<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
HEALTHDRIVE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 8741 04-3052905
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>
------------------------
25 NEEDHAM STREET
NEWTON, MA 02161-1615
(617) 964-6681
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
STEVEN S. CHARLAP, M.D.
CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE OFFICER AND PRESIDENT
HealthDrive Corporation
25 Needham Street
Newton, MA 02161-1615
(617) 964-6681
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
VICTOR J. PACI, ESQ. DAVID F. DIETZ, P.C.
JOHAN V. BRIGHAM, ESQ. LIZETTE M. PEREZ, ESQ.
Bingham Dana LLP Goodwin, Procter & Hoar LLP
150 Federal Street Exchange Place
Boston, MA 02110-1726 Boston, MA 02109-2881
(617) 951-8000 (617) 570-1000
</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 basis
pursuant to Rule 415 under the Securities Act of 1933 check the following
box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same
offering. / / ________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 1,840,000 $7.00 $12,880,000 $3,799.60
</TABLE>
(1) Includes up to 240,000 shares of Common Stock which the Underwriters have
the option to purchase from the Company and certain Selling Stockholders to
cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 9, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
1,600,000 SHARES
[LOGO]
COMMON STOCK
All of the 1,600,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of HealthDrive Corporation (the "Company") offered hereby (the
"Offering") are being sold by the Company. Prior to this offering, there has
been no public market for the Common Stock. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price. The
Company has applied to have the Common Stock included for quotation on the
Nasdaq SmallCap Market under the symbol "HDMD."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
SUBSTANTIAL IMMEDIATE DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
---------------------
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) Excludes a non-accountable expense allowance equal to three percent (3.0%)
of the total proceeds from the sale of the Common Stock payable to H.C.
Wainwright & Co., Inc., the representative of the Underwriters (the
"Representative"), and the value of warrants to be issued to the
Representative to purchase the number of shares of Common Stock equal to ten
percent (10%) of the number of shares being offered hereby at an exercise
price of 120% of the Price to Public (the "Representative's Warrants"). In
addition, the Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
to be $ ($ , if the Underwriter's over-allotment option is
exercised in full), including the Representative's non-accountable expense
allowance. See "Underwriting."
(3) The Company and certain stockholders of the Company (the "Selling
Stockholders") have granted to the Underwriters a 30-day option to purchase
up to 240,000 additional shares of Common Stock, on the same terms as set
forth above, solely to cover over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discount, Proceeds to Company and proceeds to Selling Stockholders will be
$ , $ $ and , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are being offered severally by the Underwriters
named herein, subject to prior sale, when, as and if issued to and accepted by
them, subject to the approval of certain legal matters by counsel for the
Underwriters and to certain other conditions. The Underwriters reserve the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part. It is expected that delivery of the shares of Common Stock will be made in
Boston, Massachusetts on or about , 1998.
H.C. WAINWRIGHT & CO., INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[Map indicating in which states the Company currently operates.]
[Chart indicating which of the four major services provided by the Company's
Medical and Dental Practices are provided in each states in which the Company
operates.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
------------------------
HealthDrive-TM-, CustomCare-TM- and the Company's logo are trademarks of the
Company. This Prospectus also includes trademarks of companies other than the
Company.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS. POTENTIAL
PURCHASERS OF THE COMMON STOCK SHOULD READ CAREFULLY THIS PROSPECTUS IN ITS
ENTIRETY AND SHOULD CONSIDER CAREFULLY THE FACTORS IDENTIFIED UNDER "RISK
FACTORS." EXCEPT AS OTHERWISE INDICATED, THE INFORMATION CONTAINED HEREIN: (I)
ASSUMES THE CONVERSION OF 571,428 SHARES OF THE COMPANY'S CLASS A CONVERTIBLE
PREFERRED STOCK ("CLASS A PREFERRED STOCK") AND 181,818 SHARES OF THE COMPANY'S
CLASS B CONVERTIBLE PREFERRED STOCK ("CLASS B PREFERRED STOCK") HELD BY DCC
INTERNATIONAL HOLDINGS B.V. ("DCC HOLDINGS") INTO 753,246 SHARES OF COMMON STOCK
UPON THE CLOSING OF THE OFFERING; AND (II) ASSUMES THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED.
THE COMPANY
HealthDrive Corporation (the "Company"), through four exclusively affiliated
professional corporations and one exclusively affiliated taxable not-for-profit
corporation (collectively, the "Medical and Dental Practices," and each, a
"Practice"), is a leading provider of on-site geriatric health care services
primarily to residents of nursing homes. The Company's Medical and Dental
Practices also provide services to a growing number of residents of assisted
living facilities ("ALFs") and independent living senior housing facilities
("ILFs" and, collectively with nursing homes and ALFs, "LTCFs"). Physicians,
dentists and ancillary health care service providers employed by the Medical and
Dental Practices ("Providers") travel to LTCFs where they provide a growing
range of geriatric medical and dental services. Services currently provided by
the Medical and Dental Practices include dentistry, optometry, podiatry,
audiology, and primary care. As of March 15, 1998, the Medical and Dental
Practices employed 101 Providers who were rendering services at approximately
859 LTCFs located in 11 states. The Company, headquartered in Newton,
Massachusetts, operates four regional offices located in Massachusetts,
Connecticut, Pennsylvania and Wisconsin.
The Company has positioned itself to capitalize on important trends shaping
geriatric care in the United States including: (i) changing demographics; (ii)
evolving care protocols and disease management techniques; and (iii) changing
reimbursement methodologies driven by federal legislation. Currently, there are
approximately 15,300 nursing homes serving approximately 1.7 million residents
nationwide. In addition, it is estimated that there are approximately 14,500
ALFs and ILFs nationwide. According to the U.S. Census Bureau, the portion of
the U.S. population aged 75 to 85 is expected to increase by 27.0%, from
approximately 10.0 million in 1990 to approximately 12.7 million by the year
2010, and the number of persons aged 85 and older is expected to increase by
90.0%, from approximately 3.0 million in 1990 to approximately 5.7 million by
the year 2010. According to the United States General Accounting Office, the
number of Americans aged 65 years and older who need assistance with activities
of daily living is expected to double from approximately 7.0 million in 1997 to
approximately 14.0 million by 2020. Nursing home residents require frequent
medical care and often suffer from decreased mobility which makes it difficult
for them to visit off-site physicians. The Company considers itself to be an
innovator in coordinating the delivery of a broad spectrum of on-site geriatric
medical and dental services to residents of LTCFs. In order to do so
effectively, the Company has developed proprietary systems, procedures and
expertise that aid it in the complex task of providing a range of geriatric
medical and dental services to a large number and variety of LTCF residents. The
Company believes such systems, procedures and expertise give it a significant
competitive advantage over other health care services providers.
The Company was founded in 1989 by Steven S. Charlap, M.D. and Alec H.
Jaret, D.M.D. to respond to the growing demand for convenient on-site dental
care services at nursing homes. The Company, through its first Practice,
initially provided dental care services to residents of nursing homes in
Massachusetts. Subsequently, optometry, podiatry, audiology and, in the case of
Massachusetts, primary care services, were added, and the Company expanded its
operations into ten other states.
Nursing homes are required by the Omnibus Budget Reconciliation Act ("OBRA")
of 1987 to ensure that medical and dental services are made available to their
residents. In addition, while not required to do
1
<PAGE>
so, certain ALFs and ILFs in the Company's markets have begun to make on-site
medical and dental services available to their residents. Historically, it has
not been cost-effective for LTCFs to use their own resources to satisfy their
residents' medical and dental service needs, and they have looked to single-
specialty solo health care service providers ("Solo Providers") to meet such
needs. Providing the range of geriatric medical and dental services required by
LTCF residents through Solo Providers imposes a number of increasingly complex
burdens on LTCFs which include: (i) identifying and contracting with multiple,
competent Solo Providers to provide on-site services; (ii) allocating LTCF staff
to coordinate the services of such Solo Providers; (iii) monitoring the
appropriateness of services provided and related billings; (iv) complying with
related federal and state health care regulations; and (v) when necessary,
transporting residents off-site to receive such services.
The Balanced Budget Act of 1997 requires the Health Care Finance
Administration ("HCFA") by July 1, 1998 to begin converting from a cost-plus
reimbursement methodology to the Prospective Payment System ("PPS") for nursing
homes, pursuant to which the federal government will pay a per diem rate to
nursing homes for post-hospitalization services provided to their Medicare
covered residents. The Company believes that as a result of the change to PPS,
nursing homes will need to increase their focus on the efficiency and quality of
all of their operations to maximize their profitability. PPS does not cover
physician-related services such as those provided by the Medical and Dental
Practices. However, the Company believes an increased focus on efficiency and
quality will make the use of integrated providers of multiple medical and dental
services, such as the Medical and Dental Practices, more attractive than the use
of multiple Solo Providers.
The Company offers an efficient alternative to Solo Providers by
coordinating on-site, integrated and cost-effective geriatric medical and dental
services. The rendering of such services requires: (i) multi-specialty clinical
expertise; (ii) a staff of highly qualified health care service providers; (iii)
the purchase and maintenance of specialized equipment; (iv) the development of
sophisticated management information systems; and (v) reimbursement and
regulatory knowledge. The Company has eight years of experience coordinating
such services. As a result, it has gained expertise in developing clinical
programs, recruiting health care providers and navigating complex reimbursement
systems and state and federal health care laws. In addition, it has developed
proprietary procedures, systems and software necessary to overcome the
logistical complexities involved in coordinating on-site care. Specifically, the
Company has developed CustomCare, a proprietary software program that enhances
the Company's customer service capabilities by effectively integrating all
facets of the Company's services, including scheduling, billing, tracking
dentures and eyeglasses, coordinating transportation, compiling Provider
productivity and patient utilization data, monitoring payor pre-approvals, and
generating customized reports.
The Medical and Dental Practices were established by the Company and are
associated with the Company through individual operating agreements
(collectively, the "Operating Agreements") under which support services are
furnished. Pursuant to the Operating Agreements, the Company is solely
responsible for all operational aspects of the Medical and Dental Practices,
other than providing medical and dental services. Accordingly, the Medical and
Dental Practices employ the Providers and contract with LTCFs.
The Company's primary objective is to become a dominant provider, through
its Medical and Dental Practices, of on-site, integrated and cost-effective
geriatric medical and dental services to residents of LTCFs. The Company has
identified three opportunities for growth: (i) obtaining service contracts with
additional LTCFs in existing and contiguous markets; (ii) increasing the number
of service contracts with LTCFs under existing contracts; and (iii) increasing
the number of patients served within LTCFs under existing contracts. The Company
has determined four means of capitalizing on such opportunities to achieve
growth within both existing geographic markets and new geographic markets. These
include: (i) increasing its sales and marketing initiatives; (ii) expanding its
existing customer relationships; (iii) leveraging its operational infrastructure
and its existing and planned management information systems; and (iv)
coordinating the acquisition of other LTCF-focused practices by the Medical and
Dental Practices.
The Company was incorporated in Delaware in May 1989. Its corporate
headquarters are located at 25 Needham Street, Newton, Massachusetts 02161 and
its telephone number is (617) 964-6681.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered by the Company.......... 1,600,000 shares
Common Stock outstanding prior to the
Offering(1)...................................... 2,763,246 shares
Common Stock to be outstanding after the Offering
(2).............................................. 4,363,246 shares
Use of Proceeds.................................... To repay the amount outstanding under
an existing credit facility, finance
acquisitions, enhance management
information systems, expand sales and
marketing initiatives and for working
capital. See "Use of Proceeds."
Proposed Nasdaq SmallCap Market symbol............. HDMD
</TABLE>
- ------------------------
(1) Adjusted to give effect to the automatic conversion upon the closing of the
Offering of all outstanding shares of the Company's Class A Preferred Stock
and Class B Preferred Stock into an aggregate of 753,246 shares of Common
Stock.
(2) Does not include: (i) 437,700 shares of Common Stock reserved for issuance
upon the exercise of outstanding options granted pursuant to the Company's
Second Amended and Restated 1992 Stock Option Plan (the "Stock Option
Plan"), and up to 301,175 additional shares reserved for issuance upon the
exercise of options that may be granted in the future under the Stock Option
Plan; and (ii) 160,000 shares of Common Stock (184,000 shares if the
over-allotment option is exercised in full) reserved for issuance upon the
exercise of the Representative's Warrants. See "Use of Proceeds" and
"Underwriting."
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenue.................................................... $ 4,272 $ 6,778 $ 8,575 $ 11,006 $ 12,930
Direct patient care costs...................................... 2,914 4,136 5,362 7,020 8,213
Selling, general and administrative expenses................... 1,512 2,104 3,218 4,880 4,602
Income (loss) from operations.................................. (154) 538 (5) (894) 115
Net income (loss).............................................. $ (148) $ 314 -- $ (745) $ 55
Net income (loss) per common and potential common share:
Basic........................................................ -- $ (0.37) $ 0.03
Diluted...................................................... -- (0.37) 0.02
Pro forma diluted (1)........................................ -- (0.27) 0.02
Weighted average common and potential common shares
outstanding:
Basic........................................................ 2,000 2,001 2,010
Diluted...................................................... 2,825 2,001 2,883
Pro forma diluted (1)........................................ 2,825 2,754 2,883
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
PRO AS
ACTUAL FORMA(2) ADJUSTED(2)(3)
--------- ----------- ----------------
<S> <C> <C> <C>
DECEMBER 31, 1997
----------------------------------------
BALANCE SHEET DATA:
Cash and cash equivalents.................................................. $ 15 $ 15 $ 9,601
Working capital............................................................ 712 712 10,298
Total assets............................................................... 2,713 2,713 12,299
Capital lease obligations, net of current portion.......................... 56 56 56
Redeemable convertible preferred stock..................................... 1,950 -- --
Total shareholders' equity (deficit)....................................... (551) 1,399 10,985
</TABLE>
- ------------------------
(1) Computed on the basis described in Note 2(i) of Notes to Financial
Statements.
(2) Adjusted to give effect to the automatic conversion upon the closing of the
Offering of all outstanding shares of the Company's Class A Preferred Stock
and Class B Preferred Stock into an aggregate of 753,246 shares of Common
Stock.
(3) Adjusted to give effect to the sale of 1,600,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$7.00 per share, after deducting the underwriting discount and estimated
offering expenses.
3
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING RISK FACTORS
SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY.
HISTORICAL LOSSES; QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
Although the Company generated net income for its fiscal years ended
December 31, 1997 and December 31, 1994, it experienced net losses of $745,000
for its fiscal year ended December 31, 1996, and $148,000 for its fiscal year
ended December 31, 1993, and has experienced net losses in other periods on a
quarterly basis. The Company attributes its net loss for the fiscal year ended
December 31, 1996 primarily to increased start-up expenses incurred as the
Company expanded its operations into three new geographic markets. There can be
no assurance that the Company will achieve a specified level of revenues or that
it will remain profitable in future periods. In addition, the Company's
operating results have fluctuated in the past and may continue to fluctuate
significantly from quarter to quarter and from year to year. See "Selected
Condensed Consolidated Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
DEPENDENCE ON MEDICAL AND DENTAL PRACTICES AND OPERATING AGREEMENTS
Four of the Company's Medical and Dental Practices are independent
professional corporations and one is an independent Michigan taxable
not-for-profit corporation. The Company does not own the stock of any of the
Medical and Dental Practices and the Company's revenue is entirely dependent
upon the fees it receives under the Operating Agreements between the Company and
each of its Medical and Dental Practices. As a result, any material adverse
change in the business, financial condition or results of operations of a
Practice could have a material adverse effect on the Company's business,
financial condition and results of operations. Additionally, the termination of
an Operating Agreement (which, with respect to the Medical and Dental Practices,
is permitted in the event of a material default by or bankruptcy of the Company)
could have such an effect on the Company. In the event of a breach of an
Operating Agreement by a Practice, there can be no assurance that the legal
remedies available to the Company will be adequate to compensate the Company for
its damages resulting from such breach. In addition, in the event that an
Operating Agreement is terminated in accordance with its terms, there can be no
assurance that the Company would be able to enter into a new operating agreement
with the terminating Practice, or a new Practice, on satisfactory terms, if at
all. Furthermore, the Operating Agreements contain provisions which obligate the
holders of equity interests in the Medical and Dental Practices to grant a right
of first refusal to acquire such equity interests to an appropriately licensed
health care service provider designated by the Company in the event that such
equity holders desire to discontinue the provision of health care services or
default in the performance of their obligations under the Operating Agreements.
The Operating Agreements contain non-competition and non-solicitation provisions
which prevent each Medical and Dental Practice and their sole equity holder
during the term of the Operating Agreement and for two years thereafter from
competing with the Company or soliciting the Company's employees or LTCFs under
contract with the Medical and Dental Practices or suppliers. There can be no
assurance that these provisions will be enforceable in a given situation. A
determination that these provisions are not enforceable could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Company Structure: Operating Agreements with Medical
and Dental Practices."
4
<PAGE>
RISKS ASSOCIATED WITH UNTESTED CORPORATE STRUCTURE
Although the Company believes that its operations and the operations of the
Medical and Dental Practices are in compliance in all material respects with
federal and state law, including laws and regulations relating to health care
and the corporate practice of medicine and dentistry, the Company has not
received, and in connection with the Offering the Underwriters will not be
receiving, a legal opinion from counsel or any federal or state judicial or
regulatory authority that the operations of the Company and its Medical and
Dental Practices and the relationships among the Company, the Medical and Dental
Practices, the Providers and LTCFs do not violate federal and state health care
laws and regulations. Failure by the Company, the Medical and Dental Practices
and the Providers to operate in compliance with such laws and regulations could
potentially result in, among other things, exclusion from Medicare and Medicaid
and significant civil and/or criminal penalties. Furthermore, if the operations
of the Company and its Medical and Dental Practices and the relationships among
the Company, the Medical and Dental Practices, the Providers and LTCFs are
determined not to be in compliance with such laws and regulations, the Company
may be unable to continue operations under its current structure in one or more
states. In such an event, there can be no assurance that the Company will be
able to modify its operations or establish new relationships among itself, the
Medical and Dental Practices, the Providers and LTCFs that comply with such laws
and regulations, or that operating under any such relationships will not have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, in the event that such operations and
relationships are significantly altered, the Company may be required to make
adjustments in the manner in which its financial condition and results of
operations are reported. There can be no assurance that any such adjustments
will not have a material adverse impact on the price at which the Common Stock
is traded.
RISKS ASSOCIATED WITH POSSIBLE LOSS OF PROVIDERS AND COMPETITION WITH FORMER
PROVIDERS
All of the medical and dental services coordinated by the Company are
provided by physicians, dentists and ancillary health care service providers
employed by the Medical and Dental Practices. Such Providers have most of the
day-to-day interaction with the LTCFs and their residents. The Medical and
Dental Practices have not entered into employment agreements with the Providers.
In the event that a significant number of Providers terminate their employment
with the Medical and Dental Practices or become unwilling or unable to continue
their roles, the Company's business, financial condition and results of
operations could be materially adversely affected. In addition, the Medical and
Dental Practices have encountered difficulty recruiting certain types of
Providers in certain markets and the Medical and Dental Practices have had to
increase offered compensation to secure sufficient Providers in those markets.
There can be no assurance that the Medical and Dental Practices will be able to
attract and retain Providers in all specialties and in sufficient numbers to
service LTCFs currently served and new LTCFs.
Under the Operating Agreements, the Medical and Dental Practices must
require each Provider to enter into a non-competition agreement (the
"Non-Compete Agreements") prohibiting each Provider from competing with the
Company and the Medical and Dental Practices. These covenants generally restrict
the Providers from competing for a period of eighteen months post-termination in
the coordination or provision of dental, medical and ancillary health care
services at corporate and institutional sites in any state in which the Medical
and Dental Practices provide services. They also restrict solicitation by the
Providers of employees and customers of the Company and the Medical and Dental
Practices for such period. There can be no assurance, however, that these
agreements will not be breached, or that, if breached, the Company will have
adequate remedies for such a breach. In addition, in certain of the states in
which the Medical and Dental Practices operate, covenants not to compete with
health care service providers are prohibited or limited by statute, and it is
uncertain whether a court will enforce a covenant not to compete in those states
in a given situation. In addition, there is little judicial authority regarding
whether the Company's interests under the Operating Agreements will be viewed as
the type of protectable business interest that would permit it or one of the
Medical and Dental Practices to enforce such a
5
<PAGE>
covenant. Consequently, there can be no assurance that a court in any particular
state would enforce the covenants not to compete contained in the Non-Compete
Agreements. Since the value of each Operating Agreement to the Company depends
primarily on the ability of the applicable Practice to preserve its business,
which could be harmed if its Providers enter into competition with it, a
determination that such covenants not to compete are unenforceable or are
limited in scope and duration could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business-- Company Structure: Non-Competition Agreements."
RISKS ARISING FROM THE CHANGING HEALTH CARE INDUSTRY
Federal and state governments currently are considering various types of
health care initiatives and comprehensive revisions to the health care system.
Some of the proposals under consideration, or others that may be introduced,
could, if adopted, have a material adverse effect on the Company's business,
financial condition and results of operations. It is uncertain what legislative
programs, if any, will be adopted in the future, or what actions Congress or
state legislatures may take regarding health care reform proposals or
legislation. In addition, changes in the health care industry, such as the
growth of managed care organizations and provider networks, and changes in
reimbursement methodologies and practices, may result in lower payments for
services provided by the Medical and Dental Practices.
REIMBURSEMENT AND COST CONTAINMENT
Management estimates that approximately 71.5% of the revenues of its Medical
and Dental Practices for the fiscal year ended December 31, 1997 were derived
from government sponsored health care programs (Medicare and Medicaid) and
non-government third party payors. The health care industry is experiencing a
trend toward cost containment as government and non-government third party
payors seek to impose lower reimbursement and utilization rates and negotiate
reduced payment schedules with health care service providers. These trends have
caused a reduction in per-patient revenue for the Medical and Dental Practices,
which the Company believes will continue to decrease. Further reductions in
payments to its Medical and Dental Practices or other changes in reimbursement
for health care services could have a material adverse effect on the Company's
business, financial condition and results of operations. Historically, state and
federal sponsored reimbursement programs have been able to deny reimbursement
for procedures that are determined not to have been delivered or inadequate in
quality or otherwise. In addition, such programs routinely conduct post-payment
audits of parties such as the Medical and Dental Practices that seek
reimbursement for services rendered. The Medical and Dental Practices have been
subject to post-payment audits. Although such audits have resulted in only one
significant post-payment adjustment to date, recent events indicate an increase
in such audit activities in the industry generally, and there can be no
assurance that any additional audits conducted in the future will not yield
additional adjustment. The Company has not accrued any liability with respect to
prospective post-payment audits and there can be no assurance that any such
audits will not have a material adverse effect on the Company's business,
financial condition and results of operations. Third party payors may also deny
reimbursement if they decide that a particular treatment was not performed in
accordance with the cost-effective treatment methods specified by such payors or
for other reasons.
The revenues of the Medical and Dental Practices are also affected by
changes in reimbursement methodologies. For example, certain of the states in
which the podiatry Practice operates have replaced a commonly-used reimbursement
procedure code with three different codes, each of which yields a lower
reimbursement amount. It is currently unclear whether one or more of these
procedure codes may be combined in a majority of instances. Accordingly, it is
currently impossible to assess the impact of these procedure code changes on the
Company's business. This particular procedure code adjustment, or other possible
procedure code adjustments that may be adopted by one or more states in the
future, could reduce payments to the Medical and Dental Practices for certain
services, thereby reducing the Company's
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revenues. There can be no assurance that changes in reimbursement procedure
codes will not have a material adverse effect on the Company's business,
financial condition or results of operations.
The federal government has implemented, through the Medicare program, a
resource-based relative value scale ("RBRVS") payment methodology for physician
services. RBRVS is a fee schedule that, except for certain geographical and
other adjustments, pays similarly situated physicians the same amount for the
same services. The RBRVS is adjusted each year, and is subject to increases or
decreases at the discretion of Congress. To date, the implementation of RBRVS
has reduced payment rates for certain of the procedures historically provided by
the Medical and Dental Practices. RBRVS-type of payment systems have also been
adopted by certain non-government third party payors and may become a
predominant payment methodology. Wider-spread implementation of such programs
would reduce payments by non-government third party payors to the Medical and
Dental Practices, thereby reducing the Company's revenues.
There can be no assurance that any or all of these reduced revenues and
operating margins could be offset by the Company through cost reductions,
increased volume, introduction of new procedures by the Medical and Dental
Practices or otherwise. The failure to offset these reduced revenues and
operating margins could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Market
Overview: Prospective Payment, Consolidates Billing and Managed Care."
GROWTH OF MANAGED CARE
The number of individuals covered under managed care contracts or other
similar arrangements has grown over the past several years and may continue to
grow in the future. Entities providing managed care coverage have been
successful in reducing payments for health care services in numerous ways,
including entering into capitated payment arrangements, denying payment for
specified services, refusing payment for specified services unless prior
authorization has been obtained, and refusing to increase fees for specified
services. The continued growth of the managed care industry and its continued
success in reducing payments to health care service providers could have a
material adverse effect on the Company's business, financial condition and
results of operation. See "Business--Market Overview: Prospective Payment,
Consolidated Billing and Managed Care."
GOVERNMENT REGULATION
The operations of the Company and its Medical and Dental Practices and the
relationships between the Company, the Medical and Dental Practices, the
Providers and LTCFs are subject to complex, extensive and increasing regulation
under numerous laws administered by governmental entities at the federal, state
and local levels.
FRAUD AND ABUSE STATUTES. The "anti-kickback" provisions of the Social
Security Act prohibit the payment, offer, solicitation or receipt of any form of
remuneration (including any kickback, bribe or rebate), directly or indirectly,
in return for, or in order to induce, (i) the referral of an individual for an
item or service, (ii) the furnishing of, or arranging the furnishing of, an item
or service, or (iii) the purchase, lease or order, or the arrangement or
recommendation of a purchase, lease or order, of any item or service, which is
reimbursable under Medicare or Medicaid. Other fraud and abuse laws, known as
"Stark I" and "Stark II," prohibit a physician from referring Medicare or
Medicaid patients to an entity providing "designated health services" with which
any such physician or an immediate family member of any such physician has a
financial relationship or compensation arrangement or in which any such
physician or an immediate family member of any such physician has an ownership
or investment interest. Stark II also prohibits billing the Medicare and
Medicaid programs for services rendered following prohibited referrals.
Noncompliance with, or violation of, such fraud and abuse laws can result in
exclusion from the Medicare and Medicaid programs and civil and criminal
penalties. Many states, including those in
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which the Company and the Medical and Dental Practices do business, have enacted
laws similar to the federal statutes which in many cases apply to referrals for
items or services reimbursable by any third party payor. Such laws impose civil
and criminal penalties on physicians, dentists and ancillary health care service
providers who fraudulently or wrongfully bill third party payors or pay or
receive remuneration for referrals for medical and dental services. The Company
believes that the operations of the Company and its Medical and Dental Practices
do not subject them to a material risk under state and federal fraud and abuse
laws, primarily because the Medical and Dental Practices do not refer patients
to each other and the LTCFs receive no remuneration from the Company, the
Medical and Dental Practices or the Providers. In addition, with respect to
Stark I and Stark II, the Medical and Dental Practices do not provide
"designated health services" and do not refer patients to entities providing
"designated health services" as to which the proscribed relationships,
arrangements or interests exist. However, there can be no assurance that such
laws will not be hereafter interpreted or amended in a manner that has a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Government Regulation: Federal
Regulation."
FALSE CLAIMS/QUALITY OF CARE. Under the federal False Claims Act and
similar state laws, criminal, civil and administrative penalties may be imposed
on health care providers who file or participate in the filing of false claims
for reimbursement for the delivery of health care services, including claims
filed under Medicare, Medicaid, and insurance programs. Penalties that
previously were sought primarily in instances of claims filed for services not
actually provided, in whole or in part, or provided by unauthorized providers,
are now being sought in an increasingly broader range of circumstances,
including claiming reimbursement for services that do not comply with quality
and other applicable standards of care. The Medical and Dental Practices have
procedures in place to oversee quality of care, and the Company believes that
these procedures are adequate to assure maintenance of the required level of
quality and standards of care. However, there can be no assurance as to the
adequacy of such procedures or that such laws will not hereafter be interpreted
or amended in a manner that has a material adverse affect on the Company's
business. See "Business--Government Regulation."
REGULATIONS GOVERNING INCENTIVE COMPENSATION ARRANGEMENTS. Federal
regulations promulgated in 1996 under OBRA of 1990 govern physician incentive
plans that subject individual physicians to substantial financial risk in
providing services to Medicare and Medicaid patients. When applicable, the
regulations impose certain disclosure, survey and stop-loss requirements. Such
regulations also prohibit physician incentive plans which induce the limitation
or reduction of covered or medically necessary services. Violations of such
regulations can lead to the imposition of Medicare or Medicaid new member
enrollment suspensions and civil monetary penalties. Although the Company
believes that neither the Company nor any of the Medical and Dental Practices
have entered into contracts that require compliance with such regulations,
increasing efforts both under such regulations and otherwise to regulate risk
assumption in the delivery of health care could adversely affect the Company's
business. See "Business--Government Regulation."
ANTITRUST. Because each of the Medical and Dental Practices is a separate
legal entity, they may be considered to be competitors subject to a range of
antitrust laws prohibiting anti-competitive conduct including price fixing,
concerted refusals to deal and division of market. More particularly,
governmental authorities have interpreted the antitrust laws to prohibit, among
other things, joint negotiations by competitors. The Company intends to comply
with such state and federal antitrust laws as may affect its business, but there
can be no assurance that a review of the Company's operations by courts or
regulatory authorities would not result in a determination that could adversely
affect the business of the Company and the Medical and Dental Practices. See
"Business--Government Regulation."
CORPORATE PRACTICE OF MEDICINE AND "FEE-SPLITTING." The laws of many states
prohibit business corporations, such as the Company, from practicing medicine or
dentistry or performing ancillary services and employing physicians, dentists or
ancillary service providers to practice medicine or dentistry or
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perform ancillary services, respectively. Under the Operating Agreements, the
Medical and Dental Practices retain exclusive control over the delivery of
health care services. As a result, the Company believes that it is not in
violation of applicable laws and regulations governing corporate practice of
medicine, dentistry and ancillary health care services. However, many aspects of
the Company's operations have not been subject to formal state or federal
regulatory interpretation. Furthermore, the laws and regulations governing the
corporate practice of medicine have generally been subject to limited judicial
and regulatory interpretation in most states and are subject to change.
Therefore, no assurances can be given that a review of the Company's
relationships with its Medical and Dental Practices by courts or regulatory
authorities would not result in a determination that could adversely affect the
business, financial condition and results of operations of the Company (for
example, by rendering the Company's Operating Agreement with a Practice
unenforceable) or that the health care regulatory environment will not change so
as to restrict the Company's existing operations or expansion. A number of
states also prohibit "fee-splitting" arrangements between physicians, dentists
or ancillary health care service providers and any party other than physicians,
dentists and such ancillary service providers, respectively, within the same
practice. The Medical and Dental Practices do not refer patients to each other
and the Service Agreements between the Medical and Dental Practices and the
LTCFs do not provide for remuneration to the LTCFs. Therefore, the Company
believes that state prohibitions on "fee-splitting" are not applicable to the
operations of the Company or its Medical and Dental Practices. See
"Business--Government Regulation: State Regulation."
DEPENDENCE ON KEY PERSONNEL; LIMITED MANAGEMENT TEAM
The Company's success depends to a significant extent on Steven S. Charlap,
M.D., the Company's Chairman, Chief Executive Officer and President and sole
equity holder of the audiology and primary care Practice, Michael R. Kaplan, the
Company's Chief Financial Officer and Vice President of Finance, and Alec H.
Jaret D.M.D., the President and sole equity holder of the dentistry Practice.
The loss of Dr. Charlap's, Mr. Kaplan's or Dr. Jaret's services to the Company
would have a material adverse effect on the success of the Company. Furthermore,
if Drs. Charlap and Jaret became unaffiliated with their respective Medical and
Dental Practices, the new equity holder or holders of such Practice could seek
to negotiate changes in the Operating Agreements. The Company has key person
life insurance in the amount of $1.5 million on Dr. Charlap, and the in amount
of $500,000 on Dr. Jaret. Following completion of the Offering, the Company
anticipates recruiting additional officers. The Company's future success will
depend in part on the ability to attract and retain highly qualified personnel
to manage the future growth of the Company. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. The failure to attract and retain such
individuals could materially adversely affect the Company's business, financial
condition and results of operations. See "Management."
POSSIBILITY OF EXPOSURE TO PROFESSIONAL LIABILITY
In recent years, health care providers have become subject to an increasing
number of lawsuits alleging malpractice and related legal theories. Some of
these lawsuits involve large claims and significant defense costs. Any suits
involving the Company, the Medical and Dental Practices or the Providers, if
successful, could result in substantial damage awards. Such an award may exceed
the limits of the Company's and/or the Medical and Dental Practices' insurance
coverage or any insurance the Providers may have individually. Although the
Company does not itself engage in the practice of medicine or dentistry or
provide ancillary health care services or have responsibility for compliance
with certain regulatory and other requirements directly applicable to
physicians, dentists, physician and dental groups and ancillary health care
service providers, there can be no assurance that the Company will not become
subject to litigation in the future as a result of the health care services
provided by its Medical and Dental
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Practices. Furthermore, because the Company's revenue is entirely dependent upon
the fees it receives under the Operating Agreements, any substantial damage
award against its Medical and Dental Practices in excess of their insurance
coverage will have a material adverse effect on the Company's revenues.The
Company maintains general liability insurance for itself and the Operating
Agreements provide that the Medical and Dental Practices must maintain
comprehensive professional liability insurance. While the Company believes that
it and its Medical and Dental Practices have adequate liability insurance
coverage, there can be no assurance that the coverage will be adequate to cover
losses or that coverage will continue to be available upon terms satisfactory to
the Company. In addition, certain types of risks and liabilities, including
penalties and fines imposed by governmental agencies, are not covered by
insurance. Malpractice insurance, moreover, can be expensive and varies from
state to state. There can be no assurance that the cost of such insurance to the
Company in the future will not have a material adverse effect on the Company's
business, financial condition or results of operations. Successful malpractice
claims against the Company or its Medical and Dental Practices could have a
material adverse effect on the Company's business, financial condition and
operating results. See "Business--Insurance."
RISKS ASSOCIATED WITH GROWTH STRATEGY
The Company intends to grow by selectively expanding into new markets and
adding additional services either through the establishment of new operations or
the acquisition of existing LTCF practices by the Medical and Dental Practices.
There can be no assurance that the Company will be able to successfully identify
geographic markets suitable for expansion, establish new regional offices to
serve such additional markets, or through its Medical and Dental Practices
secure the relationships with additional Providers which will be necessary to
provide health care services in such markets. In addition, in pursuing a growth
strategy of expansion into additional geographic markets, the Company will be
required to develop expertise and comply with laws and regulations that may be
significantly different from those applicable to the Company's current
operations as well as face competitors with greater knowledge of such markets
than the Company. To the extent the Company pursues its strategy of establishing
new operations, identifying new geographic markets with potential, recruiting
additional Providers through its Medical and Dental Practices, purchasing
necessary equipment and supplies and, where necessary, establishing a new
regional office can be a lengthy and costly process. Furthermore, because new
operations will have no previous patient bases, significant sales, advertising
and marketing expenditures may be required to secure contracts with LTCFs. There
can be no assurance that the Company will be able to successfully identify
additional health care services for its Medical and Dental Practices to provide,
adapt its and its Medical and Dental Practices' existing operations to provide
such services, or, through its Medical and Dental Practices, secure the
relationships with additional Providers which will be necessary to provide such
services. Furthermore, such an expansion strategy could cause management's time
and resources to be diverted from the Company's existing markets to new markets,
and may require the Company to use the proceeds of the Offering to finance its
expansion into new markets. See "Business--Strategy."
The Company intends to pursue an additional strategy of growth through the
acquisition of existing LTCF practices by the Medical and Dental Practices.
Identifying appropriate acquisition candidates and negotiating and consummating
acquisitions can be a lengthy and costly process. There can be no assurance that
suitable acquisition candidates will be identified, acquisitions will be
consummated on favorable terms, on a timely basis, or at all, or acquired
practices will be successfully integrated with existing operations. To the
extent that the Company is successful in pursuing a strategy of acquisitions of
existing LTCF health care practices by the Medical and Dental Practices, such
acquisitions could involve a number of risks, including the diversion of
management's attention to the assimilation of acquired entities, and have short-
term adverse effects on the Company's operating results. In addition, the
Company has no experience in coordinating acquisitions of existing LTCF-focused
practices by the Medical and Dental Practices.
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RISKS ASSOCIATED WITH ENHANCEMENT OF MANAGEMENT INFORMATION SYSTEM
As part of the Company's growth strategy, the Company intends to capitalize
on its existing billing operations, reimbursement expertise, patient demographic
databases and management information systems by providing clinical data and
consolidated billing services to LTCFs and unaffiliated primary care physicians
who service LTCFs. The Company has never independently marketed a clinical data
and consolidated billing service. The Company believes that market acceptance of
this service depends upon the continued increase in the administrative
complexity of LTCF billing and reimbursement and continued increases in
pressures on LTCFs to be more efficient. No assurance can be given that the
Company will be successful in bringing its independent clinical data and
consolidated billing service to commercial acceptance. Failure to gain market
acceptance may have a material adverse effect on the Company's growth strategy.
To facilitate growth in its current operations, the Company also intends to
use a portion of the net proceeds of the Offering to finance an enhancement of
the Company's current management information system. The development and
implementation of enhancements to the Company's management information system
involves the risk of unanticipated delays and expense, as well as possible
interruptions of current operations, and there can be no assurance that the
Company will be successful in implementing and integrating these enhancements.
Any significant delay or expense associated with such enhancements, or any
interruption in operations caused by the implementation of such enhancements,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
HIGHLY COMPETITIVE INDUSTRY
The health care services industry is highly competitive. The industry is
also subject to continuing changes in how services are provided and how
providers are selected and paid. Many of the Company's current and potential
competitors, including national LTCF operators, are significantly larger, have a
captive group of affiliated potential customers and have greater financial and
marketing resources than the Company. In addition, to the extent that an LTCF
operator which has contracted with the Medical and Dental Practices determines
to provide services similar to those offered by the Company, the Company may
lose the revenue currently generated from services provided by the Medical and
Dental Practices to such LTCFs. In 1997, SunAlliance Healthcare Services, Inc.
("SunAlliance"), a division of Sun Healthcare Group, Inc. ("Sun Healthcare
Group"), adopted such a strategy which the Company believes resulted in the
cancellation of one or more Service Agreements with 20 Sun Healthcare Group
facilities. These contracts represented $437,000 of net revenue in the Company's
fiscal year ended December 31, 1996. The Company currently recognizes
SunAlliance as its principal competitor in certain of its markets. There can be
no assurance that the Company will be successful in competing effectively in its
existing markets or in markets it may enter in the future. See
"Business--Competition."
DEPENDENCE ON PROPRIETARY ASSETS; LIMITED PROTECTION OF PROPRIETARY ASSETS
The Company has made significant investments in the systems and procedures
it has developed in order to coordinate the provision of a range of on-site
geriatric medical and dental services, including CustomCare, the Company's
management information system which integrates all of the Company's services.
The Company depends on trade secret law and nondisclosure and other contractual
provisions to protect its systems and procedures and has not filed for copyright
protection for CustomCare. There can be no assurance that the precautions taken
by the Company will be adequate to prevent infringement or misappropriation of
the Company's proprietary assets. Infringement of the Company's proprietary
assets by a competitor may result in a loss of the Company's competitive
advantage and have a material adverse effect on the Company's business,
financial condition and results of operations.
Although the Company believes that CustomCare does not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future or
that a license or similar agreement will be available on reasonable terms in the
event of an unfavorable outcome on any such claim. In addition, any such claim
may require the Company
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to incur substantial litigation expenses or subject the Company to significant
liabilities that could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has invested a considerable amount of time and marketing
resources generating the goodwill associated with the name "HealthDrive." The
Company has a pending trademark application for the name "HealthDrive." Although
the Company is aware of no other entity using the name "HealthDrive" and
believes it will be able to obtain the registration applied for, no assurance
can be given that it will succeed. In the event of any successful opposition,
the Company may be required to change the trademark used in connection with its
operations and/or the name of the Company.
BROAD DISCRETION IN USE OF PROCEEDS
Following this Offering, the Company will have approximately $9.6 million
($11.1 million if the Underwriters' over-allotment option is exercised in full)
of the net proceeds of this Offering available for working capital and general
corporate purposes, which may include acquisitions. The Company's management,
subject to approval of the Board of Directors in certain circumstances, will
have broad discretion with respect to the application of such proceeds. See "Use
of Proceeds."
STATE SALES AND USE TAXES
Certain states in which the Company and its Medical and Dental Practices
operate impose sales and use taxes on the provision of services, potentially
including certain of the services provided by the Company to certain of the
Medical and Dental Practices. While the Company believes that it files use tax
returns in each jurisdiction where it is required to do so, the Company does not
currently file sales tax returns or pay sales taxes in these jurisdictions with
respect to such services. There can be no assurance that any state or local
revenue authority will not initiate an audit of the sales and use tax returns
filed by the Company in such jurisdictions, or investigate whether or not the
Company should be paying taxes with respect to the services provided by the
Company to the Medical and Dental Practices in such jurisdiction. Any such audit
or investigation could result in the Company being required to pay amounts in
back taxes and, in some cases, interest and penalties with respect to prior
periods, as well as to pay additional taxes in future periods. The Company has
not historically established reserves against any possible liabilities resulting
from such possible audits or investigations, and there can be no assurance that
the results of any such audit or investigation, including any imposition of
penalties, will not have a material adverse effect on the Company's business,
financial position or results of operations.
LOANS TO MEDICAL AND DENTAL PRACTICES
The Company has made and intends to continue to make unsecured loans to
certain of the Medical and Dental Practices to help fund operations and to
assist in the development of operations in new geographic markets. While the
Company expects that all of these loans will be repaid in the future, the
failure of the Medical and Dental Practices to repay these loans could have a
material adverse impact on the Company's business, financial condition and
results of operations.
CONTROL BY PRINCIPAL STOCKHOLDERS, DIRECTORS AND OFFICERS
After giving effect to the sale of the shares of Common Stock offered
hereby, executive officers of the Company, current members of the Company's
Board of Directors and certain holders of the Common Stock, including Steven S.
Charlap, M.D., the Company's Chairman of the Board, Chief Executive Officer and
President, and DCC Holdings, will beneficially own or control in the aggregate
approximately 64.4% of the outstanding Common Stock. As a result, these persons
will have the ability to control, or exert significant influence over
significant corporate transactions requiring stockholder approval, including
mergers and sales of assets and the election of members of the Company's Board
of Directors, and over the Company's Board of Directors, and, therefore, the
business policies and affairs of the Company. Furthermore, such control could
preclude any unsolicited acquisition proposals for the Company and,
consequently, adversely affect the market price for the Common Stock.
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POSSIBILITY OF NASDAQ QUOTATION TERMINATION OR SUSPENSION AND DECREASE IN STOCK
PRICE
The trading of the Common Stock on the Nasdaq SmallCap Market is conditioned
upon meeting certain asset, capital and surplus, earnings and stock price tests.
To maintain eligibility on the Nasdaq SmallCap Market, the Company must, among
other things, maintain compliance with one of the following three tests: (i) net
tangible assets must be in excess of $2,000,000; (ii) market capitalization must
be in excess of $35,000,000; or (iii) net income must be in excess of $500,000
in the latest fiscal year or in two of the last three fiscal years. If the
Company fails all of these tests or if the Company fails to maintain an average
bid price of at least $1.00 per share, the Common Stock may be suspended or
terminated from inclusion on the Nasdaq SmallCap Market. The effects of
suspension or termination include the limited release of the market prices of
the Common Stock and limited news coverage of the Company. Suspension or
termination may restrict investors' interest in the Common Stock and materially
adversely affect the trading market and prices for such securities and the
Company's ability to issue additional securities or to secure additional
financing. In addition to the risk of volatility of stock prices and possible
suspension or termination, low price stocks are subject to additional risks of
additional federal and state regulatory requirements and the potential loss of
effective trading markets. In particular, if trading of the Common Stock on the
Nasdaq SmallCap Market was to be suspended or terminated and the trading price
of the Common Stock was less than $5.00 per share, such Common Stock could be
subject to Rule 15g-9 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which, among other things, requires that broker/dealers satisfy
special sales practice requirements, including making individualized written
suitability determinations and receiving any purchaser's written consent prior
to any transaction. In such case, the Common Stock could also be deemed "penny
stock" under the Securities Enforcement and Penny Stock Reform Act of 1990 which
would require additional disclosure in connection with trades in the Common
Stock, including the delivery of a disclosure schedule explaining the nature and
risks of the penny stock market. Such requirements could severely limit the
liquidity of the Common Stock and the ability of purchasers in this Offering to
sell their Common Stock in the secondary market. See "Absence of Public Market:
Negotiated Offering Price" and "Potential Adverse Impact on Market Price of
Shares Eligible for Future Sale and Registration Rights."
SUBSTANTIAL AND IMMEDIATE DILUTION; SIGNIFICANT BENEFIT TO CURRENT SHAREHOLDERS
Purchasers of the Common Stock offered hereby will incur immediate dilution
of net tangible book value of $4.48 per share (after deducting underwriting
discounts and commissions and offering expenses payable by the Company), or
64.0% of the anticipated offering price of the Common Stock. Such purchasers
will incur additional dilution upon the exercise of outstanding stock options.
See "Executive Compensation--Amended and Restated 1992 Stock Option Plan."
Shareholders of the Company who purchased their shares prior to the Offering
acquired, and option holders who exercise their stock options after the Offering
will acquire, their shares at a cost substantially below the price offered
hereby and, accordingly purchasers of shares of the Company pursuant to this
Offering will bear a disproportionate risk of investment in the Common Stock.
See "Dilution."
ABSENCE OF PUBLIC MARKET; NEGOTIATED OFFERING PRICE
Prior to this Offering there has been no market for the Common Stock.
Although the Company has applied to include the Common Stock for quotation on
the Nasdaq SmallCap Market, there can be no assurance that an active trading
market will develop for the Common Stock, or, if developed, that it will be
maintained. The price of the Common Stock offered hereby will be determined
through negotiation between the Company and the Underwriters and may not be
indicative of the market price for the Common Stock after the Offering. The
factors considered in determining the offering price will be the preliminary
demand for the Common Stock, prevailing market and economic conditions, the
Company's revenue and earnings, estimates of its business potential and
prospects, the present state of its business
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operations, an assessment of its management, the consideration of these factors
in relation to the market valuation of comparable companies in related
businesses and the current condition of the markets in which it operates. See
"Underwriting."
ADDITIONAL CAPITAL REQUIREMENTS
The Company believes that the estimated net proceeds from this Offering,
together with current cash and cash equivalent balances and internally generated
funds, will satisfy the Company's projected requirements for working capital and
commitments for a period of at least twelve months. If cash generated from
operations is insufficient to satisfy the Company's projected requirements, or
if the Company subsequently elects to use funds to finance acquisitions by the
Medical and Dental Practices or other matters, the Company may be required to
sell additional equity or debt securities or obtain additional bank or other
credit facilities. There can be no assurance that the Company will be able to
sell such securities or obtain such credit facilities on acceptable terms in the
future, if at all. This potential sale of additional equity or debt securities
could result in further dilution to the Company's shareholders and increased
interest expense. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
NO INTENTION TO DECLARE OR PAY DIVIDENDS
The Company does not currently intend to declare or pay any cash dividends
on the Common Stock in the foreseeable future and anticipates that earnings, if
any, will be used to finance the development and expansion of its business.
Furthermore, until the Company's Revolving Credit Facility with State Street
Bank & Trust Company expires on January 1, 1999, it does not permit the Company
to declare dividends on its Common Stock. The Company anticipates that it may in
the future seek to obtain a loan, revolving credit agreement or other financing
arrangement, the terms of which, although not known to the Company at this time,
may similarly prohibit the declaration and payment of dividends without prior
lender approval. Any payment of future dividends and the amounts thereof will be
dependent upon the Company's earnings, financial requirements and other factors
deemed relevant by the Company's Board of Directors, including the Company's
contractual obligations. See "Dividend Policy."
FUTURE ISSUANCES OF PREFERRED STOCK
Subject to the provisions of the Company's Amended and Restated Certificate
of Incorporation (the "Restated Certificate of Incorporation") and limitations
prescribed by law, the Board is expressly authorized to adopt resolutions to
issue shares of preferred stock in one or more series and determine the
preferences, limitations and relative rights of any preferred stock, including
without limitation the following: (i) the designation of any series of preferred
stock; (ii) unlimited, special, conditional, or limited voting rights, or no
right to vote; (iii) distribution or dividend rights, including the
determination of whether such rights are cumulative, noncumulative or partially
cumulative; (iv) redemption rights, if any; (v) conversion rights; and (vi)
preference rights over any other class or series of shares, including the Common
Stock, with respect to distributions, including dividends and distributions upon
the dissolution of the Company. The Company has no current plans to issue any
shares of preferred stock of any class or series.
One of the effects of undesignated preferred stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the preferred stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, preferred stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of preferred stock may
discourage bids for the Common Stock at a premium or may otherwise adversely
affect the market price of the Common Stock.
14
<PAGE>
ANTITAKEOVER MEASURES
Certain provisions of the Restated Certificate of Incorporation and By-Laws
(the "By-Laws") could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire
control of the Company. Such provisions could limit the price that investors
might be willing to pay in the future for the Common Stock. These provisions
require that the Company have a Board of Directors comprised of three classes of
directors with staggered terms of office, provide for the issuance of "blank
check" preferred stock by the Board of Directors without stockholder approval,
require super-majority approval to amend certain provisions in the Restated
Certificate of Incorporation and By-Laws or enter into certain transactions with
significant stockholders of the Company and impose various procedural and other
requirements that could make it more difficult for stockholders to effect
certain corporate actions. See "Description of Capital Stock."
Additionally, certain provisions of Delaware law applicable to the Company
could also delay or make more difficult a merger, tender offer or proxy contest
involving the Company, including Section 203 of the Delaware General Corporation
Law (the "DGCL"), which prohibits a Delaware corporation from engaging in any
business combination with any stockholder owning 15% or more of Company's
outstanding voting stock ("interested stockholder") for a period of three years
from the date a stockholder becomes an interested stockholder unless certain
conditions are met. These provisions could also limit the price that investors
might be willing to pay in the future for shares of Common Stock. See
"Description of Capital Stock--Delaware Law and Certain Charter and By-Law
Provisions."
POTENTIAL ADVERSE IMPACT ON MARKET PRICE OF SHARES ELIGIBLE FOR FUTURE SALE AND
REGISTRATION RIGHTS
Upon completion of the Offering, the Company will have outstanding
approximately 4,363,246 shares of Common Stock. Of these shares, the 1,600,000
shares of Common Stock sold in the Offering, and any shares issued in the event
that the Underwriter's over-allotment option to purchase up to 240,000 shares is
exercised, will be freely tradable without restriction or further limitation
under the Securities Act, except for any shares purchased by an "affiliate" of
the Company, which will be subject to the limitations imposed on "affiliates" of
the Company under Rule 144 promulgated under the Securities Act ("Rule 144").
The remaining 2,763,246 outstanding shares of Common Stock (2,523,246 if the
Underwriters' over-allotment option is exercised in full) are "restricted
securities" within the meaning of Rule 144 and may not be resold except pursuant
to a registration statement effective under the Securities Act or pursuant to an
exemption therefrom, including the exemption provided by Rule 144. An additional
437,700 shares issuable upon the exercise of outstanding options as of March 15,
1998 granted to officers, directors and employees of the Company and its Medical
and Dental Practices pursuant to the Stock Option Plan, once issued, shall be
freely tradable subject to certain limitations imposed by Rule 701 promulgated
under the Securities Act.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a one-year holding period may, subject to certain
restrictions, sell within any three-month period a number of shares which does
not exceed the greater of: (i) 1% of the then outstanding shares of Common Stock
or (ii) the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission as
required by Rule 144. Rule 144 also permits the sale of shares without any
volume limitation by a person who is not an affiliate of the Company and who has
satisfied a two-year holding period. The one-year holding period with respect to
2,753,246 outstanding shares of Common Stock has expired.
Shareholders holding approximately 98.8% of the Company's outstanding Common
Stock and Common Stock issuable upon the exercise of outstanding stock options
have agreed not to offer, pledge, sell, contract to sell, grant any option for
the sale of, or otherwise dispose of, directly or indirectly, any securities of
the Company they currently hold without the prior written consent of the
Representative for a period of 180 days after the effective date of the
registration statement filed in connection with the Offering. See
"Underwriting."
15
<PAGE>
Certain existing shareholders and the Underwriters have registration rights
for the Common Stock they own or may acquire, which might allow them to require
the Company, subject to certain conditions, to register their shares under the
Securities Act. The sale of a substantial number of shares of Common Stock in
the public market following the Offering, or the perception that such sales
could occur, could adversely affect the market price for the Common Stock and
impair the Company's ability to raise additional capital in the future through
the sale of equity securities should it desire to do so. See "Substantial and
Immediate Dillution; Significant Benefit to Current Shareholders; Underwriting."
LIMITATION OF LIABILITY
The Restated Certificate of Incorporation provides that directors of the
Company shall not be liable personally for monetary damages to the Company or
its stockholders for breach of fiduciary duty as a director, subject to certain
limitations. Although such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission, the
presence of these provisions in the Restated Certificate of Incorporation could
prevent the recovery of monetary damages against directors of the Company. See
"Description of Capital Stock."
POSSIBLE VOLATILITY OF STOCK PRICE
From time to time after the Offering, there may be significant volatility in
the market price for the Common Stock. Fluctuations in quarterly operating
results of the Company, changes in general conditions in the economy, the
financial markets or the health care industry, or other developments affecting
the Company, its Medical and Dental Practices or its competitors could cause the
market price of the Common Stock to fluctuate substantially. The equity markets
have, on occasion, experienced significant price and volume fluctuations that
have affected the market price of many companies' securities and have often been
unrelated to the operating performance of these companies. Concern about the
potential effects of health care reform measures has contributed to the
volatility of stock prices of companies in health care and related industries
and may similarly affect the price of the Common Stock following the Offering.
Any such fluctuations that occur following the completion of this Offering may
adversely affect the market price of the Common Stock.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains certain forward-looking statements including: (i)
anticipated trends in the Company's financial condition and results of
operations, including expected changes in the Company's gross profit, sales and
marketing expense, general and administrative expense and professional expenses;
(ii) the Company's business strategy for future growth, including the Company's
plans to increase penetration in existing markets, expand into new geographic
markets, offer additional services and consummate acquisitions by its Medical
and Dental Practices, and (iii) the Company's expectations regarding its ability
to finance its capital requirements in the future. When used in the Prospectus,
the words "believes," "intends," "anticipates," "expects," and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties. In addition
to the other risks described elsewhere in this "Risk Factors" Section, important
factors to consider in evaluating such forward-looking statements include: (i)
changes in external competitive market factors which might impact trends in the
Company's results of operations; (ii) unanticipated working capital and other
cash requirements: (iii) general changes in health care and related industries,
and (iv) various other competitive factors that may prevent the Company from
competing successfully in the marketplace. In light of these risks and
uncertainties, many of which are described in greater detail elsewhere in this
"Risk Factors" Section, actual results could differ materially from the
forward-looking statements contained in this Prospectus.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby are estimated to be $9.6 million after deducting the underwriting
discount and expense allowance and estimated offering expenses. The Company will
not receive any proceeds from the sale of Common Stock by the Selling
Stockholders.
The Company expects to use proceeds of the Offering to repay amounts
outstanding under the Company's Revolving Credit Facility, dated as of May 23,
1995, as amended, with State Street Bank and Trust Company (the "Credit
Facility"). The Credit Facility matures on January 1, 1999, and borrowings
thereunder bear interest at a rate of 1% in excess of State Street Bank and
Trust Company's prime rate (yielding a combined rate of 9.5% as of March 15,
1998). The outstanding balance under the Credit Facility as of March 15, 1998
was approximately $411,700, of which approximately $1,700 represented accrued
interest. The Company has historically used borrowings under the Credit Facility
for working capital and other general corporate purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company plans to use the balance of the net proceeds from this offering
for other general corporate purposes, including financing acquisitions by the
Medical and Dental Practices, enhancing management information systems,
expanding sales and marketing initiatives and for working capital. While the
Company engages in discussions from time to time with LTCF practice managers and
managers of complementary businesses with respect to possible acquisitions by
the Medical and Dental Practices, neither the Company nor any of the Medical and
Dental Practices is currently a party to any commitments or agreements with
respect to any possible acquisition.
Pending use of the net proceeds as described above, the Company intends to
invest the net proceeds of the Offering in short-term investment-grade,
interest-bearing instruments. Other than the portion of the net proceeds to be
used to repay amounts outstanding under the Credit Facility, the Company cannot
accurately estimate the amount to be used for each purpose at this time.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since its
formation. The Company does not currently intend to declare or pay any cash
dividends on the Common Stock in the foreseeable future and anticipates that
earnings, if any, will be used to finance the development and expansion of its
business. In addition, until its expiration on January 1, 1999, the Credit
Facility does not permit the Company to declare dividends on its Common Stock.
Furthermore, the Company anticipates that it may in the future seek to obtain a
loan, revolving credit agreement or other financing arrangement, the terms of
which, although not known to the Company at this time, may prohibit the
declaration of dividends without prior lender approval. The declaration and
payment of dividends by the Company are subject to the discretion of its Board
of Directors and to compliance with applicable law. Any determination as to the
payment of dividends in the future will depend upon, among other things, general
business conditions, future earnings and capital requirements of the Company.
17
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company at December 31, 1997: (i) on an actual basis; (ii) on a pro forma
basis to give effect to the conversion of all outstanding shares of Class A
Preferred Stock and Class B Preferred Stock into Common Stock upon the
consummation of this Offering; and (iii) on an adjusted pro forma basis to
reflect the consummation of the sale by the Company of 1,600,000 shares of
Common Stock offered hereby at an assumed public offering price of $7.00 per
share. This information should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto, appearing elsewhere in
this Prospectus. See "Use of Proceeds," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Capital lease obligations, net of current portion............................. $ 56 $ 56 $ 56
--------- ----------- -----------
CONVERTIBLE PREFERRED STOCK:
Class A Convertible Preferred Stock, $0.01 par value, 571,428 shares
authorized, issued and outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted (1)........................ 1,340 -- --
--------- ----------- -----------
Class B Convertible Preferred Stock, $0.01 par value, 181,818 shares
authorized, issued and outstanding, actual; no shares authorized, issued and
outstanding, pro forma and pro forma as adjusted (1)........................ 610 -- --
--------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.01 par value per share; no shares authorized, issued or
outstanding, actual; no shares authorized, issued or outstanding, pro forma;
5,000,000 shares authorized, no shares issued or outstanding, pro forma as
adjusted.................................................................... -- -- --
Common Stock, $0.01 par value 3,259,162 shares authorized, 2,010,000 shares
issued and outstanding, actual; 3,259,162 shares authorized, 2,763,246
shares issued and outstanding, pro forma; 15,000,000 shares authorized,
4,363,246 shares issued and outstanding, pro forma as adjusted (2).......... 20 28 44
Additional paid in capital.................................................... 487 1,979 11,549
Retained earnings (accumulated deficit)....................................... (1,058) (608) (608)
--------- ----------- -----------
Total stockholders' equity.................................................... (551) 1,399 10,985
--------- ----------- -----------
Total capitalization.......................................................... $ 1,455 $ 1,455 $ 11,041
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------
(1) Upon consummation of the Offering, 571,428 shares of Class A Preferred Stock
and 181,818 shares of Class B Preferred Stock held by DCC Holdings will
convert into 571,428 shares of Common Stock and 181,818 shares of Common
Stock, respectively.
(2) Does not include: (i) 437,700 shares of Common Stock reserved for issuance
upon the exercise of outstanding options granted pursuant to the Stock
Option Plan, and up to 301,175 additional shares reserved for issuance upon
the exercise of options that may be granted in the future under the Stock
Option Plan and (ii) 160,000 shares (184,000 shares if the over-allotment
option is exercised in full) reserved for issuance upon the exercise of the
Representative's Warrants. See "Underwriting."
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of December 31,
1997, was $1,399,000 or $0.51 per share of Common Stock, after giving effect to
the conversion of all outstanding Class A Preferred Stock and Class B Preferred
Stock into Common Stock. Pro forma net tangible book value per share of Common
Stock represents the amount of total tangible assets less total liabilities
divided by the number of shares of Common Stock outstanding (assuming the
conversion of all outstanding shares of Convertible Preferred Stock into Common
Stock). After giving effect to the sale by the Company of the Common Stock
offered hereby at an assumed initial public offering price of $7.00 per share
and the application of the net proceeds received by the Company therefrom as
described under "Use of Proceeds," the pro forma as adjusted net tangible book
value of the Company at December 31, 1997, would have been approximately
$10,985,000, or $2.52 per share. This represents an immediate increase in pro
forma net tangible book value of $2.01 per share to existing shareholders, and
an immediate dilution in pro forma net tangible book value of $4.48, or 64.0%
per share to new investors purchasing shares of Common Stock in this Offering.
The following table illustrates the immediate per share dilution to new
investors:
<TABLE>
<S> <C> <C>
Initial public offering price (1)............................................ $ 7.00
Pro forma net tangible book value at December 31, 1997....................... $ 0.51
Increase per share attributable to new investors (2)......................... 2.01
---------
Pro forma as adjusted net tangible book value per share after the Offering... 2.52
---------
Dilution per share to new investors.......................................... $ 4.48
---------
---------
Percentage dilution per share to new investors............................... 64.0%
---------
---------
</TABLE>
- ------------------------------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(2) After deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
The following table summarizes, on a pro forma basis as of December 31,
1997, the differences between the number of shares purchased from the Company,
the total consideration paid to the Company and the average price per share paid
by the existing shareholders and by new investors (based upon an assumed initial
public offering price of $7.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders............................... 2,763,246 63.3% $ 2,070,900 15.6% $ 0.75
New investors....................................... 1,600,000 36.7% 11,200,000 84.4 7.00
---------- ----- ------------ -----
Total........................................... 4,363,246 100.0% 13,270,900 100.0% $ 3.04
---------- ----- ------------ -----
---------- ----- ------------ -----
</TABLE>
(1) The calculation of net tangible book value and the other computations above
assume no exercise of outstanding options under the Company's stock plans.
As of December 31, 1997, 404,800 shares of Common Stock were issuable upon
exercise of outstanding stock options at a weighted average exercise price
of $2.16 per share, of which options to purchase 218,325 shares were then
exercisable at a weighted average exercise price of $1.52 per share. To the
extent the outstanding options are exercised and that any of the shares
reserved for issuance are issued with exercise prices below the initial
public offering price, there will be further dilution to new investors. See
"Management -- Second Amended and Restated 1992 Stock Option Plan" and
"Shares Eligible for Future Sale."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
consolidated statement of operations for each of the fiscal years ended December
31, 1995, 1996 and 1997 and the consolidated balance sheet data as of December
31, 1996 and 1997 have been derived from audited financial statements of the
Company included elsewhere in this Prospectus. The Company's summary
consolidated financial data for the years ended December 31, 1993 and 1994 and
the consolidated balance sheet data as of December 31, 1993, 1994 and 1995 are
derived from audited financial statements of the Company not included in this
Prospectus. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED SUMMARY CONSOLIDATED FINANCIAL DATA:
Net revenue.................................................... $ 4,272 $ 6,778 $ 8,575 $ 11,006 $ 12,930
Direct patient care costs...................................... 2,914 4,136 5,362 7,020 8,213
Gross profit................................................... 1,358 2,642 3,213 3,986 4,717
Selling, general, and administrative expenses.................. 1,512 2,104 3,218 4,880 4,602
Income (loss) from operations.................................. (154) 538 (5) (894) 115
Interest income (expense), net................................. 3 4 4 (26) (65)
Other income................................................... 3 5 1 15 5
Income (loss) before provision (benefit) for income taxes...... (148) 547 -- (905) 55
Provision (benefit) for income taxes........................... -- 233 -- (160) --
Net Income (loss).............................................. $ (148) $ 314 -- $ (745) $ 55
Net income (loss) per common and potential common share:
Basic........................................................ -- (0.37) 0.03
Diluted...................................................... -- (0.37) 0.02
Pro forma diluted (1)........................................ -- (0.27) 0.02
Weighted average common and potential common shares
outstanding:
Basic........................................................ 2,000 2,001 2,010
Diluted...................................................... 2,825 2,001 2,883
Pro forma diluted (1)........................................ 2,825 2,754 2,883
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------------------------------- PRO FORMA
1993 1994 1995 1996 1997 1997 (2)
--------- --------- ------------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 414 $ 781 $ 362 $ 2 $ 15 $ 15
Working capital................................ 944 1,629 1,454 502 712 712
Total assets................................... 1,750 2,897 2,859 2,739 2,713 2,713
Capital lease obligations, net of current
portion...................................... 72 94 44 82 56 56
Redeemable Convertible
Preferred Stock.............................. 1,160 1,680 1,770 1,860 1,950 --
Total shareholders' equity (deficit)........... $ 167 $ 395 $ 305 $ (516) $ (551) $ 1,399
</TABLE>
- ------------------------
(1) Computed on the basis described in Note 2(i) of Notes to Financial
Statements.
(2) Adjusted to give effect to the sale of 1,600,000 shares of Common Stock
offered by the Company hereby at the initial public offering price of $7.00
per share, after deducting the underwriting discount and estimated offering
expenses.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED. SEE "RISK FACTORS."
OVERVIEW
HealthDrive Corporation (the "Company"), through four exclusively affiliated
professional corporations and one exclusively affiliated taxable not-for-profit
corporation (collectively, the "Medical and Dental Practices," and each, a
"Practice"), is a leading provider of on-site geriatric health care services
primarily to residents of nursing homes. The Company's Medical and Dental
Practices also provide services to a growing number of residents of assisted
living facilities ("ALFs") and independent living senior housing facilities
("ILFs" and, collectively with nursing homes and ALFs, "LTCFs"). Physicians,
dentists and ancillary health care service providers employed by the Medical and
Dental Practices ("Providers") travel to LTCFs where they provide a growing
range of geriatric medical and dental services. Services currently provided by
the Medical and Dental Practices include dentistry, optometry, podiatry,
audiology, and primary care. As of March 15, 1998, the Medical and Dental
Practices employed 101 Providers who were rendering services at approximately
859 LTCFs located in 11 states. The Company, headquartered in Newton,
Massachusetts, operates four regional offices located in Massachusetts,
Connecticut, Pennsylvania and Wisconsin.
ORGANIZATIONAL STRUCTURE. The Company's Medical and Dental Practices
provide dentistry, optometry, podiatry and audiology services (each individually
a "Service," and, collectively, the "Services"). In Massachusetts, the Company
also provides primary care services. The Company established a professional
corporation to provide each of the Services, other than in Michigan where it
established one taxable not-for-profit corporation which provides all Services.
Each of these Medical and Dental Practices is owned by an appropriately licensed
Provider selected by the Company. The owners of the Medical and Dental Practices
are subject to the terms and conditions of a Non-Compete Agreement and an
Operating Agreement. Through these Operating Agreements, the Company is able to
consolidate its revenue with the revenue of the Medical and Dental Practices.
While the Company provides support services, the Medical and Dental Practices
maintain direct control over all issues related to the practice of medicine or
dentistry.
OPERATING AGREEMENTS WITH MEDICAL AND DENTAL PRACTICES. Each Medical and
Dental Practice was established by the Company, but remains a separate legal
entity. The Company manages its Medical and Dental Practices through separate
Operating Agreements. Pursuant to the Operating Agreements, the Company provides
support services and licenses the use of the name "HealthDrive" to the Medical
and Dental Practices. Under the Operating Agreements, the delivery of medical
and dental services is supervised, directed and controlled, and all final
determinations with respect thereto are made, exclusively by the Medical and
Dental Practices and the Providers, including: (i) compensation, hiring and
firing of Providers; (ii) supervision of Providers, including assignment of
patients and peer review; (iii) maintenance of patient records; (iv)
establishment of policies and procedures with respect to patient acceptance; and
(v) establishment of hours of operation, scope of services provided and fees for
such services. Subject to its right to provide advice with respect to certain
matters set forth below, under the Operating Agreements, the Company expressly
disclaims any control, direct or indirect, over the delivery of medical and
dental services. The Company is exclusively responsible for the operation of all
other aspects of the Medical and Dental Practices, including: (i) purchasing all
inventory, supplies and equipment; (ii) employing all non-Provider staff; (iii)
controlling scheduling, payroll, bookkeeping and accounting; (iv) rendering non-
medical administrative advice on scope and price of services provided,
establishment of clinical forms and guidelines for selection, hiring and firing
of Providers, aggregate compensation and incentive compensation for Providers,
and business and financial management; (v) establishing business systems,
procedures and forms; (vi) marketing; (vii) billing in the name of the Medical
and Dental Practices; and (viii)
21
<PAGE>
preparing a recommended budget. The Company employs substantially all of the
Medical and Dental Practices' non-Provider staff, except those whose services
are directly related to the rendering of medical and dental care. The Operating
Agreements have a 40-year term and may be terminated by either party only in the
event of breach by the other party or bankruptcy of the other party. The Company
has the right to terminate the Operating Agreement if a Practice at any time
does not qualify as a professional corporation or otherwise loses its authority
to render medical and dental services or a Provider's license to practice
medicine or dentistry is revoked or threatened to be revoked. In exchange for
providing management services under the Operating Agreements, the Company
receives the net revenue of the Medical and Dental Practice subject to specified
limitations. "Net revenue" includes all revenue of the Medical and Dental
Practices minus all expenses recorded on an accrual basis using tax accounting
principles. Pursuant to an Option Agreement, the sole equity holder of each
Practice has granted an option to a Provider designated by the Company at the
time such option is exercised to purchase the Common Stock of such Practice for
fair market value subject to certain limitations.
OPERATIONS. The operations of the Company and the Medical and Dental
Practices are governed by the Operating Agreements. Revenue generated by the
Company on a consolidated basis (hereinafter "Revenue" or the "Company's
Revenue") result from care provided to residents of LTCFs by the Medical and
Dental Practices primarily on a fee-for-service basis. The Company's Medical and
Dental Practices enter contracts with LTCFs whereby Providers travel to LTCFs to
provide on-site care to the residents of LTCFs. The nature of the care provided
is the sole responsibility of the Medical and Dental Practice and the individual
Providers. The Company then bills the third party payors or the resident/patient
for the care provided. All billing is done in the name of the Medical and Dental
Practice that rendered the care. Certain of the Company's Medical and Dental
Practices have entered into capitated payment arrangements with certain LTCFs
whereby they are paid a fixed amount per resident to provide their services to
the residents of the LTCF. In connection with its primary care business, one of
the Company's Practices has, in some cases, entered into contractual
arrangements whereby it provides medical directorship services to certain
facilities for a fixed monthly fee. The capitated arrangements and the primary
care services represent an immaterial percentage of the Company's total Revenue.
REVENUE RECOGNITION. The Company recognizes Revenue when medical and/or
dental services are rendered by the Providers. Revenue is reported at estimated
realizable value which represents the actual amounts the Company expects the
Medical and Dental Practices to receive (before accounting for bad debts) from
third party payors and patients. Generally, Medicare and Medicaid payments are
based on pre-determined published fee schedules while commercial insurance
companies reimburse based on the usual and customary charge for the services
rendered.
MEDICARE AND MEDICAID. As participants in the Medicare program, the
Company's Medical and Dental Practices may not bill any patient or such
patient's insurer for an amount in excess of the fee allowed by Medicare
pursuant to its fee schedule for the geographic area concerned. This requirement
is known as "balanced billing." After the patient has satisfied a $100
deductible (the "Medicare Deductible"), Medicare generally pays the first 80% of
any service it approves (the "Medicare Approved Service"). The Company's Medical
and Dental Practices must then bill the patient's secondary insurance or the
patient, if he or she has no secondary insurance, for the remaining 20% (the
"Medicare Copayment").
The various state Medicaid programs pay for services specifically covered
under their respective statutes. Generally, for patients with Medicaid as their
only insurance (i.e., Medicaid is the primary insurance) Medicaid will pay 100%
of the amount listed on its fee schedule for any service it approves (the
"Medicaid Approved Service"). Medicaid fee schedules are generally lower than
those prescribed by Medicare. No provider may bill any patient covered by
Medicaid any amount with respect to any service covered by Medicaid. Only
Medicaid may be billed for such services. Medicaid is always the payor of last
resort, meaning that all billings for a service must first be made to all other
insurers that cover a particular patient.
22
<PAGE>
A substantial portion of the patients of the Company's Medical and Dental
Practices have both Medicare and Medicaid coverage with Medicare being the
primary insurance and Medicaid being the secondary insurer or payor of last
resort. Medicaid programs differ in their policies regarding the amount they
will pay when they are the secondary insurer. In some states, if a claim is
first submitted to Medicare for a Medicare Approved Service, then Medicaid will
pay the full 20% Medicare Copayment or the amount applied to the Medicare
Deductible, regardless of the amount of such Medicare Copayment or such amount
applied to the Medicare Deductible, which may or may not be greater than the fee
prescribed on the Medicaid fee schedule for the service billed. In other states,
Medicaid will not pay any amount as a secondary insurer if the provider has
already received payment by any primary insurer in an amount exceeding the
amount Medicaid would have paid pursuant to its fee schedule for the service
performed had Medicaid been the primary insurer. In this case, if the services
were approved by the primary insurer and the payment made by such primary
insurer is less than the fee for the services performed according to the
Medicaid fee schedule, then Medicaid would pay an amount equal to the amount
under its fee schedule less the amount the provider was paid by the primary
insurer. In some states, Medicaid takes a hybrid approach where it will pay up
to the full amount applied to the Medicare Deductible, but, with respect to
payment of Medicare Copayments, only an amount equal to the amount prescribed by
the Medicaid fee schedule less the amount that the provider was paid by the
primary insurance.
The Medicare and Medicaid programs may, from time to time, conduct
post-payment audits of providers of services reimbursed under such programs.
Although the Medical and Dental Practices have been subject of only one
significant post-payment adjustment to date which resulted in a material
assessment being levied upon the Company, recent events indicate an increase in
such review activities in the industry. In 1993, two optometrists were selected
for post-payment review with respect to services performed principally in 1992.
The Company protested the results of this review before agreeing in 1997 to a
compromise settlement with HCFA in the amount of $52,200. This amount is being
paid in twenty-four equal, monthly installments, with the first payment having
been made in September 1997.
The following table outlines the mix of Revenue recognized by the Company
for the periods presented:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1995 % 1996 % 1997 %
------------ --------- ------------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dental.......... $ 3,585,241 41.8% $ 4,101,320 37.3% $ 4,715,573 36.5%
Optometry....... 3,070,942 35.8% 4,006,235 36.4% 4,029,118 31.2%
Podiatry........ 1,780,295 20.8% 2,407,994 21.9% 3,406,466 26.3%
Audiology....... 138,710 1.6% 490,209 4.4% 690,624 5.3%
Primary Care.... 0 0% 0 0% 88,014 0.7%
------------ --------- ------------- --------- -------------- ---------
$ 8,575,188 100% $ 11,005,758 100% $ 212,929,795 100%
------------ --------- ------------- --------- -------------- ---------
------------ --------- ------------- --------- -------------- ---------
</TABLE>
The Company currently receives payments from a variety of sources including
Medicare, various Medicaid programs, private insurance and individual LTCF
residents. The following table outlines the source of receipts for the Company
for the periods presented.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Medicare............................. 42.1% 44.5% 40.4%
Private Payors....................... 31.8 28.0 28.5
Medicaid............................. 23.6 23.9 25.6
Private Insurance.................... 2.5 3.6 5.5
--------- --------- ---------
100.0% 100.0% 100.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
23
<PAGE>
OPERATING EXPENSES. On a consolidated basis, certain of the Company's
operating expenses can be grouped into two major categories: direct patient care
costs ("DPCC") and selling, general and administrative expenses ("SGA"). The
major expenses included in DPCC are compensation related costs for Providers,
bad debt expense, transportation expenses, clinical fees and supplies expenses,
workers' compensation and malpractice insurance expenses and the depreciation of
medical equipment. The major expenses included in SGA are compensation related
costs for corporate and regional staff, rent expense, telephone expense, postage
expense, travel and lodging expense, professional fees expense, recruitment
costs and the depreciation of office and computer equipment.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net revenue, certain
items in the Company's Consolidated Statements of Operations for the periods
indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net revenue......................................... 100.0% 100.0% 100.0%
Direct patient care costs........................... 62.5 63.8 63.5
Gross profit........................................ 37.5 36.2 36.5
Selling, general and administrative expenses........ 37.6 44.3 35.6
Income (loss) from operations....................... (0.1) (8.1) 0.9
Interest income (expense), net...................... 0.1 (0.2) (0.5)
Other income........................................ 0.0 0.1 0.0
Income (loss) before benefit for income taxes....... 0.0 (8.2) 0.4
Benefit for income taxes............................ 0.0 (1.4) 0.0
Net income (loss)................................... 0.0 (6.8) 0.4
</TABLE>
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET REVENUE. Net revenue increased 17.5%, to $12.9 million in 1997 from
$11.0 million in 1996. This increase was attributable to growth in revenue of
$500,000 from operations in existing geographic markets, and the recognition of
a full year of revenue from operations in three geographic markets where the
Company commenced operations in 1996.
DIRECT PATIENT CARE COSTS. DPCC increased 17.0%, to $8.2 million in 1997
from $7.0 million in 1996. The increase of $1.2 million was due primarily to
increases in Provider compensation and transportation and payroll tax expenses,
resulting primarily from the increase in net revenue. As a percentage of net
revenue, DPCC remained relatively constant decreasing to 63.5% in 1997 from
63.8% in 1996. This decrease was due primarily to decreases in clinical supplies
expense, bad debt expense and a Medicare audit charge offsetting increases in
Provider compensation and transportation and payroll tax expenses as a
percentage of net revenue.
GROSS PROFIT. Gross profit increased 18.3%, to $4.7 million in 1997 from
$4.0 million in 1996. As a percentage of net revenue, gross profit remained
relatively constant, increasing to 36.5% in 1997 from 36.2% in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SGA expenses decreased 5.7%,
to $4.6 million in 1997 from $4.9 million in 1996. This decrease was due
primarily to decreases in travel and lodging expense and recruitment expense.
This decrease resulted primarily from improved cost control of expansion related
expenses and the leveraging of existing staff. As a percentage of net revenue,
SGA expenses decreased to 35.6% in 1997 from 44.3% in 1996. As a percentage of
net revenue, this decrease was primarily due to decreases in corporate and
regional staff compensation and payroll tax expenses, travel and lodging expense
and recruitment expense. This decrease resulted primarily from better cost
control of expansion
24
<PAGE>
related expenses as well as increased economies of scale resulting from the
Company's expanding revenue base.
INCOME (LOSS) FROM OPERATIONS. Income from operations increased $1.0
million, to $115,000 in 1997 from a loss from operations of $894,000 in 1996. As
a percentage of net revenue, income from operations increased to 0.9% in 1997
from a loss from operations of 8.1% in 1996.
INTEREST INCOME (EXPENSE), NET. Interest expense, net increased 150.1%, to
$65,000 in 1997 from $26,000 in 1996. This increase was due to an increase in
the average outstanding balance of the Company's bank line of credit during
1997, which was used primarily to finance working capital needs.
OTHER INCOME. Other income decreased 65.1%, to $5,050 in 1997 from $14,500
in 1996.
BENEFIT FOR INCOME TAXES. The Company recorded a benefit for income taxes
of $160,000 in 1996 due to the refund generated by the carryback of operating
losses against prior profitable years.
NET INCOME (LOSS). Net income increased $800,390, to $55,193 in 1997 from a
net loss of $745,197 in 1996. As a percentage of net revenue, net income
increased to 0.4% in 1997 from a net loss of 6.8% in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET REVENUE. Net revenue increased 28.3%, to $11.0 million in 1996 from
$8.6 million in 1995. This increase was attributable to growth in revenue of
$1.3 million from operations in existing geographic markets, and the
commencement by the Company of operations in three new geographic markets. In
addition, 1996 included a full year of revenue from operations in one geographic
market where the Company commenced operations in 1995.
DIRECT PATIENT CARE COSTS. DPCC increased 30.9%, to $7.0 million in 1996
from $5.4 million in 1995. This increase was due primarily to increases in
Provider compensation and transportation and payroll tax expenses and bad debt
expense, resulting primarily from the increase in net revenue. As a percentage
of net revenue, DPCC increased to 63.8% in 1996 from 62.5% in 1995. This
increase was due primarily to increases in travel and lodging expense, hearing
aids expense and a Medicare audit charge as a percentage of net revenue.
GROSS PROFIT. Gross profit increased 24.1%, to $4.0 million in 1996 from
$3.2 million in 1995. As a percentage of net revenue, gross profit decreased to
36.2% in 1996 from 37.5% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SGA expenses increased 51.7%,
to $4.9 million in 1996 from $3.2 million in 1995. This increase was due
primarily to increases in corporate and regional staff compensation and payroll
tax expenses, travel and lodging expense and recruitment expense. This increase
resulted primarily from increases in costs related to the Company's expanding
operations and the additional corporate infrastructure required to support such
expansion. As a percentage of net revenue, SGA expenses increased to 44.3% in
1996 from 37.6% in 1995. This increase was due primarily to increases in
corporate and regional staff compensation and payroll tax expenses and travel
and lodging expense as a percentage of net revenue. This increase resulted
primarily from increases in costs related to the Company's expanding operations
and the additional corporate infrastructure required to support such expansion.
INCOME (LOSS) FROM OPERATIONS. Loss from operations increased $889,000, to
$894,000 in 1996 from $5,000 in 1995. As a percentage of net revenue, loss from
operations increased to 8.1% in 1996 from 0.1% in 1995.
INTEREST INCOME (EXPENSE), NET. Interest income (expense), net decreased
$30,200, to interest expense, net of $26,000 in 1996 from interest income, net
of $4,200 in 1995. This decrease resulted
25
<PAGE>
primarily from higher utilization of the Company's available cash and bank line
of credit during 1996 to finance expansion and working capital needs.
OTHER INCOME. Other income increased to $14,500 in 1996 from $900 in 1995.
BENEFIT FOR INCOME TAXES. The Company recorded a benefit for income taxes
of $160,000 in 1996 due to the refund generated by the carryback of operating
loss against prior profitable years.
NET INCOME (LOSS). Net income decreased $745,366, to a net loss of $745,197
in 1996 from net income of $169 in 1995. As a percentage of net revenue, net
income decreased to a net loss of 6.8% in 1996 from net income of 0% in 1995.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited financial data for each of the
eight consecutive fiscal quarters ended December 31, 1997, including such data
expressed as a percentage of the Company's net revenue. When read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus, the Company believes that this
information includes all adjustments, consisting of normal recurring
adjustments, necessary for the fair presentation of such quarterly information.
