of the Company.
3. Stock Available for Options. There shall be available for options
under the Plan a total of 600,000 shares of Stock, subject to any adjustments
which may be made pursuant to Section 5(f) hereof. Shares of Stock used for
purposes of the Plan may be either authorized and unissued shares, or previously
issued shares held in the treasury of the Company, or both. Shares of Stock
covered by options which have terminated or expired prior to exercise shall be
available for further options hereunder. The maximum number of options which may
be granted to any person under the Plan during any fiscal year of the Company
shall not exceed 200,000 shares.
4. Eligibility. Options under the Plan may be granted to key employees
of the Company or any Affiliate, including officers or directors of the Company
or any Affiliate, and to consultants and other individuals providing services to
the Company or any Affiliate (each such grantee, an "Optionee"). Options may be
granted to eligible individuals whether or not they hold or have held options
previously granted under the Plan or otherwise granted or assumed by the
Company. In selecting individuals for options, the Committee may take into
consideration any factors it may deem relevant, including its estimate of the
individual's present and potential contributions to the success of the Company
and its Affiliates. Service as an employee, director, officer or consultant of
or to the Company or any Affiliate shall be considered employment for purposes
of the Plan (and the period of such service shall be considered the period of
employment for purposes of Section 5(d) of this Plan); provided, however, that
incentive stock options may be granted under the Plan only to an individual who
is an "employee" (as such term is used in Section 422 of the Code) of the
Company or any Subsidiary or Parent.
5. Terms and Conditions of Options. The Committee shall, in its
discretion, prescribe the terms and conditions of the options to be granted
hereunder, which terms and conditions need not be the same in each case, subject
to the following:
<PAGE> 3
3
(a) Option Price. The price at which each share of Stock covered by an
option granted under the Plan may be purchased shall not be less than the Market
Value (as defined in Section 5(c) hereof) per share of Stock on the date of
grant of the option. The date of the grant of an option shall be the date
specified by the Committee in its grant of the option.
(b) Option Period. The period for exercise of an option shall in no
event be more than ten years from the date of grant, or in the case of any
option intended to be an incentive stock option granted to an individual owning,
on the date of grant, stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary,
more than five years from the date of grant. Options may, in the discretion of
the Committee, be made exercisable in installments during the option period. Any
shares not purchased on any applicable installment date may be purchased
thereafter at any time before the expiration of the option period.
(c) Exercise of Options. In order to exercise an option, the Optionee
shall deliver to the Company written notice specifying the number of shares of
Stock to be purchased, together with cash or a certified or bank cashier's check
payable to the order of the Company in the full amount of the purchase price
therefor; provided that, for the purpose of assisting an Optionee to exercise an
option, the Company may make loans to the Optionee or guarantee loans made by
third parties to the Optionee, on such terms and conditions as the Board of
Directors may authorize; and provided further that such purchase price may be
paid in shares of Stock owned by the Optionee having an aggregate Market Value
on the date of exercise equal to the aggregate purchase price, or in a
combination of cash and Stock. For purposes of the Plan, the Market Value per
share of Stock shall be the last sale price regular way on the date of
reference, or, in case no sale takes place on such date, the average of the
closing high bid and low asked prices regular way, in either case on the
principal national securities exchange on which the Stock is listed or admitted
to trading, or if the Stock is not listed or admitted to trading on any national
securities exchange, the last sale price reported on the National Market System
of the National Association of Securities Dealers Automated Quotation System
("NASDAQ") on such date, or the last sale price reported on the NASDAQ SmallCap
Market on such date, or the average of the closing high bid and low asked prices
in the over-the-counter market on such date, whichever is applicable, or if
there are no such prices reported on NASDAQ or in the over-the-counter market on
such date, as furnished to the
<PAGE> 4
4
Committee by any New York Stock Exchange member selected from time to time by
the Committee for such purpose. If there is no bid or asked price reported on
any such date, the Market Value shall be determined by the Committee in
accordance with the regulations promulgated under Section 2031 of the Code, or
by any other appropriate method selected by the Committee. If the Optionee so
requests, shares of Stock purchased upon exercise of an option may be issued in
the name of the Optionee or another person. An Optionee shall have none of the
rights of a stockholder until the shares of Stock are issued to him.
(d) Effect of Termination of Employment. An option may not be
exercised after the Optionee has ceased to be in the employ of the Company or
any Affiliate, except in the following circumstances:
(i) If the Optionee's employment is terminated by action of the
Company or an Affiliate, or by reason of disability or retirement under any
retirement plan maintained by the Company or any Affiliate, the option may
be exercised by the Optionee within three months after such termination, but
only as to any shares exercisable on the date the Optionee's employment so
terminates;
(ii) In the event of the death of the Optionee during the three month
period after termination of employment covered by (i) above, the person or
persons to whom his rights are transferred by will or the laws of descent
and distribution shall have a period of one year from the date of his death
to exercise any options which were exercisable by the Optionee at the time
of his death; and
(iii) In the event of the death of the Optionee while employed, the
option shall thereupon become exercisable in full, and the person or persons
to whom the Optionee's rights are transferred by will or the laws of descent
and distribution shall have a period of one year from the date of the
Optionee's death to exercise such option. The provisions of the foregoing
sentence shall apply to any outstanding options which are incentive stock
options to the extent permitted by Section 422(d) of the Code and such
outstanding options in excess thereof shall, immediately upon the occurrence
of the event described in the preceding sentence, be treated for all
purposes of the Plan as nonstatutory stock options and shall be immediately
exercisable as such as provided in the foregoing sentence.
<PAGE> 5
5
In no event shall any option be exercisable more than ten years from
the date of grant thereof. Nothing in the Plan or in any option granted pursuant
to the Plan (in the absence of an express provision to the contrary) shall
confer on any individual any right to continue in the employ of the Company or
any Affiliate or interfere in any way with the right of the Company or any
Affiliate to terminate his employment at any time.
(e) Limitation on Transferability of Options. Except as provided
in this Section 5(e), during the lifetime of an Optionee, options held by such
Optionee shall be exercisable only by him and no option shall be transferable
other than by will or the laws of descent and distribution. The Committee may,
in its discretion, provide that during the lifetime of an Optionee, options held
by such Optionee may be transferred to or for the benefit of a member of his
immediate family or to a charitable organization exempt from income tax under
Section 501(c)(3) of the Code. For purposes hereof, the term "immediate family"
of an Optionee shall mean such Optionee's spouse and children (both natural and
adoptive), and the direct lineal descendants of his children.
(f) Adjustments for Change in Stock Subject to Plan. In the event
of a reorganization, recapitalization, stock split, stock dividend, combination
of shares, merger, consolidation, rights offering, or any other change in the
corporate structure or shares of the Company, the Committee shall make such
adjustments, if any, as it deems appropriate in the number and kind of shares
subject to the Plan, in the number and kind of shares covered by outstanding
options, or in the option price per share, or both, and, in the case of a
merger, consolidation or other transaction pursuant to which the Company is not
the surviving corporation or pursuant to which the holders of outstanding Stock
shall receive in exchange therefor shares of capital stock of the surviving
corporation or another corporation, the Committee may require an Optionee to
exchange options granted under the Plan for options issued by the surviving
corporation or such other corporation.
(g) Acceleration of Exercisability of Options Upon Occurrence of
Certain Events. The Committee may, in its discretion, provide in the case of any
option granted under the Plan that, in connection with any merger or
consolidation which results in the holders of the outstanding voting securities
of the Company (determined immediately prior to such merger or consolidation)
owning less than a majority of the outstanding voting securities of the
surviving corporation (determined immediately following such merger or
consolidation), or any sale
<PAGE> 6
6
or transfer by the Company of all or substantially all its assets or any tender
offer or exchange offer for or the acquisition, directly or indirectly, by any
person or group of all or a majority of the then outstanding voting securities
of the Company, such option shall become exercisable in full or part,
notwithstanding any other provision of the Plan or of any outstanding options
granted thereunder, on and after (i) the fifteenth day prior to the effective
date of such merger, consolidation, sale, transfer or acquisition or (ii) the
date of commencement of such tender offer or exchange offer, as the case may be.
The provisions of the foregoing sentence shall apply to any outstanding options
which are incentive stock options to the extent permitted by Section 422(d) of
the Code and such outstanding options in excess thereof shall, immediately upon
the occurrence of the event described in clause (i) or (ii) of the foregoing
sentence, be treated for all purposes of the plan as nonstatutory stock options
and shall be immediately exercisable as such as provided in the foregoing
sentence. Notwithstanding the foregoing, in no event shall any option be
exercisable after the date of termination of the exercise period of such option
specified in Sections 5(b) and 5(d).
(h) Registration, Listing and Qualification of Shares of Stock.
Each option shall be subject to the requirement that if at any time the Board of
Directors shall determine that the registration, listing or qualification of the
shares of Stock covered thereby upon any securities exchange or under any
federal or state law, or the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with, the
granting of such option or the purchase of shares of Stock thereunder, no such
option may be exercised unless and until such registration, listing,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board of Directors. The Company may require
that any person exercising an option shall make such representations and
agreements and furnish such information as it deems appropriate to assure
compliance with the foregoing or any other applicable legal requirement.
(i) Other Terms and Conditions. The Committee may impose such
other terms and conditions, not inconsistent with the terms hereof, on the grant
or exercise of options, as it deems advisable.
6. Additional Provisions Applicable to Incentive Stock Options. The
Committee may, in its discretion, grant options under the Plan to eligible
employees which constitute "incentive stock options" within the meaning of
Section 422 of
<PAGE> 7
7
the Code, provided, however, that (a) the aggregate Market Value of the Stock
with respect to which incentive stock options are exercisable for the first time
by the Optionee during any calendar year shall not exceed the limitation set
forth in Section 422(d) of the Code; (b) if the Optionee owns on the date of
grant securities possessing more than 10% of the total combined voting power of
all classes of securities of the Company or of any Parent or Subsidiary, the
price per share shall not be less than 110% of the Market Value per share on the
date of grant and (c) Section 5(d)(ii) hereof shall not apply to any incentive
stock option.
7. Amendment and Termination. Unless the Plan shall theretofore have
been terminated as hereinafter provided, the Plan shall terminate on, and no
option shall be granted hereunder after December 31, 2006; provided, however,
that the Board of Directors may at any time prior to that date terminate the
Plan. The Board of Directors may at any time amend the Plan or any outstanding
options. No termination or amendment of the Plan may, without the consent of an
Optionee, adversely affect the rights of such Optionee under any option held by
such Optionee.
8. Stockholder Approval of Plan. The establishment of the Plan shall
be subject to approval by a majority of the votes cast thereon by the
stockholders of the Company at a meeting of stockholders duly called and held
for such purpose or by a method and in a degree that would be treated as
adequate under the applicable law of the Company's state of incorporation, and
no option granted hereunder shall be exercisable prior to such approval.
9. Withholding. It shall be a condition to the obligation of the
Company to issue shares of Stock upon exercise of an option, that the Optionee
(or any beneficiary, transferee or person entitled to act under Sections 5(d) or
5(e) hereof) pay to the Company, upon its demand, such amount as may be
requested by the Company for the purpose of satisfying any liability to withhold
federal, state or local income or other taxes. If the amount requested is not
paid, the Company may refuse to issue such shares of Stock.
10. Issuance of Certificates; Legends. The Company may endorse such
legend or legends upon the certificates for shares of Stock issued upon the
exercise of an option granted hereunder and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as, in its absolute
discretion, it determines to be necessary or appropriate.
<PAGE> 8
8
12. Other Actions. Nothing contained in this Plan shall be construed to
limit the authority of the Company to exercise its corporate rights and powers,
including but not by way of limitation, the right of the Company to grant or
assume options for proper corporate purposes other than under the Plan with
respect to any employee or other person, firm, corporation or association.
<PAGE> 1
EXHIBIT 4(b)
VALLEY FORGE DENTAL ASSOCIATES, INC.
Stock Option Certificate
Date of Grant: February 6, 1997
Name of Optionee: W. Gary Liddick
Number of Shares: 15,000
Price Per Share: $3.12
This is to certify that, effective on the date of grant specified
above, the Board of Directors of Valley Forge Dental Associates, Inc. (the
"Company") has granted to the above-named optionee (the "Optionee") an option to
purchase from the Company, for the price per share set forth above, the number
of shares of common stock, $.01 par value per share (the "Stock"), of the
Company set forth above. This option is not intended to be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
The terms and conditions of the option granted hereby are as
follows:
1. The price at which each share of Stock subject to this option may
be purchased shall be the price set forth above, subject to any adjustments
which may be made pursuant to Section 9 hereof, provided that it shall in no
event be less than the Market Value (as hereinafter defined) per share of Stock
on the date of grant.
<PAGE> 2
2
2. Subject to the terms and conditions set forth herein, this option
may be exercised to purchase shares of Stock covered by this option only in
accordance with the following schedule:
Cumulative Percentage
of Aggregate Number of
Shares of Stock Covered
Exercise Period Purchased by Option which May Be
Within one year from date of
grant........................ 0%
Beginning one year from date
of grant..................... 20%
Beginning two years from date
of grant..................... 40%
Beginning three years from date
of grant..................... 60%
Beginning four years from date
of grant..................... 80%
Beginning five years from date
of grant..................... 100%
less, in the case of each exercise period, the number of shares of Stock, if
any, previously purchased hereunder. This option shall terminate and no shares
of Stock may be purchased hereunder more than ten years after the date of grant.
3. Except as provided in Section 7 hereof, this option may not be
exercised unless the Optionee is in the
<PAGE> 3
3
employ of the Company or one of its parent or subsidiary corporations (within
the meaning of Section 424(e) and (f) of the Code, and such parent or subsidiary
corporations referred to herein collectively as "Affiliates") at the time of
such exercise and shall have been so employed continuously since the date of
grant of this option. For purposes of this option, service as a director,
officer or consultant of the Company or any Affiliate shall be considered
employment.
4. Subject to the terms and conditions set forth herein, the Optionee
may exercise this option at any time as to all or any of the shares of Stock
then purchasable in accordance with Section 2 hereof by delivering to the
Company written notice specifying:
(i) the number of whole shares of Stock to be purchased together with
payment in full of the aggregate option price of such shares, provided that
this option may not be exercised for less than ten (10) shares of Stock or
the number of shares of Stock remaining subject to option, whichever is
smaller;
(ii) the name or names in which the stock certificate or certificates
are to be registered;
(iii) the address to which dividends, notices, reports, etc. are to
be sent; and
(iv) the Optionee's social security number.
Only one stock certificate will be issued unless the Optionee otherwise requests
in writing. Payment shall be in cash, or by certified or bank cashier's check
payable to the order of the Company, free from all collection charges;
<PAGE> 4
4
provided, however, that payment may be made in shares of Stock owned by the
Optionee having a Market Value on the date of exercise equal to the aggregate
purchase price, or in a combination of cash and Stock. For purposes of this
option, the Market Value per share of Stock shall be the last sale price regular
way on the date of reference, or, in case no sale takes place on such date, the
average of the closing high bid and low asked prices regular way, in either case
on the principal national securities exchange on which the Stock is listed or
admitted to trading, or if the Stock is not listed or admitted to trading on any
national securities exchange, the last sale price reported on the National
Market System of the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") on such date, or the last sale price reported on the
NASDAQ SmallCap Market on such date, or the average of the closing high bid and
low asked prices in the over-the-counter market on such date, whichever is
applicable, or if there are no such prices reported on NASDAQ or in the
over-the-counter market on such date, as furnished to the Committee (as
hereinafter defined) by any New York Stock Exchange member selected from time to
time by the Committee for such purpose. If there is no bid or asked price
reported on any such date, the Market Value shall be determined by the Committee
in accordance with the regulations promulgated under Section 2031 of the Code,
or by any other appropriate
<PAGE> 5
5
method selected by the Committee. If the Optionee so requests, shares of Stock
purchased upon exercise of an option may be issued in the name of the Optionee
or another person. The Optionee shall not be entitled to any rights as a
stockholder of the Company in respect of any shares of Stock covered by this
option until such shares of Stock shall have been paid for in full and issued to
the Optionee. For purposes of this option, the "Committee" shall mean the
Compensation Committee of the Board of Directors or a subcommittee of the
Compensation Committee or such other committee designated by the Board of
Directors to administer this option.
5. As soon as practicable after the Company receives payment for
shares of Stock covered by this option, it shall deliver a certificate or
certificates representing the shares of Stock so purchased to the Optionee. Such
certificate shall be registered in the name of the Optionee, or in such other
name or names as the Optionee shall request.
6. This option is personal to the Optionee and during the Optionee's
lifetime may be exercised only by the Optionee. This option shall not be
transferable other than by will or the laws of descent and distribution.
7. In the event that the Optionee's employment with the Company or
any Affiliate (hereinafter the "Optionee's employment") is terminated prior to
the time
<PAGE> 6
6
that this option has been fully exercised, this option shall be exercisable, as
to any remaining shares of Stock subject hereto, only in the following
circumstances:
(i) If the Optionee's employment is terminated by action of the
Company or an Affiliate, or by reason of disability or retirement under any
retirement plan maintained by the Company or any Affiliate, this option may
be exercised by the Optionee within three months after such termination,
but only as to any shares exercisable on the date the Optionee's employment
so terminates;
(ii) In the event of the death of the Optionee during the three
month period after termination of the Optionee's employment covered by (i)
above, the person or persons to whom his rights are transferred by will or
the laws of descent and distribution shall have a period of one year from
the date of his death to exercise any options which were exercisable by the
Optionee at the time of his death; and
(iii) In the event of the death of the Optionee during the period of
the Optionee's employment, the option shall thereupon become exercisable in
full, and the person or persons to whom the Optionee's rights are
transferred by will or the laws of descent and distribution shall have a
period of one year from the date of the Optionee's death to exercise such
option.
Notwithstanding the foregoing, this option shall in no event be exercisable
after the date of termination of such option specified in Section 2 hereof. The
period of the Optionee's service as a director or consultant to the Company or
any Affiliate shall be deemed the period of employment for purposes of this
Section 7.
8. This option does not confer on the Optionee any right to continue
in the employ of the Company or any Affiliate or interfere in any way with the
right of the Company to determine the terms of the Optionee's employment.
<PAGE> 7
7
9. In the event of a reorganization, recapitalization, stock split,
stock dividend, combination of shares, merger, consolidation, rights offering,
or any other change in the corporate structure or shares of the Company, the
Committee shall make such adjustments, if any, as it deems appropriate in the
number and kind of shares subject to this option, or in the option price per
share, or both, and, in the case of a merger, consolidation or other transaction
pursuant to which the Company is not the surviving corporation or pursuant to
which the holders of outstanding Stock shall receive in exchange therefor shares
of capital stock of the surviving corporation or another corporation, the
Committee may require an Optionee to exchange options granted under the Plan for
options issued by the surviving corporation or such other corporation.
10. In connection with any merger or consolidation which results in
the holders of the outstanding voting securities of the Company (determined
immediately prior to such merger or consolidation) owning less than a majority
of the outstanding voting securities of the surviving corporation (determined
immediately following such merger or consolidation), or any sale or transfer by
the Company of all or substantially all its assets or any tender offer or
exchange offer for or the acquisition, directly or indirectly, by any person or
group of all or a majority of the then outstanding voting securities of the
Company, this
<PAGE> 8
8
option shall become exercisable in full on and after (i) the fifteenth day prior
to the effective date of such merger, consolidation, sale, transfer or
acquisition or (ii) the date of commencement of such tender offer or exchange
offer, as the case may be. Notwithstanding the foregoing, in no event shall this
option be exercisable after the date of termination of the exercise period of
this option specified in Sections 2 and 7 hereof.
11. This option shall be subject to the requirement that if at any
time the Board of Directors shall determine that the registration, listing or
qualification of the shares of Stock covered hereby upon any securities exchange
or under any federal or state law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the granting of this option or the purchase of shares of Stock
hereunder, this option may not be exercised unless and until such registration,
listing, qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Board of Directors. The Committee
may require that the person exercising this option shall make such
representations and agreements and furnish such information as it deems
appropriate to assure compliance with the foregoing or any other applicable
legal requirements.
<PAGE> 9
9
12. All interpretations or determinations of the Committee shall be
binding and conclusive upon the Optionee and his legal representatives on any
question arising hereunder.
13. It shall be a condition to the obligation of the Company to issue
shares of Stock upon exercise of this option, that the Optionee (or any
beneficiary or person entitled to act under Section 7 hereof) pay to the
Company, upon its demand, such amount as may be requested by the Company for the
purpose of satisfying any liability to withhold federal, state or local income
or other taxes.
14. All notices hereunder to the Company shall be delivered or mailed
to the following address:
Valley Forge Dental Associates, Inc.
1012 West Ninth Avenue
Valley Forge, Pennsylvania 19406
Attention: Secretary
Such address for the service of notices may be changed at any time provided
notice of such change is furnished in advance to the Optionee.
VALLEY FORGE DENTAL ASSOCIATES,
INC.
By /s/ Joseph J. Frank
-------------------------------
Joseph J. Frank
President
<PAGE> 1
EXHIBIT 4(c)
VALLEY FORGE DENTAL ASSOCIATES, INC.
Stock Option Certificate
Date of Grant: May 21, 1997
Name of Optionee: Keith Libou, D.M.D.
Number of Shares: 16,000
Price Per Share: $4.08
This is to certify that, effective on the date of grant specified
above, the Board of Directors of Valley Forge Dental Associates, Inc. (the
"Company") has granted to the above-named optionee (the "Optionee") an option to
purchase from the Company, for the price per share set forth above, the number
of shares of common stock, $.01 par value per share (the "Stock"), of the
Company set forth above. This option is not intended to be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
The terms and conditions of the option granted hereby are as
follows:
1. The price at which each share of Stock subject to this option may
be purchased shall be the price set forth above, subject to any adjustments
which may be made pursuant to Section 9 hereof, provided that it shall in no
event be less than the Market Value (as hereinafter defined) per share of Stock
on the date of grant.
<PAGE> 2
2
2. Subject to the terms and conditions set forth herein, this option
may be exercised to purchase shares of Stock covered by this option only in
accordance with the following schedule:
Cumulative Percentage
of Aggregate Number of
Shares of Stock Covered
Exercise Period Purchased by Option which May Be
Within one year from date of
grant........................ 0%
Beginning one year from date
of grant..................... 20%
Beginning two years from date
of grant..................... 40%
Beginning three years from date
of grant..................... 60%
Beginning four years from date
of grant..................... 80%
Beginning five years from date
of grant..................... 100%
less, in the case of each exercise period, the number of shares of Stock, if
any, previously purchased hereunder. This option shall terminate and no shares
of Stock may be purchased hereunder more than ten years after the date of grant.
3. Except as provided in Section 7 hereof, this option may not be
exercised unless the Optionee is in the
<PAGE> 3
3
employ of the Company or one of its parent or subsidiary corporations (within
the meaning of Section 424(e) and (f) of the Code, and such parent or subsidiary
corporations referred to herein collectively as "Affiliates") at the time of
such exercise and shall have been so employed continuously since the date of
grant of this option. For purposes of this option, service as a director,
officer or consultant of the Company or any Affiliate shall be considered
employment.
4. Subject to the terms and conditions set forth herein, the Optionee
may exercise this option at any time as to all or any of the shares of Stock
then purchasable in accordance with Section 2 hereof by delivering to the
Company written notice specifying:
(i) the number of whole shares of Stock to be purchased together with
payment in full of the aggregate option price of such shares, provided that
this option may not be exercised for less than ten (10) shares of Stock or
the number of shares of Stock remaining subject to option, whichever is
smaller;
(ii) the name or names in which the stock certificate or certificates
are to be registered;
(iii) the address to which dividends, notices, reports, etc. are to
be sent; and
(iv) the Optionee's social security number.
Only one stock certificate will be issued unless the Optionee otherwise requests
in writing. Payment shall be in cash, or by certified or bank cashier's check
payable to the order of the Company, free from all collection charges;
<PAGE> 4
4
provided, however, that payment may be made in shares of Stock owned by the
Optionee having a Market Value on the date of exercise equal to the aggregate
purchase price, or in a combination of cash and Stock. For purposes of this
option, the Market Value per share of Stock shall be the last sale price regular
way on the date of reference, or, in case no sale takes place on such date, the
average of the closing high bid and low asked prices regular way, in either case
on the principal national securities exchange on which the Stock is listed or
admitted to trading, or if the Stock is not listed or admitted to trading on any
national securities exchange, the last sale price reported on the National
Market System of the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") on such date, or the last sale price reported on the
NASDAQ SmallCap Market on such date, or the average of the closing high bid and
low asked prices in the over-the-counter market on such date, whichever is
applicable, or if there are no such prices reported on NASDAQ or in the
over-the-counter market on such date, as furnished to the Committee (as
hereinafter defined) by any New York Stock Exchange member selected from time to
time by the Committee for such purpose. If there is no bid or asked price
reported on any such date, the Market Value shall be determined by the Committee
in accordance with the regulations promulgated under Section 2031 of the Code,
or by any other appropriate
<PAGE> 5
5
method selected by the Committee. If the Optionee so requests, shares of Stock
purchased upon exercise of an option may be issued in the name of the Optionee
or another person. The Optionee shall not be entitled to any rights as a
stockholder of the Company in respect of any shares of Stock covered by this
option until such shares of Stock shall have been paid for in full and issued to
the Optionee. For purposes of this option, the "Committee" shall mean the
Compensation Committee of the Board of Directors or a subcommittee of the
Compensation Committee or such other committee designated by the Board of
Directors to administer this option.
5. As soon as practicable after the Company receives payment for
shares of Stock covered by this option, it shall deliver a certificate or
certificates representing the shares of Stock so purchased to the Optionee. Such
certificate shall be registered in the name of the Optionee, or in such other
name or names as the Optionee shall request.
6. This option is personal to the Optionee and during the Optionee's
lifetime may be exercised only by the Optionee. This option shall not be
transferable other than by will or the laws of descent and distribution.
7. In the event that the Optionee's employment with the Company or
any Affiliate (hereinafter the "Optionee's employment") is terminated prior to
the time
<PAGE> 6
6
that this option has been fully exercised, this option shall be exercisable, as
to any remaining shares of Stock subject hereto, only in the following
circumstances:
(i) If the Optionee's employment is terminated by action of the
Company or an Affiliate, or by reason of disability or retirement under any
retirement plan maintained by the Company or any Affiliate, this option may
be exercised by the Optionee within three months after such termination,
but only as to any shares exercisable on the date the Optionee's employment
so terminates;
(ii) In the event of the death of the Optionee during the three
month period after termination of the Optionee's employment covered by (i)
above, the person or persons to whom his rights are transferred by will or
the laws of descent and distribution shall have a period of one year from
the date of his death to exercise any options which were exercisable by the
Optionee at the time of his death; and
(iii) In the event of the death of the Optionee during the period of
the Optionee's employment, the option shall thereupon become exercisable in
full, and the person or persons to whom the Optionee's rights are
transferred by will or the laws of descent and distribution shall have a
period of one year from the date of the Optionee's death to exercise such
option.
Notwithstanding the foregoing, this option shall in no event be exercisable
after the date of termination of such option specified in Section 2 hereof. The
period of the Optionee's service as a director or consultant to the Company or
any Affiliate shall be deemed the period of employment for purposes of this
Section 7.
8. This option does not confer on the Optionee any right to continue
in the employ of the Company or any Affiliate or interfere in any way with the
right of the Company to determine the terms of the Optionee's employment.
<PAGE> 7
7
9. In the event of a reorganization, recapitalization, stock split,
stock dividend, combination of shares, merger, consolidation, rights offering,
or any other change in the corporate structure or shares of the Company, the
Committee shall make such adjustments, if any, as it deems appropriate in the
number and kind of shares subject to this option, or in the option price per
share, or both, and, in the case of a merger, consolidation or other transaction
pursuant to which the Company is not the surviving corporation or pursuant to
which the holders of outstanding Stock shall receive in exchange therefor shares
of capital stock of the surviving corporation or another corporation, the
Committee may require an Optionee to exchange options granted under the Plan for
options issued by the surviving corporation or such other corporation.
10. In connection with any merger or consolidation which results in
the holders of the outstanding voting securities of the Company (determined
immediately prior to such merger or consolidation) owning less than a majority
of the outstanding voting securities of the surviving corporation (determined
immediately following such merger or consolidation), or any sale or transfer by
the Company of all or substantially all its assets or any tender offer or
exchange offer for or the acquisition, directly or indirectly, by any person or
group of all or a majority of the then outstanding voting securities of the
Company, this
<PAGE> 8
8
option shall become exercisable in full on and after (i) the fifteenth day prior
to the effective date of such merger, consolidation, sale, transfer or
acquisition or (ii) the date of commencement of such tender offer or exchange
offer, as the case may be. Notwithstanding the foregoing, in no event shall this
option be exercisable after the date of termination of the exercise period of
this option specified in Sections 2 and 7 hereof.
11. This option shall be subject to the requirement that if at any
time the Board of Directors shall determine that the registration, listing or
qualification of the shares of Stock covered hereby upon any securities exchange
or under any federal or state law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the granting of this option or the purchase of shares of Stock
hereunder, this option may not be exercised unless and until such registration,
listing, qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Board of Directors. The Committee
may require that the person exercising this option shall make such
representations and agreements and furnish such information as it deems
appropriate to assure compliance with the foregoing or any other applicable
legal requirements.
<PAGE> 9
9
12. All interpretations or determinations of the Committee shall be
binding and conclusive upon the Optionee and his legal representatives on any
question arising hereunder.
13. It shall be a condition to the obligation of the Company to issue
shares of Stock upon exercise of this option, that the Optionee (or any
beneficiary or person entitled to act under Section 7 hereof) pay to the
Company, upon its demand, such amount as may be requested by the Company for the
purpose of satisfying any liability to withhold federal, state or local income
or other taxes.
14. All notices hereunder to the Company shall be delivered or mailed
to the following address:
Valley Forge Dental Associates, Inc.
1012 West Ninth Avenue
Valley Forge, Pennsylvania 19406
Attention: Secretary
Such address for the service of notices may be changed at any time provided
notice of such change is furnished in advance to the Optionee.
VALLEY FORGE DENTAL ASSOCIATES,
INC.
By /s/ Joseph J. Frank
-------------------------------
Joseph J. Frank
President
<PAGE> 1
EXHIBIT 4(d)
VALLEY FORGE DENTAL ASSOCIATES, INC.
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
October 1, 1997
Each of the Shareholders set forth in
Exhibit A attached hereto
Dear Shareholders:
The undersigned, Valley Forge Dental Associates, Inc., a
Delaware corporation (the "Company"), and each of the shareholders set forth in
Exhibit A attached hereto (each, a "Shareholder" and collectively, the
"Shareholders"), hereby agree as follows:
1. Acquisition of Shares of Common Stock. Each of the
Shareholders, is acquiring now, and may acquire in the future, shares of common
stock, $.01 par value (the "Common Stock"), of the Company, pursuant to the
Agreement of Purchase and Sale dated as of October 1, 1997 (the "Purchase
Agreement") by and among the Company, the Shareholders and the other parties
thereto. Pursuant to the Purchase Agreement, the parties hereto have agreed to
enter into this Agreement.
2. Restrictions on Transferability of the Shares of Common
Stock. Each of the Shareholders hereby agrees that such Shareholder shall not
sell, assign, transfer, gift, devise, bequeath, deliver, pledge, hypothecate or
otherwise dispose of any shares of Common Stock now owned or hereafter acquired
by such Shareholder, except as provided for in this Agreement. Any disposition
or purported disposition of shares of Common Stock in violation of this
Agreement shall be null and void and shall not be recorded on the books of the
Company. Notwithstanding the foregoing:
(a) Disposition of Shares. Shares of Common Stock now owned or
hereafter acquired by each of the Shareholders may be transferred by such
Shareholder provided that such Shareholder first complies with the right to
purchase set forth in this Subsection (a). The Company shall have a right to
purchase any shares of Common Stock proposed to be sold by such Shareholder on
the terms set forth in this Subsection (a).
<PAGE> 2
2
(i) If a Shareholder wishes to dispose of shares of
Common Stock, such Shareholder shall first obtain a bona fide written offer (the
"Offer") for the purchase of the shares of Common Stock which he or she wishes
to dispose of. Such Offer shall be for cash or promissory notes only. Promptly
upon receipt of the Offer, such Shareholder shall give notice to the Company
(the "Offer Notice") of his or her intention to dispose of such shares of Common
Stock, which Offer Notice shall specify the name of the proposed purchaser, the
number of shares of Common Stock (the "Offered Securities") the Shareholder
desires to dispose of and the price and terms of payment of such proposed
disposition. Upon receipt of the Offer Notice, the Company shall have the right
to purchase all (but not less than all) of the Offered Securities at the price
and on the terms of the Offer. Such right must be exercised by the Company by
giving notice to that effect to the Shareholder within a period of 20 days after
the date of receipt of the Offer Notice (any such notice of the exercise of such
right being herein referred to as an "Acceptance Notice").
(ii) In the event of the exercise by the Company of
its right to purchase pursuant to this Subsection (a), the Acceptance Notice
shall specify the time and date for purchase of the Offered Securities (the
"Share Closing") which shall be not more than 30 days after the expiration of
the 20-day period set forth in clause (a)(i). The Shareholder shall deliver to
the Company at the Share Closing, which shall be held at the business
headquarters of the Company, the Offered Securities in due and proper form for
transfer, against payment of the purchase price by the Company.
(iii) If the Company shall fail or decline to agree
to purchase the Offered Securities within the 20 day period provided for in
clause (a)(i), then the Shareholder shall have the right and privilege to sell
all (but not less than all) the Offered Securities, within 60 days after the
expiration of such 20-day period, to the bona fide purchaser named in the Offer
Notice, at the price and on terms of payment specified in the Offer. If, for any
reason, the Offered Securities are not sold within such 60-day period, the
Offered Securities shall again become subject to the terms and conditions of
this Agreement.
(b) Disposition to Family Members. Shares held by a
Shareholder may be transferred by such Shareholder to members of such
Shareholder's immediate family for the benefit of the Shareholder. It shall be a
condition to the validity of any transfer of Shares of Common Stock permitted by
the provisions of this Subsection (b) that the transferee
<PAGE> 3
3
shall execute a copy of this Agreement, shall hold such Shares of Common Stock
subject to the provisions of this Agreement, and shall make no further transfer
of such Shares of Common Stock, except in compliance with the terms and
conditions of this Agreement.
3. Legends on Certificates.
During the term of this Agreement, each certificate
representing shares of Common Stock issued to the Shareholders shall, if
applicable, contain upon its face or upon the reverse side thereof legends to
the following effect:
"This Certificate represents securities which are restricted and which
are subject to the terms and conditions of a Shareholders Agreement
(the "Shareholders Agreement") dated October 1, 1997 by and among the
Shareholder, the Company and the other parties thereto (a copy of which
is on file at the principal office of the Company) and the rights,
privileges and options therein contained. No sale, transfer,
assignment, pledge, hypothecation or other disposition of this
Certificate or any of the securities represented hereby shall be made
except in compliance with the terms and conditions of said Agreement.
The Shareholders Agreement as well as all restrictions contained
therein on the securities represented by this Certificate shall
terminate upon the occurrence of the closing of the initial sale by the
Company to the public of shares of Common Stock of the Company pursuant
to a registration statement filed under the Securities Act of 1933,
except for any restrictions required by underwriters as contemplated by
Section 6 of the Shareholders Agreement.
The Shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), but have been
issued pursuant to an exemption from such registration. Neither such
Shares nor any interest therein may be sold, transferred, pledged,
hypothecated or otherwise disposed of until either (i) the holder
thereof shall have received an opinion of counsel for the Company (at
no cost to the Stockholders) that registration thereof under the Act is
not required or (ii) a registration statement under the Act covering
such Shares or such interest and the disposition thereof shall have
become effective under the Act."
<PAGE> 4
4
4. Voting Agreement. Except as hereinafter set forth, each of
the Shareholders agrees that, subject to the laws of the State of Delaware and
the terms of this Agreement, from the date of this Agreement until September 30,
2002 such Shareholder will vote all shares of Common Stock owned by such
Shareholder in favor of a Board of Directors which shall include Stephen F. Nagy
and such persons designated by Stephen F. Nagy as shall together with Stephen F.
Nagy constitute a majority of such members.
5. Registration Rights.
(a) If the Company intends to register shares of
Common Stock with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), pursuant to a
registration statement other than such a registration statement on Form S-4 or
S-8 or other comparable registration form with respect to an employee benefit
plan (the "Registration Statement") for the disposition to the public of shares
of Common Stock by any holder of outstanding unregistered, restricted securities
of the Company (the "Public Offering"), the Company shall give written notice to
each of the Shareholders in advance of the filing of the Registration Statement
and, upon the written request of all of the Shareholders collectively acting as
a group, given to the Company within 10 calendar days after the mailing of such
notice, the Company shall use its best efforts to cause the shares of Common
Stock (the "Registration Shares") with respect to which all of the Shareholders
have requested registration to be included in the Registration Statement for
sale to the public. In connection with such registration, the Company may
require the Shareholders to agree not to sell any shares of Common Stock not
sold in connection with the Public Offering. Notwithstanding anything to the
contrary in this Section 5(a), the Shareholders shall not be entitled to
participate in the initial public offering (the "Initial Offering") of Common
Stock or in connection with a public offering pursuant to a registration
statement that is filed with the Commission after October 1, 1998 whereby the
Company would register Common Stock to be sold to the public by John H. Foster
or any entity controlled directly or indirectly by John H. Foster or by any of
the limited or general partners of the Partnerships (as defined in Section 7).
(b) All expenses (except for the compensation of
regular employees of the Company, which shall be paid in any event by the
Company) incurred by the Company in connection with the Public Offering,
including, without limitation, all registration and filing fees,
<PAGE> 5
5
printing expenses, expenses of complying with securities or blue-sky laws
(including fees and disbursements of counsel for the Company, counsel for any
underwriters of the offering and, if required by other agreements binding upon
the Company, counsel representing selling shareholders other than the
Shareholders), all fees and disbursements of counsel for the Company and any
accountants' fees and expenses incidental to or required by any such
registration are herein called "Registration Expenses," and shall be borne as
provided in Section 5(c) hereof. All underwriting fees and commissions to be
incurred by the Shareholders and all fees and disbursements of counsel for the
Shareholders, if the Shareholders shall elect to retain separate counsel (other
than counsel described in the second parenthetical phrase in the preceding
sentence) are herein called "Selling Expenses," which shall be borne in their
entirety by the Shareholders.
It shall be a condition precedent to the obligation of the
Company to include the Registration Shares in the Registration Statement that
(x) the Company shall have received an undertaking satisfactory to it from the
Shareholders (A) to pay all Selling Expenses to be incurred by or for the
account of the Shareholders and (B) to notify the Company of the happening of
any event within the knowledge of the Shareholders which causes the Registration
Statement, as it may be amended or supplemented, to include an untrue statement
of a material fact or to omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made, and (y) the Shareholders shall
furnish to the Company such information regarding the Shareholders and the
Registration Shares as the Company shall reasonably request and as shall be
required in connection with the action to be taken by the Company.
(c) If and whenever the Company shall effect the
Public Offering, the Company shall pay all Registration Expenses in connection
with the registration of the Registration Shares.
(d) Anything in this Agreement to the contrary
notwithstanding:
(i) The Company shall not be obligated to register
any of the shares of Common Stock of the Shareholders if the
Shareholders do not offer for sale all of the shares of Common
Stock owned by the Shareholders;
<PAGE> 6
6
(ii) Except as provided in (iii) below, the Company
shall not be required to register shares of Common Stock owned
by the Shareholders pursuant to this Agreement more than once;
(iii) If the managing underwriters in connection with a
Public Offering shall advise the Company in writing that in its
opinion the inclusion of the Registration Shares in such Public
Offering would have a material adverse effect upon the proposed
sale of any other shares included in such Public Offering
offered for sale by the Company, the Company will not be
required to cause the Registration Shares to be included in such
Public Offering; provided, however, that if it is proposed that
such Public Offering include other issued and outstanding shares
of Common Stock offered for sale by persons other than the
Company, the number of shares of Common Stock of such persons to
be included in such Public Offering shall first be reduced pro
rata based on the number of shares such holders desire to
include in the Public Offering among all the holders (including
the Shareholders) of the issued and outstanding shares of Common
Stock proposed to be included (including the Registration
Shares) (it being understood that if the Shareholders do not
sell all of their Registration Shares in such Public Offering as
a result of this clause (iii), this shall be without prejudice
to the Shareholder's right to have the Registration Shares
included in a subsequent Public Offering); and
(iv) The Registration Statement shall be subject to
such restrictions or limitations as may be applicable by law to
the sales price or sales method of shares included in such
Registration Statement.
(e) Indemnification. Upon the effectiveness of the
Public Offering, the Company shall indemnify and hold harmless the Shareholders
(if they participate in the Public Offering), each underwriter of such shares
and each person, if any, who controls an underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities and any actions in
respect thereof, joint or several, to which the Shareholders, each underwriter
or controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement of any material fact
contained in the
<PAGE> 7
7
Registration Statement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and the Company will reimburse the Shareholders, each underwriter and
controlling person for any legal or any other expenses reasonably incurred by
any of them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, preliminary prospectus, prospectus or amendment or
supplement thereto, in reliance upon and in conformity with information
furnished to the Company by the Shareholders, or by any underwriter distributing
or selling the shares of Common Stock, specifically for use in the preparation
thereof. This indemnity will be in addition to any liability which the Company
may otherwise have.
A party from whom indemnity may be sought pursuant to the
provisions of this Section 5(e) shall not be liable for such indemnity with
respect to any claim as to which indemnity is sought unless the party seeking
such indemnity shall have notified such indemnifying party in writing of the
nature of such claim promptly after such indemnified party becomes aware of the
assertion thereof; provided, however, that the failure so to notify such
indemnifying party shall not relieve such party from any liability which it may
have to such indemnified party otherwise than on account of the provisions of
this Section 5(e) or if the failure to give such notice promptly shall not have
been prejudicial to such indemnifying party. Any indemnifying party may
participate (with counsel reasonably satisfactory to the indemnified party) in,
and to the extent that it shall wish, may direct (at its own expense and either
individually or jointly with any other indemnifying party), the defense of any
suit brought to enforce such claim. If any indemnifying party elects to assume
the defense of any such suit and retains counsel satisfactory to such
indemnified party, such indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense of such suit, other than
reasonable costs of investigation. No indemnifying party shall be liable for any
compromise or settlement of any such action effected without its consent.
<PAGE> 8
8
Insofar as the foregoing indemnity agreement may permit
indemnification for liabilities under the Act of any person who is a partner or
controlling person of an underwriter with the meaning of Section 15 of the Act
and who, at the effective date of the Registration Statement, is, or is named to
be, a director of the Company, if a claim for indemnification for any such
liabilities (except payment for expenses incurred in the successful defense of
any action, suit or proceeding) is asserted by such a person, the Company will
submit to a court of competent jurisdiction (unless in the opinion of counsel
for the Company the matter has already been settled by controlling precedent)
the question of whether or not such indemnification is against public policy and
unenforceable, and such person and the Company will be governed by the final
adjudication of such issue.
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 5(e) that the Company shall
have received an undertaking satisfactory to it from each of the Shareholders
and from any underwriter of the shares of Common Stock, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in the
preceding paragraphs of this Section 5(e)) the Company and each of its
directors, officers and "control" persons, within the meaning of that term under
the Act, against any losses, claims, damages or liabilities to which the Company
or any such director, officer or control person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was in reliance upon
and in conformity with information furnished to the Company by the Shareholders
or such underwriter, as the case may be, specifically for use therein; and such
persons will reimburse the Company and each of its directors, officers and
control persons for any legal or other expenses reasonably incurred by any of
them in connection with investigating or defending any such loss, claim, damage,
liability or action. This indemnity will be in addition to any liability which
the Shareholders or such underwriter may otherwise have.
<PAGE> 9
9
6. Agreement with Underwriters. Each of the Shareholders
agrees that, in the event the Company files a registration statement under the
Act with respect to an Initial Offering of any securities of the Company for
cash, primarily for the account of the Company, if required by an underwriter or
underwriters, such Shareholder will not effect any public sale or distribution,
including any sale pursuant to Rule 144 promulgated under the Act of any equity
securities of the Company or any securities convertible into or exchangeable or
exercisable for any equity securities of the Company (other than as part of such
Initial Offering) during the seven days prior to, and such period after the
effectiveness of such registration statement as may be required by such
underwriter or underwriters and each of the Shareholders agrees to execute any
customary agreements as may be required by such underwriter or underwriters with
respect to the sale of any such securities.
7. Come Along/Take Along.
(a) (i) In the event that Business Development Capital Limited
Partnership-III, a Massachusetts limited partnership, Abbingdon Venture Partners
Limited Partnership, a Connecticut limited partnership, Abbingdon Venture
Partners Limited Partnership-II, a Delaware limited partnership, and Abbingdon
Venture Partners Limited Partnership-III, a Delaware limited partnership
(collectively, the "Partnerships"), propose to transfer substantially all of the
shares of the Common Stock held by them (a "Sale of Securities") other than to
the public for cash pursuant to a registration statement filed under the Act,
then the following provisions of this Section 7 shall apply.
(ii) The Partnerships shall permit the Shareholders,
or cause the Shareholders to be permitted, to sell the same proportionate number
of shares of the Common Stock held by each of the Shareholders as the
Partnerships shall sell of the shares of the Common Stock held by the
Partnerships, for the same consideration and otherwise on the same terms and
conditions to be received by the Partnerships in the Sale of Securities.
(iii) The Partnerships shall have the right to
request each of the Shareholders to sell or cause to be sold the number of
shares of the Common Stock held by such Shareholder which bears the same
proportion to the number of shares of the Common Stock then held by such
Shareholder as the number of shares of the Common Stock being sold by the
Partnerships bears to the total number of shares of the
<PAGE> 10
10
Common Stock owned by the Partnerships (a "Shareholder Request").
(iv) Upon receipt by a Shareholder of a Shareholder
Request, such Shareholder will sell or will cause to be sold the appropriate
number of shares of the Common Stock held by such Shareholder for the
consideration and otherwise on the same terms and conditions received by the
Partnerships.
(b) The obligations of the Partnerships under Section 7(a)
hereof to afford each of the Shareholders, or cause each of the Shareholders to
be afforded, the rights referred to therein will be discharged if a Shareholder
is given written notice with respect to such Shareholder which allows such
Shareholder ten business days to exercise such rights (by written reply
addressed to such person as may be designated in the notice, and if requested in
such notice, sent by registered mail, return receipt requested), and within such
ten business day period such Shareholder has not given notice of exercise of
such rights.
8. Expenses. Each of the parties hereto shall pay its own
expenses in connection with the preparation, execution and delivery of this
Agreement.
9. Notice. Any notice under this Agreement shall be in writing
and delivered personally or sent by certified mail, return receipt requested,
addressed, as the case may be, (i) to the Company at its address set forth at
the head of this Agreement or such other address as may hereafter be designated
by the Company by notice to the Shareholders in the manner provided herein; and
(ii) to each of the Shareholders, at such Shareholder's address set forth in
Exhibit A attached to this Agreement or such other address as may hereafter be
designated by such Shareholder by notice to the Company in the manner provided
herein. All notices personally delivered shall be deemed to have been given when
delivered and all notices sent by mail shall be deemed to have been given three
business days after mailing.
10. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.
11. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth.
<PAGE> 11
11
12. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no modifications of or amendments to
this Agreement shall be binding on the parties hereto unless in writing and
signed by them.
13. Integration. This Agreement supersedes all prior
understandings, negotiations, and agreements relating to the subject matter
hereof.
14. Severability. If any provision herein contained shall be
held to be illegal or unenforceable, such holding shall not affect the validity
or enforceability of the other provisions of this Agreement.
15. Reorganization, Etc. The provisions of this Agreement
shall apply mutatis mutandis to any shares or other securities resulting from
any stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities resulting from any recapitalization,
consolidation, merger or reorganization of the Company and to any shares or
other securities of the Company or of any successor company or of any parent of
such successor company which may be received by a Shareholder by virtue of such
Shareholder's ownership of the shares of Common Stock.
16. Captions. The captions appearing herein are for the
convenience of the parties only and shall not be construed to affect the meaning
of the provisions of this Agreement.
17. Term. Other than the registration rights contained in
Section 5 hereof and the agreements set forth in Section 6 hereof, all rights
and obligations created by this Agreement shall terminate upon the occurrence of
the closing of the Initial Offering for sale to the public of shares of the
Common Stock pursuant to a registration statement filed under the Securities Act
(other than a registration statement covering securities of the Company to be
issued pursuant to an employee benefit plan).
* * *
<PAGE> 12
12
If you are in agreement with the foregoing, please execute and
deliver to the undersigned the enclosed counterpart of this Agreement, whereupon
this Agreement shall become a binding agreement between us.
Very truly yours,
VALLEY FORGE DENTAL ASSOCIATES,
INC.
By /s/ W. Garry Liddick
------------------------------
Name: W. Gary Liddick
Title: Vice President
Accepted and agreed
to as aforesaid:
/s/ Edward J. Balling
- -------------------------------
Edward J. Balling
/s/ Mark Carleton
- -------------------------------
Mark Carleton
/s/ James H. Dyen
- -------------------------------
James H. Dyen
/s/ George E. Frattali
- -------------------------------
George E. Frattali
/s/ Norman Kurtzman
- -------------------------------
Norman Kurtzman
/s/ Jeffrey B. Leiss
- -------------------------------
Jeffrey B. Leiss
<PAGE> 13
13
/s/ Eleanore Meredith
- -------------------------------
Eleanore Meredith
/s/ Gary W. Mink
- -------------------------------
Gary W. Mink
/s/ Kevin O'Meara
- -------------------------------
Kevin O'Meara
/s/ Michael B. Pavel
- -------------------------------
Michael B. Pavel
/s/ Mark Perecman
- -------------------------------
Mark Perecman
/s/ Richard Valenci
- -------------------------------
Richard Valenci
/s/ Cemil Yesilsoy
- -------------------------------
Cemil Yesilsoy
<PAGE> 14
14
The undersigned are executing this Agreement to indicate their agreement to
Section 7 hereof:
BUSINESS DEVELOPMENT CAPITAL
LIMITED PARTNERSHIP-III
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
-----------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
-----------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
-----------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
-----------------------
<PAGE> 15
Exhibit A
LIST OF SHAREHOLDERS OF PRODENT, INC.
Edward J. Balling, D.M.D.
613 Southwick Road
Somerdale, NJ 08083
Mark T. Carleton, D.M.D.
525 Main Street
Langhorne, PA 19047
James H. Dyen, D.D.S.
537 Shoemaker Road
Elkins Park, PA 19117
George E. Frattali, D.D.S.
271 Unionville-Lenape Road
Kennett Square, PA 19348
Norman Kurtzman, D.D.S.
3400 Manor Road
Huntingdon Valley, PA 19006
Jeffrey B. Leiss, D.D.S.
27 Victoria Circle
Collegeville, PA 19426
Eleanore Meredith
246 Goldenridge Drive
Levittown, PA 19057
Gary W. Mink
144-C Long Beach Boulevard
Loveladies, NJ 08008
Kevin D. O'Meara, D.D.S.
797 Durham Road, P.O. Box 143
Pineville, PA 18946
Michael B. Pavel, D.M.D.
810 Old Ridge Court
Rosemont, PA 19010
Mark Perecman, D.M.D.
40 Cathleen Drive
Richboro, PA 18954
Richard M. Valenci, D.M.D.
64 Overhill Road
Bala Cynwyd, PA 19004
Cemil Yesilsoy, D.M.D., M.S.
77 Cliveden Drive
Newtown, PA 18940
<PAGE> 1
EXHIBIT 10(a)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
VALLEY FORGE DENTAL ASSOCIATES, INC.
9% Subordinated Note due September 18, 2005
$216,000 King of Prussia, Pennsylvania
September 18, 1995
SECTION 1. General. VALLEY FORGE DENTAL ASSOCIATES, INC., a Delaware
corporation (herein called the "Corporation"), for value received, hereby
promises to pay to ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP, a Connecticut
limited partnership (herein called "Abbingdon-I"), or order, the principal
amount of Two Hundred Sixteen Thousand Dollars, ($216,000), in full on September
18, 2005 (subject to prepayment in whole or in part in the manner hereinafter in
Section 3 hereof provided), in such coin or currency of the United States of
America as at the time of payment shall be legal tender therein for the payment
of public and private debts, and to pay interest on the unpaid balance of the
principal hereof from the date hereof, at the rate of 9% per annum, in like coin
or currency, quarterly on March 31, June 30, September 30 and December 31 each
year commencing September 30, 1995 (the payment due on such date to include all
accrued interest from the date hereof), and to pay interest at the rate of 10%
per annum on any overdue principal and (to the extent permitted by law)
<PAGE> 2
2
on any overdue interest, from the due date thereof until the obligation of the
Corporation with respect to the payment thereof shall be discharged; all
payments and prepayments of principal of this Note and all payments of interest
on this Note to be made to the holder hereof at the office of such holder at c/o
Foster Management Company, 1018 West Ninth Avenue, King of Prussia, Pennsylvania
19406 or such other office hereafter designated by such holder. Interest hereon
for any period other than a full quarterly period shall be computed on the basis
of a 360-day year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the following terms shall have
the following respective meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes executed
and delivered by the Corporation in exchange or replacement thereof pursuant to
Section 9 hereof. Unless the context otherwise requires, the term "holder" is
used herein to mean the person named as payee in Section 1 hereof (herein
sometimes called the "payee named herein") or any other person who shall at the
time be the registered holder of this Note.
"Corporation" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation, the maker of this Note, and shall also mean any successor
corporation which
<PAGE> 3
3
shall become such in the manner prescribed in Section 6 hereof.
The term "corporation" shall include, except for the purposes of
Section 6 hereof, an association, joint stock company, business trust or other
similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at least a
majority of the outstanding voting stock of which shall at the time be owned by
the Corporation. For purposes hereof, outstanding voting stock shall be deemed
to be capital stock of any class or classes, however designated, having ordinary
voting power for the election of the members of the board of directors or other
governing body of such corporation, other than stock having such power only upon
the happening of a contingency.
"Senior Debt" shall mean the principal of, premium, if any, and
interest on and other amounts due on all indebtedness of the Corporation,
whether outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Corporation, and
(b) for money borrowed by others and guaranteed by the Corporation
<PAGE> 4
4
from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Corporation may at any time prepay the whole
or any part of the unpaid principal amount of this Note, without penalty or
premium, but with interest accrued to the date fixed for prepayment. Notices of
prepayment shall be given by the Corporation by mail and shall be mailed to the
registered holder of this Note not less than 30 days from the date fixed for
prepayment. In case this Note is to be prepaid in part only, such notice shall
specify the principal amount thereof to be prepaid and shall state that this
Note shall be submitted to the Corporation for notation thereon of the principal
amount thereof to be prepaid. Upon giving of notice of prepayment as aforesaid,
this Note or portion thereof so specified for prepayment shall on the prepayment
date specified in such notice become due and payable; and from and after the
prepayment date so specified (unless the Corporation shall default in making
such prepayment) interest on this Note or portion thereof so specified for
prepayment shall cease to accrue and, on presentation and surrender thereof to
the Corporation for cancellation in the
<PAGE> 5
5
case of this Note being prepaid in whole, or for notation thereon of the payment
of the portion of the principal amount thereof being prepaid in the case of a
prepayment of this Note in part only, this Note or portion thereof so specified
for prepayment shall be paid by the Corporation at the prepayment price
aforesaid.
SECTION 4. Subordination. The Corporation hereby agrees, and the
holder of this Note by its acceptance hereof agrees, that the payment of the
principal of and interest on this Note is hereby expressly made subordinate and
junior in right of payment, to the extent set forth in the following paragraphs
(a) and (b), to the prior payment in full of all Senior Debt of the Corporation:
(a) In the event of insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings
in connection therewith, relative to the Corporation or to any of the
property of the Corporation, or in the event of any proceedings for
voluntary liquidation, dissolution, or other winding-up of the
Corporation, whether or not involving insolvency or bankruptcy, then
the holders of Senior Debt shall be entitled to receive payment in full
of all principal of, and premium, if any, and interest on all Senior
Debt before the holder of this Note shall be entitled to receive any
payment on account of principal of or interest on this Note,
<PAGE> 6
6
and to that end the holders of Senior Debt shall be entitled to receive
for application in payment thereof any payment or distribution of any
kind or character, whether in cash or property or securities, which may
be payable or deliverable in any such proceedings in respect of this
Note, except securities of the Corporation which are subordinate and
junior in right of payment to the payment of all Senior Debt then
outstanding.
(b) In the event that the holder of this Note shall have received
written notice to the effect that an event of default shall have
occurred on any Senior Debt and be continuing (under circumstances in
which the provisions of the foregoing paragraph (a) are not
applicable), then, during the continuance of any such event of default,
all principal of and premium, if any, and interest on all Senior Debt
outstanding at the time of such notice shall first be paid in full,
before any payment on account of principal or interest is made upon
this Note. The provisions of this Section 4 are for the purpose of
defining the relative rights of the holders of Senior Debt on the one
hand, and the holder of this Note on the other hand, against the
Corporation and its property; and nothing herein shall impair, as
between the Corporation and the holder of this Note, the obligation of
the Corporation, which is
<PAGE> 7
7
unconditional and absolute, to pay to the holder thereof the principal
thereof and interest thereon in accordance with the terms and the
provisions thereof; nor shall anything herein prevent the holder of
this Note from exercising all remedies otherwise permitted by
applicable law or hereunder upon default under this Note, subject to
the rights, if any, under this Section 4 of holders of Senior Debt to
receive cash, property, stock or obligations otherwise payable or
deliverable to the holder of this Note.
SECTION 5. General Covenants. The Corporation covenants and agrees
with the holder of this Note as hereinbelow set forth, namely:
5.1. The Corporation will punctually pay or cause to be paid the
principal of and interest on this Note according to the terms hereof.
5.2. The Corporation will, and will cause each Subsidiary, if any,
to
(a) pay and discharge promptly, or cause to be paid and discharged
promptly, all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or upon any of its property, real,
personal or mixed, or upon any part thereof, as well as all claims of
any kind (including claims for labor, materials and supplies which, if
unpaid, might by law become a lien or charge upon its property);
provided,
<PAGE> 8
8
however, that neither the Corporation nor any Subsidiary shall be
required to pay any such tax, assessment, charge, levy or claim if the
amount, applicability or validity thereof shall currently be contested
in good faith by appropriate proceedings and if the Corporation or such
Subsidiary, as the case may be, shall have set aside on its books
reserves (segregated to the extent required by sound accounting
practice) reasonably deemed by it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note and as
contemplated by Section 6 hereof, do or cause to be done all things
necessary or appropriate to preserve and keep in full force and effect
its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Corporation or such Subsidiary; provided, however,
that nothing in this paragraph shall prevent the abandonment or
termination of the corporate existence, rights and franchises of any
Subsidiary if, in the opinion of the Board of Directors of the
Corporation, such abandonment or termination is in the interest of the
Corporation and
<PAGE> 9
9
not disadvantageous in any material respect to the holder of this Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Corporation will not consolidate with, merge into, or sell or otherwise dispose
of all or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such consolidation
or merger or to which such sale or other disposition shall have been
made shall be a corporation organized under the laws of the United
States of America or any State, district or territory thereof;
(b) such successor corporation shall expressly assume the due and
punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Corporation to the same extent as if
such successor corporation had been the original maker of this Note
(and such assumption shall, upon the request of the holder of this
Note, be evidenced by the endorsing of an appropriate legend upon this
Note, and each Note executed pursuant to Section 9 hereof after such
assumption shall, unless executed in the name of such corporation, have
a similar legend endorsed thereon); and
<PAGE> 10
10
(c) immediately after such consolidation, merger, sale or other
disposition, such successor corporation shall not be in default in the
performance of any of the covenants, agreements or conditions contained
in this Note.
SECTION 7. Registered Holders. The Corporation may deem and
treat the registered holder of this Note as the absolute owner of this Note for
the purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this Note, together
with all accrued interest thereon, shall, at the option of the holder hereof
exercised by written notice to the Corporation at its principal executive
offices, forthwith become and be due and payable if any one or more of the
following events (herein called "Events of Default") shall have occurred (for
any reason whatsoever and whether such happening shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body) and be continuing at
the time of such notice, that is to say:
<PAGE> 11
11
(a) if default shall be made in the due and punctual payment of
the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment of
any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance or observance of
any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance of
any of the other covenants, agreements or conditions of the Corporation
contained in this Note, and such default shall have continued for a
period of 30 days;
(e) if the Corporation or any Subsidiary shall default beyond any
period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Corporation
or any Subsidiary shall default in the performance or observance of any
other agreement, term or condition contained in such obligation or in
any agreement under which any such obligation is created, if the effect
of any such default is to cause or permit
<PAGE> 12
12
the holder or holders of such obligations (or a trustee on behalf of
such holder or holders) to cause such obligation to become due prior to
the date of its stated maturity, unless such holder or holders or
trustee shall have waived such default after its occurrence or unless
such holder or holders or trustee shall have failed to give any notice
required to create a default thereunder;
(f) if the Corporation or any Subsidiary shall:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act;
(iii) make an assignment for the benefit of creditors;
(iv) consent to the appointment of a receiver of itself or
of the whole or any substantial part of its property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
State, district or territory thereof;
<PAGE> 13
13
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Corporation
or any Subsidiary, a receiver of the Corporation or any Subsidiary or
of the whole or any substantial part of its property, or approving a
petition filed against it seeking reorganization or arrangement of the
Corporation or any Subsidiary under the federal bankruptcy laws or any
other applicable law or statute of the United States of America or any
State, district or territory thereof, and such order, judgment or
decree shall not be vacated or set aside or stayed within 60 days from
the date of entry thereof;
(h) if, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall assume
custody or control of the Corporation or any Subsidiary or of the whole
or any substantial part of its property and such custody or control
shall not be terminated or stayed within 60 days from the date of
assumption of such custody or control; or
(i) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Corporation
or any Subsidiary and the Corporation or such Subsidiary shall not
discharge the same or provide for its discharge in accordance with its
<PAGE> 14
14
terms, or shall not procure a stay of execution thereon within 60 days
from the date of entry thereof and within the period during which
execution of such judgment shall have been stayed, appeal therefrom, and
cause the execution thereof to be stayed during such appeal.
8.2. In case any one or more of the Events of Default specified in
Section 8.1 hereof shall have occurred and be continuing, the holder of this
Note may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, whether for the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted
in this Note, or the holder of this Note may proceed to enforce the payment of
all sums due upon this Note or to enforce any other legal or equitable right of
the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is intended
to be exclusive of any other remedy and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise.
8.4. No course of dealing between the Corporation and the holder
hereof or any delay on the part of the holder hereof in exercising any rights
hereunder shall operate as a waiver of any rights of any holder hereof.
SECTION 9. Exchange or Replacement of Notes.
<PAGE> 15
15
(a) The holder of any Note or Notes, at its option, may in person
or by duly authorized attorney surrender one or more thereof for exchange, at
the principal executive offices of the Corporation, and at the expense of the
Corporation receive in exchange therefor a new Note or Notes in the same
aggregate principal amount as the aggregate unpaid principal amount of the Note
or Notes so surrendered and bearing interest at the same annual rate as the Note
or Notes so surrendered, each such new Note to be dated as of the date to which
interest has been paid on the Note or Notes so surrendered and to be in such
principal amount and payable to such person or persons, or order, as such holder
may designate in writing; provided, however, that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any new Note in the name other than that of the
holder of the Note or Notes surrendered in exchange therefor. Five days' prior
written notice of the holder's intention to make such exchange shall be given to
the Corporation.
(b) Upon receipt by the Corporation of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Note, and (in case of
loss, theft or destruction) of indemnity reasonably satisfactory to it (it being
understood that in the case of Abbingdon-I an unsecured written indemnification
agreement shall be
<PAGE> 16
16
satisfactory to the Corporation), and upon surrender and cancellation of this
Note, if mutilated, the Corporation, upon reimbursement to it of all reasonable
expenses incidental thereto, will make and deliver a new Note, of like tenor in
lieu of this Note. Any Note made and delivered in accordance with the provisions
of this paragraph (b) shall be dated as of the date to which interest has been
paid on this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Corporation or of any predecessor or successor corporation,
either directly or through the Corporation or otherwise, whether by virtue of
any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty, or otherwise, all such liability being by the acceptance
hereof and as part of the consideration for the issue hereof expressly waived
and released; provided, however, that nothing herein contained shall be taken to
prevent recourse to and the enforcement of the liability, if any, of any
stockholder or subscriber to capital stock upon or in respect of shares of
capital stock not fully paid.
<PAGE> 17
17
SECTION 11. Section Headings. The Section headings contained herein are
for the purpose of convenience of reference only and are not intended to define
or limit the contents of any such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 13. Governing Law. This Note shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and to be performed entirely within such Commonwealth, except to
the extent of the mandatory rules of the State of Delaware with respect to the
formal requisites for authorization of a security and rights and duties with
respect to register of transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Douglas P. Gill
-------------------------------------
Douglas P. Gill
President
<PAGE> 1
EXHIBIT 10(b)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
VALLEY FORGE DENTAL ASSOCIATES, INC.
9% Subordinated Note due September 18, 2005
$792,000 King of Prussia, Pennsylvania
September 18, 1995
SECTION 1. General. VALLEY FORGE DENTAL ASSOCIATES, INC., a Delaware
corporation (herein called the "Corporation"), for value received, hereby
promises to pay to ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP-II, a Delaware
limited partnership (herein called "Abbingdon-II"), or order, the principal
amount of Seven Hundred Ninety-Two Thousand Dollars, ($792,000), in full on
September 18, 2005 (subject to prepayment in whole or in part in the manner
hereinafter in Section 3 hereof provided), in such coin or currency of the
United States of America as at the time of payment shall be legal tender therein
for the payment of public and private debts, and to pay interest on the unpaid
balance of the principal hereof from the date hereof, at the rate of 9% per
annum, in like coin or currency, quarterly on March 31, June 30, September 30
and December 31 each year commencing September 30, 1995 (the payment due on such
date to include all accrued interest from the date hereof), and to pay interest
at the rate of 10% per annum on any overdue principal and (to the extent
permitted by law)
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on any overdue interest, from the due date thereof until the obligation of the
Corporation with respect to the payment thereof shall be discharged; all
payments and prepayments of principal of this Note and all payments of interest
on this Note to be made to the holder hereof at the office of such holder at c/o
Foster Management Company, 1018 West Ninth Avenue, King of Prussia, Pennsylvania
19406 or such other office hereafter designated by such holder. Interest hereon
for any period other than a full quarterly period shall be computed on the basis
of a 360-day year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the following terms shall have
the following respective meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes executed
and delivered by the Corporation in exchange or replacement thereof pursuant to
Section 9 hereof. Unless the context otherwise requires, the term "holder" is
used herein to mean the person named as payee in Section 1 hereof (herein
sometimes called the "payee named herein") or any other person who shall at the
time be the registered holder of this Note.
"Corporation" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation, the maker of this Note, and shall also mean any successor
corporation which
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shall become such in the manner prescribed in Section 6 hereof.
The term "corporation" shall include, except for the purposes of
Section 6 hereof, an association, joint stock company, business trust or other
similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at least a
majority of the outstanding voting stock of which shall at the time be owned by
the Corporation. For purposes hereof, outstanding voting stock shall be deemed
to be capital stock of any class or classes, however designated, having ordinary
voting power for the election of the members of the board of directors or other
governing body of such corporation, other than stock having such power only upon
the happening of a contingency.
"Senior Debt" shall mean the principal of, premium, if any, and
interest on and other amounts due on all indebtedness of the Corporation,
whether outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Corporation, and
(b) for money borrowed by others and guaranteed by the Corporation
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from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Corporation may at any time prepay the whole
or any part of the unpaid principal amount of this Note, without penalty or
premium, but with interest accrued to the date fixed for prepayment. Notices of
prepayment shall be given by the Corporation by mail and shall be mailed to the
registered holder of this Note not less than 30 days from the date fixed for
prepayment. In case this Note is to be prepaid in part only, such notice shall
specify the principal amount thereof to be prepaid and shall state that this
Note shall be submitted to the Corporation for notation thereon of the principal
amount thereof to be prepaid. Upon giving of notice of prepayment as aforesaid,
this Note or portion thereof so specified for prepayment shall on the prepayment
date specified in such notice become due and payable; and from and after the
prepayment date so specified (unless the Corporation shall default in making
such prepayment) interest on this Note or portion thereof so specified for
prepayment shall cease to accrue and, on presentation and surrender thereof to
the Corporation for cancellation in the
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case of this Note being prepaid in whole, or for notation thereon of the payment
of the portion of the principal amount thereof being prepaid in the case of a
prepayment of this Note in part only, this Note or portion thereof so specified
for prepayment shall be paid by the Corporation at the prepayment price
aforesaid.
SECTION 4. Subordination. The Corporation hereby agrees, and the
holder of this Note by its acceptance hereof agrees, that the payment of the
principal of and interest on this Note is hereby expressly made subordinate and
junior in right of payment, to the extent set forth in the following paragraphs
(a) and (b), to the prior payment in full of all Senior Debt of the Corporation:
(a) In the event of insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings
in connection therewith, relative to the Corporation or to any of the
property of the Corporation, or in the event of any proceedings for
voluntary liquidation, dissolution, or other winding-up of the
Corporation, whether or not involving insolvency or bankruptcy, then
the holders of Senior Debt shall be entitled to receive payment in full
of all principal of, and premium, if any, and interest on all Senior
Debt before the holder of this Note shall be entitled to receive any
payment on account of principal of or interest on this Note,
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and to that end the holders of Senior Debt shall be entitled to receive
for application in payment thereof any payment or distribution of any
kind or character, whether in cash or property or securities, which may
be payable or deliverable in any such proceedings in respect of this
Note, except securities of the Corporation which are subordinate and
junior in right of payment to the payment of all Senior Debt then
outstanding.
(b) In the event that the holder of this Note shall have received
written notice to the effect that an event of default shall have
occurred on any Senior Debt and be continuing (under circumstances in
which the provisions of the foregoing paragraph (a) are not
applicable), then, during the continuance of any such event of default,
all principal of and premium, if any, and interest on all Senior Debt
outstanding at the time of such notice shall first be paid in full,
before any payment on account of principal or interest is made upon
this Note. The provisions of this Section 4 are for the purpose of
defining the relative rights of the holders of Senior Debt on the one
hand, and the holder of this Note on the other hand, against the
Corporation and its property; and nothing herein shall impair, as
between the Corporation and the holder of this Note, the obligation of
the Corporation, which is
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unconditional and absolute, to pay to the holder thereof the principal
thereof and interest thereon in accordance with the terms and the
provisions thereof; nor shall anything herein prevent the holder of
this Note from exercising all remedies otherwise permitted by
applicable law or hereunder upon default under this Note, subject to
the rights, if any, under this Section 4 of holders of Senior Debt to
receive cash, property, stock or obligations otherwise payable or
deliverable to the holder of this Note.
SECTION 5. General Covenants. The Corporation covenants and agrees
with the holder of this Note as hereinbelow set forth, namely:
5.1. The Corporation will punctually pay or cause to be paid the
principal of and interest on this Note according to the terms hereof.
5.2. The Corporation will, and will cause each Subsidiary, if any,
to
(a) pay and discharge promptly, or cause to be paid and discharged
promptly, all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or upon any of its property, real,
personal or mixed, or upon any part thereof, as well as all claims of
any kind (including claims for labor, materials and supplies which, if
unpaid, might by law become a lien or charge upon its property);
provided,
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however, that neither the Corporation nor any Subsidiary shall be
required to pay any such tax, assessment, charge, levy or claim if the
amount, applicability or validity thereof shall currently be contested
in good faith by appropriate proceedings and if the Corporation or such
Subsidiary, as the case may be, shall have set aside on its books
reserves (segregated to the extent required by sound accounting
practice) reasonably deemed by it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note and as
contemplated by Section 6 hereof, do or cause to be done all things
necessary or appropriate to preserve and keep in full force and effect
its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Corporation or such Subsidiary; provided, however,
that nothing in this paragraph shall prevent the abandonment or
termination of the corporate existence, rights and franchises of any
Subsidiary if, in the opinion of the Board of Directors of the
Corporation, such abandonment or termination is in the interest of the
Corporation and
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not disadvantageous in any material respect to the holder of this Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Corporation will not consolidate with, merge into, or sell or otherwise dispose
of all or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such consolidation
or merger or to which such sale or other disposition shall have been
made shall be a corporation organized under the laws of the United
States of America or any State, district or territory thereof;
(b) such successor corporation shall expressly assume the due and
punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Corporation to the same extent as if
such successor corporation had been the original maker of this Note
(and such assumption shall, upon the request of the holder of this
Note, be evidenced by the endorsing of an appropriate legend upon this
Note, and each Note executed pursuant to Section 9 hereof after such
assumption shall, unless executed in the name of such corporation, have
a similar legend endorsed thereon); and
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(c) immediately after such consolidation, merger, sale or other
disposition, such successor corporation shall not be in default in the
performance of any of the covenants, agreements or conditions contained
in this Note.
SECTION 7. Registered Holders. The Corporation may deem and treat
the registered holder of this Note as the absolute owner of this Note for the
purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this Note, together
with all accrued interest thereon, shall, at the option of the holder hereof
exercised by written notice to the Corporation at its principal executive
offices, forthwith become and be due and payable if any one or more of the
following events (herein called "Events of Default") shall have occurred (for
any reason whatsoever and whether such happening shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body) and be continuing at
the time of such notice, that is to say:
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(a) if default shall be made in the due and punctual payment of
the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment of
any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance or observance of
any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance of
any of the other covenants, agreements or conditions of the Corporation
contained in this Note, and such default shall have continued for a
period of 30 days;
(e) if the Corporation or any Subsidiary shall default beyond any
period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Corporation
or any Subsidiary shall default in the performance or observance of any
other agreement, term or condition contained in such obligation or in
any agreement under which any such obligation is created, if the effect
of any such default is to cause or permit
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the holder or holders of such obligations (or a trustee on behalf of
such holder or holders) to cause such obligation to become due prior to
the date of its stated maturity, unless such holder or holders or
trustee shall have waived such default after its occurrence or unless
such holder or holders or trustee shall have failed to give any notice
required to create a default thereunder;
(f) if the Corporation or any Subsidiary shall:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act;
(iii) make an assignment for the benefit of creditors;
(iv) consent to the appointment of a receiver of itself or
of the whole or any substantial part of its property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
State, district or territory thereof;
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(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Corporation
or any Subsidiary, a receiver of the Corporation or any Subsidiary or
of the whole or any substantial part of its property, or approving a
petition filed against it seeking reorganization or arrangement of the
Corporation or any Subsidiary under the federal bankruptcy laws or any
other applicable law or statute of the United States of America or any
State, district or territory thereof, and such order, judgment or
decree shall not be vacated or set aside or stayed within 60 days from
the date of entry thereof;
(h) if, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall assume
custody or control of the Corporation or any Subsidiary or of the whole
or any substantial part of its property and such custody or control
shall not be terminated or stayed within 60 days from the date of
assumption of such custody or control; or
(i) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Corporation
or any Subsidiary and the Corporation or such Subsidiary shall not
discharge the same or provide for its discharge in accordance with its
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terms, or shall not procure a stay of execution thereon within 60 days
from the date of entry thereof and within the period during which
execution of such judgment shall have been stayed, appeal therefrom, and
cause the execution thereof to be stayed during such appeal.
8.2. In case any one or more of the Events of Default specified in
Section 8.1 hereof shall have occurred and be continuing, the holder of this
Note may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, whether for the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted
in this Note, or the holder of this Note may proceed to enforce the payment of
all sums due upon this Note or to enforce any other legal or equitable right of
the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is intended
to be exclusive of any other remedy and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise.
8.4. No course of dealing between the Corporation and the holder
hereof or any delay on the part of the holder hereof in exercising any rights
hereunder shall operate as a waiver of any rights of any holder hereof.
SECTION 9. Exchange or Replacement of Notes.
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(a) The holder of any Note or Notes, at its option, may in person
or by duly authorized attorney surrender one or more thereof for
exchange, at the principal executive offices of the Corporation, and at
the expense of the Corporation receive in exchange therefor a new Note
or Notes in the same aggregate principal amount as the aggregate unpaid
principal amount of the Note or Notes so surrendered and bearing
interest at the same annual rate as the Note or Notes so surrendered,
each such new Note to be dated as of the date to which interest has
been paid on the Note or Notes so surrendered and to be in such
principal amount and payable to such person or persons, or order, as
such holder may designate in writing; provided, however, that the
Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
new Note in the name other than that of the holder of the Note or Notes
surrendered in exchange therefor. Five days' prior written notice of
the holder's intention to make such exchange shall be given to the
Corporation.
(b) Upon receipt by the Corporation of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Note, and (in
case of loss, theft or destruction) of indemnity reasonably
satisfactory to it (it being understood that in the case of
Abbingdon-II an unsecured written indemnification agreement shall be
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satisfactory to the Corporation), and upon surrender and cancellation of this
Note, if mutilated, the Corporation, upon reimbursement to it of all reasonable
expenses incidental thereto, will make and deliver a new Note, of like tenor in
lieu of this Note. Any Note made and delivered in accordance with the provisions
of this paragraph (b) shall be dated as of the date to which interest has been
paid on this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Corporation or of any predecessor or successor corporation,
either directly or through the Corporation or otherwise, whether by virtue of
any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty, or otherwise, all such liability being by the acceptance
hereof and as part of the consideration for the issue hereof expressly waived
and released; provided, however, that nothing herein contained shall be taken to
prevent recourse to and the enforcement of the liability, if any, of any
stockholder or subscriber to capital stock upon or in respect of shares of
capital stock not fully paid.
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SECTION 11. Section Headings. The Section headings contained
herein are for the purpose of convenience of reference only and are not intended
to define or limit the contents of any such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth, except to the extent of the mandatory rules of the State of
Delaware with respect to the formal requisites for authorization of a security
and rights and duties with respect to register of transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Douglas P. Gill
-------------------------------------
Douglas P. Gill
President
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EXHIBIT 10(c)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
VALLEY FORGE DENTAL ASSOCIATES, INC.
9% Subordinated Note due September 18, 2005
$512,000 King of Prussia, Pennsylvania
September 18, 1995
SECTION 1. General. VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation (herein called the "Corporation"), for value received,
hereby promises to pay to ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP-III, a
Delaware limited partnership (herein called "Abbingdon-III"), or order, the
principal amount of Five Hundred Twelve Thousand Dollars, ($512,000), in full on
September 18, 2005 (subject to prepayment in whole or in part in the manner
hereinafter in Section 3 hereof provided), in such coin or currency of the
United States of America as at the time of payment shall be legal tender therein
for the payment of public and private debts, and to pay interest on the unpaid
balance of the principal hereof from the date hereof, at the rate of 9% per
annum, in like coin or currency, quarterly on March 31, June 30, September 30
and December 31 each year commencing September 30, 1995 (the payment due on such
date to include all accrued interest from the date hereof), and to pay interest
at the rate of 10% per annum on any overdue
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principal and (to the extent permitted by law) on any overdue interest, from the
due date thereof until the obligation of the Corporation with respect to the
payment thereof shall be discharged; all payments and prepayments of principal
of this Note and all payments of interest on this Note to be made to the holder
hereof at the office of such holder at c/o Foster Management Company, 1018 West
Ninth Avenue, King of Prussia, Pennsylvania 19406 or such other office hereafter
designated by such holder. Interest hereon for any period other than a full
quarterly period shall be computed on the basis of a 360-day year of twelve
30-day months.
SECTION 2. Definitions. As used herein, the
following terms shall have the following respective
meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes
executed and delivered by the Corporation in exchange or replacement thereof
pursuant to Section 9 hereof. Unless the context otherwise requires, the term
"holder" is used herein to mean the person named as payee in Section 1 hereof
(herein sometimes called the "payee named herein") or any other person who shall
at the time be the registered holder of this Note.
"Corporation" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation, the maker of this Note, and shall also mean any
successor corporation which
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shall become such in the manner prescribed in Section 6 hereof.
The term "corporation" shall include, except for the purposes
of Section 6 hereof, an association, joint stock company, business trust or
other similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at
least a majority of the outstanding voting stock of which shall at the time be
owned by the Corporation. For purposes hereof, outstanding voting stock shall be
deemed to be capital stock of any class or classes, however designated, having
ordinary voting power for the election of the members of the board of directors
or other governing body of such corporation, other than stock having such power
only upon the happening of a contingency.
"Senior Debt" shall mean the principal of, premium, if any,
and interest on and other amounts due on all indebtedness of the Corporation,
whether outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Corporation, and
(b) for money borrowed by others and guaranteed by the
Corporation
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from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Corporation may at any time prepay
the whole or any part of the unpaid principal amount of this Note, without
penalty or premium, but with interest accrued to the date fixed for prepayment.
Notices of prepayment shall be given by the Corporation by mail and shall be
mailed to the registered holder of this Note not less than 30 days from the date
fixed for prepayment. In case this Note is to be prepaid in part only, such
notice shall specify the principal amount thereof to be prepaid and shall state
that this Note shall be submitted to the Corporation for notation thereon of the
principal amount thereof to be prepaid. Upon giving of notice of prepayment as
aforesaid, this Note or portion thereof so specified for prepayment shall on the
prepayment date specified in such notice become due and payable; and from and
after the prepayment date so specified (unless the Corporation shall default in
making such prepayment) interest on this Note or portion thereof so specified
for prepayment shall cease to accrue and, on presentation and surrender thereof
to the Corporation for cancellation in the
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case of this Note being prepaid in whole, or for notation thereon of the payment
of the portion of the principal amount thereof being prepaid in the case of a
prepayment of this Note in part only, this Note or portion thereof so specified
for prepayment shall be paid by the Corporation at the prepayment price
aforesaid.
SECTION 4. Subordination. The Corporation hereby agrees, and
the holder of this Note by its acceptance hereof agrees, that the payment of the
principal of and interest on this Note is hereby expressly made subordinate and
junior in right of payment, to the extent set forth in the following paragraphs
(a) and (b), to the prior payment in full of all Senior Debt of the Corporation:
(a) In the event of insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Corporation or to
any of the property of the Corporation, or in the event of any
proceedings for voluntary liquidation, dissolution, or other winding-up
of the Corporation, whether or not involving insolvency or bankruptcy,
then the holders of Senior Debt shall be entitled to receive payment in
full of all principal of, and premium, if any, and interest on all
Senior Debt before the holder of this Note shall be entitled to receive
any payment on account of principal of or interest on this Note,
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and to that end the holders of Senior Debt shall be entitled to receive
for application in payment thereof any payment or distribution of any
kind or character, whether in cash or property or securities, which may
be payable or deliverable in any such proceedings in respect of this
Note, except securities of the Corporation which are subordinate and
junior in right of payment to the payment of all Senior Debt then
outstanding.
(b) In the event that the holder of this Note shall have
received written notice to the effect that an event of default shall
have occurred on any Senior Debt and be continuing (under circumstances
in which the provisions of the foregoing paragraph (a) are not
applicable), then, during the continuance of any such event of default,
all principal of and premium, if any, and interest on all Senior Debt
outstanding at the time of such notice shall first be paid in full,
before any payment on account of principal or interest is made upon
this Note. The provisions of this Section 4 are for the purpose of
defining the relative rights of the holders of Senior Debt on the one
hand, and the holder of this Note on the other hand, against the
Corporation and its property; and nothing herein shall impair, as
between the Corporation and the holder of this Note, the obligation of
the Corporation, which is
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unconditional and absolute, to pay to the holder thereof the principal
thereof and interest thereon in accordance with the terms and the
provisions thereof; nor shall anything herein prevent the holder of
this Note from exercising all remedies otherwise permitted by
applicable law or hereunder upon default under this Note, subject to
the rights, if any, under this Section 4 of holders of Senior Debt to
receive cash, property, stock or obligations otherwise payable or
deliverable to the holder of this Note.
SECTION 5. General Covenants. The Corporation covenants and
agrees with the holder of this Note as hereinbelow set forth, namely:
5.1. The Corporation will punctually pay or cause to be paid
the principal of and interest on this Note according to the terms hereof.
5.2. The Corporation will, and will cause each Subsidiary, if
any, to
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or upon any of its property,
real, personal or mixed, or upon any part thereof, as well as all
claims of any kind (including claims for labor, materials and supplies
which, if unpaid, might by law become a lien or charge upon its
property); provided,
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however, that neither the Corporation nor any Subsidiary shall be
required to pay any such tax, assessment, charge, levy or claim if the
amount, applicability or validity thereof shall currently be contested
in good faith by appropriate proceedings and if the Corporation or such
Subsidiary, as the case may be, shall have set aside on its books
reserves (segregated to the extent required by sound accounting
practice) reasonably deemed by it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note
and as contemplated by Section 6 hereof, do or cause to be done all
things necessary or appropriate to preserve and keep in full force and
effect its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Corporation or such Subsidiary; provided, however,
that nothing in this paragraph shall prevent the abandonment or
termination of the corporate existence, rights and franchises of any
Subsidiary if, in the opinion of the Board of Directors of the
Corporation, such abandonment or termination is in the interest of the
Corporation and
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not disadvantageous in any material respect to the holder of this Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Corporation will not consolidate with, merge into, or sell or otherwise dispose
of all or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such
consolidation or merger or to which such sale or other disposition
shall have been made shall be a corporation organized under the laws of
the United States of America or any State, district or territory
thereof;
(b) such successor corporation shall expressly assume the due
and punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Corporation to the same extent as if
such successor corporation had been the original maker of this Note
(and such assumption shall, upon the request of the holder of this
Note, be evidenced by the endorsing of an appropriate legend upon this
Note, and each Note executed pursuant to Section 9 hereof after such
assumption shall, unless executed in the name of such corporation, have
a similar legend endorsed thereon); and
<PAGE> 10
10
(c) immediately after such consolidation, merger, sale or
other disposition, such successor corporation shall not be in default
in the performance of any of the covenants, agreements or conditions
contained in this Note.
SECTION 7. Registered Holders. The Corporation may deem and
treat the registered holder of this Note as the absolute owner of this Note for
the purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this
Note, together with all accrued interest thereon, shall, at the option of the
holder hereof exercised by written notice to the Corporation at its principal
executive offices, forthwith become and be due and payable if any one or more of
the following events (herein called "Events of Default") shall have occurred
(for any reason whatsoever and whether such happening shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body) and be continuing at
the time of such notice, that is to say:
<PAGE> 11
11
(a) if default shall be made in the due and punctual payment
of the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment
of any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance or observance
of any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance
of any of the other covenants, agreements or conditions of the
Corporation contained in this Note, and such default shall have
continued for a period of 30 days;
(e) if the Corporation or any Subsidiary shall default beyond
any period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Corporation
or any Subsidiary shall default in the performance or observance of any
other agreement, term or condition contained in such obligation or in
any agreement under which any such obligation is created, if the effect
of any such default is to cause or permit
<PAGE> 12
12
the holder or holders of such obligations (or a trustee on behalf of
such holder or holders) to cause such obligation to become due prior to
the date of its stated maturity, unless such holder or holders or
trustee shall have waived such default after its occurrence or unless
such holder or holders or trustee shall have failed to give any notice
required to create a default thereunder;
(f) if the Corporation or any Subsidiary shall:
(i) admit in writing its inability to pay its
debts generally as they become due;
(ii) file a petition in bankruptcy or a petition
to take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property;
(v) on a petition in bankruptcy filed against
it, be adjudicated a bankrupt; or
(vi) file a petition or answer seeking
reorganization or arrangement under the federal bankruptcy
laws or any other applicable law or statute of the United
States of America or any State, district or territory thereof;
<PAGE> 13
13
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Corporation
or any Subsidiary, a receiver of the Corporation or any Subsidiary or of
the whole or any substantial part of its property, or approving a
petition filed against it seeking reorganization or arrangement of the
Corporation or any Subsidiary under the federal bankruptcy laws or any
other applicable law or statute of the United States of America or any
State, district or territory thereof, and such order, judgment or decree
shall not be vacated or set aside or stayed within 60 days from the date
of entry thereof;
(h) if, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall assume custody
or control of the Corporation or any Subsidiary or of the whole or any
substantial part of its property and such custody or control shall not
be terminated or stayed within 60 days from the date of assumption of
such custody or control; or
(i) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Corporation
or any Subsidiary and the Corporation or such Subsidiary shall not
discharge the same or provide for its discharge in accordance with its
<PAGE> 14
14
terms, or shall not procure a stay of execution thereon within 60 days
from the date of entry thereof and within the period during which
execution of such judgment shall have been stayed, appeal therefrom, and
cause the execution thereof to be stayed during such appeal.
8.2. In case any one or more of the Events of Default specified
in Section 8.1 hereof shall have occurred and be continuing, the holder of this
Note may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, whether for the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted
in this Note, or the holder of this Note may proceed to enforce the payment of
all sums due upon this Note or to enforce any other legal or equitable right of
the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
8.4. No course of dealing between the Corporation and the holder
hereof or any delay on the part of the holder hereof in exercising any rights
hereunder shall operate as a waiver of any rights of any holder hereof.
SECTION 9. Exchange or Replacement of Notes.
<PAGE> 15
15
(a) The holder of any Note or Notes, at its option, may in
person or by duly authorized attorney surrender one or more thereof for
exchange, at the principal executive offices of the Corporation, and at the
expense of the Corporation receive in exchange therefor a new Note or Notes in
the same aggregate principal amount as the aggregate unpaid principal amount of
the Note or Notes so surrendered and bearing interest at the same annual rate as
the Note or Notes so surrendered, each such new Note to be dated as of the date
to which interest has been paid on the Note or Notes so surrendered and to be in
such principal amount and payable to such person or persons, or order, as such
holder may designate in writing; provided, however, that the Corporation shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any new Note in the name other than
that of the holder of the Note or Notes surrendered in exchange therefor. Five
days' prior written notice of the holder's intention to make such exchange shall
be given to the Corporation.
(b) Upon receipt by the Corporation of evidence satisfactory to
it of the loss, theft, destruction or mutilation of this Note, and (in case of
loss, theft or destruction) of indemnity reasonably satisfactory to it (it being
understood that in the case of Abbingdon-III an unsecured written
indemnification agreement shall be
<PAGE> 16
16
satisfactory to the Corporation), and upon surrender and cancellation of this
Note, if mutilated, the Corporation, upon reimbursement to it of all reasonable
expenses incidental thereto, will make and deliver a new Note, of like tenor in
lieu of this Note. Any Note made and delivered in accordance with the provisions
of this paragraph (b) shall be dated as of the date to which interest has been
paid on this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Corporation or of any predecessor or successor corporation,
either directly or through the Corporation or otherwise, whether by virtue of
any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty, or otherwise, all such liability being by the acceptance
hereof and as part of the consideration for the issue hereof expressly waived
and released; provided, however, that nothing herein contained shall be taken to
prevent recourse to and the enforcement of the liability, if any, of any
stockholder or subscriber to capital stock upon or in respect of shares of
capital stock not fully paid.
<PAGE> 17
17
SECTION 11. Section Headings. The Section headings contained
herein are for the purpose of convenience of reference only and are not intended
to define or limit the contents of any such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth, except to the extent of the mandatory rules of the State of
Delaware with respect to the formal requisites for authorization of a security
and rights and duties with respect to register of transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Douglas P. Gill
------------------------------------
Douglas P. Gill
President
<PAGE> 1
EXHIBIT 10(d)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
VALLEY FORGE DENTAL ASSOCIATES, INC.
9% Subordinated Note due September 18, 2005
$80,000 King of Prussia, Pennsylvania
September 18, 1995
SECTION 1. General. VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation (herein called the "Corporation"), for value received,
hereby promises to pay to BUSINESS DEVELOPMENT CAPITAL LIMITED PARTNERSHIP-III,
a Massachusetts limited partnership (herein called "BDC-III"), or order, the
principal amount of Eighty Thousand Dollars, ($80,000), in full on September 18,
2005 (subject to prepayment in whole or in part in the manner hereinafter in
Section 3 hereof provided), in such coin or currency of the United States of
America as at the time of payment shall be legal tender therein for the payment
of public and private debts, and to pay interest on the unpaid balance of the
principal hereof from the date hereof, at the rate of 9% per annum, in like coin
or currency, quarterly on March 31, June 30, September 30 and December 31 each
year commencing September 30, 1995 (the payment due on such date to include all
accrued interest from the date hereof), and to pay interest at the rate of 10%
per annum on any overdue principal and (to the extent permitted by law) on any
<PAGE> 2
2
overdue interest, from the due date thereof until the obligation of the
Corporation with respect to the payment thereof shall be discharged; all
payments and prepayments of principal of this Note and all payments of interest
on this Note to be made to the holder hereof at the office of such holder at c/o
Foster Management Company, 1018 West Ninth Avenue, King of Prussia, Pennsylvania
19406 or such other office hereafter designated by such holder. Interest hereon
for any period other than a full quarterly period shall be computed on the basis
of a 360-day year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the following terms
shall have the following respective meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes
executed and delivered by the Corporation in exchange or replacement thereof
pursuant to Section 9 hereof. Unless the context otherwise requires, the term
"holder" is used herein to mean the person named as payee in Section 1 hereof
(herein sometimes called the "payee named herein") or any other person who shall
at the time be the registered holder of this Note.
"Corporation" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation, the maker of this Note, and shall also mean any
successor corporation which
<PAGE> 3
3
shall become such in the manner prescribed in Section 6 hereof.
The term "corporation" shall include, except for the purposes
of Section 6 hereof, an association, joint stock company, business trust or
other similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at
least a majority of the outstanding voting stock of which shall at the time be
owned by the Corporation. For purposes hereof, outstanding voting stock shall be
deemed to be capital stock of any class or classes, however designated, having
ordinary voting power for the election of the members of the board of directors
or other governing body of such corporation, other than stock having such power
only upon the happening of a contingency.
"Senior Debt" shall mean the principal of, premium, if any,
and interest on and other amounts due on all indebtedness of the Corporation,
whether outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Corporation,
and
(b) for money borrowed by others and
guaranteed by the Corporation
<PAGE> 4
4
from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Corporation may at any time prepay
the whole or any part of the unpaid principal amount of this Note, without
penalty or premium, but with interest accrued to the date fixed for prepayment.
Notices of prepayment shall be given by the Corporation by mail and shall be
mailed to the registered holder of this Note not less than 30 days from the date
fixed for prepayment. In case this Note is to be prepaid in part only, such
notice shall specify the principal amount thereof to be prepaid and shall state
that this Note shall be submitted to the Corporation for notation thereon of the
principal amount thereof to be prepaid. Upon giving of notice of prepayment as
aforesaid, this Note or portion thereof so specified for prepayment shall on the
prepayment date specified in such notice become due and payable; and from and
after the prepayment date so specified (unless the Corporation shall default in
making such prepayment) interest on this Note or portion thereof so specified
for prepayment shall cease to accrue and, on presentation and surrender thereof
to the Corporation for cancellation in the
<PAGE> 5
5
case of this Note being prepaid in whole, or for notation thereon of the payment
of the portion of the principal amount thereof being prepaid in the case of a
prepayment of this Note in part only, this Note or portion thereof so specified
for prepayment shall be paid by the Corporation at the prepayment price
aforesaid.
SECTION 4. Subordination. The Corporation hereby agrees, and
the holder of this Note by its acceptance hereof agrees, that the payment of the
principal of and interest on this Note is hereby expressly made subordinate and
junior in right of payment, to the extent set forth in the following paragraphs
(a) and (b), to the prior payment in full of all Senior Debt of the Corporation:
(a) In the event of insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Corporation or to
any of the property of the Corporation, or in the event of any
proceedings for voluntary liquidation, dissolution, or other winding-up
of the Corporation, whether or not involving insolvency or bankruptcy,
then the holders of Senior Debt shall be entitled to receive payment in
full of all principal of, and premium, if any, and interest on all
Senior Debt before the holder of this Note shall be entitled to receive
any payment on account of principal of or interest on this Note,
<PAGE> 6
6
and to that end the holders of Senior Debt shall be entitled to receive
for application in payment thereof any payment or distribution of any
kind or character, whether in cash or property or securities, which may
be payable or deliverable in any such proceedings in respect of this
Note, except securities of the Corporation which are subordinate and
junior in right of payment to the payment of all Senior Debt then
outstanding.
(b) In the event that the holder of this Note shall have
received written notice to the effect that an event of default shall
have occurred on any Senior Debt and be continuing (under circumstances
in which the provisions of the foregoing paragraph (a) are not
applicable), then, during the continuance of any such event of default,
all principal of and premium, if any, and interest on all Senior Debt
outstanding at the time of such notice shall first be paid in full,
before any payment on account of principal or interest is made upon
this Note. The provisions of this Section 4 are for the purpose of
defining the relative rights of the holders of Senior Debt on the one
hand, and the holder of this Note on the other hand, against the
Corporation and its property; and nothing herein shall impair, as
between the Corporation and the holder of this Note, the obligation of
the Corporation, which is
<PAGE> 7
7
unconditional and absolute, to pay to the holder thereof the principal
thereof and interest thereon in accordance with the terms and the
provisions thereof; nor shall anything herein prevent the holder of
this Note from exercising all remedies otherwise permitted by
applicable law or hereunder upon default under this Note, subject to
the rights, if any, under this Section 4 of holders of Senior Debt to
receive cash, property, stock or obligations otherwise payable or
deliverable to the holder of this Note.
SECTION 5. General Covenants. The Corporation covenants and
agrees with the holder of this Note as hereinbelow set forth, namely:
5.1. The Corporation will punctually pay or cause to be paid
the principal of and interest on this Note according to the terms hereof.
5.2. The Corporation will, and will cause each
Subsidiary, if any, to
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or upon any of its property,
real, personal or mixed, or upon any part thereof, as well as all
claims of any kind (including claims for labor, materials and supplies
which, if unpaid, might by law become a lien or charge upon its
property); provided,
<PAGE> 8
8
however, that neither the Corporation nor any Subsidiary shall be
required to pay any such tax, assessment, charge, levy or claim if the
amount, applicability or validity thereof shall currently be contested
in good faith by appropriate proceedings and if the Corporation or such
Subsidiary, as the case may be, shall have set aside on its books
reserves (segregated to the extent required by sound accounting
practice) reasonably deemed by it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note
and as contemplated by Section 6 hereof, do or cause to be done all
things necessary or appropriate to preserve and keep in full force and
effect its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Corporation or such Subsidiary; provided, however,
that nothing in this paragraph shall prevent the abandonment or
termination of the corporate existence, rights and franchises of any
Subsidiary if, in the opinion of the Board of Directors of the
Corporation, such abandonment or termination is in the interest of the
Corporation and
<PAGE> 9
9
not disadvantageous in any material respect to the holder of this Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Corporation will not consolidate with, merge into, or sell or otherwise dispose
of all or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such
consolidation or merger or to which such sale or other disposition
shall have been made shall be a corporation organized under the laws of
the United States of America or any State, district or territory
thereof;
(b) such successor corporation shall expressly assume the due
and punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Corporation to the same extent as if
such successor corporation had been the original maker of this Note
(and such assumption shall, upon the request of the holder of this
Note, be evidenced by the endorsing of an appropriate legend upon this
Note, and each Note executed pursuant to Section 9 hereof after such
assumption shall, unless executed in the name of such corporation, have
a similar legend endorsed thereon); and
<PAGE> 10
10
(c) immediately after such consolidation, merger, sale or
other disposition, such successor corporation shall not be in default
in the performance of any of the covenants, agreements or conditions
contained in this Note.