The operating results of any quarter are not necessarily indicative of the
results of any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEP. 30 DEC. 31 MARCH 31 JUNE 30 SEP. 30
1996 1996 1996 1996 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue....................... $ 2,612 $ 2,694 $ 2,704 $ 2,996 $ 3,023 $ 3,208 $ 3,322
Direct patient care costs......... 1,610 1,697 1,747 1,966 1,962 2,014 2,082
Gross profit...................... 1,002 997 957 1,030 1,061 1,194 1,240
Selling, general and
administrative expenses.......... 1,028 1,107 1,249 1,496 1,138 1,158 1,170
Income (loss) from operations..... (26) (110) (292) (466) (77) 36 70
Interest income (expense), net.... (2) (15) (1) (8) (15) (21) (16)
Other income...................... 1 1 1 12 -- 4 --
Income (loss) before benefit for
income taxes..................... (27) (124) (292) (462) (92) 19 54
Benefit for income taxes.......... (5) (21) (52) (82) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................. $ (22) $ (103) $ (240) $ (380) $ (92) $ 19 $ 54
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
DEC. 31
1997
-----------
<S> <C>
Net revenue....................... $ 3,377
Direct patient care costs......... 2,155
Gross profit...................... 1,222
Selling, general and
administrative expenses.......... 1,136
Income (loss) from operations..... 86
Interest income (expense), net.... (13)
Other income...................... 1
Income (loss) before benefit for
income taxes..................... 74
Benefit for income taxes.......... --
-----------
Net income (loss)................. $ 74
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET REVENUE
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEP. 30 DEC. 31 MARCH 31 JUNE 30 SEP. 30
1996 1996 1996 1996 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue....................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct patient care costs......... 61.6 63.0 64.6 65.6 64.9 62.8 62.7
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit...................... 38.4 37.0 35.4 34.4 35.1 37.2 37.3
Selling, general and
administrative expenses.......... 39.3 41.1 46.2 49.9 37.6 36.1 35.2
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations..... (0.9) (4.1) (10.8) (15.5) (2.5) 1.1 2.1
Interest income (expense), net.... (0.1) (0.5) -- (0.3) (0.5) (0.6) (0.5)
Other income...................... -- -- -- 0.4 -- 0.1 --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before benefit for
income taxes..................... (1.0) (4.6) (10.8) (15.4) (3.0) 0.6 1.6
Benefit for income taxes.......... (0.2) (0.8) (1.9) (2.7) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................. (0.8)% (3.8)% (8.9)% (12.7)% (3.0)% 0.6% 1.6%
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
DEC. 31
1997
-----------
<S> <C>
Net revenue....................... 100.0%
Direct patient care costs......... 63.8
-----------
Gross profit...................... 36.2
Selling, general and
administrative expenses.......... 33.6
-----------
Income (loss) from operations..... 2.6
Interest income (expense), net.... (0.5)
Other income...................... 0.1
-----------
Income (loss) before benefit for
income taxes..................... 2.2
Benefit for income taxes.......... --
-----------
Net income (loss)................. 2.2%
-----------
-----------
</TABLE>
The Company's results of operations have been, and may in the future be,
subject to quarterly fluctuations due to a variety of factors, including the
availability of Providers, compensation fluctuations, expansion into new
markets, changes in reimbursement, nonrecurring income, postpayment reviews by
third-party payors, differing numbers of business days in various quarters,
fluctuations in demand for the
26
<PAGE>
Company's services, utilization of Provider incentive plans and fluctuations in
SGA expenses. These uncertainties make the estimation of revenue and the results
of operations on a quarterly basis difficult and increase the potential margin
for error in performance forecasts derived from such estimates. As a result, the
Company believes that the period-to-period comparison of its results of
operations is not necessarily meaningful and should not be relied upon as any
indication of future performance.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its working capital, capital expenditure
and expansion needs primarily through private equity financings, institutional
borrowings, capital lease financing and cash provided by operations. Net cash
provided by operations was $231,355 in 1997 on net income of $55,193, increased
principally by changes in operating assets and liabilities. Net cash used in
operations was $223,076 in 1996 on a net loss of $745,197, offset principally by
changes in operating assets and liabilities. Net cash used in operations was
$40,257 in 1995 on net income of $169, offset principally by changes in
operating assets and liabilities.
Cash flow used in investing activities for 1997, 1996 and 1995 was $60,000,
$377,000 and $279,000, respectively. These investment expenditures were
primarily for computer, medical and office equipment related to the Company's
expanding business.
Net cash used in financing activities was $159,000 in 1997 due to the
partial paydown of a bank line of credit and payments required under capital
leases. Net cash provided by financing activities was $241,000 in 1996 due
primarily to borrowings under a bank line of credit offset by payments required
under capital leases. Net cash used in financing activities was $99,000 in 1995
attributable to payments required under capital leases.
The Company's external sources of financing have been private equity
financings, a bank line of credit and capital lease financing. The Company has
raised three rounds of private equity financing from DCC Limited and DCC
International Holdings B.V. (collectively, "DCC"), its largest shareholder prior
to the Offering. In April 1994, the Company raised $500,000 by the issuance of
Series B Preferred Stock to DCC pursuant to a stock purchase agreement. In May
1992, the Company raised $1 million by the issuance of Series A Preferred Stock
to DCC pursuant to a stock purchase agreement. In October 1989, the Company
raised $550,000 by the issuance of Common Stock to DCC pursuant to a stock
purchase agreement. Pursuant to an agreement between the Company and DCC, all of
the outstanding preferred stock will be converted to Common Stock concurrently
with the completion of this Offering and DCC will retain certain rights with
respect to registration of its shares of Common Stock under the Securities Act.
All other rights pertaining to its holdings of common or preferred stock prior
to the Offering will be waived concurrently with the completion of this
Offering.
In May 1995, the Company entered into the Credit Facility with State Street
Bank and Trust Company (the "Bank") originally in the amount of $750,000 and
subsequently increased to $1.25 million. As of December 31, 1997, the
outstanding balance of the Credit Facility was $325,000. Under the Credit
Facility, the Company may borrow amounts up to 70% of its third-party accounts
receivable less than 120 days old and 50% of its self-pay accounts receivable
less than 120 days old. Borrowings under the Credit Facility are secured by all
of the assets of the Company and the Medical and Dental Practices and bear
interest at the prime rate plus one percent (1%). During 1995, 1996 and 1997,
the Company failed to meet certain of the financial covenants contained in the
Credit Facility and obtained waivers from the Bank for such failures. The Credit
Facility matures January 1, 1999.
The Company has used capital lease financing as the primary means of
financing its acquisition of vans used to transport medical equipment and
records.
27
<PAGE>
To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk. Cash has
been and the Company contemplates that it will continue to be invested in
interest-bearing, investment grade securities.
The Company believes that the net proceeds from the sale of Common Stock
offered hereby, together with cash generated from operations and existing cash
balances and advances available under the Credit Facility will be adequate to
finance its capital requirements for at least the next twelve months. To the
extent that such amounts are insufficient to finance the Company's capital
requirements, the Company will be required to raise additional funds through
equity or debt financing. No assurance can be given that such financing will be
available on terms acceptable to the Company, and, if available, such financing
may result in further dilution to the Company's stockholders and higher interest
expense.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
REPORTING COMPREHENSIVE INCOME. SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. SFAS No. 130 is effective for fiscal years beginning after December 15,
1997.
In July 1997, the Financial Accounting Standards Board issued SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No.
131 requires certain financial and supplementary information to be disclosed on
an annual and interim basis for each reportable segment of an enterprise. SFAS
No. 131 is effective for fiscal years beginning after December 15, 1997. Unless
impracticable, companies would be required to restate prior information upon
adoption.
YEAR 2000
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. The Company has reviewed the Year 2000 issue. Upon upgrade of the
management information system, expected to be completed by the end of fiscal
1999, management believes that the Company and its Medical and Dental Practices
will be Year 2000 compliant. Additionally, the Company is assessing the impact
of the Year 2000 issue on its significant customers, suppliers and on others.
Management believes that the cost to complete its Year 2000 compliance will not
have a material adverse effect upon the Company.
28
<PAGE>
BUSINESS
HealthDrive Corporation (the "Company"), through four exclusively affiliated
professional corporations and one exclusively affiliated taxable not-for-profit
corporation (collectively, the "Medical and Dental Practices," and each, a
"Practice"), is a leading provider of on-site geriatric health care services
primarily to residents of nursing homes. The Company's Medical and Dental
Practices also provide services to a growing number of residents of assisted
living facilities ("ALFs") and independent living senior housing facilities
("ILFs" and, collectively with nursing homes and ALFs, "LTCFs"). Physicians,
dentists and ancillary health care service providers employed by the Medical and
Dental Practices ("Providers") travel to LTCFs where they provide a growing
range of geriatric medical and dental services. Services currently provided by
the Medical and Dental Practices include dentistry, optometry, podiatry,
audiology, and primary care. As of March 15, 1998, the Medical and Dental
Practices employed 101 Providers who were rendering services at approximately
859 LTCFs located in 11 states. The Company, headquartered in Newton,
Massachusetts, operates four regional offices located in Massachusetts,
Connecticut, Pennsylvania and Wisconsin.
The Company was founded in 1989 by Steven S. Charlap, M.D. and Alec H.
Jaret, D.M.D. to respond to the growing demand for convenient on-site dental
care services at nursing homes. The Company, through its first Practice,
initially provided dental care services to residents of nursing homes in
Massachusetts. Subsequently, optometry, podiatry, audiology and, in the case of
Massachusetts, primary care services, were added, and the Company expanded its
operations into ten other states.
Nursing homes are required by OBRA of 1987 to ensure that medical and dental
services are made available to their residents. In addition, while not required
to do so, certain ALFs and ILFs in the Company's markets have begun to make
on-site medical and dental services available to their residents. Historically,
it has not been cost-effective for LTCFs to use their own resources to satisfy
their residents' medical and dental service needs, and they have looked to Solo
Providers to meet such needs. Providing the range of geriatric medical and
dental services required by LTCF residents through Solo Providers imposes a
number of increasingly complex burdens on LTCFs which include: (i) identifying
and contracting with multiple, competent Solo Providers to provide on-site
services; (ii) allocating LTCF staff to coordinate the services of such Solo
Providers; (iii) monitoring the appropriateness of services provided and related
billings; (iv) complying with related federal and state health care regulations;
and (v) when necessary, transporting residents off-site to receive such
services.
The Balanced Budget Act of 1997 requires the HCFA by July 1, 1998 to begin
converting from a cost-plus reimbursement methodology to the PPS for nursing
homes, pursuant to which the federal government will pay a per diem rate to
nursing homes for post-hospitalization services provided to their Medicare
covered residents. The Company believes that as a result of the change to PPS,
nursing homes will need to increase their focus on the efficiency and quality of
all of their operations to maximize their profitability. PPS does not cover
physician-related services such as those provided by the Medical and Dental
Practices. However, the Company believes an increased focus on efficiency and
quality will make the use of integrated providers of multiple medical and dental
services, such as the Medical and Dental Practices, more attractive than the use
of multiple Solo Providers.
The Company offers an efficient alternative to Solo Providers by
coordinating on-site, integrated and cost-effective geriatric medical and dental
services. The rendering of such services requires: (i) multi-specialty clinical
expertise; (ii) a staff of highly qualified health care service providers; (iii)
the purchase and maintenance of specialized equipment; (iv) the development of
sophisticated management information systems; and (v) reimbursement and
regulatory knowledge. The Company has eight years of experience coordinating
such services. As a result, it has gained expertise in developing clinical
programs, recruiting health care providers and navigating complex reimbursement
systems and state and federal health care laws. In addition, it has developed
proprietary procedures, systems and software necessary to overcome the
logistical complexities involved in coordinating on-site care. Specifically, the
Company has developed CustomCare, a proprietary software program that enhances
the Company's customer service capabilities by effectively integrating all
facets of the Company's services, including scheduling, billing,
29
<PAGE>
tracking dentures and eyeglasses, coordinating transportation, compiling
Provider productivity and patient utilization data, monitoring payor
pre-approvals, and generating customized reports.
The Medical and Dental Practices were established by the Company and are
associated with the Company through individual Operating Agreements under which
support services are furnished. Pursuant to the Operating Agreements, the
Company is solely responsible for all operational aspects of the Medical and
Dental Practices, other than providing medical and dental services. Accordingly,
the Medical and Dental Practices employ the Providers and contract with LTCFs.
The Company's primary objective is to become a dominant provider, through
its Medical and Dental Practices, of on-site, integrated and cost-effective
geriatric medical and dental services to residents of LTCFs. The Company has
identified three opportunities for growth: (i) obtaining service contracts with
additional LTCFs in existing and contiguous markets; (ii) increasing the number
of service contracts with LTCFs under existing contracts; and (iii) increasing
the number of patients served within LTCFs under existing contracts. The Company
has identified four means of capitalizing on such opportunities to achieve
growth within both existing geographic markets and new geographic markets; these
include: (i) increasing its sales and marketing initiatives; (ii) expanding its
existing customer relationships; (iii) leveraging its operational infrastructure
and its existing and planned management information systems; and (iv)
coordinating the acquisition of LTCF focused practices by the Medical and Dental
Practices.
MARKET OVERVIEW
LONG-TERM CARE INDUSTRY. The long-term care industry encompasses a variety
of health care services that are provided primarily to the elderly in varying
settings including nursing homes, ALFs and ILFs. Nursing homes typically care
for those who require 24-hour skilled medical supervision and are in need of
specialized support, and rehabilitative, nutritional, respiratory and other
skilled treatments. ALFs, which are the fastest growing segment of the long-term
care industry, serve the rapidly growing elderly population who may require
housing, assistance with personal care (e.g. dressing and bathing), support
services (e.g. housekeeping and laundry) and intermittent health care services
(e.g. assistance taking medications and health monitoring) but who do not
require the skilled medical care of a nursing home. ILFs are age-restricted
communities designed for residents who require little assistance. ILFs generally
provide at least one congregative service (e.g. meals, housekeeping,
transportation, or activities). Residents in ALFs and ILFs typically do not
require continuous medical or skilled nursing care, but choose not to live
independently. Accordingly, ALF and ILF residents generally have lower acuity
levels than residents of nursing homes.
Residents of nursing homes, currently the primary consumers of the services
provided by the Medical and Dental Practices, generally have complex medical
needs which are treatable outside of acute care hospitals. In most cases,
nursing homes have the capacity to provide skilled nursing care, routine
rehabilitation therapy and other support services. However, nursing homes are
required by state and federal laws and Joint Commission for the Accreditation of
Healthcare Organizations ("JCAHO") standards to provide access to primary
medical care and specialty health care services often beyond their in-house
resources, including, but not limited to, routine dental care, eye care, foot
care, and care for the hearing impaired. In order to provide such specialty
health care services, nursing homes usually contract with outside health care
service providers.
Currently, there are approximately 15,300 nursing homes servicing
approximately 1.7 million residents in the United States. Although the Company
is not aware of any third party collection of data that accurately demonstrates
the size of the Company's target market, residents of Massachusetts nursing
homes treated by the Medical and Dental Practices were visited annually by
Providers in the fields of dentistry, optometry, podiatry and audiology an
average of 1.65 times, 1.50 times, 2.75 times and 1.00 times, respectively. By
multiplying such data by the average annual revenue received by the Company from
such visits and the total number of residents of nursing homes in the United
States, the Company estimates the total market nationwide in nursing homes alone
for the four major specialty health care services provided by its Medical and
Dental Practices to be approximately $760 million. This market size is
30
<PAGE>
calculated based on internal Company data collected only with respect to nursing
homes in Massachusetts, where the Medical and Dental Practices have succeeded in
capturing the largest share of their target market. In addition, it is estimated
that there are approximately 14,500 ALF s and ILFs nationwide.
The Company attributes the continuing growth of the U.S. market for
geriatric medical and dental care in LTCFs to three factors:
AGING POPULATION. The target market for the services provided by the
Medical and Dental Practices are persons generally aged 75 years and older, one
of the fastest growing segments of the U.S. population. According to the U.S.
Census Bureau, the portion of the U.S. population aged 75 to 85 years is
expected to increase by 27%, from approximately 10.0 million in 1990 to
approximately 12.7 million by the year 2010. During the same period, the portion
of the U.S. population aged 85 years and older is expected to increase by 90.0%,
from approximately 3.0 million to approximately 5.7 million.
INCREASED LIFE EXPECTANCY AND MEDICAL ACUITY. Medical technology and other
factors have helped to reduce the mortality rate in the U.S. and increase
longevity. However, longer life is accompanied by a greater chance of chronic
illness and/or disability. Disabilities and chronic illnesses which develop at a
higher rate as a person ages increase the functional dependencies of the elderly
and their need for specialty health care services. According to the United
States General Accounting Office, there are approximately 7.0 million Americans
aged 65 years and older who currently need assistance with activities of daily
living, and this number is expected to double by the year 2020. At the same
time, cost containment initiatives by third party payors have increased the
pressure to discharge medically complex patients from expensive acute care
hospitals to less expensive settings such as LTCFs.
LONG-TERM CARE MEDICAL AND DENTAL PROVIDER MARKET. Unlike many hospitals,
most LTCFs do not have permanent, on-site medical and dental health care service
providers. Generally, LTCFs depend on outside Solo Providers who provide
services using their own equipment and supplies. Medical and dental health care
service providers who treat residents of LTCFs typically receive a substantial
portion of their revenue through reimbursement from the Medicare and Medicaid
programs ("Government Payors"), with the balance of payments being received from
individual LTCF residents ("Private Payors") and private insurers and LTCFs
("Third Party Payors").
As a result of the increasing acuity levels of residents and the changing
regulatory environment, the sophistication and breadth of services required by
residents of LTCFs, and the administrative burdens associated with such
services, have increased dramatically in recent years. Solo Providers serving
patients at a given LTCF must independently verify patient demographic data,
including the patient's primary payor source. In addition, they must
independently pre-schedule visits, respond to emergencies, process all
paperwork, ensure compliance with all related regulatory and reimbursement
requirements, purchase, stock and transport their own equipment and supplies,
and maintain and store their own patient records off-site. Generally, Solo
Providers do not have the resources to adequately respond to these increasingly
complex burdens placed upon LTCFs.
Furthermore, contracting with multiple Solo Providers is inefficient for
LTCFs. LTCF staff and patients and their responsible parties need to contract
with, and coordinate the efforts of, each Solo Provider. Multiple Solo Providers
must be contacted independently to discuss coordination of services, treatment
plans, payment issues and other concerns. LTCFs must provide, and patients or
their responsible parties must complete, individual authorizations for each Solo
Provider. The redundancy of efforts required when utilizing several separate
Solo Providers creates inefficiencies for LTCFs. The Company addresses these
inefficiencies by eliminating the need to contract with, and coordinate the
efforts of, several Solo Providers. By retaining the Medical and Dental
Practices, LTCFs need only coordinate with one party. Although the Company
generally does not displace all Solo Providers when it contracts with a LTCF,
its experience has been that in most LTCFs the Medical and Dental Practices have
become the predominant provider of their four major specialty health care
services.
PROSPECTIVE PAYMENT, CONSOLIDATED BILLING AND MANAGED CARE. The Balanced
Budget Act of 1997 effected several changes to the manner in which nursing homes
are to be reimbursed for health care
31
<PAGE>
services that are provided to Medicare beneficiaries. Effective July 1, 1998,
HCFA will begin a three-year transition period to PPS. Under PPS, covered
nursing homes will no longer be able to operate under a cost-plus reimbursement
methodology but will instead be paid a single federal per diem rate for all non-
physician health care services provided to Medicare beneficiaries. The federal
per diem rate will be based on historical cost reports provided by covered
nursing homes and will be standardized to reflect differences among nursing
homes which are attributable to, among other things, current expenses,
geographic location, labor costs, and case-mix. The Company believes that as a
result of the change to PPS, nursing homes will need to increase their focus on
the efficiency of all of their operations to maximize their profitability. PPS
does not cover physician related services such as those provided by the Medical
and Dental Practices. However, the Company believes this increased focus on
efficiency will make single-source providers of coordinated care across a
variety of specialties, such as the Company, more attractive as a result of the
efficiencies realized.
Effective July 1, 1998, the Balanced Budget Act of 1997 also mandates
consolidated billing for all non-physician services which are provided to
Medicare beneficiaries who reside in a covered nursing homes ("Consolidated
Billing"). Unlike PPS, there is no transition period for Consolidated Billing.
Under Consolidated Billing, covered nursing homes must submit Medicare claims,
including a procedure code for the particular service provided, for all services
received by its residents regardless of who provides the service. Covered
nursing homes will then receive payments for all such services provided in
accordance with fee schedules which will be established by HCFA. Consolidated
Billing does not cover physician related services such as those provided by the
Medical and Dental Practices. However, the Company believes that CustomCare, the
Company's proprietary management information system, could easily and
efficiently integrate and track all information required to satisfy a covered
nursing home's obligations under Consolidated Billing. Such capabilities provide
the Company with a significant advantage over Solo Providers who do not have
access to similar systems. Furthermore, because the Medical and Dental Practices
provide a range of health care services, the Company can further integrate the
billing information required under Consolidated Billing, thereby enhancing this
advantage.
In response to the rising cost of health care services, Government Payors
and Third Party Payors have implemented managed care initiatives, such as
capitated payment agreements, aimed at reducing the cost of such services. Such
initiatives have focused on eliminating the traditional fee-for-service method
of paying for health care services in favor of risk-sharing payment devices that
encourage the health care service provider to manage the care of patients in the
most cost-effective manner. Under capitated payment agreements, physicians,
dentists and other health care service providers agree to provide all required
services within their specialty to a defined group for a fixed fee.
Risk-sharing payment arrangements reward large practices that have (i) the
resources to offer coordinated care across a variety of specialties, (ii) low
operating costs relative to revenue, (iii) bargaining power with vendors of
supplies and services and (iv) sophisticated management information systems
which maintain outcome management programs and patient care data. While the
Company has traditionally succeeded in coordinating the delivery of health care
services on a fee for service basis, it expects that managed care, including
capitated payment agreements, may grow in importance as a means of reimbursement
for health care services provided to residents of LTCFs in the future. The
Company believes that it will have a competitive advantage in such an
environment as a result of its management information system, CustomCare, and
its ability to coordinate a spectrum of health care services involving a number
of different specialties. The Company also believes that its size generates
economies of scale and provides it with bargaining power with vendors of
supplies.
STRATEGY
The Company's primary objective is to become a dominant provider, through
its Medical and Dental Practices, of on-site, integrated and cost-effective
geriatric medical and dental services to residents of LTCFs.
32
<PAGE>
The Company estimates that its Medical and Dental Practices have entered
into contracts with approximately 17.1% of the nursing homes within the
Company's existing markets. In addition, the Company estimates that the Medical
and Dental Practices service on average only 50% of the residents of each LTCF
who require the services offered by the Medical and Dental Practices.
Furthermore, as of March 15, 1998, the Company's Medical and Dental Practices
had entered into only approximately 2,056 service contracts with the 859 LTCFs
with which they had contracts (an average of approximately 2.4 contracts per
LTCF).
The Company believes that these relatively low penetration rates indicate
significant opportunities for growth including: (i) obtaining service contracts
with additional LTCFs in existing and contiguous markets; (ii) increasing the
number of service contracts with LTCFs under existing contracts; and (iii)
increasing the number of patients served within LTCFs under existing contracts.
The Company has identified four means of capitalizing on such opportunities to
achieve growth within both existing geographic markets and new geographic
markets; these include (i) increasing its sales and marketing initiatives, (ii)
expanding its existing customer relationships, (iii) leveraging its operational
infrastructure and existing and planned management information systems, and (iv)
coordinating the acquisition of single specialty LTCF focused practices by its
Medical and Dental Practices.
(I) INCREASE SALES AND MARKETING INITIATIVES
The Company plans on continuing to add to its sales staff to capitalize on
the growth opportunities stated above. The Company's sales personnel maintain
existing LTCF relationships, expand these relationships by signing additional
service agreements, and enter into new relationships with other LTCFs in their
assigned markets. The Company's sales personnel work closely with the Providers
and their assigned LTCFs to increase the number of patients within each LTCF who
select the Providers as their caregivers. In addition, the Company has commenced
adding sales personnel whose sole responsibility is to expand into new markets.
(II) EXPAND EXISTING CUSTOMER RELATIONSHIPS
The Medical and Dental Practices have secured service agreements with a
number of national LTCF operators to provide services to facilities managed by
such operators in certain markets. The Company plans to use these relationships
to obtain additional service contracts with facilities that are managed by such
LTCF operators in other markets. The Medical and Dental Practices have developed
and expect to continue to develop quality clinical programs with consistent
standards of care applicable across many regions. As the LTCF industry continues
to consolidate, the Company believes that, through its Medical and Dental
Practices, it offers a multi-regional program for LTCF operators who want to
standardize their operations across multiple regions by contracting with one
integrated provider. The Company has developed customized reports which provide
LTCF operators with utilization data that is useful for quality assurance
purposes and possible managed care contracting.
(III) LEVERAGE OPERATIONAL INFRASTRUCTURE AND MANAGEMENT INFORMATION
SYSTEMS.
The Company has developed operations in four regions of the country and has
demonstrated a capability to serve contiguous markets from its regional
operations. In the past, the Company has serviced the New Hampshire and Rhode
Island markets from its regional center in Massachusetts, the New York market
from its regional center in Connecticut, and the New Jersey market from its
regional center in Pennsylvania. The Company has also demonstrated its ability
to service non-contiguous states such as Florida, Michigan, and Ohio from a
centralized operations base in Massachusetts. The Company's existing regional
and central operations enable the Company to service additional LTCFs in
contiguous and non-contiguous markets with minimal increases in operating
expenses. In addition, the Company can add new services which can be
administered to LTCFs under existing contracts and newly contracted LTCFs from
existing regional and central operations. The Company believes that its success
in managing operations from regional and central, rather than local, centers is
a result of CustomCare, its proprietary management information system.
CustomCare provides the Company with the concise and timely data it requires to
33
<PAGE>
effectively and efficiently manage multiple sites from its corporate
headquarters. The Company intends to further leverage CustomCare by offering
fee-based administrative and billing services to non-affiliated primary care
physicians who treat patients at the same LTCFs where the Medical and Dental
Practices provide their services. By compiling clinical and demographic patient
information provided by the non-affiliated providers with similar information
from the Medical and Dental Practices, CustomCare can integrate such information
into one comprehensive report available to both non-affiliated primary care
physicians and the LTCF. The Company believes that by also providing fee-based
Consolidated Billing services for LTCFs, it can create a single source,
integrated data base for all non-nursing related services for each LTCF in which
it operates.
(IV) ACQUIRING SINGLE SPECIALTY LTCF FOCUSED PRACTICES
Although the Company has traditionally expanded through the recruitment by
the Medical and Dental Practices of health care service providers, the Company
expects to further increase its presence in existing markets and enter into new
markets by coordinating the acquisition of LTCF focused practices by its Medical
and Dental Practices. The Company believes that it can penetrate new markets
through such acquisitions and use the acquired practices' existing relationships
with LTCFs as platforms to market other services of the Medical and Dental
Practices. In 1997, the Company recruited a prominent dentist in Michigan with
an existing LTCF practice. Marketing the Medical and Dental Practices' other
services to the dentist's existing LTCF clients resulted in the execution of 82
new contracts for services. The Company intends to attract prominent practices
by capitalizing on its professional reputation, growing network of LTCFs,
management experience, proprietary information systems, and logistical know-how.
In addition, upon consummation of this Offering, the Company will have increased
resources, better access to capital, and the ability to offer equity
participation in a publicly traded entity, each of which will enhance the
Company's ability to complete possible acquisitions.
The Company also intends to leverage its existing and planned management
information systems and reimbursement and regulatory expertise to offer
additional fee-based services to LTCFs and increase revenue. The Balanced Budget
Act of 1997 will require LTCFs to bill for all outside vendor services as of
late 1998. Though the services provided by the Medical and Dental Practices are
excluded from this requirement, the Company believes it may use its existing and
planned billing operations, reimbursement expertise, management information
systems, including CustomCare, and patient demographic data bases to provide
LTCFs under existing contracts with such fee-based billing services.
Although the Company is not party to any agreements to acquire other LTCF
focused practices, it has engaged in discussions with a number of such practices
in the past, and believes that there are significant opportunities for
acquisitions. There can be no assurances that any such acquisitions can be
consummated by the Company. However, the Company believes that acquisitions
completed in existing markets could significantly enhance the Company's
operations in such markets by allowing it to leverage its existing operations to
provide services to new LTCFs, and that acquisitions completed in new geographic
markets may facilitate the Company's entrance into such markets and accelerate
the growth of operations therein.
OPERATIONS
The Company has considerable experience in the design and implementation of
comprehensive clinical programs for residents of LTCFs in the fields of
dentistry, optometry, podiatry and audiology. In addition, the Company has
developed systems and procedures to efficiently overcome the logistical
obstacles associated with transporting equipment, files and Providers to
different LTCFs on a daily basis.
OPERATING MODELS AND TRANSPORTATION SYSTEMS. The Company has two operating
models and two transportation systems which are employed to different degrees
under each operating model based on the size of the regional operation.
34
<PAGE>
(I) REGIONAL OFFICE MODEL.
In certain markets such as Massachusetts, Connecticut, Pennsylvania and
Wisconsin, where the Company has a high number and concentration of LTCFs under
contract, the Company's operations are decentralized with each regional office
performing all functions related to support and patient care. Specifically, each
regional office is responsible for scheduling patient visits, maintaining and
transporting medical records, equipment and supplies to LTCFs, customer service,
sales, billing, and collections. Scheduling experts at each regional office
generate patient schedules for each LTCF and for each Provider. Pursuant to such
schedules, Providers visit a different LTCF each day.
(II) CENTRAL OFFICE MODEL.
In other markets such as Florida, Michigan and Ohio, where the Company
currently has a lower number and concentration of LTCFs under contract, the
Company's operations are more centralized. Scheduling patient visits, customer
service, billing and collections are performed out of the Company's central
office. The Company maintains local field account management as necessary to
provide quality customer service.
(III) ASSISTED TRANSPORT SYSTEM.
Under the assisted transport system, drivers who are assigned to each
Provider, are responsible for ensuring that the proper equipment, supplies and
medical records are waiting for the Provider at the LTCF when the Provider
arrives. At the end of each day, the driver returns to the LTCF to retrieve the
equipment, supplies, medical records and billing forms. The driver then returns
to the regional office to deliver the medical records and billing forms for that
day's patients, and pick-up the medical records and replenish clinical supplies
for the following day's patients. This cycle repeats itself daily.
(IV) SELF TRANSPORT SYSTEM.
Providers under the self transport system are responsible for their own
transportation of equipment, and have the increased flexibility to visit more
than one facility per day. Recent advances in the miniaturization and
portability of certain equipment and innovative equipment configurations allow
easy transport of equipment by the Providers. The Company intends to convert its
operations to the self transport system wherever feasible. The Company believes
that implementation of the self transport system will enable the Medical and
Dental Practices to provide services to residents of facilities (including many
ALFs and ILFs) that have fewer residents than the nursing homes historically
served by the Company.
MANAGEMENT INFORMATION SYSTEMS. The Company has developed CustomCare, a
unique proprietary software program specifically geared towards multi-specialty
health care practice in LTCFs. CustomCare is the product of the Company's eight
years of operational experience working primarily with nursing homes. The
Company designed CustomCare to increase its efficiency in coordinating the
delivery of on-site care and to provide better customer service. The system
enables the Company's non-Provider staff in regional offices, at the Company's
headquarters and at LTCFs, to immediately access all relevant patient
information. CustomCare also effectively integrates all facets of the Company's
services, including scheduling, billing, tracking denture and eyeglass
fabrication, coordinating transportation, compiling Provider productivity and
patient utilization data and monitoring payor pre-approvals. Using CustomCare,
the Company's non-Provider staff can easily and quickly generate extensive
customized clinical reports for LTCFs and productivity and utilization data for
Company management. This management information system considerably increases
the Company's ability to respond to requests from LTCFs, physicians, responsible
parties, Government Payors and Third Party Payors. In addition to these
capabilities, in early 1998 the Company began using CustomCare to generate the
Quality Assurance Report. Such report comprehensively summarizes all clinical
activity at any particular LTCF, sorted by patient, date of service, diagnosis,
procedure performed, next recall date, recommended treatment, and specialty.
This report assists LTCFs in monitoring regulatory compliance and quality of
care. The Company maintains appropriate procedures, and is provided with
assurances from the Medical and Dental Practices, with respect to the
maintenance of patient privacy and confidentiality.
35
<PAGE>
SERVICE AGREEMENTS. The Medical and Dental Practices have entered into
service agreements with approximately 859 LTCFs. Each of the Medical and Dental
Practices, other than the Michigan taxable not-for-profit corporation, practices
one of the four major specialties coordinated by the Company. LTCFs enter into a
separate service agreement (each a "Service Agreement") with each of the Medical
and Dental Practices from which they wish to obtain services, and generally a
LTCF may choose to
contract with any number and any combination of the Medical and Dental
Practices. Pursuant to the Service Agreements, each Practice must provide all
equipment and care required by the LTCF residents who choose to use its services
and bill the LTCF residents or their health insurance for all services rendered.
Consistent with applicable laws and regulations, each LTCF must provide the
Medical and Dental Practices with access to pertinent medical histories and
billing information of its residents as well as adequate space, electrical and
water supplies. The Service Agreements generally have an initial term of one
year and thereafter are terminable upon 30 days written notice. Either party may
terminate at any time if the other party fails to perform its obligations and
does not correct such failure after receiving 15 days written notice of such
failure. The Service Agreements do not obligate the LTCF to obtain the services
of the Medical and Dental Practices for any of its patients, and do not prohibit
the LTCF from obtaining similar services from other health care service
providers. Although the Service Agreements define the relationship between the
Medical and Dental Practices and LTCFs, the Company considers its and its
Medical and Dental Practices' working relationships with LTCFs to be of greater
significance. During the twelve-month period ended December 31, 1997, the
Medical and Dental Practices retained over 90% of the Service Agreements that
came up for renewal.
LTCFS SERVED AND POTENTIAL MARKET
As of March 15, 1998, the Medical and Dental Practices had contracts to
provide specialty health care services at approximately 850 nursing homes in
Massachusetts, Connecticut, Pennsylvania, Wisconsin, Florida, Michigan, Rhode
Island, New Jersey, Ohio, New Hampshire and New York. Generally, each of the
nursing homes may contract to have its residents receive one or more of the four
major specialty services provided by the Medical and Dental Practices. On
average, nursing homes contract to have their residents receive two to three of
the four specialty services provided by the Medical and Dental Practices.
The following table indicates the estimated number of nursing homes
currently receiving services coordinated by the Company and the estimated total
number of nursing homes in the Company's current markets. The Company does not
have reliable information available indicating the number of ALFs and ILFs in
each of the Company's current markets. Accordingly, such facilities are not
included.
<TABLE>
<CAPTION>
ESTIMATED NUMBER
ESTIMATED OF
NUMBER OF NURSING HOMES NURSING HOMES IN SERVICE
MARKET CURRENTLY SERVED (1) STATE PENETRATION
- ------------------------------------------------------------- ----------------------- ----------------- -------------
<S> <C> <C> <C>
Massachusetts................................................ 310 557 55.6%
Connecticut.................................................. 106 265 40.0
Pennsylvania................................................. 95 669 14.2
Wisconsin.................................................... 77 380 20.3
Florida...................................................... 68 626 10.9
Michigan..................................................... 62 421 14.7
Rhode Island................................................. 48 103 46.6
New Jersey................................................... 35 345 10.1
Ohio......................................................... 30 950 3.2
New Hampshire................................................ 18 73 24.7
New York..................................................... 1 572 *
--- ------ ---
Total........................................................ 850 4,961 17.1
--- ------ ---
All 50 states................................................ 850 15,323 5.5
--- ------ ---
</TABLE>
- ------------------------
* Less than 1%.
(1) Estimated by the Company as of March 15, 1998.
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<PAGE>
With respect to the four major specialty services coordinated by the
Company, the following table indicates the estimated number of service contracts
the Company has entered into, the potential number of services consumable by
nursing homes currently under contract to receive at least one service and the
potential number of services consumable by all nursing homes in the Company's
markets.
<TABLE>
<CAPTION>
NURSING HOMES CURRENTLY SERVED ALL NURSING HOMES
------------------------------------ ----------------------------------
POTENTIAL NUMBER OF POTENTIAL NUMBER OF
NUMBER OF SERVICE SERVICES CONSUMABLE SERVICE SERVICES CONSUMABLE SERVICE
MARKET CONTRACTS (1) (2) PENETRATION (2) PENETRATION
- ------------------------------------ ------------------- ------------------- --------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
Massachusetts....................... 776 1,240 62.2% 2,228 34.8%
Connecticut......................... 279 424 65.8 1,060 26.3
Pennsylvania........................ 230 380 60.5 2,676 8.6
Wisconsin........................... 221 308 71.8 1,520 14.5
Florida............................. 154 272 56.6 2,504 6.2
Michigan............................ 104 248 41.9 1,684 6.2
Rhode Island........................ 104 192 54.2 412 25.2
New Jersey.......................... 90 140 64.3 1,380 6.5
Ohio................................ 51 120 42.5 3,800 1.3
New Hampshire....................... 36 72 50.0 292 12.3
New York............................ 1 4 25.0 2,288 *
------ ------ --- ------ -----
Total............................... 2,046 3,400 60.2 19,844 10.3
------ ------ --- ------ -----
All 50 states....................... 2,046 3,400 60.2 61,292 3.3
------ ------ -----
</TABLE>
- ------------------------
* Less than 1%.
(1) Estimated by the Company as of March 15, 1998.
(2) Based on the provision of four services per nursing home.
Although the Company has focused to date primarily on coordinating the
provision of geriatric medical and dental services to residents of nursing homes
in certain states, it intends to further expand into other types of LTCFs,
including ALFs and ILFs, in states where it is currently operating, and
eventually into other states. The Company currently coordinates the provision of
medical and dental services to nine ALFs and ILFs. The Company expects the
number of ALFs and ILFs in operation throughout the United States to grow
considerably in the future as a result of the growing number of elderly
Americans. The Company believes that the development of such facilities will add
significantly to the size of the potential market for the Company's Medical and
Dental Practices' services.
HEALTH CARE SERVICES PROVIDED
Each of the Medical and Dental Practices, other than the Michigan taxable
not-for-profit corporation, Health Drive Michigan Corporation (the "Michigan
Practice"), practices one of the four major specialty health care services
coordinated by the Company.
DENTISTRY PRACTICE. Oral health is important to an elderly person's quality
of life. The ability to properly chew and extract nutrients from food is often
dependent on good oral health. Lack of mobility often results in the failure to
obtain appropriate preventive dentistry and address dental problems at their
inception when they are easily and inexpensively treatable. The Company's dental
program was designed to emphasize quality and convenience. The Company delivers
a fully-equipped dental clinic to each LTCF served, alleviating the need to
transport LTCF residents off-site for routine or emergency care. The equipment
includes a dental delivery unit, x-ray unit, portable chairs, lead sheets and
reline equipment. The Company also provides equipment necessary to safeguard
patients from cross-contamination during treatment. Dentists and hygienists are
assigned to specific LTCFs, thereby providing the continuity of care
37
<PAGE>
for patients associated with visiting a traditional dentist. The dentistry
Practice and the Michigan Practice provide the following services on-site:
- Routine examinations and cleanings
- Examinations for oral cancer
- X-rays
- Extractions
- Fillings, crowns and bridges
- Denture relines, repair and engraving
- Coordination of denture fabrication
- Emergency care
OPTOMETRY PRACTICE. Similar to dental problems, ocular problems are
commonly ignored by residents of LTCFs due to the inconvenience and discomfort
associated with visiting an ophthalmologist, optometrist or optician. Cataracts,
macular degeneration, diabetic retinopathy and glaucoma are the most sight-
threatening ocular disorders associated with aging and, due to their gradual
development, they can go unrecognized for some time. The Company strives to
prevent the neglect of ocular infirmities by providing a comprehensive eye
examination clinic to residents of LTCFs which have contracted with the
optometry Practice to receive eye care services, including a portable
microscope, an indirect opthalmoscope for viewing the back of the eye, a trial
lens set especially adapted for elderly patients, a Tono-Pen-TM- for precision
glaucoma testing and a wide selection of eyeglass frames. With such equipment,
Providers employed by the optometry Practice have the capacity to conduct
comprehensive eye exams and determine the appropriate prescriptions for the
residents of LTCFs which have contracted to receive optometry services. The
optometry Practice and the Michigan Practice provide the following services
on-site:
- Glaucoma and overall eye health testing
- Vision testing using trial lenses especially
adapted for elderly patients
- Coordination of eyeglass fabrication, repair and
engraving
- Provision of low-vision aids for
partially-sighted individuals
- Emergency care
PODIATRY PRACTICE. Timely attention to various conditions common to the
elderly, including hammer toes, ulcers, calluses and improperly fitted shoes,
can help prevent ambulatory residents of LTCFs from becoming wheelchair bound or
bedridden. Especially for diabetic residents and frail elderly residents,
podiatric treatment is essential to prevent limb and life-threatening
consequences of untreated skin irritations. The podiatry Practice and the
Michigan Practice provide the following services on-site:
- Comprehensive evaluations
- Nail trimming, reduction, and debridement
- Treatment of corns, calluses and ulcers
- Wound care management with close follow-up
- Emergency care
38
<PAGE>
AUDIOLOGY PRACTICE. As people age, the incidence of presbycusis, a form of
hearing loss due to wear and tear or deterioration within the ear, naturally
increases, but is often overlooked or ignored. Misunderstandings resulting from
hearing loss can lead to social isolation, may even be mistaken for dementia,
and can potentially lead to dependence on others for daily activities. An
important part of the early recognition and treatment of otologic conditions is
a hearing evaluation. The Company through its Medical and Dental Practices
strives to minimize the effects of hearing loss. The Providers employed by the
audiology Practice utilize the form of speech evaluation known as pure tone and
speech audiometry and give special attention to their patients' ability to hear
and understand normal conversation speech. The audiology Practice provides the
following services on-site:
- Comprehensive evaluations including Audiometry and
Tympanometry
- Otoscopy
- Cerumen management
- Hearing aid fitting and dispensing
HEALTH CARE SERVICE PROVIDERS
As of March 15, 1998, the Medical and Dental Practices employed 101
Providers. The following table sets forth the number of Providers by Practice
and state or region.
<TABLE>
<CAPTION>
PRACTICE(1) PROVIDERS MASSACHUSETTS(2) PENNSYLVANIA(3) CONNECTICUT(4) WISCONSIN
- ----------------------- -------------------- ------------------- ------------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Dentistry Practice Dentists............ 13 6 4 2
Dental Hygienists... 9 0 2 0
Optometry Practice Optometrists........ 10 4 4 2
Opticians........... 2 1 1 0
Podiatry Pratice Podiatrists......... 8 3 4 3
Audiology/Primary Audiologists........ 6 4 1 1
Care Practice Primary Care........ 1 0 0 0
--- --- --- ---
Total.................. 49 18 16 8
<CAPTION>
PRACTICE(1) FLORIDA OHIO MICHIGAN TOTAL
- ----------------------- ----------- ----- ------------- -----
<S> <C> <C> <C> <C>
Dentistry Practice 2 0 1 28
0 0 0 11
Optometry Practice 2 1 1 24
0 0 0 4
Podiatry Pratice 2 0 1 21
Audiology/Primary 0 0 0 12
Care Practice 0 0 0 1
--- --- --- ---
Total.................. 6 1 3 101
</TABLE>
- ------------------------
(1) The Michigan Corporation employs providers specializing in three of the
Medical and Dental Practices' four major specialties -- optometry,
dentistry, and podiatry.
(2) Includes New Hampshire and Rhode Island.
(3) Includes New Jersey.
(4) Includes New York.
In December 1996, the primary care Practice hired a geriatrician who has
secured four medical directorships at affiliated LTCFs, has been contracted to
serve as acting director of the nursing home program for a local hospital
system, and is currently the primary care physician for patients in seven LTCFs.
COMPANY STRUCTURE
The Company is a Delaware corporation. The Company's five Medical and Dental
Practices consist of four Massachusetts professional corporations and one
Michigan taxable not-for-profit corporation. The Company has exclusive Operating
Agreements with the Medical and Dental Practices. Each of the four professional
corporations is named for the chief physician or dentist in such professional
corporation and practices one of the four major specialties coordinated by the
Company, other than Steven S. Charlap, M.D., P.C. which practices audiology and
primary care. The Michigan taxable not-for-profit Corporation, which was formed
to comply with state regulations, practices three of the four major specialties
coordinated by the Company.
39
<PAGE>
OPERATING AGREEMENTS WITH MEDICAL AND DENTAL PRACTICES. Each Medical and
Dental Practice was established by the Company, but remains a separate legal
entity. The Company manages its Medical and Dental Practices through separate
Operating Agreements. Pursuant to the Operating Agreements, the Company provides
business and administrative services and licenses the use of the name
"HealthDrive" to the Medical and Dental Practices. Under the Operating
Agreements, the delivery of medical, dental or ancillary health care services is
supervised, directed and controlled, and all final determinations with respect
thereto are made, exclusively by the Medical and Dental Practices and the
Providers, including: (i) compensation, hiring and firing of Providers; (ii)
supervision of Providers, including assignment of patients and peer review;
(iii) maintenance of patient records; (iv) establishment of policies and
procedures with respect to patient acceptance; and (v) establishment of hours of
operation, scope of services provided and fees for such services. Subject to its
right to provide advice with respect to certain matters set forth below, under
the Operating Agreements, the Company expressly disclaims any control, direct or
indirect, over the delivery of medical, dental or ancillary health care
services. The Company is exclusively responsible for the operation of all other
aspects of the Medical and Dental Practice, including: (i) purchasing all
inventory, supplies, administrative services and equipment; (ii) employing all
non-Provider staff; (iii) controlling scheduling, payroll, bookkeeping and
accounting; (iv) rendering non-medical administrative advice on scope and price
of services provided, establishment of clinical forms and guidelines for
selection, hiring and firing of Providers, aggregate compensation and incentive
compensation for Providers, and business and financial management; (v)
establishing business systems, procedures and forms; (vi) marketing; (vii)
billing in the name of the Medical and Dental Practices; and (viii) preparing a
recommended budget. The Company employs substantially all of the Medical and
Dental Practices' non-Provider staff, except those whose services are directly
related to the provision of medical and dental care. The Operating Agreements
have a 40-year term and may be terminated by either party only in the event of
breach by the other party or bankruptcy of the other party. The Company has the
right to terminate the Operating Agreement if a Practice at any time does not
qualify as a professional corporation or otherwise loses its authority to render
medical and dental services or a Provider's license to practice medicine or
dentistry is revoked or threatened to be revoked. In exchange for providing
management services under the Operating Agreements, the Company receives the net
revenue of the Medical and Dental Practice subject to specified limitations.
"Net revenue" includes all revenues of the Medical and Dental Practices minus
all expenses recorded on an accrual basis using tax accounting principles.
Pursuant to an Option Agreement, the sole equity holder of each Practice has
granted an option to a Provider designated by the Company at the time such
option is exercised to purchase the Common Stock of such Practice for fair
market value subject to certain limitations.
Pursuant to the Operating Agreements, the Medical and Dental Practices must
indemnify the Company for damages resulting from negligent or intentional acts
by the Medical and Dental Practices or the Providers and any breach of the
Operating Agreements by the Medical and Dental Practices.
The Operating Agreements contain non-disclosure provisions which protect the
Company's confidential and proprietary information. They also contain
non-competition and non-solicitation provisions which prevent each Medical and
Dental Practice and their sole equity holder from competing with the Company or
soliciting the Company's employee or suppliers or LTCFs under contract with the
Medical and Dental Practices during the term of the Operating Agreement and for
two years thereafter. In addition, pursuant to the Operating Agreements, each
Medical and Dental Practice must require the Providers employed by it to execute
an agreement to comply with the non-disclosure provisions contained in the
Operating Agreements and a non-competition and non-solicitation agreement
acceptable to the Company.
NON-COMPETITION AGREEMENTS. As a condition of employment by the Company or
a Practice, all employees, including Providers, are required to enter into
Secrecy and Non-Compete Agreements (the "Non-Compete Agreements"). Generally,
the Secrecy and Non-Compete Agreements contain certain provisions with respect
to: (i) confidentiality; (ii) the assignment of inventions, discoveries, methods
or other developments made by the employee while employed by the Company; (iii)
the ownership of
40
<PAGE>
customer lists and other proprietary information; and (iv) non-competition. The
covenant not to compete generally restricts the employee's ability to compete
during the term of his or her employment and for a period of eighteen months
thereafter, in the coordination or provision of dental, medical or ancillary
health care services at corporate and institutional sites in any state in which
the Company's Medical and Dental Practices provide services. It also restricts
solicitation of employees and customers of the Company and the Medical and
Dental Practices during such period.
COMPETITION
No single entity or health care service provider competes with the Company
in all states and in all specialties. However, Solo Providers and regional
entities offering single-specialty health care services or multiple specialty
health care services compete with the Company in specific states. SunAlliance, a
division of Sun Healthcare Group, a LTCF operator, has recently begun to provide
a number of health care services to LTCFs on-site in Connecticut and
Massachusetts. The Company believes that in connection with SunAlliance's
entrance into this market in 1997, 20 LTCFs operated by Sun Healthcare Group
failed to renew one or more Service Agreements that represented $437,000 of the
Company's revenue during 1996. The Company believes that SunAlliance is its
primary competitor in Massachusetts, where 46.2% of the Company's revenue was
generated during 1997.
GOVERNMENT REGULATION
The practice of medicine and dentistry and the delivery of ancillary health
care services are regulated at both the state and federal levels, and the
regulation of health care related companies is increasing in scope and
complexity. Although the Company believes that its operations and the operations
of the Medical and Dental Practices are in compliance in all material respects
with federal and state law, including laws and regulations relating to health
care and the practice of medicine, the Company has not received, and the
Underwriters will not be receiving in connection with the Offering, a legal
opinion from counsel or any federal or state judicial or regulatory authority
that the operations of the Company and its Medical and Dental Practices and the
relationships among the Company, the Medical and Dental Practices, the Providers
and LTCFs do not violate federal and state health care laws and regulations.
Furthermore, such laws are rapidly evolving and subject to interpretation, and
as the Company expands into new states, it will become subject to additional
laws and regulations. The ability of the Company to operate profitably will
depend in part upon the ability of the Company and its Medical and Dental
Practices to operate in compliance with applicable health care laws and
regulations at the state and federal levels.
FEDERAL REGULATION
Federal laws generally regulate reimbursement and billing practices under
Medicare and Medicaid programs. Certain provisions of the Social Security Act,
commonly referred to as the "Anti-kickback Amendments," prohibit, subject to
certain safe harbors, the payment, offer, solicitation or receipt of any form of
remuneration (including any kickback, bribe or rebate), direct or indirect, in
return for, or in order to induce: (i) the referral of an individual for an item
or service; (ii) the furnishing or arranging to furnish items or services; or
(iii) the purchase, lease or order or the arrangement or recommendation of a
purchase, lease or order of any item or service which is reimbursable under
Medicare or Medicaid. The Company believes that its operations and the
operations of its Medical and Dental Practices comply with the Anti-kickback
Amendments, primarily because the Medical and Dental Practices do not refer
patients to each other.
Significant prohibitions against physician self-referrals for services
covered by Medicare were enacted, subject to certain exceptions, by Congress
under OBRA of 1993. These prohibitions, commonly known as "Stark II," amended
prior physician self-referral legislation known as "Stark I" (which applied only
to
41
<PAGE>
clinical laboratory referrals) by dramatically enlarging the list of services
and investment interests to which the self-referral prohibitions apply.
Effective January 1, 1995, Stark II prohibits a physician or a member of his or
her immediate family from referring Medicare or Medicaid patients to an entity
providing "designated health services" with which any such physician or an
immediate family member of any such physician has a financial relationship or
compensation arrangement or in which any such physician or an immediate family
member of any such physician has an ownership or investment interest.
"Designated health services" include, among other things, clinical laboratory
services, radiology and diagnostic services, radiation therapy services, durable
medical equipment, physical and occupational therapy services, parental and
enteral nutrients, certain equipment and supplies, prosthetics, orthotics,
outpatient prescription drugs, home health services and inpatient and outpatient
hospital services. Stark II prohibitions apply to referrals within the
physician's own group practice (unless such practice satisfies the "group
practice" definition) and referrals in connection with the physician's
employment arrangements with a practice (unless the arrangement satisfies the
employment exception). Stark II also prohibits billing the Medicare or Medicaid
programs for services rendered following prohibited referrals. Noncompliance
with, or violation of Stark II can result in exclusion from the Medicare and
Medicaid programs and civil and criminal penalties. The Company believes that
its operations as presently conducted do not pose a material risk under Stark
II, primarily because the Medical and Dental Practices do not provide
"designated health services."
Federal regulations promulgated in 1996 under OBRA of 1990 also govern
physician incentive plans associated with certain managed care organizations
that offer risk-based Medicare and Medicaid contracts. Under the federal False
Claims Act, criminal, civil and administrative penalties may be imposed on
health care providers who file or participate in the filing of false claims for
reimbursement for the delivery of health care services, including claims filed
under Medicare, Medicaid and insurance programs. Penalties that previously were
sought primarily in instances of claims filed for services not actually
provided, in whole or in part, or provided by unauthorized providers, are now
being sought in an increasingly broader range of circumstances, including
claiming reimbursement for services that do not comply with quality and other
applicable standards of care. The Medical and Dental Practices have procedures
in place to oversee quality of care, and the Company believes that these
procedures are adequate to assure maintenance of the required level of quality
and standards of care.
The Company may also be subject to Medicare rules governing billing agents.
These rules prohibit a billing agent from receiving a fee based on a percentage
of Medicare collections and may require Medicare payments for the services of
physicians to be made directly to the physician providing the services or to a
lock box account opened in the name of the applicable practice. The Company fees
are not related to Medicare payments and Medicare and Medicaid payments are
currently deposited into a joint account in the name of the Company and the
applicable Medical and Dental Practice. Therefore, the Company believes that it
is in compliance with regulations governing billing agents.
Revenues of the Company received from Government Payors and Third Party
Payors are subject to significant regulation. Some payors limit the extent to
which physicians, dentists and ancillary health care service providers may
assign their revenues from services rendered to beneficiaries. Under these
"reassignment" rules, the Company may not be able to require physicians,
dentists and ancillary health care service providers to assign their Government
Payor and Third Party Payor revenues unless certain conditions are met, such as
acceptance by physicians, dentists or ancillary health care service providers of
assignment of the payor receivable from patients, reassignment to the Company of
the sole right to collect the receivables, and written documentation of the
assignment. In addition, governmental payment programs such as Medicare and
Medicaid limit reimbursement for services provided by ancillary service
providers to those services which were provided "incident to" a physician's or
dentist's services. Under these "incident to" rules, the Company may not be able
to receive reimbursement for services rendered by certain ancillary health care
service providers unless certain conditions are met, such as requirements that
services must be of a type commonly furnished in a physician's or dentist's
office and must be rendered under the
42
<PAGE>
physician's or dentist's direct supervision and that the ancillary service
providers must be employed by the applicable Medical and Dental Practice.
Because the Medical and Dental Practices are separate legal entities, they
may be considered to be competitors subject to federal antitrust laws which
generally prohibit anti-competitive conduct involving price fixing, concerted
refusals to deal and division of market. More particularly, federal antitrust
laws have been interpreted to prohibit, among other things, joint negotiations
by competitors of price terms in absence of financial risk that is shared among
the competitors. The Company intends to comply with federal antitrust laws.
STATE REGULATION
The laws of many states prohibit business corporations, such as the Company,
from practicing medicine or dentistry and employing physicians, dentists or
ancillary health care service providers to practice medicine, dentistry or
perform ancillary health care services, respectively. Under the Operating
Agreements, the Providers retain exclusive control over the delivery of health
care services. As a result, the Company believes that it is not in violation of
applicable laws and regulations governing corporate practice of medicine and
dentistry. However, many aspects of the Company's operations have not been
subject to formal state or federal regulatory interpretation. Furthermore, the
laws and regulations governing the corporate practice of medicine have generally
been subject to limited judicial and regulatory interpretation in most states
and are subject to change.
Many states, including certain states in which the Company does business,
have also enacted fraud and abuse and false claims/quality of care laws which
are similar to the federal fraud and abuse and false claims/quality of care
laws, and which, in many cases, apply to referrals for items or services
reimbursable by any Third Party Payor, not just Government Payors. Such laws
impose substantial penalties, including civil and criminal fines and
imprisonment, on physicians, dentists and ancillary health care service
providers who fraudulently or wrongfully bill Third Party Payors and Government
Payors or pay or receive remuneration for referrals for medical and dental
services. Many states have also enacted antitrust laws analogous to federal
antitrust laws.
A number of states also prohibit "fee-splitting" arrangements between
physicians, dentists or ancillary health care service providers and any party
except other physicians, dentists or ancillary health care service providers,
respectively, within the same professional corporation or other practice entity.
The Medical and Dental Practices' do not refer patients to each other and the
Service Agreements between the Medical and Dental Practices and the LTCFs do not
provide for the payment of remuneration to the LTCFs. Therefore, the Company
believes that state laws relating to "fee-splitting" are not applicable to the
Company's or its Medical and Dental Practices' operations.
In order to enhance the efforts of the Company to avoid even inadvertent
violations of antifraud and abuse, anti-kickback, and false claims laws, the
Company is in the process of adopting a formal compliance program designed to
prevent violations of such laws in connection with the business of the Company.
It is expected that a full-time compliance officer will be appointed to
implement, oversee and monitor the Company's compliance program.
INSURANCE
The Company maintains general liability insurance for itself and the
Operating Agreements provide that the Medical and Dental Practices must maintain
comprehensive professional liability insurance in the amount of $1.0 million per
claim and with aggregate policy limits that are not less than $3.0 million. The
Medical and Dental Practices are responsible for all liabilities in excess of
the limits of such insurance policies. The Company also maintains key person
life insurance, under which it is the beneficiary, in the amounts of $1.5
million on Steven S. Charlap, M.D. and $500,000 on Alec H. Jaret, D.M.D.
43
<PAGE>
FACILITIES AND EMPLOYEES
The Company's corporate headquarters is located in Newton, Massachusetts.
The lease for the Company's corporate headquarters terminates on June 30, 1998.
The Company intends to either negotiate an extension of its existing lease or
lease new space for its corporate headquarters. The Company does not expect an
extension of its existing lease or a lease for new space to be on similarly
favorable terms.
The regional office located in Newton, Massachusetts services Massachusetts,
New Hampshire and Rhode Island; the regional office located in Meriden,
Connecticut services Connecticut and New York; the regional office located in
Upper Southampton Township, Pennsylvania services Pennsylvania and New Jersey;
and the regional office in Brookfield, Wisconsin services Wisconsin. A central
office located at the Company's corporate headquarters services Florida,
Michigan and Ohio.
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE EXPIRATION DATE MONTHLY RENT
- --------------------------------------------------------------- --------------- --------------- -------------
<S> <C> <C> <C>
Corporate Headquarters......................................... 3,651 6/30/98 $ 4,412(1)
Newton, Massachusetts.......................................... 5,300 6/30/98 6,404(1)
Meriden, Connecticut........................................... 3,200 12/5/99(2) 2,400
Upper Shouthampton Township, Pennsylvania...................... 1,540 9/25/99(2) 1,681(3)
Brookfield, Wisconsin.......................................... 1,600 7/31/98(2) 1,355(1)
</TABLE>
- ------------------------------
(1) Subject to increase in the event of increases in property taxes and special
assessments.
(2) Subject to Company's option to renew.
(3) Includes monthly "Base Operating Expense Charge" equal to $494.08.
As of March 15, 1998, the Company and the Medical and Dental Practices
employed 144 full-time employees and 62 part-time employees, including
Providers. None of the employees of the Company or the Medical and Dental
Practices are covered under a union collective bargaining agreement. The Company
considers the relationships with its employees and the employees of the Medical
and Dental Practices to be good.
LEGAL PROCEEDINGS
The Company knows of no material pending, or threatened, legal proceedings
to which it is a party or to which any of its property is the subject.
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their ages and
positions as of March 15, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- -----------------------------------------------------------------
<S> <C> <C>
Steven S. Charlap, M.D.(1)............... 39 Chairman of the Board of Directors, Chief Executive Officer and
President (3)
Michael R. Kaplan........................ 39 Chief Financial Officer and Vice President of Finance
Alec H. Jaret, D.M.D..................... 42 Director(4)
Rory Kallfelz............................ 34 Vice President of Management Information Systems, Reimbursement
and Regulatory Affairs
Laura Sullivan........................... 32 Vice President of Operations, Mid-West/North-Atlantic Region
Robert J. Lucci.......................... 29 Vice President of Operations, Massachusetts and Connecticut
Susan Bailis(1)(2)....................... 52 Director
Morgan Crowe(2).......................... 53 Director
Robert G. Eccles, Ph.D................... 46 Director
L. Dennis Shapiro........................ 64 Director
Brian Fagan (1).......................... 37 Director
</TABLE>
- ------------------------
(1) Member of Compensation Committee of the Board of Directors.
(2) Member of Audit Committee of the Board of Directors.
(3) Dr. Charlap is also the President and sole equity holder of Steven S.
Charlap, M.D, P.C., the audiology and primary care Practice, and the
President and sole stockholder of HealthDrive Michigan Corporation, the
Michigan not-for-profit corporation that employs the Providers in Michigan.
(4) Dr. Jaret is the President and sole equity holder of Alec H. Jaret, D.M.D.,
P.C., the dentistry Practice.
Certain employees of the Medical and Dental Practices significant to the
Company's business and operations, their ages and positions as of March 15, 1998
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --------- ----------------------------------------------------------------
<S> <C> <C>
Gabriel H. Brandeis, M.D................. 44 Chief Medical Officer of Steven S. Charlap, M.D., P.C.,
the audiology and primary care Practice
Jeffrey L. Morer, O.D.................... 38 President and sole Director of Jeffrey Morer, O.D., P.C.,
the optometry Practice
</TABLE>
- ------------------------
45
<PAGE>
STEVEN S. CHARLAP, M.D. is a founder of the Company and has served as its
Chairman of the Board of Directors, Chief Executive Officer and President since
its inception in 1989. Dr. Charlap has also served as President of Steven S.
Charlap, M.D., P.C., the audiology and primary care Practice, since its
inception. Prior to founding the Company, Dr. Charlap was Director of Corporate
Development at T Cell Sciences, a biotechnology company. Dr. Charlap holds
medical licenses in Indiana, Massachusetts, Michigan, Ohio, and Wisconsin. Dr.
Charlap received a M.D. from New York University School of Medicine, completed
two years of post-graduate training in surgery at the Beth Israel Medical Center
in New York City, and received a B.A. from Yeshiva University and a M.B.A. from
Harvard Business School.
MICHAEL R. KAPLAN has served as Chief Financial Officer and Vice President
of Finance of the Company since June 1992. From July 1989 through June 1992, Mr.
Kaplan was a Vice President of DCC Limited, a venture and development capital
investment firm based in Dublin, Ireland. Prior to joining DCC Limited, Mr.
Kaplan spent five years in public accounting, most recently with Arthur Andersen
& Co., and is a Certified Public Accountant. Mr. Kaplan received a B.S. from
University of Rhode Island and a M.B.A. from The Wharton School.
ALEC H. JARET, D.M.D. is a founder of the Company and has served as a
director of the Company since its inception. Dr. Jaret has also served as the
President of Alec H. Jaret, D.M.D., the dentistry Practice, since its inception.
Dr. Jaret currently holds licenses to practice dentistry in Florida,
Massachusetts, New Jersey, New York, Ohio, Michigan, Pennsylvania and Wisconsin.
Dr. Jaret received a B.A. from Yeshiva University and a D.M.D. from Boston
University Goldman School of Dentistry.
RORY KALLFELZ was appointed the Vice President of Management Information
Systems, Reimbursement, and Regulatory Affairs of the Company in January 1998.
Since joining the Company in 1992, Mr. Kallfelz has served the Company in
various roles related to operations, Management Information Systems,
reimbursement and regulatory affairs. Previously, from 1985 through January
1992, Mr. Kallfelz worked for Cardio Data Services, most recently as the
Operations Manager for the New England region. Mr. Kallfelz attended Boston
University.
LAURA SULLIVAN was appointed as the Mid-West/North-Atlantic Regional Vice
President of Operations of the Company in January 1998. Since joining the
Company in November 1996, Ms. Sullivan has served the Company in various roles
related to operations. From 1982 to 1996, Ms. Sullivan worked for Apria Home
Health Care, most recently as Regional Operations Manager. Ms. Sullivan received
a B.A. from the University of Connecticut.
ROBERT J. LUCCI was appointed the Northeast Regional Vice President of
Operations of the Company in January 1998. Since joining the Company in 1992,
Mr. Lucci has served as Expansion Manager for the Pennsylvania service centers
and the Michigan, Florida and Wisconsin operations and Customer Service Manager
for the Newton service center. Mr. Lucci holds a B.S. and a M.B.A. from Bentley
College.
SUSAN BAILIS has served as a director of the Company since January 1993.
Since November 1997, Ms. Bailis has served as President and Chief Executive
Officer of the A.D.S. Group, a subsidiary of Genesis Health Ventures, a company
engaged in the provision of elder care services. Previously, from December 1996
through October 1997, Ms. Bailis served as Senior Vice President of The
Multicare Companies, a company also engaged in the provision of elder care
services. Ms. Bailis received a B.A. from Brandeis University and a M.S. from
Simmons College.
MORGAN CROWE has served as a director of the Company since January 1993.
Since 1979, Mr. Crowe has served as Executive Director of DCC, plc, an equity
fund publicly traded in London and Dublin. In addition, since 1996, Mr. Crowe
has served as Managing Director of DCC Healthcare Ltd. Mr. Crowe received a
certificate from Blackrock College, received a degree in mechanical engineering
from Dublin Institute of Technology and received a M.B.A. from Trinity College,
Dublin University.
ROBERT G. ECCLES, PH.D. has served as a director of the Company since March
1990. Since July 1993, Mr. Eccles has served as President of Advisory Capital
Partners, a business consulting firm. Previously,
46
<PAGE>
from July 1979 through June 1993, Dr. Eccles was a professor at Harvard Business
School. Dr. Eccles received a S.B. in Mathematics and a S.B. in
Humanities/Social Science from Massachusetts Institute of Technology, and an
A.M. and Ph.D. in Sociology from Harvard University.
L. DENNIS SHAPIRO has served as a director of the Company since May 1992.
Since 1978, Mr. Shapiro has served as Chairman of Lifeline Systems Inc., a
company engaged in the business of providing personal response services to the
elderly. From 1978 to 1988, Mr. Shapiro also served as President and Chief
Executive Officer of Lifeline Systems, Inc. Mr. Shapiro received a S.B. and a
S.M. from Massachusetts Institute of Technology.
BRIAN FAGAN has served as a director of the Company since August 1996. Since
March 1998, Mr. Fagan has served as Finance Director of Fannin Limited, and
since June 1996, Mr. Fagan has served as Executive Director and Secretary of DCC
Healthcare Ltd. Previously, from March 1992 through May 1996, Mr. Fagan served
as Finance Director of Emo Oil Ltd. Mr. Fagan is a fellow of the Institute of
Chartered Accountants. Mr. Fagan received a Bachelor of Commerce degree and a
diploma in professional accounting from the National University of Ireland.
GABRIEL H. BRANDEIS, M.D. has served as the Chief Medical Officer of the
audiology and primary care Practice, since December 1996. From 1993 to 1996, Dr.
Brandeis was the Associate Chief of Staff for Geriatrics and Extended Care at
the Bedford Veterans Administration Medical Center, and an Assistant Professor
at Boston University School of Medicine. Dr. Brandeis is also a Certified
Nursing Home Medical Director. Dr. Brandeis received a M.D. from the Mount Sinai
School of Medicine, and completed a residency in Internal Medicine at
SUNY/Health Science Center at Syracuse, New York, and a Fellowship in Geriatric
Medicine at Harvard Medical School.
JEFFREY L. MORER, O.D., has served as the President of Jeffrey Morer, O.D.,
P.C., the optometry Practice, since its inception. Dr. Morer holds licenses to
practice optometry in Florida, Massachusetts, Michigan, New York, Ohio, and
Wisconsin. Dr. Morer received a B.A. from Boston University and an O.D. from the
New England College of Optometry.
BOARD OF DIRECTORS AND COMMITTEES
All directors hold their positions until the annual meeting of stockholders
at which their respective successors are elected and qualified. Executive
officers of the Company are elected annually by the Board of Directors and serve
at the discretion of the Board of Directors or until their successors are duly
elected and qualified.
The business of the Company is managed under the direction of the Company's
Board of Directors. The Board of Directors is presently composed of seven
directors. Pursuant to an Underwriting Agreement to be entered into between the
Company and the Underwriters in connection with the Offering, the Company will
agree to nominate one individual selected by the Representative for election to
the Board of Directors, effective upon the consummation of the Offering.
Following the Offering, the seven current directors will be divided into three
classes. Messrs. Fagan, Shapiro and Dr. Eccles will be in Class I and their
terms will expire at the annual meeting of stockholders to be held in 1999. Ms.
Bailis and Dr. Jaret will be in Class II and their terms will expire at the
annual meeting of stockholders to be held in 2000. Dr. Charlap and Mr. Crowe
will be in Class III and their terms will expire at the annual meeting of
stockholders to be held in 2001. It is expected that the individual nominated by
the Representative will be elected to be a Class III director, with such
persons' term expiring at the annual meeting of Stockholders to be held in 2001.
The Board of Directors has established an Audit Committee and a Compensation
Committee, and appointed the respective members thereof, each effective upon the
closing of the Offering. The Audit Committee reviews the scope and results of
the annual audit of the Company's financial statements conducted by the
Company's independent accountants, the scope of other services provided by the
47
<PAGE>
Company's independent accountants, proposed changes in the Company's financial
and accounting standards and principles, and the Company's policies and
procedures with respect to its internal accounting, auditing and financial
controls, and makes recommendations to the Board of Directors on the engagement
of the independent accountants, as well as other matters which may come before
it or as directed by the Board of Directors. The Compensation Committee
administers the Company's compensation programs, including the Stock Option
Plan, and performs such other duties as may from time to time be determined by
the Board of Directors. Dr. Charlap, Mr. Fagan and Ms. Bailis are the initial
members of the Compensation Committee. The initial members of the Audit
Committee are Messrs. Crowe and Bailis. The Company expects that the director
selected by the Representative will be nominated to the Audit Committee and the
Compensation Committee.
DIRECTOR COMPENSATION
Susan Bailis and L. Dennis Shapiro, two Directors of the Company who were
not employees or officers of the Company during its fiscal year ended December
31, 1997, received options to purchase 10,000 shares each under the Stock Option
Plan during such year. These options have a ten-year term from the date of
grant, vest in equal installments on each of the first four anniversaries of the
grant date, and are exercisable at a price of $4.00 per share, the fair market
value of a share of Common Stock on the date of grant. No other directors of the
Company received compensation for their services in such capacity during the
Company's fiscal year ended December 31, 1997.
Under the Stock Option Plan, each member of the Board of Directors of the
Company (including any directors nominated for election by the Underwriter), who
is not an officer or employee of the Company, will receive an annual grant of
options to purchase up to 5,000 shares of Common Stock at an exercise price
equal to the fair market value of a share of Common Stock on the date of grant,
provided that no individual may receive more than five such grants and no
director who failed to attend 75% or more of the scheduled meetings of the Board
of Directors during the previous year will be entitled to receive these grants.
Each of these grants will become exercisable in equal installments over four
years from the date of grant, provided the director remains on the Board of
Directors of the Company, on each anniversary of the grant date during such
period. See "Executive Compensative--Second Amended and Restated Stock Option
Plan."
48
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to
Steven S. Charlap, M.D., the Chairman of the Board of Directors, Chief Executive
Officer and President of the Company, and each other executive officer of the
Company (including certain executive officers of one or more of the Medical and
Dental Practices) that were paid a total salary and bonus for the fiscal year
ended December 31, 1997 ("Fiscal 1997") that exceeded $100,000 (collectively
with Dr. Charlap, the "Named Executive Officers"), for such period:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
---------------
ANNUAL COMPENSATION NUMBER OF
---------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY(1) BONUS(2) COMPENSATION OPTIONS
- ------------------------------------------------------------ ---------- --------- ----------------- ---------------
<S> <C> <C> <C> <C>
Steven S. Charlap, M.D...................................... $ 221,310 $ 13,481 * --
Chairman of the Board of Directors,
Chief Executive Officer and President
Michael R. Kaplan........................................... 120,000 552 * 5,000
Chief Financial Officer and
Vice President of Finance
Gabriel H. Brandeis, M.D.................................... 147,701 -- * --
Chief Medical Officer of
Steven S. Charlap, M.D., P.C.
Alec H. Jaret, D.M.D........................................ 142,123 845 * --
President of Alec H. Jaret, D.M.D., P.C.
</TABLE>
- ------------------------
* Amount insufficient to be reportable under applicable rules of the
Commission.
(1) Salary includes amounts, if any, deferred pursuant to the Company's 401(k)
Plan.
(2) Bonus amounts represent amounts that were accrued for Fiscal 1997, but in
certain cases were not paid until 1998. Does not include a bonus in the
amount of $11,006 that was paid to Dr. Charlap during Fiscal 1997 with
respect to the Company's fiscal year ended December 31, 1996.
The following table sets forth certain information with respect to grants of
stock options under the Stock Option Plan to Michael R. Kaplan, the only one of
the Named Executive Officers granted stock options during Fiscal 1997.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
STOCK
PRICE
APPRECIATION
FOR
NUMBER OF PERCENT OF TOTAL OPTION
SECURITIES OPTIONS GRANTED EXERCISE TERM(2)
UNDERLYING TO EMPLOYEES IN PRICE PER EXPIRATION ---------
NAME: OPTIONS(1) FISCAL YEAR SHARE ($) DATE 5%
- ------------------------------------------------ ------------- --------------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Michael R. Kaplan............................... 5,000 5% $ 3.00 1/1/07 $ 9,433
<CAPTION>
NAME: 10%
- ------------------------------------------------ ---------
<S> <C>
Michael R. Kaplan............................... $ 23,906
</TABLE>
- ------------------------
(1) The options reported become exercisable in four equal annual installments
beginning on the first anniversary of the grant date, and have a maximum
term of 10 years from the date of grant, subject to earlier termination in
the event of the optionee's cessation of service with the Company. The
option is exercisable during the holder's lifetime only by the holder; it is
exercisable by the holder only while the holder is an employee of the
Company and for certain limited periods of time thereafter in the event of
termination of employment.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based upon assumed appreciation rates of five percent and ten percent in
the fair market value of shares of Common Stock from the fair market value
on the date of grant, which rates are set by the Securities and Exchange
Commission and compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of option exercise
prices, but do not include deductions for taxes or other expenses associated
with the exercises. Actual gains, if any, are dependent on the performance
of the Common Stock and the date on which the option is exercised. There can
be no assurance that the amounts reflected will be achieved or will
otherwise be indicative of the actual amounts received, if any.
49
<PAGE>
The following table sets forth information with respect to (i) the number of
unexercised options held by Michael R. Kaplan and Gabriel H. Brandeis, M.D., who
were the only Named Executive Officers who held stock options as of December 31,
1997 and (ii) the value of any such unexercised in-the-money options (options
for which the fair market value of the Common Stock exceeds the exercise price)
as of December 31, 1997.
OPTION EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT OPTIONS AT
ACQUIRED ON REALIZED DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(1)
NAME EXERCISE(#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------- ----------------- ------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
Michael R. Kaplan...................... -- -- 110,000/25,000 $ 596,000/$125,000
Gabriel H. Brandeis, M.D............... -- -- 5,000/15,000 $ 20,000/$60,000
</TABLE>
- ------------------------
(1) There was no public trading market for the Common Stock as of December 31,
1997. Accordingly, these values have been calculated on the basis of the
initial public offering price of $7.00 per share less the applicable
exercise price.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements, effective as of the
consummation of the Offering, with each of Steven S. Charlap, M.D., the Chairman
of the Board of Directors, Chief Executive Officer and President of the Company,
and Michael R. Kaplan, the Chief Financial Officer and Vice President of Finance
of the Company. The initial term of Dr. Charlap's employment agreement will
expire on July 1, 2003, but will be extended for an additional five-year term
unless either Dr. Charlap or the Company provides notice of his or its intention
not to renew the contract by July 1, 2002. Dr. Charlap's employment agreement
provides for an annual base salary of $250,000 for the first year of the
contract, with such salary to be increased by a minimum of 5% per year
thereafter, and a cash bonus to be determined based on objectives established by
the Compensation Committee at the beginning of the applicable year, but subject
to a minimum bonus equal to 15% of Dr. Charlap's annual base salary. In the
event of Dr. Charlap's termination other than by the Company for "cause" or by
Dr. Charlap's resignation without "reason" ("cause" and "reason" are defined in
the employment agreement), Dr. Charlap will be paid a one-time severance payment
equal to a minimum of two times the sum of his then-current annual base salary
and the maximum bonus established for Dr. Charlap for such year. Under the terms
of his employment agreement, Dr. Charlap may not be terminated by the Company
other than for "cause" without the affirmative vote of two-thirds of the members
of the Company's Board of Directors.
The initial term of Michael R. Kaplan's employment agreement shall extend
through July 1, 2001, but will be extended for additional three-year terms
unless either the Company or Mr. Kaplan provides notice of its or his intention
not to renew the term of the agreement at least one year prior to the scheduled
termination. Mr. Kaplan's employment agreement provides for an initial annual
base salary of $130,000, with such salary to be increased by a minimum of 5% per
year thereafter, and eligibility to receive cash bonuses based on objectives
established by the Compensation Committee at the beginning of the year. In the
event of Mr. Kaplan's termination other than by the Company for "cause" or by
Mr. Kaplan's resignation without "reason" ("cause" and "reason" are defined in
the employment agreement), Mr. Kaplan will be paid a one-time severance payment
equal to the sum of his then-current annual base salary and the maximum bonus
established for Mr. Kaplan for such year.
SECOND AMENDED AND RESTATED 1992 STOCK OPTION PLAN
The Stock Option Plan provides for the grant of options to purchase shares
of Common Stock to officers, employees and directors of the Company and to
certain eligible employees of the Medical and
50
<PAGE>
Dental Practices. Upon consummation of the Offering, the maximum number of
shares of Common Stock that will be issued pursuant to the Stock Option Plan
will be 750,000, of which 448,825 had been issued as of March 15, 1998. The
Stock Option Plan was adopted by the Board of Directors and approved by the
stockholders of the Company on May 6, 1992. On December 26, 1997, the Stock
Option Plan was amended and restated in order to increase the number of shares
of Common Stock available for issuance upon the exercise of options granted
thereunder to 505,916 shares. This amendment and restatement was approved by the
stockholders of the Company as of June 25, 1997. The Stock Option Plan will be
further amended upon consummation of the Offering to increase the number of
shares of Common Stock available for issuance upon the exercise of options
granted thereunder to 750,000, and to provide for the annual formula grant of
options ("Formula Grants") to purchase 5,000 shares of Common Stock to each
non-employee Director of the Company (an "Outside Director"). The Stock Option
Plan will expire on May 6, 2002 and no stock options may be granted after May 5,
2002.
Prior to the Offering, the Stock Option Plan was administered by the Board
of Directors. After the consummation of the Offering, the Stock Option Plan will
be administered by the Compensation Committee which will initially be comprised
of Messrs. Charlap and Fagan and Ms. Bailis. The Compensation Committee will
select participants and, in a manner consistent with the terms of the Stock
Option Plan, determine the number, duration, exercise price and vesting period
of the options to be granted and the other terms and conditions of the option
agreements. The Compensation Committee has the right to modify, revise or
terminate the Stock Option Plan at any time, provided that the approval of a
majority of the shares of Common Stock outstanding shall be required to: (i)
materially increase the benefits accruing to holders of outstanding options;
(ii) change the aggregate number of shares of Common Stock issuable under
options granted pursuant to the Stock Option Plan; or (iii) change the class of
persons eligible to receive options.
The Stock Option Plan provides for grants of stock options intended to
qualify for preferential tax treatment (the "Incentive Stock Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
non-statutory stock options that do not qualify for such treatment. All
employees of the Company and certain employees of the Medical and Dental
Practices are eligible for stock options under the Plan in amounts and at prices
determined by the Compensation Committee, provided that, in the case of
Incentive Stock Options, the exercise price will not be less than the fair
market value of the Common Stock on the date of grant, or not less than 110% of
the fair market value of the Common Stock on the grant date if the optionee
owns, directly or indirectly, more than 10% of the total combined voting power
of all classes of the Company's capital stock. With respect to Incentive Stock
Options, the fair market value of the Common Stock underlying options held by
any one holder which become exercisable in one year cannot exceed $100,000. To
the extent provided in the option agreement, payment of the exercise price may
be made in cash, shares of Common Stock or by a promissory note.
Under the Stock Option Plan, the Compensation Committee may establish with
respect to each option granted such vesting provisions as it determines to be
appropriate or advisable. In general, options vest in four equal increments over
four years and have a ten-year term, provided that, if the holder owns, directly
or indirectly, more than 10% of the total combined voting power of all classes
of the Company's capital stock, such options have a five-year term. Other than
in the case of death or disability of the holder, or a three-month extension
contained in the option agreement, unexercised options terminate upon the
termination of a holder's relationship with the Company. Shares of Common Stock
covered by unexercised options which are no longer exercisable become available
for issuance under new options. Options granted under the Stock Option Plan are
not transferable and may be exercised only by the holder, his or her executors
or administrators, or any persons to whom his or her option may be transferred
by will or the laws of descent and distribution.
Commencing on February 15, 1999, each Outside Director in office on February
15 of such year will receive a Formula Grant of options to purchase 5,000 shares
of Common Stock at the fair market value of the Common Stock on the date of such
Formula Grant, provided that no individual may receive more than
51
<PAGE>
five such grants, and no director who failed to attend 75% or more of the
scheduled meetings of the Board of Directors for the previous year will receive
a Formula Grant. Each such option shall vest in four equal annual installments
on each of the first four anniversaries of the grant date and shall expire on
the tenth anniversary of the date of grant. Options granted pursuant to Formula
Grants to Outside Directors who are not reelected or are removed from the Board
of Directors are exercisable thereafter only until the earlier of (i) the
expiration date for such options specified in the applicable option award
agreement, or (ii) ninety days after such director's term of service expires, in
the case of non-reelection, or is terminated, in the case of removal. Options
granted pursuant to Formula Grants are not intended to be Incentive Stock
Options.