SECTION 7. Registered Holders. The Corporation may deem and
treat the registered holder of this Note as the absolute owner of this Note for
the purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this
Note, together with all accrued interest thereon, shall, at the option of the
holder hereof exercised by written notice to the Corporation at its principal
executive offices, forthwith become and be due and payable if any one or more of
the following events (herein called "Events of Default") shall have occurred
(for any reason whatsoever and whether such happening shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body) and be continuing at
the time of such notice, that is to say:
<PAGE> 11
11
(a) if default shall be made in the due and punctual payment
of the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment
of any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance or observance
of any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance
of any of the other covenants, agreements or conditions of the
Corporation contained in this Note, and such default shall have
continued for a period of 30 days;
(e) if the Corporation or any Subsidiary shall default beyond
any period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Corporation
or any Subsidiary shall default in the performance or observance of any
other agreement, term or condition contained in such obligation or in
any agreement under which any such obligation is created, if the effect
of any such default is to cause or permit
<PAGE> 12
12
the holder or holders of such obligations (or a trustee on behalf of
such holder or holders) to cause such obligation to become due prior to
the date of its stated maturity, unless such holder or holders or
trustee shall have waived such default after its occurrence or unless
such holder or holders or trustee shall have failed to give any notice
required to create a default thereunder;
(f) if the Corporation or any Subsidiary shall:
(i) admit in writing its inability to pay its
debts generally as they become due;
(ii) file a petition in bankruptcy or a petition
to take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property;
(v) on a petition in bankruptcy filed against
it, be adjudicated a bankrupt; or
(vi) file a petition or answer seeking
reorganization or arrangement under the federal bankruptcy
laws or any other applicable law or statute of the United
States of America or any State, district or territory thereof;
<PAGE> 13
13
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Corporation
or any Subsidiary, a receiver of the Corporation or any Subsidiary or of
the whole or any substantial part of its property, or approving a
petition filed against it seeking reorganization or arrangement of the
Corporation or any Subsidiary under the federal bankruptcy laws or any
other applicable law or statute of the United States of America or any
State, district or territory thereof, and such order, judgment or decree
shall not be vacated or set aside or stayed within 60 days from the date
of entry thereof;
(h) if, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall assume custody
or control of the Corporation or any Subsidiary or of the whole or any
substantial part of its property and such custody or control shall not
be terminated or stayed within 60 days from the date of assumption of
such custody or control; or
(i) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Corporation
or any Subsidiary and the Corporation or such Subsidiary shall not
discharge the same or provide for its discharge in accordance with its
<PAGE> 14
14
terms, or shall not procure a stay of execution thereon within 60 days
from the date of entry thereof and within the period during which
execution of such judgment shall have been stayed, appeal therefrom, and
cause the execution thereof to be stayed during such appeal.
8.2. In case any one or more of the Events of Default specified
in Section 8.1 hereof shall have occurred and be continuing, the holder of this
Note may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, whether for the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted
in this Note, or the holder of this Note may proceed to enforce the payment of
all sums due upon this Note or to enforce any other legal or equitable right of
the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
8.4. No course of dealing between the Corporation and the holder
hereof or any delay on the part of the holder hereof in exercising any rights
hereunder shall operate as a waiver of any rights of any holder hereof.
SECTION 9. Exchange or Replacement of Notes.
<PAGE> 15
15
(a) The holder of any Note or Notes, at its option, may in
person or by duly authorized attorney surrender one or more thereof for
exchange, at the principal executive offices of the Corporation, and at the
expense of the Corporation receive in exchange therefor a new Note or Notes in
the same aggregate principal amount as the aggregate unpaid principal amount of
the Note or Notes so surrendered and bearing interest at the same annual rate as
the Note or Notes so surrendered, each such new Note to be dated as of the date
to which interest has been paid on the Note or Notes so surrendered and to be in
such principal amount and payable to such person or persons, or order, as such
holder may designate in writing; provided, however, that the Corporation shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any new Note in the name other than
that of the holder of the Note or Notes surrendered in exchange therefor. Five
days' prior written notice of the holder's intention to make such exchange shall
be given to the Corporation.
(b) Upon receipt by the Corporation of evidence satisfactory to
it of the loss, theft, destruction or mutilation of this Note, and (in case of
loss, theft or destruction) of indemnity reasonably satisfactory to it (it being
understood that in the case of BDC-III an unsecured written indemnification
agreement shall be satisfactory to
<PAGE> 16
16
the Corporation), and upon surrender and cancellation of this Note, if
mutilated, the Corporation, upon reimbursement to it of all reasonable expenses
incidental thereto, will make and deliver a new Note, of like tenor in lieu of
this Note. Any Note made and delivered in accordance with the provisions of this
paragraph (b) shall be dated as of the date to which interest has been paid on
this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Corporation or of any predecessor or successor corporation,
either directly or through the Corporation or otherwise, whether by virtue of
any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty, or otherwise, all such liability being by the acceptance
hereof and as part of the consideration for the issue hereof expressly waived
and released; provided, however, that nothing herein contained shall be taken to
prevent recourse to and the enforcement of the liability, if any, of any
stockholder or subscriber to capital stock upon or in respect of shares of
capital stock not fully paid.
SECTION 11. Section Headings. The Section headings contained
herein are for the purpose of convenience
<PAGE> 17
17
of reference only and are not intended to define or limit the contents of any
such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth, except to the extent of the mandatory rules of the State of
Delaware with respect to the formal requisites for authorization of a security
and rights and duties with respect to register of transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Douglas P. Gill
------------------------------------
Douglas P. Gill
President
<PAGE> 1
EXHIBIT 10(e)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
9% Subordinated Note due September 18, 2005
$1,134,000 King of Prussia, Pennsylvania
December 12, 1995
SECTION 1. General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFD"), and RIVERHEARST, INC., a
Delaware corporation ("Riverhearst"), jointly and severally (VFD and Riverhearst
are collectively referred to herein as the "Maker"), hereby promise to pay to
ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP, a Connecticut limited
partnership (herein called "Abbingdon-I"), or order, the principal amount of One
Million One Hundred Thirty-Four Thousand Dollars ($1,134,000), or, if less, the
aggregate outstanding principal amount of all loans which are made by
Abbingdon-I to the Maker on or prior to September 18, 2005 and which are
intended to be evidenced by this Note as conclusively evidenced by a written
endorsement with respect thereto by a general partner of Abbingdon-I on the
schedule annexed hereto, in full on September 18, 2005 (subject to prepayment in
whole or in part in the manner hereinafter in Section 3 hereof provided), in
such coin or currency of the United States of America as at the time of payment
shall be legal
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2
tender therein for the payment of public and private debts, and to pay interest
on the unpaid balance of the principal hereof from the date hereof, at the rate
of 9% per annum, in like coin or currency, quarterly on March 31, June 30,
September 30 and December 31 each year commencing March 31, 1996 (the payment
due on such date to include all accrued interest from the date hereof), and to
pay interest at the rate of 10% per annum on any overdue principal and (to the
extent permitted by law) on any overdue interest, from the due date thereof
until the obligation of the Maker with respect to the payment thereof shall be
discharged; all payments and prepayments of principal of this Note and all
payments of interest on this Note to be made to the holder hereof at the office
of such holder at c/o Foster Management Company, 1018 West Ninth Avenue, King of
Prussia, Pennsylvania 19406 or such other office hereafter designated by such
holder. Interest hereon for any period other than a full quarterly period shall
be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the following terms
shall have the following respective meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes
executed and delivered by the Maker in exchange or replacement thereof pursuant
to Section 9 hereof. Unless the context otherwise requires, the term
<PAGE> 3
3
"holder" is used herein to mean the person named as payee in Section 1 hereof
(herein sometimes called the "payee named herein") or any other person who shall
at the time be the registered holder of this Note.
"Maker" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation, and RIVERHEARST, INC., a Delaware corporation, the joint
and several obligors under this Note, and shall also mean any successor
corporation of either of them which shall become such in the manner prescribed
in Section 6 hereof.
The term "corporation" shall include, except for the purposes
of Section 6 hereof, an association, joint stock company, business trust or
other similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at
least a majority of the outstanding voting stock of which shall at the time be
owned by the Maker. For purposes hereof, outstanding voting stock shall be
deemed to be capital stock of any class or classes, however designated, having
ordinary voting power for the election of the members of the board of directors
or other governing body of such corporation, other than stock having such power
only upon the happening of a contingency.
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4
"Senior Debt" shall mean the principal of, premium, if any,
and interest on and other amounts due on all indebtedness of the Maker, whether
outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Maker, and
(b) for money borrowed by others and guaranteed by the Maker
from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Maker may at any time prepay the
whole or any part of the unpaid principal amount of this Note, without penalty
or premium, but with interest accrued to the date fixed for prepayment. Notices
of prepayment shall be given by the Maker by mail and shall be mailed to the
registered holder of this Note not less than 30 days from the date fixed for
prepayment. In case this Note is to be prepaid in part only, such notice shall
specify the principal amount thereof to be prepaid and shall state that this
Note shall be submitted to the Maker for notation thereon of the principal
amount thereof to be prepaid. Upon giving of notice of prepayment as aforesaid,
this Note or portion thereof so specified for prepayment
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5
shall on the prepayment date specified in such notice become due and payable;
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment) interest on this Note or portion thereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender thereof to the Maker for cancellation in the case of this Note being
prepaid in whole, or for notation thereon of the payment of the portion of the
principal amount thereof being prepaid in the case of a prepayment of this Note
in part only, this Note or portion thereof so specified for prepayment shall be
paid by the Maker at the prepayment price aforesaid.
SECTION 4. Subordination. The Maker hereby agrees, and the
holder of this Note by its acceptance hereof agrees, that the payment of the
principal of and interest on this Note is hereby expressly made subordinate and
junior in right of payment, to the extent set forth in the following paragraphs
(a) and (b), to the prior payment in full of all Senior Debt of the Maker:
(a) In the event of insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Maker or to any of
the property of the Maker, or in the event of any proceedings for
voluntary liquidation, dissolution, or other winding-up of the Maker,
whether or not involving
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insolvency or bankruptcy, then the holders of Senior Debt shall be
entitled to receive payment in full of all principal of, and premium,
if any, and interest on all Senior Debt before the holder of this Note
shall be entitled to receive any payment on account of principal of or
interest on this Note, and to that end the holders of Senior Debt shall
be entitled to receive for application in payment thereof any payment
or distribution of any kind or character, whether in cash or property
or securities, which may be payable or deliverable in any such
proceedings in respect of this Note, except securities of the Maker
which are subordinate and junior in right of payment to the payment of
all Senior Debt then outstanding.
(b) In the event that the holder of this Note shall have
received written notice to the effect that an event of default shall
have occurred on any Senior Debt and be continuing (under circumstances
in which the provisions of the foregoing paragraph (a) are not
applicable), then, during the continuance of any such event of default,
all principal of and premium, if any, and interest on all Senior Debt
outstanding at the time of such notice shall first be paid in full,
before any payment on account of principal or interest is made upon
this Note. The provisions of this Section 4 are for the purpose of
defining the relative rights of the
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7
holders of Senior Debt on the one hand, and the holder of this Note on
the other hand, against the Maker and its property; and nothing herein
shall impair, as between the Maker and the holder of this Note, the
obligation of the Maker, which is unconditional and absolute, to pay to
the holder thereof the principal thereof and interest thereon in
accordance with the terms and the provisions thereof; nor shall
anything herein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law or hereunder upon
default under this Note, subject to the rights, if any, under this
Section 4 of holders of Senior Debt to receive cash, property, stock or
obligations otherwise payable or deliverable to the holder of this
Note.
SECTION 5. General Covenants. The Maker covenants and agrees
with the holder of this Note as hereinbelow set forth, namely:
5.1. The Maker will punctually pay or cause to be paid the
principal of and interest on this Note according to the terms hereof.
5.2. The Maker will, and will cause each Subsidiary, if any,
to
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges or
levies imposed upon it or
<PAGE> 8
8
upon its income or upon any of its property, real, personal or mixed,
or upon any part thereof, as well as all claims of any kind (including
claims for labor, materials and supplies which, if unpaid, might by law
become a lien or charge upon its property); provided, however, that
neither the Maker nor any Subsidiary shall be required to pay any such
tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Maker or such Subsidiary, as the
case may be, shall have set aside on its books reserves (segregated to
the extent required by sound accounting practice) reasonably deemed by
it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note
and as contemplated by Section 6 hereof, do or cause to be done all
things necessary or appropriate to preserve and keep in full force and
effect its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Maker or such Subsidiary; provided, however, that
nothing in this paragraph shall prevent the abandonment or termination
of the corporate existence, rights and franchises of
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any Subsidiary if, in the opinion of the Board of Directors of the
Maker, such abandonment or termination is in the interest of the Maker
and not disadvantageous in any material respect to the holder of this
Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Maker will not consolidate with, merge into, or sell or otherwise dispose of all
or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such
consolidation or merger or to which such sale or other disposition
shall have been made shall be a corporation organized under the laws of
the United States of America or any State, district or territory
thereof;
(b) such successor corporation shall expressly assume the due
and punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Maker to the same extent as if such
successor corporation had been the original maker of this Note (and
such assumption shall, upon the request of the holder of this Note, be
evidenced by the endorsing of an appropriate legend upon this Note, and
each Note executed pursuant to Section 9 hereof after such assumption
shall, unless
<PAGE> 10
10
executed in the name of such corporation, have a similar legend
endorsed thereon); and
(c) immediately after such consolidation, merger, sale or
other disposition, such successor corporation shall not be in default
in the performance of any of the covenants, agreements or conditions
contained in this Note.
SECTION 7. Registered Holders. The Maker may deem and treat
the registered holder of this Note as the absolute owner of this Note for the
purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Maker shall not be affected by any notice to the contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this Note,
together with all accrued interest thereon, shall, at the option of the holder
hereof exercised by written notice to the Maker at its principal executive
offices, forthwith become and be due and payable if any one or more of the
following events (herein called "Events of Default") shall have occurred (for
any reason whatsoever and whether such happening shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or
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11
governmental body) and be continuing at the time of such notice, that is to say:
(a) if default shall be made in the due and punctual payment
of the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment
of any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance or observance
of any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance
of any of the other covenants, agreements or conditions of the Maker
contained in this Note, and such default shall have continued for a
period of 30 days;
(e) if the Maker or any Subsidiary shall default beyond any
period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Maker or any
Subsidiary shall default in the performance or observance of any other
agreement, term or condition contained in such obligation or in any
agreement under
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which any such obligation is created, if the effect of any such default
is to cause or permit the holder or holders of such obligations (or a
trustee on behalf of such holder or holders) to cause such obligation
to become due prior to the date of its stated maturity, unless such
holder or holders or trustee shall have waived such default after its
occurrence or unless such holder or holders or trustee shall have
failed to give any notice required to create a default thereunder;
(f) if the Maker or any Subsidiary shall:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to
take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or
any State, district or territory thereof;
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(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Maker or any
Subsidiary, a receiver of the Maker or any Subsidiary or of the whole or
any substantial part of its property, or approving a petition filed
against it seeking reorganization or arrangement of the Maker or any
Subsidiary under the federal bankruptcy laws or any other applicable law
or statute of the United States of America or any State, district or
territory thereof, and such order, judgment or decree shall not be
vacated or set aside or stayed within 60 days from the date of entry
thereof;
(h) if, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall assume custody
or control of the Maker or any Subsidiary or of the whole or any
substantial part of its property and such custody or control shall not
be terminated or stayed within 60 days from the date of assumption of
such custody or control; or
(i) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Maker or any
Subsidiary and the Maker or such Subsidiary shall not discharge the same
or provide for its discharge in accordance with its terms, or shall not
procure a stay of execution thereon within 60 days
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14
from the date of entry thereof and within the period during which
execution of such judgment shall have been stayed, appeal therefrom, and
cause the execution thereof to be stayed during such appeal.
8.2. In case any one or more of the Events of Default specified
in Section 8.1 hereof shall have occurred and be continuing, the holder of this
Note may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, whether for the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted
in this Note, or the holder of this Note may proceed to enforce the payment of
all sums due upon this Note or to enforce any other legal or equitable right of
the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
8.4. No course of dealing between the Maker and the holder
hereof or any delay on the part of the holder hereof in exercising any rights
hereunder shall operate as a waiver of any rights of any holder hereof.
SECTION 9. Exchange or Replacement of Notes.
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(a) The holder of any Note or Notes, at its option, may in
person or by duly authorized attorney surrender one or more thereof for
exchange, at the principal executive offices of the Maker, and at the expense of
the Maker receive in exchange therefor a new Note or Notes in the same aggregate
principal amount as the aggregate unpaid principal amount of the Note or Notes
so surrendered and bearing interest at the same annual rate as the Note or Notes
so surrendered, each such new Note to be dated as of the date to which interest
has been paid on the Note or Notes so surrendered and to be in such principal
amount and payable to such person or persons, or order, as such holder may
designate in writing; provided, however, that the Maker shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any new Note in the name other than that of the holder
of the Note or Notes surrendered in exchange therefor. Five days' prior written
notice of the holder's intention to make such exchange shall be given to the
Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it of
the loss, theft, destruction or mutilation of this Note, and (in case of loss,
theft or destruction) of indemnity reasonably satisfactory to it (it being
understood that in the case of Abbingdon-I an unsecured written indemnification
agreement shall be satisfactory to the Maker), and upon surrender and
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cancellation of this Note, if mutilated, the Maker, upon reimbursement to it of
all reasonable expenses incidental thereto, will make and deliver a new Note, of
like tenor in lieu of this Note. Any Note made and delivered in accordance with
the provisions of this paragraph (b) shall be dated as of the date to which
interest has been paid on this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor or successor corporation, either
directly or through the Maker or otherwise, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof and as
part of the consideration for the issue hereof expressly waived and released;
provided, however, that nothing herein contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock upon or in respect of shares of capital stock not
fully paid.
SECTION 11. Section Headings. The Section headings contained
herein are for the purpose of convenience
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17
of reference only and are not intended to define or limit the contents of any
such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth, except to the extent of the mandatory rules of the State of
Delaware with respect to the formal requisites for authorization of a security
and rights and duties with respect to register of transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Douglas P. Gill
------------------------------------
Douglas P. Gill
President
RIVERHEARST, INC.,
a Delaware corporation
By /s/ Stephen F. Nagy
------------------------------------
Stephen F. Nagy
Vice President
<PAGE> 18
SCHEDULE OF LOANS AND PAYMENTS
<TABLE>
<CAPTION>
Name of
Amount Amount of Unpaid Person
of Principal Principal Making
Date Loan Paid Balance Notation
- ---- ---- ---- ------- --------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 10(f)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
9% Subordinated Note due September 18, 2005
$4,158,000 King of Prussia, Pennsylvania
December 12, 1995
SECTION 1. General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFD"), and RIVERHEARST, INC., a
Delaware corporation ("Riverhearst"), jointly and severally (VFD and Riverhearst
are collectively referred to herein as the "Maker"), hereby promise to pay to
ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP-II, a Delaware limited
partnership (herein called "Abbingdon-II"), or order, the principal amount of
Four Million One Hundred Fifty-Eight Thousand Dollars ($4,158,000), or, if less,
the aggregate outstanding principal amount of all loans which are made by
Abbingdon-II to the Maker on or prior to September 18, 2005 and which are
intended to be evidenced by this Note as conclusively evidenced by a written
endorsement with respect thereto by a general partner of Abbingdon-II on the
schedule annexed hereto, in full on September 18, 2005 (subject to prepayment in
whole or in part in the manner hereinafter in Section 3 hereof provided), in
such coin or currency of the United States of America as at the time of payment
shall be legal
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2
tender therein for the payment of public and private debts, and to pay interest
on the unpaid balance of the principal hereof from the date hereof, at the rate
of 9% per annum, in like coin or currency, quarterly on March 31, June 30,
September 30 and December 31 each year commencing March 31, 1996 (the payment
due on such date to include all accrued interest from the date hereof), and to
pay interest at the rate of 10% per annum on any overdue principal and (to the
extent permitted by law) on any overdue interest, from the due date thereof
until the obligation of the Maker with respect to the payment thereof shall be
discharged; all payments and prepayments of principal of this Note and all
payments of interest on this Note to be made to the holder hereof at the office
of such holder at c/o Foster Management Company, 1018 West Ninth Avenue, King of
Prussia, Pennsylvania 19406 or such other office hereafter designated by such
holder. Interest hereon for any period other than a full quarterly period shall
be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the following terms
shall have the following respective
meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes
executed and delivered by the Maker in exchange or replacement thereof pursuant
to Section 9 hereof. Unless the context otherwise requires, the term
<PAGE> 3
3
"holder" is used herein to mean the person named as payee in Section 1 hereof
(herein sometimes called the "payee named herein") or any other person who shall
at the time be the registered holder of this Note.
"Maker" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation, and RIVERHEARST, INC., a Delaware corporation, the joint
and several obligors under this Note, and shall also mean any successor
corporation of either of them which shall become such in the manner prescribed
in Section 6 hereof.
The term "corporation" shall include, except for the purposes of
Section 6 hereof, an association, joint stock company, business trust or other
similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at
least a majority of the outstanding voting stock of which shall at the time be
owned by the Maker. For purposes hereof, outstanding voting stock shall be
deemed to be capital stock of any class or classes, however designated, having
ordinary voting power for the election of the members of the board of directors
or other governing body of such corporation, other than stock having such power
only upon the happening of a contingency.
<PAGE> 4
4
"Senior Debt" shall mean the principal of, premium, if any, and
interest on and other amounts due on all indebtedness of the Maker, whether
outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Maker, and
(b) for money borrowed by others and
guaranteed by the Maker
from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Maker may at any time prepay the whole
or any part of the unpaid principal amount of this Note, without penalty or
premium, but with interest accrued to the date fixed for prepayment. Notices of
prepayment shall be given by the Maker by mail and shall be mailed to the
registered holder of this Note not less than 30 days from the date fixed for
prepayment. In case this Note is to be prepaid in part only, such notice shall
specify the principal amount thereof to be prepaid and shall state that this
Note shall be submitted to the Maker for notation thereon of the principal
amount thereof to be prepaid. Upon giving of notice of prepayment as aforesaid,
this Note or portion thereof so specified for prepayment
<PAGE> 5
5
shall on the prepayment date specified in such notice become due and payable;
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment) interest on this Note or portion thereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender thereof to the Maker for cancellation in the case of this Note being
prepaid in whole, or for notation thereon of the payment of the portion of the
principal amount thereof being prepaid in the case of a prepayment of this Note
in part only, this Note or portion thereof so specified for prepayment shall be
paid by the Maker at the prepayment price aforesaid.
SECTION 4. Subordination. The Maker hereby agrees, and the holder
of this Note by its acceptance hereof agrees, that the payment of the principal
of and interest on this Note is hereby expressly made subordinate and junior in
right of payment, to the extent set forth in the following paragraphs (a) and
(b), to the prior payment in full of all Senior Debt of the Maker:
(a) In the event of insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings
in connection therewith, relative to the Maker or to any of the property
of the Maker, or in the event of any proceedings for voluntary
liquidation, dissolution, or other winding-up of the Maker, whether or
not involving
<PAGE> 6
6
insolvency or bankruptcy, then the holders of Senior Debt shall be
entitled to receive payment in full of all principal of, and premium, if
any, and interest on all Senior Debt before the holder of this Note
shall be entitled to receive any payment on account of principal of or
interest on this Note, and to that end the holders of Senior Debt shall
be entitled to receive for application in payment thereof any payment or
distribution of any kind or character, whether in cash or property or
securities, which may be payable or deliverable in any such proceedings
in respect of this Note, except securities of the Maker which are
subordinate and junior in right of payment to the payment of all Senior
Debt then outstanding.
(b) In the event that the holder of this Note shall have received
written notice to the effect that an event of default shall have
occurred on any Senior Debt and be continuing (under circumstances in
which the provisions of the foregoing paragraph (a) are not applicable),
then, during the continuance of any such event of default, all principal
of and premium, if any, and interest on all Senior Debt outstanding at
the time of such notice shall first be paid in full, before any payment
on account of principal or interest is made upon this Note. The
provisions of this Section 4 are for the purpose of defining the
relative rights of the
<PAGE> 7
7
holders of Senior Debt on the one hand, and the holder of this Note on
the other hand, against the Maker and its property; and nothing herein
shall impair, as between the Maker and the holder of this Note, the
obligation of the Maker, which is unconditional and absolute, to pay to
the holder thereof the principal thereof and interest thereon in
accordance with the terms and the provisions thereof; nor shall anything
herein prevent the holder of this Note from exercising all remedies
otherwise permitted by applicable law or hereunder upon default under
this Note, subject to the rights, if any, under this Section 4 of
holders of Senior Debt to receive cash, property, stock or obligations
otherwise payable or deliverable to the holder of this Note.
SECTION 5. General Covenants. The Maker covenants and agrees with
the holder of this Note as hereinbelow set forth, namely:
5.1. The Maker will punctually pay or cause to be paid the
principal of and interest on this Note according to the terms hereof.
5.2. The Maker will, and will cause each Subsidiary, if any, to
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges or
levies imposed upon it or
<PAGE> 8
8
upon its income or upon any of its property, real, personal or mixed, or
upon any part thereof, as well as all claims of any kind (including
claims for labor, materials and supplies which, if unpaid, might by law
become a lien or charge upon its property); provided, however, that
neither the Maker nor any Subsidiary shall be required to pay any such
tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Maker or such Subsidiary, as the case
may be, shall have set aside on its books reserves (segregated to the
extent required by sound accounting practice) reasonably deemed by it
adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note and
as contemplated by Section 6 hereof, do or cause to be done all things
necessary or appropriate to preserve and keep in full force and effect
its corporate existence, rights and franchises, and use its best efforts
to qualify as a foreign corporation entitled to do business in every
jurisdiction in which the failure so to qualify would materially
adversely affect the Maker or such Subsidiary; provided, however, that
nothing in this paragraph shall prevent the abandonment or termination
of the corporate existence, rights and franchises of
<PAGE> 9
9
any Subsidiary if, in the opinion of the Board of Directors of the
Maker, such abandonment or termination is in the interest of the Maker
and not disadvantageous in any material respect to the holder of this
Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Maker will not consolidate with, merge into, or sell or otherwise dispose of all
or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such consolidation
or merger or to which such sale or other disposition shall have been
made shall be a corporation organized under the laws of the United
States of America or any State, district or territory thereof;
(b) such successor corporation shall expressly assume the due and
punctual payment of the principal of and interest on this Note according
to its tenor, and the due and punctual performance and observance of all
the covenants, agreements and conditions of this Note to be performed or
observed by the Maker to the same extent as if such successor
corporation had been the original maker of this Note (and such
assumption shall, upon the request of the holder of this Note, be
evidenced by the endorsing of an appropriate legend upon this Note, and
each Note executed pursuant to Section 9 hereof after such assumption
shall, unless
<PAGE> 10
10
executed in the name of such corporation, have a similar legend endorsed
thereon); and
(c) immediately after such consolidation, merger, sale or other
disposition, such successor corporation shall not be in default in the
performance of any of the covenants, agreements or conditions contained
in this Note.
SECTION 7. Registered Holders. The Maker may deem and treat the
registered holder of this Note as the absolute owner of this Note for the
purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Maker shall not be affected by any notice to the contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this Note, together
with all accrued interest thereon, shall, at the option of the holder hereof
exercised by written notice to the Maker at its principal executive offices,
forthwith become and be due and payable if any one or more of the following
events (herein called "Events of Default") shall have occurred (for any reason
whatsoever and whether such happening shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or
<PAGE> 11
11
governmental body) and be continuing at the time of such notice, that is to say:
(a) if default shall be made in the due and punctual payment of
the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment of
any interest on this Note when and as such interest shall become due and
payable, and such default shall have continued for a period of 10 days;
(c) if default shall be made in the performance or observance of
any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance of
any of the other covenants, agreements or conditions of the Maker
contained in this Note, and such default shall have continued for a
period of 30 days;
(e) if the Maker or any Subsidiary shall default beyond any
period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Maker or any
Subsidiary shall default in the performance or observance of any other
agreement, term or condition contained in such obligation or in any
agreement under
<PAGE> 12
12
which any such obligation is created, if the effect of any such default
is to cause or permit the holder or holders of such obligations (or a
trustee on behalf of such holder or holders) to cause such obligation to
become due prior to the date of its stated maturity, unless such holder
or holders or trustee shall have waived such default after its
occurrence or unless such holder or holders or trustee shall have failed
to give any notice required to create a default thereunder;
(f) if the Maker or any Subsidiary shall:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act;
(iii) make an assignment for the benefit of creditors;
(iv) consent to the appointment of a receiver of itself or
of the whole or any substantial part of its property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
State, district or territory thereof;
<PAGE> 13
13
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Maker or any
Subsidiary, a receiver of the Maker or any Subsidiary or of the whole or
any substantial part of its property, or approving a petition filed
against it seeking reorganization or arrangement of the Maker or any
Subsidiary under the federal bankruptcy laws or any other applicable law
or statute of the United States of America or any State, district or
territory thereof, and such order, judgment or decree shall not be vacated
or set aside or stayed within 60 days from the date of entry thereof;
(h) if, under the provisions of any other law for the relief or aid
of debtors, any court of competent jurisdiction shall assume custody or
control of the Maker or any Subsidiary or of the whole or any substantial
part of its property and such custody or control shall not be terminated
or stayed within 60 days from the date of assumption of such custody or
control; or
(i) if final judgment for the payment of money in excess of $50,000
shall be rendered by a court of record against the Maker or any Subsidiary
and the Maker or such Subsidiary shall not discharge the same or provide
for its discharge in accordance with its terms, or shall not procure a
stay of execution thereon within 60 days
<PAGE> 14
14
from the date of entry thereof and within the period during which
execution of such judgment shall have been stayed, appeal therefrom, and
cause the execution thereof to be stayed during such appeal.
8.2. In case any one or more of the Events of Default specified in
Section 8.1 hereof shall have occurred and be continuing, the holder of this
Note may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, whether for the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted
in this Note, or the holder of this Note may proceed to enforce the payment of
all sums due upon this Note or to enforce any other legal or equitable right of
the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is intended
to be exclusive of any other remedy and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise.
8.4. No course of dealing between the Maker and the holder hereof
or any delay on the part of the holder hereof in exercising any rights hereunder
shall operate as a waiver of any rights of any holder hereof.
SECTION 9. Exchange or Replacement of Notes.
<PAGE> 15
15
(a) The holder of any Note or Notes, at its option, may in person
or by duly authorized attorney surrender one or more thereof for exchange, at
the principal executive offices of the Maker, and at the expense of the Maker
receive in exchange therefor a new Note or Notes in the same aggregate principal
amount as the aggregate unpaid principal amount of the Note or Notes so
surrendered and bearing interest at the same annual rate as the Note or Notes so
surrendered, each such new Note to be dated as of the date to which interest has
been paid on the Note or Notes so surrendered and to be in such principal amount
and payable to such person or persons, or order, as such holder may designate in
writing; provided, however, that the Maker shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any new Note in the name other than that of the holder of the Note
or Notes surrendered in exchange therefor. Five days' prior written notice of
the holder's intention to make such exchange shall be given to the Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Note, and (in case of loss, theft
or destruction) of indemnity reasonably satisfactory to it (it being understood
that in the case of Abbingdon-II an unsecured written indemnification agreement
shall be satisfactory to the Maker), and upon surrender and
<PAGE> 16
16
cancellation of this Note, if mutilated, the Maker, upon reimbursement to it of
all reasonable expenses incidental thereto, will make and deliver a new Note, of
like tenor in lieu of this Note. Any Note made and delivered in accordance with
the provisions of this paragraph (b) shall be dated as of the date to which
interest has been paid on this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor or successor corporation, either
directly or through the Maker or otherwise, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof and as
part of the consideration for the issue hereof expressly waived and released;
provided, however, that nothing herein contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock upon or in respect of shares of capital stock not
fully paid.
SECTION 11. Section Headings. The Section headings contained herein
are for the purpose of convenience
<PAGE> 17
17
of reference only and are not intended to define or limit the contents of any
such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth, except to the extent of the mandatory rules of the State of
Delaware with respect to the formal requisites for
<PAGE> 18
18
authorization of a security and rights and duties with respect to register of
transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Douglas P. Gill
------------------------------------
Douglas P. Gill
President
RIVERHEARST, INC.,
a Delaware corporation
By /s/ Stephen F. Nagy
------------------------------------
Stephen F. Nagy
Vice President
<PAGE> 19
SCHEDULE OF LOANS AND PAYMENTS
<TABLE>
<CAPTION>
Name of
Amount Amount of Unpaid Person
of Principal Principal Making
Date Loan Paid Balance Notation
- ---- ---- ---- ------- --------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 10(g)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
9% Subordinated Note due September 18, 2005
$2,688,000 King of Prussia, Pennsylvania
December 12, 1995
SECTION 1. General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFD"), and RIVERHEARST, INC., a
Delaware corporation ("Riverhearst"), jointly and severally (VFD and Riverhearst
are collectively referred to herein as the "Maker"), hereby promise to pay to
ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP-III, a Delaware limited
partnership (herein called "Abbingdon-III"), or order, the principal amount of
Two Million Six Hundred Eighty-Eight Thousand Dollars ($2,688,000), or, if less,
the aggregate outstanding principal amount of all loans which are made by
Abbingdon-III to the Maker on or prior to September 18, 2005 and which are
intended to be evidenced by this Note as conclusively evidenced by a written
endorsement with respect thereto by a general partner of Abbingdon-III on the
schedule annexed hereto, in full on September 18, 2005 (subject to prepayment in
whole or in part in the manner hereinafter in Section 3 hereof provided), in
such coin or currency of the United States of America as at the time of
<PAGE> 2
2
payment shall be legal tender therein for the payment of public and private
debts, and to pay interest on the unpaid balance of the principal hereof from
the date hereof, at the rate of 9% per annum, in like coin or currency,
quarterly on March 31, June 30, September 30 and December 31 each year
commencing March 31, 1996 (the payment due on such date to include all accrued
interest from the date hereof), and to pay interest at the rate of 10% per annum
on any overdue principal and (to the extent permitted by law) on any overdue
interest, from the due date thereof until the obligation of the Maker with
respect to the payment thereof shall be discharged; all payments and prepayments
of principal of this Note and all payments of interest on this Note to be made
to the holder hereof at the office of such holder at c/o Foster Management
Company, 1018 West Ninth Avenue, King of Prussia, Pennsylvania 19406 or such
other office hereafter designated by such holder. Interest hereon for any period
other than a full quarterly period shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the following terms
shall have the following respective meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes
executed and delivered by the Maker in exchange or replacement thereof pursuant
to Section 9
<PAGE> 3
3
hereof. Unless the context otherwise requires, the term "holder" is used herein
to mean the person named as payee in Section 1 hereof (herein sometimes called
the "payee named herein") or any other person who shall at the time be the
registered holder of this Note.
"Maker" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation, and RIVERHEARST, INC., a Delaware corporation, the joint
and several obligors under this Note, and shall also mean any successor
corporation of either of them which shall become such in the manner prescribed
in Section 6 hereof.
The term "corporation" shall include, except for the purposes
of Section 6 hereof, an association, joint stock company, business trust or
other similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at
least a majority of the outstanding voting stock of which shall at the time be
owned by the Maker. For purposes hereof, outstanding voting stock shall be
deemed to be capital stock of any class or classes, however designated, having
ordinary voting power for the election of the members of the board of directors
or other governing
<PAGE> 4
4
body of such corporation, other than stock having such power only upon the
happening of a contingency.
"Senior Debt" shall mean the principal of, premium, if any,
and interest on and other amounts due on all indebtedness of the Maker, whether
outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Maker, and
(b) for money borrowed by others and guaranteed by the
Maker
from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Maker may at any time prepay the
whole or any part of the unpaid principal amount of this Note, without penalty
or premium, but with interest accrued to the date fixed for prepayment. Notices
of prepayment shall be given by the Maker by mail and shall be mailed to the
registered holder of this Note not less than 30 days from the date fixed for
prepayment. In case this Note is to be prepaid in part only, such notice shall
specify the principal amount thereof to be prepaid and shall state that this
Note shall be submitted to the Maker for notation thereon of the principal
amount thereof to be
<PAGE> 5
5
prepaid. Upon giving of notice of prepayment as aforesaid, this Note or portion
thereof so specified for prepayment shall on the prepayment date specified in
such notice become due and payable; and from and after the prepayment date so
specified (unless the Maker shall default in making such prepayment) interest on
this Note or portion thereof so specified for prepayment shall cease to accrue
and, on presentation and surrender thereof to the Maker for cancellation in the
case of this Note being prepaid in whole, or for notation thereon of the payment
of the portion of the principal amount thereof being prepaid in the case of a
prepayment of this Note in part only, this Note or portion thereof so specified
for prepayment shall be paid by the Maker at the prepayment price aforesaid.
SECTION 4. Subordination. The Maker hereby agrees, and the
holder of this Note by its acceptance hereof agrees, that the payment of the
principal of and interest on this Note is hereby expressly made subordinate and
junior in right of payment, to the extent set forth in the following paragraphs
(a) and (b), to the prior payment in full of all Senior Debt of the Maker:
(a) In the event of insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Maker or to any of
the property of the Maker, or in the event of any
<PAGE> 6
6
proceedings for voluntary liquidation, dissolution, or other winding-up
of the Maker, whether or not involving insolvency or bankruptcy, then
the holders of Senior Debt shall be entitled to receive payment in full
of all principal of, and premium, if any, and interest on all Senior
Debt before the holder of this Note shall be entitled to receive any
payment on account of principal of or interest on this Note, and to
that end the holders of Senior Debt shall be entitled to receive for
application in payment thereof any payment or distribution of any kind
or character, whether in cash or property or securities, which may be
payable or deliverable in any such proceedings in respect of this Note,
except securities of the Maker which are subordinate and junior in
right of payment to the payment of all Senior Debt then outstanding.
(b) In the event that the holder of this Note shall have
received written notice to the effect that an event of default shall
have occurred on any Senior Debt and be continuing (under circumstances
in which the provisions of the foregoing paragraph (a) are not
applicable), then, during the continuance of any such event of default,
all principal of and premium, if any, and interest on all Senior Debt
outstanding at the time of such notice shall first be paid in full,
before any payment on account of principal or interest is made
<PAGE> 7
7
upon this Note. The provisions of this Section 4 are for the purpose of
defining the relative rights of the holders of Senior Debt on the one
hand, and the holder of this Note on the other hand, against the Maker
and its property; and nothing herein shall impair, as between the Maker
and the holder of this Note, the obligation of the Maker, which is
unconditional and absolute, to pay to the holder thereof the principal
thereof and interest thereon in accordance with the terms and the
provisions thereof; nor shall anything herein prevent the holder of
this Note from exercising all remedies otherwise permitted by
applicable law or hereunder upon default under this Note, subject to
the rights, if any, under this Section 4 of holders of Senior Debt to
receive cash, property, stock or obligations otherwise payable or
deliverable to the holder of this Note.
SECTION 5. General Covenants. The Maker covenants and agrees
with the holder of this Note as hereinbelow set forth, namely:
5.1. The Maker will punctually pay or cause to be paid the
principal of and interest on this Note according to the terms hereof.
5.2. The Maker will, and will cause each Subsidiary, if any,
to
<PAGE> 8
8
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or upon any of its property,
real, personal or mixed, or upon any part thereof, as well as all
claims of any kind (including claims for labor, materials and supplies
which, if unpaid, might by law become a lien or charge upon its
property); provided, however, that neither the Maker nor any Subsidiary
shall be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall currently
be contested in good faith by appropriate proceedings and if the Maker
or such Subsidiary, as the case may be, shall have set aside on its
books reserves (segregated to the extent required by sound accounting
practice) reasonably deemed by it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note
and as contemplated by Section 6 hereof, do or cause to be done all
things necessary or appropriate to preserve and keep in full force and
effect its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Maker or such
<PAGE> 9
9
Subsidiary; provided, however, that nothing in this paragraph shall
prevent the abandonment or termination of the corporate existence,
rights and franchises of any Subsidiary if, in the opinion of the Board
of Directors of the Maker, such abandonment or termination is in the
interest of the Maker and not disadvantageous in any material respect
to the holder of this Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Maker will not consolidate with, merge into, or sell or otherwise dispose of all
or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such
consolidation or merger or to which such sale or other disposition
shall have been made shall be a corporation organized under the laws of
the United States of America or any State, district or territory
thereof;
(b) such successor corporation shall expressly assume the due
and punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Maker to the same extent as if such
successor corporation had been the original maker of this Note (and
such assumption shall, upon the request of the holder of this Note, be
<PAGE> 10
10
evidenced by the endorsing of an appropriate legend upon this Note, and
each Note executed pursuant to Section 9 hereof after such assumption
shall, unless executed in the name of such corporation, have a similar
legend endorsed thereon); and
(c) immediately after such consolidation, merger, sale or
other disposition, such successor corporation shall not be in default
in the performance of any of the covenants, agreements or conditions
contained in this Note.
SECTION 7. Registered Holders. The Maker may deem and treat
the registered holder of this Note as the absolute owner of this Note for the
purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Maker shall not be affected by any notice to the contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this Note, together
with all accrued interest thereon, shall, at the option of the holder hereof
exercised by written notice to the Maker at its principal executive offices,
forthwith become and be due and payable if any one or more of the following
events (herein called "Events of Default") shall have occurred (for any reason
whatsoever and whether such happening shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in
<PAGE> 11
11
compliance with any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body) and be continuing at the
time of such notice, that is to say:
(a) if default shall be made in the due and punctual payment
of the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment
of any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance or observance
of any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance
of any of the other covenants, agreements or conditions of the Maker
contained in this Note, and such default shall have continued for a
period of 30 days;
(e) if the Maker or any Subsidiary shall default beyond any
period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Maker or any
Subsidiary shall default in the performance or
<PAGE> 12
12
observance of any other agreement, term or condition contained in such
obligation or in any agreement under which any such obligation is
created, if the effect of any such default is to cause or permit the
holder or holders of such obligations (or a trustee on behalf of such
holder or holders) to cause such obligation to become due prior to the
date of its stated maturity, unless such holder or holders or trustee
shall have waived such default after its occurrence or unless such
holder or holders or trustee shall have failed to give any notice
required to create a default thereunder;
(f) if the Maker or any Subsidiary shall:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to
take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or any other
applicable law or
<PAGE> 13
13
statute of the United States of America or any State, district
or territory thereof;
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Maker or any
Subsidiary, a receiver of the Maker or any Subsidiary or of the whole
or any substantial part of its property, or approving a petition filed
against it seeking reorganization or arrangement of the Maker or any
Subsidiary under the federal bankruptcy laws or any other applicable
law or statute of the United States of America or any State, district
or territory thereof, and such order, judgment or decree shall not be
vacated or set aside or stayed within 60 days from the date of entry
thereof;
(h) if, under the provisions of any other law for the relief
or aid of debtors, any court of competent jurisdiction shall assume
custody or control of the Maker or any Subsidiary or of the whole or
any substantial part of its property and such custody or control shall
not be terminated or stayed within 60 days from the date of assumption
of such custody or control; or
(i) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Maker or any
Subsidiary and the Maker or such Subsidiary shall not discharge the
same or provide
<PAGE> 14
14
for its discharge in accordance with its terms, or shall not procure a
stay of execution thereon within 60 days from the date of entry thereof
and within the period during which execution of such judgment shall have
been stayed, appeal therefrom, and cause the execution thereof to be
stayed during such appeal.
8.2. In case any one or more of the Events of Default
specified in Section 8.1 hereof shall have occurred and be continuing,
the holder of this Note may proceed to protect and enforce its rights
either by suit in equity and/or by action at law, whether for the
specific performance of any covenant or agreement contained in this
Note or in aid of the exercise of any power granted in this Note, or
the holder of this Note may proceed to enforce the payment of all sums
due upon this Note or to enforce any other legal or equitable right of
the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
8.4. No course of dealing between the Maker and the holder
hereof or any delay on the part of the holder hereof in exercising any rights
hereunder shall operate as a waiver of any rights of any holder hereof.
<PAGE> 15
15
SECTION 9. Exchange or Replacement of Notes.
(a) The holder of any Note or Notes, at its option, may in
person or by duly authorized attorney surrender one or more thereof for
exchange, at the principal executive offices of the Maker, and at the expense of
the Maker receive in exchange therefor a new Note or Notes in the same aggregate
principal amount as the aggregate unpaid principal amount of the Note or Notes
so surrendered and bearing interest at the same annual rate as the Note or Notes
so surrendered, each such new Note to be dated as of the date to which interest
has been paid on the Note or Notes so surrendered and to be in such principal
amount and payable to such person or persons, or order, as such holder may
designate in writing; provided, however, that the Maker shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any new Note in the name other than that of the holder
of the Note or Notes surrendered in exchange therefor. Five days' prior written
notice of the holder's intention to make such exchange shall be given to the
Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Note, and (in case of
loss, theft or destruction) of indemnity reasonably satisfactory to it (it being
understood that in the case of Abbingdon-III an unsecured written
indemnification agreement shall be
<PAGE> 16
16
satisfactory to the Maker), and upon surrender and cancellation of this Note, if
mutilated, the Maker, upon reimbursement to it of all reasonable expenses
incidental thereto, will make and deliver a new Note, of like tenor in lieu of
this Note. Any Note made and delivered in accordance with the provisions of this
paragraph (b) shall be dated as of the date to which interest has been paid on
this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor or successor corporation, either
directly or through the Maker or otherwise, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof and as
part of the consideration for the issue hereof expressly waived and released;
provided, however, that nothing herein contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock upon or in respect of shares of capital stock not
fully paid.
<PAGE> 17
17
SECTION 11. Section Headings. The Section headings contained
herein are for the purpose of convenience of reference only and are not intended
to define or limit the contents of any such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth, except to the extent of the mandatory rules of the State of
Delaware with respect to the formal requisites for authorization of a security
and rights and duties with respect to register of transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Douglas P. Gill
--------------------------------------
Douglas P. Gill
President
<PAGE> 18
18
RIVERHEARST, INC.,
a Delaware corporation
By /s/ Stephen F. Nagy
--------------------------------------
Stephen F. Nagy
Vice President
<PAGE> 19
SCHEDULE OF LOANS AND PAYMENTS
<TABLE>
<CAPTION>
Name of
Amount Amount of Unpaid Person
of Principal Principal Making
Date Loan Paid Balance Notation
- ---- ------ --------- --------- --------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 10(h)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
9% Subordinated Note due September 18, 2005
$420,000 King of Prussia, Pennsylvania
December 12, 1995
SECTION 1. General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFD"), and RIVERHEARST, INC., a
Delaware corporation ("Riverhearst"), jointly and severally (VFD and Riverhearst
are collectively referred to herein as the "Maker"), hereby promise to pay to
BUSINESS DEVELOPMENT CAPITAL LIMITED PARTNERSHIP-III, a Massachusetts limited
partnership (herein called "BDC-III"), or order, the principal amount of Four
Hundred Twenty Thousand Dollars ($420,000), or, if less, the aggregate
outstanding principal amount of all loans which are made by BDC-III to the Maker
on or prior to September 18, 2005 and which are intended to be evidenced by this
Note as conclusively evidenced by a written endorsement with respect thereto by
a general partner of BDC-III on the schedule annexed hereto, in full on
September 18, 2005 (subject to prepayment in whole or in part in the manner
hereinafter in Section 3 hereof provided), in such coin or currency of the
United States of America as at the time of payment shall be legal tender therein
for the payment of
<PAGE> 2
2
public and private debts, and to pay interest on the unpaid balance of the
principal hereof from the date hereof, at the rate of 9% per annum, in like coin
or currency, quarterly on March 31, June 30, September 30 and December 31 each
year commencing March 31, 1996 (the payment due on such date to include all
accrued interest from the date hereof), and to pay interest at the rate of 10%
per annum on any overdue principal and (to the extent permitted by law) on any
overdue interest, from the due date thereof until the obligation of the Maker
with respect to the payment thereof shall be discharged; all payments and
prepayments of principal of this Note and all payments of interest on this Note
to be made to the holder hereof at the office of such holder at c/o Foster
Management Company, 1018 West Ninth Avenue, King of Prussia, Pennsylvania 19406
or such other office hereafter designated by such holder. Interest hereon for
any period other than a full quarterly period shall be computed on the basis of
a 360-day year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the following terms
shall have the following respective meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes
executed and delivered by the Maker in exchange or replacement thereof pursuant
to Section 9 hereof. Unless the context otherwise requires, the term
<PAGE> 3
3
"holder" is used herein to mean the person named as payee in Section 1 hereof
(herein sometimes called the "payee named herein") or any other person who shall
at the time be the registered holder of this Note.
"Maker" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation, and RIVERHEARST, INC., a Delaware corporation, the joint
and several obligors under this Note, and shall also mean any successor
corporation of either of them which shall become such in the manner prescribed
in Section 6 hereof.
The term "corporation" shall include, except for the purposes
of Section 6 hereof, an association, joint stock company, business trust or
other similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at
least a majority of the outstanding voting stock of which shall at the time be
owned by the Maker. For purposes hereof, outstanding voting stock shall be
deemed to be capital stock of any class or classes, however designated, having
ordinary voting power for the election of the members of the board of directors
or other governing body of such corporation, other than stock having such power
only upon the happening of a contingency.
<PAGE> 4
4
"Senior Debt" shall mean the principal of, premium, if any,
and interest on and other amounts due on all indebtedness of the Maker, whether
outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Maker, and
(b) for money borrowed by others and guaranteed by the Maker
from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Maker may at any time prepay the
whole or any part of the unpaid principal amount of this Note, without penalty
or premium, but with interest accrued to the date fixed for prepayment. Notices
of prepayment shall be given by the Maker by mail and shall be mailed to the
registered holder of this Note not less than 30 days from the date fixed for
prepayment. In case this Note is to be prepaid in part only, such notice shall
specify the principal amount thereof to be prepaid and shall state that this
Note shall be submitted to the Maker for notation thereon of the principal
amount thereof to be prepaid. Upon giving of notice of prepayment as aforesaid,
this Note or portion thereof so specified for prepayment
<PAGE> 5
5
shall on the prepayment date specified in such notice become due and payable;
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment) interest on this Note or portion thereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender thereof to the Maker for cancellation in the case of this Note being
prepaid in whole, or for notation thereon of the payment of the portion of the
principal amount thereof being prepaid in the case of a prepayment of this Note
in part only, this Note or portion thereof so specified for prepayment shall be
paid by the Maker at the prepayment price aforesaid.
SECTION 4. Subordination. The Maker hereby agrees, and the
holder of this Note by its acceptance hereof agrees, that the payment of the
principal of and interest on this Note is hereby expressly made subordinate and
junior in right of payment, to the extent set forth in the following paragraphs
(a) and (b), to the prior payment in full of all Senior Debt of the Maker:
(a) In the event of insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Maker or to any of
the property of the Maker, or in the event of any proceedings for
voluntary liquidation, dissolution, or other winding-up of the Maker,
whether or not involving
<PAGE> 6
6
insolvency or bankruptcy, then the holders of Senior Debt shall be
entitled to receive payment in full of all principal of, and premium,
if any, and interest on all Senior Debt before the holder of this Note
shall be entitled to receive any payment on account of principal of or
interest on this Note, and to that end the holders of Senior Debt shall
be entitled to receive for application in payment thereof any payment
or distribution of any kind or character, whether in cash or property
or securities, which may be payable or deliverable in any such
proceedings in respect of this Note, except securities of the Maker
which are subordinate and junior in right of payment to the payment of
all Senior Debt then outstanding.
(b) In the event that the holder of this Note shall have
received written notice to the effect that an event of default shall
have occurred on any Senior Debt and be continuing (under circumstances
in which the provisions of the foregoing paragraph (a) are not
applicable), then, during the continuance of any such event of default,
all principal of and premium, if any, and interest on all Senior Debt
outstanding at the time of such notice shall first be paid in full,
before any payment on account of principal or interest is made upon
this Note. The provisions of this Section 4 are for the purpose of
defining the relative rights of the
<PAGE> 7
7
holders of Senior Debt on the one hand, and the holder of this Note on
the other hand, against the Maker and its property; and nothing herein
shall impair, as between the Maker and the holder of this Note, the
obligation of the Maker, which is unconditional and absolute, to pay to
the holder thereof the principal thereof and interest thereon in
accordance with the terms and the provisions thereof; nor shall
anything herein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law or hereunder upon
default under this Note, subject to the rights, if any, under this
Section 4 of holders of Senior Debt to receive cash, property, stock or
obligations otherwise payable or deliverable to the holder of this
Note.
SECTION 5. General Covenants. The Maker
covenants and agrees with the holder of this Note as
hereinbelow set forth, namely:
5.1. The Maker will punctually pay or cause to be paid the
principal of and interest on this Note according to the terms hereof.
5.2. The Maker will, and will cause each Subsidiary, if any,
to
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges
or levies imposed upon it or
<PAGE> 8
8
upon its income or upon any of its property, real, personal or mixed,
or upon any part thereof, as well as all claims of any kind (including
claims for labor, materials and supplies which, if unpaid, might by law
become a lien or charge upon its property); provided, however, that
neither the Maker nor any Subsidiary shall be required to pay any such
tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Maker or such Subsidiary, as the
case may be, shall have set aside on its books reserves (segregated to
the extent required by sound accounting practice) reasonably deemed by
it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note
and as contemplated by Section 6 hereof, do or cause to be done all
things necessary or appropriate to preserve and keep in full force and
effect its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Maker or such Subsidiary; provided, however, that
nothing in this paragraph shall prevent the abandonment or termination
of the corporate existence, rights and franchises of
<PAGE> 9
9
any Subsidiary if, in the opinion of the Board of Directors of the
Maker, such abandonment or termination is in the interest of the Maker
and not disadvantageous in any material respect to the holder of this
Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Maker will not consolidate with, merge into, or sell or otherwise dispose of all
or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such
consolidation or merger or to which such sale or other disposition
shall have been made shall be a corporation organized under the laws of
the United States of America or any State, district or territory
thereof;
(b) such successor corporation shall expressly assume the due
and punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Maker to the same extent as if such
successor corporation had been the original maker of this Note (and
such assumption shall, upon the request of the holder of this Note, be
evidenced by the endorsing of an appropriate legend upon this Note, and
each Note executed pursuant to Section 9 hereof after such assumption
shall, unless
<PAGE> 10
10
executed in the name of such corporation, have a similar legend
endorsed thereon); and
(c) immediately after such consolidation, merger, sale or
other disposition, such successor corporation shall not be in default
in the performance of any of the covenants, agreements or conditions
contained in this Note.
SECTION 7. Registered Holders. The Maker may deem and treat
the registered holder of this Note as the absolute owner of this Note for the
purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Maker shall not be affected by any notice to the contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this
Note, together with all accrued interest thereon, shall, at the option of the
holder hereof exercised by written notice to the Maker at its principal
executive offices, forthwith become and be due and payable if any one or more of
the following events (herein called "Events of Default") shall have occurred
(for any reason whatsoever and whether such happening shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or
<PAGE> 11
11
governmental body) and be continuing at the time of such notice, that is to say:
(a) if default shall be made in the due and punctual payment
of the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment
of any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance or observance
of any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance
of any of the other covenants, agreements or conditions of the Maker
contained in this Note, and such default shall have continued for a
period of 30 days;
(e) if the Maker or any Subsidiary shall default beyond any
period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Maker or any
Subsidiary shall default in the performance or observance of any other
agreement, term or condition contained in such obligation or in any
agreement under
<PAGE> 12
12
which any such obligation is created, if the effect of any such default
is to cause or permit the holder or holders of such obligations (or a
trustee on behalf of such holder or holders) to cause such obligation
to become due prior to the date of its stated maturity, unless such
holder or holders or trustee shall have waived such default after its
occurrence or unless such holder or holders or trustee shall have
failed to give any notice required to create a default thereunder;
(f) if the Maker or any Subsidiary shall:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to
take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or
any State, district or territory thereof;
<PAGE> 13
13
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Maker or any
Subsidiary, a receiver of the Maker or any Subsidiary or of the whole
or any substantial part of its property, or approving a petition filed
against it seeking reorganization or arrangement of the Maker or any
Subsidiary under the federal bankruptcy laws or any other applicable
law or statute of the United States of America or any State, district
or territory thereof, and such order, judgment or decree shall not be
vacated or set aside or stayed within 60 days from the date of entry
thereof;
(h) if, under the provisions of any other law for the relief
or aid of debtors, any court of competent jurisdiction shall assume
custody or control of the Maker or any Subsidiary or of the whole or
any substantial part of its property and such custody or control shall
not be terminated or stayed within 60 days from the date of assumption
of such custody or control; or
(i) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Maker or any
Subsidiary and the Maker or such Subsidiary shall not discharge the
same or provide for its discharge in accordance with its terms, or
shall not procure a stay of execution thereon within 60 days
<PAGE> 14
14
from the date of entry thereof and within the period during which
execution of such judgment shall have been stayed, appeal therefrom,
and cause the execution thereof to be stayed during such appeal.
8.2. In case any one or more of the Events of Default specified
in Section 8.1 hereof shall have occurred and be continuing, the holder of this
Note may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, whether for the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted
in this Note, or the holder of this Note may proceed to enforce the payment of
all sums due upon this Note or to enforce any other legal or equitable right of
the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
8.4. No course of dealing between the Maker and the holder
hereof or any delay on the part of the holder hereof in exercising any rights
hereunder shall operate as a waiver of any rights of any holder hereof.
<PAGE> 15
15
SECTION 9. Exchange or Replacement of Notes.
(a) The holder of any Note or Notes, at its option, may in
person or by duly authorized attorney surrender one or more thereof for
exchange, at the principal executive offices of the Maker, and at the expense of
the Maker receive in exchange therefor a new Note or Notes in the same aggregate
principal amount as the aggregate unpaid principal amount of the Note or Notes
so surrendered and bearing interest at the same annual rate as the Note or Notes
so surrendered, each such new Note to be dated as of the date to which interest
has been paid on the Note or Notes so surrendered and to be in such principal
amount and payable to such person or persons, or order, as such holder may
designate in writing; provided, however, that the Maker shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any new Note in the name other than that of the holder
of the Note or Notes surrendered in exchange therefor. Five days' prior written
notice of the holder's intention to make such exchange shall be given to the
Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Note, and (in case of
loss, theft or destruction) of indemnity reasonably satisfactory to it (it being
understood that in the case of BDC-III an unsecured written indemnification
agreement shall be satisfactory to
<PAGE> 16
16
the Maker), and upon surrender and cancellation of this Note, if mutilated, the
Maker, upon reimbursement to it of all reasonable expenses incidental thereto,
will make and deliver a new Note, of like tenor in lieu of this Note. Any Note
made and delivered in accordance with the provisions of this paragraph (b) shall
be dated as of the date to which interest has been paid on this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors.
No recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor or successor corporation, either
directly or through the Maker or otherwise, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof and as
part of the consideration for the issue hereof expressly waived and released;
provided, however, that nothing herein contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock upon or in respect of shares of capital stock not
fully paid.
SECTION 11. Section Headings. The Section headings contained
herein are for the purpose of convenience
<PAGE> 17
17
of reference only and are not intended to define or limit the contents of any
such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth, except to the extent of the mandatory rules of the State of
Delaware with respect to the formal requisites for authorization of a security
and rights and duties with respect to register of transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Douglas P. Gill
------------------------------------
Douglas P. Gill
President
RIVERHEARST, INC.,
a Delaware corporation
By /s/ Stephen F. Nagy
------------------------------------
Stephen F. Nagy
Vice President
<PAGE> 18
SCHEDULE OF LOANS AND PAYMENTS
Name of
Amount Amount of Unpaid Person
of Principal Principal Making
Date Loan Paid Balance Notation
- ---- ------ --------- --------- ---------
<PAGE> 1
EXHIBIT 10(i)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
9% Subordinated Note due September 18, 2005
$2,700,000 King of Prussia, Pennsylvania
December 31, 1995
SECTION 1. General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFD"), and RIVERHEARST, INC., a
Delaware corporation ("Riverhearst"), jointly and severally (VFD and Riverhearst
are collectively referred to herein as the "Maker"), hereby promise to pay to
ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP, a Connecticut limited
partnership (herein called "Abbingdon-I"), or order, the principal amount of Two
Million Seven Hundred Thousand Dollars ($2,700,000), or, if less, the aggregate
outstanding principal amount of all loans which are made by Abbingdon-I to the
Maker on or prior to September 18, 2005 and which are intended to be evidenced
by this Note as conclusively evidenced by a written endorsement with respect
thereto by a general partner of Abbingdon-I on the schedule annexed hereto, in
full on September 18, 2005 (subject to prepayment in whole or in part in the
manner hereinafter in Section 3 hereof provided), in such coin or currency of
the United States of America as at the time of payment shall be legal tender
therein for the payment of public and private debts, and to
<PAGE> 2
2
pay interest on the unpaid balance of the principal hereof from the date hereof,
at the rate of 9% per annum, in like coin or currency, quarterly on March 31,
June 30, September 30 and December 31 each year commencing March 31, 1996 (the
payment due on such date to include all accrued interest from the date hereof),
and to pay interest at the rate of 10% per annum on any overdue principal and
(to the extent permitted by law) on any overdue interest, from the due date
thereof until the obligation of the Maker with respect to the payment thereof
shall be discharged; all payments and prepayments of principal of this Note and
all payments of interest on this Note to be made to the holder hereof at the
office of such holder at c/o Foster Management Company, 1018 West Ninth Avenue,
King of Prussia, Pennsylvania 19406 or such other office hereafter designated by
such holder. Interest hereon for any period other than a full quarterly period
shall be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the following terms
shall have the following respective meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes
executed and delivered by the Maker in exchange or replacement thereof pursuant
to Section 9 hereof. Unless the context otherwise requires, the term "holder" is
used herein to mean the person named as payee in Section 1 hereof (herein
sometimes called the "payee
<PAGE> 3
3
named herein") or any other person who shall at the time be the registered
holder of this Note.
"Maker" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation, and RIVERHEARST, INC., a Delaware corporation, the joint
and several obligors under this Note, and shall also mean any successor
corporation of either of them which shall become such in the manner prescribed
in Section 6 hereof.
The term "corporation" shall include, except for the purposes
of Section 6 hereof, an association, joint stock company, business trust or
other similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at
least a majority of the outstanding voting stock of which shall at the time be
owned by the Maker. For purposes hereof, outstanding voting stock shall be
deemed to be capital stock of any class or classes, however designated, having
ordinary voting power for the election of the members of the board of directors
or other governing body of such corporation, other than stock having such power
only upon the happening of a contingency.
"Senior Debt" shall mean the principal of, premium, if any,
and interest on and other amounts due on all indebtedness of the Maker, whether
outstanding on the date of this Note or hereafter created or incurred:
<PAGE> 4
4
(a) for money borrowed by the Maker, and
(b) for money borrowed by others and guaranteed by the
Maker
from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Maker may at any time prepay the
whole or any part of the unpaid principal amount of this Note, without penalty
or premium, but with interest accrued to the date fixed for prepayment. Notices
of prepayment shall be given by the Maker by mail and shall be mailed to the
registered holder of this Note not less than 30 days from the date fixed for
prepayment. In case this Note is to be prepaid in part only, such notice shall
specify the principal amount thereof to be prepaid and shall state that this
Note shall be submitted to the Maker for notation thereon of the principal
amount thereof to be prepaid. Upon giving of notice of prepayment as aforesaid,
this Note or portion thereof so specified for prepayment shall on the prepayment
date specified in such notice become due and payable; and from and after the
prepayment date so specified (unless the Maker shall default in making such
prepayment) interest on this Note or portion thereof so specified for prepayment
shall cease to accrue and, on presentation and surrender thereof to the Maker
for cancellation in the case of this Note being prepaid in
<PAGE> 5
5
whole, or for notation thereon of the payment of the portion of the principal
amount thereof being prepaid in the case of a prepayment of this Note in part
only, this Note or portion thereof so specified for prepayment shall be paid by
the Maker at the prepayment price aforesaid.
SECTION 4. Subordination. The Maker hereby agrees, and the
holder of this Note by its acceptance hereof agrees, that the payment of the
principal of and interest on this Note is hereby expressly made subordinate and
junior in right of payment, to the extent set forth in the following paragraphs
(a) and (b), to the prior payment in full of all Senior Debt of the Maker:
(a) In the event of insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Maker or to any of
the property of the Maker, or in the event of any proceedings for
voluntary liquidation, dissolution, or other winding-up of the Maker,
whether or not involving insolvency or bankruptcy, then the holders of
Senior Debt shall be entitled to receive payment in full of all
principal of, and premium, if any, and interest on all Senior Debt
before the holder of this Note shall be entitled to receive any payment
on account of principal of or interest on this Note, and to that end
the holders of Senior Debt shall be entitled to receive for application
in payment thereof any payment or distribution of any kind or
character, whether in cash
<PAGE> 6
6
or property or securities, which may be payable or deliverable in any
such proceedings in respect of this Note, except securities of the
Maker which are subordinate and junior in right of payment to the
payment of all Senior Debt then outstanding.
(b) In the event that the holder of this Note shall have
received written notice to the effect that an event of default shall
have occurred on any Senior Debt and be continuing (under circumstances
in which the provisions of the foregoing paragraph (a) are not
applicable), then, during the continuance of any such event of default,
all principal of and premium, if any, and interest on all Senior Debt
outstanding at the time of such notice shall first be paid in full,
before any payment on account of principal or interest is made upon
this Note. The provisions of this Section 4 are for the purpose of
defining the relative rights of the holders of Senior Debt on the one
hand, and the holder of this Note on the other hand, against the Maker
and its property; and nothing herein shall impair, as between the Maker
and the holder of this Note, the obligation of the Maker, which is
unconditional and absolute, to pay to the holder thereof the principal
thereof and interest thereon in accordance with the terms and the
provisions thereof; nor shall anything herein prevent the holder of
this Note from exercising all remedies otherwise permitted by
applicable law or hereunder upon default under this Note, subject to
the
<PAGE> 7
7
rights, if any, under this Section 4 of holders of Senior Debt to
receive cash, property, stock or obligations otherwise payable or
deliverable to the holder of this Note.
SECTION 5. General Covenants. The Maker covenants and agrees
with the holder of this Note as hereinbelow set forth, namely:
5.1. The Maker will punctually pay or cause to be paid the
principal of and interest on this Note according to the terms hereof.
5.2. The Maker will, and will cause each Subsidiary, if any,
to
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or upon any of its property,
real, personal or mixed, or upon any part thereof, as well as all
claims of any kind (including claims for labor, materials and supplies
which, if unpaid, might by law become a lien or charge upon its
property); provided, however, that neither the Maker nor any Subsidiary
shall be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall currently
be contested in good faith by appropriate proceedings and if the Maker
or such Subsidiary, as the case may be, shall have set aside on its
books reserves (segregated to the extent
<PAGE> 8
8
required by sound accounting practice) reasonably deemed by it adequate
with respect thereto; and
(b) except as otherwise specifically permitted in this Note
and as contemplated by Section 6 hereof, do or cause to be done all
things necessary or appropriate to preserve and keep in full force and
effect its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Maker or such Subsidiary; provided, however, that
nothing in this paragraph shall prevent the abandonment or termination
of the corporate existence, rights and franchises of any Subsidiary if,
in the opinion of the Board of Directors of the Maker, such abandonment
or termination is in the interest of the Maker and not disadvantageous
in any material respect to the holder of this Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Maker will not consolidate with, merge into, or sell or otherwise dispose of all
or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such
consolidation or merger or to which such sale or other disposition
shall have been made shall be a corporation organized under the laws of
the United States of America or any State, district or territory
thereof;
<PAGE> 9
9
(b) such successor corporation shall expressly assume the due
and punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Maker to the same extent as if such
successor corporation had been the original maker of this Note (and
such assumption shall, upon the request of the holder of this Note, be
evidenced by the endorsing of an appropriate legend upon this Note, and
each Note executed pursuant to Section 9 hereof after such assumption
shall, unless executed in the name of such corporation, have a similar
legend endorsed thereon); and
(c) immediately after such consolidation, merger, sale or
other disposition, such successor corporation shall not be in default
in the performance of any of the covenants, agreements or conditions
contained in this Note.
SECTION 7. Registered Holders. The Maker may deem and treat
the registered holder of this Note as the absolute owner of this Note for the
purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Maker shall not be affected by any notice to the contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this Note, together
with all accrued interest thereon, shall, at
<PAGE> 10
10
the option of the holder hereof exercised by written notice to the Maker at its
principal executive offices, forthwith become and be due and payable if any one
or more of the following events (herein called "Events of Default") shall have
occurred (for any reason whatsoever and whether such happening shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body) and be
continuing at the time of such notice, that is to say:
(a) if default shall be made in the due and punctual payment
of the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment
of any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance or observance
of any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance
of any of the other covenants, agreements or conditions of the Maker
contained in this Note, and such default shall have continued for a
period of 30 days;
<PAGE> 11
11
(e) if the Maker or any Subsidiary shall default beyond any
period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Maker or any
Subsidiary shall default in the performance or observance of any other
agreement, term or condition contained in such obligation or in any
agreement under which any such obligation is created, if the effect of
any such default is to cause or permit the holder or holders of such
obligations (or a trustee on behalf of such holder or holders) to cause
such obligation to become due prior to the date of its stated maturity,
unless such holder or holders or trustee shall have waived such default
after its occurrence or unless such holder or holders or trustee shall
have failed to give any notice required to create a default thereunder;
(f) if the Maker or any Subsidiary shall:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to
take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property;
<PAGE> 12
12
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or
any State, district or territory thereof;
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Maker or any
Subsidiary, a receiver of the Maker or any Subsidiary or of the whole
or any substantial part of its property, or approving a petition filed
against it seeking reorganization or arrangement of the Maker or any
Subsidiary under the federal bankruptcy laws or any other applicable
law or statute of the United States of America or any State, district
or territory thereof, and such order, judgment or decree shall not be
vacated or set aside or stayed within 60 days from the date of entry
thereof;
(h) if, under the provisions of any other law for the relief
or aid of debtors, any court of competent jurisdiction shall assume
custody or control of the Maker or any Subsidiary or of the whole or
any substantial part of its property and such custody or control shall
not be terminated or stayed within 60 days from the date of assumption
of such custody or control; or
<PAGE> 13
13
(i) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Maker or any
Subsidiary and the Maker or such Subsidiary shall not discharge the
same or provide for its discharge in accordance with its terms, or
shall not procure a stay of execution thereon within 60 days from the
date of entry thereof and within the period during which execution of
such judgment shall have been stayed, appeal therefrom, and cause the
execution thereof to be stayed during such appeal.
8.2. In case any one or more of the Events of Default
specified in Section 8.1 hereof shall have occurred and be continuing, the
holder of this Note may proceed to protect and enforce its rights either by suit
in equity and/or by action at law, whether for the specific performance of any
covenant or agreement contained in this Note or in aid of the exercise of any
power granted in this Note, or the holder of this Note may proceed to enforce
the payment of all sums due upon this Note or to enforce any other legal or
equitable right of the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
8.4. No course of dealing between the Maker and the holder
hereof or any delay on the part of the holder
<PAGE> 14
14
hereof in exercising any rights hereunder shall operate as a waiver of any
rights of any holder hereof.
SECTION 9. Exchange or Replacement of Notes.
(a) The holder of any Note or Notes, at its option, may in
person or by duly authorized attorney surrender one or more thereof for
exchange, at the principal executive offices of the Maker, and at the expense of
the Maker receive in exchange therefor a new Note or Notes in the same aggregate
principal amount as the aggregate unpaid principal amount of the Note or Notes
so surrendered and bearing interest at the same annual rate as the Note or Notes
so surrendered, each such new Note to be dated as of the date to which interest
has been paid on the Note or Notes so surrendered and to be in such principal
amount and payable to such person or persons, or order, as such holder may
designate in writing; provided, however, that the Maker shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any new Note in the name other than that of the holder
of the Note or Notes surrendered in exchange therefor. Five days' prior written
notice of the holder's intention to make such exchange shall be given to the
Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Note, and (in case of
loss, theft or destruction) of indemnity reasonably satisfactory to it (it being
understood that in the case of Abbingdon-I an unsecured written indemnification
agreement shall be
<PAGE> 15
15
satisfactory to the Maker), and upon surrender and cancellation of this Note, if
mutilated, the Maker, upon reimbursement to it of all reasonable expenses
incidental thereto, will make and deliver a new Note, of like tenor in lieu of
this Note. Any Note made and delivered in accordance with the provisions of this
paragraph (b) shall be dated as of the date to which interest has been paid on
this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors.
No recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor or successor corporation, either
directly or through the Maker or otherwise, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof and as
part of the consideration for the issue hereof expressly waived and released;
provided, however, that nothing herein contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock upon or in respect of shares of capital stock not
fully paid.
SECTION 11. Section Headings. The Section headings contained
herein are for the purpose of convenience
<PAGE> 16
16
of reference only and are not intended to define or limit the contents of any
such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
<PAGE> 17
17
SECTION 13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth, except to the extent of the mandatory rules of the State of
Delaware with respect to the formal requisites for authorization of a security
and rights and duties with respect to register of transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Joseph J. Frank
------------------------------------
Joseph J. Frank
President
RIVERHEARST, INC.,
a Delaware corporation
By /s/ Stephen F. Nagy
------------------------------------
Stephen F. Nagy
Vice President
<PAGE> 1
EXHIBIT 10(j)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
9% Subordinated Note due September 18, 2005
$9,900,000 King of Prussia, Pennsylvania
December 31, 1995
SECTION 1. General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFD"), and RIVERHEARST, INC., a
Delaware corporation ("Riverhearst"), jointly and severally (VFD and Riverhearst
are collectively referred to herein as the "Maker"), hereby promise to pay to
ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP-II, a Delaware limited
partnership (herein called "Abbingdon-II"), or order, the principal amount of
Nine Million Nine Hundred Thousand Dollars ($9,900,000), or, if less, the
aggregate outstanding principal amount of all loans which are made by
Abbingdon-II to the Maker on or prior to September 18, 2005 and which are
intended to be evidenced by this Note as conclusively evidenced by a written
endorsement with respect thereto by a general partner of Abbingdon-II on the
schedule annexed hereto, in full on September 18, 2005 (subject to prepayment in
whole or in part in the manner hereinafter in Section 3 hereof provided), in
such coin or currency of the United States of America as at the time of payment
shall be legal tender
<PAGE> 2
2
therein for the payment of public and private debts, and to pay interest on the
unpaid balance of the principal hereof from the date hereof, at the rate of 9%
per annum, in like coin or currency, quarterly on March 31, June 30, September
30 and December 31 each year commencing March 31, 1996 (the payment due on such
date to include all accrued interest from the date hereof), and to pay interest
at the rate of 10% per annum on any overdue principal and (to the extent
permitted by law) on any overdue interest, from the due date thereof until the
obligation of the Maker with respect to the payment thereof shall be discharged;
all payments and prepayments of principal of this Note and all payments of
interest on this Note to be made to the holder hereof at the office of such
holder at c/o Foster Management Company, 1018 West Ninth Avenue, King of
Prussia, Pennsylvania 19406 or such other office hereafter designated by such
holder. Interest hereon for any period other than a full quarterly period shall
be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the
following terms shall have the following respective
meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes
executed and delivered by the Maker in exchange or replacement thereof pursuant
to Section 9 hereof. Unless the context otherwise requires, the term
<PAGE> 3
3
"holder" is used herein to mean the person named as payee in Section 1 hereof
(herein sometimes called the "payee named herein") or any other person who shall
at the time be the registered holder of this Note.
"Maker" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation, and RIVERHEARST, INC., a Delaware corporation, the joint
and several obligors under this Note, and shall also mean any successor
corporation of either of them which shall become such in the manner prescribed
in Section 6 hereof.
The term "corporation" shall include, except for the purposes
of Section 6 hereof, an association, joint stock company, business trust or
other similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at
least a majority of the outstanding voting stock of which shall at the time be
owned by the Maker. For purposes hereof, outstanding voting stock shall be
deemed to be capital stock of any class or classes, however designated, having
ordinary voting power for the election of the members of the board of directors
or other governing body of such corporation, other than stock having such power
only upon the happening of a contingency.
<PAGE> 4
4
"Senior Debt" shall mean the principal of, premium, if any,
and interest on and other amounts due on all indebtedness of the Maker, whether
outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Maker, and
(b) for money borrowed by others and
guaranteed by the Maker
from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Maker may at any time prepay the
whole or any part of the unpaid principal amount of this Note, without penalty
or premium, but with interest accrued to the date fixed for prepayment. Notices
of prepayment shall be given by the Maker by mail and shall be mailed to the
registered holder of this Note not less than 30 days from the date fixed for
prepayment. In case this Note is to be prepaid in part only, such notice shall
specify the principal amount thereof to be prepaid and shall state that this
Note shall be submitted to the Maker for notation thereon of the principal
amount thereof to be prepaid. Upon giving of notice of prepayment as aforesaid,
this Note or portion thereof so specified for prepayment
<PAGE> 5
5
shall on the prepayment date specified in such notice become due and payable;
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment) interest on this Note or portion thereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender thereof to the Maker for cancellation in the case of this Note being
prepaid in whole, or for notation thereon of the payment of the portion of the
principal amount thereof being prepaid in the case of a prepayment of this Note
in part only, this Note or portion thereof so specified for prepayment shall be
paid by the Maker at the prepayment price aforesaid.
SECTION 4. Subordination. The Maker hereby agrees, and the
holder of this Note by its acceptance hereof agrees, that the payment of the
principal of and interest on this Note is hereby expressly made subordinate and
junior in right of payment, to the extent set forth in the following paragraphs
(a) and (b), to the prior payment in full of all Senior Debt of the Maker:
(a) In the event of insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Maker or to any of
the property of the Maker, or in the event of any proceedings for
voluntary liquidation, dissolution, or other winding-up of the Maker,
whether or not involving
<PAGE> 6
6
insolvency or bankruptcy, then the holders of Senior Debt shall be
entitled to receive payment in full of all principal of, and premium,
if any, and interest on all Senior Debt before the holder of this Note
shall be entitled to receive any payment on account of principal of or
interest on this Note, and to that end the holders of Senior Debt shall
be entitled to receive for application in payment thereof any payment
or distribution of any kind or character, whether in cash or property
or securities, which may be payable or deliverable in any such
proceedings in respect of this Note, except securities of the Maker
which are subordinate and junior in right of payment to the payment of
all Senior Debt then outstanding.
(b) In the event that the holder of this Note shall have
received written notice to the effect that an event of default shall
have occurred on any Senior Debt and be continuing (under circumstances
in which the provisions of the foregoing paragraph (a) are not
applicable), then, during the continuance of any such event of default,
all principal of and premium, if any, and interest on all Senior Debt
outstanding at the time of such notice shall first be paid in full,
before any payment on account of principal or interest is made upon
this Note. The provisions of this Section 4 are for the purpose of
defining the relative rights of the
<PAGE> 7
7
holders of Senior Debt on the one hand, and the holder of this Note on
the other hand, against the Maker and its property; and nothing herein
shall impair, as between the Maker and the holder of this Note, the
obligation of the Maker, which is unconditional and absolute, to pay to
the holder thereof the principal thereof and interest thereon in
accordance with the terms and the provisions thereof; nor shall
anything herein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law or hereunder upon
default under this Note, subject to the rights, if any, under this
Section 4 of holders of Senior Debt to receive cash, property, stock or
obligations otherwise payable or deliverable to the holder of this
Note.
SECTION 5. General Covenants. The Maker covenants and agrees
with the holder of this Note as hereinbelow set forth, namely:
5.1. The Maker will punctually pay or cause to be paid the
principal of and interest on this Note according to the terms hereof.
5.2. The Maker will, and will cause each Subsidiary, if any,
to
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges or
levies imposed upon it or
<PAGE> 8
8
upon its income or upon any of its property, real, personal or mixed,
or upon any part thereof, as well as all claims of any kind (including
claims for labor, materials and supplies which, if unpaid, might by law
become a lien or charge upon its property); provided, however, that
neither the Maker nor any Subsidiary shall be required to pay any such
tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Maker or such Subsidiary, as the
case may be, shall have set aside on its books reserves (segregated to
the extent required by sound accounting practice) reasonably deemed by
it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note
and as contemplated by Section 6 hereof, do or cause to be done all
things necessary or appropriate to preserve and keep in full force and
effect its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Maker or such Subsidiary; provided, however, that
nothing in this paragraph shall prevent the abandonment or termination
of the corporate existence, rights and franchises of
<PAGE> 9
9
any Subsidiary if, in the opinion of the Board of Directors of the
Maker, such abandonment or termination is in the interest of the Maker
and not disadvantageous in any material respect to the holder of this
Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Maker will not consolidate with, merge into, or sell or otherwise dispose of all
or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such
consolidation or merger or to which such sale or other disposition
shall have been made shall be a corporation organized under the laws of
the United States of America or any State, district or territory
thereof;
(b) such successor corporation shall expressly assume the due
and punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Maker to the same extent as if such
successor corporation had been the original maker of this Note (and
such assumption shall, upon the request of the holder of this Note, be
evidenced by the endorsing of an appropriate legend upon this Note, and
each Note executed pursuant to Section 9 hereof after such assumption
shall, unless
<PAGE> 10
10
executed in the name of such corporation, have a similar legend
endorsed thereon); and
(c) immediately after such consolidation, merger, sale or
other disposition, such successor corporation shall not be in default
in the performance of any of the covenants, agreements or conditions
contained in this Note.
SECTION 7. Registered Holders. The Maker may deem and treat
the registered holder of this Note as the absolute owner of this Note for the
purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Maker shall not be affected by any notice to the contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this Note, together
with all accrued interest thereon, shall, at the option of the holder hereof
exercised by written notice to the Maker at its principal executive offices,
forthwith become and be due and payable if any one or more of the following
events (herein called "Events of Default") shall have occurred (for any reason
whatsoever and whether such happening shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or
<PAGE> 11
11
governmental body) and be continuing at the time of such notice,
that is to say:
(a) if default shall be made in the due and punctual payment
of the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment
of any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance or observance
of any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance
of any of the other covenants, agreements or conditions of the Maker
contained in this Note, and such default shall have continued for a
period of 30 days;
(e) if the Maker or any Subsidiary shall default beyond any
period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Maker or any
Subsidiary shall default in the performance or observance of any other
agreement, term or condition contained in such obligation or in any
agreement under
<PAGE> 12
12
which any such obligation is created, if the effect of any such default
is to cause or permit the holder or holders of such obligations (or a
trustee on behalf of such holder or holders) to cause such obligation
to become due prior to the date of its stated maturity, unless such
holder or holders or trustee shall have waived such default after its
occurrence or unless such holder or holders or trustee shall have
failed to give any notice required to create a default thereunder;
(f) if the Maker or any Subsidiary shall:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to
take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or
any State, district or territory thereof;
<PAGE> 13
13
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Maker or any
Subsidiary, a receiver of the Maker or any Subsidiary or of the whole
or any substantial part of its property, or approving a petition filed
against it seeking reorganization or arrangement of the Maker or any
Subsidiary under the federal bankruptcy laws or any other applicable
law or statute of the United States of America or any State, district
or territory thereof, and such order, judgment or decree shall not be
vacated or set aside or stayed within 60 days from the date of entry
thereof;
(h) if, under the provisions of any other law for the relief
or aid of debtors, any court of competent jurisdiction shall assume
custody or control of the Maker or any Subsidiary or of the whole or
any substantial part of its property and such custody or control shall
not be terminated or stayed within 60 days from the date of assumption
of such custody or control; or
(i) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Maker or any
Subsidiary and the Maker or such Subsidiary shall not discharge the
same or provide for its discharge in accordance with its terms, or
shall not procure a stay of execution thereon within 60 days
<PAGE> 14
14
from the date of entry thereof and within the period during which
execution of such judgment shall have been stayed, appeal therefrom,
and cause the execution thereof to be stayed during such appeal.
8.2. In case any one or more of the Events of Default
specified in Section 8.1 hereof shall have occurred and be continuing, the
holder of this Note may proceed to protect and enforce its rights either by suit
in equity and/or by action at law, whether for the specific performance of any
covenant or agreement contained in this Note or in aid of the exercise of any
power granted in this Note, or the holder of this Note may proceed to enforce
the payment of all sums due upon this Note or to enforce any other legal or
equitable right of the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
8.4. No course of dealing between the Maker and the holder
hereof or any delay on the part of the holder hereof in exercising any rights
hereunder shall operate as a waiver of any rights of any holder hereof.
<PAGE> 15
15
SECTION 9. Exchange or Replacement of Notes.
(a) The holder of any Note or Notes, at its option, may in
person or by duly authorized attorney surrender one or more thereof for
exchange, at the principal executive offices of the Maker, and at the
expense of the Maker receive in exchange therefor a new Note or Notes
in the same aggregate principal amount as the aggregate unpaid
principal amount of the Note or Notes so surrendered and bearing
interest at the same annual rate as the Note or Notes so surrendered,
each such new Note to be dated as of the date to which interest has
been paid on the Note or Notes so surrendered and to be in such
principal amount and payable to such person or persons, or order, as
such holder may designate in writing; provided, however, that the Maker
shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any new Note in
the name other than that of the holder of the Note or Notes surrendered
in exchange therefor. Five days' prior written notice of the holder's
intention to make such exchange shall be given to the Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Note, and (in
case of loss, theft or destruction) of indemnity reasonably
satisfactory to it (it being understood that in the case of
Abbingdon-II an unsecured written indemnification agreement shall be
<PAGE> 16
16
satisfactory to the Maker), and upon surrender and cancellation of this Note, if
mutilated, the Maker, upon reimbursement to it of all reasonable expenses
incidental thereto, will make and deliver a new Note, of like tenor in lieu of
this Note. Any Note made and delivered in accordance with the provisions of this
paragraph (b) shall be dated as of the date to which interest has been paid on
this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor or successor corporation, either
directly or through the Maker or otherwise, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof and as
part of the consideration for the issue hereof expressly waived and released;
provided, however, that nothing herein contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock upon or in respect of shares of capital stock not
fully paid.
<PAGE> 17
17
SECTION 11. Section Headings. The Section headings contained herein are
for the purpose of convenience of reference only and are not intended to define
or limit the contents of any such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 13. Governing Law. This Note shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and to be performed entirely within such Commonwealth, except to
the extent of the mandatory rules of the State of Delaware with respect to the
formal requisites for
<PAGE> 18
18
authorization of a security and rights and duties with respect to register of
transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Joseph J. Frank
------------------------------------
Joseph J. Frank
President
RIVERHEARST, INC.,
a Delaware corporation
By /s/ Stephen F. Nagy
------------------------------------
Stephen F. Nagy
Vice President
<PAGE> 19
SCHEDULE OF LOANS AND PAYMENTS
<TABLE>
<CAPTION>
Name of
Amount Amount of Unpaid Person
of Principal Principal Making
Date Loan Paid Balance Notation
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 10(k)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
9% Subordinated Note due September 18, 2005
$6,400,000 King of Prussia, Pennsylvania
December 31, 1995
SECTION 1. General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFD"), and RIVERHEARST, INC., a
Delaware corporation ("Riverhearst"), jointly and severally (VFD and Riverhearst
are collectively referred to herein as the "Maker"), hereby promise to pay to
ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP-III, a Delaware limited
partnership (herein called "Abbingdon-III"), or order, the principal amount of
Six Million Four Hundred Thousand Dollars ($6,400,000), or, if less, the
aggregate outstanding principal amount of all loans which are made by
Abbingdon-III to the Maker on or prior to September 18, 2005 and which are
intended to be evidenced by this Note as conclusively evidenced by a written
endorsement with respect thereto by a general partner of Abbingdon-III on the
schedule annexed hereto, in full on September 18, 2005 (subject to prepayment in
whole or in part in the manner hereinafter in Section 3 hereof provided), in
such coin or currency of the United States of America as at the time of payment
shall be legal tender
<PAGE> 2
2
therein for the payment of public and private debts, and to pay interest on the
unpaid balance of the principal hereof from the date hereof, at the rate of 9%
per annum, in like coin or currency, quarterly on March 31, June 30, September
30 and December 31 each year commencing March 31, 1996 (the payment due on such
date to include all accrued interest from the date hereof), and to pay interest
at the rate of 10% per annum on any overdue principal and (to the extent
permitted by law) on any overdue interest, from the due date thereof until the
obligation of the Maker with respect to the payment thereof shall be discharged;
all payments and prepayments of principal of this Note and all payments of
interest on this Note to be made to the holder hereof at the office of such
holder at c/o Foster Management Company, 1018 West Ninth Avenue, King of
Prussia, Pennsylvania 19406 or such other office hereafter designated by such
holder. Interest hereon for any period other than a full quarterly period shall
be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the
following terms shall have the following respective
meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes
executed and delivered by the Maker in exchange or replacement thereof pursuant
to Section 9 hereof. Unless the context otherwise requires, the term
<PAGE> 3
3
"holder" is used herein to mean the person named as payee in Section 1 hereof
(herein sometimes called the "payee named herein") or any other person who shall
at the time be the registered holder of this Note.
"Maker" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation, and RIVERHEARST, INC., a Delaware corporation, the joint
and several obligors under this Note, and shall also mean any successor
corporation of either of them which shall become such in the manner prescribed
in Section 6 hereof.
The term "corporation" shall include, except for the purposes
of Section 6 hereof, an association, joint stock company, business trust or
other similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at
least a majority of the outstanding voting stock of which shall at the time be
owned by the Maker. For purposes hereof, outstanding voting stock shall be
deemed to be capital stock of any class or classes, however designated, having
ordinary voting power for the election of the members of the board of directors
or other governing body of such corporation, other than stock having such power
only upon the happening of a contingency.
<PAGE> 4
4
"Senior Debt" shall mean the principal of, premium, if any,
and interest on and other amounts due on all indebtedness of the Maker, whether
outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Maker, and
(b) for money borrowed by others and
guaranteed by the Maker
from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Maker may at any time prepay the
whole or any part of the unpaid principal amount of this Note, without penalty
or premium, but with interest accrued to the date fixed for prepayment. Notices
of prepayment shall be given by the Maker by mail and shall be mailed to the
registered holder of this Note not less than 30 days from the date fixed for
prepayment. In case this Note is to be prepaid in part only, such notice shall
specify the principal amount thereof to be prepaid and shall state that this
Note shall be submitted to the Maker for notation thereon of the principal
amount thereof to be prepaid. Upon giving of notice of prepayment as aforesaid,
this Note or portion thereof so specified for prepayment
<PAGE> 5
5
shall on the prepayment date specified in such notice become due and payable;
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment) interest on this Note or portion thereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender thereof to the Maker for cancellation in the case of this Note being
prepaid in whole, or for notation thereon of the payment of the portion of the
principal amount thereof being prepaid in the case of a prepayment of this Note
in part only, this Note or portion thereof so specified for prepayment shall be
paid by the Maker at the prepayment price aforesaid.
SECTION 4. Subordination. The Maker hereby agrees, and the
holder of this Note by its acceptance hereof agrees, that the payment of the
principal of and interest on this Note is hereby expressly made subordinate and
junior in right of payment, to the extent set forth in the following paragraphs
(a) and (b), to the prior payment in full of all Senior Debt of the Maker:
(a) In the event of insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Maker or to any of
the property of the Maker, or in the event of any proceedings for
voluntary liquidation, dissolution, or other winding-up of the Maker,
whether or not involving
<PAGE> 6
6
insolvency or bankruptcy, then the holders of Senior Debt shall be
entitled to receive payment in full of all principal of, and premium,
if any, and interest on all Senior Debt before the holder of this Note
shall be entitled to receive any payment on account of principal of or
interest on this Note, and to that end the holders of Senior Debt shall
be entitled to receive for application in payment thereof any payment
or distribution of any kind or character, whether in cash or property
or securities, which may be payable or deliverable in any such
proceedings in respect of this Note, except securities of the Maker
which are subordinate and junior in right of payment to the payment of
all Senior Debt then outstanding.
(b) In the event that the holder of this Note shall have
received written notice to the effect that an event of default shall
have occurred on any Senior Debt and be continuing (under circumstances
in which the provisions of the foregoing paragraph (a) are not
applicable), then, during the continuance of any such event of default,
all principal of and premium, if any, and interest on all Senior Debt
outstanding at the time of such notice shall first be paid in full,
before any payment on account of principal or interest is made upon
this Note. The provisions of this Section 4 are for the purpose of
defining the relative rights of the
<PAGE> 7
7
holders of Senior Debt on the one hand, and the holder of this Note on
the other hand, against the Maker and its property; and nothing herein
shall impair, as between the Maker and the holder of this Note, the
obligation of the Maker, which is unconditional and absolute, to pay to
the holder thereof the principal thereof and interest thereon in
accordance with the terms and the provisions thereof; nor shall
anything herein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law or hereunder upon
default under this Note, subject to the rights, if any, under this
Section 4 of holders of Senior Debt to receive cash, property, stock or
obligations otherwise payable or deliverable to the holder of this
Note.
SECTION 5. General Covenants. The Maker
covenants and agrees with the holder of this Note as
hereinbelow set forth, namely:
5.1. The Maker will punctually pay or cause to be paid the
principal of and interest on this Note according to the terms hereof.
5.2. The Maker will, and will cause each
Subsidiary, if any, to
(a) pay and discharge promptly, or cause to be
paid and discharged promptly, all taxes, assessments
and governmental charges or levies imposed upon it or
<PAGE> 8
8
upon its income or upon any of its property, real, personal or mixed,
or upon any part thereof, as well as all claims of any kind (including
claims for labor, materials and supplies which, if unpaid, might by law
become a lien or charge upon its property); provided, however, that
neither the Maker nor any Subsidiary shall be required to pay any such
tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Maker or such Subsidiary, as the
case may be, shall have set aside on its books reserves (segregated to
the extent required by sound accounting practice) reasonably deemed by
it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note
and as contemplated by Section 6 hereof, do or cause to be done all
things necessary or appropriate to preserve and keep in full force and
effect its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Maker or such Subsidiary; provided, however, that
nothing in this paragraph shall prevent the abandonment or termination
of the corporate existence, rights and franchises of
<PAGE> 9
9
any Subsidiary if, in the opinion of the Board of Directors of the
Maker, such abandonment or termination is in the interest of the Maker
and not disadvantageous in any material respect to the holder of this
Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Maker will not consolidate with, merge into, or sell or otherwise dispose of all
or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such
consolidation or merger or to which such sale or other disposition
shall have been made shall be a corporation organized under the laws of
the United States of America or any State, district or territory
thereof;
(b) such successor corporation shall expressly assume the due
and punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Maker to the same extent as if such
successor corporation had been the original maker of this Note (and
such assumption shall, upon the request of the holder of this Note, be
evidenced by the endorsing of an appropriate legend upon this Note, and
each Note executed pursuant to Section 9 hereof after such assumption
shall, unless
<PAGE> 10
10
executed in the name of such corporation, have a
similar legend endorsed thereon); and
(c) immediately after such consolidation, merger, sale or
other disposition, such successor corporation shall not be in default
in the performance of any of the covenants, agreements or conditions
contained in this Note.
SECTION 7. Registered Holders. The Maker may deem and treat
the registered holder of this Note as the absolute owner of this Note for the
purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Maker shall not be affected by any notice to the contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this
Note, together with all accrued interest thereon, shall, at the option of the
holder hereof exercised by written notice to the Maker at its principal
executive offices, forthwith become and be due and payable if any one or more of
the following events (herein called "Events of Default") shall have occurred
(for any reason whatsoever and whether such happening shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or
<PAGE> 11
11
governmental body) and be continuing at the time of such
notice, that is to say:
(a) if default shall be made in the due and punctual payment
of the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment
of any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance
or observance of any covenant, agreement or condition
contained in Section 6 hereof;
(d) if default shall be made in the performance or observance
of any of the other covenants, agreements or conditions of the Maker
contained in this Note, and such default shall have continued for a
period of 30 days;
(e) if the Maker or any Subsidiary shall default beyond any
period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Maker or any
Subsidiary shall default in the performance or observance of any other
agreement, term or condition contained in such obligation or in any
agreement under
<PAGE> 12
12
which any such obligation is created, if the effect of any such default
is to cause or permit the holder or holders of such obligations (or a
trustee on behalf of such holder or holders) to cause such obligation
to become due prior to the date of its stated maturity, unless such
holder or holders or trustee shall have waived such default after its
occurrence or unless such holder or holders or trustee shall have
failed to give any notice required to create a default thereunder;
(f) if the Maker or any Subsidiary shall:
(i) admit in writing its inability to pay its
debts generally as they become due;
(ii) file a petition in bankruptcy or a
petition to take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver
of itself or of the whole or any substantial part
of its property;
(v) on a petition in bankruptcy filed against
it, be adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
State, district or territory thereof;
<PAGE> 13
13
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Maker or any
Subsidiary, a receiver of the Maker or any Subsidiary or of the whole or
any substantial part of its property, or approving a petition filed
against it seeking reorganization or arrangement of the Maker or any
Subsidiary under the federal bankruptcy laws or any other applicable law
or statute of the United States of America or any State, district or
territory thereof, and such order, judgment or decree shall not be
vacated or set aside or stayed within 60 days from the date of entry
thereof;
(h) if, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall assume custody
or control of the Maker or any Subsidiary or of the whole or any
substantial part of its property and such custody or control shall not
be terminated or stayed within 60 days from the date of assumption of
such custody or control; or
(i) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Maker or any
Subsidiary and the Maker or such Subsidiary shall not discharge the same
or provide for its discharge in accordance with its terms, or shall not
procure a stay of execution thereon within 60 days
<PAGE> 14
14
from the date of entry thereof and within the period during which
execution of such judgment shall have been stayed, appeal therefrom, and
cause the execution thereof to be stayed during such appeal.
8.2. In case any one or more of the Events of Default
specified in Section 8.1 hereof shall have occurred and be continuing, the
holder of this Note may proceed to protect and enforce its rights either by suit
in equity and/or by action at law, whether for the specific performance of any
covenant or agreement contained in this Note or in aid of the exercise of any
power granted in this Note, or the holder of this Note may proceed to enforce
the payment of all sums due upon this Note or to enforce any other legal or
equitable right of the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
8.4. No course of dealing between the Maker and the holder
hereof or any delay on the part of the holder hereof in exercising any rights
hereunder shall operate as a waiver of any rights of any holder hereof.
SECTION 9. Exchange or Replacement of Notes.
<PAGE> 15
15
(a) The holder of any Note or Notes, at its option, may in
person or by duly authorized attorney surrender one or more thereof for
exchange, at the principal executive offices of the Maker, and at the expense of
the Maker receive in exchange therefor a new Note or Notes in the same aggregate
principal amount as the aggregate unpaid principal amount of the Note or Notes
so surrendered and bearing interest at the same annual rate as the Note or Notes
so surrendered, each such new Note to be dated as of the date to which interest
has been paid on the Note or Notes so surrendered and to be in such principal
amount and payable to such person or persons, or order, as such holder may
designate in writing; provided, however, that the Maker shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any new Note in the name other than that of the holder
of the Note or Notes surrendered in exchange therefor. Five days' prior written
notice of the holder's intention to make such exchange shall be given to the
Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Note, and (in case of
loss, theft or destruction) of indemnity reasonably satisfactory to it (it being
understood that in the case of Abbingdon-III an unsecured written
indemnification agreement shall be satisfactory to the Maker), and upon
surrender and
<PAGE> 16
16
cancellation of this Note, if mutilated, the Maker, upon reimbursement to it of
all reasonable expenses incidental thereto, will make and deliver a new Note, of
like tenor in lieu of this Note. Any Note made and delivered in accordance with
the provisions of this paragraph (b) shall be dated as of the date to which
interest has been paid on this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors.
No recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor or successor corporation, either
directly or through the Maker or otherwise, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof and as
part of the consideration for the issue hereof expressly waived and released;
provided, however, that nothing herein contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock upon or in respect of shares of capital stock not
fully paid.