The Stock Option Plan includes a provision adjusting the number of shares of
Common Stock available for grant, the number of shares of Common Stock subject
to outstanding awards thereunder and the per share exercise price thereof in the
event of any stock dividend, stock split, recapitalization or other similar
event. In the event of a merger, pursuant to which the Company is not the
surviving corporation, consolidation, liquidation or sale, holders of
outstanding options shall generally be entitled to receive, upon exercise of
outstanding options, the shares of stock or other securities to which they would
have been entitled had they exercised the option prior to such merger,
consolidation, liquidation or sale. Furthermore, the Compensation Committee may,
in its discretion, accelerate the exercisability of unexercisable options or
cancel such options upon the effective date of a merger, consolidation,
liquidation or sale.
As of March 15, 1998, an aggregate of 738,875 shares of Common Stock were
reserved for issuance upon the exercise of stock options that have been or may
be granted under the Stock Option Plan, and options to purchase an additional
301,175 shares were available for grant thereunder. As of March 15, 1998,
options to purchase 232,100 shares of Common Stock granted under the Stock
Option Plan were exercisable at prices ranging from $1.00 to $3.00 per share.
CERTAIN TRANSACTIONS
The Company's Chairman of the Board, Chief Executive Officer and President,
Stephen S. Charlap, M.D., is the sole equity holder of Steven S. Charlap, M.D.,
P.C., the audiology and primary care Practice, and HealthDrive Michigan
Corporation, the Michigan taxable not-for profit corporation. Alec H. Jaret,
D.M.D., a Director of the Company, is the sole equity holder of Alec H. Jaret,
M.D., P.C., the dentistry Practice. Dr. Charlap's and Dr. Jaret's ownership of
these Medical and Dental Practices could result in potential conflicts of
interest in certain matters, including but not limited to matters related to the
Operating Agreements between the Company and such entities.
The Company has adopted a policy whereby all transactions between the
Company and one or more of its affiliates, or entities controlled by one or more
of its affiliates, must be approved in advance by a majority of the Company's
disinterested directors.
Pursuant to a Stock Purchase Agreement, dated as of October 3, 1989, the
Company issued and sold an aggregate of 555,000 shares of Common Stock to DCC
Limited for an aggregate consideration of $550,000. Pursuant to a Stock Purchase
Agreement, dated as of May 8, 1992, as amended (as amended, the "1992 Purchase
Agreement"), the Company sold an aggregate of 571,428 shares of its Class A
Preferred Stock to DCC Limited for an aggregate consideration of $1,000,000.
Pursuant to a Preferred Stock Purchase Agreement, dated as of April 28,
1994, as amended (the "1994 Purchase Agreement"), the Company sold an aggregate
of 181,818 shares of its Class B Preferred Stock to DCC Holdings for an
aggregate consideration of $500,000. In addition, in August 1995, DCC Limited
transferred all of its shares of Class A Preferred Stock and Common Stock, and
its rights under the 1992 Purchase Agreement, to DCC Holdings. The 1994 Purchase
Agreement grants certain registration rights to DCC Holdings with respect to its
shares of Class A Preferred Stock, Class B Preferred Stock and Common Stock.
Upon consummation of the Offering, the 571,428 shares of Class A Preferred Stock
and 181,818 shares of Class B Preferred Stock held by DCC Holdings will convert
into 571,428 shares of
52
<PAGE>
Common Stock and 181,818 shares of Common Stock, respectively. See "Description
of Capital Stock-- Registration Rights."
Pursuant to the 1992 Purchase Agreement the Company agreed to pay DCC
Limited an annual business development fee of $9,983, (subject to annual
increase based upon a CPI-index), and pay attendance fees to each of the members
of the Company's Boards of Directors nominated by DCC Limited and its
affiliates. In 1995, the annual business development fee was increased to
$16,638 (subject to annual increase based upon a CPI-index), and the board
attendance fees were eliminated. In 1995, the Company paid an aggregate of
$8,018 against business development fees and board attendance fees due to DCC
Holdings for the Company's fiscal years ended December 31, 1994 and December 31,
1995. The Company has not paid any amounts to DCC Holdings in respect of its
fiscal years ended December 31, 1996 and December 31, 1997. The obligations of
the Company to pay business development fees pursuant to the 1992 Purchase
Agreement (other than with respect to prior periods) will terminate upon
consummation of the Offering.
In connection with the original sale of the Class B Stock, DCC Limited, DCC
Holdings and the other holders of the outstanding Common Stock, including Steven
S. Charlap, M.D., the Chairman of the Board of Directors, Chief Executive
Officer and President of the Company, and Alec H. Jaret, D.M.D., a member of the
Company's Board of Directors, entered into a Stockholders Agreement, dated as of
April 28, 1994, as amended (as amended, the "Stockholders Agreement"), pursuant
to which, among other things, the holders of the outstanding Common Stock agreed
to vote their shares of Common Stock to set the number of members of the
Company's Board of Directors at seven and elect two members nominated by DCC
Limited and DCC Holdings, and Dr. Charlap and Dr. Jaret, in each case so long as
such individual holds at least 10% of the outstanding Common Stock (on a
fully-diluted basis). The Stockholders Agreement will terminate upon the
consummation of the Offering.
Pursuant to an Amendment, Conversion and Waiver Agreement, dated as of March
30, 1998 (the "Waiver Agreement"), DCC Holdings, DCC Limited, Steven S. Charlap,
M.D., Alec H. Jaret, D.M.D. and Cheryl V. Reicin agreed, subject to the
consummation of the Offering, with respect to DCC Holdings and DCC Limited, to
(i) terminate each of the 1992 Purchase Agreement and the 1994 Purchase
Agreement, except with respect to certain registration rights granted
thereunder; (ii) waive any "Piggyback" registration rights previously granted to
DCC Holdings and DCC Limited; (iii) convert all of the Class A Preferred Stock
and Class B Preferred Stock held by DCC Holdings into Common Stock; and (iv)
waive all past instances of non-compliance by the Company, Drs. Charlap and
Jaret and Ms. Reicin with the covenants contained in the 1992 Purchase
Agreement, the 1994 Purchase Agreement and the Stockholders Agreement, and, with
respect to Drs. Charlap and Jaret and Ms. Reicin, to terminate the Stockholders
Agreement.
From time to time, the Company has loaned certain amounts to the Medical and
Dental Practices for working capital purposes. The outstanding balances of such
loans, including principal and interest, as of December 31, 1997, are as
follows: (i) Alec H. Jaret, D.M.D., P.C., the sole equity holder of which is
Alec H. Jaret, D.M.D., a Director of the Company, $492,528; (ii) Jeffrey Morer,
O.D., P.C., $629,000; (iii) Mary C. Manesis, D.P.M., P.C., $612,108; (iv) Steven
S. Charlap, M.D., P.C., the sole equity holder of which is Steven S. Charlap,
M.D., the Chairman, Chief Executive Officer and President of the Company,
$209,493; (v) HealthDrive Michigan Corporation, the sole equity holder of which
is Steven S. Charlap, M.D., the Chairman, Chief Executive Officer and President
of the Company, $143,521. Such loans bear interest at a rate of 10% per annum.
53
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 15, 1998, by: (i) each
person known to the Company to be the beneficial owner of more than 5% of the
shares of Common Stock; (ii) each current director of the Company; (iii) each of
the Named Executive Officers; (iv) each of the Company's current stockholders
who has agreed to sell shares of Common Stock in the event that the Underwriters
exercise the over-allotment option (the "Selling Stockholders"); and (v) all
current directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING(1) OFFERING(1)(2)
------------------------- NUMBER OF SHARES ---------------------
NAMES AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------------------- ------------ ----------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
DCC International Holdings B.V(3)................ 1,308,246(4) 47.3% 115,500 1,192,746 27.3%
Steven S. Charlap, M.D(5)........................ 940,000 34.0 83,000 857,000 19.6
Alec H. Jaret, D.M.D(6).......................... 480,000 17.4 41,500 438,500 10.0
Michael R. Kaplan................................ 111,250(7) 3.9 -- 111,250(7) 2.5
Gabriel Brandeis, M.D............................ 5,000(7) * -- 5,000(7) *
Morgan Crowe..................................... 1,308,246(8) 47.3 115,500 1,192,746(8) 27.3
Brian Fagan...................................... 1,308,246(9) 47.3 115,500 1,192,746(9) 27.3
Susan Bailis..................................... 12,500(7) * -- 12,500(7) *
Robert G. Eccles, Ph.D........................... 12,500(7) * -- 12,500(7) *
L. Dennis Shapiro................................ 12,500(10) * -- 12,500 10) *
All current directors and executive officers as a
group (13 persons)............................. 2,948,996(11) 99.2 240,000 2,708,996 11) 62.1
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with Rule 13d-3(d)
promulgated by the Securities and Exchange Commission under the Exchange
Act. Shares of Common Stock issuable pursuant to options, warrants and
convertible securities, to the extent such securities are currently
exercisable or convertible within 60 days of March 15, 1998, are treated as
outstanding for computing the percentage of the person holding such
securities but are not treated as outstanding for computing the percentage
of any other person. Unless otherwise noted, each person or group identified
possesses sole voting and investment power with respect to shares, subject
to community property laws where applicable. Shares not outstanding but
deemed beneficially owned by virtue of the right of a person or group to
acquire them within 60 days are treated as outstanding only for purposes of
determining the number of and percent owned by such person or group.
(2) Assumes that the Underwriters' over-allotment option is exercised in full.
In the event that the Underwriters' over-allotment option is not exercised,
after the Offering DCC Holdings will beneficially own 1,308,246 shares of
Common Stock (29.9%), Dr. Charlap will beneficially own 940,000 shares of
Common Stock (21.5%), Dr. Jaret will beneficially own 480,000 shares of
Common Stock (11.0%), and all current directors and executive officers as a
group will beneficially own 2,948,996 shares of Common Stock (67.6%).
(3) The address of DCC Holdings is c/o DCC plc, DCC House, Brewery Road,
Stillorjan, Blackrock Co., Dublin, Ireland.
(4) Includes 753,246 shares of Common Stock issuable upon the conversion of
571,428 outstanding shares of Series A Convertible Preferred Stock and
181,818 outstanding shares of Series B Convertible Preferred Stock into
Common Stock.
(5) The address of Dr. Charlap is 54 Clements Road, Newton, Massachusetts 02158.
(6) The address of Dr. Jaret is 182 Rawson Road, Brookline, Massachusetts 02146.
(7) Consists entirely of shares of Common Stock subject to issuance upon the
exercise of outstanding options.
(8) Consists of shares of Common Stock reported as being held by DCC Holdings.
Mr. Crowe is a director of DCC plc., of which DCC Holdings is a wholly-owned
subsidiary, and may be deemed to control the voting and disposition of such
stock and, accordingly, may be deemed to have shared voting and investment
power with respect to all of the shares held by DCC Holdings. However, Mr.
Crowe disclaims beneficial ownership of all of such shares of Common Stock.
(9) Consists of shares of Common Stock reported as being held by DCC Holdings.
Mr. Fagan is a director of DCC plc., of which DCC Holdings is a wholly-owned
subsidiary, and may be deemed to control the voting and disposition of such
stock and, accordingly, may be deemed to have shared voting and investment
power with respect to all of the shares held by DCC Holdings. However, Mr.
Fagan disclaims beneficial ownership of all of such shares of Common Stock.
(10) Includes 2,500 shares of Common Stock subject to issuance upon the exercise
of outstanding options.
(11) Includes 210,750 shares of Common Stock subject to issuance upon the
exercise of outstanding options.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon consummation of the Offering, the authorized capital stock of the
Company will consist of 15,000,000 shares of Common Stock, $.01 par value per
share, of which approximately 4,363,246 shares will be issued and outstanding,
and 5,000,000 shares of undesignated preferred stock, $.01 par value per share
(the "Preferred Stock"), issuable in one or more series by the Board, of which
no shares will be issued and outstanding. As of March 15, 1998, there were six
shareholders of record.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters voted upon by shareholders, including the election of
directors. The Restated Certificate of Incorporation does not provide for
cumulative voting and, accordingly, the holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election.
Subject to the rights of any then outstanding shares of Preferred Stock, the
holders of the Common Stock are entitled to such dividends as may be declared at
the discretion of the Board of Directors out of funds legally available
therefore. See "Dividend Policy." Holders of Common Stock are entitled to share
ratably in the net assets of the Company upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of Common Stock have no preemptive
rights to purchase shares of stock of the Company. Shares of Common Stock are
not subject to any redemption provisions and are not convertible into any other
securities of the Company. All outstanding shares of Common Stock are, and the
shares of Common Stock to be issued pursuant to the Offering will be upon
payment therefore, fully paid and non-assessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Restated Certificate of Incorporation and limitations prescribed by law,
the Board is expressly authorized to adopt resolutions to determine the
preferences, limitations and relative rights of any preferred stock (whether in
a series or as a class), including without limitation the following: (i) the
designation of any series of preferred stock; (ii) unlimited, special,
conditional, or limited voting rights, or no right to vote; (iii) distribution
or dividend rights, including the determination of whether such rights are
cumulative, noncumulative or partially cumulative; (iv) redemption rights, if
any; (v) conversion rights; and (vi) preference rights over any other class or
series of shares, including the Common Stock, with respect to distributions,
including dividends and distributions upon the dissolution of the Company. The
Company has no current plans to issue any shares of Preferred Stock of any class
or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock at a premium or may otherwise adversely
affect the market price of the Common Stock.
55
<PAGE>
REPRESENTATIVE'S WARRANTS
On the closing of the Offering, the Company will sell to the Representative,
individually and not as Representative of the Underwriters, for nominal
consideration, the Representative's Warrants entitling the Representative to
purchase an aggregate of 160,000 shares of Common Stock (184,000 shares of
Common Stock if the over-allotment option is exercised in full) at an initial
exercise price per share equal to 120% of the initial public offering price
hereunder. The Representative's Warrants will be exercisable for a period of
four years commencing on the first anniversary of the Offering and will contain
certain demand and incidental registration rights relating to the underlying
Common Stock, requiring the Company to file, at any time one year after the
closing date of the Offering upon written request by the Representative, a
registration statement with the Securities and Exchange Commission for the
shares of Common Stock represented by the Representative's Warrants, and
granting "piggyback" registration rights to the shares issuable upon exercise of
the Representative's Warrants for a period beginning one year from the closing
date of the Offering and ending seven years from such date. The Representative's
Warrants cannot be transferred, assigned or hypothecated, in whole or in part,
for a period of twelve months from the date of their issuance, except to any
officer or partner of the Representative. The Representative's Warrants will
contain customary weighted-average anti-dilution provisions providing for
appropriate adjustment of the exercise price and the number of shares issuable
upon exercise thereof upon the occurrence of certain events regarding the Common
Stock as a whole.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms, effective upon consummation of the Offering. A
director may be removed only for cause and then only by the vote of a majority
of the shares entitled to vote for the election of directors. See
"Management--Board of Directors."
The Restated Certificate of Incorporation empowers the Board of Directors,
when considering a tender offer or merger or acquisition proposal, to take into
account factors in addition to potential economic benefits to stockholders. Such
factors may include: (i) comparison of the proposed consideration to be received
by stockholders in relation to the then current market price of the Company's
capital stock, the estimated current value of the Company in a freely negotiated
transaction or the estimated future value of the Company as an independent
entity; and (ii) the impact of such a transaction on the employees, suppliers
and customers of the Company and its effect on the communities in which the
Company operates.
The Restated Certificate of Incorporation and the By-Laws of the Company
provide that any action required or permitted to be taken by the stockholders of
the Company may be taken only at duly called annual or special meetings of the
stockholders (and not by written consent in lieu thereof), and that, subject to
the rights of any holders of Preferred Stock to call special meetings, special
meetings may be called only by the Chairman of the Board of Directors, the
President, a majority of the Board of Directors of the Company or holders of 30%
or more of the then outstanding shares of voting stock of the Company. These
provisions could have the effect of delaying until the next annual stockholders
meeting stockholder actions which are favored by the holders of the outstanding
voting securities of the Company, including actions to remove directors. These
provisions may also discourage another person or entity from making a tender
offer for the Common Stock, because such person or entity, even if it acquired
all or a majority of the outstanding voting securities of the Company, would be
able to take action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders meeting, and not by
written consent.
The Company is subject to the provisions of Section 203 of the DGCL. Subject
to certain exceptions, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the
56
<PAGE>
person became an interested stockholder, unless the interested stockholder
attained such status with the approval of the Board of Directors or unless the
business combination is approved in a prescribed manner. A "business
combination" includes certain mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
his or her affiliates and associates, owns, or within three years prior did own,
15% or more of the corporation's voting stock.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless the corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage. The
Restated Certificate of Incorporation requires the affirmative vote of the
holders of at least 75% of the outstanding voting stock of the Company to amend
or repeal any of the foregoing provisions, or to reduce the number of authorized
shares of Common Stock and Preferred Stock. A 75% vote will also be required to
amend or repeal any of the provisions of the By-Laws. Such 75% stockholder vote
would in either case be in addition to any separate class vote that might in the
future be required pursuant to the terms of any Preferred Stock that might be
outstanding at the time any such amendments are submitted to stockholders. The
By-Laws may also be amended or repealed by a majority vote of the Board of
Directors.
The By-Laws provide that for nominations for the Board of Directors or for
other business to be properly brought by a stockholder before an annual meeting
of stockholders, the stockholder must first have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a stockholder's notice
generally must be delivered not later than 90 days in advance of the anniversary
date of the release of the Company's proxy statement to stockholders in
connection with the prior year's annual meeting of stockholders. The notice must
contain, among other things, certain information about the stockholder
delivering the notice and, as applicable, background information about each
nominee or a description of the proposed business to be brought before the
meeting. Business transacted at a special meeting is limited to the purposes for
which the meeting is called.
The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of the Company.
The Company's Restated Certificate of Incorporation contains certain
provisions permitted under the DGCL relating to the liability of directors.
These provisions eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in certain circumstances
involving certain wrongful acts, such as the breach of a director's duty of
loyalty or acts or omissions that involve intentional misconduct or a knowing
violation of law. These provisions do not limit or eliminate the rights of the
Company or any stockholder to seek non-monetary relief, such as an injunction or
rescission, in the event of a breach of a director's fiduciary duty. These
provisions will not alter a director's liability under federal securities laws.
The Company's Restated Certificate of Incorporation and By-Laws also contain
provisions indemnifying the directors and officers of the Company to the fullest
extent permitted by the DGCL. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.
REGISTRATION RIGHTS
DCC Holdings, who will hold 1,308,246 shares of Common Stock (the
"Registrable Shares") upon consummation of the Offering, has certain rights with
respect to the registration of such shares of Common Stock under the Securities
Act. In general, in the event that the Company proposes to register any shares
of Common Stock under the Securities Act for its own account or the account of
other stockholders at any time or times, subject to certain exceptions, the
Company must, upon the written request of DCC Holdings and any other holders of
Registrable Shares, use its best efforts to cause to be registered under the
Securities Act all of the Registrable Shares requested to be registered,
provided, however, that the Company is not required to register Registrable
Securities in excess of the amount, if any, of Common
57
<PAGE>
Stock which the principal underwriter of an underwritten offering shall
reasonably agree to include in such offering in addition to the shares to be
sold by the Company.
Beginning 180 days after the Company's initial public offering, DCC Holdings
will also have the right, subject to certain limitations, to require the Company
to prepare and file from time to time a registration statement under the
Securities Act with respect to their Registrable Shares, provided that it may
not exercise such right within 90 days before the effectiveness of a Company
initiated registration, or in circumstances in which the Board determines that
such filing could have a material adverse effect on the Company. DCC Holdings
may not exercise these registration rights more than twice with respect to a
registration statement on a form other than Form S-3, or more than two times in
any calendar year with respect to a registration statement on Form S-3. Upon
receipt of any such request from such holders, the Company will be required to
use its best efforts to effect such registration, subject to certain conditions
and limitations. The Company will not be required to maintain such registration
statements in effect for periods in excess of nine months, in the case of
registrations on Form S-3, or 120 days, in the case of other registrations. The
rights of DCC Holdings described above may be transferred to certain affiliates
of DCC Holdings or any transferee of 49% or more of the Registrable Shares. DCC
Holdings has waived its rights to have any Registrable Shares included in the
registration statement of which this Prospectus is a part.
The Representative's Warrants will contain certain demand and incidental
registration rights relating to the underlying Common Stock requiring the
Company to file at any time one year after the closing date of the Offering upon
written request by the Representative, a registration statement with the
Securities and Exchange Commission for the shares of Common Stock represented by
the Representative's Warrants, and granting "piggyback" registration rights to
the shares issuable upon exercise of the Representative's Warrants for a period
beginning one year from the Closing date of the Offering and ending seven years
from that date. See "Underwriting."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is expected
to be American Stock Transfer & Trust Company.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
approximately 4,363,246 shares of Common Stock, assuming that the Underwriters
do not exercise their over-allotment option. After the Offering, the 1,600,000
shares of Common Stock sold in the Offering and any shares sold by the Selling
Stockholders in the event that the Underwriters' over-allotment option to
purchase up to 240,000 shares is exercised, will be freely tradeable without
restriction or further registration under the Securities Act, except for any
shares purchased by an "affiliate" of the Company, which will be subject to the
limitations imposed on "affiliates" of the Company under Rule 144. The remaining
2,763,246 outstanding shares of Common Stock (2,523,246 if the Underwriters'
over-allotment option is exercised in full), are "restricted securities" within
the meaning of Rule 144 and may not be resold except pursuant to a registration
statement effective under the Securities Act or pursuant to an exemption
therefrom, including the exemption provided by Rule 144.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a one-year holding period may, subject to certain
restrictions, sell within any three-month period a number of shares which does
not exceed the greater of (i) 1% of the then outstanding shares of Common Stock;
or (ii) the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission as
required by Rule 144. Rule 144 also permits the sale of shares without any
volume limitation by a person who is not an affiliate of the Company and who has
satisfied a two-year holding period. The one-year holding period with respect to
all of the shares of Common Stock outstanding prior to the Offering has expired.
Shareholders holding or having the right to acquire approximately 98.8% of
the Company's outstanding Common Stock and shares of Common Stock issuable upon
the exercise of outstanding options have agreed not to offer, pledge, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any securities of the Company they currently hold,
without the prior written consent of the Representative, for a period of 180
days following the effective date of the registration statement of which this
Prospectus is a part. See "Underwriting."
On the closing of the Offering, the Company will sell to the Representative,
individually and not as Representative of the Underwriters, for nominal
consideration, the Representative's Warrants entitling the Representative to
purchase an aggregate of 160,000 shares of Common Stock (184,000 shares of
Common Stock if the over-allotment option is exercised in full) at an initial
exercise price per share equal to 120% of the initial public offering price
hereunder. The Representative's Warrants will be exercisable for a period of
four years commencing one year after the closing date of the Offering and will
contain certain demand and incidental registration rights relating to the
underlying Common Stock. The holders of the Representative's Warrants may sell
shares of Common Stock acquired by exercise of the Representative's Warrants one
year from the date of exercise thereof without registration subject to the
limitations of Rule 144. See "Underwriting."
Prior to the Offering, there has been no market for the Common Stock. No
predictions can be made as to the effect, if any, that sales of shares of Common
Stock under Rule 144 will have on the market price of the Common Stock; sales of
Common Stock under Rule 144 in the public market could adversely affect the
market price of the Common Stock or the ability of the Company to raise money
through a public offering of its equity securities. See "Risk Factors--Potential
Adverse Impact on Market Price of Shares Eligible for Future Sale and
Registration Rights."
59
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below, for whom H.C. Wainwright & Co., Inc. is acting as
Representative, and each of the Underwriters has severally agreed to purchase
from the Company, the respective number of shares of Common Stock set forth
opposite its name below at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that, subject to the terms and conditions set
forth therein, the Underwriters are obligated to purchase all of the shares of
Common Stock being sold pursuant to the Underwriting Agreement if any of the
shares of Common Stock are purchased. Under certain circumstances, under the
Underwriting Agreement, the commitments of non-defaulting Underwriters may be
increased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- -----------------
<S> <C>
H.C. Wainwright & Co., Inc........................................................
Total............................................................................. $
</TABLE>
The Representative has advised the Company that the Underwriters propose
initially to offer the Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a discount not in excess of $
per share of Common Stock on sales to certain other dealers. After the initial
public offering, but not before, the public offering price, concession and
discount may be changed.
The Company and the Selling Stockholders have granted the Underwriters an
option to purchase up to an additional 240,000 shares of Common Stock at the
initial public offering price set forth on the cover page of this Prospectus,
less the underwriting discount. Such option, which will expire 30 days after the
date of this Prospectus, may be exercised solely to cover over-allotments, if
any, made in connection with the sale of Common Stock offered hereby. To the
extent that this option is exercised, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage thereof which the number of shares of Common Stock to be purchased
initially by that Underwriter bears to the total number of shares of Common
Stock to be purchased initially by the Underwriters. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 1,600,000 shares of Common Stock are being offered hereby. See
"Principal and Selling Stockholders."
The Company has agreed to pay the Representative a non-accountable expense
allowance of three percent (3.0%) of the gross proceeds of the Offering, which
will include proceeds from the over-allotment option if exercised. The
Representative's expenses in excess of the non-accountable expense allowance,
including its legal expenses, will be borne by the Representative.
At the request of the Company, the Underwriters have reserved up to 5% of
the shares of Common Stock offered hereby for sale to certain directors,
officers, employees and certain other persons having business relationships with
the Company, who have expressed an interest in purchasing shares of Common Stock
in the Offering. The price for such reserved shares will be the public offering
price. The number of shares available to the general public will be reduced to
the extent such persons purchase the reserved shares. Any reserved shares that
are not so purchased by such persons at the initial closing of this Offering
will be sold by the Underwriters to the general public on the same terms as the
other shares of Common Stock offered hereby.
On the closing of the Offering, the Company will sell to the Representative,
individually and not as Representative of the Underwriters, for nominal
consideration, the Representative's Warrants entitling the
60
<PAGE>
Representative to purchase an aggregate of 160,000 shares of Common Stock
(184,000 shares of Common Stock if the over-allotment option is exercised in
full) at an initial exercise price per share equal to 120% of the initial public
offering price hereunder. The Representative's Warrants will be exercisable for
a period of four years commencing on the first anniversary of the Offering and
will contain certain demand and incidental registration rights relating to the
underlying Common Stock, requiring the Company to file, at any time one year
after the closing date of the Offering upon written request by the
Representative, a registration statement with the Securities and Exchange
Commission for the shares of Common Stock represented by the Representative's
Warrants, and granting "piggyback" registration rights to the shares issuable
upon exercise of the Representative's Warrants for a period beginning one year
from the closing date of the Offering and ending seven years from such date. The
Representative's Warrants cannot be transferred, assigned or hypothecated, in
whole or in part, for a period of twelve months from the date of their issuance,
except to any officer or partner of the Representative. The Representative's
Warrants will contain customary weighted-average anti-dilution provisions
providing for appropriate adjustment of the exercise price and the number of
shares issuable upon exercise thereof upon the occurrence of certain events
regarding the Common Stock as a whole.
For the life of the Representative's Warrants, their holders have, at
nominal cost, the opportunity to profit from a rise in the market price for the
Common Stock without assuming the risk of ownership, with a resulting dilution
in the interest of other security holders. As long as the Representative's
Warrants remain unexercised, the terms under which the Company could obtain
additional capital may be adversely affected. Moreover, the holders of the
Representative's Warrants might be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital by a new
offering of its securities on terms more favorable than those provided by the
Representative's Warrants. Additionally, if the Representative should exercise
its registration rights to effect a distribution of the underlying shares of
Common Stock, the Representative, prior to and during such distribution, would
be unable to make a market in the Common Stock. If the Representative must cease
making a market, the market and market price for the Common Stock may be
adversely affected and holders of the Common Stock may be unable to sell the
Common Stock.
The Company has, subject to certain exceptions with respect to employee and
director stock options, agreed not to, directly or indirectly, sell, offer to
sell, grant any option to purchase, or otherwise dispose of, any Common Stock or
any security convertible or exchangeable into, or exercisable for, such Common
Stock or file any registration statement with respect to any of the foregoing,
for a period of 180 days after the effective date of this Offering, without the
prior written consent of the Underwriters.
Shareholders holding or having the right to acquire approximately 98.8% of
the Company's outstanding Common Stock and shares of Common Stock issuable upon
the exercise of outstanding options have agreed not to offer, pledge, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any securities of the Company they currently hold,
without the prior written consent of the Underwriter for a period of 180 days
following the date of this Prospectus.
The Company has granted H.C. Wainwright & Co., Inc. the right to act as the
Company's financial advisor on an exclusive basis until January 27, 2001 with
respect to any sale or disposition of the Company or any of its assets or the
acquisition by the Company of any securities or assets of any other business
entity. Until September 3, 2000, the Company has also granted H.C. Wainwright &
Co., Inc. the right to act as a lead underwriter with respect to any sales of
equity securities by the Company. In addition, the Company has granted to H.C.
Wainwright & Co., Inc. the right to nominate one director to the Company's Board
of Directors, effective upon the closing of the Offering. It is expected that
this individual will be elected to the Board of Directors and appointed as a
member of the Compensation Committee and Audit Committee, effective upon the
consummation of the Offering.
The Representative has advised the Company that the Underwriters do not
intend to confirm sales of Common Stock offered hereby to any accounts over
which they exercise discretionary authority.
61
<PAGE>
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock was determined by
negotiations among the Company and the Underwriters. Among the factors
considered in such negotiations, in addition to prevailing market conditions,
were certain financial information of the Company, an assessment of the
Company's management, estimates of the business potential and earnings prospects
of the Company, the present state of the Company's development and operations,
the present state of the Company's industry in general and other factors deemed
relevant. The initial public offering price range set forth on the cover page of
this Prospectus should not, however, be considered an indication of the actual
value of the Common Stock. Such price is subject to change as a result of market
conditions and other factors. There can be no assurance that an active trading
market will develop for the Common Stock or that the Common Stock will trade in
the public market subsequent to the Offering at or above the initial public
offering price.
In connection with the Offering, the Underwriters and certain selling group
members may engage in stabilizing, syndicate short covering transactions or
other transactions that stabilize, maintain or otherwise affect the market price
of the Common Stock. Stabilizing transactions may consist of initiating bids or
effecting purchases on the Nasdaq SmallCap Market for the purpose of preventing
or retarding a decline in the market price of the Common Stock. Bids or
purchases effected by the Underwriters or selling group members for such
purposes may be instituted at prices no higher than the initial public offering
price or the most recent independent bid, whichever is less. Such transactions
may stabilize the market price of the Common Stock at a level above that which
might otherwise prevail and, if commenced, may be discontinued at any time.
The Company has applied to include its Common Stock for quotation on the
Nasdaq SmallCap Market under the symbol HDMD.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and certain legal
matters will be passed upon for the Company by Bingham Dana LLP, Boston,
Massachusetts. Certain legal matters will be passed upon for the Underwriters by
Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
EXPERTS
The audited consolidated financial statements of the Company as of December
31, 1996 and 1997 and for each of the three years in the period ended December
31, 1997 included herein, have been audited by Arthur Andersen LLP, independent
public accountants, as stated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement of which this Prospectus is a part (the
"Registration Statement") under the Securities Act, with respect to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the content of any contract or
other document are not necessarily complete, and in each instance reference is
made to a copy of such contract or other document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission, each such
statement being qualified in all respects by such reference. For further
information, reference is hereby made to the Registration Statement and to the
schedules and exhibits thereto, which can be inspected and copied at the public
reference facilities of the Commission at
62
<PAGE>
its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of each such
document may be obtained at prescribed rates from the Public Reference Section
of the Commission at its principal office at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. In addition, such material can also be
obtained from the Commission's Web site at http://www.sec.gov.
------------------------
Following this Offering, the Company will be subject to the reporting and
other requirements of the Exchange Act, as amended, and intends to furnish to
its shareholders annual reports containing audited financial statements and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.
63
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997
and Pro Forma Consolidated Balance Sheet as of December 31, 1997 (Unaudited)............................. F-3
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997................. F-4
Consolidated Statements of Redeemable Preferred Stock and Stockholders' Equity (Deficit) for the Years
Ended December 31, 1995, 1996 and 1997 and Pro Forma Consolidated Statements of Redeemable Preferred
Stock and Stockholders' Equity (Deficit) for the Year Ended December 31, 1997 (Unaudited)................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996
and 1997................................................................................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HealthDrive Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of HealthDrive
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1996
and 1997, and the related consolidated statements of operations, redeemable
preferred stock and stockholders' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of HealthDrive
Corporation and Subsidiaries as of December 31, 1996 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 8, 1998
F-2
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, 1997
---------------------------- -----------------
1996 1997 PRO FORMA
------------- ------------- -----------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents...................................... $ 2,484 $ 15,062 $ 15,062
Accounts receivable, net of allowances of approximately
$355,000 and $349,000 in 1996 and 1997, respectively......... 1,435,812 1,733,099 1,733,099
Refundable income taxes........................................ 160,000 -- --
Prepaid expenses and other current assets...................... 216,311 221,326 221,326
------------- ------------- -----------------
Total current assets....................................... 1,814,607 1,969,487 1,969,487
------------- ------------- -----------------
Property and Equipment, at cost:
Medical equipment.............................................. 682,489 738,002 738,002
Furniture, fixtures and office equipment....................... 639,659 643,503 643,503
Equipment under capital leases................................. 568,595 670,236 670,236
------------- ------------- -----------------
1,890,743 2,051,741 2,051,741
Less--Accumulated depreciation................................. 966,823 1,308,540 1,308,540
------------- ------------- -----------------
923,920 743,201 743,201
------------- ------------- -----------------
$ 2,738,527 $ 2,712,688 $ 2,712,688
------------- ------------- -----------------
------------- ------------- -----------------
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
<S> <C> <C> <C>
Current Liabilities:
Revolving line of credit loans................................. $ 361,000 $ 325,000 $ 325,000
Current portion of capital lease obligations................... 100,976 105,325 105,325
Accounts payable............................................... 142,154 125,629 125,629
Accrued expenses............................................... 708,317 701,589 701,589
------------- ------------- -----------------
Total current liabilities.................................. 1,312,447 1,257,543 1,257,543
------------- ------------- -----------------
Capital Lease Obligations, net of current portion................ 82,302 56,174 56,174
------------- ------------- -----------------
Commitments (Note 8)
Redeemable Preferred Stock:
Class A Convertible Preferred Stock, $.01 par value--.......... 1,280,000 1,340,000 --
Authorized, issued and outstanding--571,428 shares stated at
liquidation value, at December 31, 1996 and 1997; none pro
forma
Class B Convertible Preferred Stock, $.01 par value--.......... 580,000 610,000 --
Authorized, issued and outstanding--181,818 shares stated at
liquidation value, at December 31, 1996 and 1997; none pro
forma
Stockholders' deficit:
Common stock, $.01 par value--
Authorized--3,259,162; issued and outstanding-- 2,010,000
shares in 1996 and 1997; 2,763,246 shares pro forma........ 20,100 20,100 27,632
Additional paid-in capital..................................... 487,103 487,103 1,979,571
Accumulated deficit............................................ (1,023,425) (1,058,232) (608,232)
------------- ------------- -----------------
Total stockholders' equity (deficit)......................... (516,222) (551,029) 1,398,971
------------- ------------- -----------------
$ 2,738,527 $ 2,712,688 $ 2,712,688
------------- ------------- -----------------
------------- ------------- -----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C>
1995 1996 1997
------------ ------------- -------------
Net Revenue.......................................................... $ 8,575,188 $ 11,005,758 $ 12,929,795
Direct Patient Care Costs............................................ 5,362,392 7,019,595 8,212,689
------------ ------------- -------------
Gross profit..................................................... 3,212,796 3,986,163 4,717,106
Selling, General and Administrative Expenses......................... 3,217,730 4,879,840 4,601,990
------------ ------------- -------------
Income (loss) from operations.................................... (4,934) (893,677) 115,116
Interest Income...................................................... 23,950 5,807 48
Interest Expense..................................................... (19,739) (31,788) (65,021)
Other Income......................................................... 892 14,461 5,050
------------ ------------- -------------
Income (loss) before benefit for income taxes.................... 169 (905,197) 55,193
Benefit for Income Taxes............................................. -- (160,000) --
------------ ------------- -------------
Net income (loss)................................................ $ 169 $ (745,197) $ 55,193
------------ ------------- -------------
------------ ------------- -------------
Net Income (Loss) per Common and Potential Common Share:
Basic............................................................ $ -- $ (0.37) $ 0.03
------------ ------------- -------------
Diluted.......................................................... $ -- $ (0.37) $ 0.02
------------ ------------- -------------
Pro forma diluted................................................ $ -- $ (0.27) $ 0.02
------------ ------------- -------------
Weighted Average Common and Potential Common Shares Outstanding:
Basic............................................................ 2,000,000 2,000,792 2,010,000
------------ ------------- -------------
------------ ------------- -------------
Diluted.......................................................... 2,824,806 2,000,792 2,882,773
------------ ------------- -------------
------------ ------------- -------------
Pro forma diluted................................................ 2,824,806 2,754,038 2,882,773
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED STOCK
--------------------------------------------------- STOCKHOLDERS' EQUITY
(DEFICIT)
CLASS A CLASS B ---------------------
CONVERTIBLE PREFERRED CONVERTIBLE PREFERRED
STOCK STOCK COMMON STOCK
------------------------- ------------------------ ---------------------
NUMBER OF LIQUIDATION NUMBER OF LIQUIDATION NUMBER OF $.01 PAR
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------ ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994..................... 571,428 $ 1,160,000 181,818 $ 520,000 2,000,000 $ 20,000
Accretion of dividends on Class A and B
convertible preferred stock................ -- 60,000 -- 30,000 -- --
Net income................................... -- -- -- -- -- --
----------- ------------ ----------- ----------- ---------- ---------
Balance, December 31, 1995..................... 571,428 1,220,000 181,818 550,000 2,000,000 20,000
Exercise of stock options.................... -- -- -- -- 10,000 100
Accretion of dividends on Class A and B
convertible preferred stock................ -- 60,000 -- 30,000 -- --
Net loss..................................... -- -- -- -- -- --
----------- ------------ ----------- ----------- ---------- ---------
Balance, December 31, 1996..................... 571,428 1,280,000 181,818 580,000 2,010,000 20,100
Accretion of dividends on Class A and B
convertible preferred stock................ -- 60,000 -- 30,000 -- --
Net income................................... -- -- -- -- -- --
----------- ------------ ----------- ----------- ---------- ---------
Balance, December 31, 1997..................... 571,428 $ 1,340,000 181,818 $ 610,000 2,010,000 $ 20,100
----------- ------------ ----------- ----------- ---------- ---------
----------- ------------ ----------- ----------- ---------- ---------
Pro forma conversion of preferred stock to
common stock and forfeiture of cumulative
dividends.................................. (571,428) (1,340,000) (181,818) (610,000) 753,246 7,532
----------- ------------ ----------- ----------- ---------- ---------
Pro Forma Balance, December 31, 1997
(Unaudited).................................. -- $ -- -- $ -- 2,763,246 $ 27,632
----------- ------------ ----------- ----------- ---------- ---------
----------- ------------ ----------- ----------- ---------- ---------
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'
PAID-IN ACCUMULATED EQUITY
CAPITAL DEFICIT (DEFICIT)
------------ ------------- ------------
<S> <C> <C> <C>
Balance, December 31, 1994..................... $ 473,403 $ (98,397) $ 395,006
Accretion of dividends on Class A and B
convertible preferred stock................ -- (90,000) (90,000)
Net income................................... -- 169 169
------------ ------------- ------------
Balance, December 31, 1995..................... 473,403 (188,228) 305,175
Exercise of stock options.................... 13,700 -- 13,800
Accretion of dividends on Class A and B
convertible preferred stock................ -- (90,000) (90,000)
Net loss..................................... -- (745,197) (745,197)
------------ ------------- ------------
Balance, December 31, 1996..................... 487,103 (1,023,425) (516,222)
Accretion of dividends on Class A and B
convertible preferred stock................ -- (90,000) (90,000)
Net income................................... -- 55,193 55,193
------------ ------------- ------------
Balance, December 31, 1997..................... $ 487,103 $ (1,058,232) $ (551,029)
------------ ------------- ------------
------------ ------------- ------------
Pro forma conversion of preferred stock to
common stock and forfeiture of cumulative
dividends.................................. 1,492,468 450,000 1,950,000
------------ ------------- ------------
Pro Forma Balance, December 31, 1997
(Unaudited).................................. $ 1,979,571 $ (608,232) $1,398,971
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1995 1996 1997
----------- ----------- -----------
Cash Flows from Operating Activities:
Net income (loss)........................................................ $ 169 $ (745,197) $ 55,193
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities--
Depreciation........................................................... 230,093 280,911 341,717
Changes in assets and liabilities--
Accounts receivable.................................................. (192,730) 188,121 (297,287)
Refundable income taxes.............................................. -- (160,000) 160,000
Prepaid expenses and other current assets............................ (63,673) (9,055) (5,015)
Accounts payable..................................................... 90,271 (106,054) (16,525)
Accrued expenses..................................................... (104,387) 328,198 (6,728)
----------- ----------- -----------
Net cash provided by (used in) operating activities................ (40,257) (223,076) 231,355
----------- ----------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment...................................... (279,178) (377,344) (60,198)
----------- ----------- -----------
Cash Flows from Financing Activities:
Borrowings (payments) under revolving line of credit..................... -- 361,000 (36,000)
Exercise of stock options................................................ -- 13,800 --
Payments under capital lease obligations................................. (99,387) (134,175) (122,579)
----------- ----------- -----------
Net cash provided by (used in) financing activities................ (99,387) 240,625 (158,579)
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents....................... (418,822) (359,795) 12,578
Cash and Cash Equivalents, beginning of year............................... 781,101 362,279 2,484
----------- ----------- -----------
Cash and Cash Equivalents, end of year..................................... $ 362,279 $ 2,484 $ 15,062
----------- ----------- -----------
----------- ----------- -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid for--
Interest............................................................... $ 19,739 $ 31,790 $ 62,570
----------- ----------- -----------
----------- ----------- -----------
Taxes.................................................................. $ 62,480 $ 6,886 $ 1,112
----------- ----------- -----------
----------- ----------- -----------
Supplemental Disclosure of Noncash Investing and Financing Transactions:
Purchase of property and equipment under capital lease................... $ 75,359 $ 161,909 $ 100,800
----------- ----------- -----------
----------- ----------- -----------
Accretion of dividends on Class A and B Convertible Preferred Stock...... $ 90,000 $ 90,000 $ 90,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(1) OPERATIONS
HealthDrive Corporation (HealthDrive) and subsidiaries (collectively, the
Company) provides medical and dental services primarily to nursing home
residents through its exclusive affiliations with four professional corporations
and one taxable not-for-profit corporation: Alec H. Jaret, D.M.D., P.C., Jeffery
Morer, O.D., P.C., Mary C. Manesis, D.P.M., P.C., Steven S. Charlap, M.D., P.C.
and HealthDrive Michigan Corporation (the Practices). The Practices provide
dentistry, optometry, podiatry, audiology and primary care services at patient
sites.
The Company is subject to a number of risks common to companies in similar
stages of development, including dependence on key individuals, competition from
substitute service providers, the need for adequate financing to fund future
operations and the continued successful development and marketing of its
services. (See Risk Factors included elsewhere in this Prospectus)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of certain accounting policies described in this note and elsewhere in the notes
to consolidated financial statements.
(A) PRINCIPLES OF CONSOLIDATION
The Emerging Issues Task Force (EITF) of the Financial Accounting Standards
Board (FASB) recently released Issue No. 97-2: Application of FASB Statement of
Financial Accounting Standards (SFAS) No. 94, CONSOLIDATION OF ALL
MAJORITY-OWNED SUBSIDIARIES, and Accounting Principles Board (APB) Opinion No.
16, BUSINESS COMBINATIONS, to Physician Practice Management Entities and Certain
Other Entities with Contractual Management Arrangement. The EITF reached a
consensus that an entity can establish a controlling financial interest in a
physician practice through contractual management arrangements and, therefore,
require the consolidation of the physician practice. In accordance with the
consensus reached in EITF No. 97-2, the accompanying consolidated financial
statements include the accounts of HealthDrive and the Practices. All material
intercompany accounts and transactions have been eliminated.
HealthDrive has entered into ten year exclusive operating agreements with
the Practices, expiring through June 2006. The operating agreements require that
HealthDrive perform certain marketing, administrative and other functions in
return for a fee equal to the net income, if any, of each of the Practices,
adjusted for certain items, as defined. HealthDrive is responsible for certain
financial and operating matters of the Practices. HealthDrive has loaned monies
to the Practices for working capital purposes. These loans to the Practices
eliminate in consolidation. In addition, HealthDrive maintains non-compete
agreements with the principal stockholder of each of the Practices. HealthDrive
does not have any ownership of the voting stock of the Practices. However,
HealthDrive is deemed to have a controlling financial interest in the Practices
as a result of the operating agreements. The Company is currently entering into
revised operating agreements with the Practices. Each operating agreement will
have a term of 40 years.
(B) REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
Revenue is recognized when services are rendered. The Company's revenue is
derived from services rendered to patients. Accounts receivable and revenue are
presented net of contractual allowances which represent the difference between
the usual and customary fees and the fees allowed by third party payors. While
the Company is not able to track revenue by payor source, for the years ended
December 31, 1995, 1996 and 1997, the Company estimates that the percentage of
revenue attributable to third party payors
F-7
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
was approximately 68%, 72% and 72%, respectively, based on cash receipts. The
Company is, from time to time, subject to reviews and audits by various third
party payors, which can result in potential material claims against the Company.
The Company believes that it has complied with all appropriate rules and
regulations and will vigorously defend against any determination to the
contrary. The Company does not believe that the results of any pending or
in-process audits will have a material impact on its financial condition or
results of operations.
(C) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents. Cash and cash
equivalents consist primarily of cash and money market funds at December 31,
1996 and 1997.
(D) DEPRECIATION
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is calculated using the straight-line method over their estimated
useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
- -------------------------------------------------------------------------------------------- -----------
<S> <C>
Medical equipment........................................................................... 5 years
Furniture, fixtures and office equipment.................................................... 5 years
Equipment under capital leases.............................................................. 3 years
</TABLE>
(E) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(F) DERIVATIVE FINANCIAL INSTRUMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company does not have any derivative or other financial instruments as
defined by SFAS No. 119, DISCLOSURE ABOUT FINANCIAL INSTRUMENTS AND FAIR VALUE
OF FINANCIAL INSTRUMENTS.
SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
requires disclosure of an estimate of the fair value of certain financial
instruments. The Company's financial instruments consist of cash and cash
equivalents, accounts receivable and a revolving line of credit. The estimated
fair value of these financial instruments approximates their carrying value at
December 31, 1996 and 1997. The estimated fair values have been determined
through information obtained from market sources and management estimates.
(G) CONCENTRATION OF CREDIT RISK
SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company maintains its cash and cash
equivalents with established financial institutions. The Company
F-8
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
does not believe it has accounts receivable collection risk in excess of
existing reserves. Medicare accounted for approximately 63% and 64% of accounts
receivable at December 31, 1996 and 1997, respectively, and Medicaid accounted
for approximately 16% of accounts receivable at December 31, 1996 and 1997.
The following schedule summarizes the activity of the Company's accounts
receivable reserve for the three years ended December 31, 1997:
<TABLE>
<CAPTION>
DESCRIPTION
- ----------------------------------------------------- BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
ACCOUNTS RECEIVABLE RESERVE PERIOD EXPENSES WRITE-OFFS PERIOD
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1995.................................... $ 245,000 $ 612,000 $ 595,000 $ 262,000
December 31, 1996.................................... 262,000 811,000 718,000 355,000
December 31, 1997.................................... 355,000 809,000 815,000 349,000
</TABLE>
(H) ACCRUED EXPENSES
Accrued expenses at December 31, 1996 and 1997 consist of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Accrued payroll and benefits.................................................... $ 211,143 $ 205,069
Accrued insurance............................................................... 105,565 145,203
Accrued other................................................................... 391,609 351,317
---------- ----------
$ 708,317 $ 701,589
---------- ----------
---------- ----------
</TABLE>
(I) NET INCOME (LOSS) PER SHARE
In March 1997, the Company adopted SFAS No. 128, EARNINGS PER SHARE,
effective December 15, 1997. SFAS No. 128 establishes standards for computing
and presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. The Company has applied the provisions
of SFAS No. 128 retroactively to all periods presented. In accordance with SEC
Staff Accounting Bulletin (SAB) No. 98, the Company has determined that there
were no nominal issuances of common stock or potential common stock in the
period prior to the Company's planned initial public offering (IPO). The
dilutive effect of potential common shares in 1995 and 1997, consisting of
outstanding stock options and redeemable convertible preferred stock, is
determined using the treasury method and the if-converted method, respectively,
in accordance with SFAS No. 128. Diluted weighted average shares outstanding for
1996 exclude the potential common shares from stock options and redeemable
convertible preferred stock outstanding because to do so would have been
antidilutive for the years presented. The potential common shares excluded in
1996 related to outstanding stock options and redeemable convertible preferred
stock were 136,867 shares and 753,246 shares, respectively. Pro forma diluted
net income (loss) per common and potential common share assumes that all series
of redeemable convertible preferred stock had been converted to common stock as
of the original issuance dates.
F-9
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Calculations of basic, diluted and pro forma diluted net income (loss) per
common share and potential common share are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss)............................................. $ 169 $ (745,197) $ 55,193
Weighted average common shares outstanding.................... 2,000,000 2,000,792 2,010,000
Potential common shares pursuant to stock options............. 71,560 -- 119,527
Potential common shares pursuant to conversion of redeemable
convertible preferred stock................................. 753,246 -- 753,246
------------ ------------ ------------
Diluted weighted average shares............................... 2,824,806 2,000,792 2,882,773
Pro forma conversion of redeemable convertible preferred
stock....................................................... -- 753,246 --
------------ ------------ ------------
Pro forma diluted weighted average shares outstanding......... 2,824,806 2,754,038 2,882,773
------------ ------------ ------------
Basic net income (loss) per common share...................... $ -- $ (0.37) $ 0.03
------------ ------------ ------------
------------ ------------ ------------
Diluted net income (loss) per share and potential common
share....................................................... $ -- $ (0.37) $ 0.02
------------ ------------ ------------
------------ ------------ ------------
Pro forma diluted net income (loss) per common and potential
common share................................................ $ -- $ (0.27) $ 0.02
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
(J) PRO FORMA PRESENTATION
The pro forma balance sheet as of December 31, 1997 and the pro forma
statement of stockholders' equity (deficit) for the year then ended reflects the
automatic conversion of all outstanding shares Class A and Class B Preferred
Stock into an aggregate of 753,246 shares of common stock and the forfeiture of
cumulative dividends accrued, all of which will occur upon the closing of the
Company's proposed initial public offering.
(K) RECENTLY ISSUED ACCOUNTING STANDARDS
In June and July 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE
INCOME and SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, respectively. Both SFAS No. 130 and No. 131 are effective for
fiscal years beginning after December 15, 1997. The Company believes that the
adoption of these new accounting standards will not have a material impact on
the Company's financial statements.
(3) REVOLVING LINE OF CREDIT
In 1997, the Company amended its revolving line of credit agreement with a
bank, which is based on qualified accounts receivable, as defined, not to exceed
$1,250,000. The line of credit bears interest at prime (8.5% at December 31,
1997) plus 1% and is collateralized by substantially all of the assets of the
Company. As of December 31, 1997 the Company had approximately $713,000 of
available borrowings. The Company's line of credit expires January 1, 1999.
Under the terms of the agreement, the Company is subject to certain financial
covenants, including total liabilities to tangible net worth, interest coverage
ratio, no net losses and minimum current ratio. The Company was in compliance
with all covenants as of December 31, 1997.
F-10
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES, the objective of which is to recognize the amount
of current and deferred income taxes at the date of the financial statements as
a result of all differences in the tax basis and financial statement carrying
amount of assets and liabilities as measured by enacted tax laws. For reporting
purposes, the Practices are considered separate taxable entities.
The approximate income tax effect of each type of temporary difference and
carryforward, the balance of which is included in prepaid expenses and other
current assets, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Net operating loss carryforwards.............................................. $ 68,000 $ 53,000
Other temporary differences (consisting primarily of reserves for accounts
receivable and non-deductible accruals)..................................... 220,000 211,000
----------- -----------
288,000 264,000
Valuation allowance........................................................... (263,000) (239,000)
----------- -----------
Net deferred tax asset........................................................ $ 25,000 $ 25,000
----------- -----------
----------- -----------
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $132,000. These
carryforwards expire through 2011 and are subject to review and possible
adjustment by the Internal Revenue Service. Due to the uncertainty surrounding
the ultimate realization of the majority of the net deferred tax asset, the
Company has provided a valuation allowance against all but $25,000 of this
amount.
U.S. tax rules impose limitations on the use of net operating losses
following certain changes in ownership. If such a change were to occur, the
limitation could reduce the amount of these benefits that would be available to
offset future taxable income each year, starting with the year of ownership
change.
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Income tax provision (benefit) at federal statutory rate........................ 34.0% (34.0)% 34.0%
Increase (decrease)in tax resulting from--
Other permanent differences................................................... -- (.7) 8.6
Change in valuation allowance/utilization of net operating losses............. -- 18.7 (43.5)
Other......................................................................... (34.0) (1.7) 0.9
--------- --------- ---------
Benefit for income taxes........................................................ --% (17.7)% --%
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company recorded a benefit for income taxes of $160,000 in 1996 to the
extent of the tax refund generated by the carryback of the 1996 net operating
losses against prior profitable years. There was no provision for income taxes
in 1997 due to the utilization of a portion of the remaining net operating
losses generated in 1996 that had not been previously benefited.
F-11
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The benefit for income taxes in the accompanying statements of operations
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1996 1997
--------- ----------- ---------
<S> <C> <C> <C>
Current--
Federal............................................................ $ -- $ (160,000) $ --
State.............................................................. -- -- --
--------- ----------- ---------
Total provision (benefit)........................................ $ -- $ (160,000) $ --
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
(5) REDEEMABLE PREFERRED STOCK
On May 8, 1992, HealthDrive authorized and issued 571,428 shares of $.01 par
value Class A Convertible Preferred Stock (Class A Preferred Stock), and on
April 28, 1994, HealthDrive authorized and issued 181,818 shares of $.01 par
value Class B Convertible Preferred Stock (Class B Preferred Stock or
collectively, the Preferred Stock) to the preferred stockholder (the Preferred
Stockholder). The rights, privileges and preferences of the Preferred Stock are
as follows:
VOTING RIGHTS
The Preferred Stockholder is entitled to vote on all matters with the common
stockholders as if they were one class of stock. The Preferred Stockholder is
entitled to the number of votes equal to the number of shares of common stock
into which each share of the Preferred Stock is then convertible.
LIQUIDATION PREFERENCE
The Preferred Stockholder has preference in the event of a liquidation, sale
or dissolution of HealthDrive in the amount of the original purchase price, plus
any accrued but unpaid dividends (the Liquidation Value). Class A Preferred
Stock has preference in liquidation over Class B Preferred Stock.
CONVERSION
The Preferred Stock is convertible into common stock at the rate of one
share of common stock for each share of Preferred Stock, adjusted for certain
dilutive events, as defined. Conversion is at the option of the Preferred
Stockholder but becomes automatic upon the closing of an initial public offering
at a per share price of at least $7.50 and resulting in aggregate proceeds to
HealthDrive of at least $5,000,000 (a Qualified Public Offering). HealthDrive
has reserved the number of common shares issuable upon the conversion of the
Preferred Stock.
REDEMPTION
As of December 31, 1997, the Preferred Stockholder had the right to require
HealthDrive to redeem the Preferred Stock at the Liquidation Value with cash out
of HealthDrive's funds legally available therefor. As of February 5, 1998, the
Preferred Stockholder had not exercised its right to cause the redemption of the
Preferred Stock and, in accordance with the Certificate of Incorporation of
HealthDrive, the right to cause the redemption of the Preferred Stock expired.
F-12
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DIVIDENDS
Dividends are cumulative and accrue on outstanding shares of the Preferred
Stock at an annual rate of 6%. Dividends are payable on the Preferred Stock if
and when declared by the Board of Directors. Dividends are forfeited upon
conversion of the Preferred Stock into common stock.
(6) STOCKHOLDERS' EQUITY
(A) AUTHORIZED CAPITAL STOCK
As of December 31, 1997, the Company's authorized capital stock consisted of
3,259,162 shares of common stock, $.01 par value per share, 571,428 shares of
Class A Preferred Stock, $.01 par value per share, and 181,818 shares of Class B
Preferred Stock, $.01 par value per share.
(B) RIGHT TO REQUIRE DIVIDENDS
Beginning in 1993, if the Company's revenue increases by less than 25% over
revenue in the preceding year, the Preferred Stockholder may require HealthDrive
to pay cash dividends totaling 30% of the net income of the Company for that
year to all common and preferred stockholders on a pro rata basis. The right of
the Preferred Stockholder to require such dividend payments will terminate if
the Preferred Stockholder ceases to hold at least 10% of the combined shares of
HealthDrive common and preferred stock outstanding or upon the completion of a
Qualified Public Offering of HealthDrive's common stock. Except for the required
dividends, as discussed above, all dividends payable to common stockholders are
subordinate to dividends payable to the Preferred Stockholder. The Preferred
Stockholder also has certain registration rights.
(C) STOCKHOLDERS AGREEMENTS
Of HealthDrive's total common stock outstanding, 1,996,200 shares were
subject to a stockholders agreement (the Stockholders Agreement). The agreement
provides the holders of 1,420,000 shares of HealthDrive's common stock (the
Principal Stockholders) and then the remaining common and preferred stockholders
with the right of first refusal to purchase, on a pro rata basis, any of the
Principal Stockholders' shares. In addition, the agreement provides all common
and preferred stockholders with the right of first refusal to purchase, on a pro
rata basis, any shares of common stock other than those shares held by the
Principal Stockholders. In the event that the common and preferred stockholders
elect to purchase less than the total number of shares offered for sale, the
right to purchase such shares will terminate.
(D) RESERVED COMMON STOCK
As of December 31, 1997, 1,248,037 shares of common stock were reserved for
the following:
<TABLE>
<S> <C>
Conversion of Class A Preferred Stock.................................... 571,428
Conversion of Class B Preferred Stock.................................... 181,818
Exercise of Stock Options................................................ 494,791
---------
1,248,037
---------
---------
</TABLE>
F-13
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) STOCK OPTION PLAN
In 1992, HealthDrive adopted the 1992 Stock Option Plan (the 1992 Plan). The
1992 Plan, as amended, is administered by the Board of Directors and authorizes
HealthDrive to issue options to purchase up to 505,916 shares of common stock.
Under the terms of the 1992 Plan, HealthDrive may grant incentive stock options
to employees at a price not less than the fair market value at the date of
grant, as determined by the Board of Directors. In addition, HealthDrive may
grant nonqualified options to directors and employees of the Company at a price
determined by the Board of Directors. The options generally vest over four years
and expire no more than 10 years from the date of grant. The 1992 Plan expires
in May 2002.
The following schedule summarizes the activity under the Company's stock
option plan for the three years ended December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF EXERCISE PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- -------------- ---------------
<S> <C> <C> <C>
Outstanding, December 31, 1994............................... 241,750 $1.00--$1.75 $ 1.43
Granted...................................................... 55,250 1.75-- 2.00 1.81
Exercised.................................................... -- -- --
Canceled..................................................... (9,500) 1.00-- 2.00 1.33
--------- -------------- -----
Outstanding, December 31, 1995............................... 287,500 1.00-- 2.00 1.51
Granted...................................................... 70,400 2.00-- 3.00 2.91
Exercised.................................................... (10,000) 1.38 1.38
Canceled..................................................... (48,900) 1.38-- 2.00 1.84
--------- -------------- -----
Outstanding, December 31, 1996............................... 299,000 1.00-- 3.00 1.79
Granted...................................................... 131,600 3.00-- 4.00 3.15
Canceled..................................................... (25,800) 2.00-- 3.00 2.86
--------- -------------- -----
Outstanding, December 31, 1997............................... 404,800 $1.00--$4.00 $ 2.16
--------- -------------- -----
--------- -------------- -----
Exercisable, December 31, 1997............................... 218,325 $1.00--$3.00 $ 1.52
--------- -------------- -----
--------- -------------- -----
</TABLE>
In October 1995, the FASB issued SFAS No. 123, which requires the
measurement of the fair value of stock-based compensation to be included in the
consolidated statement of operations or disclosed in the notes to the
consolidated financial statements. The Company has determined that it will
continue to account for stock-based compensation for employees under Accounting
Principles Board Opinion No. 25 and elect the disclosure-only alternative under
SFAS No. 123 for stock-based compensation awarded in 1995, 1996 and 1997 using
the Black-Scholes option pricing model prescribed by SFAS No. 123. The
underlying assumptions used are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- ---------- ----------
Risk-free interest rate............................................ 7.27% 6.05% 6.28%
Expected dividend yield............................................ -- -- --
Expected lives..................................................... 5 years 5 years 5 years
Expected volatility................................................ 60% 60% 60%
Weighted average fair value of grants.............................. $1.22 $1.67 $1.69
Weighted average remaining contractual life of options
outstanding...................................................... 7.4 years 7.0 years 6.9 years
</TABLE>
F-14
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Had compensation cost for the Company's stock option plan been determined
consistent with SFAS No. 123, pro forma net loss and net loss per share would
have been:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
Net income (loss)--
As reported...................................................... $ 169 $ (745,197) $ 55,193
Pro forma........................................................ (12,343) (766,269) (23,327)
Net income (loss) per share, as reported--
Basic............................................................ $ -- $ (0.37) $ 0.03
---------- ----------- ----------
---------- ----------- ----------
Diluted.......................................................... $ -- $ (0.37) $ 0.02
---------- ----------- ----------
---------- ----------- ----------
Pro forma diluted................................................ $ -- $ (0.27) $ 0.02
---------- ----------- ----------
---------- ----------- ----------
Net loss per share, pro forma--
Basic............................................................ $ (0.01) $ (0.38) $ (0.01)
---------- ----------- ----------
---------- ----------- ----------
Diluted.......................................................... $ -- $ (0.38) $ (0.01)
---------- ----------- ----------
---------- ----------- ----------
Pro forma diluted................................................ $ -- $ (0.28) $ (0.01)
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
may not be representative of that to be expected in future years.
(8) COMMITMENTS
HealthDrive leases its facilities and certain equipment under operating and
capital leases that expire through 2000. Aggregate rental expense under
operating leases was approximately $145,000, $194,000 and $243,000 in 1995, 1996
and 1997, respectively.
The future minimum commitments under these leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ----------
<S> <C> <C>
Year ending December 31,
1998.................................................................................... $ 165,000 $ 118,176
1999.................................................................................... 54,000 57,807
2000.................................................................................... -- 2,761
---------- ----------
Total............................................................................... $ 219,000 178,744
----------
----------
Less--Amount representing interest........................................................ 17,245
----------
Present value of minimum lease payments................................................... 161,499
Less--Current portion of capital lease obligations........................................ 105,325
----------
$ 56,174
----------
----------
</TABLE>
(9) HEALTHDRIVE 401(K) PLAN
The Company has a qualified 401(k) retirement savings plan (the 401(k)
Plan). Under the 401(k) Plan, participants may elect to defer a portion of their
compensation, subject to certain limitations. In
F-15
<PAGE>
HEALTHDRIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) HEALTHDRIVE 401(K) PLAN (CONTINUED)
addition, the Company, at the discretion of the Board of Directors, may make
contributions into the 401(k) Plan. During 1995, 1996 and 1997, the Company made
no contributions to the 401(k) Plan.
(10) SUBSEQUENT EVENTS
(A) AMENDMENT, CONVERSION AND WAIVER AGREEMENT
On March 30, 1998, the Preferred Stockholder executed an Amendment,
Conversion and Waiver Agreement (the Agreement) with the Company in which the
Preferred Stockholder agreed to waive virtually all of the rights, privileges
and preferences of the preferred stock (except for certain registration rights),
to convert all shares of the preferred stock into common stock and to waive its
right to require dividends as described in Note 6 (b), effective with the
closing of the proposed initial public offering.
(B) RESTATED CERTIFICATE OF INCORPORATION
Effective upon the close of the Company's planned initial public offering
and after giving effect to the Company's Restated Certificate of Incorporation
immediately prior to the closing of the offering, the authorized capital stock
will consist of 15,000,000 shares of common stock, $0.01 par value per share,
and 5,000,000 shares of undesignated Preferred Stock, $0.01 par value per share.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS 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 THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION
WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 4
Use of Proceeds................................. 17
Dividend Policy................................. 17
Capitalization.................................. 18
Dilution........................................ 19
Selected Consolidated Financial Data............ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 21
Business........................................ 29
Management...................................... 45
Certain Transactions............................ 52
Principal and Selling Stockholders.............. 54
Description of Capital Stock.................... 55
Shares Eligible for Future Sale................. 59
Underwriting.................................... 60
Legal Matters................................... 62
Experts......................................... 62
Additional Information.......................... 62
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
1,600,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
H.C. WAINWRIGHT & CO., INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered, other than the underwriting discount and
commissions, are estimated as follows:
<TABLE>
<S> <C>
SEC Registration Fee................................................ $
NASD Fee............................................................
Nasdaq SmallCap Market Listing Fee..................................
Printing and Engraving Expenses.....................................
Legal Fees and Expenses.............................................
Accounting Fees and Expenses........................................
Expenses of Qualification Under State Securities Laws, Including
Attorneys' Fees...................................................
Transfer Agent and Registrar's Fees.................................
Miscellaneous Costs.................................................
---------
Total......................................................... $
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons to
the extent and under the circumstances set forth therein.
The Amended and Restated Certificate of Incorporation and the By-Laws of the
Company, copies of which are filed herein as Exhibits 3.1 and 3.2, provide for
advancement of expenses and indemnification of officers and directors of the
Registrant and certain other persons against liabilities and expenses incurred
by any of them in certain stated proceedings and under certain stated conditions
to the fullest extent permissible under Delaware law.
Section of the Underwriting Agreement between the Registrant and the
Underwriters, a copy of which is filed herein as Exhibit 1.1, will provide for
indemnification by the Registrant of the Underwriters and each person, if any,
who controls any Underwriter, against certain liabilities and expenses, as
stated therein, which may include liabilities under the Securities Act of 1933.
The Underwriting Agreement also provides that the Underwriters shall similarly
indemnify the Registrant, its directors, officers and controlling persons, as
set forth therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Described below is information regarding all unregistered securities sold by
the Company within the three year period ending on the date of this Registration
Statement.
Between April 1, 1995 and April 3, 1998, the Company issued options to
purchase a total of 329,950 shares of its common stock, $.01 par value per share
("Common Stock") pursuant to the Company's 1992 Stock Option Plan. Each of these
option grants was made pursuant to a written Stock Option Agreement between the
Company and the recipient of the stock option. Each of these grants was deemed
by the Company to be a transaction exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to,
among other available exemptions, the exemption provided by Rule 701 promulgated
thereunder.
On December 3, 1998, the Company issued 10,000 shares of Common Stock to L.
Dennis Shapiro, a Director of the Company, pursuant to the exercise of a stock
option granted to Mr. Shapiro under the
II-1
<PAGE>
Company's 1992 Stock Option Plan. Mr. Shapiro paid the Company an aggregate
exercise price of $13,800. This sale of Common Stock upon the exercise of a
stock option was deemed by the Company to be a transaction exempt from the
registration requirements of the Securities Act pursuant to, among other
available exemptions, the exemption provided by Rule 701 thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Certificate of Incorporation of Incorporation of the Registrant
3.2 Form of Amended and Restated By-Laws of the Registrant
4.1 Reference is made to exhibits 3.1 and 3.2
4.2 Specimen Certificate of Common Stock*
5.1 Opinion of Bingham Dana LLP, with respect to the legality of the shares being registered*
10.1 Second Amended and Restated 1992 Stock Option Plan of the registrant
10.2 Form of the Operating Agreements, each dated as of April , 1998, between the registrant and each
of Steven S. Charlap, M.D., P.C., Alec H. Jaret, D.M.D., P.C., Jeffrey Morer, O.D., P.C., Mary C.
Manesis, D.P.M., P.C. and HealthDrive Michigan Corporation*
10.3 Form of Employment Agreement between the registrant and Steven S. Charlap, M.D.
10.4 Form of Employment Agreement between the registrant and Michael R. Kaplan
10.5 Employment and Non-Competition Agreement between HealthDrive Michigan Corporation and Philip R. Shriner
10.6 Letter Agreement between the registrant and Michael R. Kaplan relating to stock options*
10.7 Amended and Restated Stockholders Agreement, dated as of April 28, 1994, as amended, among the
registrant and certain of its stockholders
10.8 Stock Purchase Agreement, dated as of May 8, 1992, between the registrant and DCC Limited
10.9 Preferred Stock Purchase Agreement, dated as of April 28, 1994, between the registrant and DCC
International Holdings B.V., as amended
10.10 Amendment, Waiver and Conversion Agreement, dated as of March 30, 1998, among the registrant and certain
of its stockholders
10.11 Lease, dated July 1, 1992, as amended, by and between the Registrant and Magnum Realty Trust, relating
to property located at 25 Needham Street, Newton, Massachusetts
10.12 Lease, dated June 26, 1996, by and between the Registrant and Joseph Barker Enterprises, relating to
property located at 1 Prestige Drive, Meriden, Connecticut
10.13 Lease, dated September 25, 1996, by and between the Registrant and 928 Jaymore Road Associates, L.P.,
relating to property located at 928 Jaymor Road, Upper Southampton Township, Pennsylvania
10.14 Lease, dated July 2, 1996, by and between the Registrant and G & N Investment Company, relating to
property located at 3540 North 126 Street, Brookfield, Wisconsin
10.15 Form of Financial Advisory Agreement between the registrant and the Underwriter*
23.1 Consent of Bingham Dana LLP*
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney**
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
** Included on the signature page.
II-2
<PAGE>
(b) Financial Statement Schedules:
All financial statement schedules have been omitted because either they are
not required, are not applicable, or the information is otherwise set forth in
the Financial Statements and Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act 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
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To provide the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4), or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(3) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement on Form S-1 be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Newton,
Commonwealth of Massachusetts, on this 8th day of April, 1998.
<TABLE>
<S> <C> <C>
HEALTHDRIVE CORPORATION
By: /s/ STEVEN S. CHARLAP, M.D.
-----------------------------------------
Steven S. Charlap, M.D.
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT
AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints each of Steven
Charlap and Michael R. Kaplan, severally, acting alone and without the other,
his true and lawful attorney-in-fact with the authority to execute in the name
of each such person, any and all amendments (including without limitation, post-
effective amendments) to this registration statement on Form S-1, to sign any
and all additional registration statements relating to the same offering of
securities as this registration statement that are filed pursuant to Rule 462(b)
of the Securities Act, and to file such registration statements with the
Securities and Exchange Commission, together with any exhibits thereto and other
exhibits therewith, necessary or advisable to enable the registrant to comply
with the Securities Act, and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, which amendments may make
such other changes in the registration statement as the aforesaid
attorney-in-fact executing the same deems appropriate.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on form S-1 has been signed below by the following
persons in the capacities indicated and on this 8th day of April 1998.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board of
/s/ STEVEN S. CHARLAP, M.D. Directors, President and
- ------------------------------ Chief Executive Officer April 8, 1998
Steven S. Charlap, M.D. (Principal Executive
Officer)
Chief Financial Officer
/s/ MICHAEL R. KAPLAN and Vice President of
- ------------------------------ Finance (Principal April 8, 1998
Michael R. Kaplan Financial and Accounting
Officer)
/s/ SUSAN BAILIS
- ------------------------------ Director April 8, 1998
Susan Bailis
/s/ MORGAN CROWE
- ------------------------------ Director April 8, 1998
Morgan Crowe
/s/ ROBERT G. ECCLES
- ------------------------------ Director April 8, 1998
Robert G. Eccles
/s/ BRIAN FAGAN
- ------------------------------ Director April 8, 1998
Brian Fagan
/s/ ALEC H. JARET
- ------------------------------ Director April 8, 1998
Alec H. Jaret
/s/ L. DENNIS SHAPIRO
- ------------------------------ Director April 8, 1998
L. Dennis Shapiro
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Certificate of Incorporation of Incorporation of the Registrant
3.2 Form of Amended and Restated By-Laws of the Registrant
4.1 Reference is made to exhibits 3.1 and 3.2
4.2 Specimen Certificate of Common Stock*
5.1 Opinion of Bingham Dana LLP, with respect to the legality of the shares being registered*
10.1 Second Amended and Restated 1992 Stock Option Plan of the registrant
10.2 Form of the Operating Agreements, each dated as of April , 1998, between the registrant and each
of Steven S. Charlap, M.D., P.C., Alec H. Jaret, D.M.D., P.C., Jeffrey Morer, O.D., P.C., Mary C.
Manesis, D.P.M., P.C. and HealthDrive Michigan Corporation*
10.3 Form of Employment Agreement between the registrant and Steven S. Charlap, M.D.
10.4 Form of Employment Agreement between the registrant and Michael R. Kaplan
10.5 Employment and Non-Competition Agreement between HealthDrive Michigan Corporation and Philip R. Shriner
10.6 Letter Agreement between the registrant and Michael R. Kaplan relating to stock options*
10.7 Amended and Restated Stockholders Agreement, dated as of April 28, 1994, as amended, among the
registrant and certain of its stockholders
10.8 Stock Purchase Agreement, dated as of May 8, 1992, between the registrant and DCC Limited
10.9 Preferred Stock Purchase Agreement, dated as of April 28, 1994, between the registrant and DCC
International Holdings B.V., as amended
10.10 Amendment, Waiver and Conversion Agreement, dated as of March 30, 1998, among the registrant and certain
of its stockholders
10.11 Lease, dated July 1, 1992, as amended, by and between the Registrant and Magnum Realty Trust, relating
to property located at 25 Needham Street, Newton, Massachusetts
10.12 Lease, dated June 26, 1996, by and between the Registrant and Joseph Barker Enterprises, relating to
property located at 1 Prestige Drive, Meriden, Connecticut
10.13 Lease, dated September 25, 1996, by and between the Registrant and 928 Jaymore Road Associates, L.P.,
relating to property located at 928 Jaymor Road, Upper Southampton Township, Pennsylvania
10.14 Lease, dated July 2, 1996, by and between the Registrant and G & N Investment Company, relating to
property located at 3540 North 126 Street, Brookfield, Wisconsin
10.15 Form of Financial Advisory Agreement between the registrant and the Underwriter*
23.1 Consent of Bingham Dana LLP*
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney**
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
** Included on the signature page.
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
HEALTHDRIVE CORPORATION
HEALTHDRIVE CORPORATION, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that (i) the original Certificate of
Incorporation of the Corporation was filed by the Corporation with the Secretary
of State of Delaware on May 23, 1989 under the name Mobile Health Management,
Inc., (ii) this Restated Certificate of Incorporation was duly adopted in
accordance with the provisions of Sections 242 and 245 of the Delaware General
Corporation Law, and (iii) this Restated Certificate of Incorporation restates,
integrates and further amends the Corporation's current Certificate of
Incorporation, as heretofore amended, to read in its entirety as follows:
FIRST. The name of the Corporation is HealthDrive Corporation.
SECOND. The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of the Corporation's registered agent at such address is The
Prentice-Hall Corporation System, Inc.
THIRD. The purpose of the Corporation 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 all classes of stock that the
Corporation shall have authority to issue is 20,000,000, consisting solely of:
15,000,000 shares of common stock, $.01 par value per share ("Common
Stock"); and
5,000,000 shares of preferred stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the powers, designations, preferences,
privileges, and relative, participating, optional, and other special rights of
the Preferred Stock and Common Stock, respectively:
1. PREFERRED STOCK. The Board of Directors is hereby expressly authorized
to provide for, designate and issue, out of the authorized but unissued shares
of Preferred Stock, one or more other series of Preferred Stock, subject to the
terms and conditions set forth herein. Before any shares of any such series are
issued, the Board of Directors shall fix, and hereby is expressly empowered to
fix, by resolution or resolutions, the following provisions of the shares of any
such series:
<PAGE>
(a) the designation of such series, the number of shares to constitute such
series and the stated value thereof, if different from the par value thereof;
(b) whether the shares of such series shall have voting rights or powers,
in addition to any voting rights required by law, and, if so, the terms of such
voting rights or powers, which may be full or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or series;
(d) whether the shares of such class or series shall be subject to
redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
(e) the amount or amounts payable with respect to shares of such class or
series upon, and the rights of the holders of such class or series in, the
voluntary or involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets, of the Corporation;
(f) whether the shares of such class or series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and manner
in which any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such class or series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
(g) whether the shares of such class or series shall be convertible into,
or exchangeable for, shares of stock of any other class or series of any other
securities and, if so, the price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the same, and any other terms and
conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while any
shares of such class or series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or series;
(i) the conditions or restrictions, if any, to be effective while any
shares of such class or series are outstanding upon the creation of indebtedness
of the Corporation or upon the issue of any additional stock, including
additional shares of such class or series or of any other class or series; and
(j) any other powers, designations, preferences and relative,
participating, optional or other special rights, and any qualifications,
limitations or restrictions thereof.
-2-
<PAGE>
The powers, designations, preferences and relative, participating, optional
or other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding. The Board of
Directors is hereby expressly authorized from time to time to increase (but not
above the total number of authorized shares of Preferred Stock) or decrease (but
not below the number of shares thereof then outstanding) the number of shares of
stock of any series of Preferred Stock designated to any one or more series of
Preferred Stock pursuant to this Section 1. Different series of Preferred Stock
shall not be construed to constitute different classes of stock for purposes of
voting by classes unless expressly so provided in the resolution or resolutions
adopted by the Board of Directors creating or establishing any such series of
Preferred Stock. No resolution, vote, or consent of the holders of the capital
stock of the Corporation shall be required in connection with the creation or
issuance of any shares of any series of Preferred Stock authorized by and
complying with the conditions of this Restated Certificate of Incorporation, the
right to any such resolution, vote, or consent being expressly waived by all
present and future holders of the capital stock of the Corporation.
At such time as no shares of any series of Preferred Stock that may be
issued from time to time remain issued and outstanding, including without
limitation because all of such shares have been converted into shares of Common
Stock in accordance with the terms of such Preferred Stock, all authorized
shares of such series of Preferred Stock, automatically and without further
actions, shall be reclassified as authorized but unissued shares of undesignated
Preferred Stock of no particular class or series, and any and all of such shares
may thereafter be issued by the Board of Directors of the Company in one or more
series, and the terms of any such series may be determined by the Board of
Directors, as provided in this Section 1.
2. COMMON STOCK
2.1. Increase or Decrease in Authorized Number. The number of authorized
shares of Common Stock may be increased or decreased (but not below the number
of shares thereof then outstanding) by the affirmative vote of the holders of
the majority of the stock of the Corporation entitled to vote, irrespective of
the provisions of Section 242(b)(2) of the Delaware General Corporation Law.
2.2. Voting Rights. Except as otherwise required by law, and subject to the
voting rights provided to the holders of any series of Preferred Stock, the
holders of Common Stock shall have full voting rights and powers to vote on all
matters submitted to stockholders of the Corporation for vote, consent or
approval, and each holder of Common Stock shall be entitled to one vote for each
share of Common Stock held of record by such holder.
2.3. Dividend, Liquidation and Other Rights. Each share of Common Stock
issued and outstanding shall be identical in all respects with each other such
share, and no dividends shall be paid on any shares of Common Stock unless the
same dividend is paid on
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<PAGE>
all shares of Common Stock outstanding at the time of such payment. Except for
and subject to those rights expressly granted to the holders of Preferred Stock
and except as may be provided by the laws of the State of Delaware, the holders
of Common Stock shall have all other rights of stockholders, including, without
limitation, (a) the right to receive dividends, when, as and if declared by the
Board of Directors, out of assets lawfully available therefor, and (b) in the
event of any distribution of assets upon a liquidation or otherwise, the right
to receive ratably and equally all the assets and funds of the Corporation
remaining after the payment to the holders of the Preferred Stock or of any
other class or series of stock ranking senior to the Common Stock upon
liquidation of the specific preferential amounts which they are entitled to
receive upon such liquidation.
FIFTH. The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation and for defining
and regulating the powers of the Corporation and its directors and stockholders
and are in furtherance and not in limitation of the powers conferred upon the
Corporation by statute:
(a) Prior to the closing (or first closing) of the Corporation's
registered initial public offering of Common Stock (the "IPO Closing"), the size
of the Board of Directors shall be fixed by the Board of Directors from time to
time.
(b) From and after the IPO Closing, the Board of Directors shall be
divided into three classes of directors, such classes to be as nearly equal in
number of directors as possible, having staggered three-year terms of office,
the term of office of the directors of the first such class ("Class I") to
expire as of the first annual meeting of the Corporation's stockholders
following the IPO Closing, those of the second class ("Class II") to expire as
of the second annual meeting of the Corporation's stockholders following the IPO
Closing, and those of the third class ("Class III") as of the third annual
meeting of the Corporation's stockholders following the IPO Closing, such that
at each annual meeting of stockholders after the IPO Closing, nominees will
stand for election to succeed those directors whose terms are to expire as of
such meeting. Any director serving as such pursuant to this paragraph (b) of
Article FIFTH may be removed only for cause and only by the vote of the holders
of a majority of the shares of the Corporation's stock entitled to vote for the
election of directors. Those directors in office immediately prior to the IPO
Closing shall be allocated among Class I, Class II and Class III as determined
by a resolution or resolutions of the Board of Directors, which may have been
adopted prior to the effectiveness of this Amended and Restated Certificate of
Incorporation.
(c) The Board of Directors shall have the power and authority: (1) to
adopt, amend or repeal any or all of the By-Laws of the Corporation, subject
only to such limitations, if any, as may be from time to time imposed by other
provisions of this Restated Certificate of Incorporation, by law, or by the
By-Laws; and (2) to the full extent permitted or not prohibited by law, and
without the consent of or other action by the stockholders, to authorize or
create mortgage, pledges or other liens or
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<PAGE>
encumbrances upon any or all of the assets, real, personal or mixed, and
franchises of the Corporation, including after-acquired property, and to
exercise all of the powers of the Corporation in connection therewith.
(d) Except as the Delaware General Corporation Law may otherwise
require, and subject to the rights of the holders of any series of Preferred
Stock with respect the filling of vacancies or new directorships in the Board of
Directors, any vacancies or new directorships in the Board of Directors,
including unfilled vacancies or new directorships resulting from the removal of
directors with or without cause or from any increase in the number of directors,
may be filled only by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
(d) Directors need not be stockholders of the Corporation.
SIXTH. No director of the Corporation shall be personally liable to the
Corporation or to any of its stockholders for monetary damages for breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability; provided, however, that, to the extent required from time to time by
applicable law, this Article SIXTH shall not eliminate or limit the liability of
a director, to the extent such liability is provided by applicable law, (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
Title 8 of the Delaware Code, or (iv) for any transactions from which the
director derived an improper personal benefit. No amendment to or repeal of this
Article SIXTH shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of such
director occurring prior to the effective date of such amendment or repeal.
SEVENTH. Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding, by reason
of being or having been a director or officer of the Corporation or serving or
having served at the request of the Corporation as a director, trustee, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan, whether the basis of such proceeding is alleged action or failure to act
in an official capacity as a director, trustee, officer, employee or agent or in
any other capacity while serving as a director, trustee, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such person in connection
therewith, as further provided in the By-Laws.
EIGHTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its
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<PAGE>
stockholders or any class or series of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a
summary way of the Corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for the Corporation
under the provisions of Section 391 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of Section 279 of Title 8
of the Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class or series of stockholders of the
Corporation, as the case may be, to be summoned in such a manner as the said
court directs. If a majority of the number representing three-fourths
(3/4ths) in value of the creditors or class of creditors, and/or of the
stockholders or class or series of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization
of the Corporation as a consequence of such compromise or arrangement, the
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
creditors or class of creditors, and/or stockholders or class or series of
stockholders of the Corporation, as the case may be, and also on the
Corporation.
NINTH. From and after the IPO Closing, any action required or permitted to
be taken by the stockholders of the Corporation may be taken only at a duly
called annual or special meeting of the stockholders, and not by written consent
in lieu of such a meeting. Subject to the right, if any, of the holders of any
series of Preferred Stock to call special meetings of stockholders of the
Corporation, special meetings of stockholders of the Corporation may be called
only by the Chairman of the Board of Directors, the President, a majority of the
total number of directors which the Corporation would have if there were no
vacancies, or by stockholders of the Corporation holding shares of voting stock
of the Corporation representing at least thirty percent (30%) of all votes that
may be cast with respect to all outstanding shares of voting stock of the
Corporation.
TENTH. The Board of Directors, when considering a tender offer or merger or
acquisition proposal, may take into account factors in addition to potential
short-term economic benefits to stockholders of the Corporation, including
without limitation (A) comparison of the proposed consideration to be received
by stockholders in relation to the then current market price of the
Corporation's capital stock, the estimated current value of the Corporation in a
freely negotiated transaction, and the estimated future value of the Corporation
as an independent entity and (B) the impact of such a transaction on the
employees, suppliers, and customers of the Corporation and its effect on the
communities in which the Corporation operates.
ELEVENTH. The affirmative vote of the holders of at least seventy-five
percent (75%) of the votes that may be cast with respect to all outstanding
voting stock of the Corporation (in addition to any separate class vote that may
in the future be required pursuant to the terms of any outstanding Preferred
Stock) shall be required (i) to amend or repeal the provisions of Articles
FOURTH (to the extent such provisions relate to the authority of the Board of
Directors to issue shares of Preferred Stock in one or more series,
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<PAGE>
the terms of which may be determined by the Board of Directors), FIFTH, SEVENTH,
NINTH, TENTH or ELEVENTH of this Restated Certificate of Incorporation, as
amended from time to time, (ii) to amend, adopt or repeal the Corporation's
By-Laws (provided, however, that the provisions of this Article ELEVENTH shall
in no way limit the power or authority of the Board of Directors to amend, adopt
or repeal By-Laws), (iii) to reduce the number of authorized shares of Common
Stock or Preferred Stock, or (iv) to approve the adoption of any agreement
providing for the merger of the Corporation with or into any other corporation
or other entity that holds at least five percent (5%) of the votes that may be
cast with respect to all outstanding voting stock of the Corporation, or to
approve the sale, lease or exchange by the Corporation of all or substantially
all of its property and assets to any person or entity that holds at least five
percent (5%) of the votes that may be cast with respect to all outstanding
voting stock of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of
Incorporation to be signed by its President and attested by its Secretary this
____ day of April, 1998.
HEALTHDRIVE CORPORATION
By
---------------------------
Steven S. Charlap, M.D.
President
ATTESTED:
By:
---------------------------
Name:
----------------------
Title:
----------------------
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<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS OF
HEALTHDRIVE CORPORATION
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Article I. -General........................................................1
1.1. Offices........................................................1
1.2. Seal...........................................................1
1.3. Fiscal Year....................................................1
Article II. -Stockholders...................................................1
2.1. Place of Meetings..............................................1
2.2. Annual Meeting.................................................1
2.3. Special Meeting................................................2
2.4. Notice of Meeting..............................................2
2.5. Quorum and Adjournment.........................................2
2.6. Right to Vote; Proxies.........................................3
2.7. Voting.........................................................3
2.8. Notice of Stockholder Business and Nominations.................3
2.9. Stockholders' List.............................................4
2.10. No Stockholder Action by Written Consent.......................5
2.11. Inspectors.....................................................5
Article III. -Directors......................................................5
3.1. General Powers.................................................5
3.2. Qualifications of Directors....................................6
3.3. Number of Directors; Vacancies.................................6
3.4. Resignation....................................................7
3.5. Removal........................................................7
3.6. Place of Meetings and Books....................................7
3.7. Executive Committee............................................7
3.8. Other Committees...............................................8
3.9. Powers Denied to Committees....................................8
3.10. Substitute Committee Member....................................8
3.11. Compensation of Directors......................................9
3.12. Regular Meetings...............................................9
3.13. Special Meetings...............................................9
3.14. Quorum.........................................................9
3.15. Telephonic Participation in Meetings..........................10
3.16. Action by Consent.............................................10
</TABLE>
<PAGE>
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<TABLE>
<S> <C> <C>
Article IV. -Officers......................................................10
4.1. Selection; Statutory Officers.................................10
4.2. Time of Election..............................................10
4.3. Additional Officers...........................................10
4.4. Terms of Office...............................................10
4.5. Compensation of Officers......................................11
4.6. Chairman of the Board.........................................11
4.7. President.....................................................11
4.8. Vice-Presidents...............................................11
4.9. Chief Financial Officer.......................................12
4.10. Treasurer.....................................................12
4.11. Secretary.....................................................12
4.12. Assistant Secretary...........................................13
4.13. Assistant Treasurer...........................................13
4.14. Subordinate Officers..........................................13
4.15. Removal.......................................................13
4.16. Vacancies.....................................................13
Article V. -Stock Certificates and Transfers..............................14
5.1. Stock Certificates............................................14
5.2. Lost, Stolen or Destroyed Certificates........................14
5.3. Dividends.....................................................14
Article VI. -Miscellaneous Management Provisions...........................15
6.1. Checks, Drafts and Notes......................................15
6.2. Notices.......................................................15
6.3. Conflict of Interest..........................................15
6.4. Voting of Securities owned by this Corporation................16
6.5. Inspection of Books...........................................16
6.6. Minute Book...................................................17
Article VII. -Indemnification...............................................17
7.1. Right to Indemnification......................................17
7.2. Right of Indemnitee to Bring Suit.............................18
7.3. Non-Exclusivity of Rights.....................................19
7.4. Insurance.....................................................19
7.5. Indemnification of Employees and Agents of the Corporation....19
Article VIII. -Amendments....................................................19
8.1. Amendments....................................................19
</TABLE>
<PAGE>
AMENDED AND RESTATED
BY-LAWS OF
HEALTHDRIVE CORPORATION
Article I. - General.
1.1. Offices.
The registered office shall be in the City of Wilmington, County of New
Castle, State of Delaware. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may require.
1.2. Seal. The seal of the Corporation shall be in the form of a circle and
shall have inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Delaware".
1.3. Fiscal Year. The fiscal year of the Corporation shall be the period
from January 1 through December 31.
Article II. - Stockholders.
2.1. Place of Meetings. All meetings of the stockholders shall be held at
the office of the Corporation in Newton Massachusetts except such meetings as
the Board of Directors expressly determine shall be held elsewhere, in which
case meetings may be held upon notice as hereinafter provided at such other
place or places within or without the State of Delaware as the Board of
Directors shall have determined and as shall be stated in such notice.
2.2. Annual Meeting. The annual meeting of stockholders of the Corporation
shall be held on such date and at such place and time as may be fixed by
resolution of the Board of Directors and stated in the notice of the meeting, at
which they shall elect such members of the Board of Directors as are standing
for election at such meeting, and shall transact such other business as may
properly be brought before the meeting.
2.3. Special Meeting. Subject to the rights of the holders of any series of
stock having a preference over the Common Stock of the Corporation as to
dividends upon liquidation ("Preferred Stock") with respect to such series of
Preferred Stock, special meetings of the stockholders for any purpose or
purposes may only be called by the Chairman of the Board of Directors, the
President, or a majority of the total number of directors which the Corporation
would have if there were no vacancies (the "Whole Board"). Only such business
shall be conducted at a special meeting as
<PAGE>
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shall have been brought before the meeting pursuant to the Corporation's notice
of meeting.
2.4. Notice of Meeting. Written notice of any meeting of the stockholders
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting. Notice need not be given to any
stockholder who submits a written waiver of notice signed by him before or after
the time stated therein. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice. Any previously scheduled meeting of
the stockholders may be postponed, and (unless the Certificate of Incorporation
of the Corporation otherwise provides) any special meeting of the stockholders
may be canceled, by resolution of the Board of Directors upon public notice
given prior to the date previously scheduled for such meeting of stockholders.
2.5. Quorum and Adjournment. At all meetings of the stockholders the
holders of a majority of the stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
requisite for the transaction of business except as otherwise provided by law,
by the Certificate of Incorporation of the Corporation or by these By-Laws. The
Chairman of the meeting or a majority of the shares so represented may adjourn
the meeting from time to time, whether or not there is such a quorum. If the
adjournment is for more than thirty 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. At such adjourned meeting, at which the requisite amount of voting
stock shall be represented, any business may be transacted which might have been
transacted if the meeting had been held as originally called. The stockholders
present at a duly called meeting at which quorum is present may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
2.6. Right to Vote. Proxies. Each holder of a share or shares of capital
stock of the Corporation having the right to vote at any meeting shall be
entitled to one vote for each such share of stock held by him. Any stockholder
entitled to vote at any meeting of stockholders may vote either in person or by
proxy, but no proxy which is dated more than three years prior to the meeting at
which it is offered shall confer the right to vote thereat unless the proxy
provides that it shall be effective for a longer period. A proxy may be granted
by a writing executed by the stockholder or his authorized officer, director,
employee or agent or by transmission or authorization of transmission of a
telegram, cablegram, or other means of electronic transmission
<PAGE>
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to the person who will be the holder of the proxy or to a proxy solicitation
firm, proxy support service organization or like agent duly authorized by the
person who will be the holder of the proxy to receive such transmission, subject
to the conditions set forth in Section 212 of the Delaware General Corporation
Law, as it may be amended from time to time (the "Delaware GCL").
2.7. Voting. At all meetings of stockholders, except as otherwise expressly
provided for by statute, the Certificate of Incorporation or these By-Laws, (i)
in all matters other than the election of directors, the affirmative vote of a
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on such matter shall be the act of the stockholders and (ii)
directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. Except as otherwise expressly provided by law, the
Certificate of Incorporation of the Corporation or these By-Laws, at all
meetings of stockholders the voting shall be by voice vote, but any stockholder
qualified to vote on the matter in question may demand a stock vote, by shares
of stock, upon such question, whereupon such stock vote shall be taken by
ballot, each of which shall state the name of the stockholder voting and the
number of shares voted by him, and, if such ballot be cast by a proxy, it shall
also state the name of the proxy.
2.8. Notice of Stockholder Business and Nominations. (1) Nominations of
persons for election to the Board of Directors of the Corporation and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to the Corporation's notice of
meeting, (b) by or at the direction of the Board of Directors or (c) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving notice provided for in this By-Law, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this By-Law.
(2) For nominations for the Board of Directors or for other business to be
properly brought by a stockholder before a meeting of stockholders, the
stockholder must first have given timely written notice thereof to the Secretary
of the Company. To be timely, a notice of nominations or other business to be
brought before an annual meeting of stockholders must be delivered to the
Secretary not less than 90 and not more than 120 days prior to the first
anniversary of the date of the Company's proxy statement delivered to
stockholders in connection with the preceding year's annual meeting, or if the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary, or if no proxy statement was delivered to stockholders
by the Company in connection with the preceding year's annual meeting, such
notice must be delivered not earlier than 90 days prior to such annual meeting
and not later than the later of (i) 60 days prior to the annual meeting or (ii)
10 days following the date on which public announcement of the date of such
annual meeting is first made by the Company. With respect to special meetings of
<PAGE>
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stockholders, such notice must be delivered to the Secretary not more than 90
days prior to such meeting and not later than the later of (i) 60 days prior to
such meeting or (ii) 10 days following the date on which public announcement of
the date of such meeting is first made by the Company. Such notice must contain
(a) the name and address of the stockholder delivering the notice (b) a
statement with respect to the amount of the Company's stock beneficially and/or
legally owned by such stockholder, (c) the nature of any such beneficial
ownership of such stock, the beneficial ownership of any such stock legally held
by such stockholder but beneficially owned by one or more others, and the length
of time for which all such stock has been beneficially and/or legally owned by
such stockholder, (d) information about each nominee for election as a director
substantially equivalent to that which would be required in a proxy statement
pursuant to the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated by the Securities and Exchange Commission thereunder,
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected) and/or (e) a description
of the proposed business to be brought before the meeting, as the case may be,
and the reason for conducting such business at the meeting, and any material
interest in such business of such stockholder and the beneficial owner, if any,
on whose behalf the proposal is made.
2.9. Stockholders' List. A complete list of the stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order and showing
the address of each stockholder, and the number of shares registered in the name
of each stockholder, shall be prepared by the Secretary and filed 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, at least 10 days before such meeting, and shall
at all times during the usual hours for business, and during the whole time of
said election, be open to the examination of any stockholder for a purpose
germane to the meeting.
2.10. No Stockholder Action by Written Consent. From and after the closing
(or first closing) of the initial registered public offering of securities of
the Company (the "IPO Closing"), unless otherwise provided in the Certificate of
Incorporation, and subject to the rights of the holders of Preferred Stock with
respect to such series of Preferred Stock, any action required or permitted to
be taken by the stockholders of the Corporation must be effected at an annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
2.11. Inspectors.
The Board of Directors by resolutions shall appoint one or more inspectors,
which inspector or inspectors may include individuals who serve the Corporation
in other capacities, including, without limitation, as officers, employees,
agents or
<PAGE>
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representatives, to act as the meeting of stockholders and make a written report
thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the Chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the date
and time of the opening and the closing of the polls for each matter upon which
the stockholders will vote at a meeting.
Article III. - Directors.
3.1. General Powers. In addition to the powers and authority expressly
conferred upon them by these By-Laws, the board may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by statute or
by the Certificate of Incorporation of the Corporation or by these By-Laws
directed or required to be exercised or done by the stockholders.
3.2. Qualifications of Directors. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware.
3.3. Number of Directors; Vacancies.
(a) Until the IPO Closing: The size of the Board of Directors shall be
fixed from time to time pursuant to a resolution adopted by a majority of the
Whole Board of Directors or by the stockholders. The Board of Directors shall
hold office until the annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Any
director may resign at any time upon written notice to the corporation. Except
as the General Corporation Law of Delaware may otherwise require, in the interim
between annual meetings of stockholders or of special meetings of stockholders
called for the election of directors and/or for the removal of one or more
directors and for the filling of any vacancy in that connection, any vacancies
in the Board of Directors, including unfilled vacancies resulting from the
removal of directors for cause or without cause, may be filled by the vote of a
majority of the remaining directors then in office, although less than a quorum,
or by the sole remaining director, or by the stockholders.
(b) Effective from and after the IPO Closing: The number of directors
constituting the full Board of Directors shall be fixed from time to time
exclusively pursuant to a resolution adopted by a majority of the Whole Board of
Directors. The Board of Directors shall be divided into three classes of
directors, such classes to be as nearly equal in number of directors as
possible, having staggered three-year terms of office, the term of office of the
directors of the first such class to expire as of the
<PAGE>
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first annual meeting of the Corporation's stockholders following the IPO
Closing, those of the second class to expire as of the second annual meeting of
the Corporation's stockholders following the IPO Closing, and those of the third
class as of the third annual meeting of the Corporation's stockholders following
the IPO Closing, such that at each annual meeting of stockholders after such IPO
Closing, nominees will stand for election for three-year terms to succeed those
directors whose terms are to expire as of such meeting. Members of the Board of
Directors shall hold office until the annual meeting of stockholders at which
their respective successors are elected and qualified or until their earlier
death, incapacity, resignation, or removal. Except as the General Corporation
Law of Delaware may otherwise require, in the interim between annual meetings of
stockholders or special meetings of stockholders called for the election of
directors and/or for the removal of one or more directors and for the filling of
any vacancy in that connection, any vacancies or new directorships in the Board
of Directors, including unfilled vacancies or new directorships resulting from
the removal of directors for cause or any increase in the number of directors,
may be filled only by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
3.4. Resignation. Any director of this Corporation may resign at any time
by giving written notice to the Chairman of the Board, if any, the President or
the Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, at the time of receipt if no time is specified therein and at
the time of acceptance if the effectiveness of such resignation is conditioned
upon its acceptance. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
3.5. Removal. Except as may otherwise be provided by the General
Corporation Law of Delaware or the Corporation's Certificate of Incorporation,
as amended and in effect from time to time, prior to the IPO Closing, any
director or the entire Board of Directors may be removed, with or without cause,
by the holders of a majority of the shares then entitled to vote at an election
of directors. Effective from and after the IPO Closing, subject to the rights of
the holders of any series of Preferred Stock with respect to such series of
Preferred Stock, any director or the entire Board of Directors may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of a majority of the then-outstanding shares entitled to vote
thereon, voting together as a class.
3.6. Place of Meetings and Books. The Board of Directors may hold their
meetings and keep the books of the Corporation outside the State of Delaware, at
such places as they may from time to time determine.
3.7. Executive Committee. There may be an executive committee of one or
more directors designated by resolution passed by a majority of the whole board.
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The act of a majority of the members of such committee shall be the act of the
committee. Said committee may meet at stated times or on notice to all by any of
their own number, and shall have and may exercise those powers of the Board of
Directors in the management of the business affairs of the Company as are
provided by law and may authorize the seal of the Corporation to be affixed to
all papers which may require it. Vacancies in the membership of the committee
shall be filled by the Board of Directors at a regular meeting or at a special
meeting called for that purpose.
3.8. Other Committees. The Board of Directors may also designate one or
more committees in addition to the executive committee, by resolution or
resolutions passed by a majority of the whole board; such committee or
committees shall consist of one or more directors of the Corporation, and to the
extent provided in the resolution or resolutions designating them, shall have
and may exercise specific powers of the Board of Directors in the management of
the business and affairs of the Corporation to the extent permitted by statute
and shall have power to authorize the seal of the Corporation to be affixed to
all papers which may require it. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
3.9. Powers Denied to Committees. Committees of the Board of Directors
shall not, in any event, have any power or authority to amend the Certificate of
Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares adopted by the
Board of Directors as provided in Section 151(a) of the Delaware GCL, fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
adopt an agreement of merger or consolidation, recommend to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution or to amend the By-Laws of the
Corporation. Further, no committee of the Board of Directors shall have the
power or authority to declare a dividend, to authorize the issuance of stock or
to adopt a certificate of ownership and merger pursuant to Section 253 of the
Delaware GCL, unless the resolution or resolutions designating such committee
expressly so provides.
3.10. Substitute Committee Member. In the absence or on the
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of such absent or disqualified
member. Any committee
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shall keep regular minutes of its proceedings and report the same to the board
as may be required by the board.
3.11. Compensation of Directors. The Board of Directors shall have the
power to fix the compensation of directors and members of committees of the
Board. The directors may be paid their expenses, if any, of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors and/or a stated annual fee (some or all
of which may be paid in the form of capital stock of the Corporation) as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.12. Regular Meetings. A regular meeting of the Board of Directors shall
be held without other notice than this By-Law, immediately after, and at the
same place as, the Annual Meeting of Stockholders. The Board of Directors may,
by resolutions, provide the time and place for the holding of additional regular
meetings without other notice than such resolution. Such regular meetings shall
be held at such place within or without the State of Delaware as shall be fixed
by the Board.
3.13. Special Meetings. Special meetings of the board may be called by the
Chairman of the Board, if any, or the President, on two (2) days notice to each
director, or such shorter period of time before the meeting as will nonetheless
be sufficient for the convenient assembly of the directors so notified; special
meetings shall be called by the Secretary in like manner and on like notice, on
the written request of two or more directors.
3.14. Quorum. At all meetings of the Board of Directors, a majority of the
total number of directors shall be necessary and sufficient to constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically permitted or
provided by statute, or by the Certificate of Incorporation, or by these
By-Laws. If at any meeting of the board there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to time
until a quorum is obtained, and no further notice thereof need be given other
than by announcement at said meeting which shall be so adjourned.
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3.15. Telephonic Participation in Meetings. Members of the Board of
Directors or any committee designated by such board may participate in a meeting
of the board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
section shall constitute presence in person at such meeting.
3.16. Action by 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 or of any committee thereof may be taken
without a meeting, if written consent thereto is signed by all members of the
board or of such committee as the case may be and such written consent is filed
with the minutes of proceedings of the board or committee.
Article IV. - Officers.
4.1. Selection; Statutory Officers. The officers of the Corporation shall
be chosen by the Board of Directors. There shall be a President, a Secretary and
a Treasurer, and there may be a Chairman of the Board of Directors, one or more
Vice Presidents, one or more Assistant Secretaries, and one or more Assistant
Treasurers, as the Board of Directors may elect. Any number of offices may be
held by the same person, unless the Certificate of Incorporation or these
By-Laws otherwise provide.
4.2. Time of Election. The officers above named shall be chosen by the
Board of Directors at its first meeting after each annual meeting of
stockholders. None of said officers need be a director.
4.3. Additional Officers. The board may appoint such other officers and
agents as it shall deem necessary, who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
4.4. Terms of Office. The officers of the Company shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
stockholders may be removed at any time by the affirmative vote of a majority of
the stockholders. Any vacancy occurring in any office of the Corporation shall
be filled by the Board of Directors.
4.5. Compensation of Officers. The Board of Directors (or a duly appointed
committee of the Board of Directors) shall have power to fix the compensation of
all officers of the Corporation.
4.6. Chairman of the Board. The Chairman of the Board, if any, otherwise
the President, if a director, or such other director as the Board may choose,
shall preside at all meetings of the Board of Directors and of the stockholders
of the
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Corporation. In the absence of the President, or in the event of the President's
inability or refusal to act, the Chairman of the Board shall perform the duties
and exercise the powers of the President until such vacancy shall be filled in
the manner prescribed by these By-Laws or by law. The Chairman of the Board
shall have such other powers and perform such other duties as may from time to
time be prescribed by the Board of Directors or these By-Laws.
4.7. President. Unless the Board of Directors otherwise determines, the
President shall be the chief executive officer and head of the Corporation.
Unless there is a Chairman of the Board, the President shall preside at all
meetings of directors and stockholders. Under the supervision of the Board of
Directors and of the executive committee, the President shall have the general
control and management of its business and affairs, subject, however, to the
right of the Board of Directors and of the executive committee to confer any
specific power, except such as may be by statute exclusively conferred on the
President, upon any other officer or officers of the Corporation. The President
shall perform and do all acts and things incident to the position of President
and such other duties as may be assigned to him from time to time by the Board
of Directors or the executive committee.
4.8. Vice-Presidents. The Vice-Presidents shall perform such of the duties
of the President on behalf of the Corporation as may be respectively assigned to
them from time to time by the Board of Directors or by the executive committee
or by the President. The Board of Directors or the executive committee may
designate one of the Vice-Presidents as the Executive Vice-President, and in the
absence or inability of the President to act, such Executive Vice-President
shall have and possess all of the powers and discharge all of the duties of the
President, subject to the control of the board and of the executive committee.
4.9. Chief Financial Officer. The Chief Financial Officer (if any) shall be
a Vice President and act in an executive financial capacity. He shall assist the
Chairman of the Board and the President in the general supervision of the
Corporations financial policies and affairs.
4.10. Treasurer. The Treasurer shall have the care and custody of all the
funds and securities of the Corporation which may come into his hands as
Treasurer, and the power and authority to endorse checks, drafts and other
instruments for the payment of money for deposit or collection when necessary or
proper and to deposit the same to the credit of the Corporation in such bank or
banks or depository as the Board of Directors or the executive committee, or the
officers or agents to whom the Board of Directors or the executive committee may
delegate such authority, may designate, and he may endorse all commercial
documents requiring endorsements for or on behalf of the Corporation. He may
sign all receipts and vouchers for the payments made to the Corporation. He
shall render an account of his transactions to the Board of Directors or to the
executive committee as often as the board or the
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committee shall require the same. He shall enter regularly in the books to be
kept by him for that purpose full and adequate account of all moneys received
and paid by him on account of the Corporation. He shall perform all acts
incident to the position of Treasurer, subject to the control of the Board of
Directors and of the executive committee. He shall when requested, pursuant to
vote of the Board of Directors or the executive committee, give a bond to the
Corporation conditioned for the faithful performance of his duties, the expense
of which bond shall be borne by the Corporation.
4.11. Secretary. The Secretary shall keep the minutes of all meetings of
the Board of Directors and of the stockholders; and shall attend to the giving
and serving of all notices of the Corporation. Except as otherwise ordered by
the Board of Directors or the executive committee, the Secretary shall attest
the seal of the Corporation upon all contracts and instruments executed under
such seal and shall affix the seal of the Corporation thereto and to all
certificates of shares of capital stock of the Corporation. The Secretary shall
have charge of the stock certificate book, transfer book and stock ledger, and
such other books and papers as the Board of Directors or the executive committee
may direct. He shall, in general, perform all the duties of Secretary, subject
to the control of the Board of Directors and of the executive committee.
4.12. Assistant Secretary. The Assistant Secretary, or if there be more
than one, the assistant secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
4.13. Assistant Treasurer. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
4.14. Subordinate Officers. The Board of Directors may select such
subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority, and perform such duties as the
Board of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officer to appoint and remove subordinate officers and to
prescribe the powers and duties thereof.
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4.15. Removal. Any officer elected, or agent appointed, by the Board of
Directors may be removed by the affirmative vote of a majority of the whole
Board whenever, in their judgment, the best interests of the Corporation would
be served thereby. Any officer or agent appointed by the Chairman of the Board
or the President may be removed by him whenever, in his judgment, the best
interests of the Corporation would be served thereby. No elected officer shall
have any contractual rights against the Corporation for compensation by virtue
of such election beyond the date of the election of his successor, his death,
his resignation or his removal, whichever event shall first occur, except as
otherwise provided in an employment contract or under an employee deferred
compensation plan.
4.16. Vacancies. A newly created elected office and a vacancy in any
elected office because of death, resignation or removal may be filled by the
Board of Directors for the unexpired portion of the term at any meeting of the
Board of Directors. Any vacancy in an office appointed by the Chairman of the
Board or the President because of death, resignation, or removal may be filled
by the Chairman of the Board or the President.
Article V. - Stock Certificates and Transfers .
5.1. Stock Certificates. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the Company by, the
President or a Vice-President and the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary of the Corporation, certifying the
number of shares owned by him in the Corporation.
Any of or all the signatures 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.
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, assignation or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
5.2. Lost, Stolen or Destroyed Certificates. The Corporation may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Corporation
may, in its discretion and as a condition
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precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
5.3. Dividends.
1. Power to Declare. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation of the
Corporation, if any, may be declared by the Board of Directors at any regular or
special meeting, pursuant to law. Dividends may be paid in cash, in property, in
promissory notes or in shares of the capital stock, subject to the provisions of
the Certificate of Incorporation of the Corporation and the laws of Delaware.
2. Reserves. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or 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 VI. - Miscellaneous Management Provisions.
6.1. Checks, Drafts and Notes. All checks, drafts or orders for the payment
of money, and all notes and acceptances of the Corporation shall be signed by
such officer or officers, agent or agents as the Board of Directors may
designate.
6.2. Notices.
1. Whenever, under the provisions of these By-Laws, notice is required to
be given to any stockholder, it shall not be construed to mean personal notice,
but such notice may be given in writing, by mail, addressed to such stockholder,
at his address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail with postage thereon
prepaid. Notice may also be given personally.
2. Whenever any notice is required to be given under the provisions of the
statutes or of the Certificate of Incorporation of the Corporation or of these
By-Laws, a written waiver of notice, signed by the person or persons entitled to
said notice, whether before or after the time stated therein or the meeting or
action to which such notice relates, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting except when
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the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
6.3. Conflict of Interest. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the board of or committee thereof which
authorized the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (i) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee and the board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (ii) the material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
of the Corporation entitled to vote thereon, and the contract or transaction as
specifically approved in good faith by vote of such stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
6.4. Voting of Securities owned by this Corporation. Subject always to the
specific directions of the Board of Directors, (i) any shares or other
securities issued by any other Corporation and owned or controlled by this
Corporation may be voted in person at any meeting of security holders of such
other corporation by the President of this Corporation if he is present at such
meeting, or in his absence by the Treasurer of this Corporation if he is present
at such meeting, and (ii) whenever, in the judgment of the President, it is
desirable for this Corporation to execute a proxy or written consent in respect
to any shares or other securities issued by any other Corporation and owned by
this Corporation, such proxy or consent shall be executed in the name of this
Corporation by the President, without the necessity of any authorization by the
Board of Directors, affixation of corporate seal or countersignature or
attestation by another officer, provided that if the President is unable to
execute such proxy or consent by reason of sickness, absence from the United
States or other similar cause, the Treasurer may execute such proxy or consent.
Any person or persons designated in the manner above stated as the proxy or
proxies of this Corporation shall have full right, power and authority to vote
the shares or other securities issued by such other corporation and owned by
this Corporation the same as such shares or other securities might be voted by
this Corporation.
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6.5. Inspection of Books. The Board of Directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the Corporation.
6.6. Minute Book. The original, or attested copies, of the Certificate of
Incorporation, By-Laws and records of all meetings of incorporators and
stockholders, and the stock and transfer records, which shall contain the names
of all stockholders and the record address and the amount of stock held by each,
shall be kept at the principal office of the Corporation or at an office of its
transfer agent or of the Secretary or any Assistant Secretary or of its resident
agent or of its legal counsel. Such copies and records need not all be kept in
the same office. They shall be available at all reasonable times to the
inspection of any stockholder for any proper purpose but not to secure a list of
stockholders or other information for the purpose of selling the same or
information or copies thereof or of using the same for a purpose other than in
the interest of the applicant, or a stockholder, relative to the affairs of the
Corporation.
Article VII. - Indemnification.
7.1. Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of being or having been a director or officer of the
Corporation or serving or having served at the request of the Corporation as a
director, trustee, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (an "Indemnitee"), whether the basis of such
proceeding is alleged action or failure to act in an official capacity as a
director, trustee, officer, employee or agent or in any other capacity while
serving as a director, trustee, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than permitted
prior thereto) (as used in this Article VII, the "Delaware Law"), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such Indemnitee in connection therewith and such indemnification
shall continue as to an Indemnitee who has ceased to be a director, trustee,
officer, employee or agent and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators; provided, however, that, except as provided
in Section 7.2 hereof with respect to Proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such Indemnitee in
connection with a Proceeding (or part thereof) initiated by such Indemnitee only
if such Proceeding (or part thereof) was authorized by the board of
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directors of the Corporation. The right to indemnification conferred in this
Article VII shall be a contract right and shall include the right to be paid by
the Corporation the expenses (including attorneys' fees) incurred in defending
any such Proceeding in advance of its final disposition (an "Advancement of
Expenses"); provided, however, that, if the Delaware Law so requires, an
Advancement of Expenses incurred by an Indemnitee shall be made only upon
delivery to the Corporation of an undertaking (an "Undertaking"), by or on
behalf of such Indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (a "Final Adjudication") that such Indemnitee is not
entitled to be indemnified for such expenses under this Article VII or
otherwise.
7.2. Right of Indemnitee to Bring Suit. If a claim under Section 7.1 hereof
is not paid in full by the Corporation within sixty days after a written claim
has been received by the Corporation, except in the case of a claim for an
Advancement of Expenses, in which case the applicable period shall be twenty
days, the Indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the Indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the Indemnitee to
enforce a right to an Advancement of Expenses) it shall be a defense that, and
(ii) in any suit by the Corporation to recover an Advancement of Expenses
pursuant to the terms of an Undertaking the Corporation shall be entitled to
recover such expenses upon a Final Adjudication that, the Indemnitee has not met
the applicable standard of conduct set forth in the Delaware Law. Neither the
failure of the Corporation (including its board of directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct set forth in the Delaware Law, nor an actual determination by the
Corporation (including its board of directors, independent legal counsel, or its
stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an Advancement of Expenses hereunder,
or by the Corporation to recover an Advancement of Expenses pursuant to the
terms of an Undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such Advancement of Expenses, under this
Article VII or otherwise shall be on the Corporation.
7.3. Non-Exclusivity of Rights. The rights to indemnification and to the
Advancement of Expenses conferred in this Article 7 shall not be exclusive of
any
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other right which any person may have or hereafter acquire under any statute,
the Certificate of Incorporation of the Corporation, By-Law, agreement, vote of
stockholders or disinterested directors or otherwise.
7.4. Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under this Article VII or under the Delaware Law.
7.5. Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the board of
directors, grant rights to indemnification, and to the Advancement of Expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VII with respect to the indemnification and
Advancement of Expenses of directors and officers of the Corporation.
Article VIII. - Amendments.
8.1. Amendments. Subject always to any limitations imposed by the
Certificate of Incorporation of the Corporation, these By-Laws may be altered,
amended, or repealed, or new By-Laws may be adopted, only by (i) the affirmative
vote of the holders of at least three-quarters (75%) of the outstanding voting
stock of the Corporation (in addition to any separate class vote that may be
required pursuant to the terms of any then outstanding preferred stock of the
Corporation), or (ii) by resolution of the Board of Directors duly adopted by
not less than a majority of the directors then constituting the full Board of
Directors.
<PAGE>
Exhibit 10.1
HEALTHDRIVE CORPORATION
SECOND AMENDED AND RESTATED 1992 STOCK OPTION PLAN
Amended and Restated as of July __, 1998
SECTION 1. PURPOSE
The purpose of this HealthDrive Corporation Second Amended and Restated
1992 Stock Option Plan (the "Plan") is to encourage executives, directors,
employees and staff members of HealthDrive Corporation (the "Company") and its
Subsidiaries (as hereinafter defined) and employees of professional corporations
affiliated with and/or providing services for the Company and/or its
Subsidiaries to continue their relationship and/or employment with the Company
by providing favorable opportunities for them to participate in the ownership of
the Company through the granting of stock options designed to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and through the granting of stock
options which are not intended to qualify for any special tax treatment under
the Code. All Options granted under the Plan, whether such Options are
"Discretionary Options" granted pursuant to Section 4 below or "Formula Options"
granted pursuant to Section 5 below, are referred to herein collectively as the
"Options." The term "Subsidiary" as used in the Plan means a corporation of
which the Company owns 50% or more of the total combined voting power of all
classes of stock.
SECTION 2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation Committee of the Board
of Directors of the Company (the "Committee"). Subject to the provisions of
Sections 18 and 19, the Committee shall have the authority to interpret the
Plan, to adopt, amend and rescind such rules and regulations as, in its opinion,
may be advisable in the administration of the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan.
SECTION 3. OPTION SHARES
Options may be granted under the Plan while the Plan is in effect for the
purchase of not in excess of 750,000 shares of the Company's Common Stock, $.01
par value (the "Stock"); provided that such aggregate number of shares shall be
subject to adjustment in accordance with Section 18 hereof. Shares covered by
unexercised options which are no longer exercisable for any reason shall be
available for issuance under Options granted hereunder unless the Plan has been
terminated. Shares delivered on exercise of options may be made available from
authorized and unissued stock or from Stock held in the Company's Treasury. If
shares issued upon exercise of Options are subsequently repurchased by the
Company, such repurchased shares will not be available for issuance under
Options granted under the Plan. Subject to adjustment in accordance with Section
18, no person may in any calendar year be granted Options with respect to more
than 100,000 shares of Stock.
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SECTION 4. AUTHORITY TO GRANT DISCRETIONARY OPTIONS
The Committee may from time to time grant (a) to such eligible employees of
the Company or its Subsidiaries as it shall determine an Option or Options
("Discretionary Options") to buy a stated number of shares of Stock under the
terms and conditions of the Plan, which Discretionary Option(s) will to the
extent so designated at the time of grant constitute "incentive stock options"
within the meaning of Section 422 of the Code (such a Discretionary Option being
hereinafter referred to as an "ISO"); and (b) to such eligible executives,
directors, employees and staff members of the Company and its Subsidiaries and
such eligible employees of professional corporations affiliated with and/or
providing services for the Company and/or its Subsidiaries as it shall determine
a Discretionary Option or Discretionary Options to buy a stated number of shares
of Stock under the terms and conditions of the Plan which Discretionary Options
shall not constitute incentive stock options (such an Option being hereinafter
referred to as an "NSO"). Subject to the foregoing and to any other applicable
limitations set forth in this Plan, the number of shares of Stock to be covered
by any Discretionary Option granted pursuant to this Section 4 shall be as
determined by the Committee. All Options granted prior to the date of the second
amendment and restatement of the Plan (the "Restatement Date"), shall be deemed
to be Discretionary Options.
SECTION 5. FORMULA OPTIONS
Each member of the Board of Directors of the Company who on February 15th
of each year commencing after the Restatement Date (each, a "Formula Grant
Date") is not an officer or employee of the Company, any Subsidiary or any
professional corporations affiliated with and/or providing services for the
Company and/or its Subsidiaries, and has not been an officer or employee of the
Company or any of such entities during the twelve months preceding such date
(each, an "Outside Director"), shall be granted on such Formula Grant Date an
option (each, a "Formula Option") to purchase 5,000 shares of Stock at an
exercise price per share equal to the fair market value (determined in
accordance with Section 8) of a share of Stock on the Formula Grant Date. Each
Formula Option shall become exercisable in four equal installments on each of
the first four anniversaries of the Formula Grant Date, provided that the
recipient of such Option is an Outside Director on such anniversary date, and
shall terminate on the earlier of (i) the tenth anniversary of the applicable
Formula Grant Date, and (ii) 60 days after the first day on which the recipient
ceases being an Outside Director, regardless of cause. Notwithstanding anything
to the contrary in this Plan, no Outside Director shall receive a Formula Option
on a Formula Grant Date who, if such Outside Director was a member of the Board
of Directors of the Company at any time during the last calendar year prior to
such Formula Grant Date, failed to attend at least 75% of the meetings of the
Board of Directors of the Company that occurred during the period during such
calendar year that such Outside Director was a member of the Company's Board of
Directors. In addition, no individual may receive more than five Formula Grants
pursuant to the Plan. Formula Options are not intended to be ISOs.
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SECTION 6. OPTION AGREEMENT
Each participant to whom an Option is granted shall enter into a written
agreement with the Company (an "Option Agreement") setting forth the terms and
conditions of the Option; the Option Agreement may contain such terms,
conditions and restrictions not inconsistent with the terms of this Plan as the
Committee shall approve.
SECTION 7. ELIGIBILITY
Only Outside Directors shall be eligible for Formula Options. The
individuals who shall be eligible to receive Discretionary Options under the
Plan shall be those executives, directors, employees and staff members of the
Company and its Subsidiaries and those employees of professional corporations
affiliated with and/or providing services for the Company and/or its
Subsidiaries (collectively, the "Participants") who, in the opinion of the
Committee, render services of special importance to the management, operation or
development of the Company or a Subsidiary and who have contributed or may be
expected to contribute materially to the success of the Company or a Subsidiary.
However, only employees of the Company or a Subsidiary shall be eligible to
receive grants of ISOs under the Plan. A Participant to whom an Option has been
granted, whether a Discretionary Option of a Formula Option, pursuant to an
Option Agreement is hereinafter referred to as an "Optionee."
SECTION 8. OPTION PRICE
The price at which shares may be purchased upon exercise of a Discretionary
Option shall be specified by the Committee at the time the Discretionary Option
is granted, but in the case of an ISO shall not be less than the fair market
value of the shares of Stock on the date the Discretionary Option is granted.
For purposes of the Plan, the "fair market value" of a share of Stock at any
particular date shall be (a) if shares of Stock are traded on a securities
exchange, the mean between the highest and lowest quoted selling prices on the
date in question; or (b) if shares of Stock are traded in the over-the-counter
market, the average of the mean prices between the lowest reported bid price and
highest reported asked price of the Stock during the 30-day period ending on the
date in question, as such prices are reported in a publication of general
circulation selected by the Committee and regularly reporting the market price
of the Stock in such market; or (c) if shares of Stock are not then actively
traded on an exchange or in the over-the-counter market, "fair market value"
shall mean the amount determined in good faith by the Committee and such
determination may be based on a formula and such other material factors
(including without limitation any restrictions on transfer imposed on such
shares) as the Committee shall in its discretion deems appropriate; provided,
however, that any method of determining the fair market value employed by the
Committee with respect to an ISO shall be consistent with any applicable laws or
regulations pertaining to "incentive stock options."
In the case of a Participant who owns (or is considered under Section
424(d) of the Code as owning) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any Subsidiary,
the price at which shares may be so purchased pursuant to an ISO shall be not
less than 110% of the fair market value of the Stock on the date the ISO is
granted.
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SECTION 9. DURATION OF OPTIONS
The duration of any Discretionary Option shall be specified by the
Committee in the Option Agreement, but no Discretionary Option shall be
exercisable after the expiration of 10 years from the date the Discretionary
Option is granted. In the case of any Participant who owns (or is considered
under Section 424(d) of the Code as owning) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or any
Subsidiary, no ISO shall be exercisable after the expiration of 5 years from the
date such Discretionary Option is granted. The Committee, in its discretion, may
extend any Discretionary Option theretofore granted subject to the aforesaid
limits and may provide that a Discretionary Option shall be exercisable during
its entire duration or during any lesser period of time.
SECTION 10. RESTRICTION ON EXERCISE OF OPTIONS
Notwithstanding any other provisions of the Plan, to the extent that the
aggregate fair market value (determined as of the time the Option is granted) of
the Stock with respect to which an Option may be exercisable for the first time
by an Optionee during any calendar year (under this Plan and any other incentive
stock option plan(s) of the Company or a Subsidiary) exceeds $100,000, the
Option will not be an ISO. Each Discretionary Option may be exercised so long as
it is valid and outstanding from time to time, in part or as a whole, in such
manner and subject to such conditions as the Committee, in its discretion, may
provide in the Option Agreement. The Committee shall determine the rate at which
each Discretionary Option shall be exercisable.
SECTION 11. EXERCISE OF OPTION
Options shall be exercised by delivery of such written notice to the
Company as shall be specified in the Option Agreement, accompanied by payment of
the option price of the number of shares with respect to which the Option is to
be exercised. Payment shall be made in cash or check payable to the Company in
an amount equal to the option price of such shares.
To the extent provided in an Option Agreement, payment of the option price
may be made, in whole or in part, in shares of Stock of the Company owned by the
Optionee; provided, however, that the Optionee may not make payment in shares of
Stock previously acquired by him pursuant to the exercise of any "incentive
stock option" unless and until such shares of Stock shall have been held by him
for at least 2 years from the date such option was granted and at least 1 year
from the date the option was exercised. If payment is made in whole or in part
in shares of Stock, then the Optionee shall deliver to the Company in payment of
the option price of the shares with respect of which such Option is exercised
(a) certificates registered in the name of such Optionee representing a number
of shares of Stock legally and beneficially owned by such Optionee, fully vested
and free of all liens, claims and encumbrances of every kind and having a fair
market value on the date of delivery of such notice that is not greater than the
option price of the shares with respect to which such Option is to be exercised,
such certificates to be accompanied by stock powers duly endorsed in blank by
the record holder of the shares represented by such certificates;
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and (b) if the option price of the shares with respect to which such Option is
to be exercised exceeds such fair market value, cash or a check payable to the
order of the Company in an amount equal to the amount of such excess. The fair
market value of shares of Stock offered by the Optionee shall be determined
exclusively by the Committee.
To the extent provided in an Option Agreement, payment of the option price
may be made in part by a promissory note executed by the Optionee and
collaterally secured by the Stock obtained upon exercise of the Option,
providing for repayment at such time or times as the Committee shall approve;
provided, however, that such promissory note shall provide for repayment no
later than 5 years from the date of exercise and for interest at a rate not less
than the prevailing "prime" rate charged on the date of exercise by the major
commercial banks in the area of the Company's main office, and provided further
that in any event an amount not less than the par value (if any) of the shares
of Stock with respect to which the Option is being exercised must be paid in
cash or shares of Stock in accordance with this Section 11. The decision as to
whether to permit partial payment by a promissory note for Stock to be issued
upon exercise of any Option granted shall rest entirely in the discretion of the
Committee.
The Committee may require that the person exercising an ISO give a written
representation to the Company, satisfactory in form and substance to its counsel
and upon which the Company may reasonably rely, that he or she will report to
the Company any disposition of shares purchased upon exercise prior to the
expiration of the holding periods specified by Section 422(a)(1) of the Code. If
and to the extent that either the exercise of an Option or the disposition of
shares purchased imposes upon the Company federal, state, local or other
withholding tax requirements, or any such withholding is required to secure for
the Company an otherwise available tax deduction, the Company shall have the
right to require that the person exercising the Option or making the disposition
remit to the Company an amount sufficient to satisfy those requirements.
SECTION 12. NONTRANSFERABILITY OF OPTIONS
Options shall not be transferable by the Optionee otherwise than by will or
under the laws of descent and distribution, and shall be exercisable during his
lifetime only by him.
SECTION 13. TERMINATION OF EMPLOYMENT OF OPTIONEE, ETC.
Except as may be otherwise expressly provided herein, Discretionary
Options shall terminate immediately upon severance of the employment,
directorship or other relationship of the Optionee to the Company or its
Subsidiaries, as the case may be, for any reason, for or without cause, other
than death or disability under the then established rules of the Company or
its Subsidiaries; provided that, if and to the extent provided in the Option
Agreement, it may also be exercisable within the period of 1 day less than 3
months after the severance date, to the extent to which the Optionee was
entitled to exercise the Discretionary Option immediately prior to such
termination. The Committee shall also have the discretion to extend the
period during which Options may be exercised after the severance date,
provided that any Options so extended and exercised after either (i) the
tenth anniversary of the date on which they were granted, or (ii) the day
that is one day less than three months after the severance date, shall not be
deemed to be ISOs, but shall instead be deemed to be NSOs. With respect to
Discretionary Options, in the event of the death of an Optionee before the
date of expiration of such Discretionary Option and while the Optionee has an
employment, directorship or other relationship with the Company or a
Subsidiary or during the 3 month period described in the preceding sentence,
or in the event of the termination of the employment, directorship or
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other relationship of the Optionee because of disability, such Discretionary
Option shall terminate on the earlier of such date of expiration or 1 year
following the date of such death or termination on account of disability. After
the death of an Optionee, his executors, administrators or any persons to whom
his Option (whether a Discretionary Option or a Formula Option) may be
transferred by will or by the laws of descent and distribution shall have the
right at any time prior to such termination to exercise the Option to the extent
to which the Optionee was entitled to exercise the Option on the date of his
death. With respect to Discretionary Options, in the event of the termination of
directorship, employment or other relationship of the Optionee for reasons other
than death, the Optionee shall have the right prior to the termination of such
Discretionary Option to exercise the Option to the extent to which he was
entitled to exercise such Option immediately prior to such termination, subject
to the foregoing provisions of this Section 12.
Authorized leave of absence or absence on military or government service
shall not constitute severance of the employment relationship between the
Company or Subsidiary and Optionee for purposes of the Plan, provided that
either (a) such absence is for a period of no more than 90 days or (b) the
Optionee's right to re-employment after such absence is guaranteed either by
statute or by contract.
SECTION 14. REQUIREMENTS OF LAW
The Company shall not be required to sell or issue any shares under any
Option if the issuance of such shares shall constitute or result in a violation
by the Optionee or the Company of any provisions of any law, statute or
regulation of any governmental authority. Specifically, with respect to the
Securities Act of 1933, as amended (the "Act"), and any applicable state
securities or "blue sky" law (a "Blue Sky Law"), upon exercise of any Option the
Company shall not be required to issue such shares unless the shares are
effectively registered for such issuance under the Act and the Blue Sky Law or
the Company's counsel has rendered an opinion or advice to the Company to the
effect that such registration is not required. Any determination in this
connection by the Committee shall be final, binding and conclusive. The Company
shall not be obligated to take any other affirmative action in order to cause
the exercise of an Option or the issuance of shares pursuant thereto to comply
with any law or regulations of any governmental authority.
SECTION 15. NO RIGHTS AS STOCKHOLDER
No Optionee shall have rights as a stockholder with respect to shares
covered by his Option until the date of issuance of a stock certificate for such
shares; and except as otherwise provided in Section 18 hereof no adjustment for
dividends or otherwise shall be made if the record date therefor is prior to the
date of issuance of such certificate.
SECTION 16. NO EMPLOYMENT OBLIGATION, ETC.
The granting of any Option shall not impose upon the Company or a
Subsidiary any obligation to employ or continue to employ any Optionee or
otherwise maintain any relationship with any Optionee, and the right of the
Company or a Subsidiary to terminate the employment of any person or other
relationship of such person with the Company or a
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Subsidiary shall not be diminished or affected by reason of the fact that an
Option has been granted to him.
SECTION 17. FORFEITURE FOR CAUSE
Notwithstanding anything to the contrary in the Plan, if the Committee
finds after full consideration of the facts presented on behalf of both the
Company and the Optionee that the Optionee has been engaged in (a) the willful
breach or habitual neglect of the duties s/he is required to perform as a
director or employee of, independent contractor for, or advisor or consultant to
the Company or a Subsidiary, (b) any conduct involving moral turpitude or (c)
any other conduct which in the determination of the Committee renders the
Optionee unfit to serve as a director or employee of, independent contractor
for, or advisor or consultant to the Company or a Subsidiary, the Optionee shall
forfeit all unexercised Options and all exercised Options under which the
Company has not yet delivered stock certificates. The decision of the Committee
as to whether the Optionee has engaged in any such activity and the damage done
to the Company or any Subsidiary shall be final. No decision of the Committee,
however, shall affect the finality of the discharge of such Optionee by the
Company or any Subsidiary in any manner.
SECTION 18. CHANGES IN CAPITAL STRUCTURE
The existence of outstanding Options shall not affect in any way the right
or power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business or any merger or consolidation of
the Company or any issue of capital stock, bonds, debentures, preferred or prior
preference stock ahead of or affecting the Stock or the rights thereof or the
dissolution or liquidation of the Company or any sale or transfer of all or any
part of its assets or business or any other corporate act or proceeding, whether
of a similar character or otherwise.
The number of shares covered by any outstanding Option and the price per
share thereof shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Stock resulting from the subdivision or
consolidation of shares or any other capital adjustment, the payment of a stock
dividend or any other increase in such shares effected without receipt of
consideration by the Company or any other decrease therein effected without a
distribution of cash or property in connection therewith.
In the event the Company merges or consolidates with one or more
corporations or other persons and the Company is the surviving corporation,
thereafter upon any exercise of an Option, the holder thereof shall be entitled
to purchase in lieu of the number of shares of Stock as to which the Option
shall then be exercisable, the number and class of shares of stock and
securities to which the holder would have been entitled pursuant to the terms of
the agreement of merger or consolidation if immediately prior to such merger or
consolidation, the holder had been the holder of record of shares of Stock as to
which the Option is then exercisable.
If the Company is merged into or consolidated with another person under
circumstances where the Company is not the surviving corporation, or if the
Company is
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liquidated or sells or otherwise disposes of substantially all of its assets to
another person while unexercised Options remain outstanding under the Plan, (a)
subject to the provisions of clauses (c) and (d) below, after the effective date
of such merger, consolidation or sale, as the case may be, each holder of an
outstanding Option shall be entitled, upon exercise of such Option, to receive
in lieu of shares of Stock, shares of such stock or other securities as the
holders of shares of Stock received pursuant to the terms of the merger,
consolidation or sale; or (b) the Board of Directors of the Company, acting by
majority vote, may waive any discretionary limitations imposed pursuant to
Section 10 hereof so that all Options from and after a date prior to the
effective date of such merger, consolidation, liquidation or sale, as the case
may be, specified by the Committee, shall be exercisable in full; or (c) all
outstanding Options may be cancelled by the Board of Directors of the Company,
acting by majority vote, as of the effective date of any such merger,
consolidation, liquidation or sale provided that notice of such cancellation
shall be given to each holder of an Option, and each holder of an Option shall
have the right to exercise such Option in full (without regard to any
discretionary limitations imposed pursuant to Section 10 hereof) during a 30-day
period preceding the effective date of such merger, consolidation, liquidation
or sale; or (d) all outstanding Options may be cancelled by the Board of
Directors of the Company, acting by majority vote, as of the date of any such
merger, consolidation, liquidation or sale provided that at least 30-days
advance notice of such cancellation shall be given to each holder of an Option,
and each holder of an Option shall have the right to exercise such Option but
only to the extent exercisable in accordance with any discretionary limitations
imposed pursuant to Section 10 prior to the effective date of such merger,
consolidation, liquidation or sale.
Except as expressly provided above, the issue by the Company of shares of
stock of any class or securities convertible into shares of stock of any class
for cash or property or for labor or services either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number, class or price of shares of Stock then subject to
outstanding Options.
SECTION 19. AMENDMENT OR TERMINATION OF PLAN
The Committee may modify, revise or terminate this Plan at any time and
from time to time; provided, however, that without the further approval by the
Stockholders, the Committee may not (a) materially increase the benefits
accruing to Participants under the Plan; (b) change the aggregate number of
shares of Stock which may be issued under Options pursuant to the provisions of
the Plan; or (c) change the class of persons eligible to receive Options.
Notwithstanding the preceding sentence, the Committee shall in all events have
the power to make such changes in the Plan and in the regulations and
administrative provisions hereunder or in any outstanding Option as, in the
opinion of counsel for the Company, may be necessary or appropriate from time to
time to enable any Option granted pursuant to the Plan to qualify as an
incentive stock option or such other stock option as may be defined under the
Code, as amended from time to time, so as to receive preferential federal income
tax treatment.
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SECTION 20. STOCK RESTRICTION AND REPURCHASE RIGHTS
Stock issued pursuant to the exercise of an Option shall be subject to such
restrictions on transfer by the Optionee and such repurchase rights as the
Committee shall deem advisable and as shall be set forth in the Option
Agreement.
SECTION 21. INDEMNIFICATION OF COMMITTEE
Service on the Committee shall constitute service as a director and officer
of the Company and the Committee shall be entitled to indemnification and
reimbursement as directors and officers of the Company pursuant to its
certificate of incorporation, by-laws, resolutions of its Board of Directors or
stockholders, or otherwise under applicable law.
SECTION 22. DURATION OF THE PLAN
Unless the Plan shall have terminated earlier, the Plan shall terminate on
May 6, 2002, and no Option shall be granted pursuant to the Plan after the day
preceding May 6, 2002. Options outstanding on the termination date of the Plan
shall not be affected by the termination of the Plan.
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Exhibit 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT dated July __, 1998 between HealthDrive Corporation, a Delaware
corporation with its principal executive offices located at 25 Needham Street,
Newton, Massachusetts 02161-1615 (the "Company"), and Steven S. Charlap, M.D.,
an individual residing at 54 Clements Road, Newton, Massachusetts 02158 (the
"Employee").
1. Employment. The Company agrees to employ the Employee as Chairman,
President and Chief Executive Officer of the Company, rendering the services and
performing the duties prescribed by the Company's Board of Directors. The
Employee shall during the term hereof serve as a member of the Company's Board
of Directors and shall be the Chairman thereof. The Employee agrees, while
employed hereunder, to perform his duties faithfully and to the best of his
ability. The Employee shall be employed at the Company's offices in Newton,
Massachusetts, and his principal duties shall be performed primarily in Boston,
Massachusetts, except for business trips reasonable in number and duration.
2. Term. The employment of the Employee hereunder shall begin on the date
hereof and shall continue through the earlier of (a) July 1, 2003 or (b) the
occurrence of a Termination Date, as defined in Section 5 (the "Term"),
provided, however, that the Term shall automatically be extended for an
additional five-year period (subject to the occurrence of a Termination Date)
after July 1, 2003 unless the Company or the Employee gives notice to the other
prior to July 1, 2002 of its or his intention not to renew the Term.
3. Compensation.
3.1. As compensation for the Employee's services during the Term, the
Company shall pay the Employee an annual base salary at the rate of
$250,000 per year, payable in accordance with the Company's standard
payroll procedures. Prior to the end of each year during the Term, the
Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee") shall consider the performance of the Employee,
his contribution to the success of the Company, and such other factors as
its members shall deem appropriate and shall fix an annual base salary to
be paid to the Employee during the ensuing year.
3.2. Notwithstanding the foregoing, the Employee's annual base salary
for any year during the Term shall in no event be less than his annual base
salary for the prior year multiplied by 105% or, if greater, his annual
base salary for the prior year adjusted to reflect the increase in the cost
of living over such prior year.
3.3. The Employee shall be eligible for a cash bonus at the discretion
of the Compensation Committee, to be awarded upon the achievement of
reasonable performance goals established by the Compensation Committee,
after consultation with the Employee, at the beginning of each year during
the Term. At the time these
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performance goals are established, the maximum and minimum target bonuses
for such year shall be established by the Compensation Committee. The
minimum bonus for the Employee for any year shall not be less than 15% of
the Employee's annual base salary for such year and shall be guaranteed,
regardless of whether or not the performance goals are achieved.
3.4. If the Employee is prevented by disability, for a period of six
consecutive months, from continuing fully to perform his obligations
hereunder, the Employee shall perform his obligations hereunder to the
extent he is able and, after the expiration of such six month period,
the Company may reduce his annual base salary during the continuation of
such disability to reflect the extent of the disability; provided that in
no event may such rate, when added to payments received by him under any
disability or qualified retirement or pension plan to which the Company
contributes or has contributed, be less than the annual base salary in
effect at the time that such disability commenced. If there should be a
dispute about the Employee's disability, disability shall be determined
by the Board of Directors of the Company based upon a report from a
physician who shall have examined the Employee. If the Employee claims
disability, the Employee agrees to submit to a physical examination at
any reasonable time or times by a qualified physician designated by the
Board of Directors and reasonably acceptable to the Employee.
4. Employee Benefits. The Employee shall be entitled to participate in all
"employee pension benefit plans," all "employee welfare benefit plans" (each as
defined in the Employee Retirement Income Security Act of 1974) and all pay
practices and other compensation arrangements maintained by the Company, on a
basis at least as advantageous to the Employee as the basis on which other
similarly situated executive employees of the Company are eligible to
participate and on a basis at least as advantageous to the Employee as the basis
on which he participates therein on the date hereof. Without limiting the
generality of the foregoing, the Employee shall be entitled to the following
employee benefits (collectively, with the benefits contemplated by this Section
4, the "Benefits"):
4.1. The Employee and the Employee's dependents shall be covered by
medical and dental insurance comparable in scope to the coverage afforded
on the date hereof, provided, that the Company shall pay the full amount of
any premiums to be paid with respect to such insurance. In addition, the
Company shall reimburse the Employee for all out-of-pocket medical and
dental expenses incurred by the Employee during the Term. If a Change in
Control of the Company, as defined in Section 5.2.2, shall have occurred,
the Company may not change the carriers providing medical insurance
immediately before the change without the consent of the Employee, which
consent will not unreasonably be withheld.
4.2. The Employee shall be eligible each year during the Term to
receive stock options under a stock option plan maintained by the Company
for such numbers of shares and upon such terms and conditions as determined
by the Compensation Committee. If the Company no longer has a class of
stock publicly-traded by reason of a Change in Control of the Company, as
defined in Section 5.2.2, the Company's obligation under this
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Section 4.2 will be satisfied through options granted by the issuer with
public stock then in control of the Company.
4.3. The Company shall reimburse the Employee from time to time for
the reasonable expenses incurred by the Employee in connection with the
performance of his obligations hereunder.
4.4. The Employee shall be entitled to legal holidays and to annual
paid vacation in accordance with the Company's holiday and vacation policy
in effect on the date hereof.
4.5. The Employee shall be entitled to the personal use of a leased
automobile, and the reimbursement of all maintenance and related expenses
incurred by the Employee, during the Term under the practice in effect on
the date hereof.
Notwithstanding the foregoing, the Company may from time to time change or
substitute a plan or program under which one or more of the Benefits are
provided to the Employee, provided that the Company first obtains the written
consent of the Employee, which the Employee agrees not unreasonably to withhold,
taking into account his personal situation.
5. Termination Date; Consequences for Compensation and Benefits
5.1. Definition of Termination Date. The first to occur of the
following events shall be the "Termination Date":
5.1.1. The date on which the Employee becomes entitled to receive
long-term or short-term disability payments by reason of total and
permanent disability;
5.1.2. The Employee's death;
5.1.3. Voluntary resignation ("Resignation with Reason") after
one of the following events shall have occurred, which event shall be
specified to the Company by the Employee at the time of resignation:
(i) material reduction in the responsibility, authority, power or duty
of the Employee; (ii) a material breach by the Company of any
provision of this Agreement, which breach continues for 30 days
following notice by the Employee to the Company setting forth the
nature of the breach; (iii) the Company relocates its principal
executive offices more than 25 miles from Newton, Massachusetts; or
(iv) a Change of Control shall have occurred;
5.1.4. Voluntary resignation not accompanied by a notice of
reason described in Section 5.1.3 ("General Resignation");
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5.1.5. Discharge of the Employee by the Company ("Discharge for
Cause") after one of the following events shall have occurred, which
event shall be specified to the Employee by the Company at the time of
discharge: (i) conviction of the Employee of any felony involving
moral turpitude; or (ii) any material breach of any term of this
Agreement by the Employee which is not cured within 30 days after
written notice from the Board of Directors of the Company to the
Employee setting forth the nature of the breach; and
5.1.6. Discharge of the Employee by the Company not accompanied
by a notice of cause described in Section 5.1.5 ("General Discharge"),
provided, however, that the Company shall not be entitled to terminate
the Employee other than with respect to a Discharge for Cause unless
such action has been previously authorized by the affirmative vote of
two-thirds or more of the then-elected members of the Board of
Directors of the Company (other than the Employee).
5.2. Consequences for Compensation and Benefits. If the
Termination Date occurs by reason of disability, death, General
Resignation or Discharge for Cause, the Company shall pay compensation
to the Employee through the Termination Date and shall pay to the
Employee all Benefits accrued through the Termination Date, payable in
accordance with the respective terms of the plans, practices and
arrangements under which the Benefits were accrued. If the Termination
Date occurs by reason of General Discharge or Resignation with Reason,
(a) all stock options held by the Employee shall become immediately
exercisable and shall remain exercisable for 30 days after the
Termination Date, (b) the Company shall continue the health coverage
contemplated by Section 4.1 through the date that falls on the later of
July 1, 2003 or the six month anniversary of the Termination Date, (c)
the Company shall engage for the Employee, at the Company's expense,
outplacement services appropriate to the Employee's position, for up
to twelve months after the Termination Date, and (d) the Employee shall
be entitled to receive, within 60 days after the Termination Date, the
amount set forth in Section 5.2.1 or, if Section 5.2.2 is applicable
and yields an amount equal to more than 90% of the amount set forth in
Section 5.2.1 net after all applicable taxes, the amount set forth in
Section 5.2.2.
5.2.1. The present value, calculated using the Pension Benefit
Guaranty Corporation immediate discount rate for valuing benefits upon
plan termination, of the product of the sum of (i) the Employee's
annual base salary at the Termination Date plus (ii) the maximum
target bonus established by the Compensation Committee for the year in
which the Termination Date occurs multiplied by two.
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5.2.2. If a Change in Control of the Company shall have occurred
before the Termination Date, one dollar less than the amount which is
three times the Employee's "base amount" of compensation and benefits,
as defined in Section 280G of the Internal Revenue Code of 1986.
A Change in Control of the Company shall be deemed to have occurred for
purposes of this Agreement upon the first to occur of the date when (a)
persons who were Directors of the Company on July 1, 1998 no longer
constitute a majority of the Board of Directors of the Company or (b) a
person "beneficially owns" (as defined in Rule 13d-3 promulgated under the
Securities Exchange Act of 1934) in the aggregate 50% or more of the
outstanding shares of capital stock entitled to vote generally in the
election of the Directors of the Company. If the payments made pursuant to
this Section 5.2 give rise to an excise tax under Section 4999 of the
Internal Revenue Code of 1986, the Company shall also pay to the Employee
or directly to the Internal Revenue Service in a timely fashion an amount
sufficient, after federal and state income taxes, to pay the excise tax so
payable and all directly related interest and penalties (whether reported
initially or subsequently assessed). In the event of a dispute between the
Company and the Employee with respect to the amount contemplated by the
preceding sentence, the matter shall be determined (at the Company's
expense) by an independent nationally-recognized accounting firm reasonably
acceptable to both parties; provided, however, that the Employee shall
cooperate with the Company in his tax reporting position and any defense
thereof (which the Company shall control) in order to minimize the amount
of such payments to the extent the Company has a reasonable legal basis
therefor.
5.3. Liquidated Damages; No Duty to Mitigate Damages. The amounts
payable pursuant to Section 5.2 shall be deemed liquidated damages for the
early termination of this Agreement and shall be paid to the Employee
regardless of any income the Employee may receive from any other employer,
and the Employee shall have no duty of any kind to seek employment from any
other employer during the balance of the Term.
6. Indemnification. The Company shall indemnify the Employee against all
loss, cost, liability and expense arising from the Employee's service to the
Company or any affiliate, whether as officer, director, employee, fiduciary of
any employee benefit plan or otherwise, upon terms at least as favorable to the
Employee as those provided by the Amended and Restated Certificate of
Incorporation and By-laws of the Company in effect on the date hereof.
7. Confidential Information. Unless the Employee shall first secure consent
of the Company, the Employee shall not disclose or use, either during or after
the Term, any secret or confidential information of the Company or any
affiliate, whether or not developed by the Employee, except as required by his
duties to the Company or the affiliate.
8. Arbitration. In the event that any party hereto has any claim hereunder,
the party shall promptly notify each other party of such claim. If within 30
days of the receipt of such
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<PAGE>
notice of claim, the parties cannot agree on a resolution of such claim, the
parties agree to submit such dispute to binding arbitration to be held in
Boston, Massachusetts under the rules of the American Arbitration Association.
Any such arbitration shall be conducted by three arbitrators, one of whom shall
be selected by the Employee, one of whom shall be selected by the Company and
one of whom shall be selected by the arbitrators so selected. The expenses of
any such arbitration shall be paid by the non-prevailing party, as determined by
the final order of the arbitrators.
9. Notices. Whenever under this Agreement any notice is to be given by the
Company to the Employee, it shall be delivered to the Employee at the address
set forth in the first paragraph hereof, or at such other address as the
Employee shall specify to the Company in writing prior to the delivery of such
notice. Whenever under this Agreement any notice is to be given by the Employee
to the Company, it shall be delivered to the Company at the address set forth in
the first paragraph hereof, or at such other address as the Company shall
specify to the Employee in writing prior to the delivery of such notice.
10. Governing Law. This Agreement shall be deemed a contract made and
performed in the Commonwealth of Massachusetts, and shall be governed by the
laws of the Commonwealth of Massachusetts.
11. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement of the parties, supersedes all prior agreements between the Company
and the Employee with respect to his employment by the Company and the
consequences of a termination of such employment, and may be altered or amended
or any provision hereof waived only by an agreement in writing signed by the
party against whom enforcement of any alteration, amendment, or waiver is
sought. No waiver by any party of any breach of this Agreement shall be
considered as a waiver of any subsequent breach.
12. Binding Obligations. This Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns and the Employee and
his personal representatives.
13. Assignability. Neither this Agreement nor any benefits payable to the
Employee hereunder shall be assigned, pledged, anticipated, or otherwise
alienated by the Employee, or subject to attachment or other legal process by
any creditor of the Employee, and notwithstanding any attempted assignment,
pledge, anticipation, alienation, attachment, or other legal process, any
benefit payable to the Employee hereunder shall be paid only to the Employee or
his estate.
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<PAGE>
IN WITNESS WHEREOF, the Company, by its officer hereunto duly authorized,
and the Employee have signed and sealed this Agreement as of the date first
written above.
HEALTHDRIVE CORPORATION
By:
------------------------------
Its: Chief Financial Officer and
Vice President of Finance
By:
-------------------------------
Steven S. Charlap, M.D.
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<PAGE>
Exhibit 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT dated July __, 1998 between HealthDrive Corporation, a Delaware
corporation with its principal executive offices located at 25 Needham Street,
Newton, Massachusetts 02161-1615 (the "COMPANY"), and Michael R. Kaplan, an
individual residing at 80 Bourne Street, Newton, Massachusetts 02166 (the
"EMPLOYEE").
1. EMPLOYMENT. The Company agrees to employ the Employee as Chief
Financial Officer and Vice President of Finance, rendering the services and
performing the duties prescribed by the Company's Board of Directors. The
Employee agrees, while employed hereunder, to perform his duties faithfully and
to the best of his ability. The Employee shall be employed at the Company's
offices in Newton, Massachusetts, and his principal duties shall be performed
primarily in Boston, Massachusetts, except for business trips reasonable in
number and duration.
2. TERM. The employment of the Employee hereunder shall begin on the
date hereof and shall continue through the earlier of (a) July 1, 2001 or (b)
the occurrence of a Termination Date, as defined in Section 5 (the "TERM"),
PROVIDED, HOWEVER, that the Term shall automatically be extended for successive
additional three-year periods (subject to the occurrence of a Termination Date)
after July 1, 2001 unless the Company or the Employee gives notice to the other
at least one year prior to the scheduled termination of its or his intention not
to renew the Term.
3. COMPENSATION.
3.1. As compensation for the Employee's services during the Term, the
Company shall pay the Employee an annual base salary at the rate of
$130,000 per year, payable in accordance with the Company's standard
payroll procedures. Prior to the end of each year during the Term, the
Compensation Committee of the Board of Directors of the Company (the
"COMPENSATION COMMITTEE") shall consider the performance of the Employee,
his contribution to the success of the Company, and such other factors as
its members shall deem appropriate and shall fix an annual base salary to
be paid to the Employee during the ensuing year.
3.2. Notwithstanding the foregoing, the Employee's annual base salary
for any year during the Term shall in no event be less than his annual base
salary for the prior year multiplied by 105% or, if greater, his annual
base salary for the prior year adjusted to reflect the increase in the cost
of living over such prior year.
3.3. The Employee shall be eligible for a cash bonus at the discretion
of the Compensation Committee, to be awarded upon the achievement of
reasonable performance goals established by the Compensation Committee,
after consultation with the Employee, at the beginning of each year during
the Term.
<PAGE>
3.4. If the Employee is prevented by disability, for a period of six
consecutive months, from continuing fully to perform his obligations
hereunder, the Employee shall perform his obligations hereunder to the
extent he is able and, after the expiration of such six month period, the
Company may reduce his annual base salary during the continuation of such
disability to reflect the extent of the disability; provided that in no
event may such rate, when added to payments received by him under any
disability or qualified retirement or pension plan to which the Company
contributes or has contributed, be less than 80% of the annual base salary
of the Employee in effect at the time that such disability commenced. If
there should be a dispute about the Employee's disability, disability shall
be determined by the Board of Directors of the Company based upon a report
from a physician who shall have examined the Employee. If the Employee
claims disability, the Employee agrees to submit to a physical examination
at any reasonable time or times by a qualified physician designated by the
Board of Directors and reasonably acceptable to the Employee.
4. EMPLOYEE BENEFITS. The Employee shall be entitled to participate in
all "employee pension benefit plans," all "employee welfare benefit plans" (each
as defined in the Employee Retirement Income Security Act of 1974) and all pay
practices and other compensation arrangements maintained by the Company, on a
basis at least as advantageous to the Employee as the basis on which other
similarly situated executive employees of the Company are eligible to
participate and on a basis at least as advantageous to the Employee as the basis
on which he participates therein on the date hereof. Without limiting the
generality of the foregoing, the Employee shall be entitled to the following
employee benefits (collectively, with the benefits contemplated by this Section
4, the "BENEFITS"):
4.1. The Employee and the Employee's dependents shall be covered by
medical insurance comparable in scope to the coverage afforded on the date
hereof, PROVIDED, that the Company shall pay the full amount of any
premiums to be paid with respect to such insurance.
4.2. The Employee shall be eligible each year during the Term to
receive stock options under a stock option plan maintained by the Company
for such numbers of shares and upon such terms and conditions as determined
by the Compensation Committee. If the Company no longer has a class of
stock publicly-traded by reason of a Change in Control of the Company, as
defined in Section 5.2, the Company's obligation under this Section 4.2
will be satisfied through options granted by the issuer with public stock
then in control of the Company.
4.3. The Company shall reimburse the Employee from time to time for
the reasonable expenses incurred by the Employee in connection with the
performance of his obligations hereunder.
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<PAGE>
4.4. The Employee shall be entitled to legal holidays and to annual
paid vacation in accordance with the Company's holiday and vacation policy
in effect on the date hereof.
4.5. The Employee shall be entitled to the personal use of a leased
automobile, and the reimbursement of all maintenance expenses incurred by
the Employee, during the Term under the practice in effect on the date
hereof.
Notwithstanding the foregoing, the Company may from time to time change or
substitute a plan or program under which one or more of the Benefits are
provided to the Employee.
5. TERMINATION DATE; CONSEQUENCES FOR COMPENSATION AND BENEFITS
5.1. DEFINITION OF TERMINATION DATE. The first to occur of the
following events shall be the "TERMINATION DATE":
5.1.1. The date on which the Employee becomes entitled to
receive long-term or short-term disability payments by reason of total
and permanent disability;
5.1.2. The Employee's death;
5.1.3. Voluntary resignation ("RESIGNATION WITH REASON") after
one of the following events shall have occurred, which event shall be
specified to the Company by the Employee at the time of resignation:
(i) material reduction in the responsibility, authority, power or duty
of the Employee, (ii) a material breach by the Company of any
provision of this Agreement, which breach continues for 30 days
following notice by the Employee to the Company setting forth the
nature of the breach; (iii) the Company relocates its principal
executive offices more than 25 miles from Newton, Massachusetts; or
(iv) a Change of Control shall have occurred;
5.1.4. Voluntary resignation not accompanied by a notice of
reason described in Section 5.1.3 ("GENERAL RESIGNATION");
5.1.5. Discharge of the Employee by the Company ("DISCHARGE
FOR CAUSE") after one of the following events shall have occurred,
which event shall be specified to the Employee by the Company at the
time of discharge: (i) conviction of the Employee of or the entry of
a plea of guilty or nolo contendere by the Employee of any felony
involving moral turpitude; or (ii) any material breach of any term of
this Agreement by the Employee which is not cured within 30 days after
written notice from the Chief Executive Officer of the Company to the
Employee setting forth the nature of the breach; and
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<PAGE>
5.1.6. Discharge of the Employee by the Company not
accompanied by a notice of cause described in Section 5.1.5 ("GENERAL
DISCHARGE").
5.2. CONSEQUENCES FOR COMPENSATION AND BENEFITS. If the
Termination Date occurs by reason of disability, death, General Resignation
or Discharge for Cause, the Company shall pay compensation to the Employee
through the Termination Date and shall pay to the Employee all Benefits
accrued through the Termination Date, payable in accordance with the
respective terms of the plans, practices and arrangements under which the
Benefits were accrued. If the Termination Date occurs by reason of General
Discharge or Resignation with Reason, (a) all stock options held by the
Employee shall become immediately exercisable and shall remain exercisable
for 30 days after the Termination Date, (b) the Company shall continue the
health coverage contemplated by Section 4.1 through the date that falls on
the later of July 1, 2001 or the six month anniversary of the Termination
Date, (c) the Company shall engage for the Employee, at the Company's
expense, outplacement services appropriate to the Employee's position, for
up to twelve months after the Termination Date, and (d) the Employee shall
be entitled to receive, within 60 days after the Termination Date, the
amount equal to the sum of (i) the Employee's annual base
salary at the Termination Date PLUS (ii) the maximum target bonus
established by the Compensation Committee for the year in which the
Termination Date occurs.
A Change in Control of the Company shall be deemed to have
occurred for purposes of this Agreement upon the first to occur of the date
when (a) persons who were Directors of the Company on July 1, 1998 no
longer constitute a majority of the Board of Directors of the Company or
(b) a person "beneficially owns" (as defined in Rule 13d-3 promulgated
under the Securities Exchange Act of 1934) in the aggregate 50% or more of
the outstanding shares of capital stock entitled to vote generally in the
election of the Directors of the Company. If the payments made pursuant to
this Section 5.2 give rise to an excise tax under Section 4999 of the
Internal Revenue Code of 1986, the Company shall also pay to the Employee
or directly to the Internal Revenue Service in a timely fashion an amount
sufficient, after federal and state income taxes, to pay the excise tax so
payable and all directly related interest and penalties (whether reported
initially or subsequently assessed). In the event of a dispute between the
Company and the Employee with respect to the amount contemplated by the
preceding sentence, the matter shall be determined (at the Company's
expense) by an independent nationally-recognized accounting firm reasonably
acceptable to both parties; provided, however, that the Employee shall
cooperate with the Company in his tax reporting position and any defense
thereof (which the Company shall control) in order to minimize the amount
of such payments to the extent the Company has a reasonable legal basis
therefor.
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<PAGE>
5.3. LIQUIDATED DAMAGES; NO DUTY TO MITIGATE DAMAGES. The amounts
payable pursuant to Section 5.2 shall be deemed liquidated damages for the
early termination of this Agreement and shall be paid to the Employee
regardless of any income the Employee may receive from any other employer,
and the Employee shall have no duty of any kind to seek employment from any
other employer during the balance of the Term.
6. INDEMNIFICATION. The Company shall indemnify the Employee against all
loss, cost, liability and expense arising from the Employee's service to the
Company or any affiliate, whether as officer, director, employee, fiduciary of
any employee benefit plan or otherwise, upon terms at least as favorable to the
Employee as those provided by the Amended and Restated Certificate of
Incorporation and By-laws of the Company in effect on the date hereof.
7. CONFIDENTIAL INFORMATION. Unless the Employee shall first secure
consent of the Company, the Employee shall not disclose or use, either during or
after the Term, any secret or confidential information of the Company or any
affiliate, whether or not developed by the Employee, except as required by his
duties to the Company or the affiliate.
8. ARBITRATION. In the event that any party hereto has any claim
hereunder, the party shall promptly notify each other party of such claim. If
within 30 days of the receipt of such notice of claim, the parties cannot agree
on a resolution of such claim, the parties agree to submit such dispute to
binding arbitration to be held in Boston, Massachusetts under the rules of the
American Arbitration Association. Any such arbitration shall be conducted by
three arbitrators, one of whom shall be selected by the Employee, one of whom
shall be selected by the Company and one of whom shall be selected by the
arbitrators so selected. The expenses of any such arbitration shall be paid by
the non-prevailing party, as determined by the final order of the arbitrators.
9. NOTICES. Whenever under this Agreement any notice is to be given by
the Company to the Employee, it shall be delivered to the Employee at the
address set forth in the first paragraph hereof, or at such other address as the
Employee shall specify to the Company in writing prior to the delivery of such
notice. Whenever under this Agreement any notice is to be given by the Employee
to the Company, it shall be delivered to the Company at the address set forth in
the first paragraph hereof, or at such other address as the Company shall
specify to the Employee in writing prior to the delivery of such notice.
10. GOVERNING LAW. This Agreement shall be deemed a contract made and
performed in the Commonwealth of Massachusetts, and shall be governed by the
laws of the Commonwealth of Massachusetts.
11. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement of the parties, supersedes all prior agreements between the Company
and the Employee with respect to his employment by the Company and the
consequences of a termination of such
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<PAGE>
employment, and may be altered or amended or any provision hereof waived only by
an agreement in writing signed by the party against whom enforcement of any
alteration, amendment, or waiver is sought. No waiver by any party of any
breach of this Agreement shall be considered as a waiver of any subsequent
breach.
12. BINDING OBLIGATIONS. This Agreement shall be binding upon and inure
to the benefit of the Company and its successors and assigns and the Employee
and his personal representatives.
13. ASSIGNABILITY. Neither this Agreement nor any benefits payable to the
Employee hereunder shall be assigned, pledged, anticipated, or otherwise
alienated by the Employee, or subject to attachment or other legal process by
any creditor of the Employee, and notwithstanding any attempted assignment,
pledge, anticipation, alienation, attachment, or other legal process, any
benefit payable to the Employee hereunder shall be paid only to the Employee or
his estate.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the Company, by its officer hereunto duly authorized,
and the Employee have signed and sealed this Agreement as of the date first
written above.
HEALTHDRIVE CORPORATION
By:
--------------------------
Its: Chief Executive Officer
By:
--------------------------
Michael R. Kaplan
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<PAGE>
Exhibit 10.5
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This EMPLOYMENT AND NON-COMPETITION AGREEMENT (this "AGREEMENT"), dated as
of April 15, 1997, is between HealthDrive Michigan Corporation, a Michigan
corporation (the "EMPLOYER"), and Philip R. Shriner, DDS (the "EMPLOYEE").
WHEREAS, the Employer wishes to employ the Employee as a dentist, and the
Employee wishes to work as a dentist for the Employer, on the terms set forth
below.
NOW, THEREFORE, it is hereby agreed as follows:
Section 1. EMPLOYMENT. The Employer hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and subject to the conditions
hereinafter set forth.
Section 2. DUTIES. The Employee shall be employed as a dentist for the
Employer. In such capacity, the Employee shall have such responsibilities and
duties as are assigned by the Employer's Board of Directors or the Chief
Executive Officer of the Employer. The Employee agrees to devote his full time
and best efforts to the performance of his duties to the Employer.
Section 3. TERM. The initial term of employment of the Employee hereunder
shall commence on the date hereof (the "COMMENCEMENT DATE") and shall continue
until the fifth anniversary of the Commencement Date (the "INITIAL TERM"),
unless earlier terminated pursuant to Section 7. The Initial Term may be
extended at any time prior to its termination upon mutual agreement of the
Employer and the Employee.
Section 4. COMPENSATION AND BENEFITS. Until the termination of the
Employee's employment hereunder, in consideration for the services of the
Employee hereunder, the Employer shall compensate the Employee as follows:
(a) BASE SALARY. Subject to the provisions of Section 4(b) below, the
Employer shall pay the Employee, monthly in arrears, a base salary equal to
$84,000 per annum (the "BASE SALARY"). Such Base Salary may be increased from
time to time at the sole discretion of the Employer's Board of Directors (the
"BOARD") and is in addition to the other benefits set forth herein.