SECTION 11. Section Headings. The Section headings contained
herein are for the purpose of convenience
<PAGE> 17
17
of reference only and are not intended to define or limit the contents of any
such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth, except to the extent of the mandatory rules of the State of
Delaware with respect to the formal requisites for authorization of a security
and rights and duties with respect to register of transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Joseph J. Frank
-----------------------------------
Joseph J. Frank
President
RIVERHEARST, INC.,
a Delaware corporation
By /s/ Stephen F. Nagy
-----------------------------------
Stephen F. Nagy
Vice President
<PAGE> 18
SCHEDULE OF LOANS AND PAYMENTS
<TABLE>
<CAPTION>
Name of
Amount Amount of Unpaid Person
of Principal Principal Making
Date Loan Paid Balance Notation
- ---- ------ --------- --------- --------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 10(l)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
9% Subordinated Note due September 18, 2005
$1,000,000 King of Prussia, Pennsylvania
December 31, 1995
SECTION 1. General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFD"), and RIVERHEARST, INC., a
Delaware corporation ("Riverhearst"), jointly and severally (VFD and Riverhearst
are collectively referred to herein as the "Maker"), hereby promise to pay to
BUSINESS DEVELOPMENT CAPITAL LIMITED PARTNERSHIP-III, a Massachusetts limited
partnership (herein called "BDC-III"), or order, the principal amount of One
Million Dollars ($1,000,000), or, if less, the aggregate outstanding principal
amount of all loans which are made by BDC-III to the Maker on or prior to
September 18, 2005 and which are intended to be evidenced by this Note as
conclusively evidenced by a written endorsement with respect thereto by a
general partner of BDC-III on the schedule annexed hereto, in full on September
18, 2005 (subject to prepayment in whole or in part in the manner hereinafter in
Section 3 hereof provided), in such coin or currency of the United States of
America as at the time of payment shall be legal tender therein for the payment
of public and private
<PAGE> 2
2
debts, and to pay interest on the unpaid balance of the principal hereof from
the date hereof, at the rate of 9% per annum, in like coin or currency,
quarterly on March 31, June 30, September 30 and December 31 each year
commencing March 31, 1996 (the payment due on such date to include all accrued
interest from the date hereof), and to pay interest at the rate of 10% per annum
on any overdue principal and (to the extent permitted by law) on any overdue
interest, from the due date thereof until the obligation of the Maker with
respect to the payment thereof shall be discharged; all payments and prepayments
of principal of this Note and all payments of interest on this Note to be made
to the holder hereof at the office of such holder at c/o Foster Management
Company, 1018 West Ninth Avenue, King of Prussia, Pennsylvania 19406 or such
other office hereafter designated by such holder. Interest hereon for any period
other than a full quarterly period shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the following terms
shall have the following respective meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes
executed and delivered by the Maker in exchange or replacement thereof pursuant
to Section 9 hereof. Unless the context otherwise requires, the term "holder" is
used herein to mean the person named as payee
<PAGE> 3
3
in Section 1 hereof (herein sometimes called the "payee named herein") or any
other person who shall at the time be the registered holder of this Note.
"Maker" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation, and RIVERHEARST, INC., a Delaware corporation, the joint
and several obligors under this Note, and shall also mean any successor
corporation of either of them which shall become such in the manner prescribed
in Section 6 hereof.
The term "corporation" shall include, except for the purposes
of Section 6 hereof, an association, joint stock company, business trust or
other similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at
least a majority of the outstanding voting stock of which shall at the time be
owned by the Maker. For purposes hereof, outstanding voting stock shall be
deemed to be capital stock of any class or classes, however designated, having
ordinary voting power for the election of the members of the board of directors
or other governing body of such corporation, other than stock having such power
only upon the happening of a contingency.
<PAGE> 4
4
"Senior Debt" shall mean the principal of, premium, if any,
and interest on and other amounts due on all indebtedness of the Maker, whether
outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Maker, and
(b) for money borrowed by others and guaranteed by the
Maker
from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Maker may at any time prepay the
whole or any part of the unpaid principal amount of this Note, without penalty
or premium, but with interest accrued to the date fixed for prepayment. Notices
of prepayment shall be given by the Maker by mail and shall be mailed to the
registered holder of this Note not less than 30 days from the date fixed for
prepayment. In case this Note is to be prepaid in part only, such notice shall
specify the principal amount thereof to be prepaid and shall state that this
Note shall be submitted to the Maker for notation thereon of the principal
amount thereof to be prepaid. Upon giving of notice of prepayment as aforesaid,
this Note or portion thereof so specified for prepayment
<PAGE> 5
5
shall on the prepayment date specified in such notice become due and payable;
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment) interest on this Note or portion thereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender thereof to the Maker for cancellation in the case of this Note being
prepaid in whole, or for notation thereon of the payment of the portion of the
principal amount thereof being prepaid in the case of a prepayment of this Note
in part only, this Note or portion thereof so specified for prepayment shall be
paid by the Maker at the prepayment price aforesaid.
SECTION 4. Subordination. The Maker hereby agrees, and the
holder of this Note by its acceptance hereof agrees, that the payment of the
principal of and interest on this Note is hereby expressly made subordinate and
junior in right of payment, to the extent set forth in the following paragraphs
(a) and (b), to the prior payment in full of all Senior Debt of the Maker:
(a) In the event of insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Maker or to any of
the property of the Maker, or in the event of any proceedings for
voluntary liquidation, dissolution, or other winding-up of the Maker,
whether or not involving
<PAGE> 6
6
insolvency or bankruptcy, then the holders of Senior Debt shall be
entitled to receive payment in full of all principal of, and premium,
if any, and interest on all Senior Debt before the holder of this Note
shall be entitled to receive any payment on account of principal of or
interest on this Note, and to that end the holders of Senior Debt shall
be entitled to receive for application in payment thereof any payment
or distribution of any kind or character, whether in cash or property
or securities, which may be payable or deliverable in any such
proceedings in respect of this Note, except securities of the Maker
which are subordinate and junior in right of payment to the payment of
all Senior Debt then outstanding.
(b) In the event that the holder of this Note shall have
received written notice to the effect that an event of default shall
have occurred on any Senior Debt and be continuing (under circumstances
in which the provisions of the foregoing paragraph (a) are not
applicable), then, during the continuance of any such event of default,
all principal of and premium, if any, and interest on all Senior Debt
outstanding at the time of such notice shall first be paid in full,
before any payment on account of principal or interest is made upon
this Note. The provisions of this Section 4 are for the purpose of
defining the relative rights of the
<PAGE> 7
7
holders of Senior Debt on the one hand, and the holder of this Note on
the other hand, against the Maker and its property; and nothing herein
shall impair, as between the Maker and the holder of this Note, the
obligation of the Maker, which is unconditional and absolute, to pay to
the holder thereof the principal thereof and interest thereon in
accordance with the terms and the provisions thereof; nor shall
anything herein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law or hereunder upon
default under this Note, subject to the rights, if any, under this
Section 4 of holders of Senior Debt to receive cash, property, stock or
obligations otherwise payable or deliverable to the holder of this
Note.
SECTION 5. General Covenants. The Maker covenants and agrees
with the holder of this Note as hereinbelow set forth, namely:
5.1. The Maker will punctually pay or cause to be paid the
principal of and interest on this Note according to the terms hereof.
5.2. The Maker will, and will cause each Subsidiary, if any,
to
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges or
levies imposed upon it or
<PAGE> 8
8
upon its income or upon any of its property, real, personal or mixed,
or upon any part thereof, as well as all claims of any kind (including
claims for labor, materials and supplies which, if unpaid, might by law
become a lien or charge upon its property); provided, however, that
neither the Maker nor any Subsidiary shall be required to pay any such
tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Maker or such Subsidiary, as the
case may be, shall have set aside on its books reserves (segregated to
the extent required by sound accounting practice) reasonably deemed by
it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note
and as contemplated by Section 6 hereof, do or cause to be done all
things necessary or appropriate to preserve and keep in full force and
effect its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Maker or such Subsidiary; provided, however, that
nothing in this paragraph shall prevent the abandonment or termination
of the corporate existence, rights and franchises of
<PAGE> 9
9
any Subsidiary if, in the opinion of the Board of Directors of the
Maker, such abandonment or termination is in the interest of the Maker
and not disadvantageous in any material respect to the holder of this
Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Maker will not consolidate with, merge into, or sell or otherwise dispose of all
or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such
consolidation or merger or to which such sale or other disposition
shall have been made shall be a corporation organized under the laws of
the United States of America or any State, district or territory
thereof;
(b) such successor corporation shall expressly assume the due
and punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Maker to the same extent as if such
successor corporation had been the original maker of this Note (and
such assumption shall, upon the request of the holder of this Note, be
evidenced by the endorsing of an appropriate legend upon this Note, and
each Note executed pursuant to Section 9 hereof after such assumption
shall, unless
<PAGE> 10
10
executed in the name of such corporation, have a similar legend
endorsed thereon); and
(c) immediately after such consolidation, merger, sale or
other disposition, such successor corporation shall not be in default
in the performance of any of the covenants, agreements or conditions
contained in this Note.
SECTION 7. Registered Holders. The Maker may deem and treat
the registered holder of this Note as the absolute owner of this Note for the
purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Maker shall not be affected by any notice to the contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this Note, together
with all accrued interest thereon, shall, at the option of the holder hereof
exercised by written notice to the Maker at its principal executive offices,
forthwith become and be due and payable if any one or more of the following
events (herein called "Events of Default") shall have occurred (for any reason
whatsoever and whether such happening shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or
<PAGE> 11
11
governmental body) and be continuing at the time of such notice, that is to say:
(a) if default shall be made in the due and punctual payment
of the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment
of any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance or observance
of any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance
of any of the other covenants, agreements or conditions of the Maker
contained in this Note, and such default shall have continued for a
period of 30 days;
(e) if the Maker or any Subsidiary shall default beyond any
period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Maker or any
Subsidiary shall default in the performance or observance of any other
agreement, term or condition contained in such obligation or in any
agreement under
<PAGE> 12
12
which any such obligation is created, if the effect of any such default
is to cause or permit the holder or holders of such obligations (or a
trustee on behalf of such holder or holders) to cause such obligation
to become due prior to the date of its stated maturity, unless such
holder or holders or trustee shall have waived such default after its
occurrence or unless such holder or holders or trustee shall have
failed to give any notice required to create a default thereunder;
(f) if the Maker or any Subsidiary shall:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to
take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or
any State, district or territory thereof;
<PAGE> 13
13
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Maker or any
Subsidiary, a receiver of the Maker or any Subsidiary or of the whole
or any substantial part of its property, or approving a petition filed
against it seeking reorganization or arrangement of the Maker or any
Subsidiary under the federal bankruptcy laws or any other applicable
law or statute of the United States of America or any State, district
or territory thereof, and such order, judgment or decree shall not be
vacated or set aside or stayed within 60 days from the date of entry
thereof;
(h) if, under the provisions of any other law for the relief
or aid of debtors, any court of competent jurisdiction shall assume
custody or control of the Maker or any Subsidiary or of the whole or
any substantial part of its property and such custody or control shall
not be terminated or stayed within 60 days from the date of assumption
of such custody or control; or
(i) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Maker or any
Subsidiary and the Maker or such Subsidiary shall not discharge the
same or provide for its discharge in accordance with its terms, or
shall not procure a stay of execution thereon within 60 days
<PAGE> 14
14
from the date of entry thereof and within the period during which
execution of such judgment shall have been stayed, appeal therefrom,
and cause the execution thereof to be stayed during such appeal.
8.2. In case any one or more of the Events of Default
specified in Section 8.1 hereof shall have occurred and be continuing, the
holder of this Note may proceed to protect and enforce its rights either by suit
in equity and/or by action at law, whether for the specific performance of any
covenant or agreement contained in this Note or in aid of the exercise of any
power granted in this Note, or the holder of this Note may proceed to enforce
the payment of all sums due upon this Note or to enforce any other legal or
equitable right of the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
8.4. No course of dealing between the Maker and the holder
hereof or any delay on the part of the holder hereof in exercising any rights
hereunder shall operate as a waiver of any rights of any holder hereof.
<PAGE> 15
15
SECTION 9. Exchange or Replacement of Notes.
(a) The holder of any Note or Notes, at its option, may in
person or by duly authorized attorney surrender one or more thereof for
exchange, at the principal executive offices of the Maker, and at the expense of
the Maker receive in exchange therefor a new Note or Notes in the same aggregate
principal amount as the aggregate unpaid principal amount of the Note or Notes
so surrendered and bearing interest at the same annual rate as the Note or Notes
so surrendered, each such new Note to be dated as of the date to which interest
has been paid on the Note or Notes so surrendered and to be in such principal
amount and payable to such person or persons, or order, as such holder may
designate in writing; provided, however, that the Maker shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any new Note in the name other than that of the holder
of the Note or Notes surrendered in exchange therefor. Five days' prior written
notice of the holder's intention to make such exchange shall be given to the
Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Note, and (in case of
loss, theft or destruction) of indemnity reasonably satisfactory to it (it being
understood that in the case of BDC-III an unsecured written indemnification
agreement shall be satisfactory to
<PAGE> 16
16
the Maker), and upon surrender and cancellation of this Note, if mutilated, the
Maker, upon reimbursement to it of all reasonable expenses incidental thereto,
will make and deliver a new Note, of like tenor in lieu of this Note. Any Note
made and delivered in accordance with the provisions of this paragraph (b) shall
be dated as of the date to which interest has been paid on this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors.
No recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor or successor corporation, either
directly or through the Maker or otherwise, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof and as
part of the consideration for the issue hereof expressly waived and released;
provided, however, that nothing herein contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock upon or in respect of shares of capital stock not
fully paid.
SECTION 11. Section Headings. The Section headings contained
herein are for the purpose of convenience
<PAGE> 17
17
of reference only and are not intended to define or limit the contents of any
such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth, except to the extent of the mandatory rules of the State of
Delaware with respect to the formal requisites for authorization of a security
and rights and duties with respect to register of transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Joseph J. Frank
--------------------------------
Joseph J. Frank
President
RIVERHEARST, INC.,
a Delaware corporation
By /s/ Stephen F. Nagy
--------------------------------
Stephen F. Nagy
Vice President
<PAGE> 18
SCHEDULE OF LOANS AND PAYMENTS
<TABLE>
<CAPTION>
Name of
Amount Amount of Unpaid Person
of Principal Principal Making
Date Loan Paid Balance Notation
- ---- ---- ---- ------- --------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 10(m)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
9% Subordinated Note due September 18, 2005
$1,080,000 King of Prussia, Pennsylvania
October 20, 1997
SECTION 1. General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFD"), and RIVERHEARST, INC., a
Delaware corporation ("Riverhearst"), jointly and severally (VFD and Riverhearst
are collectively referred to herein as the "Maker"), hereby promise to pay to
ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP, a Connecticut limited
partnership (herein called "Abbingdon-I"), or order, the principal amount of One
Million Eighty Thousand Dollars ($1,080,000), or, if less, the aggregate
outstanding principal amount of all loans which are made by Abbingdon-I to the
Maker on or prior to September 18, 2005 and which are intended to be evidenced
by this Note as conclusively evidenced by a written endorsement with respect
thereto by a general partner of Abbingdon-I on the schedule annexed hereto, in
full on September 18, 2005 (subject to prepayment in whole or in part in the
manner hereinafter in Section 3 hereof provided), in such coin or currency of
the United States of America as at the time of payment shall be legal tender
therein for the payment of public and private debts, and to pay interest on the
unpaid
<PAGE> 2
2
balance of the principal hereof from the date hereof, at the rate of 9% per
annum, in like coin or currency, quarterly on March 31, June 30, September 30
and December 31 each year commencing December 31, 1997 (the payment due on such
date to include all accrued interest from the date hereof), and to pay interest
at the rate of 10% per annum on any overdue principal and (to the extent
permitted by law) on any overdue interest, from the due date thereof until the
obligation of the Maker with respect to the payment thereof shall be discharged;
all payments and prepayments of principal of this Note and all payments of
interest on this Note to be made to the holder hereof at the office of such
holder at c/o Foster Management Company, 1018 West Ninth Avenue, King of
Prussia, Pennsylvania 19406 or such other office hereafter designated by such
holder. Interest hereon for any period other than a full quarterly period shall
be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the following terms shall
have the following respective meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes
executed and delivered by the Maker in exchange or replacement thereof pursuant
to Section 9 hereof. Unless the context otherwise requires, the term "holder" is
used herein to mean the person named as payee
<PAGE> 3
3
in Section 1 hereof (herein sometimes called the "payee named herein") or any
other person who shall at the time be the registered holder of this Note.
"Maker" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC., a Delaware
corporation, and RIVERHEARST, INC., a Delaware corporation, the joint and
several obligors under this Note, and shall also mean any successor corporation
of either of them which shall become such in the manner prescribed in Section 6
hereof.
The term "corporation" shall include, except for the purposes of
Section 6 hereof, an association, joint stock company, business trust or other
similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at least a
majority of the outstanding voting stock of which shall at the time be owned by
the Maker. For purposes hereof, outstanding voting stock shall be deemed to be
capital stock of any class or classes, however designated, having ordinary
voting power for the election of the members of the board of directors or other
governing body of such corporation, other than stock having such power only upon
the happening of a contingency.
<PAGE> 4
4
"Senior Debt" shall mean the principal of, premium, if any, and
interest on and other amounts due on all indebtedness of the Maker, whether
outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Maker, and
(b) for money borrowed by others and guaranteed by the Maker
from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Maker may at any time prepay the whole or
any part of the unpaid principal amount of this Note, without penalty or
premium, but with interest accrued to the date fixed for prepayment. Notices of
prepayment shall be given by the Maker by mail and shall be mailed to the
registered holder of this Note not less than 30 days from the date fixed for
prepayment. In case this Note is to be prepaid in part only, such notice shall
specify the principal amount thereof to be prepaid and shall state that this
Note shall be submitted to the Maker for notation thereon of the principal
amount thereof to be prepaid. Upon giving of notice of prepayment as aforesaid,
this Note or portion thereof so specified for prepayment
<PAGE> 5
5
shall on the prepayment date specified in such notice become due and payable;
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment) interest on this Note or portion thereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender thereof to the Maker for cancellation in the case of this Note being
prepaid in whole, or for notation thereon of the payment of the portion of the
principal amount thereof being prepaid in the case of a prepayment of this Note
in part only, this Note or portion thereof so specified for prepayment shall be
paid by the Maker at the prepayment price aforesaid.
SECTION 4. Subordination. The Maker hereby agrees, and the holder of
this Note by its acceptance hereof agrees, that the payment of the principal of
and interest on this Note is hereby expressly made subordinate and junior in
right of payment, to the extent set forth in the following paragraphs (a) and
(b), to the prior payment in full of all Senior Debt of the Maker:
(a) In the event of insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Maker or to any of the property of
the Maker, or in the event of any proceedings for voluntary liquidation,
dissolution, or other winding-up of the Maker, whether or not involving
<PAGE> 6
6
insolvency or bankruptcy, then the holders of Senior Debt shall be
entitled to receive payment in full of all principal of, and premium, if
any, and interest on all Senior Debt before the holder of this Note shall
be entitled to receive any payment on account of principal of or interest
on this Note, and to that end the holders of Senior Debt shall be entitled
to receive for application in payment thereof any payment or distribution
of any kind or character, whether in cash or property or securities, which
may be payable or deliverable in any such proceedings in respect of this
Note, except securities of the Maker which are subordinate and junior in
right of payment to the payment of all Senior Debt then outstanding.
(b) In the event that the holder of this Note shall have received
written notice to the effect that an event of default shall have occurred
on any Senior Debt and be continuing (under circumstances in which the
provisions of the foregoing paragraph (a) are not applicable), then,
during the continuance of any such event of default, all principal of and
premium, if any, and interest on all Senior Debt outstanding at the time
of such notice shall first be paid in full, before any payment on account
of principal or interest is made upon this Note. The provisions of this
Section 4 are for the purpose of defining the relative rights of the
<PAGE> 7
7
holders of Senior Debt on the one hand, and the holder of this Note on the
other hand, against the Maker and its property; and nothing herein shall
impair, as between the Maker and the holder of this Note, the obligation
of the Maker, which is unconditional and absolute, to pay to the holder
thereof the principal thereof and interest thereon in accordance with the
terms and the provisions thereof; nor shall anything herein prevent the
holder of this Note from exercising all remedies otherwise permitted by
applicable law or hereunder upon default under this Note, subject to the
rights, if any, under this Section 4 of holders of Senior Debt to receive
cash, property, stock or obligations otherwise payable or deliverable to
the holder of this Note.
SECTION 5. General Covenants. The Maker covenants and agrees with
the holder of this Note as hereinbelow set forth, namely:
5.1. The Maker will punctually pay or cause to be paid the principal
of and interest on this Note according to the terms hereof.
5.2. The Maker will, and will cause each Subsidiary, if any, to
(a) pay and discharge promptly, or cause to be paid and discharged
promptly, all taxes, assessments and governmental charges or levies
imposed upon it or
<PAGE> 8
8
upon its income or upon any of its property, real, personal or mixed, or
upon any part thereof, as well as all claims of any kind (including claims
for labor, materials and supplies which, if unpaid, might by law become a
lien or charge upon its property); provided, however, that neither the
Maker nor any Subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate
proceedings and if the Maker or such Subsidiary, as the case may be, shall
have set aside on its books reserves (segregated to the extent required by
sound accounting practice) reasonably deemed by it adequate with respect
thereto; and
(b) except as otherwise specifically permitted in this Note and as
contemplated by Section 6 hereof, do or cause to be done all things
necessary or appropriate to preserve and keep in full force and effect its
corporate existence, rights and franchises, and use its best efforts to
qualify as a foreign corporation entitled to do business in every
jurisdiction in which the failure so to qualify would materially adversely
affect the Maker or such Subsidiary; provided, however, that nothing in
this paragraph shall prevent the abandonment or termination of the
corporate existence, rights and franchises of
<PAGE> 9
9
any Subsidiary if, in the opinion of the Board of Directors of the Maker,
such abandonment or termination is in the interest of the Maker and not
disadvantageous in any material respect to the holder of this Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The Maker
will not consolidate with, merge into, or sell or otherwise dispose of all or
substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such consolidation or
merger or to which such sale or other disposition shall have been made
shall be a corporation organized under the laws of the United States of
America or any State, district or territory thereof;
(b) such successor corporation shall expressly assume the due and
punctual payment of the principal of and interest on this Note according
to its tenor, and the due and punctual performance and observance of all
the covenants, agreements and conditions of this Note to be performed or
observed by the Maker to the same extent as if such successor corporation
had been the original maker of this Note (and such assumption shall, upon
the request of the holder of this Note, be evidenced by the endorsing of
an appropriate legend upon this Note, and each Note executed pursuant to
Section 9 hereof after such assumption shall, unless
<PAGE> 10
10
executed in the name of such corporation, have a similar legend endorsed
thereon); and
(c) immediately after such consolidation, merger, sale or other
disposition, such successor corporation shall not be in default in the
performance of any of the covenants, agreements or conditions contained in
this Note.
SECTION 7. Registered Holders. The Maker may deem and treat the
registered holder of this Note as the absolute owner of this Note for the
purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Maker shall not be affected by any notice to the contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this Note, together with
all accrued interest thereon, shall, at the option of the holder hereof
exercised by written notice to the Maker at its principal executive offices,
forthwith become and be due and payable if any one or more of the following
events (herein called "Events of Default") shall have occurred (for any reason
whatsoever and whether such happening shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or
<PAGE> 11
11
governmental body) and be continuing at the time of such notice, that is to say:
(a) if default shall be made in the due and punctual payment of the
principal of this Note when and as the same shall become due and payable,
whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment of any
interest on this Note when and as such interest shall become due and
payable, and such default shall have continued for a period of 10 days;
(c) if default shall be made in the performance or observance of any
covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance of any
of the other covenants, agreements or conditions of the Maker contained in
this Note, and such default shall have continued for a period of 30 days;
(e) if the Maker or any Subsidiary shall default beyond any period
of grace provided with respect thereto in the payment of principal of or
interest on any obligation in respect of borrowed money when due, whether
by acceleration or otherwise; or if the Maker or any Subsidiary shall
default in the performance or observance of any other agreement, term or
condition contained in such obligation or in any agreement under
<PAGE> 12
12
which any such obligation is created, if the effect of any such default is
to cause or permit the holder or holders of such obligations (or a trustee
on behalf of such holder or holders) to cause such obligation to become
due prior to the date of its stated maturity, unless such holder or
holders or trustee shall have waived such default after its occurrence or
unless such holder or holders or trustee shall have failed to give any
notice required to create a default thereunder;
(f) if the Maker or any Subsidiary shall:
(i) admit in writing its inability to pay its debts generally
as they become due;
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act;
(iii) make an assignment for the benefit of creditors;
(iv) consent to the appointment of a receiver of itself or of
the whole or any substantial part of its property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
State, district or territory thereof;
<PAGE> 13
13
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Maker or any
Subsidiary, a receiver of the Maker or any Subsidiary or of the whole or
any substantial part of its property, or approving a petition filed against
it seeking reorganization or arrangement of the Maker or any Subsidiary
under the federal bankruptcy laws or any other applicable law or statute of
the United States of America or any State, district or territory thereof,
and such order, judgment or decree shall not be vacated or set aside or
stayed within 60 days from the date of entry thereof;
(h) if, under the provisions of any other law for the relief or aid
of debtors, any court of competent jurisdiction shall assume custody or
control of the Maker or any Subsidiary or of the whole or any substantial
part of its property and such custody or control shall not be terminated or
stayed within 60 days from the date of assumption of such custody or
control; or
(i) if final judgment for the payment of money in excess of $50,000
shall be rendered by a court of record against the Maker or any Subsidiary
and the Maker or such Subsidiary shall not discharge the same or provide
for its discharge in accordance with its terms, or shall not procure a stay
of execution thereon within 60 days
<PAGE> 14
14
from the date of entry thereof and within the period during which execution
of such judgment shall have been stayed, appeal therefrom, and cause the
execution thereof to be stayed during such appeal.
8.2. In case any one or more of the Events of Default specified in
Section 8.1 hereof shall have occurred and be continuing, the holder of this
Note may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, whether for the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted
in this Note, or the holder of this Note may proceed to enforce the payment of
all sums due upon this Note or to enforce any other legal or equitable right of
the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is intended to
be exclusive of any other remedy and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise.
8.4. No course of dealing between the Maker and the holder hereof or
any delay on the part of the holder hereof in exercising any rights hereunder
shall operate as a waiver of any rights of any holder hereof.
<PAGE> 15
15
SECTION 9. Exchange or Replacement of Notes.
(a) The holder of any Note or Notes, at its option, may in person or
by duly authorized attorney surrender one or more thereof for exchange, at the
principal executive offices of the Maker, and at the expense of the Maker
receive in exchange therefor a new Note or Notes in the same aggregate principal
amount as the aggregate unpaid principal amount of the Note or Notes so
surrendered and bearing interest at the same annual rate as the Note or Notes so
surrendered, each such new Note to be dated as of the date to which interest has
been paid on the Note or Notes so surrendered and to be in such principal amount
and payable to such person or persons, or order, as such holder may designate in
writing; provided, however, that the Maker shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any new Note in the name other than that of the holder of the Note
or Notes surrendered in exchange therefor. Five days' prior written notice of
the holder's intention to make such exchange shall be given to the Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Note, and (in case of loss, theft
or destruction) of indemnity reasonably satisfactory to it (it being understood
that in the case of Abbingdon-I an unsecured written indemnification agreement
shall be
<PAGE> 16
16
satisfactory to the Maker), and upon surrender and cancellation of this Note, if
mutilated, the Maker, upon reimbursement to it of all reasonable expenses
incidental thereto, will make and deliver a new Note, of like tenor in lieu of
this Note. Any Note made and delivered in accordance with the provisions of this
paragraph (b) shall be dated as of the date to which interest has been paid on
this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor or successor corporation, either
directly or through the Maker or otherwise, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof and as
part of the consideration for the issue hereof expressly waived and released;
provided, however, that nothing herein contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock upon or in respect of shares of capital stock not
fully paid.
<PAGE> 17
17
SECTION 11. Section Headings. The Section headings contained herein
are for the purpose of convenience of reference only and are not intended to
define or limit the contents of any such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
<PAGE> 18
18
SECTION 13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth, except to the extent of the mandatory rules of the State of
Delaware with respect to the formal requisites for authorization of a security
and rights and duties with respect to register of transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Joseph J. Frank
------------------------------
Joseph J. Frank
President
RIVERHEARST, INC.,
a Delaware corporation
By /s/ Robert A. Ouimette
------------------------------
Robert A. Ouimette
President
<PAGE> 19
SCHEDULE OF LOANS AND PAYMENTS
Name of
Amount Amount of Unpaid Person
of Principal Principal Making
Date Loan Paid Balance Notation
- ---- ---- ---- ------- --------
<PAGE> 1
EXHIBIT 10(n)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
9% Subordinated Note due September 18, 2005
$3,960,000 King of Prussia, Pennsylvania
October 20, 1997
SECTION 1. General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFD"), and RIVERHEARST, INC., a
Delaware corporation ("Riverhearst"), jointly and severally (VFD and Riverhearst
are collectively referred to herein as the "Maker"), hereby promise to pay to
ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP-II, a Delaware limited
partnership (herein called "Abbingdon-II"), or order, the principal amount of
Three Million Nine Hundred Sixty Thousand Dollars ($3,960,000), or, if less, the
aggregate outstanding principal amount of all loans which are made by
Abbingdon-II to the Maker on or prior to September 18, 2005 and which are
intended to be evidenced by this Note as conclusively evidenced by a written
endorsement with respect thereto by a general partner of Abbingdon-II on the
schedule annexed hereto, in full on September 18, 2005 (subject to prepayment in
whole or in part in the manner hereinafter in Section 3 hereof provided), in
such coin or currency of the United States of America as at the time of payment
shall be legal
<PAGE> 2
2
tender therein for the payment of public and private debts, and to pay interest
on the unpaid balance of the principal hereof from the date hereof, at the rate
of 9% per annum, in like coin or currency, quarterly on March 31, June 30,
September 30 and December 31 each year commencing December 31, 1997 (the payment
due on such date to include all accrued interest from the date hereof), and to
pay interest at the rate of 10% per annum on any overdue principal and (to the
extent permitted by law) on any overdue interest, from the due date thereof
until the obligation of the Maker with respect to the payment thereof shall be
discharged; all payments and prepayments of principal of this Note and all
payments of interest on this Note to be made to the holder hereof at the office
of such holder at c/o Foster Management Company, 1018 West Ninth Avenue, King of
Prussia, Pennsylvania 19406 or such other office hereafter designated by such
holder. Interest hereon for any period other than a full quarterly period shall
be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the following terms
shall have the following respective meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes
executed and delivered by the Maker in exchange or replacement thereof pursuant
to Section 9
<PAGE> 3
3
hereof. Unless the context otherwise requires, the term "holder" is used herein
to mean the person named as payee in Section 1 hereof (herein sometimes called
the "payee named herein") or any other person who shall at the time be the
registered holder of this Note.
"Maker" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation, and RIVERHEARST, INC., a Delaware corporation, the joint
and several obligors under this Note, and shall also mean any successor
corporation of either of them which shall become such in the manner prescribed
in Section 6 hereof.
The term "corporation" shall include, except for the purposes
of Section 6 hereof, an association, joint stock company, business trust or
other similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at
least a majority of the outstanding voting stock of which shall at the time be
owned by the Maker. For purposes hereof, outstanding voting stock shall be
deemed to be capital stock of any class or classes, however designated, having
ordinary voting power for the election of the members of the board of directors
or other governing
<PAGE> 4
4
body of such corporation, other than stock having such power only upon the
happening of a contingency.
"Senior Debt" shall mean the principal of, premium, if any,
and interest on and other amounts due on all indebtedness of the Maker, whether
outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Maker, and
(b) for money borrowed by others and
guaranteed by the Maker
from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Maker may at any time prepay the
whole or any part of the unpaid principal amount of this Note, without penalty
or premium, but with interest accrued to the date fixed for prepayment. Notices
of prepayment shall be given by the Maker by mail and shall be mailed to the
registered holder of this Note not less than 30 days from the date fixed for
prepayment. In case this Note is to be prepaid in part only, such notice shall
specify the principal amount thereof to be prepaid and shall state that this
Note shall be submitted to the Maker for notation thereon of the principal
amount thereof to be
<PAGE> 5
5
prepaid. Upon giving of notice of prepayment as aforesaid, this Note or portion
thereof so specified for prepayment shall on the prepayment date specified in
such notice become due and payable; and from and after the prepayment date so
specified (unless the Maker shall default in making such prepayment) interest on
this Note or portion thereof so specified for prepayment shall cease to accrue
and, on presentation and surrender thereof to the Maker for cancellation in the
case of this Note being prepaid in whole, or for notation thereon of the payment
of the portion of the principal amount thereof being prepaid in the case of a
prepayment of this Note in part only, this Note or portion thereof so specified
for prepayment shall be paid by the Maker at the prepayment price aforesaid.
SECTION 4. Subordination. The Maker hereby agrees, and the
holder of this Note by its acceptance hereof agrees, that the payment of the
principal of and interest on this Note is hereby expressly made subordinate and
junior in right of payment, to the extent set forth in the following paragraphs
(a) and (b), to the prior payment in full of all Senior Debt of the Maker:
(a) In the event of insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Maker or to any of
the property of the Maker, or in the event of any
<PAGE> 6
6
proceedings for voluntary liquidation, dissolution, or other winding-up
of the Maker, whether or not involving insolvency or bankruptcy, then
the holders of Senior Debt shall be entitled to receive payment in full
of all principal of, and premium, if any, and interest on all Senior
Debt before the holder of this Note shall be entitled to receive any
payment on account of principal of or interest on this Note, and to
that end the holders of Senior Debt shall be entitled to receive for
application in payment thereof any payment or distribution of any kind
or character, whether in cash or property or securities, which may be
payable or deliverable in any such proceedings in respect of this Note,
except securities of the Maker which are subordinate and junior in
right of payment to the payment of all Senior Debt then outstanding.
(b) In the event that the holder of this Note shall have
received written notice to the effect that an event of default shall
have occurred on any Senior Debt and be continuing (under circumstances
in which the provisions of the foregoing paragraph (a) are not
applicable), then, during the continuance of any such event of default,
all principal of and premium, if any, and interest on all Senior Debt
outstanding at the time of such notice shall first be paid in full,
before any payment on account of principal or interest is made
<PAGE> 7
7
upon this Note. The provisions of this Section 4 are for the purpose of
defining the relative rights of the holders of Senior Debt on the one
hand, and the holder of this Note on the other hand, against the Maker
and its property; and nothing herein shall impair, as between the Maker
and the holder of this Note, the obligation of the Maker, which is
unconditional and absolute, to pay to the holder thereof the principal
thereof and interest thereon in accordance with the terms and the
provisions thereof; nor shall anything herein prevent the holder of
this Note from exercising all remedies otherwise permitted by
applicable law or hereunder upon default under this Note, subject to
the rights, if any, under this Section 4 of holders of Senior Debt to
receive cash, property, stock or obligations otherwise payable or
deliverable to the holder of this Note.
SECTION 5. General Covenants. The Maker covenants and agrees
with the holder of this Note as hereinbelow set forth, namely:
5.1. The Maker will punctually pay or cause to be paid the
principal of and interest on this Note according to the terms hereof.
5.2. The Maker will, and will cause each Subsidiary, if any,
to
<PAGE> 8
8
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or upon any of its property,
real, personal or mixed, or upon any part thereof, as well as all
claims of any kind (including claims for labor, materials and supplies
which, if unpaid, might by law become a lien or charge upon its
property); provided, however, that neither the Maker nor any Subsidiary
shall be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall currently
be contested in good faith by appropriate proceedings and if the Maker
or such Subsidiary, as the case may be, shall have set aside on its
books reserves (segregated to the extent required by sound accounting
practice) reasonably deemed by it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note
and as contemplated by Section 6 hereof, do or cause to be done all
things necessary or appropriate to preserve and keep in full force and
effect its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Maker or such
<PAGE> 9
9
Subsidiary; provided, however, that nothing in this paragraph shall
prevent the abandonment or termination of the corporate existence,
rights and franchises of any Subsidiary if, in the opinion of the Board
of Directors of the Maker, such abandonment or termination is in the
interest of the Maker and not disadvantageous in any material respect
to the holder of this Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Maker will not consolidate with, merge into, or sell or otherwise dispose of all
or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such
consolidation or merger or to which such sale or other disposition
shall have been made shall be a corporation organized under the laws of
the United States of America or any State, district or territory
thereof;
(b) such successor corporation shall expressly assume the due
and punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Maker to the same extent as if such
successor corporation had been the original maker of this Note (and
such assumption shall, upon the request of the holder of this Note, be
<PAGE> 10
10
evidenced by the endorsing of an appropriate legend upon this Note, and
each Note executed pursuant to Section 9 hereof after such assumption
shall, unless executed in the name of such corporation, have a similar
legend endorsed thereon); and
(c) immediately after such consolidation, merger, sale or
other disposition, such successor corporation shall not be in default
in the performance of any of the covenants, agreements or conditions
contained in this Note.
SECTION 7. Registered Holders. The Maker may deem and treat
the registered holder of this Note as the absolute owner of this Note for the
purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Maker shall not be affected by any notice to the contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this
Note, together with all accrued interest thereon, shall, at the option of the
holder hereof exercised by written notice to the Maker at its principal
executive offices, forthwith become and be due and payable if any one or more of
the following events (herein called "Events of Default") shall have occurred
(for any reason whatsoever and whether such happening shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in
<PAGE> 11
11
compliance with any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body) and be continuing at the
time of such notice, that is to say:
(a) if default shall be made in the due and punctual payment
of the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment
of any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance
or observance of any covenant, agreement or condition
contained in Section 6 hereof;
(d) if default shall be made in the performance or observance
of any of the other covenants, agreements or conditions of the Maker
contained in this Note, and such default shall have continued for a
period of 30 days;
(e) if the Maker or any Subsidiary shall default beyond any
period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Maker or any
Subsidiary shall default in the performance or
<PAGE> 12
12
observance of any other agreement, term or condition contained in such
obligation or in any agreement under which any such obligation is
created, if the effect of any such default is to cause or permit the
holder or holders of such obligations (or a trustee on behalf of such
holder or holders) to cause such obligation to become due prior to the
date of its stated maturity, unless such holder or holders or trustee
shall have waived such default after its occurrence or unless such
holder or holders or trustee shall have failed to give any notice
required to create a default thereunder;
(f) if the Maker or any Subsidiary shall:
(i) admit in writing its inability to pay its
debts generally as they become due;
(ii) file a petition in bankruptcy or a
petition to take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver
of itself or of the whole or any substantial part
of its property;
(v) on a petition in bankruptcy filed against
it, be adjudicated a bankrupt; or
(vi) file a petition or answer seeking
reorganization or arrangement under the federal
bankruptcy laws or any other applicable law or
<PAGE> 13
13
statute of the United States of America or any
State, district or territory thereof;
(g) if a court of competent jurisdiction shall
enter an order, judgment, or decree appointing, without the consent of
the Maker or any Subsidiary, a receiver of the Maker or any Subsidiary
or of the whole or any substantial part of its property, or approving a
petition filed against it seeking reorganization or arrangement of the
Maker or any Subsidiary under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any State,
district or territory thereof, and such order, judgment or decree shall
not be vacated or set aside or stayed within 60 days from the date of
entry thereof;
(h) if, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall assume custody
or control of the Maker or any Subsidiary or of the whole or any
substantial part of its property and such custody or control shall not
be terminated or stayed within 60 days from the date of assumption of
such custody or control; or
(i) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Maker or any
Subsidiary and the Maker or such Subsidiary shall not discharge the same
or provide
<PAGE> 14
14
for its discharge in accordance with its terms, or shall not procure a
stay of execution thereon within 60 days from the date of entry thereof
and within the period during which execution of such judgment shall have
been stayed, appeal therefrom, and cause the execution thereof to be
stayed during such appeal.
8.2. In case any one or more of the Events of Default specified
in Section 8.1 hereof shall have occurred and be continuing, the holder of this
Note may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, whether for the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted
in this Note, or the holder of this Note may proceed to enforce the payment of
all sums due upon this Note or to enforce any other legal or equitable right of
the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
8.4. No course of dealing between the Maker and the holder
hereof or any delay on the part of the holder hereof in exercising any rights
hereunder shall operate as a waiver of any rights of any holder hereof.
<PAGE> 15
15
SECTION 9. Exchange or Replacement of Notes.
(a) The holder of any Note or Notes, at its option, may in
person or by duly authorized attorney surrender one or more thereof for
exchange, at the principal executive offices of the Maker, and at the expense of
the Maker receive in exchange therefor a new Note or Notes in the same aggregate
principal amount as the aggregate unpaid principal amount of the Note or Notes
so surrendered and bearing interest at the same annual rate as the Note or Notes
so surrendered, each such new Note to be dated as of the date to which interest
has been paid on the Note or Notes so surrendered and to be in such principal
amount and payable to such person or persons, or order, as such holder may
designate in writing; provided, however, that the Maker shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any new Note in the name other than that of the holder
of the Note or Notes surrendered in exchange therefor. Five days' prior written
notice of the holder's intention to make such exchange shall be given to the
Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Note, and (in case of
loss, theft or destruction) of indemnity reasonably satisfactory to it (it being
understood that in the case of Abbingdon-II an unsecured written indemnification
agreement shall be
<PAGE> 16
16
satisfactory to the Maker), and upon surrender and cancellation of this Note, if
mutilated, the Maker, upon reimbursement to it of all reasonable expenses
incidental thereto, will make and deliver a new Note, of like tenor in lieu of
this Note. Any Note made and delivered in accordance with the provisions of this
paragraph (b) shall be dated as of the date to which interest has been paid on
this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor or successor corporation, either
directly or through the Maker or otherwise, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof and as
part of the consideration for the issue hereof expressly waived and released;
provided, however, that nothing herein contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock upon or in respect of shares of capital stock not
fully paid.
<PAGE> 17
17
SECTION 11. Section Headings. The Section headings contained
herein are for the purpose of convenience of reference only and are not intended
to define or limit the contents of any such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth, except to the extent of the mandatory rules of the State of
Delaware with respect to the formal requisites for
<PAGE> 18
18
authorization of a security and rights and duties with respect to register of
transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Joseph J. Frank
----------------------------
Joseph J. Frank
President
RIVERHEARST, INC.,
a Delaware corporation
By /s/ Robert A. Ouimette
----------------------------
Robert A. Ouimette
President
<PAGE> 19
SCHEDULE OF LOANS AND PAYMENTS
Name of
Amount Amount of Unpaid Person
of Principal Principal Making
Date Loan Paid Balance Notation
- ---- ------- --------- --------- --------
<PAGE> 1
EXHIBIT 10(o)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
9% Subordinated Note due September 18, 2005
$2,560,000 King of Prussia, Pennsylvania
October 20, 1997
SECTION 1. General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFD"), and RIVERHEARST, INC., a
Delaware corporation ("Riverhearst"), jointly and severally (VFD and Riverhearst
are collectively referred to herein as the "Maker"), hereby promise to pay to
ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP-III, a Delaware limited
partnership (herein called "Abbingdon-III"), or order, the principal amount of
Two Million Five Hundred Sixty Thousand Dollars ($2,560,000), or, if less, the
aggregate outstanding principal amount of all loans which are made by
Abbingdon-III to the Maker on or prior to September 18, 2005 and which are
intended to be evidenced by this Note as conclusively evidenced by a written
endorsement with respect thereto by a general partner of Abbingdon-III on the
schedule annexed hereto, in full on September 18, 2005 (subject to prepayment in
whole or in part in the manner hereinafter in Section 3 hereof provided), in
such coin or currency of the United States of America as at the time of payment
shall be legal tender therein for the payment of
<PAGE> 2
2
public and private debts, and to pay interest on the unpaid balance of the
principal hereof from the date hereof, at the rate of 9% per annum, in like coin
or currency, quarterly on March 31, June 30, September 30 and December 31 each
year commencing December 31, 1997 (the payment due on such date to include all
accrued interest from the date hereof), and to pay interest at the rate of 10%
per annum on any overdue principal and (to the extent permitted by law) on any
overdue interest, from the due date thereof until the obligation of the Maker
with respect to the payment thereof shall be discharged; all payments and
prepayments of principal of this Note and all payments of interest on this Note
to be made to the holder hereof at the office of such holder at c/o Foster
Management Company, 1018 West Ninth Avenue, King of Prussia, Pennsylvania 19406
or such other office hereafter designated by such holder. Interest hereon for
any period other than a full quarterly period shall be computed on the basis of
a 360-day year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the
following terms shall have the following respective
meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes
executed and delivered by the Maker in exchange or replacement thereof pursuant
to Section 9 hereof. Unless the context otherwise requires, the term
<PAGE> 3
3
"holder" is used herein to mean the person named as payee in Section 1 hereof
(herein sometimes called the "payee named herein") or any other person who shall
at the time be the registered holder of this Note.
"Maker" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation, and RIVERHEARST, INC., a Delaware corporation, the joint
and several obligors under this Note, and shall also mean any successor
corporation of either of them which shall become such in the manner prescribed
in Section 6 hereof.
The term "corporation" shall include, except for the purposes
of Section 6 hereof, an association, joint stock company, business trust or
other similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at
least a majority of the outstanding voting stock of which shall at the time be
owned by the Maker. For purposes hereof, outstanding voting stock shall be
deemed to be capital stock of any class or classes, however designated, having
ordinary voting power for the election of the members of the board of directors
or other governing body of such corporation, other than stock having such power
only upon the happening of a contingency.
<PAGE> 4
4
"Senior Debt" shall mean the principal of, premium, if any,
and interest on and other amounts due on all indebtedness of the Maker, whether
outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Maker, and
(b) for money borrowed by others and
guaranteed by the Maker
from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Maker may at any time prepay the
whole or any part of the unpaid principal amount of this Note, without penalty
or premium, but with interest accrued to the date fixed for prepayment. Notices
of prepayment shall be given by the Maker by mail and shall be mailed to the
registered holder of this Note not less than 30 days from the date fixed for
prepayment. In case this Note is to be prepaid in part only, such notice shall
specify the principal amount thereof to be prepaid and shall state that this
Note shall be submitted to the Maker for notation thereon of the principal
amount thereof to be prepaid. Upon giving of notice of prepayment as aforesaid,
this Note or portion thereof so specified for prepayment
<PAGE> 5
5
shall on the prepayment date specified in such notice become due and payable;
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment) interest on this Note or portion thereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender thereof to the Maker for cancellation in the case of this Note being
prepaid in whole, or for notation thereon of the payment of the portion of the
principal amount thereof being prepaid in the case of a prepayment of this Note
in part only, this Note or portion thereof so specified for prepayment shall be
paid by the Maker at the prepayment price aforesaid.
SECTION 4. Subordination. The Maker hereby agrees, and the
holder of this Note by its acceptance hereof agrees, that the payment of the
principal of and interest on this Note is hereby expressly made subordinate and
junior in right of payment, to the extent set forth in the following paragraphs
(a) and (b), to the prior payment in full of all Senior Debt of the Maker:
(a) In the event of insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Maker or to any of
the property of the Maker, or in the event of any proceedings for
voluntary liquidation, dissolution, or other winding-up of the Maker,
whether or not involving
<PAGE> 6
6
insolvency or bankruptcy, then the holders of Senior Debt shall be
entitled to receive payment in full of all principal of, and premium,
if any, and interest on all Senior Debt before the holder of this Note
shall be entitled to receive any payment on account of principal of or
interest on this Note, and to that end the holders of Senior Debt shall
be entitled to receive for application in payment thereof any payment
or distribution of any kind or character, whether in cash or property
or securities, which may be payable or deliverable in any such
proceedings in respect of this Note, except securities of the Maker
which are subordinate and junior in right of payment to the payment of
all Senior Debt then outstanding.
(b) In the event that the holder of this Note shall have
received written notice to the effect that an event of default shall
have occurred on any Senior Debt and be continuing (under circumstances
in which the provisions of the foregoing paragraph (a) are not
applicable), then, during the continuance of any such event of default,
all principal of and premium, if any, and interest on all Senior Debt
outstanding at the time of such notice shall first be paid in full,
before any payment on account of principal or interest is made upon
this Note. The provisions of this Section 4 are for the purpose of
defining the relative rights of the
<PAGE> 7
7
holders of Senior Debt on the one hand, and the holder of this Note on
the other hand, against the Maker and its property; and nothing herein
shall impair, as between the Maker and the holder of this Note, the
obligation of the Maker, which is unconditional and absolute, to pay to
the holder thereof the principal thereof and interest thereon in
accordance with the terms and the provisions thereof; nor shall
anything herein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law or hereunder upon
default under this Note, subject to the rights, if any, under this
Section 4 of holders of Senior Debt to receive cash, property, stock or
obligations otherwise payable or deliverable to the holder of this
Note.
SECTION 5. General Covenants. The Maker covenants and agrees
with the holder of this Note as hereinbelow set forth, namely:
5.1. The Maker will punctually pay or cause to be paid the
principal of and interest on this Note according to the terms hereof.
5.2. The Maker will, and will cause each
Subsidiary, if any, to
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges or
levies imposed upon it or
<PAGE> 8
8
upon its income or upon any of its property, real, personal or mixed,
or upon any part thereof, as well as all claims of any kind (including
claims for labor, materials and supplies which, if unpaid, might by law
become a lien or charge upon its property); provided, however, that
neither the Maker nor any Subsidiary shall be required to pay any such
tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Maker or such Subsidiary, as the
case may be, shall have set aside on its books reserves (segregated to
the extent required by sound accounting practice) reasonably deemed by
it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note
and as contemplated by Section 6 hereof, do or cause to be done all
things necessary or appropriate to preserve and keep in full force and
effect its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Maker or such Subsidiary; provided, however, that
nothing in this paragraph shall prevent the abandonment or termination
of the corporate existence, rights and franchises of
<PAGE> 9
9
any Subsidiary if, in the opinion of the Board of Directors of the
Maker, such abandonment or termination is in the interest of the Maker
and not disadvantageous in any material respect to the holder of this
Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Maker will not consolidate with, merge into, or sell or otherwise dispose of all
or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such
consolidation or merger or to which such sale or other disposition
shall have been made shall be a corporation organized under the laws of
the United States of America or any State, district or territory
thereof;
(b) such successor corporation shall expressly assume the due
and punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Maker to the same extent as if such
successor corporation had been the original maker of this Note (and
such assumption shall, upon the request of the holder of this Note, be
evidenced by the endorsing of an appropriate legend upon this Note, and
each Note executed pursuant to Section 9 hereof after such assumption
shall, unless
<PAGE> 10
10
executed in the name of such corporation, have a similar legend
endorsed thereon); and
(c) immediately after such consolidation, merger, sale or
other disposition, such successor corporation shall not be in default
in the performance of any of the covenants, agreements or conditions
contained in this Note.
SECTION 7. Registered Holders. The Maker may deem and treat
the registered holder of this Note as the absolute owner of this Note for the
purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Maker shall not be affected by any notice to the contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this Note, together
with all accrued interest thereon, shall, at the option of the holder hereof
exercised by written notice to the Maker at its principal executive offices,
forthwith become and be due and payable if any one or more of the following
events (herein called "Events of Default") shall have occurred (for any reason
whatsoever and whether such happening shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or
<PAGE> 11
11
governmental body) and be continuing at the time of such notice, that is to say:
(a) if default shall be made in the due and punctual payment
of the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment
of any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance or observance
of any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance
of any of the other covenants, agreements or conditions of the Maker
contained in this Note, and such default shall have continued for a
period of 30 days;
(e) if the Maker or any Subsidiary shall default beyond any
period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Maker or any
Subsidiary shall default in the performance or observance of any other
agreement, term or condition contained in such obligation or in any
agreement under
<PAGE> 12
12
which any such obligation is created, if the effect of any such default
is to cause or permit the holder or holders of such obligations (or a
trustee on behalf of such holder or holders) to cause such obligation
to become due prior to the date of its stated maturity, unless such
holder or holders or trustee shall have waived such default after its
occurrence or unless such holder or holders or trustee shall have
failed to give any notice required to create a default thereunder;
(f) if the Maker or any Subsidiary shall:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to
take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or
any State, district or territory thereof;
<PAGE> 13
13
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Maker or any
Subsidiary, a receiver of the Maker or any Subsidiary or of the whole or
any substantial part of its property, or approving a petition filed
against it seeking reorganization or arrangement of the Maker or any
Subsidiary under the federal bankruptcy laws or any other applicable law
or statute of the United States of America or any State, district or
territory thereof, and such order, judgment or decree shall not be
vacated or set aside or stayed within 60 days from the date of entry
thereof;
(h) if, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall assume custody
or control of the Maker or any Subsidiary or of the whole or any
substantial part of its property and such custody or control shall not
be terminated or stayed within 60 days from the date of assumption of
such custody or control; or
(i) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Maker or any
Subsidiary and the Maker or such Subsidiary shall not discharge the same
or provide for its discharge in accordance with its terms, or shall not
procure a stay of execution thereon within 60 days
<PAGE> 14
14
from the date of entry thereof and within the period during which
execution of such judgment shall have been stayed, appeal therefrom, and
cause the execution thereof to be stayed during such appeal.
8.2. In case any one or more of the Events of Default specified
in Section 8.1 hereof shall have occurred and be continuing, the holder of this
Note may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, whether for the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted
in this Note, or the holder of this Note may proceed to enforce the payment of
all sums due upon this Note or to enforce any other legal or equitable right of
the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
8.4. No course of dealing between the Maker and the holder
hereof or any delay on the part of the holder hereof in exercising any rights
hereunder shall operate as a waiver of any rights of any holder hereof.
SECTION 9. Exchange or Replacement of Notes.
<PAGE> 15
15
(a) The holder of any Note or Notes, at its option, may in
person or by duly authorized attorney surrender one or more thereof for
exchange, at the principal executive offices of the Maker, and at the expense of
the Maker receive in exchange therefor a new Note or Notes in the same aggregate
principal amount as the aggregate unpaid principal amount of the Note or Notes
so surrendered and bearing interest at the same annual rate as the Note or Notes
so surrendered, each such new Note to be dated as of the date to which interest
has been paid on the Note or Notes so surrendered and to be in such principal
amount and payable to such person or persons, or order, as such holder may
designate in writing; provided, however, that the Maker shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any new Note in the name other than that of the holder
of the Note or Notes surrendered in exchange therefor. Five days' prior written
notice of the holder's intention to make such exchange shall be given to the
Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it of
the loss, theft, destruction or mutilation of this Note, and (in case of loss,
theft or destruction) of indemnity reasonably satisfactory to it (it being
understood that in the case of Abbingdon-III an unsecured written
indemnification agreement shall be satisfactory to the Maker), and upon
surrender and
<PAGE> 16
16
cancellation of this Note, if mutilated, the Maker, upon reimbursement to it of
all reasonable expenses incidental thereto, will make and deliver a new Note, of
like tenor in lieu of this Note. Any Note made and delivered in accordance with
the provisions of this paragraph (b) shall be dated as of the date to which
interest has been paid on this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor or successor corporation, either
directly or through the Maker or otherwise, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof and as
part of the consideration for the issue hereof expressly waived and released;
provided, however, that nothing herein contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock upon or in respect of shares of capital stock not
fully paid.
SECTION 11. Section Headings. The Section headings contained
herein are for the purpose of convenience
<PAGE> 17
17
of reference only and are not intended to define or limit the contents of any
such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth, except to the extent of the mandatory rules of the State of
Delaware with respect to the formal requisites for authorization of a security
and rights and duties with respect to register of transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Joseph J. Frank
Joseph J. Frank
President
RIVERHEARST, INC.,
a Delaware corporation
By /s/ Robert A. Ouimette
Robert A. Ouimette
Vice President
<PAGE> 18
SCHEDULE OF LOANS AND PAYMENTS
Name of
Amount Amount of Unpaid Person
of Principal Principal Making
Date Loan Paid Balance Notation
- ---- ------ --------- --------- --------
<PAGE> 1
EXHIBIT 10(p)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT.
9% Subordinated Note due September 18, 2005
$400,000 King of Prussia, Pennsylvania
October 20, 1997
SECTION 1. General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFD"), and RIVERHEARST, INC., a
Delaware corporation ("Riverhearst"), jointly and severally (VFD and Riverhearst
are collectively referred to herein as the "Maker"), hereby promise to pay to
BUSINESS DEVELOPMENT CAPITAL LIMITED PARTNERSHIP-III, a Massachusetts limited
partnership (herein called "BDC-III"), or order, the principal amount of Four
Hundred Thousand Dollars ($400,000), or, if less, the aggregate outstanding
principal amount of all loans which are made by BDC-III to the Maker on or prior
to September 18, 2005 and which are intended to be evidenced by this Note as
conclusively evidenced by a written endorsement with respect thereto by a
general partner of BDC-III on the schedule annexed hereto, in full on September
18, 2005 (subject to prepayment in whole or in part in the manner hereinafter in
Section 3 hereof provided), in such coin or currency of the United States of
America as at the time of payment shall be legal tender therein for the payment
of
<PAGE> 2
2
public and private debts, and to pay interest on the unpaid balance of the
principal hereof from the date hereof, at the rate of 9% per annum, in like coin
or currency, quarterly on March 31, June 30, September 30 and December 31 each
year commencing December 31, 1997 (the payment due on such date to include all
accrued interest from the date hereof), and to pay interest at the rate of 10%
per annum on any overdue principal and (to the extent permitted by law) on any
overdue interest, from the due date thereof until the obligation of the Maker
with respect to the payment thereof shall be discharged; all payments and
prepayments of principal of this Note and all payments of interest on this Note
to be made to the holder hereof at the office of such holder at c/o Foster
Management Company, 1018 West Ninth Avenue, King of Prussia, Pennsylvania 19406
or such other office hereafter designated by such holder. Interest hereon for
any period other than a full quarterly period shall be computed on the basis of
a 360-day year of twelve 30-day months.
SECTION 2. Definitions. As used herein, the following terms
shall have the following respective meanings:
"Note" and "Notes" refer to this Note and to any Note or Notes
executed and delivered by the Maker in exchange or replacement thereof pursuant
to Section 9 hereof. Unless the context otherwise requires, the term
<PAGE> 3
3
"holder" is used herein to mean the person named as payee in Section 1 hereof
(herein sometimes called the "payee named herein") or any other person who shall
at the time be the registered holder of this Note.
"Maker" shall mean VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation, and RIVERHEARST, INC., a Delaware corporation, the joint
and several obligors under this Note, and shall also mean any successor
corporation of either of them which shall become such in the manner prescribed
in Section 6 hereof.
The term "corporation" shall include, except for the purposes
of Section 6 hereof, an association, joint stock company, business trust or
other similar organization.
The term "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"Subsidiary" shall mean any present or future corporation at
least a majority of the outstanding voting stock of which shall at the time be
owned by the Maker. For purposes hereof, outstanding voting stock shall be
deemed to be capital stock of any class or classes, however designated, having
ordinary voting power for the election of the members of the board of directors
or other governing body of such corporation, other than stock having such power
only upon the happening of a contingency.
<PAGE> 4
4
"Senior Debt" shall mean the principal of, premium, if any,
and interest on and other amounts due on all indebtedness of the Maker, whether
outstanding on the date of this Note or hereafter created or incurred:
(a) for money borrowed by the Maker, and
(b) for money borrowed by others and guaranteed by the
Maker
from any bank, insurance company or other institutional lender created or
evidenced by notes, bonds, debentures, guarantees or similar instruments or by a
loan agreement or loan agreements (excluding any of such indebtedness which by
the terms of the instrument creating or evidencing the payment is subordinated
to or pari passu with this Note).
SECTION 3. Prepayment. The Maker may at any time prepay the
whole or any part of the unpaid principal amount of this Note, without penalty
or premium, but with interest accrued to the date fixed for prepayment. Notices
of prepayment shall be given by the Maker by mail and shall be mailed to the
registered holder of this Note not less than 30 days from the date fixed for
prepayment. In case this Note is to be prepaid in part only, such notice shall
specify the principal amount thereof to be prepaid and shall state that this
Note shall be submitted to the Maker for notation thereon of the principal
amount thereof to be prepaid. Upon giving of notice of prepayment as aforesaid,
this Note or portion thereof so specified for prepayment
<PAGE> 5
5
shall on the prepayment date specified in such notice become due and payable;
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment) interest on this Note or portion thereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender thereof to the Maker for cancellation in the case of this Note being
prepaid in whole, or for notation thereon of the payment of the portion of the
principal amount thereof being prepaid in the case of a prepayment of this Note
in part only, this Note or portion thereof so specified for prepayment shall be
paid by the Maker at the prepayment price aforesaid.
SECTION 4. Subordination. The Maker hereby agrees, and the
holder of this Note by its acceptance hereof agrees, that the payment of the
principal of and interest on this Note is hereby expressly made subordinate and
junior in right of payment, to the extent set forth in the following paragraphs
(a) and (b), to the prior payment in full of all Senior Debt of the Maker:
(a) In the event of insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Maker or to any of
the property of the Maker, or in the event of any proceedings for
voluntary liquidation, dissolution, or other winding-up of the Maker,
whether or not involving
<PAGE> 6
6
insolvency or bankruptcy, then the holders of Senior Debt shall be
entitled to receive payment in full of all principal of, and premium,
if any, and interest on all Senior Debt before the holder of this Note
shall be entitled to receive any payment on account of principal of or
interest on this Note, and to that end the holders of Senior Debt shall
be entitled to receive for application in payment thereof any payment
or distribution of any kind or character, whether in cash or property
or securities, which may be payable or deliverable in any such
proceedings in respect of this Note, except securities of the Maker
which are subordinate and junior in right of payment to the payment of
all Senior Debt then outstanding.
(b) In the event that the holder of this Note shall have
received written notice to the effect that an event of default shall
have occurred on any Senior Debt and be continuing (under circumstances
in which the provisions of the foregoing paragraph (a) are not
applicable), then, during the continuance of any such event of default,
all principal of and premium, if any, and interest on all Senior Debt
outstanding at the time of such notice shall first be paid in full,
before any payment on account of principal or interest is made upon
this Note. The provisions of this Section 4 are for the purpose of
defining the relative rights of the
<PAGE> 7
7
holders of Senior Debt on the one hand, and the holder of this Note on
the other hand, against the Maker and its property; and nothing herein
shall impair, as between the Maker and the holder of this Note, the
obligation of the Maker, which is unconditional and absolute, to pay to
the holder thereof the principal thereof and interest thereon in
accordance with the terms and the provisions thereof; nor shall
anything herein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law or hereunder upon
default under this Note, subject to the rights, if any, under this
Section 4 of holders of Senior Debt to receive cash, property, stock or
obligations otherwise payable or deliverable to the holder of this
Note.
SECTION 5. General Covenants. The Maker covenants and agrees
with the holder of this Note as hereinbelow set forth, namely:
5.1. The Maker will punctually pay or cause to be paid the
principal of and interest on this Note according to the terms hereof.
5.2. The Maker will, and will cause each Subsidiary, if any,
to
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges or
levies imposed upon it or
<PAGE> 8
8
upon its income or upon any of its property, real, personal or mixed,
or upon any part thereof, as well as all claims of any kind (including
claims for labor, materials and supplies which, if unpaid, might by law
become a lien or charge upon its property); provided, however, that
neither the Maker nor any Subsidiary shall be required to pay any such
tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Maker or such Subsidiary, as the
case may be, shall have set aside on its books reserves (segregated to
the extent required by sound accounting practice) reasonably deemed by
it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note
and as contemplated by Section 6 hereof, do or cause to be done all
things necessary or appropriate to preserve and keep in full force and
effect its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Maker or such Subsidiary; provided, however, that
nothing in this paragraph shall prevent the abandonment or termination
of the corporate existence, rights and franchises of
<PAGE> 9
9
any Subsidiary if, in the opinion of the Board of Directors of the
Maker, such abandonment or termination is in the interest of the Maker
and not disadvantageous in any material respect to the holder of this
Note.
SECTION 6. Consolidation, Merger or Disposition of Assets. The
Maker will not consolidate with, merge into, or sell or otherwise dispose of all
or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such
consolidation or merger or to which such sale or other disposition
shall have been made shall be a corporation organized under the laws of
the United States of America or any State, district or territory
thereof;
(b) such successor corporation shall expressly assume the due
and punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Maker to the same extent as if such
successor corporation had been the original maker of this Note (and
such assumption shall, upon the request of the holder of this Note, be
evidenced by the endorsing of an appropriate legend upon this Note, and
each Note executed pursuant to Section 9 hereof after such assumption
shall, unless
<PAGE> 10
10
executed in the name of such corporation, have a similar legend
endorsed thereon); and
(c) immediately after such consolidation, merger, sale or
other disposition, such successor corporation shall not be in default
in the performance of any of the covenants, agreements or conditions
contained in this Note.
SECTION 7. Registered Holders. The Maker may deem and treat
the registered holder of this Note as the absolute owner of this Note for the
purpose of receiving payment hereon or on account hereof and for all other
purposes, and the Maker shall not be affected by any notice to the contrary.
SECTION 8. Events of Default and Remedies.
8.1. The entire unpaid principal amount of this
Note, together with all accrued interest thereon, shall, at the option of the
holder hereof exercised by written notice to the Maker at its principal
executive offices, forthwith become and be due and payable if any one or more of
the following events (herein called "Events of Default") shall have occurred
(for any reason whatsoever and whether such happening shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or
<PAGE> 11
11
governmental body) and be continuing at the time of such notice, that is to say:
(a) if default shall be made in the due and punctual payment
of the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment
of any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance or observance
of any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance
of any of the other covenants, agreements or conditions of the Maker
contained in this Note, and such default shall have continued for a
period of 30 days;
(e) if the Maker or any Subsidiary shall default beyond any
period of grace provided with respect thereto in the payment of
principal of or interest on any obligation in respect of borrowed money
when due, whether by acceleration or otherwise; or if the Maker or any
Subsidiary shall default in the performance or observance of any other
agreement, term or condition contained in such obligation or in any
agreement under
<PAGE> 12
12
which any such obligation is created, if the effect of any such default
is to cause or permit the holder or holders of such obligations (or a
trustee on behalf of such holder or holders) to cause such obligation
to become due prior to the date of its stated maturity, unless such
holder or holders or trustee shall have waived such default after its
occurrence or unless such holder or holders or trustee shall have
failed to give any notice required to create a default thereunder;
(f) if the Maker or any Subsidiary shall:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to
take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or
any State, district or territory thereof;
<PAGE> 13
13
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Maker or any
Subsidiary, a receiver of the Maker or any Subsidiary or of the whole or
any substantial part of its property, or approving a petition filed
against it seeking reorganization or arrangement of the Maker or any
Subsidiary under the federal bankruptcy laws or any other applicable law
or statute of the United States of America or any State, district or
territory thereof, and such order, judgment or decree shall not be
vacated or set aside or stayed within 60 days from the date of entry
thereof;
(h) if, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall assume custody
or control of the Maker or any Subsidiary or of the whole or any
substantial part of its property and such custody or control shall not
be terminated or stayed within 60 days from the date of assumption of
such custody or control; or
(i) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Maker or any
Subsidiary and the Maker or such Subsidiary shall not discharge the same
or provide for its discharge in accordance with its terms, or shall not
procure a stay of execution thereon within 60 days
<PAGE> 14
14
from the date of entry thereof and within the period during which
execution of such judgment shall have been stayed, appeal therefrom, and
cause the execution thereof to be stayed during such appeal.
8.2. In case any one or more of the Events of Default specified
in Section 8.1 hereof shall have occurred and be continuing, the holder of this
Note may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, whether for the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted
in this Note, or the holder of this Note may proceed to enforce the payment of
all sums due upon this Note or to enforce any other legal or equitable right of
the holder of this Note.
8.3. No remedy herein conferred upon the holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
8.4. No course of dealing between the Maker and the holder
hereof or any delay on the part of the holder hereof in exercising any rights
hereunder shall operate as a waiver of any rights of any holder hereof.
<PAGE> 15
15
SECTION 9. Exchange or Replacement of Notes.
(a) The holder of any Note or Notes, at its option, may in
person or by duly authorized attorney surrender one or more thereof for
exchange, at the principal executive offices of the Maker, and at the expense of
the Maker receive in exchange therefor a new Note or Notes in the same aggregate
principal amount as the aggregate unpaid principal amount of the Note or Notes
so surrendered and bearing interest at the same annual rate as the Note or Notes
so surrendered, each such new Note to be dated as of the date to which interest
has been paid on the Note or Notes so surrendered and to be in such principal
amount and payable to such person or persons, or order, as such holder may
designate in writing; provided, however, that the Maker shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any new Note in the name other than that of the holder
of the Note or Notes surrendered in exchange therefor. Five days' prior written
notice of the holder's intention to make such exchange shall be given to the
Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Note, and (in case of
loss, theft or destruction) of indemnity reasonably satisfactory to it (it being
understood that in the case of BDC-III an unsecured written indemnification
agreement shall be satisfactory to
<PAGE> 16
16
the Maker), and upon surrender and cancellation of this Note, if mutilated, the
Maker, upon reimbursement to it of all reasonable expenses incidental thereto,
will make and deliver a new Note, of like tenor in lieu of this Note. Any Note
made and delivered in accordance with the provisions of this paragraph (b) shall
be dated as of the date to which interest has been paid on this Note.
SECTION 10. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor or successor corporation, either
directly or through the Maker or otherwise, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof and as
part of the consideration for the issue hereof expressly waived and released;
provided, however, that nothing herein contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock upon or in respect of shares of capital stock not
fully paid.
SECTION 11. Section Headings. The Section headings contained
herein are for the purpose of convenience
<PAGE> 17
17
of reference only and are not intended to define or limit the contents of any
such Section.
SECTION 12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth, except to the extent of the mandatory rules of the State of
Delaware with respect to the formal requisites for authorization of a security
and rights and duties with respect to register of transfer.
VALLEY FORGE DENTAL ASSOCIATES, INC.,
a Delaware corporation
By /s/ Joseph J. Frank
--------------------------------------
Joseph J. Frank
President
RIVERHEARST, INC.,
a Delaware corporation
By /s/ Robert A. Ouimette
---------------------------------------
Robert A. Ouimette
President
<PAGE> 18
SCHEDULE OF LOANS AND PAYMENTS
Name of
Amount Amount of Unpaid Person
of Principal Principal Making
Date Loan Paid Balance Notation
- ---- ---- ---- ------- --------
<PAGE> 1
EXHIBIT 10(q)
VALLEY FORGE DENTAL ASSOCIATES, INC.
c/o Foster Management Company
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
September 19, 1995
Robert K. Mehlman, D.D.S.
8171 Madrillon Ct.
Vienna, Virginia 22182
Dear Bob:
The undersigned, Valley Forge Dental Associates, Inc., a
Delaware corporation (the "Company"), and you (the "Purchaser"), hereby agree as
follows:
1. Authorization and Sale of the Shares. The Company has
authorized the issuance to the Purchaser of and proposes to sell to the
Purchaser pursuant hereto an aggregate of 50,000 shares (collectively the
"Shares" and individually a "Share") of its common stock, $.01 par value (the
"Common Stock"), at a price of $.10 per Share.
2. Purchase of the Shares by the Purchaser. Subject to the
terms and conditions hereof, the Purchaser hereby agrees to purchase the Shares
from the Company in reliance upon its representations and warranties herein
contained, and the Company hereby agrees to sell the Shares to the Purchaser in
reliance upon his representations and warranties herein contained, at an
aggregate purchase price (the "Purchase Price") of $5,000, in cash.
3. Representations, Warranties, and Agreements of the Company.
The Company represents and warrants to, and agrees with, the Purchaser as
follows:
(a) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware.
<PAGE> 2
2
(b) The Company has duly authorized the execution and delivery
of this Agreement and the issuance and delivery of the Shares and this Agreement
constitutes a valid and legally binding agreement of the Company enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, or other laws affecting generally the enforceability of
creditors' rights and by limitations on the availability of equitable remedies.
The Shares, when issued and delivered in accordance with this Agreement, shall
have been duly issued and shall be validly outstanding, fully paid and
nonassessable shares of the Common Stock.
(c) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated herein shall violate any
provision of the Certificate of Incorporation or By-laws of the Company or any
statute, ordinance, regulation, order, judgment or decree of any court or
governmental agency, or conflict with or result in any breach of any of the
terms of, constitute a default under, or result in the termination of or the
creation of any lien pursuant to the terms of, any contract or agreement to
which the Company is a party or by which the Company or any of its assets is
bound.
4. Representations, Warranties, and Agreements of the
Purchaser. The Purchaser hereby represents and warrants to, and agrees with, the
Company as follows:
(a) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated herein shall conflict with or
result in any breach of any of the terms of, constitute a default under, or
result in the termination of or the creation of any lien pursuant to the terms
of, any contract or agreement to which the Purchaser is a party or by which he
or any of his assets is bound.
(b) (i) The Purchaser understands that by the terms of this
Agreement he is purchasing shares of Common Stock issued and delivered by the
Company without compliance with the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the registration requirements of
the Securities Act and such laws, and without the approval, disapproval, or
passing on the merits by any regulatory authority; that for purposes of such
exemptions, the Company will rely upon the representations, warranties and
agreements of the Purchaser contained herein; and that such non-compliance with
registration requirements is not permissible unless such
<PAGE> 3
3
representations and warranties are correct and such agreements performed.
(ii) The Purchaser understands that the Company is under no
obligation to effect a registration under the Securities Act of the Shares to be
purchased by him hereunder. The Purchaser understands that, under existing rules
of the Securities and Exchange Commission (the "Commission"), he may be unable
to sell any of the Shares except to the extent that the Shares may be sold (A)
in a bona fide private placement to a purchaser who shall be subject to the same
restrictions on sale or (B) subject to the restrictions contained in Rule 144
under the Securities Act.
(iii) As a Vice President of the Company, the Purchaser is
fully familiar with the business, properties and financial condition of the
Company, and acknowledges that he has been afforded access to such additional
information concerning the Company as he considers necessary or appropriate to
make an informed investment decision. The Purchaser is an "accredited investor"
as such term is defined in Rule 501 under the Securities Act.
(iv) The Purchaser is a sophisticated investor familiar with
the type of risks inherent in the acquisition of securities such as the Common
Stock, and his financial position is such that he can afford to retain the
Shares for an indefinite period of time without realizing any direct or indirect
cash return on his investment.
(v) The Purchaser is acquiring the Shares pursuant to this
Agreement for his own account and not with a view to or for sale in connection
with the distribution thereof within the meaning of the Securities Act. The
Purchaser shall not effect a distribution of any Shares until either (A) he has
received the opinion of counsel for the Company that registration under the
Securities Act is not required or (B) a registration statement under the
Securities Act covering such Shares and the disposition thereof has become
effective under the Securities Act, and the Purchaser agrees that the
certificates evidencing the Shares may bear a restrictive legend to the
foregoing effect.
5. Restrictions on Transferability of the Shares. The
Purchaser hereby agrees that the Purchaser shall not sell, assign, transfer,
gift, devise, bequeath, deliver, pledge, hypothecate or otherwise dispose of any
of the Shares, except as provided for in this Agreement. Any disposition or
purported disposition of Shares in violation
<PAGE> 4
4
of this Agreement shall be null and void and shall not be recorded on the books
of the Company. Notwithstanding the foregoing:
(a) Disposition of Vested Shares and Shares which are not
Vested Shares. Shares which are "vested" in accordance with the following
schedule (the "Vested Shares") may be disposed of in the manner set forth in
Subsection (b) or (d) of this Section 5.
<TABLE>
<CAPTION>
Cumulative percentage
of Shares which are
Vested Shares
<S> <C>
On or before September 18, 1996....... 0%
September 19, 1996 to
September 18, 1997.................... 20
September 19, 1997 to
September 18, 1998.................... 40
September 19, 1998 to
September 18, 1999.................... 60
September 19, 1999 to
September 18, 2000.................... 80
On or after September 19, 2000......... 100
</TABLE>
Shares which are not Vested Shares (the "Unvested Shares") may
be disposed of only in the manner set forth in Subsection (c) or (d) of this
Section 5.
(b) Vested Shares.
(i) Vested Shares held by the Purchaser may be transferred by
the Purchaser provided that the Purchaser first complies with the right to
purchase set forth in this Subsection (b). The Company shall have a right to
purchase any Vested Shares proposed to be sold by the Purchaser on the terms set
forth in this Subsection (b).
(ii) If the Purchaser wishes to dispose of Vested Shares, the
Purchaser shall first obtain a bona fide written offer (the "Offer") for the
purchase of the Vested Shares which he wishes to dispose of. Such Offer shall be
for cash or promissory notes only. Promptly upon receipt of the Offer, the
Purchaser shall give notice to the Company (the "Offer Notice") of his intent to
dispose of Vested Shares, which Offer Notice shall specify the name of the
<PAGE> 5
5
proposed purchaser, the number of Vested Shares (the "Offered Securities") the
Purchaser desires to dispose of and the price and terms of payment of such
proposed disposition. Upon receipt of the Offer Notice, the Company shall have
the right to purchase all (but not less than all) of the Offered Securities at
the price and on the terms of the Offer. Such right must be exercised by the
Company by giving notice to that effect to the Purchaser within a period of 20
days after the date of receipt of the Offer Notice (any such notice of the
exercise of such right being herein referred to as an "Acceptance Notice").
(iii) In the event of the exercise by the Company of its right
to purchase pursuant to this Subsection (b), the Acceptance Notice shall specify
the time and date for purchase of the Offered Securities (the "Share Closing")
which shall be not more than 30 days after the expiration of the 20-day period
set forth in clause (b)(ii). The Purchaser shall deliver to the Company at the
Share Closing, which shall be held at the business headquarters of the Company,
the Offered Securities in due and proper form for transfer, against payment of
the purchase price by the Company.
(iv) If the Company shall fail or decline to agree to purchase
the Offered Securities within the 20-day period provided for in clause (b)(ii),
then the Purchaser shall have the right and privilege to sell all (but not less
than all) the Offered Securities, within 60 days after the expiration of such
20-day period, to the bona fide purchaser named in the Offer Notice, at the
price and on terms of payment specified in the Offer. If, for any reason, the
Offered Securities are not sold within such 60-day period, the Offered
Securities shall again become subject to the terms and conditions of this
Agreement.
(v) If, as of the Share Closing, any amount of principal of
and interest on any indebtedness of the Purchaser to the Company shall then be
outstanding, payment of the purchase price for the Offered Securities at the
Closing shall be made, at the Company's option, by a credit against such
indebtedness to the extent of the principal thereof and interest thereon then
outstanding (whether or not such principal and interest is then due and
payable).
(vi) The Company's right to purchase set forth in this
Subsection (b) shall terminate upon the occurrence of the closing of the initial
sale by the Company to the public of shares of the Common Stock pursuant to a
registration statement filed under the Securities Act (other
<PAGE> 6
6
than a registration statement covering securities of the Company to be issued
pursuant to an employee benefit plan).
(c) Termination of the Purchaser's Employment. (i) If the
Purchaser shall cease to be employed by the Company, for any reason whatsoever,
the Company shall have the right (but not the obligation) to purchase from the
Purchaser all or any portion of the Unvested Shares owned by the Purchaser at
the time the Purchaser ceases to be employed by the Company. Such right to
purchase shall be exercisable by written notice to that effect given by the
Company to the Purchaser within 60 days after the Purchaser has ceased to be
employed by the Company, as aforesaid. Upon the giving of such written notice,
the Purchaser shall for all purposes cease to be a stockholder of the Company as
to the Unvested Shares covered by such notice and shall have no rights against
the Company or any other person in respect of such Unvested Shares except the
right to receive payment for such Unvested Shares in accordance herewith.
Notwithstanding the provisions of Subsection (a) of this Section 5, Unvested
Shares not so purchased by the Company shall upon the expiration of such 60-day
period become Vested Shares.
(ii) At the time and date specified in the notice given by the
Company referred to in clause (c)(i), which date shall in no event be more than
15 days after the expiration of the 60-day period for the exercise of the right
to purchase set forth therein, the Purchaser shall deliver to the Company, at
the business headquarters of the Company, the Unvested Shares to be sold by the
Purchaser in due and proper form for transfer, against payment by the Company of
the purchase price therefor, as determined in accordance with clause (c)(iv).
(iii) If at the time of payment of the purchase price referred
to in clause (c)(ii), any amount of principal of or interest on any indebtedness
of the Purchaser to the Company shall be outstanding, payment of the purchase
price for the Unvested Shares shall be made, at the Company's option, as a
credit against such indebtedness to the extent of the principal thereof and
interest thereon then outstanding (whether or not such principal and interest is
then due and payable).
(iv) The per Share purchase price for the Unvested Shares
payable by the Company pursuant to clause (c)(ii) shall be $0.10. The number of
Unvested Shares to be purchased and the per Share purchase price pursuant to
this clause (c)(iv) shall be appropriately adjusted by the Board of Directors of
the Company to reflect any subdivision or
<PAGE> 7
7
combination of the Common Stock of the Company or any stock dividend or like
event.
(d) Disposition to Family Members. Shares held by the
Purchaser may be transferred by the Purchaser to or for the benefit of the
Purchaser or a member of his immediate family. For the purpose of this
Agreement, the term "immediate family" of the Purchaser shall mean his spouse
and children (and the direct lineal descendants of his children). It shall be a
condition to the validity of any transfer of Shares permitted by the provisions
of this Subsection (d) that the transferee shall execute a copy of this
Agreement, shall hold such Shares subject to the provisions of this Agreement,
and shall make no further transfer of such Shares, except in compliance with the
terms and conditions of this Agreement.
6. Voting Agreement. (a) Except as hereinafter set forth, the
Purchaser agrees that, subject to the laws of the State of Delaware and the
terms of this Agreement, from the date of this Agreement until October 1, 2000
the Purchaser will vote all shares of Common Stock owned by the Purchaser in
favor of a Board of Directors which shall include John H. Foster and such other
persons designated by John H. Foster as shall together with John H. Foster
constitute a majority of such members.
(b) Notwithstanding any of the other terms or conditions set
forth in this Agreement, the parties hereto agree that in the event that the
Company or any stockholder of the Company shall sell any securities of the
Company to the public in a registered public offering (other than pursuant to a
registration statement on Form S-8) or pursuant to the exemption from
registration contained in Regulation A under the Securities Act, the voting
agreement set forth in this Section 6 shall terminate.
7. Come Along/Take Along.
(a) (i) In the event that Business Development Capital Limited
Partnership-III, a Massachusetts limited partnership ("BDC-III"), Abbingdon
Venture Partners Limited Partnership, a Connecticut limited partnership
("Abbingdon-I"), Abbingdon Venture Partners Limited Partnership-II, a Delaware
limited partnership ("Abbingdon-II") and Abbingdon Venture Partners Limited
Partnership-III, a Delaware limited partnership ( "Abbingdon-III" and together
with BDC-III, Abbingdon-I and Abbingdon-II, the "Partnerships"), propose to
transfer substantially all of the shares of the Common Stock held by them (a
"Sale of Securities") other than to the public for
<PAGE> 8
8
cash pursuant to a registration statement filed under the Securities Act, then
the following provisions of this Section 7 shall apply.
(ii) The Partnerships shall permit the Purchaser, or cause the
Purchaser to be permitted, to sell the same proportionate number of shares of
the Common Stock held by the Purchaser as the Partnerships shall sell of the
shares of the Common Stock held by the Partnerships, for the same consideration
and otherwise on the same terms and conditions to be received by the
Partnerships in the Sale of Securities.
(iii) The Partnerships shall have the right to request the
Purchaser to sell or cause to be sold the number of shares of the Common Stock
held by the Purchaser which bears the same proportion to the number of shares of
the Common Stock then held by the Purchaser as the number of shares of the
Common Stock being sold by the Partnerships bears to the total number of shares
of the Common Stock owned by the Partnerships (a "Purchaser Request").
(iv) Upon receipt by the Purchaser of a Purchaser Request, the
Purchaser will sell or will cause to be sold the appropriate number of shares of
the Common Stock held by the Purchaser for the consideration and otherwise on
the same terms and conditions received by the Partnerships.
(b) The obligations of the Partnerships under Section 7(a)
hereof to afford the Purchaser, or cause the Purchaser to be afforded, the
rights referred to therein will be discharged if the Purchaser is given written
notice which allows the Purchaser ten business days to exercise such rights (by
written reply addressed to such person as may be designated in the notice, and
if requested in such notice, sent by registered mail, return receipt requested),
and within such ten business day period the Purchaser has not given notice of
exercise of such rights.
(c) All rights and obligations created by this Section 7 shall
terminate upon the earlier to occur of (i) the written agreement of the parties
hereto, or (ii) the date on which a registration statement (other than on Form
S-8 or the successor to such Form) covering an underwritten public offering of
the Company's Common Stock for cash is declared effective by the Commission,
provided that this Agreement shall be reinstated if such public offering is not
consummated within 20 days after such effective date.
8. The Closing. As soon as practicable after the execution and
delivery of this Agreement, the Purchaser
<PAGE> 9
9
shall cause to be delivered to the Company a check or checks payable to the
order of the Company in the amount of $5,000, in payment of the Purchase Price.
Promptly upon receipt of such check or checks, the Company shall deliver to the
Purchaser a stock certificate registered in the name of the Purchaser and
representing the Shares.
9. Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to purchase the Shares pursuant hereto are subject,
at his option, to the accuracy of the representations and warranties of the
Company contained in Section 3.
10. Conditions to the Obligations of the Company. The
obligations of the Company to sell the Shares pursuant hereto are subject, at
its option, to the accuracy of the representations and warranties of the
Purchaser contained in Section 4.
11. Expenses. Each of the parties hereto shall pay its own
expenses in connection with the preparation, execution and delivery of this
Agreement.
12. Notice. Any notice under this Agreement shall be in
writing and delivered personally or sent by certified mail, return receipt
requested, addressed, as the case may be, (i) to the Company at its address set
forth at the head of this Agreement or such other address as may hereafter be
designated by the Company by notice to the Purchaser in the manner provided
herein; and (ii) to the Purchaser at his address set forth at the head of this
Agreement or such other address as may hereafter be designated by the Purchaser
by notice to the Company in the manner provided herein. All notices personally
delivered shall be deemed to have been given when delivered and all notices sent
by mail shall be deemed to have been given three business days after mailing.
13. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no
<PAGE> 10
10
modifications of or amendments to this Agreement shall be binding on the parties
hereto unless in writing and signed by them.
16. Integration. This Agreement supersedes all prior
understandings, negotiations, and agreements relating to the subject matter
hereof.
17. Severability. If any provision herein contained shall be
held to be illegal or unenforceable, such holding shall not affect the validity
or enforceability of the other provisions of this Agreement.
18. Reorganization, Etc. The provisions of this Agreement
shall apply mutatis mutandis to any shares or other securities resulting from
any stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities resulting from any recapitalization,
consolidation, merger or reorganization of the Company and to any shares or
other securities of the Company or any successor company or of any parent of
such successor company which may be received by the Purchaser by virtue of his
ownership of any shares of Common Stock of the Company.
19. Captions. The captions appearing herein are for the
convenience of the parties only and shall not be construed to affect the meaning
of the provisions of this Agreement.
* * *
<PAGE> 11
11
If you are in agreement with the foregoing, please execute and
deliver to the undersigned the enclosed counterpart of this Agreement, whereupon
this Agreement shall become a binding agreement between us.
Very truly yours,
VALLEY FORGE DENTAL ASSOCIATES, INC.
By /s/ Douglas P. Gill
------------------------------------
Accepted and agreed to as
aforesaid:
/s/ Robert K. Mehlman, D.D.S.
- ------------------------------
Robert K. Mehlman, D.D.S.
The undersigned are executing
this Agreement to indicate
their agreement to Section 7
hereof:
BUSINESS DEVELOPMENT CAPITAL
LIMITED PARTNERSHIP-III
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
-------------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
-------------------------
<PAGE> 12
12
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
----------------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
----------------------------
<PAGE> 1
EXHIBIT 10(r)
VALLEY FORGE DENTAL ASSOCIATES, INC.
c/o Foster Management Company
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
September 19, 1995
Bruce L. Talus, D.M.D.
709 Meadowcreek Circle
Lower Gwynedd, Pennsylvania 19002
Dear Bruce:
The undersigned, Valley Forge Dental Associates, Inc., a
Delaware corporation (the "Company"), and you (the "Purchaser"), hereby agree as
follows:
1. Authorization and Sale of the Shares. The Company has
authorized the issuance to the Purchaser of and proposes to sell to the
Purchaser pursuant hereto an aggregate of 50,000 shares (collectively the
"Shares" and individually a "Share") of its common stock, $.01 par value (the
"Common Stock"), at a price of $.10 per Share.
2. Purchase of the Shares by the Purchaser. Subject to the
terms and conditions hereof, the Purchaser hereby agrees to purchase the Shares
from the Company in reliance upon its representations and warranties herein
contained, and the Company hereby agrees to sell the Shares to the Purchaser in
reliance upon his representations and warranties herein contained, at an
aggregate purchase price (the "Purchase Price") of $5,000, in cash.
3. Representations, Warranties, and Agreements of the Company.
The Company represents and warrants to, and agrees with, the Purchaser as
follows:
(a) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware.
<PAGE> 2
2
(b) The Company has duly authorized the execution and delivery
of this Agreement and the issuance and delivery of the Shares and this Agreement
constitutes a valid and legally binding agreement of the Company enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, or other laws affecting generally the enforceability of
creditors' rights and by limitations on the availability of equitable remedies.
The Shares, when issued and delivered in accordance with this Agreement, shall
have been duly issued and shall be validly outstanding, fully paid and
nonassessable shares of the Common Stock.
(c) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated herein shall violate any
provision of the Certificate of Incorporation or By-laws of the Company or any
statute, ordinance, regulation, order, judgment or decree of any court or
governmental agency, or conflict with or result in any breach of any of the
terms of, constitute a default under, or result in the termination of or the
creation of any lien pursuant to the terms of, any contract or agreement to
which the Company is a party or by which the Company or any of its assets is
bound.
4. Representations, Warranties, and Agreements of the
Purchaser. The Purchaser hereby represents and warrants to, and agrees with, the
Company as follows:
(a) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated herein shall conflict with or
result in any breach of any of the terms of, constitute a default under, or
result in the termination of or the creation of any lien pursuant to the terms
of, any contract or agreement to which the Purchaser is a party or by which he
or any of his assets is bound.
(b) (i) The Purchaser understands that by the terms of this
Agreement he is purchasing shares of Common Stock issued and delivered by the
Company without compliance with the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the registration requirements of
the Securities Act and such laws, and without the approval, disapproval, or
passing on the merits by any regulatory authority; that for purposes of such
exemptions, the Company will rely upon the representations, warranties and
agreements of the Purchaser contained herein; and that such non-compliance with
registration requirements is not permissible unless such
<PAGE> 3
3
representations and warranties are correct and such agreements performed.
(ii) The Purchaser understands that the Company is under no
obligation to effect a registration under the Securities Act of the Shares to be
purchased by him hereunder. The Purchaser understands that, under existing rules
of the Securities and Exchange Commission (the "Commission"), he may be unable
to sell any of the Shares except to the extent that the Shares may be sold (A)
in a bona fide private placement to a purchaser who shall be subject to the same
restrictions on sale or (B) subject to the restrictions contained in Rule 144
under the Securities Act.
(iii) As a Vice President of the Company, the Purchaser is
fully familiar with the business, properties and financial condition of the
Company, and acknowledges that he has been afforded access to such additional
information concerning the Company as he considers necessary or appropriate to
make an informed investment decision. The Purchaser is an "accredited investor"
as such term is defined in Rule 501 under the Securities Act.
(iv) The Purchaser is a sophisticated investor familiar with
the type of risks inherent in the acquisition of securities such as the Common
Stock, and his financial position is such that he can afford to retain the
Shares for an indefinite period of time without realizing any direct or indirect
cash return on his investment.
(v) The Purchaser is acquiring the Shares pursuant to this
Agreement for his own account and not with a view to or for sale in connection
with the distribution thereof within the meaning of the Securities Act. The
Purchaser shall not effect a distribution of any Shares until either (A) he has
received the opinion of counsel for the Company that registration under the
Securities Act is not required or (B) a registration statement under the
Securities Act covering such Shares and the disposition thereof has become
effective under the Securities Act, and the Purchaser agrees that the
certificates evidencing the Shares may bear a restrictive legend to the
foregoing effect.
5. Restrictions on Transferability of the Shares. The
Purchaser hereby agrees that the Purchaser shall not sell, assign, transfer,
gift, devise, bequeath, deliver, pledge, hypothecate or otherwise dispose of any
of the Shares, except as provided for in this Agreement. Any disposition or
purported disposition of Shares in violation
<PAGE> 4
4
of this Agreement shall be null and void and shall not be recorded on the books
of the Company. Notwithstanding the foregoing:
(a) Disposition of Vested Shares and Shares which are not
Vested Shares. Shares which are "vested" in accordance with the following
schedule (the "Vested Shares") may be disposed of in the manner set forth in
Subsection (b) or (d) of this Section 5.
<TABLE>
<CAPTION>
Cumulative percentage
of Shares which are
Vested Shares
<S> <C>
On or before September 18, 1996....... 0%
September 19, 1996 to
September 18, 1997.................... 20
September 19, 1997 to
September 18, 1998.................... 40
September 19, 1998 to
September 18, 1999.................... 60
September 19, 1999 to
September 18, 2000.................... 80
On or after September 19, 2000......... 100
</TABLE>
Shares which are not Vested Shares (the "Unvested Shares") may
be disposed of only in the manner set forth in Subsection (c) or (d) of this
Section 5.
(b) Vested Shares.
(i) Vested Shares held by the Purchaser may be transferred by
the Purchaser provided that the Purchaser first complies with the right to
purchase set forth in this Subsection (b). The Company shall have a right to
purchase any Vested Shares proposed to be sold by the Purchaser on the terms set
forth in this Subsection (b).
(ii) If the Purchaser wishes to dispose of Vested Shares, the
Purchaser shall first obtain a bona fide written offer (the "Offer") for the
purchase of the Vested Shares which he wishes to dispose of. Such Offer shall be
for cash or promissory notes only. Promptly upon receipt of the Offer, the
Purchaser shall give notice to the Company (the "Offer Notice") of his intent to
dispose of Vested Shares, which Offer Notice shall specify the name of the
<PAGE> 5
5
proposed purchaser, the number of Vested Shares (the "Offered Securities") the
Purchaser desires to dispose of and the price and terms of payment of such
proposed disposition. Upon receipt of the Offer Notice, the Company shall have
the right to purchase all (but not less than all) of the Offered Securities at
the price and on the terms of the Offer. Such right must be exercised by the
Company by giving notice to that effect to the Purchaser within a period of 20
days after the date of receipt of the Offer Notice (any such notice of the
exercise of such right being herein referred to as an "Acceptance Notice").
(iii) In the event of the exercise by the Company of its right
to purchase pursuant to this Subsection (b), the Acceptance Notice shall specify
the time and date for purchase of the Offered Securities (the "Share Closing")
which shall be not more than 30 days after the expiration of the 20-day period
set forth in clause (b)(ii). The Purchaser shall deliver to the Company at the
Share Closing, which shall be held at the business headquarters of the Company,
the Offered Securities in due and proper form for transfer, against payment of
the purchase price by the Company.
(iv) If the Company shall fail or decline to agree to purchase
the Offered Securities within the 20-day period provided for in clause (b)(ii),
then the Purchaser shall have the right and privilege to sell all (but not less
than all) the Offered Securities, within 60 days after the expiration of such
20-day period, to the bona fide purchaser named in the Offer Notice, at the
price and on terms of payment specified in the Offer. If, for any reason, the
Offered Securities are not sold within such 60-day period, the Offered
Securities shall again become subject to the terms and conditions of this
Agreement.
(v) If, as of the Share Closing, any amount of principal of
and interest on any indebtedness of the Purchaser to the Company shall then be
outstanding, payment of the purchase price for the Offered Securities at the
Closing shall be made, at the Company's option, by a credit against such
indebtedness to the extent of the principal thereof and interest thereon then
outstanding (whether or not such principal and interest is then due and
payable).
(vi) The Company's right to purchase set forth in this
Subsection (b) shall terminate upon the occurrence of the closing of the initial
sale by the Company to the public of shares of the Common Stock pursuant to a
registration statement filed under the Securities Act (other
<PAGE> 6
6
than a registration statement covering securities of the Company to be issued
pursuant to an employee benefit plan).
(c) Termination of the Employment of the Purchaser (i) If the
Purchaser shall cease to be employed by the Company, for any reason whatsoever,
the Company shall have the right (but not the obligation) to purchase the
Purchaser all or any portion of the Unvested Shares owned by the Purchaser at
the time the Purchaser ceases to be employed by the Company. Such right to
purchase shall be exercisable by written notice to that effect given by the
Company to the Purchaser within 60 days after the Purchaser has ceased to be
employed by the Company, as aforesaid. Upon the giving of such written notice,
the Purchaser shall for all purposes cease to be a stockholder of the Company as
to the Unvested Shares covered by such notice and shall have no rights against
the Company or any other person in respect of such Unvested Shares except the
right to receive payment for such Unvested Shares in accordance herewith.
Notwithstanding the provisions of Subsection (a) of this Section 5, Unvested
Shares not so purchased by the Company shall upon the expiration of such 60-day
period become Vested Shares.
(ii) At the time and date specified in the notice given by the
Company referred to in clause (c)(i), which date shall in no event be more than
15 days after the expiration of the 60-day period for the exercise of the right
to purchase set forth therein, the Purchaser shall deliver to the Company, at
the business headquarters of the Company, the Unvested Shares to be sold by the
Purchaser in due and proper form for transfer, against payment by the Company of
the purchase price therefor, as determined in accordance with clause (c)(iv).
(iii) If at the time of payment of the purchase price referred
to in clause (c)(ii), any amount of principal of or interest on any indebtedness
of the Purchaser to the Company shall be outstanding, payment of the purchase
price for the Unvested Shares shall be made, at the Company's option, as a
credit against such indebtedness to the extent of the principal thereof and
interest thereon then outstanding (whether or not such principal and interest is
then due and payable).
(iv) The per Share purchase price for the Unvested Shares
payable by the Company pursuant to clause (c)(ii) shall be $0.10. The number of
Unvested Shares to be purchased and the per Share purchase price pursuant to
this clause (c)(iv) shall be appropriately adjusted by the Board of Directors of
the Company to reflect any subdivision or
<PAGE> 7
7
combination of the Common Stock of the Company or any stock dividend or like
event.
(d) Disposition to Family Members. Shares held by the
Purchaser may be transferred by the Purchaser to or for the benefit of the
Purchaser or a member of his immediate family. For the purpose of this
Agreement, the term "immediate family" of the Purchaser shall mean his spouse
and children (and the direct lineal descendants of his children). It shall be a
condition to the validity of any transfer of Shares permitted by the provisions
of this Subsection (d) that the transferee shall execute a copy of this
Agreement, shall hold such Shares subject to the provisions of this Agreement,
and shall make no further transfer of such Shares, except in compliance with the
terms and conditions of this Agreement.
6. Voting Agreement. (a) Except as hereinafter set forth, the
Purchaser agrees that, subject to the laws of the State of Delaware and the
terms of this Agreement, from the date of this Agreement until October 1, 2000
the Purchaser will vote all shares of Common Stock owned by the Purchaser in
favor of a Board of Directors which shall include John H. Foster and such other
persons designated by John H. Foster as shall together with John H. Foster
constitute a majority of such members.
(b) Notwithstanding any of the other terms or conditions set
forth in this Agreement, the parties hereto agree that in the event that the
Company or any stockholder of the Company shall sell any securities of the
Company to the public in a registered public offering (other than pursuant to a
registration statement on Form S-8) or pursuant to the exemption from
registration contained in Regulation A under the Securities Act, the voting
agreement set forth in this Section 6 shall terminate.