<PAGE>
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(b) INCREASES OR DECREASES TO BASE SALARY. The Base Salary payable to the
Employee pursuant to Section 4(a) above shall be reduced by an amount equal to
the product of (i) 0.42 MULTIPLIED BY (ii) the excess, if any, of (A) $175,000
OVER (B) the portion of the gross revenues, after all contractual adjustments,
of the Employer derived from professional services rendered by the Employee as
shown on the Employer's revenue tracking system ("EMPLOYEE GROSS REVENUES")
during any fiscal year of the Employer. Any such reduction in Base Salary shall
be paid in full in cash by the Employee to the Employer within 30 days after the
end of the fiscal year. In addition, the Employee shall be entitled to receive
from the Employer, for each fiscal year of the Employer, a bonus (the "BONUS")
in an amount equal to the product of (i) 0.33 MULTIPLIED BY (ii) the excess, if
any, of (A) Employee Gross Revenues for such fiscal year OVER (B) $250,000. The
Bonus shall be paid quarterly in arrears, in an amount equal to the excess, if
any, of (A) the product of (i) 0.33 MULTIPLIED BY (ii) the excess, if any, of
(w) total Employee Gross Revenues for the fiscal quarter of the Employer then
ended and all prior fiscal quarters in such fiscal year OVER, (x) the product of
(y) $62,500 MULTIPLIED BY (z) the number of full fiscal quarters then completed
for such fiscal year, OVER (B) the total amounts previously paid to Employee in
respect of the Bonus for such fiscal year. In the event that the amount computed
pursuant to clause (B) of the immediately preceding sentence exceeds the amount
computed pursuant to clause (A) of the immediately preceding sentence as of the
end of any fiscal quarter, the amount of such excess shall be credited towards
the next payment (whether of Base Salary, Bonus or otherwise) due from Employer
to Employee hereunder. In the event that Employee's employment hereunder
terminates for any reason at any time when a credit remains outstanding pursuant
to the immediately preceding sentence, the amount of such credit shall be due
and payable by Employee to Employer immediately upon such termination. In the
event that the computations described in this Section 4(b) shall be made for any
period constituting less than a full fiscal year or fiscal quarter, the amount
of Employee Gross Revenues for such period shall be used in making such
computation and the references to $175,000, $250,000 and $62,500 shall be
appropriately pro rated for the portion of such fiscal year or fiscal quarter,
as the case may be, included within such period.
(c) STOCK OPTIONS. The Employer and the Employee acknowledge that
contemporaneously herewith the Employee will receive options ("OPTIONS") to
purchase 5,000 shares of common stock of HealthDrive Corporation, pursuant to a
stock option agreement of even date herewith (the "STOCK OPTION AGREEMENT"). As
described more fully in the Stock Option Agreement, the Options will vest in
equal installments of 1,000 shares on each of the first five anniversaries of
the date of this Agreement, assuming Employee's continued employment with
Employer hereunder on each such anniversary.
<PAGE>
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(d) VACATION. The Employee shall be entitled to three (3) weeks vacation
each calendar year. Any vacation shall be taken at the reasonable and mutual
convenience of the Employer and the Employee. Accrued vacation not taken in any
calendar year will not be carried forward or used in any subsequent calendar
year.
(e) INSURANCE; OTHER BENEFITS. Accident, disability, life and health
insurance for the Employee shall be provided by the Employer subject to required
employee contributions under group accident, disability, life and health
insurance plans maintained by the Employer for its full-time, salaried employees
as such employment benefits may be modified from time to time by the Board for
all full-time, salaried employees.
Section 5. EXPENSES. The Employer shall reimburse the Employee for use of
his personal automobile for travel to and from nursing home sites at a rate of
25.5 cents per mile driven after the first 50 miles per day and for all
reasonable expenses of types authorized in writing by the Employer and incurred
by the Employee in the performance of his duties hereunder. The Employee shall
comply with such budget limitations and approval and reporting requirements with
respect to expenses as the Employer may establish from time to time.
Section 6. EXISTING DENTAL CONTRACTS. The Employee represents and
warrants that (i) SCHEDULE 6 hereto sets forth all of the Employee's existing
written or oral contracts (the "EXISTING CONTRACTS") for dental services
(whether entered into by Employee, or his affiliate, Mobile Dental Service
("MDS")) and (ii) each of the Existing Contracts is in full force and effect as
of the date hereof and no default exists by any party thereto thereunder. The
Employee hereby covenants and agrees, in consideration of the compensation and
other benefits to be received by Employee hereunder, to use his best efforts to
cause the other parties to the Existing Contracts to terminate their applicable
Existing Contract and to enter into new contracts with the Employer on terms
mutually agreeable to the Employer and such other parties (the "MODIFIED
CONTRACTS"). In addition, the Employee hereby agrees to assign and transfer all
Existing Contracts requested by the Employer, in its sole discretion, to be
assigned to Employer, and in any such case, Employer will assume all obligations
of Employee (or MDS, as applicable) thereunder.
Section 7. TERMINATION. The Employee's employment hereunder shall
commence on the Commencement Date and continue as described in Section 3 above
except that the employment of the Employee hereunder shall earlier terminate as
follows:
(a) DEATH OR DISABILITY. Employee's employment shall terminate
immediately upon the death of the Employee during the term of his employment
hereunder or, at the option of the Employer, in the event of the Employee's
disability, upon thirty (30) days' written notice from the Employer. The
Employee shall be deemed disabled if an independent medical doctor (selected by
the Employer's health or
<PAGE>
-4-
disability insurer) certifies that the Employee has for three (3) months,
consecutive or non-consecutive, in any twelve (12) month period been disabled in
a manner which seriously interferes with his ability to perform his
responsibilities under this Agreement. Any refusal by the Employee to submit to
a medical examination for the purpose of certifying disability under this
Section 7(a) shall be deemed to constitute conclusive evidence of the Employee's
disability.
(b) FOR CAUSE. Employee's employment hereunder may be terminated by
Employer for "Cause" immediately upon written notice by the Employer to the
Employee. For purposes of this Agreement, a termination shall be for Cause if
the Board shall determine that any one or more of the following has occurred:
(i) the Employee shall have committed an act of fraud, embezzlement,
misappropriation or breach of fiduciary duty against the Employer,
including, but not limited to, the offer, payment, solicitation or
acceptance of any unlawful bribe or kickback with respect to the Employer's
business; or
(ii) the Employee shall have been convicted by a court of competent
jurisdiction of, or pleaded guilty or nolo contendere to, any felony or any
crime involving moral turpitude; or
(iii) the Employee shall have been chronically absent from work
(excluding vacations, illnesses or leaves of absence approved by the
Employer) and such absence shall have continued after written notice from
the Employer to the Employee; or
(iv) the Employee shall have refused, after explicit written notice,
to obey any lawful resolution of or direction by the Employer which is
consistent with his duties hereunder; or
(v) the Employee shall have engaged in the unlawful use (including
being under the influence) or possession of illegal drugs on the Employer's
premises; or
(vi) the Employee shall have failed to perform the duties incident to
his employment with the Employer on a regular basis (except as a result of
the Employee's disability), and such failure shall have continued for a
period of 20 days after written notice to the Employee specifying such
failure in reasonable detail; or
(vii) the Employee shall have breached any of the provisions of this
Agreement or the Stock Option Agreement, and such breach shall have
continued for a period of 20 days after written notice to the Employee
specifying such breach in reasonable detail; or
<PAGE>
-5-
(viii) Employee Gross Revenues in any fiscal year of the Employer do
not exceed $150,000.
(c) WITHOUT CAUSE. Employer or Employee may, at any time, terminate
Employee's employment hereunder without Cause upon thirty (30) days' written
notice by either party hereto to the other.
(d) RIGHTS AND REMEDIES ON TERMINATION. (i) In the event that the
Employee's employment hereunder is terminated for any reason, the Employee shall
not be entitled to any severance or other compensation after termination other
than payment of any portion of his Base Salary and Bonus through the date of his
termination (subject to the provisions of Section 4(b) hereof) and any expense
reimbursements under Section 5 hereof for expenses incurred in the performance
of his duties prior to termination.
(ii) If the Employee's employment hereunder is terminated by the
Employer (as opposed to the Employee) pursuant to Section 7(c), or if the
Employer chooses to abandon its business in the State of Michigan (other than
through a sale of all of the outstanding capital stock or substantially all of
the assets of the Employer), the Employer shall use its best efforts to assign
and transfer all of the Existing Contracts which are in effect at such time (or
all Modified Contracts in effect at such time, as applicable) to the Employee or
his designee as soon as possible after termination.
Section 8. INVENTIONS; ASSIGNMENT. All rights to discoveries, inventions,
improvements and innovations (including all data and records pertaining thereto)
related to the Employer's business, whether or not patentable, copyrightable,
registrable as a trademark, or reduced to writing, that the Employee may
discover, invent or originate during the term of his employment hereunder, and
for a period of twelve (12) months thereafter, either alone or with others and
whether or not during working hours or by the use of the facilities of the
Employer ("INVENTIONS"), shall be the exclusive property of the Employer. The
Employee shall promptly disclose all Inventions to the Employer, shall execute
at the request of the Employer any assignments or other documents the Employer
may deem necessary to protect or perfect its rights therein, and shall assist
the Employer, at the Employer's expense, in obtaining, defending and enforcing
the Employer's rights therein. The Employee hereby appoints the Employer as his
attorney-in-fact to execute on his behalf any assignments or other documents
deemed necessary by the Employer to protect or perfect its rights to any
Inventions. This excludes a one-step denture process and a book on geriatric
dentistry insofar as it does not reveal information designated as confidential
by the Employer.
Section 9. CONFIDENTIAL INFORMATION. The Employee recognizes and
acknowledges that certain assets of the Employer, including without limitation
information regarding customers, pricing policies, methods of operation,
proprietary production processes, proprietary computer programs, sales,
products, profits, costs, markets, key personnel, formulae, product
applications, technical processes, and trade secrets (hereinafter called
"CONFIDENTIAL INFORMATION") are valuable, special, and unique
<PAGE>
-6-
assets of the Employer and its affiliates. The Employee shall not, during or
after his term of employment, disclose any or any part of the Confidential
Information to any person, firm, corporation, association, or any other entity
for any reason or purpose whatsoever, directly or indirectly, except as may be
required pursuant to his employment hereunder; PROVIDED, that Confidential
Information shall in no event include (a) Confidential Information which was
generally available to the public at the time of disclosure by the Employee or
(b) Confidential Information which becomes publicly available other than as a
consequence of the breach by the Employee of his confidentiality obligations
hereunder. In the event of the termination of his employment, whether voluntary
or involuntary and whether by the Employer or the Employee, the Employee shall
deliver to the Employer all documents and data pertaining to the Confidential
Information and shall not take with him any documents or data of any kind or any
reproductions (in whole or in part) or extracts of any items relating to the
Confidential Information.
Section 10. NON-COMPETITION. During the term of the Employee's employment
hereunder and for the Designated Period (as defined below) after termination of
the Employee's employment hereunder, the Employee will not (a) anywhere within
the State of Michigan, engage, directly or indirectly, alone or as a shareholder
(other than as a holder of less than five percent (5%) of the common stock of
any publicly traded corporation), partner, officer, director, employee or
consultant of any other business organization that is engaged or becomes engaged
in the dental business limited to extended care and assisted living facilities
in competition with the Employer or any of its affiliates (including HealthDrive
Corporation or any professional corporations) (the "DESIGNATED INDUSTRY"), (b)
divert to any competitor of the Employer or any of its affiliates (including
HealthDrive Corporation or any professional corporations) any customer of the
Employer or any of its affiliates (including HealthDrive Corporation or any
professional corporations), or (c) solicit or encourage any officer, employee or
consultant of the Employer or any of its affiliates (including HealthDrive
Corporation or any professional corporations) to leave their employ for
alternative employment, or hire or offer employment to, directly or indirectly,
any person whom the Employer or any of its affiliates (including HealthDrive
Corporation or any professional corporations) then employs or to whom the
Employer or any of its affiliates (including HealthDrive Corporation or any
professional corporations) has offered employment. For purposes hereof, the
term "DESIGNATED PERIOD" shall mean (i) with respect to termination of the
Employee's employment hereunder (a) pursuant to Section 7(a) hereof, or (b)
pursuant to Section 7(b) hereof, or (c) by the Employee pursuant to Section 7(c)
hereof, a period of eighteen (18) months following the date of such termination,
and (ii) with respect to termination of the Employee's employment hereunder by
the Employer pursuant to Section 7(c) hereof, through such date of termination.
The Employee acknowledges that the provisions of this Section 10 are essential
to protect the business and goodwill of the Employer. The Employee will
continue to be bound by the provisions of this Section 10 until their expiration
and shall not be entitled to any compensation from the Employer with respect
thereto except as provided above. If
<PAGE>
-7-
at any time the provisions of this Section 10 shall be determined to be invalid
or unenforceable, by reason of being vague or unreasonable as to area, duration
or scope of activity, this Section 10 shall be considered divisible and shall
become and be immediately amended to only such area, duration and scope of
activity as shall be determined to be reasonable and enforceable by the court or
other body having jurisdiction over the matter; and the Employee agrees that
this Section 10 as so amended shall be valid and binding as though any invalid
or unenforceable provision had not been included herein.
Section 11. GENERAL.
(a) NOTICES. All notices and other communications hereunder shall be in
writing or by written telecommunication, and shall be deemed to have been duly
given if delivered personally or if mailed by certified mail, return receipt
requested, postage prepaid or sent by written telecommunication or telecopy, to
the relevant address set forth below, or to such other address as the recipient
of such notice or communication shall have specified to the other party hereto
in accordance with this Section 11(a):
If to the Employer, to:
HealthDrive Michigan Corporation
c/o HealthDrive Corporation
25 Needham Street
Newton, MA 02161
Attention: Steven S. Charlap, M.D.
With a copy to:
Victor J. Paci, Esq.
Bingham, Dana & Gould LLP
150 Federal Street
Boston, Massachusetts 02110-1726
If to the Employee, to:
Philip R. Shriner, DDS
Mobile Dental Service
5680 East Saginaw Highway
Grand Ledge, Michigan 48837
(b) EQUITABLE REMEDIES. Each of the parties hereto acknowledges and
agrees that upon any breach by the Employee of his obligations under Sections 8,
9 and 10 hereof, the Employer will have no adequate remedy at law, and
accordingly will be entitled to specific performance and other appropriate
injunctive and equitable relief.
<PAGE>
-8-
(c) SEVERABILITY. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any law, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired.
(d) WAIVERS. No delay or omission by either party hereto in exercising
any right, power or privilege hereunder shall impair such right, power or
privilege, nor shall any single or partial exercise of any such right, power or
privilege preclude any further exercise thereof or the exercise of any other
right, power or privilege.
(e) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) ASSIGNS. Employee's obligations hereunder shall not be assignable or
delegable by Employee to any other person. This Agreement shall be binding upon
and inure to the benefit of the heirs and successors of each of the parties
hereto, including any entity which acquires substantially all of the assets or
stock of the Employer.
(g) ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties, supersedes all prior agreements and understandings relating to the
subject matter hereof and shall not be amended except by a written instrument
hereafter signed by each of the parties hereto.
(h) GOVERNING LAW. This Agreement and the performance hereof shall be
construed and governed in accordance with the laws of the State of Michigan.
<PAGE>
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IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed as of the date and year
first above written.
HEALTHDRIVE MICHIGAN CORPORATION
By: /s/ Steven S. Charlap, M.D.
-------------------------------
Title: CEO
/s/ Philip R. Shriner
----------------------------------
Philip R. Shriner, DDS
Accepted and Agreed:
MOBILE DENTAL SERVICES
By: /s/ Philip R. Shriner
----------------------------
Title: Owner
<PAGE>
Exhibit 10.7
STOCKHOLDERS AGREEMENT
Amended and Restated Stockholders Agreement dated as of April 28, 1994
by and among HealthDrive Corporation, a Delaware corporation (the "Company"),
DCC Limited, a company organized under the laws of the Isle of Man
("Limited"), DCC International Holdings B.V., a Company organized under the
laws of the Netherlands ("Holdings"), Steven Charlap, M.D. ("Charlap") and
Alec H. Jaret, D.M.D. ("Jaret") (Charlap and Jaret being sometimes
hereinafter referred to individually as a "Principal Stockholder" and
collectively as the "Principal Stockholders") and Cheryl V. Reicin ("Reicin")
(Charlap, Jaret and Reicin being sometimes hereinafter referred to
individually as a "Stockholder" and collectively as "Stockholders"). Limited
and Holdings are hereinafter sometimes referred to collectively as the
"Investors" and individually as an "Investor."
WHEREAS, the parties hereto other than Holdings have previously entered
into a Stockholders Agreement, dated October 3, 1989, as amended and restated
on May 8, 1992;
WHEREAS, as of the date hereof, Charlap owns 940,000, Jaret owns
480,000 and Reicin owns 21,200 shares of the Common Stock, $.01 par value
(the "Common Stock"), of the Company;
WHEREAS, Limited previously acquired 555,000 shares of the Company's
Common Stock, $.01 par value and 571,428 shares of the Company's Class A
Convertible Preferred Stock, $.01 par value, and Holdings is acquiring on
this date 181,818 shares of the Company's Class B Convertible Preferred
Stock, $.01 par value from the Company pursuant to a certain Preferred Stock
Purchase Agreement, of even date herewith, by and among Holdings and the
Company (the "Purchase Agreement") (such shares of Class A and Class B
Convertible Preferred Stock are hereinafter referred to collectively as the
"Preferred Stock") (as such shares may hereafter be increased or decreased to
reflect stock splits, stock dividends, reclassifications, recapitalizations
or other similar events, the "Investor Shares");
WHEREAS, the parties desire to reflect the issuance of the Class B
Convertible Preferred Stock to Holdings pursuant to the Purchase Agreement
and to include such shares of Preferred Stock within the terms of their
Stockholders Agreement;
WHEREAS, the parties therefore desire to amend and restate the terms of
their prior Stockholders Agreement as set forth below;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Company, the Stockholders and the Investors
hereby agree as follows:
1. PROHIBITED TRANSFERS. Neither any Stockholder, any Investor nor any
Qualified Transferee (as hereinafter defined) (the Stockholders, the
Investors and the Qualified Transferees being sometimes hereinafter referred
to individually as a "Holder" and collectively as the "Holders") shall sell,
assign, transfer, pledge, hypothecate, mortgage or
<PAGE>
dispose of, by gift or otherwise, or in any way encumber, all or any part of
the Shares (as hereinafter defined) owned by him or it except in compliance
with the terms of this Agreement. For purposes of this Agreement, the term
"Shares" shall mean and include all or any portion of the shares of Common
Stock or Preferred Stock or any other capital stock of the Company owned by
any Holder, whether presently held or hereafter acquired.
2. RIGHT OF REFUSAL ON DISPOSITIONS.
(a) Neither Charlap nor Jaret shall sell, assign, transfer, pledge,
hypothecate or otherwise dispose of any or all Shares owned by him to a
third party unless the seller (i) shall have received a bona-fide arm's
length offer to purchase such Shares from such third party and (ii) first
submits a written offer (an "Offer") to the other Principal Stockholder
identifying the third party to whom such Shares are proposed to be sold
and the terms of the proposed sale and offering to him the opportunity to
purchase such Shares on terms and conditions, including price, not less
favorable to him than those on which the selling Principal Stockholder
proposes to sell such Shares to such other purchaser. In the event that
the other Principal Stockholder elects to purchase the Shares so offered,
the parties shall comply with the provisions of Section 2(c) this
Agreement. In the event or to the extent that the other Principal
Stockholder does not wish to purchase the shares so offered, then such
shares shall be subject to the provisions of Section 2(b) of this
Agreement; provided, however, that the aggregate of all purchases by Jaret
of Shares proposed to be sold by Charlap under this Section 2(a) shall not
exceed ten percent (10%) of the then issued and outstanding shares of
Common Stock.
(b) Except as provided in Section 2(a) above, no Holder shall sell,
assign, transfer, pledge, hypothecate or otherwise dispose of any or all
Shares owned by him to a third party unless (i) such Holder shall have
received a bona-fide arm's length offer to purchase such Shares from such
third party and (ii) the Holder first submits a written offer (an "Offer")
to the other Holders identifying the third party to whom such Shares are
proposed to be sold and the terms of the proposed sale and offering to the
other Holders the opportunity to purchase such Shares on terms and
conditions, including price, not less favorable to the other Holders than
those on which such Holder proposes to sell such Shares to such other
purchaser. In the event of any transfer of the Shares in accordance with
the terms of this Agreement, the Holder to whom such shares are offered
(such Holders being sometimes collectively referred to hereinafter as the
"Offerees" and individually as an "Offeree") shall have the right to
purchase that number of Shares covered by the Offer as shall be equal to
the aggregate number of Shares covered by the Offer multiplied by a
fraction, the numerator of which is the sum of (i) the number of shares of
Common Stock then held by such Offeree and (ii) the number of shares of
Common Stock into which the Preferred Stock then held by such Offeree is
convertible and the denominator of which is the sum of (i) the aggregate
number of shares of Common Stock held by all Offerees and (ii) the
aggregate number of shares of Common Stock into which the Preferred Stock
held by all Offerees is convertible. (The number of shares that each
2
<PAGE>
Offeree is entitled to purchase under this Section 2 shall be referred to
as the Offeree's "Pro Rata Fraction"). In the event an Offeree does not
wish to purchase its Pro Rata Fraction, then any other Offeree who so
elects shall have the right to purchase, on a pro rata basis with any
other Offeree who so elects, any Pro Rata Fraction not purchased by other
Offerees. If the Offerees, individually or together, do not offer to
purchase all of such offered Shares, then there shall be no right to
purchase any of such Shares pursuant to this Section 2.
(c) Each of the Offerees shall act upon the Offer as soon as
practical after receipt thereof, and in any event within 30 days after
receipt thereof. Each Offeree shall have the right to accept the Offer as
to all or part of the Shares offered thereby, and shall indicate whether
or not the Offeree is willing to purchase any Pro Rata Fraction not
purchased by other Offerees. In the event that an Offeree shall elect to
purchase all or a part of the Shares covered by the Offer, such Offeree
shall individually communicate in writing such election to purchase to the
Holder who submitted the Offer, which communication shall within such 30
day period be delivered by hand or mailed to such Stockholder and shall,
when taken in conjunction with the Offer, be deemed to constitute a valid,
legally binding and enforceable agreement for the sale and purchase of the
Shares covered thereby to the extent of the number of Shares, if any,
allocated to such Offeree in accordance with the following sentence. Upon
the expiration of 30 days following receipt of the Offer by all offerees,
(a) if the total number of Shares as to which the Offer shall have been
accepted is less than the total number of Shares subject to the Offer, no
shares shall be purchased by the Offerees, and (b) otherwise, the number
of shares to be purchased by each Offeree shall be determined as follows:
(i) there shall first be allocated to each Offeree a number of Shares
equal to the lesser of (x) the number of Shares as to which such Offeree
accepted the offer or (y) such Offeree's Pro Rata Fraction, and (ii) the
balance, if any, not allocated under clause (i) above, shall be allocated
to those Offerees who accepted the Offer as to a number of Shares which
exceeded their respective Pro Rata Fractions, in each case on a pro rata
basis in proportion to the amount of such excess.
(d) In the event that the Offerees do not purchase all of the Shares
offered by such Holder pursuant to the offer, such Shares may be sold by
such Holder at any time within 90 days after the expiration of the Offer,
provided that the purchaser of said Shares shall agree in writing to abide
by the provisions of Section 5 hereof. Any such sale shall be to the
person originally named in the Offer as the proposed Purchaser or
transferee and shall be at not less than the price and upon other terms
and conditions, if any, not more favorable to such purchaser than those
specified in the Offer. Any Shares sold after such 90-day period or to a
different purchaser, at a lower price or on more favorable terms shall
continue to be subject to the requirements of a prior offer pursuant to
this Section 2. In the event that Shares are sold to any third party
purchaser pursuant to this Section 2, such Shares shall no longer be
entitled to the benefits conferred by, or subject to the restrictions
imposed by, this Agreement, except the provisions of Section 5.
3
<PAGE>
(e) For purposes of this Agreement, a Qualified Transferee shall
mean:
(i) in the case of an Investor, any person (x) who is a
consolidated subsidiary of the Investor or (y) who acquires at least
49% of the Investor Shares (as adjusted for stock splits, stock
dividends, reclassifications, recapitalizations or other similar
events) held by such Investor; and
(ii) in the case of a Stockholder, any transferee of the type
described in Section 4(a)(i) or 4(a)(ii) of this Agreement.
3. RIGHT OF PARTICIPATION IN SALES BY STOCKHOLDERS. If at any time any
Stockholder wishes to sell, or otherwise dispose of, any Shares owned by him to
any person (the "Purchaser") in a transaction which is subject to the provisions
of Section 2 hereof, and if such Shares are not purchased by the Offerees under
Section 2, the Investors and each Qualified Transferee who acquires shares from
an Investor shall in the aggregate have the right to participate pro rata in
such transaction, and accordingly shall have the right to require, as a
condition to such sale or disposition, that the Purchaser purchase from the
Investors or such Qualified Transferee collectively (for purposes of this
Section 3, a "Seller") at the same price per Share and on the same terms and
conditions as involved in such sale or disposition by the Stockholder Shares
aggregating the same percentage as such sale or disposition (as finally
consummated) represents with respect to the Shares then held by such
Stockholder. Each Seller wishing so to participate in any such sale or
disposition shall notify the Stockholder of such intention as soon as
practicable after receipt of the Offer made pursuant to Section 2, and in all
events within 30 days after receipt thereof. In the event that a Seller shall
elect to participate in such sale or disposition, such Seller shall individually
communicate such election to the Stockholder, which communication shall be
delivered by hand or mailed to the Stockholder. The provisions of this Section 3
shall not apply to the sale of any Shares by a Stockholder to an Offeree
pursuant to an Offer under Section 2.
4. PERMITTED TRANSFERS. Anything herein to the contrary notwithstanding,
the provision of Sections 1, 2 and 3 shall not apply:
(a) in the case of a Stockholder, to (i) any one or more transfers
of Shares by gift or bequest or through inheritance to, or for the benefit
of, any member or members of his immediate family; provided, however, that
each of the Principal Stockholders may transfer no more than 5% in the
aggregate (as adjusted to reflect permitted stock splits, stock dividends,
reclassifications, recapitalizations and other similar events) of such
Shares pursuant to this clause (i); (ii) any transfer of Shares by a
Stockholder to a trust in respect of which he serves as trustee, provided
that the trust instrument governing said trust shall provide that such
Stockholder, as trustee, shall retain sole and exclusive control over the
voting and disposition of said Shares until the termination of this
Agreement; or (iii) any sale of Common Stock after termination of this
Agreement as provided in Section 6; or
4
<PAGE>
(b) in the case of the Investors, to (i) any consolidated subsidiary
of an Investor, (ii) any purchaser of forty-nine percent (49%) or more of
the Investor Shares, as adjusted for stock splits, stock dividends,
reclassifications, recapitalizations and similar events, held by the
Investors or (iii) any sale of Shares after termination of this Agreement
as provided in Section 6.
(c) In the event of any transfer pursuant to this Section 4, the
transferee of the Shares shall hold the Shares so acquired with all the
rights conferred by, and subject to all the restrictions imposed by, this
Agreement, and shall be required, as a condition of such transfer, to
execute and deliver to the Offeree a written acknowledgment of such fact.
5. ELECTION OF CERTAIN PARTIES AS DIRECTOR. Each Stockholder, each
Investor and each transferee of Shares subject to this Agreement agrees to vote
all Shares of the Company now owned or hereafter acquired by him or it to fix
the number of members of the Board of Directors of the Company at a number no
greater than seven (7), and to cause and maintain the election to the Board of
(a) in the case of the Stockholders and their transferees, one nominee of the
Investors or a Qualified Transferee holding 80% or more of the Investor Shares
(as adjusted for stock splits, stock dividends, reclassifications,
recapitalizations and other similar events) on behalf of the Investors or such
Qualified Transferee, or, at the option of Limited in its sole discretion, upon
notice to the Company as provided for in the Preferred Stock Purchase Agreement
dated May 8, 1992 between the Company and Limited, two (2) nominees of Limited
or a Qualified Transferee, on behalf of the Investors or such Qualified
transferee and (b) in the case of the Investors and their respective permitted
transferees, for each of Charlap and Jaret for as long as each owns at least ten
percent (10%) of the then issued and outstanding common stock of the Company (as
adjusted for stock splits, stock dividends, reclassifications, recapitalizations
and other similar events).
6. TERMINATION. This Agreement, and the respective rights and obligations
of the parties hereto, shall terminate upon the earlier of (a) the date upon
which the Investors and all Qualified Transferees of the Investor Shares own
less than 10 percent (10%) of the issued and outstanding Common Stock of the
Company (assuming conversion of any shares of Preferred Stock then owned by the
Investors and all Qualified Transferees), (b) the date the Company completes a
Qualified Public Offering (as defined in Section 4.14(a) of the Purchase
Agreement) or (c) the date ten years after the date of this Agreement.
7. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been received when delivered or sent by
telecopier with confirmation received, or two business day after being sent by
Federal Express, D.H.L. or other express courier, to the address set forth on
the signature page of this Agreement or to such other address as the addressee
shall have furnished to the other parties hereto in the manner prescribed by
this Section 7.
8. STOCKHOLDERS' LOCKUP AGREEMENT. Each other party hereto hereby agrees
with the Company that in connection with the Company's initial public offering,
upon the request
5
<PAGE>
of the Company or the principal underwriter managing the public offering, to
execute a written agreement not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares now owned or
hereafter acquired by him without the prior written consent of the Company or
such underwriter, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the effective date of such registration as the
Company or the underwriter may specify.
9. SPECIFIC PERFORMANCE. The rights of the parties under, and the
interests subject to, this Agreement are unique and, accordingly, the parties
shall, in addition to such other remedies as may be available to any of them at
law or in equity, have the right to enforce their rights hereunder by actions
for specific performance to the extent permitted by law.
10. LEGEND. The certificates representing the Shares shall bear on their
face a legend indicating the existence of the restrictions imposed hereby.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the Investors and the Stockholders with respect to the subject matter
hereof and supersedes all prior agreements and understandings between them or
any of them as to such subject matter. To the extent that the provisions of the
Voting Agreement dated as of June 30, 1989 by and among Charlap, Jaret, Cheryl
V. Reicin and Richard Dorr conflict with or are inconsistent with any provision
of this Agreement, the provisions of this Agreement shall govern.
12. WAIVERS AND FURTHER AGREEMENTS. Any of the provisions of this
Agreement may be waived (a) with respect to performance by a Stockholder, with
the consent of the then holders of a majority of (i) the Shares (in the case of
the Preferred Stock, the number of shares shall be the number of shares of
Common Stock into which the Preferred Stock is convertible) held on the date of
this Agreement by the other Stockholders and (ii) the total of the issued and
outstanding Investor Shares and (b) with respect to performance by an Investor
and its Qualified Transferees, with the consent of the then holders of a
majority of the total of the issued and outstanding Shares held on the date
hereof by the Stockholders, in each case by an instrument in writing. Any waiver
by any party of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any subsequent breach of that provision or of any
other provision hereof. Each of the parties hereto agrees to execute all such
further instruments and documents and to take all such further action as any
other party may reasonably require in order to effectuate the terms and purposes
of this Agreement.Nothing contained in this Agreement shall be deemed a waiver
of any rights of any party arising from transfers of Investor Shares prior to
the date hereof.
13. AMENDMENTS. Except as otherwise expressly provided herein, this
Agreement may not be amended except by an instrument in writing executed by all
of the parties hereto, except that, in the case of the Investors and any
Qualified Transferees then holding Investor Shares, this Agreement may be so
amended by agreement of the then holders of a majority of the total of the
issued and outstanding Investor Shares.
6
<PAGE>
14. ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, legal representatives, successors and permitted transferees,
except as may be expressly provided otherwise herein.
15. SEVERABILITY. In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceabiity
shall not affect any other provision of this Agreement and such invalid, illegal
and unenforceable provision shall be reformed and construed so that it will be
valid, legal, and enforceable to the maximum extent permitted by law.
16. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
17. SECTION HEADINGS. The headings contained in this Agreement are for
reference only and shall not in any way affect the meaning or interpretation of
this Agreement.
18. GOVERNING LAW. This Agreement shall be governed by and construed and
in accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
Address: HEALTHDRIVE CORPORATION
By /s/ Steve Charlap
25 Needham Street -------------------------------
Newton, MA 02161 Title: President
/s/ Steven Charlap, MD
25 Needham Street -------------------------------
Newton, MA 02161 Steven Charlap, MD
/s/ Alec H. Jaret DMD
182 Rawson Road -------------------------------
Brookline, MA 02146 Alec H. Jaret, DMD
7
<PAGE>
<TABLE>
<S> <C>
/s/ Cheryl V. Reicin
--------------------- --------------------------------
--------------------- Cheryl V. Reicin
DDC LIMITED
33/37 Athol Street By /s/ Norman Teare
Douglas, Isle of Man -----------------------------
Title: Director
DDC INTERNATIONAL
HOLDINGS B.V.
Internationale Nederlanden
c/o DDC House By (Nederland) Trust B.V.
Brewery Road -----------------------------
Stillorgan, Blackrock By: G.A.L.R. Diepenheim Mr. E.F. Switzers
Co. Dublin, Ireland
72047.v6
4/20/94
</TABLE>
8
<PAGE>
AMENDMENT NO. 1 TO AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
Amendment, dated as of May 24, 1995 (the "Amendment"), by and among
HealthDrive Corporation, a Delaware corporation (the "Company"), DCC Limited, an
Isle of Man corporation ("Limited"), DCC International Holdings B.V., a
Netherlands corporation ("Holdings"; Limited and Holdings being sometimes
hereinafter referred to individually as an "Investor" and collectively as the
"Investors"), Steven Charlap, M.D. ("Charlap"), Alec H. Jaret, D.M.D. ("Jaret";
Charlap and Jaret being sometimes hereinafter referred to individually as a
"Principal Stockholder" and collectively as the "Principal Stockholders"), and
Cheryl V. Reicin ("Reicin"; Charlap, Jaret and Reicin being sometimes
hereinafter referred to individually as a "Stockholder" and collectively as the
"Stockholders"). Capitalized terms used herein and not otherwise defined shall
have the meanings given to such terms in the Agreement (as defined below).
WHEREAS, the Company, the Investors and the Stockholders are parties to
that certain Amended and Restated Stockholders Agreement dated as of April 28,
1994 (the "Agreement");
WHEREAS, Limited is the owner of 555,000 shares of the Company's Common
Stock, par value $.01 per share, and 571,428 shares of the Company's Class A
Convertible Preferred Stock, par value $.01 per share, and Holdings is the owner
of 181,818 shares of the Company's Class B Convertible Preferred Stock, par
value $.01 per share, (such shares of Class A and Class B Convertible Preferred
Stock are hereinafter referred to collectively as the "Preferred Stock") (as
such shares may hereafter be increased or decreased to reflect stock splits,
stock dividends, reclassifications, recapitalizations or other similar events,
the "Investor Shares"); and
WHEREAS, Limited wishes to transfer to Holdings all of the Investor
Shares it owns and, in connection therewith, the parties desire to amend the
Agreement as set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company, the Investors and the Stockholders hereby agree as
follows:
1. Section 1 is hereby amended in its entirety to read as follows:
"PROHIBITED TRANSFERS. Neither any Stockholder, any Investor nor
any transferee (the Stockholders, the Investors and the transferees
being sometimes hereinafter referred to individually as a "Holder"
and collectively as the "Holders") shall sell, assign, transfer,
pledge, hypothecate, mortgage or dispose of, by gift or otherwise,
or in any way encumber, all or any part of the Shares (as
hereinafter defined) owned by him or it except in compliance with
the terms of this Agreement. For purposes of this Agreement, the
term "Shares" shall mean and include all or any portion of the
shares of Common Stock or Preferred Stock or
<PAGE>
any other capital stock of the Company owned by any Holder, whether
presently held or hereafter acquired. Without limiting the
generality of the foregoing, for purposes of this Agreement, a
transfer of Shares shall be deemed to have occurred as of the date
on which DCC plc, a public limited company registered in Ireland
and the owner of 100% of the outstanding shares of capital stock of
Holdings and Limited ("DCC plc"), or a wholly-owned subsidiary of
DCC plc holds less than 99% of the shares of capital stock of any
Investor or any Qualified Transferee (as hereinafter defined) of
any Investor or its Qualified Transferee."
2. The phrase "30 days" in each place where it appears in Section 2(c) is
hereby amended to read "60 days", and the phrase "30 day" where it appears in
Section 2(c) is hereby amended to read "60 day".
3. Section 2(e) is hereby amended in its entirety to read as follows:
"For purposes of this Agreement, a Qualified Transferee shall mean:
(i) in the case of an Investor, DCC plc or any
wholly-owned subsidiary of DCC plc; and
(ii) in the case of a Stockholder, any transferee of the
type described in Section 4(a)(i) or 4(a)(ii) of
this Agreement."
4. Section 4(b) is hereby amended in its entirety to read as
follows:
"in the case of the Investors, to (i) any one or more transfers of
Shares to a Qualified Transferee of the Investor, or (ii) any
transfer of Shares after termination of this Agreement as provided
in Section 6."
5. Section 5 is hereby amended in its entirety to read as follows:
"ELECTION OF CERTAIN PARTIES AS DIRECTOR. Each Stockholder,
each Investor and each transferee of Shares agrees to vote all
Shares of the Company now owned or hereafter acquired by him or it
to fix the number of members of the Board of Directors of the
Company at a number no greater than seven (7), and to cause and
maintain the election to the Board of (a) in the case of the
Stockholders and their transferees, one (1) nominee of the
Investors or a transferee holding 80% or more of the Investor
Shares (as adjusted for stock splits, stock dividends,
reclassifications, recapitalizations and other similar events) on
behalf of the Investors or such transferee, or, at the option of
the Investors or their transferees in their sole discretion, upon
notice to the Company as provided for in the Preferred Stock
Purchase Agreement dated May 8, 1992 between the Company and
Limited (the "1992 Purchase Agreement"), two (2)
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<PAGE>
nominees of the Investors or a transferee, on behalf of the
Investors or such transferee; and (b) in the case of the Investors
and their transferees, each of Charlap and Jaret for as long as
each owns at least ten percent (10%) of the then issued and
outstanding common stock of the Company (as adjusted for stock
splits, stock dividends, reclassifications, recapitalizations and
other similar events)."
6. The parenthetical in Section 6(b) is hereby amended in its
entirety to read as follows: "(as defined in Section 7.2(e)(6) of the 1992
Purchase Agreement)".
7. ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Amendment shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, legal representatives, successors and permitted
transferees, except as may be expressly provided otherwise herein.
8. SEVERABILITY. In case any one or more of the provisions contained in
this Amendment 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 Amendment and such invalid, illegal
and unenforceable provision shall be reformed and construed so that it will be
valid, legal, and enforceable to the maximum extent permitted by law.
9. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10. GOVERNING LAW. This Amendment shall be governed by and construed
and enforced in accordance with the laws of The Commonwealth of Massachusetts.
[Signatures on following page]
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<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed by the parties
hereto as of the day and year first above written.
HEALTHDRIVE CORPORATION
By: /s/ Steven Charlap, M.D.
------------------------------
Name: Steven Charlap, M.D.
Title: President
/s/ Steven Charlap, M.D.
----------------------------------
Steven Charlap, M.D.
/s/ Alec H. Jaret, D.M.D.
----------------------------------
Alec H. Jaret, D.M.D.
/s/ Cheryl V. Reicin
----------------------------------
Cheryl V. Reicin
DCC LIMITED
By: /s/ Norman Teare
------------------------------
Name: Norman Teare
Title: Director
DCC INTERNATIONAL HOLDINGS B.V.
By: /s/ Fergal O'Dwyer
------------------------------
Name: Fergal O'Dwyer
Title: Director
-4-
<PAGE>
Exhibit 10.8
PREFERRED STOCK PURCHASE AGREEMENT
AGREEMENT made as of this 8th day of May, 1992 by and between HealthDrive
Corporation, a Delaware corporation (the "Company") and DCC Limited, an Isle of
Man corporation (the "Investor").
WHEREAS, the Investor has agreed to invest $1,000,000 in shares of Class A
Convertible Preferred Stock, $.01 par value per share (the "Class A Preferred
Stock"), and the Company has agreed to issue to the Investor shares of the Class
A Preferred Stock, upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and intending to be legally bound, the parties hereto agree as follows:
SECTION 1. TERMS OF PURCHASE
1.1. DESCRIPTION OF SECURITIES AND PURCHASE PRICE. The Company has
authorized the issuance and sale to the Investor of 571,428 shares (the
"Preferred Shares") of its Class A Preferred Stock, for a purchase price of
$1.75 per share.
1.2. SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company shall issue and sell to the Investor, and the Investor shall
purchase from the Company, the Preferred Shares for an aggregate purchase price
of $1,000,000 (the "Purchase Price").
1.3. CLOSING. A closing (the "Closing") of the sale and purchase of Shares
shall take place at the offices of Choate, Hall & Stewart, Exchange Place, 53
State Street, Boston, MA 02109, at 10:00 A.M., on May 8, 1992, or such other
date, time and place as shall be mutually agreed upon by the Company and the
Investor (the "Closing Date"). At the Closing, the Company will deliver a stock
certificate to the Investor evidencing the Preferred Shares, against full
payment of the Purchase Price therefor by or on behalf of the Investor to the
Company by wire transfer of immediately available funds or by certified or bank
cashier's check.
1.4. USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Preferred Shares for working
<PAGE>
capital and expansion of its business, including, without limitation,
acquisitions of the stock or assets of other businesses.
SECTION 2. REPRESENTATIONS AND WARRANTIES
In order to induce the Investor to enter into this Agreement, the Company
represents and warrants to the Investor as follows:
2.1. ORGANIZATION AND CORPORATE POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware, and
is qualified to do business as a foreign corporation in each jurisdiction in
which such qualification is currently required, except where the failure to be
so qualified would not have a material adverse effect on the business,
operations or financial condition of the Company. The Company has all required
corporate power and authority to own its property, to carry on its business as
presently conducted, to enter into and perform this Agreement and generally to
carry out the transactions contemplated hereby. The copies of the Certificate of
Incorporation and By-laws of the Company, as amended to date, which have been
furnished to counsel for the Investor by the Company, are correct and complete
at the date hereof. The Company is not in violation of any term of its
Certificate of Incorporation or By-laws, or in material violation of any term of
any agreement, instrument, judgment, decree, order, statute, rule or government
regulation applicable to the Company, except such violations, if any, that do
not have a material adverse effect on the business, operations or financial
condition of the Company.
2.2. AUTHORIZATION. The Company has full corporate power and authority to
enter into this Agreement, to offer, issue, sell and deliver the Preferred
Shares and to perform its other obligations hereunder. The execution, delivery
and performance of this Agreement, and each other document and instrument to be
executed and delivered to the Investor in connection herewith, have been duly
authorized by all necessary corporate action on the part of the Company, and
this Agreement and such other documents and instruments, when executed and
delivered, shall constitute the valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws of general application affecting enforcement of
creditors rights generally, and the availability of equitable remedies, which
are subject to the discretion of the court before which an action may be
brought, and except as rights to indemnification may be subject to applicable
federal and state
-2-
<PAGE>
securities laws. The Preferred Shares, and the Common Stock of the Company into
which the Preferred Shares are convertible (the "Underlying Securities"), have
been duly authorized and, when issued in accordance with this Agreement and the
Certificate of Incorporation of the Company, as amended, will be duly and
validly issued, fully paid and non-assessable.
2.3. CAPITALIZATION. The Company has a total authorized capitalization of
(i) 2,795,030 shares of common stock, $.01 par value (the "Common Stock"), of
which 2,000,000 shares are issued and outstanding and 571,428 shares are
reserved for issuance upon conversion of the Class A Preferred Stock, and (ii)
571,428 shares of Class A Preferred Stock, all of which shares will be issued to
the Investor under this Agreement (the Common Stock, the Class A Preferred Stock
and any other outstanding class of capital stock of the Company is referred to
herein as the "Stock"). All of the outstanding shares of capital stock of the
Company have been duly authorized and validly issued, and are fully paid and
non-assessable and are owned of record by the persons named as stockholders in
SCHEDULE 2.3 hereto. There are no outstanding warrants, options, conversion
privileges or other rights to purchase or acquire any of the authorized but
unissued capital stock except as may be created hereby or as set forth in
SCHEDULE 2.3 hereto. Except as provided under this Agreement, no stockholder has
any preemptive or similar right to acquire additional shares of capital stock,
and there are no restrictions on the transfer of shares of capital stock of the
Company other than those set forth in SCHEDULE 2.3 hereto and those imposed by
relevant state, federal and foreign securities laws. None of the Company's
capital stock is entitled to cumulative voting rights, and no registration
rights under the Securities Act of 1933, as amended (the "Securities Act") have
been granted by the Company with respect to shares of its capital stock other
that as set forth herein and in SCHEDULE 2.3 hereto. The Common Stock and the
Preferred Shares have the powers, preferences and relative participating,
optional and other special rights, qualifications, limitations and restrictions,
if any, set forth in the Certificate of Amendment to the Certificate of
Incorporation of the Company, attached hereto as Exhibit A.
2.4. FINANCIAL STATEMENTS. The Company has furnished the Investor with an
unaudited balance sheet of the Company, Jeffrey L. Morer, O.D., P.C. (the "Morer
P.C.") and Alec H. Jaret, DMD, P.C. (the "Jaret P.C.") as at December 31, 1991
and an unaudited profit and loss statement for the fiscal year then ended and an
unaudited balance sheet of the Company, the Morer P.C. and the Jaret P.C. as of
March 31, 1992 and an unaudited profit and loss statement for the fiscal period
then ended (collectively, the "Financial Statements"), certified by the
-3-
<PAGE>
President of the Company. The Financial Statements are complete and correct in
all material respects and fairly and accurately present the financial position
of the Company, the Jaret P.C. and the Morer P.C., respectively, on the dates
thereof and the results of its operations for the periods covered thereby and
have been prepared in accordance with generally accepted accounting principles,
consistently applied. Neither the Company, the Jaret P.C. nor the Morer P.C. has
any liability, contingent or otherwise, not adequately reflected in or reserved
against in the Financial Statements or in the notes thereto which either
individually or in the aggregate would have a material adverse effect upon the
business, operations or financial condition of the Company, the Jaret P.C. or
the Morer P.C., except for (i) liabilities disclosed on SCHEDULE 2.4 hereto or
as otherwise disclosed in this Agreement or in the other Schedules hereto, or
(2) liabilities incurred in the ordinary course of business since March 31, 1992
which are not, individually or in the aggregate, material to the Company, the
Jaret P.C. or the Morer P.C.
2.5. TAX MATTERS. All federal, state, and local income, sales, payroll and
other taxes, due and payable by the Company have been paid. There exist no
unpaid assessments, nor, to the best knowledge of the Company, any basis for the
assessment of additional federal or state income taxes on the Company for any
fiscal period. The federal income tax returns of the Company have not been
audited by the Internal Revenue Service, and no notice of audit has been
received. The Company has duly filed all federal, state, and local income, sales
and other tax returns required to have been filed by it and there are in effect
no waivers of applicable statutes of limitations with respect to taxes for any
year. Neither the Internal Revenue Service nor any other taxing authority is now
asserting or, to the best of the Company's knowledge, is threatening to assert
against the Company any deficiency or claim for additional taxes or interest
thereon or penalties in connection therewith, and the Company does not know of
any basis for any such deficiency or claim.
2.6. CONTRACTS AND COMMITMENTS. Other than as specifically referenced
herein, or as set forth on SCHEDULE 2.6 hereto, the Company is not, as of the
date hereof, a party to (1) any employment contract; (ii) any stock redemption
or stock purchase agreement; (iii) any agreement evidencing any indebtedness
for borrowed money or any guarantee by the Company of the indebtedness of any
third party; (iv) any service or supply agreement or any licensing, distributor
or sales representative agreement which involves payments of more than $20,000
to the Company annually; (v) any purchase contract, purchase commitment or any
service or supply agreement or any
-4-
<PAGE>
licensing, distribution or sales representative agreement that involves more
than $20,000 in remaining payments to be made by the Company annually; (vi) any
lease agreement covering any real property or any personal property which
involves more than $20,000 in remaining payments to be made by the Company
annually; (vii) any pension, profit sharing, retirement or stock option plan;
(viii) any contract with any officer, director or principal stockholder of the
Company or the spouse of any of the foregoing; (ix) any voting trust or
stockholders agreement or (x) any management agreement or billing and accounting
agreement entered into by the Company with any professional corporation (each
individually a "Material Contract" and collectively the "Material Contracts").
The Company has complied with all material provisions of, and is not in default
under, any such Material Contracts, except where the failure to comply would not
have a material adverse effect on the business, operations or financial
condition of the Company. The Company has furnished to the Investors true and
complete copies of all such Material Contracts, including all amendments
thereto.
2.7. PROPRIETARY RIGHTS; EMPLOYEE RESTRICTIONS. All patents, and patent
applications, registered trademarks, trade names, services marks and
applications therefor, and all registered copyrights owned by the Company are
listed on SCHEDULE 2.7 hereto. To the best knowledge of the Company, its
business activities and products do not infringe any patent, copyright,
trademark or other proprietary rights of any other person. The Company has not
received any notice or other claim from any person asserting that any of the
Company's present or contemplated activities infringe or may infringe any such
rights of such person. The Company has the right to use (although such use may
not be exclusive), free and clear of adverse claims of others, its customer
lists, software and other proprietary information that are required for the
operation of its business as presently conducted except such claims if any,
which do not have a material adverse effect on the business, operations or
financial condition of the Company. The Company is not aware of any infringement
by others of its copyrights, trademarks, service marks or other proprietary
rights in any of its products or services. Except as set forth on SCHEDULE 2.7
hereto, neither the Company, nor to the best knowledge of the Company any of its
employees have any agreements or arrangements with former employers of such
employees relating to confidential information or trade secrets of such
employers. To the best knowledge of the Company, the activities of the Company's
employees on behalf of the Company do not, in any material respect, violate any
material agreements or arrangements known to the Company which any such
employees have with former employers. Neither of Steven Charlap ("Charlap") or
Alec Jaret ("Jaret") own or hold, directly or indirectly (except as a
-5-
<PAGE>
stockholder of the Company) any interests in any trademarks, trade names,
service marks, patents, copyrights (including applications therefor), inventions
or trade secrets or any other proprietary rights which are used by the Company
in conducting its business or which competes with the Company in the business
currently being conducted by the Company.
2.8. EFFECT OF TRANSACTIONS. The Company is in compliance with all
material obligations, agreements and conditions contained in any evidence of
indebtedness or any loan agreement or other Material Contract, where the failure
of compliance with such Contract would afford any person the right to accelerate
such material indebtedness or terminate such Material Contract. Neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby will (i) conflict with or constitute a breach,
a default or a violation of the Certificate of Incorporation or By-laws of the
Company or of any Material Contract by which the Company is bound or to which
the Company or any of its properties is subject, or (ii) result in a violation
of any court decree, order or regulation binding upon the Company or any
applicable laws or regulations, or (iii) result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company,
subject to applicable bankruptcy, insolvency, reorganization and moratorium laws
and other laws of general application affecting enforcement of creditor's rights
generally.
2.9. LITIGATION AND REGULATORY PROCEEDINGS. There is no litigation or
governmental proceeding or investigation pending or, to the best knowledge of
the Company, threatened against the Company affecting any of its properties,
assets or activities, or against any officer or key employee of the Company
relating to such officer's or employee's activities on behalf of the Company, or
which may call into question the validity, or hinder the enforceability or
performance, of this Agreement; nor, to the best knowledge of the Company, has
there occurred any event nor does there exist any condition on the basis of
which any litigation, proceeding or investigation might reasonably and properly
be instituted with a substantial risk of an outcome which would be materially
adverse to the Company. The offering and sale of the Preferred Shares to the
Investor pursuant to this Agreement is exempt from the requirements of Section 5
of the Securities Act.
2.10. SECURITIES LAW COMPLIANCE. The Company has complied, in all material
respects, and will comply, in all material respects, with all applicable federal
securities and state "blue sky" laws in connection with the issuance and sale of
the Preferred Shares pursuant to this Agreement and in
-6-
<PAGE>
connection with the issuance and sale of any other securities previously issued
or to be issued by the Company.
2.11. LICENSES AND OTHER RIGHTS; COMPLIANCE. Except as set forth on
SCHEDULE 2.11 hereto, the Company has all franchises, permits, licenses and
other rights ("Permits") and privileges necessary to permit it to own its
properties and to conduct its business as such business is presently conducted,
except where the failure to have such Permits would not have a material adverse
effect on the business, operations or financial condition of the Company. The
Company is not in violation of any law, regulation, authorization or order of
any public authority relevant to the ownership of its properties or the conduct
of its business as presently owned or conducted, including, without limitation,
all such laws, regulations and orders relating to the corporate practice of
medicine, fair employment practices, public or employee safety, and
environmental protection, water or air pollution and similar matters, except
such violations, if any, that do not have a material adverse effect on the
business, operations or condition of the Company.
2.12. BROKERS OR FINDERS. There are no claims for any brokerage
commissions, finder's fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of the Company.
2.13. DISCLOSURE. To the best of the Company's knowledge and belief, this
Agreement, and all other agreements, documents, certificates furnished to the
Investor by the Company pursuant to this Agreement, do not contain any untrue
statement of a material fact, and do not fail to state a material fact necessary
in order to make the statements contained herein or therein, when taken as a
whole, not misleading.
2.14. EMPLOYEES. To the best knowledge of the Company, no employee of the
Company is in violation of any material term of any employment contract, patent
disclosure agreement, non-competition agreement, restrictive covenant or any
other material contract or agreement with, a former employer, relating to the
right of any such employee to be employed by the Company because of the nature
of the business conducted by the Company or relating to the use of trade secrets
or proprietary information of others. To the best knowledge of the Company, no
officer, employee or consultant of the Company is in material violation of any
obligation to the Company relating to such individual's use of confidential or
proprietary information of the Company. The Company does not have a collective
bargaining agreement covering any of its employees. All of the Company's
employees are listed on SCHEDULE 2.14 attached hereto.
-7-
<PAGE>
2.15. INVESTMENT IN OTHER PERSONS. The Company has not made any loan or
advance in excess of $1,000 to any person which is outstanding on the date
hereof (other than advances made to employees or customers in the ordinary
course of business) and is not committed or obligated to make any such loan or
advance. The Company does not own any capital stock, assets comprising the
business of, or any equity interest in, any other person or entity.
2.16. TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE 2.16
hereto, there are no loans, leases or other continuing transactions between the
Company and any Affiliate of the Company (as hereinafter defined), except as
specifically contemplated herein, nor, to the best of the Company's knowledge,
does any Affiliate of the Company own, directly or indirectly, individually or
collectively, five percent (5%) or more of the equity interest in any person
which is a competitor, customer or supplier of the Company, or have any existing
contractual relationship with any such person. An "Affiliate of the Company"
shall be deemed to be any person or entity which is a stockholder, officer or
director of the Company, and any relative by blood or marriage of, any trust or
estate for the benefit of, or any person or entity which directly or indirectly
controls, is controlled by, or is under common control with, any such
stockholder, director or officer.
2.17. ERISA. The Company does not make any contributions to any pension,
defined benefit or defined contribution plans for the benefit of its employees
which is subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
2.18. INSURANCE. The Company carries issuance, including property,
casualty and liability insurance, covering its properties and business adequate
and customary for the type and scope of its properties and business.
SECTION 3. CONDITIONS OF PURCHASE
The Investor's obligation to purchase and pay for the Preferred Shares
shall be subject to compliance by the Company with its agreements herein
contained and to the fulfillment to the Investor's satisfaction on or before and
at the Closing Date of the following conditions:
3.1. CERTIFICATE OF THE COMPANY. The representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date; each of the conditions
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<PAGE>
hereafter specified in this Section 3 shall have been satisfied; and on the
Closing Date a certificate to such effect executed by the President of the
Company shall be delivered to the Investor.
3.2. OPINION OF COMPANY COUNSEL. The Investor shall have received from
counsel for the Company, Choate, Hall & Stewart, its favorable opinion, dated
the Closing Date, substantially in the form attached hereto as Exhibit B.
3.3. AUTHORIZATION. The Board of Directors and, if necessary, the
stockholders of the Company shall have duly adopted resolutions in form
reasonably satisfactory to the Investor and its counsel authorizing the Company
to consummate the transactions contemplated hereby in accordance with the terms
hereof, and the Investor shall have received a duly executed certificate of the
Secretary or an Assistant Secretary of the Company setting forth a copy of such
resolutions and such other matters as may be reasonably requested by the
Investor or its counsel.
3.4. AMENDED AND RESTATED STOCKHOLDERS AGREEMENT. The Company, the
Investor, Charlap, Jaret and the other stockholders of the Company identified
therein shall have executed and delivered an Amended and Restated Stockholders
Agreement, among the parties, substantially in the form of Exhibit C hereto.
3.5. AMENDMENT TO EMPLOYMENT AGREEMENT. The Company shall have amended its
employment agreement with Charlap to extend the terms thereof so that it will
end on December 31, 1996.
3.6. AMENDMENTS TO MANAGEMENT AGREEMENTS. The Company shall have amended
its management agreement and billing and accounting agreement, each dated
October 3, 1989, with the Jaret P.C. and its management agreement, dated March
15, 1990, with the Morer P.C. to extend the terms thereof so that they will end
on December 31, 2002.
3.7. FILING OF CERTIFICATE OF AMENDMENT. The Certificate of Amendment
substantially in the form set forth in EXHIBIT D hereto shall have been duly
adopted by the shareholders of the Company, duly filed with the Secretary of
State of Delaware and become effective under the laws of Delaware.
3.8. OPTION PLAN. The Board of Directors and the shareholders of the
Company shall have adopted a stock option plan substantially in the form of the
plan attached as EXHIBIT E hereto.
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3.9. ALL PROCEEDINGS SATISFACTORY. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents evidencing such transactions,
shall be reasonably satisfactory in form and substance to the Investor, and the
Investor shall receive such copies thereof and other materials (certified, if
requested) as it may reasonably request in connection therewith. The issuance
and sale of the Preferred Shares to the Investor shall be made in conformity
with all applicable state and federal securities laws.
SECTION 4. COVENANTS OF THE COMPANY
The Company shall comply with the following covenants, except as shall
otherwise be expressly consented to in writing by the Investor in accordance
with Section 8.1 hereof, until the earlier of such time as (a) the Investor
ceases to hold at least ten percent (10%) of the issued and outstanding Stock of
the Company or (b) the Company completes a Qualified Public Offering (as defined
in Section 7.2(e) hereof).
4.1. FINANCIAL STATEMENTS. (a) The Company will, and will cause each
professional corporation with which it enters into a management arrangement
to, keep full and complete financial records and furnish to the Investor
financial reports as specified below: (i) within ninety (90) days after the
end of the fiscal year commencing on January 1, 1992 and for each fiscal year
thereafter, a copy of the balance sheet of the Company at the end of such
year together with a statement of income and retained earnings of the Company
for such year, together with similar financial statements for each such
professional corporation, each of which shall be audited by Price Waterhouse
or other independent auditors of recognized standing reasonably satisfactory
to the Investor, prepared in accordance with generally accepted accounting
principles and practices, consistently applied; (ii) within thirty (30) days
after the end of each month commencing with April 1992 an unaudited balance
sheet of the Company as at the end of such month and an unaudited statement
of income and retained earnings for the Company for such month and an
unaudited statement of income and retained earnings for the Company for such
month and for the year to date, each of the foregoing balance sheets and
statements of income and retained earnings to set forth in comparative form
the corresponding figures for the prior fiscal period and to include a brief
written discussion and analysis by management of such monthly and annual
financial statements; and (iii) such other financial information as the
Investor may reasonably request, including without limitation, certificates
of the principal financial officer of the Company concerning compliance with
the covenants of the Company under this Section 4.
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(b) The Company will deliver to the Investor, within three months of the
Closing Date, a copy of the balance sheet of the Company for the year ended
December 31, 1991, together with a statement of income and retained earnings of
the Company for such year, prepared in accordance with generally accepted
accounting principles, consistently applied, which have been audited by Price
Waterhouse.
4.2. BUDGET. The Company will prepare and submit to the Board of Directors
of the Company a budget for each fiscal year of the Company at least thirty (30)
days prior to the beginning of such fiscal year, together with management's
written discussion and analysis of such budget. A budget shall be accepted as
the budget for such fiscal year (as accepted, the "Budget") when it has been
approved by the Board of Directors. The Company shall review the Budget
periodically and shall advise the Board of Directors of all material changes
therein and all material deviations therefrom. For purposes of this Agreement,
the budget for fiscal 1992 shall be as set forth in SCHEDULE 4.2 hereto,
adjusted as necessary to reflect the expenses incurred in connection with the
negotiation and consummation of this Agreement and the agreements related
hereto.
4.3. CONDUCT OF BUSINESS. The Company will continue to engage principally
in the business now conducted by the Company and other than optometry, podiatry,
dentistry, audiology or other related health care at corporate or industrial
sites, the Company shall not engage in or enter into any new line of business.
The Company will keep in full force and effect its corporate existence and all
intellectual property rights useful in its business (except such rights as the
Company has reasonably determined are not material to the Company's continuing
operations) and comply, in all material respects, with all applicable laws and
regulations in the conduct of its business. The Company shall take all
reasonable steps required to establish and preserve its ownership of all
proprietary rights, including but not limited to, copyrights, tradenames and
service marks with respect to its products and services, except for such rights
as the Company reasonably determines are not material to the Company's
continuing business operations.
4.4. PAYMENT OF TAXES, COMPLIANCE WITH LAWS, ETC. The Company will pay and
discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a material lien or material charge upon its
properties or any material part thereof; PROVIDED, HOWEVER, that the Company
shall not be required to pay and discharge any such tax, assessment, charge,
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levy, or claim so long as the validity thereof is being contested by the Company
in good faith by appropriate proceedings and an adequate reserve therefor has
been established on its books. The Company will use its best efforts to comply,
in all material respects, with all applicable laws and regulations in the
conduct of its business.
4.5. ADVERSE CHANGES. The Company will promptly advise the Investor of any
event which represents a material adverse change in the condition, business, or
(to the best knowledge of the Company) the prospects, financial or otherwise, of
the Company, and of each suit or proceeding commenced or threatened against the
Company which, if adversely determined, would result in such a material adverse
change. The Company will also promptly notify the Investor of any facts which,
if such facts had existed at the Closing, would have constituted a material
breach of the representations and warranties contained herein, provided, that
the Company shall be under no such notification obligation with regard to the
representations and warranties contained in Section 2.4, Section 2.6, Section
2.7 or Section 2.14 hereof or in Section 2.3 hereof with respect to the granting
of stock options permitted by Section 4.18 hereof or the issuance of Stock upon
the exercise or conversion of any outstanding securities.
4.6. INSURANCE. The Company will keep its insurable properties insured,
upon reasonable business terms, by financially sound and reputable insurers
against hazards and risks and liability to persons and property sufficient in
the reasonable judgment of the Board of Directors to protect the Company. The
Company will, upon written request of the Investor, provide the Investor
annually with certificate of insurance or copies thereof evidencing all policies
then in effect.
4.7. LIFE INSURANCE. The Company shall use its best efforts to obtain and
maintain and continue to pay the premiums on key-man term life insurance
policies on the life of Charlap in the amount of $1,500,000 and on the life of
Jaret in the amount of $500,000, each such policy to name either the Company or
the Company's bank as beneficiary.
4.8. MAINTENANCE OF PROPERTIES. The Company will maintain all material
properties used or held for use in the conduct of its business in good repair,
working order and condition (ordinary wear and tear excepted) as necessary to
permit the Company to conduct its business as presently conducted.
4.9. AFFILIATED TRANSACTIONS. All transactions by and between the Company
and any officer, key employee or stockholder
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of the Company, or persons controlled by or affiliated with such officer, key
employee or stockholder, shall be (a) on terms and conditions no less favorable
to the Company than could be obtained from non-related persons on an
arms-length basis, and (b) approved in advance by the Board of Directors after
full disclosure of the terms thereof, for which purpose the interested party, if
a director, and any affiliate of the interested party who is a director, shall
not be entitled to vote, except for (i) employment agreements, confidentiality
or non-compete agreements entered into in the ordinary course of business with
employees other than Charlap or Jaret and (ii) advances or loans to employees or
to the Jaret or Morer P.C. or any other professional corporation with which the
Company has a management agreement, in each case made in the ordinary course of
business.
4.10. COMPENSATION. Compensation paid by the Company or its affiliates
(including the Jaret P.C.) to Charlap and Jaret shall be solely as specified
under the terms of their respective employment agreements with the Company,
which shall not be materially altered or amended without the consent of the
Board of Directors. After the expiration of those agreements, the Board of
Directors shall determine and approve the terms of any compensation or
employment agreement or arrangement between Charlap and Jaret and the Company.
Notwithstanding the foregoing, nothing contained herein shall in any way
prohibit payments to Jaret by the Jaret P.C.
4.11. INSPECTION. The Company shall, upon reasonable prior notice, permit
authorized representatives of the Investor, at the expense of the Investor, to
visit and inspect any of the properties of the Company, including its books of
account (and, at the expense of the Investor, to make copies thereof and take
extracts therefrom), and to discuss its affairs, finances and accounts with its
officers, administrative employees and independent accountants, all at such
reasonable times during normal business hours and as often as may be reasonably
requested.
4.12. BOARD OF DIRECTORS MEETINGS. (a) The Company shall use its best
efforts to cause one nominee of the Investor to be recommended to the
stockholders for election as a director at all meetings of stockholders, or
consents in lieu thereof, for such purpose, and at the option of the Investor
upon notice to the Company, to cause a second nominee of the Investor to be
recommended to the stockholders for election as a director at all meetings of
stockholders, or consents in lieu thereof, for such purpose. The selection of
the nominees of the Investor (which nominees shall not include Michael Kaplan)
shall be subject to the consent of the Board of Directors, which consent
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shall not be unreasonably withheld. The Company shall ensure that meetings of
its Board of Directors be held at least six (6) times annually at intervals of
not more than two months within a 30 mile radius of Boston, Massachusetts. The
Company will pay the nominees of the Investor who serve on the Board of
Directors an annual fee for their attendance at Board meetings which in the
aggregate for both nominees of the Investor will total $6,655 (such amount to
be increased annually hereafter on each anniversary of the date of this
Agreement to reflect the percentage increase over March in the prior year in the
Consumer Price Index for all Urban Consumers, Boston, Massachusetts Area, All
Items, (1982-84 = 100)) and reimburse such directors for their reasonable
travel expenses from within Massachusetts, incurred in connection with attending
meetings of the Board of Directors or performing such other business on behalf
of the Company as may be approved by the Chief Executive Officer of the Company
in advance.
(b) The Certificate of Incorporation or By-laws of the Company shall at
all times during which any nominee of the Investor serves as a director of the
Company provide for indemnification of the directors and limitations on the
liability of the directors to the fullest extent permitted under applicable
state law. If so voted by the Board of Directors, the Company will use its best
efforts to obtain and maintain on reasonable business terms director's and
officer's liability insurance providing coverage for each director of at least
$1,000,000 per occurrence for the fiscal years beginning after December 31,
1993.
(c) The Company shall use its best efforts to cause the Board to appoint
and maintain a stock option committee of the Board (the "Stock Option
Committee") which will consist of not less than an equal number of non-executive
and executive directors. The Stock Option Committee shall be delegated authority
to administer the Company's stock option and other similar compensation plans
and to approve all awards under any such plans.
4.13. ENFORCEMENT OF AGREEMENTS. The Company agrees that it will
diligently enforce all of its material rights under the Stockholders Agreement,
dated as of October 3, 1989, among the Company and certain of its stockholders,
as amended; the Management Agreement, dated October 3, 1989, between the Jaret
P.C. and the Company, as amended; the Billing and Accounting Agreement, dated
October 3, 1989, between the Jaret P.C. and the Company, as amended; the
Management Agreement, dated March 15, 1990, between the Morer P.C. and the
Company, as amended; any other management or billing and accounting agreement
between the Company and any other professional corporation; the Employment
Agreement and the Non-Compete Agreement, each dated as of
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October 3, 1989, between the Company and Charlap as amended; and the Employment
Agreement and the Non-Compete Agreement, each dated as of October 3, 1989,
between the Company and Jaret, as amended, and that it will not enter into,
grant or consent to, or otherwise permit any material amendment to, supplement
of, or waiver under any of such agreements without the written consent of the
Investor (which consent shall not be unreasonably withheld unless materially
adverse to the interest of the Investor).
4.14. DISTRIBUTIONS OR REDEMPTION OF CAPITAL STOCK. Except for pro rata
stock dividends and stock splits and as otherwise set forth in SCHEDULE 4.14
hereof, the Company will not declare or pay any dividends, effect any
recapitalization or make any distributions of cash, property or securities of
the Company with respect to any shares of its Stock, or, directly or indirectly,
redeem, purchase, or otherwise acquire for consideration any shares of its
Stock.
4.15. MERGER, CONSOLIDATION OR SALE OF ASSETS. Without the approval of the
Investor, the Company will not sell, lease or otherwise dispose of all or
substantially all of its assets. Without the approval of the Investor, which
approval shall not be unreasonably withheld, the Company will not merge with or
into or consolidate with another corporation, or acquire any other corporation
or business concern, whether by acquisition of assets, capital stock or
otherwise, and whether in consideration of payment of cash, issuance of stock or
otherwise.
4.16. NO AMENDMENTS TO CERTIFICATE OF INCORPORATION. The Company will not
make any amendment to its Certificate of Incorporation or its By-laws, without
the approval of the Investor.
4.17. EXPENDITURES. The Company will not make any expenditure for fixed or
capital assets pursuant to any lease or otherwise (excluding leases of motor
vehicles) or make any loan to any entity for the purpose of such entity making
any such expenditure, if the amount of such expenditures or outstanding loans
when added to the aggregate value of all such prior expenditures (as adjusted
for depreciation) and all outstanding loans by the Company would exceed 90% of
the net worth of the Company combined with the net worth of all professional
corporations with which the Company has entered into a management agreement and
of which Jaret and/or Charlap beneficially own in excess of 50% of the
outstanding capital stock, in each case as shown on its and their most recent
audited or interim financial statements delivered in accordance with Section 4.1
hereof, unless such expenditure has been approved by the Investor.
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4.18. STOCK OPTIONS. With the approval of the Stock Option Committee, the
Company may grant options to purchase Stock to executives, directors, employees
and staff members of the Company and Subsidiaries (as defined in its Stock
Option Plan) and employees of professional corporations affiliated with and/or
providing services for the Company and or its Subsidiaries only pursuant to its
Stock Option Plan provided that (a) the aggregate number of shares of Stock
issuable under such options and the aggregate number of shares of Stock issuable
under all warrants, options, and rights outstanding on the date hereof shall not
exceed an amount equal to eight percent (8%) of the Stock of the Company (on a
fully-diluted basis) outstanding immediately following the Closing (assuming the
conversion of all outstanding convertible securities of the Company) and (b)
that, without the approval of the Investor, no stock options may be granted to
Charlap or Jaret during the term of this Agreement. Except for the 50,000 stock
options issued or to be issued to Michael Kaplan pursuant to an employment
letter dated May 8, 1992, all outstanding stock options shall be subject to
agreements that shall, unless the Investor shall otherwise consent, which shall
not unreasonably be withheld, reflect substantially the terms of the Stock
Option Plan attached as Exhibit E hereto.
4.19. RATIO OF TOTAL LIABILITIES TO TOTAL NET WORTH. The Company will
maintain at all times (a) a ratio of Combined Total Liabilities (as hereinafter
defined) to Combined Net Worth (as hereinafter defined), determined in
accordance with generally accepted accounting principles consistently applied,
of not greater than 1 to 1 and (b) a ratio of Adjusted Combined Total
Liabilities (as hereinafter defined) to Adjusted Combined Net Worth (as
hereinafter defined) of not greater than 1.5 to 1. As used in this Section 4.19,
Combined Total Liabilities and Combined Net Worth shall mean the total
liabilities and total net worth of the Company, respectively, combined with the
total liabilities and total net worth, respectively, of all professional
corporations with which the Company has entered into a management agreement and
of which Jaret and/or Charlap beneficially own in excess of 50% of the
outstanding capital stock, in each case, such liabilities and net worth being
determined in accordance with generally accepted accounting principles
consistent with those applied in the preparation of the financial statements
referred to in Section 4.1. As used in this Section 4.19, Adjusted Combined Net
Worth and Adjusted Combined Total Liabilities shall have the same meanings as
Combined Total Net Worth and Combined Total Liabilities, except that the
determination of such amounts shall include the present value of all lease
payments under all non-real estate leases of the Company, capital, operating or
otherwise (with present value being calculated using an interest rate of the
prime rate set by
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the First National Bank of Boston at its main office plus seven and one-half
percent (7 1/2%))
4.20. RESTRICTIONS ON OTHER AGREEMENTS. The Company will not enter into
any agreement with any party which agreement by its terms obligates the Company
in any manner, or grants any right, which conflicts with the rights granted to
the Investor pursuant to this Agreement.
4.21. LOANS AND ADVANCES: BONUSES. The Company shall not make or enter
into any agreement to make or guarantee loans or advances to its officers,
directors, employees or stockholders or any other related persons, or to any
other persons or entities without the prior approval of the Investor, which
approval shall not be unreasonably withheld, except for (a) loans, advances or
guarantees in the ordinary course of business for amounts not material to the
Company, (b) loans, advances or guarantees (including, without limitation, for
the purpose of acquisition of dental and opthamology equipment) to the Jaret
P.C. and the Morer P.C. (and such additional professional corporations with
which the Company shall enter into similar arrangements) in the ordinary course
of business and (c) after November 8, 1993, loans, advances or guarantees in
amounts not to exceed $75,000. The Company shall not, in any fiscal year, pay or
accrue cash bonuses to its employees other than Charlap in an aggregate amount
greater than five percent (5%) of the net profits of the Company after all
expenses (including extraordinary items) but before provision for taxes and
bonuses for such year, nor shall the Company pay any bonus to Charlap except as
provided in his employment agreement with the Company referenced herein or after
such employment agreement terminates as approved by the Board of Directors.
4.22. BUSINESS DEVELOPMENT FEE. The Company shall pay the Investor an
annual fee of $9,983 (such amount to be adjusted annually hereafter on each
anniversary of the date of this Agreement to reflect the percentage increase
from March in the prior year in the Consumer Price Index for all Urban
Consumers, Boston, Massachusetts Area, All Items, (1982-84 = 100)) for the
general business and development services of the Investor Nominee Director. Such
fee shall be payable quarterly in arrears.
4.23. ADDITIONAL PROFESSIONAL CORPORATIONS. The Company will enter into
exclusive management agreements and billing and accounting agreements with all
professional corporations with which it enters into a management relationship on
terms favorable to the Company, subject to applicable provisions of law.
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4.24. BEST EFFORTS. Each of Charlap and Jaret, jointly and severally,
agrees, in his capacities as a stockholder of the Company, to use his best
efforts to cause the Company to comply with its covenants and obligations under
this Agreement; provided, however, that the parties hereto acknowledge that the
foregoing agreement is not intended to be construed as a guarantee by Charlap
and Jaret of the performance of such covenants by the Company.
SECTION 5. REPRESENTATIONS OF INVESTOR
The Investor hereby represents with respect to its purchase of the
Preferred Shares hereunder, that:
5.1. INVESTMENT REPRESENTATIONS. The Preferred Shares issuable hereunder
and the Underlying Securities into which such shares are convertible are being
or will be acquired by the Investor for its own account, for investment and not
with a view to, nor for sale in connection with, any distribution thereof, and
without any present intention of selling the same. The Investor understands and
acknowledges that the Preferred Shares and the Underlying Securities have not
been registered under the Securities Act or any state "blue sky" laws and that
such Preferred Shares and the Underlying Securities cannot be transferred or
sold unless such Securities are registered under the Securities Act and
applicable state securities laws or an exemption from registration is available.
The Investor will not transfer any of the Preferred Shares or any of the
Underlying Securities in violation of the provisions of any applicable
securities law or statute. The Investor first learned of the proposed investment
in the Preferred Shares in the Commonwealth of Massachusetts and intends that
the securities laws of the Commonwealth of Massachusetts and federal securities
laws alone will govern this transaction. The Investor further acknowledges that
the Company in issuing the Preferred Shares is relying upon, among other things,
the representations and warranties of the Investor contained in this Section 5
in concluding that such issuance is a "private offering" and does not require
compliance with the registration provisions of the Securities Act or the
provisions of any state securities laws. The Investor acknowledges and
understands that, except as provided in Section 6 hereof, it has no independent
right to require the Company to register the Preferred Shares or the Underlying
Securities. The Investor is aware that the Company may not accomplish a public
offering of its Stock and that as a consequence of the lack of a public market
for the Stock it may be required to hold the Shares for an indefinite period of
time. The Investor further understands that the Company may, as a condition to
the transfer of any of its Stock, require that the request for transfer be
accompanied by opinion of counsel, in form and substance
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satisfactory to the Company, to the effect that the proposed transfer does not
result in violation of the Securities Act or applicable state securities laws.
5.2. INVESTMENT EXPERIENCE. The Investor is an experienced investor in
securities of companies in the development stage and acknowledges that the
Investor is able to fend for itself, can bear the economic risk of the
Investor's investment and has such knowledge and experience in financial or
business matters that the Investor is capable of evaluating the merits and risks
of the investment in the Preferred Shares and the Underlying Securities. The
Investor has been given the opportunity to make a thorough investigation of the
affairs of the Company, and has availed itself of such opportunity. The Investor
also represents it has not been organized for the purpose of acquiring the
Preferred Shares or the Underlying Securities.
5.3. RESTRICTIVE LEGEND. The Investor acknowledges that until the
Preferred Shares or the Underlying Securities are registered under the
Securities Act and any applicable state securities laws or unless they are
exempt from the registration requirements of the Securities Act and any
applicable state securities laws, all certificates evidencing any of the
Preferred Shares or the Underlying Securities, whether upon initial issuance or
upon any transfer thereof, shall bear a legend, prominently stamped or printed
thereon, reading substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE
SOLD, TRANSFERRED, OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION THEREOF UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS,
OR IF IN THE OPINION OF COUNSEL FOR THE REGISTERED OWNER HEREOF, THE FORM
OF WHICH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY, THE PROPOSED
SALE, TRANSFER OR ASSIGNMENT MAY BE EFFECTED WITHOUT SUCH REGISTRATION AND
WILL NOT BE IN VIOLATION OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS."
5.4. BROKERS OR FINDERS. There are no claims for any brokerage
commissions, finder's fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of the Investor.
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SECTION 6. REGISTRATION RIGHTS
6.1. "PIGGY-BACK" REGISTRATIONS. (a) If at any time or times after the
date hereof, the Company shall determine to register any of its Stock under the
Securities Act (whether in connection with a public offering of securities by
the Company, a public offering of securities by stockholders, or both, but not
in connection with a registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 or any other similar rule of the
Securities and Exchange Commission (the "Commission") under the Securities Act
is applicable), the Company will promptly give written notice thereof to the
holders of Registrable Securities (as hereinafter defined in Section 6.5) then
outstanding (the "Holders") and all other stockholders of record. In connection
with any such registration, if within 15 days after the receipt of such notice,
the Holders of the Registrable Securities request the inclusion of some or all
Registrable Securities owned by them in such registration, the Company will use
its best efforts to include in such registration statement all or any part of
the Registrable Securities such Holders request to be registered; PROVIDED,
HOWEVER, that in the case of the registration of Stock by the Company in
connection with an underwritten public offering, the Company shall not be
required to register Registrable Securities of the Holders in excess of the
amount, if any, of Stock which the principal underwriter reasonably and in good
faith agrees in writing to include in such offering in excess of the amount to
be registered for the Company; and PROVIDED, FURTHER, that if any Registrable
Securities are not included for this reason, the Company will nevertheless
permit the Holders of Registrable Securities who have requested participation in
the registration (on a pro rata basis in proportion to their respective holdings
of Registrable Securities) to register at least such number of Registrable
Securities which is equal to 50% of the number of shares of stock to be
registered by shareholders in such offering prior to including in such
registration any shares of any other shareholders. Nothing in this Section 6.1
is intended to prohibit stockholders other than the Holders of Registrable
Securities from participating in an offering described in this Section 6.1.
(b) If the Company includes in such a registration any securities to be
offered by it, all expenses of the registration and offering and the reasonable
fees and expenses of independent counsel for the Holders shall be borne by the
Company (provided the Company shall not be required to bear the fees and
expenses of more than one counsel for the Holders), except that the Holders
shall bear underwriting discounts and commissions, dealer's fees and broker's
fees and any transfer taxes
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attributable to the Registrable Securities being sold by such Holders. If the
registration under this Section 6.1 is exclusively a secondary offering by
Stockholders of the Company, the Holders shall bear their proportionate share of
the expenses of the registration and offering (provided all stockholders
registering shares thereunder bear their proportionate share of expenses),
except expenses which the Company would have incurred whether or not
registration was attempted, including, without limitation, the expense of
preparing normal audited or unaudited financial statements or summaries
consistent with this Agreement or applicable Commission filings.
(c) Without in any way limiting the types of registrations to which this
Section 6.1 shall apply, in the event that the Company shall effect a "shelf
registration" under Rule 415 promulgated under the Securities Act, or any other
similar rule or regulation ("Rule 415"), the Company shall take all necessary
action, including, without limitation, the filing of post-effective amendments,
to permit the Investor to include Registrable Securities with respect to each
such offering (on a pro rata basis if so determined separately for each such
offering by the underwriter in the circumstances set forth above) in such
registration in accordance with the terms of this Section 6.1. If the Company
elects to terminate any registration pursuant to this Section 6.1, the Company
shall have no obligation to register the Registrable Securities sought to be
registered by the Holders, provided that the Company shall bear all expenses of
the registration incurred by the Holders up through the time of such
termination, as provided above. In connection with any offering involving an
underwriting of Stock to be issued by the Company, the Company shall not be
required to include a Holder's Registrable Shares in such underwriting unless
such Holder accepts the terms of the underwriting as agreed upon by the Company
and the underwriters selected by the Company.
6.2. REQUIRED REGISTRATION. (a) If, one hundred eighty (180) days
following an initial public offering by the Company, on any two (2) occasions,
Holders of not less than a majority of the Registrable Securities then
outstanding notify the Company in writing that it or they intend to offer or
cause to be offered for public sale at least twenty percent (20%) of the then
issued and outstanding Registrable Securities have an aggregate proposed
offering price of not less than $500,000, the Company will notify all of the
Holders of Registrable Securities. Upon the written request of any such Holder
delivered to the Company within fifteen (15) days after receipt from the Company
of such notification, the Company will either (i) elect to make a primary
offering of its securities to the public, in which case the rights of such
Holders shall be as set
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forth in Section 6.1 (except that the Company shall not be permitted to limit
the number of shares which may be registered by any Holder), or (ii) use its
best efforts to cause such of the Registrable Securities as may be requested by
any Holders (including the Holder or Holders giving the initial notice of intent
to register hereunder) to be registered under the Securities Act in accordance
with the terms of this Section 6.2. Nothing in this Section 6.2 shall prohibit
other stockholders from participating in any such offering, provided that if the
principal underwriter shall reasonably and in good faith determine that less
than all of the shares proposed to be offered by the Holders and such other
stockholders should be included in an offering pursuant to this Section 6.2, any
reduction in the shares to be offered by Holders and such other holders will be
made on a pro rata basis among the Holders and such other holders, in accordance
with their respective ownership of stock of the Company.