7. Come Along/Take Along.
(a) (i) In the event that Business Development Capital Limited
Partnership-III, a Massachusetts limited partnership ("BDC-III"), Abbingdon
Venture Partners Limited Partnership, a Connecticut limited partnership
("Abbingdon-I"), Abbingdon Venture Partners Limited Partnership-II, a Delaware
limited partnership ("Abbingdon-II") and Abbingdon Venture Partners Limited
Partnership-III, a Delaware limited partnership ("Abbingdon-III, and together
with BDC-III, Abbingdon-I and Abbingdon-II, the "Partnerships"), propose to
transfer substantially all of the shares of the Common Stock held by them (a
"Sale of Securities") other than to the public for
<PAGE> 8
8
cash pursuant to a registration statement filed under the Securities Act, then
the following provisions of this Section 7 shall apply.
(ii) The Partnerships shall permit the Purchaser, or cause the
Purchaser to be permitted, to sell the same proportionate number of shares of
the Common Stock held by the Purchaser as the Partnerships shall sell of the
shares of the Common Stock held by the Partnerships, for the same consideration
and otherwise on the same terms and conditions to be received by the
Partnerships in the Sale of Securities.
(iii) The Partnerships shall have the right to request the
Purchaser to sell or cause to be sold the number of shares of the Common Stock
held by the Purchaser which bears the same proportion to the number of shares of
the Common Stock then held by the Purchaser as the number of shares of the
Common Stock being sold by the Partnerships bears to the total number of shares
of the Common Stock owned by the Partnerships (a "Purchaser Request").
(iv) Upon receipt by the Purchaser of a Purchaser Request, the
Purchaser will sell or will cause to be sold the appropriate number of shares of
the Common Stock held by the Purchaser for the consideration and otherwise on
the same terms and conditions received by the Partnerships.
(b) The obligations of the Partnerships under Section 7(a)
hereof to afford the Purchaser, or cause the Purchaser to be afforded, the
rights referred to therein will be discharged if the Purchaser is given written
notice which allows the Purchaser ten business days to exercise such rights (by
written reply addressed to such person as may be designated in the notice, and
if requested in such notice, sent by registered mail, return receipt requested),
and within such ten business day period the Purchaser has not given notice of
exercise of such rights.
(c) All rights and obligations created by this Section 7 shall
terminate upon the earlier to occur of (i) the written agreement of the parties
hereto, or (ii) the date on which a registration statement (other than on Form
S-8 or the successor to such Form) covering an underwritten public offering of
the Company's Common Stock for cash is declared effective by the Commission,
provided that this Agreement shall be reinstated if such public offering is not
consummated within 20 days after such effective date.
8. The Closing. As soon as practicable after the execution and
delivery of this Agreement, the Purchaser
<PAGE> 9
9
shall cause to be delivered to the Company a check or checks payable to the
order of the Company in the amount of $5,000, in payment of the Purchase Price.
Promptly upon receipt of such check or checks, the Company shall deliver to the
Purchaser a stock certificate registered in the name of the Purchaser and
representing the Shares.
9. Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to purchase the Shares pursuant hereto are subject,
at his option, to the accuracy of the representations and warranties of the
Company contained in Section 3.
10. Conditions to the Obligations of the Company. The
obligations of the Company to sell the Shares pursuant hereto are subject, at
its option, to the accuracy of the representations and warranties of the
Purchaser contained in Section 4.
11. Expenses. Each of the parties hereto shall pay its own
expenses in connection with the preparation, execution and delivery of this
Agreement.
12. Notice. Any notice under this Agreement shall be in
writing and delivered personally or sent by certified mail, return receipt
requested, addressed, as the case may be, (i) to the Company at its address set
forth at the head of this Agreement or such other address as may hereafter be
designated by the Company by notice to the Purchaser in the manner provided
herein; and (ii) to the Purchaser at his address set forth at the head of this
Agreement or such other address as may hereafter be designated by the Purchaser
by notice to the Company in the manner provided herein. All notices personally
delivered shall be deemed to have been given when delivered and all notices sent
by mail shall be deemed to have been given three business days after mailing.
13. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no
<PAGE> 10
10
modifications of or amendments to this Agreement shall be binding on the parties
hereto unless in writing and signed by them.
16. Integration. This Agreement supersedes all prior
understandings, negotiations, and agreements relating to the subject matter
hereof.
17. Severability. If any provision herein contained shall be
held to be illegal or unenforceable, such holding shall not affect the validity
or enforceability of the other provisions of this Agreement.
18. Reorganization, Etc. The provisions of this Agreement
shall apply mutatis mutandis to any shares or other securities resulting from
any stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities resulting from any recapitalization,
consolidation, merger or reorganization of the Company and to any shares or
other securities of the Company or any successor company or of any parent of
such successor company which may be received by the Purchaser by virtue of his
ownership of any shares of Common Stock of the Company.
19. Captions. The captions appearing herein are for the
convenience of the parties only and shall not be construed to affect the meaning
of the provisions of this Agreement.
* * *
<PAGE> 11
11
If you are in agreement with the foregoing, please execute and
deliver to the undersigned the enclosed counterpart of this Agreement, whereupon
this Agreement shall become a binding agreement between us.
Very truly yours,
VALLEY FORGE DENTAL ASSOCIATES, INC.
By /s/ Douglas P. Gill
------------------------------------
Accepted and agreed to as
aforesaid:
/s/ Bruce L. Talus, D.M.D.
- -----------------------------------
Bruce L. Talus, D.M.D.
The undersigned are executing
this Agreement to indicate
their agreement to Section 7
hereof:
BUSINESS DEVELOPMENT CAPITAL
LIMITED PARTNERSHIP-III
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
----------------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
----------------------------
<PAGE> 12
12
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
-----------------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
-----------------------------
<PAGE> 1
EXHIBIT 10(s)
VALLEY FORGE DENTAL ASSOCIATES, INC.
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
December 31, 1995
Mr. W. Gary Liddick
Vice President of Finance
Valley Forge Dental Associates, Inc.
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Dear Gary:
The undersigned, Valley Forge Dental Associates, Inc., a Delaware
corporation (the "Company"), and you (the "Purchaser"), hereby agree as follows:
1. Authorization and Sale of the Shares. The Company has
authorized the issuance to the Purchaser of and proposes to sell to the
Purchaser pursuant hereto an aggregate of 2,500 shares (collectively the
"Shares" and individually a "Share") of its common stock, $.01 par value (the
"Common Stock"), at a price of $.10 per Share.
2. Purchase of the Shares by the Purchaser. Subject to the terms
and conditions hereof, the Purchaser hereby agrees to purchase the Shares from
the Company in reliance upon its representations and warranties herein
contained, and the Company hereby agrees to sell the Shares to the Purchaser in
reliance upon his representations and warranties herein contained, at an
aggregate purchase price (the "Purchase Price") of $250, in cash.
3. Representations, Warranties, and Agreements of the Company.
The Company represents and warrants to, and agrees with, the Purchaser as
follows:
(a) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
<PAGE> 2
2
(b) The Company has duly authorized the execution and delivery of
this Agreement and the issuance and delivery of the Shares and this Agreement
constitutes a valid and legally binding agreement of the Company enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, or other laws affecting generally the enforceability of
creditors' rights and by limitations on the availability of equitable remedies.
The Shares, when issued and delivered in accordance with this Agreement, shall
have been duly issued and shall be validly outstanding, fully paid and
nonassessable shares of the Common Stock.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall violate any provision
of the Certificate of Incorporation or By-laws of the Company or any statute,
ordinance, regulation, order, judgment or decree of any court or governmental
agency, or conflict with or result in any breach of any of the terms of,
constitute a default under, or result in the termination of or the creation of
any lien pursuant to the terms of, any contract or agreement to which the
Company is a party or by which the Company or any of its assets is bound.
4. Representations, Warranties, and Agreements of the Purchaser.
The Purchaser hereby represents and warrants to, and agrees with, the Company as
follows:
(a) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall conflict with or
result in any breach of any of the terms of, constitute a default under, or
result in the termination of or the creation of any lien pursuant to the terms
of, any contract or agreement to which the Purchaser is a party or by which he
or any of his assets is bound.
(b) (i) The Purchaser understands that by the terms of this
Agreement he is purchasing shares of Common Stock issued and delivered by the
Company without compliance with the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the registration requirements of
the Securities Act and such laws, and without the approval, disapproval, or
passing on the merits by any regulatory authority; that for purposes of such
exemptions, the Company will rely upon the representations, warranties and
agreements of the Purchaser contained herein; and that such non-compliance with
registration requirements is not permissible unless such
<PAGE> 3
3
representations and warranties are correct and such agreements performed.
(ii) The Purchaser understands that the Company is under no
obligation to effect a registration under the Securities Act of the Shares to be
purchased by him hereunder. The Purchaser understands that, under existing rules
of the Securities and Exchange Commission (the "Commission"), he may be unable
to sell any of the Shares except to the extent that the Shares may be sold (A)
in a bona fide private placement to a purchaser who shall be subject to the same
restrictions on sale or (B) subject to the restrictions contained in Rule 144
under the Securities Act.
(iii) As a Vice President of Finance of the Company, the Purchaser
is fully familiar with the business, properties and financial condition of the
Company, and acknowledges that he has been afforded access to such additional
information concerning the Company as he considers necessary or appropriate to
make an informed investment decision. The Purchaser is an "accredited investor"
as such term is defined in Rule 501 under the Securities Act.
(iv) The Purchaser is a sophisticated investor familiar with the
type of risks inherent in the acquisition of securities such as the Common
Stock, and his financial position is such that he can afford to retain the
Shares for an indefinite period of time without realizing any direct or indirect
cash return on his investment.
(v) The Purchaser is acquiring the Shares pursuant to this
Agreement for his own account and not with a view to or for sale in connection
with the distribution thereof within the meaning of the Securities Act. The
Purchaser shall not effect a distribution of any Shares until either (A) he has
received the opinion of counsel for the Company that registration under the
Securities Act is not required or (B) a registration statement under the
Securities Act covering such Shares and the disposition thereof has become
effective under the Securities Act, and the Purchaser agrees that the
certificates evidencing the Shares may bear a restrictive legend to the
foregoing effect.
5. Restrictions on Transferability of the Shares. The Purchaser
hereby agrees that the Purchaser shall not sell, assign, transfer, gift, devise,
bequeath, deliver, pledge, hypothecate or otherwise dispose of any of the
Shares, except as provided for in this Section 5. Any
<PAGE> 4
4
disposition or purported disposition of Shares in violation of this Agreement
shall be null and void and shall not be recorded on the books of the Company.
Notwithstanding the foregoing:
(a) Disposition of Vested Shares and Shares which are not Vested
Shares. Shares which are "vested" in accordance with the following schedule (the
"Vested Shares") may be disposed of in the manner set forth in Subsections (b)
or (d) of this Section 5.
Cumulative percentage of
Shares which are Vested Shares
Prior to October 1,
1996................................................... 0%
October 1, 1996 to
September 30, 1997..................................... 20
October 1, 1997 to
September 30, 1998..................................... 40
October 1, 1998 to
September 30, 1999..................................... 60
October 1, 1999 to
September 30, 2000..................................... 80
After October 1, 2000.................................. 100
Shares which are not Vested Shares (the "Unvested Shares") may be
disposed of only in the manner set forth in Subsections (c) or (d) of this
Section 5.
Notwithstanding the foregoing, all Shares shall become Vested Shares
upon the occurrence of either of the following events:
(i) the Purchaser's completion of one year of continuous
employment as chief financial officer of a portfolio company (the "FMC Portfolio
Company"), other than the Company, established by and capitalized by investment
partnerships managed by Foster Management Company; or
(ii) termination of the Purchaser's employment by the Company or
the FMC Portfolio Company, if applicable, unless such termination is by the
Company or the FMC Portfolio Company for Due Cause (as hereinafter defined). For
purposes hereof, "Due Cause" shall mean (1) that the Purchaser, in carrying out
the Purchaser's employment
<PAGE> 5
5
duties, has been guilty of (A) willful or gross neglect or (B) willful or gross
misconduct, resulting in either case in harm to the Company or the FMC Portfolio
Company, if applicable; or (2) that the Purchaser has been charged with (A) a
felony or (B) any crime or offense involving moral turpitude; or (3) a material
breach by the Purchaser of any non-competition or confidentiality agreements
between the Purchaser and the Company or the FMC Portfolio Company, if
applicable. It is specifically understood that Shares shall not become Vested
Shares pursuant to this clause (ii) if the Purchaser's employment is terminated
by the Company for Due Cause, by reason of the Purchaser's resignation, death or
disability or by reason of the Purchaser's transfer of employment from the
Company to the FMC Portfolio Company.
(b) Vested Shares.
(i) Vested Shares held by the Purchaser may be transferred by the
Purchaser provided that the Purchaser first complies with the right to purchase
set forth in this Subsection (b). The Company shall have a right to purchase any
Vested Shares proposed to be sold by the Purchaser on the terms set forth in
this Subsection (b).
(ii) If the Purchaser wishes to dispose of Vested Shares, the
Purchaser shall first obtain a bona fide written offer (the "Offer") for the
purchase of the Vested Shares which he wishes to dispose of. Such Offer shall be
for cash or promissory notes only. Promptly upon receipt of the Offer, the
Purchaser shall give notice to the Company (the "Offer Notice") of his intent to
dispose of Vested Shares, which Offer Notice shall specify the name of the
proposed purchaser, the number of Vested Shares (the "Offered Securities") the
Purchaser desires to dispose of and the price and terms of payment of such
proposed disposition. Upon receipt of the Offer Notice, the Company shall have
the right to purchase all (but not less than all) of the Offered Securities at
the price and on the terms of the Offer. Such right must be exercised by the
Company by giving notice to that effect to the Purchaser within a period of 20
days after the date of receipt of the Offer Notice (any such notice of the
exercise of such right being herein referred to as an "Acceptance Notice").
(iii) In the event of the exercise by the Company of its right to
purchase pursuant to this Subsection (b), the Acceptance Notice shall specify
the time and date for purchase of the Offered Securities (the "Share Closing")
which shall be not more than 30 days after the expiration of the 20-day period
set forth in clause (b)(ii). The Purchaser shall deliver to the Company at the
Share Closing,
<PAGE> 6
6
which shall be held at the business headquarters of the Company, the Offered
Securities in due and proper form for transfer, against payment of the purchase
price by the Company.
(iv) If the Company shall fail or decline to agree to purchase the
Offered Securities within the 20-day period provided for in clause (b)(ii), then
the Purchaser shall have the right and privilege to sell all (but not less than
all) the Offered Securities, within 60 days after the expiration of such 20-day
period, to the bona fide purchaser named in the Offer Notice, at the price and
on terms of payment specified in the Offer. If, for any reason, the Offered
Securities are not sold within such 60-day period, the Offered Securities shall
again become subject to the terms and conditions of this Agreement.
(v) If, as of the Share Closing, any amount of principal of and
interest on any indebtedness of the Purchaser to the Company shall then be
outstanding, payment of the purchase price for the Offered Securities at the
Closing shall be made, at the Company's option, by a credit against such
indebtedness to the extent of the principal thereof and interest thereon then
outstanding (whether or not such principal and interest is then due and
payable).
(vi) The Company's right to purchase set forth in this Subsection
(b) shall terminate upon the occurrence of the closing of the initial sale by
the Company to the public of shares of the Common Stock pursuant to a
registration statement filed under the Securities Act (other than a registration
statement covering securities of the Company to be issued pursuant to an
employee benefit plan).
(c) Termination of the Purchaser's Employment.
(i) Except as provided in the next to last sentence of this clause
(c)(i), if the Purchaser shall cease to be employed by the Company for any
reason whatsoever or shall cease to be employed as Chief Financial Officer of
the FMC Portfolio Company for any reason whatsoever, the Company shall have the
right (but not the obligation) to purchase from the Purchaser all or any portion
of the Unvested Shares owned by the Purchaser at the time the Purchaser ceases
to be employed by the Company or the FMC Portfolio Company, as the case may be.
Such right to purchase shall be exercisable by written notice to that effect
given by the Company to the Purchaser within 60 days after the Purchaser has
ceased to be employed by the Company or the FMC Portfolio Company, as the case
may be, as aforesaid. Upon the giving of such written notice, the Purchaser
shall for
<PAGE> 7
7
all purposes cease to be a stockholder of the Company as to the Unvested Shares
covered by such notice and shall have no rights against the Company or any other
person in respect of such Unvested Shares except the right to receive payment
for such Unvested Shares in accordance herewith. The Company's right to purchase
set forth herein shall not apply in the event that (1) the Purchaser shall cease
to be employed by the Company or as Chief Financial Officer of the FMC Portfolio
Company, as the case may be, because his employment has been terminated by the
Company or the FMC Portfolio Company, if applicable, unless such termination is
for Due Cause or (2) the Purchaser shall cease to be employed by the Company due
to his acceptance of a position as Chief Financial Officer of the FMC Portfolio
Company. Notwithstanding the provisions of Subsection (a) of this Section 5,
Unvested Shares not so purchased by the Company shall upon the expiration of
such 60-day period become Vested Shares; provided, however, that if the
Purchaser shall cease to be employed by the Company upon acceptance of a
position as Chief Financial Officer of the FMC Portfolio Company, then the
Unvested Shares shall continue to be Unvested Shares and shall vest in
accordance with Subsection (a) of this Section 5.
(ii) At the time and date specified in the notice given by the
Company referred to in clause (c)(i), which date shall in no event be more than
15 days after the expiration of the 60-day period for the exercise of the right
to purchase set forth therein, the Purchaser shall deliver to the Company, at
the business headquarters of the Company, the Unvested Shares to be sold by the
Purchaser in due and proper form for transfer, against payment by the Company of
the purchase price therefor, as determined in accordance with clause (c)(iv).
(iii) If at the time of payment of the purchase price referred to in
clause (c)(ii), any amount of principal of or interest on any indebtedness of
the Purchaser to the Company shall be outstanding, payment of the purchase price
for the Unvested Shares shall be made, at the Company's option, as a credit
against such indebtedness to the extent of the principal thereof and interest
thereon then outstanding (whether or not such principal and interest is then due
and payable).
(iv) The per Share purchase price for the Unvested Shares payable
by the Company pursuant to clause (c)(ii) shall be $.10. The number of Unvested
Shares to be purchased and the per Share purchase price pursuant to this clause
(c)(iv) shall be appropriately adjusted by the Board of Directors of the Company
to reflect any subdivision or
<PAGE> 8
8
combination of the Common Stock of the Company or any stock dividend or like
event.
(d) Disposition to Family Members. Shares held by the Purchaser
may be transferred by the Purchaser to or for the benefit of the Purchaser or a
member of his immediate family. For the purpose of this Agreement, the term
"immediate family" of the Purchaser shall mean his spouse and children (and the
direct lineal descendants of his children). It shall be a condition to the
validity of any transfer of Shares permitted by the provisions of this
Subsection (d) that the transferee shall execute a copy of this Agreement, shall
hold such Shares subject to the provisions of this Agreement, and shall make no
further transfer of such Shares, except in compliance with the terms and
conditions of this Agreement.
6. Voting Agreement. (a) Except as hereinafter set forth, the
Purchaser agrees that, subject to the laws of the State of Delaware and the
terms of this Agreement, from the date of this Agreement until December 1, 2005
the Purchaser will vote all shares of Common Stock owned by the Purchaser in
favor of a Board of Directors which shall include John H. Foster and such other
persons designated by John H. Foster as shall together with John H. Foster
constitute a majority of such members.
(b) Notwithstanding any of the other terms or conditions set forth
in this Agreement, the parties hereto agree that in the event that the Company
or any stockholder of the Company shall sell any securities of the Company to
the public in a registered public offering (other than pursuant to a
registration statement on Form S-8) or pursuant to the exemption from
registration contained in Regulation A under the Securities Act, the voting
agreement set forth in this Section 6 shall terminate.
7. Come Along/Take Along.
(a) (i) In the event that Business Development Capital Limited
Partnership-III, a Massachusetts limited partnership ("BDC-III"), Abbingdon
Venture Partners Limited Partnership, a Connecticut limited partnership
("Abbingdon-I"), Abbingdon Venture Partners Limited Partnership-II, a Delaware
limited partnership ("Abbingdon-II") and Abbingdon Venture Partners Limited
Partnership-III, a Delaware limited partnership ("Abbingdon-III" and together
with BDC-III, Abbingdon-I and Abbingdon-II, the "Partnerships"), propose to
transfer substantially all of the shares of the Common Stock held by them (a
"Sale of Securities") other than to the public for
<PAGE> 9
9
cash pursuant to a registration statement filed under the Securities Act, then
the following provisions of this Section 7 shall apply.
(ii) The Partnerships shall permit the Purchaser, or cause the
Purchaser to be permitted, to sell the same proportionate number of shares of
the Common Stock held by the Purchaser as the Partnerships shall sell of the
shares of the Common Stock held by the Partnerships, for the same consideration
and otherwise on the same terms and conditions to be received by the
Partnerships in the Sale of Securities.
(iii) The Partnerships shall have the right to request the Purchaser
to sell or cause to be sold the number of shares of the Common Stock held by the
Purchaser which bears the same proportion to the number of shares of the Common
Stock then held by the Purchaser as the number of shares of the Common Stock
being sold by the Partnerships bears to the total number of shares of the Common
Stock owned by the Partnerships (a "Purchaser Request").
(iv) Upon receipt by the Purchaser of a Purchaser Request, the
Purchaser will sell or will cause to be sold the appropriate number of shares of
the Common Stock held by the Purchaser for the consideration and otherwise on
the same terms and conditions received by the Partnerships.
(b) The obligations of the Partnerships under Section 7(a) hereof
to afford the Purchaser, or cause the Purchaser to be afforded, the rights
referred to therein will be discharged if the Purchaser is given written notice
which allows the Purchaser ten business days to exercise such rights (by written
reply addressed to such person as may be designated in the notice, and if
requested in such notice, sent by registered mail, return receipt requested),
and within such ten business day period the Purchaser has not given notice of
exercise of such rights.
(c) All rights and obligations created by this Section 7 shall
terminate upon the earlier to occur of (i) the written agreement of the parties
hereto, or (ii) the date on which a registration statement (other than on Form
S-8 or the successor to such Form) covering an underwritten public offering of
the Company's Common Stock for cash is declared effective by the Commission,
provided that this Agreement shall be reinstated if such public offering is not
consummated within 20 days after such effective date.
8. The Closing. As soon as practicable after the execution and
delivery of this Agreement, the Purchaser
<PAGE> 10
10
shall cause to be delivered to the Company a check or checks payable to the
order of the Company in the amount of $250 in payment of the Purchase Price.
Promptly upon receipt of such check or checks, the Company shall deliver to the
Purchaser a stock certificate registered in the name of the Purchaser and
representing the Shares.
9. Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to purchase the Shares pursuant hereto are subject,
at his option, to the accuracy of the representations and warranties of the
Company contained in Section 3.
10. Conditions to the Obligations of the Company. The obligations
of the Company to sell the Shares pursuant hereto are subject, at its option, to
the accuracy of the representations and warranties of the Purchaser contained in
Section 4.
11. Expenses. Each of the parties hereto shall pay its own
expenses in connection with the preparation, execution and delivery of this
Agreement.
12. Notice. Any notice under this Agreement shall be in writing
and delivered personally or sent by certified mail, return receipt requested,
addressed, as the case may be, (i) to the Company at its address set forth at
the head of this Agreement or such other address as may hereafter be designated
by the Company by notice to the Purchaser in the manner provided herein; and
(ii) to the Purchaser at his address set forth at the head of this Agreement or
such other address as may hereafter be designated by the Purchaser by notice to
the Company in the manner provided herein. All notices personally delivered
shall be deemed to have been given when delivered and all notices sent by mail
shall be deemed to have been given three business days after mailing.
13. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no
<PAGE> 11
11
modifications of or amendments to this Agreement shall be binding on the parties
hereto unless in writing and signed by them.
16. Integration. This Agreement supersedes all prior
understandings, negotiations, and agreements relating to the subject matter
hereof.
17. Severability. If any provision herein contained shall be held
to be illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.
18. Reorganization, Etc. The provisions of this Agreement shall
apply mutatis mutandis to any shares or other securities resulting from any
stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities resulting from any recapitalization,
consolidation, merger or reorganization of the Company and to any shares or
other securities of the Company or any successor company or of any parent of
such successor company which may be received by the Purchaser by virtue of his
ownership of any shares of Common Stock of the Company.
19. Captions. The captions appearing herein are for the
convenience of the parties only and shall not be construed to affect the meaning
of the provisions of this Agreement.
* * *
<PAGE> 12
12
If you are in agreement with the foregoing, please execute and deliver
to the undersigned the enclosed counterpart of this Agreement, whereupon this
Agreement shall become a binding agreement between us.
Very truly yours,
VALLEY FORGE DENTAL ASSOCIATES, INC.
By /s/ Stephen F. Nagy
------------------------------------
Accepted and agreed to as
aforesaid:
/s/ W. Gary Liddick
- ----------------------------------
W. Gary Liddick
The undersigned are executing
this Agreement to indicate
their agreement to Section 7
hereof:
BUSINESS DEVELOPMENT CAPITAL
LIMITED PARTNERSHIP-III
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
---------------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
---------------------------
<PAGE> 13
13
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
-------------------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
-------------------------------
<PAGE> 1
EXHIBIT 10(t)
VALLEY FORGE DENTAL ASSOCIATES, INC.
1018 West Ninth Avenue, Suite 310
King of Prussia, Pennsylvania 19406
November 25, 1996
Mr. Stephen E. O'Neil
460 Park Avenue, 20th Floor
New York, New York 10022
Dear Mr. O'Neil:
The undersigned, Valley Forge Dental Associates, Inc., a Delaware
corporation (the "Company"), and you (the "Purchaser"), hereby agree as follows:
1. Authorization and Sale of the Shares. The Company has
authorized the issuance to the Purchaser of and proposes to sell to the
Purchaser pursuant hereto an aggregate of 5,000 shares (collectively the
"Shares" and individually a "Share") of its common stock, $.01 par value (the
"Common Stock"), at a price of $.10 per Share.
2. Purchase of the Shares by the Purchaser. Subject to the terms
and conditions hereof, the Purchaser hereby agrees to purchase the Shares from
the Company in reliance upon its representations and warranties herein
contained, and the Company hereby agrees to sell the Shares to the Purchaser in
reliance upon his representations and warranties herein contained, at an
aggregate purchase price (the "Purchase Price") of $500.00 in cash.
3. Representations, Warranties, and Agreements of the Company.
The Company represents and warrants to, and agrees with, the Purchaser as
follows:
(a) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(b) The Company has duly authorized the execution and delivery of
this Agreement and the issuance and delivery of the Shares and this Agreement
constitutes a valid and legally binding agreement of the Company, enforceable in
<PAGE> 2
2
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, or other laws affecting generally the enforceability of
creditors' rights and by limitations on the availability of equitable remedies.
The Shares, when issued and delivered in accordance with this Agreement, shall
have been duly issued and shall be validly outstanding, fully paid and
nonassessable shares of the Common Stock.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall violate any provision
of the Certificate of Incorporation or By-laws of the Company or any statute,
ordinance, regulation, order, judgment or decree of any court or governmental
agency, or conflict with or result in any breach of any of the terms of,
constitute a default under, or result in the termination of or the creation of
any lien pursuant to the terms of, any contract or agreement to which the
Company is a party or by which the Company or any of its assets is bound.
4. Representations, Warranties, and Agreements of the Purchaser.
The Purchaser hereby represents and warrants to, and agrees with, the Company as
follows:
(a) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall conflict with or
result in any breach of any of the terms of, constitute a default under, or
result in the termination of or the creation of any lien pursuant to the terms
of, any contract or agreement to which the Purchaser is a party or by which he
or any of his assets is bound.
(b) (i) The Purchaser understands that by the terms of this
Agreement he is purchasing shares of Common Stock issued and delivered by the
Company without compliance with the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the registration requirements of
the Securities Act and such laws, and without the approval, disapproval, or
passing on the merits by any regulatory authority; that for purposes of such
exemptions, the Company will rely upon the representations, warranties and
agreements of the Purchaser contained herein; and that such non-compliance with
registration requirements is not permissible unless such representations and
warranties are correct and such agreements performed.
<PAGE> 3
3
(ii) The Purchaser understands that the Company is under no
obligation to effect a registration under the Securities Act of the Shares to be
purchased by him hereunder. The Purchaser understands that, under existing rules
of the Securities and Exchange Commission (the "Commission"), he may be unable
to sell any of the Shares except to the extent that the Shares may be sold (A)
in a bona fide private placement to a purchaser who shall be subject to the same
restrictions on sale or (B) subject to the restrictions contained in Rule 144
under the Securities Act.
(iii) As a Director of the Company, the Purchaser is fully familiar
with the business, properties and financial condition of the Company, and
acknowledges that he has been afforded access to such additional information
concerning the Company as he considers necessary or appropriate to make an
informed investment decision. The Purchaser is an "accredited investor" as such
term is defined in Rule 501 under the Securities Act.
(iv) The Purchaser is a sophisticated investor familiar with the
type of risks inherent in the acquisition of securities such as the Common
Stock, and his financial position is such that he can afford to retain the
Shares for an indefinite period of time without realizing any direct or indirect
cash return on his investment.
(v) The Purchaser is acquiring the Shares pursuant to this
Agreement for his own account and not with a view to or for sale in connection
with the distribution thereof within the meaning of the Securities Act. The
Purchaser shall not effect a distribution of any Shares until either (A) he has
received the opinion of counsel for the Company that registration under the
Securities Act is not required or (B) a registration statement under the
Securities Act covering such Shares and the disposition thereof has become
effective under the Securities Act.
5. Restrictions on Transferability of the Shares. The Purchaser
hereby agrees that the Purchaser shall not sell, assign, transfer, gift, devise,
bequeath, deliver, pledge, hypothecate or otherwise dispose of any of the
Shares, except as provided for in this Agreement. Any disposition or purported
disposition of Shares in violation of this Agreement shall be null and void and
shall not be recorded on the books of the Company. Notwithstanding the
foregoing:
(a) Disposition of Vested Shares and Shares which are not Vested
Shares. Shares which are "vested" in
<PAGE> 4
4
accordance with the following schedule (the "Vested Shares") may be disposed of
in the manner set forth in Subsection (b) or (d) of this Section 5.
Cumulative
percentage of
Shares which are
Vested Shares
----------------
On or before September 12, 1997........................ 0%
September 13, 1997 to
September 12, 1998..................................... 20
September 13, 1998 to
September 12, 1999..................................... 40
September 13, 1999 to
September 12, 2000..................................... 60
September 13, 2000 to
September 12, 2001..................................... 80
On or after September 12, 2001......................... 100
Shares which are not Vested Shares (the "Unvested Shares") may be
disposed of only in the manner set forth in Subsection (c) or (d) of this
Section 5.
(b) Vested Shares.
(i) Vested Shares held by the Purchaser may be transferred by the
Purchaser provided that the Purchaser first complies with the right to purchase
set forth in this Subsection (b). The Company shall have a right to purchase any
Vested Shares proposed to be sold by the Purchaser on the terms set forth in
this Subsection (b).
(ii) If the Purchaser wishes to dispose of Vested Shares, the
Purchaser shall first obtain a bona fide written offer (the "Offer") for the
purchase of the Vested Shares which he wishes to dispose of. Such Offer shall be
for cash or promissory notes only. Promptly upon receipt of the Offer, the
Purchaser shall give notice to the Company (the "Offer Notice") of his intent to
dispose of Vested Shares, which Offer Notice shall specify the name of the
proposed purchaser, the number of Vested Shares (the "Offered Securities") the
Purchaser desires to dispose of and the price and terms of payment of such
proposed disposition. Upon receipt of the Offer Notice, the Company shall have
the right to purchase all (but not less than all) of the Offered Securities at
the price and on the terms of
<PAGE> 5
5
the Offer. Such right must be exercised by the Company by giving notice to that
effect to the Purchaser within a period of 20 days after the date of receipt of
the Offer Notice (any such notice of the exercise of such right being herein
referred to as an "Acceptance Notice").
(iii) In the event of the exercise by the Company of its right to
purchase pursuant to this Subsection (b), the Acceptance Notice shall specify
the time and date for purchase of the Offered Securities (the "Share Closing")
which shall be not more than 30 days after the expiration of the 20-day period
set forth in clause (b)(ii). The Purchaser shall deliver to the Company at the
Share Closing, which shall be held at the business headquarters of the Company,
the Offered Securities in due and proper form for transfer, against payment of
the purchase price by the Company.
(iv) If the Company shall fail or decline to agree to purchase the
Offered Securities within the 20-day period provided for in clause (b)(ii), then
the Purchaser shall have the right and privilege to sell all (but not less than
all) the Offered Securities, within 60 days after the expiration of such 20-day
period, to the bona fide purchaser named in the Offer Notice, at the price and
on terms of payment specified in the Offer. If, for any reason, the Offered
Securities are not sold within such 60-day period, the Offered Securities shall
again become subject to the terms and conditions of this Agreement.
(v) If, as of the Share Closing, any amount of principal of and
interest on any indebtedness of the Purchaser to the Company shall then be
outstanding, payment of the purchase price for the Offered Securities at the
Closing shall be made, at the Company's option, by a credit against such
indebtedness to the extent of the principal thereof and interest thereon then
outstanding (whether or not such principal and interest is then due and
payable).
(vi) The Company's right to purchase set forth in this Subsection
(b) shall terminate upon the occurrence of the closing of the initial sale by
the Company to the public of shares of the Common Stock pursuant to a
registration statement filed under the Securities Act, other than a registration
statement covering securities of the Company to be issued pursuant to an
employee benefit plan (such occurrence, the "Termination Event").
(c) Termination of the Purchaser's Directorship. (i) If the
Purchaser shall cease to serve as a Director of the Company, for any reason
whatsoever, the Company shall
<PAGE> 6
6
have the right (but not the obligation) to purchase from the Purchaser all or
any portion of the Unvested Shares owned by the Purchaser at the time the
Purchaser ceases to serve as a Director of the Company. Such right to purchase
shall be exercisable by written notice to that effect given by the Company to
the Purchaser within 60 days after the Purchaser has ceased to serve as a
Director of the Company, as aforesaid. Upon the giving of such written notice,
the Purchaser shall for all purposes cease to be a stockholder of the Company as
to the Unvested Shares covered by such notice and shall have no rights against
the Company or any other person in respect of such Unvested Shares except the
right to receive payment for such Unvested Shares in accordance herewith.
Notwithstanding the provisions of Subsection (a) of this Section 5, Unvested
Shares not so purchased by the Company shall upon the expiration of such 60-day
period become Vested Shares.
(ii) At the time and date specified in the notice given by the
Company referred to in clause (c)(i), which date shall in no event be more than
15 days after the expiration of the 60-day period for the exercise of the right
to purchase set forth therein, the Purchaser shall deliver to the Company, at
the business headquarters of the Company, the Unvested Shares to be sold by the
Purchaser in due and proper form for transfer, against payment by the Company of
the purchase price therefor, as determined in accordance with clause (c)(iv).
(iii) If at the time of payment of the purchase price referred to in
clause (c)(ii), any amount of principal of or interest on any indebtedness of
the Purchaser to the Company shall be outstanding, payment of the purchase price
for the Unvested Shares shall be made, at the Company's option, as a credit
against such indebtedness to the extent of the principal thereof and interest
thereon then outstanding (whether or not such principal and interest is then due
and payable).
(iv) The per Share purchase price for the Unvested Shares payable
by the Company pursuant to clause (c)(ii) shall be $0.10. The number of Unvested
Shares to be purchased and the per Share purchase price pursuant to this clause
(c)(iv) shall be appropriately adjusted by the Board of Directors of the Company
to reflect any subdivision or combination of the Common Stock of the Company or
any stock dividend or like event.
(d) Disposition to Family Members. Shares held by the Purchaser
may be transferred by the Purchaser to or for the benefit of the Purchaser or a
member of his
<PAGE> 7
7
immediate family. For the purpose of this Agreement, the term "immediate family"
of the Purchaser shall mean his spouse and children (and the direct lineal
descendants of his children). It shall be a condition to the validity of any
transfer of Shares permitted by the provisions of this Subsection (d) that the
transferee shall execute a copy of this Agreement, shall hold such Shares
subject to the provisions of this Agreement, and shall make no further transfer
of such Shares, except in compliance with the terms and conditions of this
Agreement.
(e) Change in Ownership. If any person or group within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934 (the "1934 Act"), as
amended, and the rules and regulations promulgated thereunder, other than John
H. Foster, Stephen F. Nagy or a person or group controlled, directly or
indirectly, by John H. Foster or Stephen F. Nagy, shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act), directly or
indirectly, of securities of the Company (or other securities convertible into
such securities) representing 50% or more of combined voting power of all
securities of the Company entitled to vote in the election of directors, then
any remaining Unvested Shares shall become fully vested, effective immediately
upon such change in ownership.
6. Voting Agreement. (a) Except as hereinafter set forth, the
Purchaser agrees that, subject to the laws of the State of Delaware and the
terms of this Agreement, from the date of this Agreement until December 31, 2001
the Purchaser will vote all shares of Common Stock owned by the Purchaser in
favor of a Board of Directors which shall include John H. Foster and such other
persons designated by John H. Foster as shall together with John H. Foster
constitute a majority of such members.
(b) Notwithstanding any of the other terms or conditions set forth
in this Agreement, the parties hereto agree that the voting agreement set forth
in this Section 6 shall terminate upon the occurrence of the Termination Event.
7. Come Along/Take Along.
(a) (i) In the event that Abbingdon Venture Partners Limited
Partnership, a Connecticut limited partnership ("Abbingdon-I"), Abbingdon
Venture Partners Limited Partnership-II, a Delaware limited partnership
("Abbingdon-II"), Abbingdon Venture Partners Limited Partnership-III, a Delaware
limited partnership ("Abbingdon-III"), and Business Development Capital Limited
<PAGE> 8
8
Partnership-III, a Massachusetts limited partnership ("BDC-III" and together
with Abbingdon-I, Abbingdon-II and Abbingdon-III, the "Partnerships"), propose
to transfer substantially all of the shares of the Common Stock held by them (a
"Sale of Securities") other than to the public for cash pursuant to a
registration statement filed under the Securities Act, then the following
provisions of this Section 7 shall apply.
(ii) The Partnerships shall permit the Purchaser, or cause the
Purchaser to be permitted, to sell the same proportionate number of shares of
the Common Stock held by the Purchaser as the Partnerships shall sell of the
shares of the Common Stock held by the Partnerships, for the same consideration
and otherwise on the same terms and conditions to be received by the
Partnerships in the Sale of Securities.
(iii) The Partnerships shall have the right to request the Purchaser
to sell or cause to be sold the number of shares of the Common Stock held by the
Purchaser which bears the same proportion to the number of shares of the Common
Stock then held by the Purchaser as the number of shares of the Common Stock
being sold by the Partnerships bears to the total number of shares of the Common
Stock owned by the Partnerships (a "Purchaser Request").
(iv) Upon receipt by the Purchaser of a Purchaser Request, the
Purchaser will sell or will cause to be sold the appropriate number of shares of
the Common Stock held by the Purchaser for the consideration and otherwise on
the same terms and conditions received by the Partnerships.
(b) The obligations of the Partnerships under Section 7(a) hereof
to afford the Purchaser, or cause the Purchaser to be afforded, the rights
referred to therein will be discharged if the Purchaser is given written notice
which allows the Purchaser ten business days to exercise such rights (by written
reply addressed to such person as may be designated in the notice, and if
requested in such notice, sent by certified mail, return receipt requested), and
within such ten business day period the Purchaser has not given notice of
exercise of such rights.
(c) All rights and obligations created by this Section 7 shall
terminate upon the earlier to occur of (i) the written agreement of the parties
hereto, or (ii) the Termination Event.
8. The Closing. As soon as practicable after the execution and
delivery of this Agreement, the Purchaser
<PAGE> 9
9
shall cause to be delivered to the Company a check or checks payable to the
order of the Company in the amount of $500.00 in payment of the Purchase Price.
Promptly upon receipt of such check or checks, the Company shall deliver to the
Purchaser a stock certificate registered in the name of the Purchaser and
representing the Shares.
9. Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to purchase the Shares pursuant hereto are subject,
at his option, to the accuracy of the representations and warranties of the
Company contained in Section 3.
10. Conditions to the Obligations of the Company. The obligations
of the Company to sell the Shares pursuant hereto are subject, at its option, to
the accuracy of the representations and warranties of the Purchaser contained in
Section 4.
11. Expenses. Each of the parties hereto shall pay its own
expenses in connection with the preparation, execution and delivery of this
Agreement.
12. Notice. Any notice under this Agreement shall be in writing
and delivered personally or sent by certified mail, return receipt requested,
addressed, as the case may be, (i) to the Company at its address set forth at
the head of this Agreement or such other address as may hereafter be designated
by the Company by notice to the Purchaser in the manner provided herein; and
(ii) to the Purchaser at his address set forth at the head of this Agreement or
such other address as may hereafter be designated by the Purchaser by notice to
the Company in the manner provided herein. All notices personally delivered
shall be deemed to have been given when delivered and all notices sent by mail
shall be deemed to have been given three business days after mailing.
13. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no
<PAGE> 10
10
modifications of or amendments to this Agreement shall be binding on the parties
hereto unless in writing and signed by them.
16. Integration. This Agreement supersedes all prior
understandings, negotiations, and agreements relating to the subject matter
hereof.
17. Severability. If any provision herein contained shall be held
to be illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.
18. Reorganization, Etc. The provisions of this Agreement shall
apply mutatis mutandis to any shares or other securities resulting from any
stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities resulting from any recapitalization,
consolidation, merger or reorganization of the Company and to any shares or
other securities of the Company or any successor company or of any parent of
such successor company which may be received by the Purchaser by virtue of his
ownership of any shares of Common Stock of the Company.
19. Captions. The captions appearing herein are for the
convenience of the parties only and shall not be construed to affect the meaning
of the provisions of this Agreement.
20. Legends on Certificates. During the term of this Agreement,
each of the certificates representing Shares shall contain upon its face or upon
the reverse side thereof legends to the following effect:
"This Certificate represents securities which are restricted and which
are subject to the terms and conditions of a Stock Purchase Agreement
dated November 25, 1996 by and between Stephen E. O'Neil and the
Company (a copy of which is on file at the principal office of the
Company) and the rights, privileges and options therein contained. No
sale, transfer, assignment, pledge, hypothecation or other disposition
of this Certificate or any of the securities represented hereby shall
be made except in compliance with
<PAGE> 11
11
the terms and conditions of said Stock Purchase Agreement.
The Shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not
be transferred in violation of such Act."
* * *
<PAGE> 12
12
If you are in agreement with the foregoing, please execute and deliver
to the undersigned the enclosed counterpart of this Agreement, whereupon this
Agreement shall become a binding agreement between us.
Very truly yours,
VALLEY FORGE DENTAL ASSOCIATES, INC.
By /s/ Joseph J. Frank
------------------------------------
Accepted and agreed to as
aforesaid:
/s/ Stephen E. O'Neil
- --------------------------------------
Stephen E. O'Neil
The undersigned are executing
this Agreement to indicate
their agreement to Section 7
hereof:
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
- -------------------------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
- --------------------------------------
<PAGE> 13
13
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
- --------------------------------------
BUSINESS DEVELOPMENT CAPITAL
LIMITED PARTNERSHIP-III
By: BDC-III Partners, general partner
By /s/ Stephen F. Nagy
- --------------------------------------
<PAGE> 1
EXHIBIT 10(u)
VALLEY FORGE DENTAL ASSOCIATES, INC.
1018 West Ninth Avenue, Suite 310
King of Prussia, Pennsylvania 19406
November 25, 1996
Mr. Stathis Andris
Venture Investment Associates
1300 Mt. Kemble Ave. (Rte 202)
Morristown, NJ 07962
Dear Mr. Andris:
The undersigned, Valley Forge Dental Associates, Inc., a Delaware
corporation (the "Company"), and you (the "Purchaser"), hereby agree as follows:
1. Authorization and Sale of the Shares. The Company has
authorized the issuance to the Purchaser of and proposes to sell to the
Purchaser pursuant hereto an aggregate of 5,000 shares (collectively the
"Shares" and individually a "Share") of its common stock, $.01 par value (the
"Common Stock"), at a price of $.10 per Share.
2. Purchase of the Shares by the Purchaser. Subject to the terms
and conditions hereof, the Purchaser hereby agrees to purchase the Shares from
the Company in reliance upon its representations and warranties herein
contained, and the Company hereby agrees to sell the Shares to the Purchaser in
reliance upon his representations and warranties herein contained, at an
aggregate purchase price (the "Purchase Price") of $500.00 in cash.
3. Representations, Warranties, and Agreements of the Company.
The Company represents and warrants to, and agrees with, the Purchaser as
follows:
(a) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(b) The Company has duly authorized the execution and delivery of
this Agreement and the issuance and delivery of the Shares and this Agreement
constitutes a valid and
<PAGE> 2
2
legally binding agreement of the Company, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
or other laws affecting generally the enforceability of creditors' rights and by
limitations on the availability of equitable remedies. The Shares, when issued
and delivered in accordance with this Agreement, shall have been duly issued and
shall be validly outstanding, fully paid and nonassessable shares of the Common
Stock.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall violate any provision
of the Certificate of Incorporation or By-laws of the Company or any statute,
ordinance, regulation, order, judgment or decree of any court or governmental
agency, or conflict with or result in any breach of any of the terms of,
constitute a default under, or result in the termination of or the creation of
any lien pursuant to the terms of, any contract or agreement to which the
Company is a party or by which the Company or any of its assets is bound.
4. Representations, Warranties, and Agreements of the Purchaser.
The Purchaser hereby represents and warrants to, and agrees with, the Company as
follows:
(a) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall conflict with or
result in any breach of any of the terms of, constitute a default under, or
result in the termination of or the creation of any lien pursuant to the terms
of, any contract or agreement to which the Purchaser is a party or by which he
or any of his assets is bound.
(b) (i) The Purchaser understands that by the terms of this
Agreement he is purchasing shares of Common Stock issued and delivered by the
Company without compliance with the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the registration requirements of
the Securities Act and such laws, and without the approval, disapproval, or
passing on the merits by any regulatory authority; that for purposes of such
exemptions, the Company will rely upon the representations, warranties and
agreements of the Purchaser contained herein; and that such non-compliance with
registration requirements is not permissible unless such representations and
warranties are correct and such agreements performed.
<PAGE> 3
3
(ii) The Purchaser understands that the Company is under no
obligation to effect a registration under the Securities Act of the Shares to be
purchased by him hereunder. The Purchaser understands that, under existing rules
of the Securities and Exchange Commission (the "Commission"), he may be unable
to sell any of the Shares except to the extent that the Shares may be sold (A)
in a bona fide private placement to a purchaser who shall be subject to the same
restrictions on sale or (B) subject to the restrictions contained in Rule 144
under the Securities Act.
(iii) As a Director of the Company, the Purchaser is fully familiar
with the business, properties and financial condition of the Company, and
acknowledges that he has been afforded access to such additional information
concerning the Company as he considers necessary or appropriate to make an
informed investment decision. The Purchaser is an "accredited investor" as such
term is defined in Rule 501 under the Securities Act.
(iv) The Purchaser is a sophisticated investor familiar with the
type of risks inherent in the acquisition of securities such as the Common
Stock, and his financial position is such that he can afford to retain the
Shares for an indefinite period of time without realizing any direct or indirect
cash return on his investment.
(v) The Purchaser is acquiring the Shares pursuant to this
Agreement for his own account and not with a view to or for sale in connection
with the distribution thereof within the meaning of the Securities Act. The
Purchaser shall not effect a distribution of any Shares until either (A) he has
received the opinion of counsel for the Company that registration under the
Securities Act is not required or (B) a registration statement under the
Securities Act covering such Shares and the disposition thereof has become
effective under the Securities Act.
5. Restrictions on Transferability of the Shares. The Purchaser
hereby agrees that the Purchaser shall not sell, assign, transfer, gift, devise,
bequeath, deliver, pledge, hypothecate or otherwise dispose of any of the
Shares, except as provided for in this Agreement. Any disposition or purported
disposition of Shares in violation of this Agreement shall be null and void and
shall not be recorded on the books of the Company. Notwithstanding the
foregoing:
(a) Disposition of Vested Shares and Shares which are not Vested
Shares. Shares which are "vested" in
<PAGE> 4
4
accordance with the following schedule (the "Vested Shares") may be disposed of
in the manner set forth in Subsection (b) or (d) of this Section 5.
<TABLE>
<CAPTION>
Cumulative
percentage of
Shares which are
Vested Shares
----------------
<S> <C>
On or before September 12, 1997........................... 0%
September 13, 1997 to
September 12, 1998........................................ 20
September 13, 1998 to
September 12, 1999........................................ 40
September 13, 1999 to
September 12, 2000........................................ 60
September 13, 2000 to
September 12, 2001........................................ 80
On or after September 12, 2001............................ 100
</TABLE>
Shares which are not Vested Shares (the "Unvested Shares") may be
disposed of only in the manner set forth in Subsection (c) or (d) of this
Section 5.
(b) Vested Shares.
(i) Vested Shares held by the Purchaser may be transferred by the
Purchaser provided that the Purchaser first complies with the right to purchase
set forth in this Subsection (b). The Company shall have a right to purchase any
Vested Shares proposed to be sold by the Purchaser on the terms set forth in
this Subsection (b).
(ii) If the Purchaser wishes to dispose of Vested Shares, the
Purchaser shall first obtain a bona fide written offer (the "Offer") for the
purchase of the Vested Shares which he wishes to dispose of. Such Offer shall be
for cash or promissory notes only. Promptly upon receipt of the Offer, the
Purchaser shall give notice to the Company (the "Offer Notice") of his intent to
dispose of Vested Shares, which Offer Notice shall specify the name of the
proposed purchaser, the number of Vested Shares (the "Offered Securities") the
Purchaser desires to dispose of and the price and terms of payment of such
proposed disposition. Upon receipt of the Offer Notice, the Company shall have
the right to purchase all (but not less than all) of the Offered Securities at
the price and on the terms of
<PAGE> 5
5
the Offer. Such right must be exercised by the Company by giving notice to that
effect to the Purchaser within a period of 20 days after the date of receipt of
the Offer Notice (any such notice of the exercise of such right being herein
referred to as an "Acceptance Notice").
(iii) In the event of the exercise by the Company of its right to
purchase pursuant to this Subsection (b), the Acceptance Notice shall specify
the time and date for purchase of the Offered Securities (the "Share Closing")
which shall be not more than 30 days after the expiration of the 20-day period
set forth in clause (b)(ii). The Purchaser shall deliver to the Company at the
Share Closing, which shall be held at the business headquarters of the Company,
the Offered Securities in due and proper form for transfer, against payment of
the purchase price by the Company.
(iv) If the Company shall fail or decline to agree to purchase the
Offered Securities within the 20-day period provided for in clause (b)(ii), then
the Purchaser shall have the right and privilege to sell all (but not less than
all) the Offered Securities, within 60 days after the expiration of such 20-day
period, to the bona fide purchaser named in the Offer Notice, at the price and
on terms of payment specified in the Offer. If, for any reason, the Offered
Securities are not sold within such 60-day period, the Offered Securities shall
again become subject to the terms and conditions of this Agreement.
(v) If, as of the Share Closing, any amount of principal of and
interest on any indebtedness of the Purchaser to the Company shall then be
outstanding, payment of the purchase price for the Offered Securities at the
Closing shall be made, at the Company's option, by a credit against such
indebtedness to the extent of the principal thereof and interest thereon then
outstanding (whether or not such principal and interest is then due and
payable).
(vi) The Company's right to purchase set forth in this Subsection
(b) shall terminate upon the occurrence of the closing of the initial sale by
the Company to the public of shares of the Common Stock pursuant to a
registration statement filed under the Securities Act, other than a registration
statement covering securities of the Company to be issued pursuant to an
employee benefit plan (such occurrence, the "Termination Event").
(c) Termination of the Purchaser's Directorship. (i) If the
Purchaser shall cease to serve as a Director of the Company, for any reason
whatsoever, the Company shall
<PAGE> 6
6
have the right (but not the obligation) to purchase from the Purchaser all or
any portion of the Unvested Shares owned by the Purchaser at the time the
Purchaser ceases to serve as a Director of the Company. Such right to purchase
shall be exercisable by written notice to that effect given by the Company to
the Purchaser within 60 days after the Purchaser has ceased to serve as a
Director of the Company, as aforesaid. Upon the giving of such written notice,
the Purchaser shall for all purposes cease to be a stockholder of the Company as
to the Unvested Shares covered by such notice and shall have no rights against
the Company or any other person in respect of such Unvested Shares except the
right to receive payment for such Unvested Shares in accordance herewith.
Notwithstanding the provisions of Subsection (a) of this Section 5, Unvested
Shares not so purchased by the Company shall upon the expiration of such 60-day
period become Vested Shares.
(ii) At the time and date specified in the notice given by the
Company referred to in clause (c)(i), which date shall in no event be more than
15 days after the expiration of the 60-day period for the exercise of the right
to purchase set forth therein, the Purchaser shall deliver to the Company, at
the business headquarters of the Company, the Unvested Shares to be sold by the
Purchaser in due and proper form for transfer, against payment by the Company of
the purchase price therefor, as determined in accordance with clause (c)(iv).
(iii) If at the time of payment of the purchase price referred to in
clause (c)(ii), any amount of principal of or interest on any indebtedness of
the Purchaser to the Company shall be outstanding, payment of the purchase price
for the Unvested Shares shall be made, at the Company's option, as a credit
against such indebtedness to the extent of the principal thereof and interest
thereon then outstanding (whether or not such principal and interest is then due
and payable).
(iv) The per Share purchase price for the Unvested Shares payable
by the Company pursuant to clause (c)(ii) shall be $0.10. The number of Unvested
Shares to be purchased and the per Share purchase price pursuant to this clause
(c)(iv) shall be appropriately adjusted by the Board of Directors of the Company
to reflect any subdivision or combination of the Common Stock of the Company or
any stock dividend or like event.
(d) Disposition to Family Members. Shares held by the Purchaser
may be transferred by the Purchaser to or for the benefit of the Purchaser or a
member of his
<PAGE> 7
7
immediate family. For the purpose of this Agreement, the term "immediate family"
of the Purchaser shall mean his spouse and children (and the direct lineal
descendants of his children). It shall be a condition to the validity of any
transfer of Shares permitted by the provisions of this Subsection (d) that the
transferee shall execute a copy of this Agreement, shall hold such Shares
subject to the provisions of this Agreement, and shall make no further transfer
of such Shares, except in compliance with the terms and conditions of this
Agreement.
(e) Change in Ownership. If any person or group within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934 (the "1934 Act"), as
amended, and the rules and regulations promulgated thereunder, other than John
H. Foster, Stephen F. Nagy or a person or group controlled, directly or
indirectly, by John H. Foster or Stephen F. Nagy, shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act), directly or
indirectly, of securities of the Company (or other securities convertible into
such securities) representing 50% or more of combined voting power of all
securities of the Company entitled to vote in the election of directors, then
any remaining Unvested Shares shall become fully vested, effective immediately
upon such change in ownership.
6. Voting Agreement. (a) Except as hereinafter set forth, the
Purchaser agrees that, subject to the laws of the State of Delaware and the
terms of this Agreement, from the date of this Agreement until December 31, 2001
the Purchaser will vote all shares of Common Stock owned by the Purchaser in
favor of a Board of Directors which shall include John H. Foster and such other
persons designated by John H. Foster as shall together with John H. Foster
constitute a majority of such members.
(b) Notwithstanding any of the other terms or conditions set forth
in this Agreement, the parties hereto agree that the voting agreement set forth
in this Section 6 shall terminate upon the occurrence of the Termination Event.
7. Come Along/Take Along.
(a) (i) In the event that Abbingdon Venture Partners Limited
Partnership, a Connecticut limited partnership ("Abbingdon-I"), Abbingdon
Venture Partners Limited Partnership-II, a Delaware limited partnership
("Abbingdon-II"), Abbingdon Venture Partners Limited Partnership-III, a Delaware
limited partnership ("Abbingdon-III"), and Business Development Capital Limited
<PAGE> 8
8
Partnership-III, a Massachusetts limited partnership ("BDC-III" and together
with Abbingdon-I, Abbingdon-II and Abbingdon-III, the "Partnerships"), propose
to transfer substantially all of the shares of the Common Stock held by them (a
"Sale of Securities") other than to the public for cash pursuant to a
registration statement filed under the Securities Act, then the following
provisions of this Section 7 shall apply.
(ii) The Partnerships shall permit the Purchaser, or cause the
Purchaser to be permitted, to sell the same proportionate number of shares of
the Common Stock held by the Purchaser as the Partnerships shall sell of the
shares of the Common Stock held by the Partnerships, for the same consideration
and otherwise on the same terms and conditions to be received by the
Partnerships in the Sale of Securities.
(iii) The Partnerships shall have the right to request the Purchaser
to sell or cause to be sold the number of shares of the Common Stock held by the
Purchaser which bears the same proportion to the number of shares of the Common
Stock then held by the Purchaser as the number of shares of the Common Stock
being sold by the Partnerships bears to the total number of shares of the Common
Stock owned by the Partnerships (a "Purchaser Request").
(iv) Upon receipt by the Purchaser of a Purchaser Request, the
Purchaser will sell or will cause to be sold the appropriate number of shares of
the Common Stock held by the Purchaser for the consideration and otherwise on
the same terms and conditions received by the Partnerships.
(b) The obligations of the Partnerships under Section 7(a) hereof
to afford the Purchaser, or cause the Purchaser to be afforded, the rights
referred to therein will be discharged if the Purchaser is given written notice
which allows the Purchaser ten business days to exercise such rights (by written
reply addressed to such person as may be designated in the notice, and if
requested in such notice, sent by certified mail, return receipt requested), and
within such ten business day period the Purchaser has not given notice of
exercise of such rights.
(c) All rights and obligations created by this Section 7 shall
terminate upon the earlier to occur of (i) the written agreement of the parties
hereto, or (ii) the Termination Event.
8. The Closing. As soon as practicable after the execution and
delivery of this Agreement, the Purchaser
<PAGE> 9
9
shall cause to be delivered to the Company a check or checks payable to the
order of the Company in the amount of $500.00 in payment of the Purchase Price.
Promptly upon receipt of such check or checks, the Company shall deliver to the
Purchaser a stock certificate registered in the name of the Purchaser and
representing the Shares.
9. Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to purchase the Shares pursuant hereto are subject,
at his option, to the accuracy of the representations and warranties of the
Company contained in Section 3.
10. Conditions to the Obligations of the Company. The obligations
of the Company to sell the Shares pursuant hereto are subject, at its option, to
the accuracy of the representations and warranties of the Purchaser contained in
Section 4.
11. Expenses. Each of the parties hereto shall pay its own
expenses in connection with the preparation, execution and delivery of this
Agreement.
12. Notice. Any notice under this Agreement shall be in writing
and delivered personally or sent by certified mail, return receipt requested,
addressed, as the case may be, (i) to the Company at its address set forth at
the head of this Agreement or such other address as may hereafter be designated
by the Company by notice to the Purchaser in the manner provided herein; and
(ii) to the Purchaser at his address set forth at the head of this Agreement or
such other address as may hereafter be designated by the Purchaser by notice to
the Company in the manner provided herein. All notices personally delivered
shall be deemed to have been given when delivered and all notices sent by mail
shall be deemed to have been given three business days after mailing.
13. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no
<PAGE> 10
10
modifications of or amendments to this Agreement shall be binding on the parties
hereto unless in writing and signed by them.
16. Integration. This Agreement supersedes all prior
understandings, negotiations, and agreements relating to the subject matter
hereof.
17. Severability. If any provision herein contained shall be held
to be illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.
18. Reorganization, Etc. The provisions of this Agreement shall
apply mutatis mutandis to any shares or other securities resulting from any
stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities resulting from any recapitalization,
consolidation, merger or reorganization of the Company and to any shares or
other securities of the Company or any successor company or of any parent of
such successor company which may be received by the Purchaser by virtue of his
ownership of any shares of Common Stock of the Company.
19. Captions. The captions appearing herein are for the
convenience of the parties only and shall not be construed to affect the meaning
of the provisions of this Agreement.
20. Legends on Certificates. During the term of this Agreement,
each of the certificates representing Shares shall contain upon its face or upon
the reverse side thereof legends to the following effect:
"This Certificate represents securities which are restricted and which
are subject to the terms and conditions of a Stock Purchase Agreement
dated November 25, 1996 by and between Stathis Andris and the Company
(a copy of which is on file at the principal office of the Company) and
the rights, privileges and options therein contained. No sale,
transfer, assignment, pledge, hypothecation or other disposition of
this Certificate or any of the securities represented hereby shall be
made except in compliance with the terms
<PAGE> 11
11
and conditions of said Stock Purchase Agreement.
The Shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not
be transferred in violation of such Act."
* * *
<PAGE> 12
12
If you are in agreement with the foregoing, please execute and deliver
to the undersigned the enclosed counterpart of this Agreement, whereupon this
Agreement shall become a binding agreement between us.
Very truly yours,
VALLEY FORGE DENTAL ASSOCIATES, INC.
By /s/ Joseph J. Frank
------------------------------------
Accepted and agreed to as
aforesaid:
/s/ Stathis Andris
- -------------------------------------
Stathis Andris
The undersigned are executing
this Agreement to indicate
their agreement to Section 7
hereof:
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
- -------------------------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
- -------------------------------------
<PAGE> 13
13
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
- -------------------------------------
BUSINESS DEVELOPMENT CAPITAL
LIMITED PARTNERSHIP-III
By: BDC-III Partners, general partner
By /s/ Stephen F. Nagy
- -------------------------------------
<PAGE> 1
EXHIBIT 10(v)
VALLEY FORGE DENTAL ASSOCIATES, INC.
1018 West Ninth Avenue, Suite 310
King of Prussia, Pennsylvania 19406
November 25, 1996
Mr. Colin C. Blaydon
Amos Tuck School of Business Administration
Dartmouth College
Hanover, NH 03755
Dear Mr. Blaydon:
The undersigned, Valley Forge Dental Associates,
Inc., a Delaware corporation (the "Company"), and you (the
"Purchaser"), hereby agree as follows:
1. Authorization and Sale of the Shares. The Company has authorized
the issuance to the Purchaser of and proposes to sell to the Purchaser pursuant
hereto an aggregate of 5,000 shares (collectively the "Shares" and individually
a "Share") of its common stock, $.01 par value (the "Common Stock"), at a price
of $.10 per Share.
2. Purchase of the Shares by the Purchaser. Subject to the terms and
conditions hereof, the Purchaser hereby agrees to purchase the Shares from the
Company in reliance upon its representations and warranties herein contained,
and the Company hereby agrees to sell the Shares to the Purchaser in reliance
upon his representations and warranties herein contained, at an aggregate
purchase price (the "Purchase Price") of $500.00 in cash.
3. Representations, Warranties, and Agreements of the Company. The
Company represents and warrants to, and agrees with, the Purchaser as follows:
(a) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(b) The Company has duly authorized the execution and delivery of
this Agreement and the issuance and delivery of the Shares and this Agreement
constitutes a valid and
<PAGE> 2
2
legally binding agreement of the Company, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
or other laws affecting generally the enforceability of creditors' rights and by
limitations on the availability of equitable remedies. The Shares, when issued
and delivered in accordance with this Agreement, shall have been duly issued and
shall be validly outstanding, fully paid and nonassessable shares of the Common
Stock.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall violate any provision
of the Certificate of Incorporation or By-laws of the Company or any statute,
ordinance, regulation, order, judgment or decree of any court or governmental
agency, or conflict with or result in any breach of any of the terms of,
constitute a default under, or result in the termination of or the creation of
any lien pursuant to the terms of, any contract or agreement to which the
Company is a party or by which the Company or any of its assets is bound.
4. Representations, Warranties, and Agreements of the Purchaser. The
Purchaser hereby represents and warrants to, and agrees with, the Company as
follows:
(a) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall conflict with or
result in any breach of any of the terms of, constitute a default under, or
result in the termination of or the creation of any lien pursuant to the terms
of, any contract or agreement to which the Purchaser is a party or by which he
or any of his assets is bound.
(b) (i) The Purchaser understands that by the terms of this
Agreement he is purchasing shares of Common Stock issued and delivered by the
Company without compliance with the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the registration requirements of
the Securities Act and such laws, and without the approval, disapproval, or
passing on the merits by any regulatory authority; that for purposes of such
exemptions, the Company will rely upon the representations, warranties and
agreements of the Purchaser contained herein; and that such non-compliance with
registration requirements is not permissible unless such representations and
warranties are correct and such agreements performed.
<PAGE> 3
3
(ii) The Purchaser understands that the Company is under no
obligation to effect a registration under the Securities Act of the Shares to be
purchased by him hereunder. The Purchaser understands that, under existing rules
of the Securities and Exchange Commission (the "Commission"), he may be unable
to sell any of the Shares except to the extent that the Shares may be sold (A)
in a bona fide private placement to a purchaser who shall be subject to the same
restrictions on sale or (B) subject to the restrictions contained in Rule 144
under the Securities Act.
(iii) As a Director of the Company, the Purchaser is fully
familiar with the business, properties and financial condition of the Company,
and acknowledges that he has been afforded access to such additional information
concerning the Company as he considers necessary or appropriate to make an
informed investment decision. The Purchaser is an "accredited investor" as such
term is defined in Rule 501 under the Securities Act.
(iv) The Purchaser is a sophisticated investor familiar with the
type of risks inherent in the acquisition of securities such as the Common
Stock, and his financial position is such that he can afford to retain the
Shares for an indefinite period of time without realizing any direct or indirect
cash return on his investment.
(v) The Purchaser is acquiring the Shares pursuant to this
Agreement for his own account and not with a view to or for sale in connection
with the distribution thereof within the meaning of the Securities Act. The
Purchaser shall not effect a distribution of any Shares until either (A) he has
received the opinion of counsel for the Company that registration under the
Securities Act is not required or (B) a registration statement under the
Securities Act covering such Shares and the disposition thereof has become
effective under the Securities Act.
5. Restrictions on Transferability of the Shares. The Purchaser
hereby agrees that the Purchaser shall not sell, assign, transfer, gift, devise,
bequeath, deliver, pledge, hypothecate or otherwise dispose of any of the
Shares, except as provided for in this Agreement. Any disposition or purported
disposition of Shares in violation of this Agreement shall be null and void and
shall not be recorded on the books of the Company. Notwithstanding the
foregoing,
<PAGE> 4
4
(a) Disposition of Shares. Shares may be disposed of in the manner
set forth in Subsection (b) or (c) of this Section 5.
(b) Disposition of Shares.
(i) Shares held by the Purchaser may be transferred by the
Purchaser provided that the Purchaser first complies with the right to purchase
set forth in this Subsection (b). The Company shall have a right to purchase
Shares proposed to be sold by the Purchaser on the terms set forth in this
Subsection (b).
(ii) If the Purchaser wishes to dispose of the Shares, Purchaser
shall first obtain a bona fide written offer (the "Offer") for the purchase of
Shares which he wishes to dispose of. Such Offer shall be for cash or promissory
notes only. Promptly upon receipt of the Offer, the Purchaser shall give notice
to the Company (the "Offer Notice") of his intent to dispose of Shares, which
Offer Notice shall specify the name of the proposed purchaser, the number of
Shares (the "Offered Securities") the Purchaser desires to dispose of and the
price and terms of payment of such proposed disposition. Upon receipt of the
Offer Notice, the Company shall have the right to purchase all (but not less
than all) of the Offered Securities at the price and on the terms of the Offer.
Such right must be exercised by the Company by giving notice to that effect to
the Purchaser within a period of 20 days after the date of receipt of the Offer
Notice (any such notice of the exercise of such right being herein referred to
as an "Acceptance Notice").
(iii) In the event of the exercise by the Company of its right to
purchase pursuant to this Subsection (b), the Acceptance Notice shall specify
the time and date for purchase of the Offered Securities (the "Share Closing")
which shall be not more than 30 days after the expiration of the 20-day period
set forth in clause (b)(ii). The Purchaser shall deliver to the Company at the
Share Closing, which shall be held at the business headquarters of the Company,
the Offered Securities in due and proper form for transfer, against payment of
the purchase price by the Company.
(iv) If the Company shall fail or decline to agree to purchase
the Offered Securities within the 20-day period provided for in clause (b)(ii),
then the Purchaser shall have the right and privilege to sell all (but not less
than all) the Offered Securities, within 60 days after the expiration of such
20-day period, to the bona fide purchaser
<PAGE> 5
5
named in the Offer Notice, at the price and on terms of payment specified in the
Offer. If, for any reason, the Offered Securities are not sold within such
60-day period, the Offered Securities shall again become subject to the terms
and conditions of this Agreement.
(v) If, as of the Share Closing, any amount of principal of and
interest on any indebtedness of the Purchaser to the Company shall then be
outstanding, payment of the purchase price for the Offered Securities at the
Closing shall be made, at the Company's option, by a credit against such
indebtedness to the extent of the principal thereof and interest thereon then
outstanding (whether or not such principal and interest is then due and
payable).
(vi) The Company's right to purchase set forth in this Subsection
(b) shall terminate upon the occurrence of the closing of the initial sale by
the Company to the public of shares of the Common Stock pursuant to a
registration statement filed under the Securities Act, other than a registration
statement covering securities of the Company to be issued pursuant to an
employee benefit plan (such occurrence, the "Termination Event").
(c) Disposition to Family Members. Shares held by the Purchaser may
be transferred by the Purchaser to or for the benefit of the Purchaser or a
member of his immediate family. For the purpose of this Agreement, the term
"immediate family" of the Purchaser shall mean his spouse and children (and the
direct lineal descendants of his children). It shall be a condition to the
validity of any transfer of Shares permitted by the provisions of this
Subsection (c) that the transferee shall execute a copy of this Agreement, shall
hold such Shares subject to the provisions of this Agreement, and shall make no
further transfer of such Shares, except in compliance with the terms and
conditions of this Agreement.
6. Voting Agreement. (a) Except as hereinafter set forth, the
Purchaser agrees that, subject to the laws of the State of Delaware and the
terms of this Agreement, from the date of this Agreement until December 31, 2001
the Purchaser will vote all shares of Common Stock owned by the Purchaser in
favor of a Board of Directors which shall include John H. Foster and such other
persons designated by John H. Foster as shall together with John H. Foster
constitute a majority of such members.
(b) Notwithstanding any of the other terms or conditions set forth
in this Agreement, the parties hereto agree that the voting agreement set forth
in this Section 6
<PAGE> 6
6
shall terminate upon the occurrence of the Termination Event.
7. Come Along/Take Along.
(a) (i) In the event that Abbingdon Venture Partners Limited
Partnership, a Connecticut limited partnership ("Abbingdon-I"), Abbingdon
Venture Partners Limited Partnership-II, a Delaware limited partnership
("Abbingdon-II"), Abbingdon Venture Partners Limited Partnership-III, a Delaware
limited partnership ("Abbingdon-III"), and Business Development Capital Limited
Partnership-III, a Massachusetts limited partnership ("BDC- III" and together
with Abbingdon-I, Abbingdon-II and Abbingdon-III, the "Partnerships"), propose
to transfer substantially all of the shares of the Common Stock held by them (a
"Sale of Securities") other than to the public for cash pursuant to a
registration statement filed under the Securities Act, then the following
provisions of this Section 7 shall apply.
(ii) The Partnerships shall permit the Purchaser, or cause the
Purchaser to be permitted, to sell the same proportionate number of shares of
the Common Stock held by the Purchaser as the Partnerships shall sell of the
shares of the Common Stock held by the Partnerships, for the same consideration
and otherwise on the same terms and conditions to be received by the
Partnerships in the Sale of Securities.
(iii) The Partnerships shall have the right to request the
Purchaser to sell or cause to be sold the number of shares of the Common Stock
held by the Purchaser which bears the same proportion to the number of shares of
the Common Stock then held by the Purchaser as the number of shares of the
Common Stock being sold by the Partnerships bears to the total number of shares
of the Common Stock owned by the Partnerships (a "Purchaser Request").
(iv) Upon receipt by the Purchaser of a Purchaser Request, the
Purchaser will sell or will cause to be sold the appropriate number of shares of
the Common Stock held by the Purchaser for the consideration and otherwise on
the same terms and conditions received by the Partnerships.
(b) The obligations of the Partnerships under Section 7(a) hereof to
afford the Purchaser, or cause the Purchaser to be afforded, the rights referred
to therein will be discharged if the Purchaser is given written notice which
allows the Purchaser ten business days to exercise such rights (by written reply
addressed to such person as
<PAGE> 7
7
may be designated in the notice, and if requested in such notice, sent by
certified mail, return receipt requested), and within such ten business day
period the Purchaser has not given notice of exercise of such rights.
(c) All rights and obligations created by this Section 7 shall
terminate upon the earlier to occur of (i) the written agreement of the parties
hereto, or (ii) the Termination Event.
8. The Closing. As soon as practicable after the execution and
delivery of this Agreement, the Purchaser shall cause to be delivered to the
Company a check or checks payable to the order of the Company in the amount of
$500.00 in payment of the Purchase Price. Promptly upon receipt of such check or
checks, the Company shall deliver to the Purchaser a stock certificate
registered in the name of the Purchaser and representing the Shares.
9. Conditions to the Obligations of the Purchaser. The obligations
of the Purchaser to purchase the Shares pursuant hereto are subject, at his
option, to the accuracy of the representations and warranties of the Company
contained in Section 3.
10. Conditions to the Obligations of the Company. The obligations of
the Company to sell the Shares pursuant hereto are subject, at its option, to
the accuracy of the representations and warranties of the Purchaser contained in
Section 4.
11. Expenses. Each of the parties hereto shall pay its own expenses
in connection with the preparation, execution and delivery of this Agreement.
12. Notice. Any notice under this Agreement shall be in writing and
delivered personally or sent by certified mail, return receipt requested,
addressed, as the case may be, (i) to the Company at its address set forth at
the head of this Agreement or such other address as may hereafter be designated
by the Company by notice to the Purchaser in the manner provided herein; and
(ii) to the Purchaser at his address set forth at the head of this Agreement or
such other address as may hereafter be designated by the Purchaser by notice to
the Company in the manner provided herein. All notices personally delivered
shall be deemed to have been given when delivered and all notices sent by mail
shall be deemed to have been given three business days after mailing.
<PAGE> 8
8
13. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no modifications of or amendments to
this Agreement shall be binding on the parties hereto unless in writing and
signed by them.
16. Integration. This Agreement supersedes all prior understandings,
negotiations, and agreements relating to the subject matter hereof.
17. Severability. If any provision herein contained shall be held to
be illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.
18. Reorganization, Etc. The provisions of this Agreement shall
apply mutatis mutandis to any shares or other securities resulting from any
stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities resulting from any recapitalization,
consolidation, merger or reorganization of the Company and to any shares or
other securities of the Company or any successor company or of any parent of
such successor company which may be received by the Purchaser by virtue of his
ownership of any shares of Common Stock of the Company.
19. Captions. The captions appearing herein are for the convenience
of the parties only and shall not be construed to affect the meaning of the
provisions of this Agreement.
20. Legends on Certificates. During the term of this Agreement, each
of the certificates representing Shares shall contain upon its face or upon the
reverse side thereof legends to the following effect:
"This Certificate represents securities which are restricted and
which are
<PAGE> 9
9
subject to the terms and conditions of a Stock Purchase Agreement
dated November 25, 1996 by and between Colin C. Blaydon and the
Company (a copy of which is on file at the principal office of the
Company) and the rights, privileges and options therein contained.
No sale, transfer, assignment, pledge, hypothecation or other
disposition of this Certificate or any of the securities represented
hereby shall be made except in compliance with the terms and
conditions of said Stock Purchase Agreement.
The Shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may
not be transferred in violation of such Act."
* * *
<PAGE> 10
10
If you are in agreement with the foregoing, please execute and
deliver to the undersigned the enclosed counterpart of this Agreement, whereupon
this Agreement shall become a binding agreement between us.
Very truly yours,
VALLEY FORGE DENTAL ASSOCIATES, INC.
By /s/ Joseph J. Frank
-------------------------------------
Joseph J. Frank
Accepted and agreed to as President
aforesaid:
/s/ Colin C. Blaydon
- -------------------------------------
Colin C. Blaydon
The undersigned are executing this Agreement to indicate their agreement to
Section 7 hereof:
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
- ------------------------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
- -----------------------------------
<PAGE> 11
11
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
- ----------------------------------------
BUSINESS DEVELOPMENT CAPITAL
LIMITED PARTNERSHIP-III
By: BDC-III Partners, general partner
By /s/ Stephen F. Nagy
---------------------------------------
<PAGE> 1
EXHIBIT 10(w)
VALLEY FORGE DENTAL ASSOCIATES, INC.
c/o Foster Management Company
1018 West Ninth Avenue, Suite 310
King of Prussia, Pennsylvania 19406
December 17, 1996
Mr. W. Gary Liddick
314 South Balderston Drive
Exton, PA 19341
Dear Mr. Liddick:
The undersigned, Valley Forge Dental Associates, Inc., a Delaware
corporation (the "Company"), and you (the "Purchaser"), hereby agree as follows:
1. Authorization and Sale of the Shares. The Company has
authorized the issuance to the Purchaser of and proposes to sell to the
Purchaser pursuant hereto an aggregate of 5,000 shares (collectively, the
"Shares" and individually, a "Share") of its common stock, $.01 par value (the
"Common Stock"), at a price of $.10 per Share.
2. Purchase of the Shares by the Purchaser. Subject to the terms
and conditions hereof, the Purchaser hereby agrees to purchase the Shares from
the Company in reliance upon its representations and warranties herein
contained, and the Company hereby agrees to sell the Shares to the Purchaser in
reliance upon his representations and warranties herein contained, at an
aggregate purchase price (the "Purchase Price") of $500.00, in cash.
3. Representations, Warranties, and Agreements of the Company.
The Company represents and warrants to, and agrees with, the Purchaser as
follows:
(a) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(b) The Company has duly authorized the execution and delivery of
this Agreement and the issuance and delivery of the Shares and this Agreement
constitutes a valid and
<PAGE> 2
2
legally binding agreement of the Company, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
or other laws affecting generally the enforceability of creditors' rights and by
limitations on the availability of equitable remedies. The Shares, when issued
and delivered in accordance with this Agreement, shall have been duly issued and
shall be validly outstanding, fully paid and nonassessable shares of the Common
Stock.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall violate any provision
of the Certificate of Incorporation or By-laws of the Company or any statute,
ordinance, regulation, order, judgment or decree of any court or governmental
agency, or conflict with or result in any breach of any of the terms of,
constitute a default under, or result in the termination of or the creation of
any lien pursuant to the terms of, any contract or agreement to which the
Company is a party or by which the Company or any of its assets is bound.
4. Representations, Warranties, and Agreements of the Purchaser.
The Purchaser hereby represents and warrants to, and agrees with, the Company as
follows:
(a) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall conflict with or
result in any breach of any of the terms of, constitute a default under, or
result in the termination of or the creation of any lien pursuant to the terms
of, any contract or agreement to which the Purchaser is a party or by which he
or any of his assets is bound.
(b) (i) The Purchaser understands that by the terms of this
Agreement he is purchasing shares of Common Stock issued and delivered by the
Company without compliance with the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the registration requirements of
the Securities Act and such laws, and without the approval, disapproval, or
passing on the merits by any regulatory authority; that for purposes of such
exemptions, the Company will rely upon the representations, warranties and
agreements of the Purchaser contained herein; and that such non-compliance with
registration requirements is not permissible unless such representations and
warranties are correct and such agreements performed.
<PAGE> 3
3
(ii) The Purchaser understands that the Company is under no
obligation to effect a registration under the Securities Act of the Shares to be
purchased by him hereunder. The Purchaser understands that, under existing rules
of the Securities and Exchange Commission (the "Commission"), he may be unable
to sell any of the Shares except to the extent that the Shares may be sold (A)
in a bona fide private placement to a purchaser who shall be subject to the same
restrictions on sale or (B) subject to the restrictions contained in Rule 144
under the Securities Act.
(iii) As Vice President of Finance of the Company, the Purchaser is
fully familiar with the business, properties and financial condition of the
Company, and acknowledges that he has been afforded access to such additional
information concerning the Company as he considers necessary or appropriate to
make an informed investment decision. The Purchaser is an "accredited investor"
as such term is defined in Rule 501 under the Securities Act.
(iv) The Purchaser is a sophisticated investor familiar with the
type of risks inherent in the acquisition of securities such as the Common
Stock, and his financial position is such that he can afford to retain the
Shares for an indefinite period of time without realizing any direct or indirect
cash return on his investment.
(v) The Purchaser is acquiring the Shares pursuant to this
Agreement for his own account and not with a view to or for sale in connection
with the distribution thereof within the meaning of the Securities Act. The
Purchaser shall not effect a distribution of any Shares until either (A) he has
received the opinion of counsel for the Company that registration under the
Securities Act is not required or (B) a registration statement under the
Securities Act covering such Shares and the disposition thereof has become
effective under the Securities Act.
5. Restrictions on Transferability of the Shares. The Purchaser
hereby agrees that the Purchaser shall not sell, assign, transfer, gift, devise,
bequeath, deliver, pledge, hypothecate or otherwise dispose of any of the
Shares, except as provided for in this Agreement. Any disposition or purported
disposition of Shares in violation of this Agreement shall be null and void and
shall not be recorded on the books of the Company. Notwithstanding the
foregoing:
<PAGE> 4
4
(a) Disposition of Vested Shares and Shares which are not Vested
Shares. Shares which are "vested" in accordance with the following schedule (the
"Vested Shares") may be disposed of in the manner set forth in Subsection (b) or
(d) of this Section 5.
<TABLE>
<CAPTION>
Cumulative
percentage of
Shares which are
Vested Shares
----------------
<S> <C>
On or before December 16, 1997............................. 0%
December 17, 1997 to
December 16, 1998.......................................... 20
December 17, 1998 to
December 16, 1999.......................................... 40
December 17, 1999 to
December 16, 2000.......................................... 60
December 17, 2000 to
December 16, 2001.......................................... 80
On or after December 17, 2001.............................. 100
</TABLE>
Shares which are not Vested Shares (the "Unvested Shares") may be
disposed of only in the manner set forth in Subsection (c) or (d) of this
Section 5.
(b) Vested Shares.
(i) Vested Shares held by the Purchaser may be transferred by the
Purchaser provided that the Purchaser first complies with the right to purchase
set forth in this Subsection (b). The Company shall have a right to purchase any
Vested Shares proposed to be sold by the Purchaser on the terms set forth in
this Subsection (b).
(ii) If the Purchaser wishes to dispose of Vested Shares, the
Purchaser shall first obtain a bona fide written offer (the "Offer") for the
purchase of the Vested Shares which he wishes to dispose of. Such Offer shall be
for cash or promissory notes only. Promptly upon receipt of the Offer, the
Purchaser shall give notice to the Company (the "Offer Notice") of his intent to
dispose of Vested Shares, which Offer Notice shall specify the name of the
proposed purchaser, the number of Vested Shares (the "Offered Securities") the
Purchaser desires to dispose of and the price and terms of payment of such
proposed disposition. Upon receipt of the Offer Notice, the Company
<PAGE> 5
5
shall have the right to purchase all (but not less than all) of the Offered
Securities at the price and on the terms of the Offer. Such right must be
exercised by the Company by giving notice to that effect to the Purchaser within
a period of 20 days after the date of receipt of the Offer Notice (any such
notice of the exercise of such right being herein referred to as an "Acceptance
Notice").
(iii) In the event of the exercise by the Company of its right to
purchase pursuant to this Subsection (b), the Acceptance Notice shall specify
the time and date for purchase of the Offered Securities (the "Share Closing")
which shall be not more than 30 days after the expiration of the 20-day period
set forth in clause (b)(ii). The Purchaser shall deliver to the Company at the
Share Closing, which shall be held at the business headquarters of the Company,
the Offered Securities in due and proper form for transfer, against payment of
the purchase price by the Company.
(iv) If the Company shall fail or decline to agree to purchase the
Offered Securities within the 20-day period provided for in clause (b)(ii), then
the Purchaser shall have the right and privilege to sell all (but not less than
all) the Offered Securities, within 60 days after the expiration of such 20-day
period, to the bona fide purchaser named in the Offer Notice, at the price and
on terms of payment specified in the Offer. If, for any reason, the Offered
Securities are not sold within such 60-day period, the Offered Securities shall
again become subject to the terms and conditions of this Agreement.
(v) If, as of the Share Closing, any amount of principal of and
interest on any indebtedness of the Purchaser to the Company shall then be
outstanding, payment of the purchase price for the Offered Securities at the
Closing shall be made, at the Company's option, by a credit against such
indebtedness to the extent of the principal thereof and interest thereon then
outstanding (whether or not such principal and interest is then due and
payable).
(vi) The Company's right to purchase set forth in this Subsection
(b) shall terminate upon the occurrence of the closing of the initial sale by
the Company to the public of shares of the Common Stock pursuant to a
registration statement filed under the Securities Act, other than a registration
statement covering securities of the Company to be issued pursuant to an
employee benefit plan (such occurrence, the "Termination Event").
<PAGE> 6
6
(c) Termination of the Purchaser's Employment. (i) If the
Purchaser shall cease to serve as an employee of the Company, for any reason
whatsoever, the Company shall have the right (but not the obligation) to
purchase from the Purchaser all or any portion of the Unvested Shares owned by
the Purchaser at the time the Purchaser ceases to serve as an employee of the
Company. Such right to purchase shall be exercisable by written notice to that
effect given by the Company to the Purchaser within 60 days after the Purchaser
has ceased to serve as an employee of the Company, as aforesaid. Upon the giving
of such written notice, the Purchaser shall for all purposes cease to be a
stockholder of the Company as to the Unvested Shares covered by such notice and
shall have no rights against the Company or any other person in respect of such
Unvested Shares except the right to receive payment for such Unvested Shares in
accordance herewith. Notwithstanding the provisions of Subsection (a) of this
Section 5, Unvested Shares not so purchased by the Company shall upon the
expiration of such 60-day period become Vested Shares.
(ii) At the time and date specified in the notice given by the
Company referred to in clause (c)(i), which date shall in no event be more than
15 days after the expiration of the 60-day period for the exercise of the right
to purchase set forth therein, the Purchaser shall deliver to the Company, at
the business headquarters of the Company, the Unvested Shares to be sold by the
Purchaser in due and proper form for transfer, against payment by the Company of
the purchase price therefor, as determined in accordance with clause (c)(iv).
(iii) If at the time of payment of the purchase price referred to in
clause (c)(ii), any amount of principal of or interest on any indebtedness of
the Purchaser to the Company shall be outstanding, payment of the purchase price
for the Unvested Shares shall be made, at the Company's option, as a credit
against such indebtedness to the extent of the principal thereof and interest
thereon then outstanding (whether or not such principal and interest is then due
and payable).
(iv) The per Share purchase price for the Unvested Shares payable
by the Company pursuant to clause (c)(ii) shall be $0.10. The number of Unvested
Shares to be purchased and the per Share purchase price pursuant to this clause
(c)(iv) shall be appropriately adjusted by the Board of Directors of the Company
to reflect any subdivision or combination of the Common Stock of the Company or
any stock dividend or like event.
<PAGE> 7
7
(d) Disposition to Family Members. Shares held by the Purchaser
may be transferred by the Purchaser to or for the benefit of the Purchaser or a
member of his immediate family. For the purpose of this Agreement, the term
"immediate family" of the Purchaser shall mean his spouse and children (and the
direct lineal descendants of his children). It shall be a condition to the
validity of any transfer of Shares permitted by the provisions of this
Subsection (d) that the transferee shall execute a copy of this Agreement, shall
hold such Shares subject to the provisions of this Agreement, and shall make no
further transfer of such Shares, except in compliance with the terms and
conditions of this Agreement.
(e) Change in Ownership. If any person or group within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934 (the "1934 Act"), as
amended, and the rules and regulations promulgated thereunder, other than John
H. Foster, Stephen F. Nagy, or a person or group controlled, directly or
indirectly, by John H. Foster or Stephen F. Nagy, shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act), directly or
indirectly, of securities of the Company (or other securities convertible into
such securities) representing 50% or more of combined voting power of all
securities of the Company entitled to vote in the election of directors, then
any remaining Unvested Shares shall become fully vested, effective immediately
upon such change in ownership.
6. Voting Agreement. (a) Except as hereinafter set forth, the
Purchaser agrees that, subject to the laws of the State of Delaware and the
terms of this Agreement, from the date of this Agreement until December 31, 2001
the Purchaser will vote all shares of Common Stock owned by the Purchaser in
favor of a Board of Directors which shall include John H. Foster and such other
persons designated by John H. Foster as shall together with John H. Foster
constitute a majority of such members.
(b) Notwithstanding any of the other terms or conditions set forth
in this Agreement, the parties hereto agree that the voting agreement set forth
in this Section 6 shall terminate upon the occurrence of the Termination Event.
7. Come Along/Take Along.
(a) (i) In the event that Abbingdon Venture Partners Limited
Partnership, a Connecticut limited partnership ("Abbingdon-I"), Abbingdon
Venture Partners Limited Partnership-II, a Delaware limited partnership
<PAGE> 8
8
("Abbingdon-II"), Abbingdon Venture Partners Limited Partnership-III, a Delaware
limited partnership ("Abbingdon-III"), and Business Development Capital Limited
Partnership-III, a Massachusetts limited partnership ("BDC-III" and together
with Abbingdon-I, Abbingdon-II and Abbingdon-III, the "Partnerships"), propose
to transfer substantially all of the shares of the Common Stock held by them (a
"Sale of Securities") other than to the public for cash pursuant to a
registration statement filed under the Securities Act, then the following
provisions of this Section 7 shall apply.
(ii) The Partnerships shall permit the Purchaser, or cause the
Purchaser to be permitted, to sell the same proportionate number of shares of
the Common Stock held by the Purchaser as the Partnerships shall sell of the
shares of the Common Stock held by the Partnerships, for the same consideration
and otherwise on the same terms and conditions to be received by the
Partnerships in the Sale of Securities.
(iii) The Partnerships shall have the right to request the Purchaser
to sell or cause to be sold the number of shares of the Common Stock held by the
Purchaser which bears the same proportion to the number of shares of the Common
Stock then held by the Purchaser as the number of shares of the Common Stock
being sold by the Partnerships bears to the total number of shares of the Common
Stock owned by the Partnerships (a "Purchaser Request").
(iv) Upon receipt by the Purchaser of a Purchaser Request, the
Purchaser will sell or will cause to be sold the appropriate number of shares of
the Common Stock held by the Purchaser for the consideration and otherwise on
the same terms and conditions received by the Partnerships.
(b) The obligations of the Partnerships under Section 7(a) hereof
to afford the Purchaser, or cause the Purchaser to be afforded, the rights
referred to therein will be discharged if the Purchaser is given written notice
which allows the Purchaser ten business days to exercise such rights (by written
reply addressed to such person as may be designated in the notice, and if
requested in such notice, sent by certified mail, return receipt requested), and
within such ten business day period the Purchaser has not given notice of
exercise of such rights.
(c) All rights and obligations created by this Section 7 shall
terminate upon the earlier to occur of (i) the written agreement of the parties
hereto, or (ii) the Termination Event.
<PAGE> 9
9
8. The Closing. As soon as practicable after the execution and
delivery of this Agreement, the Purchaser shall cause to be delivered to the
Company a check or checks payable to the order of the Company in the amount of
$500.00, in payment of the Purchase Price. Promptly upon receipt of such check
or checks, the Company shall deliver to the Purchaser a stock certificate
registered in the name of the Purchaser and representing the Shares.
9. Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to purchase the Shares pursuant hereto are subject,
at his option, to the accuracy of the representations and warranties of the
Company contained in Section 3.
10. Conditions to the Obligations of the Company. The obligations
of the Company to sell the Shares pursuant hereto are subject, at its option, to
the accuracy of the representations and warranties of the Purchaser contained in
Section 4.
11. Expenses. Each of the parties hereto shall pay its own
expenses in connection with the preparation, execution and delivery of this
Agreement.
12. Notice. Any notice under this Agreement shall be in writing
and delivered personally or sent by certified mail, return receipt requested,
addressed, as the case may be, (i) to the Company at its address set forth at
the head of this Agreement or such other address as may hereafter be designated
by the Company by notice to the Purchaser in the manner provided herein; and
(ii) to the Purchaser at his address set forth at the head of this Agreement or
such other address as may hereafter be designated by the Purchaser by notice to
the Company in the manner provided herein. All notices personally delivered
shall be deemed to have been given when delivered and all notices sent by mail
shall be deemed to have been given three business days after mailing.
13. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth.
<PAGE> 10
10
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no modifications of or amendments to
this Agreement shall be binding on the parties hereto unless in writing and
signed by them.
16. Integration. This Agreement supersedes all prior
understandings, negotiations, and agreements relating to the subject matter
hereof.
17. Severability. If any provision herein contained shall be held
to be illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.
18. Reorganization, Etc. The provisions of this Agreement shall
apply mutatis mutandis to any shares or other securities resulting from any
stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities resulting from any recapitalization,
consolidation, merger or reorganization of the Company and to any shares or
other securities of the Company or any successor company or of any parent of
such successor company which may be received by the Purchaser by virtue of his
ownership of any shares of Common Stock of the Company.
19. Captions. The captions appearing herein are for the
convenience of the parties only and shall not be construed to affect the meaning
of the provisions of this Agreement.
20. Legends on Certificates. During the term of this Agreement,
each of the certificates representing Shares shall contain upon its face or upon
the reverse side thereof legends to the following effect:
"This Certificate represents securities which are restricted and which
are subject to the terms and conditions of a Stock Purchase Agreement
dated December 17, 1996 by and between W. Gary Liddick and the Company
(a copy of which is on file at the principal office of the Company) and
the rights, privileges and options therein contained. No sale,
transfer, assignment, pledge, hypothecation or other disposition of
this Certificate or any of the securities represented hereby shall be
<PAGE> 11
11
made except in compliance with the terms and conditions of said Stock
Purchase Agreement.
The Shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not
be transferred in violation of such Act."
* * *
<PAGE> 12
12
If you are in agreement with the foregoing, please execute and deliver
to the undersigned the enclosed counterpart of this Agreement, whereupon this
Agreement shall become a binding agreement between us.
Very truly yours,
VALLEY FORGE DENTAL ASSOCIATES, INC.
By /s/ Joseph J. Frank
------------------------------------
Accepted and agreed to as
aforesaid:
/s/ W. Gary Liddick
- -------------------------------------
W. Gary Liddick
The undersigned are executing
this Agreement to indicate
their agreement to Section 7
hereof:
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
- -------------------------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
- -------------------------------------
<PAGE> 13
13
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
- -------------------------------------
BUSINESS DEVELOPMENT CAPITAL
LIMITED PARTNERSHIP-III
By: BDC-III Partners, general partner
By /s/ Stephen F. Nagy
- -------------------------------------
<PAGE> 1
EXHIBIT 10(x)
VALLEY FORGE DENTAL ASSOCIATES, INC.
c/o Foster Management Company
1018 West Ninth Avenue, Suite 310
King of Prussia, Pennsylvania 19406
December 17, 1996
Ms. Jeanne Welsko
200 Whitetail Road
Glenmoore, PA 19343
Dear Ms. Welsko:
The undersigned, Valley Forge Dental Associates, Inc., a Delaware
corporation (the "Company"), and you (the "Purchaser"), hereby agree as follows:
1. Authorization and Sale of the Shares. The Company has authorized
the issuance to the Purchaser of and proposes to sell to the Purchaser pursuant
hereto an aggregate of 7,500 shares (collectively, the "Shares" and
individually, a "Share") of its common stock, $.01 par value (the "Common
Stock"), at a price of $.10 per Share.
2. Purchase of the Shares by the Purchaser. Subject to the terms and
conditions hereof, the Purchaser hereby agrees to purchase the Shares from the
Company in reliance upon its representations and warranties herein contained,
and the Company hereby agrees to sell the Shares to the Purchaser in reliance
upon her representations and warranties herein contained, at an aggregate
purchase price (the "Purchase Price") of $750.00, in cash.
3. Representations, Warranties, and Agreements of the Company. The
Company represents and warrants to, and agrees with, the Purchaser as follows:
(a) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(b) The Company has duly authorized the execution and delivery of
this Agreement and the issuance and delivery of the Shares and this Agreement
constitutes a valid and
<PAGE> 2
2
legally binding agreement of the Company, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
or other laws affecting generally the enforceability of creditors' rights and by
limitations on the availability of equitable remedies. The Shares, when issued
and delivered in accordance with this Agreement, shall have been duly issued and
shall be validly outstanding, fully paid and nonassessable shares of the Common
Stock.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall violate any provision
of the Certificate of Incorporation or By-laws of the Company or any statute,
ordinance, regulation, order, judgment or decree of any court or governmental
agency, or conflict with or result in any breach of any of the terms of,
constitute a default under, or result in the termination of or the creation of
any lien pursuant to the terms of, any contract or agreement to which the
Company is a party or by which the Company or any of its assets is bound.
4. Representations, Warranties, and Agreements of the Purchaser. The
Purchaser hereby represents and warrants to, and agrees with, the Company as
follows:
(a) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall conflict with or
result in any breach of any of the terms of, constitute a default under, or
result in the termination of or the creation of any lien pursuant to the terms
of, any contract or agreement to which the Purchaser is a party or by which she
or any of her assets is bound.
(b) (i) The Purchaser understands that by the terms of this
Agreement she is purchasing shares of Common Stock issued and delivered by the
Company without compliance with the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the registration requirements of
the Securities Act and such laws, and without the approval, disapproval, or
passing on the merits by any regulatory authority; that for purposes of such
exemptions, the Company will rely upon the representations, warranties and
agreements of the Purchaser contained herein; and that such non-compliance with
registration requirements is not permissible unless such representations and
warranties are correct and such agreements performed.
<PAGE> 3
3
(ii) The Purchaser understands that the Company is under no
obligation to effect a registration under the Securities Act of the Shares to be
purchased by her hereunder. The Purchaser understands that, under existing rules
of the Securities and Exchange Commission (the "Commission"), she may be unable
to sell any of the Shares except to the extent that the Shares may be sold (A)
in a bona fide private placement to a purchaser who shall be subject to the same
restrictions on sale or (B) subject to the restrictions contained in Rule 144
under the Securities Act.
(iii) As Vice President of Human Resources of the Company, the
Purchaser is fully familiar with the business, properties and financial
condition of the Company, and acknowledges that she has been afforded access to
such additional information concerning the Company as she considers necessary or
appropriate to make an informed investment decision. The Purchaser is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act.
(iv) The Purchaser is a sophisticated investor familiar with the
type of risks inherent in the acquisition of securities such as the Common
Stock, and her financial position is such that she can afford to retain the
Shares for an indefinite period of time without realizing any direct or indirect
cash return on her investment.
(v) The Purchaser is acquiring the Shares pursuant to this
Agreement for her own account and not with a view to or for sale in connection
with the distribution thereof within the meaning of the Securities Act. The
Purchaser shall not effect a distribution of any Shares until either (A) she has
received the opinion of counsel for the Company that registration under the
Securities Act is not required or (B) a registration statement under the
Securities Act covering such Shares and the disposition thereof has become
effective under the Securities Act.
5. Restrictions on Transferability of the Shares. The Purchaser
hereby agrees that the Purchaser shall not sell, assign, transfer, gift, devise,
bequeath, deliver, pledge, hypothecate or otherwise dispose of any of the
Shares, except as provided for in this Agreement. Any disposition or purported
disposition of Shares in violation of this Agreement shall be null and void and
shall not be recorded on the books of the Company. Notwithstanding the
foregoing:
<PAGE> 4
4
(a) Disposition of Vested Shares and Shares which are not Vested
Shares. Shares which are "vested" in accordance with the following schedule (the
"Vested Shares") may be disposed of in the manner set forth in Subsection (b) or
(d) of this Section 5.