(b) All expenses of such registrations and offerings and the reasonable
fees and expenses of not more than one independent counsel for the Holders shall
be borne by the Company, except that the Holders shall bear underwriting
discounts and commissions, dealer's fees and broker fees and any transfer taxes
attributable to the Registrable Securities being sold by the Holders.
(c) The Company shall not be required to cause a registration statement
requested pursuant to this Section 6.2 to become effective prior to ninety (90)
days following the effective date of a registration statement initiated by the
Company, if the request for registration has been received by the Company
subsequent to the giving of written notice by the Company, made in good faith,
to the Holders of Registrable Securities to the effect that the Company is
commencing to prepare a Company initiated registration statement (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Commission under
the Securities Act is applicable); PROVIDED, HOWEVER, that the Company shall use
its best efforts to achieve such effectiveness promptly following such
ninety-day (90) period if the request pursuant to this Section 6.2 has been made
prior to the expiration of such ninety-day (90) period. The Company may postpone
the filing of any Registration Statement required hereunder for a reasonable
period of time, not to exceed ninety (90) days, if the Company has been advised
by legal counsel that such filing would require the disclosure of a material
transaction or other matter and the Company determines reasonably and in good
faith that such disclosure would have a material adverse effect on the Company
or if the Board of Directors of the Company determines that immediate
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registration of such Registrable Securities could otherwise have a material
adverse effect upon the Company.
6.3. FORM S-3. (a) If the Company becomes eligible to use Form S-3 under
the Securities Act or a comparable successor form, upon the written request of
Holders of an aggregate of at least ten (10%) percent of the outstanding
Registrable Securities (which request shall state the number of Registrable
Securities to be sold), the Company will use its best efforts to effect
registration of such Registrable Securities, PROVIDED, HOWEVER, that no more
than two such registration statements need be filed by the Company in any
12-month period and the aggregate proposed offering price of the Registrable
Securities shall not be less than $250,000. The Company shall give notice to all
Holders of Registrable Securities of the receipt of a request for registration
pursuant to this Section 6.3 and shall provide a reasonable opportunity for such
Holders to participate in the registration. The Company shall not be required to
cause a registration statement requested pursuant to this Section 6.3 to become
effective ninety (90) days following the effective date of a registration
statement initiated by the Company, if the request for registration has been
received by the Company subsequent to the giving of written notice by the
Company, made in good faith, to the Holders of Registrable Securities to the
effect that the Company is commencing to prepare a Company-initiated
registration statement (other than a registration effected solely to implement
an employee benefit plan or a transaction to which Rule 145 or any other similar
rule of the Commission under the Securities Act is applicable); PROVIDED,
HOWEVER, that the Company shall use its best efforts to achieve such
effectiveness promptly following such ninety-day (90) period if the request
pursuant to this Section 6.3 has been made prior to the expiration of such
ninety-day (90) period.
(b) The Company may postpone the filing of any Registration Statement
required hereunder for a reasonable period of time, not to exceed ninety (90)
days, if the Company has been advised by legal counsel that such filing would
require the disclosure of a material transaction or other factor and the Company
determines reasonably and in good faith that such disclosure would have a
material adverse effect on the Company or if the Board of Directors of the
Company determines that immediate registration of such Registrable Securities
could otherwise have a material adverse effect upon the Company. If so requested
by any Holder in connection with a registration under this Section 6.3, the
Company shall take such steps as are required to register such Holder's
Registrable Securities for sale on a delayed or continuous basis under Rule 415
(if the offering of securities is permitted on a continuous or delayed basis),
and to keep such registration effective until all of
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such Holder's Registrable Securities registered thereunder are sold; provided,
however, in no event shall the Company be required to maintain the effectiveness
of a registration statement for more than nine months.
(c) All expenses incurred in connection with any registration requested
pursuant to this Section 6.3 and the reasonable fees and expenses of not more
than one independent counsel for the Holders shall be borne by the Company,
except that the Holders shall bear underwriting discounts and commissions,
dealer's fees and broker fees and any transfer tax attributable to the
Registrable Securities being sold by the Holders.
6.4. FURTHER OBLIGATIONS OF THE COMPANY. Whenever under the preceding
sections of this Section 6 the Company is required hereunder to register
Registrable Securities, it agrees that it shall also do the following:
(i) Use its best efforts to diligently prepare for filing with the
Commission a registration statement and such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with the
provisions of the Act with respect to the sale of securities covered by such
registration statement for the period necessary to complete the proposed public
offering; provided, however, that in no event will the Company be required to
maintain the effectiveness of any registration statement for more than one
hundred and twenty (120) days except as otherwise provided in Section 6.3(b).
(ii) Furnish to each selling Holder such copies of each preliminary and
final prospectus and such other documents as such Holder may reasonably request
to facilitate the public offering of its Stock;
(iii) Enter into any underwriting agreement with provisions reasonably
required by the proposed underwriter for the selling Holders, if any; and
(iv) Use its best efforts to register or qualify the Stock covered by said
registration statement under the securities or "blue-sky laws of such
jurisdictions as the underwriter shall determine to be necessary to effect the
sale of the shares offered thereby, provided that the Company shall not be
required to register in any states which require it to qualify to do business or
subject itself to general service of process.
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6.5. REGISTRABLE SECURITIES. For the purposes of this Section 6, the term
"Registrable Securities" shall mean the shares of Common Stock currently held by
the Investor and any shares of Stock purchased by, or issued to, the Investor at
or after the Closing, including without limitation, the Preferred Shares and any
Stock issued by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation.
6.6. INDEMNIFICATION. Incident to any registration statement referred to
in this Section 6, and subject to applicable law, the Company will indemnify
each underwriter, each Holder of Registrable Securities so registered, and each
person controlling any of them, against all claims, losses, damages and
liabilities, including legal and other expenses reasonably incurred in
investigating or defending against the same, arising out of any untrue statement
of a material fact contained therein, or any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or arising out of any violation by the Company of the
Securities Act, any state securities or "blue-sky" laws or any rule or
regulation thereunder in connection with such registration, except insofar as
the same may have been caused by an untrue statement or omission in the
information furnished in writing to the Company by such underwriter, Holder, or
controlling person, respectively, expressly for use therein, and in the case of
any such untrue statement or omission based upon the information furnished in
writing to the Company by any Holder, such Holder will indemnify the
underwriters, the Company, its directors and officers, the other Holders and
each person controlling any of them against any losses, claims, damages,
expenses or liabilities to which any of them may become subject to the same
extent.
6.7. RULE 144 AND RULE 144A REQUIREMENTS. (a) If the Company becomes
subject to the reporting requirements of either Section 13 or Section 15(d) of
the Securities Exchange Act of 1934, as amended, the Company will use its best
efforts to file with the Commission such information as the Commission may
require under either of such Sections; and in such event, the Company shall use
its best efforts to take all action as may be required to satisfy the public
information requirement of Rule 144 under the Securities Act (or any successor
exemptive rule hereafter in effect). The Company will not be required to file a
registration statement under Sections 6.2 or 6.3 if (i) in the unqualified
opinion of counsel to the Company, which counsel and opinion will reasonably be
acceptable to the Holders then requesting registration, the Holders may then
sell all Registrable Securities proposed to be sold in the manner
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proposed pursuant to Rule 144 without registration under the Securities Act, or
(ii) the underwriter then representing the Company (or another underwriting
reasonably acceptable to both the Company and the Holders) concludes that the
Registrable Securities proposed to be sold may be sold (although in a manner
different from the manner proposed by the Holders), in a single transaction or
multiple simultaneous transactions at the proposed time and price. The Company
shall furnish to any Holder of Registrable Securities upon request a written
statement executed by the Company as to the steps it has taken to comply with
the current public information requirement of Rule 144 or such successor rule.
(b) RULE 144A. The Company covenants that it will provide the Holders of
Registrable Securities upon the request of any such Holder, with the information
required by Rule 144A under the Securities Act, as such Rule may be amended from
time to time (or any similar rule or regulation hereafter adopted by the
Commission), in the manner contemplated by such Rule, to enable such Holder to
effect the resale of such Registrable Securities pursuant to such Rule.
6.8. TRANSFER OF REGISTRATION RIGHTS. The registration rights of the
Holders under this Section 6 may be transferred to any transferee of Registrable
Securities (i) which is a consolidated subsidiary of the Investor or (ii) who or
which acquires forty-nine percent (49%) or more (as adjusted for stock splits,
stock dividends reclassifications, recapitalizations and similar events), in the
aggregate, of the Preferred Shares purchased by the Investor under the Agreement
and the Common Stock purchased by the Investor under the Stock Purchase
Agreement, dated as of October 3, 1989. The Company shall be notified in writing
of any transfer of Registrable Securities which results in the transfer of the
registration rights under this Section 6 and must receive an opinion of counsel
acceptable in form and substance to the Company that the transfer has been made
in compliance with applicable securities laws and that the transferee has
received the registration rights. Each such transferee shall be deemed to be a
"Holder" for purposes of this Section 6.
6.9. OBLIGATIONS OF HOLDERS IN A REGISTRATION. Any Holder of Registrable
Securities included in any registration agrees to furnish such information
regarding such person and the securities sought to be registered as the Company
may reasonably require in order to satisfy the requirements of the Securities
Act, any state securities laws and the rules and regulations promulgated
thereunder, in connection with such registration, qualification or compliance.
In addition, in connection with any underwritten public offering, each Holder
agrees, for itself
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and its transferees (whether or not such Holder or such transferees have elected
to include Registrable Securities in such offering), upon the request of the
Company or the principal underwriter managing the public offering, not to sell,
make any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of the Preferred Shares, or any other Stock now owned or hereafter
acquired by such Holder, without the prior written consent of the Company or
such underwriter, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the effective date of such registration as the
Company or the underwriter may specify.
SECTION 7. CERTAIN RIGHTS OF INVESTOR
7.1 DIVIDEND OPTION. With regard to any fiscal year of the Company,
commencing with and including fiscal year 1993, in which the Gross Revenues (as
hereinafter defined) have increased by less than 25% over the Gross Revenues for
the preceding fiscal year, the Investor may request and the Company shall
distribute within thirty (30) days of the receipt of such request a pro rata
cash dividend to all record holders of Stock equal in the aggregate to at least
30% of the after tax profits of the Company for that year. As used herein,
"Gross Revenues" shall mean the total gross revenues of all professional
corporations with which the Company maintains a management relationship as well
as the gross revenues of the Company derived from sources other than such
professional corporation. Any demand by the Investor pursuant to this Section
7.1 shall be made in writing and delivered to the Company no later than
forty-five (45) days following the receipt by the Investor of the audited
financial statements of the Company for the fiscal year with respect to which
the dividend is to be paid. Notwithstanding the foregoing, the Investor's rights
to demand and receive dividends hereunder shall terminate at the earlier of such
time as (a) the Investor ceases to hold at least ten percent (10%) of the issued
and outstanding Common Stock (including any shares of Common Stock issuable upon
conversion of Preferred Stock then outstanding) of the Company or (b) the
Company completes a Qualified Public Offering of its Stock under the Securities
Act.
7.2. PREEMPTIVE RIGHTS. (a) The Company covenants and agrees that it shall
not issue or sell any shares of capital stock of the Company, or bonds,
certificates of indebtedness, debentures or other securities convertible into or
exchangeable for capital stock of the Company or options, warrants or rights
carrying any rights to purchase capital stock or convertible or exchangeable
securities of the Company, provided that the Company may issue or sell Stock, or
any other securities or rights described above (i) in a transaction described in
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paragraph (e) of this Section 7.2, or (ii) in an offering other than a Qualified
Public Offering, as determined by the Board of Directors of the Company, subject
to the limitations of paragraphs (b) and (c) of this Section 7.2.
(b) The Board of Directors may authorize the issuance of additional shares
of Stock for sale at such price, in such amount and on such other terms as it
shall in its sole discretion deem appropriate, provided that:
(i) no shares of Stock may be offered or sold by the Company at a
per share price (after making appropriate adjustments for permitted stock
splits, stock dividends or recapitalizations, if any) that is lower than the per
share price paid by the Investor for shares of Preferred Stock pursuant to the
this Agreement; and
(ii) the issuance of the proposed shares would not cause the
percentage ownership of shares of Stock held or deemed to be held by the
Investor to fall below ten percent (10%) (as adjusted for stock splits, stock
dividends, reclassifications, recapitalizations or similar events) of the total
shares of Stock issued and outstanding. For purposes of this Section 7.2(b)(ii),
the Investor shall be deemed to hold any shares of Common Stock held by it on
the date hereof and any of the Preferred Shares which, in each case, it may
subsequently transfer to any other party (including an affiliate of the
Investor).
(c) In the event that the Board of Directors desires to issue additional
shares of Stock pursuant to paragraph (b), the Company shall follow the
procedures set forth below:
(i) The Secretary of the Company shall give notice in writing to
each of the stockholders of record of the Company (the "Offer") specifying the
number of shares of Stock (the "Offered Securities"), the per share price (the
"Sales Price") and the other terms on which the Board proposes to sell such
Stock. The Notice shall invite each stockholder to subscribe, on a pro rata
basis in proportion to such stockholder's record ownership, by sending a written
notice to the Company within twenty-one (21) days of the date of the mailing of
such Offer (which date shall be specified therein) for any or all of the Offered
Securities;
(ii) If the stockholders or any of them shall within such twenty-one
(21) day period subscribe for all or any of the Offered Securities, the Company
shall within five (5) days of the expiration of the twenty-one (21) day
subscription period allocate such shares (or so many of them as shall be
subscribed for) to or among the subscribing stockholders;
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(iii) If any of the Offered Securities are not subscribed for in
accordance with sub-paragraph (ii), the Secretary of the Company shall, within
seven (7) days of the expiration of the twenty-one (21) day subscription period,
send a second notice in writing (a "Second Offer") to those stockholders who
have tendered subscriptions for the Offered Securities. Such Second Offer shall
set forth the name of and the number of shares allocated to each stockholder
pursuant to subparagraph (ii) above and shall invite each such stockholder to
subscribe in writing to the Company for all or any portion of the remaining
shares within fourteen (14) days of the date of such Second Offer (which date
shall be specified therein). Such remaining shares shall be allocated in the
amounts subscribed for or, if over subscribed, pro rata to any subscribers
therefor within three (3) days of the expiration of the fourteen (14) day
subscription period in the manner described in subparagraph (ii);
(iv) Promptly after any allocation(s) pursuant to the provisions of
sub-paragraph (ii) or (iii), the Secretary of the Company shall give notice of
such allocation(s) (an "Allocation Notice") to the stockholders to whom the
Offered Securities (or so many of them as aforesaid) shall have been allocated
and shall specify in such notice the place and time (being not earlier than
thirty (30) and not later than one hundred and five (105) days after the date of
the notice, which date shall be specified therein) at which the closing of the
sale of the Offered Securities so allocated shall occur. During the thirty (30)
day period after the date of the notice, the Investor may solicit subscriptions
for any shares not subscribed for by the stockholders and such subscriptions
shall, subject to subparagraph (v) below, be accepted by the Company unless the
Board of Directors determines in good faith that acceptance of such
subscriptions is not in the best interest of the Company. Subject to the
provisions of subparagraphs (v) and (vi) below, the Company shall be bound to
transfer the shares comprised in an Allocation Notice to the purchasers named
therein at the time and place therein and to any subscribers procured by the
Investor, if any, specified therein against receipt by the Company of the Sale
Price in respect of each such shares, which Sales Price shall be paid by wire
transfer of immediately available funds or by bank or cashier's check, and the
stockholders subscribing for such shares and any subscribers procured by the
Investor shall be bound to acquire the shares subscribed for on the terms
specified in the Offer at the time and place of the closing as specified in the
Allocation Notice;
(v) If any of the Offered Securities are not subscribed for by the
stockholders or subscribers procured by the Investor in accordance with the
foregoing provision of this
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paragraph (c), the Company may, in the discretion of the Board of Directors, (A)
accept subscriptions previously tendered, (B) withdraw the offering, (C) offer
either (X) the balance of the Offered Securities not subscribed for or (Y) all
of the Offered Securities (provided, however, that if all such shares are
offered, the Investor shall have the right to purchase a number of shares not
less than its pro rata portion of the shares offered, in either case to any
other person who is willing to purchase the same at a price and on other terms
not less favorable to the Company than the terms on which such shares were
offered to existing stockholders, provided always that the closing any such sale
shall occur and the Sale Price in respect of each of such shares shall be paid
to the Company within a period of one hundred and five (105) days from the date
of the Allocation Notice.
(vi) In the event that the Board of Directors, in its sole
discretion, accepts subscriptions for such lesser number of shares, rescinds the
offer of the Offered Securities or offers either some or all of such shares to
another purchaser, the Company shall notify all the stockholders of the Company
in writing no later than ninety (90) days after the date of the Allocation
Notice. In the event any Offer is withdrawn, the offering of the Offered
Securities shall be terminated with regard to the stockholders and any
subsequent issuance of Stock shall be considered a new issuance thereof, subject
in all respect to the provisions of this Section 7.2.
(d) The rights of the Investor under this Section 7.2 shall terminate
immediately upon the closing of a Qualified Public Offering or if the Investor
ceases to hold at least 10% of the issued and outstanding Common Stock (assuming
conversion of all shares of Preferred Stock then outstanding).
(e) The following transactions shall be excluded from the provisions of
this Section 7.2:
(1) the issuance of stock options in accordance with Section 4.18
and the issuance of Stock issued upon the exercise of such options;
(2) the issuance of shares of Common Stock to be issued upon the
exercise of options outstanding at the Closing;
(3) the issuance of shares of Common Stock upon the conversion of
the Class A Preferred Stock;
(4) the issuance of shares of Stock to be issued upon the conversion
or exercise of any securities or rights issued in compliance with paragraphs (b)
and (c) or paragraph (e) of this Section 7.2;
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(5) the issuances of Stock in connection with stock splits or stock
dividends permitted by Section 4.14;
(6) the issuance of Stock in an underwritten offering to the public
pursuant to an effective registration statement under the Securities Act, with
an underwriter reasonably acceptable to the Investor, in connection with which
(A) the Company has previously offered to the Investor the opportunity to
purchase a number of shares sufficient to maintain its then percentage ownership
of Common Stock (assuming conversion of all shares of Preferred Stock then
outstanding), based on the number of shares recommended to be offered to the
public by the underwriter concerned, at a price determined by such underwriter
(which is not more than the proposed price to the public), (B) the sale price to
the public is at least $7.50 per share of Stock, as adjusted for permitted stock
splits, dividends, reclassifications, recapitalizations and similar events and
(C) gross proceeds to the Company from the offering (including any shares
purchased by the Investor under clause (A) above) are at least $5 million (a
"Qualified Public Offering").
SECTION 8. GENERAL
8.L. AMENDMENTS, WAIVERS AND CONSENTS. For the purposes of this Agreement
and all agreements, documents and instruments execute pursuant hereto, except as
otherwise specifically set forth herein or therein, no course of dealing between
the Company and the Investor and no delay or the part of any party hereto in
exercising any rights hereunder or thereunder shall operate as a waiver of the
rights hereof and thereof. No covenant or other provision hereof or thereof may
be waived otherwise than by a written instrument signed by the party so waiving
such covenant or other provision and no amendment or modification may be made to
this Agreement unless such amendment or modification is in writing and executed
by both the Company and the Investor. Any amendment or waiver effected in
accordance with this Section 8.1 shall be binding upon the holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities have been converted) and each future
holder of all such securities and the Company.
8.2. SURVIVAL OF COVENANTS; ASSIGNABILITY OF RIGHTS. All covenants,
agreements, representations and warranties made herein and in the certificates,
exhibits, schedules or other documents delivered or furnished to the Investor by
the Company pursuant to this Agreement shall be deemed material and to have been
relied upon such Investor, and, except as provided otherwise in this Agreement,
shall survive the delivery of the
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Preferred Shares and shall bind the Company's successors and assigns, whether so
expressed or not, and, except as provided otherwise in this Agreement or in the
Stockholders Agreement; provided, however, that the representations and
warranties contained in Section 2 hereof shall expire on the third anniversary
of this Agreement. All such covenants, agreements, representations and
warranties shall inure to the benefit of the Investor or any consolidated
subsidiary thereof that is a transferee of the Preferred Shares. Except as
provided in the preceding sentence of this Section 8.2 or in Section 6.8, the
covenants and agreements made herein are for solely the benefit of the Investor
and shall not inure to the benefit of the transferees of the Preferred Shares,
and further provided that notwithstanding any contrary provision of this
Agreement, any transferee of the Preferred Shares and the shares of Common Stock
held by the Investor on the date hereof or acquired hereafter upon conversion of
the Preferred Shares (the "Investor Shares") who acquires at least eighty
percent (80%) (as adjusted for permitted stock splits, stock dividends,
reclassifications, recapitalizations and similar events), in the aggregate, of
the Investor Shares shall succeed to the rights of the Investor under Section
4.12 hereof (provided that the fee paid thereunder shall be equal to that paid
to all other Directors).
8.3. GOVERNING LAW. This Agreement shall be deemed to be a contract made
under, and shall be construed in accordance with, the laws of The Commonwealth
of Massachusetts.
8.4. SECTION HEADINGS. The descriptive headings in this Agreement have
been included for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provision hereof.
8.5. CONFIDENTIALITY. The Investor agrees to hold confidential, and not to
use for any purpose other than evaluating its investment in the Preferred Shares
(and any other Stock of the Company held by the Investor), all information
furnished to it by the Company under this Agreement which the Company identifies
as confidential or proprietary, except for information which (a) is in the
public domain, or enters the public domain other than by such Investor's breach
of this Agreement, (b) was known to the Investor prior to its disclosure by the
Company hereunder and is not otherwise subject to confidentiality restrictions,
(c) is disclosed to the Investor without restrictions of confidentiality by a
third person who is not in breach of an obligation of confidentiality in doing
so, (d) is required to be disclosed by any applicable law or regulation or by
order of a judicial or administrative authority having jurisdiction, or (e)
constitutes summary financial or descriptive business information disclosed by
the Investor which
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is an investment fund as part of its regular reports to its partners or other
investors.
8.6. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original, but such counterparts shall together constitute but one
and the same document.
8.7. NOTICES AND DEMANDS. Any notice, demand or other communication which
by any provision of this Agreement or any agreement, document or instrument
executed pursuant hereto, except as otherwise provided therein, is required or
provided to be given shall be deemed to have been sufficiently given or served
and received for all purposes when delivered by hand or two business days after
sent by federal express, D.H.L. or other similar `courier, and sent by
telecopier with confirmation received to the following addresses:
TO THE INVESTOR With a copy to:
DCC Limited Goodwin, Proctor & Hoar
c/o DCC House Exchange Place
Brewery Road 53 State Street
Stillorgan, Blackrock Boston, MA 02109
County Dublin, Ireland Attn: Stuart M. Cable
TO THE COMPANY With a copy to:
HealthDrive Corporation Choate, Hall & Stewart
850 Boylston Street Exchange Place, 53 State Street
Chestnut Hill, MA 02167 Boston, MA 02109
Attn: Steven Charlap, M.D. Attn: William Grieco, Esq.
or to such other address which either party may by registered mail notify the
other party.
8.8. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions or this Agreement.
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8.9. EXPENSES. The Company shall pay all costs and expenses that are
incurred by the Company and all legal fees and expenses incurred by the Investor
with respect to the negotiation, execution, delivery and performance of this
Agreement, provided that the Company shall have no responsibility for legal fees
and expenses incurred by the Investor in connection with this Agreement and the
transactions contemplated hereby in excess of $15,000.
8.10. ENTIRE AGREEMENT. This Agreement represents the entire agreement of
the parties hereto with respect to the subject matter hereof and shall
supercede all prior understandings and agreements between the parties, including
the Stock Purchase Agreement, dated as of October 3, 1989, between, the Company
and the Investor (the "Prior Agreement") which Prior Agreement shall be
terminated effective as of the Closing Date and shall have no further force or
effect after the Closing Date.
8.11. TERMINATION. This Agreement shall terminate and the provisions and
rights granted hereunder shall have no further force and effect on the date on
which the Investor (or if the Preferred Shares or any Common Stock is
transferred from the Investor to any consolidated subsidiary thereof, such
transferee) no longer holds any of the Preferred Shares, any shares of Common
Stock into which the Preferred Shares were converted and any shares of Common
Stock acquired pursuant to the Prior Agreement, except that the registration
rights provided in Section 6 hereof shall survive for as long as any transferee
of the registration rights pursuant to Section 6.8 hereof continues to hold any
Registrable Securities, and at such time as such transferee ceases to hold any
Registrable Securities, such rights shall also terminate and have no further
force or effect, and the rights of the Investor under Section 4.12 hereof shall
survive as long as any transferee of such rights pursuant to Section 8.2 hereof
continues to hold at least eighty (80%) percent of the Investor Shares or the
Company completes a Qualified Public Offering, in which event such rights shall
also terminate and have no further force and effect.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
HEALTHDRIVE CORPORATION
By: /s/ Steve Charlap
-----------------------------------
President
DCC LIMITED
By: /s/ J.A. Cronin
-----------------------------------
Managing Director
Agreed to as to Section 4.24
hereof:
/s/ Steve Charlap
- -----------------------------------
Steven Charlap
/s/ Alec Jaret
- -----------------------------------
Alec Jaret
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<PAGE>
AMENDMENT NO. 1 TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED AS OF MAY 8, 1992
Amendment, dated as of May 24, 1995 (the "Amendment"), by and between
HealthDrive Corporation, a Delaware corporation (the "Company"), and DCC
Limited, an Isle of Man corporation (the "Investor"). Capitalized terms used
herein and not otherwise defined shall have the meanings given to such terms in
the Agreement (as defined below).
WHEREAS, the Company and the Investor are parties to that certain
Preferred Stock Purchase Agreement, dated as of May 8, 1992 (the "Agreement"),
pursuant to which the Investor purchased 571,428 shares of the Company's Class A
Convertible Preferred Stock, par value $.01 per share (the "Preferred Shares");
WHEREAS, the Investor is the owner of 555,000 shares of the Company's
Common Stock, par value $.01 per share (the "Investor Common Stock");
WHEREAS, DCC International Holdings B.V., a Netherlands corporation and an
affiliate of the Investor ("Holdings"), owns 181,818 shares of the Company's
Class B Convertible Preferred Stock, par value $.01 per share (the "Holding
Shares");
WHEREAS, the Company, the Investor, Holdings, Steven Charlap, M.D., Alec
H. Jaret, D.M.D. and Cheryl V. Reicin are parties to that certain Amended and
Restated Stockholders Agreement dated as of April 28, 1994, as amended as of May
24, 1995 (the "Stockholders Agreement"); and
WHEREAS, the Investor wishes to transfer the Preferred Shares and the
Investor Common Stock (the Preferred Shares and the Investor Common Stock
referred to collectively as the "Limited Shares") to Holdings and, in connection
therewith, the Company and the Investor desire to amend the Agreement as set
forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and the Investor hereby agree as follows:
1. The fourth sentence of Section 4.12(a) is hereby deleted in its
entirety and the third sentence of Section 4.12(a) is hereby amended in its
entirety to read as follows:
"The Company shall ensure that meetings of its Board of Directors be
held at least four (4) times annually at intervals of not more than
three months within a 30 mile radius of Boston, Massachusetts."
<PAGE>
2. Section 4.12(c) is hereby deleted in its entirety and each reference
in the Agreement to the "Stock Option Committee" is hereby amended to read "the
Board."
3. Section 4.14 is hereby amended by adding the following sentence to
the end of Section 4.14:
"Notwithstanding anything contained in this Agreement to the
contrary, the Board may authorize the Company to repurchase stock
options (or common stock issued upon exercise of stock options) of
former employees of the Company or of an affiliated professional
corporation at a price equal to the fair market value of the common
stock issued or issuable upon exercise of the stock options."
4. Section 4.17 is hereby deleted in its entirety.
5. The phrase "eight percent (8%)" in Section 4.18 is hereby amended to
read "ten percent (10%)."
6. Section 4.19 is hereby deleted in its entirety.
7. The amount of "$9,983" in Section 4.22 is hereby amended to read
"$16,638."
8. Section 6.8 is hereby amended in its entirety to read as follows:
"TRANSFER OF REGISTRATION RIGHTS. The registration rights of
the Holders under this Section 6 may be transferred to any
transferee of Registrable Securities (i) which is a Qualified
Transferee, as such term is defined in Section 2(e) of the
Stockholders Agreement, of the Investor, or (ii) who or which
acquires forty-nine percent (49%) or more (as adjusted for stock
splits, stock dividends, reclassifications, recapitalizations and
similar events), in the aggregate, of the Limited Shares and the
Holding Shares. The Company shall be notified in writing of any
transfer of Registrable Securities which results in the transfer of
the registration rights under this Section 6 and must receive an
opinion of counsel acceptable in form and substance to the Company
that the transfer has been made in compliance with applicable
securities laws and that the transferee has received the
registration rights, Each such transferee shall be deemed to be a
"Holder" for purposes of this Section 6.
9. Section 8.2 is hereby amended by deleting the last two sentences in
their entirety and replacing them with the following sentences:
"All such covenants, agreements, representations and warranties
shall inure to the benefit of the Investor or any Qualified
Transferee of the Investor, as such term is defined in Section 2(e)
of the Stockholders Agreement, provided that DCC plc,
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<PAGE>
a public limited company registered in Ireland and the owner of 100%
of the outstanding shares of capital stock of Investor and Holdings
("DCC plc"), or a wholly-owned subsidiary of DCC plc, continues to
own at least 99% of the capital stock of the Investor or any
Qualified Transferee of the Investor. Except as provided in the
preceding sentence of this Section 8.2 or in Section 6.8, the
covenants and agreements made herein are for solely the benefit of
the Investor and shall not inure to the benefit of transferees of
the Limited Shares and the Holding Shares, and further provided that
notwithstanding any contrary provision of this Agreement, any
transferee of the Limited Shares and the Holding Shares, or any
shares of Common Stock into which the Limited Shares or Holding
Shares are converted (the "Investor Shares"), who acquires at least
eighty percent (80%) (as adjusted for permitted stock splits, stock
dividends, reclassifications, recapitalizations and similar events),
in the aggregate, of the Investor Shares shall succeed to the rights
of the Investor under Section 4.12 hereof (provided that the fee
paid thereunder shall be equal to that paid to all other Directors).
10. Section 8.11 is hereby amended in its entirety to read as
follows:
"TERMINATION. This Agreement shall terminate and the
provisions and rights granted hereunder shall have no further force
and effect as of and from the date upon which neither the Investor
nor any Qualified Transferee of the Investor (as such term is
defined in Section 2(e) of the Stockholders Agreement) no longer
holds any of the Limited Shares or the Holding Shares, or any shares
of Common Stock into which the Limited Shares or Holding Shares are
converted, or at such time as DCC plc, or a wholly-owned subsidiary
of DCC plc, holds less than 99% of the shares of capital stock of
the Investor or any Qualified Transferee of the Investor, except
that the provisions of Section 6 of this Agreement shall survive for
as long as any transferee of the registration rights pursuant to
Section 6.8 of this Agreement continues to hold any Registrable
Securities, and at such time as such transferee ceases to hold any
Registrable Securities, such rights shall also terminate and have no
further force or effect, and the rights of the Investor under
Section 4. 12 of this Agreement shall survive as long as any
transferee of such rights pursuant to Section 8.2 of this Agreement
continues to hold at least eighty percent (80%) of the Investor
Shares, or the Company completes a Qualified Public Offering, in
which event such rights shall also terminate and have no further
force and effect."
11. ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Amendment shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, legal representatives, successors and permitted transferees,
except as may be expressly provided otherwise herein.
12. SEVERABILITY. In case any one or more of the provisions contained in
this Amendment shall for any reason be held to be invalid, illegal or
unenforceable in any respect,
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<PAGE>
such invalidity, illegality or unenforceability shall not affect any other
provision of this Amendment and such invalid, illegal and unenforceable
provision shall be reformed and construed so that it will be valid, legal, and
enforceable to the maximum extent permitted by law.
13. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. GOVERNING LAW. This Amendment shall be governed by and construed
and enforced in accordance with the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, this Amendment has been duly executed by the parties
hereto as of the day and year first above written.
HEALTHDRIVE CORPORATION
By: /s/ Steven Charlap, MD
--------------------------------
Name: Steven Charlap, M.D.
Title: President
DCC LIMITED
By: /s/ Norman Teare
--------------------------------
Name: Norman Teare
Title: Director
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<PAGE>
Exhibit 10.9
PREFERRED STOCK PURCHASE AGREEMENT
AGREEMENT made as of this 28th day of April, 1994 by and between
HealthDrive Corporation, a Delaware corporation (the "Company") and DCC
International Holdings B.V., a Netherlands corporation (the "Investor").
WHEREAS, the Investor has agreed to invest $500,000 in shares of Class B
Convertible Preferred Stock, $.0l par value per share (the "Class B Preferred
Stock"), and the Company has agreed to issue to the Investor shares of the Class
B Preferred Stock, upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and intending to be legally bound, the parties hereto agree as follows:
SECTION 1. TERMS OF PURCHASE
1.1. DESCRIPTION OF SECURITIES AND PURCHASE PRICE. The Company has
authorized the issuance and sale to the Investor of 181,818 shares (the
"Preferred Shares") of its Class B Preferred Stock, for a purchase price of
$2.75 per share.
1.2. SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company shall issue and sell to the Investor, and the Investor shall
purchase from the Company, the Preferred Shares for an aggregate purchase price
of $500,000 (the "Purchase Price").
1.3. CLOSING. A closing (the "Closing") of the sale and purchase of
Shares shall take place at the offices of Goodwin, Procter & Hoar, Exchange
Place, 53 State Street, Boston, MA 02109, at 10:00 A.M., on April 28, 1994, or
such other date, time and place as shall be mutually agreed upon by the Company
and the Investor (the "Closing Date"). At the Closing, the Company will deliver
a stock certificate to the Investor evidencing the Preferred Shares, against
full payment of the Purchase Price therefor by or on behalf of the Investor to
the Company by wire transfer of immediately available funds or by certified or
bank cashier's check.
1.4. USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Preferred Shares for working capital and expansion of its business,
including, without limitation, acquisitions of the stock or assets of other
businesses.
SECTION 2. REPRESENTATIONS AND WARRANTIES
In order to induce the Investor to enter into this Agreement, the Company
represents and warrants to the Investor as follows:
2.1. ORGANIZATION AND CORPORATE POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware. The
Company has all required corporate power and authority to own its property, to
carry on its business as presently conducted, to enter into and perform this
Agreement and generally to carry out the
<PAGE>
transactions contemplated hereby. The copies of the Certificate of Incorporation
and By-laws of the Company, as amended to date, which have been furnished to
counsel for the Investor by the Company, are correct and complete at the date
hereof.
2.2. AUTHORIZATION. The Company has full corporate power and authority to
enter into this Agreement, to offer, issue, sell and deliver the Preferred
Shares and to perform its other obligations hereunder. The execution, delivery
and performance of this Agreement, and each other document and instrument to be
executed and delivered to the Investor in connection herewith, have been duly
authorized by all necessary corporate action on the part of the Company, and
this Agreement and such other documents and instruments, when executed and
delivered, shall constitute a valid and legally binding obligation of the
Company, enforceable against the Company in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws of general application affecting enforcement of
creditors rights generally, and the availability of equitable remedies, which
are subject to the discretion of the court before which an action may be
brought, and except as rights to indemnification may be subject to applicable
federal and state securities laws. The Preferred Shares, and the Common Stock of
the Company into which the Preferred Shares are convertible (the "Underlying
Securities"), have been duly authorized and, when issued in accordance with this
Agreement and the Certificate of Incorporation of the Company, as amended, will
be duly and validly issued, fully paid and non-assessable.
2.3. CAPITALIZATION. The Company has a total authorized capitalization of
(i) 2,992,658 shares of common stock, $.01 par value (the "Common Stock"), of
which 2,000,000 shares are issued and outstanding, 571,428 shares are reserved
for issuance upon conversion of the Company's Class A Convertible Preferred
Stock and 181,818 shares are reserved for issuance upon conversion of the Class
B Preferred Stock; (ii) 571,428 shares of Class A Convertible Preferred Stock;
and (iii) 181,818 shares of Class B Preferred Stock, all of which shares will be
issued to the Investor under this Agreement (the Common Stock, the Class A
Convertible Preferred Stock, the Class B Preferred Stock and any other
outstanding class of capital stock of the Company is referred to herein as the
"Stock"). All of the outstanding shares of capital stock of the Company have
been duly authorized and validly issued, and are fully paid and non-assessable
and are owned of record by the persons named as stockholders in Schedule 2.3
hereto.
2.4. FINANCIAL STATEMENTS. The Company has furnished the Investor with an
unaudited balance sheet and an unaudited profit and loss statement for the
Company and those professional corporations with which it has billing
agreements, which financial statements are to the Company's best knowledge
complete and correct in all material respects.
SECTION 3. [RESERVED]
SECTION 4. [RESERVED]
2
<PAGE>
SECTION 5. [RESERVED]
SECTION 6. REGISTRATION RIGHTS
6.1. "PIGGY-BACK" REGISTRATIONS. (a) If at any time or times after the
date hereof, the Company shall determine to register any of its Stock under the
Securities Act (whether in connection with a public offering of securities by
the Company, a public offering of securities by stockholders, or both, but not
in connection with a registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 or any other similar rule of the
Securities and Exchange Commission (the "Commission") under the Securities Act
is applicable), the Company will promptly give written notice thereof to the
holders of Registrable Securities (as hereinafter defined in Section 6.5) then
outstanding (the "Holders") and all other stockholders of record. In connection
with any such registration, if within 15 days after the receipt of such notice,
the Holders of the Registrable Securities request the inclusion of some or all
Registrable Securities owned by them in such registration, the Company will use
its best efforts to include in such registration statement all or any part of
the Registrable Securities such Holders request to be registered; PROVIDED,
HOWEVER, that in the case of the registration of Stock by the Company in
connection with an underwritten public offering, the Company shall not be
required to register Registrable Securities of the Holders in excess of the
amount, if any, of Stock which the principal underwriter reasonably and in good
faith agrees in writing to include in such offering in excess of the amount to
be registered for the Company; and PROVIDED, FURTHER, that if any Registrable
Securities are not included for this reason, the Company will nevertheless
permit the Holders of Registrable Securities who have requested participation in
the registration (on a pro rata basis in proportion to their respective holdings
of Registrable Securities) to register at least such number of Registrable
Securities which is equal to 50% of the number of shares of stock to be
registered by shareholders in such offering prior to including in such
registration any shares of any other shareholders. Nothing in this Section 6.1
is intended to prohibit stockholders other than the Holders of Registrable
Securities from participating in an offering described in this Section 6.1.
(b) If the Company includes in such a registration any securities
to be offered by it, all expenses of the registration and offering and the
reasonable fees and expenses of independent counsel for the Holders shall be
borne by the Company (provided the Company shall not be required to bear the
fees and expenses of more than one counsel for the Holders), except that the
Holders shall bear underwriting discounts and commissions, dealer's fees and
broker's fees and any transfer taxes attributable to the Registrable Securities
being sold by such Holders. If the registration under this Section 6.1 is
exclusively a secondary offering by Stockholders of the Company, the Holders
shall bear their proportionate share of the expenses of the registration and
offering (provided all stockholders registering shares thereunder bear their
proportionate share of expenses), except expenses which the Company would have
incurred whether or not registration was attempted, including, without
limitation, the expense of preparing normal audited or unaudited financial
statements or summaries consistent with this Agreement or applicable Commission
filings.
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<PAGE>
(c) Without in any way limiting the types of registrations to which
this Section 6.1 shall apply, in the event that the Company shall effect a
"shelf registration" under Rule 415 promulgated under the Securities Act, or any
other similar rule or regulation ("Rule 415"), the Company shall take all
necessary action, including, without limitation, the filing of post-effective
amendments, to permit the Investor to include Registrable Securities with
respect to each such offering (on a pro rata basis if so determined separately
for each such offering by the underwriter in the circumstances set forth above)
in such registration in accordance with the terms of this Section 6.1. If the
Company elects to terminate any registration pursuant to this Section 6.1, the
Company shall have no obligation to register the Registrable Securities sought
to be registered by the Holders, provided that the Company shall bear all
expenses of the registration incurred by the Holders up through the time of such
termination, as provided above. In connection with any offering involving an
underwriting of Stock to be issued by the Company, the Company shall not be
required to include a Holder's Registrable Shares in such underwriting unless
such Holder accepts the terms of the underwriting as agreed upon by the Company
and the underwriters selected by the Company.
6.2. REQUIRED REGISTRATION. (a) If, one hundred eighty (180) days
following an initial public offering by the Company, on any two (2) occasions,
Holders of not less than a majority of the Registrable Securities then
outstanding notify the Company in writing that it or they intend to offer or
cause to be offered for public sale at least twenty percent (20%) of the then
issued and outstanding Registrable Securities have an aggregate proposed
offering price of not less than $500,000, the Company will notify all of the
Holders of Registrable Securities. Upon the written request of any such Holder
delivered to the Company within fifteen (15) days after receipt from the Company
of such notification, the Company will either (i) elect to make a primary
offering of its securities to the public, in which case the rights of such
Holders shall be as set forth in Section 6.1 (except that the Company shall not
be permitted to limit the number of shares which may be registered by any
Holder), or (ii) use its best efforts to cause such of the Registrable
Securities as may be requested by any Holders (including the Holder or Holders
giving the initial notice of intent to register hereunder) to be registered
under the Securities Act in accordance with the terms of this Section 6.2.
Nothing in this Section 6.2 shall prohibit other stockholders from participating
in any such offering, provided that if the principal underwriter shall
reasonably and in good faith determine that less than all of the shares proposed
to be offered by the Holders and such other stockholders should be included in
an offering pursuant to this Section 6.2, any reduction in the shares to be
offered by Holders and such other holders will be made on a pro rata basis among
the Holders and such other holders, in accordance with their respective
ownership of stock of the Company.
(b) All expenses of such registrations and offerings and the
reasonable fees and expenses of not more than one independent counsel for the
Holders shall be borne by the Company, except that the Holders shall bear
underwriting discounts and commissions, dealer's fees and broker fees and any
transfer taxes attributable to the Registrable Securities being sold by the
Holders.
4
<PAGE>
(c) The Company shall not be required to cause a registration
statement requested pursuant to this Section 6.2 to become effective prior to
ninety (90) days following the effective date of a registration statement
initiated by the Company, if the request for registration has been received by
the Company subsequent to the giving of written notice by the Company, made in
good faith, to the Holders of Registrable Securities to the effect that the
Company is commencing to prepare a Company initiated registration statement
(other than a registration effected solely to implement an employee benefit plan
or a transaction to which Rule 145 or any other similar rule of the Commission
under the Securities Act is applicable); PROVIDED, HOWEVER, that the Company
shall use its best efforts to achieve such effectiveness promptly following such
ninety-day (90) period if the request pursuant to this Section 6.2 has been made
prior to the expiration of such ninety-day (90) period. The Company may postpone
the filing of any Registration Statement required hereunder for a reasonable
period of time, not to exceed ninety (90) days, if the Company has been advised
by legal counsel that such filing would require the disclosure of a material
transaction or other matter and the Company determines reasonably and in good
faith that such disclosure would have a material adverse effect on the Company
or if the Board of Directors of the Company determines that immediate
registration of such Registrable Securities could otherwise have a material
adverse effect upon the Company.
6.3. FORM S-3. (a) If the Company becomes eligible to use Form S-3 under
the Securities Act or a comparable successor form, upon the written request of
Holders of an aggregate of at least ten (10%) percent of the outstanding
Registrable Securities (which request shall state the number of Registrable
Securities to be sold), the Company will use its best efforts to effect
registration of such Registrable Securities, PROVIDED, HOWEVER, that no more
than two such registration statements need be filed by the Company in any
12-month period and the aggregate proposed offering price of the Registrable
Securities shall not be less than $250,000. The Company shall give notice to all
Holders of Registrable Securities of the receipt of a request for registration
pursuant to this Section 6.3 and shall provide a reasonable opportunity for such
Holders to participate in the registration. The Company shall not be required to
cause a registration statement requested pursuant to this Section 6.3 to become
effective ninety (90) days following the effective date of a registration
statement initiated by the Company, if the request for registration has been
received by the Company subsequent to the giving of written notice by the
Company, made in good faith, to the Holders of Registrable Securities to the
effect that the Company is commencing to prepare a Company-initiated
registration statement (other than a registration effected solely to implement
an employee benefit plan or a transaction to which Rule 145 or any other similar
rule of the Commission under the Securities Act is applicable); PROVIDED,
HOWEVER, that the Company shall use its best efforts to achieve such
effectiveness promptly following such ninety-day (90) period if the request
pursuant to this Section 6.3 has been made prior to the expiration of such
ninety-day (90) period.
(b) The Company may postpone the filing of any Registration
Statement required hereunder for a reasonable period of time, not to exceed
ninety (90) days, if the Company has been advised by legal counsel that such
filing would require the disclosure of a material transaction or other factor
and the Company determines reasonably and in good faith
5
<PAGE>
that such disclosure would have a material adverse effect on the Company or if
the Board of Directors of the Company determines that immediate registration of
such Registrable Securities could otherwise have a material adverse effect upon
the Company. If so requested by any Holder in connection with a registration
under this Section 6.3, the Company shall take such steps as are required to
register such Holder's Registrable Securities for sale on a delayed or
continuous basis under Rule 415 (if the offering of securities is permitted on a
continuous or delayed basis), and to keep such registration effective until all
of such Holder's Registrable Securities registered thereunder are sold;
provided, however, in no event shall the Company be required to maintain the
effectiveness of a registration statement for more than nine months.
(c) All expenses incurred in connection with any registration
requested pursuant to this Section 6.3 and the reasonable fees and expenses of
not more than one independent counsel for the Holders shall be borne by the
Company, except that the Holders shall bear underwriting discounts and
commissions, dealer's fees and broker fees and any transfer tax attributable to
the Registrable Securities being sold by the Holders.
6.4. FURTHER OBLIGATIONS OF THE COMPANY. Whenever under the preceding
sections of this Section 6 the Company is required hereunder to register
Registrable Securities, it agrees that it shall also do the following:
(i) Use its best efforts to diligently prepare for filing with the
Commission a registration statement and such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with the
provisions of the Act with respect to the sale of securities covered by such
registration statement for the period necessary to complete the proposed public
offering; provided, however, that in no event will the Company be required to
maintain the effectiveness of any registration statement for more than one
hundred and twenty (120) days except as otherwise provided in Section 6.3(b).
(ii) Furnish to each selling Holder such copies of each preliminary
and final prospectus and such other documents as such Holder may reasonably
request to facilitate the public offering of its Stock;
(iii) Enter into any underwriting agreement with provisions
reasonably required by the proposed underwriter for the selling Holders, if any;
and
(iv) Use its best efforts to register or qualify the Stock covered
by said registration statement under the securities or "blue-sky" laws of such
jurisdictions as the underwriter shall determine to be necessary to effect the
sale of the shares offered thereby, provided that the Company shall not be
required to register in any states which require it to qualify to do business or
subject itself to general service of process.
6.5. REGISTRABLE SECURITIES. For the purposes of this Section 6, the term
"Registrable Securities" shall mean the shares of Common Stock and Class A
Convertible
6
<PAGE>
Preferred Stock (and any shares of Common Stock issuable upon conversion
thereof) currently held by the Investor and any shares of Stock purchased by, or
issued (upon conversion or otherwise) to, the Investor at or after the Closing,
including without limitation, the Preferred Shares and any Stock issued by way
of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation.
6.6. INDEMNIFICATION. Incident to any registration statement referred to
in this Section 6, and subject to applicable law, the Company will indemnify
each underwriter, each Holder of Registrable Securities so registered, and each
person controlling any of them, against all claims, losses, damages and
liabilities, including legal and other expenses reasonably incurred in
investigating or defending against the same, arising out of any untrue statement
of a material fact contained therein, or any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or arising out of any violation by the Company of the
Securities Act, any state securities or "blue-sky" laws or any rule or
regulation thereunder in connection with such registration, except insofar as
the same may have been caused by an untrue statement or omission in the
information furnished in writing to the Company by such underwriter, Holder, or
controlling person, respectively, expressly for use therein, and in the case of
any such untrue statement or omission based upon the information furnished in
writing to the Company by any Holder, such Holder will indemnify the
underwriters, the Company, its directors and officers, the other Holders and
each person controlling any of them against any losses, claims, damages,
expenses or liabilities to which any of them may become subject to the same
extent.
6.7. RULE 144 AND RULE 144A REQUIREMENTS. (a) If the Company becomes
subject to the reporting requirements of either Section 13 or Section 15(d) of
the Securities Exchange Act of 1934, as amended, the Company will use its best
efforts to file with the Commission such information as the Commission may
require under either of such Sections; and in such event, the Company shall use
its best efforts to take all action as may be required to satisfy the public
information requirement of Rule 144 under the Securities Act (or any successor
exemptive rule hereafter in effect). The Company will not be required to file a
registration statement under Sections 6.2 or 6.3 if (i) in the unqualified
opinion of counsel to the Company, which counsel and opinion will reasonably be
acceptable to the Holders then requesting registration, the Holders may then
sell all Registrable Securities proposed to be sold in the manner proposed
pursuant to Rule 144 without registration under the Securities Act, or (ii) the
underwriter then representing the Company (or another underwriting reasonably
acceptable to both the Company and the Holders) concludes that the Registrable
Securities proposed to be sold may be sold (although in a manner different from
the manner proposed by the Holders), in a single transaction or multiple
simultaneous transactions at the proposed time and price. The Company shall
furnish to any Holder of Registrable Securities upon request a written statement
executed by the Company as to the steps it has taken to comply with the current
public information requirement of Rule 144 or such successor rule.
(B) RULE 144A. The Company covenants that it will provide the
Holders of Registrable Securities upon the request of any such Holder, with the
information required by Rule 144A under the Securities Act, as such Rule may be
amended from time to time (or any
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<PAGE>
similar rule or regulation hereafter adopted by the Commission), in the manner
contemplated by such Rule, to enable such Holder to effect the resale of such
Registrable Securities pursuant to such Rule.
6.8. TRANSFER OF REGISTRATION RIGHTS. The registration rights of the
Holders under this Section 6 may be transferred to any transferee of Registrable
Securities (i) which is a consolidated subsidiary of the Investor or (ii) who or
which acquires forty-nine percent (49%) or more (as adjusted for stock splits,
stock dividends, reclassifications, recapitalizations and similar events), in
the aggregate, of the Preferred Shares purchased by the Investor under this
Agreement, the Class A Convertible Preferred Stock previously purchased by DCC
Limited pursuant to a Preferred Stock Purchase Agreement dated May 8, 1992, and
the Common Stock purchased by DCC Limited under the Stock Purchase Agreement,
dated as of October 3, 1989. The Company shall be notified in writing of any
transfer of Registrable Securities which results in the transfer of the
registration rights under this Section 6 and must receive an opinion of counsel
acceptable in form and substance to the Company that the transfer has been made
in compliance with applicable securities laws and that the transferee has
received the registration rights, Each such transferee shall be deemed to be a
"Holder" for purposes of this Section 6.
6.9. OBLIGATIONS OF HOLDERS IN A REGISTRATION. Any Holder of Registrable
Securities included in any registration agrees to furnish such information
regarding such person and the securities sought to be registered as the Company
may reasonably require in order to satisfy the requirements of the Securities
Act, any state securities laws and the rules and regulations promulgated
thereunder, in connection with such registration, qualification or compliance.
In addition, in connection with any underwritten public offering, each Holder
agrees, for itself and its transferees (whether or not such Holder or such
transferees have elected to include Registrable Securities in such offering),
upon the request of the Company or the principal underwriter managing the public
offering, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of the Preferred Shares, or any other Stock
now owned or hereafter acquired by such Holder, without the prior written
consent of the Company or such underwriter, as the case may be, for such period
of time (not to exceed one hundred eighty (180) days) from the effective date of
such registration as the Company or the underwriter may specify.
SECTION 7. [RESERVED]
SECTION 8. GENERAL
8.1. AMENDMENTS, WAIVERS AND CONSENTS. For the purposes of this Agreement
and all agreements, documents and instruments executed pursuant hereto, except
as otherwise specifically set forth herein or therein, no course of dealing
between the Company and the Investor and no delay or the part of any party
hereto in exercising any rights hereunder or thereunder shall operate as a
waiver of the rights hereof and thereof. No covenant or other provision hereof
or thereof may be waived otherwise than by a written instrument signed by the
party so waiving such covenant or other provision and no amendment or
modification
8
<PAGE>
may be made to this Agreement unless such amendment or modification is in
writing and executed by both the Company and the Investor. Any amendment or
waiver effected in accordance with this Section 8.1 shall be binding upon the
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted) and each
future holder of all such securities and the Company.
8.2. SURVIVAL OF COVENANTS; ASSIGNABILITY OF RIGHTS. All covenants,
agreements, representations and warranties made herein and in the certificates,
exhibits, schedules or other documents delivered or furnished to the Investor by
the Company pursuant to this Agreement shall be deemed material and to have been
relied upon such Investor, and, except as provided otherwise in this Agreement,
shall survive the delivery of the Preferred Shares and shall bind the Company's
successors and assigns, whether so expressed or not, and, except as provided
otherwise in this Agreement or in the Stockholders Agreement of even date
herewith among the parties hereto and the other parties designated therein;
provided, however, that the representations and warranties contained in Section
2 hereof shall expire on the third anniversary of this Agreement. All such
covenants, agreements, representations and warranties shall inure to the benefit
of the Investor or any consolidated subsidiary thereof that is a transferee of
the Preferred Shares. Except as provided in the preceding sentence of this
Section 8.2 or in Section 6.8, the covenants and agreements made herein are for
solely the benefit of the Investor and shall not inure to the benefit of
transferees of the Preferred Shares.
8.3. GOVERNING LAW. This Agreement shall be deemed to be a contract made
under, and shall be construed in accordance with, the laws of The Commonwealth
of Massachusetts.
8.4. SECTION HEADINGS. The descriptive headings in this Agreement have
been included for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provision hereof.
8.5. CONFIDENTIALITY. The Investor agrees to hold confidential, and not to
use for any purpose other than evaluating its investment in the Preferred Shares
(and any other Stock of the Company held by the Investor), all information
furnished to it by the Company under this Agreement which the Company identifies
as confidential or proprietary, except for information which (a) is in the
public domain, or enters the public domain other than by such Investor's breach
of this Agreement, (b) was known to the Investor prior to its disclosure by the
Company hereunder and is not otherwise subject to confidentiality restrictions,
(c) is disclosed to the Investor without restrictions of confidentiality by a
third person who is not in breach of an obligation of confidentiality in doing
so, (d) is required to be disclosed by any applicable law or regulation or by
order of a judicial or administrative authority having jurisdiction, or (e)
constitutes summary financial or descriptive business information disclosed by
the Investor which is an investment fund as part of its regular reports to its
partners or other investors.
9
<PAGE>
8.6. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original, but such counterparts shall together constitute but one
and the same document.
8.7. NOTICES AND DEMANDS. Any notice, demand or other communication which
by any provision of this Agreement or any agreement, document or instrument
executed pursuant hereto, except as otherwise provided therein, is required or
provided to be given shall be deemed to have been sufficiently given or served
and received for all purposes when delivered by hand or two business days after
sent by federal express, D.H.L. or other similar courier, and sent by telecopier
with confirmation received to the following addresses:
TO THE INVESTOR With a copy to:
DCC International Holdings B.V. Goodwin, Proctor & Hoar
c/o DCC House Exchange Place
Brewery Road 53 State Street
Stillorgan, Blackrock Boston, MA 02109
County Dublin, Ireland Attn: Stuart M. Cable
TO THE COMPANY With a copy to:
HealthDrive Corporation Choate, Hall & Stewart
25 Needham Street Exchange Place, 53 State Street
Newton, MA 02161 Boston, MA 02109
Attn: Steven Charlap, M.D. Attn: William Grieco, Esq.
or to such other address which either party may by registered mail notify the
other party.
8.8. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions or this Agreement.
8.9. ENTIRE AGREEMENT; AMENDMENT OF 1992 AGREEMENT. This Agreement and the
Stockholders Agreement referred to in Section 8.2 represent the entire agreement
of the parties hereto with respect to the purchase of the Class B Convertible
Preferred Stock. Section 6 of the Preferred Stock Purchase Agreement dated as of
May 8, 1992 between the Company and DCC Limited (the "1992 Agreement") is hereby
deleted in its entirety. Except as provided in the preceding sentence, the 1992
Agreement shall continue in full force and effect without amendment according to
its terms.
8.10. [Reserved].
10
<PAGE>
8.11. TERMINATION. This Agreement shall terminate and the provisions and
rights granted hereunder shall have no further force and effect on the date on
which the Investor (or if the Preferred Shares or any Common Stock is
transferred from the Investor to any consolidated subsidiary thereof, such
transferee) no longer holds any of the Company's Class A Convertible Preferred
Stock or the Class B Preferred Stock, any shares of Common Stock into which the
Class A Convertible Preferred Stock or Class B Preferred Stock were converted
and any shares of Common Stock acquired pursuant to the Stock Purchase Agreement
dated as of October 3, 1989 between the Company and DCC Limited, except that the
registration rights provided in Section 6 hereof shall survive for as long as
any transferee of the registration rights pursuant to Section 6.8 hereof
continues to hold any Registrable Securities, and at such time as such
transferee ceases to hold any Registrable Securities, such rights shall also
terminate and have no further force or effect.
11
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
HEALTHDRIVE CORPORATION
By: /s/ Steve Charlap
------------------------------------------------
President
DDC INTERNATIONAL HOLDINGS B.V.
Internationale Nederlanden
(Nederland) Trust B.V.
By:
------------------------------------------------
Director: G.A.L.R. Diepenheim Mr. E.F. Switzers
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2.3
STOCKHOLDER SHARES HELD
----------- -----------
<S> <C> <C>
COMMON STOCK:
Steven S. Charlap 940,000
Alec H. Jaret 480,000
Cheryl V. Reicin 21,200
Richard Dorr 3,800
DCC Limited (Isle of Man) 555,000
CLASS A PREFERRED STOCK:
DCC Limited (Isle of Man) 571,428
</TABLE>
The Company has issued stock options to various present and former employees and
Directors of the Company and its related professional corporations.
Certain preemptive rights, restrictions on the transfer of shares of stock
and/or registration rights are contained in (1) a certain Voting Agreement dated
as of June 30,1989 by and among Steven Charlap, M.D., Alec H. Jaret, D.M.D.,
Cheryl V. Reicin and Richard Dorr, (2) a certain Stockholders Agreement dated as
of the date hereof by and among the Company, DCC International Holdings B.V.,
DCC Limited, Steven Charlap. M.D., Alec H. Jaret, D.M.D. and Cheryl V. Reicin
and (3) a certain Preferred Stock Purchase Agreement dated as of May 8,1992 by
and between the Company and DCC Limited.
<PAGE>
AMENDMENT NO. 1 TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED AS OF APRIL 28, 1994
Amendment, dated as of May 24, 1995 (the "Amendment"), by and between
HealthDrive Corporation, a Delaware corporation (the "Company"), and DCC
International Holdings B.V., a Netherlands corporation (the "Investor").
Capitalized terms used herein and not otherwise defined shall have the meanings
given to such terms in the Agreement (as defined below).
WHEREAS, the Company and the Investor are parties to that certain
Preferred Stock Purchase Agreement, dated as of April 28, 1994 (the
"Agreement"), pursuant to which the Investor purchased 181,818 shares of the
Company's Class B Convertible Preferred Stock, par value $.01 per share (the
"Preferred Shares");
WHEREAS, DCC Limited, an Isle of Man corporation and an affiliate of the
Investor ("Limited), is the owner of 555,000 shares of the Company's Common
Stock, par value $.01 per share, and 571,428 shares of the Company's Class A
Convertible Preferred Stock, par value $.0l per share (the "Limited Shares");
WHEREAS, the Company, Limited, the Investor, Steven Charlap, M.D., Alec
H. Jaret, D.M.D. and Cheryl V. Reicin are parties to that certain Amended and
Restated Stockholders Agreement dated as of April 28, 1994, as amended as of May
24, 1995 (the "Stockholders Agreement"); and
WHEREAS, Limited wishes to transfer the Limited Shares to the Investor
and, in connection therewith, the parties desire to amend the Agreement as set
forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and the Investor hereby agree as follows:
1. Section 6.5 is hereby amended in its entirety to read as follows:
"REGISTRABLE SECURITIES. For the purposes of this Section 6, the
term "Registrable Securities" shall mean the shares of Common Stock and
Class A Convertible Preferred Stock (and any shares of Common Stock
issuable upon conversion thereof) currently held by Limited and any
shares of Stock purchased by, or issued (upon conversion or otherwise)
to, the Investor at or after the Closing, including without limitation,
the Preferred Shares and any Stock issued by way of a stock dividend or
stock split or in connection with a combination of shares,
recapitalization, merger, consolidation."
2. Section 6.8 is hereby amended in its entirety to read as follows:
<PAGE>
"TRANSFER OF REGISTRATION RIGHTS. The registration rights of the
Holders under this Section 6 may be transferred to any transferee of
Registrable Securities (i) which is a Qualified Transferee, as such term
is defined in Section 2(e) of the Stockholders Agreement, of the
Investor, or (ii) who or which acquires forty-nine percent (49%) or more
(as adjusted for stock splits, stock dividends, reclassifications,
recapitalizations and similar events), in the aggregate, of the Preferred
Shares and the Limited Shares. The Company shall be notified in writing
of any transfer of Registrable Securities which results in the transfer
of the registration rights under this Section 6 and must receive an
opinion of counsel acceptable in form and substance to the Company that
the transfer has been made in compliance with applicable securities laws
and that the transferee has received the registration rights. Each such
transferee shall be deemed to be a "Holder" for purposes of this Section
6.
3. Section 8.2 is hereby amended by deleting the penultimate sentence in
its entirety and replacing it with the following sentence:
"All such covenants, agreements, representations and warranties shall
inure to the benefit of the Investor or any Qualified Transferee of the
Investor, as such term is defined in Section 2(e) the Stockholders
Agreement, provided that DCC plc, a public limited company registered in
Ireland and the owner of 100% of the outstanding shares of capital stock
of the Investor and Limited ("DCC plc"), or a wholly-owned subsidiary of
DCC plc, continues to own at least 99% of the capital stock of the
Investor or any Qualified Transferee of the Investor."
4. Section 8.11 is hereby amended in its entirety to read as follows:
"TERMINATION. This Agreement shall terminate and the provisions and
rights granted hereunder shall have no further force and effect as of and
from the date upon which neither the Investor nor any Qualified
Transferee of the Investor (as such term is defined in Section 2(e) of
the Stockholders Agreement) no longer holds any of the Preferred Shares
or the Limited Shares, or any shares of Common Stock into which such
Preferred Shares or Limited Shares are converted, or at such time as DCC
plc, or a wholly-owned subsidiary of DCC plc, holds less than 99% of the
shares of capital stock of the Investor or any Qualified Transferee of
the Investor, except that the provisions of Section 6 of this Agreement
shall survive for as long as any transferee of the registration rights
pursuant to Section 6.8 of this Agreement continues to hold any
Registrable Securities, and at such time as such transferee ceases to
hold any Registrable Securities, such rights shall also terminate and
have no further force or effect."
5. ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Amendment shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, legal representatives, successors and permitted transferees,
except as may be expressly provided otherwise herein.
-2-
<PAGE>
6. SEVERABILITY. In case any one or more of the provisions contained in
this Amendment 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 Amendment and such invalid, illegal
and unenforceable provision shall be reformed and construed so that it will be
valid, legal, and enforceable to the maximum extent permitted by law.
7. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8. GOVERNING LAW. This Amendment shall be governed by and construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, this Amendment has been duly executed by the parties
hereto as of the date and year first above written.
HEALTHDRIVE CORPORATION
By: /s/ Steven Charlap MD
----------------------------------------
Name: Steven Charlap, M.D.
Title: President
DCC INTERNATIONAL HOLDINGS B.V.
By: /s/ Fergal O'Dwyer
----------------------------------------
Name: Fergal O'Dwyer
Title: Director
-3-
<PAGE>
Exhibit 10.10
AMENDMENT, CONVERSION AND WAIVER AGREEMENT
This AMENDMENT, CONVERSION AND WAIVER AGREEMENT, dated as of March 30,
1998, is made by and among HealthDrive Corporation, a corporation organized
and existing under the laws of the State of Delaware (the "COMPANY"), DCC
International Holdings B.V., a Netherlands corporation ("DCC HOLDINGS"), DCC
Limited, an Isle of Man corporation, and the persons named as "Stockholders"
on the signature pages hereto.
BACKGROUND
WHEREAS, the Company and DCC Limited entered into a Stock Purchase
Agreement, dated as of October 3, 1989 (the "1989 PURCHASE AGREEMENT"),
pursuant to which DCC Limited purchased an aggregate of 2,775 shares of the
Company's Common Stock, $.01 par value per share (the "COMMON STOCK");
WHEREAS, the Company and DCC Limited entered into a Stock Purchase
Agreement, dated as of May 8, 1992, as amended by Amendment No. 1 thereto,
dated as of May 24, 1995 (as so amended, the "1992 PURCHASE AGREEMENT"),
pursuant to which DCC Limited purchased an aggregate of 571,428 shares of the
Company's Class A Preferred Stock. $.01 par value per share (the "CLASS A
STOCK"), and the 1989 Purchase Agreement was terminated;
WHEREAS the Company and DCC Holdings entered into a Stock Purchase
Agreement, dated as of April 28, 1994, as amended by Amendment No. 1 thereto,
dated as of May 24, 1995 (as so amended, the "1994 PURCHASE AGREEMENT"),
pursuant to which DCC Holdings purchased an aggregate of 181,818 shares of
the Company's Class B Preferred Stock. $.01 par value per share (the "CLASS B
STOCK"), and certain of the provisions of the 1992 Purchase Agreement were
terminated;
WHEREAS, in connection with the execution and delivery of the 1994
Purchase Agreement and the sale of the Class B Stock, DCC Limited, DCC
Holdings and the "Stockholders" named therein entered into an Amended and
Restated Stockholders Agreement, dated as of April 28, 1994, as amended by
Amendment No. 1 thereto, dated as of May 24, 1995 (as so amended, the
"STOCKHOLDERS AGREEMENT"), amending and restating a Stockholders Agreement,
dated as of May 8, 1992, which amended and restated an earlier Stockholders
Agreement, dated as of October 3, 1989;
WHEREAS, pursuant to an Assignment and Assumption, dated as of August
25, 1995, DCC Limited transferred to DCC Holdings all of its right, title and
interest in the outstanding Class A Stock as well as the rights of DCC
Limited under the 1992 Purchase Agreement;
<PAGE>
2
WHEREAS, the Company proposes to enter into an Underwriting Agreement with
H.C. Wainwright & Co., Inc. (the "REPRESENTATIVE"), contemplating an initial
public offering of the Common Stock (the "OFFERING");
WHEREAS, the Representative is unwilling to enter into the Underwriting
Agreement unless DCC Holdings and DCC Limited each agree, subject to the
consummation of the Offering, to (i) terminate each of the 1992 Purchase
Agreement, the 1994 Purchase Agreement (other than with respect to registration
rights) and the Stockholders Agreement, (ii) to waive all past instances of
non-compliance by the Company with the terms of the 1992 Purchase Agreement, the
1994 Purchase Agreement and the Stockholders Agreement, and (iii) agree to
convert their outstanding Class A Stock and Class B Stock into Common Stock
concurrent with the closing of the Offering; and
WHEREAS, the execution and delivery of this Amendment, Conversion and
Waiver Agreement by DCC Holdings and DCC Limited is a condition precedent to the
consummation of the Offering;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company, DCC Holdings, DCC
Limited and the persons named on the signature pages hereto hereby agree as
follows:
1. TERMINATION OF 1992 PURCHASE AGREEMENT.
Subject to the closing of the Offering, the Company, DCC Limited and DCC
Holdings each agree that the 1992 Purchase Agreement is hereby terminated in
all respects, such termination to be effective contemporaneous with the
closing of the Offering, with none of the Company, DCC Limited, DCC Holdings
or any of their successors, assigns or transferees having any further rights
or obligations thereunder upon and after the effectiveness of such
termination.
2. AMENDMENT OF 1994 PURCHASE AGREEMENT.
Subject to the closing of the Offering, each of the Company and DCC
Holdings agree that each of the provisions of the 1994 Purchase Agreement
other than the provisions of Section 6 thereof are hereby terminated in all
respects, such termination to be effective contemporaneous with the closing
of the Offering, with none of the Company, DCC Holdings or any of their
successors, assigns or transferees having any further rights or obligations
under any provisions thereof (other than Section 6 thereof) following such
effectiveness. Notwithstanding the
<PAGE>
3
termination of any other provision of the 1994 Purchase Agreement, the
provisions of Section 6 shall remain in full force and effect following the
closing of the Offering.
3. TERMINATION OF STOCKHOLDERS AGREEMENT.
Subject to the closing of the Offering, the Company, DCC Holding, DCC
Limited and each of the Stockholders hereby agree that the Stockholders
Agreement is hereby terminated in all respects, such termination to be
effective contemporaneous with the closing of the Offering, with none of the
Company, DCC Holdings, DCC Limited, any of the Stockholders or any of their
successors, assigns or transferees having any further rights or obligations
thereunder upon and after the effectiveness of such termination.
4. WAIVER OF REGISTRATION RIGHTS.
Each of DCC Holdings and DCC Limited hereby irrevocably waive, on behalf
of themselves, their respective affiliates and transferees, any rights either
of them or any of their affiliates may have to have any shares of the capital
stock of the Company held by any of them or any of their affiliates or
transferees included in the Offering or any registration statement filed by
the Company with the Securities and Exchange Commission in connection
therewith, whether arising under Section 6.1 of the 1994 Purchase Agreement
or otherwise.
5. AGREEMENT TO CONVERT PREFERRED STOCK.
(a) DCC Holdings, as the holder of all of the 571,428 outstanding
shares of the Class A Stock, hereby agrees to convert all of such shares of
Class A Stock into the number of fully-paid and nonassessable shares of
Common Stock determined in accordance with Section 5A of Article 4A of the
Company's Certificate of Incorporation, as amended, effective upon the
closing of the Offering, and hereby tenders the Company's Class A Convertible
Preferred Stock certificate No. [2], representing all of such shares, for
such conversion. Any certificates representing Common Stock issued by the
Company in exchange for the certificates surrendered pursuant to this Section
5(a) shall be issued in the name of "DCC International Holdings, B.V."
(b) DCC Holdings, as the holder of all of the 181,818 outstanding
shares of the Class B Stock, hereby agrees to convert all of such shares of
Class B Stock into the number of fully-paid and nonassessable shares of
Common Stock determined in accordance with Section 5A of Article 4A of the
Company's Certificate of Incorporation, as amended, effective upon the
closing of the Offering, and hereby
<PAGE>
4
tenders the Company's Class B Convertible Preferred Stock certificate No. 1,
representing all of such shares, for such conversion. Any certificates
representing Common Stock issued by the Company in exchange for the
certificates surrendered pursuant to this Section 5(b) shall be issued in the
name of "DCC International Holdings B.V."
(c) Notwithstanding the foregoing, nothing in this Section 5 shall be
deemed to modify or amend the Company's right and obligation to consummate
the automatic conversion of the outstanding Class A Stock and Class B Stock
upon the closing of certain underwritten public offerings of Common Stock in
accordance with Section 5O of Article 4A of the Company's Certificate of
Incorporation.
6. WAIVER OF NON-COMPLIANCE AND COVENANT NOT TO SUE.
(a) In order to induce the Company and the Representative to consummate
the Offering, and in acknowledgment of the substantial value that each of
them will receive in connection therewith, each of DCC Holdings and DCC
Limited, respectively, hereby, for themselves and each of their successors,
assigns and transferees, hereby agree, contingent upon the closing of the
Offering, to remise, release, and forever discharge (the "RELEASE"), the
Company and each of the Stockholders, and their respective directors,
officers, employees, principals, shareholders, successors, assigns and
transferees (the "RELEASED PARTIES"), of and from any and all debts, demands,
actions, causes of action, suits, accounts, covenants, contracts, agreements,
damages, and any and all claims, demands, liabilities and obligations
whatsoever, of every name and nature, known and unknown, matured and
unmatured, liquidated or unliquidated, fixed or contingent, both in law and
in equity, under the laws of any jurisdiction, which DCC Holdings or DCC
Limited, or any of their successors, assigns and transferees now have, may
have had, or may in the future have, arising out of any failure by any of the
Released Parties to comply with any of the warranties or covenants set forth
in any of the 1989 Purchase Agreement, the 1992 Purchase Agreement, the 1994
Purchase Agreement or the Stockholders Agreement, PROVIDED, HOWEVER, that
nothing in the Release is intended to remise, release or discharge the
Company of (i) any of its obligations under Section 6 of the 1994 Purchase
Agreement, or (ii) any of its obligations under Section 4.22 of the 1994
Agreement to pay to DCC Holdings an annual business development fee for
periods ending on or prior to the closing date of the Offering, but only to
the extent that such payment obligations have accrued and are payable, but
have not been paid, on such date.
(b) In order to induce the Company and the Representative to undertake
the Offering, each of DCC Holdings and DCC Limited, on behalf of itself and
its successors, assigns and transferees, hereby agrees, contingent upon the
closing of the Offering, that it and its successors, assigns and transferees
will not bring or institute
<PAGE>
5
any action, suit or proceeding and will not implead, join, seek contribution
or indemnification from or otherwise involve as a party any of the Released
Parties in any action, suit, or proceeding in violation of Section 6, which
has been, was or could ever be brought by him, his successors, assigns or
transferees against any of the Released Parties with respect to the Release,
either in law or in equity.
7. CONDITION PRECEDENT.
Notwithstanding anything to the contrary in this Agreement, all of the
obligations of DCC Holdings and DCC Limited hereunder shall be subject to and
conditional upon (i) the closing of the Offering occuring on or before
October 31, 1998, and (ii) the Offering being consummated at a price to
public (prior to the deduction of any underwriting commissions or offering
expenses) of not less than $5.00 per share of Common Stock sold in the
Offering. In the event that either or both of these conditions is not
satisfied, this Agreement and the obligations of the parties hereunder shall
be deemed null and void as of the date hereof.
8. GOVERNING LAW.
This Amendment, Conversion and Waiver Agreement and the rights and
obligations of the parties hereunder shall be deemed executed as a contract
under seal in the Commonwealth of Massachusetts, and shall be construed in
accordance with and governed by the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have cause this Amendment,
Conversion and Waiver Agreement to be duly executed as an instrument under
seal as of the date first above written.
HEALTHDRIVE CORPORATION
By: /s/ Steven Charlap
-------------------------------
Title: Chief Executive Officer
DCC HOLDINGS INTERNATIONAL, B.V.
By: /s/ Fergal O'Dwyer
--------------------------------
"A" Managing Director
<PAGE>
6
By: ING TRUST (Nederland) B.V.
By: [unintelligible]
---------------------------
"B" Managing Director
DCC LIMITED
By: [unintelligible] /s/ J.D. Sayle
---------------------------------
Title: Director Alternate Director
to W. Brown
STOCKHOLDERS:
/s/ Steven Charlap, M.D.
-----------------------------------
Steven Charlap, M.D.
/s/ Alec H. Jaret, D.M.D.
-----------------------------------
Alec H. Jaret, D.M.D.
/s/ Cheryl V. Reicin
-----------------------------------
Cheryl V. Reicin
<PAGE>
Exhibit 10.11
L E A S E
LESSOR: Magnum Realty Trust
LESSEE: HealthDrive Corporation
LOCATION: 25 Needham Street, Newton, MA 02161
AREA: Approximately 5,300 square feet
LESSEE'S SHARE: 8.15 Percent
TERM: Five Years and Two Weeks
COMMENCEMENT DATE: July 1, 1992
EXPIRATION DATE: June 30, 1997
INITIAL MINIMUM RENT: Fifty-Eight Thousand Three Hundred Dollars
<PAGE>
L E A S E
THIS LEASE made between, Sally A. Starr and Lisa A. Brown as Trustees of Magnum
Realty Trust for the Benefit of Harold Brown and Richard H. Krock, a
Massachusetts limited partnership with a principal place of business at 39
Brighton Avenue, Boston, Massachusetts 02134 ("Lessor") and HealthDrive
Corporation, a Delaware corporation with a principal place of business at 850
Boylston Street, Chestnut Hill, Massachusetts 02167 ("Lessee").
Article I - Leased Premises. The Lessor leases to the Lessee the premises
(the "Premises") consisting of approximately 5,300 square feet of rentable space
having an address of 25 Needham Street, Newton, Massachusetts 02161 located on
the second (2nd) floor of the buildings (the "Building") situated at and
numbered 19-33 Needham Street, Newton, Massachusetts 02161, together with the
non-exclusive right to use, in common with others entitled thereto, those common
roadways, walkways, halls, stairs, foyers, and any other common area necessary
for access to or egress from the Premises; except for the interior of walls and
the spaces behind walls, floors and ceilings utilized for the installation of
pipes, wires, conduits, ducts and Lessor's fixtures (not located within the
Premises).
Article II - Term. TO HAVE AND TO HOLD for a term of five years beginning
with the first day of July, 1992 (the "Commencement Date") and ending on the
thirtieth day of June, 1997 (the "Expiration Date"), both dates inclusive. If
Lessor fails to deliver possession of the Premises at the Commencement Date, the
Lessor shall not be liable for any damages caused thereby, nor shall this lease
be void or voidable, but the Commencement Date shall be extended and no rent
shall be due until Lessor delivers possession. Provided, however, that
notwithstanding the fact that the Commencement Date has been so extended, the
Expiration Date shall remain the same and all the other terms and conditions of
this lease, including, without limitation, all dates and time periods contained
herein, shall also remain as stated herein. If this lease is extended or
renewed, all references to "term" herein shall refer to the extension or renewal
terms unless specifically designated otherwise. Notwithstanding the preceding
language, if Lessor has not delivered the Premises to Lessee with those
improvements required by Addendum #2 (the "Improvements") substantially
completed within eight (8) weeks of the execution date of this Lease, and if
Lessor has not completed work on at least fifty (50%) percent of the
Improvements by the end of said eight week period, then Lessee may terminate
this Lease without further recourse by giving Lessor written notice of
termination; said notice to be given prior to substantial completion and
delivery of the Premises by Lessor.
Article III.1 - Minimum Rent.
(A) Rent is payable in twelve (12) equal monthly installments in advance on the
first day of each month during each lease year of the term at the office of
Hamilton Management Corp., 39 Brighton Avenue, Boston, Massachusetts 02134 (and
also at the early termination of this lease, a proportionate part of rent for
any part of a month then unexpired). All rent checks shall be payable to 19-33
NEEDHAM STREET ASSOCIATES. After the fifth (5) day of the month, interest will
accrue on any unpaid rent at the rate of 1
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1/2% per month until such time as it is paid.
(B) The minimum rent for each year of the term (the "Minimum Rent") shall be as
follows:
<TABLE>
<CAPTION>
Lease Year Per Year Per Month
<S> <C> <C> <C>
Year One (1992-93) $58,300.00 $4,858.34
Year Two (1993-94) $58,300.00 $4,858.34
Year Three (1994-95) $63,600.00 $5,300.00
Year Four (1995-96) $68,900.00 $5,741.67
Year Five (1996-97) $71,550.00 $5,962.50
</TABLE>
Notwithstanding anything contained in the foregoing to the contrary, no
minimum rent installments shall be due from Lessee to Lessor for the first seven
months after the Commencement Date or extended commencement date of the original
term of this Lease.
Article III.2 - Adjusted Rent Intentionally Deleted.
Article IV - Additional Rent Due to Taxes. For purposes of this Article
"fiscal year" means the twelve (12) months ending on June 30; "fiscal base year"
means the fiscal year ending June 30, 1993; "taxes" means all taxes and
assessments levied by governmental authority against the Building and its
associated land and its associated personalty (excluding all personalty of
tenants) or taxes in lieu thereof, but shall exclude all income taxes; "Lessee's
Share" means 8.15 percent. If the taxes for any fiscal year (or portion of any
fiscal year) occurring within the term after the fiscal base year exceed taxes
for the fiscal base year (or exceed a pro rata portion of fiscal base year taxes
in the event of a portion of a fiscal year being included within the term), then
Lessee shall pay to Lessor the Lessee's Share of the excess as Additional Rent.
Lessor will notify Lessee in writing within sixty (60) days of receipt of tax
bills of the amount of taxes and the Lessee's Share of excess taxes for the
current fiscal year; Lessee shall pay Lessee's Share of the excess within thirty
(30) days of such notification. If Lessor later receives a reduction or refund
on taxes resulting from abatement of such taxes by final determination of legal
proceedings, settlement or otherwise, Lessee is entitled to Lessee's Share of
the reduction or refund up to the amount of Additional Rent paid for such fiscal
year less Lessee's Share of reasonable fees and costs incurred by Lessor. If
Lessor receives a refund or reduction in taxes for the fiscal base year, then
taxes for the fiscal base year shall be measured by the abated amount.
On the date this lease expires or is otherwise terminated, the entire
unpaid additional rent on account of taxes and a proportionate share of the
additional rent on account of taxes for the fiscal year during which such
expiration or termination occurs shall immediately become due and payable by
Lessee to Lessor. Such proportionate share shall be based upon the length of
time this lease has been in existence during such latter fiscal year, and shall
be estimated by Lessor based upon the most recent applicable data, adjusted when
the actual data is available. Adjustments shall be made if the term of this
lease begins and/or ends on other than the first or last day of a fiscal year.
In the event of Lessee's default, Lessee's obligation to pay any and all
additional rent under this lease shall continue and shall cover all periods up
to the Expiration Date.
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Article V - Deposit. Intentionally Deleted.
Article VI - Use. The Premises shall be used and occupied by Lessee solely
for the purpose of general business offices for health care related services and
ancillary services thereto, and such other lawful use incidental thereto but for
no other purpose. In using or occupying the Premises for such purpose Lessee
shall not cause unreasonable discomfort or annoyance to any other lessees or
occupants of the Building or to passersby. Moreover, in using or occupying the
Premises, Lessee shall not cause or allow a release or threat of release onto
the Premises, the Building or its grounds, or into the air, of any hazardous
waste or material, or any pollutant or contaminant deemed such by any federal,
state or local law, rule, regulation or ordinance.
LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS THAT THE PREMISES ARE FIT
FOR A PARTICULAR USE OR PURPOSE, INCLUDING WITHOUT LIMITATION THE USE AS
SPECIFIED HEREIN, EXCEPT AS OTHERWISE REQUIRED BY LAW.