<TABLE>
<CAPTION>
Cumulative
percentage of
Shares which are
Vested Shares
----------------------
<S> <C>
On or before October 28, 1997................... 0%
October 29, 1997 to
October 28, 1998................................ 20
October 29, 1998 to
October 28, 1999................................ 40
October 29, 1999 to
October 28, 2000................................ 60
October 29, 2000 to
October 28, 2001................................ 80
On or after October 29, 2001.................... 100
</TABLE>
Shares which are not Vested Shares (the "Unvested Shares") may be
disposed of only in the manner set forth in Subsection (c) or (d) of this
Section 5.
(b) Vested Shares.
(i) Vested Shares held by the Purchaser may be transferred by
the Purchaser provided that the Purchaser first complies with the right to
purchase set forth in this Subsection (b). The Company shall have a right to
purchase any Vested Shares proposed to be sold by the Purchaser on the terms set
forth in this Subsection (b).
(ii) If the Purchaser wishes to dispose of Vested Shares, the
Purchaser shall first obtain a bona fide written offer (the "Offer") for the
purchase of the Vested Shares which she wishes to dispose of. Such Offer shall
be for cash or promissory notes only. Promptly upon receipt of the Offer, the
Purchaser shall give notice to the Company (the "Offer Notice") of her intent to
dispose of Vested Shares, which Offer Notice shall specify the name of the
proposed purchaser, the number of Vested Shares (the "Offered Securities") the
Purchaser desires to dispose of and the price and terms of payment of such
proposed disposition. Upon receipt of the Offer Notice, the Company
<PAGE> 5
5
shall have the right to purchase all (but not less than all) of the Offered
Securities at the price and on the terms of the Offer. Such right must be
exercised by the Company by giving notice to that effect to the Purchaser within
a period of 20 days after the date of receipt of the Offer Notice (any such
notice of the exercise of such right being herein referred to as an "Acceptance
Notice").
(iii) In the event of the exercise by the Company of its right to
purchase pursuant to this Subsection (b), the Acceptance Notice shall specify
the time and date for purchase of the Offered Securities (the "Share Closing")
which shall be not more than 30 days after the expiration of the 20-day period
set forth in clause (b)(ii). The Purchaser shall deliver to the Company at the
Share Closing, which shall be held at the business headquarters of the Company,
the Offered Securities in due and proper form for transfer, against payment of
the purchase price by the Company.
(iv) If the Company shall fail or decline to agree to purchase
the Offered Securities within the 20-day period provided for in clause (b)(ii),
then the Purchaser shall have the right and privilege to sell all (but not less
than all) the Offered Securities, within 60 days after the expiration of such
20-day period, to the bona fide purchaser named in the Offer Notice, at the
price and on terms of payment specified in the Offer. If, for any reason, the
Offered Securities are not sold within such 60-day period, the Offered
Securities shall again become subject to the terms and conditions of this
Agreement.
(v) If, as of the Share Closing, any amount of principal of and
interest on any indebtedness of the Purchaser to the Company shall then be
outstanding, payment of the purchase price for the Offered Securities at the
Closing shall be made, at the Company's option, by a credit against such
indebtedness to the extent of the principal thereof and interest thereon then
outstanding (whether or not such principal and interest is then due and
payable).
(vi) The Company's right to purchase set forth in this Subsection
(b) shall terminate upon the occurrence of the closing of the initial sale by
the Company to the public of shares of the Common Stock pursuant to a
registration statement filed under the Securities Act, other than a registration
statement covering securities of the Company to be issued pursuant to an
employee benefit plan (such occurrence, the "Termination Event").
<PAGE> 6
6
(c) Termination of the Purchaser's Employment. (i) If the Purchaser
shall cease to serve as an employee of the Company, for any reason whatsoever,
the Company shall have the right (but not the obligation) to purchase from the
Purchaser all or any portion of the Unvested Shares owned by the Purchaser at
the time the Purchaser ceases to serve as an employee of the Company. Such right
to purchase shall be exercisable by written notice to that effect given by the
Company to the Purchaser within 60 days after the Purchaser has ceased to serve
as an employee of the Company, as aforesaid. Upon the giving of such written
notice, the Purchaser shall for all purposes cease to be a stockholder of the
Company as to the Unvested Shares covered by such notice and shall have no
rights against the Company or any other person in respect of such Unvested
Shares except the right to receive payment for such Unvested Shares in
accordance herewith. Notwithstanding the provisions of Subsection (a) of this
Section 5, Unvested Shares not so purchased by the Company shall upon the
expiration of such 60-day period become Vested Shares.
(ii) At the time and date specified in the notice given by the
Company referred to in clause (c)(i), which date shall in no event be more than
15 days after the expiration of the 60-day period for the exercise of the right
to purchase set forth therein, the Purchaser shall deliver to the Company, at
the business headquarters of the Company, the Unvested Shares to be sold by the
Purchaser in due and proper form for transfer, against payment by the Company of
the purchase price therefor, as determined in accordance with clause (c)(iv).
(iii) If at the time of payment of the purchase price referred to
in clause (c)(ii), any amount of principal of or interest on any indebtedness of
the Purchaser to the Company shall be outstanding, payment of the purchase price
for the Unvested Shares shall be made, at the Company's option, as a credit
against such indebtedness to the extent of the principal thereof and interest
thereon then outstanding (whether or not such principal and interest is then due
and payable).
(iv) The per Share purchase price for the Unvested Shares payable
by the Company pursuant to clause (c)(ii) shall be $0.10. The number of Unvested
Shares to be purchased and the per Share purchase price pursuant to this clause
(c)(iv) shall be appropriately adjusted by the Board of Directors of the Company
to reflect any subdivision or combination of the Common Stock of the Company or
any stock dividend or like event.
<PAGE> 7
7
(d) Disposition to Family Members. Shares held by the Purchaser may
be transferred by the Purchaser to or for the benefit of the Purchaser or a
member of her immediate family. For purposes of this Agreement, the term
"immediate family" of the Purchaser shall mean her spouse and children (and the
direct lineal descendants of her children). It shall be a condition to the
validity of any transfer of Shares permitted by the provisions of this
Subsection (d) that the transferee shall execute a copy of this Agreement, shall
hold such Shares subject to the provisions of this Agreement, and shall make no
further transfer of such Shares, except in compliance with the terms and
conditions of this Agreement.
(e) Change in Ownership. If any person or group within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934 (the "1934 Act"), as
amended, and the rules and regulations promulgated thereunder, other than John
H. Foster, Stephen F. Nagy, or a person or group controlled, directly or
indirectly, by John H. Foster or Stephen F. Nagy, shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act), directly or
indirectly, of securities of the Company (or other securities convertible into
such securities) representing 50% or more of combined voting power of all
securities of the Company entitled to vote in the election of directors, then
any remaining Unvested Shares shall become fully vested, effective immediately
upon such change in ownership.
6. Voting Agreement. (a) Except as hereinafter set forth, the
Purchaser agrees that, subject to the laws of the State of Delaware and the
terms of this Agreement, from the date of this Agreement until December 31, 2001
the Purchaser will vote all shares of Common Stock owned by the Purchaser in
favor of a Board of Directors which shall include John H. Foster and such other
persons designated by John H. Foster as shall together with John H. Foster
constitute a majority of such members.
(b) Notwithstanding any of the other terms or conditions set forth
in this Agreement, the parties hereto agree that the voting agreement set forth
in this Section 6 shall terminate upon the occurrence of the Termination Event.
7. Come Along/Take Along.
(a) (i) In the event that Abbingdon Venture Partners Limited
Partnership, a Connecticut limited partnership ("Abbingdon-I"), Abbingdon
Venture Partners Limited Partnership-II, a Delaware limited partnership
<PAGE> 8
8
("Abbingdon-II"), Abbingdon Venture Partners Limited Partnership-III, a Delaware
limited partnership ("Abbingdon-III"), and Business Development Capital Limited
Partnership-III, a Massachusetts limited partnership ("BDC-III" and together
with Abbingdon-I, Abbingdon-II and Abbingdon-III, the "Partnerships"), propose
to transfer substantially all of the shares of the Common Stock held by them (a
"Sale of Securities") other than to the public for cash pursuant to a
registration statement filed under the Securities Act, then the following
provisions of this Section 7 shall apply.
(ii) The Partnerships shall permit the Purchaser, or cause the
Purchaser to be permitted, to sell the same proportionate number of shares of
the Common Stock held by the Purchaser as the Partnerships shall sell of the
shares of the Common Stock held by the Partnerships, for the same consideration
and otherwise on the same terms and conditions to be received by the
Partnerships in the Sale of Securities.
(iii) The Partnerships shall have the right to request the
Purchaser to sell or cause to be sold the number of shares of the Common Stock
held by the Purchaser which bears the same proportion to the number of shares of
the Common Stock then held by the Purchaser as the number of shares of the
Common Stock being sold by the Partnerships bears to the total number of shares
of the Common Stock owned by the Partnerships (a "Purchaser Request").
(iv) Upon receipt by the Purchaser of a Purchaser Request, the
Purchaser will sell or will cause to be sold the appropriate number of shares of
the Common Stock held by the Purchaser for the consideration and otherwise on
the same terms and conditions received by the Partnerships.
(b) The obligations of the Partnerships under Section 7(a) hereof to
afford the Purchaser, or cause the Purchaser to be afforded, the rights referred
to therein will be discharged if the Purchaser is given written notice which
allows the Purchaser ten business days to exercise such rights (by written reply
addressed to such person as may be designated in the notice, and if requested in
such notice, sent by certified mail, return receipt requested), and within such
ten business day period the Purchaser has not given notice of exercise of such
rights.
(c) All rights and obligations created by this Section 7 shall
terminate upon the earlier to occur of (i) the written agreement of the parties
hereto, or (ii) the Termination Event.
<PAGE> 9
9
8. The Closing. As soon as practicable after the execution and
delivery of this Agreement, the Purchaser shall cause to be delivered to the
Company a check or checks payable to the order of the Company in the amount of
$750.00 in payment of the Purchase Price. Promptly upon receipt of such check or
checks, the Company shall deliver to the Purchaser a stock certificate
registered in the name of the Purchaser and representing the Shares.
9. Conditions to the Obligations of the Purchaser. The obligations
of the Purchaser to purchase the Shares pursuant hereto are subject, at her
option, to the accuracy of the representations and warranties of the Company
contained in Section 3.
10. Conditions to the Obligations of the Company. The obligations of
the Company to sell the Shares pursuant hereto are subject, at its option, to
the accuracy of the representations and warranties of the Purchaser contained in
Section 4.
11. Expenses. Each of the parties hereto shall pay its own expenses
in connection with the preparation, execution and delivery of this Agreement.
12. Notice. Any notice under this Agreement shall be in writing and
delivered personally or sent by certified mail, return receipt requested,
addressed, as the case may be, (i) to the Company at its address set forth at
the head of this Agreement or such other address as may hereafter be designated
by the Company by notice to the Purchaser in the manner provided herein; and
(ii) to the Purchaser at her address set forth at the head of this Agreement or
such other address as may hereafter be designated by the Purchaser by notice to
the Company in the manner provided herein. All notices personally delivered
shall be deemed to have been given when delivered and all notices sent by mail
shall be deemed to have been given three business days after mailing.
13. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth.
<PAGE> 10
10
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no modifications of or amendments to
this Agreement shall be binding on the parties hereto unless in writing and
signed by them.
16. Integration. This Agreement supersedes all prior understandings,
negotiations, and agreements relating to the subject matter hereof.
17. Severability. If any provision herein contained shall be held to
be illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.
18. Reorganization, Etc. The provisions of this Agreement shall
apply mutatis mutandis to any shares or other securities resulting from any
stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities resulting from any recapitalization,
consolidation, merger or reorganization of the Company and to any shares or
other securities of the Company or any successor company or of any parent of
such successor company which may be received by the Purchaser by virtue of her
ownership of any shares of Common Stock of the Company.
19. Captions. The captions appearing herein are for the convenience
of the parties only and shall not be construed to affect the meaning of the
provisions of this Agreement.
20. Legends on Certificates. During the term of this Agreement, each
of the certificates representing Shares shall contain upon its face or upon the
reverse side thereof legends to the following effect:
"This Certificate represents securities which are restricted and
which are subject to the terms and conditions of a Stock Purchase
Agreement dated December 17, 1996 by and between Jeanne Welsko and
the Company (a copy of which is on file at the principal office of
the Company) and the rights, privileges and options therein
contained. No sale, transfer, assignment, pledge, hypothecation or
other disposition of this Certificate or any of the securities
represented hereby shall be
<PAGE> 11
11
made except in compliance with the terms and conditions of said
Stock Purchase Agreement.
The Shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may
not be transferred in violation of such Act."
* * *
<PAGE> 12
12
If you are in agreement with the foregoing, please execute and
deliver to the undersigned the enclosed counterpart of this Agreement, whereupon
this Agreement shall become a binding agreement between us.
Very truly yours,
VALLEY FORGE DENTAL ASSOCIATES, INC.
By /s/ Joseph J. Frank
-----------------------------------
Accepted and agreed to as
aforesaid:
/s/ Jeanne Welsko
- --------------------------------------
Jeanne Welsko
The undersigned are executing this Agreement to indicate their agreement to
Section 7 hereof:
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
- -------------------------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
------------------------------------
<PAGE> 13
13
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
-----------------------------------
BUSINESS DEVELOPMENT CAPITAL
LIMITED PARTNERSHIP-III
By: BDC-III Partners, general partner
By /s/ Stephen F. Nagy
- -------------------------------------
<PAGE> 1
EXHIBIT 10(y)
VALLEY FORGE DENTAL ASSOCIATES, INC.
c/o Foster Management Company
1018 West Ninth Avenue, Suite 310
King of Prussia, Pennsylvania 19406
December 17, 1996
Mr. Joseph J. Frank
121 Millrace Drive
Lancaster, PA 17630
Dear Mr. Frank:
The undersigned, Valley Forge Dental Associates, Inc., a
Delaware corporation (the "Company"), and you (the "Purchaser"), hereby agree as
follows:
1. Authorization and Sale of the Shares. The Company has
authorized the issuance to the Purchaser of and proposes to sell to the
Purchaser pursuant hereto an aggregate of 150,000 shares (collectively, the
"Shares" and individually, a "Share") of its common stock, $.01 par value (the
"Common Stock"), at a price of $.10 per Share.
2. Purchase of the Shares by the Purchaser. Subject to the
terms and conditions hereof, the Purchaser hereby agrees to purchase the Shares
from the Company in reliance upon its representations and warranties herein
contained, and the Company hereby agrees to sell the Shares to the Purchaser in
reliance upon his representations and warranties herein contained, at an
aggregate purchase price (the "Purchase Price") of $15,000.00 in cash.
3. Representations, Warranties, and Agreements of the Company.
The Company represents and warrants to, and agrees with, the Purchaser as
follows:
(a) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware.
(b) The Company has duly authorized the execution and delivery
of this Agreement and the issuance and delivery
<PAGE> 2
2
of the Shares and this Agreement constitutes a valid and legally binding
agreement of the Company, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, or other laws
affecting generally the enforceability of creditors' rights and by limitations
on the availability of equitable remedies. The Shares, when issued and delivered
in accordance with this Agreement, shall have been duly issued and shall be
validly outstanding, fully paid and nonassessable shares of the Common Stock.
(c) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated herein shall violate any
provision of the Certificate of Incorporation or By-laws of the Company or any
statute, ordinance, regulation, order, judgment or decree of any court or
governmental agency, or conflict with or result in any breach of any of the
terms of, constitute a default under, or result in the termination of or the
creation of any lien pursuant to the terms of, any contract or agreement to
which the Company is a party or by which the Company or any of its assets is
bound.
4. Representations, Warranties, and Agreements of the
Purchaser. The Purchaser hereby represents and warrants to, and agrees with, the
Company as follows:
(a) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated herein shall conflict with or
result in any breach of any of the terms of, constitute a default under, or
result in the termination of or the creation of any lien pursuant to the terms
of, any contract or agreement to which the Purchaser is a party or by which he
or any of his assets is bound.
(b) (i) The Purchaser understands that by the terms of this
Agreement he is purchasing shares of Common Stock issued and delivered by the
Company without compliance with the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the registration requirements of
the Securities Act and such laws, and without the approval, disapproval, or
passing on the merits by any regulatory authority; that for purposes of such
exemptions, the Company will rely upon the representations, warranties and
agreements of the Purchaser contained herein; and that such non-compliance with
registration requirements is not permissible unless such representations and
warranties are correct and such agreements performed.
<PAGE> 3
3
(ii) The Purchaser understands that the Company is under
no obligation to effect a registration under the Securities Act of the Shares to
be purchased by him hereunder. The Purchaser understands that, under existing
rules of the Securities and Exchange Commission (the "Commission"), he may be
unable to sell any of the Shares except to the extent that the Shares may be
sold (A) in a bona fide private placement to a purchaser who shall be subject to
the same restrictions on sale or (B) subject to the restrictions contained in
Rule 144 under the Securities Act.
(iii) As President and Chief Operating Officer of the
Company, the Purchaser is fully familiar with the business, properties and
financial condition of the Company, and acknowledges that he has been afforded
access to such additional information concerning the Company as he considers
necessary or appropriate to make an informed investment decision. The Purchaser
is an "accredited investor" as such term is defined in Rule 501 under the
Securities Act.
(iv) The Purchaser is a sophisticated investor familiar
with the type of risks inherent in the acquisition of securities such as the
Common Stock, and his financial position is such that he can afford to retain
the Shares for an indefinite period of time without realizing any direct or
indirect cash return on his investment.
(v) The Purchaser is acquiring the Shares pursuant to this
Agreement for his own account and not with a view to or for sale in connection
with the distribution thereof within the meaning of the Securities Act. The
Purchaser shall not effect a distribution of any Shares until either (A) he has
received the opinion of counsel for the Company that registration under the
Securities Act is not required or (B) a registration statement under the
Securities Act covering such Shares and the disposition thereof has become
effective under the Securities Act.
5. Restrictions on Transferability of the Shares. The
Purchaser hereby agrees that the Purchaser shall not sell, assign, transfer,
gift, devise, bequeath, deliver, pledge, hypothecate or otherwise dispose of any
of the Shares, except as provided for in this Agreement. Any disposition or
purported disposition of Shares in violation of this Agreement shall be null and
void and shall not be recorded on the books of the Company. Notwithstanding the
foregoing:
<PAGE> 4
4
(a) Disposition of Vested Shares and Shares which are not
Vested Shares. Shares which are "vested" in accordance with the following
schedule (the "Vested Shares") may be disposed of in the manner set forth in
Subsection (b) or (d) of this Section 5.
<TABLE>
<CAPTION>
Cumulative
percentage of
Shares which are
Vested Shares
---------------------
<S> <C>
On or before June 22, 1997............................................ 0%
June 23, 1997 to
June 22, 1998......................................................... 20
June 23, 1998 to
June 22, 1999......................................................... 40
June 23, 1999 to
June 22, 2000......................................................... 60
June 23, 2000 to
June 22, 2001......................................................... 80
On or after June 23, 2001............................................. 100
</TABLE>
Shares which are not Vested Shares (the "Unvested Shares") may
be disposed of only in the manner set forth in Subsection (c) or (d) of this
Section 5.
(b) Vested Shares.
(i) Vested Shares held by the Purchaser may be
transferred by the Purchaser provided that the Purchaser first complies with the
right to purchase set forth in this Subsection (b). The Company shall have a
right to purchase any Vested Shares proposed to be sold by the Purchaser on the
terms set forth in this Subsection (b).
(ii) If the Purchaser wishes to dispose of
Vested Shares, the Purchaser shall first obtain a bona fide written offer (the
"Offer") for the purchase of the Vested Shares which he wishes to dispose of.
Such Offer shall be for cash or promissory notes only. Promptly upon receipt of
the Offer, the Purchaser shall give notice to the Company (the "Offer Notice")
of his intent to dispose of Vested Shares, which Offer Notice shall specify the
name of the proposed purchaser, the number of Vested Shares (the "Offered
Securities") the Purchaser desires to dispose of and the price and terms of
payment of such proposed disposition. Upon receipt of the Offer Notice, the
Company
<PAGE> 5
5
shall have the right to purchase all (but not less than all) of the Offered
Securities at the price and on the terms of the Offer. Such right must be
exercised by the Company by giving notice to that effect to the Purchaser within
a period of 20 days after the date of receipt of the Offer Notice (any such
notice of the exercise of such right being herein referred to as an "Acceptance
Notice").
(iii) In the event of the exercise by the Company
of its right to purchase pursuant to this Subsection (b), the Acceptance Notice
shall specify the time and date for purchase of the Offered Securities (the
"Share Closing") which shall be not more than 30 days after the expiration of
the 20-day period set forth in clause (b)(ii). The Purchaser shall deliver to
the Company at the Share Closing, which shall be held at the business
headquarters of the Company, the Offered Securities in due and proper form for
transfer, against payment of the purchase price by the Company.
(iv) If the Company shall fail or decline to
agree to purchase the Offered Securities within the 20-day period provided for
in clause (b)(ii), then the Purchaser shall have the right and privilege to sell
all (but not less than all) the Offered Securities, within 60 days after the
expiration of such 20-day period, to the bona fide purchaser named in the Offer
Notice, at the price and on terms of payment specified in the Offer. If, for any
reason, the Offered Securities are not sold within such 60-day period, the
Offered Securities shall again become subject to the terms and conditions of
this Agreement.
(v) If, as of the Share Closing, any amount of
principal of and interest on any indebtedness of the Purchaser to the Company
shall then be outstanding, payment of the purchase price for the Offered
Securities at the Closing shall be made, at the Company's option, by a credit
against such indebtedness to the extent of the principal thereof and interest
thereon then outstanding (whether or not such principal and interest is then due
and payable).
(vi) The Company's right to purchase set forth
in this Subsection (b) shall terminate upon the occurrence of the closing of the
initial sale by the Company to the public of shares of the Common Stock pursuant
to a registration statement filed under the Securities Act, other than a
registration statement covering securities of the Company to be issued pursuant
to an employee benefit plan (such occurrence, the "Termination Event").
<PAGE> 6
6
(c) Termination of the Purchaser's Employment. (i) If the
Purchaser shall cease to serve as an employee of the Company, for any reason
whatsoever, the Company shall have the right (but not the obligation) to
purchase from the Purchaser all or any portion of the Unvested Shares owned by
the Purchaser at the time the Purchaser ceases to serve as an employee of the
Company. Such right to purchase shall be exercisable by written notice to that
effect given by the Company to the Purchaser within 60 days after the Purchaser
has ceased to serve as an employee of the Company, as aforesaid. Upon the giving
of such written notice, the Purchaser shall for all purposes cease to be a
stockholder of the Company as to the Unvested Shares covered by such notice and
shall have no rights against the Company or any other person in respect of such
Unvested Shares except the right to receive payment for such Unvested Shares in
accordance herewith. Notwithstanding the provisions of Subsection (a) of this
Section 5, Unvested Shares not so purchased by the Company shall upon the
expiration of such 60-day period become Vested Shares.
(ii) At the time and date specified in the notice given
by the Company referred to in clause (c)(i), which date shall in no event be
more than 15 days after the expiration of the 60-day period for the exercise of
the right to purchase set forth therein, the Purchaser shall deliver to the
Company, at the business headquarters of the Company, the Unvested Shares to be
sold by the Purchaser in due and proper form for transfer, against payment by
the Company of the purchase price therefor, as determined in accordance with
clause (c)(iv).
(iii) If at the time of payment of the purchase price
referred to in clause (c)(ii), any amount of principal of or interest on any
indebtedness of the Purchaser to the Company shall be outstanding, payment of
the purchase price for the Unvested Shares shall be made, at the Company's
option, as a credit against such indebtedness to the extent of the principal
thereof and interest thereon then outstanding (whether or not such principal and
interest is then due and payable).
(iv) The per Share purchase price for the Unvested
Shares payable by the Company pursuant to clause (c)(ii) shall be $0.10. The
number of Unvested Shares to be purchased and the per Share purchase price
pursuant to this clause (c)(iv) shall be appropriately adjusted by the Board of
Directors of the Company to reflect any subdivision or combination of the Common
Stock of the Company or any stock dividend or like event.
<PAGE> 7
7
(d) Disposition to Family Members. Shares held by the
Purchaser may be transferred by the Purchaser to or for the benefit of the
Purchaser or a member of his immediate family. For purposes of this Agreement,
the term "immediate family" of the Purchaser shall mean his spouse and children
(and the direct lineal descendants of his children). It shall be a condition to
the validity of any transfer of Shares permitted by the provisions of this
Subsection (d) that the transferee shall execute a copy of this Agreement, shall
hold such Shares subject to the provisions of this Agreement, and shall make no
further transfer of such Shares, except in compliance with the terms and
conditions of this Agreement.
(e) Change in Ownership. If any person or group within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 (the "1934
Act"), as amended, and the rules and regulations promulgated thereunder, other
than John H. Foster, Stephen F. Nagy, or a person or group controlled, directly
or indirectly, by John H. Foster or Stephen F. Nagy, shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act),
directly or indirectly, of securities of the Company (or other securities
convertible into such securities) representing 50% or more of combined voting
power of all securities of the Company entitled to vote in the election of
directors, then any remaining Unvested Shares shall become fully vested,
effective immediately upon such change in ownership.
6. Voting Agreement. (a) Except as hereinafter set forth, the
Purchaser agrees that, subject to the laws of the State of Delaware and the
terms of this Agreement, from the date of this Agreement until December 31, 2001
the Purchaser will vote all shares of Common Stock owned by the Purchaser in
favor of a Board of Directors which shall include John H. Foster and such other
persons designated by John H. Foster as shall together with John H. Foster
constitute a majority of such members.
(b) Notwithstanding any of the other terms or conditions set
forth in this Agreement, the parties hereto agree that the voting agreement set
forth in this Section 6 shall terminate upon the occurrence of the Termination
Event.
7. Come Along/Take Along.
(a) (i) In the event that Abbingdon Venture Partners Limited
Partnership, a Connecticut limited partnership ("Abbingdon-I"), Abbingdon
Venture Partners Limited Partnership-II, a Delaware limited partnership
<PAGE> 8
8
("Abbingdon-II"), Abbingdon Venture Partners Limited Partnership-III, a Delaware
limited partnership ("Abbingdon-III"), and Business Development Capital Limited
Partnership-III, a Massachusetts limited partnership ("BDC-III" and together
with Abbingdon-I, Abbingdon-II and Abbingdon-III, the "Partnerships"), propose
to transfer substantially all of the shares of the Common Stock held by them (a
"Sale of Securities") other than to the public for cash pursuant to a
registration statement filed under the Securities Act, then the following
provisions of this Section 7 shall apply.
(ii) The Partnerships shall permit the Purchaser, or
cause the Purchaser to be permitted, to sell the same proportionate number of
shares of the Common Stock held by the Purchaser as the Partnerships shall sell
of the shares of the Common Stock held by the Partnerships, for the same
consideration and otherwise on the same terms and conditions to be received by
the Partnerships in the Sale of Securities.
(iii) The Partnerships shall have the right to request
the Purchaser to sell or cause to be sold the number of shares of the Common
Stock held by the Purchaser which bears the same proportion to the number of
shares of the Common Stock then held by the Purchaser as the number of shares of
the Common Stock being sold by the Partnerships bears to the total number of
shares of the Common Stock owned by the Partnerships (a "Purchaser Request").
(iv) Upon receipt by the Purchaser of a Purchaser
Request, the Purchaser will sell or will cause to be sold the appropriate number
of shares of the Common Stock held by the Purchaser for the consideration and
otherwise on the same terms and conditions received by the Partnerships.
(b) The obligations of the Partnerships under Section 7(a)
hereof to afford the Purchaser, or cause the Purchaser to be afforded, the
rights referred to therein will be discharged if the Purchaser is given written
notice which allows the Purchaser ten business days to exercise such rights (by
written reply addressed to such person as may be designated in the notice, and
if requested in such notice, sent by certified mail, return receipt requested),
and within such ten business day period the Purchaser has not given notice of
exercise of such rights.
(c) All rights and obligations created by this Section 7 shall
terminate upon the earlier to occur of (i) the written agreement of the parties
hereto, or (ii) the Termination Event.
<PAGE> 9
9
8. The Closing. As soon as practicable after the execution and
delivery of this Agreement, the Purchaser shall cause to be delivered to the
Company a check or checks payable to the order of the Company in the amount of
$15,000.00 in payment of the Purchase Price. Promptly upon receipt of such check
or checks, the Company shall deliver to the Purchaser a stock certificate
registered in the name of the Purchaser and representing the Shares.
9. Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to purchase the Shares pursuant hereto are subject,
at his option, to the accuracy of the representations and warranties of the
Company contained in Section 3.
10. Conditions to the Obligations of the Company. The
obligations of the Company to sell the Shares pursuant hereto are subject, at
its option, to the accuracy of the representations and warranties of the
Purchaser contained in Section 4.
11. Expenses. Each of the parties hereto shall pay its own
expenses in connection with the preparation, execution and delivery of this
Agreement.
12. Notice. Any notice under this Agreement shall be in
writing and delivered personally or sent by certified mail, return receipt
requested, addressed, as the case may be, (i) to the Company at its address set
forth at the head of this Agreement or such other address as may hereafter be
designated by the Company by notice to the Purchaser in the manner provided
herein; and (ii) to the Purchaser at his address set forth at the head of this
Agreement or such other address as may hereafter be designated by the Purchaser
by notice to the Company in the manner provided herein. All notices personally
delivered shall be deemed to have been given when delivered and all notices sent
by mail shall be deemed to have been given three business days after mailing.
13. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth.
<PAGE> 10
10
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no modifications of or amendments to
this Agreement shall be binding on the parties hereto unless in writing and
signed by them.
16. Integration. This Agreement supersedes all prior
understandings, negotiations, and agreements relating to the subject matter
hereof.
17. Severability. If any provision herein contained shall be
held to be illegal or unenforceable, such holding shall not affect the validity
or enforceability of the other provisions of this Agreement.
18. Reorganization, Etc. The provisions of this Agreement
shall apply mutatis mutandis to any shares or other securities resulting from
any stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities resulting from any recapitalization,
consolidation, merger or reorganization of the Company and to any shares or
other securities of the Company or any successor company or of any parent of
such successor company which may be received by the Purchaser by virtue of his
ownership of any shares of Common Stock of the Company.
19. Captions. The captions appearing herein are for the
convenience of the parties only and shall not be construed to affect the meaning
of the provisions of this Agreement.
20. Legends on Certificates. During the term of this
Agreement, each of the certificates representing Shares shall contain upon its
face or upon the reverse side thereof legends to the following effect:
"This Certificate represents securities which are restricted
and which are subject to the terms and conditions of a Stock
Purchase Agreement dated December 17, 1996 by and between
Joseph J. Frank and the Company (a copy of which is on file at
the principal office of the Company) and the rights,
privileges and options therein contained. No sale, transfer,
assignment, pledge, hypothecation or other disposition of this
Certificate or any of the securities represented hereby
<PAGE> 11
11
shall be made except in compliance with the terms and
conditions of said Stock Purchase Agreement.
The Shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be transferred in violation of such Act."
* * *
<PAGE> 12
12
If you are in agreement with the foregoing, please execute and
deliver to the undersigned the enclosed counterpart of this Agreement, whereupon
this Agreement shall become a binding agreement between us.
Very truly yours,
VALLEY FORGE DENTAL ASSOCIATES, INC.
By /s/ W. Gary Liddick
-----------------------------------
Accepted and agreed to as
aforesaid:
/s/ Joseph J. Frank
- ----------------------------------------
Joseph J. Frank
The undersigned are executing this
Agreement to indicate their agreement to
Section 7 hereof:
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
------------------------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
------------------------------------
<PAGE> 13
13
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
- ----------------------------------------
BUSINESS DEVELOPMENT CAPITAL
LIMITED PARTNERSHIP-III
By: BDC-III Partners, general partner
By /s/ Stephen F. Nagy
- -----------------------------------------
<PAGE> 1
EXHIBIT 10(z)
VALLEY FORGE DENTAL ASSOCIATES, INC.
c/o Foster Management Company
1018 West Ninth Avenue, Suite 310
King of Prussia, Pennsylvania 19406
January 15, 1997
Allan M. Dworkin, D.D.S.
5708 Visitation Way
Baltimore, MD 21210
Dear Mr. Dworkin:
The undersigned, Valley Forge Dental Associates, Inc., a Delaware
corporation (the "Company"), and you (the "Purchaser"), hereby agree as follows:
1. Authorization and Sale of the Shares. The Company has authorized
the issuance to the Purchaser of and proposes to sell to the Purchaser pursuant
hereto an aggregate of 5,000 shares (collectively, the "Shares" and
individually, a "Share") of its common stock, $.01 par value (the "Common
Stock"), at a price of $.10 per Share.
2. Purchase of the Shares by the Purchaser. Subject to the terms and
conditions hereof, the Purchaser hereby agrees to purchase the Shares from the
Company in reliance upon its representations and warranties herein contained,
and the Company hereby agrees to sell the Shares to the Purchaser in reliance
upon his representations and warranties herein contained, at an aggregate
purchase price (the "Purchase Price") of $500.00 in cash.
3. Representations, Warranties, and Agreements of the Company. The
Company represents and warrants to, and agrees with, the Purchaser as follows:
(a) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(b) The Company has duly authorized the execution and delivery of
this Agreement and the issuance and delivery of the Shares and this Agreement
constitutes a valid and legally binding agreement of the Company, enforceable in
<PAGE> 2
2
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, or other laws affecting generally the enforceability of
creditors' rights and by limitations on the availability of equitable remedies.
The Shares, when issued and delivered in accordance with this Agreement, shall
have been duly issued and shall be validly outstanding, fully paid and
nonassessable shares of the Common Stock.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall violate any provision
of the Certificate of Incorporation or By-laws of the Company or any statute,
ordinance, regulation, order, judgment or decree of any court or governmental
agency, or conflict with or result in any breach of any of the terms of,
constitute a default under, or result in the termination of or the creation of
any lien pursuant to the terms of, any contract or agreement to which the
Company is a party or by which the Company or any of its assets is bound.
4. Representations, Warranties, and Agreements of the Purchaser. The
Purchaser hereby represents and warrants to, and agrees with, the Company as
follows:
(a) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall conflict with or
result in any breach of any of the terms of, constitute a default under, or
result in the termination of or the creation of any lien pursuant to the terms
of, any contract or agreement to which the Purchaser is a party or by which he
or any of his assets is bound.
(b) (i) The Purchaser understands that by the terms of this
Agreement he is purchasing shares of Common Stock issued and delivered by the
Company without compliance with the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the registration requirements of
the Securities Act and such laws, and without the approval, disapproval, or
passing on the merits by any regulatory authority; that for purposes of such
exemptions, the Company will rely upon the representations, warranties and
agreements of the Purchaser contained herein; and that such non-compliance with
registration requirements is not permissible unless such representations and
warranties are correct and such agreements performed.
<PAGE> 3
3
(ii) The Purchaser understands that the Company is under no
obligation to effect a registration under the Securities Act of the Shares to be
purchased by him hereunder. The Purchaser understands that, under existing rules
of the Securities and Exchange Commission (the "Commission"), he may be unable
to sell any of the Shares except to the extent that the Shares may be sold (A)
in a bona fide private placement to a purchaser who shall be subject to the same
restrictions on sale or (B) subject to the restrictions contained in Rule 144
under the Securities Act.
(iii) The Purchaser acknowledges that he has been afforded access
to such additional information concerning the Company as he considers necessary
or appropriate to make an informed investment decision. The Purchaser is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act.
(iv) The Purchaser is a sophisticated investor familiar with the
type of risks inherent in the acquisition of securities such as the Common
Stock, and his financial position is such that he can afford to retain the
Shares for an indefinite period of time without realizing any direct or indirect
cash return on his investment.
(v) The Purchaser is acquiring the Shares pursuant to this
Agreement for his own account and not with a view to or for sale in connection
with the distribution thereof within the meaning of the Securities Act. The
Purchaser shall not effect a distribution of any Shares until either (A) he has
received the opinion of counsel for the Company that registration under the
Securities Act is not required or (B) a registration statement under the
Securities Act covering such Shares and the disposition thereof has become
effective under the Securities Act.
5. Restrictions on Transferability of the Shares. The Purchaser
hereby agrees that the Purchaser shall not sell, assign, transfer, gift, devise,
bequeath, deliver, pledge, hypothecate or otherwise dispose of any of the
Shares, except as provided for in this Agreement. Any disposition or purported
disposition of Shares in violation of this Agreement shall be null and void and
shall not be recorded on the books of the Company. Notwithstanding the
foregoing:
(a) Disposition of Vested Shares and Shares which are not Vested
Shares. Shares which are "vested" in accordance with the following schedule (the
"Vested Shares")
<PAGE> 4
4
may be disposed of in the manner set forth in Subsection (b) or (d) of this
Section 5.
<TABLE>
<CAPTION>
Cumulative
percentage of
Shares which are
Vested Shares
----------------
<S> <C>
On or before December 12, 1997.................. 0%
December 13, 1997 to
December 12, 1998............................... 20
December 13, 1998 to
December 12, 1999............................... 40
December 13, 1999 to
December 12, 2000............................... 60
December 13, 2000 to
December 12, 2001............................... 80
On or after December 13, 2001................... 100
</TABLE>
Shares which are not Vested Shares (the "Unvested Shares") may be
disposed of only in the manner set forth in Subsection (c) or (d) of this
Section 5.
(b) Vested Shares.
(i) Vested Shares held by the Purchaser may be transferred by
the Purchaser provided that the Purchaser first complies with the right to
purchase set forth in this Subsection (b). The Company shall have a right to
purchase any Vested Shares proposed to be sold by the Purchaser on the terms set
forth in this Subsection (b).
(ii) If the Purchaser wishes to dispose of Vested Shares, the
Purchaser shall first obtain a bona fide written offer (the "Offer") for the
purchase of the Vested Shares which he wishes to dispose of. Such Offer shall be
for cash or promissory notes only. Promptly upon receipt of the Offer, the
Purchaser shall give notice to the Company (the "Offer Notice") of his intent to
dispose of Vested Shares, which Offer Notice shall specify the name of the
proposed purchaser, the number of Vested Shares (the "Offered Securities") the
Purchaser desires to dispose of and the price and terms of payment of such
proposed disposition. Upon receipt of the Offer Notice, the Company shall have
the right to purchase all (but not less than all) of the Offered Securities at
the price and on the terms of the Offer. Such right must be exercised by the
Company by
<PAGE> 5
5
giving notice to that effect to the Purchaser within a period of 20 days after
the date of receipt of the Offer Notice (any such notice of the exercise of such
right being herein referred to as an "Acceptance Notice").
(iii) In the event of the exercise by the Company of its right to
purchase pursuant to this Subsection (b), the Acceptance Notice shall specify
the time and date for purchase of the Offered Securities (the "Share Closing")
which shall be not more than 30 days after the expiration of the 20-day period
set forth in clause (b)(ii). The Purchaser shall deliver to the Company at the
Share Closing, which shall be held at the business headquarters of the Company,
the Offered Securities in due and proper form for transfer, against payment of
the purchase price by the Company.
(iv) If the Company shall fail or decline to agree to purchase
the Offered Securities within the 20-day period provided for in clause (b)(ii),
then the Purchaser shall have the right and privilege to sell all (but not less
than all) the Offered Securities, within 60 days after the expiration of such
20-day period, to the bona fide purchaser named in the Offer Notice, at the
price and on terms of payment specified in the Offer. If, for any reason, the
Offered Securities are not sold within such 60-day period, the Offered
Securities shall again become subject to the terms and conditions of this
Agreement.
(v) If, as of the Share Closing, any amount of principal of and
interest on any indebtedness of the Purchaser to the Company shall then be
outstanding, payment of the purchase price for the Offered Securities at the
Closing shall be made, at the Company's option, by a credit against such
indebtedness to the extent of the principal thereof and interest thereon then
outstanding (whether or not such principal and interest is then due and
payable).
(vi) The Company's right to purchase set forth in this Subsection
(b) shall terminate upon the occurrence of the closing of the initial sale by
the Company to the public of shares of the Common Stock pursuant to a
registration statement filed under the Securities Act, other than a registration
statement covering securities of the Company to be issued pursuant to an
employee benefit plan (such occurrence, the "Termination Event").
(c) Termination of the Purchaser's Engagement. (i) If the Purchaser
shall cease to be engaged as a consultant by the Company, for any reason
whatsoever, the Company shall have the right (but not the obligation) to
<PAGE> 6
6
purchase from the Purchaser all or any portion of the Unvested Shares owned by
the Purchaser at the time the Purchaser ceases to be engaged as a consultant by
the Company. Such right to purchase shall be exercisable by written notice to
that effect given by the Company to the Purchaser within 60 days after the
Purchaser has ceased to be engaged as a consultant by the Company, as aforesaid.
Upon the giving of such written notice, the Purchaser shall for all purposes
cease to be a stockholder of the Company as to the Unvested Shares covered by
such notice and shall have no rights against the Company or any other person in
respect of such Unvested Shares except the right to receive payment for such
Unvested Shares in accordance herewith. Notwithstanding the provisions of
Subsection (a) of this Section 5, Unvested Shares not so purchased by the
Company shall upon the expiration of such 60-day period become Vested Shares.
(ii) At the time and date specified in the notice given by the
Company referred to in clause (c)(i), which date shall in no event be more than
15 days after the expiration of the 60-day period for the exercise of the right
to purchase set forth therein, the Purchaser shall deliver to the Company, at
the business headquarters of the Company, the Unvested Shares to be sold by the
Purchaser in due and proper form for transfer, against payment by the Company of
the purchase price therefor, as determined in accordance with clause (c)(iv).
(iii) If at the time of payment of the purchase price referred to
in clause (c)(ii), any amount of principal of or interest on any indebtedness of
the Purchaser to the Company shall be outstanding, payment of the purchase price
for the Unvested Shares shall be made, at the Company's option, as a credit
against such indebtedness to the extent of the principal thereof and interest
thereon then outstanding (whether or not such principal and interest is then due
and payable).
(iv) The per Share purchase price for the Unvested Shares payable
by the Company pursuant to clause (c)(ii) shall be $0.10. The number of Unvested
Shares to be purchased and the per Share purchase price pursuant to this clause
(c)(iv) shall be appropriately adjusted by the Board of Directors of the Company
to reflect any subdivision or combination of the Common Stock of the Company or
any stock dividend or like event.
(d) Disposition to Family Members. Shares held by the Purchaser may
be transferred by the Purchaser to or for the benefit of the Purchaser or a
member of his
<PAGE> 7
7
immediate family. For purposes of this Agreement, the term "immediate family" of
the Purchaser shall mean his spouse and children (and the direct lineal
descendants of his children). It shall be a condition to the validity of any
transfer of Shares permitted by the provisions of this Subsection (d) that the
transferee shall execute a copy of this Agreement, shall hold such Shares
subject to the provisions of this Agreement, and shall make no further transfer
of such Shares, except in compliance with the terms and conditions of this
Agreement.
(e) Change in Ownership. If any person or group within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934 (the "1934 Act"), as
amended, and the rules and regulations promulgated thereunder, other than John
H. Foster, Stephen F. Nagy, or a person or group controlled, directly or
indirectly, by John H. Foster or Stephen F. Nagy, shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act), directly or
indirectly, of securities of the Company (or other securities convertible into
such securities) representing 50% or more of combined voting power of all
securities of the Company entitled to vote in the election of directors, then
any remaining Unvested Shares shall become fully vested, effective immediately
upon such change in ownership.
6. Voting Agreement. (a) Except as hereinafter set forth, the
Purchaser agrees that, subject to the laws of the State of Delaware and the
terms of this Agreement, from the date of this Agreement until December 31, 2001
the Purchaser will vote all shares of Common Stock owned by the Purchaser in
favor of a Board of Directors which shall include John H. Foster and such other
persons designated by John H. Foster as shall together with John H. Foster
constitute a majority of such members.
(b) Notwithstanding any of the other terms or conditions set forth
in this Agreement, the parties hereto agree that the voting agreement set forth
in this Section 6 shall terminate upon the occurrence of the Termination Event.
7. Come Along/Take Along.
(a) (i) In the event that Abbingdon Venture Partners Limited
Partnership, a Connecticut limited partnership ("Abbingdon-I"), Abbingdon
Venture Partners Limited Partnership-II, a Delaware limited partnership
("Abbingdon-II"), Abbingdon Venture Partners Limited Partnership-III, a Delaware
limited partnership ("Abbingdon-III"), and Business Development Capital Limited
<PAGE> 8
8
Partnership-III, a Massachusetts limited partnership ("BDC-III" and together
with Abbingdon-I, Abbingdon-II and Abbingdon-III, the "Partnerships"), propose
to transfer substantially all of the shares of the Common Stock held by them (a
"Sale of Securities") other than to the public for cash pursuant to a
registration statement filed under the Securities Act, then the following
provisions of this Section 7 shall apply.
(ii) The Partnerships shall permit the Purchaser, or cause the
Purchaser to be permitted, to sell the same proportionate number of shares of
the Common Stock held by the Purchaser as the Partnerships shall sell of the
shares of the Common Stock held by the Partnerships, for the same consideration
and otherwise on the same terms and conditions to be received by the
Partnerships in the Sale of Securities.
(iii) The Partnerships shall have the right to request the
Purchaser to sell or cause to be sold the number of shares of the Common Stock
held by the Purchaser which bears the same proportion to the number of shares of
the Common Stock then held by the Purchaser as the number of shares of the
Common Stock being sold by the Partnerships bears to the total number of shares
of the Common Stock owned by the Partnerships (a "Purchaser Request").
(iv) Upon receipt by the Purchaser of a Purchaser Request, the
Purchaser will sell or will cause to be sold the appropriate number of shares of
the Common Stock held by the Purchaser for the consideration and otherwise on
the same terms and conditions received by the Partnerships.
(b) The obligations of the Partnerships under Section 7(a) hereof to
afford the Purchaser, or cause the Purchaser to be afforded, the rights referred
to therein will be discharged if the Purchaser is given written notice which
allows the Purchaser ten business days to exercise such rights (by written reply
addressed to such person as may be designated in the notice, and if requested in
such notice, sent by certified mail, return receipt requested), and within such
ten business day period the Purchaser has not given notice of exercise of such
rights.
(c) All rights and obligations created by this Section 7 shall
terminate upon the earlier to occur of (i) the written agreement of the parties
hereto, or (ii) the Termination Event.
8. The Closing. As soon as practicable after the execution and
delivery of this Agreement, the Purchaser
<PAGE> 9
9
shall cause to be delivered to the Company a check or checks payable to the
order of the Company in the amount of $500.00 in payment of the Purchase Price.
Promptly upon receipt of such check or checks, the Company shall deliver to the
Purchaser a stock certificate registered in the name of the Purchaser and
representing the Shares.
9. Conditions to the Obligations of the Purchaser. The obligations
of the Purchaser to purchase the Shares pursuant hereto are subject, at his
option, to the accuracy of the representations and warranties of the Company
contained in Section 3.
10. Conditions to the Obligations of the Company. The obligations of
the Company to sell the Shares pursuant hereto are subject, at its option, to
the accuracy of the representations and warranties of the Purchaser contained in
Section 4.
11. Expenses. Each of the parties hereto shall pay its own expenses
in connection with the preparation, execution and delivery of this Agreement.
12. Notice. Any notice under this Agreement shall be in writing and
delivered personally or sent by certified mail, return receipt requested,
addressed, as the case may be, (i) to the Company at its address set forth at
the head of this Agreement or such other address as may hereafter be designated
by the Company by notice to the Purchaser in the manner provided herein; and
(ii) to the Purchaser at his address set forth at the head of this Agreement or
such other address as may hereafter be designated by the Purchaser by notice to
the Company in the manner provided herein. All notices personally delivered
shall be deemed to have been given when delivered and all notices sent by mail
shall be deemed to have been given three business days after mailing.
13. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth.
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no
<PAGE> 10
10
modifications of or amendments to this Agreement shall be binding on the parties
hereto unless in writing and signed by them.
16. Integration. This Agreement supersedes all prior understandings,
negotiations, and agreements relating to the subject matter hereof.
17. Severability. If any provision herein contained shall be held to
be illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.
18. Reorganization, Etc. The provisions of this Agreement shall
apply mutatis mutandis to any shares or other securities resulting from any
stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities resulting from any recapitalization,
consolidation, merger or reorganization of the Company and to any shares or
other securities of the Company or any successor company or of any parent of
such successor company which may be received by the Purchaser by virtue of his
ownership of any shares of Common Stock of the Company.
19. Captions. The captions appearing herein are for the convenience
of the parties only and shall not be construed to affect the meaning of the
provisions of this Agreement.
20. Legends on Certificates. During the term of this Agreement, each
of the certificates representing Shares shall contain upon its face or upon the
reverse side thereof legends to the following effect:
"This Certificate represents securities which are restricted and
which are subject to the terms and conditions of a Stock Purchase
Agreement dated January 15, 1997 by and between Allan M. Dworkin,
D.D.S. and the Company (a copy of which is on file at the principal
office of the Company) and the rights, privileges and options
therein contained. No sale, transfer, assignment, pledge,
hypothecation or other disposition of this Certificate or any of the
securities represented hereby shall be made except in compliance
with
<PAGE> 11
11
the terms and conditions of said Stock Purchase Agreement.
The Shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may
not be transferred in violation of such Act."
* * *
<PAGE> 12
12
If you are in agreement with the foregoing, please execute and
deliver to the undersigned the enclosed counterpart of this Agreement, whereupon
this Agreement shall become a binding agreement between us.
Very truly yours,
VALLEY FORGE DENTAL ASSOCIATES, INC.
By /s/ Joseph J. Frank
--------------------------------------
Accepted and agreed to as
aforesaid:
/s/ Allan M. Dworkin, D.D.S.
- ----------------------------------
Allan M. Dworkin, D.D.S.
The undersigned are executing this
Agreement to indicate their agreement to
Section 7 hereof:
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
- --------------------------------------
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
- --------------------------------------
<PAGE> 13
13
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
- ---------------------------------------
BUSINESS DEVELOPMENT CAPITAL
LIMITED PARTNERSHIP-III
By: BDC-III Partners, general partner
By /s/ Stephen F. Nagy
- ---------------------------------------
<PAGE> 1
EXHIBIT 10(aa)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT MAY NOT
BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR AN OPINION OF COUNSEL TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED. THIS NOTE IS SUBJECT TO A RIGHT OF OFFSET AS PROVIDED HEREIN.
6% Convertible Subordinated Promissory Note
due October 1, 1998
$800,000 King of Prussia,
September 19, 1995 Pennsylvania
Section 1.1 General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFDA"), and VFD of Pennsylvania,
Inc., a Delaware corporation ("VFD"), jointly and severally (VFDA and VFD are
herein collectively referred to as the "Maker"), hereby promises to pay to the
order of MT Associates, a Pennsylvania general partnership (the "Payee"), at the
offices of the Maker (except that the Payee may require that payments shall be
made to the Payee by mail at such address as the Payee shall from time to time
designate in writing to the Maker), the principal sum of Eight Hundred Thousand
Dollars ($800,000), in lawful money of the United States of America or such
lesser amount as may be payable due to offsets, if any, as provided for herein.
The Maker hereby also promises to pay interest on the unpaid
principal amount hereof in like money at such place, from the date hereof until
payment of the principal amount hereof has been made in full, at the rate of six
percent (6%) per annum, payable quarterly on the first day of January, April,
July and October, each year, commencing on January 1, 1996.
The principal amount shall be payable in twelve (12) equal
quarterly installments of Sixty-Six Thousand Six Hundred Sixty-Six Dollars and
Sixty-Six Cents ($66,666.66) each, or such lesser amount as may be payable due
to offsets, if any, as provided for herein, on the first day of January, April,
July and October of each year, commencing on January 1, 1996 (on which date all
interest accrued hereon from the date hereof shall be paid) and ending on
October 1, 1998, at which latest time the entire principal amount of this Note
then outstanding together with any outstanding accrued and unpaid interest
thereon shall be due and payable. Upon the occurrence and during the continuance
of an event of default hereunder, any outstanding principal
<PAGE> 2
2
shall bear interest at the rate of eleven percent (11%) per
annum.
Section 2. Conversion. The Payee shall have the right at any
time from and after the date hereof and until payment in full of this Note to
convert, subject to and upon compliance with the terms and provisions hereof,
all, but not less than all, of the outstanding principal amount of this Note,
together with any outstanding and unpaid interest thereon accrued through the
Conversion Date (as hereinafter defined) into shares of Common Stock (as
hereinafter defined), at the price of $16.00 per share, unless there shall be in
effect on the Conversion Date an adjusted conversion price, in which event at
such adjusted conversion price (such price or adjusted price being referred to
herein as the "Conversion Price"). Upon the surrender hereof, accompanied by the
Payee's written request in the form attached hereto as Annex A for conversion of
this Note (sometimes herein, the "Conversion Notice"), the Maker shall issue and
deliver to Payee within forty-five (45) days after the surrender of this Note
pursuant hereto, one or more certificates evidencing the shares of Common Stock
into which this Note shall be converted. All shares of Common Stock issued upon
conversion shall be deemed issued as of the close of business on the Conversion
Date. The "Conversion Date" is the date this Note is surrendered for conversion
pursuant to this paragraph; provided, however, that if such date is a date on
which the stock transfer books of the Maker are closed, then the Conversion Date
shall be the next date on which such books are open; provided, however, in no
event shall the Conversion Date be more than three (3) business days from the
date this Note is surrendered for conversion pursuant to this paragraph. The
term "Common Stock" shall mean the class of stock which, at the date of
execution of this Note, is designated common stock, par value $.01, of the Maker
and stock of any class or classes into which such common stock or any such other
class may thereafter be changed or reclassified. In case by reason of the
operation hereof this Note shall be convertible into any other shares of stock,
other securities, property or cash of the Maker or any other corporation, any
reference herein to the conversion of this Note shall be deemed to refer to and
include conversion of this Note into such other shares, securities, property, or
cash.
The conversion terms and the Conversion Price shall be subject
to adjustment from time to time upon the occurrence of certain events while this
Note remains outstanding, as follows:
(A) If the Maker at any time shall consolidate with or merge
into or sell or convey all or substantially all of its assets to any other
corporation, this Note shall thereafter be convertible into such kind and amount
of
<PAGE> 3
3
shares of stock, other securities, property, cash or any combination thereof
receivable upon such consolidation, merger, sale or conveyance by a holder of
the number of shares of Common Stock into which this Note would have been
converted had it been converted immediately prior to such consolidation, merger,
sale, or conveyance, subject to adjustments equivalent to the adjustments
provided in this Note. In the event of a consolidation or merger of another
corporation into the Maker in which the Maker is the continuing corporation and
in which there is a reclassification or change (including a change to the right
to receive, or a change into, as the case may be, shares of stock, other
securities, property, cash or any combination thereof) of the shares of Common
Stock, this Note shall thereafter be convertible solely into the kind and amount
of shares of stock, other securities, property, cash or any combination thereof
receivable upon such consolidation or merger by a holder of the number of shares
of Common Stock into which this Note would have been converted had it been
converted immediately prior to such consolidation or merger. The foregoing
provisions shall similarly apply to successive transactions of a similar nature
by any such successor or purchaser. Without limiting the generality of the
foregoing, the adjustment provisions of this Note shall apply to such securities
of such successor or purchaser after any such consolidation, merger, sale or
conveyance.
(B) In case the Maker shall (i) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in shares of its
Common Stock, (ii) subdivide or reclassify the outstanding shares of its Common
Stock into a greater number of shares, or (iii) combine or reclassify the
outstanding shares of its Common Stock into a smaller number of shares, the
Conversion Price in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the Payee after such
time shall be entitled to receive upon surrender hereof for conversion the
number of shares of Common Stock which the Payee would have owned or been
entitled to receive had this Note been converted immediately prior to such time.
Such adjustment shall be made successively whenever any event specified above
shall occur. All calculations under this paragraph shall be made to the nearer
cent or to the nearer one-hundredth of a share, as the case may be.
The Maker agrees that its issuance of this Note shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the conversion of this Note. During the period
within which this Note may be converted into shares of Common Stock, the Maker
shall at all times have
<PAGE> 4
4
authorized and reserved a sufficient number of shares of Common Stock to provide
for the conversion of this Note in accordance with the terms hereof.
The issuance of certificates for shares of Common Stock upon
the conversion of this Note shall be made without charge for any tax in respect
of the issuance of such certificates, and such certificates shall be issued in
the name of, or in such names as may be directed by, the Payee; provided,
however, that the Maker shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificates in a name other than that of the Payee.
No fractional shares of Common Stock or scrip representing
fractional shares shall be issued upon the conversion of this Note. If the
conversion of this Note results in a fraction of a share, an amount equal to
such fraction multiplied by the Conversion Price shall be paid in cash to the
Payee by the Maker on or prior to the Conversion Date.
The shares of Common Stock issuable by the Maker upon the
conversion of this Note shall be issued without compliance with the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act")
and the Payee may be unable to sell its shares of Common Stock except (i)
pursuant to an effective registration statement covering the Common Stock
pursuant to the Securities Act, (ii) in a bona fide private placement to a
purchaser who shall be subject to the same restrictions on any resale or (iii)
subject to the restrictions contained in Rule 144 under the Securities Act
Each certificate representing shares of Common Stock of the
Maker issued upon conversion of this Note shall, if applicable, contain upon its
face or upon the reverse side thereof a legend to the following effect:
"The Shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), but have been issued pursuant to an exemption from
such registration. Neither such Shares nor any interest
therein may be sold, transferred, pledged, hypothecated or
otherwise disposed of until either (i) the holder thereof
shall have received an opinion of counsel reasonably
satisfactory to the Maker that registration thereof under the
Act is not required or (ii) a registration statement under the
Act covering such Shares or such interest and the disposition
thereof shall have become effective under the Act."
<PAGE> 5
5
Section 3. Subordination.
Section 3.1 Indebtedness Subordinated to Senior Debt. The
Maker hereby covenants and agrees, and the holder of this Note, by such holder's
acceptance hereof, hereby consents, covenants and agrees, that the indebtedness
of the Maker for or on account of principal and interest on this Note, and the
payment of the principal of and interest (whether by redemption or otherwise) on
this Note, is hereby expressly made subordinate and subject in right of payment
to the prior indefeasible payment in full in cash of all Senior Debt to the
extent and in the manner hereinafter set forth in this Section 3. Defined terms
used herein shall have the meanings set forth in Section 6 hereof, unless
otherwise specified or defined herein.
This Section 3 shall constitute a continuing offer to all
persons who become holders of, or continue to hold, Senior Debt, and such
provisions are made for the benefit of the holders of Senior Debt, and such
holders are made obligees hereunder and they or each of them may enforce such
provisions.
Section 3.2 Payment Permitted if No Default. Nothing contained
in this Section 3 or elsewhere in this Note shall prevent the Maker, at any time
except during the pendency of any of the conditions described in Sections 3.3,
3.4 and 3.5, other than as provided in Section 3.5, from making scheduled
payments at any time of principal of or interest on this Note.
Section 3.3 Payment Over of Proceeds Upon Dissolution; Etc.
Upon any payment or distribution of assets of the Maker in the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, total or
partial liquidation, winding-up, reorganization or other similar case or
proceeding in connection therewith, relative to the Maker or to its creditors,
or to its assets, whether voluntary or involuntary, or (b) any liquidation,
dissolution or other winding-up of the Maker, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or any other marshalling of assets and/or liabilities
of the Maker, then and in any such event the holders of Senior Debt shall be
entitled to receive indefeasible payment in full in cash of all amounts due or
to become due on or in respect of all Senior Debt before the holder of this Note
is entitled to receive any payment on account of principal of, interest on or
otherwise in respect of this Note, and to that end the holders of Senior Debt
shall be entitled to receive, for application to the payment
<PAGE> 6
6
thereof, any payment or distribution of any kind or character, whether in cash,
property or securities, including any such payment or distribution which may be
payable or deliverable by reason of the payment of any other Indebtedness of the
Maker being subordinated to the payment of this Note, which may be payable or
deliverable in respect of this Note in any such case, proceeding, dissolution,
liquidation, reorganization or other winding-up or event.
If, notwithstanding the foregoing provisions of this Section
3, the holder of this Note shall have received any payment or distribution of
assets of the Maker of any kind or character, whether in cash, property or
securities, including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other Indebtedness of the Maker
being subordinated to the payment of this Note, before all Senior Debt is
indefeasibly paid in full, then and in such event such payment or distribution
shall be paid over or delivered forthwith to the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee, agent or other person making
payment or distribution of assets of the Maker for application to the payment of
all Senior Debt remaining unpaid to the extent necessary to pay all Senior Debt
in full.
For purposes of this Section 3 only, the words "cash, property
or securities" shall not be deemed to include securities of the Maker as
reorganized or readjusted, or securities of the Maker or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinated at least to the extent provided in this Section 3 with respect to
this Note to the payment of all Senior Debt which may at the time be
outstanding.
Section 3.4 Standstill; Prior Payment of Senior Debt Upon
Acceleration of Subordinated Indebtedness. Notwithstanding any provision herein
or in any other writing or agreement to the contrary, the holder of this Note
shall not, unless all Senior Debt shall have been declared due and payable by
acceleration of maturity pursuant to the terms thereof, without the prior
written consent of the holders of the Senior Debt, commence, prosecute or
participate in, prior to the expiration of nine (9) months after the occurrence
of any default under this Note which is a ground for acceleration of this Note
(the date of such default is hereinafter referred to as the "Sub-Debt Default
Date"), any suit, action or proceeding against the Maker with respect to this
Note, or assert, collect or enforce, or take any action to foreclose or realize
upon, prior to the end of the ninth month following the Sub-Debt Default Date,
any security
<PAGE> 7
7
interest, lien or encumbrance on any property of the Maker pursuant to any
security agreements, pledge agreements, mortgages, lien instruments or other
documents which secure this Note or take any action which might result in a
payment in contravention of any provision of this Section 3 until the Senior
Debt shall have been indefeasibly paid in cash in full, and any such security
agreements, pledge agreements, mortgages, lien instruments or other documents
shall contain the subordination provisions set forth in this Section 3.
If, notwithstanding the foregoing, the Maker shall make any
payment to the holder of this Note prohibited by the foregoing provision of this
Section 3, such payment shall be paid over and delivered forthwith to the
holders of the Senior Debt but only to the extent that, upon notice from the
holder of this Note to the holders of the Senior Debt that such prohibited
payment has been made, the holders of the Senior Debt notify the holder of this
Note of the amounts then due and owing on the Senior Debt, if any, and only such
amount so notified to the holder of this Note shall be paid to the holders of
the Senior Debt.
The provisions of this Section 3.4 shall not apply to any
payment with respect to which Section 3.3 of this Note would be applicable.
Section 3.5 No Payment When Senior Debt in Default. In the
event any default in the payment of principal of or interest on any Senior Debt
shall have occurred and be continuing which permits (or with notice or lapse of
time, or both, would permit) the holders of such Senior Debt (or a trustee or
agent on behalf of the holders thereof) to declare such Senior Debt due and
payable prior to the date on which it would otherwise have become due and
payable (whether or not such holders have accelerated such Senior Debt) or such
a default would result from or exist after giving effect to a payment with
respect to this Note, and if the holder of any Senior Debt gives written notice
of such default to the holder of this Note and designates the same as a "Senior
Default Notice" hereunder, unless and until such default shall have been cured
or waived or shall have ceased to exist and any such acceleration shall have
been rescinded or annulled, or if any judicial proceeding shall be pending with
respect to any such default in payment or other default, no payment (including
any payment which may be payable by reason of the payment of any other
Indebtedness of the Maker being subordinated to or pari passu with the payment
of this Note) shall be made by the Maker on account of principal of, interest on
or otherwise in respect of this Note or on account of the purchase or other
acquisition of subordinated Indebtedness.
<PAGE> 8
8
If, notwithstanding the foregoing, the Maker makes any payment
to the holder of this Note prohibited by the foregoing provisions of this
Section 3, such payment shall be paid over and delivered forthwith to the
holders of the Senior Debt but only to the extent that, upon notice from the
holder of this Note to the holders of the Senior Debt that such prohibited
payment has been made, the holders of the Senior Debt notify the holder of this
Note of the amounts then due and owing on the Senior Debt, if any, and only such
amount so notified to the holder of this Note shall be paid to the holders of
Senior Debt.
The provisions of this Section 3.5 shall not apply to any
payment with respect to which Section 3.3 of this Note would be applicable.
Section 3.6 Subrogation to Rights of Holders of Senior Debt.
Subject to the indefeasible payment in full in cash of all Senior Debt, the
holder of this Note shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Debt pursuant to the provisions
of this Section 3 to the rights of the holders of such Senior Debt to receive
payments or distributions of cash, property or securities of the Maker
applicable to the Senior Debt until the principal of and interest on this Note
shall be paid in full. For purposes of such subrogation, no payments or
distributions to the holders of the Senior Debt of any cash, property or
securities to which the holder of this Note would be entitled except for the
provisions of this Section 3, and no payments over pursuant to the provisions of
this Section 3 to the holders of Senior Debt by the holder of this Note, shall,
as between the Maker, its creditors other than holders of Senior Debt, and the
holder of this Note, be deemed to be a payment or distribution by the Maker of
or on account of this Note.
Section 3.7 Provisions Solely to Define Relative Rights. The
provisions of this Section 3 are and are intended solely for the purpose of
defining the relative rights of the holder of this Note, on the one hand, and
the holders of Senior Debt, on the other hand. Nothing contained in this Section
3 or elsewhere in this Note is intended to or shall impair, as between the
Maker, its creditors other than the holders of Senior Debt and the holder of
this Note, the obligation of the Maker, which is absolute and unconditional, to
pay to the holder of this Note the principal of and interest on this Note as and
when the same shall become due and payable in accordance with its terms and
which, subject to the rights under this Note of the holders of Senior Debt, is
intended to rank equally with all other general obligations of the Maker, or is
intended
<PAGE> 9
9
to or shall affect the relative rights against the Maker of the holder of this
Note and creditors of the Maker other than the holders of Senior Debt, nor shall
anything herein or therein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law upon default under this Note,
subject to the rights, if any, under this Section 3 of the holders of Senior
Debt to receive cash, property or securities otherwise payable or deliverable to
the holder of this Note.
Section 3.8 Proof of Claim. If the holder of this Note does
not file a proper proof of claim or debt in the form required in any bankruptcy,
insolvency or receivership proceeding prior to 30 days before the expiration of
the time to file such proof of claim or debt, then the holders of Senior Debt
are hereby authorized to file an appropriate proof of claim or debt for and on
behalf of the holder of this Note and such holder hereby appoints the holders of
Senior Debt or their representative or representatives the attorney-in-fact of
such holder for such purposes.
Section 3.9 No Waiver of Subordination Provisions. No right of
any current or future holder of any Senior Debt to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Maker or by any act or failure to act,
in good faith, by any such Senior Debt holder, or by any non-compliance by the
Maker with the terms, provisions and covenants of this Note, regardless of any
knowledge thereof any such Senior Debt holder may have or be otherwise charged
with. The holder of this Note by such holder's acceptance hereof agrees that, so
long as there is indebtedness outstanding under this Note, the holder of this
Note shall not agree to compromise, release, forgive or otherwise discharge the
obligations of the Maker with respect to this Note without the prior written
consent of the holders of the Senior Debt.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the holder of this Note, without incurring
responsibility to the holder of this Note and without impairing or releasing the
subordination provided in this Section 3 or the obligations hereunder of the
holder of this Note to the holders of the Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment, renew or alter, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt or any instrument evidencing the same or any agreement under
<PAGE> 10
10
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Debt; (iii)
release any person liable in any manner for the payment or collection of Senior
Debt; and (iv) exercise or refrain from exercising any rights against the Maker
and any other person.
Section 3.10 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Maker, the
holder of this Note shall be entitled to rely upon any order or decree entered
by any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
liquidating trustee, custodian, receiver, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
holder of this Note, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other Indebtedness of the Maker, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Note.
Section 3.11 Miscellaneous.
(a) Notices. All communications provided for
hereunder shall be by telephone, in person or in writing (including telex or
facsimile communication) and shall be delivered or sent by telex or facsimile to
the respective party at the addresses and numbers set forth below:
If to the holder of this Note:
MT Associates
709 Meadowcreek Circle
Lower Gwynedd, Pennsylvania 19002
Attention: Bruce L. Talus
Telecopy No.: (215) 646-8241
Telephone No.: (215) 646-5486
<PAGE> 11
11
with copy to:
Robert K. Mehlman
8171 Madrillon Court
Vienna, Virginia 22182
Telecopy No.: (703) 821-6390
Telephone No.: (703) 821-6928
If to the Maker:
Valley Forge Dental Associates, Inc.
c/o Foster Management Company
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
If to the holders of the Senior Debt:
to such addresses and such telephone and
telecopier numbers as are hereafter provided to
the holder,
or to such other addresses and numbers as any party hereto shall specify to the
others in writing. All notices shall be effective (a) in the case of telex or
facsimile, when received, (b) in the case of hand-delivered notice, when
delivered and (c) in the case of telephone, when telephoned, provided that
written confirmation must be provided the next day by letter, facsimile or
telex.
(b) Severability of Provisions; Captions. Any
provision of this Section 3 which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction. The several captions to sections and subsections
herein are inserted for convenience only and shall be ignored in interpreting
the provisions of this Section.
Section 4. Optional Prepayment. The Maker may at any time with
the prior written consent of the holders of Senior Debt so long as any Senior
Debt is outstanding, prepay the whole or any part of the unpaid principal amount
of this Note, without penalty or premium, but with interest accrued to the date
fixed for prepayment. Notices of prepayment shall be given by the Maker by mail
and shall be
<PAGE> 12
12
mailed to the holder of this Note not less than thirty (30) days from the date
fixed for prepayment. In case this Note is to be prepaid in part only, such
notice shall specify the principal amount hereof to be prepaid, and shall state
that this Note shall be submitted to the Maker for notation hereon of the
principal amount hereof to be prepaid. Upon giving of notice of prepayment as
aforesaid, this Note or portion hereof so specified for prepayment shall on the
prepayment date specified in such notice become due and payable, and from and
after the prepayment date so specified (unless the Maker shall default in making
such prepayment), interest on this Note or portion hereof so specified for
prepayment shall cease to accrue and, on presentation and surrender hereof to
the Maker for cancellation in the case of this Note being prepaid as a whole, or
for notation hereon of the payment of the portion of the principal amount hereof
being prepaid in the case of a prepayment of this Note in part only, this Note
or portion hereof so specified for prepayment shall be paid by the Maker at the
prepayment price aforesaid. Any prepayment of this Note in part shall be applied
to the installments of principal payable hereunder in the order of maturity
thereof.
Section 5. Events of Default and Remedies. Subject to Section
3 hereof, the holder of this Note shall have the right, without demand or
notice, to accelerate this Note and to declare the entire unpaid balance hereof
and the obligations evidenced hereby immediately due and payable and to seek and
obtain payment of this Note upon the occurrence of any of the following events
of default: (a) the Maker fails to pay any installment of principal payable
under this Note or interest thereon within twenty (20) days after receipt of
written notice from the holder of this Note to the effect that such installment
or interest has not been paid when due, (b) the Maker admits in writing its
inability to pay its debts generally as they become due, files a case or
petition in bankruptcy or a case or petition to take advantage of any
bankruptcy, reorganization or insolvency act, makes an assignment for the
benefit of creditors, or consents to the appointment of a receiver for itself or
for all or substantially all of its property or, the Maker fails to have any
involuntary petition in bankruptcy filed against it dismissed within ninety (90)
days, or (c) the voluntary liquidation, dissolution, or other winding up of the
Maker. Upon such declaration by the holder of this Note, the obligations
evidenced by this Note shall be immediately due and payable.
In the event of any event of default hereunder, the Maker
agrees to pay to the holder of this Note all expenses incurred by such holder,
including, without
<PAGE> 13
13
limitation, reasonable fees and disbursements of counsel, incurred by such
holder in the enforcement and collection of this Note.
Section 6. Definitions. As used herein, the following terms
shall have the following respective meanings:
"Indebtedness" shall mean as to any person at any time, any
and all indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (iv) any other transaction
(including without limitation forward sale or purchase agreements, capitalized
leases and conditional sales agreements) having the commercial effect of a
borrowing of money entered into by such person to finance its operations or
capital requirements (but not including trade payables and accrued expenses
incurred in the ordinary course of business which are not represented by a
promissory note), or (v) any Guaranty of Indebtedness for borrowed money. For
purposes hereof, "Guaranty" shall mean any obligation of the Maker guaranteeing
or in effect guaranteeing any liability or obligation of any subsidiary, parent
or entity managed by or managing the Maker in any manner, whether directly or
indirectly, including, without limiting the generality of the foregoing, any
agreement to indemnify or hold harmless any other person, any performance bond
or other suretyship arrangement and any other form of assurance against loss,
except endorsement of negotiable or other instruments for deposit or collection
in the ordinary course of business.
"Post Petition Interest" means interest accruing after the
commencement of any bankruptcy or insolvency case or proceeding with respect to
the Maker or any receivership, liquidation, reorganization or other similar case
or proceeding in connection therewith, at the rate applicable to such
Indebtedness, whether or not such interest is an allowable claim in any such
proceeding.
"Senior Debt" means all Indebtedness of the Maker to any bank,
insurance company or other institutional lender, whether currently outstanding
or hereafter created, incurred or assumed (including but not limited to
Post-Petition Interest), unless such Indebtedness, by its terms
<PAGE> 14
14
or the terms of the instrument creating or evidencing it is subordinate in right
of payment to or pari passu with this Note. Senior Debt shall continue to
constitute Senior Debt for all purposes and the provisions of Section 3 of this
Note shall continue to apply to such Senior Debt, notwithstanding the fact that
such Senior Debt, or any claim in respect thereof, shall be disallowed, avoided,
subordinated or determined to be a fraudulent conveyance pursuant to the
provisions of the United States Bankruptcy Code or other applicable federal,
state or local law.
Section 7. Right of Offset. The principal amount of and
interest accrued on this Note may be offset at any time or from time to time to
the extent of the full amount of any Purchaser's Damages as to which there has
been a final determination (as defined in the Agreement of Purchase and Sale
dated as of September 1, 1995, by and among the Maker, the Payee and the other
parties thereto (the "Purchase Agreement"), except for any Purchaser's Damages
arising from a breach of Section XI of the Purchase Agreement, as provided for
in, and subject to the terms, provisions and limitations of, Section X of the
Purchase Agreement, including that no final determination is necessary with
respect to indemnification for certain Purchaser's Damages as provided in
Section X(D)(iii). The Maker shall have the right to offset the full amount of
any such Purchaser's Damages by reducing the amount of the principal of and
accrued but unpaid interest on this Note by the amount of such Purchaser's
Damages. Any such reduction in the principal amount of this Note shall be
applied against the installments of principal payable hereunder in the order of
maturity thereof, with interest after the date of any offset accruing on the
amount of principal which remains after such offset. The exercise of the right
of offset provided for in this Section 7 is not an exclusive remedy, and the
provisions of this Section 7 shall not prevent the Maker from exercising all
remedies otherwise permitted under applicable law, the terms of the Purchase
Agreement or the terms of this Note.
Section 8. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania and
shall be binding upon the successors and assigns of the Maker and inure to the
benefit of the Payee, the Payee's successors, endorsees and assigns.
<PAGE> 15
15
Section 9. Severability. If any term or provision of this Note
shall be held invalid, illegal or unenforceable, the validity of all other terms
and provisions hereof shall in no way be affected thereby.
* * *
<PAGE> 16
16
VALLEY FORGE DENTAL
ASSOCIATES, INC.
By /s/ Douglas P. Gill
------------------------------
Name:
Title:
VFD OF PENNSYLVANIA, INC.
By /s/ Douglas P Gill
------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10(bb)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT
MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL TO THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED. THIS NOTE IS SUBJECT TO A RIGHT
OF OFFSET AS PROVIDED HEREIN.
6% Subordinated Promissory Note
due October 1, 1998
$135,000 King of Prussia,
September 19, 1995 Pennsylvania
Section 1. General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL ASSOCIATES,
INC., a Delaware corporation ("VFDA"), and VFD of Pennsylvania, Inc., a Delaware
Corporation ("VFD"), jointly and severally (VFDA and VFD are herein collectively
referred to as the "Maker"), hereby promises to pay to the order of MT
Associates, a Pennsylvania general partnership (the "Payee"), at the offices of
the Maker (except that the Payee may require that payments shall be made to the
Payee by mail at such address as the Payee shall from time to time designate in
writing to the Maker), the principal sum of One Hundred Thirty Five Thousand
Dollars ($135,000), in lawful money of the United States of America or such
lesser amount as may be payable due to offsets, if any, as provided for herein.
The Maker hereby also promises to pay interest on the unpaid principal
amount hereof in like money at such place, from the date hereof until payment of
the principal amount hereof has been made in full, at the rate of six percent
(6%) per annum, payable quarterly on the first day of January, April, July and
October, each year, commencing on January 1, 1996.
The principal amount shall be payable in twelve (12) equal quarterly
installments of Eleven Thousand Two Hundred Fifty Dollars ($11,250) each, or
such lesser amount as may be payable due to offsets, if any, as provided for
herein, on the first day of January, April, July and October of each year,
commencing on January 1, 1996 (on which date all interest accrued hereon from
the date hereof shall be paid) and ending on October 1, 1998, at which latest
time the entire principal amount of this Note then outstanding together with any
outstanding accrued and unpaid interest thereon shall be due and payable. Upon
the occurrence and during the continuance of a event of default hereunder, any
<PAGE> 2
2
outstanding principal shall bear interest at the rate of eleven percent (11%)
per annum.
Section 2. Subordination.
Section 2.1 Indebtedness Subordinated to Senior Debt. The Maker hereby
covenants and agrees, and the holder of this Note, by such holder's acceptance
hereof, hereby consents, covenants and agrees, that the indebtedness of the
Maker for or on account of principal and interest on this Note, and the payment
of the principal of and interest (whether by redemption or otherwise) on this
Note, is hereby expressly made subordinate and subject in right of payment to
the prior indefeasible payment in full in cash of all Senior Debt to the extent
and in the manner hereinafter set forth in this Section 2. Defined terms used
herein shall have the meanings set forth in Section 5 hereof, unless otherwise
specified or defined herein.
This Section 2 shall constitute a continuing offer to all persons who
become holders of, or continue to hold, Senior Debt, and such provisions are
made for the benefit of the holders of Senior Debt, and such holders are made
obligees hereunder and they or each of them may enforce such provisions.
Section 2.2 Payment Permitted if No Default. Nothing contained in this
Section 2 or elsewhere in this Note shall prevent the Maker, at any time except
during the pendency of any of the conditions described in Sections 2.3, 2.4 and
2.5, other than as provided in Section 2.5, from making scheduled payments at
any time of principal of or interest on this Note.
Section 2.3 Payment Over of Proceeds Upon Dissolution; Etc. Upon any
payment or distribution of assets of the Maker in the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, total or
partial liquidation, winding-up, reorganization or other similar case or
proceeding in connection therewith, relative to the Maker or to its creditors,
or to its assets, whether voluntary or involuntary, or (b) any liquidation,
dissolution or other winding-up of the Maker, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or any other marshalling of assets and/or liabilities
of the Maker, then and in any such event the holders of Senior Debt shall be
entitled to receive indefeasible payment in full in cash of all amounts due or
to become due on or in respect of all Senior Debt before the holder of this Note
is entitled to receive any payment on account of principal of, interest on or
otherwise in respect of this Note, and to that end the holders of Senior Debt
<PAGE> 3
3
shall be entitled to receive, for application to the payment thereof, any
payment or distribution of any kind or character, whether in cash, property or
securities, including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other Indebtedness of the Maker
being subordinated to the payment of this Note, which may be payable or
deliverable in respect of this Note in any such case, proceeding, dissolution,
liquidation, reorganization or other winding-up or event.
If, notwithstanding the foregoing provisions of this Section 2, the
holder of this Note shall have received any payment or distribution of assets of
the Maker of any kind or character, whether in cash, property or securities,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any other Indebtedness of the Maker being
subordinated to the payment of this Note, before all Senior Debt is indefeasibly
paid in full, then and in such event such payment or distribution shall be paid
over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other person making payment or
distribution of assets of the Maker for application to the payment of all Senior
Debt remaining unpaid to the extent necessary to pay all Senior Debt in full.
For purposes of this Section 2 only, the words "cash, property or
securities" shall not be deemed to include securities of the Maker as
reorganized or readjusted, or securities of the Maker or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinated at least to the extent provided in this Section 2 with respect to
this Note to the payment of all Senior Debt which may at the time be
outstanding.
Section 2.4 Standstill; Prior Payment of Senior Debt Upon Acceleration
of Subordinated Indebtedness. Notwithstanding any provision herein or in any
other writing or agreement to the contrary, the holder of this Note shall not,
unless all Senior Debt shall have been declared due and payable by acceleration
of maturity pursuant to the terms thereof, without the prior written consent of
the holders of the Senior Debt, commence, prosecute or participate in, prior to
the expiration of nine (9) months after the occurrence of any default under this
Note which is a ground for acceleration of this Note (the date of such default
is hereinafter referred to as the "Sub-Debt Default Date"), any suit, action or
proceeding against the Maker with respect to this Note, or assert, collect or
enforce, or take any action to foreclose or realize upon, prior to the end of
the ninth month following the Sub-Debt Default Date, any security interest, lien
or encumbrance on any property of the Maker
<PAGE> 4
4
pursuant to any security agreements, pledge agreements, mortgages, lien
instruments or other documents which secure this Note or take any action which
might result in a payment in contravention of any provision of this Section 2
until the Senior Debt shall have been indefeasibly paid in cash in full, and any
such security agreements, pledge agreements, mortgages, lien instruments or
other documents shall contain the subordination provisions set forth in this
Section 2.
If, notwithstanding the foregoing, the Maker shall make any payment to
the holder of this Note prohibited by the foregoing provision of this Section 2,
such payment shall be paid over and delivered forthwith to the holders of the
Senior Debt but only to the extent that, upon notice from the holder of this
Note to the holders of the Senior Debt that such prohibited payment has been
made, the holders of the Senior Debt notify the holder of this Note of the
amounts then due and owing on the Senior Debt, if any, and only such amount so
notified to the holder of this Note shall be paid to the holders of the Senior
Debt.
The provisions of this Section 2.4 shall not apply to any payment with
respect to which Section 2.3 of this Note would be applicable.
Section 2.5 No Payment When Senior Debt in Default. In the event any
default in the payment of principal of or interest on any Senior Debt shall have
occurred and be continuing which permits (or with notice or lapse of time, or
both, would permit) the holders of such Senior Debt (or a trustee or agent on
behalf of the holders thereof) to declare such Senior Debt due and payable prior
to the date on which it would otherwise have become due and payable (whether or
not such holders, have accelerated such Senior Debt) or such a default would
result from or exist after giving effect to a payment with respect to this Note,
and if the holder of any Senior Debt gives written notice of such default to the
holder of this Note and designates the same as a "Senior Default Notice"
hereunder, unless and until such default shall have been cured or waived or
shall have ceased to exist and any such acceleration shall have been rescinded
or annulled, or if any judicial proceeding shall be pending with respect to any
such default in payment or other default, no payment (including any payment
which may be payable by reason of the payment of any other Indebtedness of the
Maker being subordinated to or pari passu with the payment of this Note) shall
be made by the Maker on account of principal of, interest on or otherwise in
respect of this Note or on account of the purchase or other acquisition of
subordinated Indebtedness.
If, notwithstanding the foregoing, the Maker makes any payment to the
holder of this Note prohibited by the
<PAGE> 5
5
foregoing provisions of this Section 2, such payment shall be paid over and
delivered forthwith to the holders of the Senior Debt but only to the extent
that, upon notice from the holder of this Note to the holders of the Senior Debt
that such prohibited payment has been made, the holders of the Senior Debt
notify the holder of this Note of the amounts then due and owing on the Senior
Debt, if any, and only such amount so notified to the holder of this Note shall
be paid to the holders of Senior Debt.
The provisions of this Section 2.5 shall not apply to any payment with
respect to which Section 2.3 of this Note would be applicable.
Section 2.6 Subrogation to Rights of Holders of Senior Debt. Subject to
the indefeasible payment in full in cash of all Senior Debt, the holder of this
Note shall be subrogated to the extent of the payments or distributions made to
the holders of such Senior Debt pursuant to the provisions of this Section 2 to
the rights of the holders of such Senior Debt to receive payments or
distributions of cash, property or securities of the Maker applicable to the
Senior Debt until the principal of and interest on this Note shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Debt of any cash, property or securities to which the
holder of this Note would be entitled except for the provisions of this Section
2, and no payments over pursuant to the provisions of this Section 2 to the
holders of Senior Debt by the holder of this Note, shall, as between the Maker,
its creditors other than holders of Senior Debt, and the holder of this Note, be
deemed to be a payment or distribution by the Maker of or on account of this
Note.
Section 2.7 Provisions Solely to Define Relative Rights. The provisions
of this Section 2 are and are intended solely for the purpose of defining the
relative rights of the holder of this Note, on the one hand, and the holders of
Senior Debt, on the other hand. Nothing contained in this Section 2 or elsewhere
in this Note is intended to or shall impair, as between the Maker, its creditors
other than the holders of Senior Debt and the holder of this Note, the
obligation of the Maker, which is absolute and unconditional, to pay to the
holder of this Note the principal of and interest on this Note as and when the
same shall become due and payable in accordance with its terms and which,
subject to the rights under this Note of the holders of Senior Debt, is intended
to rank equally with all other general obligations of the Maker, or is intended
to or shall affect the relative rights against the Maker of the holder of this
Note and creditors of the Maker other than the holders of Senior Debt, nor shall
anything herein or therein prevent the holder of this Note from exercising
<PAGE> 6
6
all remedies otherwise permitted by applicable law upon default under this Note,
subject to the rights, if any, under this Section 2 of the holders of Senior
Debt to receive cash, property or securities otherwise payable or deliverable to
the holder of this Note.
Section 2.8 Proof of Claim. If the holder of this Note does not file a
proper proof of claim or debt in the form required in any bankruptcy, insolvency
or receivership proceeding prior to 30 days before the expiration of the time to
file such proof of claim or debt, then the holders of Senior Debt are hereby
authorized to file an appropriate proof of claim or debt for and on behalf of
the holder of this Note and such holder hereby appoints the holders of Senior
Debt or their representative or representatives the attorney-in-fact of such
holder for such purposes.
Section 2.9 No Waiver of Subordination Provisions. No right of any
current or future holder of any Senior Debt to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Maker or by any act or failure to act, in good
faith, by any such Senior Debt holder, or by any non-compliance by the Maker
with the terms, provisions and covenants of this Note, regardless of any
knowledge thereof any such Senior Debt holder may have or be otherwise charged
with. The holder of this Note by such holder's acceptance hereof agrees that, so
long as there is indebtedness outstanding under this Note, the holder of this
Note shall not agree to compromise, release, forgive or otherwise discharge the
obligations of the Maker with respect to this Note without the prior written
consent of the holders of the Senior Debt.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the holder of this Note, without incurring
responsibility to the holder of this Note and without impairing or releasing the
subordination provided in this Section 2 or the obligations hereunder of the
holder of this Note to the holders of the Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment, renew or alter, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt or any instrument evidencing the same or any agreement under
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Debt; (iii)
release any person liable in any manner for the payment or collection of Senior
Debt; and (iv) exercise or refrain from
<PAGE> 7
7
exercising any rights against the Maker and any other person.
Section 2.10 Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets of the Maker, the holder of
this Note shall be entitled to rely upon any order or decree entered by any
court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
liquidating trustee, custodian, receiver, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
holder of this Note, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other Indebtedness of the Maker, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Note.
2.11 Miscellaneous.
(a) Notices. All communications provided for hereunder shall be by
telephone, in person or in writing (including telex or facsimile communication)
and shall be delivered or sent by telex or facsimile to the respective party at
the addresses and numbers set forth below:
If to the holder of this Note:
MT Associates
709 Meadowcreek Circle
Lower Gwynedd, Pennsylvania 19002
Attention: Bruce L. Talus
Telecopy No.: (215) 646-8241
Telephone No.: (215) 646-5486
with a copy to:
Robert K. Mehlman, D.D.S.
8171 Madrillon Court
Vienna, Virginia 22182
Telecopy No.: (703) 821-6390
Telephone No.: (703) 821-6928
<PAGE> 8
8
If to the Maker:
Valley Forge Dental Associates, Inc.
c/o Foster Management Company
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
If to the holders of the Senior Debt:
to such addresses and such telephone and telecopier
numbers as are hereafter provided to the holder,
or to such other addresses and numbers as any party hereto shall specify to the
others in writing. All notices shall be effective (a) in the case of telex or
facsimile, when received, (b) in the case of hand-delivered notice, when
delivered and (c) in the case of telephone, when telephoned, provided that
written confirmation must be provided the next day by letter, facsimile or
telex.
(b) Severability of Provisions; Captions. Any provision of this
Section 2.11 which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. The several captions to sections and subsections herein are
inserted for convenience only and shall be ignored in interpreting the
provisions of this Section.
Section 3. Optional Prepayment. The Maker may at any time with the
prior written consent of the holders of Senior Debt so long as any Senior Debt
is outstanding, prepay the whole or any part of the unpaid principal amount of
this Note, without penalty or premium, but with interest accrued to the date
fixed for prepayment. Notices of prepayment shall be given by the Maker by mail
and shall be mailed to the holder of this Note not less than thirty (30) days
from the date fixed for prepayment. In case this Note is to be prepaid in part
only, such notice shall specify the principal amount hereof to be prepaid, and
shall state that this Note shall be submitted to the Maker for notation hereon
of the principal amount hereof to be prepaid. Upon giving of notice of
prepayment as aforesaid, this Note or portion hereof so specified for prepayment
shall on the prepayment date specified in such notice become due and payable,
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment), interest on this Note or portion hereof so
specified for
<PAGE> 9
9
prepayment shall cease to accrue and, on presentation and surrender hereof to
the Maker for cancellation in the case of this Note being prepaid as a whole, or
for notation hereon of the payment of the portion of the principal amount hereof
being prepaid in the case of a prepayment of this Note in part only, this Note
or portion hereof so specified for prepayment shall be paid by the Maker at the
prepayment price aforesaid. Any prepayment of this Note in part shall be applied
to the installments of principal payable hereunder in the order of maturity
thereof.
Section 4. Events of Default and Remedies. Subject to Section 2 hereof,
the holder of this Note shall have the right, without demand or notice, to
accelerate this Note and to declare the entire unpaid balance hereof and the
obligations evidenced hereby immediately due and payable and to seek and obtain
payment of this Note upon the occurrence of any of the following events of
default: (a) the Maker fails to pay any installment of principal payable under
this Note or interest thereon within twenty (20) days after receipt of written
notice from the holder of this Note to the effect that such installment or
interest has not been paid when due, (b) the Maker admits in writing its
inability to pay its debts generally as they become due, files a case or
petition in bankruptcy or a case or petition to take advantage of any
bankruptcy, reorganization or insolvency act, makes an assignment for the
benefit of creditors, or consents to the appointment of a receiver for itself or
for all or substantially all of its property or the Maker fails to have any
involuntary case or petition in bankruptcy filed against it dismissed within
ninety (90) days, or (c) the voluntary liquidation, dissolution or other winding
up of the Maker. Upon such declaration by the holder of this Note, the
obligations evidenced by this Note shall be immediately due and payable.
In the event of any event of default hereunder, the Maker agrees to pay
to the holder of this Note all expenses incurred by such holder, including,
without limitation, reasonable fees and disbursements of counsel, incurred by
such holder in the enforcement and collection of this Note.
Section 5. Definitions. As used herein, the following terms shall have
the following respective meanings:
"Indebtedness" shall mean as to any person at any time, any and all
indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect
<PAGE> 10
10
of any note purchase or acceptance credit facility, (iii) reimbursement
obligations under any letter of credit, currency swap agreement, interest rate
swap, cap, collar or floor agreement or other interest rate management device,
(iv) any other transaction (including without limitation forward sale or
purchase agreements, capitalized leases and conditional sales agreements) having
the commercial effect of a borrowing of money entered into by such person to
finance its operations or capital requirements (but not including trade payables
and accrued expenses incurred in the ordinary course of business which are not
represented by a promissory note), or (v) any Guaranty of Indebtedness for
borrowed money. For purposes hereof, "Guaranty" shall mean any obligation of the
Maker guaranteeing or in effect guaranteeing any liability or obligation of any
subsidiary, parent or entity managed by or managing the Maker in any manner,
whether directly or indirectly, including, without limiting the generality of
the foregoing, any agreement to indemnify or hold harmless any other person, any
performance bond or other suretyship arrangement and any other form of assurance
against loss, except endorsement of negotiable or other instruments for deposit
or collection in the ordinary course of business.
"Post Petition Interest" means interest accruing after the commencement
of any bankruptcy or insolvency case or proceeding with respect to the Maker or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, at the rate applicable to such Indebtedness,
whether or not such interest is an allowable claim in any such proceeding.
"Senior Debt" means all Indebtedness of the Maker to any bank,
insurance company or other institutional lender, whether currently outstanding
or hereafter created, incurred or assumed (including but not limited to Post-
Petition Interest), unless such Indebtedness, by its terms or the terms of the
instrument creating or evidencing it is subordinate in right of payment to or
pari passu with this Note. Senior Debt shall continue to constitute Senior Debt
for all purposes and the provisions of Section 2 of this Note shall continue to
apply to such Senior Debt, notwithstanding the fact that such Senior Debt, or
any claim in respect thereof, shall be disallowed, avoided, subordinated or
determined to be a fraudulent conveyance pursuant to the provisions of the
United States Bankruptcy Code or other applicable Federal, State or local law.
Section 6. Right of Offset. The principal amount of and interest
accrued on this Note may be offset at any time or from time to time to the
extent of the full amount of any Purchaser's Damages as to which there has been
a final determination (as defined in the Agreement of Purchase
<PAGE> 11
11
and Sale dated as of September 1, 1995, by and among the Maker, the Payee and
the other parties thereto (the "Purchase Agreement"), except for any Purchaser's
Damages arising from a breach of Section XI of the Purchase Agreement, as
provided for in, and subject to the terms, provisions and limitations of,
Section X of the Purchase Agreement, including that no final determination is
necessary with respect to indemnification for certain Purchaser's Damages as
provided in Section X(D)(iii). The Maker shall have the right to offset the full
amount of any such Purchaser's Damages by reducing the amount of the principal
of and accrued but unpaid interest on this Note by the amount of such
Purchaser's Damages. Any such reduction in the principal amount of this Note
shall be applied against the installments of principal payable hereunder in the
order of maturity thereof, with interest after the date of any offset accruing
on the amount of principal which remains after such offset. The exercise of the
right of offset provided for in this Section 6 is not an exclusive remedy, and
the provisions of this Section 6 shall not prevent the Maker from exercising all
remedies otherwise permitted under applicable law, the terms of the Purchase
Agreement or the terms of this Note.
Section 7. Governing Law. This Note shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania and shall be
binding upon the successors and assigns of the Maker and inure to the benefit of
the Payee, the Payee's successors, endorsees and assigns.
Section 8. Severability. If any term or provision of this Note shall be
held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
* * *
<PAGE> 12
12
VALLEY FORGE DENTAL
ASSOCIATES, INC.
By /s/ Douglas P. Gill
------------------------------
Name:
Title:
VFD OF PENNSYLVANIA, INC.
By /s/ Douglas P. Gill
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10(cc)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT
MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL TO THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED. THIS NOTE IS SUBJECT TO A RIGHT
OF OFFSET AS PROVIDED HEREIN.
6% Convertible Subordinated Promissory Note
due October 1, 1999
$720,000 King of Prussia,
October 1, 1996 Pennsylvania
Section 1.1 General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFDA"), and VFD OF PENNSYLVANIA,
INC., a Delaware corporation ("VFD"), jointly and severally (VFDA and VFD are
herein collectively referred to as the "Maker"), hereby promises to pay to the
order of MT Associates, a Pennsylvania general partnership (the "Payee"), at the
offices of the Maker (except that the Payee may require that payments shall be
made to the Payee by mail at such address as the Payee shall from time to time
designate in writing to the Maker), the principal sum of Seven Hundred Twenty
Thousand Dollars ($720,000), in lawful money of the United States of America or
such lesser amount as may be payable due to offsets, if any, as provided for
herein.
The Maker hereby also promises to pay interest on the unpaid principal
amount hereof in like money at such place, from the date hereof until payment of
the principal amount hereof has been made in full, at the rate of six percent
(6%) per annum, payable on the first quarter each year, commencing on the first
day of January 1, 1997.
The principal amount shall be payable in twelve (12) equal quarterly
installments of Sixty Thousand Dollars ($60,000) each, or such lesser amount as
may be payable due to offsets, if any, as provided for herein, on the first day
of January, April, July and October of each year, commencing on January 1, 1997
(on which date all interest accrued hereon from the date hereof shall be paid)
and ending on October 1, 1999 at which latest time the entire principal amount
of this Note then outstanding together with any outstanding accrued and unpaid
interest thereon shall be due and payable. Upon the occurrence and during the
continuance of an event of default hereunder, any outstanding principal shall
bear interest at the rate of eleven percent (11%) per annum.
<PAGE> 2
2
Section 2. Conversion. The Payee shall have the right at any time from
and after the date hereof and until payment in full of this Note to convert,
subject to and upon compliance with the terms and provisions hereof, all, but
not less than all, of the outstanding principal amount of this Note, together
with any outstanding and unpaid interest thereon accrued through the Conversion
Date (as hereinafter defined) into shares of Common Stock (as hereinafter
defined), at the price of $16.00 per share, unless there shall be in effect on
the Conversion Date an adjusted conversion price, in which event at such
adjusted conversion price (such price or adjusted price being referred to herein
as the "Conversion Price"). Upon the surrender hereof, accompanied by the
Payee's written request in the form attached hereto as Annex A for conversion of
this Note (sometimes herein, the "Conversion Notice"), the Maker shall issue and
deliver to Payee within forty-five (45) days after the surrender of this Note
pursuant hereto, one or more certificates evidencing the shares of Common Stock
into which this Note shall be converted. All shares of Common Stock issued upon
conversion shall be deemed issued as of the close of business on the Conversion
Date. The "Conversion Date" is the date this Note is surrendered for conversion
pursuant to this paragraph; provided, however, that if such date is a date on
which the stock transfer books of the Maker are closed, then the Conversion Date
shall be the next date on which such books are open; provided, however, in no
event shall the Conversion Date be more than three (3) business days from the
date this Note is surrendered for conversion pursuant to this paragraph. The
term "Common Stock" shall mean the class of stock which, at the date of
execution of this Note, is designated common stock, par value $.01, of the Maker
and stock of any class or classes into which such common stock or any such other
class may thereafter be changed or reclassified. In case by reason of the
operation hereof this Note shall be convertible into any other shares of stock,
other securities, property or cash of the Maker or any other corporation, any
reference herein to the conversion of this Note shall be deemed to refer to and
include conversion of this Note into such other shares, securities, property, or
cash.
The conversion terms and the Conversion Price shall be subject to
adjustment from time to time upon the occurrence of certain events while this
Note remains outstanding, as follows:
(A) If the Maker at any time shall consolidate with or merge into or
sell or convey all or substantially all of its assets to any other corporation,
this Note shall thereafter be convertible into such kind and amount of shares of
stock, other
<PAGE> 3
3
securities, property, cash or any combination thereof receivable upon such
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock into which this Note would have been converted had it been
converted immediately prior to such consolidation, merger, sale, or conveyance,
subject to adjustments equivalent to the adjustments provided in this Note. In
the event of a consolidation or merger of another corporation into the Maker in
which the Maker is the continuing corporation and in which there is a
reclassification or change (including a change to the right to receive, or a
change into, as the case may be, shares of stock, other securities, property,
cash or any combination thereof) of the shares of Common Stock, this Note shall
thereafter be convertible solely into the kind and amount of shares of stock,
other securities, property, cash or any combination thereof receivable upon such
consolidation or merger by a holder of the number of shares of Common Stock into
which this Note would have been converted had it been converted immediately
prior to such consolidation or merger. The foregoing provisions shall similarly
apply to successive transactions of a similar nature by any such successor or
purchaser. Without limiting the generality of the foregoing, the adjustment
provisions of this Note shall apply to such securities of such successor or
purchaser after any such consolidation, merger, sale or conveyance.
(B) In case the Maker shall (i) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in shares of its
Common Stock, (ii) subdivide or reclassify the outstanding shares of its Common
Stock into a greater number of shares, or (iii) combine or reclassify the
outstanding shares of its Common Stock into a smaller number of shares, the
Conversion Price in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the Payee after such
time shall be entitled to receive upon surrender hereof for conversion the
number of shares of Common Stock which the Payee would have owned or been
entitled to receive had this Note been converted immediately prior to such time.
Such adjustment shall be made successively whenever any event specified above
shall occur. All calculations under this paragraph shall be made to the nearer
cent or to the nearer one-hundredth of a share, as the case may be.
The Maker agrees that its issuance of this Note shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note. During the period within which
<PAGE> 4
4
this Note may be converted into shares of Common Stock, the Maker shall at all
times have authorized and reserved a sufficient number of shares of Common Stock
to provide for the conversion of this Note in accordance with the terms hereof.
The issuance of certificates for shares of Common Stock upon the
conversion of this Note shall be made without charge for any tax in respect of
the issuance of such certificates, and such certificates shall be issued in the
name of, or in such names as may be directed by, the Payee; provided, however,
that the Maker shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Payee.
No fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon the conversion of this Note. If the conversion of
this Note results in a fraction of a share, an amount equal to such fraction
multiplied by the Conversion Price shall be paid in cash to the Payee by the
Maker on or prior to the Conversion Date.
The shares of Common Stock issuable by the Maker upon the conversion of
this Note shall be issued without compliance with the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act") and the Payee
may be unable to sell its shares of Common Stock except (i) pursuant to an
effective registration statement covering the Common Stock pursuant to the
Securities Act, (ii) in a bona fide private placement to a purchaser who shall
be subject to the same restrictions on any resale or (iii) subject to the
restrictions contained in Rule 144 under the Securities Act.
Each certificate representing shares of Common Stock of the Maker
issued upon conversion of this Note shall, if applicable, contain upon its face
or upon the reverse side thereof a legend to the following effect:
"The Shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), but have been
issued pursuant to an exemption from such registration. Neither such
Shares nor any interest therein may be sold, transferred, pledged,
hypothecated or otherwise disposed of until either (i) the holder
thereof shall have received an opinion of counsel reasonably
satisfactory to the Maker that registration thereof under the Act is
not required or (ii)
<PAGE> 5
5
a registration statement under the Act covering such Shares or such
interest and the disposition thereof shall have become effective under
the Act."
Section 3. Subordination.
Section 3.1 Indebtedness Subordinated to Senior Debt. The Maker hereby
covenants and agrees, and the holder of this Note, by such holder's acceptance
hereof, hereby consents, covenants and agrees, that the indebtedness of the
Maker for or on account of principal and interest on this Note, and the payment
of the principal of and interest (whether by redemption or otherwise) on this
Note, is hereby expressly made subordinate and subject in right of payment to
the prior indefeasible payment in full in cash of all Senior Debt to the extent
and in the manner hereinafter set forth in this Section 3. Defined terms used
herein shall have the meanings set forth in Section 6 hereof, unless otherwise
specified or defined herein.
This Section 3 shall constitute a continuing offer to all persons who
become holders of, or continue to hold, Senior Debt, and such provisions are
made for the benefit of the holders of Senior Debt, and such holders are made
obligees hereunder and they or each of them may enforce such provisions.
Section 3.2 Payment Permitted if No Default. Nothing contained in this
Section 3 or elsewhere in this Note shall prevent the Maker, at any time except
during the pendency of any of the conditions described in Sections 3.3, 3.4 and
3.5, other than as provided in Section 3.5, from making scheduled payments at
any time of principal of or interest on this Note.
Section 3.3 Payment Over of Proceeds Upon Dissolution; Etc. Upon any
payment or distribution of assets of the Maker in the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, total or
partial liquidation, winding-up, reorganization or other similar case or
proceeding in connection therewith, relative to the Maker or to its creditors,
or to its assets, whether voluntary or involuntary, or (b) any liquidation,
dissolution or other winding-up of the Maker, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or any other marshalling of assets and/or liabilities
of the Maker, then and in any such event the holders of Senior Debt
<PAGE> 6
6
shall be entitled to receive indefeasible payment in full in cash of all amounts
due or to become due on or in respect of all Senior Debt before the holder of
this Note is entitled to receive any payment on account of principal of,
interest on or otherwise in respect of this Note, and to that end the holders of
Senior Debt shall be entitled to receive, for application to the payment
thereof, any payment or distribution of any kind or character, whether in cash,
property or securities, including any such payment or distribution which may be
payable or deliverable by reason of the payment of any other Indebtedness of the
Maker being subordinated to the payment of this Note, which may be payable or
deliverable in respect of this Note in any such case, proceeding, dissolution,
liquidation, reorganization or other winding-up or event.
If, notwithstanding the foregoing provisions of this Section 3, the
holder of this Note shall have received any payment or distribution of assets of
the Maker of any kind or character, whether in cash, property or securities,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any other Indebtedness of the Maker being
subordinated to the payment of this Note, before all Senior Debt is indefeasibly
paid in full, then and in such event such payment or distribution shall be paid
over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other person making payment or
distribution of assets of the Maker for application to the payment of all Senior
Debt remaining unpaid to the extent necessary to pay all Senior Debt in full.
For purposes of this Section 3 only, the words "cash, property or
securities" shall not be deemed to include securities of the Maker as
reorganized or readjusted, or securities of the Maker or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinated at least to the extent provided in this Section 3 with respect to
this Note to the payment of all Senior Debt which may at the time be
outstanding.
Section 3.4 Standstill; Prior Payment of Senior Debt Upon Acceleration
of Subordinated Indebtedness. Notwithstanding any provision herein or in any
other writing or agreement to the contrary, the holder of this Note shall not,
unless all Senior Debt shall have been declared due and payable by acceleration
of maturity pursuant to the terms thereof, without the
<PAGE> 7
7
prior written consent of the holders of the Senior Debt, commence, prosecute or
participate in, prior to the expiration of nine (9) months after the occurrence
of any default under this Note which is a ground for acceleration of this Note
(the date of such default is hereinafter referred to as the "Sub-Debt Default
Date"), any suit, action or proceeding against the Maker with respect to this
Note, or assert, collect or enforce, or take any action to foreclose or realize
upon, prior to the end of the ninth month following the Sub-Debt Default Date,
any security interest, lien or encumbrance on any property of the Maker pursuant
to any security agreements, pledge agreements, mortgages, lien instruments or
other documents which secure this Note or take any action which might result in
a payment in contravention of any provision of this Section 3 until the Senior
Debt shall have been indefeasibly paid in cash in full, and any such security
agreements, pledge agreements, mortgages, lien instruments or other documents
shall contain the subordination provisions set forth in this Section 3.
If, notwithstanding the foregoing, the Maker shall make any payment to
the holder of this Note prohibited by the foregoing provision of this Section 3,
such payment shall be paid over and delivered forthwith to the holders of the
Senior Debt but only to the extent that, upon notice from the holder of this
Note to the holders of the Senior Debt that such prohibited payment has been
made, the holders of the Senior Debt notify the holder of this Note of the
amounts then due and owing on the Senior Debt, if any, and only such amount so
notified to the holder of this Note shall be paid to the holders of the Senior
Debt.
The provisions of this Section 3.4 shall not apply to any payment with
respect to which Section 3.3 of this Note would be applicable.
Section 3.5 No Payment When Senior Debt in Default. In the event any
default in the payment of principal of or interest on any Senior Debt shall have
occurred and be continuing which permits (or with notice or lapse of time, or
both, would permit) the holders of such Senior Debt (or a trustee or agent on
behalf of the holders thereof) to declare such Senior Debt due and payable prior
to the date on which it would otherwise have become due and payable (whether or
not such holders, have accelerated such Senior Debt) or such a default would
result from or exist after giving effect to a payment with respect to this Note,
and if the
<PAGE> 8
8
holder of any Senior Debt gives written notice of such default to the holder of
this Note and designates the same as a "Senior Default Notice" hereunder, unless
and until such default shall have been cured or waived or shall have ceased to
exist and any such acceleration shall have been rescinded or annulled, or if any
judicial proceeding shall be pending with respect to any such default in payment
or other default, no payment (including any payment which may be payable by
reason of the payment of any other Indebtedness of the Maker being subordinated
to or pari passu with the payment of this Note) shall be made by the Maker on
account of principal of, interest on or otherwise in respect of this Note or on
account of the purchase or other acquisition of subordinated Indebtedness.
If, notwithstanding the foregoing, the Maker makes any payment to the
holder of this Note prohibited by the foregoing provisions of this Section 3,
such payment shall be paid over and delivered forthwith to the holders of the
Senior Debt but only to the extent that, upon notice from the holder of this
Note to the holders of the Senior Debt that such prohibited payment has been
made, the holders of the Senior Debt notify the holder of this Note of the
amounts then due and owing on the Senior Debt, if any, and only such amount so
notified to the holder of this Note shall be paid to the holders of Senior Debt.
The provisions of this Section 3.5 shall not apply to any payment with
respect to which Section 3.3 of this Note would be applicable.
Section 3.6 Subrogation to Rights of Holders of Senior Debt. Subject to
the indefeasible payment in full in cash of all Senior Debt, the holder of this
Note shall be subrogated to the extent of the payments or distributions made to
the holders of such Senior Debt pursuant to the provisions of this Section 3 to
the rights of the holders of such Senior Debt to receive payments or
distributions of cash, property or securities of the Maker applicable to the
Senior Debt until the principal of and interest on this Note shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Debt of any cash, property or securities to which the
holder of this Note would be entitled except for the provisions of this Section
3, and no payments over pursuant to the provisions of this Section 3 to the
holders of Senior Debt by the holder of this Note, shall, as between the Maker,
its creditors other than holders of Senior Debt,
<PAGE> 9
9
and the holder of this Note, be deemed to be a payment or distribution by the
Maker of or on account of this Note.
Section 3.7 Provisions Solely to Define Relative Rights. The provisions
of this Section 3 are and are intended solely for the purpose of defining the
relative rights of the holder of this Note, on the one hand, and the holders of
Senior Debt, on the other hand. Nothing contained in this Section 3 or elsewhere
in this Note is intended to or shall impair, as between the Maker, its creditors
other than the holders of Senior Debt and the holder of this Note, the
obligation of the Maker, which is absolute and unconditional, to pay to the
holder of this Note the principal of and interest on this Note as and when the
same shall become due and payable in accordance with its terms and which,
subject to the rights under this Note of the holders of Senior Debt, is intended
to rank equally with all other general obligations of the Maker, or is intended
to or shall affect the relative rights against the Maker of the holder of this
Note and creditors of the Maker other than the holders of Senior Debt, nor shall
anything herein or therein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law upon default under this Note,
subject to the rights, if any, under this Section 3 of the holders of Senior
Debt to receive cash, property or securities otherwise payable or deliverable to
the holder of this Note.
Section 3.8 Proof of Claim. If the holder of this Note does not file a
proper proof of claim or debt in the form required in any bankruptcy, insolvency
or receivership proceeding prior to 30 days before the expiration of the time to
file such proof of claim or debt, then the holders of Senior Debt are hereby
authorized to file an appropriate proof of claim or debt for and on behalf of
the holder of this Note and such holder hereby appoints the holders of Senior
Debt or their representative or representatives the attorney-in-fact of such
holder for such purposes.
Section 3.9 No Waiver of Subordination Provisions. No right of any
current or future holder of any Senior Debt to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Maker or by any act or failure to act, in good
faith, by any such Senior Debt holder, or by any non-compliance by the Maker
with the terms, provisions and covenants of this Note, regardless of any
knowledge
<PAGE> 10
10
thereof any such Senior Debt holder may have or be otherwise charged with. The
holder of this Note by such holder's acceptance hereof agrees that, so long as
there is indebtedness outstanding under this Note, the holder of this Note shall
not agree to compromise, release, forgive or otherwise discharge the obligations
of the Maker with respect to this Note without the prior written consent of the
holders of the Senior Debt.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the holder of this Note, without incurring
responsibility to the holder of this Note and without impairing or releasing the
subordination provided in this Section 3 or the obligations hereunder of the
holder of this Note to the holders of the Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment, renew or alter, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt or any instrument evidencing the same or any agreement under
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Debt; (iii)
release any person liable in any manner for the payment or collection of Senior
Debt; and (iv) exercise or refrain from exercising any rights against the Maker
and any other person.
Section 3.10 Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets of the Maker, the holder of
this Note shall be entitled to rely upon any order or decree entered by any
court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
liquidating trustee, custodian, receiver, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
holder of this Note, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other Indebtedness of the Maker, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Note.
<PAGE> 11
11
Section 3.11 Miscellaneous.
(a) Notices. All communications provided for hereunder shall be by
telephone, in person or in writing (including telex or facsimile communication)
and shall be delivered or sent by telex or facsimile to the respective party at
the addresses and numbers set forth below:
If to the holder of this Note:
MT Associates
709 Meadowcreek Circle
Lower Gwynedd, Pennsylvania 19002
Attention: Bruce L. Talus
Telecopy No.: (215) 646-8241
Telephone No.: (215) 646-5486
with copy to:
Robert K. Mehlman
8171 Madrillon Court
Vienna, Virginia 22182
Telecopy No.: (703) 821-6930
Telephone No.: (703) 821-6928
If to the Maker:
Valley Forge Dental Associates, Inc.
c/o Foster Management Company
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telecopy No.: (610) 992-3319
Telephone No.: (610) 992-3392
If to the holders of the Senior Debt:
to such addresses and such telephone and telecopier
numbers as are hereafter provided to the holder,
or to such other addresses and numbers as any party hereto shall specify to the
others in writing. All notices shall be effective (a) in the case of telex or
facsimile, when received, (b) in the case of hand-delivered notice, when
delivered and (c) in the case of telephone, when telephoned, provided that
written confirmation must be provided the next day by letter, facsimile or
telex.
<PAGE> 12
12
(b) Severability of Provisions; Captions. Any provision of this
Section 3 which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. The several captions to sections and subsections herein are
inserted for convenience only and shall be ignored in interpreting the
provisions of this Section.
Section 4. Optional Prepayment. The Maker may at any time with the
prior written consent of the holders of Senior Debt so long as any Senior Debt
is outstanding, prepay the whole or any part of the unpaid principal amount of
this Note, without penalty or premium, but with interest accrued to the date
fixed for prepayment. Notices of prepayment shall be given by the Maker by mail
and shall be mailed to the holder of this Note not less than thirty (30) days
from the date fixed for prepayment. In case this Note is to be prepaid in part
only, such notice shall specify the principal amount hereof to be prepaid, and
shall state that this Note shall be submitted to the Maker for notation hereon
of the principal amount hereof to be prepaid. Upon giving of notice of
prepayment as aforesaid, this Note or portion hereof so specified for prepayment
shall on the prepayment date specified in such notice become due and payable,
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment), interest on this Note or portion hereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender hereof to the Maker for cancellation in the case of this Note being
prepaid as a whole, or for notation hereon of the payment of the portion of the
principal amount hereof being prepaid in the case of a prepayment of this Note
in part only, this Note or portion hereof so specified for prepayment shall be
paid by the Maker at the prepayment price aforesaid. Any prepayment of this Note
in part shall be applied to the installments of principal payable hereunder in
the order of maturity thereof.
Section 5. Events of Default and Remedies. Subject to Section 3 hereof,
the holder of this Note shall have the right, without demand or notice, to
accelerate this Note and to declare the entire unpaid balance hereof and the
obligations evidenced hereby immediately due and payable and to seek and obtain
payment of this Note upon the occurrence of any of the
<PAGE> 13
13
following events of default: (a) the Maker fails to pay any installment of
principal payable under this Note or interest thereon within twenty (20) days
after receipt of written notice from the holder of this Note to the effect that
such installment or interest has not been paid when due, (b) the Maker admits in
writing its inability to pay its debts generally as they become due, files a
case or petition in bankruptcy or a case or petition to take advantage of any
bankruptcy, reorganization or insolvency act, makes an assignment for the
benefit of creditors, or consents to the appointment of a receiver for itself or
for all or substantially all of its property or the Maker fails to have any
involuntary petition in bankruptcy filed against it dismissed within ninety (90)
days, or (c) the voluntary liquidation, dissolution or winding up of the Maker.
Upon such declaration by the holder of this Note, the obligations evidenced by
this Note shall be immediately due and payable.
In the event of any event of default hereunder, the Maker agrees to pay
to the holder of this Note all expenses incurred by such holder, including,
without limitation, reasonable fees and disbursements of counsel, incurred by
such holder in the enforcement and collection of this Note.
Section 6. Definitions. As used herein, the following terms shall have
the following respective meanings:
"Indebtedness" shall mean as to any person at any time, any and all
indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (iv) any other transaction
(including without limitation forward sale or purchase agreements, capitalized
leases and conditional sales agreements) having the commercial effect of a
borrowing of money entered into by such person to finance its operations or
capital requirements (but not including trade payables and accrued expenses
incurred in the ordinary course of business which are not represented by a
promissory note), or (v) any Guaranty of Indebtedness for borrowed money. For
<PAGE> 14
14
purposes hereof, "Guaranty" shall mean any obligation of the Maker guaranteeing
or in effect guaranteeing any liability or obligation of any subsidiary, parent
or entity managed by or managing the Maker in any manner, whether directly or
indirectly, including, without limiting the generality of the foregoing, any
agreement to indemnify or hold harmless any other person, any performance bond
or other suretyship arrangement and any other form of assurance against loss,
except endorsement of negotiable or other instruments for deposit or collection
in the ordinary course of business.
"Post Petition Interest" means interest accruing after the commencement
of any bankruptcy or insolvency case or proceeding with respect to the Maker or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, at the rate applicable to such Indebtedness,
whether or not such interest is an allowable claim in any such proceeding.
"Senior Debt" means all Indebtedness of the Maker to any bank,
insurance company or other institutional lender, whether currently outstanding
or hereafter created, incurred or assumed (including but not limited to
Post-Petition Interest), unless such Indebtedness, by its terms or the terms of
the instrument creating or evidencing it is subordinate in right of payment to
or pari passu with this Note. Senior Debt shall continue to constitute Senior
Debt for all purposes and the provisions of Section 3 of this Note shall
continue to apply to such Senior Debt, notwithstanding the fact that such Senior
Debt, or any claim in respect thereof, shall be disallowed, avoided,
subordinated or determined to be a fraudulent conveyance pursuant to the
provisions of the United States Bankruptcy Code or other applicable federal,
state or local law.
Section 7. Right of Offset. The principal amount of and interest
accrued on this Note may be offset at any time or from time to time to the
extent of the full amount of any Purchaser's Damages as to which there has been
a final determination (as defined in the Agreement of Purchase and Sale dated as
of September 1, 1995, by and among the Maker, the Payee and the other parties
thereto (the "Purchase Agreement"), except for any Purchaser's Damages arising
from a breach of Section XI of the Purchase Agreement, as provided for in, and
subject to the terms, provisions and limitations of, Section X of the Purchase
Agreement, including that no final determination is necessary with respect to
<PAGE> 15
15
indemnification for certain Purchaser's Damages as provided in Section
X(D)(iii). The Maker shall have the right to offset the full amount of any such
Purchaser's Damages by reducing the amount of the principal of and accrued but
unpaid interest on this Note by the amount of such Purchaser's Damages. Any such
reduction in the principal amount of this Note shall be applied against the
installments of principal payable hereunder in the order of maturity thereof,
with interest after the date of any offset accruing on the amount of principal
which remains after such offset. The exercise of the right of offset provided
for in this Section 7 is not an exclusive remedy, and the provisions of this
Section 7 shall not prevent the Maker from exercising all remedies otherwise
permitted under applicable law, the terms of the Purchase Agreement or the terms
of this Note.
Section 8. Governing Law. This Note shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania and shall be
binding upon the successors and assigns of the Maker and inure to the benefit of
the Payee, the Payee's successors, endorsees and assigns.
Section 9. Severability. If any term or provision of this Note shall be
held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
* * *
<PAGE> 16
16
VALLEY FORGE DENTAL ASSOCIATES,
INC.
By /s/ W. Gary Liddick
-----------------------------
Name:
Title:
VFD OF PENNSYLVANIA, INC.
By /s/ W. Gary Liddick
-----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10(dd)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT
MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL TO THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED. THIS NOTE IS SUBJECT TO A RIGHT
OF OFFSET AS PROVIDED HEREIN.
6.67% Subordinated Promissory Note
due June 30, 2000
$137,926.48 King of Prussia,
October 1, 1996 Pennsylvania
Section 1. General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFDA"), and VFD of Pennsylvania,
Inc., a Delaware Corporation ("VFD"), jointly and severally (VFDA and VFD are
herein collectively referred to as the "Maker"), hereby promises to pay to the
order of Robert K. Mehlman, D.D.S. (the "Payee"), at the offices of the Maker
(except that the Payee may require that payments shall be made to the Payee by
mail at such address as the Payee shall from time to time designate in writing
to the Maker), the principal sum of One Hundred Thirty-Seven Thousand Nine
Hundred Twenty-Six Dollars and Forty-Eight Cents ($137,926.48), in lawful money
of the United States of America or such lesser amount as may be payable due to
offsets, if any, as provided for herein.
The Maker hereby also promises to pay interest on the unpaid
principal amount hereof in like money at such place, from the date hereof until
payment of the principal amount hereof has been made in full, at the rate of six
and sixty-seven one hundredths percent (6.67%) per annum, payable quarterly on
the first day of January, April, July and October each year, commencing on
October 1, 1996.
The principal of and interest on this Note shall be payable in
twenty (20) equal quarterly installments of Nine Thousand Seven Hundred and
Fifty Dollars ($9,750) each, or such lesser amount as may be payable due to
offsets, if any, as provided for herein, on the first day of January, April,
July and October of each year, commencing on October 1996 (on which date all
interest accrued hereon from the date hereof shall be paid) and ending on June
30, 2000, at which latest time the entire principal amount of this Note then
outstanding together with any outstanding accrued and unpaid interest thereon
shall be due and payable. Upon the
<PAGE> 2
2
occurrence and during the continuance of an event of default hereunder, any
outstanding principal shall bear interest at the rate of eleven percent (11%)
per annum.
Section 2. Subordination.
Section 2.1 Indebtedness Subordinated to Senior Debt. The
Maker hereby covenants and agrees, and the holder of this Note, by such holder's
acceptance hereof, hereby consents, covenants and agrees, that the indebtedness
of the Maker for or on account of principal and interest on this Note, and the
payment of the principal of and interest (whether by redemption or otherwise) on
this Note, is hereby expressly made subordinate and subject in right of payment
to the prior indefeasible payment in full in cash of all Senior Debt to the
extent and in the manner hereinafter set forth in this Section 2. Defined terms
used herein shall have the meanings set forth in Section 5 hereof, unless
otherwise specified or defined herein.
This Section 2 shall constitute a continuing offer to all
persons who become holders of, or continue to hold, Senior Debt, and such
provisions are made for the benefit of the holders of Senior Debt, and such
holders are made obligees hereunder and they or each of them may enforce such
provisions.
Section 2.2 Payment Permitted if No Default. Nothing contained
in this Section 2 or elsewhere in this Note shall prevent the Maker, at any time
except during the pendency of any of the conditions described in Sections 2.3,
2.4 and 2.5, other than as provided in Section 2.5, from making scheduled
payments at any time of principal of or interest on this Note.
Section 2.3 Payment Over of Proceeds Upon Dissolution; Etc.
Upon any payment or distribution of assets of the Maker in the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, total or
partial liquidation, winding-up, reorganization or other similar case or
proceeding in connection therewith, relative to the Maker or to its creditors,
or to its assets, whether voluntary or involuntary, or (b) any liquidation,
dissolution or other winding-up of the Maker, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or any other marshalling of assets and/or liabilities
of the Maker, then and in any such event the holders of Senior Debt shall be
entitled to receive indefeasible payment in full in cash of all amounts due or
to become due on or in respect of all Senior Debt before the holder of this Note
is entitled to receive any payment on
<PAGE> 3
3
account of principal of, interest on or otherwise in respect of this Note, and
to that end the holders of Senior Debt shall be entitled to receive, for
application to the payment thereof, any payment or distribution of any kind or
character, whether in cash, property or securities, including any such payment
or distribution which may be payable or deliverable by reason of the payment of
any other Indebtedness of the Maker being subordinated to the payment of this
Note, which may be payable or deliverable in respect of this Note in any such
case, proceeding, dissolution, liquidation, reorganization or other winding-up
or event.
If, notwithstanding the foregoing provisions of this Section
2, the holder of this Note shall have received any payment or distribution of
assets of the Maker of any kind or character, whether in cash, property or
securities, including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other Indebtedness of the Maker
being subordinated to the payment of this Note, before all Senior Debt is
indefeasibly paid in full, then and in such event such payment or distribution
shall be paid over or delivered forthwith to the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee, agent or other person making
payment or distribution of assets of the Maker for application to the payment of
all Senior Debt remaining unpaid to the extent necessary to pay all Senior Debt
in full.
For purposes of this Section 2 only, the words "cash, property
or securities" shall not be deemed to include securities of the Maker as
reorganized or readjusted, or securities of the Maker or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinated at least to the extent provided in this Section 2 with respect to
this Note to the payment of all Senior Debt which may at the time be
outstanding.
Section 2.4 Standstill; Prior Payment of Senior Debt Upon
Acceleration of Subordinated Indebtedness. Notwithstanding any provision herein
or in any other writing or agreement to the contrary, the holder of this Note
shall not, unless all Senior Debt shall have been declared due and payable by
acceleration of maturity pursuant to the terms thereof, without the prior
written consent of the holders of the Senior Debt, commence, prosecute or
participate in, prior to the expiration of nine (9) months after the occurrence
of any default under this Note which is a ground for acceleration of this Note
(the date of such default is hereinafter referred to as the "Sub-Debt Default
Date"), any suit, action or proceeding against the Maker with respect to this
Note, or assert, collect or enforce, or take any action
<PAGE> 4
4
to foreclose or realize upon, prior to the end of the ninth month following the
Sub-Debt Default Date, any security interest, lien or encumbrance on any
property of the Maker pursuant to any security agreements, pledge agreements,
mortgages, lien instruments or other documents which secure this Note or take
any action which might result in a payment in contravention of any provision of
this Section 2 until the Senior Debt shall have been indefeasibly paid in cash
in full, and any such security agreements, pledge agreements, mortgages, lien
instruments or other documents shall contain the subordination provisions set
forth in this Section 2.
If, notwithstanding the foregoing, the Maker shall make any
payment to the holder of this Note prohibited by the foregoing provision of this
Section 2, such payment shall be paid over and delivered forthwith to the
holders of the Senior Debt but only to the extent that, upon notice from the
holder of this Note to the holders of the Senior Debt that such prohibited
payment has been made, the holders of the Senior Debt notify the holder of this
Note of the amounts then due and owing on the Senior Debt, if any, and only such
amount so notified to the holder of this Note shall be paid to the holders of
the Senior Debt.
The provisions of this Section 2.4 shall not apply to any
payment with respect to which Section 2.3 of this Note would be applicable.
Section 2.5 No Payment When Senior Debt in Default. In the
event any default in the payment of principal of or interest on any Senior Debt
shall have occurred and be continuing which permits (or with notice or lapse of
time, or both, would permit) the holders of such Senior Debt (or a trustee or
agent on behalf of the holders thereof) to declare such Senior Debt due and
payable prior to the date on which it would otherwise have become due and
payable (whether or not such holders, have accelerated such Senior Debt) or such
a default would result from or exist after giving effect to a payment with
respect to this Note, and if the holder of any Senior Debt gives written notice
of such default to the holder of this Note and designates the same as a "Senior
Default Notice" hereunder, unless and until such default shall have been cured
or waived or shall have ceased to exist and any such acceleration shall have
been rescinded or annulled, or if any judicial proceeding shall be pending with
respect to any such default in payment or other default, no payment (including
any payment which may be payable by reason of the payment of any other
Indebtedness of the Maker being subordinated to or pari passu with the payment
of this Note) shall be made by the Maker on account of principal of, interest on
or otherwise
<PAGE> 5
5
in respect of this Note or on account of the purchase or other acquisition of
subordinated Indebtedness.
If, notwithstanding the foregoing, the Maker makes any payment
to the holder of this Note prohibited by the foregoing provisions of this
Section 2, such payment shall be paid over and delivered forthwith to the
holders of the Senior Debt but only to the extent that, upon notice from the
holder of this Note to the holders of the Senior Debt that such prohibited
payment has been made, the holders of the Senior Debt notify the holder of this
Note of the amounts then due and owing on the Senior Debt, if any, and only such
amount so notified to the holder of this Note shall be paid to the holders of
Senior Debt.
The provisions of this Section 2.5 shall not apply to any
payment with respect to which Section 2.3 of this Note would be applicable.
Section 2.6 Subrogation to Rights of Holders of Senior Debt.
Subject to the indefeasible payment in full in cash of all Senior Debt, the
holder of this Note shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Debt pursuant to the provisions
of this Section 2 to the rights of the holders of such Senior Debt to receive
payments or distributions of cash, property or securities of the Maker
applicable to the Senior Debt until the principal of and interest on this Note
shall be paid in full. For purposes of such subrogation, no payments or
distributions to the holders of the Senior Debt of any cash, property or
securities to which the holder of this Note would be entitled except for the
provisions of this Section 2, and no payments over pursuant to the provisions of
this Section 2 to the holders of Senior Debt by the holder of this Note, shall,
as between the Maker, its creditors other than holders of Senior Debt, and the
holder of this Note, be deemed to be a payment or distribution by the Maker of
or on account of this Note.
Section 2.7 Provisions Solely to Define Relative Rights. The
provisions of this Section 2 are and are intended solely for the purpose of
defining the relative rights of the holder of this Note, on the one hand, and
the holders of Senior Debt, on the other hand. Nothing contained in this Section
2 or elsewhere in this Note is intended to or shall impair, as between the
Maker, its creditors other than the holders of Senior Debt and the holder of
this Note, the obligation of the Maker, which is absolute and unconditional, to
pay to the holder of this Note the principal of and interest on this Note as and
when the same shall become due and payable in accordance with its terms and
which, subject to the rights under this Note of
<PAGE> 6
6
the holders of Senior Debt, is intended to rank equally with all other general
obligations of the Maker, or is intended to or shall affect the relative rights
against the Maker of the holder of this Note and creditors of the Maker other
than the holders of Senior Debt, nor shall anything herein or therein prevent
the holder of this Note from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the rights, if any,
under this Section 2 of the holders of Senior Debt to receive cash, property or
securities otherwise payable or deliverable to the holder of this Note.
Section 2.8 Proof of Claim. If the holder of this Note does
not file a proper proof of claim or debt in the form required in any bankruptcy,
insolvency or receivership proceeding prior to 30 days before the expiration of
the time to file such proof of claim or debt, then the holders of Senior Debt
are hereby authorized to file an appropriate proof of claim or debt for and on
behalf of the holder of this Note and such holder hereby appoints the holders of
Senior Debt or their representative or representatives the attorney-in-fact of
such holder for such purposes.
Section 2.9 No Waiver of Subordination Provisions. No right of
any current or future holder of any Senior Debt to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Maker or by any act or failure to act,
in good faith, by any such Senior Debt holder, or by any non-compliance by the
Maker with the terms, provisions and covenants of this Note, regardless of any
knowledge thereof any such Senior Debt holder may have or be otherwise charged
with. The holder of this Note by such holder's acceptance hereof agrees that, so
long as there is indebtedness outstanding under this Note, the holder of this
Note shall not agree to compromise, release, forgive or otherwise discharge the
obligations of the Maker with respect to this Note without the prior written
consent of the holders of the Senior Debt.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the holder of this Note, without incurring
responsibility to the holder of this Note and without impairing or releasing the
subordination provided in this Section 2 or the obligations hereunder of the
holder of this Note to the holders of the Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment, renew or alter, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt
<PAGE> 7
7
or any instrument evidencing the same or any agreement under which Senior Debt
is outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Debt; (iii) release any person
liable in any manner for the payment or collection of Senior Debt; and (iv)
exercise or refrain from exercising any rights against the Maker and any other
person.
Section 2.10 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Maker, the
holder of this Note shall be entitled to rely upon any order or decree entered
by any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
liquidating trustee, custodian, receiver, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
holder of this Note, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other Indebtedness of the Maker, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Note.
2.11 Miscellaneous.
(a) Notices. All communications provided for
hereunder shall be by telephone, in person or in writing (including telex or
facsimile communication) and shall be delivered or sent by telex or facsimile to
the respective party at the addresses and numbers set forth below:
If to the holder of this Note:
8171 Madrillon Court
Vienna, Virginia 22182
Telecopy No.: (703) 821-6930
Telephone No.: (703) 821-6928
If to the Maker:
Valley Forge Dental Associates, Inc.
c/o Foster Management Company
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
<PAGE> 8
8
If to the holders of the Senior Debt:
to such addresses and such telephone and telecopier
numbers as are hereafter provided to the holder,
or to such other addresses and numbers as any party hereto shall specify to the
others in writing. All notices shall be effective (a) in the case of telex or
facsimile, when received, (b) in the case of hand-delivered notice, when
delivered and (c) in the case of telephone, when telephoned, provided that
written confirmation must be provided the next day by letter, facsimile or
telex.
(b) Severability of Provisions; Captions. Any
provision of this Section 2.11 which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction. The several captions to sections and subsections
herein are inserted for convenience only and shall be ignored in interpreting
the provisions of this Section.
Section 3. Optional Prepayment. The Maker may at any time with
the prior written consent of the holders of Senior Debt so long as any Senior
Debt is outstanding, prepay the whole or any part of the unpaid principal amount
of this Note, without penalty or premium, but with interest accrued to the date
fixed for prepayment. Notices of prepayment shall be given by the Maker by mail
and shall be mailed to the holder of this Note not less than thirty (30) days
from the date fixed for prepayment. In case this Note is to be prepaid in part
only, such notice shall specify the principal amount hereof to be prepaid, and
shall state that this Note shall be submitted to the Maker for notation hereon
of the principal amount hereof to be prepaid. Upon giving of notice of
prepayment as aforesaid, this Note or portion hereof so specified for prepayment
shall on the prepayment date specified in such notice become due and payable,
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment), interest on this Note or portion hereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender hereof to the Maker for cancellation in the case of this Note being
prepaid as a whole, or for notation hereon of the payment of the portion of the
principal amount hereof being prepaid in the case of a prepayment of this Note
in part only, this Note or portion hereof so specified for prepayment shall be
paid by the Maker at the prepayment price aforesaid. Any prepayment of this Note
in part shall
<PAGE> 9
9
be applied to the installments of principal payable hereunder in the order of
maturity thereof.
Section 4. Events of Default and Remedies. Subject to Section
2 hereof, the holder of this Note shall have the right, without demand or
notice, to accelerate this Note and to declare the entire unpaid balance hereof
and the obligations evidenced hereby immediately due and payable and to seek and
obtain payment of this Note upon the occurrence of any of the following events
of default: (a) the Maker fails to pay any installment of principal of and
interest on this Note within thirty (30) days after receipt of written notice
from the holder of this Note to the effect that such installment or interest has
not been paid when due, (b) the Maker admits in writing its inability to pay its
debts generally as they become due, files a case or petition in bankruptcy or a
case or petition to take advantage of any bankruptcy, reorganization or
insolvency act, makes an assignment for the benefit of creditors, or consents to
the appointment of a receiver for itself or for all or substantially all of its
property or the Maker fails to have any involuntary case or petition in
bankruptcy filed against it dismissed within ninety (90) days, or (c) the
voluntary liquidation, dissolution or other winding up of the Maker. Upon such
declaration by the holder of this Note, the obligations evidenced by this Note
shall be immediately due and payable.
In the event of any event of default hereunder, the Maker
agrees to pay to the holder of this Note all expenses incurred by such holder,
including, without limitation, reasonable fees and disbursements of counsel,
incurred by such holder in the enforcement and collection of this Note.
Section 5. Definitions. As used herein, the following terms
shall have the following respective meanings:
"Indebtedness" shall mean as to any person at any time, any
and all indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (iv) any other transaction
(including without limitation forward sale or purchase agreements, capitalized
leases and conditional sales agreements) having the commercial effect
<PAGE> 10
10
of a borrowing of money entered into by such person to finance its operations or
capital requirements (but not including trade payables and accrued expenses
incurred in the ordinary course of business which are not represented by a
promissory note), or (v) any Guaranty of Indebtedness for borrowed money. For
purposes hereof, "Guaranty" shall mean any obligation of the Maker guaranteeing
or in effect guaranteeing any liability or obligation of any subsidiary, parent
or entity managed by or managing the Maker in any manner, whether directly or
indirectly, including, without limiting the generality of the foregoing, any
agreement to indemnify or hold harmless any other person, any performance bond
or other suretyship arrangement and any other form of assurance against loss,
except endorsement of negotiable or other instruments for deposit or collection
in the ordinary course of business.
"Post Petition Interest" means interest accruing after the
commencement of any bankruptcy or insolvency case or proceeding with respect to
the Maker or any receivership, liquidation, reorganization or other similar case
or proceeding in connection therewith, at the rate applicable to such
Indebtedness, whether or not such interest is an allowable claim in any such
proceeding.
"Senior Debt" means all Indebtedness of the Maker to any bank,
insurance company or other institutional lender, whether currently outstanding
or hereafter created, incurred or assumed (including but not limited to
Post-Petition Interest), unless such Indebtedness, by its terms or the terms of
the instrument creating or evidencing it is subordinate in right of payment to
or pari passu with this Note. Senior Debt shall continue to constitute Senior
Debt for all purposes and the provisions of Section 2 of this Note shall
continue to apply to such Senior Debt, notwithstanding the fact that such Senior
Debt, or any claim in respect thereof, shall be disallowed, avoided,
subordinated or determined to be a fraudulent conveyance pursuant to the
provisions of the United States Bankruptcy Code or other applicable Federal,
State or local law.
Section 6. Right of Offset. The principal amount of and
interest accrued on this Note may be offset at any time or from time to time to
the extent of the full amount of any Purchaser's Damages as to which there has
been a final determination (as defined in the Agreement of Purchase and Sale
dated as of September 1, 1995, by and among the Maker, the Payee and the other
parties thereto (the "Purchase Agreement"), except for any Purchaser's Damages
arising from a breach of Section XI of the Purchase Agreement, as provided for
in, and subject to the terms, provisions and limitations of, Section X of the
Purchase
<PAGE> 11
11
Agreement, including that no final determination is necessary with respect to
indemnification for certain Purchaser's Damages as provided in Section
X(D)(iii). The Maker shall have the right to offset against the next
installment(s) of principal and interest payable hereunder (as originally set
forth in Section 1 or, if there have been any prior offsets, after giving effect
to such prior offsets) the full amount of any such Purchaser's Damages together
with interest thereon at the rate of six and sixty-seven one hundredths percent
(6.67%) per annum calculated from the date of such offset through the due
date(s) of such installment(s). In the event of any such reduction in the
installment(s) payable under this Note, interest after the date of any Offset
Installment (as hereinafter defined) shall accrue on the amount of principal
which remains after such offset. In the event of any offset against the
principal payable hereunder, the Maker shall recalculate the quarterly
installment payments provided for in Section 1 commencing with the first
quarterly installment payable subsequent to the last installment payment (the
"Offset Installment") as to which such offset shall have been made so that the
equal quarterly installments of principal and interest thereafter shall be based
upon the original principal amount of this Note less the aggregate of all
offsets of principal and payments of principal made through and including the
date of such Offset Installment and this Note shall automatically be deemed
amended accordingly. The exercise of the right of offset provided for in this
Section 6 is not an exclusive remedy, and the provisions of this Section 6 shall
not prevent the Maker from exercising all remedies otherwise permitted under
applicable law, the terms of the Purchase Agreement or the terms of this Note.
Section 7. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania and
shall be binding upon the successors and assigns of the Maker and inure to the
benefit of the Payee, the Payee's successors, endorsees and assigns.
Section 8. Severability. If any term or provision of this Note
shall be held invalid, illegal or unenforceable, the validity of all other terms
and provisions hereof shall in no way be affected thereby.
* * *
<PAGE> 12
12
VALLEY FORGE DENTAL
ASSOCIATES, INC.
By /s/ W. Gary Liddick
----------------------------
Name: W. Gary Liddick
Title: Vice President
VFD OF PENNSYLVANIA, INC.
By /s/ W. Gary Liddick
----------------------------
Name: W. Gary Liddick
Title: Vice President
<PAGE> 1
EXHIBIT 10(ee)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT MAY
NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR AN OPINION OF COUNSEL TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED. THIS NOTE IS SUBJECT TO A RIGHT OF OFFSET AS
PROVIDED HEREIN.
6% Convertible Subordinated Promissory Note
due October 1, 2000
$2,677,200 King of Prussia,
October 1, 1997 Pennsylvania
Section 1.1 General. FOR VALUE RECEIVED, VALLEY FORGE DENTAL
ASSOCIATES, INC., a Delaware corporation ("VFDA"), and VFD OF PENNSYLVANIA,
INC., a Delaware corporation ("VFD"), jointly and severally (VFDA and VFD are
herein collectively referred to as the "Maker"), hereby promises to pay to the
order of MT Associates, a Pennsylvania general partnership (the "Payee"), at the
offices of the Maker (except that the Payee may require that payments shall be
made to the Payee by mail at such address as the Payee shall from time to time
designate in writing to the Maker), the principal sum of Two Million, Six
Hundred and Seventy-Seven Thousand, Two Hundred Dollars ($2,677,200), in lawful
money of the United States of America or such lesser amount as may be payable
due to offsets, if any, as provided for herein.
The Maker hereby also promises to pay interest on the unpaid
principal amount hereof in like money at such place, from the date hereof until
payment of the principal amount hereof has been made in full, at the rate of six
percent (6%) per annum, payable on the first quarter each year, commencing on
the first day of January 1, 1998.
The principal amount shall be payable in twelve (12) equal quarterly
installments of Two Hundred and Twenty-Three Thousand, One Hundred Dollars
($223,100) each, or such lesser amount as may be payable due to offsets, if any,
as provided for herein, on the first day of January, April, July and October of
each year, commencing on January 1, 1998 (on which date all interest accrued
hereon from the date hereof shall be paid) and ending on October 1, 2000 at
which latest time the entire principal amount of this Note then outstanding
together with any outstanding accrued and unpaid interest thereon shall be due
and payable. Upon the
<PAGE> 2
2
occurrence and during the continuance of an event of default hereunder, any
outstanding principal shall bear interest at the rate of eleven percent (11%)
per annum.
Section 2. Conversion. The Payee shall have the right at any time
from and after the date hereof and until payment in full of this Note to
convert, subject to and upon compliance with the terms and provisions hereof,
all, but not less than all, of the outstanding principal amount of this Note,
together with any outstanding and unpaid interest thereon accrued through the
Conversion Date (as hereinafter defined) into shares of Common Stock (as
hereinafter defined), at the price of $16.00 per share, unless there shall be in
effect on the Conversion Date an adjusted conversion price, in which event at
such adjusted conversion price (such price or adjusted price being referred to
herein as the "Conversion Price"). Upon the surrender hereof, accompanied by the
Payee's written request in the form attached hereto as Annex A for conversion of
this Note (sometimes herein, the "Conversion Notice"), the Maker shall issue and
deliver to Payee within forty-five (45) days after the surrender of this Note
pursuant hereto, one or more certificates evidencing the shares of Common Stock
into which this Note shall be converted. All shares of Common Stock issued upon
conversion shall be deemed issued as of the close of business on the Conversion
Date. The "Conversion Date" is the date this Note is surrendered for conversion
pursuant to this paragraph; provided, however, that if such date is a date on
which the stock transfer books of the Maker are closed, then the Conversion Date
shall be the next date on which such books are open; provided, however, in no
event shall the Conversion Date be more than three (3) business days from the
date this Note is surrendered for conversion pursuant to this paragraph. The
term "Common Stock" shall mean the class of stock which, at the date of
execution of this Note, is designated common stock, par value $.01, of the Maker
and stock of any class or classes into which such common stock or any such other
class may thereafter be changed or reclassified. In case by reason of the
operation hereof this Note shall be convertible into any other shares of stock,
other securities, property or cash of the Maker or any other corporation, any
reference herein to the conversion of this Note shall be deemed to refer to and
include conversion of this Note into such other shares, securities, property, or
cash.
The conversion terms and the Conversion Price shall be subject to
adjustment from time to time upon the occurrence of certain events while this
Note remains outstanding, as follows:
<PAGE> 3
3
(A) If the Maker at any time shall consolidate with or merge into or
sell or convey all or substantially all of its assets to any other corporation,
this Note shall thereafter be convertible into such kind and amount of shares of
stock, other securities, property, cash or any combination thereof receivable
upon such consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock into which this Note would have been converted had it
been converted immediately prior to such consolidation, merger, sale, or
conveyance, subject to adjustments equivalent to the adjustments provided in
this Note. In the event of a consolidation or merger of another corporation into
the Maker in which the Maker is the continuing corporation and in which there is
a reclassification or change (including a change to the right to receive, or a
change into, as the case may be, shares of stock, other securities, property,
cash or any combination thereof) of the shares of Common Stock, this Note shall
thereafter be convertible solely into the kind and amount of shares of stock,
other securities, property, cash or any combination thereof receivable upon such
consolidation or merger by a holder of the number of shares of Common Stock into
which this Note would have been converted had it been converted immediately
prior to such consolidation or merger. The foregoing provisions shall similarly
apply to successive transactions of a similar nature by any such successor or
purchaser. Without limiting the generality of the foregoing, the adjustment
provisions of this Note shall apply to such securities of such successor or
purchaser after any such consolidation, merger, sale or conveyance.
(B) In case the Maker shall (i) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in shares of its
Common Stock, (ii) subdivide or reclassify the outstanding shares of its Common
Stock into a greater number of shares, or (iii) combine or reclassify the
outstanding shares of its Common Stock into a smaller number of shares, the
Conversion Price in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the Payee after such
time shall be entitled to receive upon surrender hereof for conversion the
number of shares of Common Stock which the Payee would have owned or been
entitled to receive had this Note been converted immediately prior to such time.
Such adjustment shall be made successively whenever any event specified above
shall occur. All calculations under this paragraph shall be made to the nearer
cent or to the nearer one-hundredth of a share, as the case may be.
<PAGE> 4
4
The Maker agrees that its issuance of this Note shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note. During the period within which
this Note may be converted into shares of Common Stock, the Maker shall at all
times have authorized and reserved a sufficient number of shares of Common Stock
to provide for the conversion of this Note in accordance with the terms hereof.
The issuance of certificates for shares of Common Stock upon the
conversion of this Note shall be made without charge for any tax in respect of
the issuance of such certificates, and such certificates shall be issued in the
name of, or in such names as may be directed by, the Payee; provided, however,
that the Maker shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Payee.
No fractional shares of Common Stock or scrip representing
fractional shares shall be issued upon the conversion of this Note. If the
conversion of this Note results in a fraction of a share, an amount equal to
such fraction multiplied by the Conversion Price shall be paid in cash to the
Payee by the Maker on or prior to the Conversion Date.
The shares of Common Stock issuable by the Maker upon the conversion
of this Note shall be issued without compliance with the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act")
and the Payee may be unable to sell its shares of Common Stock except (i)
pursuant to an effective registration statement covering the Common Stock
pursuant to the Securities Act, (ii) in a bona fide private placement to a
purchaser who shall be subject to the same restrictions on any resale or (iii)
subject to the restrictions contained in Rule 144 under the Securities Act.
Each certificate representing shares of Common Stock of the Maker
issued upon conversion of this Note shall, if applicable, contain upon its face
or upon the reverse side thereof a legend to the following effect:
"The Shares represented by this Certificate have not been registered under
the Securities Act of 1933, as amended (the "Act"), but have been issued
pursuant to an exemption from such registration. Neither such Shares nor
any interest therein may
<PAGE> 5
5
be sold, transferred, pledged, hypothecated or otherwise disposed of until
either (i) the holder thereof shall have received an opinion of counsel
reasonably satisfactory to the Maker that registration thereof under the
Act is not required or (ii) a registration statement under the Act
covering such Shares or such interest and the disposition thereof shall
have become effective under the Act."
Section 3. Subordination.
Section 3.1 Indebtedness Subordinated to Senior Debt. The Maker
hereby covenants and agrees, and the holder of this Note, by such holder's
acceptance hereof, hereby consents, covenants and agrees, that the indebtedness
of the Maker for or on account of principal and interest on this Note, and the
payment of the principal of and interest (whether by redemption or otherwise) on
this Note, is hereby expressly made subordinate and subject in right of payment
to the prior indefeasible payment in full in cash of all Senior Debt to the
extent and in the manner hereinafter set forth in this Section 3. Defined terms
used herein shall have the meanings set forth in Section 6 hereof, unless
otherwise specified or defined herein.
This Section 3 shall constitute a continuing offer to all persons
who become holders of, or continue to hold, Senior Debt, and such provisions are
made for the benefit of the holders of Senior Debt, and such holders are made
obligees hereunder and they or each of them may enforce such provisions.
Section 3.2 Payment Permitted if No Default. Nothing contained in
this Section 3 or elsewhere in this Note shall prevent the Maker, at any time
except during the pendency of any of the conditions described in Sections 3.3,
3.4 and 3.5, other than as provided in Section 3.5, from making scheduled
payments at any time of principal of or interest on this Note.
Section 3.3 Payment Over of Proceeds Upon Dissolution; Etc. Upon any
payment or distribution of assets of the Maker in the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, total or
partial liquidation, winding-up, reorganization or other similar case or
proceeding in connection therewith, relative to the Maker or to its creditors,
or to its assets, whether voluntary or involuntary, or (b) any liquidation,
dissolution or other winding-up of the Maker, whether voluntary or involuntary
and whether or not involving
<PAGE> 6
6
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshalling of assets and/or liabilities of the Maker, then and in any
such event the holders of Senior Debt shall be entitled to receive indefeasible
payment in full in cash of all amounts due or to become due on or in respect of
all Senior Debt before the holder of this Note is entitled to receive any
payment on account of principal of, interest on or otherwise in respect of this
Note, and to that end the holders of Senior Debt shall be entitled to receive,
for application to the payment thereof, any payment or distribution of any kind
or character, whether in cash, property or securities, including any such
payment or distribution which may be payable or deliverable by reason of the
payment of any other Indebtedness of the Maker being subordinated to the payment
of this Note, which may be payable or deliverable in respect of this Note in any
such case, proceeding, dissolution, liquidation, reorganization or other
winding-up or event.
If, notwithstanding the foregoing provisions of this Section 3, the
holder of this Note shall have received any payment or distribution of assets of
the Maker of any kind or character, whether in cash, property or securities,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any other Indebtedness of the Maker being
subordinated to the payment of this Note, before all Senior Debt is indefeasibly
paid in full, then and in such event such payment or distribution shall be paid
over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other person making payment or
distribution of assets of the Maker for application to the payment of all Senior
Debt remaining unpaid to the extent necessary to pay all Senior Debt in full.
For purposes of this Section 3 only, the words "cash, property or
securities" shall not be deemed to include securities of the Maker as
reorganized or readjusted, or securities of the Maker or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinated at least to the extent provided in this Section 3 with respect to
this Note to the payment of all Senior Debt which may at the time be
outstanding.
Section 3.4 Standstill; Prior Payment of Senior Debt Upon
Acceleration of Subordinated Indebtedness. Notwithstanding any provision herein
or in any other writing or agreement to the contrary, the holder of this Note
shall not, unless all Senior Debt shall have been declared due and payable by
acceleration of maturity pursuant to the terms
<PAGE> 7
7
thereof, without the prior written consent of the holders of the Senior Debt,
commence, prosecute or participate in, prior to the expiration of nine (9)
months after the occurrence of any default under this Note which is a ground for
acceleration of this Note (the date of such default is hereinafter referred to
as the "Sub-Debt Default Date"), any suit, action or proceeding against the
Maker with respect to this Note, or assert, collect or enforce, or take any
action to foreclose or realize upon, prior to the end of the ninth month
following the Sub-Debt Default Date, any security interest, lien or encumbrance
on any property of the Maker pursuant to any security agreements, pledge
agreements, mortgages, lien instruments or other documents which secure this
Note or take any action which might result in a payment in contravention of any
provision of this Section 3 until the Senior Debt shall have been indefeasibly
paid in cash in full, and any such security agreements, pledge agreements,
mortgages, lien instruments or other documents shall contain the subordination
provisions set forth in this Section 3.
If, notwithstanding the foregoing, the Maker shall make any payment
to the holder of this Note prohibited by the foregoing provision of this Section
3, such payment shall be paid over and delivered forthwith to the holders of the
Senior Debt but only to the extent that, upon notice from the holder of this
Note to the holders of the Senior Debt that such prohibited payment has been
made, the holders of the Senior Debt notify the holder of this Note of the
amounts then due and owing on the Senior Debt, if any, and only such amount so
notified to the holder of this Note shall be paid to the holders of the Senior
Debt.
The provisions of this Section 3.4 shall not apply to any payment
with respect to which Section 3.3 of this Note would be applicable.
Section 3.5 No Payment When Senior Debt in Default. In the event any
default in the payment of principal of or interest on any Senior Debt shall have
occurred and be continuing which permits (or with notice or lapse of time, or
both, would permit) the holders of such Senior Debt (or a trustee or agent on
behalf of the holders thereof) to declare such Senior Debt due and payable prior
to the date on which it would otherwise have become due and payable (whether or
not such holders, have accelerated such Senior Debt) or such a default would
result from or exist after giving effect to a payment with respect to this Note,
and if the holder of any Senior Debt gives written notice of such default to the
holder of this Note and designates the same as a "Senior Default Notice"
hereunder, unless and until such default shall have been cured or waived or
shall
<PAGE> 8
8
have ceased to exist and any such acceleration shall have been rescinded or
annulled, or if any judicial proceeding shall be pending with respect to any
such default in payment or other default, no payment (including any payment
which may be payable by reason of the payment of any other Indebtedness of the
Maker being subordinated to or pari passu with the payment of this Note) shall
be made by the Maker on account of principal of, interest on or otherwise in
respect of this Note or on account of the purchase or other acquisition of
subordinated Indebtedness.
If, notwithstanding the foregoing, the Maker makes any payment to
the holder of this Note prohibited by the foregoing provisions of this Section
3, such payment shall be paid over and delivered forthwith to the holders of the
Senior Debt but only to the extent that, upon notice from the holder of this
Note to the holders of the Senior Debt that such prohibited payment has been
made, the holders of the Senior Debt notify the holder of this Note of the
amounts then due and owing on the Senior Debt, if any, and only such amount so
notified to the holder of this Note shall be paid to the holders of Senior Debt.
The provisions of this Section 3.5 shall not apply to any payment
with respect to which Section 3.3 of this Note would be applicable.
Section 3.6 Subrogation to Rights of Holders of Senior Debt. Subject
to the indefeasible payment in full in cash of all Senior Debt, the holder of
this Note shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Debt pursuant to the provisions of this
Section 3 to the rights of the holders of such Senior Debt to receive payments
or distributions of cash, property or securities of the Maker applicable to the
Senior Debt until the principal of and interest on this Note shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Debt of any cash, property or securities to which the
holder of this Note would be entitled except for the provisions of this Section
3, and no payments over pursuant to the provisions of this Section 3 to the
holders of Senior Debt by the holder of this Note, shall, as between the Maker,
its creditors other than holders of Senior Debt, and the holder of this Note, be
deemed to be a payment or distribution by the Maker of or on account of this
Note.
Section 3.7 Provisions Solely to Define Relative Rights. The
provisions of this Section 3 are and are intended solely for the purpose of
defining the relative rights of the holder of this Note, on the one hand, and
the
<PAGE> 9
9
holders of Senior Debt, on the other hand. Nothing contained in this Section 3
or elsewhere in this Note is intended to or shall impair, as between the Maker,
its creditors other than the holders of Senior Debt and the holder of this Note,
the obligation of the Maker, which is absolute and unconditional, to pay to the
holder of this Note the principal of and interest on this Note as and when the
same shall become due and payable in accordance with its terms and which,
subject to the rights under this Note of the holders of Senior Debt, is intended
to rank equally with all other general obligations of the Maker, or is intended
to or shall affect the relative rights against the Maker of the holder of this
Note and creditors of the Maker other than the holders of Senior Debt, nor shall
anything herein or therein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law upon default under this Note,
subject to the rights, if any, under this Section 3 of the holders of Senior
Debt to receive cash, property or securities otherwise payable or deliverable to
the holder of this Note.
Section 3.8 Proof of Claim. If the holder of this Note does not file
a proper proof of claim or debt in the form required in any bankruptcy,
insolvency or receivership proceeding prior to 30 days before the expiration of
the time to file such proof of claim or debt, then the holders of Senior Debt
are hereby authorized to file an appropriate proof of claim or debt for and on
behalf of the holder of this Note and such holder hereby appoints the holders of
Senior Debt or their representative or representatives the attorney-in-fact of
such holder for such purposes.
Section 3.9 No Waiver of Subordination Provisions. No right of any
current or future holder of any Senior Debt to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Maker or by any act or failure to act, in good
faith, by any such Senior Debt holder, or by any non-compliance by the Maker
with the terms, provisions and covenants of this Note, regardless of any
knowledge thereof any such Senior Debt holder may have or be otherwise charged
with. The holder of this Note by such holder's acceptance hereof agrees that, so
long as there is indebtedness outstanding under this Note, the holder of this
Note shall not agree to compromise, release, forgive or otherwise discharge the
obligations of the Maker with respect to this Note without the prior written
consent of the holders of the Senior Debt.
<PAGE> 10
10
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the holder of this Note, without incurring
responsibility to the holder of this Note and without impairing or releasing the
subordination provided in this Section 3 or the obligations hereunder of the
holder of this Note to the holders of the Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment, renew or alter, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt or any instrument evidencing the same or any agreement under
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Debt; (iii)
release any person liable in any manner for the payment or collection of Senior
Debt; and (iv) exercise or refrain from exercising any rights against the Maker
and any other person.
Section 3.10 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Maker, the
holder of this Note shall be entitled to rely upon any order or decree entered
by any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
liquidating trustee, custodian, receiver, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
holder of this Note, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other Indebtedness of the Maker, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Note.
Section 3.11 Miscellaneous.
(a) Notices. All communications provided for hereunder shall
be by telephone, in person or in writing (including telex or facsimile
communication) and shall be delivered or sent by telex or facsimile to the
respective party at the addresses and numbers set forth below:
<PAGE> 11
11
If to the holder of this Note:
MT Associates
709 Meadowcreek Circle
Lower Gwynedd, Pennsylvania 19002
Attention: Bruce L. Talus
Telecopy No.: (215) 646-8241
Telephone No.: (215) 646-5486
with copy to:
Robert K. Mehlman
8171 Madrillon Court
Vienna, Virginia 22182
Telecopy No.: (703) 821-6930
Telephone No.: (703) 821-6928
If to the Maker:
Valley Forge Dental Associates, Inc.
c/o Foster Management Company
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telecopy No.: (610) 992-3319
Telephone No.: (610) 992-3392
If to the holders of the Senior Debt:
to such addresses and such telephone and
telecopier numbers as are hereafter provided to
the holder,
or to such other addresses and numbers as any party hereto shall specify to the
others in writing. All notices shall be effective (a) in the case of telex or
facsimile, when received, (b) in the case of hand-delivered notice, when
delivered and (c) in the case of telephone, when telephoned, provided that
written confirmation must be provided the next day by letter, facsimile or
telex.
(b) Severability of Provisions; Captions. Any provision of
this Section 3 which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. The several captions to sections and subsections herein are
inserted for convenience only and shall be ignored in interpreting the
provisions of this Section.
<PAGE> 12
12
Section 4. Optional Prepayment. The Maker may at any time with the
prior written consent of the holders of Senior Debt so long as any Senior Debt
is outstanding, prepay the whole or any part of the unpaid principal amount of
this Note, without penalty or premium, but with interest accrued to the date
fixed for prepayment. Notices of prepayment shall be given by the Maker by mail
and shall be mailed to the holder of this Note not less than thirty (30) days
from the date fixed for prepayment. In case this Note is to be prepaid in part
only, such notice shall specify the principal amount hereof to be prepaid, and
shall state that this Note shall be submitted to the Maker for notation hereon
of the principal amount hereof to be prepaid. Upon giving of notice of
prepayment as aforesaid, this Note or portion hereof so specified for prepayment
shall on the prepayment date specified in such notice become due and payable,
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment), interest on this Note or portion hereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender hereof to the Maker for cancellation in the case of this Note being
prepaid as a whole, or for notation hereon of the payment of the portion of the
principal amount hereof being prepaid in the case of a prepayment of this Note
in part only, this Note or portion hereof so specified for prepayment shall be
paid by the Maker at the prepayment price aforesaid. Any prepayment of this Note
in part shall be applied to the installments of principal payable hereunder in
the order of maturity thereof.
Section 5. Events of Default and Remedies. Subject to Section 3
hereof, the holder of this Note shall have the right, without demand or notice,
to accelerate this Note and to declare the entire unpaid balance hereof and the
obligations evidenced hereby immediately due and payable and to seek and obtain
payment of this Note upon the occurrence of any of the following events of
default: (a) the Maker fails to pay any installment of principal payable under
this Note or interest thereon within twenty (20) days after receipt of written
notice from the holder of this Note to the effect that such installment or
interest has not been paid when due, (b) the Maker admits in writing its
inability to pay its debts generally as they become due, files a case or
petition in bankruptcy or a case or petition to take advantage of any
bankruptcy, reorganization or insolvency act, makes an assignment for the
benefit of creditors, or consents to the appointment of a receiver for itself or
for all or substantially all of its property or the Maker fails to have any
involuntary petition in bankruptcy filed against it dismissed within ninety (90)
days, or (c) the voluntary liquidation, dissolution or winding up of the Maker.
Upon
<PAGE> 13
13
such declaration by the holder of this Note, the obligations evidenced by this
Note shall be immediately due and payable.
In the event of any event of default hereunder, the Maker agrees to
pay to the holder of this Note all expenses incurred by such holder, including,
without limitation, reasonable fees and disbursements of counsel, incurred by
such holder in the enforcement and collection of this Note.
Section 6. Definitions. As used herein, the following terms shall
have the following respective meanings:
"Indebtedness" shall mean as to any person at any time, any and all
indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (iv) any other transaction
(including without limitation forward sale or purchase agreements, capitalized
leases and conditional sales agreements) having the commercial effect of a
borrowing of money entered into by such person to finance its operations or
capital requirements (but not including trade payables and accrued expenses
incurred in the ordinary course of business which are not represented by a
promissory note), or (v) any Guaranty of Indebtedness for borrowed money. For
purposes hereof, "Guaranty" shall mean any obligation of the Maker guaranteeing
or in effect guaranteeing any liability or obligation of any subsidiary, parent
or entity managed by or managing the Maker in any manner, whether directly or
indirectly, including, without limiting the generality of the foregoing, any
agreement to indemnify or hold harmless any other person, any performance bond
or other suretyship arrangement and any other form of assurance against loss,
except endorsement of negotiable or other instruments for deposit or collection
in the ordinary course of business.
"Post Petition Interest" means interest accruing after the
commencement of any bankruptcy or insolvency case or proceeding with respect to
the Maker or any receivership, liquidation, reorganization or other similar case
or proceeding in connection therewith, at the rate applicable to such
Indebtedness, whether or not such interest is an allowable claim in any such
proceeding.
<PAGE> 14
14
"Senior Debt" means all Indebtedness of the Maker to any bank,
insurance company or other institutional lender, whether currently outstanding
or hereafter created, incurred or assumed (including but not limited to
Post-Petition Interest), unless such Indebtedness, by its terms or the terms of
the instrument creating or evidencing it is subordinate in right of payment to
or pari passu with this Note. Senior Debt shall continue to constitute Senior
Debt for all purposes and the provisions of Section 3 of this Note shall
continue to apply to such Senior Debt, notwithstanding the fact that such Senior
Debt, or any claim in respect thereof, shall be disallowed, avoided,
subordinated or determined to be a fraudulent conveyance pursuant to the
provisions of the United States Bankruptcy Code or other applicable federal,
state or local law.
Section 7. Right of Offset. The principal amount of and interest
accrued on this Note may be offset at any time or from time to time to the
extent of the full amount of any Purchaser's Damages as to which there has been
a final determination (as defined in the Agreement of Purchase and Sale dated as
of September 1, 1995, by and among the Maker, the Payee and the other parties
thereto (the "Purchase Agreement"), except for any Purchaser's Damages arising
from a breach of Section XI of the Purchase Agreement, as provided for in, and
subject to the terms, provisions and limitations of, Section X of the Purchase
Agreement, including that no final determination is necessary with respect to
indemnification for certain Purchaser's Damages as provided in Section
X(D)(iii). The Maker shall have the right to offset the full amount of any such
Purchaser's Damages by reducing the amount of the principal of and accrued but
unpaid interest on this Note by the amount of such Purchaser's Damages. Any such
reduction in the principal amount of this Note shall be applied against the
installments of principal payable hereunder in the order of maturity thereof,
with interest after the date of any offset accruing on the amount of principal
which remains after such offset. The exercise of the right of offset provided
for in this Section 7 is not an exclusive remedy, and the provisions of this
Section 7 shall not prevent the Maker from exercising all remedies otherwise
permitted under applicable law, the terms of the Purchase Agreement or the terms
of this Note.
Section 8. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania and
shall be binding upon the successors and assigns of the Maker and inure to the
benefit of the Payee, the Payee's successors, endorsees and assigns.
<PAGE> 15
15
Section 9. Severability. If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
* * *
<PAGE> 16
16
VALLEY FORGE DENTAL ASSOCIATES, INC.
By /s/ W. Gary Liddick
----------------------------------
Name: W. Gary Liddick
Title: Vice President
VFD OF PENNSYLVANIA, INC.
By /s/ W. Gary Liddick
----------------------------------
Name: W. Gary Liddick
Title: Vice President
<PAGE> 1
EXHIBIT 10(ff)
DISCRETIONARY LINE OF CREDIT LETTER AGREEMENT
October 21, 1997
Valley Forge Dental Associates, Inc.
1018 West Ninth Avenue
King of Prussia, PA 19406
Attention: Stephen F. Nagy
Chairman and CEO
Re: $10,000,000 Discretionary Line of Credit Letter Agreement
Dear Steve:
I am pleased to confirm that PNC Bank, National Association (the
"Bank") has approved a $10,000,000 discretionary line of credit to Valley Forge
Dental Associates, Inc., a Delaware corporation (the "Borrower"). Loans made
under the line of credit, if any, shall be due and payable on demand. All loans
will bear interest and will be subject to the terms and conditions set forth in
this Agreement and in the enclosed Note. Assuming that (i) the Borrower is in
compliance with the terms and conditions herein and under the Loan Documents,
(ii) no event specified in clauses (i) - (x) on pages 2 through 3 hereof has
occurred and (iii) no demand has been made hereunder, the Bank agrees only to
review Loan requests by the Borrower until the earlier of (i) April 21, 1998, or
(ii) the date of the closing of the initial public offering of capital stock of
the Borrower (the "Review Date").
In addition to the words and terms defined elsewhere in this
Agreement, capitalized terms shall have the meanings given to them as set forth
on Exhibit A hereto.
This is not a committed line of credit. The Borrower acknowledges
and agrees that Loans under this line of credit, if any, shall be made at the
sole discretion of the Bank. The Bank may decline to make Loans under the line,
terminate the line or demand repayment of all outstanding obligations
thereunder, at any time and for any reason without prior notice to the Borrower.
Subject to the sole discretion of the Bank to make Loans under this line of
credit, the Borrower may request Loans, repay and request additional Loans
hereunder, subject to the terms and conditions of this Agreement and the other
Loan Documents. In no event shall the aggregate unpaid principal amount of Loans
under this Agreement exceed the face amount of the Note. This Agreement sets
forth certain terms and conditions solely to assure that the parties understand
each other's expectations and to assist the Bank in evaluating the status, on an
ongoing basis, of the discretionary line of credit.
<PAGE> 2
Valley Forge Dental Associates, Inc.
October 21, 1997
Page 2
The Borrower may irrevocably request the Bank to make a Loan three
(3) Business Days prior to the date for making the Loan ("Borrowing Date"), and
request that such Loan shall bear interest at the Base Rate Option or Euro-Rate
Option, which shall be acceptable to the Bank in its sole discretion. The
parties acknowledge that (i) the foregoing provision that Lender may, in its
sole discretion, accept a Euro-Rate Option with respect to any Loan does not
alter the discretionary nature of the line of credit and the agreement that all
Loans made pursuant to this Agreement are payable upon demand of the Bank for
any or no reason whatsoever and (ii) if demand is made during a Euro-Rate
Interest Period, the Bank may incur losses or expenses for which the Borrower is
obligated to indemnify the Bank as set forth more fully herein. Interest shall
be payable at the applicable rate on the dates as provided in the Note.
A request for a Loan made by telephone must be promptly confirmed in
writing by letter, facsimile or telex in such form as the Bank may require. The
Borrower authorizes the Bank to accept telephonic requests for Loans, and the
Bank shall be entitled to rely upon the authority of any person providing such
instructions without the necessity of receipt of such written confirmation. The
Borrower hereby indemnifies and holds the Bank harmless from and against any and
all damages, losses, liabilities, costs and expenses (including reasonable
attorneys' fees and expenses) which may arise or be created by the acceptance of
such telephone requests or making such Loans pursuant to such telephonic
requests. The Bank will enter on its books and records, which entry when made
will be presumed correct, the date and amount of each Loan, the option, rate and
interest period applicable thereto, as well as the date and amount of each
payment made by the Borrower.
The Bank's willingness to consider making Loans under this facility
is subject to (i) the truth and accuracy at all times of the Representations and
Warranties of the Loan Parties contained on Exhibit B attached hereto and made a
part hereof; (ii) the compliance by the Loan Parties with the Affirmative
Covenants contained on Exhibit C attached hereto and made a part hereof; and
(iii) the compliance by the Loan Parties with the Negative Covenants contained
on Exhibit D attached hereto and made a part hereof. However, the Loan Parties'
compliance with such representations, warranties and covenants shall not alter
the discretionary nature of the line of credit and shall not in any way obligate
the Bank to make any Loans under the line of credit.
Upon the happening of any of the following:
(i) failure of any Loan Party to pay any principal or interest of
any Loan, fees or any other amount owing hereunder or under the other Loan
Documents upon request of the Bank;
(ii) failure of any Loan Party to perform any obligation, covenant
or liability (other than those contained in clause (i) above) contained or
referred to herein or in the Note or any other Loan Document and such failure to
perform shall continue unremedied for a period of ten (10) days after any
officer of such Loan Party becomes aware of the occurrence thereof;
<PAGE> 3
Valley Forge Dental Associates, Inc.
October 21, 1997
Page 3
(iii) any warranty, representation or statement made or furnished to
the Bank by or on behalf of the Borrower or any other Loan Party proves to have
been false or misleading at any time in any material respect;
(iv) any event occurs which constitutes a default under or permits
or causes any holder (including the Bank) of any Indebtedness owing by any Loan
Party in excess of $250,000 to accelerate such Indebtedness of any Loan Party
including, without limitation, under any note, indenture, agreement or
undertaking to which any Loan Party is a party or by which any Loan Party is
bound;
(v) the occurrence of any Material Adverse Change;
(vi) a final judgment for the payment of money in excess of $250,000
is entered against any Loan Party or its assets in excess of $250,000 in value
are attached in a legal proceeding which judgment or attachment is not
discharged, vacated, bonded or stayed pending appeal within a period of thirty
(30) days from the date of entry;
(vii) dissolution or termination of existence of the Borrower,
Abbingdon Partners-II or Abbingdon Partners-III or insolvency, appointment of a
receiver of any part of the property of, assignment for the benefit of creditors
by or the commencement of proceedings under any bankruptcy or insolvency laws by
or against any Loan Party which appointment, assignment or proceeding remains
unstayed, undismissed and in effect for a period of thirty (30) days;
(viii) the revocation or attempted revocation, in whole or in part,
of any Guaranty Agreement;
(ix) the withdrawal of Abbingdon-II Partners as general partner of
Abbingdon Partners-II or the withdrawal of Abbingdon-II Partners as general
partner of Abbingdon Partners-III; or
(x) with respect to Abbingdon Partners - II and Abbingdon Partners -
III, the occurrence of any of the events set forth in (a) clauses (i) - (iii) on
page 3 of the Discretionary Line of Credit Letter Agreement dated July 27, 1995
among the Bank, XYAN, Inc. (formerly Quik Print, Inc.) and the Subsidiaries and
Guarantors set forth therein, as amended or modified from time to time (the
"XYAN Letter Agreement") or (b) clauses (i) - (iii) on pages 2-3 of the
Discretionary Line of Credit Letter Agreement dated January 14, 1995 among the
Bank, TLM Holdings Corp. and the Subsidiaries and Guarantors set forth therein,
as amended or modified from time to time (the "TLM Letter Agreement");
the Bank shall not be obligated to review or respond to any request for Loans
under this Agreement. The foregoing provision is in addition to the agreement of
the parties hereto that all Loans made pursuant to this Agreement are subject to
the Bank's sole and absolute discretion, as provided herein.
<PAGE> 4
Valley Forge Dental Associates, Inc.
October 21, 1997
Page 4
The Note is a demand note and the liability thereunder and any other
liability of the Borrower under this Agreement for payment of money are payable
forthwith, upon demand of the Bank, for any or no reason whatsoever, and without
any showing of insecurity on the part of the Bank, with the result that the Note
and any such other liability are by their very nature due and payable commencing
on the date of the execution and delivery thereof and hereof without regard as
to whether the Bank has made any request for payment or presentment whatsoever.
The representations, warranties and covenants contained in this Agreement, the
Note and all other Loan Documents have been relied upon by the Bank in entering
into this Agreement and in making the Loans, if any, hereunder, but are not to
be construed as altering the demand character of the Note evidencing the Loans
made pursuant to this Agreement or the Borrower's liability hereunder or under
the Note.
To compensate the Bank for its approval of this discretionary line
of credit and its periodic review and analysis of the Borrower's financial
condition, the Borrower shall pay to the Bank a non-refundable fee in the amount
of $30,000 to be received by the Bank prior to the date hereof. This fee shall
in no way obligate the Bank to make any Loans hereunder or alter the
discretionary nature of the line of credit.
If any Law, guideline or interpretation or any change in any Law,
guideline or interpretation or application thereof by any Official Body charged
with the interpretation or administration thereof or compliance with any request
or directive (whether or not having the force of Law) of any central bank or
other Official Body:
(i) subjects the Bank to any tax or changes the basis of taxation
with respect to this Agreement, the Note, the Loans or payments by the Borrower
of principal, interest, or other amounts due from the Borrower hereunder or
under the Note (except for taxes on the net income of the Bank),
(ii) imposes, modifies or deems applicable any reserve, special
deposit or similar requirement against credits or commitments to extend credit
extended by, or assets (funded or contingent) of, deposits with or for the
account of, or other acquisitions of funds by, the Bank, or
(iii) imposes, modifies or deems applicable any capital adequacy or
similar requirement (A) against assets (funded or contingent) of, or letters of
credit, other credits or commitments to extend credit extended by, the Bank, or
(B) otherwise applicable to the obligations of the Bank under this Agreement,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon the
Bank or its parent with respect to this Agreement, the Note or the making,
maintenance or funding of any part of the Loans (or, in the case of any capital
adequacy or similar requirement, to have the effect of reducing the rate of
return on the capital of the Bank or its parent, taking into consideration the
Bank's customary
<PAGE> 5
Valley Forge Dental Associates, Inc.
October 21, 1997
Page 5
policies with respect to capital adequacy) by an amount which the Bank in its
sole discretion deems to be material, the Bank shall from time to time notify
the Borrower of the amount determined in good faith (using any averaging and
attribution methods employed in good faith) by the Bank (which determination
shall be conclusive absent manifest error) to be necessary to compensate the
Bank for such increase in cost, reduction of income or additional expense. Such
notice shall set forth in reasonable detail the basis for such determination.
Such amount shall be due and payable by the Borrower to the Bank ten (10)
Business Days after such notice is given. For purposes of this paragraph, in
calculating the amount necessary to compensate the Bank for any such increase in
cost, reduction of income or additional expense, the Bank shall calculate the
amount payable to it in a manner consistent with the manner in which it shall
calculate similar compensation payable to it by other borrowers having
provisions in their credit agreements comparable to this paragraph.
In addition to the compensation required in the preceding paragraph,
the Borrower shall indemnify the Bank against all liabilities, losses or
expenses (including loss of margin, any loss or expense incurred in liquidating
or employing deposits from third parties and any loss or expense incurred in
connection with funds acquired by the Bank to fund or maintain Loans subject to
the Euro-Rate Option) which the Bank sustains or incurs as a consequence of any
(i) payment, prepayment, conversion or renewal of any Loan to which
the Euro-Rate Option applies on a day other than the last day of the
corresponding Euro-Rate Interest Period (whether or not such payment or
prepayment is mandatory, voluntary or automatic and whether or not such payment
or prepayment is then due),
(ii) attempt by the Borrower to revoke (expressly, by later
inconsistent notices or otherwise) in whole or part any notice relating to Loan
requests or prepayments, or
(iii) failure by any Loan Party in the performance or observance of
any covenant contained in this Agreement or any other Loan Document, including
without limitation any failure of any Loan Party to pay when due (by
acceleration or otherwise) any principal, interest, or any other amount due
hereunder.
If the Bank sustains or incurs any such loss or expense it shall
from time to time notify the Borrower of the amount determined in good faith by
the Bank (which determination shall be conclusive absent manifest error and may
include such assumptions, allocations of costs and expenses and averaging or
attribution methods as the Bank shall deem reasonable) to be necessary to
indemnify the Bank for such loss or expense. Such notice shall set forth in
reasonable detail the basis for such determination. Such amount shall be due and
payable by the Borrower to the Bank ten (10) Business Days after such notice is
given.
This Agreement shall be deemed to be a contract under the laws of
the Commonwealth of Pennsylvania and for all purposes shall be governed by and
construed and
<PAGE> 6
Valley Forge Dental Associates, Inc.
October 21, 1997
Page 6
enforced in accordance with the laws of the Commonwealth of Pennsylvania without
regard to its conflict of laws principles.
This Agreement shall be binding upon and shall inure to the benefit
of the Bank, the Loan Parties and their respective successors and assigns,
except that the Loan Parties may not assign or transfer any of their rights and
obligations hereunder or any interest herein.
This Agreement and the other Loan Documents constitute the entire
agreement among the Bank and the Loan Parties and supersede all prior
communications, oral and written, as well as all contemporaneous oral
communications among the parties with respect hereto. No amendment to or
modification of this Agreement or the other Loan Documents shall be effective
unless set forth in writing and signed by each of the parties to this Agreement.
Enclosed for execution is the Note evidencing this facility. Please
indicate each Loan Party's agreement to the terms and conditions of this
Agreement by having the enclosed copy of this Agreement executed where indicated
and returning it to me. Prior to the making of any Loans hereunder, the Loan
Parties must deliver to the Bank a duly executed original of the Loan Documents
and a certified copy of resolutions authorizing the transactions contemplated by
the Loan Documents, an incumbency certificate and an opinion of counsel, each in
form and substance satisfactory to the Bank.
[INTENTIONALLY LEFT BLANK]
<PAGE> 7
Valley Forge Dental Associates, Inc.
October 21, 1997
Page 7
I am pleased to offer support for your banking needs and look
forward to working with you.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Justin J. Falgione
-------------------------------
Title: Relationship Manager
Address for Notices:
249 Fifth Avenue
One PNC Plaza, 6th Floor
Pittsburgh, Pennsylvania 15222-2707
Attention: Mr. Justin J. Falgione
Telephone No. (412) 762-2190
Telecopier No. (412) 768-5149
<PAGE> 8
Valley Forge Dental Associates, Inc.
October 21, 1997
Page 8
Agreed, accepted and intending to be legally bound hereby this 21st day of
October, 1997
Valley Forge Dental Associates, Inc. and
the Subsidiaries listed on
Schedule 1 hereto (other than Riverhearst, Inc.)
By: /s/ W. Gary Liddick
__________________________________________
W. Gary Liddick,
Vice President & Chief Financial Officer
Riverhearst, Inc.
By: /s/ Robert A. Ouimette
__________________________________________
Robert A. Ouimette,
President
Address for Notices:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Mr. W. Gary Liddick
Telephone No. (610) 992-3319
Telecopier No. (610) 992-3392
<PAGE> 9
Valley Forge Dental Associates, Inc.
October 21, 1997
Page 9
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP - II
By: Abbingdon-II Partners,
as general partner
By: /s/ Stephen F. Nagy
--------------------
Stephen F. Nagy,
general partner
Address for Notices:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Mr. John H. Foster
Telephone No. (610) 992-7650
Telecopier No. (610) 992-3390
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP - III
By: Abbingdon-II Partners,
as general partner
By: /s/ Stephen F. Nagy
--------------------
Stephen F. Nagy,
general partner
Address for Notices:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Mr. John H. Foster
Telephone No. (610) 992-7650
Telecopier No. (610) 992-3390
<PAGE> 10
SCHEDULE 1
SUBSIDIARIES OF VALLEY FORGE DENTAL ASSOCIATES, INC.
1. VFD of Pennsylvania, Inc., a Delaware corporation and a wholly-owned
subsidiary of Valley Forge Dental Associates, Inc.
2. Horizon Group International, Inc., an Ohio corporation and a
wholly-owned subsidiary of Valley Forge Dental Associates, Inc.
3. Precise Dental Lab., Inc., an Ohio corporation and a wholly-owned
subsidiary of Horizon Group International, Inc.
4. Riverhearst, Inc., a Delaware corporation and a wholly-owned subsidiary
of Valley Forge Dental Associates, Inc.
5. VFD of Georgia, Inc., a Delaware corporation and a majority-owned
subsidiary of Valley Forge Dental Associates, Inc.
6. VFD of Pittsburgh, Inc., a Pennsylvania corporation and a wholly-owned
subsidiary of VFD of Pennsylvania, Inc.
7. ProDent, Inc., a Pennsylvania corporation and a majority-owned
subsidiary of Valley Forge Dental Associates, Inc.
8. VFD Realty, Inc., a Delaware corporation and a wholly-owned subsidiary
of VFD of Pennsylvania, Inc.
- -------------------------------
Penn Dental Associates, Inc., a Pennsylvania corporation and a wholly-owned
subsidiary of VFD of Pennsylvania, Inc., is in the process of being dissolved;
it conducts no business and owns no assets.
<PAGE> 11
EXHIBIT A
DEFINITIONS
Abbingdon Partners-II means Abbingdon Venture Partners Limited
Partnership - II, a Delaware limited partnership.
Abbingdon Partners-III means Abbingdon Venture Partners Limited
Partnership - III, a Delaware limited partnership.
Account Debtor shall mean any Person who is or who may become
obligated to the Borrower or any Subsidiary of the Borrower under, with respect
to, or on account of, an Account (as defined in the Security Agreement).
Affiliate as to any Loan Party shall mean any other person (i) which
directly or indirectly controls, is controlled by, or is under common control
with such Loan Party, (ii) which beneficially owns or holds 50% or more of any
class of the voting stock of any Loan Party, or (iii) 50% or more of the voting
stock (or in the case of a person which is not a corporation, 50% or more of the
equity interest) of which is beneficially owned or held, directly or indirectly,
by any Loan Party. Control, as used herein, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of a person, whether through the ownership of voting securities, by
contract or otherwise, including the power to elect a majority of the directors
or trustees of a corporation or trust, as the case may be.
Agreement shall mean this Discretionary Line of Credit Letter
Agreement as the same may be supplemented or amended from time to time including
all schedules and exhibits hereto.
Base Rate shall mean the greater of (i) the Federal Funds Effective
Rate plus one-half percent (0.5%) per annum, or (ii) the interest rate per annum
announced from time to time by the Bank at its office at 249 Fifth Avenue,
Pittsburgh, Pennsylvania, as its then prime rate, which rate may not necessarily
be the lowest rate then being charged commercial borrowers by the Bank.
Base Rate Option shall mean a fluctuating rate per annum (computed
on the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed) equal to the Base Rate, such interest rate to change automatically from
time to time effective as of the effective date of each change in the Base Rate.
Base Rate Portion shall mean the portion of the Loans bearing
interest at any time under the Base Rate Option.
Borrowing Tranche shall mean (i) with respect to the Euro-Rate
Portion, Loans to which a Euro-Rate Option applies by reason of the selection
of, conversion to or renewal of such Interest Rate Option on the same day and
having the same Euro-Rate Interest Period, and (ii) with respect to the Base
Rate Portion, Loans to which the Base Rate Option applies by reason of the
selection of or conversion to such Interest Rate Option.
PAGE 1 OF 6
<PAGE> 12
Business Day shall mean any day other than a Saturday or Sunday or a
legal holiday on which commercial banks are authorized or required to be closed
for business in Pittsburgh, Pennsylvania.
Euro-Rate shall mean with respect to the Loans comprising any
Borrowing Tranche to which the Euro-Rate Option applies for any Euro-Rate
Interest Period, the interest rate per annum determined by the Bank by dividing
(the resulting quotient rounded upward to the nearest 1/16 of 1% per annum) (i)
the rate of interest determined by the Bank in accordance with its usual
procedures (which determination shall be conclusive absent manifest error) to be
the eurodollar rate two (2) Business Days prior to the first day of such
Euro-Rate Interest Period in amounts comparable to such Borrowing Tranche and
having maturities comparable to such Euro-Rate Interest Period by (ii) a number
equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate may also be
expressed by the following formula:
[Telerate page 314 as Quoted by Noonan,
Euro-Rate = Astley & Pierce or appropriate successor]
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Euro-Rate Option outstanding
on the effective date of any change in the Euro-Rate Reserve Percentage as of
such effective date. The Bank shall give prompt notice to the Borrower of the
Euro-Rate as determined or adjusted in accordance herewith, which determination
shall be conclusive absent manifest error.
Euro-Rate Interest Period shall mean one month.
Euro-Rate Option shall mean a rate per annum (computed on the basis
of a year of 360 days and actual days elapsed) equal to the Euro-Rate plus two
percent (2%).
Euro-Rate Portion shall mean the portion of the Loans bearing
interest at any time under the Euro-Rate Option.
Euro-Rate Reserve Percentage shall mean the maximum percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the Bank (which determination shall be conclusive absent manifest error)
which is in effect during any relevant period, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
reserve requirements (including, without limitation, supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding (currently
referred to as "Eurocurrency Liability") of a member bank in such System.
Federal Funds Effective Rate for any day shall mean the rate per
annum (based on a year of 360 days and actual days elapsed and rounded upward to
the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or
any successor) on such day as being the weighted average of the rates on
overnight Federal funds transactions arranged by Federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate"
PAGE 2 OF 6
<PAGE> 13
as of the date of this Agreement; provided, if such Federal Reserve Bank (or its
successor) does not announce such rate on any day, the "Federal Funds Effective
Rate" for such day shall be the Federal Funds Effective Rate for the last day on
which such rate was announced.
GAAP shall mean generally accepted accounting principles as are in
effect from time to time and applied on a consistent basis (except for changes
in application in which the Borrower's independent certified public accountants
concur) both as to classification of items and amounts.
Guaranty of any person shall mean any obligation of such person
guaranteeing or in effect guaranteeing any liability or obligation of any other
person in any manner, whether directly or indirectly, including, without
limiting the generality of the foregoing, any agreement to indemnify or hold
harmless any other person, any performance bond or other suretyship arrangement
and any other form of assurance against loss, except endorsement of negotiable
or other instruments for deposit or collection in the ordinary course of
business.
Guaranty Agreements shall mean collectively the Guaranty and
Suretyship Agreement (Partnership Guaranty) executed and delivered by Abbingdon
Partners-II and Abbingdon Partners-III to the Bank and the Guaranty and
Suretyship Agreement (Subsidiaries) executed and delivered by each of the
Subsidiaries of the Borrower identified on Schedule 1 hereto to the Bank and
Guaranty Agreement shall mean separately any Guaranty Agreement, as any of the
foregoing is supplemented or amended from time to time in accordance with the
terms hereof and thereof.
Indebtedness shall mean as to any person at any time, any and all
indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (iv) any other transaction
(including without limitation forward sale or purchase agreements, capitalized
leases and conditional sales agreements) having the commercial effect of a
borrowing of money entered into by such person to finance its operations or
capital requirements (but not including trade payables and accrued expenses
incurred in the ordinary course of business which are not represented by a
promissory note), or (v) any Guaranty of Indebtedness for borrowed money.
Interest Rate Option shall mean the Euro-Rate Option or Base Rate
Option.
Law shall mean any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.
Lien shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, whether voluntarily or involuntarily given, including but not
limited to any conditional sale or title retention
PAGE 3 OF 6
<PAGE> 14
arrangement, and any assignment, deposit arrangement or lease intended as, or
having the effect of, security and any filed financing statement or other notice
of any of the foregoing (whether or not a lien or other encumbrance is created
or exists at the time of the filing).
Loan Documents shall mean this Agreement, the Note and the Guaranty
Agreements, the Pledge Agreement, the Security Agreement and any other financing
statements, stock powers, proxies, instruments, certificates or documents
delivered or contemplated to be delivered hereunder or thereunder or in
connection herewith or therewith, as the same may be supplemented or amended
from time to time in accordance herewith or therewith, and Loan Document shall
mean any of the Loan Documents.
Loan Parties shall mean collectively the Borrower, Abbingdon
Partners-II, Abbingdon Partners-III and each Subsidiary of the Borrower whether
now existing or hereafter formed or acquired, and Loan Party shall mean any of
the Loan Parties.
Loans shall mean collectively and Loan shall mean separately all
demand loans or any demand loan made by the Bank to the Borrower pursuant to
this Agreement.
Management Agreement shall mean any one or more legally binding
contracts together which are now or hereafter existing and pursuant to which a
Loan Party receives a management fee from an Unaffiliated Managed Company in
exchange for administrative and miscellaneous services provided by such Loan
Party.
Material Adverse Change shall mean any set of circumstances or
events which (a) has or could reasonably be expected to have any material
adverse effect whatsoever upon the validity or enforceability of this Agreement
or any other Loan Document, (b) is or could reasonably be expected to be
material and adverse to the business, properties, assets, financial condition,
results of operations or prospects of the Borrower and its Subsidiaries taken as
a whole, (c) is or could reasonably be expected to be material and adverse to
the business, properties, assets, financial condition, results of operations or
prospects of Abbingdon Partners-II or Abbingdon Partners-III, (d) impairs
materially or could reasonably be expected to impair materially the ability of
any one or more Loan Parties to duly and punctually pay or perform Indebtedness
in principal amount in excess of $250,000 in the aggregate, or (e) impairs
materially or could reasonably be expected to impair materially the ability of
the Bank, to the extent permitted, to enforce its legal remedies pursuant to
this Agreement or any other Loan Document.
Note shall mean the Demand Note executed and delivered by the
Borrower to the Bank in connection herewith in the face amount of $10,000,000,
as supplemented or amended from time to time in accordance with the terms hereof
and thereof.
Official Body shall mean any national, federal, state, local or
other government or political subdivision thereof, or any agency, authority,
bureau, central bank, commission, department or instrumentality of any
government or political subdivision thereof, or any court, tribunal, grand jury
or arbitrator, in each case whether foreign or domestic.
PAGE 4 OF 6
<PAGE> 15
Permitted Acquisition shall have the meaning given to such term in
paragraph (c) of Exhibit D to this Agreement.
person shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, government or political subdivision or agency thereof, or any other
entity.
Pledge Agreement shall mean the Pledge Agreement executed and
delivered by the Pledgors to the Bank, together with the stock powers and
proxies executed and delivered in connection therewith, as the foregoing are
supplemented or amended from time to time in accordance with the terms hereof
and thereof, pursuant to which (i) all of the Pledgors' outstanding capital
stock in the Borrower and (ii) all of the outstanding capital stock of each
Subsidiary of the Borrower (other than Unaffiliated Managed Companies) shall be
pledged to the Bank.
Pledgors shall mean Abbingdon Partners - II, Abbingdon Partners -
III, Abbingdon Venture Partners Limited Partnership, Business Development
Limited Partnership - III and certain Subsidiaries of the Borrower set forth in
the Pledge Agreement.
Purchase Money Security Interest shall mean Liens upon tangible
personal property securing loans to the Borrower or deferred payments by the
Borrower for the purchase of such tangible personal property.
Security Agreement shall mean the Security Agreement executed and
delivered by the Borrower and each Subsidiary of the Borrower to the Bank,
together with the financing statements executed and delivered in connection
therewith, as any of the foregoing are supplemented or amended from time to time
in accordance with the terms hereof and thereof.
Subsidiary of any person at any time shall mean (i) any corporation
or trust of which more than 50% (by number of shares or number of votes) of the
outstanding capital stock or shares of beneficial interest normally entitled to
vote for the election of one or more directors or trustees (regardless of any
contingency which does or may suspend or dilute the voting rights) is at such
time owned directly or indirectly by such person or one or more of such person's
Subsidiaries, or any limited partnership of which such person is a general
partner or any partnership of which more than 50% of the partnership interests
is at the time directly or indirectly owned by such person or one or more of
such person's Subsidiaries or (ii) any other entity of which such person owns
more than 50% of the ownership interests, directly or indirectly, and (iii) any
corporation, trust, partnership or other entity, other than an Unaffiliated
Managed Company, which is controlled or capable of being controlled by such
person or one or more of such person's Subsidiaries.
Unaffiliated Managed Company shall mean a business corporation or a
professional corporation which (i) is not a Subsidiary or a Loan Party, (ii)
does business in a state prohibiting the practice of dentistry by any business
corporation or by a business corporation not owned by an individual or licensed
individual or the licensing of a corporation not owned by an individual or
licensed individual to provide dental services; and (iii) is party with a Loan
Party to
PAGE 5 OF 6
<PAGE> 16
a Management Agreement, and Unaffiliated Managed Companies shall mean such
corporations collectively.
PAGE 6 OF 6
<PAGE> 17
EXHIBIT B
Representations and Warranties. Each Loan Party represents and
warrants to the Bank as follows:
(a) Organization and Qualification. Each of the Loan Parties is a
corporation or partnership, duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization; each
Loan Party has the corporate or partnership (as the case may be) power to own or
lease its respective properties and to engage in the business it presently
conducts or proposes to conduct; and each Loan Party is duly qualified and in
good standing in each jurisdiction where the property owned or leased by it or
the nature of the business transacted by it or both makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not constitute a Material Adverse Change.
(b) Ownership of Borrower. At least fifty-one percent (51%) of the
issued and outstanding common stock of the Borrower is owned by Abbingdon
Partners-II and Abbingdon Partners-III. Each of Abbingdon Partners - II,
Abbingdon Partners - III, Abbingdon Venture Partners Limited Partnership and
Business Development Capital Limited Partnership - III shall pledge to the Bank
pursuant to the Pledge Agreement one hundred percent (100%) of the issued and
outstanding capital stock of the Borrower owned by it from time to time.
(c) Subsidiaries. Schedule 1 attached hereto and made a part hereof
states the name of each Subsidiary of the Borrower and its jurisdiction of
organization. The Borrower has no other Subsidiaries other than the Subsidiaries
listed on Schedule 1 attached hereto.
(d) Power and Authority. Each Loan Party has full corporate or
partnership (as the case may be) power to enter into, execute, deliver and carry
out this Agreement and the other Loan Documents to which it is a party, to incur
the Indebtedness contemplated by the Loan Documents and to perform its
obligations under the Loan Documents to which it is a party and all such actions
have been duly authorized by all necessary proceedings on its part.
(e) Validity and Binding Effect. This Agreement has been duly and
validly executed and delivered by each Loan Party, and each other Loan Document,
when duly executed and delivered by each respective Loan Party thereto, will
have been duly and validly executed and delivered by such Loan Parties. This
Agreement and each other Loan Document delivered by the Loan Parties pursuant to
the provisions hereof constitutes or will constitute (upon execution and
delivery) legal, valid and binding obligations of the Loan Parties party
thereto, enforceable against each respective Loan Party in accordance with their
respective terms, except to the extent that (i) enforceability of any of the
foregoing Loan Documents may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforceability of
creditors' rights generally or limiting the right of specific performance or by
general equitable principles, (ii) the exercise by the Bank of its right and
remedies in respect of the Collateral is contrary to applicable Law relating to
Account Debtors which are Official Bodies.
PAGE 1 OF 2
<PAGE> 18
(f) No Conflict. Neither the execution and delivery of this
Agreement or the other Loan Documents by the Loan Parties nor the consummation
of the transactions herein or therein contemplated or compliance with the terms
and provisions hereof or thereof by them will conflict with, constitute a
default under or result in any breach of (i) the terms and conditions of the
certificate of incorporation, by-laws or other organizational documents of any
Loan Party, or (ii) any Law or any material agreement or instrument or order,
writ, judgment, injunction or decree to which any Loan Party is a party or by
which it is bound or to which it is subject, or result in the creation or
enforcement of any Lien, charge or encumbrance whatsoever upon any property (now
owned or hereafter acquired) of any Loan Party (other than Liens granted under
the Loan Documents).
(g) Consents and Approvals. Except as set forth on Schedule B(g)
hereto, no consent, approval, exemption, order or authorization of, or a
registration or filing with, any governmental or administrative body or
authority or any other person is required by any Law or any agreement in
connection with the execution, delivery and carrying out of this Agreement and
the other Loan Documents by any Loan Party.
(h) Compliance with Instruments. No Loan Party is in violation of
(i) any term of its certificate of incorporation, by-laws, or other
organizational documents or (ii) any material agreement or instrument to which
it is a party or by which it or any of its properties may be subject or bound
where such violation would constitute a Material Adverse Change.
(i) Compliance with Laws. All Loan Parties are in compliance in all
material respects with all applicable Laws in all jurisdictions in which such
Loan Party is presently doing business except where the failure to do so would
not constitute a Material Adverse Change.
(j) Litigation. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of any Loan Party, threatened
against any Loan Party at law or equity before any Official Body which
individually or in the aggregate would constitute a Material Adverse Change.
PAGE 2 OF 2
<PAGE> 19
EXHIBIT C
AFFIRMATIVE COVENANTS. Each Loan Party covenants and agrees that
until payment in full of the Loans and interest thereon and satisfaction of all
of the Loan Parties' other obligations hereunder, each Loan Party shall comply
at all times with the following affirmative covenants:
(a) Preservation of Existence, etc. Except as permitted by Exhibit
D, clause (c), each Loan Party shall maintain its corporate or partnership
existence, as the case may be, and its qualification and good standing in each
jurisdiction in which its ownership or lease of property or the nature of its
business makes such license or qualification necessary, except where the failure
to be so licensed or qualified would not constitute a Material Adverse Change.