Article VII - Installation of Equipment and Floor Capacity. Lessee shall
not place any load upon any floor of the Premises which exceeds the floor load
capacity (calculated on a square foot basis) and which is allowed by law. Lessee
will move any machinery, equipment, freight, bulky matter or fixtures into or
out of the Premises only by way of its back door. The moving and installation of
such machines and equipment shall be at the sole risk and hazard of the Lessee.
Article VIII - Condition of Premises, Remodeling. Except for the
renovations and improvements to be made by Lessor pursuant to Addendum #2 prior
to the Commencement Date, and subject to Lessor's maintenance, repair and
replacement obligations required by this Lease, Lessee accepts the Premises in
its "as is" condition and agrees not to make any structural changes thereto
without Lessor's written consent, which in Lessor's sole discretion may be
granted or withheld. Lessee shall not alter, remodel, or make any non-structural
change to the Premises nor install any additional heavy equipment, fixtures or
air conditioning without the prior written consent of Lessor not to be
unreasonably withheld or delayed. Lessee will bear the cost of all alterations,
remodeling and decorating of the Premises made subsequent to the Commencement
Date and ensure they are done in a good and workmanlike manner in compliance
with all applicable laws.
Article IX - Lessor's Covenants. Lessor shall be responsible for
maintaining the structure of the Building in the same condition as at the
Commencement Date or as it may be put during the term of this lease, reasonable
wear and tear and damage by fire and other casualty (which is addressed by
Article XIV) only excepted. Lessor shall be responsible for maintaining the
building common systems and all the common areas (including common lighting) in
good order and repair, except that Lessor shall have no responsibility with
respect to any obligation hereinabove stated if caused by Lessee's negligence or
wanton acts. Lessor is also responsible for any repairs to, maintenance of, and
replacement of those utility and plumbing equipment and fixtures and mechanical
installations, equipment and fixtures servicing the Premises, which exist as of
the Commencement Date of the Lease and which have not been added by Lessee.
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Article X - Lessee's Covenants.
Article X.1 - Utilities. Lessor shall provide and maintain (but not pay
for the use of) those utility services (excluding telephone and data cabling)
running to the Premises in the same manner and capacity as of the Commencement
Date. Lessee shall pay for its use of all utilities, (excluding its use of water
except as may be hereinafter provided) including utilities required to produce
heat and air conditioning, as they become due and payable. If Lessee installs
equipment which is connected to the Building's water utility, by a
water-plumbing hook-up, then Lessor shall have the right to install a separate
water meter or submeter to measure such usage, and Lessee shall pay for the
water usage measured by the same. Lessor shall maintain, repair and replace as
necessary the hot water heater servicing the Lessee's Premises in its present
capacity, and Lessee shall pay for the utilities required to operate the same.
Lessor shall provide water to the Premises, subject to its right to install a
separate meter or submeter as aforesaid. The parties acknowledge that the
Premises' use of electricity and natural gas is measured respectively by a
separate electric and gas meter, the accounts for which Lessee shall maintain in
its name.
The preceding notwithstanding, in the event the cost to Lessee for its use
of natural gas (as billed by the utility supplying the same based on readings of
the gas meter serving the Premises) in any Lease Year (that is the period July
1, - June 30) exceeds for said twelve month period the amount of $0.50 per
square foot of rentable space, then Lessor shall reimburse Lessee at the end of
each Lease Year for the cost of such natural gas usage during said Lease Year in
excess of said $0.50/rentable square foot amount; provided, however, Lessor
shall have no such reimbursement obligation or responsibility in any Lease Year
in which natural gas at the Premises, as measured by said meter, is used for any
purposes other than supplying central heating of the Premises. At the end of
each Lease Year in which a reimbursement is owed, Lessee shall forward to Lessor
copies of all natural gas utility bills relating to said meter and pertaining to
such Lease Year, and upon presentation of the same to Lessor, it shall forthwith
make the appropriate reimbursements to Lessee.
Article X.2 - Lessee's Insurance.
1. Personal Property Personal property and the loss of use of personal property
of the Lessee shall be at the sole risk and responsibility of the Lessee. Lessee
shall purchase and maintain insurance in an amount adequate to repair or replace
its personal property and those tenant improvements added after the Commencement
Date.
Lessee is responsible for the replacement of any broken glass that is within the
Premises, except for any replacement necessitated by the negligence of Lessor
which shall be the responsibility of Lessor, and for the replacement of broken
glass running along the perimeter of the Premises only if such glass is broken
or damaged by Lessee's or its employee's gross negligence.
2. Comprehensive Commercial Liability Insurance Lessee agrees to maintain
throughout the term of the lease, Comprehensive Commercial Liability
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<PAGE>
Insurance written on an occurrence basis. Such insurance shall include coverage
for personal injury, broad form property damage, host liquor, extended bodily
injury and broad form contractual liability. The minimum limit of liability
carried on such insurance shall be $1,000,000 combined single limit for each
occurrence with any aggregate limit applying only to each of the following:
personal injury and contractual liability. However, if the policy contains a
general policy aggregate or an aggregate which applies to coverages other than
the aforementioned coverages, the Lessee shall purchase minimum limits of
$1,000,000 per occurrence/$2,000,000 aggregate per location.
3. Automobile Liability Lessee agrees to maintain automobile liability insurance
for owned, non-owned, and hired vehicles. The minimum limit of liability carried
on such insurance shall be ($1,000,000.00) each accident, combined single limit
for bodily injury and property damage.
4. Workers Compensation Lessee agrees to maintain workers' compensation
insurance providing statutory limits including employer's liability insurance
with current limits of $100,000.00 for each additional injury and, with respect
to bodily injury by disease, $100,000.00 each employee and $500,000.00 per
policy year.
All insurance policies required in paragraphs 2 and 3 above shall
designate the Lessor, as an additional insured. Lessee agrees that the insurance
coverages required under sections number 1 through number 4 above shall be
written by a company or companies authorized to do business in the Commonwealth
of Massachusetts with an A.M. Best's rating of "A", VIII or better.
Lessor agrees to carry casualty insurance on the Building with limits
sufficient so as to avoid so-called "coinsurance limitations".
Lessee agrees to furnish the Lessor with Certificates of Insurance prior
to the beginning of the term of the lease. Renewal Certificates of Insurance
shall be delivered to the Lessor at least five (5) days in advance of each
renewal date. Such certificates shall state that in the event of cancellation or
material change written notification shall be given to the Lessor at least
thirty (30) days in advance of such cancellation or material change. However, if
Lessee, having used all reasonable efforts is unable to have such certificate so
state, then at least such certificate shall state that in the event of such
cancellation or material change in coverage, the insurer shall endeavor to mail
written notice thereof to the Lessor at least ten (10) days prior to such
cancellation or material change, and in such event Lessee shall promptly notify
Lessor of any such cancellation or change upon receipt by Lessee of written
notice from the insurer thereof.
Article X.3 - Signs. Lessee shall not erect any signs or lettering within
the Premises visible from the exterior of the Premises or to the exterior of the
Premises without obtaining Lessor's prior written consent. Lessee has the right
at Lessor's expense to have signage (subject to the approval of Lessor not to be
unreasonably withheld or delayed), at the pylon located at the driveway entrance
to the Building which signage shall comply with Lessor's sign criteria
(uniformly enforced) for said pylon
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<PAGE>
sign. In addition, Lessee shall be entitled at its expense to place and maintain
a sign on the glass sidelight, at the 25 Needham Street entrance to the Building
of a shape, type and appearance reasonably consistent with the Building
standard, to be approved by Lessor, which approval shall not be unreasonably
withheld.
Article X.4 - Maintenance, Repair, Yield-Up. Unless otherwise specifically
provided herein, Lessee shall keep and maintain the Premises, except Lessor
shall be responsible for the maintenance, repair and replacement of those
electrical, plumbing, heating, air conditioning, ventilation and other
mechanical installations equipment and fixtures therein which exist as of the
Commencement Date and which have not been added by Lessee. Lessor shall also
keep all windows and doors of the Premises in good order and repair, except that
Lessee shall be responsible for repairs or replacements of the same made
necessary for reasons other than normal wear and tear or defect of material. At
the end of the Term or sooner termination, Lessee shall peaceably surrender the
Premises and all erections, alterations and additions thereon made to or upon
the same, to Lessor, broom clean and in the same repair and condition as the
Premises were in on the Commencement Date and as such erections, alterations,
and additions were when completed, reasonable wear and tear, fire and other
casualty only excepted; and will remove all personal property, goods and
effects, including, without limitation, all of its trade fixtures, awnings,
canopies and signs, and all lettering, if any, painted on any doors with or
without Lessor's consent. Lessee shall be responsible for all damage or injury
to the Premises and the Building caused by Lessee's installation or removal of
furniture, fixtures or equipment. At the termination of this Lease, Lessor in
its sole discretion, may require Lessee to remove any erections, additions,
alterations or fixtures Lessee has installed except those approved in writing by
Lessor, and restore the Premises to the condition they were in on the
Commencement Date, reasonable wear and tear and casualty excepted.
Article X.5 - Assignment - Subleasing. Lessee shall not assign, sublet,
underlet, mortgage, pledge or encumber (collectively referred to as "Transfer")
this lease without Lessor's prior written consent; such consent not to be
unreasonably withheld or delayed. Lessor's refusal to consent to a Transfer for
any use or purpose other than as specifically stated in Article VI herein shall
not be deemed to be an unreasonable withholding of consent.
In the event that Lessee desires to Transfer this lease to a proposed new
Lessee to whom Lessor is required to give its reasonable consent pursuant to the
foregoing paragraph, Lessor shall have the option of either (1) allowing Lessee
to transfer this lease, in which case Lessee shall remain primarily liable upon
all the terms, conditions and covenants hereof, will deliver to Lessor an
instrument executed by the Transferree binding the same to the terms and
provisions of this lease and will pay to Lessor the amount by which the sum of
rent, additional rent due to taxes and all other money or consideration it
receives from a Transferree exceeds the sum of all monetary obligations which
Lessee owes to Lessor for the period of such Transfer, after accounting for
(either by amortizing or expensing as is required by G.A.A.P.) reasonable
brokerage, tenant fit-up and attorneys fees incurred to procure said
Transferree; or (2) terminating
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<PAGE>
this lease and relieving Lessee of all its future obligations hereunder. In the
event that Lessor decides to terminate this Lease, it shall be free to enter
into a new lease with the proposed new Lessee or anyone else on whatever terms
and conditions it chooses.
Consent by Lessor, whether express or implied, to any Transfer shall not
constitute a waiver of Lessor's right to prohibit any subsequent Transfer; nor
shall such consent be deemed a waiver of Lessor's right to terminate this lease
upon any subsequent Transfer.
As used herein, the term "assign" or "assignment" shall be deemed to
include, without limitation: (a) any transfer of the Lessee's interest in the
lease by operation of law, or the merger or consolidation of the Lessee with or
into any other firm or corporation, except for a merger or consolidation where
Steven Charlap remains in management control of or as chief executive officer of
the resulting entity; or (b) the transfer or sale of a controlling interest in
the Lessee whether by sale of its capital stock or otherwise.
Article X.6 - Listings. Intentionally Deleted.
Article X.7 - Compliance with Law and Insurance Policies. Lessee, at its
sole expense, shall comply with all laws, orders and regulations of Federal,
State, County and City Authorities, Lessee acknowledging that Lessor has made no
warranties or representations about the permissibility of Lessee's proposed use
under applicable zoning, environmental, licensing or other Federal, State,
County and City laws. Lessee shall not do or permit to be done anything upon the
Premises, which will invalidate, or be in conflict with, fire insurance policies
covering the Building and fixtures and property therein and shall not do, or
permit to be done, anything upon the Premises which might subject Lessor to any
liability or responsibility for injury to any person or to property; and Lessee,
at its sole expense, shall comply with all rules, orders, regulations or
requirements of the Board of Fire Underwriters, or any other similar body, and
shall not do or permit anything to be done or kept on the Premises, except as
permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance
Rating Organization, or other authority having jurisdiction. Provided however,
Lessor shall be responsible, at its cost, for complying with any such rules,
orders, regulations or requirements which relate to the Building uniformly and
which do not arise from Lessee's or any other tenant's particular use. Except
for those items necessary for the operation of Lessee's business, which shall be
properly stored to minimize the risk of fire, leakage, release and explosion,
there shall not be brought or kept in or on the Premises any inflammable,
combustible or explosive fluid, material, chemical or substance, nor shall any
objectionable odors permeate or emanate from the Premises. If the insurance
premiums for the building increase because of anything Lessee does or permits to
be done on the Premises, Lessee shall pay the full amount of such increase. That
the Premises are being used for the purpose set forth in Article VI hereof shall
not relieve Lessee from the foregoing duties.
Article X.8 - Lessee's Risk. Except as modified by statute, all
merchandise, furniture, fixtures; inventory and property which may be at
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the Premises and the loss of the use of same shall be at the sole risk and
hazard of Lessee, and if the whole or any part of the Premises is destroyed or
damaged by fire, water or by the leaking or bursting of water pipes, or in any
other manner, no part of such loss or damage or loss of use will be charged to
Lessor unless caused by Lessor's conduct or negligence.
Article X.9 - Indemnification. The Lessee will save Lessor harmless,
defend and will exonerate and indemnify Lessor, from and against any and all
claims, liabilities or penalties:
(i) on account of or based upon any injury to person, or loss of or
damage to property sustained or occurring or emanating from the
Premises on account of or based upon the act, omission, fault,
negligence or misconduct of Lessee, its employees, agents or
independent contractors except to the extent caused by the
negligence fault or misconduct of Lessor, its employees, agents and
independent contractors; and
(ii) on account of or based upon any injury to person, or loss of or
damage to property, sustained on or occurring elsewhere in or about
the Building arising out of the fault, negligence or misconduct of
Lessee, its employees, agents or independent contractors, except to
the extent caused by the negligence, fault or misconduct of Lessor,
its employees, agents and independent contractors.
and, in respect of any of the foregoing, from and against all costs, expenses
(including reasonable attorneys' fees), and liabilities incurred in or in
connection with any such claim, or any action or proceedings; and in case any
action or proceeding is brought against Lessor by reason of any such claim,
Lessee upon notice from Lessor shall at Lessee's expense resist or defend such
action or proceeding.
Article X.10 - Lessor's Access to Premises. Lessor shall have the right
without charge to it and without reduction in rent, at reasonable times (and
with reasonable prior written notice except in an emergency or except if notice
is waived by the person in charge of the Premises) and in such manner as not
unreasonably to interfere with Lessee's business, to enter to view the Premises
for any purpose. In case of an emergency on the Premises or in the Building,
Lessor or its representative may enter the Premises (forcibly, if necessary) at
any time to take such measures as may be needed to cope with such emergency.
Without limiting the generality of the foregoing, during the six (6) months next
preceding the Expiration Date, Lessor may show the Premises to persons wishing
to lease or purchase same. During the two (2) months next preceding the
Expiration Date, Lessor may affix to any suitable part of the Premises a notice
for letting or selling the Premises or property of which the Premises are a part
and keep the same so affixed without hindrance, provided the same does not
unreasonably interfere with Lessee's business operations.
Article X.11 - Materialmen's, Mechanic's Lien. Lessee shall not do or
suffer anything to be done whereby the land and Building may be encumbered by
any materialman's or mechanic's lien and shall, whenever and as often as any
such lien is filed purporting to be for labor or material furnished to
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the Lessee, discharge the same of record or bond the same within thirty (30)
days after the date of filing.
Article X.12 - Waste. Lessee shall not overload, damage or deface the
Premises nor suffer or permit same to be done, nor commit waste; nor without
Lessor's prior written consent (not to be unreasonably withheld or delayed if
Lessee agrees to perform the same in a professional workmanlike manner), permit
any hole to be made in the stone or brickwork of the Building, nor use any
equipment (except for window electric air conditioning if otherwise permitted)
that requires outdoor venting.
Article X.13 - Lessor's Rules and Regulations. Lessee shall abide by any
reasonable rules and regulations as the Lessor may make from time to time,
applicable to all Lessees of the Building and uniformly enforced. The Lessor,
however, may change said rules. Notwithstanding the foregoing, however, Lessor
shall use its best efforts to apply the rules and regulations to all Lessees
with reasonable uniformity in conformity with their tenancies.
Article X.14 - Cleaning, Snow Removal. Lessor is responsible for the
sweeping of sidewalks in front of the Building and parking areas of the Building
and keeping them clear of snow and ice. Lessee shall be entitled to cleaning
services from Lessor, and Lessor agrees to furnish reasonable cleaning services
appropriate for a business office at its own expense with respect to the
Premises after 5:00 p.m. Monday through Friday excluding legal holidays. Lessee
shall be responsible for keeping the Premises infestation free if the cause of
such infestation relates to the Premises or the use of the Premises, otherwise
Lessor shall be responsible for remedying such infestation.
Article XI Subordination. This lease is and shall be subject and
subordinate to all mortgages which may now or hereafter affect the Building and
to all renewals, modifications, consolidations, replacements, and extensions of
such mortgages. In confirmation of such subordination, Lessee shall, on demand,
execute promptly any certificate that the Lessor may request. From time to time
on request, the Lessee will deliver to Lessor a statement in writing certifying
that this lease is unmodified and in full force and effect (or that the same is
in full force and effect as modified and stating the modifications) and the
dates to which the rent and other charges have been paid and stating whether or
not Lessor is in default and if so, specifying each such default.
Article XII - Trade Fixtures and Equipment. Any trade fixtures or
equipment installed in or attached to the Premises and all other property of
Lessee which was personal property prior to its installation shall remain the
property of Lessee, and Lessee shall, except as otherwise provided herein or by
agreement of the parties have the right, to remove its trade fixtures, equipment
and property which it may have installed in or attached to the Premises, during
the term, or within five days thereafter or within a reasonable time after any
accelerated termination thereof; Lessee must promptly repair in a workmanlike
manner any damage resulting from such removal, must plug or close in an approved
manner any connection to sources of gas, air, water, electricity or heat or to
cooling ducts and will do whatever is necessary to leave the Premises in the
same condition
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in which it existed as of the commencement Date, reasonable wear and tear and
casualty excepted.
Article XIII - Eminent Domain. If the Premises or any substantial part
thereof or the whole or any part of the Building are taken for any street or
other public use, by action of the City or other authorities, or if the Lessor
or the Lessee are entitled to or receive any direct or consequential damages by
reason of anything lawfully done in pursuance of any public authority, then this
lease and the term shall terminate at the election of the Lessor. Lessor may
elect so to terminate this lease even if the entire interest of the Lessor is
divested by such a taking. If such taking or condemnation interferes with the
business operations of Lessee, except if such interference is immaterial, then
Lessee shall have the right to terminate this Lease. If, as a result of a taking
or damage to or destruction of the Premises, the Premises or any part thereof
are rendered unfit for use and occupation, the rent shall be abated
proportionately according to the nature and extent of the injury sustained by
the Premises until the Premises or, in the case of a taking, what may remain
thereof, shall have been put in proper condition. If no termination of the Lease
occurs, Lessor shall promptly restore the Premises or what may remain thereof,
and if Lessor fails so to restore within 180 days of the effective date of the
taking and if the taking has interfered with the operation of Lessee's business
(except to an immaterial degree), then Lessee shall have the right to terminate
this Lease by written notice to Lessor which must be given prior to the
completion of said restoration.
Any election to terminate shall be made not later than thirty (30) days
after receipt by the party of notice of such taking or action or the occurrence
of such damage, and shall be effective upon implementation of the taking or at
dispossession. The Lessor reserves and excepts from this lease all rights to
damages resulting from the taking for public use of the Premises or any portion
thereof, or right appurtenant thereto, or privilege or easement in, through, or
over the same, and by way of confirmation of the foregoing the Lessee hereby
grants all rights to such damages previously accrued or accruing during the term
to the Lessor, to have and to hold for the Lessor forever; provided however
Lessee shall have the right to seek damages relating to its property, business
interruption, and moving so long as it seeks such damages by way of a separate
award only and not as part of any general taking award.
Article XIV - Fire and Other Damage; Subrogation.
A. Fire and Other Damage - If the Building or any part thereof is partially
damaged by fire or other casualty, the damage thereto (except for damage to the
Premise's interior finish and build-out and to Lessee's fixtures, property and
equipment, for which Lessee shall be responsible) shall be promptly restored by
and at the expense of Lessor, and until such restoration shall be made, if the
Premises, or any part thereof, are rendered unfit for its use and purpose, the
rent and other charges shall be subject to an abatement to the extent fair and
equitable, except if such casualty was a result of the willful fault or
negligence of Lessee, in which event there shall be no abatement of rent. Such
restoration shall be made promptly by Lessor subject to delay which may arise by
reason of adjustment of insurance, and for reasonable delay on account of "labor
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troubles" or any other cause beyond Lessor's control (excluding financial
inability). Lessor shall not be liable for any inconvenience or annoyance to
Lessee or for injury to the business of Lessee resulting from such excused
delays.
If the Building or the Premises is substantially damaged or rendered
substantially untenantable by fire or other casualty, the rent and other charges
shall be subject to an abatement to the extent fair and equitable as of the date
of the fire or casualty, and continuing until Lessor completes its restoration
obligations hereunder or until the term expires hereunder, except if such
casualty was a result of the willful fault or negligence of Lessee, in which
event there shall be no abatement of rent, and the Lessor shall promptly restore
the same (excluding Lessee's interior finish and build-out and Lessee's
fixtures, property, and equipment), unless Lessor decides not to restore, in
which event the Lessor may, within sixty (60) days, after such fire or other
cause, give Lessee a notice in writing of such decision and thereupon the term
shall expire upon the thirtieth (30th) days after such notice is given, and the
Lessee shall vacate the Premises and surrender the same to the Lessor. If the
Premises is substantially damaged by casualty thereby being rendered
substantially untenantable, then Lessee shall have the right to terminate this
Lease if Lessor does not inform Lessee that it plans to restore the Premises
within thirty (30) days of the casualty. If the Premises (excluding Lessee
Improvements and Lessee's fixtures, property and equipment) is not in fact
substantially restored such that Lessee can occupy it and reasonably operate its
business therefrom within two months after the fire or other casualty, the
Lessee may terminate this Lease by written notice to Lessor within thirty (30)
days after the end of the said two month period, but before such substantial
restoration has been made.
The provisions of this Article XIV shall govern in the case of damage or
destruction of the Building or any part thereof and restoration thereof due to a
fire or casualty notwithstanding any inconsistent provisions of this Lease.
Notwithstanding anything to the contrary contained in this Article XIV,
the provisions hereof shall be subject and subordinate to the rights of
institutions holding mortgages on the Building including the rights contained in
any of Lessor's institutional or purchase money mortgage financing documents
affecting the Building.
B. Waiver of Subrogation - Lessor and Lessee hereby release each other from
any and all liability or responsibility to the other or anyone claiming through
or under them by way of subrogation or otherwise for any loss or damage to
property caused by fire or any of the extended coverage or supplementary
contract casualties, even if such fire or other casualty shall have been caused
by the fault or negligence of the other party, or anyone for whom such party may
be responsible, provided, however, that this release shall be applicable and in
force and effect only to the extent permitted by law and only with respect to
loss or damage occurring during such time as such release does not adversely
affect releasor's insurance policies or prejudice the right of the releasor to
recover thereunder. Lessor and Lessee each agree that it will request its
insurance carriers to include in its policies, whether or not such policies are
required
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hereunder, a clause or endorsement to the effect that any such release shall not
adversely affect said policies or prejudice the right of releasor to recover
thereunder. If extra cost shall be charged, each party will bear the amount of
its extra cost. In any of Lessee's insurance policy with respect to the Premises
which do not contain or which do not allow a waiver of subrogation rights,
Lessee shall have Lessor designated as one of the insured.
Article XV - Default and Bankruptcy. The following shall constitute a
default by Lessee under this Lease:
(a) The Lessee shall fail to make payment or any installment of rent or
other sum herein specified and such failure shall continue for five
(5) days after written notice thereof; or
(b) The Lessee shall fail to observe or perform any other of the
Lessee's covenants, agreements or obligations hereunder and such
default shall not be corrected within thirty (30) days after written
notice thereof or, if such default shall reasonably require longer
than thirty (30) days to cure, shall not within said period commence
and diligently proceed to cure such default; or
(c) The Lessee shall be declared bankrupt or insolvent according to law
if a receiver shall be appointed to manage Lessee's affairs, or if
any assignment shall be made of Lessee's property for the benefit of
creditors.
In the event of a default, the Lessor shall have the right thereafter,
while such default continues to declare this lease ended without prejudice to
any other remedy it may have; provided, however, in the event of a default
pursuant to subsection (b) above which is reasonably disputed by Lessee, and
which Lessor deems to remain uncorrected as of the thirtieth (30th) day after
written notice was sent, then such matter will be submitted to arbitration
according to the rules of the American Arbitration Association with the costs
thereof to be borne equally by the parties.
Article XVI - Lessor's Default. Lessor shall not be deemed to be in
default unless such default remains uncured for more than thirty (30) days
following written notice from Lessee specifying the nature of such default, or
such longer period as may be reasonably required to correct such default.
Provided however, in the event of an emergency maintenance matter which
substantially interferes with the operation of Lessee's business, Lessor shall
respond in a timely fashion to correct the same, and Lessor shall be in default
if it has not implemented steps to correct such matter within forty-eight (48)
hours (excluding Sundays) of written notification to it by Lessee of the said
matter (said written notification to be delivered by certified mail or by hand
delivery by a recognized commercial delivery service or courier who obtains a
signature evidencing receipt). Lessee hereby agrees that any judgment, decree or
award obtained against the Lessor which is related to this lease, the Premises
or the Lessee's use or occupancy of the Premises or the building, whether at law
or in equity, shall be satisfied out of the Lessor's interest in the land and
building, and further agrees to look only to such assets and to no other assets
of
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the Lessor for satisfaction. Lessor's liability for maintenance and repair shall
always be limited to the cost of making such repair or accomplishing such
maintenance or repair. In no event shall Lessor be liable for consequential or
any indirect damages. The provisions of this Section are subject to the
provisions of Articles XIII and XIV dealing with eminent domain and fire and
other casualty.
Article XVII - Lessor's Remedies. If this lease is terminated as provided
in Article XV, Lessee shall forthwith pay to Lessor all sums which were due
prior to the date of such termination and Lessee shall pay on the days
originally fixed herein for the payment thereof amounts equal to the several
installments of rent, adjusted rent, additional rent and any and all other
charges as they would have become due if this lease had not been terminated.
As a second alternative, at the election of Lessor, Lessee will, at the
time of such termination, pay to Lessor, as liquidated damages, the amount of
the excess, if any, of the present value at the time of termination of the total
rent and other benefits which would have accrued to Lessor under this lease over
and above the fair market rental value (in advance) of the Premises for the
balance of the term. For the purpose of this paragraph, the total rent shall be
computed by assuming that Lessee's Share of real estate taxes and other charges
would be the amount thereof (if any) for the immediately preceding year of the
term.
In addition to the foregoing, Lessee agrees (i) to indemnify and save
Lessor harmless from and against all expenses together with interest at the rate
of 1.5% per month which Lessor may incur in collecting such amount or in
obtaining possession of, or in re-letting the Premises, or in defending any
action arising as a result of or in connection with a default, including,
without limitation, legal expenses, attorneys' fees, brokerage fees (all of the
aforesaid to be in reasonable amounts), and the reasonable cost of putting the
Premises in good order or preparing the same for rental; (ii) that Lessor may
re-let the Premises or any part or parts thereof, either in the name of Lessor
or otherwise for a term or terms which may, at Lessor's option, be less than or
exceed the period which would otherwise have constituted the balance of the term
and may grant concessions or free rent for a reasonable time. The failure of
Lessor to re-let the Premises or any part thereof shall not release or affect
Lessee's liability for damage. Any suit brought to collect the amount of
deficiency for any month shall not prejudice the right of Lessor to collect the
deficiency for any subsequent month by a similar proceeding. Lessor may make
such alterations, repairs, replacements and decorations on the Premises which in
Lessor's reasonable judgement are advisable or necessary for the purpose of
re-letting the Premises, and the making of such alterations or decorations shall
not release Lessee from any liability. In the event the Premises are re-let by
Lessor, Lessee shall be entitled to a credit in the net amount of rent received
by Lessor, after deduction of all reasonable expenses incurred in connection
with Lessee's default, re-letting the Premises and in collecting the rent.
Lessee further agrees that, if on the Expiration Date or other termination
date, Lessee does not surrender the Premises or fails to remove any of its
property from the Premises and Lessor obtains an order of
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eviction then Lessor may enter the Premises for the purpose of removing Lessee's
goods and effects, without prejudice to any other remedies, and Lessor may
remove and store such goods and effects at Lessee's expense, Lessee hereby
granting Lessor an irrevocable power of attorney to accomplish same.
Article XVIII - Lessor's Right to Perform Lessee's Covenants. Lessee
agrees that, if it fails to make any payment or perform any other act as
required in this lease and if such failure continues beyond any applicable cure
period, Lessor, in its sole discretion, may make any payment or perform any
other act on the part of the Lessee in such manner and to such extent as Lessor
may reasonably deem desirable including paying necessary and incidental costs
and reasonable attorneys' fees. The making of any such payment or the performing
of any other act by the Lessor shall not waive, or release the Lessee from its
obligations. All amounts so paid by Lessor shall be payable to Lessor on demand,
with interest thereon at a rate of one and one-half percent (1-1/2%) per month,
and Lessee covenants to pay such amount promptly. In addition, Lessor shall have
all the rights and remedies provided for in Article XVII or elsewhere in this
lease.
Article XIX - Broker. Lessor and Lessee each warrant and represent that it
has not negotiated with any broker (other than Ken Hecht of Whittier Partners)
in connection with this lease and each party agrees to indemnify and hold the
other party harmless if such warranty or representation is untrue. Lessor shall
pay the brokerage fee of Ken Hecht relating to this Lease.
Article XX - Quiet Enjoyment. Upon Lessee's observing and performing all
of the terms, covenants and conditions in this lease, Lessee shall peaceably and
quietly have and hold, the Premises, without hindrance or molestation by any
person or persons lawfully claiming by, through or under Lessor, subject to the
terms of this lease.
Article XXI - Notices. All notices shall be given by certified mail,
return receipt requested, and shall be addressed to the Lessor at the address
stated in Article I, or to such other place designated by written notice to the
Lessee; and to the Lessee prior to its occupancy of the Premises, at its address
as set forth in this lease, and, following occupancy, at the Premises, or to
such other place as may be designated by written notice to the Lessor.
Article XXII - Entire Agreement. This lease sets forth the entire
agreement between the parties and cannot be modified or amended except in
writing duly executed by the respective parties.
Article XXIII - Partial Invalidity. The invalidity of one or more phrases,
sentences, clauses or articles shall not affect the remaining portions of this
lease, and if any part of this lease should be declared invalid by the final
order, decree or judgment of a court of competent jurisdiction, this lease shall
be construed as if such invalid phrases, sentences, clauses or articles had not
been inserted.
Article XXIV - Holdover. If the Lessee remains on the Premises beyond the
Expiration Date, such holding over shall not be deemed to create any
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tenancy at will, but the Lessee shall be a Lessee at sufferance only, at a daily
rate equal to one and one-half (1 1/2) times the rent and other charges for the
last year under this lease. However, all other conditions of this lease to be
performed by Lessee shall continue in force.
Article XXV - Non-Waiver Provision. No assent or waiver, express or
implied, by the Lessor to the breach of any provision of this lease, and no
waiver, express or implied, of any such agreement or condition shall be deemed
to be a waiver of or assent to any succeeding breach. The acceptance by the
Lessor of rent or other payment or silence by the Lessor as to any breach shall
not be construed as waiving any of the Lessor's rights. No payment by the Lessee
or acceptance by the Lessor of a lesser amount than is due the Lessor from the
Lessee shall be deemed to be anything but payment on account, and the acceptance
by the Lessor of a check for a lesser amount with an endorsement or statement
thereon or upon a letter accompanying said check that said lesser amount is
payment in full shall not be deemed an accord and satisfaction, and the Lessor
may accept said check without prejudice to recover the balance due or pursue any
other remedy.
Article XXVI - Persons and Property Bound. The word "Lessor" shall
comprehend and bind the Lessor, and its heirs, legal representatives, successors
and assigns and the word "Lessee" shall comprehend and bind the Lessee, its
heirs, legal representatives, successors and assigns, or those in any manner
claiming through or under said Lessee. Lessee hereby agrees that any judgment,
decree or award obtaining against the Lessor which is related to this lease, the
Premises or the Lessee's use or occupancy of the Premises or the building,
whether at law or in equity, shall be satisfied out of the Lessor's interest in
the land and building, and further agrees to look only to such assets and to no
other assets of the Lessor for satisfaction. Lessor's liability for maintenance
and repair shall always be limited to the cost of making such repair or
accomplishing such maintenance or repair. In no event shall Lessor be liable for
consequential or any indirect damages.
Article XXVII - Counterparts and Headnotes. This lease is executed in
duplicate, both copies of which are identical, and either one of which is to be
deemed to be complete in itself and may be introduced in evidence or used for
any purpose without the production of the other copy. The headnotes throughout
this lease and the coversheet are for convenience or reference only, and shall
in no way be held or deemed to define, limit, explain, describe, modify or add
to the interpretation, construction or meaning of any provision of this lease.
Article XXVIII - No Offer to Lease. The submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of, or option for, the Premises. This document shall become
effective and binding only upon the execution and delivery hereof by Lessor and
by Lessee, and until such execution and delivery, Lessor shall not in any way be
bound to enter into a lease with Lessee for the Premises.
Article XXIX - No Recording. This lease shall not be recorded.
Article XXX - Addenda. The riders attached hereto numbered 1 through
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8 are attached and incorporated herein by reference.
Executed as a sealed instrument this 1 day of June, 1992.
LESSOR: Magnum Realty Trust LESSEE: HealthDrive Corporation
BY: /s/ Sally A. Starr BY: /s/ Steve Charlap
------------------------------- ------------------------------
Sally A. Starr as Trustee Steven S. Charlap, M.D.,
and Not Individually President and Treasurer
BY: /s/ Lisa A. Brown
-------------------------------
Lisa A. Brown as Trustee
and Not Individually
ADDRESS: 39 Brighton Avenue ADDRESS: 850 Boylston Street #220
Boston, MA 02134 Chestnut Hill, MA 02167
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ADDENDUM #1: RULES AND REGULATIONS.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Lessee or used for any purpose other than for ingress to and egress from
the Premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Lessor. There shall not be used in any space, or in the public hall of the
building, either by a Lessee or by jobbers or others in the delivery or receipt
of merchandise, any hand trucks, except those equipped with rubber tires and
sideguards. If the Premises are situated on the ground floor of the Building,
Lessee thereof shall further, at Lessee's expense, keep the sidewalks and curb
in front of said Premise clean and free from ice, snow, dirt and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for
any purpose other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Lessee who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No Lessee shall sweep or throw or permit to be swept or thrown from the
Premises any dirt or other substances into any of the corridors or halls,
elevators, or out of the doors or windows or stairways of the Building and
Lessee shall not use, keep or permit to be used or kept any foul or noxious gas
or substance in the Premises or permit or suffer the Premises to be occupied or
used in a manner offensive or objectionable to Lessor or other occupants of the
Building by reason of noise, odors and/or vibrations, nor shall any animals or
birds be kept in or about the Building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the Building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the Building without the prior written consent of Lessor.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Lessee on any part of the outside of the
Premises or the Building or on the inside of the Premises if the same is visible
from the outside of the Premises without the prior written consent of Lessor,
except that the name of Lessee may appear on the entrance door of the Premises.
In the event of the violation of the foregoing by any Lessee, Lessor may remove
same without any liability, and may charge the expense incurred by such removal
to Lessee or Lessees violating this rule. Interior signs on doors and directory
tablet shall be inscribed, painted or affixed for each Lessee by Lessor at the
expense of such Lessee, and shall be of a size, color and style acceptable to
Lessor.
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6. Except with prior written consent of Lessor and as Lessor may direct,
no Lessee shall mark, paint, drill into, or in any way deface any part of the
Premises or the Building of which they form a part or cut or string wires, lay
linoleum, or other similar floor covering, so that the same shall come in direct
contact with the floor of the Premises, and, if linoleum or other similar floor
covering is desired to be used, an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. Except with the prior written consent of Lessor, not to be unreasonably
withheld or delayed, no additional locks or bolts of any kind shall be placed
upon any of the doors or windows by any Lessee, nor shall any changes be made in
existing locks or mechanism thereof. If requested, Lessee shall provide Lessor
with a copy of a key for all new locks or bolts. Each Lessee shall, upon the
termination of his tenancy, restore to Lessor all keys either furnished to or
otherwise procured by, such Lessee. In the event of the loss of any keys
furnished to Lessee, Lessee shall pay to Lessor the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the Premises only on the
freight elevators and through the service entrances and corridors or in an
alternative way approved by Lessor and only during hours and in a manner
approved by Lessor.
9. Canvassing, soliciting and peddling in the Building is prohibited and
each Lessee shall cooperate to prevent the same.
10. Except for those items necessary for the cleaning and maintenance of
Lessee's business, including office supplies, which shall be properly stored to
minimize the risk of fire, explosion, release and leakage, Lessee shall not
bring or permit to be brought or kept in or on the Premises, any inflammable,
combustible or explosive fluid, material, chemical or substance, or cause or
permit any odors of cooking or other process, or any unusual or other
objectionable odors to permeate in or emanate from the Premises.
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ADDENDUM #2: LESSOR'S IMPROVEMENTS.
Prior to the Commencement Date, Lessor shall make renovations and improvements
to the Premises. These renovations shall be made in compliance with all
applicable laws and governmental regulations and at LESSOR's expense unless
otherwise agreed. These renovations and improvements shall consist of the
following:
(a) Replace carpet throughout the Premises.
(b) Paint throughout the Premises;
(c) Install sink with base cabinet in existing closet between bathrooms;
(d) Install glass panels in seven offices;
(e) Install approximately twenty duplex electric outlets;
(f) Install twenty linear feet of wire mesh security cage;
(g) Premises will be professionally cleaned;
(h) Install two shelves (each 20' feet long) as per plan;
(i) Install new sink in place of existing kitchen sink;
(j) Clean bathrooms and put same in proper working order;
(k) Install counter top in mail room.
The above noted improvements are depicted on the attached floor plans by
Hamilton Realty Company dated May 21, 1992 and labeled A-1.
In the case of any delay in connection with the improvements and renovations,
the Commencement Date shall be extended as provided in Article 3 herein for the
period of such delays as provided in Article 3 herein unless LESSOR and LESSEE
agree that LESSEE can occupy the Premises prior to substantial completion at a
rent to be agreed upon. Provided, however, in such event, LESSEE shall not use
the Premises in such manner as will increase the cost of completion and agrees
that it shall pay LESSOR an amount equal to 1/365th of the Minimum Rent for any
delay caused by LESSEE or anyone employed by it, for each day of such delay.
Under no circumstances whatsoever shall LESSOR be liable to LESSEE for any
indirect or consequential damage caused by such delay.
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ADDENDUM #3: PARKING.
Lessee shall have the use, in common with others entitled thereto, of two (2)
parking spaces assigned and reserved as to location, and of twenty-two (22)
parking spaces unassigned as to location for the parking of registered and
insured passenger motor vehicles in the parking lot area of the Building, as
directed from time to time by Lessor, and subject to the reasonable rules of
Lessor uniformly enforced.
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ADDENDUM #4: RIGHT OF FIRST OFFER ON SPACE WHICH BECOMES VACANT.
In the event that the 3,651 square foot space located on the first floor of the
Building and currently occupied by Slate Corporation (the "Slate Space") becomes
vacant after the Commencement Date or its lease terminates or is terminated
after the Commencement Date (and is not itself subject to a right of first
refusal or offer granted prior to the Commencement Date herein), Lessee shall
have the option to lease such Slate Space; provided it shall only have such
option if it is not in default hereunder beyond the applicable cure period at
the time of such vacancy and provided, further, that Lessee follows the
procedure set forth below in this Addendum.
(a) Not later than thirty (30) days after the Slate Space in the
Building becomes vacant and the lease for such space is lawfully
terminated, Lessor shall notify Lessee in writing of such vacancy
and of the proposed material terms for a lease for such space, with
the terms relating to minimum rent to be at Lessor's reasonable
estimate of then current market value.
(b) Within fourteen (14) days of receipt of Lessor's notice, Lessee
shall notify Lessor in writing whether it (i) accepts Lessor's
proposed material terms for a new lease (ii) rejects such terms, but
wishes to continue negotiations for a lease for such space, or (iii)
does not wish to enter into a lease for such space. Lessor's failure
to receive Lessee's written notice within said fourteen (14) day
period shall be deemed to be notice that Lessee does not wish to
enter into a lease for such space.
(c) If Lessee accepts Lessor's proposed material terms and conditions,
Lessor and Lessee shall promptly execute a lease for said Slate
Space in the same form as this lease except for such material terms
and except for this right of first offer and except for Lessee's
Option to Terminate pursuant to Addendum #5.
(d) If Lessee notifies Lessor that it wishes to enter into a lease for
such space, but not on the material terms proposed by Lessor, Lessee
and Lessor shall negotiate in good faith for a lease for such space.
(e) If Lessor and Lessee have not mutually executed a new lease within
thirty (30) days of Lessor's notice to Lessee that such space is
vacant, Lessee's option to enter into a lease for such Slate Space
shall terminate and Lessor shall be free to enter into a lease for
such Slate Space with whomever it chooses on any terms it chooses.
Nothing contained in this Addendum 4 shall be construed as in any
way obligating Lessor to enter into a lease with Lessee for such
space in the event that the parties cannot reach agreement on the
terms of a new lease within this thirty (30) day period; provided
however, if subsequent to the expiration of said thirty days, Lessor
receives or makes a bona fide offer or proposal to lease such vacant
space to or from another prospective tenant at material
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terms relating to rent which are more favorable than that offered to
Lessee which Lessor intends to accept, then Lessor shall first offer
such Slate Space again to Lessee at such more favorable material
rent terms, and Lessee shall have fourteen (14) days after notice to
it to accept or reject said offer. A failure by Lessee to accept
within said fourteen day period shall be deemed to be a rejection of
such offer. If Lessee accepts such more favorable offer, it shall
enter into a lease with Lessor pursuant to (c) above within five
days of its receipt of a mutually acceptable lease, and if it fails
to do so, Lessee's rights hereunder shall cease.
(f) As used herein and in Addendum #5 of this Lease, the words "material
terms" shall mean those terms of the lease relating to rent,
additional rents, term, extension options, and build-out or fit-up
provided by Lessor.
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ADDENDUM #5: LESSEE'S OPTION TO TERMINATE.
The parties acknowledge and recognize that Lessee may need to expand the
size of its office space within the fourth or fifth lease year of the term of
this lease, and if such need arises Lessee shall notify Lessor in writing
("Lessee's Expansion Notice") of its desire for expansion, specifying the size
of the expansion (the "Expansion Size"), said Expansion Size to be no less than
900 square feet. If the Lessor has additional space available at the Building of
sufficient size and location to meet the Lessee's requirements, then the parties
shall negotiate for the lease of the same. If Lessor does not have such
additional space available and so indicates in writing to Lessee (a "Negative
Response") or if the parties fail to agree upon the material terms of a lease
and execute a lease (in the same form as this lease except for said material
terms and this option) for such expansion space (a "Failure") within forty-five
(45) days of Lessor's receipt of the above-referenced notice from Lessee, then
Lessee shall have the right to terminate this lease upon advance written notice
(the "Termination Notice") to Lessor, subject to and upon the following terms
and conditions which shall be deemed of the essence:
1. Lessee's Expansion Notice shall be given to Lessor no earlier than
December 31, 1994.
2. The Termination Notice shall be given to Lessor within seven (7)
days of the earlier to occur of either a Negative Response or of a
Failure.
3. The lease shall terminate without further recourse to the parties on
the ninetieth day or on May 31, 1995, whichever is later (the
"Ninety Day Period") after the Termination Notice is received by
Lessor; provided however, within such Ninety Day Period, Lessee
shall submit to Lessor a copy of a lease agreement executed by
Lessee and another landlord for space in substitution for the
Premises at another building of a size at least as great as that of
the Premises plus the Expansion Size. If Lessee fails to submit such
a lease agreement to Lessor by the said ninetieth day of the Ninety
Day Period, then at the option of Lessor by written notice to
Lessee, the Termination Notice shall be void and of no effect, this
lease shall continue in full force and effect, and Lessee shall have
no further right to terminate pursuant to this Addendum #5.
4. In consideration of Lessor providing the termination option herein
contained and as reimbursement for fit-up and brokerage, and other
costs incurred, Lessee shall pay Lessor (in the event it exercises
its termination right herein contained) within the Ninety Day Period
the amount of $29,256.00 reduced by $1,219.00 for each month after
the May, 1995, in which the termination is effective. If Lessee
fails to pay such amount to Lessor by the said ninetieth day of the
Ninety Day Period, then at the option of Lessor by written notice to
Lessee, the Termination Notice shall be void and of no effect, this
lease shall continue in full force and effect, and Lessee shall have
no further right to terminate pursuant to this Addendum #5.
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ADDENDUM #6: OPTION TO EXTEND AT MARKET WITH APPRAISALS.
Lessee, having at all times faithfully performed all of the terms and conditions
of this lease and, not being in default, shall have the option to extend this
lease under the same terms and conditions of this lease except for rent,
adjustments to rent, tax clause, and except for this option for three years,
provided Lessee complies with the provisions stated below:
A. Upon Lessor's receipt of written notice on or before six (6) months prior to
the Expiration Date from Lessee that Lessee is exercising its extension option,
Lessor will within thirty (30) days notify Lessee of the proposed Minimum Rent,
Adjusted Rent, and Additional rent due to Taxes for the extension term.
B. Within thirty (30) days after receipt of Lessor's proposed terms Lessee will
notify Lessor either of its acceptance of the proposed terms, or of its
rejection of the proposed terms. Lessor's failure to receive Lessee's written
notice within the prescribed period shall be deemed a rejection of Lessor's
proposed terms.
C. If Lessee rejects Lessor's proposed Minimum Rent for the extension term,
Lessor and Lessee shall attempt to fix a new Minimum Rent by agreement. In the
event that Lessor and Lessee do not agree within the period ending thirty (30)
days after Lessor's receipt of Lessee's rejection of Lessor's proposed terms,
the Minimum Rent shall be fixed according to the following procedure: Lessee and
Lessor shall each select an independent appraiser and the appraisers selected by
Lessee and Lessor shall mutually agree upon a third appraiser.
The three appraisers shall independently estimate the fair market rental value
of the Premises and submit their three estimates to Lessor and Lessee. In case
of disagreement among the three appraiser's estimates, the three (3) estimates
shall be averaged, and the resulting average shall be the Minimum Rent for the
extension term.
Fees and costs incurred in connection with these appraisals shall be split
equally between Lessor and Lessee.
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ADDENDUM #7: MEDICAL - INFECTIOUS WASTES.
All medical or infectious medical waste generated by Lessee's operation shall be
properly disposed of by Lessee off-site in accordance with the regulations of
the Massachusetts Department of Public Health and in accordance with any other
applicable governmental laws and/or regulations, as the same may be amended or
promulgated from time to time. Moreover, until such off-site disposal occurs,
said waste shall be properly stored by Lessee within its Office Space in
accordance with all such laws and regulations. At the Commencement Date and
thereafter yearly on the anniversary of the Commencement Date, Lessee shall
provide Lessor with documentation of its proper and lawful disposal of its
medical and infectious medical wastes. Lessee shall indemnify, defend and save
the Lessor harmless from any and all loss, damage and liability occasioned by
anything done or permitted to be done, or by any failure to act by Lessee, its
agents, employees or its contractors regarding Lessee's medical or infectious
medical waste.
-26-
<PAGE>
ADDENDUM #8: LESSEE'S IMPROVEMENTS.
LESSEE agrees to undertake immediately upon the Commencement Date and to
continue to completion in compliance with all the terms and conditions of this
lease, the additions and improvements to the Premises specified:
LESSEE's obligations to take possession of the Premises on the Commencement Date
specified in Article 3 shall not be excused by any delay arising out of or in
connection with said improvements or repairs.
Lessee agrees to hold Lessor harmless from any and all mechanics liens as a
result of said improvements.
Lessor reserves the right to enter the premises for purposes of viewing and
inspecting said improvements.
These improvements shall consist of the following:
1. Lessee at its sole cost and expense shall install approximately 15 work
stations which shall remain the property of Lessor at the expiration or
termination of this Lease.
-27-
<PAGE>
SECRETARY'S CERTIFICATE
I, Steve Charlap, Secretary of HealthDrive Corporation hereby certify that a
meeting of the Board of Directors of said Corporation duly held at the offices
of the Corporation, held on June 1, 1992 at which meeting a quorum of the
Directors was present and voting throughout, unanimous approval was given for
the Corporation, as Lessee, to enter a Lease with Magnum Realty Trust, as
Lessor, for approximately 5,300 square feet of second floor space, at 25 Needham
Street, Newton, Massachusetts 02161, and said Lease to be for a term of five
years at a rent of $58,300.00 for the first year, as adjusted by the terms of
this Lease, a copy of which Lease is hereby attached and made a part hereof.
I further certify that, Steven S. Charlap, M.D., as President and Treasurer of
the Corporation, has authority to execute and deliver to the Lessor the Lease on
behalf of the Corporation upon the above terms.
WITNESS my hands and seal of the Corporation, this 1st day of June, 1992.
/s/ Steve Charlap
---------------------------
,Secretary
(Affix Corporate Seal)
-28-
<PAGE>
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease (this "Second Amendment") is hereby entered
into as of the 10th day of June, 1997 by and between WHTR REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership having an address c/o The Archon
Group, L.P., 1650 Tysons Boulevard, McLean, Virginia 22102 ("Landlord"), and
HEALTHDRIVE CORPORATION, a Delaware corporation having an address at 25 Needham
Street, Newton, Massachusetts 02161 ("Tenant").
WHEREAS, Sally A. Starr and Lisa A. Brown, as Trustees of Magnum Realty
Trust for the Benefit of Harold Brown and Richard H. Krock (the "Original
Landlord"), as lessor, and Tenant, as lessee, entered into that certain Lease
dated June 1, 1992 (the "Original Lease"), by which the Original Landlord leased
to Tenant a portion of the building (the "Building") located at and numbered
19-33 Needham Street, Newton, Massachusetts 02161 consisting of approximately
5,300 rentable square feet of floor area on the second floor of the Building, as
more particularly described in Article I of the Lease (the "Original Premises").
WHEREAS, the Original Landlord and Tenant entered into that certain
Amendment to Lease (the "First Amendment") dated July 22, 1994 by which the
Original Landlord and Tenant agreed to add to the Original Premises an
additional approximately 3,651 rentable square feet of floor area on the first
floor of the Building (the "Additional Premises").
WHEREAS, the Original Premises and the Additional Premises are hereinafter
referred to collectively as the "Premises."
WHEREAS, the Original Lease, as amended by the First Amendment, is
hereinafter referred to as the "Lease."
WHEREAS, Landlord has succeeded to the interest of the Original Landlord
as owner of the Building and as lessor under the Lease.
WHEREAS, Landlord and Tenant now desire to extend the term of the Lease in
accordance with the provisions of this Second Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and in the Lease, Landlord and Tenant hereby agree
as follows:
1. The term of the Lease is hereby extended for an additional twelve (12)
months commencing on July 1, 1997 and expiring on June 30, 1998 (hereinafter
referred to as the "Extended Term"), upon the same terms and conditions set
forth in the Lease for the original term except as otherwise provided in this
Second Amendment.
2. Section III.1(A) of the Lease is hereby amended such that all rent
payments shall no longer be sent to "Hamilton Management Corp., 39 Brighton
Avenue, Boston, Massachusetts 02134" and that rent checks shall no longer be
payable to "19-33 Needham
<PAGE>
Street Associates", but rather rent payments shall be made at such location and
rent checks shall be payable to such party as shall be designated by Landlord
from time to time by written notice thereof to Tenant.
3. Effective on and after July 1, 1997 and throughout the Extended Term,
the Minimum Rent due and payable from Tenant to Landlord shall be as follows:
Per Year Per Month
July 1, 1997 - June 30, 1998 $129,789.50 $10,815.79
Such Minimum Rent shall be paid in advance on or prior to the first day of each
calendar month during the Extended Term. Tenant shall continue to pay during the
Extended Term all other amounts set forth in the Lease as due and payable from
Tenant to Landlord, except as otherwise provided in this Second Amendment.
4. Article III.1 of the Lease is hereby amended by adding at the end
thereof the following:
"(C) Minimum Rent, additional rent and all other amounts due and
payable hereunder from Lessee to Lessor (collectively, "Rent"), shall be paid
without offset or deduction, except as otherwise expressly provided herein, and
the covenant to pay Rent shall be independent of every other covenant in this
Lease, as the same may be amended from time to time."
5. Effective on and after July 1, 1997, Article IV(a) of the Lease is
hereby amended by changing the "fiscal base year" for the Original Premises from
"the fiscal year ending June 30, 1992" to "the fiscal year ending June 30,
1997." Effective on and after July 1, 1997, Article IV(b) of the Lease is hereby
amended by changing the "fiscal base year" for the Additional Premises from "the
fiscal year ending June 30, 1995" to "the fiscal year ending June 30, 1997." In
addition, effective on and after July 1, 1997, the following is hereby added at
the end of Article IV of the Lease:
"(c) Prior to each fiscal year, Lessor shall estimate the amount of
additional rent due under this Article IV from Lessee to Lessor for such fiscal
year, and Lessee shall pay Lessor one-twelfth of such estimate on the first day
of each month during such fiscal year. After the end of each fiscal year, Lessor
shall deliver to Lessee a statement setting forth the actual additional rent due
hereunder from Lessee to Lessor and a statement of the amount of such additional
rent that Lessee has previously paid for such fiscal year. Within thirty (30)
days after receipt of such statement, Lessee shall pay to Lessor the amount of
such additional rent due for such fiscal year minus any payments of additional
rent previously made by Lessee for such fiscal year. If Lessee's estimated
payments of additional rent exceed the amount due Lessor for such fiscal year,
Lessor shall apply such excess as a credit against Lessee's other obligations
under this Lease or promptly refund such excess to Lessee if the term has
already expired, provided Lessee is not then in default hereunder."
-2-
<PAGE>
6. Tenant's taking possession of the Premises at the commencement of the
Extended Term shall be conclusive evidence that the Premises were in good order
and satisfactory condition at such time. No agreement of Landlord to alter,
remodel, decorate, clean or improve the Premises or the Building (or to provided
Tenant with any credit or allowance for the same), and no representation or
warranty regarding the condition of the Premises or the Building or the
suitability of the Premises for Tenant's proposed use thereof, have been made by
or on behalf of Landlord or relied upon by Tenant in connection with this Second
Amendment.
7. Tenant represents to Landlord that Tenant has dealt only with Fallon,
Hines & O'Conner, Inc. and Casler and Company (the "Brokers") in connection with
this Second Amendment and that, insofar as Tenant knows, no other broker
negotiated this Second Amendment or is entitled to any commission or fee in
connection herewith. Tenant agrees to indemnify, defend and hold Landlord, its
property manager and asset manager and their respective employees harmless from
and against any claims for a fee or commission made by any broker, other than
the Brokers, claiming to have acted by or on behalf of Tenant in connection with
this Second Amendment.
8. Pursuant to Article XXI of the Lease, any notice from Tenant to
Landlord required or permitted under the Lease or this Second Amendment shall be
addressed to Landlord as follows:
"WHTR Real Estate Limited Partnership
c/o The Archon Group, L.P.
1650 Tysons Boulevard
McLean, Virginia 22102"
9. Addendum #6 of the Lease is hereby deleted in its entirety.
10. Submission of this Second Amendment for examination or signature by
Tenant does not constitute a reservation of space or an option for lease, and
this Second Amendment shall not be effective unless and until execution and
delivery thereof by both Landlord and Tenant.
11. In all other respects, Landlord and Tenant hereby reaffirm all of the
covenants, agreements, terms, conditions and other provisions of the Lease
except as modified hereby, and the Lease is hereby incorporated in full herein
by reference. The terms and provisions of this Second Amendment shall be
effective as of the date first above written, except as may otherwise be
provided herein.
-3-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Second
Amendment to Lease as a sealed instrument as of the date first above written.
Witness LANDLORD:
WHTR REAL ESTATE LIMITED
PARTNERSHIP
By: WHTR INVESTORS, INC.,
General Partner
/s/ [Illegible] By: /s/ Stephen M. Abelman, AVP
- ---------------------------- ----------------------------
Name: Name: Stephen M. Abelman
Title: AVP
TENANT:
HEALTHDRIVE CORPORATION
/s/ Sarah A. Barry By: /s/ Michael R. Kaplan
- ---------------------------- ---------------------------
Name: Sarah A. Barry Name: Michael R. Kaplan
Title: CFO
-4-
<PAGE>
AMENDMENT TO LEASE
WHEREAS, Sally A. Starr and Lisa A. Brown, as Trustees of Magnum Realty
Trust for the benefit of Harold Brown and Richard H. Krock, is the lessor (the
"Lessor") and HealthDrive Corporation, is the lessee (the "Lessee") under a
lease agreement (the "Lease") dated June 1, 1992, whereby Lessee has leased
approximately 5,300 rentable square feet of space having an address of 25
Needham Street, Newton, Massachusetts and located on the second (2nd) floor of
the buildings (collectively, the "Building") numbered 19-33 Needham Street,
Newton, Massachusetts (the "Leased Premises"); and
WHEREAS, the Lessee desires to lease from Lessor approximately 3,651
additional rentable square feet of first (1st) floor space at the Building
located directly below the Premises; and
WHEREAS, Lessor desires to lease said additional space to Lessee on the
terms and conditions stated herein.
NOW THEREFORE, for good and valuable consideration, the sufficiency of
which is mutually acknowledged by the Lessor and Lessee, the parties hereby
AGREE to AMEND the Lease, effective as of the Expansion Commencement Date (as
hereinafter defined), as follows:
1. The Lease Summary Page is hereby amended by deleting the items entitled
"AREA" and "LESSEE"S SHARE" and substituting the following in place thereof:
"AREA: Approximately 8,951 square feet
LESSEE'S SHARE: (i) Original Premises: 8.15%, and (ii) Expansion Space:
5.61%"
2. The letter "(a)" is hereby added before the words "Approximately 5,300 square
feet" in Article I of the Lease. The word "Premises" is hereby deleted
wherever it appears thereafter in the first paragraph of Article I of the
Lease, and the words "Original Premises" are inserted in place thereof.
3. The following paragraphs are inserted at the end of Article I:
"(b). Expansion of Premises
Lessor also shall lease to Lessee and Lessee shall lease from Lessor an
additional 3,651 rentable square feet of space having an address of 25
Needham Street, Newton, Massachusetts and located on the first (1st) floor
of the buildings numbered 19-33 Needham Street, Newton, Massachusetts (the
"Expansion Space") for the term hereinafter stated.
(c). Definition of Premises
The space occupied by Lessee at any given time during the term of this
lease, whether the Original Premises, or the Original Premises plus the
Expansion Space shall be termed, during the time so occupied, the
"Premises".
(d). Lessor shall lease and deliver and Lessee shall accept delivery of
the Expansion Space in its AS-IS condition, except for Lessor's
renovations and improvements to the Expansion Space ("Lessor's
Improvements") consisting of the installation of (i) fourteen (14)
interior 3'x4' windows, (ii) four (4) locking doorknobs, (iii) a security
plate on the outside of the entry door to the Expansion Space, and (iv)
two replacement exterior windows that open. Lessor's Improvements shall be
made in a good and workmanlike manner, consistent with Lessee's existing
Premises and in compliance with all applicable laws and governmental
regulations. The Expansion Space shall be delivered to Lessee
substantially completed with the exception of minor punchlist items which
can be completed without unreasonable
<PAGE>
interferences with Lessee's use of the Premises, and such delivery date
shall be the Expansion Commencement Date.
4. Article II of the Lease entitled "TERM", is hereby deleted in its entirety
and the following paragraph is substituted in its place:
"Article II - TERM. Subject to the terms, covenants, agreements and
conditions contained herein, Lessee shall have and hold the Original
Premises for a term (the "Original Term") commencing on July 1, 1992 (the
"Commencement Date") and terminating at midnight on June 30, 1997 (the
"Expiration Date"), the Expansion Space for a Term commencing on the
Expansion Commencement Date and terminating on the Expiration Date. If the
Lessee extends the term hereof as hereinafter provided, then the
Expiration Date shall refer to the last day of the Extended Term in
question".
5. Article III.I(B) of the Lease is hereby amended (i) by adding the phrase
"for the Original Premises" after the words "as follows:", (h) by deleting
the last sentence of Article III.I(B), commencing with the word
"Notwithstanding" and ending with the phrase "original term of this Lease.",
and (iii) by adding the following at the end thereof:
"The LESSEE shall pay to the LESSOR the Minimum Rent for the Expansion
Space as follows:
PERIOD PER YEAR PER MONTH
------ -------- ---------
Expansion Commencement $33,771.75 $2,814.31
Date through 06/30/95
07/01/95 - 06/30/96 $35,597.25 $2,966.44
07/01/96 - 06/30/97 $36,510.00 $3,042.50"
Notwithstanding anything herein to the contrary, the first installment of
Minimum Rent for the Expansion Space shall be due from the Lessee to the
Lessor on February 1, 1995, and on the first day of each and every month
thereafter during the term.
6. In addition to and in no way limiting the provision in the Lease for the
payment of additional rent due to taxes for the 5,300 rentable square feet of
space comprising the Original Premises, Lessee shall pay to Lessor additional
rent due to taxes for the 3,651 rentable square feet of Expansion Space, so
that Article IV of the Lease is hereby amended by adding the phrase "(a) The
Original Premises" after the words "Additional Rent Due to Taxes" in the
first line of Article IV and by adding the following at the end of Article
IV:
"(b) Expansion Space. For purposes of this Article IV(b) "fiscal year"
means the twelve (12) months ending on June 30; "fiscal base year" means
the fiscal year ending June 30, 1995; "taxes" means all taxes and
assessments levied by governmental authority against the Building and its
associated land and personalty or taxes in lieu thereof; "Lessee's Share"
means 5.61%. If the taxes for any fiscal year (or portion of any fiscal
year) occurring within the term after the fiscal base year exceed taxes
for the fiscal base year (or exceed a pro rata portion of fiscal base year
taxes in the event of a portion of a fiscal year being included within
the term), then Lessee shall pay to Lessor the Lessee's Share of the
excess as Additional Rent. Lessor will notify Lessee within thirty (30)
days of receipt of tax bills of the amount of taxes and the Lessee's Share
of excess taxes for the current fiscal year; Lessee shall pay Lessee's
Share of the excess within 15 days of such notification. If Lessor later
receives a reduction or refund on taxes resulting from abatement of such
taxes by final determination of legal proceedings, settlement or
otherwise, Lessee is entitled to Lessee's Share of the reduction or refund
up to the amount of Additional Rent paid for such fiscal year less
Lessee's Share of expenses incurred by Lessor. If Lessor receives a refund
or reduction in taxes for the fiscal base year, then taxes for the fiscal
base year shall be measured by the abated amount.
2
<PAGE>
On the date this lease expires or is otherwise terminated, the entire
additional rent on account of taxes and a proportionate share of the
additional rent on account of taxes for the fiscal year during which such
expiration or termination occurs shall immediately become due and payable
by Lessee to Lessor. Such proportionate share shall be based upon the
length of time this lease has been in existence during such latter fiscal
year, and shall be estimated by Lessor based upon the most recent
applicable data, adjusted when the actual date is available. Adjustments
shall be made if the terms of this lease for the Expansion Space begins
and/or ends on other than the first or last day of a fiscal year. In the
event of Lessee's default, Lessee's obligation to pay any and all
additional rent under this lease shall continue and shall cover all
periods up to the Expiration Date."
7. Addendum #2, entitled "Lessor's Improvements" is hereby deleted in its
entirety and in place thereof is substituted the following new Addendum #2:
"ADDENDUM #2 - LESSOR'S IMPROVEMENTS
Following execution in full of this Amendment, Lessor shall make
renovations and improvements to the Original Premises. These renovations
shall be made in compliance with all applicable laws and governmental
regulations and at Lessor's expense unless otherwise agreed. These
renovations and improvements shall consist of the following:
(a) Replace two (2) existing exterior windows with windows that open.
(b) Install two (2) new doorways leading to the large conference room on
the second floor.
Lessee agrees that Lessee shall fully cooperate with Lessor in the
performance of Lessor's Improvements to the Premises, and in that regard,
Lessee agrees to (i) provide Lessor and its contractors with access to the
Premises in order to enable Lessor to carry out such improvements, and
(ii) promptly move, when requested, any of its possessions, property,
equipment or inventory located at the Premises (collectively, "Lessee's
Property"), and in the event of Lessee's failure to so promptly move any
of Lessee's Property when requested, Lessor shall have the right to move
such Property on behalf of Lessee and at Lessee's sole risk and expense."
8. Addendum #4, entitled "Right of First Offer On Space Which Becomes Vacant"
and Addendum #5, entitled "Lessee's Option to Terminate" and Addendum #8,
entitled "Lessee's Improvements" are all void and of no further force and
effect.
9. Addendum #3 of the Lease is hereby deleted and in place thereof is
substituted the following new Addendum #3:
ADDENDUM #3: PARKING.
Lessee shall have the right, in common with others entitled thereto and subject
to the terms and restrictions recited herein, to (i) four (4) parking spaces
assigned and reserved as to location, and (ii) thirty-four (34) parking spaces
unassigned as to location and on a first come, first served basis, all of such
spaces for the parking of registered and insured passenger vehicles and cargo
vans (but excluding trucks) of its own or of its employees in the parking lot
area of the Building as Lessee is notified by Lessor.
Lessor shall be responsible for snow removal/plowing of the parking areas;
provided however, in the event vehicles are present in the said areas during
snow removal activities, Lessor will plow around such vehicles and shall not be
required to remove any residue of snow surrounding the vehicle as a result of
such plowing activity. Upon Lessor's request, Lessee and its employees shall
relocate temporarily any of its or their vehicles parked in the parking area in
order to facilitate snow removal or maintenance activity being conducted by
Lessor.
3
<PAGE>
Lessor in its sole discretion may require Lessee or its employees to park in a
designated space or lot or location which is on the property of which the
Building is a part with respect to parking by Lessee or its employees which is
unassigned as to location. If specified in writing by Lessor, Lessee and its
employees shall be required to affix (in the manner specified by Lessor) to
any of its or their vehicles parking in the parking spaces a sticker provided
by Lessor, and any vehicle (including any vehicle of Lessee or of its
employees) not displaying such a sticker shall be subject to being towed at
the vehicle owner's sole expense. Lessee shall inform its employees of the
aforesaid sticker display requirement and of the right of Lessor to tow
vehicles without properly displayed stickers.
10. In all other respects, the Lease shall remain the same.
Executed under seal this 22nd day of July, 1994.
LESSOR: MAGNUM REALTY TRUST
BY: /s/ Sally A. Starr
------------------------------
SALLY A. STARR, AS TRUSTEE AND NOT INDIVIDUALLY
BY: /s/ Lisa A. Brown
------------------------------
LISA A. BROWN, AS TRUSTEE AND NOT INDIVIDUALLY
LESSEE: HEALTHDRIVE CORPORATION
By: /s/ Michael R. Kaplan
-----------------------------
Michael R. Kaplan, Its V.P. Finance
4
<PAGE>
SECRETARY'S CERTIFICATE
I, Steven Charlap, Secretary of HealthDrive Corporation, hereby certify that for
the Corporation, to enter into an Amendment of Lease, between the Corporation
and Magnum Realty Trust, whereby the Corporation has leased approximately 5,300
rentable square feet of space, at the building located at 19-33 Needham Street,
Newton Massachusetts, with said Amendment changing the lease as follows:
1. Granting to Lessee approximately 3,651 rentable square feet of additional
space for the remainder of the Lease term at the initial additional Annual
Minimum Rent of $33,771.75.
2. Adding a provision for the payment of Lessee's share of taxes for the 3,651
rsf of Expansion Space.
3. Deleting Addendum #2, Addendum #4, Addendum #5 and Addendum #8 of the Lease.
4. Adding New Addendum #2 (Lessor's Improvements).
5. Revising Addendum #3 (Parking).
I further certify that Michael R. Kaplan, as V.P. Finance of the Corporation,
has authority to execute and deliver to the Lessor, the Lease Amendment on
behalf of the Corporation.
WITNESS my hand and the seal of the Corporation, this 22nd day of July, 1994.
/s/ Steven Charlap
-------------------------------
, Secretary
(Affix Corporate Seal)
HDRIVE.DOC. 07/21/94 (LMV)
5
<PAGE>
Exhibit 10.12
JOSEPH BARKER ENTERPRISES
LEASE
THIS AGREEMENT, made this 26th day of June, 1996, by and between Joseph
Barker Enterprises, hereinafter referred to as the LANDLORD, and HealthDrive
Corp., a Delaware Corp., hereinafter referred to as the TENANT.
WITNESSETH: That the LANDLORD hereby leases to the TENANT and TENANT hires
of the LANDLORD, for a term of three years commencing on September 1, 1996 and
ending on August 31, 1999, the following described premises: suite # 107, in the
building located at 1 Prestige Drive, Meriden, CT 06450, consisting of 3,200
rentable square feet (approx. 2,780 usable sq.ft.),
TENANT agrees to pay rent to the LANDLORD monthly, in advance, on the first of
each month, as shown on the following schedule:
LEASE YEAR MONTHLY RENT ANNUAL RENT
---------- ------------ -----------
1 - 3 $2,400.00 $28,800.00
and during the option period:
1 $2,400.00 $28,800.00
2 $2,533.33 $30,400.00
3 $2,666.67 $32,000.00
The parties hereto further agree:
1. TENANT will pay the rent as stated above.
2. All rent shall be payable without prior notice or demand at the office
of the LANDLORD, Joseph Barker Enterprises, 250 Pomeroy Avenue, Meriden, CT
06450, or at such other place as LANDLORD or his authorized agent may, from time
to time, designate in writing. All notices, demands, and requests required or
permitted under this lease shall be in writing, and shall be deemed to have been
properly given if sent by United States certified mail, postage prepaid,
addressed as hereinafter provided:
To LANDLORD: Joseph Barker Enterprises
250 Pomeroy Avenue
Meriden, CT. 06450 (203) 237-0272
To TENANT at: HealthDrive Corp.
25 Needham St.
Newton, MA 02161-1615 (617) 964-6681
<PAGE>
or at such other notification address as, from time to time, may be given either
party to the other. All such notices, demands, and requests which are served by
certified mail as aforesaid shall be deemed sufficiently served or given for all
purposes herein at the time such notices, demands, or requests shall be mailed
by U.S. certified mail at any post office regularly maintained by the U.S. post
office.
3. Subject to strikes, accidents, breakdowns, and conditions beyond his
control, LANDLORD covenants at his expense to:
(a) keep the hereby leased premises well and sufficiently heated at
a minimum temperature of 68 degrees Fahrenheit.
(b) furnish electric current for lighting and general office
purposes, together with appropriate bulbs or tubes for all ceiling fixtures,
sufficient to provide an adequate and uniform level of illumination throughout
the working areas of the interior of the demised premises. Bulb and tube
replacement to be on an as needed basis, when notified by TENANT;
(c) cause the demised premises to be kept clean, including the light
fixtures, and interior glass therein; except that LANDLORDs employees or agents
will not enter TENANTs sterilization room.
(d) furnish at all times during regular general business hours, air
conditioning for the demised premises within governmental standards and limits,
during seasons for same.
(e) keep and maintain the sidewalks, corridors, stairways and all
other means of ingress and egress to the demised premises in good repair and in
safe and well-lighted condition, reasonably free and clear of ice, snow and
debris;
(f) maintain and repair the parking area and driveways leading
thereto, including cleaning and snow removal.
4. LANDLORD's obligation under para. 3c, above, shall include at least the
following:
DAILY emptying of waste baskets in the demised premises, cleaning of
fixtures in restrooms, and sweeping of floors in all common areas.
Storage and disposal of any medical supplies, waste, and refuse will be
done by TENANT at TENANTs expense, in containers supplies by TENANT and approved
by the health department.
TWICE A WEEK vacuum or mop all floor surfaces.
WEEKLY dust all uncluttered, accessible office fixtures.
SEMI-ANNUALLY clean all window surfaces and light fixtures.
5. All repairs to the premises, and the plumbing, heating, air
conditioning, electric wiring, and lighting necessary to keep the same in proper
order shall be made by LANDLORD at LANDLORD's expense, unless said repairs are
made necessary through the carelessness or negligence of TENANT, its agents or
its employees, damage by fire or other casualty excepted; and such changes or
additions to the premises required to be made by order of federal, state, or
municipal authorities, or by Board of Fire Underwriters, shall be made by
LANDLORD at LANDLORD's expense. Any needed repairs, changes, or additions, other
than required by law, or resulting from the installation of equipment not
contemplated in the original lease and which have been installed subsequent to
the execution of the lease are to be paid for by the TENANT.
<PAGE>
6. In case of partial damage to the demised premises by fire or other casualty,
TENANT shall give immediate notice thereof to LANDLORD, who shall thereupon
cause the damage to be repaired, with speed, at LANDLORD's expense, with due
allowance being made for any reasonable delay which may arise by reason of
adjustment of loss under insurance policies, labor problems, equipment delivery
time, or any cause beyond LANDLORD's control; and to the extent that the
premises are rendered untenantable, the rent shall proportionately abate. If the
demised premises or the building be destroyed, or both be so damaged, that
instead of restoring, LANDLORD shall decide not to repair or rebuild, then, at
the option of either party hereto, this lease shall be terminated upon written
notice, and the rent shall, in such event, be paid to or adjusted as of the date
of such damage, and TENANT shall thereupon vacate the demised premises and
surrender the same, to the LANDLORD.
7. The TENANT agrees that the LANDLORD, its agents and representatives,
shall have the right, without abatement of rent, to enter into and upon the
demised premises, or any part thereof - other than the sterilazation room, at
all reasonable hours for the purpose of examining the same, or for making such
repairs or alterations to the demised premises, or to the building of which the
same form a part, as may be necessary for the safety and preservation thereof,
subject to any national security regulations.
8. The LANDLORD and TENANT, contingent upon written notice of a claim
against the other within such time as may be reasonably required to permit the
other to defend, agrees to defend and save the other harmless from, and
indemnify the other against, to the extent permitted by law, any and all injury
to third parties or loss or damage to the property of third parties caused by or
resulting from the negligent or wrongful acts of the other or its agents,
employees, or invitees, no matter how caused, occurring in or upon the demised
premises. This indemnity agreement shall include indemnity against all
reasonable costs, expenses, and liabilities incurred in connection with any such
proceedings brought thereon or the defense thereof.
Neither the LANDLORD nor the TENANT shall be responsible for any injuries, loss,
or damage to the property of third parties caused by or resulting from the
negligent or wrongful acts of the other, its agents, employees, or invitees no
matter how caused and on account of any claim for workmens compensation by any
person entitled to compensation from the LANDLORD or the TENANT, as the case may
be.
The LANDLORD and the TENANT shall maintain comprehensive general public
liability insurance including contractual liability coverage, with respect to
the demised premises and its appurtenances issued by insurance companies
authorized to do business in the State of Connecticut, in amounts not less than
ONE HUNDRED THOUSAND ($100,000.00) DOLLARS with respect to bodily injury or
death suffered by any one person, and not less than THREE HUNDRED THOUSAND
($300,000.00) DOLLARS with respect to any one accident, and not less than ONE
HUNDRED THOUSAND ($100,000.00) DOLLARS with respect to damage to property
arising out of any one accident. The TENANT and LANNDLORD shall each deliver to
the other, on demand by the other, an acceptable certificate of insurance as
evidence of the aforesaid insurance.
9. TENANT agrees to permit LANDLORD, or his authorized agent, at any
reasonable time throughout the term of this lease to show the premises to
persons wishing to purchase the same; and TENANT further agrees that at any time
within three months preceding the expiration of the term hereby granted,
LANDLORD, or his authorized agent, shall have the right to place a notice of
reasonable size on the front of the demised premises, or any part thereof,
offering the demised premises "To Let", "For Rent", or "For Sale", and tenant
agrees to permit the same to remain thereon without hindrance or molestation.
10. In the event that LANDLORD desires or requires mortgage financing in
connection with the premises described herein, the LANDLORD agrees to obtain
from the mortgagee, for the benefit of the TENANT, written certification that if
the LANDLORD's interest is taken over by the mortgagee, TENANT's lease will be
recognized and TENANT's occupancy will not be disturbed so long as TENANT is not
in default.
<PAGE>
11. Any lighting fixtures, removable partitions, or other removable
fixtures constructed and placed in the demised premises at the expense of the
TENANT shall remain the property of the TENANT and may be removed by the TENANT
at the expiration of this lease, and in case of damage or disfigurement to walls
or floors caused by such removal, the cost of any necessary repairs shall be
borne by the TENANT. TENANT shall be under no obligation to remove the
above-mentioned fixtures, and may, at his option surrender them in whole or in
part with the demised premises, in which event LANDLORD shall regard said
fixtures as abandoned by the TENANT and they shall then become the property of
the LANDLORD. TENANT covenants that he will not make any alterations in or to
the demised premises without first obtaining the written consent of the
LANDLORD, which consent shall not be unreasonably withheld.
12. In the event that all or substantially all of the demised premises are
temporarily or permanently taken by power of eminent domain by the State or any
authority or corporation having the power of eminent domain, LANDLORD shall
notify TENANT and this lease shall terminate as of the date of such taking and
LANDLORD shall repay to the TENANT any rent that TENANT has paid for any period
subsequent to that date. In the event that a part, but not all, or substantially
all, of the demised premises is so taken, TENANT may at any time within ninety
days after such taking terminate this lease as of the date of delivery of notice
to the LANDLORD expressing TENANT's election to so terminate this lease. In the
event of such partial taking, the rent for any period prior to such delivery of
notice, or the rent in any case if TENANT does not terminate this lease, shall
be reduced in the same proportion as the number of square feet of the demised
premises taken bears to the number of square feet of demised premises prior to
such partial taking.
13. Should TENANT continue to occupy the demised premises after the
expiration of the term of this lease or any exercised renewal thereof, whether
with or without the consent of the LANDLORD, such tenancy shall be from month to
month and in no event from year to year or from term to term, and such month to
month tenancy shall be on the same terms, covenants and conditions of this lease
and at a monthly rental equal to 150% of the monthly rent that was due in the
last month of the lease. Nothing herein contained shall be deemed to waive any
right of LANDLORD to recover possession of the demised premises upon the
expiration of the term of this lease or any properly exercised renewal thereof.
Should LANDLORD need to seek legal remedies to recover possession of the demised
premises, TENANT agrees to pay any and all reasonable legal fees and costs
incurred by LANDLORD.
14. The LANDLORD will supply, or cause to be supplied, at no additional
cost to the TENANT, water and sewer facilities, electricity as provided by the
utility company serving this location, heat and air conditioning, during the
term of this lease. The LANDLORD agrees that it will furnish hot water for
domestic purposes to the building. Heat and air conditioning shall be furnished
during the regular seasons for each. The parties hereto agree that the
LANDLORD's obligation to the TENANT to supply such heat and air conditioning
shall be only as to the lowest energy consumption regulations as set forth or
put into effect by any federal, state or local health or energy control agency;
it being understood that as to air conditioning to the highest temperature
approved by such agencies, and that as to heating to the lowest temperature
required by such agencies. The LANDLORD further agrees that the heating system
for the demised premises will be adequate to heat the space to an inside
temperature of 68 degrees F. The services to be rendered by the LANDLORD under
this paragraph shall be rendered between the hours of 7:00 AM and 9:00 PM Monday
through Friday, and the hours of 7:00 AM and 5:00 PM on Saturday. At all other
times, a minimum temperature of 60 degrees will be maintained.
15. Parking for TENANTs use will be available, unreserved, at no charge.
TENANT's employees will not leave any vehicles in the parking areas overnight,
without prior consent from LANDLORD. TENANT may leave it's company-owned
vehicles overnight, in areas approved by LANDLORD. LANDLORD assumes no
responsibility for vehicles parked on the property.
Page 4
<PAGE>
16. TENANT will not bring or allow any animals in the building.
17. The TENANT shall use the demised premises for a one shift, daytime,
business office operation, but TENANT may use said premises for additional
shifts provided TENANT shall first request and obtain the written consent of the
LANDLORD, which shall not be unreasonably withheld. No retail sales,
manufacturing, assembly, or any type of use which may cause or create any noise
or odors discernable outside of the demised premises shall be permitted in the
demised premises without prior written consent of the LANDLORD.
18. TENANT agrees not to make or order any changes to the locks or keys
for any door entering into or inside the premises without prior written consent
of the LANDLORD.
19. The occurrence of any one of the following events shall constitute a
default of this lease by TENANT:
A.) Failure of tenant to make any payment of rent or other required
payment, when due, and such failure continues for a period of five days after
receipt of written notice by LANDLORD to TENANT,
B.) Vacating or abandonment of all, or a substantial portion of the
demised premises by TENANT which is not remedied within ten days after receipt
of written notice by LANDLORD to TENANT,
C.) Failure of TENANT to comply with any provision of this lease, other
than payment of rent, and such failure shall continue for ten days after receipt
of written notice by LANDLORD to TENANT.
Upon the occurrence of any event of default, without any further notice or
demand, in addition to and not limited to any other remedy permitted by law or
by this lease, LANDLORD shall have the option to terminate this lease, in which
event TENANT shall immediately surrender the premises to LANDLORD. If TENANT
shall fail to do so, LANDLORD may with ten days written notice and without
prejudice to any other remedy available, enter and take possession of the
premises and remove TENANT and its effects without being liable to prosecution
or any claim for damages. If this lease is so terminated by LANDLORD, TENANT
shall pay immediately to LANDLORD all sums which were due prior to the date of
such termination, and TENANT shall pay on the future dates originally fixed
herein for the payment thereof amounts equal to the several installments of rent
and any and all other charges as they would have become due if this lease had
not been terminated.
LANDLORD shall at all times, in both the case of a default by TENANT or a
termination by LANDLORD, be required to take actions to mitigate its financial
damages resulting from such default or termination. In the event of any default
by LANDLORD, which LANDLORD has not sufficiently remedied within 10 days to
allow TENANT to conduct "business as usual", TENANT may withhold payment of rent
until such is cured. If the default is not remedied within thirty days, TENANT
may terminate the lease. If the lease is hereby terminated, LANDLORD agrees to
pay any and all reasonable moving expenses of TENANT incurred in moving to a
similar facility within a 100 mile radius of the premises.
If suit or action is instituted in connection with any controversy arising out
of this lease, the prevailing party shall be entitled to recover, in addition to
costs, such sums as the court may adjudge reasonable as attorneys' fees at trial
and on all appeals of such suit or action.