(b) Payment of Liabilities, Including Taxes, etc. Each Loan Party
shall duly pay and discharge all liabilities to which it is subject or which are
asserted against it, promptly as and when the same shall become due and payable,
including all taxes, assessments and governmental charges upon it or any of its
properties, assets, income or profits, prior to the date on which penalties
attach thereto, except to the extent that such liabilities, including taxes,
assessments or charges, are being contested in good faith and by appropriate and
lawful proceedings diligently conducted and for which such reserve or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made, but only to the extent that failure to discharge any such liabilities
would not result in any Material Adverse Change.
(c) Compliance With Laws. Each Loan Party shall comply with all
applicable Laws, in all respects provided that it shall not be deemed to be a
violation of this section if any failure to comply with any law would not result
in or constitute a Material Adverse Change.
(d) Reports and Information. Each Loan Party shall furnish or cause
to be furnished to the Bank all information as the Bank may reasonably request.
Notwithstanding the foregoing, each Loan Party shall within two (2) Business
Days of obtaining knowledge thereof, give notice to the Bank of any material
event with respect to such Loan Party or any event, whether or not having
occurred, but the occurrence of which may have a material adverse effect upon
any Loan Party.
PAGE 1 OF 1
<PAGE> 20
EXHIBIT D
NEGATIVE COVENANTS. Each Loan Party covenants and agrees that until
payment in full of the Loans and interest thereon, and satisfaction of all of
the Loan Parties' other obligations hereunder, each Loan Party shall comply at
all times with the following negative covenants:
(a) Indebtedness; Liens. Each Loan Party (other than Abbingdon
Partners-II and Abbingdon Partners-III) shall not at any time create, incur,
assume or suffer to exist any Indebtedness, except:
(i) Indebtedness under the Loan Documents;
(ii) Indebtedness existing on the date hereof, including any
extensions or renewals thereof provided that there will be no increase in the
amount thereof or other significant change in the terms thereof adverse to any
Loan Party, except with seven (7) Business Days' prior written notice to the
Bank;
(iii) Indebtedness secured by Purchase Money Security
Interests entered into in the ordinary course of business consistent with past
practice provided that the Lien of such Purchase Money Security Interests
extends only to the assets purchased;
(iv) Indebtedness of a Subsidiary to the Borrower or to
another Subsidiary of the Borrower;
(v) Indebtedness assumed by Loan Parties pursuant to mergers
of persons into Loan Parties in acquisitions or Indebtedness of persons (to the
extent assumed by Loan Parties in the case of acquisitions or of such persons if
such persons become Loan Parties) whose stock or assets are acquired by Loan
Parties in acquisitions (whether by merger or otherwise);
(vi) Indebtedness incurred in connection with acquisitions
permitted by the Loan Documents, provided that such Indebtedness is subordinated
to the Indebtedness of the Borrower to the Bank under the Loan Documents in form
and substance satisfactory to the Bank and the Bank shall have received ten (10)
Business Days' prior written notice thereof; and
(vii) All other Indebtedness, including, without limitation,
Indebtedness in favor of either Abbingdon Partners - II or Abbingdon Partners -
III or any Affiliate thereof provided that such Indebtedness is subordinated to
the Indebtedness of the Borrower to the Bank under the Loan Documents in form
and substance satisfactory to the Bank and the Bank shall have received ten (10)
Business Days' prior written notice thereof.
Each Loan Party (other than Abbingdon Partners - II and Abbingdon
Partners - III) shall not at any time create, incur, assume or suffer to exist
any Liens, except Permitted Liens (as defined in the Security Agreement) and,
with respect to VFD Realty, Inc., the mortgage in favor of Gary W. Mink and Mark
Perecman as in effect on the date hereof and as amended
PAGE 1 OF 4
<PAGE> 21
from time to time so long as the principal amount of Indebtedness secured
thereby is not hereafter increased, the material terms of such Indebtedness are
not changed and no additional assets, including without limitation real
property, become subject to any such Lien.
(b) Guaranties. Each Loan Party (other than Abbingdon Partners-II
and Abbingdon Partners-III) shall not at any time, directly or indirectly,
become or be liable in respect of any Guaranty, or assume, guarantee, become
surety for, endorse or otherwise agree, become or remain directly or
contingently liable upon or with respect to any obligation or liability of any
other person, except under the Loan Documents, unless seven (7) Business Days'
prior written notice is given to the Bank.
(c) Liquidations, Mergers, Consolidations, Acquisitions. Each Loan
Party shall not dissolve, liquidate or wind-up its affairs, or become a party to
any merger or consolidation unless seven (7) Business Days' prior written notice
is given to the Bank, provided that any wholly-owned Subsidiary of the Borrower
may consolidate or merge into the Borrower or any other wholly-owned Subsidiary
of the Borrower. Each Loan Party (other than Abbingdon Partners-II and Abbingdon
Partners-III) shall not acquire by purchase, lease or otherwise all or
substantially all of the assets or capital stock or partnership interests of any
person unless seven (7) Business Days' prior written notice is given to the
Bank, provided that any Loan Party may acquire by purchase, lease or otherwise,
all or substantially all the assets or all of the capital stock or partnership
interests of a person or form a new wholly-owned Subsidiary so long as (i) such
acquired business, acquired or newly formed wholly-owned Subsidiary is in the
same line of business as the Borrower's line of business on the date of this
Agreement and (ii) such acquired or newly formed wholly-owned Subsidiary,
simultaneously with the acquisition or formation thereof, executes and delivers
to the Bank, in form satisfactory to the Bank, a joinder to this Agreement and
an update to Schedule 1 hereto and a joinder to the Subsidiary Guaranty
Agreement and also delivers to the Bank such other documents and opinions of
counsel, each in form and substance satisfactory to the Bank, that the Bank may
reasonably request (each, a "Permitted Acquisition").
(d) Dispositions of Assets or Subsidiaries. No Loan Party (other
than Abbingdon Partners - II and Abbingdon Partners - III) shall sell, convey,
assign, lease, abandon or otherwise transfer or dispose of, voluntarily or
involuntarily, any of its properties or assets, tangible or intangible
(including but not limited to sale, assignment, discount or other disposition of
accounts, contract rights, chattel paper, equipment or general intangibles with
or without recourse or of capital stock, shares of beneficial interest or
partnership interests of a Subsidiary) unless seven (7) Business Days' prior
written notice is given to the Bank, except transactions involving (i) any sale,
abandonment, transfer or lease of assets in the ordinary course of business
which are no longer necessary or required in the conduct of such Loan Party's
business; (ii) any sale, transfer, abandonment or lease of assets by any Loan
Party which is a wholly-owned Subsidiary of the Borrower to the Borrower or any
other wholly-owned Subsidiary of the Borrower; or (iii) any sale, abandonment,
transfer or lease of assets in the ordinary course of business which are
replaced by substitute assets.
PAGE 2 OF 4
<PAGE> 22
(e) Joinder of Subsidiaries. The Borrower shall not and shall not
permit any other Loan Party (other than Abbingdon Partners-II and Abbingdon
Partners-III) to own, create or acquire any Subsidiary except for wholly-owned
Subsidiaries which join this Agreement and the Guaranty and Suretyship Agreement
(Subsidiaries) unless seven (7) Business Days' prior written notice is given to
the Bank.
(f) Continuation of or Change in Business. Each Loan Party (other
than Abbingdon Partners-II and Abbingdon Partners-III) shall not engage in any
business other than the Loan Parties' existing lines of business unless seven
(7) Business Days' prior written notice is given to the Bank.
(g) Loans. No Loan Party (other than Abbingdon Partners - II and
Abbingdon Partners - III) shall at any time make or suffer to remain outstanding
any loan or advance to, or make any capital contribution to, any other person,
or agree, become or remain liable to do any of the foregoing unless seven (7)
Business Days' prior written notice is given to the Bank, except loans, advances
and investments of the Borrower in wholly-owned Subsidiaries of the Borrower
which are a party to this Agreement and Guaranty and Suretyship Agreement
(Subsidiaries).
(h) Dividends and Related Distributions. The Loan Parties (other
than Abbingdon Partners-II, Abbingdon Partners-III, VFD of Georgia, Inc.
pursuant to its Stockholders/Buy-Sell Agreement dated February 19, 1997 and
ProDent, Inc. pursuant to its Stockholders/Buy-Sell Agreement dated October 1,
1997) shall not make or pay, or agree to become or remain liable to make or pay,
any dividend or other distribution of any nature (whether in cash, property,
securities or otherwise) on account of or in respect of its shares of capital
stock or on account of the purchase, redemption, retirement or acquisition of
its shares of capital stock (or warrants, options or rights therefor) unless
seven (7) Business Days' prior written notice is given to the Bank, except
dividends payable by any Subsidiary of the Borrower to the Borrower.
(i) Affiliate Transactions. The Loan Parties (other than Abbingdon
Partners-II and Abbingdon Partners-III) shall not enter into or carry out any
transaction (including, without limitation, purchasing property or services or
selling property or services) with any Affiliate or other person unless such
transaction is not otherwise prohibited by this Agreement, is entered into in
the ordinary course of business upon fair and reasonable arm's-length terms and
conditions which are fully disclosed to the Bank and is in accordance with all
applicable Law unless seven (7) Business Days' prior written notice is given to
the Bank.
(j) Restriction on Liens and Abbingdon Negative Pledge on Assets
including Stock, Partnership and Other Interests. Abbingdon Partners-II and
Abbingdon Partners-III shall not allow, except with the prior written consent of
the Bank, any property or assets owned by either Abbingdon Partners - II or
Abbingdon Partners - III including without limitation any capital stock,
partnership interests or other equity interests to be pledged as collateral or
security or to be subject to any Lien, nor shall Abbingdon Partners-II or
Abbingdon Partners-III enter into any agreement with respect to any property
described above in this paragraph (j) agreeing not to pledge as collateral or
security or to be subject to any Lien on such property, except pursuant to
PAGE 3 OF 4
<PAGE> 23
the Loan Documents. Notwithstanding the foregoing, without the prior written
consent of the Bank, Abbingdon Partners - II and Abbingdon Partners - III shall
be permitted to pledge the capital stock, partnership interests or other equity
interests of an entity owned by Abbingdon Partners - II and Abbingdon Partners -
III in connection with the financing of such entity so long as the only asset of
Abbingdon Partners - II and Abbingdon Partners - III which is pledged is the
capital stock, partnership interests or other equity interest of the entity
which is obtaining financing.
Capital Subject to Call. Abbingdon Partners-II shall not
allow its uncalled but committed capital subject to call without any right of
set off or counterclaim in accordance with the provisions of its Agreement of
Limited Partnership to be less than 60% of the face amount of the Demand Note
executed in connection herewith, the Demand Note executed in connection with the
XYAN Letter Agreement, and the Demand Note executed in connection with the TLM
Letter Agreement, in each case as amended, restated or increased from time to
time (the "Note Amounts"). Abbingdon Partners-III shall not allow its uncalled
but committed capital subject to call without any right of set off or
counterclaim in accordance with the provisions of its Agreement of Limited
Partnership to be less than 40% of the Note Amounts.
PAGE 4 OF 4
<PAGE> 1
EXHIBIT 10(gg)
DEMAND NOTE
$10,000,000 Pittsburgh, Pennsylvania
October 21, 1997
FOR VALUE RECEIVED, Valley Forge Dental Associates, Inc., a Delaware
corporation (the "Borrower"), with an address at 1018 West Ninth Avenue, King of
Prussia, Pennsylvania 19406 promises to pay ON DEMAND to the order of PNC BANK,
NATIONAL ASSOCIATION (the "Bank") in lawful money of the United States of
America in immediately available funds at the Bank's offices located at 249
Fifth Avenue, Pittsburgh, Pennsylvania 15265, or at such other location as the
Bank may designate from time to time, the principal sum of TEN MILLION U.S.
DOLLARS ($10,000,000) (the "Facility") or such lesser amount as may be advanced
to or for the benefit of the Borrower by the Bank pursuant to the Discretionary
Line of Credit Letter Agreement dated as of even date herewith agreed to and
accepted by the Borrower, each wholly-owned Subsidiary of the Borrower
identified on Schedule 1 thereto, Abbingdon Venture Partners Limited Partnership
- - II, a Delaware limited partnership and Abbingdon Venture Partners Limited
Partnership - III, a Delaware limited partnership (as the same may be modified
or amended hereafter from time to time, the "Agreement"), together with interest
accruing on the outstanding principal balance from the date hereof, as provided
below. Capitalized terms used herein and not otherwise defined herein shall have
such meanings as given to them in the Agreement.
1. Rate of Interest. Each advance outstanding under this Note will bear
interest at a rate per annum determined pursuant to the Agreement, provided,
however, that in no event will the rate of interest hereunder exceed the maximum
rate allowed by Law.
2. Payment Terms. THE BORROWER ACKNOWLEDGES AND AGREES THAT THE BANK MAY
AT ANY TIME AND IN ITS SOLE DISCRETION REQUEST IMMEDIATE PAYMENT OF ALL AMOUNTS
OUTSTANDING UNDER THIS NOTE WITHOUT PRIOR NOTICE TO THE BORROWER. In the absence
of a request by the Bank for immediate payment of all amounts outstanding under
this Note (i) interest on Loans to which the Base Rate Option applies shall be
due and payable in arrears on the first Business Day of each October, January,
April and July after the date hereof; (ii) and interest on Loans to which a
Euro-Rate Option applies shall be due and payable on the last day of each
Euro-Rate Interest Period for those Loans; provided that any Euro-Rate Interest
Period which would otherwise end on a date which is not a Business Day shall be
extended to the next Business Day unless such Business Day falls in the next
calendar month, in which case such Euro-Rate Interest Period shall end on the
next preceding Business Day.
<PAGE> 2
If the time for making any payment under this Note falls on a Saturday, Sunday
or public holiday under the laws of the Commonwealth of Pennsylvania, such
payment shall be made on the next succeeding Business Day and such extension of
time shall be included in computing interest in connection with such payment. If
any amounts outstanding hereunder are not paid when due or upon demand, the
Borrower hereby authorizes the Bank to charge the Borrower's deposit account at
the Bank for any payment. Payments received will be applied to charges, fees and
expenses (including attorneys' fees), accrued interest and principal, in all
cases payable hereunder or in connection herewith, in any order the Bank may
choose, in its sole discretion.
3. Increased Interest Rate. If any Loans or other amount is not paid when
requested, any principal, interest, fee or other amount payable hereunder shall
bear interest for each day thereafter until paid in full (before and after
judgment) at a rate per annum which shall be equal to two hundred (200) basis
points (2% per annum) above the rate of interest otherwise applicable with
respect to such amount or the Base Rate if no rate of interest is otherwise
applicable (the "Increased Interest Rate").
4. Repayment, Additional Borrowings. The Borrower may request Loans, repay
Loans and request additional Loans subject to the discretion of the Bank and the
terms and conditions of the Agreement and the other Loan Documents.
5. Right of Setoff. In addition to all liens upon and rights of setoff
against the money, securities or other property of the Borrower given to the
Bank by Law, the Bank shall have, with respect to the Borrower's obligations to
the Bank under this Note and to the extent permitted by Law, a contractual
possessory security interest in and a right of setoff against, and the Borrower
hereby assigns, conveys, delivers, pledges and transfers to the Bank all of the
Borrower's right, title and interest in and to, all deposits, moneys, securities
and other property of the Borrower now or hereafter in the possession of or on
deposit with the Bank whether held in a general or special account or deposit,
whether held jointly with someone else, or whether held for safekeeping or
otherwise, excluding, however, all IRA, Keogh, and trust accounts. If and when
any amounts outstanding hereunder are not paid when due or upon demand, every
such security interest and right of setoff may be exercised without demand upon
or notice to the Borrower.
6. Miscellaneous. No delay or omission of the Bank to exercise any right
or power arising hereunder shall impair any such right or power or be considered
to be a waiver of any such right or power or any acquiescence therein nor shall
the action or inaction of the Bank impair any right or power hereunder. The
Borrower agrees to pay on demand, to the extent permitted by Law, all costs and
expenses incurred by the Bank in the enforcement of its rights in this Note and
in any security therefor, including without limitation reasonable fees and
expenses of the Bank's counsel. If any provision of this Note is found to be
invalid by a court, all the other provisions of this Note will remain in full
force and effect.
The Borrower and all other makers and endorsers of this Note hereby forever
waiver presentment, protest, notice of dishonor and notice of non-payment.
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<PAGE> 3
This Note shall bind the Borrower and its successors and assigns, and the
benefits hereof shall inure to the benefit of Bank and its successors and
assigns, provided, however, that the Borrower may not assign or transfer any of
its rights and obligations hereunder or any interest herein.
This Note has been delivered to and accepted by the Bank and will be deemed to
be made in the Commonwealth of Pennsylvania. THIS NOTE WILL BE INTERPRETED AND
THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH
THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, EXCLUDING ITS CONFLICT OF LAWS
RULES. The Borrower hereby irrevocably consents to the exclusive jurisdiction of
any state or federal court located in the county or judicial district where the
Bank's office indicated above is located, and consents that all service of
process be sent by nationally recognized overnight courier service directed to
the Borrower at the Borrower's address set forth herein and service so made will
be deemed to be completed on the Business Day after deposit with such courier;
provided that nothing contained in this Note will prevent the Bank from bringing
any action, enforcing any award or judgment or exercising any rights against the
Borrower individually, against any security or against any property of the
Borrower within any other county, state or nation. The Bank and the Borrower
agree that the venue provided above is the most convenient forum for both the
Bank and the Borrower. The Borrower waives any objection to venue and any
objection based on a more convenient forum in any action instituted under this
Note.
WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS
THE BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF
ANY NATURE RELATING TO THIS NOTE, THE LOAN DOCUMENTS, OR ANY OTHER DOCUMENTS
EXECUTED IN CONNECTION WITH THIS NOTE OR ANY TRANSACTION CONTEMPLATED IN ANY OF
SUCH DOCUMENTS. THE BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING
AND VOLUNTARY.
The Borrower acknowledges that it has read and understood all the provisions of
this Note, including the waiver of jury trial, and has been advised by counsel
as necessary or appropriate.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 4
[SIGNATURE PAGE 1 OF 1 OF DEMAND NOTE
WITNESS the due execution hereof as a document under seal, as of the date
first written above, with the intent to be legally bound hereby.
[CORPORATE SEAL] Valley Forge Dental Associates, Inc.
By: /s/ W. Gary Liddick
--------------------------------
Name: W. Gary Liddick
Title: Vice President and Chief
Financial Officer
Address for Notices:
1018 West Ninth Avenue
King of Prussia, PA 19406
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<PAGE> 1
EXHIBIT 10(hh)
GUARANTY AND SURETYSHIP AGREEMENT
(SUBSIDIARIES)
This Agreement (the "Agreement") dated as of October 21, 1997, is made and
given by the undersigned signatories, each a Subsidiary of Valley Forge Dental
Associates, Inc., a Delaware corporation (the "Borrower"), identified in
Schedule 1 attached hereto and made a part hereof (each a "Guarantor" and
collectively, the "Guarantors"), in favor of PNC Bank, National Association (the
"Bank") pursuant to that certain Discretionary Line of Credit Letter Agreement
dated as of even date herewith (as it may hereinafter from time to time be
amended, restated, modified or supplemented, the "Discretionary Line Agreement")
agreed to and accepted by the Borrower, each Subsidiary of the Borrower
identified on Schedule 1 of the Discretionary Line Agreement, Abbingdon Venture
Partners Limited Partnership - II, a Delaware Limited Partnership ("Abbingdon
Partners - II"), Abbingdon Venture Partners Limited Partnership - III, a
Delaware limited partnership ("Abbingdon Partners - III"), and the Bank.
W I T N E S S E T H:
WHEREAS, the Loan Parties have agreed to and accepted the Bank's
Discretionary Line Agreement; and
WHEREAS, this Agreement is made by the Guarantors among other things to
induce the Bank to consider requests for loan advances pursuant to the
Discretionary Line Agreement; and
WHEREAS, the respective businesses and investments of the Loan Parties are
interdependent and loans, if any, made to the Borrower pursuant to the
Discretionary Line Agreement are with the expectation that the profits and other
opportunities from such businesses and investments will directly or indirectly
inure to the benefit of each Guarantor, each other Loan Party and to all of them
taken as an affiliated group.
NOW, THEREFORE, in consideration of the premises, and intending to be
legally bound, the Guarantors hereby agree as follows:
DEFINITIONS
1.1 Definitions. Capitalized terms used herein and not otherwise defined
herein shall have such meanings as given to them in the Discretionary Line
Agreement. In addition to the other terms defined elsewhere in this Agreement,
the following terms shall have the following meanings:
"Guaranteed Obligations" shall mean all obligations from time to
time of the Borrower to the Bank under or in connection with the
Discretionary Line Agreement, the Demand Note dated the date of this
Agreement in the face amount of $10,000,000 of the Borrower in favor of
the Bank, or any other Loan Document or which arise in any other manner,
whether for principal, interest, fees, indemnities, expenses or otherwise,
and all
<PAGE> 2
refinancings or refundings thereof, whether such obligations are direct or
indirect, otherwise secured or unsecured, absolute or contingent, due or
to become due, whether for payment or performance, now existing or
hereafter arising (specifically including but not limited to obligations
arising or accruing after the commencement of any bankruptcy, insolvency,
reorganization or similar proceeding with respect to the Borrower, any
other Loan Party or any other individuals or entities including any
Guarantor (a "Person") or which would have arisen or accrued but for the
commencement of such proceeding, even if the claim for such obligation is
not enforceable or allowable in such proceeding). Without limitation of
the foregoing, such obligations include all obligations arising from any
extensions of credit under or in connection with the Loan Documents from
time to time, regardless of whether any such extensions of credit are in
excess of the amount committed under or contemplated by the Loan Documents
or are made in circumstances in which any condition to extension of credit
is not satisfied. Without limitation of the foregoing, the Bank (or any
successive assignee or transferee) from time to time may assign or
otherwise transfer all of its rights and obligations under the Loan
Documents (including, without limitation, all of any commitment to extend
credit), or any other Guaranteed Obligations, to any other Person, and
such Guaranteed Obligations (including, without limitation, any Guaranteed
Obligations resulting from extension of credit by such other Person under
or in connection with the Loan Documents) shall be and remain Guaranteed
Obligations entitled to the benefit of this Agreement.
2. GUARANTY AND SURETYSHIP
2.1 Guaranty and Suretyship. The Guarantors jointly and severally hereby
absolutely, unconditionally and irrevocably guarantee and become surety for the
full and punctual payment and performance of the Guaranteed Obligations. This
Agreement is an agreement of suretyship as well as of guaranty, is a guarantee
of payment and performance and not merely of collectibility, and is in no way
conditioned upon any attempt to collect from or proceed against the Borrower or
any other Persons or any other event or circumstance. The obligations of the
Guarantors under this Agreement are direct and primary obligations of each
Guarantor and are independent of the Guaranteed Obligations, and a separate
action or actions may be brought against any one or more of the Guarantors
regardless of whether action is brought against the Borrower, any other
Guarantors or any other Persons or whether the Borrower, any other Guarantors or
any other Persons are joined in any such action or actions.
2.2 Obligations Absolute. The Guarantors agree that the Guaranteed
Obligations will be paid and performed strictly in accordance with the terms of
the Loan Documents, regardless of any law, regulation or order now or hereafter
in effect in any jurisdiction affecting the Guaranteed Obligations, any of the
terms of the Loan Documents or the rights of the Bank or any other Person with
respect thereto. The obligations of the Guarantors under this Agreement shall be
absolute, unconditional and irrevocable, irrespective of any of the following:
(a) Any lack of genuineness, legality, validity, enforceability or
allowability (in a bankruptcy, insolvency, reorganization or similar proceeding,
or otherwise), or any avoidance or subordination, in whole or in part, of any
Loan Document or any of the Guaranteed Obligations.
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<PAGE> 3
(b) Any increase, decrease or change in the amount, nature, type or
purpose of any of the Guaranteed Obligations (whether or not contemplated by the
Loan Documents as presently constituted); any change in the time, manner, method
or place of payment or performance of, or in any other term of, any of the
Guaranteed Obligations; any execution or delivery of any additional Loan
Documents; or any amendment, modification or supplement to, or refinancing or
refunding of, any Loan Document or any of the Guaranteed Obligations.
(c) Any extensions of credit in excess of the amount committed under
or contemplated by the Loan Documents, or in circumstances in which any
condition to such extensions of credit has not been satisfied; any other
exercise or non-exercise, or any other failure, omission, breach, default, delay
or wrongful action in connection with any exercise or non-exercise, of any right
or remedy against the Borrower or any other Persons under or in connection with
any Loan Document or any of the Guaranteed Obligations; any refusal of payment
or performance of any of the Guaranteed Obligations, whether or not with any
reservation of rights against any Guarantor; or any application of collections
(including but not limited to collections resulting from realization upon any
direct or indirect security for the Guaranteed Obligations) to other
obligations, if any, not entitled to the benefits of this Agreement, in
preference to Guaranteed Obligations entitled to the benefits of this Agreement,
or if any collections are applied to Guaranteed Obligations, any application to
particular Guaranteed Obligations.
(d) Any taking, exchange, amendment, modification, supplement,
termination, subordination, release, loss or impairment of, or any failure to
protect, perfect, or preserve the value of, or any enforcement of, realization
upon, or exercise of rights, or remedies under or in connection with, or any
failure, omission, breach, default, delay or wrongful action by the Bank, or any
other Person in connection with the enforcement of, realization upon, or
exercise of rights or remedies under or in connection with, or, any other action
or inaction by the Bank, or any other Person in respect of, any direct or
indirect security for any of the Guaranteed Obligations. As used in this
Agreement, "direct or indirect security" for the Guaranteed Obligations, and
similar phrases, includes but is not limited to any collateral security,
guaranty, suretyship, letter of credit, capital maintenance agreement, put
option, subordination agreement or other right or arrangement of any nature
providing direct or indirect assurance of payment or performance of any of the
Guaranteed Obligations, made by or on behalf of any Person.
(e) Any merger, consolidation, liquidation, dissolution, winding-up,
charter revocation or forfeiture, or other change in, restructuring or
termination of the corporate structure or existence of, the Borrower or any
other Persons; any bankruptcy, insolvency, reorganization or similar proceeding
with respect to the Borrower or any other Persons; or any action taken or
election made by the Bank, (including but not limited to any election under
Section 1111(b)(2) of the United States Bankruptcy Code), the Borrower or any
other Persons in connection with any such proceeding.
(f) Any defense, setoff or counterclaim (excluding only the defense
of full, strict and indefeasible payment and performance), which may at any time
be available to or be asserted by the Borrower or any other Persons with respect
to any Loan Document or any of the Guaranteed Obligations; or any discharge by
operation of law or release of the Borrower or any
-3-
<PAGE> 4
other Persons from the performance or observance of any Loan Document or any of
the Guaranteed Obligations.
(g) Any other event or circumstance, whether similar or dissimilar
to the foregoing, and whether known or unknown, which might otherwise constitute
a defense available to, or limit the liability of, any Guarantor, a guarantor or
a surety, excepting only full, strict and indefeasible payment and performance
of the Guaranteed Obligations in full.
2.3 Waivers, etc. The Guarantors hereby waive any defense to or limitation
on their obligations under this Agreement arising out of or based on any event
or circumstance referred to in Section 2.2 hereof. Without limitation, the
Guarantors waive each of the following:
(a) All notices, disclosures and demands of any nature which
otherwise might be required from time to time to preserve intact any rights
against any Guarantor, including without limitation the following: any notice of
any event or circumstance described in Section 2.2 hereof; any notice required
by any law, regulation or order now or hereafter in effect in any jurisdiction;
any notice of nonpayment, nonperformance, dishonor, or protest under any Loan
Document or any of the Guaranteed Obligations; any notice of the incurrence of
any Guaranteed Obligation; any notice of any default or any failure on the part
of the Borrower or any other Persons to comply with any Loan Document or any of
the Guaranteed Obligations or any direct or indirect security for any of the
Guaranteed Obligations; and any notice of any information pertaining to the
business, operations, condition (financial or otherwise) or prospects of the
Borrower or any other Persons.
(b) Any right to any marshalling of assets, to the filing of any
claim against the Borrower or any other Persons in the event of any bankruptcy,
insolvency, reorganization or similar proceeding, or to the exercise against the
Borrower or any other Persons of any other right or remedy under or in
connection with any Loan Document or any of the Guaranteed Obligations or any
direct or indirect security for any of the Guaranteed Obligations; any
requirement of promptness or diligence on the part of the Bank, or any other
Person; any requirement to exhaust any remedies under or in connection with, or
to mitigate the damages resulting from default under, any Loan Document or any
of the Guaranteed Obligations or any direct or indirect security for any of the
Guaranteed Obligations; any benefit of any statute of limitations; and any
requirement of acceptance of this Agreement, and any requirement that any
Guarantor receive notice of such acceptance.
(c) Any defense or other right arising by reason of any law now or
hereafter in effect in any jurisdiction pertaining to election of remedies
(including but not limited to anti-deficiency laws, "one action" laws or the
like), or by reason of any election of remedies or other action or inaction by
the Bank, (including but not limited to commencement or completion of any
judicial proceeding or nonjudicial sale or other action in respect of collateral
security for any of the Guaranteed Obligations), which results in denial or
impairment of the right of the Bank to seek a deficiency against the Borrower or
any other Persons or which otherwise discharges or impairs any of the Guaranteed
Obligations.
2.4 Reinstatement. This Agreement shall continue to be effective, or be
automatically reinstated, as the case may be, if at any time payment of any of
the Guaranteed Obligations is
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<PAGE> 5
avoided, rescinded or must otherwise be returned by the Bank for any reason
(including, without limitation, by reason of such payment being a preference,
fraudulent transfer or fraudulent conveyance), all as though such payment had
not been made.
2.5 No Stay. Without limitation of any other provision of this Agreement,
if any exercise or condition to exercise of rights or remedies under or with
respect to any Guaranteed Obligation shall at any time be stayed, enjoined or
prevented for any reason (including but not limited to stay or injunction
resulting from the pendency against the Borrower or any other Persons of a
bankruptcy, insolvency, reorganization or similar proceeding), the Guarantors
agree that, for the purposes of this Agreement and their obligations hereunder,
the Guaranteed Obligations shall be deemed to have been requested and such other
exercise or conditions to exercise shall be deemed to have been taken or met.
2.6 Payments. All payments to be made by any Guarantor pursuant to this
Agreement shall be made without setoff, counterclaim, withholding or other
deduction of any nature.
2.7 Continuing Guaranty. This Agreement is a continuing agreement and
shall continue in full force and effect (notwithstanding that no Guaranteed
Obligations may be outstanding from time to time, or any other event or
circumstance) until all Guaranteed Obligations and all other amounts payable
under this Agreement have been paid and performed in full, subject in any event
to reinstatement in accordance with Section 2.4 hereof. Any purported
termination, revocation or discharge of this Agreement shall be void and of no
effect. For purposes of this Agreement the Guaranteed Obligations shall not be
deemed to have been paid in full until the Bank shall have indefeasibly received
payment of the Guaranteed Obligations in full and in cash.
3. REPRESENTATIONS AND WARRANTIES
Each Guarantor hereby represents and warrants to the Bank with respect to
itself as follows:
3.1 No Reliance. The Guarantor has, independently and without reliance
upon the Bank, and based upon such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement.
4. MISCELLANEOUS
4.1 Amendments, etc. No amendment to or waiver of any provision of this
Agreement, and no consent to any departure by any Guarantor herefrom, shall in
any event be effective unless in a writing manually signed by or on behalf of
the Bank. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
4.2 No Implied Waiver; Remedies Cumulative. No delay or failure of the
Bank in exercising any right or remedy under this Agreement shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right or
remedy preclude any other or further exercise thereof or the exercise of any
other right or remedy. The rights and remedies of the Bank under
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<PAGE> 6
this Agreement are cumulative and not exclusive of any other rights or remedies
available hereunder, under any other agreement or instrument, by law, or
otherwise.
4.3 Notices. Each Guarantor agrees that all notices, statements, requests,
demands and other communications under this Agreement shall be given to such
Guarantor at the address set forth below the signature line for the Guarantors
to the Discretionary Line Agreement on the signature page thereof. The Bank may
rely on any notice (whether or not made in a manner contemplated by this
Agreement) purportedly made by or on behalf of a Guarantor, and the Bank shall
have no duty to verify the identity or authority of the Person giving such
notice.
4.4 Expenses. Each Guarantor agrees unconditionally upon demand to pay or
reimburse to the Bank, and to save the Bank harmless against liability for the
payment of, all reasonable out-of-pocket costs, expenses and disbursements
(including reasonable fees and expenses of counsel for the Bank) incurred by the
Bank, (i) in connection with the administration and interpretation of this
Agreement and any other instruments and documents delivered hereunder, (ii)
relating to any amendments, waivers or consents pursuant to the provisions
hereof, (iii) in connection with the enforcement of this Agreement or collection
of amounts due hereunder or thereunder or the proof and allowability of any
claim arising under this Agreement whether in bankruptcy or receivership
proceedings or otherwise, and (iv) in any workout or restructuring or in
connection with the protection, preservation, exercise or enforcement of any of
the terms hereof or of any rights hereunder or in connection with any
foreclosure, collection or bankruptcy proceedings.
4.5 Prior Understandings. This Agreement constitutes the entire agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all prior and contemporaneous understandings and agreements.
4.6 Survival. All representations and warranties of the Guarantors
contained in or made in connection with this Agreement shall survive, and shall
not be waived by, the execution and delivery of this Agreement, any
investigation by or knowledge of the Bank, any extension of credit, or any other
event or circumstance whatsoever.
4.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
4.8 Setoff. The Bank shall have the right from time to time, without
notice to any Guarantor, to set off against and apply to such due and payable
amount any obligation of any nature of the Bank to any Guarantor, including but
not limited to all deposits (whether time or demand, general or special,
provisionally credited or finally credited, however evidenced) now or hereafter
maintained by any Guarantor with the Bank. The Bank agrees promptly to notify
the Borrower on behalf of the Guarantors after any such set-off and application,
provided, however, that the failure to give such notice shall not affect the
validity of such set-off and application. Such right shall be absolute and
unconditional in all circumstances and, without limitation, shall exist whether
or not the Bank shall have given any notice under this Agreement or under such
obligation to such Guarantor, whether such obligation to such Guarantor is
absolute or contingent, matured or unmatured (it being agreed that the Bank may
deem such obligation to be
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<PAGE> 7
then due and payable at the time of such setoff), and regardless of the
existence or adequacy of any collateral, guaranty or other direct or indirect
security, right or remedy available to the Bank. The rights of the Bank under
this Section are in addition to such other rights and remedies (including,
without limitation, other rights of setoff and banker's lien) which the Bank may
have, and nothing in this Agreement or in any other Loan Document shall be
deemed a waiver of or restriction on the right of setoff or banker's lien of the
Bank. The Guarantors hereby agree that, to the fullest extent permitted by law,
any affiliate of the Bank and any holder of a participation in any obligation of
any Guarantor under this Agreement, shall have the same rights of setoff as the
Bank as provided in this Section 4.8 (regardless of whether such affiliate or
participant otherwise would be deemed a creditor of such Guarantor).
4.9 Construction. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect interpretation of
this Agreement in any respect. This Agreement has been fully negotiated between
the applicable parties, each party having the benefit of legal counsel, and
accordingly neither any doctrine of construction of guaranties or suretyships in
favor of the guarantor or surety, nor any doctrine of construction of
ambiguities in agreements or instruments against the party controlling the
drafting thereof, shall apply to this Agreement.
4.10 Successors and Assigns. This Agreement shall be binding upon each
Guarantor, its successors and assigns, and shall inure to the benefit of and be
enforceable by the Bank and its successors and assigns. Without limitation of
the foregoing, the Bank (and any successive assignee or transferee), from time
to time may assign or otherwise transfer all or any portion of its rights or
obligations under the Loan Documents or any other Guaranteed Obligations, to any
other Person and such Guaranteed Obligations (including, without limitation, any
Guaranteed Obligations resulting from extension of credit by such other Person
under or in connection with the Loan Documents) shall be and remain Guaranteed
Obligations entitled to the benefit of this Agreement, and to the extent of its
interest in such Guaranteed Obligations such other Person shall be vested with
all the benefits in respect thereof granted to the Bank in this Agreement or
otherwise.
4.11 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
(a) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
(b) Certain Waivers. EACH GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(i) AGREES THAT ANY ACTION, SUIT OR PROCEEDING BY ANY PERSON ARISING
FROM OR RELATING TO THIS AGREEMENT OR ANY STATEMENT, COURSE OF CONDUCT, ACT,
OMISSION, OR EVENT OCCURRING IN CONNECTION HEREWITH OR THEREWITH (COLLECTIVELY
"RELATED LITIGATION") MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION SITTING IN ALLEGHENY COUNTY, PENNSYLVANIA,
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<PAGE> 8
SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND TO THE FULLEST EXTENT PERMITTED
BY LAW AGREES THAT IT WILL NOT BRING ANY RELATED LITIGATION IN ANY OTHER FORUM
(BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE BANK TO BRING ANY ACTION, SUIT
OR PROCEEDING IN ANY OTHER FORUM);
(ii) WAIVES ANY OBLIGATION WHICH IT MAY HAVE AT ANY TIME TO THE
LAYING OF VENUE OF ANY RELATED LITIGATION BROUGHT IN ANY SUCH COURT, WAIVES ANY
CLAIM THAT ANY SUCH RELATED LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM, AND WAIVES ANY RIGHT TO OBJECT, WITH RESPECT TO ANY RELATED LITIGATION
BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER THE
GUARANTOR;
(iii)CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR
OTHER LEGAL PROCESS IN ANY RELATED LITIGATION BY REGISTERED OR CERTIFIED U.S.
MAIL, POSTAGE PREPAID, TO THE GUARANTOR AT THE ADDRESS FOR NOTICES DESCRIBED IN
THIS AGREEMENT, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN
EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE
VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY
LAW); AND
(iii) WAIVES THE RIGHT TO TRIAL BY JURY IN ANY RELATED
LITIGATION.
(c)Limitation of Liability. TO THE FULLEST EXTENT PERMITTED BY LAW,
NO CLAIM MAY BE MADE BY ANY GUARANTOR OR ANY OTHER PERSON AGAINST THE BANK, OR
ANY AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE, ATTORNEY OR AGENT OF THE BANK FOR
ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM
ARISING FROM OR RELATING TO THIS AGREEMENT OR ANY STATEMENT, COURSE OF CONDUCT,
ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION HEREWITH (WHETHER FOR BREACH OF
CONTRACT, TORT OR ANY OTHER THEORY OF LIABILITY); AND EACH GUARANTOR HEREBY
WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES,
WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS
FAVOR.
4.12 Severability; Modification to Conform to Law.
(a) It is the intention of the parties that this Agreement be
enforceable to the fullest extent permissible under applicable Law, but that the
unenforceability (or modification to conform to such Law) of any provision or
provisions hereof shall not render unenforceable, or impair, the remainder
hereof. If any provision in this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, this Agreement shall, as
to such jurisdiction, be deemed amended to modify or delete, as necessary, the
offending provision or
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<PAGE> 9
provisions and to alter the bounds thereof in order to render it or them valid
and enforceable to the maximum extent permitted by applicable Law, without in
any manner affecting the validity or enforceability of such provision or
provisions in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
(b) Without limitation of the preceding subsection (a), to the
extent that mandatory applicable Law (including but not limited to applicable
laws pertaining to fraudulent conveyance or fraudulent transfer) otherwise would
render the full amount of any Guarantor's obligations hereunder invalid or
unenforceable, such Guarantor's obligations hereunder shall be limited to the
maximum amount which does not result in such invalidity or unenforceability.
(c) Notwithstanding anything to the contrary in this Section 4.12 or
elsewhere in this Agreement, this Agreement shall be presumptively valid and
enforceable to its full extent in accordance with its terms, as if this Section
4.12 (and references elsewhere in this Agreement to enforceability to the
fullest extent permitted by Law) were not a part of this Agreement, and in any
related litigation the burden of proof shall be on the party asserting the
invalidity or unenforceability of any provision hereof or asserting any
limitation on any Guarantor's obligations hereunder as to each element of such
assertion.
4.13 Additional Guarantors. At any time after the initial execution and
delivery of this Agreement to the Bank, additional Persons may become parties to
this Agreement and thereby acquire the duties and rights of being Guarantors
hereunder by executing and delivering to the Bank a counterpart signature page
for attachment hereto. No notice of the addition of any Guarantor shall be
required to be given to any pre-existing Guarantor.
4.14 Joint and Several Obligations. The obligations of each Guarantor
under this Agreement are joint and several.
[INTENTIONALLY LEFT BLANK]
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<PAGE> 10
[SIGNATURE PAGE TO THE
GUARANTY AND SURETYSHIP AGREEMENT
(SUBSIDIARIES)]
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed and delivered as of the date first above written.
GUARANTORS:
EACH GUARANTOR LISTED ON SCHEDULE 1
HERETO (OTHER THAN RIVERHEARST,
INC.)
By: /s/ W. Gary Liddick
____________________________
W. Gary Liddick
Vice President and Chief
Financial Officer
of each Guarantor listed on
Schedule 1
RIVERHEARST, INC.
By: /s/ Robert A. Ouimette
___________________________
Robert A. Ouimette,
President
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<PAGE> 11
SCHEDULE 1
TO THE GUARANTY AND SURETYSHIP AGREEMENT
(SUBSIDIARIES)
DATED AS OF OCTOBER 21, 1997
IN FAVOR OF
PNC BANK, NATIONAL ASSOCIATION
SUBSIDIARY AND STATE OF FORMATION
1. Horizon Group International, Inc., an Ohio corporation
2. Precise Dental Lab., Inc., an Ohio corporation
3. Riverhearst, Inc., a Delaware corporation
4. VFD of Georgia, Inc., a Delaware corporation
5. VFD of Pennsylvania, Inc., a Delaware corporation
6. VFD of Pittsburgh, Inc., a Pennsylvania corporation
7. Prodent, Inc., a Pennsylvania corporation
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<PAGE> 1
EXHIBIT 10(ii)
GUARANTY AND SURETYSHIP AGREEMENT
(PARTNERSHIP GUARANTY)
This Agreement (the "Agreement") dated as of October 21, 1997, is made and
given by Abbingdon Venture Partners Limited Partnership - II, a Delaware limited
partnership ("Abbingdon Partners - II"), and Abbingdon Venture Partners Limited
Partnership - III, a Delaware limited partnership ("Abbingdon Partners - III")
(Abbingdon Partners - II and Abbingdon Partners - III are referred to
collectively to as the "Guarantors" and individually as a "Guarantor") in favor
of PNC Bank, National Association (the "Bank") pursuant to that certain
Discretionary Line of Credit Letter Agreement dated as of even date herewith (as
it may hereinafter from time to time be amended, restated, modified or
supplemented, the "Discretionary Line Agreement") agreed to and accepted by
Valley Forge Dental Associates, Inc., a Delaware corporation (the "Borrower"),
each Subsidiary of the Borrower identified on Schedule 1 of the Discretionary
Line Agreement, the Guarantors and the Bank.
W I T N E S S E T H:
WHEREAS, the Loan Parties have agreed to and accepted the Discretionary
Line Agreement; and
WHEREAS, this Agreement is made by the Guarantors among other things to
induce the Bank to consider requests for loan advances pursuant to the
Discretionary Line Agreement; and
WHEREAS, the business and investments of the Loan Parties are
interdependent and loans, if any, made to the Borrower pursuant to the
Discretionary Line Agreement are with the expectation that the profits and other
opportunities from such businesses and investments will directly or indirectly
inure to the benefit of each Guarantor, each other Loan Party and to all of them
taken as an affiliated group.
NOW, THEREFORE, in consideration of the premises, and intending to be
legally bound, the Guarantors hereby agree as follows:
1. DEFINITIONS
1.1 Definitions. Capitalized terms used herein and not otherwise defined
herein shall have such meanings as given to them in the Discretionary Line
Agreement. In addition to the other terms defined elsewhere in this Agreement,
the following terms shall have the following meanings:
<PAGE> 2
"Guaranteed Obligations" shall mean all obligations from time to
time of the Borrower to the Bank under or in connection with the
Discretionary Line Agreement, the Demand Note dated the date of this
Agreement in the face amount of $10,000,000 of the Borrower in favor of
the Bank (the "Note"), or any other Loan Document or which arise in any
other manner, whether for principal, interest, fees, indemnities, expenses
or otherwise, and all refinancings or refundings thereof, whether such
obligations are direct or indirect, otherwise secured or unsecured,
absolute or contingent, due or to become due, whether for payment or
performance, now existing or hereafter arising (specifically including but
not limited to obligations arising or accruing after the commencement of
any bankruptcy, insolvency, reorganization or similar proceeding with
respect to the Borrower, any other Loan Party or any other individuals or
entities including any Guarantor (a "Person") or which would have arisen
or accrued but for the commencement of such proceeding, even if the claim
for such obligation is not enforceable or allowable in such proceeding).
Without limitation of the foregoing, such obligations include all
obligations arising from any extensions of credit under or in connection
with the Loan Documents from time to time, regardless of whether any such
extensions of credit are in excess of the amount set forth under or
contemplated by the Loan Documents or are made in circumstances in which
any condition to extension of credit is not satisfied. Without limitation
of the foregoing, the Bank (or any successive assignee or transferee) from
time to time may assign or otherwise transfer all of its rights and
obligations under the Loan Documents (including, without limitation, all
of any option to extend credit), or any other Guaranteed Obligations, to
any other Person, and such Guaranteed Obligations (including, without
limitation, any Guaranteed Obligations resulting from extension of credit
by such other Person under or in connection with the Loan Documents) shall
be and remain Guaranteed Obligations entitled to the benefit of this
Agreement.
2. GUARANTY AND SURETYSHIP
2.1 Guaranty and Suretyship. Subject to the limitations set forth in
Section 4.17 hereof, the Guarantors hereby absolutely, unconditionally and
irrevocably guarantee and become surety for the full and punctual payment and
performance of the Guaranteed Obligations. This Agreement is an agreement of
suretyship as well as of guaranty, is a guarantee of payment and performance and
not merely of collectibility, and is in no way conditioned upon any attempt to
collect from or proceed against the Borrower or any other Persons or any other
event or circumstance. The obligations of the Guarantors under this Agreement
are direct and primary obligations of each Guarantor and are independent of the
Guaranteed Obligations, and a separate action or actions may be brought against
any one or more of the Guarantors regardless of whether action is brought
against the Borrower, any other Guarantor or any other Persons or whether the
Borrower, any other Guarantor or any other Persons are joined in any such action
or actions.
2.2 Obligations Absolute. The Guarantors agree that the Guaranteed
Obligations will be paid and performed strictly in accordance with the terms of
the Loan Documents, regardless of any Law, regulation or order now or hereafter
in effect in any jurisdiction affecting the
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<PAGE> 3
Guaranteed Obligations, any of the terms of the Loan Documents or the rights of
the Bank or any other Person with respect thereto. The obligations of the
Guarantors under this Agreement shall be absolute, unconditional and
irrevocable, irrespective of any of the following:
(a) Any lack of genuineness, legality, validity, enforceability or
allowability (in a bankruptcy, insolvency, reorganization or similar proceeding,
or otherwise), or any avoidance or subordination, in whole or in part, of any
Loan Document or any of the Guaranteed Obligations.
(b) Any increase, decrease or change in the amount, nature, type or
purpose of any of the Guaranteed Obligations (whether or not contemplated by the
Loan Documents as presently constituted); any change in the time, manner, method
or place of payment or performance of, or in any other term of, any of the
Guaranteed Obligations; any execution or delivery of any additional Loan
Documents; or any amendment, modification or supplement to, or refinancing or
refunding of, any Loan Document or any of the Guaranteed Obligations.
(c) Any extensions of credit in excess of the amount committed under
or contemplated by the Loan Documents, or in circumstances in which any
condition to such extensions of credit has not been satisfied; any other
exercise or non-exercise, or any other failure, omission, breach, default, delay
or wrongful action in connection with any exercise or non-exercise, of any right
or remedy against the Borrower or any other Persons under or in connection with
any Loan Document or any of the Guaranteed Obligations; any refusal of payment
or performance of any of the Guaranteed Obligations, whether or not with any
reservation of rights against any Guarantor; or any application of collections
(including but not limited to collections resulting from realization upon any
direct or indirect security for the Guaranteed Obligations) to other
obligations, if any, not entitled to the benefits of this Agreement, in
preference to Guaranteed Obligations entitled to the benefits of this Agreement,
or if any collections are applied to Guaranteed Obligations, any application to
particular Guaranteed Obligations.
(d) Any taking, exchange, amendment, modification, supplement,
termination, subordination, release, loss or impairment of, or any failure to
protect, perfect, or preserve the value of, or any enforcement of, realization
upon, or exercise of rights, or remedies under or in connection with, or any
failure, omission, breach, default, delay or wrongful action by the Bank, or any
other Person in connection with the enforcement of, realization upon, or
exercise of rights or remedies under or in connection with, or, any other action
or inaction by the Bank, or any other Person in respect of, any direct or
indirect security for any of the Guaranteed Obligations. As used in this
Agreement, "direct or indirect security" for the Guaranteed Obligations, and
similar phrases, includes but is not limited to any collateral security,
guaranty, suretyship, letter of credit, capital maintenance agreement, put
option, subordination agreement or other right or arrangement of any nature
providing direct or indirect assurance of payment or performance of any of the
Guaranteed Obligations, made by or on behalf of any Person.
(e) Any merger, consolidation, liquidation, dissolution, winding-up,
charter revocation or forfeiture, or other change in, restructuring or
termination of the corporate structure or existence of, the Borrower or any
other Persons; any bankruptcy, insolvency, reorganization or
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<PAGE> 4
similar proceeding with respect to the Borrower or any other Persons; or any
action taken or election made by the Bank, (including but not limited to any
election under Section 1111(b)(2) of the United States Bankruptcy Code), the
Borrower or any other Persons in connection with any such proceeding.
(f) Any defense, setoff or counterclaim (excluding only the defense
of full, strict and indefeasible payment and performance), which may at any time
be available to or be asserted by the Borrower or any other Persons with respect
to any Loan Document or any of the Guaranteed Obligations; or any discharge by
operation of law or release of the Borrower or any other Persons from the
performance or observance of any Loan Document or any of the Guaranteed
Obligations.
(g) Any other event or circumstance, whether similar or dissimilar
to the foregoing, and whether known or unknown, which might otherwise constitute
a defense available to, or limit the liability of, any Guarantor, a guarantor or
a surety, excepting only full, strict and indefeasible payment and performance
of the Guaranteed Obligations in full.
2.3 Waivers, etc. The Guarantors hereby waive any defense to or limitation
on their obligations under this Agreement arising out of or based on any event
or circumstance referred to in Section 2.2 hereof. Without limitation, the
Guarantors waive each of the following:
(a) All notices, disclosures and demands of any nature which
otherwise might be required from time to time to preserve intact any rights
against any Guarantor, including without limitation the following: any notice of
any event or circumstance described in Section 2.2 hereof; any notice required
by any Law, regulation or order now or hereafter in effect in any jurisdiction;
any notice of nonpayment, nonperformance, dishonor, or protest under any Loan
Document or any of the Guaranteed Obligations; any notice of the incurrence of
any Guaranteed Obligation; any notice of any default or any failure on the part
of the Borrower or any other Persons to comply with any Loan Document or any of
the Guaranteed Obligations or any direct or indirect security for any of the
Guaranteed Obligations; and any notice of any information pertaining to the
business, operations, condition (financial or otherwise) or prospects of the
Borrower or any other Persons.
(b) Any right to any marshalling of assets, to the filing of any
claim against the Borrower or any other Persons in the event of any bankruptcy,
insolvency, reorganization or similar proceeding, or to the exercise against the
Borrower or any other Persons of any other right or remedy under or in
connection with any Loan Document or any of the Guaranteed Obligations or any
direct or indirect security for any of the Guaranteed Obligations; any
requirement of promptness or diligence on the part of the Bank, or any other
Person; any requirement to exhaust any remedies under or in connection with, or
to mitigate the damages resulting from default under, any Loan Document or any
of the Guaranteed Obligations or any direct or indirect security for any of the
Guaranteed Obligations; any benefit of any statute of limitations; and any
requirement of acceptance of this Agreement, and any requirement that any
Guarantor receive notice of such acceptance.
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<PAGE> 5
(c) Any defense or other right arising by reason of any law now or
hereafter in effect in any jurisdiction pertaining to election of remedies
(including but not limited to anti-deficiency laws, "one action" laws or the
like), or by reason of any election of remedies or other action or inaction by
the Bank, (including but not limited to commencement or completion of any
judicial proceeding or nonjudicial sale or other action in respect of collateral
security for any of the Guaranteed Obligations), which results in denial or
impairment of the right of the Bank to seek a deficiency against the Borrower or
any other Persons or which otherwise discharges or impairs any of the Guaranteed
Obligations.
2.4 Reinstatement. This Agreement shall continue to be effective, or be
automatically reinstated, as the case may be, if at any time payment of any of
the Guaranteed Obligations is avoided, rescinded or must otherwise be returned
by the Bank for any reason (including, without limitation, by reason of such
payment being a preference, fraudulent transfer or fraudulent conveyance), all
as though such payment had not been made.
2.5 No Stay. Without limitation of any other provision of this Agreement,
if any exercise or condition to exercise of rights or remedies under or with
respect to any Guaranteed Obligation shall at any time be stayed, enjoined or
prevented for any reason (including but not limited to stay or injunction
resulting from the pendency against the Borrower or any other Persons of a
bankruptcy, insolvency, reorganization or similar proceeding), the Guarantors
agree that, for the purposes of this Agreement and their obligations hereunder,
the Guaranteed Obligations shall be deemed to have been requested and such other
exercise or conditions to exercise shall be deemed to have been taken or met.
2.6 Payments. All payments to be made by any Guarantor pursuant to this
Agreement shall be made without setoff, counterclaim, withholding or other
deduction of any nature.
2.7 Continuing Guaranty. This Agreement is a continuing agreement and
shall continue in full force and effect (notwithstanding that no Guaranteed
Obligations may be outstanding from time to time, or any other event or
circumstance) until all Guaranteed Obligations and all other amounts payable
under this Agreement have been paid and performed in full, subject in any event
to reinstatement in accordance with Section 2.4 hereof. Any purported
termination, revocation or discharge of this Agreement shall be void and of no
effect. For purposes of this Agreement, the Guaranteed Obligations shall not be
deemed to have been paid in full until the Bank shall have indefeasibly received
payment of the Guaranteed Obligations in full and in cash.
3. REPRESENTATIONS AND WARRANTIES
Each Guarantor hereby represents and warrants to the Bank with respect to
itself as follows:
3.1 No Reliance. The Guarantor has, independently and without reliance
upon the Bank, and based upon such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement.
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<PAGE> 6
3.2 Partnership Agreement. The Guarantor has provided to the Bank a true
and correct copy of the Agreement of Limited Partnership of the Guarantor
together with all amendments thereto.
4. MISCELLANEOUS
4.1 Amendments, etc. No amendment to or waiver of any provision of this
Agreement, and no consent to any departure by any Guarantor herefrom, shall in
any event be effective unless in a writing manually signed by or on behalf of
the Bank. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
4.2 No Implied Waiver; Remedies Cumulative. No delay or failure of the
Bank in exercising any right or remedy under this Agreement shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right or
remedy preclude any other or further exercise thereof or the exercise of any
other right or remedy. The rights and remedies of the Bank under this Agreement
are cumulative and not exclusive of any other rights or remedies available
hereunder, under any other agreement or instrument, by law, or otherwise.
4.3 Notices. Each Guarantor agrees that all notices, statements, requests,
demands and other communications under this Agreement shall be given to such
Guarantor at the address set forth below the signature line for the Guarantors
to the Discretionary Line Agreement on the signature page thereof. The Bank may
rely on any notice (whether or not made in a manner contemplated by this
Agreement) purportedly made by or on behalf of a Guarantor, and the Bank shall
have no duty to verify the identity or authority of the Person giving such
notice.
4.4 Expenses. Each Guarantor agrees unconditionally upon demand to pay or
reimburse to the Bank, and to save the Bank harmless against liability for the
payment of, all reasonable out-of-pocket costs, expenses and disbursements
(including reasonable fees and expenses of counsel for the Bank) incurred by the
Bank, (i) in connection with the administration and interpretation of this
Agreement and any other instruments and documents delivered hereunder, (ii)
relating to any amendments, waivers or consents pursuant to the provisions
hereof, (iii) in connection with the enforcement of this Agreement or collection
of amounts due hereunder or thereunder or the proof and allowability of any
claim arising under this Agreement whether in bankruptcy or receivership
proceedings or otherwise, and (iv) in any workout or restructuring or in
connection with the protection, preservation, exercise or enforcement of any of
the terms hereof or of any rights hereunder or in connection with any
foreclosure, collection or bankruptcy proceedings.
4.5 Prior Understandings. This Agreement constitutes the entire agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all prior and contemporaneous understandings and agreements.
4.6 Survival. All representations and warranties of the Guarantors
contained in or made in connection with this Agreement shall survive, and shall
not be waived by, the execution
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<PAGE> 7
and delivery of this Agreement, any investigation by or knowledge of the Bank,
any extension of credit, or any other event or circumstance whatsoever.
4.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
4.8 Setoff. The Bank shall have the right from time to time, without
notice to any Guarantor, to set off against and apply to such due and payable
amount any obligation of any nature of the Bank to any Guarantor, including but
not limited to all deposits (whether time or demand, general or special,
provisionally credited or finally credited, however evidenced) now or hereafter
maintained by any Guarantor with the Bank. The Bank agrees promptly to notify
the Borrower on behalf of the Guarantors after any such set-off and application,
provided, however, that the failure to give such notice shall not affect the
validity of such set-off and application. Such right shall be absolute and
unconditional in all circumstances and, without limitation, shall exist whether
or not the Bank shall have given any notice under this Agreement or under such
obligation to such Guarantor, whether such obligation to such Guarantor is
absolute or contingent, matured or unmatured (it being agreed that the Bank may
deem such obligation to be then due and payable at the time of such setoff), and
regardless of the existence or adequacy of any collateral, guaranty or other
direct or indirect security, right or remedy available to the Bank. The rights
of the Bank under this Section are in addition to such other rights and remedies
(including, without limitation, other rights of setoff and banker's lien) which
the Bank may have, and nothing in this Agreement or in any other Loan Document
shall be deemed a waiver of or restriction on the right of setoff or banker's
lien of the Bank. The Guarantors hereby agree that, to the fullest extent
permitted by Law, any affiliate of the Bank and any holder of a participation in
any obligation of any Guarantor under this Agreement, shall have the same rights
of setoff as the Bank as provided in this Section 4.8 (regardless of whether
such affiliate or participant otherwise would be deemed a creditor of such
Guarantor).
4.9 Construction. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect interpretation of
this Agreement in any respect. This Agreement has been fully negotiated between
the applicable parties, each party having the benefit of legal counsel, and
accordingly neither any doctrine of construction of guaranties or suretyships in
favor of the guarantor or surety, nor any doctrine of construction of
ambiguities in agreements or instruments against the party controlling the
drafting thereof, shall apply to this Agreement.
4.10 Successors and Assigns. This Agreement shall be binding upon each
Guarantor, its successors and assigns, and shall inure to the benefit of and be
enforceable by the Bank and its successors and assigns. Without limitation of
the foregoing, the Bank (and any successive assignee or transferee), from time
to time may assign or otherwise transfer all or any portion of its rights or
obligations under the Loan Documents or any other Guaranteed Obligations, to any
other Person and such Guaranteed Obligations (including, without limitation, any
Guaranteed Obligations resulting from extension of credit by such other Person
under or in connection with the Loan Documents) shall be and remain Guaranteed
Obligations entitled to the benefit of this Agreement, and to the extent of its
interest in such Guaranteed Obligations such other Person
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<PAGE> 8
shall be vested with all the benefits in respect thereof granted to the Bank in
this Agreement or otherwise.
4.11 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
(a) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
(b) Certain Waivers. EACH GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(i) AGREES THAT ANY ACTION, SUIT OR PROCEEDING BY ANY PERSON
ARISING FROM OR RELATING TO THIS AGREEMENT OR ANY STATEMENT, COURSE OF CONDUCT,
ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION HEREWITH OR THEREWITH
(COLLECTIVELY "RELATED LITIGATION") MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT
OF COMPETENT JURISDICTION SITTING IN ALLEGHENY COUNTY, PENNSYLVANIA, SUBMITS TO
THE JURISDICTION OF SUCH COURTS, AND TO THE FULLEST EXTENT PERMITTED BY LAW
AGREES THAT IT WILL NOT BRING ANY RELATED LITIGATION IN ANY OTHER FORUM (BUT
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE BANK TO BRING ANY ACTION, SUIT OR
PROCEEDING IN ANY OTHER FORUM);
(ii) WAIVES ANY OBLIGATION WHICH IT MAY HAVE AT ANY TIME TO
THE LAYING OF VENUE OF ANY RELATED LITIGATION BROUGHT IN ANY SUCH COURT, WAIVES
ANY CLAIM THAT ANY SUCH RELATED LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM, AND WAIVES ANY RIGHT TO OBJECT, WITH RESPECT TO ANY RELATED LITIGATION
BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER THE
GUARANTOR;
(iii) CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT
OR OTHER LEGAL PROCESS IN ANY RELATED LITIGATION BY REGISTERED OR CERTIFIED U.S.
MAIL, POSTAGE PREPAID, TO THE GUARANTOR AT THE ADDRESS FOR NOTICES DESCRIBED IN
THIS AGREEMENT, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN
EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE
VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY
LAW); AND
(iv) WAIVES THE RIGHT TO TRIAL BY JURY IN ANY RELATED
LITIGATION.
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<PAGE> 9
(c) Limitation of Liability. TO THE FULLEST EXTENT PERMITTED BY LAW,
NO CLAIM MAY BE MADE BY ANY GUARANTOR OR ANY OTHER PERSON AGAINST THE BANK, OR
ANY AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE, ATTORNEY OR AGENT OF THE BANK FOR
ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM
ARISING FROM OR RELATING TO THIS AGREEMENT OR ANY STATEMENT, COURSE OF CONDUCT,
ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION HEREWITH (WHETHER FOR BREACH OF
CONTRACT, TORT OR ANY OTHER THEORY OF LIABILITY); AND EACH GUARANTOR HEREBY
WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES,
WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS
FAVOR.
4.12 Severability; Modification to Conform to Law.
(a) It is the intention of the parties that this Agreement be
enforceable to the fullest extent permissible under applicable Law, but that the
unenforceability (or modification to conform to such Law) of any provision or
provisions hereof shall not render unenforceable, or impair, the remainder
hereof. If any provision in this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, this Agreement shall, as
to such jurisdiction, be deemed amended to modify or delete, as necessary, the
offending provision or provisions and to alter the bounds thereof in order to
render it or them valid and enforceable to the maximum extent permitted by
applicable Law, without in any manner affecting the validity or enforceability
of such provision or provisions in any other jurisdiction or the remaining
provisions hereof in any jurisdiction.
(b) Without limitation of the preceding subsection (a), to the
extent that mandatory applicable Law (including but not limited to applicable
laws pertaining to fraudulent conveyance or fraudulent transfer) otherwise would
render the full amount of any Guarantor's obligations hereunder invalid or
unenforceable, such Guarantor's obligations hereunder shall be limited to the
maximum amount which does not result in such invalidity or unenforceability.
(c) Notwithstanding anything to the contrary in this Section 4.12 or
elsewhere in this Agreement, this Agreement shall be presumptively valid and
enforceable to its full extent in accordance with its terms, as if this Section
4.12 (and references elsewhere in this Agreement to enforceability to the
fullest extent permitted by Law) were not a part of this Agreement, and in any
related litigation the burden of proof shall be on the party asserting the
invalidity or unenforceability of any provision hereof or asserting any
limitation on any Guarantor's obligations hereunder as to each element of such
assertion.
4.13 Additional Guarantors. At any time after the initial execution and
delivery of this Agreement to the Bank, additional Persons may become parties to
this Agreement and thereby acquire the duties and rights of being Guarantors
hereunder by executing and delivering to the Bank a counterpart signature page
for attachment hereto. No notice of the addition of any Guarantor shall be
required to be given to any pre-existing Guarantor.
-9-
<PAGE> 10
4.14 Capital; Organizational Documents. Each Guarantor expressly covenants
to the Bank as follows: (i) it will at all times maintain uncalled and committed
capital subject to call without any right of set off or counterclaim in
accordance with the provisions of its Agreement of Limited Partnership in an
aggregate amount equal to the sum of (a) the amount of Guaranteed Obligations
for which it is liable; and (b) the amount of all commitments to make future
advances or guarantees pursuant to any agreement to which the Guarantor is a
party or by which it is bound; (ii) it will not amend in any respect its
Agreement of Limited Partnership or other organizational documents without
providing at least thirty (30) calendar days' prior written notice to the Bank
and, in the event such change would be materially adverse to the Bank as
determined by the Bank in its sole discretion obtaining the prior written
consent of the Bank; and (iii) John H. Foster shall at all times control the
management of and shall own a majority of the equity interests of the general
partner of the Guarantor.
4.15 Reports and Information.
(a) Each Guarantor shall furnish or cause to be furnished to the
Bank, in addition to all other information as the Bank may reasonably request,
as soon as available and in any event within one hundred and twenty (120) days
after the end of each fiscal year, financial statements of such Guarantor
consisting of a balance sheet as of the end of such fiscal year, and related
statements of income, partners' equity and cash flows for the fiscal year then
ended, all in reasonable detail and setting forth in comparative form the
financial statements as of the end of and for the preceding fiscal year, and
certified by Price Waterhouse LLP or other independent certified public
accountants of nationally recognized standing reasonably satisfactory to the
Bank except it is acknowledged that the balance sheet of such financial
statements may include securities which, in accordance with GAAP, will be valued
either at their readily ascertainable market value, or in the absence of readily
ascertainable market value, by the good faith estimate of Abbingdon - II
Partners. The certificate or report of accountants shall be free of
qualifications (other than any consistency qualification that may result from a
change in the method used to prepare the financial statements as to which such
accountants concur and except as noted above with respect to securities for
which there is no readily ascertainable market value) and shall not indicate the
occurrence or existence of any event, condition or contingency which would
materially impair the prospect of payment or performance of any covenant,
agreement or duty of such Guarantor under any of the Loan Documents.
(b) Each Guarantor shall furnish or cause to be furnished to the
Bank, in addition to all other information as the Bank may reasonably request,
as soon as available and in any event within forty-five (45) calendar days after
the end of each fiscal quarter in each fiscal year or other times as the Bank
may reasonably request, a statement setting forth the ratio of (a) the sum of
(i) Guaranteed Obligations for which such Guarantor is liable and (ii) the
amount of all commitments of such Guarantor to make future advances or loans and
all other amounts pursuant to any Guaranty for which such Guarantor is liable,
in either case pursuant to any agreement to which such Guarantor is a party or
by which it is bound as of the end of such fiscal quarter; to (b) cash as of the
end of such fiscal quarter and capital subject to call without right of setoff
or counterclaim as of the end of such fiscal quarter, certified by the Chief
Financial Officer of such Guarantor.
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<PAGE> 11
(c) Concurrently with the financial statements of each Guarantor
furnished to the Bank pursuant to Section (a) above of this Section 4.15, each
Guarantor shall furnish a certificate, signed by the Chief Financial Officer of
such Guarantor, to the effect that, (i) the representations and warranties of
the Guarantor contained in Exhibit B of the Discretionary Line Agreement and in
this Agreement are true on and as of the date of such certificate with the same
effect as though such representations and warranties had been made on and as of
such date (except representations and warranties which expressly relate solely
to an earlier date or time) and (ii) the Guarantor has performed and complied
with all applicable covenants contained in Exhibits C and D of the Discretionary
Line Agreement and this Agreement.
4.16 Nonrecourse. No partner of any Guarantor or any partner of a general
partner of any Guarantor shall have any personal liability for payment of the
Guaranteed Obligations, and in any action or suit to collect the Guaranteed
Obligations, the Bank shall not seek any in personam judgment against any
partner of any Guarantor or any partner of a general partner of any Guarantor or
any judgment for a deficiency against any such partner. Nothing contained in
this Section shall be construed to impair the validity of the Guaranteed
Obligations or this Agreement or affect or impair in any way the right of the
Bank to exercise its rights and remedies under the Discretionary Line Agreement,
the Note and any other Loan Documents in accordance with their terms.
4.17 Limitation of Liability. Notwithstanding anything to the contrary
contained herein, the liability of Abbingdon Partners - II as surety and
guarantor hereunder shall be limited to sixty percent (60%) of the Guaranteed
Obligations and the liability of Abbingdon Partners - III as surety and
guarantor hereunder shall be limited to forty percent (40%) of the Guaranteed
Obligations.
[INTENTIONALLY LEFT BLANK]
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<PAGE> 12
[SIGNATURE PAGE TO THE
GUARANTY AND SURETYSHIP AGREEMENT
(PARTNERSHIP GUARANTY)]
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed and delivered as of the date first above written.
GUARANTORS:
ABBINGDON VENTURE PARTNERS LIMITED
PARTNERSHIP - II
By: Abbingdon - II Partners,
general partner of Abbingdon
Venture Partners Limited
Partnership - II
By: /s/ Stephen F. Nagy
__________________________
Stephen F. Nagy,
general partner
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP - III
By: Abbingdon - II Partners,
general partner of Abbingdon
Venture Partners Limited
Partnership - III
By: /s/ Stephen F. Nagy
__________________________
Stephen F. Nagy,
general partner
-12-
<PAGE> 1
EXHIBIT 10(jj)
PLEDGE AGREEMENT
THIS AGREEMENT, dated as of October 21, 1997, among VALLEY
FORGE DENTAL ASSOCIATES, INC. a Delaware corporation (the "Borrower"), EACH OF
THE UNDERSIGNED SHAREHOLDERS OF THE BORROWER SET FORTH ON THE SIGNATURE PAGE
HEREOF AND THE SUBSIDIARIES OF THE BORROWER IDENTIFIED IN SCHEDULE I ATTACHED
HERETO AND MADE A PART HEREOF (together with the Borrower, each a "Pledgor" and
collectively, the "Pledgors"), and PNC BANK, NATIONAL ASSOCIATION ("Bank"), is
delivered pursuant to the terms of that certain Discretionary Line of Credit
Letter Agreement dated as of even date herewith, among the Borrower, the
Guarantors set forth therein and the Bank (as amended, restated, modified or
supplemented from time to time, the "Credit Agreement")
WITNESSETH THAT:
WHEREAS, each Pledgor is the legal and beneficial owner and
the holder of its respective Pledged Collateral (as defined in Section 1(b)
hereof) as set forth on Exhibit A hereto; and
WHEREAS, pursuant to the Credit Agreement, the Bank may make
certain loans to the Borrower; and
WHEREAS, the obligations of the Bank to review the Borrower's
loan requests are subject to the condition, among others, that each Pledgor
secure its obligations to the Bank under the Credit Agreement in the manner set
forth therein and herein;
NOW, THEREFORE, intending to be legally bound hereby, the
parties hereto covenant and agree as follows:
1. Definitions. Terms which are defined in the Credit Agreement and not
otherwise defined herein are used herein as defined therein. In addition to the
words and terms defined elsewhere in this Pledge Agreement (as amended,
restated, modified or supplemented from time to time, the "Pledge Agreement"),
the following words and terms shall have the following meanings, respectively,
unless the context hereof otherwise clearly requires:
(a) "Code" shall mean the Uniform Commercial Code as in effect
in the Commonwealth of Pennsylvania or other applicable jurisdiction on the date
hereof and as the same may subsequently be amended from time to time.
(b) "Debt" shall mean, collectively, all now existing and
hereafter arising Indebtedness of the Borrower and the other Pledgors to the
Bank under the Credit Agreement, the Guaranty Agreements and the other Loan
Documents, including without limitation, all Indebtedness, whether principal,
interest, fees, expenses or otherwise, of the Borrower and the
<PAGE> 2
other Pledgors to the Bank now existing or hereafter incurred under the Credit
Agreement, the Guaranty Agreements or the Note, or any of the other Loan
Documents, as any of the same or any one or more of them may from time to time
be amended, restated, modified or supplemented, together with any and all
extensions, renewals, refinancings or refundings thereof in whole or in part.
(c) "Pledged Collateral" shall mean and include with respect
to each Pledgor (i) the securities listed on Exhibit A attached hereto and made
a part hereof, and all rights and privileges pertaining thereto, including,
without limitation, all securities and additional securities receivable in
respect of or in exchange for such securities, all rights to subscribe for
securities incident to or arising from ownership of such securities, all cash,
interest, stock and other dividends or distributions paid or payable on such
securities, and all books and records pertaining to the foregoing, including,
without limitation, all stock record and transfer books, (ii) any and all other
securities hereafter pledged to the Bank to secure the Debt and the Pledgor's
obligations hereunder, and all rights and privileges pertaining thereto,
including, without limitation, all securities and additional securities
receivable in respect of or in exchange for such securities, all rights to
subscribe for securities incident to or arising from ownership of such
securities, all cash, interest, stock and other dividends or distributions paid
or payable on such securities, and all books and records pertaining to the
foregoing, including, without limitation, all stock record and stock transfer
books, and (iii) whatever is received when any of the foregoing is sold,
exchanged or otherwise disposed of, including any proceeds as such term is
defined in the Code.
2. Pledge. As security for the due and punctual payment and performance
of the Debt in full, each Pledgor hereby agrees that the Bank shall have, and
each Pledgor hereby grants to and creates in favor of the Bank, a first priority
security interest under the Code in and to all of the Pledged Collateral.
3. Delivery of Certificates, etc. Upon the execution and delivery of
this Pledge Agreement, each Pledgor has delivered to and deposited with the Bank
in pledge, stock certificates and any other instruments evidencing the Pledged
Collateral, together with undated stock powers signed in blank by such Pledgor
as the Bank shall have required.
4. Representations and Warranties. Each Pledgor represents and warrants
to the Bank as follows:
(a) The Pledgor has good and marketable title to the Pledged
Collateral;
(b) Any shares of capital stock of a Subsidiary forming part
of the Pledged Collateral have been duly authorized and validly issued to the
Pledgor, are fully paid and nonassessable and constitute all of the issued and
outstanding stock of such Subsidiary, and there are no outstanding options or
rights to purchase or acquire any additional shares of capital stock of such
Subsidiary;
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<PAGE> 3
(c) Other than the security interest granted to and created in
favor of the Bank hereunder, all of the Pledged Collateral is free and clear of
any pledge, lien, security interest, encumbrance, option or rights of others,
except to the extent transfer of the Pledged Collateral may be restricted by the
federal Securities Act of 1933, as amended, and state securities laws; and
(d) The Pledgors have delivered to the Bank a true and correct
copy of the articles or certificate of incorporation, bylaws and other
organizational documents of each Subsidiary of the Borrower the shares of
capital stock of which constitute part of the Pledged Collateral.
5. Further Assurances. Each Pledgor will faithfully preserve and
protect the Bank's security interest in the Pledged Collateral as a first
priority perfected security interest under the Code, and will do all such other
acts and things, and will upon request therefor by the Bank execute and deliver
all such other documents and instruments, including, without limitation, further
pledges, assignments, documents and powers of attorney with respect to its
Pledged Collateral consistent with the terms of this Pledge Agreement and the
Credit Agreement, as the Bank may reasonably determine to be necessary or
advisable from time to time in order to preserve, perfect and protect said
security interest.
6. Certain Covenants of the Pledgor. Each Pledgor covenants and agrees
that (a) it will defend the Bank's right, title and security interest in and to
the Pledged Collateral and the proceeds thereof against the claims and demands
of all persons whomsoever other than any Person claiming a right in the Pledged
Collateral pursuant to an agreement between such Person and the Bank; (b) except
as permitted by the Credit Agreement, it will not assign, transfer, pledge, or
otherwise encumber any of its right, title or interest under, in or to the
Pledged Collateral other than pursuant hereto; (c) except as permitted by the
Credit Agreement, it will not take or omit to take any action, or permit any
Subsidiary, any shares of capital stock of which constitute a part of the
Pledged Collateral, to take or omit to take any action, the taking or the
omission of which might result in an alteration or impairment of the Pledged
Collateral or of this Pledge Agreement; (d) it will not permit any Subsidiary,
any shares of capital stock of which constitute a part of the Pledged
Collateral, to repeal, amend or modify its articles or certificate of
incorporation, bylaws or other organizational documents, other than as permitted
under the terms of the Credit Agreement; (e) it will cause each Subsidiary, any
shares of capital stock of which constitute a part of the Pledged Collateral, to
maintain accurate stock record and stock transfer books, and upon request of the
Bank, provide the Bank with access to and copies of such stock record and stock
transfer books; (f) it will not, without the prior written consent of the Bank,
waive or release any obligation of any party to the Pledged Collateral; and (g)
it will execute and deliver to the Bank and record such supplements to this
Pledge Agreement and additional assignments as the Bank reasonably may request
to evidence and confirm the pledge herein contained.
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<PAGE> 4
7. Protection of the Bank's Interest in the Pledged Collateral Against
Others. Each Pledgor assumes full responsibility for taking any and all
necessary steps, as reasonably determined by the Bank, to preserve the Bank's
rights with respect to its Pledged Collateral against all others, including the
respective issuers of capital stock forming part of the Pledged Collateral. The
Bank shall be deemed to have exercised reasonable care in the custody and
preservation of the Pledged Collateral in its possession if the Bank takes such
action for that purpose as the Pledgor shall request in writing (or in the
absence of such request, if the Bank deals with it in the same manner that it
deals with similar property for its own account) , provided that such requested
action will not, in the judgment of the Bank, impair the security interest in
the Pledged Collateral created hereby or the Bank's rights in, or the value of,
the Pledged Collateral, and provided further that such written request is
received by the Bank in sufficient time to permit the Bank to take the requested
action.
8. Continuation of Perfection of Security Interest. Each Pledgor shall
at such Pledgor's own cost and expense cause the security interest in its
Pledged Collateral granted to and created in favor of the Bank under this Pledge
Agreement to be perfected and continue to be perfected as long as the Debt or
any part thereof is outstanding and unpaid or not performed in full, and for
such purpose such Pledgor shall from time to time deliver possession to the Bank
of and execute, deliver and file or record (or cause to be filed or recorded)
such instruments, documents and notices (including, without limitation,
amendments or supplements to this Pledge Agreement, financing statements and
continuation statements) as the Bank may deem necessary or advisable from time
to time in order to confirm, perfect and preserve such security interest. The
Bank is hereby irrevocably appointed attorney-in-fact of each Pledgor to do all
acts and things which the Bank, in the exercise of its responsibilities under
the Credit Agreement, may deem necessary or advisable to perfect and continue
perfected the Bank's security interest in the Pledged Collateral in the event
any Pledgor fails to do any act or thing upon the Bank's request.
9. Voting Rights; Dividends; etc.
(a) So long as no demand for payment of the Debt has been made
and payment in full has not been received:
(i) Each Pledgor shall be entitled to exercise any
and all voting and other consensual rights pertaining to the
Pledged Collateral or any part thereof for any purpose not
inconsistent with the terms of this Pledge Agreement or the
Credit Agreement; provided, however, that such Pledgor shall
not exercise or refrain from exercising any such right if such
action or inaction would reasonably be likely to have a
material adverse effect on the value of the Pledged Collateral
or any part thereof;
(ii) Any and all instruments and other property
(other than cash dividends) received, receivable or otherwise
distributed in respect of, or in exchange for, any of the
Pledged Collateral shall be forthwith delivered to the Bank to
hold as part of the Pledged Collateral and shall, if received
by any
-4-
<PAGE> 5
Pledgor, be received in trust for the benefit of the Bank, be
segregated from the other property or funds of such Pledgor,
and be forthwith delivered to the Bank as Pledged Collateral
in the same form as so received (with any necessary
endorsement).
(b) After demand for payment of the Debt has been made and so
long as payment in full has not been received:
(i) All rights of any Pledgor to exercise the voting
and other consensual rights which it would otherwise be
entitled to exercise pursuant to Section 9(a)(i) and to
receive the dividends and other distributions which it would
otherwise be authorized to receive and retain pursuant to
Section 9(a)(ii) shall cease, and all such rights shall, upon
notice by the Bank to such Pledgor, become vested in the Bank,
who shall thereupon have the sole right to exercise such
voting and other consensual rights and the sole right to
receive and hold as Pledged Collateral such dividends and
other distributions and apply them to payment of the Debt; and
(ii) All dividends and other distributions which are
received by any Pledgor contrary to the provisions of
paragraph (i) of this Section 9(b) shall be received in trust
for the benefit of the Bank, shall be segregated from other
funds of such Pledgor and shall be forthwith paid over to the
Bank as Pledged Collateral in the same form as so received
(with any necessary endorsement); and
(iii) Each of the Pledgors acknowledges and agrees
that the nature of the business of the Borrower and its
Subsidiaries may require that the Bank exercise its voting
rights in an expeditious fashion and without prior notice to
the Pledgors so that the Bank may attempt to preserve the
value of continuing the respective businesses of the Borrower
and its Subsidiaries as a going concern.
10. Remedies. If demand for payment of the Debt has been made and
payment in full has not been received, then the Bank shall have such rights and
remedies with respect to the Pledged Collateral or any part thereof and the
proceeds thereof as are provided by the Code and such other rights and remedies
with respect thereto which it may have at law or in equity or under this Pledge
Agreement, including without limitation, to the extent not inconsistent with the
provisions of the Code or any other applicable Law, the right to (a) transfer
all or any part of the Pledged Collateral into the Bank's name or into the name
of its nominee and thereafter receive all cash, stock and other dividends or
distributions paid or payable in respect thereof, and otherwise act with respect
thereto for the benefit of the Bank as the absolute owner thereof, and (b) sell,
assign, give an option or options to purchase or otherwise dispose of all or any
part of the Pledged Collateral at any public or private sale at such place or
places and at such time or times and upon such terms, whether for cash or on
credit, and in such manner as the Bank may determine, and apply the proceeds so
received in accordance with the terms of the Security Agreement.
-5-
<PAGE> 6
11. Notice of Sale of the Pledged Collateral by the Bank. If any
notification of intended sale of any of the Pledged Collateral is required by
law, such notification shall be deemed reasonable if provided at least ten (10)
days before such sale, addressed to the Pledgor as provided in the Credit
Agreement.
12. Nature of Sale. Each Pledgor recognizes that the Bank may be
compelled to resort to one or more private sales of the Pledged Collateral to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire such securities for their own account for investment and not with a
view to the distribution or resale thereof. Each Pledgor acknowledges and agrees
that any such private sale may result in prices and other terms less favorable
to the seller than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall not, for such reason
alone, be deemed to have been made in a commercially unreasonable manner. The
Bank shall not be under any obligation to delay a sale of any of the Pledged
Collateral for the period of time necessary to permit the issuer of such
securities to register such securities for public sale under the federal
Securities Act of 1933, as amended, or under applicable state securities laws,
even if the issuer would agree to do so.
13. Termination. Upon indefeasible payment in full of the Debt and the
termination of the Credit Agreement, this Pledge Agreement shall terminate and
be of no further force and effect, and the Bank shall thereupon promptly return
to each Pledgor such of the Pledged Collateral and such other documents
delivered by such Pledgor hereunder as may then be in the Bank's possession and
execute such documents, instruments, agreements or any combination thereof as
the Pledgors shall reasonably request to evidence such termination.. Until such
time, however, this Pledge Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective successors and assigns.
14. No Waiver. No failure or delay on the part of the Bank in
exercising any right, remedy, power or privilege hereunder shall operate as a
waiver thereof or of any other right, remedy, power or privilege of the Bank
hereunder; nor shall any single or partial exercise of any such right, remedy,
power or privilege preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights and remedies
of the Bank under this Pledge Agreement are cumulative and not exclusive of any
rights or remedies which it may otherwise have, including without limitation any
rights or remedies it may have under the Credit Agreement or any of the Guaranty
Agreements (as defined in the Credit Agreement).
15. Notices. All notices, statements, requests and demands given to or
made upon any party hereto in accordance with the provisions of this Pledge
Agreement shall be given or made as provided in the Credit Agreement.
16. Successors and Assigns. This Pledge Agreement shall be binding upon
and inure to the benefit of the Bank and its successors and assigns, and each
Pledgor and its successors and assigns, except that the Pledgors may not assign
or transfer the respective Pledgor's obligations hereunder or any interest
herein.
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<PAGE> 7
17. Governing Law. This Pledge Agreement shall be deemed to be a
contract under the laws of the Commonwealth of Pennsylvania and for all purposes
shall be governed by and construed in accordance with the laws of said
Commonwealth excepting its rules relating to conflicts of Law.
18. Survival. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
19. Waiver of Rights. Each of the Pledgors waives any rights to require
the Bank to proceed against the Borrower or any other person, to proceed or
exhaust any collateral, or to pursue any other remedy prior to exercising the
Bank's rights under this Pledge Agreement. Each of the Pledgors further waives
any defense which might otherwise arise by reason of any disability, discharge
in bankruptcy, or other defense of the Borrower or of any other person liable in
respect of the Debt. Until the Debt is indefeasibly paid in full, each of the
Pledgors shall have no right of subrogation or contribution against any party
liable on the Debt. Each of the Pledgors waives any right to enforce any remedy
that the Bank has or may hereafter have against the Borrower or any other person
and waives any benefit of any collateral now or hereafter held by the Bank in
respect of the Debt. Each of the Pledgors authorizes the Bank, without notice to
any of the other Pledgors, and without affecting the security interest granted
hereby or the liabilities of any of the Pledgors hereunder, to renew, extend,
accelerate, compromise, settle or otherwise change the time for payment of or
otherwise change the terms of the Debt or any part thereof, including to
increase or decrease the rate of interest thereon; to exchange, release or
subordinate any collateral which may be held by the Bank as security for the
Debt; to release or substitute any person for the Borrower or any endorser or
guarantor of the Debt or any part thereof or any other parties thereto; and to
apply any payments on account of the Debt any proceeds of any collateral held by
the Bank for the Debt, against any item or items of the Debt or instrument or
instruments evidencing the Debt, as the Bank shall, in its sole discretion elect
whether or not the same may then be due.
[SIGNATURE PAGES FOLLOW]
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<PAGE> 8
[SIGNATURE PAGE 1 OF 3 TO PLEDGE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed and delivered this Pledge Agreement as
of the day and year first above set forth.
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Justin J. Falgione
_________________________________________
Title: Relationship Manager
Address for Notices:
249 Fifth Avenue
One PNC Plaza, 6th Floor
Pittsburgh, Pennsylvania 15222-2707
Attention: Mr. Justin J. Falgione
Telephone No. (412) 762-2190
Telecopier No. (412) 768-5149
VALLEY FORGE DENTAL ASSOCIATES, INC.
and the Subsidiaries listed on Schedule 1
hereto
By: /s/ W. Gary Liddick
_________________________________________
W. Gary Liddick,
Vice President and Chief Financial Officer
Address for Notices:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Mr. W. Gary Liddick
Telephone No. (610) 992-3319
Telecopier No. (610) 992-3392
<PAGE> 9
[SIGNATURE PAGE 2 OF 3 TO PLEDGE AGREEMENT]
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP - II
By: Abbingdon-II Partners, as general partner
By: /s/ Stephen F. Nagy
_________________________________________
Stephen F. Nagy,
general partner
Address for Notices:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Mr. John H. Foster
Telephone No. (610) 992-7650
Telecopier No. (610) 992-3390
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP - III
By: Abbingdon-II Partners, as general partner
By: /s/ Stephen F. Nagy
_________________________________________
Stephen F. Nagy,
general partner
Address for Notices:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Mr. John H. Foster
Telephone No. (610) 992-7650
Telecopier No. (610) 992-3390
<PAGE> 10
[SIGNATURE PAGE 3 OF 3 TO PLEDGE AGREEMENT]
ABBINGDON VENTURE PARTNERS LIMITED
PARTNERSHIP
By: BDC - III Partners, as general partner
By: /s/ Stephen F. Nagy
_________________________________________
Stephen F. Nagy,
general partner
Address for Notices:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Mr. John H. Foster
Telephone No. (610) 992-7650
Telecopier No. (610) 992-3390
BUSINESS DEVELOPMENT CAPITAL
LIMITED PARTNERSHIP - III
By: BDC - III Partners, as general partner
By: /s/ Stephen F. Nagy
_________________________________________
Stephen F. Nagy,
general partner
Address for Notices:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Mr. John H. Foster
Telephone No. (610) 992-7650
Telecopier No. (610) 992-3390
<PAGE> 11
EXHIBIT A
TO
PLEDGE AGREEMENT
PLEDGED COLLATERAL
ENTITY PLEDGING STOCK TYPE AND AMOUNT OF OWNERSHIP
--------------------- ----------------------------
1. Business Development Capital Limited 400 shares of preferred stock,
Partnership - III par value $.01 per share (the
"VFDA Preferred Stock"), of
Valley Forge Dental Associates,
Inc., a Delaware corporation
("VFDA"), represented by stock
certificate number 1
175,000 shares of common stock,
par value $.01 per share (the
"VFDA Common Stock"), of VFDA
represented by stock certificate
number 1
2. Abbingdon Venture Partners Limited 1,080 shares of the VFDA
Partnership Preferred Stock represented by
stock certificate number 2
472,500 shares of the VFDA
Common Stock represented by
stock certificate number 2
3. Abbingdon Venture Partners Limited 3,960 shares of the VFDA
Partnership - II Preferred Stock represented by
stock certificate number 3
1,732,500 shares of the VFDA
Common Stock represented by
stock certificate number 3
4. Abbingdon Venture Partners Limited 2,560 shares of the VFDA
Partnership - III Preferred Stock represented by
stock certificate number 4
1,120,000 shares of the VFDA
Common Stock represented by
stock certificate number 4
<PAGE> 12
EXHIBIT A
TO
PLEDGE AGREEMENT
PLEDGED COLLATERAL
(CONTINUED)
ENTITY PLEDGING STOCK TYPE AND AMOUNT OF OWNERSHIP
--------------------- ----------------------------
5. Valley Forge Dental Associates, Inc. 1,000 shares of common stock,
par value $.01 per share, of
Riverhearst, Inc., a Delaware
corporation, represented by
stock certificate number 1
937.50 shares of common stock,
par value $.01 per share, of VFD
of Georgia, Inc., a Delaware
corporation, represented by
stock certificate number 3
1,000 shares of common stock,
par value $.01 per share, of VFD
of Pennsylvania, Inc., a
Delaware corporation,
represented by stock certificate
number 2
212,780 shares of common stock,
par value $.01 per share, of
Prodent, Inc., a Pennsylvania
corporation, represented by
stock certificate number 72
6. VFD of Pennsylvania, Inc. 100 shares of common stock, no
par value, of VFD of Pittsburgh,
Inc., a Pennsylvania
corporation, represented by
stock certificate number 9
120 shares of common stock, no
par value, of Horizon Group
International, Inc., an Ohio
corporation ("HGI"), represented
by stock certificate number 36
81 shares of preferred stock,
par value $10,000 per share, of
HGI, represented by stock
certificate number A-5
7. Horizon Group International, Inc. 1 share of common stock, no par
value, of Precise Dental Lab.,
Inc., an Ohio corporation,
represented by stock certificate
number 1
<PAGE> 13
SCHEDULE I
TO
PLEDGE AGREEMENT
SUBSIDIARIES PLEDGING STOCK
VFD of Pennsylvania, Inc.
Horizon Group International, Inc.
<PAGE> 1
EXHIBIT 10(kk)
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement"), dated as of October 21,
1997, is entered into by and among VALLEY FORGE DENTAL ASSOCIATES, INC., a
Delaware corporation (the "Borrower"), and EACH OF THE CORPORATIONS LISTED AS A
SUBSIDIARY ON THE ATTACHED SCHEDULE I (the "Subsidiaries" being collectively
referred to herein together with the Borrower as the "Debtors" and individually
as a "Debtor"), and PNC BANK, NATIONAL ASSOCIATION, a national banking
association (the "Bank");
WITNESSETH THAT:
WHEREAS, each Debtor is (or will be with respect to after-acquired
property) the legal and beneficial owner and the holder of its respective
Collateral (as defined in Section 1 hereof); and
WHEREAS, pursuant to that certain Discretionary Line of Credit Letter
Agreement dated of even date herewith among the Borrower, the Subsidiaries, the
other Guarantors set forth therein (the foregoing being collectively referred to
as the "Loan Parties") and the Bank (as amended and restated and as it may
hereafter from time to time be further restated, amended, modified or
supplemented, the "Credit Agreement"), the Bank has agreed from time to time to
review Borrower's requests for loans which, if in the Bank's sole discretion any
such loans are made, are in all cases, payable on demand; and
WHEREAS, the Bank has agreed to enter into the Credit Agreement subject
to the condition, among others, that each of the Debtors secure its obligations
to the Bank under the Credit Agreement and the other Loan Documents in the
manner set forth herein.
NOW, THEREFORE, intending to be legally bound hereby, the parties
hereto covenant and agree as follows:
1. Terms which are defined in the Credit Agreement and not otherwise
defined herein are used herein as defined therein. The following words and terms
shall have the following meanings, respectively, unless the context hereof
otherwise clearly requires:
(a) "Code" means the Uniform Commercial Code of each state as
in effect on the date hereof and as the same may subsequently be amended from
time to time, the substantive provisions of which are applicable to any of the
property of the Debtors in which the Bank is granted a security interest
pursuant to this Agreement.
(b) "Collateral" means, in the case of each Debtor, all of its
right, title and interest in, to and under the following described property of
such Debtor (each capitalized term
<PAGE> 2
used in this Section 1(b) shall have in this Agreement the meaning given to it
by Article 9 of the Code as in effect in Pennsylvania or other applicable
jurisdiction):
(i) all now existing and hereafter acquired and
arising Accounts, General Intangibles, Chattel Paper, Investment Property,
Documents, Instruments, Letters of Credit, Advices of Credit, Equipment, and
Inventory, all Products of and Accessions to the foregoing and all Proceeds of
all of the foregoing (including without limitation all insurance policies and
proceeds thereof);
(ii) to the extent, if any, not included in
clause (i) above, each and every other item of personal property and fixtures,
both those that are now owned and those that hereafter arise or are acquired,
regardless of whether Article 9 of the Code is applicable to any extent to the
creation, perfection or enforcement of Liens thereon or therein.
Without limiting the foregoing and to the extent permitted by applicable Law,
Collateral includes all business records and information, including computer
tapes and other storage media containing the same and computer programs and
software (including without limitation, source code, object code and related
manuals and documentation and all licenses to use such software) for accessing
and manipulating such information.
Notwithstanding the foregoing, to the extent that the terms of any lease to
which any Debtor is a party prohibit assignment thereof without consent of the
lessor, then such lease shall not be part of the Collateral unless and until
such consent is obtained. Each Debtor covenants and agrees that, after any
demand for payment of the Debt by the Bank has been made and payment in full has
not been received, at the request of the Bank, it shall use its best efforts to
obtain the consent of any such lessor to the grant of security interests in such
lease.
(c) "Debt" means, collectively, all now existing and hereafter
arising Indebtedness of the Borrower, the other Loan Parties to the Bank under
the Credit Agreement, the Guaranty Agreements and the other Loan Documents,
including without limitation, all Indebtedness, whether of principal, interest,
fees, expenses or otherwise, of the Borrower and the other Loan Parties to the
Bank now existing or hereafter incurred under the Credit Agreement, the Guaranty
Agreements or the Note, or any of the other Loan Documents referred to therein,
as any of the same or any one or more of them may from time to time be amended,
restated, modified or supplemented, together with any and all extensions,
renewals, refinancings or refundings thereof in whole or in part.
(d) "Permitted Liens" means
(i) Liens for taxes, assessments, or similar
charges, incurred in the ordinary course of business and which are not yet due
and payable;
(ii) Pledges or deposits made in the ordinary
course of business to secure payment of workers' compensation, or to participate
in any fund in connection with workers' compensation, unemployment insurance,
old-age pensions or other social security programs;
-2-
<PAGE> 3
(iii) Liens of mechanics, materialmen,
warehousemen, carriers, or other like Liens, securing obligations incurred in
the ordinary course of business that are not yet due and payable and Liens of
landlords securing obligations to pay lease payments that are not yet due and
payable or in default;
(iv) Good-faith pledges or deposits made in the
ordinary course of business to secure performance of bids, tenders, contracts
(other than for the repayment of borrowed money) or leases, not in excess of the
aggregate amount due thereunder, or to secure statutory obligations, or surety,
appeal, indemnity, performance or other similar bonds required in the ordinary
course of business (except that appeal bonds shall be permitted even if not
considered in the ordinary course of business);
(v) Encumbrances consisting of zoning
restrictions, easements or other restrictions on the use of real property, none
of which materially impairs the use of such property or the value thereof, and
none of which is violated in any material respect by existing or proposed
structures or land use;
(vi) Liens, security interests and mortgages in
favor of the Bank;
(vii) Purchase Money Security Interests;
(viii) Liens securing obligations under capital or
operating leases provided that such Liens are limited to the property under
lease;
(ix) Liens existing on the date hereof and set
forth on Schedule 2 hereto provided that the principal amount of the
Indebtedness secured thereby is not hereafter increased, the material terms of
such Indebtedness are not changed and no additional assets become subject to any
such Lien;
(x) In addition to Liens permitted under clauses
(vi) - (ix) above, Liens securing Indebtedness up to $300,000 outstanding in the
aggregate at any time in connection with Permitted Acquisitions provided that
the Liens shall only extend to assets acquired pursuant to the Permitted
Acquisitions and such Liens existed prior to the Permitted Acquisition and were
not granted to secure any financing of the Permitted Acquisition;
(xi) Liens permitted in writing by the Bank; and
(xii) The following, (A) if the validity or amount
thereof is being contested in good faith by appropriate and lawful proceedings
diligently conducted so long as levy and execution thereon have been stayed and
continue to be stayed or (B) if a final judgment is entered and such judgment is
discharged within thirty (30) days of entry, and in either case they do not
affect the Collateral or, in the aggregate, materially impair the ability of any
Loan Party to perform its obligations hereunder or under the other Loan
Documents:
(1) Claims or Liens for taxes, assessments or charges
due and payable and subject to interest or penalty, provided
that the applicable Loan Party
-3-
<PAGE> 4
maintains such reserves or other appropriate provisions as
shall be required by GAAP and pays all such taxes, assessments
or charges forthwith upon the commencement of proceedings to
foreclose any such Lien;
(2) Claims, Liens or encumbrances upon, and defects
of title to, real or personal property other than the
Collateral, including any attachment of personal or real
property or other legal process prior to adjudication of a
dispute on the merits; or
(3) Claims or Liens of mechanics, materialmen,
warehousemen, carriers, or other statutory nonconsensual
Liens.
(4) Liens resulting from final judgments or orders.
(e) "Receivables" means all of the Collateral except
Equipment and Inventory.
2. As security for the due and punctual payment and performance of the
Debt in full, each Debtor hereby agrees that the Bank shall have, and each
Debtor hereby grants to and creates in favor of the Bank, a first priority
security interest under the Code and lien in and to each Debtor's respective
Collateral subject only to Permitted Liens. Without limiting the generality of
Section 4 below, each Debtor further agrees that with respect to each item of
Collateral as to which (i) the creation of a valid and enforceable security
interest is not governed exclusively by the Code or (ii) the perfection of a
valid and enforceable security interest therein under the Code cannot be
accomplished either by the Bank taking possession thereof or by the filing in
appropriate locations of appropriate Code financing statements executed by the
Debtor, such Debtor will at its expense execute and deliver to the Bank such
documents, agreements, notices, assignments and instruments and take such
further actions as may be requested by the Bank from time to time for the
purpose of creating a valid and perfected first priority Lien on such item,
subject only to Permitted Liens, enforceable against the Debtor and all third
parties to secure the Debt.