Page 5
<PAGE>
20. LANDLORD will permit TENANT to place it's name on the directory board
in the lobby of the building located at 1 Prestige Dr. and also to place a sign
on the door entering into the demised premises and a sign on the lawn sign
panel, if one exists or is later installed. Said signs, however, must be
approved by LANDLORD as to size, shape and location.
21. TENANT shall not assign this lease, or sublet all or any portion of
the premises without LANDLORD's prior written consent; which, if consented to by
LANDLORD, shall be in a form acceptable to LANDLORD. TENANT's request shall
include with it a copy of the proposed assignment or sublease agreement.
Assignees or subtenants shall become directly liable to LANDLORD for all
obligations of TENANT under this lease without relieving TENANT of any
liability. TENANT shall pay to LANDLORD all rent or other consideration received
by TENANT from any assignee or subtenant, either initially or over the term of
the assignment or sublease, which is in excess of the rental obligation required
under the terms of this lease for the premises or portion thereof for which
consent is requested. Consent by LANDLORD shall not operate as a waiver of the
necessity for consent to any subsequent assignment or subletting. LANDLORD's
consent shall not be unreasonably withheld.
It shall be unreasonable for LANDLORD to withhold consent if the proposed
assignee or subtenant's proposed use of the demised premises is of a similar
nature to TENANTs use. It shall not be unreasonable for LANDLORD to withhold
consent if the proposed assignee or subtenant is a present tenant of the
building.
22. TENANT shall have the further right and privilege to renew this lease
for one additional term of three years, under the same terms and conditions as
herein set forth, provided however, that TENANT shall give notice to LANDLORD of
his intent to renew at least 90 days prior to the expiration of the lease or
renewal then in effect. TENANT shall forfeit it's right to renew or extend this
lease if the lease is in default or has been assigned or sublet.
23. If, prior to the expiration of this lease, any space in the building
becomes vacant and available for lease, LANDLORD shall notify TENANT of its
availability, in writing, and TENANT shall have 14 days from the date of receipt
of such notification to advise LANDLORD in writing that TENANT accepts such
space offered, in its present condition, and agrees that it shall become a part
of the premises covered under this lease. Failure by TENANT to notify LANDLORD
within the 14 days shall constitute TENANT's waiver of its right to add such
space as a part of the premises. The rent for the space offered, and the
approximate date possession is to be delivered shall be included in LANDLORD's
notice to TENANT. TENANT's obligation to pay rent will begin on the earlier of
the date possession is delivered to TENANT by LANDLORD or the date TENANT
occupies all the space, and shall continue until the expiration of the lease.
Prior to occupancy of additional space, LANDLORD and TENANT shall execute a
lease amendment reflecting the addition of the premises, additional rent, change
in ratio of the premises to the building area, and any other revisions necessary
because of such additional space being added to the original premises. All other
terms and conditions of this lease shall apply to additional space.
24. TENANT agrees to comply with any and all rules and regulations which
LANDLORD, in the reasonable exercise of its discretion, may from time to time
make, concerning the use and occupancy of the demised space and common areas of
the property.
25. The covenants, conditions and agreements contained in this lease shall
bind and inure to the benefit of the LANDLORD and the TENANT and their
respective heirs, executors, administrators, successors and assigns, and may not
be changed orally, but only by an agreement in writing and signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.
<PAGE>
IN WITNESS WHEREOF, LANDLORD and TENANT have respectively executed
these presents as of the day and year first herein written.
LANDLORD: /s/ Michael D. Barker
-------------------------------
Joseph Barker Enterprises
by Michael D. Barker
- --------------------------------
- --------------------------------
TENANT: HealthDrive Corp.
- --------------------------------
- -------------------------------- /s/ Michael R. Kaplan
---------------------------------
by: Michael R. Kaplan
STATE OF CONNECTICUT) ) ss: Meriden
COUNTY OF NEW HAVEN )
On this 19th day of September 1996, before me, the undersigned officer,
personally appeared Michael D. Barker, known to me to be the person whose name
is subscribed to the within instrument, and acknowledged that he executed the
same as his free act and deed for the purpose therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and seal.
/s/ Penny D. Beaudry
-------------------------------
comm. exp 6/31/98
STATE OF Massachusetts)) ss: Newton COUNTY OF Middlesex
)
On this 21st day of August, 1996, before me, the undersigned officer,
personal1y appeared Michael R. Kaplan, known to me to be the person whose name
is subscribed to the within instrument, and acknowledged that he executed the
same as his free act and deed for the purpose therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and seal.
/s/ Gary C. Chute
-------------------------------
GARY C. CHUTE, NOTARY PUBLIC
My commission expires July 18, 2001
<PAGE>
Exhibit 10.13
LEASE
LEASE made this 25th day of September, 1996, between 928 JAYMOR ROAD
ASSOCIATES, L.P., a Pennsylvania limited partnership, ("Landlord") and
HealthDrive CORPORATION, a Delaware corporation, ("Tenant").
1. LEASED SPACE AND PURPOSE. Landlord hereby rents to Tenant all that
certain space ("Leased Space"), known as Suite C-190, as shown on the plan
attached hereto as Exhibit "A", on the first floor of Building C in the office
campus located at 928 Jaymor Road in Upper Southampton Township, Bucks County,
Pennsylvania ("Building"), consisting of One Thousand Five Hundred Forty (1,540)
square feet of rentable space.
The Leased Space shall be used and occupied for general offices and for no
other purpose. General office use includes those actions and activities as would
typically be performed in a medical or dental office.
2. TERM. The term of this Lease and Tenant's obligation to pay rent
hereunder shall commence upon the earlier of (i) October 1, 1996, but only if
the Leased Space is ready for occupancy, or (ii) ten days after the date when
the Leased Space is ready for occupancy, or (iii) the date when Tenant shall
take possession of the Leased Space ("Commencement Date"). The Leased Space
shall be deemed ready for occupancy when Landlord has substantially completed
the work described in Exhibit "B" attached hereto and a Certificate of Occupancy
has been granted to either Landlord or Tenant by Upper Southampton Township.
"Substantial Completion" shall mean such completion as shall enable
HEALTHDRIVE LEASE 09/20/96 1
<PAGE>
Tenant to reasonably and conveniently use and occupy the Leased Space for the
conduct of its business. Substantial Completion shall be deemed to have been
achieved even though minor or insubstantial details of construction, mechanical
adjustment or decoration remain to be performed, the non-completion of which
does not materially interfere with Tenant's use of the Leased Space or the
conduct of its business therein.
The term ("Term") of this Lease shall be for a period of three (3)
years from the Commencement Date and shall expire, absolutely and without notice
on said third year anniversary date. If the day upon which the Initial Term of
this Lease shall commence shall fall on a day other than the first day of a
month, then the Initial Term of this Lease shall run for the unexpired portion
of such month plus three (3) years beginning with the first day of the month
next ensuing.
3. RENT.
A. Base Annual Rent. Tenant shall pay Landlord the base annual rent
("Base Annual Rent") in equal monthly installments as follows:
Period Annual Amount Monthly Amount
------ ------------- --------------
Commencement Date
through Month 12 $13,860.00 $1,155.00
Month 13 through 24 $14,245.00 $1,187.08
Month 25 through 36 $14,630.00 $1,219.17
B. Initial Base Operating Expense Charge and Base Operating Expense
Charge. In addition to Base Annual Rent, Tenant shall pay Landlord the base
operating expense charge ("Base Operating Expense Charge") of $5,929.00 in
equal monthly installments of $494.08
HEALTHDRIVE LEASE 09/20/96 2
<PAGE>
concurrent with and in the same manner as Tenant's payment of Base Annual Rent.
The Initial Base Operating Expense Charge represents
Landlord's estimate of Tenant's Proportionate Share of Annual Operating Expenses
for the first full or partial calendar year of the Term of this Lease. The Base
Operating Expense Charge shall represent Landlord's estimate of Tenant's
proportionate share of Annual Operating Expenses for any year subsequent to the
first full or partial calendar year of the Term of this Lease.
C. Payment of Base Annual Rent and Initial Base Operating Expense
Charge or Base Operating Expense Charge. Tenant shall pay Landlord the Base
Annual Rent and the Initial Base Operating Expense Charge or the Base Operating
Expense Charge, as the case may be, (the Base Annual Rent together with either
the Initial Base Operating Expense Charge or the Base Operating Expense Charge
constituting the "Rent") without set-off or deduction on or before the first day
of each calendar month, in advance, the first monthly installment of Rent to be
paid at the signing of this Lease. If the Commencement Date is not the first day
of the calendar month, Rent from the Commencement Date to the first day of the
following month shall be apportioned at the annual rate (based on a 360-day
year) and shall be paid at the Commencement Date. All Rent shall be payable to
Landlord without notice or demand at its principal office at Suite 200, 33 Rock
Hill Road, Bala Cynwyd, PA 19004.
D. Additional Rent. As used in this Lease, the term additional rent
("Additional Rent") means any amounts which this Lease requires Tenant to pay in
addition to Base Annual Rent. Such amounts
HEALTHDRIVE LEASE 09/20/96 3
<PAGE>
will be payable as Rent and upon failure of Tenant to pay any amounts due as
Additional Rent, Landlord shall have, with respect to Additional Rent, all the
rights and remedies available to Landlord on account of Tenant's failure to pay
Rent.
a. Real Estate Taxes. The term "Real Estate Taxes" shall mean
all taxes and assessments levied, assessed or imposed at any time by any
governmental authority upon or against the Building and the land upon which the
Building is situate, and also any tax or assessment levied, assessed or imposed
at any time by any governmental authority in connection with the receipt of
income or rents from said Building or said land to the extent that the same
shall be in lieu of (and/or in lieu of an increase in) all or a portion of any
of the aforesaid taxes or assessments upon or against the said Building and/or
land.
b. Annual Operating Expenses. As used in this Lease, the term
annual operating expenses ("Annual Operating Expenses") means all reasonable
costs of management, operation, and maintenance of the Building and the ground
upon which the Building is situate incurred by Landlord during any calendar year
period occurring during the term of this Lease. Such costs shall exclude the
cost of improvements or repairs treated as capital costs for federal income tax
purposes (provided, however, that such cost may be included to the extent of the
annual amortization, calculated on a straight-line basis over the useful life
thereof as reasonably determined by Landlord, of the cost of such improvement or
repair), interest or amortization payments on any mortgage, legal expenses in
enforcing the terms of any lease other than this Lease, expenses for repair or
other work occasioned by fire or other casualty which is covered under a fire
insurance policy with
HEALTHDRIVE LEASE 09/20/96 4
<PAGE>
extended coverage which is in place with respect to the Building, expenses
incurred in the leasing or procuring of new tenants (including lease
commissions, advertising expenses and expenses for renting space for new
tenants). Such costs shall include, by way of example rather than by way of
limitation, (1) Real Estate Taxes; (2) insurance, including fire and extended
coverage, public liability, rental value, and boiler and machinery coverages;
(3) wages, salaries and compensation of employees, consulting, accounting,
legal, janitorial, maintenance, guard and other services; (4) management fees
charged by Landlord, an affiliate of Landlord or any other entity managing the
Building; (5) service contracts and supplies used in connection with the
cleaning, operating, labor and maintenance of the Building; (6) all repairs and
decorating required to be performed by Landlord as provided for in this Lease;
(7) parking lot maintenance, landscaping and snow and ice clearance; (8) charges
for utilities including but not limited to water and sewer service and
electricity, but excluding charges for utilities which are directly billable to
any tenant pursuant to utility company meter; and (9) such other expenditures as
Landlord may deem necessary and proper to be expended in connection with the
operation and maintenance of a first-class office building.
i. Computation of Tenant's Proportionate Share of Annual
Operating Expenses. After the end of each calendar year of the term of this
Lease, including any partial year included within the Term of this Lease,
Landlord shall compute Tenant's Proportionate Share of the Annual Operating
Expenses described in Paragraph 3.D.b. of this Lease which have been incurred
during such calendar year by (1) calculating an appropriate adjustment, using
generally accepted
HEALTHDRIVE LEASE 09/20/96 5
<PAGE>
accounting principles, to avoid allocating to Tenant or to any other tenant, as
the case may be, those specific costs which Tenant or any other tenant has
agreed to pay; (2) calculating an appropriate adjustment, using generally
accepted accounting principles, to avoid allocating to any vacant space those
specific costs which were not incurred for such space; and (3) multiplying the
adjusted Annual Operating Expenses by Tenant's Proportionate Share of .0366
which is the quotient obtained by dividing the area of Tenant's Leased Space in
the Building (1,540 square feet) by the amount of office space available in the
Building (42,020 square feet), whether occupied or not.
ii. Limitation on Increase in Tenant's Proportionate
Share of Annual Operating Expenses. Except as hereinafter provided in this
subparagraph, Tenant's Proportionate Share of Annual Operating Expenses for any
year during the Term of this Lease subsequent to the first year of the Lease
shall not increase by more than ten percent (10%) of Tenant's Proportionate
Share of Annual Operating Expenses for the first year of the Lease.
Notwithstanding the foregoing, however, should the percentage of any increase in
Tenant's Proportionate Share of Annual Operating Expenses for any year or years
subsequent to the first year of the Lease be less than ten percent (10%) of
Tenant's Proportionate Share of Annual Operating Expenses for the first year of
the Lease, then and in such event the percentage deficiency for any such year or
years shall be carried over, added to and be included in the formula for
determining Tenant's Proportionate Share of Annual Operating Expenses for the
next succeeding year or years as the case may be, it being understood,
HEALTHDRIVE LEASE 09/20/96 6
<PAGE>
confirmed and intended by the parties that such percentage carry-over
requirement (i) may, in some years, cause Tenant's Proportionate Share of Annual
Operating Expenses to increase by more than ten percent (10%) of Tenant's
Proportionate Share of Annual Operating Expenses for the first year of the
Lease, and (ii) shall neither be deemed nor construed to be inconsistent with or
otherwise at variance with the first sentence of this subparagraph.
iii. Payment of Tenant's Proportionate Share of Annual
Operating Expenses. Tenant, within fifteen (15) days after being billed
therefor, shall pay to Landlord as Additional Rent the amount by which Tenant's
share of the Annual Operating Expenses exceeds the Initial Base Operating
Expenses Charge or the Base Operating Expense Charge, as the case may be. If
only part of any calendar year shall fall within the term of this Lease, the
amount computed as Additional Rent with respect to such calendar year under the
foregoing provisions shall be prorated in proportion to the portion of such
calendar year falling within the term. The expiration of the term prior to the
end of such calendar year shall not impair Tenant's obligation to pay such
prorated portion as aforesaid.
C. Periodic Advance Payments of Additional Rent.
Notwithstanding the foregoing provisions of this Paragraph to the contrary,
Landlord shall have the right, at its option, to make from time to time during
the term a reasonable estimate of the Additional Rent which may become due
hereunder with respect to any calendar year, and to require Tenant to pay to
Landlord, at the time the monthly installments of Base Annual Rent are payable,
an amount equal to the sum obtained by dividing the estimate of the Additional
Rent by the
HEALTHDRIVE LEASE 09/20/96 7
<PAGE>
number of months remaining in such year. Landlord shall cause the actual amount
of Tenant's share of the Annual Operating Expenses to be computed and certified
by Landlord to Tenant within one hundred and twenty (120) days following the end
of such calendar year, and Tenant or Landlord, as the case may be, shall within
fifteen (15) days of receipt of the certification thereof pay to the other the
amount of any deficiency or overpayment then due from one to the other. In lieu
thereof, at Landlord's option, Landlord may credit Tenant's account for any
overpayment. Tenant shall have the right to inspect the books and records used
by Landlord in calculating the Annual Operating Expenses, Leased Space
Electricity Charge, and Water and Sewer Charges within sixty (60) days of
receipt of the certification during regular business hours after having given
Landlord written notice at least forty-eight (48) hours prior thereto; provided,
however, that Tenant shall make all payments of Additional Rent without delay,
and that Tenant's obligation to pay such Additional Rent shall not be contingent
on any such right. During such sixty (60) day period following receipt of the
certification, Tenant shall have the right to object to the rental adjustment
determination set forth therein by submitting another notice to Landlord
specifying the ways in which the Landlord's interpretation is incorrect. If
within thirty (30) days thereafter, no settlement is reached, the disputed
certification and rental adjustment will be referred to a certified public
accounting firm selected by Landlord, and approved by Tenant, for final
determination. If the determination results in a variance of two percent (2%)
or less in the rental adjustment, Tenant shall pay the expenses involved in
such determination. Landlord shall be obligated to pay the expenses
HEALTHDRIVE LEASE 09/20/96 8
<PAGE>
involved in such determination if the result is a variance of greater than two
percent (2%).
4. LATE PAYMENT CHARGE. If Tenant fails to pay Base Annual Rent or
Additional Rent within ten (10) days from the date on which each is due and
payable, such unpaid amounts will be subject to a late payment charge equal to
five percent (5%) of such unpaid amounts, or $100.00, whichever is greater
("Late Payment Charge"). This late payment charge is intended to compensate
Landlord for its additional administrative costs resulting from Tenant's
failure, and has been agreed upon by Landlord and Tenant, after negotiation, as
a reasonable estimate of the additional administrative costs which will be
incurred by Landlord as a result of Tenant's failure. The late payment charge
will constitute liquidated damages and will be paid to Landlord together with
such unpaid amounts. In addition, any unpaid Base Annual Rent or Additional Rent
which is not paid when due will accrue interest ("Late Payment Interest") at a
rate of one and one-half percent (1 1/2%) per month (but in no event in an
amount in excess of the maximum rate allowed by applicable law) from the date on
which it was due until the date on which it is paid in full with accrued
interest. The receipt of this late payment charge will not constitute a waiver
by Landlord of any default by Tenant under this Lease.
5. CONSTRUCTION OF LEASED SPACE. Landlord shall, unless it shall be
specifically marked to the contrary, without cost to Tenant, complete that
portion of the construction and other items of work in the Leased Space
described as "Landlord's Work" in Exhibit "B" attached hereto, in a good and
workmanlike manner.
HEALTHDRIVE LEASE 09/20/96 9
<PAGE>
If, at Tenant's request, Landlord performs any items of work or
furnishes any materials which it is not required to perform or furnish under
Exhibit "B", Tenant shall pay Landlord for such additional work and materials
promptly upon presentation of bills therefor.
6. TENANT'S ALTERATIONS. Tenant shall make no alterations, additions or
improvements to the Leased Space without the consent of Landlord, which consent
shall not be unreasonably withheld or delayed. All such approved alterations,
additions or improvements shall become a part of the Leased Space when made and
shall remain upon and be surrendered with the Leased Space at the end of the
term, provided, however, if at the termination of this Lease by lapse of time or
otherwise, Landlord so directs by written notice to Tenant, the Tenant shall
promptly remove the alterations, additions, improvements or installations which
were placed in the Leased Space by Tenant and which are designated in said
notice. Tenant shall repair any damage occasioned by such removal, and, in
default thereof, Landlord may effect said removals and repairs at Tenant's
expense.
7. MECHANICS' LIENS. Prior to Tenant performing any construction or any
other work on or about the Leased Space for which a lien could be filed against
the Leased Space or the Building, Tenant shall enter into a written waiver of
liens agreement with the contractor who is to perform such work, and such
written agreement shall be filed, in accordance with the Pennsylvania Mechanics'
Lien Law of 1963, as amended, prior to the commencement of such work.
Notwithstanding the foregoing, if any mechanics' or other lien shall be filed
against the Leased Space or the Building purporting to be for
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labor or material furnished or to be furnished at the request of Tenant, then
Tenant shall at its expense cause such lien to be discharged of record by
payment, bond or otherwise, within thirty (30) days after the filing thereof. If
Tenant shall fail to cause such lien to be discharged of record within such
period, Landlord may cause such lien to be discharged by payment, bond or
otherwise, without investigation as to the validity thereof or as to any offsets
or defenses thereto, and Tenant shall, upon demand, reimburse Landlord for all
amounts paid and costs incurred, including attorneys' fees, in having such lien
discharged of record.
8. CONDITION OF LEASED SPACE. Tenant acknowledges and agrees that, except
as expressly set forth in this Lease, there have been no representations or
warranties made by or on behalf of Landlord with respect to the Leased Space or
the Building or with respect to the suitability of either for the conduct of
Tenant's business. The taking possession of the Leased Space by Tenant shall
conclusively establish that the Leased Space and the Building were at such time
in satisfactory condition, order and repair.
9. LANDLORD'S SERVICES. So long as Tenant is not in default under any of
the provisions of this Lease, Landlord shall provide, within its standards on
each item, the following services and facilities:
A. Maintain and repair the common areas, roof and structure, and
exterior of the Building in good condition. In the event that any such
maintenance is required by reason of the negligence or abuse of Tenant or its
agents, employees, invitees or of any other person using the Building with
Tenant's consent, expressed or implied,
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Landlord may perform such maintenance and add the cost thereof to the first
installment of Rent which will thereafter become due, unless Landlord shall have
actually recovered such cost through insurance proceeds.
B. Maintain and keep the parking area of the Building, drainage
above and below ground, sidewalks and exterior common areas in good condition,
illuminated during normal twilight and evening business hours, clean and
reasonably free of debris, ice and snow.
C. Maintain landscaping and lawns including grass cutting, mulching
and shrub trimming.
D. Provide periodic cleaning of outside and inside of exterior
window panes and other exterior glass.
E. Provide, in common with other tenants, potable water and sanitary
sewer service to the Leased Space.
F. Cause electrical service to be provided to Tenant's assigned
meter socket located in Landlord's electrical switchgear room whereupon, upon
Tenant's contracting with the local electrical utility company ("PECO"), PECO
shall cause to have a meter installed which, at Tenant's expense, will have
electricity caused to be furnished to and for use within the Leased Space,
including the operating of the heating and cooling system therein.
G. Provide an air conditioning (cooling) and heating system for the
Leased Space (but not the electricity required to operate the system). Tenant
agrees to cooperate fully with Landlord and to abide by all the regulations and
requirements which Landlord may reasonably prescribe for the proper functioning
and protection of the air conditioning and heating system.
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H. Maintenance of standard hardware and venetian blinds installed in
the Leased Space by Landlord. Should Landlord institute a master keying system
for the Building, Landlord shall pay for the initial rekeying of locks and,
thereafter, should locks be re-keyed at Tenant's initiative, such changes shall
be accomplished through Landlord and Landlord's locksmith and Tenant shall pay
the reasonable charges thereof.
I. Perform the following janitorial services:
a. Vacuuming floors and emptying the waste paper receptacles;
b. Cleaning of floor, walls, sinks and toilet bowls in
restrooms;
c. Dusting of cleared areas on desk tops and side and front
panels of desks, tables and chairs;
d. Supply and replenishment of paper hand towels and toilet
tissue in restrooms;
e. Replace light bulbs, tubes and ballasts;
f. Clean and periodically wax composition tile floors.
J. Make all repairs necessary to maintain the plumbing, heating, air
conditioning, electrical systems, equipment and apparatus appurtenant thereto or
used in connection therewith, excluding repairs to any non-Building standard
fixtures or other improvements installed or made by or at the request of Tenant
and requiring unusual or special maintenance. In the event that any such repair
is required by reason of the negligence or abuse of Tenant or its agents,
employees, invitees or of any other person using the Building with Tenant's
consent, express or implied, Landlord may perform such repairs and add the cost
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thereof to the first installment of Rent which will thereafter become due,
unless Landlord shall have actually recovered such costs through insurance
proceeds.
K. It is understood that Landlord does not warrant that any of the
services referred to in this Section 9 will be free from interruption by reason
of strike, accident, emergency or any other causes beyond the reasonable control
of Landlord. No interruption of service shall ever be deemed an eviction or
disturbance of Tenant's use and possession of the Leased Space or any part
thereof, or confer any benefits or rights in third parties, or render Landlord
liable to Tenant for damages or relieve Tenant from performance of Tenant's
obligations under this Lease. Notwithstanding anything in this Lease to
contrary, if Tenant is unable to use the Leased Space for its intended purpose
for a period of ninety (90) days as a result of such interruption of service or
as result of any other cause other than a cause which would be deemed a default
by Tenant under this Lease, then Tenant may terminate this Lease and shall have
no further obligations hereunder other than those obligations Tenant would have
had if the Lease expired at the end of the Term
L. Landlord shall not be liable in damages or otherwise for
temporary delay or temporary failure in furnishing any of the foregoing services
or facilities but only to the extent Tenant is able to operate its business
without interruption without such services. Landlord's liability in this case
shall be limited to the amount of Rent plus Additional Rent pertaining to the
period of such interruption.
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10. ASSIGNMENT AND SUBLETTING. Tenant shall have no right to sublet or
assign all or any part of the Leased Space without the advance consent in
writing of Landlord; provided, however:
A. That any money or other economic consideration to be received by
Tenant as a result of such subletting or assignment, whether denominated as
rent, or as payment for fixtures, or otherwise, which exceeds, in the aggregate
the total sums which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to that portion of the Leased Space
subject to the sublease or assignment) shall be payable to Landlord as
Additional Rent under this Lease without affecting or reducing any obligation of
Tenant hereunder.
B. Regardless of Landlord's consent, no subletting or assignment
shall release Tenant of Tenant's obligation or alter the primary liability of
Tenant to pay the rental and to perform all other obligations to be performed by
Tenant hereunder.
C. The acceptance of rental by Landlord from any other person shall
not be deemed to be a waiver by Landlord of any provision hereof.
D. Consent to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting.
E. In the event of default by any assignee of Tenant or any
successor of Tenant in the performance of any of the terms hereof, Landlord may
proceed directly against Tenant without the necessity of exhausting remedies
against such assignee or successor.
F. If Tenant defaults under the terms and conditions of this Lease
at such time that all or part of the Leased Space are then
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assigned or sublet, Landlord may collect directly from the assignee or subtenant
all rents becoming due to Tenant under the assignment or sublease and apply such
rents against any sums due to Landlord by Tenant under this Lease, and Tenant
hereby authorizes and directs such assignee or subtenant to make such payments
of rent to Landlord upon receipt of notice from Landlord. Such collection of
rent by Landlord shall not constitute a novation or a release of Tenant from its
liability under the terms and conditions of this Lease.
G. If Tenant requests Landlord's consent to an assignment of the
Lease or subletting of all or part of the Leased Space, it shall submit to
Landlord a true, complete and legible copy of the proposed sublease or
assignment. Landlord shall have the option, to be exercised within thirty (30)
days thereafter, to cancel the within Lease as of the commencement date stated
in the above-mentioned assignment or sublease and to enter into a direct lease
with such assignee or subtenant. If Landlord elects to cancel the within Lease
as stated, then, the term, tenancy, and occupancy of the Leased Space shall
terminate as though the cancellation date was the original termination date of
this Lease.
H. If the Landlord shall not exercise its right within the terms set
forth in Subparagraph G above, its consent to any such proposed assignment or
subletting shall not be unreasonably withheld or delayed.
I. Notwithstanding the foregoing, Tenant, upon appropriate notice to
Landlord, may assign this Lease, or sublet all or part of the Leased Space to a
parent, an affiliate, a wholly-owned subsidiary or a successor by merger,
consolidation, or division without the consent of
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Landlord; however, prior written notice of the assignment or sublet shall be
given by Tenant to Landlord.
11. ACCESS TO LEASED SPACE. Landlord, its employees and agents shall have
the right to enter the Leased Space at all reasonable times for the purpose of
examining or inspecting the same, showing the same to prospective purchasers or
tenants of the Building, or mortgagees, and making such alterations, repairs,
improvements or additions to the Leased Space or to the Building as Landlord may
deem necessary or desirable. Except in case of emergency, any such entry shall
be after reasonable notice to Tenant. If representatives of Tenant shall not be
present to open and permit entry into the Leased Space at any time when such
entry by Landlord is necessary or permitted hereunder, Landlord may enter by
means of a master key (or forcibly in the event of an emergency) without
liability to Tenant and without such entry constituting an eviction of Tenant or
termination of this Lease.
12. REPAIRS.
A. Landlord shall make, at its sole cost and expense, all repairs
necessary to maintain the plumbing, air conditioning and electrical systems,
windows, floors, and all other items which constitute a part of the Leased Space
and are installed or furnished by Landlord as well as repairs necessary to
maintain the roof, exterior walls, parking lot, grounds, site lighting and
common areas; provided, however, that Landlord shall not be obligated for any of
such repairs until the expiration of a reasonable period of time after written
notice from Tenant that such repair is needed, except roof defects resulting in
damage to the Leased Space in which case all repairs shall be expedited. In no
event shall Landlord be obligated to repair any
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damage caused by any act, omission or negligence of the Tenant or its employees,
agents, invitees, licensees, subtenants, or contractors and Tenant shall be
solely liable for such repairs at Tenant's sole cost and expense.
B. Except as the Landlord is obligated for repairs as provided
above, Tenant shall make, at its sole cost and expense, all repairs necessary to
maintain the Leased Space and shall keep the Leased Space and the fixtures
therein in neat and orderly condition. If the Tenant refuses or neglects to make
such repairs, or fails to diligently prosecute the same to completion, after
written notice from Landlord of the need therefor, Landlord may make such
repairs at the expense of Tenant and such expense shall be collectible as
Additional Rent.
C. Landlord shall not be liable by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations, additions or improvements in or to the Leased Space or the Building
or to any appurtenances or equipment therein; however, Landlord agrees to use
its best efforts to avoid all such interference, damage or injury.
13. SURRENDER OF LEASED SPACE. At the end of the term of this Lease,
Tenant shall surrender the Leased Space to Landlord, together with all
alterations, additions and improvements thereto, in broom clean condition and in
good order and repair except for ordinary wear and tear and damage for which
Tenant is not obligated to make repairs under this Lease. Subject to Paragraph 6
hereof, Tenant shall have the right at the end of the term hereof to remove any
unattached moveable equipment, furniture, trade fixtures or other personal
property placed
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in the Leased Space by Tenant, provided that Tenant promptly repairs any damage
to the Leased Space caused by such removal. Tenant shall repair all damage to
the Leased Space caused by such removal and restore the Leased Space to the
condition in which it was prior to the installation of the items so removed less
reasonable wear and tear. Tenant shall surrender the Leased Space to Landlord at
the end of the term hereof, without notice of any kind, and Tenant waives all
right to any such notice as may be provided under any laws now or hereafter in
effect in Pennsylvania. If Tenant shall fail to remove any of its equipment,
furniture, trade fixtures or other personal property Landlord may remove and
store the same at the expense of Tenant or sell the same on behalf of Tenant at
public or private sale in such manner as is commercially reasonable with any
proceeds thereof to be first applied to the costs and expenses, including
attorney's fees, of the storage and sale and the payment of any amounts owed
hereunder by the Tenant.
14. INDEMNIFICATION AND INSURANCE; WAVER OF SUBROGATION. Tenant covenants
and agrees that it shall, without notice or demand and at its own cost and
expense, indemnify and save harmless Landlord against and from, and Landlord
shall not be liable to Tenant for, any and all claims by or on behalf of any
person arising in any manner whatsoever from, out of, or in connection with (a)
the use and occupancy of the Leased Space by Tenant, its agents, employees and
invitees, (b) any failure by Tenant to perform any of the terms or conditions of
this Lease required to be performed by Tenant, (c) any failure by Tenant to
comply with any statutes, regulation, ordinances or orders of any governmental
authority or (d) any accident, death, injury, or damage,
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loss or theft of property in or about the Leased Space (whether involving
property belonging to Tenant or any other person), resulting from or based upon
the act, omission, fault, negligence or misconduct of Tenant, its employees,
agents or independent contractors except to the extent caused by the negligence,
fault or misconduct of Landlord, its employees, agents or independent
contractors, and from and against all costs, attorney fees, expenses and
liabilities incurred in or as a result of any such claim or action or proceeding
brought against Landlord by reason of any such claim, Tenant upon notice from
Landlord, covenants to resist or defend such action or proceeding by legal
counsel reasonably satisfactory to Landlord.
Landlord shall defend and indemnify Tenant and save Tenant harmless
from and against any and all losses, claims, liability, expenses and damages
which either directly or indirectly, in whole or in part, arise out of or result
from (I) the negligence or willful misconduct of Landlord, its agents,
contractors or employees; (ii) judgements, citations, fines or other penalties
rendered or assessed against Tenant (with the exception of any claims under any
worker's compensation laws) as a result of Landlord's failure to comply with all
federal, state and local laws, safety and health regulations relating to any
portion of the Building or the common areas which Landlord has assumed the duty
to maintain pursuant to this Lease, provided that Tenant agrees to give Landlord
prompt notice of any such violation asserted by any governmental agency; and
(iii) the breach of any provision of this Lease by Landlord, its agents,
contractors or employees.
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A. Nothing in this Paragraph 14 is intended to require
indemnification for any property claim for which insurance is required to be
maintained under the terms of this Lease. The rights and obligations of Landlord
and Tenant under this Paragraph 14 shall survive the expiration or earlier
termination of this Lease.
Tenant shall keep in force public liability insurance with respect
to the Leased Premises, including contractual insurance with respect to the
covenants and agreement above, with companies qualified to do business in the
Commonwealth of Pennsylvania, and in form acceptable to Landlord to afford
protection of not less than a combined limit of One Million Dollars ($1,000,000)
with respect to personal injury or death and property damage, and naming as the
insured Landlord, Tenant and the beneficiaries of any encumbrances now or in the
future affecting the Building and providing thirty (30) days notice of
cancellation or reduction in scope or amount of coverage. Copies of such
policies shall be delivered to Landlord.
Each party hereto waives any and every claim which arises or which
may arise in its favor and against the other party hereto during the Term of
this Lease or any extension or renewal thereof for any and all loss of or damage
to any of its property located within or upon or constituting a part of the
Building, to the extent that such loss or damage is recovered under an insurance
policy or policies and to the extent such policy or policies contain provision
permitting such waiver of claims. Each party agrees to request its insurers to
issue policies containing such provisions.
15. DAMAGE AND DESTRUCTION. If the Leased Space or the Building are
damaged by fire or other casualty, Landlord will give Tenant notice
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of the time which will be needed to repair such damage, as determined by
Landlord in its sole discretion, and the election (if any) which Landlord has
made according to this Paragraph 15. Such notice will be given as soon as
reasonably possible, but in any event before the thirtieth (30th) day (the
"Notice Date") after the fire or other casualty.
A. If the Leased Space or the Building are damaged by fire or other
insured casualty to an extent which may be repaired within ninety (90) days
after the commencement of repair, as determined by Landlord, Landlord will
repair the damage within ninety (90) days after the Notice Date. In that event
this Lease will continue in full force and effect except that all Rent will be
abated on a pro rata basis from the date of the fire or other insured casualty
until the date of the completion of such repairs (the "Repair Period") based on
the rentable area of the Leased Space of whose use the Tenant is deprived during
the Repair Period. In the event that repairs are not substantially completed
within the aforesaid ninety (90) day period, Tenant may cancel this Lease at the
expiration of said ninety (90) day period by written notice to Landlord,
however, Landlord shall have five (5) business days after receipt of the notice
to complete the repairs to Tenant's reasonable satisfaction.
B. If the Leased Space or the Building are damaged by fire or other
insured casualty to an extent which may not be repaired within ninety (90) days
after the commencement of repair, as determined by Landlord, then (i) Landlord
may cancel this Lease as of the date of such damage by written notice given to
Tenant on or before the Notice Date, or (ii) Tenant may cancel this Lease as of
the date of such
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damage by written notice given to Landlord within ten (10) days after Landlord's
delivery of a notice that the repairs cannot be made within such ninety (90) day
period. Upon the termination of this Lease pursuant to the terms of this
Paragraph 15.B., Tenant's liability for Rent shall cease as of the date of the
casualty. If neither Landlord nor Tenant so elects to cancel this Lease,
Landlord will repair the Building and Leased Space and Rent will be abated on a
pro rata basis during the entire Repair Period based on the rentable area of the
Leased Space of whose use Tenant is deprived during the Repair Period.
C. If the Leased Space or the Building are damaged by an uninsured
casualty, Landlord will have the option to repair such damage according to the
provisions and subject to the rights of Tenant contained in subparagraph A and B
above, as applicable, or cancel this Lease as of the date of such casualty by
written notice to Tenant on or before the Notice Date. If any such damage by
fire or other casualty is the result of the willful conduct or negligence or
failure to act of Tenant, its agents, contractors, employees or invitees, there
will be no abatement of Rent as otherwise provided for in this Paragraph 15.
D. Landlord will not be obligated to repair any improvements in
excess of those installed by Landlord in connection with initial occupancy of
the Leased Space by Tenant, but will be obligated to repair any improvements
made by Tenant to the Leased Space to which the Landlord has consented, in which
Landlord has an insurable interest, and which have been added to Landlord's fire
and extended coverage insurance policy.
16. CONDEMNATION. If the Leased Space or any material part (i.e., ten
percent (10%) or more of the rentable area of the Leased
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Space) thereof shall be condemned for public use, then and in that event, upon
the vesting of title to the same for such public use, this Lease shall
terminate, anything herein contained to the contrary notwithstanding, except
that Tenant shall have the right to prove and collect the value of the leasehold
improvements paid for by Tenant, including moving expenses. In the event of such
termination of this Lease, all rent paid in advance shall be apportioned as of
the date of such termination. Notwithstanding the foregoing, if less than ten
percent (10%) of the Leased Space shall be so taken, Tenant shall retain the
part not so taken and there shall be a proportional reduction in the rent. All
compensation awarded or paid upon such a total or partial taking of the Leased
Space shall belong to and be the property of Landlord without any participation
by Tenant, provided, however, that nothing contained herein shall be construed
to preclude the Tenant from prosecuting any claim directly against the
condemning authority in such condemnation proceedings for loss of business, or
depreciation to, damage to, or cost of removal of, or for the value of stock,
trade fixtures, furniture, and other personal property belonging to Tenant;
provided, however, that no such claim shall diminish or otherwise adversely
affect Landlord's award or the award of any mortgagee.
17. ESTOPPEL CERTIFICATES. Either party shall, at any time and from time
to time within ten (10) days following written request from the other, execute,
acknowledge and deliver to the requesting party a written statement certifying
that this Lease is in full force and effect and unmodified (or, if modified,
stating the nature of such modification), certifying the date to which the rent
reserved hereunder
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has been paid, and certifying that there are not, to the certifying party's
knowledge, any uncured defaults (or acts or omissions which would be defaults
but for the pendancy of any grace or cure period under Paragraphs 19 and 20
below) or unpaid charges on the part of the other party, or specifying such
defaults or unpaid charges if any are claimed. Any such statement may be relied
upon by any lending institution or by any prospective purchaser or mortgagee of
all or any part of the Building or land on which the Building is situate. The
failure to deliver such statement within said ten (10) day period shall be
conclusive evidence that this Lease is in full force and effect and unmodified,
and that there are no uncured defaults in the requesting party's performance
hereunder.
18. TENANT'S DUTY TO OCCUPY. During the term of this Lease, including any
extensions and renewals, Tenant has the absolute duty to occupy and use the
Leased Space continuously, carrying on Tenant's business in a diligent,
assiduous and energetic fashion.
19. DEFAULT. The following shall constitute defaults by Tenant:
A. Failure to pay Rent or other payments required of Tenant, or any
portion thereof to Landlord;
B. Failure to perform or observe any agreement, condition, or
obligation of the Tenant to Landlord;
C. If any person shall levy upon, take, or attempt to take Tenant's
leasehold interest or any part of it or personal property of Tenant upon
execution, attachment or other process of law;
D. If the premises shall be deserted, vacated, abandoned, or
business operations shall not be conducted in accordance with Tenant's duty to
occupy;
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E. If this Lease or any interest in it shall by operation of law
devolve upon or pass to any person or persons other than Tenant;
F. If Tenant becomes embarrassed or insolvent, or makes an
assignment for the benefit of creditors, or if a petition in bankruptcy is filed
by or against Tenant or a bill in equity or other proceedings for the
appointment of a receiver for Tenant is filed, or if proceedings for
reorganization or for composition with creditors under any state or federal law
are instituted by or against Tenant.
20. GRACE PERIOD. Excepting the Late Payment Charge and Late Payment
Interest, prior to exercising any remedies under this Lease, Landlord shall give
Tenant ten (10) days written notice of any monetary default and thirty (30) days
written notice of any non-monetary default, together with the opportunity to
cure any default within such time periods, provided, however, that Landlord
shall not be required to give Tenant notice of monetary defaults or notice of a
repeated non-monetary default (or similar non-monetary default) more than two
(2) times in any twelve (12) month period prior to having the right to resort to
all remedies available to Landlord for a default by Tenant under this Lease.
21. REMEDIES. In the event of a default by Tenant, Landlord's remedies
shall include any one or more of the following:
A. The present value of the Rent for the entire unexpired balance of
the Term of this Lease, as well as other charges, payments, costs and expenses
agreed to be paid by Tenant, in addition to any and all installments of Rent
already due, and/or any other charge, expense or cost agreed to be paid by
Tenant which may be due and payable and in arrears, shall be due and payable as
if by the terms and provisions of
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this Lease the whole balance of unpaid Rent and other charges, payments, taxes,
costs and expenses were on that date payable in advance; and if this Lease or
any part is assigned, or if the premises or any part is sublet, Tenant hereby
irrevocably constitutes and appoints Landlord/Tenant's agent to collect the
Rents due by such assignee or sublessee and apply the same to the Rent due
without in any way affecting Tenant's obligation to pay any unpaid balance of
Rent due hereunder;
B. In the event of any of the foregoing at any time at the option of
Landlord, this Lease and the Term hereby created shall terminate and become
absolutely void without any right on the part of Tenant to save the forfeiture
by payment of any sum due or by other performance of any condition, term or
covenant broken;
C. Landlord may without notice or demand enter the Leased Space,
breaking open locked doors if necessary to effect entrance, without liability
for damages for such entry or for its manner, for the purpose of taking
possession of the Leased Space; and Tenant hereby releases and discharges
Landlord, and its agents from all claims, actions, suits, damages and penalties,
for or by reason or on account of any such entry. In the case of any such entry,
Landlord shall give Tenant simultaneous or advance written notice of such entry
and shall, thereafter, allow Tenant a five (5) day period after the giving of
such notice, within which to remove its property from the Leased Space.
D. Landlord may lease the Leased Space or any part or parts of it to
such person or persons as may in Landlord's discretion seem best on such terms,
including rentals, as are commercially reasonable
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and Tenant shall be liable for any loss of Rent for the balance of the then
current term.
22. CONFESSIONS OF JUDGEMENT. After a default under this Lease and
following the expiration of any applicable grace and notice periods, Landlord
shall have the following rights which are in addition to those rights otherwise
set forth in this Lease:
A. Possession; CONFESSION OF JUDGEMENT. FOR THE PURPOSE OF OBTAINING
POSSESSION OF THE LEASED SPACE, TENANT HEREBY AUTHORIZES AND EMPOWERS ANY
ATTORNEY OF ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA OR
ELSEWHERE, AS ATTORNEY FOR TENANT AND ALL PERSONS CLAIMING UNDER OR THROUGH
TENANT (i) TO SIGN AN AGREEMENT FOR ENTERING IN ANY COMPETENT COURT AN ACTION IN
EJECTMENT FOR POSSESSION OF THE LEASED SPACE, AND/OR (ii) TO APPEAR FOR AND
CONFESS JUDGEMENT AGAINST TENANT FOR POSSESSION OF THE LEASED SPACE, AND
AGAINST ALL PERSONS CLAIMING UNDER OR THROUGH TENANT, IN FAVOR OF LANDLORD, FOR
RECOVERY BY LANDLORD OF POSSESSION THEREOF, FOR WHICH THIS AGREEMENT OR A COPY
HEREOF VERIFIED BY AFFIDAVIT, SHALL BE A SUFFICIENT WARRANT; AND THEREUPON A
WRIT OF POSSESSION MAY IMMEDIATELY ISSUE FOR POSSESSION OF THE LEASED SPACE,
WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER AND WITHOUT ANY STAY OF
EXECUTION.
If for any reason after such action set forth herein has been
commenced it shall be discontinued or suspended, or possession of the Leased
Space shall remain in or be restored to Tenant, Landlord shall have the right
for the same default or any subsequent default to bring an action in ejectment
and/or an action to confess judgement for possession of the Leased Space therein
before or after the institution of proceedings to enforce the Lease, or after
entry of judgement
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therein, it being the understanding of the parties that the authorization to
pursue such proceedings for obtaining possession and confession of judgement
therein is an essential part of the remedies for enforcement of the Lease. The
foregoing warrants and powers to confess judgement shall not be deemed to have
been exhausted by any single exercise thereof, whether or not such exercise
shall be held by any court to be invalid, voidable or void, but may be exercised
from time to time, as often as Landlord shall elect, until all defaults under
this Lease have been cured and all sums payable or that may become payable by
Tenant have been paid in full.
23. WAIVER. The failure or delay on the part of either party to enforce or
exercise at any time any of the terms and conditions of this Lease shall in no
way be construed to be a waiver thereof, nor in any way to affect the validity
of this Lease or any part hereof, or the right of the party to thereafter
enforce each and every term or condition. No waiver of any breach of this Lease
shall be held to be a waiver of any other or subsequent breach. The receipt by
Landlord of Rent at a time when the Rent is in default under this Lease shall
not be construed as a waiver of such default. The receipt by Landlord of a
lesser amount than the Rent due shall not be construed to be other than a
payment on account of the Rent then due, nor shall any statement on Tenant's
check or any letter accompanying Tenant's check be deemed an accord and
satisfaction, and Landlord may accept such payment without prejudice to
Landlord's right to recover the balance of the Rent due or to pursue any other
remedies provided in this Lease. No act or thing done by Landlord or Landlord's
agents or employees during the term of this Lease shall be deemed an acceptance
of a surrender of the Leased
HEALTHDRIVE LEASE 09/20/96 29
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Space, and no agreement to accept such a surrender shall be valid unless in
writing and signed by Landlord.
24. RIGHT OF ASSIGNEE OF LANDLORD. The right to enter judgement against
Tenant and to enforce all of the other provisions of this Lease may, at the
option of any assignee of this Lease, be exercised by any assignee of the
Landlord's right, title and interest in this Lease in his, her, their or its own
name, and Tenant hereby expressly waives the requirements of any and all laws
regulating manner and/or form in which such assignments shall be executed and
witnessed.
25. REMEDIES CUMULATIVE. All of the remedies herein given to Landlord and
all rights and remedies given to it by law and equity shall be cumulative and
concurrent. No termination of this Lease or the taking or recovering of the
premises shall deprive Landlord of any of its remedies or actions against the
Tenant for Rent due at the time or which, under its terms, would in the future
become due as if there had been no termination, nor shall the bringing of any
action for Rent or breach of covenant, or the resort to any other remedy herein
for the recovery of Rent be construed as a waiver of the right to obtain
possession of the premises.
26. QUIET ENJOYMENT. If and so long as Tenant pays the Rent reserved
hereunder and observes and performs all the terms and conditions on Tenant's
part to be observed and performed hereunder, Tenant shall and may peaceably and
quietly have, hold and enjoy the Leased Space for the entire term hereof,
subject to all of the provisions of this Lease.
27. FORCE MAJEURE. Time periods for Tenant or Landlord's performance of
Tenant or Landlord's obligations under any of the terms
HEALTHDRIVE LEASE 09/20/96 30
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of this Lease shall be extended for periods of time not exceeding ninety (90)
consecutive days during which the Tenant or Landlord's performance is prevented
due to circumstances beyond Tenant or Landlord's control, including without
limitation, strikes, embargoes, governmental regulations, acts of God, war or
other strife. Notwithstanding any inference to the contrary contained herein,
the provisions of this Paragraph shall not be applicable to Tenant's obligation
to pay all Rents and other sums as are required by the terms of this Lease, it
being intended that lack of funds shall not be an event beyond Tenant's control.
28. SUCCESSORS. The respective rights and obligations provided in this
Lease shall bind and shall inure to the benefit of the parties hereto, and their
successors and assigns, subject to Paragraph 10.
29. GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
30. HOLDING OVER. If Tenant shall, with the consent of Landlord, hold over
after the expiration of the term hereof, such tenancy shall be deemed a
month-to-month tenancy, which tenancy may be terminated as provided by
applicable state law. During such tenancy, Tenant agrees to pay Landlord the
fair market value for the Leased Space, as reasonably determined by Landlord,
and to be bound by all the terms and conditions herein. If Landlord shall not
give consent to such hold over by Tenant, such tenancy may be terminated as
above provided, and until Tenant has vacated the Leased Space, it agrees to pay
to Landlord Rent at a monthly rental one and one-half times the rate, including
Base Annual Rent and Additional Rent, charged to Tenant at the expiration of the
term of this Lease.
HEALTHDRIVE LEASE 09/20/96 31
<PAGE>
31. SUBORDINATION. This Lease is and shall be subject and subordinate to
all mortgages which may now or hereafter be secured upon the Building, and to
all renewals, modifications, consolidations, replacements and extensions
thereof. This clause shall be self-operative and no further instrument of
subordination shall be required by any lessor or mortgagee, but in confirmation
of such subordination, Tenant shall execute and return to lessor or mortgagee,
as the case may be, within ten (10) days after written request, any certificate
that Landlord may reasonably require acknowledging such subordination.
Notwithstanding the foregoing, Landlord agrees that any such subordination shall
not affect Tenant's right to possession of the Leased Space so long as Tenant is
in full compliance with the terms of this Lease and that any certificate
required by this Paragraph 34 shall acknowledge such right of Tenant and,
provided further, that Tenant shall attorn to the party holding the instrument
to which this Lease is subordinate and shall execute, acknowledge and deliver
any instrument that has for its purposes and effect the confirmation of such
attornment.
32. NOTICES. All notices or other communications required or permitted
under the terms and conditions of this Lease shall be in writing, and shall be
(1) delivered in person, (2) sent by United States Registered or Certified Mail,
postage prepaid, return receipt requested, or (3) sent by private courier
guaranteeing next day delivery, addressed as follows:
As to Tenant:
HealthDrive Corporation
Attention: Michael Kaplan, CFO
25 Needham Street
Newton, MA 02161-1615
HEALTHDRIVE LEASE 09/20/96 32
<PAGE>
As to Landlord:
928 Jaymor Road Associates, L.P.
33 Rock Hill Road
Suite 200
Bala Cynwyd, PA 19004
Either party may at any time, in the manner set forth for giving
notices to the other, designate a different address to which notices to it shall
be sent.
Any period of time designated in a notice shall start from the date
of receipt, except that such period shall start five (5) days from the date of
mailing if delivery of the notice is not accepted by the party to whom it is
addressed.
33. BROKERS. Landlord represents and warrants to Tenant that Landlord has
not dealt with any broker or agent in connection with the negotiation for or the
obtaining of this Lease, other than GMH Realty, Inc. and Blough Realty, Inc.
("Active Broker"). Landlord agrees to indemnify and hold Tenant harmless from
and against all cost, liability or claim for commission or other compensation by
any broker or agent claiming to be employed by Landlord with respect to the
Leased Space.
Tenant represents and warrants to Landlord that Tenant has not dealt
with any broker or agent in connection with the negotiation for or the obtaining
of this Lease, other than Active Broker, and Tenant agrees to indemnify and hold
Landlord harmless from and against any and all cost, liability or claim for
commission or other compensation by any broker or agent, other than Active
Broker, claiming to be employed by Tenant or claiming to have called the Leased
Space to Tenant's attention.
HEALTHDRIVE LEASE 09/20/96 33
<PAGE>
34. SIGNS. Tenant shall not, without the prior written consent of
Landlord, paint, place or erect any sign on the exterior doors or walls of the
Leased Space.
Tenant's presence in the Building will be indicated at Landlord's
sole cost and expense, by the placing of Tenant's name and suite number on the
Building directory located in the landscaped area of the parking area of the
Building and by affixing of Building Standard identification and suite number
signs, or, at Tenant's sole cost and expense, Tenant's logo and/or logotype
sign, to or adjacent to the entrance to the Leased Space.
35. RENT CONTROL. If pursuant to any existing or future laws, rules or
regulations, the Base Annual Rent, Additional Rent, or any portion thereof shall
be uncollectable or unchargeable, then the provisions of this Lease shall be
deemed amended so as to be consistent with such laws, rules or regulations. To
the extent not prohibited by law, at such time as such laws, rules or
regulations shall be removed, declared inapplicable or repealed, Tenant shall
pay Landlord as Additional Rent the amount of Rent that would have been payable
hereunder had such law, rule or regulation not been applied hereto. The
provisions of this Paragraph shall survive the expiration of this Lease.
36. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum of
$1,649.00 as security for the performance by Tenant of the terms of this Lease.
Landlord may use any part of the security to satisfy any default of Tenant and
any expenses arising from such default including, but not limited to, any
demands or Rent deficiency before or after reentry by Landlord. If Tenant shall
comply fully with the terms of
HEALTHDRIVE LEASE 09/20/96 34
<PAGE>
this Lease, the security shall be returned to Tenant after the date fixed as the
end of this Lease. Tenant shall not be entitled to any interest on the aforesaid
security. If Landlord utilizes any of the security in curing a default on the
part of Tenant, Tenant shall immediately pay Landlord the amount necessary to
restore the security to its original amount.
37. LANDLORD'S LIABILITY. If the Leased Space or the Building is
transferred or conveyed, Landlord shall be relieved of all covenants and
obligations under this Lease arising after such transfer or conveyance, provided
that notice of said transfer or conveyance is given to Tenant by Landlord, and
further provided that such transferee succeeds to and is bound by the covenants
and obligations of Landlord contained in this Lease.
38. RULES AND REGULATIONS. Tenant agrees to comply with the rules and
regulations established by Landlord from time to time, which Landlord agrees
will be applied uniformly to all tenants. The existing rules and regulations are
attached hereto as Exhibit "C".
39. LITIGATION. In the event that Landlord shall without fault on its part
be made a party to any litigation commenced by or against Tenant, then, and to
such extent, Tenant shall protect and hold Landlord harmless from and against
any liability arising therefrom, and shall pay all of Landlord's costs, expenses
and attorney's fees.
In the event that Tenant shall without fault on its part be made a
party to any litigation commenced by or against Landlord, then, and to such
extent, Landlord shall protect and hold Tenant harmless from and against any
liability arising therefrom, and shall pay all of Tenant's costs, expenses and
attorney's fees.
HEALTHDRIVE LEASE 09/20/96 35
<PAGE>
40. ENVIRONMENTAL COMPLIANCE.
A. Tenant shall use and occupy the Leased Space and conduct its
business and operations thereupon in full compliance with all applicable
statutes, codes, rules, regulations and ordinances, as they may change from time
to time, pertaining to the protection of the environment and to hazardous
substances and hazardous wastes as those terms may be defined from time to time
in such statutes, codes, rules, regulations and ordinances ("Environmental
Laws"). Tenant shall indemnify, defend and hold harmless Landlord from and
against any and all claims, demands, judgements, suits, liens, actions and other
proceedings arising out of or relating to the removal, remediation, corrective
action or clean up of any hazardous waste or hazardous substance as defined in
the Environmental Laws or any other proceedings or actions threatened, or
brought for the enforcement of any Environmental Laws now or hereafter
applicable to Tenant's Leased Space and resulting from or arising out of
Tenant's use, operation and occupation thereof arising after the Commencement
Date of this Lease. Such indemnification shall include, but not be limited to,
cost of investigation, engineering fees, attorney's fees cost of remediation and
clean up and future maintenance.
B. Except for medical or infectious medical waste, and subject to
the provisions of Subparagraph A above, Tenant shall not use the Building and/or
the Leased Space or any part thereof, for the purpose of treating, producing,
handling, transferring, processing, transporting, disposing, using or storing a
toxic substance. Tenant shall arrange for the disposal of all medical or
infectious medical waste by a company licensed in and by the Commonwealth of
Pennsylvania
HEALTHDRIVE LEASE 09/20/96 36
<PAGE>
to dispose of such waste in accordance with all applicable laws, ordinances and
regulations.
41. CAPTIONS. The titles to paragraphs of this Lease are for convenience
of reference only, and are not to be construed as defining, limiting or
modifying the scope or intent of any of the terms and conditions of this Lease.
42. ENTIRE AGREEMENT. This Lease contains all covenants and agreements
between Landlord and Tenant relating in any manner to the Rent, use and
occupancy of the Leased Space and Tenant's use of the Building and other matters
set forth in this Lease. No prior agreement or understanding pertaining to the
same shall be valid or of any force or effect and the terms, covenants and
conditions of this Lease shall not be altered, modified or added to except in
writing signed by Landlord and Tenant.
43. SEVERABILITY. If any provision of this Lease shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereof, but this agreement shall be construed as
if such invalid or unenforceable portion had never been contained herein.
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed
the day and year first above written.
TENANT:
HealthDrive Corporation
By: /s/ Michael R. Kaplan
----------------------------
Attest: /s/ Steven S. Charlap
------------------------
Steven S. Charlap, Secretary
HEALTHDRIVE LEASE 09/20/96 37
<PAGE>
LANDLORD:
928 JAYMOR ROAD ASSOCIATES, L.P.
By: Wynnewood Development, Inc.,
a Pennsylvania corporation,
its sole General Partner
By: /s/ Frederick Weitzman
--------------------------------------
Frederick Weitzman
Attest: /s/ Kimberly A. Williford
----------------------------------
Kimberly A. Williford, Secretary
HEALTHDRIVE LEASE 09/20/96 38
<PAGE>
EXHIBIT "A"
[GRAPHIC OMITTED]
FLOOR PLAN SCALE 1/8"=1'-0"
HEALTHDRIVE LEASE 09/20/96 39
<PAGE>
EXHIBIT "B"
LANDLORD'S WORK
Suite C-190 shall receive the following Improvements for Tenant's occupancy:
1. Replace all carpets.
2. Install composition tile in Storage Room and Sink Room.
3. Re-paint entire premises.
4. Provide and install stainless steel sink and vanity and countertop
in Sink Room.
5. Remove shelving in Storage Room on wall between Storage Room and
Office No. 4 and HVAC Room.
6. Install exhaust fan above sink in Sink Room.
7. Erect partition separating Storage Room from Sink Room; install new
door frame and hardware from Storage Room to Office No. 4.
8. Final clean-up including cleaning of diffusers and ceiling light
lenses and replacement of worn ceiling tiles.
HEALTHDRIVE LEASE 09/20/96 40
<PAGE>
EXHIBIT "C"
RULES AND REGULATIONS
DEFINITIONS
1. Wherever in these rules and regulations the word "Tenant" is used, it
shall be taken to apply to and include the Tenant and his agents, employees,
invitees, licensees, sub-tenants and contractors, and is to be deemed of such
number and gender as the circumstances require. The word "room" is to be taken
to include the space covered by Lease. The word "Landlord" shall be taken to
include the employees and agents of Landlord.
CONSTRUCTIONS
2. The streets, sidewalks, entrances, passages, stairways and other common
area provided by Landlord shall not be obstructed by Tenant, or used by it for
any other purpose than for ingress and egress.
WASHROOMS
3. Toilet rooms, water closets and other water apparatus shall not be used
for any purposes other than those for which they were constructed.
INSURANCE REGULATIONS
4. Tenant shall not do anything in the Leased Space, or bring or keep
anything therein, which will in any way increase or tend to increase the risk of
fire or the rate of fire insurance, or which will conflict with the regulations
of the Fire Department or the fire laws, or with any insurance policy on the
Building or any part thereof, or with any law, ordinance, rule or regulation
affecting the occupancy and use of the Leased Space, now existing or hereafter
enacted or
HEALTHDRIVE LEASE 09/20/96 41
<PAGE>
EXHIBIT "C"
promulgated by any public authority or by the Board of Fire Underwriters.
GENERAL PROHIBITIONS
5. In order to insure proper use and care of the Leased Space Tenant shall
not:
a. Keep animals or birds in the Leased Space.
b. Use the rooms as sleeping apartments.
c. Allow any sign, advertisement or notice to be fixed to the Leased
Space or Building, inside or outside, without Landlord's consent.
d. Make improper noises or disturbances of any kind; sing, play or
operate any musical instrument, radio or television or otherwise do anything to
disturb other tenants or tend to injure the reputation of the Building.
e. Mark or defile water closets, toilet rooms, walls, windows, doors
or any other part of the Building.
f. Place anything on the outside of the Building, including room
setbacks, window ledges and other projections; or drop anything from the
windows, stairways or parapets; or place trash or other matter in the halls or
stairways of the Building.
g. Cover or obstruct any window, skylight, door or transom that
admits light.
h. Fasten any article, drill holes, drive nails or screws into the
walls, floors, woodwork, or partitions; nor shall the same be painted, papered
or otherwise covered by or in any way marked or broken with the exception of
hanging pictures without consent of Landlord.
HEALTHDRIVE LEASE 09/20/96 42
<PAGE>
EXHIBIT "C"
i. Interfere with the heating or cooling apparatus.
j. Allow anyone but Landlord's employees to clean the Leased Space,
without Landlord's consent.
k. Install any shades, blinds, or awnings without consent of
Landlord.
l. Use any electric heating device without permission of Landlord.
m. Install call boxes, or any kind of wire in or on the Building
without Landlord's permission and direction which shall not be unreasonably
withheld.
n. Manufacture any commodity, or prepare or dispense any foods or
beverages, tobacco, drugs, flowers, or other commodities or articles without the
consent of Landlord. It is understood that Tenant shall have the right to
kitchen and lunchroom facilities for its employees.
o. Give its employees or other persons permission to go upon the
roof of the Building without the consent of Landlord.
PUBLICITY
6. Tenant shall not use the name of the Building in any way in connection
with its business except as the address thereof. Landlord shall also have the
right to prohibit any advertising by Tenant, which, in its opinion, tends to
impair the reputation of the Building or its desirability as a building for
offices; and upon written notice from Landlord, Tenant shall refrain from or
discontinue such advertising.
NO SMOKING
7. Smoking or carrying a lighted cigar, cigarette or pipe is prohibited
(not permitted) anywhere in the Building, including the
HEALTHDRIVE LEASE 09/20/96 43
<PAGE>
EXHIBIT "C"
Leased Space. Tenant will inform their employees, guests and invitees of this
provision of the Lease and will use their best efforts to see that this
prohibition is observed.
REGULATION CHANGES
8. Landlord shall have the right to make such other and further reasonable
rules and regulations as in the judgement of Landlord and as are consistent with
those for all other tenants in the Building and which do not materially impair
the operation of Tenant's business, may from time to time be needful for the
safety, appearance, care, and cleanliness of the Building and for the
preservation of good order therein. Landlord shall not be responsible to Tenant
for any violation of rules and regulations by other tenants.
HEALTHDRIVE LEASE 09/20/96 44
<PAGE>
Exhibit 10.14
L E A S E
THIS LEASE, made this 2nd day of July, 1996 by and between G & N
INVESTMENT COMPANY, hereinafter referred to as Lessor, and HEALTHDRIVE
CORPORATION, hereinafter referred to as Lessee:
W I T N E S S E T H :
1. The Lessor does hereby lease, demise and let unto the said Lessee the
following described premises in the City of Brookfield, Wisconsin, described as
follows:
3540 North 126 Street
Unit C
Exhibit "A"
To have and to hold the said demised premises unto the Lessee, its successors
and assigns for a term of 2 years commencing on the 1st day of August, 1996 and
ending on the 31st day of July, 1998. The Lessee shall pay for said demised
premises, a monthly rental of One Thousand Three Hundred Fifty Five and 00/100
($1,355.00) Dollars, in advance, beginning with the 1st day of August, 1996. If
possession is given earlier, rent will be paid accordingly for the extra period
of time occupied. The per diem charge will be Forty Five and 00/100 ($45.00).
In addition to the foregoing rental, Lessee shall pay to Lessor, as
additional rental, its pro rata share of any increase in real estate taxes
assessed against the land and building of which the demised premises is a part
over and above the base amount computed by multiplying the tax rate established
in December, 1996 by the assessed value of the property after the property is
fully assessed.
In addition thereto, Lessee shall pay one percent (1%) each month for the
remainder of the term of the lease of its pro rata share of the amount of any
special assessments levied against the land and building of which the demised
premises is a part.
In each case, the pro rata share (3.64%) payable by Lessee shall be based
on the ratio of the total number of square feet of floor space in the demised
premises hereunder to the total number of square feet of floor space in the
entire building. Tax bills shall be sufficient evidence of the amount of such
taxes and shall be used for the calculation of the amount paid by the Lessee.
The amount of additional rent due from Lessee to Lessor under this paragraph for
each calendar year shall be billed by Lessor to Lessee on or about the first day
of January of the following year, and shall be payable with the rent due on
February 1st of such following year, without any setoff or counterclaim
whatever.
Lessee agrees to deposit with the Lessor, as security for the full and
faithful performance by the Lessee of all the covenants, terms and conditions of
this indenture
<PAGE>
of lease to be performed by it, a sum of One Thousand Three Hundred Fifty Five
and 00/100, ($1,355.00) Dollars. The sum so deposited shall be retained by
Lessor until the termination of this lease, if the Lessee is not in default in
any of the terms hereof, such sum shall be returned to the Lessee at the
expiration of the term thereof. The parties hereto acknowledge that said sum
will be deposited in Lessor's general funds.
2. Lessor shall, during the term of this lease, make any and all necessary
repairs to the roof and exterior walls of the demised premises, and provide
reasonable snow removal from common areas.
3. Lessee shall, during the term of this lease, keep the interior of said
demised premises in good repair excepting those referred to in paragraph 2
hereof, and will replace all broken glass, including plate glass, with glass of
the same size and quality. In addition, Lessee will maintain the heating plant,
blowers, plumbing system and electrical system in accordance with instructions
provided by the manufacturers thereof.
SEE ATTACHED (Page 9 #3).
If Lessee does not make the necessary repairs or does not perform the
necessary maintenance, then Lessor may upon written notice to Lessee, make such
repairs and perform such maintenance and charge the cost thereof to the Lessee.
In the event Lessee uses any form of equipment or process where special
ventilating provisions should be made. neither the Lessor nor the heating
equipment manufacturer will guarantee heating equipment life or performance
unless such ventilating provisions have been made. Experience has shown that new
heating equipment life can be reduced to as little as one (1) year where special
ventilating provisions have not been made, if required.
Lessee agrees to keep the demised premises free of dirt, rubbish and
recycleables and will provide for the prompt removal thereof. All rubbish and
recycleables shall be kept in a wind proof container in a location as directed
by the Lessor. No outside storage will be permitted.
4. Lessee shall use the demised premises for any lawful purpose.
In the event insurance rates on the building insurance carried by Lessor
are increased over and above the present rates or normal rates based on the
location and type of building by reason of Lessee's operations or because of a
general increase in insurance rates, Lessee will pay the amount of such increase
in addition to all other payments herein required.
5. Except for companies affiliated with Lessee, Lessee will not directly
or indirectly permit the demised premises to be occupied or used in whole or in
part by any other person, firm or corporation, and will not sublet the same nor
any part thereof, nor assign this lease without in each case first obtaining the
written consent of the Lessor. Lessor agrees not to unreasonably withhold their
consent to any assignment or subletting.
- 2 -
<PAGE>
In the event such consent is given, Lessee shall remain liable to Lessor
for the payment of rent then due or to become due, and the performance of all
other obligations of Lessee hereunder for the balance of the demised term.
6. Lessee shall fully comply with all statutes, orders, regulations,
ordinances and requirements of law now in effect of the Federal Government, the
State of Wisconsin, and any other municipal or public authority with
jurisdiction over the demised premises, including the Local Board of Fire
Underwriters, the Building, Fire and Health Departments and any other similar
body.
7. Hazardous Substances.
(a) Lessor warrants and represents, to the best of its knowledge,
that any use, storage, treatment or transportation of "Hazardous Substances" (as
hereinafter defined) which has occurred in, on or about the land, building or
premises prior to the date of this lease has been in compliance with all
"Environmental Laws" (as hereinafter defined). Lessor additionally warrants and
represents, that to the best of its knowledge, no release, leak, discharge,
spill, disposal or emmission of Hazardous Substances has occurred in, on or
about the land, building or premises, and that the land, building and premises
are free of Hazardous Substances as of the date of this lease.
(b) Lessor shall indemnify and hold harmless, the Lessee from any
and all claims, damages, fines, judgements, penalties, costs, expenses or
liabilities (including, without limitation, any and all sums paid for settlement
of claims, attorneys' fees, consultant and expert fees) arising during or after
the term from or in connection with the presence or suspected presence of
Hazardous Substances in, on or about the land, building or premises, except to
the extent that the Hazardous Substances are present as a result of acts of
Lessee, Lessee's agents, employees, contractors or invitees.
(c) Lessee shall not cause or permit any Hazardous Substances to be
used, stored, generated or disposed of in, on or about the land, building or
premises by Lessee, its agents, employees, contractors or invitees, except for
such Hazardous Substances as are normally utilized in the environment of
Lessee's intended use and are necessary to Lessee's business and have been
approved, in writing, by Lessor. Any such Hazardous Substances permitted on the
premises as hereinabove provided, and all containers therefore, shall be used,
kept, stored and disposed of in a manner that complies with all Environmental
Laws. Lessee shall indemnify and hold harmless the Lessor from any and all
claims, damages, fines, judgements, penalties, costs, expenses or liabilities
(including, without limitation, any and all sums paid for settlement of claims,
attorneys' fees, consultant and expert fees) arising during or after the term
from or in connection with the use, storage, generation or disposal
- 3 -
<PAGE>
of Hazardous Substances in, on or about the land, building or premises by
Lessee, Lessee's agents, employees, contractors or invitees. Lessor hereby
approves of Lessee's lawful generation, use, handling, storage, and/or disposal
of medical or infectious medical waste.
(d) Notwithstanding anything to the contrary stated hereinabove, the
indemnifications contained in subparagraphs (b) and (c) above, shall not include
any consequential damages (e.g. loss of rent, use and profits) incurred by
either Lessor or Lessee, but shall expressly include, without limitation, any
and all costs incurred due to any investigation of the site or any cleanup,
removal or restoration mandated by or pursuant to any Environmental Laws. The
indemnifications contained herein shall survive any expiration or termination of
the term.
(e) As used herein, "Hazardous Substances" means any substance which
is toxic, ignitable, reactive, or corrosive or which is regulated by
"Environmental Laws". The term "Environmental Laws" means federal, state and
local laws and regulations, judgements, orders and permits governing safety and
health and the protection of the environment including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. 9601 et seq., as amended (CERCLA), the Resource Conservation and Recovery
Act, as amended 42 U.S.C. 6901 et seq., the Clean Water Act, 33 U.S.C. 1251 et
seq., the Clean Air Act, 42 U.S.C. 7401 et seq., the Toxic Substance Control
Act, 15 U.S.C. 2601 et seq., and the Safe Drinking Water Act, 42 U.S.C. 300f
through 300j. "Hazardous Substances" includes any and all materials or
substances which are defined as "hazardous waste", "extremely hazardous waste"
or a "hazardous substance" pursuant to state, federal or local governmental law.
"Hazardous Substances" also includes asbestos, polychlorinated biphenyls
("PCBs") and petroleum products.
8. Lessee will pay, in addition to the rent, all sewer rents, gas,
electric light and power bills taxed, levied or charged against the said demised
premises.
Lessee agrees to pay any and all personal property taxes assessed upon the
merchandise, fixtures or other property maintained by Lessee on the demised
premises.
Lessee further agrees to pay all charges for heating the demised premises.
9. Lessee will allow Lessor and its agents free access to the demised
premises at reasonable times, and with reasonable frequency, for the purpose of
inspecting the same, making such repairs which Lessor may see fit to make, and
to exhibit the demised premises to prospective purchasers.
Lessee will permit the usual "For Rent" and/or "For Sale" signs to be
placed upon the demised premises at any time during the six (6) months next
preceding the expiration of the term hereof.
10. It is mutually agreed between the parties hereto:
(a) That in case the building located on the demised premises, at
the commencement
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<PAGE>
of the term of this lease, shall be damaged or partially destroyed by fire, the
elements or other casualty (meaning thereby less than fifty percent (50%) of the
value of the building, based on the replacement cost thereof), the same shall
be repaired as speedily as possible by and at the expense of the Lessor; and if
such damage or partial destruction shall render a portion of the demised
premises unfit for the use herein let, the rent hereunder shall abate
proportionately to the percentage of the floor space rendered untenantable or
unfit for use, from the date of such damage until restoration is completed.
SEE ATTACHED (Page 9, #10a.)
(b) In the event such damage to the building shall be fifty percent
(50%) or greater of the value to the building based on the replacement cost
thereof, either party shall have the right for a period of thirty (30) days from
the date of such damage to terminate this lease. Such termination shall be
effected by notifying the other party in writing, which notice shall be served
or be given by registered or certified mail to the last known address of said
other party. Upon the giving of such notice, this lease shall be terminated and
cancelled, and the demised premises surrendered by the Lessee as of the date of
said damage, and any advance rentals which may have been heretobefore paid by
the Lessee shall be repaid to the Lessee from and after the date of such damage.
SEE ATTACHED (Page 9, #10a)
In the event neither party gives such notice to terminate to the other,
the building shall be repaired as speedily as possible by and at the expense of
the Lessor; and if such damage or partial destruction shall render a portion of
the demised premises unfit for the use herein let, the rent hereof shall abate
proportionately to the percentage of floor space rendered untenantable or unfit
for use from the date of such damage, until restoration is completed.
(c) In connection with any such repair or restoration of the demised
premises by reason of such casualty or damage, Lessor shall not be liable for
any delays occasioned by strikes, riots, acts of God, national emergency, or
other causes beyond Lessor's control.
(d) As between the parties hereto, the same rule shall apply to a
legal condemnation of the demised premises by the United States Government, or
any instrumentality thereof, or by any governmental body or public service
corporation.
(e) SEE ATTACHED (Page 9, #10e.)
11. Lessor agrees to pay all real estate taxes assessed against said
demised premises, except as provided in Paragraph 1 hereof, and to procure and
maintain, at its expense, fire insurance in a reasonable amount with or without
extended coverage or co-insurance, as they may decide, against loss or damage by
fire or other casualty of the basic building structure.
Lessee will procure and maintain fire insurance with extended coverage,
covering all of its equipment, fixtures. merchandise and other property located
within said demised premises including the interior decorating in an amount
equal to at least eighty percent
- 5 -
<PAGE>
(80%) of the value thereof and public liability insurance naming both Lessor and
Lessee as the insured thereunder against injury to person and property and loss
of life sustained in or upon the demised premises with limits of at least Three
Hundred Thousand ($300,000.00) Dollars for one person and Five Hundred Thousand
($500,000.00) Dollars for any number of persons injured or killed in one
accident, and Three Hundred Thousand ($300,000.00) Dollars for property damage.
Lessee shall deposit with Lessor proof of the existence and maintenance of the
said insurance policies.
12. Lessee agrees to protect and hold Lessor harmless and indemnified from
and against any and all claims, demands, actions, suits, judgements, decrees,
orders, liabilities, or expense, including attorney's fees and disbursements
arising out of or on account of any damage or injuries, including wrongful death
sustained or claimed to have been sustained to any person or property in or upon
the demised premises by any person whatsoever unless the same shall be directly
due to the negligence of Lessor or its agents. Lessor shall not be liable for
damage to person or property sustained by Lessee or any other persons, however,
such damage may have been caused, unless caused by Lessor's negligence. In case
any action or proceeding is brought against Lessor by reason of the
aforementioned causes, Lessee, upon receiving prompt written notice from Lessor,
agrees to defend such action or proceeding.
13. Upon the termination or cancellation of this lease at any time and for
any reason, Lessee will peacefully surrender possession of the demised premises
and Lessee further agrees to return the demised premises in the same condition
as they existed at the date of Lessee's occupancy, except for ordinary wear and
tear, subject to the other provisions of this lease.
In the event Lessee shall default or breach any of the covenants or
agreements herein contained, or if this lease shall, by act of the Lessee, or by
operation of law or otherwise, devolve or pass to any party other than Lessee,
except with the written consent of Lessor, or if the Lessee shall be adjudged
bankrupt or insolvent, make as assignment for the benefit of creditors, or if a
receiver or trustee is appointed for Lessee's property, or if Lessee shall
abandon the demised premises, the Lessor may elect, at its option and without
notice, to terminate this lease. Upon the occurence of any of the above events,
the Lessor, at its sole option, may elect to terminate the Lessee's right to
possession without terminating the lease, may retake possession of the demised
premises without prejudice to any other remedies which they might have. Such
termination of possession without termination of the lease shall not affect the
liability of the Lessee under this lease.
SEE ATTACHED (Page 9, #13.)
All rights and remedies of the Lessor shall be deemed nonexclusive
and shall be cumlative. The failure of Lessor to insist upon strict performance
of any term, covenant or condition hereof shall not be deemed a waiver of its
other rights or remedies, and shall
- 6 -
<PAGE>
not be deemed a waiver of any subsequent breach or default.
14. Upon the termination or cancellation of this lease, Lessee shall have
the right and privilege to remove from the demised premises all furniture,
fixtures and other property placed thereon by Lessee. Lessee agrees that it
will, at its own expense, repair any damage to the building caused by such
removal.
15. Lessor and Lessee shall not be liable for delay caused by strikes,
riots, acts of God, national emergencies, acts of a public enemy, difficulty in
obtaining materials or other causes beyond Lessor's or Lessee's control in
performing any of the covenants required to be performed by Lessor or Lessee,
except the payment of rent and other sums to be paid by Lessee hereunder.
16. This lease shall not be a lien against said demised premises in
respect to any mortgage that may hereinafter be placed against said demised
premises, and the recording of such mortgage or mortgages shall give them
preference and precedence and make them superior and prior in lien to this lease
in all respects, irrespective of the date of recording, except that if the
Lessee is not in default relative to the terms of this lease, said mortgage or
mortgages will be made subject to Lessee's right to possession of the demised
premises at the rent herein reserved. Lessee agrees to execute any such
instrument as may be required, without cost to further effect subordination of
this lease to any such mortgage or mortgages. Lessee acknowledges that it will
not look to any mortgagee(s) for the repayment of any sums not directly paid to
said mortgagee(s) by the Lessee.
17. Lessor and Lessee agree that in the event. Lessee fails to comply
with the provisions of paragraph 3, paragraph 8 or paragraph 11, Lessor may make
such expenditures, pay such utility charges, and effect such insurance and pay
the premiums therefore and any amounts so paid by Lessor shall become
immediately due and payable by Lessee and in the event of nonpayment thereof,
shall bear interest at the rate of one percent (1%) per month from and after the
date of such expenditure or payment.
18. Lessor and Lessee further agree that in the event Lessee, at any time
during the term hereof, is in default in the payment of rent, Lessor shall have
the right to charge interest at the rate of one percent (1%) per month
commencing on the eleventh day after rent is due and continuing until rent
payments are current. Lessee hereby agrees to pay said interest upon
notification by Lessor.
19. The Lessee agrees that no signs or advertising will be attached to or
erected on the building or demised premises without the written approval of the
Lessor. Lessor agrees to provide a directory at the entrance to the above
described property and a sign on the front entrance displaying the Lessee's
name as shown in this lease.
- 7 -
<PAGE>
20. The term "Lessee" as used herein shall also mean Lessees where
applicable.
21. The Lessee agrees that: In the event of the employment of an attorney
by Lessor for the collection of any amount due under this lease, or for the
institution of any suit for possession of the demised premises, or for advice or
service incident to the breach of any of the conditions of this lease by Lessee,
or because Lessor is made a party to any litigation commenced by or against the
Lessee; the Lessee will pay all costs, expenditures, and reasonable attorney
fees incurred by or imposed on the Lessor. Such costs, expenditures and legal
fees shall be considered as so much additional rent and will be due on the next
rent day after they have been incurred by Lessor, together with interest at one
percent (1%) per month from such next rent day, and shall be collected as any
other rent due under the terms of this lease.
22. Concurrently, with the signing of this Lease, Lessor agrees to execute
a Consent to Assignment and Waiver of Liens substantially in the form of Exhibit
"B" attached hereto in favor of Lessee's bank as required under Lessee's line of
credit.
23. SEE ATTACHED (Page 9 #23).
IN WITNESS WHEREOF, the parties hereto have caused this lease to be
executed by their duly authorized officers and their corporate seals affixed, or
(if Lessee is not a corporation) Lessee has hereunto set his hand and seal all
on the day and year first written above.
G & N INVESTMENT COMPANY LESSOR
----------------------------------
In the presence of:
/s/ Lori A. Vetrone By: /s/ Gerald A. Nell (Seal)
- ----------------------------- ------------------------------
Gerald A. Nell
HEALTHDRIVE CORPORATION LESSEE
----------------------------------
/s/ Robert J. Lucci By: /s/ Robert D. McIvor (Seal)
- ----------------------------- ------------------------------
its C.O.O.
/s/ Unintelligible Attest: /s/ Unintelligible (Seal)
- ----------------------------- ---------------------------
its Secretary
-8-
<PAGE>
3. Lessor shall be responsible for all repairs and replacements due to
normal wear and tear unless same was due to negligence of the Lessee.
10. (a) Notwithstanding the fact that only a portion of the demised
premises may be unfit for use by Lessee, if the Lessee is unable to conduct its
business as usual in the demised premises the rent hereunder shall abate fully.
10. (e) Notwithstanding anything contained in this section 10 or this
lease to the contrary, if as a result of any destruction or damage to the
building or the demised premises Lessee is unable to use the demised premises
for its intended purpose for a period of sixty (60) days from the date of such
destruction of damage, then Lessee may, at its option, terminate this lease.
13. Notwithstanding the above, Lessor must notify Lessee in writing of any
such default or breach and give Lessee ten (10) days to cure same. In the event
that Lessee cures such default or breach, Lessor may not terminate this lease
which shall remain in force as if no default or breach had occurred.
23. The parties hereto agree that the Lessee may, in its discretion,
extend the term of this Lease for three (3) additional one (1) year terms upon
the terms, covenants and conditions in existence during the original term;
except that the Lessor reserves the right to increase the monthly rental to the
then current rental for similarly situated premises. The Lessee shall give the
Lessor sixty (60) days written notice prior to the end of a term of its
intention to exercise these options. The parties agree that each option shall
expire upon its exercise.
-9-
<PAGE>
[DIAGRAM OMITTED]
Exhibit "A"
3540 N. 126 Street
Unit C
1,600 Sq. Ft.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 8, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 15
<SECURITIES> 0
<RECEIVABLES> 2,082
<ALLOWANCES> 349
<INVENTORY> 0
<CURRENT-ASSETS> 1,969
<PP&E> 2,052
<DEPRECIATION> 1,309
<TOTAL-ASSETS> 2,713
<CURRENT-LIABILITIES> 1,258
<BONDS> 56
1,950
0
<COMMON> 20
<OTHER-SE> (571)
<TOTAL-LIABILITY-AND-EQUITY> 2,713
<SALES> 0
<TOTAL-REVENUES> 12,930
<CGS> 0
<TOTAL-COSTS> 8,213
<OTHER-EXPENSES> 4,602
<LOSS-PROVISION> 809
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> 55
<INCOME-TAX> 0
<INCOME-CONTINUING> 55
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55
<EPS-PRIMARY> .03
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