3. Each Debtor jointly and severally represents and warrants to the
Bank that (a) such Debtor has good and marketable title to its Collateral, and
(b) except for the security interest granted to and created in favor of the Bank
hereunder and Permitted Liens, all the Collateral is free and clear of any Lien.
4. Each Debtor will faithfully preserve and protect the Bank's security
interest in such Debtor's Collateral as a prior perfected security interest
under the Code, superior and prior to the rights of all third Persons, except
for Permitted Liens, and will, upon request therefor by the Bank, do all such
other acts and things and will, upon request therefor by the Bank, execute,
deliver, file and record all such other documents and instruments, including,
without limitation, financing statements, security agreements, assignments and
documents and powers of attorney with respect to the Collateral, and pay all
filing fees and taxes related thereto, as the Bank in its reasonable discretion
deems necessary or advisable from time to time in order to attach, continue,
preserve, perfect and protect said security interest; and each Debtor hereby
irrevocably appoints
-4-
<PAGE> 5
the Bank, its officers, employees and agents, or any of them, as
attorneys-in-fact for such Debtor to execute, deliver, file and record such
items for such Debtor and in such Debtor's name, place and stead in the event
any Debtor fails to execute, deliver, file or record such items after the Bank's
request. This power of attorney, being coupled with an interest, shall be
irrevocable for the life of this Agreement.
5. Each Debtor jointly and severally covenants and agrees that:
(a) it will defend the Bank's right, title and security
interest in and to the Collateral and the proceeds thereof against the claims
and demands of all Persons whomsoever other than any person claiming a right in
the Collateral pursuant to an agreement between such Person and the Bank or
pursuant to a Permitted Lien;
(b) it will not suffer or permit to exist on any Collateral
any Lien except for Permitted Liens;
(c) it will not take or omit to take any action, the taking or
the omission of which might result in a material alteration or impairment of the
Collateral or of the Bank's rights under this Agreement;
(d) except as permitted by the Credit Agreement, it will not
sell, assign or otherwise dispose of any portion of the Collateral;
(e) it will (i) obtain and maintain sole and exclusive
possession or control of the Collateral, (ii) keep the Collateral and all
records pertaining thereto at the locations specified on the Security Interest
Data Summary attached as Schedule A hereto, unless it shall have given the Bank
prior notice and taken any action reasonably requested by the Bank to maintain
its security interest therein, (iii) deliver to the Bank upon the Bank's request
therefor all Collateral consisting of Chattel Paper immediately upon such
Debtor's receipt of a request therefor, and (iv) keep materially accurate and
complete books and records concerning the Collateral and such other books and
records as the Bank may from time to time reasonably require;
(f) it will promptly furnish to the Bank such information and
documents relating to the Collateral as the Bank may reasonably request,
including, without limitation, all invoices, Documents, contracts, Chattel
Paper, Instruments and other writings pertaining to such Debtor's contracts or
the performance thereof; all of the foregoing to be certified upon request of
the Bank by an authorized officer of such Debtor;
6. Each Debtor assumes full responsibility for taking any and all
necessary steps to preserve the Bank's rights with respect to the Collateral
against all Persons other than any third party claiming a right in the
Collateral pursuant to an agreement by and between such party and the Bank and
anyone asserting a right in respect of a Permitted Lien. The Bank shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Bank takes such action for that purpose as
the Debtors shall request in writing or in the absence of such request, if the
Bank deals with it in the same manner that it deals with similar property for
its own account, provided that such requested action will not, in the
-5-
<PAGE> 6
judgment of the Bank, impair the security interest in the Collateral created
hereby or the Bank's rights in, or the value of, the Collateral, and provided
further that such written request is received by the Bank in sufficient time to
permit the Bank to take the requested action.
7. (a) At any time and from time to time whether or not any demand for
payment of the Debt by the Bank has been made and without prior notice to or
consent of the Debtors, the Bank may at its option take such reasonable actions
as the Bank deems appropriate (i) to attach, perfect, continue, preserve and
protect the Bank's prior security interest in the Collateral, and/or (ii)
inspect, audit and verify the Collateral, including reviewing all of the
Debtors' books and records and copying and making excerpts therefrom, provided
that prior to any demand for payment of the Debt by the Bank, the same is done
with advance notice during normal business hours to the extent access to any of
the Debtors' premises is required, and to add all liabilities, obligations,
costs and expenses reasonably incurred in connection with the foregoing clauses
(i) and (ii) to the Debt, to be paid by the Debtors to the Bank upon demand;
(a) At any time and from time to time after any demand for
payment of the Debt by the Bank has been made and without prior notice to or
consent of the Debtors, the Bank may at its option take such reasonable action
as the Bank deems appropriate (i) to maintain, repair, protect and insure the
Collateral, and/or (ii) to perform, keep, observe and render true and correct
any and all covenants, agreements, representations and warranties of the Debtors
hereunder, and to add all liabilities, obligations, costs and expenses
reasonably incurred in connection with the foregoing clauses (i) and (ii) to the
Debt, to be paid by the Debtors to the Bank upon demand.
8. After any demand for payment of the Debt by the Bank has been made
and payment in full has not been received:
(a) The Bank shall have and may exercise all the rights and
remedies available to a secured party under the Code in effect at the time, and
such other rights and remedies as may be provided by Law and as set forth below,
including, to the extent not inconsistent with the provisions of the Code or any
other applicable Law, without limitation to take over and collect all the
Debtors' Receivables and all other Collateral to the extent not prohibited by
Law, and to this end to the extent not prohibited by Law each Debtor hereby
appoints the Bank, its officers, employees and agents, as its irrevocable, true
and lawful attorneys-in-fact with all necessary power and authority to (i) take
possession immediately, with or without notice, demand, or legal process, of any
of or all of the Collateral wherever found, and for such purposes, enter upon
any premises upon which the Collateral may be found and remove the Collateral
therefrom, (ii) require the Debtors to assemble the Collateral and deliver it to
the Bank or to any place designated by the Bank at the Debtors' expense, (iii)
receive, open and dispose of all mail addressed to any Debtor and notify postal
authorities to change the address for delivery thereof to such address as the
Bank may designate, (iv) demand payment of the Receivables, (v) enforce payment
of the Receivables by legal proceedings or otherwise, (vi) exercise all of the
Debtors' rights and remedies with respect to the collection of the Receivables,
(vii) settle, adjust, compromise, extend or renew the Receivables, (viii)
settle, adjust or compromise any legal proceedings brought to collect the
Receivables, (ix) to the extent permitted by applicable Law,
-6-
<PAGE> 7
sell or assign the Receivables upon such terms, for such amounts and at such
time or times as the Bank deems advisable, (x) discharge and release the
Receivables, (xi) take control, in any manner, of any item of payment or
proceeds from any account debtor, (xii) prepare, file and sign the Debtor's name
on any proof of claim in bankruptcy or similar document against any account
debtor, (xiii) prepare, file and sign the Debtor's name on any notice of Lien,
assignment or satisfaction of Lien or similar document in connection with the
Receivables, (xiv) do all acts and things necessary, in the Bank's sole
discretion, exercised in good faith, to fulfill the Debtors' obligations under
the Loan Documents, (xv) endorse the name of the Debtor upon any check, Chattel
Paper, Document, Instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Receivables or Inventory; (xvi) use the
Debtor's stationery and sign the Debtor's name to verifications of the
Receivables and notices thereof to account debtors; (xvii) access and use the
information recorded on or contained in any data processing equipment or
computer hardware or software relating to the Receivables, Inventory, or other
Collateral or proceeds thereof to which the Debtor has access, (xviii) demand,
sue for, collect, compromise and give acquittances for any and all Collateral,
(xix) prosecute, defend or compromise any action, claim or proceeding with
respect to any of the Collateral, and (xx) take such other action as the Bank
may deem appropriate with respect to the Collateral, including extending or
modifying the terms of payment of the Debtor's debtors. This power of attorney,
being coupled with an interest, shall be irrevocable for the life of this
Agreement. To the extent permitted by Law, each Debtor hereby waives all claims
of damages due to or arising from or connected with any of the rights or
remedies exercised by the Bank pursuant to this Agreement, except claims for
physical damage to the Collateral arising from gross negligence or willful
misconduct by the Bank.
(b) The Bank shall have the right to lease, sell or otherwise
dispose of all or any of the Collateral at public or private sale or sales for
cash, credit or any combination thereof, with such notice as may be required by
Law (it being agreed by each Debtor that, in the absence of any contrary
requirement of Law, ten (10) days' prior notice of a public or private sale of
Collateral shall be deemed reasonable notice), in lots or in bulk, for cash or
on credit, all as the Bank, in its sole discretion exercised in good faith, may
deem advisable and apply the proceeds so received in accordance with Section 9
hereof. Such sales may be adjourned from time to time with or without notice.
The Bank shall have the right to conduct such sales on any Debtor's premises or
elsewhere and shall have the right to use any Debtor's premises without charge
for such sales for such time or times as the Bank may see fit. The Bank may
purchase all or any part of the Collateral at public or, if permitted by Law,
private sale and, in lieu of actual payment of such purchase price, may set off
the amount of such price against the Debt.
9. The security interest in each Debtor's Collateral granted to and
created in favor of the Bank by this Agreement shall be for the benefit of the
Bank. Each of the rights, privileges, and remedies provided to the Bank
hereunder or otherwise by Law with respect to each Debtor's Collateral shall be
exercised by the Bank only for its own benefit, and any of the Debtor's
Collateral or proceeds thereof held or realized upon at any time by the Bank
shall be applied as follows:
-7-
<PAGE> 8
(a) first, to reimburse the Bank for reasonable out-of-pocket
costs, expenses and disbursements, including reasonable attorneys' fees and
legal expenses, incurred by the Bank in connection with realizing on the
Collateral or collection of any of the Debt, including advances made by the Bank
for the reasonable maintenance, preservation, protection or enforcement of, or
realization upon, the Collateral, including advances for taxes, insurance,
repairs and the like and reasonable expenses incurred to sell or otherwise
realize on, or prepare for sale or other realization on, any of the Collateral;
(b) second, to the repayment of all Debt then due and unpaid,
whether of principal, interest, fees, expenses or otherwise, in such manner as
the Bank may determine in its discretion; and
(c) the balance, if any, to the Debtors or as otherwise
required by Law.
Each Debtor shall remain liable to the Bank for and shall pay to the Bank any
deficiency which may remain after such sale or collection.
10. If the Bank repossesses or seeks to repossess any of the Collateral
pursuant to the terms hereof, then to the extent it is commercially reasonable
for the Bank to store any Collateral on any Debtor's premises, such Debtor, to
the extent it has the right to do so, hereby agrees to lease to the Bank on a
month-to-month tenancy for a period not to exceed one hundred twenty (120) days
at the Bank's election, at a rental of One Dollar ($1.00) per month, the
premises on which the Collateral is located, provided it is located on premises
owned or leased by such Debtor.
11. Upon indefeasible payment in full of the Debt and termination of
the Credit Agreement, this Agreement shall terminate and be of no further force
and effect, and the Bank shall thereupon promptly return to each Debtor such of
its Collateral and such other documents delivered by such Debtor hereunder as
may then be in the Bank's possession and execute such documents, instruments,
agreements or any combination thereof as the Debtors shall reasonably request to
evidence such termination. Until such time, however, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Upon any sale or other transfer of any
Collateral which sale is not prohibited by and which disposition is made in
accordance with the Credit Agreement, the Bank shall (i) release its security
interest on the Collateral being sold or transferred and (ii) execute such
documents, instruments, agreements or any combination thereof as the Debtor
shall request to evidence such termination.
12. No failure or delay on the part of the Bank in exercising any
right, remedy, power or privilege hereunder shall operate as a waiver thereof or
of any other right, remedy, power or privilege of the Bank hereunder; nor shall
any single or partial exercise of any such right, remedy, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. No waiver of a single default shall be deemed
a waiver of a subsequent default. All waivers under this Agreement must be in
writing. The rights and remedies of the Bank under this Agreement are cumulative
and in addition to any rights or
-8-
<PAGE> 9
remedies which it may otherwise have, and the Bank may enforce any one or more
remedies hereunder successively or concurrently at its option.
13. All notices, statements, requests and demands given to or made upon
either party hereto in accordance with the provisions of this Agreement shall be
given or made as provided in the Credit Agreement.
14. Each Debtor agrees that as of the date hereof, all information
contained on the Security Interest Data Schedule attached hereto as Schedule A
is accurate and complete and contains no omission or misrepresentation. The
Debtors shall promptly notify the Bank of any changes in the information set
forth thereon.
15. Each Debtor acknowledges that the provisions hereof giving the Bank
rights of access to books, records and information concerning the Collateral and
such Debtor's operations and providing the Bank access to such Debtor's premises
are intended to afford the Bank with immediate access to current information
concerning such Debtor and its activities, including without limitation, the
value, nature and location of the Collateral so that the Bank can, among other
things, make an appropriate determination after any demand for payment of the
Debt by the Bank has been made, whether and when to exercise its other remedies
hereunder and at Law, including without limitation, instituting a replevin
action should such Debtor refuse to turn over any Collateral to the Bank. Each
Debtor further acknowledges that should such Debtor at any time fail to promptly
provide such information and access to the Bank, such Debtor acknowledges that
the Bank would have no adequate remedy at Law to promptly obtain the same. Each
Debtor agrees that the provisions hereof may be specifically enforced by the
Bank and waives any claim or defense in any such action or proceeding that the
Bank has an adequate remedy at Law.
16. This Agreement shall be binding upon and inure to the benefit of
the Bank and its successors and assigns, and each Debtor and their successors
and assigns, except that the Debtors may not assign or transfer the Debtor's
obligations hereunder or any interest herein.
17. This Agreement shall be deemed to be a contract under the laws of
the Commonwealth of Pennsylvania and for all purposes shall be governed by and
construed in accordance with the laws of said Commonwealth excluding its rules
relating to conflicts of Law.
18. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
19. Waiver of Rights. Each of the Debtors waives any rights to require
the Bank to proceed against the Borrower or any other person, to proceed or
exhaust any collateral, or to pursue any other remedy prior to exercising the
Bank's rights under this Security Agreement. Each of the Debtors further waives
any defense which might otherwise arise by reason of any disability, discharge
in bankruptcy, or other defense of the Borrower or of any other person liable in
respect of the Debt. Until the Debt is indefeasibly paid in full, each of the
Debtors shall have
-9-
<PAGE> 10
no right of subrogation or contribution against any party liable on the Debt.
Each of the Debtors waives any right to enforce any remedy that the Bank has or
may hereafter have against the Borrower or any other person and waives any
benefit of any collateral now or hereafter held by the Bank in respect of the
Debt. Each of the Debtors authorizes the Bank, without notice to any of the
other Debtors, and without affecting the security interest granted hereby or the
liabilities of any of the Debtors hereunder, to renew, extend, accelerate,
compromise, settle or otherwise change the time for payment of or otherwise
change the terms of the Debt or any part thereof, including to increase or
decrease the rate of interest thereon; to exchange, release or subordinate any
collateral which may be held by the Bank as security for the Debt; to release or
substitute any person for the Borrower or any endorser or guarantor of the Debt
or any part thereof or any other parties thereto; and to apply any payments on
account of the Debt any proceeds of any collateral held by the Bank for the
Debt, against any item or items of the Debt or instrument or instruments
evidencing the Debt, as the Bank shall, in its sole discretion elect whether or
not the same may then be due.
[SIGNATURE PAGE FOLLOWS]
-10-
<PAGE> 11
[SIGNATURE PAGE 1 OF 1 TO SECURITY AGREEMENT]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed and delivered this Agreement as of the day and
year first above set forth.
VALLEY FORGE DENTAL ASSOCIATES, LTD. and the Subsidiaries
listed on Schedule 1 hereto (other than
Riverhearst, Inc.)
By: /s/ W. Gary Liddick
__________________________________________________
W. Gary Liddick, Vice President and Chief
Financial Officer
RIVERHEARST, INC.
By: /s/ Robert A. Ouimette
__________________________________________________
Robert A. Ouimette, President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Justin J. Falgione
__________________________________________________
Justin J. Falgione, Relationship Manager
<PAGE> 1
EXHIBIT 10(ll)
May 28, 1996
Mr. Joseph J. Frank
121 Millrace Drive
Lancaster, Pennsylvania 17603
Dear Joe:
It has been a pleasure getting to know you during the process
of establishing your candidacy for the position of President and Chief Operating
Officer of Valley Forge Dental Associates, Inc. As you know, we believe that you
can make a significant contribution to the leadership and success of the
company. Accordingly, are pleased to offer you this position on the following
terms:
- - Title President and Chief Operating Officer
- - Reporting Reporting to Stephen F. Nagy, Chairman
Relationship and CEO and on a day-to-day basis, to
Douglas P. Gill, Board Member and
Investor Representative
- - Board of Serve as a member of the Valley Forge
Directors Dental Associates Board of Directors
- - Base Salary $150,000 per year through the IPO Subject
to Board review thereafter
<PAGE> 2
Mr. Joseph J. Frank -2-
- - Annual Bonus 30% of base salary
Potential - 2/3 based on achievement of financial
goals
- 1/3 based on achievement of management
and personal goals
(Note: goals and objectives will be
established, mutually agreed upon and
reviewed within 60 days of your
commencing employment and on annual basis
thereafter)
- - Founders Stock 150,000 shares at ten cents per share
with five year vesting and other terms
per customary stock purchase agreement
- - Severance - None for voluntary termination or in
Payments the case of termination for cause
(i.e., stealing, drugs, insubordination,
etc.)
- In the case of termination without
cause
three months of base salary
after 90 days
four months of base salary
after one year
five months of base salary
after two
years six months of base salary
after three years
- - Benefits Standard Valley Forge Dental Associates
benefit package in place for senior
executives
- - Vacation Three weeks in year one through three;
four weeks in subsequent years
- - Car Allowance $600 per month
<PAGE> 3
Mr. Joseph J. Frank -3-
- - Non-Compete In order to protect the value created in
Valley Forge Dental Associates, you will
not serve as a consultant, employee,
officer, director or investor of any
group dental practice or any entity
engaged in the consolidation of dental
providers, regionally, nationally or
otherwise, for a period of two years
after your termination of employment with
the company
This offer is contingent upon the completion of satisfactory
reference checks and upon a satisfactory physical examination.
We are excited about the prospect of working with you Joe, and
look forward to you adapting your experiences to Valley Forge Dental's exciting
growth opportunities.
Sincerely,
/s/ Douglas P. Gill
-------------------------------
Douglas P. Gill
Acting President
Valley Forge Dental Assoc., Inc.
ACCEPTED AND AGREED TO:
/s/ Joseph J. Frank
- ---------------------------------
Joseph J. Frank
cc: Stephen F. Nagy
Chairman & CEO, VFDA
<PAGE> 1
EXHIBIT 10(mm)
March 4, 1997
W. Gary Liddick
277 Watch Hill Road
Exton, PA 19341
Dear Gary,
This will confirm our discussions regarding the following adjustments to your
employment and compensation package, and your continued role as Vice President
Finance of Valley Forge Dental Associates, Inc.
- Change of base salary to $110,000 effective
February 1, 1997
- Participation in the Valley Forge Dental Associates' Incentive
Compensation Program with your annual bonus potential
increased from 20% to 25% of your base salary.
- You will receive 15,000 Valley Forge Dental Associate stock
options at a price not to exceed $5.00 per share. These
options will have vesting and other terms in accordance with
the terms of the Valley Forge Dental Stock Option Plan which
will be established.
- Your severance payment arrangement will be as
follows:
- None for voluntary termination or in the case
of termination for cause, i.e., stealing,
drugs, insubordination, etc.
- In the case of termination without cause
- Four months of base salary
- Five months of base salary at October 1,
1997
- Six months of base salary at October 1,
1998
- Your benefits, car allowance and vacation will
continue as they are currently and/or in accordance
with the standard policies in place for Valley Forge
Dental Associates senior executives.
- Other terms of your employment will continue as
outlined in the November 16, 1995 and July 23, 1993
employment letters.
<PAGE> 2
2
I have enjoyed working with you and look forward to continuing the success of
Valley Forge Dental Associates.
Sincerely,
/s/ Joseph J. Frank
- -----------------------
Joseph J. Frank
President and
Chief Operating Officer
<PAGE> 3
3
November 16, 1995
Mr. W. Gary Liddick
314 South Balderston Drive
Exton, PA 19341
Dear Gary:
This confirms our conversation regarding changes in your role as a
financial executive with the Foster group of companies. For the foreseeable
future you will function in dual capacities a) as Vice President of Finance and
Chief Financial Officer of Hearing Health Services, Inc., reporting to me and
spending approximately 25% of your time until we exit that and b) as Vice
President and Controller for our new venture in the dental industry, reporting
to Alan Vinick. You will also be next-in-line candidate for the CFO position
with our next build. We have made a considerable investment in your development
as a financial executive with the Foster group, and welcome your continued
involvement. The remuneration changes listed below reflect this:
- Change of base salary to $95,000, effective with
the next payroll.
- You will continue to be eligible to participate in a yearly
bonus program of up to 20% of your total base salary. This
will be measured from objectives developed with Alan Vinick on
a quarterly basis as of October 1, 1995 when you got heavily
involved with the dental investment. This will be paid on
October 31, 1996 or paid pro rata if you shift to the new
investment earlier, or paid in a like manner to other Valley
Forge Dental Associates management bonus programs.
- You will retain your current Hearing Health Services, Inc.
benefits, so long as those are in place. We will endeavor to
provide comparable benefits (including company-paid family
medical coverage) with Valley Forge Dental Associates or the
next build when the HHSI benefits are no longer in place.
- 75% of your salary and benefits and 100% of your bonus will be
allocated to the dental venture. Travel and other specific
expenses will be charged as appropriate to each company.
<PAGE> 4
4
- You will continue to vest in your current Hearing
Health Services, Inc. stock so long as you carry-
out the above related duties.
- You will be issued immediately 2,500 shares of
dental venture founders stock with the following
special vesting features:
a. Fully vested one year after you are serving
as CFO of a new Foster investment.
b. Fully vested if terminated "not-for-cause".
Cause is defined to include breaches of company
confidentiality issues, breach of current non-compete
provisions as outlined in the July 23, 1993 letter,
willful or gross neglect or misconduct resulting in
harm to any member of the Companies, or being charged
with a felony or a crime involving moral turpitude.
c. Not vested if you terminate voluntarily prior
to the timing under point a.
- You will be awarded a $5,000 cash "signup" bonus
with the next payroll.
- You will continue to be eligible for a $15,000 "investment
exist" bonus from Hearing Health Services, Inc. so long as you
have not terminated employment with a Foster investment, prior
to investment exit.
Other terms of your employment are reflected in your July 23,
1993 original employment letter.
I have enjoyed working with you and look forward to
accelerating success together.
Sincerely,
/s/ Stephen F. Nagy
--------------------------
Stephen F. Nagy
Accepted and Agreed To:
/s/ W. Gary Liddick
- -----------------------
W. Gary Liddick
cc: Doug Gill
Alan Vinick
<PAGE> 5
5
July 23, 1993
Mr. W. Gary Liddick
314 South Balderston Drive
Exton, PA 19341
Dear Gary:
I am pleased to revise our offer to you based on our discussions today for the
position of Vice President of Finance and Chief Financial Officer of Hearing
Health Services, Inc.
Your annual base salary will be $92,000, paid bi-weekly. You will be eligible to
participate in a yearly bonus program of up to 20% of your base salary.
Participation will begin for the 1994 fiscal year. The prevailing bonus plan
rules may be revised for the 1994 fiscal year, thus the specifics may not be
available until we complete the 1994 budget plan.
In addition, you will receive a monthly auto allowance of $500, which will be
included in the first paycheck of each month.
You will also receive 20,000 shares of Hearing Health Services, Inc. stock which
vests over five years.
If the company terminates without due cause your employment after one year of
work, you will be eligible for three months of severance pay. Severance is not
available if you are terminated for due cause.
You are eligible to receive all Hearing Health Services, Inc. standard medical
and dental insurance (see enclosed booklet). You will also receive vacation in
accordance with standard company policy.
Your responsibilities will include full financial management of the Company, as
well as the present and future development. We will further discuss details of
your responsibilities as appropriate.
You will report directly to me.
Your effective start date will be TBD, 1993.
Needless to say, I am very excited about working with you. Welcome to the
company! I wish you well in your new position.
<PAGE> 6
6
/s/ Lee Leslie /s/ W. Gary Liddick
- -------------------------- -------------------------
PRESIDENT ACCEPTED BY:
LEE LESLIE W. GARY LIDDICK
Date: ____________________ Date: ___________________
NOTE: Attached is a non-compete agreement. Please
complete and return with a copy of this
signed and dated acceptance.
<PAGE> 1
EXHIBIT 10(nn)
October 7, 1996
Jeanne Marie Welsko
200 West Whitetail Ridge
Glenmoore, PA 19343
Dear Jeanne:
As you could tell from our discussion, we are all very enthusiastic about you
joining us in this exciting new venture. Accordingly, and subject to obtain
satisfactory references, I am pleased to offer you our position on the following
terms:
- - Title: Vice President Human Resources
- - Reporting Relationship: Reporting to President
- - Base Salary: $80,000
- - Annual Bonus Potential: 20% of base salary, contingent on
the successful attainment or
completion of mutually agreed upon
objectives
- - Founders Stock: 7,500 shares at ten ($.10) per
share with five year vesting and
other terms per customary stock
purchase agreement
- - Benefits: Standard Valley Forge Dental
Associates benefit package in
placed for senior executives
- - Vacation: Three weeks in year one through
three, four weeks in subsequent
years
- - Non-Compete: In order to protect the value
created in Valley Forge Dental, you
will not serve as a consultant,
employee, officer, director or
investor of any group dental
practice or any entity engaged in
the consolidation of dental
providers, regionally, nationally,
or otherwise, for a period of two
years after your termination of
employment with the Company.
- - Start Date: As soon as is practicable
<PAGE> 2
2
We are excited about the prospect of working with you, Jeanne, and look forward
to the competence, energy and leadership you can bring to Valley Forge Dental's
pursuit of what we believe to be an overwhelming set of exciting growth
opportunities.
Sincerely,
Joseph J. Frank
President
Accepted and Agreed To:
/s/ Jeanne Marie Welsko
- ------------------------------
Jeanne Marie Welsko
cc: Stephen F. Nagy
Chairman & CEO
Douglas P. Gill
Director
<PAGE> 1
EXHIBIT 10(oo)
July 31, 1997
Keith Libou, D.M.D.
10745 NW 55th Place
Coral Springs, FL 33076
REVISED OFFER LETTER
Dear Keith:
We are all very enthusiastic about you joining Valley Forge Dental Associates.
Accordingly, we are pleased to offer you our position on the following terms:
Title: Vice President of Operations
Reporting to: President
Base Salary: $120,000 per annum
Annual Bonus 25% of base salary, contingent on the
Potential: successful attainment or completion of
mutually agreed upon objectives.
Stock Options: 16,000 shares available at the
anticipated rate of $5.00/share with
five year vesting (20% per year) and
other terms per customary stock
purchase agreements.
Benefits: Standard Valley Forge Dental Associates
benefits plan in place for Senior
executives.
<PAGE> 2
Keith Libou, D.M.D. -2-
Relocation Reimbursement to include:
Assistance: - One house hunting trip for the family
- Costs of the physical move to Pennsylvania
(moving company, storage, etc.)
- Broker's fee and associated closing costs on
the sale of home in Florida
- Closing costs on new home, excluding points
on new mortgage
- Reimbursement for market loss up to 10% of
original purchase price of Florida home.
- Cost of temporary/duplicate housing as
needed. Reimbursements are subject to all
applicable tax requirements and pay back
agreement as attached. Tax reimbursement
will be provided for all taxable moving
expenses paid on your behalf. Consideration
will be given for presently unanticipated,
moderate expenses above and beyond those
discussed above.
Vacation: Three weeks in one year one through three, four weeks
in subsequent years.
Non-Compete: In order to protect the value created in Valley Forge
Dental, you will not serve as a consultant, employee,
officer, director or investor of any entity engaged
in the consolidation of dental providers regionally
or nationally for a period of one year after your
termination of employment with the company. This
non-compete applies to voluntary separation and
involuntary separation for cause.
Start Date: As soon as practicable.
<PAGE> 3
Keith Libou, D.M.D. -3-
We are very excited about the prospect of working with you, Keith, and look
forward to the competence, energy and leadership you can bring to our venture.
Sincerely, ACCEPTED AND AGREED TO:
/s/ Keith L. Libou, D.M.D.
Jeanne Marie Welsko --------------------------
Vice President, Keith L. Libou, D.M.D.
Human Resources
cc: Steve Nagy
Doug Gill
Jeanne M. Welsko
<PAGE> 1
EXHIBIT 10(pp)
EMPLOYMENT AGREEMENT
AGREEMENT made the 19th day of September, 1995 by and between
Valley Forge Dental Associates, Inc., a Delaware corporation (the "Company"),
and Robert K. Mehlman, D.D.S. (the "Employee").
W I T N E S E T H :
WHEREAS, the Company wishes to assure itself of the services
of the Employee, and the Employee wishes to serve in the employ of the Company,
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Employment, Term.
1.1 The Company agrees to employ the
Employee, and the Employee agrees to serve in the employ of the Company, for the
term set forth in Section 1.2, in the position and with the responsibilities,
duties and authority set forth in Section 2 and on the other terms and
conditions set forth in this Agreement.
1.2 The term of the Employee's employment
under this Agreement shall be the period commencing on the date hereof and
continuing through September 30, 2000, unless sooner terminated in accordance
with this Agreement.
2. Position, Duties. The Employee shall serve the
Company as Vice President, Corporate Development, of the Company and shall have
such duties and responsibilities consistent with such an executive position
which the President of the Company, or his designees or successors, shall assign
to the Employee. The Employee shall perform his duties and responsibilities
hereunder, faithfully and diligently. The Employee shall report to the President
of the Company, to the designees or successors of such person, and to the Board
of Directors of the Company. The Employee shall devote his full business time
and attention to the performance of his duties and responsibilities hereunder.
The Employee hereby represents that he is not bound by any confidentiality
agreements or restrictive covenants which restrict or may restrict his ability
to perform his duties hereunder, and agrees that he will not enter into any such
<PAGE> 2
2
agreements or covenants during the term of his employment hereunder, except such
restrictive covenants or confidentiality agreements which are required by the
Company.
3. Cash Compensation.
3.1 Salary. During the term of the Employee's
employment by the Company, in consideration of the performance by the Employee
of the services set forth in Section 2 and his observance of the other covenants
set forth herein, the Company shall pay the Employee, and the Employee shall
accept, a salary at a rate of $150,000 per annum, payable in accordance with the
standard payroll practices of the Company. In addition to the salary payable
hereunder, the Employee may be entitled to receive merit increases in salary
during the term hereof in amounts and at such times as shall be determined by
the Board of Directors of the Company in its sole discretion. In no event shall
the failure to grant any such increase (or the amount of any such increase) give
rise to a claim by the Employee under this Agreement.
3.2 Bonus. During the term of the Employee's
employment by the Company, the Employee shall be eligible to receive an annual
bonus of up to 30% of his annual salary based upon the achievement of certain
performance objectives established by the President of the Company or his
designee or successor. Bonuses, if earned, shall be paid in accordance with the
standard practices of the Company for the payment of bonuses.
4. Expense Reimbursement. During the term the Employee's
employment by the Company, consistent with the Company's policies and procedures
which may be in effect from time to time, the Company shall reimburse the
Employee for all properly documented reasonable and necessary out-of-pocket
expenses incurred by him in connection with the performance of his duties
hereunder, upon the presentation of proper accounts therefor in accordance with
the Company's policies.
5. Other Benefits. During the term of the Employee's
employment by the Company, the Employee shall be entitled to receive three weeks
of vacation time per annum. In addition, the Employee shall receive a $500 per
month auto allowance and such other benefits, including customary medical
(provided that premiums for family medical coverage substantially comparable to
what the Employee currently has, will be paid for by the Company), life and
malpractice insurance and continuing education benefits, as are from
<PAGE> 3
3
time to time made available to other similarly situated employees of the Company
on the same terms as are available to such similarly situated employees, it
being understood that the Employee shall be required to make the same
contributions and payments in order to receive any of such benefits as may be
required of such similarly situated employees.
6. Termination of Employment.
6.1 Death. In the event of the death of the
Employee during the term of this Agreement, the Company shall pay to the estate
or other legal representative of the Employee the salary provided for in Section
3.1 (at the annual rate then in effect) accrued to the Employee's date of death
and not theretofore paid, and the estate or other legal representative of the
Employee shall have no further rights under this Agreement. Rights and benefits
of the Employee, his estate or other legal representative under the employee
benefit plans and programs of the Company, if any, will be determined in
accordance with the terms and provisions of such plans and programs.
6.2 Disability. If the Employee shall become
incapacitated by reason of sickness, accident or other physical or mental
disability and shall for a period of ninety (90) consecutive days be unable to
perform his normal duties hereunder, the employment of the Employee hereunder
may be terminated by the Company upon thirty (30) days' prior written notice to
the Employee. The Company shall pay to the Employee the salary provided for in
Section 3.1 (at the annual rate then in effect) accrued to the date of such
termination and not theretofore paid. Rights and benefits of the Employee, his
estate or other legal representative under the employee benefit plans and
programs of the Company, if any, will be determined in accordance with the terms
and provisions of such plans and programs. Neither the Employee nor the Company
shall have further rights or obligations under this Agreement, except as
provided in Sections 7, 8 and 9.
6.3 Due Cause. The employment of the Employee
hereunder may be terminated by the Company at any time during the term of this
Agreement for Due Cause (as hereinafter defined). In the event of such
termination, the Company shall pay to the Employee the salary provided for in
Section 3.1 (at the annual rate then in effect) and such other benefits and
reimbursement of expenses which the Employee has accrued to the date of such
termination and not theretofore paid to the Employee, and, after the
satisfaction of any claim of the Company against the
<PAGE> 4
4
Employee arising as a direct and proximate result of such Due Cause, neither the
Employee nor the Company shall have any further rights or obligations under this
Agreement, except as provided in Sections 7, 8 and 9. Rights and benefits of the
Employee, his estate or other legal representative under the employee benefit
plans and programs of the Company, if any, will be determined in accordance with
the terms and provisions of such plans and programs. For purposes hereof, "Due
Cause" shall mean (a) a material breach of any of the Employee's obligations
hereunder; (b) that the Employee, in carrying out his duties hereunder, has been
guilty of (i) willful or gross neglect or (ii) willful or gross misconduct,
resulting in either case, in material harm to any member of the Company Group
(as hereinafter defined); or (c) that the Employee has been convicted of the
commission of or entered a plea of nolo contendere with respect to (i) a felony
or (ii) any crime or offense involving moral turpitude (provided that the
Company may, in its sole discretion, suspend the Employee during the period from
the date of the charge or indictment until the date of conviction or other
conclusion of criminal proceedings and provided further that in the event that
the Employee is not convicted or does not enter a plea of nolo contendere he
will be entitled to full back pay. In the event of an occurrence under this
Section 6.3, the Employee shall be given written notice by the Company that it
intends to terminate the Employee's employment for Due Cause under this Section,
which written notice shall specify the act or acts upon the basis of which the
Company intends so to terminate the Employee's employment. If the basis for such
written notice is an act or acts described in clause (a) above and not involving
moral turpitude, the Employee shall be given fifteen (15) days to cease or
correct the performance (or nonperformance) giving rise to such written notice
and, upon failure of the Employee within such fifteen (15) days to cease or
correct such performance (or nonperformance), the Employee's employment by the
Company shall automatically be terminated hereunder for Due Cause; provided,
however, that the Employee shall be given up to thirty (30) days to cease or
correct such performance or nonperformance if at the end of such fifteen (15)
day period the Employee is attempting diligently to effect a cure and continues
to do so.
6.4 Other Termination by the Company. The
Company may terminate the Employee's employment at any time on or after
September 19, 1996 and prior to the expiration of the term of this Agreement for
whatever reason it deems appropriate; provided, however, that (x) in the event
that such termination occurs subsequent to September 19, 1996 and prior to
September 19, 1997 and is not pursuant to Section 6.1, 6.2 or 6.3, the Company
shall continue to pay to the
<PAGE> 5
5
Employee (or his estate or other legal representative in the case of the death
of the Employee subsequent to such termination), in the same periodic
installments as his annual salary was paid, the salary provided for in Section
3.1 (at the annual rate then in effect), until the expiration of a period of one
year following such termination or (y) in the event that such termination occurs
subsequent to September 19, 1997, and is not pursuant to Section 6.1, 6.2 or
6.3, the Company shall continue to pay to the Employee (or his estate or other
legal representative on the event of the death of the Employee subsequent to
such termination), in the same periodic installments as his annual salary was
paid, the salary provided for in Section 3.1 (at the annual rate then in
effect), until the first to occur of (a) the then scheduled expiration of the
term hereof or (b) the expiration of a period of six (6) months following such
termination. Rights and benefits of the Employee, his estate or other legal
representative under the employee benefit plans and programs of the Company, if
any, will be determined in accordance with the terms and provisions of such
plans and programs. Neither the Employee nor the Company shall have any further
rights or obligations under this Agreement, except as provided in Sections 7, 8
and 9.
7. Confidential Information.
7.1 (a) The Employee shall, during the
Employee's employment with the Company and at all times thereafter, treat all
confidential material (as hereinafter defined) of the Company or any member of
the Company Group confidentially. The Employee shall not, without the prior
written consent of the President of the Company, disclose such confidential
material, directly or indirectly, to any party, who at the time of such
disclosure is not an employee or agent of any member of the Company Group, or
remove from the Company's premises any notes or records relating thereto, copies
or facsimiles thereof (whether made by electronic, electrical, magnetic,
optical, laser, acoustic or other means), or any other property of any member of
the Company Group. The Employee agrees that all confidential material, together
with all notes and records of the Employee relating thereto, and all copies or
facsimiles thereof in the possession of the Employee (whether made by the
foregoing or other means) are the exclusive property of the Company. The
Employee shall not in any manner use any confidential material of the Company
Group, or any other property of any member of the Company Group, in any manner
not specifically directed by the Company or in any way which is detrimental to
any member of the Company Group, as
<PAGE> 6
6
reasonably determined by the President of the Company in his sole discretion.
(b) For the purposes hereof, the term
"confidential material" shall mean all information in any way concerning the
activities, business or affairs of any member of the Company Group or any of the
customers and clients of any member of the Company Group, including, without
limitation, information concerning trade secrets, together with all sales and
financial information concerning any member of the Company Group and any and all
information concerning projects in research and development or marketing plans
for any products or projects of the Company Group, and all information
concerning the practices, customers and clients of any member of the Company
Group, and all information concerning any of the management information systems
of any member of the Company Group (including any modifications, variations or
repackagings thereof), and all information in any way concerning the activities,
business or affairs of any of such customers or clients, as such, which is
furnished to the Employee by any member of the Company Group or any of its
agents, customers or clients, as such, or otherwise acquired by the Employee in
the course of the Employee's employment with the Company; provided, however,
that the term "confidential material" shall not include information which (i)
becomes generally available to the public other than as a result of a disclosure
by the Employee, (ii) was available to the Employee on a non-confidential basis
prior to his employment with any member of the Company Group or (iii) becomes
available to the Employee on a non-confidential basis from a source other than
any member of the Company Group or any of its agents, customers or clients, as
such, provided that such source is not bound by a confidentiality agreement with
any member of the Company Group or any of such agents, customers or clients
known to the Employee.
7.2 Promptly upon the request of the
Company, the Employee shall deliver to the Company all confidential material
relating to any member of the Company Group in the possession of the Employee
without retaining a copy thereof, unless, in the opinion of counsel for the
Company, either returning such confidential material or failing to retain a copy
thereof would violate any applicable federal, state, local or foreign law, in
which event such confidential material shall be returned without retaining any
copies thereof as soon as practicable after such counsel advises that the same
may be lawfully done.
7.3 In the event that the Employee is required,
by oral questions, interrogatories, requests for
<PAGE> 7
7
information or documents, subpoena, civil investigative demand or similar
process, to disclose any confidential material relating to any member of the
Company Group, the Employee shall provide the Company with prompt notice thereof
so that the Company may seek an appropriate protective order and/or waive
compliance by the Employee with the provisions hereof; provided, however, that
if in the absence of a protective order or the receipt of such a waiver, the
Employee is compelled to disclose confidential material not otherwise
disclosable hereunder to any legislative, judicial or regulatory body, agency or
authority, or else be exposed to liability for contempt, fine or penalty or to
other censure, such confidential material may be so disclosed.
8. Non-Competition.
8.1 The Employee acknowledges that the
services to be rendered by the Employee to the Company are of a special and
unique character. The Employee agrees that, in consideration of the Employee's
employment hereunder, the Employee will not (a) at any time commencing on the
date hereof through and including the date which is two (2) years following the
termination of the Employee's employment by the Company, directly or indirectly,
(i)(x) engage, whether as principal, agent, investor, distributor,
representative, stockholder, employee, consultant, volunteer or otherwise, with
or without pay, in any activity or business venture anywhere within a ten (10)
mile radius of any facility or business location operated by the Company or any
other member of the Company Group of which facility or location the Employee
received notice from the Company, which is competitive with the businesses of
the Company or any other member of the Company Group of providing dental
services and related activities or (y) engage, whether as principal, agent,
investor, distributor, representative, stockholder, employee, consultant,
volunteer or otherwise, with or without pay, in any business or activity which
has as a purpose the acquisition, start-up and development of dental practices,
(not including the practice of dentistry by the Employee after the termination
of his employment by the Company or any other member of the Company Group
permitted by this Section 8), anywhere within any state in which the Company or
any other member of the Company Group is engaged in business or has plans
evidenced in writing of which the Employee has received notice from the Company,
to engage in business as of the date of termination of the employment of the
Employee, (ii) solicit or entice or endeavor to solicit or entice away from any
member of the Company Group any person who was a director, officer, employee,
agent or consultant of such member of the Company
<PAGE> 8
8
Group, either for the Employee's own account or for any person, firm,
corporation or other organization, whether or not such person would commit any
breach of such person's contract of employment by reason of leaving the service
of such member of the Company Group, (iii) solicit or entice or endeavor to
solicit or entice away any of the clients or customers of any member of the
Company Group, either on the Employee's own account or for any other person,
firm, corporation or other organization, or (iv) employ, directly or indirectly,
any person who was a director, officer or employee of any member of the Company
Group or any person who at any time is or may be likely to be in possession of
any confidential information or trade secrets relating to the businesses of any
member of the Company Group, or (b) at any time, take any action or make any
statement the effect of which would be, directly or indirectly, to impair the
good will of any member of the Company Group or the business reputation or good
name of any member of the Company Group, or be otherwise detrimental to the
Company, including any action or statement intended, directly or indirectly, to
benefit a competitor of any member of the Company Group.
For purposes hereof, the "Company Group" shall mean,
collectively, the Company and the Company's subsidiaries, affiliates and parent
entities and entities managed by the Company or any of its respective
subsidiaries, affiliates or parent entities operating from time to time in the
same lines of business.
8.2 Notwithstanding the foregoing, in the
event that (i) the Company (or its designee) has failed to make any undisputed
Contingent Payments (as defined in the Purchase Agreement (as hereinafter
defined)) within thirty (30) days of receipt by the Company of written notice to
the effect that such Contingent Payments are due and payable, or (ii) a payment
event of default under any of the Notes (as defined in the Purchase Agreement)
has occurred, or (iii) the Company (or its designee) fails to make salary
payments to the Employee pursuant to Section 3.1 hereof within ten (10) days of
receipt by the Company of written notice to the effect that such payments are
due and payable, the Employee shall be permitted thereafter to engage in the
private practice of dentistry at no more than two (2) offices without being
considered to be in violation of the covenants contained herein.
In the event that the employment of the Employee has been
terminated by the Company or any other member of the Company Group pursuant to
Section 6.4 hereof, then the Employee shall be permitted thereafter to engage in
the private practice of dentistry at no more than two (2)
<PAGE> 9
9
offices anywhere outside a ten (10) mile radius of any facility or business
location operated by the Company or any member of the Company Group of which
facility or location the Employee has received notice.
8.3 The Employee and the Company agree that
if, in any proceeding, the court or other authority shall refuse to enforce the
covenants herein set forth because such covenants cover too extensive a
geographic area or too long a period of time, any such covenant shall be deemed
appropriately amended and modified in keeping with the intention of the parties
to the maximum extent permitted by law.
9. Equitable Relief. In the event of a
breach or threatened breach by the Employee of any of the provisions of Sections
7 or 8 of this Agreement, the Employee hereby consents and agrees that the
Company shall be entitled to pre-judgment injunctive relief or similar equitable
relief restraining the Employee from committing or continuing any such breach or
threatened breach or granting specific performance of any act required to be
performed by the Employee under any of such provisions, without the necessity of
showing any actual damage or that money damages would not afford an adequate
remedy and without the necessity of posting any bond or other security. The
parties hereto hereby consent to the jurisdiction of the Federal courts located
in the Eastern District of Virginia and the state courts located in such
District for any proceedings under this Section 9. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies at law or
in equity which it may have.
10. Successors and Assigns.
10.1 Assignment by the Company. The Company shall
require any successors (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. As used in this Section, the "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law and this Agreement shall be
binding upon, and inure to the benefit of, the Company, as so defined.
10.2 Assignment by the Employee. The Employee may
not assign this Agreement or any part thereof
<PAGE> 10
10
without the prior written consent of the President of the Company; provided,
however, that nothing herein shall preclude one or more beneficiaries of the
Employee from receiving any amount that may be payable following the occurrence
of his legal incompetency or his death and shall not preclude the legal
representative of his estate from receiving such amount or from assigning any
right hereunder to the person or persons entitled thereto under his will or, in
the case of intestacy, to the person or persons entitled thereto under the laws
of intestacy applicable to his estate. The term "beneficiaries," as used in this
Agreement, shall mean a beneficiary or beneficiaries so designated to receive
any such amount or, if no beneficiary has been so designated, the legal
representative of the Employee (in the event of his incompetency) or the
Employee's estate.
11. Governing Law. This Agreement shall be deemed a contract
made under, and for all purposes shall be construed in accordance with, the laws
of the Commonwealth of Pennsylvania applicable to contracts to be performed
entirely within such Commonwealth.
12. Entire Agreement. This Agreement is entered into pursuant
to the Agreement of Purchase and Sale dated as of September 1, 1995 (the
"Purchase Agreement") by and among the Employee, the Company and certain other
parties thereto. This Agreement and the other agreements executed
contemporaneously herewith and therewith, contain all the understandings and
representations between the parties hereto pertaining to the subject matter
hereof and supersede all undertakings and agreements, whether oral or in
writing, if there be any, previously entered into by them with respect thereto;
provided, however, that Section 8 shall not serve as a limitation of the terms
of any other non-competition agreement between the Employee and any member of
the Company Group. No modification of this Agreement shall be effective unless
in writing and signed by the party against which enforcement is sought to be
enforced. Any oral agreements or representations respecting the transactions
contemplated by the Purchase Agreement, not reduced to writing in the Purchase
Agreement or in any of the documents referred to therein (including this
Agreement) are null and void.
13. Modification and Amendment; Waiver. The provisions of this
Agreement may be modified, amended or waived, but only upon the written consent
of the party against whom enforcement of such modification, amendment or waiver
is sought and then such modification, amendment or waiver shall be effective
only to the extent set forth in
<PAGE> 11
11
such writing. No delay or failure on the part of any party hereto in exercising
any right, power or remedy hereunder shall effect or operate as a waiver
thereof, nor shall any single or partial exercise thereof or any abandonment or
discontinuance of steps to enforce such right, power or remedy preclude any
further exercise thereof or of any other right, power or remedy.
14. Notices. All notices, requests or instructions hereunder
shall be in writing and delivered personally, sent by telecopier or sent by
registered or certified mail, postage prepaid, as follows:
If to the Company:
c/o Foster Management Company
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Mr. Douglas P. Gill
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Robert A. Ouimette, Esq.
Telecopy No.: (212) 682-0200
Telephone No.: (212) 880-6000
If to the Employee:
Robert K. Mehlman, D.D.S.
8171 Madrillon Ct.
Vienna, Virginia 22182
with a copy to:
Wolf, Block, Schorr and Solis-Cohen
Twelfth Floor, Packard Building
S.E. Corner 15th and Chestnut Streets
Philadelphia, Pennsylvania 19102-2678
Attention: Michael M. Sherman, Esq.
Telecopy No.: (215) 977-2334
Telephone No.: (215) 977-2000
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given
<PAGE> 12
12
in accordance herewith shall be deemed received on the date of delivery, if hand
delivered or telecopied, and two business days after the date of mailing, if
mailed.
15. Severability. Should any provision of this Agreement be
held by a court of competent jurisdiction to be enforceable only if modified,
such holding shall not affect the validity of the remainder of this Agreement,
the balance of which shall continue to be binding upon the parties hereto with
any such modification to become a part hereof and treated as though originally
set forth in this Agreement. The parties further agree that any such court is
expressly authorized to modify any such unenforceable provision of this
Agreement in lieu of severing such unenforceable provision from this Agreement
in its entirety, whether by rewriting the offending provision, deleting any or
all of the offending provision, adding additional language to this Agreement, or
by making such other modifications as it deems warranted to carry out the intent
and agreement of the parties as embodied herein to the maximum extent permitted
by law. The parties expressly agree that this Agreement as so modified by the
court shall be binding upon and enforceable against each of them. In any event,
should one or more of the provisions of this Agreement be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions hereof, and if such
provision or provisions are not modified as provided above, this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been set forth herein.
16. Withholding. Anything to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Employee or his
beneficiaries, including his estate, shall be subject to withholding of such
amounts relating to taxes as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation. In lieu of withholding
such amounts, in whole or in part, the Company, may, in its sole discretion,
accept other provision for payment of taxes as permitted by law, provided it is
satisfied in its sole discretion that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
17. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
<PAGE> 13
13
18. Expenses. Each of the parties hereto shall bear his or its
own costs and expenses, including attorneys fees and disbursements, incurred in
connection with this Agreement and the transactions contemplated hereby.
19. Titles. Titles of the sections of this Agreement are
intended solely for convenience and no provision of this Agreement is to be
construed by reference to the title of any section.
20. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
* * *
<PAGE> 14
14
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
VALLEY FORGE DENTAL ASSOCIATES,
INC.
By /s/ Douglas P. Gill
-----------------------------------
/s/ Robert K. Mehlman, D.D.S.
-----------------------------------
Robert K. Mehlman, D.D.S.
<PAGE> 1
Exhibit 10(rr)
FORM OF ADMINISTRATIVE/MANAGEMENT SERVICES AGREEMENT
This MANAGEMENT AGREEMENT, effective the ____ day of _______, 199_,
by and between _________________________, a ________ corporation, (the
"Manager"), and _____________________________, a ________ professional services
corporation (the "P.C.").
W I T N E S S E T H:
WHEREAS, the P.C. is engaged in the business of providing, among
other things, dental services and related activities in the State of ________
(the "Practice");
WHEREAS, the P.C. desires to obtain the benefit of the Manager's
expertise in operating, directing, managing and supervising the non-professional
aspects of the operations of the Practice;
WHEREAS, the P.C. desires to obtain from the Manager, and the
Manager desires to provide to the P.C., certain premises and certain physical
assets, furniture and equipment needed to operate the Practice; and
WHEREAS, the Manager and the P.C. wish to enter into this Management
Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
ARTICLE 1
RELATIONSHIP OF PARTIES
1.1 Responsibilities of Parties. The parties agree that the P.C.
will provide, and shall be solely responsible for providing, all professional
services for the Practice and the Manager will be responsible only for
administrative services (as further described in this Agreement). Nothing
contained in this Agreement shall be construed as permitting or providing for
the ownership, establishment, operation or management by the Manager of the
professional services of the Practice, which services shall at all times be the
sole responsibility of the P.C.
<PAGE> 2
2
provided, however, that pursuant to its engagement hereunder, the Manager shall
be the exclusive provider of all administrative services and control all aspects
of the P.C.'s business other than those aspects which relate directly to the
provision of dental services. Without limiting the generality of the foregoing,
the P.C. shall be solely responsible for all activities described in Section 2.4
of this Agreement.
1.2 Relationship of Parties. The P.C. and the Manager are not joint
venturers, partners, employees or agents of each other and, except as provided
herein, neither party shall have any authority to bind the other.
1.3 Practice. The P.C. agrees to conduct the Practice in compliance
with all applicable laws, rules and ordinances.
ARTICLE 2
SERVICES OF THE MANAGER
2.1 Covered Services. The Manager, unless otherwise prohibited by
law, shall control all aspects of, and provide to the P.C. the following
services, premises and assets (such services, premises and assets are
hereinafter referred to collectively as the "Covered Services"):
a. General Administrative Services. Overall day-to-day
supervision, conduct and management of the general administrative services
required in connection with the Practice, including supervision of the
non-professional services and personnel described below.
b. Personnel. Provision of all personnel (other than licensed
or certified professionals, technicians or hygienists, collectively, the
"Professional Personnel") needed to operate and support the Practice, such as
receptionists and secretarial, clerical, purchasing and marketing personnel
(collectively, the "Administrative Personnel"). The Manager shall have the sole
and exclusive responsibility for determining the salaries and fringe benefits of
all Administrative Personnel provided hereunder, and for paying such salaries
and providing such fringe benefits. In recognition of the fact that the
Manager's personnel provided to the P.C. under this Agreement may from time to
time perform services for others, this Agreement shall not prevent the Manager
from performing such services for others or restrict the Manager from so using
the Administrative Personnel provided to the P.C. under this
<PAGE> 3
3
Agreement. The Manager will make every effort consistent with sound business
practices to honor the specific requests of the P.C. with regard to the
assignment of its employees to the P.C.; however, the Manager reserves the sole
right to determine the assignment of its employees. Further, the Manager, in its
sole discretion, may require each of its employees assigned to the P.C. to
perform several of the aforedescribed functions and duties simultaneously.
c. Professional Personnel. Establish guidelines for the
selection, hiring and firing of the Professional Personnel by the P.C. and
recruit and evaluate prospective Professional Personnel; provided, however, that
all of the Professional Personnel shall be employees of, or independent
contractors to, the P.C.
d. Training. Training of all Administrative Personnel and
assistance to the P.C. in arranging for training and continuing education for
Professional Personnel.
e. Administrative and Fiscal Services. Provision of general
administrative, business and fiscal services to the P.C. in connection with the
operation of the Practice, including patient billings, collecting billings,
accounting, auditing (by a certified public accountant selected by the Manager
with the approval of the P.C., which approval shall not be unreasonably withheld
or delayed), bookkeeping, budgeting, record keeping, accounts receivable and
accounts payable processing, electronic data processing and such other services
as the P.C. may from time to time require.
f. Annual Budget. Prepare, in reasonable detail, annual
operating and capital budgets for the P.C. which shall be delivered to the P.C.
within thirty (30) days after the end of each fiscal year, with the Manager
retaining final authority with respect to budget items including, without
limitation, with respect to compensation and payments to the Professional
Personnel and the Administrative Personnel.
g. Patient Records. Maintenance of patient records (which
shall at all times remain the property and under the control of the P.C.) and
provision of record retrieval and monitoring services to assist the P.C. in
utilization and quality assurance reviews in accordance with instructions and
guidelines issued by the P.C.
h. Quality Control. Development of appropriate quality control
programs, including development
<PAGE> 4
4
of performance standards, sampling techniques for case review, and preparation
of appropriately documented studies.
i. Marketing, Development and Program Negotiation. Marketing
of the professional services provided by the P.C. to potential patients,
facilities, health maintenance organizations, self-insured employer health plans
and various third-party payors (the "Marketing Services"). The Marketing
Services to be provided by the Manager may include, but are not necessarily
limited to, (i) assistance and support in the preparation of marketing material
and brochures and responses to requests for proposals, (ii) the placing of
advertisements or articles in magazines, newspapers, other publications and any
and all media determined by the Manager to be beneficial to the P.C., (iii)
undertaking telemarketing campaigns and (iv) the holding of seminars. The
Manager shall also assist the P.C. in negotiating and securing contracts with
self-insured employer health plans, third-party payors, health maintenance
organizations, managed care companies and any other institution, facility or
organization that may be in need of services that the P.C. is qualified to
provide.
j. Equipment and Supplies. Provision of all inventory,
equipment, furnishings and supplies reasonably necessary for the efficient
operation of the Practice. Title to such inventory, equipment, furnishings and
supplies shall at all times remain in the Manager. At the end of the term of
this Agreement, the Manager shall retain such inventory, equipment, furnishings
and supplies as shall not have been consumed in the day-to-day operations of the
Practice.
k. Janitorial and Maintenance Service. Arranging for
janitorial, grounds and maintenance and repair services for the P.C. and its
equipment and furnishings.
l. Malpractice Insurance. Assistance to the P.C. in obtaining
malpractice coverage for the P.C., its employees and agents in an amount not
less than One Million Dollars ($1,000,000). The Manager shall also assist the
P.C. in obtaining general liability and property insurance in usual and
customary amounts for the P.C. The Manager shall, on behalf and in the name of
the P.C., pay the premiums for all such insurance and shall provide the P.C.
with evidence of payment on a periodic basis or as requested.
m. Contracts with Facilities/Programs. Contracts with
facilities and programs serviced by the Practice shall be by and in the name of
the P.C. The
<PAGE> 5
5
Manager shall serve as contracting agent for the P.C. in connection with such
facilities or programs contracts.
n. Protecting Goodwill. Take all necessary steps to preserve
and protect the reputation and goodwill associated with the P.C., including
assistance in the monitoring of utilization and quality of services provided by
the P.C., and shall assist the P.C. to take all steps necessary to remedy any
and all deficiencies in the efficiency or the quality of the services provided.
This section shall not be construed as permitting the Manager to influence or
control Professional Personnel.
o. Facilities. Facilities occupied by the P.C. for the
Practice shall be made available to the P.C. by the Manager.
p. Operations and Regulatory Reports. Deliver to the P.C.
operations reports containing such information as the P.C. may reasonably
request. The Manager shall prepare all written reports and information that
shall be lawfully required by any government body or agency having jurisdiction
over the P.C. or the Practice. The P.C. shall review and approve all such
required reports and/or information before any dissemination of the same.
q. Processing Disputes. Administer and process all disputes,
grievances and complaints between the P.C. and all third parties, subject at all
times to the review and final approval of the P.C.
r. Government Regulations; Licenses. To the extent known and
material to the operation of the P.C. and the Practice, the Manager shall
promptly notify the P.C. of any changes which may occur in relevant laws or
regulations of any government, governmental body or agency having jurisdiction
over the P.C. or the Practice. The foregoing shall not in any way limit the
P.C.'s continuing professional and legal responsibility to comply with, and be
aware of, all licensing, regulatory, professional or other requirements
applicable to individuals licensed to provide dental services.
s. Advances to the Manager. The Manager shall make advances to
the P.C. as required by Section 5.6. Such advances shall bear a reasonable rate
of interest, as mutually agreed to by the Manager and the P.C.
The Covered Services shall include assumption of all obligations of
the P.C. to provide administrative services to professional personnel who are
not employed by
<PAGE> 6
6
the P.C. The Manager may perform the Covered Services directly or by reimbursing
the P.C. for the cost of any Covered Services. The parties acknowledge and agree
that the services to be provided by the Manager to the P.C. are to be provided
on a non-exclusive basis. The Manager is in the independent business of
providing these services to other third parties.
2.2 Performance of Services. The Manager is hereby expressly
authorized to perform the Covered Services hereunder in whatever reasonable
manner it deems appropriate to meet the day-to-day administrative needs of the
Practice. It is understood and agreed that the Manager will perform some of the
Covered Services for the P.C. at a centralized location.
2.3 Events Excusing Performance. The Manager will not be liable to
the P.C. for failure to perform any of the services required herein in the event
of strikes, lockouts, calamities, acts of God, unavailability of supplies or
other events over which the Manager has no control for so long as such event
continues and for a reasonable period of time thereafter.
2.4 Excluded Services. The parties hereto expressly acknowledge that
the provision of all professional services, including but not limited to, dental
services by the P.C., shall be separate and independent from the provision of
administrative, fiscal and support services by the Manager, and the P.C. shall
be solely and exclusively responsible for all professional dental services
rendered to patients of the Practice. Without limiting the generality of the
foregoing, the parties acknowledge that the P.C. shall be solely responsible for
setting all professional standards of the Practice and shall be responsible for
the employment and discharge of all Professional Personnel.
2.5 Use of Name. The Manager hereby grants to the P.C. a
nontransferable, nonexclusive license to use any proprietary names owned by the
Manager and used by the P.C. in connection with the Practice along with any and
all trademarked symbols for the term of this Agreement (the "License"). All
applicable common law and statutory rights in any proprietary names owned by the
Manager and used by the Practice and their accompanying symbols, including, but
not limited to, rights relating to trademark, service mark, patent and copyright
shall be and remain the sole property of the Manager. The P.C. shall have no
right, title or interest in any such proprietary rights.
<PAGE> 7
7
ARTICLE 3
PROPRIETARY INTEREST AND RIGHTS OF THE MANAGER
3.1 Competition. During the term of this Agreement, neither the P.C.
nor any shareholder of the P.C. shall, directly or indirectly, own an interest
in, administer, manage, advise, assist, operate, join, control, participate in,
or be connected in any manner with any corporation, partnership, proprietorship,
firm, association, person or entity providing dental services or administrative
services in competition with the P.C. or the Manager.
3.2 Confidentiality. The P.C. acknowledges and agrees that the
Manager is entitled to prevent its competitors from obtaining and utilizing its
trade secrets. The P.C. agrees to hold the Manager's trade secrets in strictest
confidence and not to disclose them or allow them to be disclosed directly or
indirectly to any person or entity other than persons engaged by the P.C. or the
Manager. The P.C. acknowledges its fiduciary obligations to the Manager and the
confidentiality of its relationship with the Manager and of any information
relating to the services and business methods of the Manager which it may obtain
during the term of this Agreement. The P.C. shall not, either during the term of
this Agreement or at any time after the expiration or sooner termination of this
Agreement, disclose to anyone other than employees or independent contractors of
the P.C. or the Manager any confidential or proprietary information or trade
secret obtained by the P.C. from the Manager. The P.C. also agrees to place any
persons to whom said information is disclosed for the purpose of performance
under legal obligation to treat such information as strictly confidential.
ARTICLE 4
BILLING AGENT AGREEMENT
4.1 Professional and Other Fees. The P.C. shall, in consultation
with the Manager, establish a schedule of fees and charges for the Practice's
professional services or shall comply with the schedule of fees and charges set
forth in the health care contracts pursuant to which the P.C. provides services
through its Professional Personnel.
4.2 Billings. Billings of the Practice for all services rendered by
the P.C. shall be by and in the name of the P.C.
<PAGE> 8
8
4.3 Billing and Collection Agent. The Manager shall serve as billing
and collection agent for the P.C. in connection with the Practice. The Manager
shall establish a depository bank account on behalf of the Practice and will
deposit into such account collected fees generated from the Practice. As
provided for in standing instructions issued by the P.C. to the bank where such
depository account is located, the Manager may withdraw all monies daily from
said bank account for processing at a central location to be used for payment of
the P.C.'s expenses, including the administrative services fee set forth in
Section 5.4 hereof and any amounts advanced to the P.C. pursuant to Section 5.6
hereof. Said processing will consist of establishing and maintaining a book
account for the P.C. showing all fee collections and expense disbursements made
by the Manager at the P.C.'s request. The Manager will provide the P.C. with
periodic financial statements for the Practice reflecting such processing.
4.4 Reports. The Manager shall provide the P.C. with financial
statements for the Practice, stating Gross Billings (as hereafter defined) and
the Manager's Administrative Fees (as hereafter defined).
4.5 Security for the Manager's Compensation. To secure the prompt
and orderly payment of any amounts owing by the P.C. to the Manager pursuant to
this Agreement, the P.C. hereby agrees to grant, at the request of the Manager,
a security interest to the Manager or to a third party designated by the
Manager, in all its existing and hereafter created accounts receivable, all cash
or non-cash proceeds therefrom, all insurance policies and proceeds relating
thereto, and all of the P.C.'s rights as an unpaid provider of services, whether
now existing or hereafter created or acquired (collectively, the "Collateral").
The P.C. agrees to execute any and all documents necessary to perfect such
security interest, including but not limited to, UCC financing statements.
ARTICLE 5
COMPENSATION
5.1 Gross Billings. The term "Gross Billings" as used in this
Agreement shall mean all billings by the P.C. in connection with the Practice
for dental services, including any other income or receivables relating thereto,
less contractual allowances, if any, and an allowance for bad debts, to be
determined from time to time by the Manager, in its discretion, based upon the
actual experience
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of the P.C., plus all other cash payments and miscellaneous revenues received by
the P.C. in connection with the Practice.
5.2 Intention of the Parties. It is the intention of the parties
hereto that from the Gross Billings of the P.C. in connection with the Practice,
the P.C. shall be entitled to fairly and reasonably compensate its Professional
Personnel, and the Manager shall be entitled to receive from the P.C. fair and
reasonable compensation for (i) the provision of the Covered Services pursuant
to this Agreement, (ii) the License provided for in Section 2.5 hereof, and
(iii) the expenses, obligations, and risks assumed by the Manager in connection
therewith.
5.3 Fair and Reasonable Compensation of the P.C. for Services of
Professional Personnel. The parties hereto agree that the P.C. shall have the
right to fairly and reasonably compensate its Professional Personnel for their
professional services. Compensation for the Professional Personnel shall be
determined in accordance with employment agreements and other employment
arrangements entered into by the P.C., in consultation with the Manager, and the
Professional Personnel.
5.4 Fair and Reasonable Compensation to the Manager.
a. The Manager's Administrative Fees. The term "Manager's
Administrative Fees" as used in this article shall mean Gross Billings less
compensation payable by the P.C. as set forth in Section 5.3.
b. For Services of the Manager. The parties hereto agree that
the Manager shall be fairly and reasonably compensated for its administrative
services. The Manager's Administrative Fees shall be paid to the Manager as
compensation for (i) the provision of the Covered Services under this Agreement,
(ii) the License and (iii) its expenses, obligations, and risks in connection
therewith. The Manager shall pay all expenses of the Practice, except for
compensation to the Professional Personnel, (including interest expenses payable
with respect to any indebtedness of the P.C. to which the Manager shall have
consented in writing) out of the Manager's Administrative Fees or out of funds
advanced to the P.C. by the Manager.
5.5 Periodic Adjustment of Compensation. The parties hereto
recognize that the Practice may change in size and scope over the term of this
Agreement which may
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necessitate adjusting the fees provided for herein. Therefore, the parties shall
review the compensation to the Manager no less frequently than annually and more
frequently at the request of the Manager or the P.C., if changes in the business
of the P.C. or services by the Manager warrant such more frequent review, and
may agree in writing to modification of the compensation. Such review shall
consider the scope of operations pursuant to this Agreement at the time of
review, the financial success of the Manager and the P.C. in connection with the
Practice, changes in the purchasing power of money, the size and number of
facilities being supplied by the Manager, the scope of the Marketing Services,
the size of the Administrative Personnel workforce and the expenses and risks to
the respective parties of performing this Agreement.
5.6 Remittances. To the extent the P.C. shall not generate adequate
revenues to meet the P.C.'s ongoing operating expenses, including the
compensation for professional services pursuant to Section 5.3 of this
Agreement, the Manager shall advance to the P.C. or arrange for such amounts as
may be required. To the extent that the Manager advances any funds to the P.C.
pursuant to this Section 5.6, such advances shall be evidenced by
interest-bearing demand note(s) from the P.C. in favor of the Manager and shall
be secured by the Collateral as provided in Section 4.5 hereof.
ARTICLE 6
TERM AND TERMINATION
6.1 Term. The term of this Agreement shall be for a period of forty
(40) years and thereafter this Agreement shall continue indefinitely until
terminated in accordance with Section 6.2 hereof.
6.2 Termination. Notwithstanding any provision of this Agreement to
the contrary, this Agreement may be terminated as set forth below:
a. In the event of a material breach of this Agreement by
either party as a result of such party's gross negligence or fraud, the other
party may, at any time commencing sixty (60) days after written notice of the
breach has been given to the breaching party, terminate this Agreement by
delivery to the breaching party of a further written notice of termination;
provided, however, that if the breaching party, prior to receiving such notice
of termination, has begun and is diligently continuing good
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11
faith efforts to cure such breach, this Agreement shall remain in full force and
effect;
b. If either party is determined by a court, administrative
body or peer review organization having jurisdiction, to have engaged in conduct
that results in material harm to the P.C. and constitutes (i) a felony or other
crime involving moral turpitude, including fraud, theft, or embezzlement or (ii)
a failure to act in an ethical or professional manner, in keeping with accepted
dental care standards, then immediately upon notice by the other party;
c. If either party has engaged in any practice that results in
material harm to the P.C. and violates any federal, state or local law or
regulation that is aimed at protecting the public from coercion into treatment
and preventing fraud upon or abuse of public funding of health services, then
immediately upon notice by the other party;
d. If either party commences a voluntary case under
bankruptcy, insolvency or similar law, or any involuntary case is commenced
against either party under any bankruptcy, insolvency or similar law and such
involuntary case is not dismissed within thirty (30) days after filing, then
immediately upon notice from the other party; or
e. After the initial forty (40) year term of this Agreement,
either party may also terminate this Agreement, with or without cause, by giving
the other written notice of termination not less than one (1) year prior to the
effective date of termination.
6.3 Rights Upon Termination. The termination of this Agreement shall
not release or discharge either party from any obligation, debt or liability
which shall have previously accrued and remain to be performed upon the date of
termination.
ARTICLE 7
GENERAL PROVISIONS
7.1 Indemnification. Each party shall indemnify, hold harmless and
defend the other party from and against any liability, loss, claims, lawsuits,
damages, injury, cost, expense or other detriment arising out of or incident to
the performance or nonperformance under this Agreement by such indemnifying
party, its employees, Professional
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Personnel, and agents, including, without limitation, all consequential damages
and attorneys' fees, provided, however, neither party shall be liable to the
other under this Section 7.1 for any claim covered by insurance, except to the
extent liability of the party exceeds the amount of the coverage.
7.2 Assignment. The rights conferred upon the P.C. hereunder may not
be transferred or assigned without the prior written consent of the Manager and
any assignment in violation of this Section 7.2 shall be void. This Agreement
shall be assignable by the Manager.
7.3 Notices. All notices, requests or instructions hereunder shall
be in writing and delivered personally or sent by registered or certified mail,
postage prepaid, as follows:
(1) If to the P.C.:
(2) If to the Manager:
c/o Valley Forge
Dental Associates, Inc.
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telephone No: (610) 992-3319
Telecopy No: (610) 992-3392
Either of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, and two business days after the date of mailing, if mailed.
7.4 Entire Agreement. This Agreement and the documents referred to
herein contain the entire agreement between the parties hereto with respect to
the transactions contemplated hereby, and no modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.
7.5 Further Assurances. Each of the parties hereto shall use such
party's best efforts to take such actions as may be necessary or reasonably
requested by the
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other party hereto to carry out and consummate the transactions contemplated by
this Agreement.
7.6 Attorneys Fees. Each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the transactions
contemplated hereby.
7.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of ________ applicable to agreements
made and to be performed entirely within such State.
7.8 Article and Section Headings. The article and section headings
in this Agreement are inserted solely for convenience of reference and are not a
part of and are not intended to govern, limit or aid in the construction of any
term or provision hereof.
7.9 Waiver. The waiver of any covenant, condition or duty hereunder
by either party shall not prevent that party from later insisting upon full
performance of the same.
7.10 Amendment. No amendment in the terms of this Agreement shall be
binding on either party unless in writing and executed by the duly authorized
representatives of each party.
7.11 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and both of which taken together
shall constitute one and the same instrument.
7.12 Severability. In the event that any provision of this Agreement
shall be held to be void or unenforceable for any reason, the parties shall
negotiate in good faith for a period of up to one hundred eighty (180) days in
order to arrive at a mutually acceptable substitute provision.
* * *
<PAGE> 14
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the date first above
written.
By:__________________________
Name:
Title:
By:__________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10(ss)
FORM OF ADMINISTRATIVE/MANAGEMENT SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement"), effective
the ___ day of _______, 199_, by and between ___________ a ____________
corporation ("the Manager"), and __________________________________________, a
__________ professional corporation (the "P.C.").
W I T N E S S E T H:
WHEREAS, the P.C. is engaged in the business of providing, among
other things, dental services and related activities in the State of __________
(the "Practice");
WHEREAS, the P.C. desires to obtain the benefit of the Manager's
expertise in the administration of practices similar to the Practice;
WHEREAS, the P.C. desires to obtain from the Manager, and the
Manager desires to provide to the P.C., certain physical assets, furniture and
equipment needed to operate the Practice; and
WHEREAS, the Manager and the P.C. wish to enter into this
Administrative Services Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
ARTICLE 1
RELATIONSHIP OF PARTIES
1.1 Responsibilities of Parties. The parties agree that the P.C.
will provide, and shall be solely responsible for providing, all professional
services for the Practice and the Manager will be responsible only for business,
administrative and non-professional services (as further described in this
Agreement). Nothing contained in this Agreement shall be construed as permitting
or providing for the provision by the Manager of the professional services of
the Practice, which services shall at all times be the sole responsibility of
the P.C.; provided, however, that pursuant to its engagement hereunder, the
Manager shall
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be the exclusive provider of all administrative services and shall control all
aspects of the P.C.'s business other than those aspects which relate directly to
the provision of dental services. Without limiting the generality of the
foregoing, the P.C. shall be solely responsible for all activities described in
Section 2.4 of this Agreement.
1.2 Relationship of Parties. The P.C. and the Manager are not joint
venturers, partners, employees or agents of each other and, except as provided
herein, neither party shall have any authority to bind the other.
1.3 Practice. The P.C. agrees to conduct the Practice in compliance
with all applicable laws, rules and ordinances, including with respect to the
licensing and certification of its providers.
ARTICLE 2
SERVICES OF THE MANAGER
2.1 Covered Services. The Manager, unless otherwise prohibited by
law, shall control all aspects of, and provide to the P.C., the following
services (such services are hereinafter referred to collectively as the "Covered
Services"):
a. General. Supervision, conduct and administration of the
general business administrative services required by the P.C. in connection with
the P.C.'s operation of its Practice.
b. Personnel. The Manager will employ the personnel (other
than dentists, dental hygienists and dental auxiliaries, collectively, the
"Professional Personnel") needed to operate and support the business aspects of
Practice, such as receptionists and secretarial, clerical, purchasing and
marketing personnel (collectively, the "Administrative Personnel"). The Manager
shall have the sole and exclusive responsibility for determining the salaries
and fringe benefits of all Administrative Personnel provided hereunder, and for
paying such salaries and providing such fringe benefits. In recognition of the
fact that the Administrative Personnel provided to the P.C. under this Agreement
may from time to time perform services for others, this Agreement shall not
prevent the Manager from performing such services for others or restrict the
Manager from so using the Administrative Personnel provided to the P.C. under
this Agreement. The Manager will make every effort consistent with sound
business practices to honor the
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specific requests of the P.C. with regard to the assignment of the Manager's
employees to the performance of services for the P.C. Further, the Manager, in
its sole discretion, may require each of its employees assigned to the P.C. to
perform several of the aforedescribed functions and duties simultaneously. The
Manager will advise the P.C. on the establishment of, and participation in,
incentive and profit sharing plans for the P.C.'s staff to reward them for
increased productivity in the Practice.
c. Professional Personnel. Establish guidelines for the
selection, hiring and firing of the Professional Personnel by the P.C. and
recruit and evaluate prospective Professional Personnel; provided, however, that
all of the Professional Personnel shall be employees of or independent
contractors to the P.C.
d. Training. Training of all Administrative Personnel and
arranging for training and continuing education for Professional Personnel.
e. Administrative and Fiscal Services. Provision of general
administrative, business and fiscal services to the P.C. in connection with the
operation of the Practice, including patient billings, collecting billings,
accounting, auditing (by a certified public accountant selected by the Manager
with the approval of the P.C., which approval shall not be unreasonably withheld
or delayed), bookkeeping, budgeting, record keeping, accounts receivable and
accounts payable processing, electronic data processing and such other services
as the P.C. may from time to time require.
f. Annual Budget. Prepare, in reasonable detail, annual
operating and capital budgets for the P.C. which shall be delivered to the P.C.
within thirty (30) days after the end of each fiscal year, with the Manager
retaining final authority with respect to budget items including, without
limitation, with respect to compensation and payments to the Professional
Personnel and Administrative Personnel.
g. Patient Records. Maintenance of patient records (which
shall at all times remain the property and under the control of the P.C.) and
provision of record retrieval and monitoring services to assist the P.C. in
utilization and quality assurance reviews in accordance with instructions and
guidelines issued by the P.C.
h. Quality Control. Development of appropriate quality control
programs, including performance
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standards, sampling techniques for case review, and preparation of appropriately
documented studies.
i. Marketing, Development and Program Negotiation. Marketing
of the professional services provided by the P.C. to potential patients,
facilities, health maintenance organizations, insurance companies, self-insured
employer health plans and other various third-party payors (the "Marketing
Services"). The Marketing Services to be provided by the Manager may include,
but are not necessarily limited to, (i) preparation of marketing material and
brochures and responses to requests for proposals, (ii) the placing of
advertisements or articles in magazines, newspapers, other publications and any
and all media determined by the Manager to be beneficial to the P.C., (iii)
undertaking telemarketing campaigns and (iv) the holding of seminars. The
Manager shall also negotiate and secure contracts with self-insured employer
health plans, third-party payors, health maintenance organizations, managed care
companies and any other institution, facility or organization that may use the
services that the P.C. is qualified to provide and may seek the input of the
P.C. in such negotiations as needed or appropriate.
j. Supplies, Inventory and Equipment. Provision of purchasing
services on behalf of the Practice for inventory and supplies reasonably
necessary for the efficient operation of the Practice. The Manager shall be
responsible for maintaining the P.C.'s inventory on behalf of the P.C.;
provided, however, that title to and control over all dental inventory,
equipment and supplies shall be in the name of the P.C. All equipment or
furnishings not used in the provision of professional services (the "Leased
Assets") required by the Practice shall be made available by the Manager to the
P.C. The Manager shall secure maintenance and repair services for the dental
equipment.
k. Janitorial and Maintenance Service. Arrangement of
janitorial, grounds and maintenance and repair services for the P.C. and its
equipment and furnishings.
l. Malpractice Insurance. Assistance to the P.C. in obtaining
malpractice coverage for the P.C.
m. Contracts with Facilities/Programs. Contracts with
facilities and programs serviced by the Practice shall be in the name of the
P.C. The Manager shall serve as contracting agent for the P.C. in connection
with such facility or program contracts.
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n. Protecting Goodwill. Take all necessary steps to preserve
and protect the reputation and goodwill associated with the P.C., including
assistance, if requested, in the monitoring of utilization and quality of
services provided by the P.C., and shall assist the P.C. to take all steps
necessary to remedy any and all deficiencies in the efficiency or the quality of
the services provided. This section shall not be construed as permitting the
Manager to influence or control the professional aspects of the Practice or the
Professional Personnel.
o. Operations and Regulatory Reports. Deliver to the P.C.
operations reports containing such information as the P.C. may reasonably
request. The Manager shall prepare all written reports and information that
shall be lawfully required by any government body or agency having jurisdiction
over the Practice or the P.C. The P.C. shall review and approve all such
required reports and/or information before any dissemination of the same.
p. Processing Disputes. Administer and process all disputes,
grievances and complaints between the P.C. and all third parties, subject at all
times to the review and final approval of the P.C.
q. Government Regulations; Licenses. To the extent known and
material to the operation of the P.C. and the Practice, the Manager shall
promptly notify the P.C. of any changes which may occur in relevant laws or
regulations of any government, governmental body or agency having jurisdiction
over the Practice or the P.C. The foregoing shall not in any way limit the
P.C.'s continuing professional and legal responsibility to comply with, and be
aware of, all licensing, regulatory, professional or other requirements
applicable to individuals licensed to provide dental services.
r. Advances to the P.C. The Manager shall make advances to the
P.C. as provided by Section 5.6 herein. Such advances shall bear a reasonable
rate of interest, as mutually agreed to by the Manager and the P.C., payable
monthly.
The Covered Services shall include assumption of all
obligations of the P.C. to provide administrative services to Professional
Personnel who are not employed by the P.C. The Manager may perform the Covered
Services directly or by reimbursing the P.C. for the cost of any Covered
Services.
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2.2 Performance of Services. The Manager is hereby expressly
authorized to perform the Covered Services hereunder in whatever reasonable
manner it deems appropriate to meet the day-to-day business administrative needs
of the Practice. It is understood and agreed that the Manager will perform some
of the Covered Services for the P.C. at a centralized location.
2.3 Events Excusing Performance. The Manager will not be liable to
the P.C. for failure to perform any of the services required herein in the event
of strikes, lockouts, calamities, acts of God, unavailability of supplies or
other events over which the Manager has no control for so long as such event
continues and for a reasonable period of time thereafter.
2.4 Excluded Services. The parties hereto expressly acknowledge that
the provision of all professional services, including but not limited to, dental
services by the P.C., shall be separate and independent from the provision of
administrative, fiscal and support services by the Manager, and the P.C. shall
be solely and exclusively responsible for all professional services rendered to
patients of the Practice. Without limiting the generality of the foregoing, the
parties acknowledge that the P.C. shall be responsible for setting professional
standards of the Practice and shall be responsible for the employment and
discharge of all Professional Personnel.
2.5 Use of Name. The Manager hereby grants to the P.C. a
nontransferable, nonexclusive license to use the proprietary names owned by the
Manager and used by the P.C. in connection with the Practice along with any and
all trademarked symbols for the term of this Agreement (the "License"). All
applicable common law and statutory rights in the proprietary names owned by the
Manager and used by the Practice and their accompanying symbols, including, but
not limited to, rights relating to trademarks, service marks, patents and
copyrights shall be and remain the sole property of the Manager. The P.C. shall
have no right, title or interest in any such proprietary rights.
<PAGE> 7
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ARTICLE 3
PROPRIETARY INTEREST AND RIGHTS OF THE MANAGER
3.1 Competition. During the term of this Agreement, neither the P.C.
nor any shareholder of the P.C. shall, directly or indirectly, own an interest
in, administer, manage, advise, assist, operate, join, control, participate in,
or be connected in any manner with any corporation, partnership, proprietorship,
firm, association, person or entity providing dental services or administrative
services in competition with the P.C. or the Manager.
3.2 Confidentiality. The P.C. acknowledges and agrees that the
Manager is entitled to prevent its competitors from obtaining and utilizing its
trade secrets. The P.C. agrees to hold the Manager's trade secrets in strictest
confidence and not to disclose them or allow them to be disclosed directly or
indirectly to any person or entity other than persons engaged by the P.C. or the
Manager. The P.C. acknowledges its fiduciary obligations to the Manager and the
confidentiality of its relationship with the Manager and of any information
relating to the services and business methods of the Manager which it may obtain
during the term of this Agreement. The P.C. shall not, either during the term of
this Agreement or at any time after the expiration or sooner termination of this
Agreement, disclose to anyone other than employees or independent contractors of
the P.C. or the Manager any confidential or proprietary information or trade
secret obtained by the P.C. from the Manager. The P.C. also agrees to place any
persons to whom said information is disclosed for the purpose of performance
under legal obligation to treat such information as strictly confidential.
ARTICLE 4
BILLING AGENT AGREEMENT
4.1 Professional and Other Fees. The P.C. shall, in consultation
with the Manager, establish a schedule of fees and charges for the Practice's
professional services or shall comply with the schedule of fees and charges set
forth in the health care contracts pursuant to which the P.C. provides services
through its Professional Personnel.
4.2 Billings. Billings of the Practice for all services rendered by
the P.C. shall be by and in the name of the P.C.
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4.3 Billing and Collection Agent. The Manager shall serve as billing
and collection agent for the P.C. The Manager shall establish a depository bank
account on behalf of the Practice and will deposit into such account collected
fees generated from the Practice. As provided for in standing instructions
issued by the P.C. to the bank where such depository account is located, the
Manager may withdraw all monies daily from said bank account for processing at a
central location to be used for payment of the P.C.'s expenses, including the
amounts payable to the Manager pursuant to Section 5.1 hereof and any amounts
advanced to the P.C. pursuant to Section 5.3 hereof. Said processing will
consist of establishing and maintaining a book account for the P.C. showing all
fee collections and expense disbursements made by the Manager at the P.C.'s
request. The Manager will provide the P.C. with periodic financial statements
for the Practice reflecting such processing.
4.4 Reports. The Manager shall provide the P.C. with financial
statements for the Practice, stating gross revenues and amounts to be paid to
the Manager pursuant to Section 5.1 hereof.
4.5 Security for the Manager's Compensation. To secure the prompt
and orderly payment of any amounts owing by the P.C. to the Manager pursuant to
this Agreement, the P.C. hereby agrees to grant, at the request of the Manager,
a security interest to the Manager or to a third-party designated by the
Manager, in all its existing and hereafter created accounts receivable, all cash
or non-cash proceeds therefrom, all insurance policies and proceeds relating
thereto, and all of the P.C.'s rights as an unpaid provider of services, whether
now existing or hereafter created or acquired (collectively, the "Collateral").
The P.C. agrees to execute any and all documents necessary to perfect such
security interest, including but not limited to, UCC financing statements.
ARTICLE 5
FEES
5.1 Fees Payable to the Manager. The P.C. agrees to pay the Manager
for the provision of the Covered Services and the License and all other services
provided hereunder as follows:
a. A monthly license fee for the License in the amount
of $______ per clinic location;
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b. Monthly reimbursement of all of the Manager's direct
costs (i.e. payroll, supplies, travel, etc.) allocated to the P.C.,
in the Manager's discretion;
c. Monthly reimbursement of all of the Manager's direct
costs of acquiring and/or leasing and maintaining the Leased Assets
provided to the Practice;
d. Monthly reimbursement of all of the Manager's direct
costs incurred in the provision of purchasing services and
maintaining furniture, fixtures and equipment provided to the
Practice;
e. Monthly reimbursement of all of the Manager's direct
costs incurred in the provision of the Marketing Services, with a
ten percent (10%) markup for overhead and administration and a
fifteen percent (15%) markup for profit on such costs; and
f. A per clinic location administrative fee (the
"Administration Fee") of $_______ per year payable in equal monthly
installments of $______ per month on the first day of each month of
this Agreement and subject to renegotiation by either party hereto
on each anniversary of this Agreement. The Administration Fee is
intended to compensate the Manager for its unallocated overhead and
a reasonable profit.
5.2 Fair and Reasonable Compensation of the P.C. for Services of
Professional Personnel. The parties hereto agree that the P.C. shall have the
right to fairly and reasonably compensate its Professional Personnel for their
professional services. Compensation for the Professional Personnel shall be
determined in accordance with employment agreements and other employment
arrangements entered into between the P.C., in consultation with the Manager,
and the Professional Personnel.
5.3 Remittances. To the extent the P.C. shall not generate adequate
revenues to meet the P.C.'s ongoing operating expenses, including the
compensation for professional services pursuant to Section 5.2 of this
Agreement, the Manager shall advance to the P.C. or arrange for such amounts as
may be required. To the extent that the Manager advances any funds to the P.C.
pursuant to this Section 5.3, such advances shall be evidenced by
interest-bearing demand note(s) from the P.C. in favor of the Manager and shall
be secured by the Collateral as provided in Section 4.5 hereof.
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5.4 Periodic Adjustment of Compensation. The parties hereto
recognize that the Practice may change in size and scope over the term of this
Agreement which may necessitate adjusting the fees provided for herein.
Therefore, the parties shall review the compensation to the Manager no less
frequently than annually and more frequently at the request of the Manager or
the P.C., if changes in the business of the P.C. or services by the Manager
warrant such more frequent review, and may agree in writing to modification of
the compensation. Such review shall consider the scope of operations pursuant to
this Agreement at the time of review, the financial success of the Manager and
the P.C., changes in the purchasing power of money, the size and number of
facilities being supplied by the Manager, the scope of the Marketing Services,
the size of the Administrative Personnel workforce and the expenses and risks to
the respective parties of performing this Agreement.
ARTICLE 6
TERM AND TERMINATION
6.1 Term. Unless sooner terminated in accordance with Section 6.2
hereof, the term of this Agreement shall be for a period of forty (40) years and
thereafter this Agreement shall continue indefinitely until terminated in
accordance with Section 6.2(e) hereof.
6.2 Termination. Notwithstanding any provision of this Agreement to
the contrary, this Agreement may be terminated as set forth below:
a. In the event of a material breach of this Agreement
by either party as a result of such party's gross negligence or
fraud, the other party may, at any time commencing sixty (60) days
after written notice of the breach has been given to the breaching
party, terminate this Agreement by delivery to the breaching party
of a further written notice of termination; provided, however, that
if the breaching party, prior to receiving such notice of
termination, has begun and is diligently continuing good faith
efforts to cure such breach, this Agreement shall remain in full
force and effect;
b. If either party is determined by a court,
administrative body or peer review organization having jurisdiction,
to have engaged in conduct that results in material harm to the P.C.
and constitutes
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(i) a felony or other crime involving moral turpitude, including
fraud, theft, or embezzlement or (ii) a failure to act in an ethical
or professional manner, in keeping with accepted dental care
standards, then immediately upon notice by the other party;
c. If either party has engaged in any practice that
results in material harm to the P.C. and violates in any material
respect any federal, state or local law or regulation that is aimed
at protecting the public from coercion into treatment and preventing
fraud upon or abuse of public funding of health services, then
immediately upon notice by the other party;
d. If either party commences a voluntary case under
bankruptcy, insolvency or similar law, or any involuntary case is
commenced against either party under any bankruptcy, insolvency or
similar law and such involuntary case is not dismissed within thirty
(30) days after filing, then immediately upon notice from the other
party; or
e. After the initial forty (40) year term of this
Agreement, either party may also terminate this Agreement, with or
without cause, by giving the other written notice of termination not
less than one (1) year prior to the effective date of termination.
6.3 Rights Upon Termination. The termination of this Agreement shall
not release or discharge either party from any obligation, debt or liability
which shall have previously accrued and remains to be performed upon the date of
termination.
ARTICLE 7
GENERAL PROVISIONS
7.1 Indemnification. Each party shall indemnify, hold harmless and
defend the other party from and against any liability, loss, claims, lawsuits,
damages, injury, cost, expense or other detriment arising out of or incident to
the performance or nonperformance under this Agreement by such indemnifying
party, its employees, Professional Personnel (in the case of the P.C.),
Administrative Personnel (in the case of the Manager) and agents, including,
without limitation, all consequential damages and attorneys' fees, provided,
however, neither party shall be liable to the other under this Section 7.1 for
any claim
<PAGE> 12
12
covered by insurance, except to the extent liability of the party exceeds the
amount of the coverage.
7.2 Assignment. The rights conferred upon the P.C. hereunder may not
be transferred or assigned without the prior written consent of the Manager and
any assignment in violation of this Section 7.2 shall be void. This Agreement
shall be assignable by the Manager.
7.3 Notices. All notices, requests or instructions hereunder shall
be in writing and delivered personally or sent by registered or certified mail,
postage prepaid, as follows:
(1) If to the P.C.:
(2) If to the Manager:
c/o Valley Forge Dental Associates, Inc.
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telephone No.: (610) 992-3319
Telecopy No: (610) 992-3392
Either of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, and five (5) business days after the date of mailing, if
mailed.
7.4 Entire Agreement. This Agreement and the documents referred to
herein contain the entire agreement between the parties hereto with respect to
the transactions contemplated hereby, and no modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.
7.5 Further Assurances. Each of the parties hereto shall use such
party's best efforts to take such actions as may be necessary or reasonably
requested by the other party hereto to carry out and consummate the transactions
contemplated by this Agreement.
<PAGE> 13
13
7.6 Attorneys Fees. Each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the transactions
contemplated hereby.
7.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of __________ applicable to agreements
made and to be performed entirely within such State, without regard to any
conflict of laws principles which would apply the laws of any other
jurisdiction.
7.8 Article and Section Headings. The article and section headings
in this Agreement are inserted solely for convenience of reference and are not a
part of and are not intended to govern, limit or aid in the construction of any
term or provision hereof.
7.9 Waiver. The waiver of any covenant, condition or duty hereunder
by either party shall not prevent that party from later insisting upon full
performance of the same.
7.10 Amendment. No amendment in the terms of this Agreement shall be
binding on either party unless in writing and executed by the duly authorized
representatives of each party.
7.11 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and both of which taken together
shall constitute one and the same instrument.
7.12 Severability. In the event that any provision of this Agreement
shall be held to be void or unenforceable for any reason, the parties shall
negotiate in good faith for a period of up to one hundred eighty (180) days in
order to arrive at a mutually acceptable substitute provision.
* * *
<PAGE> 14
14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the date first above
written.
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10(tt)
FORM OF OPTION LETTER
, 199
Valley Forge Dental Associates, Inc.
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Dear Sirs:
The undersigned, ("Dr. "), hereby agrees
with Valley Forge Dental Associates, Inc., a Delaware corporation ("VFD"), as
follows:
1. In consideration of Ten Dollars ($10.00) in hand paid to Dr.
by VFD, Dr. hereby grants to VFD (or its designee) the irrevocable,
unconditional option (the "P.C. Option") to purchase from Dr. all (but
not less than all) of the issued and outstanding shares of capital stock (the
"P.C. Stock") of , P.C., a professional corporation (the
"P.C."), owned by Dr. , for a purchase price of $100.00. The P.C. Option
shall be exercisable by VFD (or its designee) (i) in the event that the
ownership of the P.C. Stock by VFD would not violate any law or applicable
regulation of the State of or any governmental or regulatory body
thereof, or (ii) in the event that VFD determines to transfer the P.C. Stock to
a person designated by VFD qualified under applicable law and regulations to own
the P.C. Stock. VFD agrees that the P.C. Option shall be exercised in a manner
to ensure that the ownership of the P.C. Stock will not violate any laws or
regulations. VFD shall give Dr. notice of the transfer of the P.C. Stock
upon the exercise of the P.C. Option.
2. VFD hereby agrees to indemnify Dr. and to hold him harmless
from and against any and all loss, damage, cost or expense (including, but not
limited to, reasonable attorneys' fees) suffered or incurred by Dr.
arising out of any claim relating to his position as a shareholder, director or
officer of the P.C., as applicable (and not alleging negligence or willful
misconduct on the part of Dr. ), of which Dr. promptly notifies
VFD in writing. VFD shall have
<PAGE> 2
Valley Forge Dental Associates, Inc.
__________ __, 199_
Page 2
the right to assume the defense of any such indemnified claim and Dr.
shall not settle any such claim without VFD's prior written consent.
3. The P.C. Option shall be binding upon Dr. and his heirs,
executors, administrators, successors and assigns, and upon any assignee or
transferee of the P.C. Stock, by operation of law or otherwise.
4. Nothing contained herein shall be deemed to give to VFD a present
ownership or security interest in the P.C. Stock.
If the foregoing accurately sets forth the agreement between us, kindly
execute the enclosed counterpart of this letter in the space indicated below
for such purpose and return such signed counterpart to the undersigned,
whereupon this letter shall become a binding agreement between us.
Very truly yours,
Agreed and Accepted:
VALLEY FORGE DENTAL ASSOCIATES, INC.
By _______________________________
Name:
Title:
<PAGE> 1
EXHIBIT 11
VALLEY FORGE DENTAL ASSOCIATES, INC.
COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED SIX MONTHS
DECEMBER 31, JUNE 30, ENDED
------------------------- 1996 JUNE 30,
1995 1996 (UNAUDITED) 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding(1)........................... $4,335,070 $4,335,070 $4,335,070 $4,335,070
---------- ---------- ---------- ----------
Common stock options, as if converted(2)... 25,840 25,840 25,840 25,840
---------- ---------- ---------- ----------
Pro forma common and common equivalent
shares................................... 4,360,910 4,360,910 4,360,910 4,360,910
---------- ---------- ---------- ----------
Common equivalent -- debt retired.......... 121,538 428,775 387,621 1,291,094
---------- ---------- ---------- ----------
Supplemental common and common equivalent
shares................................... 4,482,448 4,789,685 4,748,531 5,652,004
---------- ---------- ---------- ----------
Historical net loss........................ (383,984) (502,884) (220,490) (292,236)
---------- ---------- ---------- ----------
Add -- accretion of mandatorily redeemable
common stock............................. -- -- -- 153,541
---------- ---------- ---------- ----------
Pro forma net loss......................... (383,984) (502,884) (220,490) (138,695)
---------- ---------- ---------- ----------
Add -- dividends on preferred shares....... 16,000 64,000 32,000 32,000
Add -- elimination of interest upon assumed
payment of debt.......................... 12,635 344,377 143,745 461,693
---------- ---------- ---------- ----------
Supplemental net income per common and
common equivalents....................... $ (355,349) $ (94,507) $ (44,745) $ 354,998
========== ========== ========== ==========
Historical net loss per weighted average
common equivalent........................ $ (0.09) $ (0.12) $ (0.05) $ (0.07)
---------- ---------- ---------- ----------
Pro forma net loss per weighted average
common equivalent........................ (0.09) (0.12) (0.05) (0.03)
---------- ---------- ---------- ----------
Supplemental net (loss) income per weighted
average common equivalent................ $ (0.08) $ (0.02) $ (0.01) $ 0.06
---------- ---------- ---------- ----------
</TABLE>
- ---------------
(1) Calculated using the treasury stock method.
(2) Common stock options, as if converted issued at prices below the public
offering price during the 12 months immediately preceding the filing of this
initial Registration Statement and through the effective date of such
Registration Statement have been calculated using the treasury stock method
based upon the estimated initial public offering price and have been
included in all years regardless of whether they are dilutive.
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
VFD of Georgia, Inc., a Delaware corporation
VFD of Pennsylvania, Inc., a Delaware corporation
VFD of Pittsburgh, Inc., a Pennsylvania corporation
VFD Realty, Inc., a Delaware corporation
Horizon Group International, Inc., an Ohio corporation
Precise Dental Lab. Inc., an Ohio corporation
ProDent, Inc., a Pennsylvania corporation
Riverhearst, Inc., a Delaware corporation
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1536643
<SECURITIES> 0
<RECEIVABLES> 3166922
<ALLOWANCES> 962627
<INVENTORY> 0
<CURRENT-ASSETS> 3955138
<PP&E> 2197925
<DEPRECIATION> 0
<TOTAL-ASSETS> 29395666
<CURRENT-LIABILITIES> 7694722
<BONDS> 0
912000
0
<COMMON> 40109
<OTHER-SE> 207887
<TOTAL-LIABILITY-AND-EQUITY> 29395666
<SALES> 13141093
<TOTAL-REVENUES> 13141093
<CGS> 0
<TOTAL-COSTS> 11219479
<OTHER-EXPENSES> 1433704
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 594605
<INCOME-PRETAX> (106695)
<INCOME-TAX> 0
<INCOME-CONTINUING> (106695)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (106695)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 567779
<SECURITIES> 0
<RECEIVABLES> 1839261
<ALLOWANCES> 386884
<INVENTORY> 0
<CURRENT-ASSETS> 2146556
<PP&E> 1077071
<DEPRECIATION> 193515
<TOTAL-ASSETS> 12162108
<CURRENT-LIABILITIES> 4485718
<BONDS> 0
880000
0
<COMMON> 37925
<OTHER-SE> 346793
<TOTAL-LIABILITY-AND-EQUITY> 12162108
<SALES> 15448459
<TOTAL-REVENUES> 15448459
<CGS> 0
<TOTAL-COSTS> 13366206
<OTHER-EXPENSES> 1749995
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 495009
<INCOME-PRETAX> (162751)
<INCOME-TAX> 276133
<INCOME-CONTINUING> (438884)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (438884)
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
