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Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 25, 1999
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InterDent, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 000-25549 95-4710504
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(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
222 North Sepulveda Boulevard, Suite 740, El Segundo, California 90245-4340
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (310) 765-2400
N/A
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(Former name or former address, if changed since last report)
Item 5. Other Events.
InterDent, Inc. (the "Company") announced that it has entered into an
Agreement and Plan of Merger pursuant to which a newly formed entity, to be
owned by an acquiring group which includes Green Equity Investors III, L.P.,
certain of the Company's significant noteholders and stockholders and members
of the Company's management, will merge with and into the Company, with the
Company as the surviving corporation. In the merger, the Company's
stockholders, other than the stockholders participating in the acquiring
group, will receive $9.50 per share in cash for each outstanding share of the
Company's Common Stock.
The merger agreement was approved by the Board of Directors of the Company
following the unanimous recommendation by a special committee of independent
directors. Deutsche Bank Securities Inc. is acting as financial advisor to the
Special Committee and has rendered its opinion to the Special Committee that, as
of the date of such opinion, the cash consideration to
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be received in the merger by the Company's stockholders (other than stockholders
participating in the newly formed entity) is fair from a financial point of
view.
Consummation of the merger is subject to, among other things, (i) approval by
the holders of at least a majority of the Company's outstanding capital stock
entitled to vote on the merger, (ii) receipt of financing for the transaction
as provided in the merger agreement and (iii) receipt of all necessary
regulatory and third party approvals. The merger is currently expected to be
completed in the first quarter of 2000.
The merger agreement, filed herewith as Exhibit 2.1 and the Company's press
release, filed herewith as Exhibit 99.1, are each incorporated herein by
reference.
Item 7. Financial Statements and Exhibits.
(c) Exhibits:
The following exhibits are filed as part of this report:
2.1 Agreement and Plan of Merger, by and between ID Recap, Inc.
and InterDent, Inc., dated October 22, 1999.
99.1 Press Release of the Company, dated October 22, 1999.
SIGNATURE
Pursuant to the requirements of Section 13 and 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned hereunto duly authorized.
INTERDENT, INC.
Dated: October 22, 1999 By: /s/ Michael T. Fiore
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Michael T. Fiore
Co-Chairman and Chief
Executive Officer
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Exhibit Index
EXHIBIT NO. DESCRIPTION
2.1 Agreement and Plan of Merger, by and between ID Recap, Inc.
and InterDent, Inc., dated October 22, 1999.
99.1 Press Release of the Company, dated October 22, 1999.
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AGREEMENT AND PLAN OF MERGER
By and Between
ID RECAP, INC.,
a Delaware corporation
and
INTERDENT, INC.
a Delaware corporation
Dated as of October 22, 1999
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER is entered into as of October 22, 1999
by and between ID Recap, Inc., a Delaware corporation ("Recap") wholly owned by
Green Equity Investors III, L.P. ("GEI"), and InterDent, Inc., a Delaware
corporation (together with its Subsidiaries from time to time (except as the
context may otherwise require), the "Company"), with respect to the following
facts and circumstances:
A. The Special Committee of the Company, the Board of Directors of
the Company and the Board of Directors of Recap have each determined that it is
advisable and in the best interests of its respective stockholders to effect the
Merger of Recap with and into the Company upon the terms and subject to the
conditions set forth herein.
B. Pursuant to the Merger, all shares of capital stock of the
Company (other than Dissenting Shares and shares held by Recap or in the
Company's treasury) shall be cancelled and converted automatically into the
right to receive an amount in cash per share, without interest, as set forth in
Section 2.2 of this Agreement.
C. Concurrently with the execution and delivery of this Agreement
and in order to induce Recap to enter into this Agreement, Recap and certain
Rollover Holders (defined below) are entering into Voting Agreements in the form
attached hereto as EXHIBIT A, pursuant to which, among other things, the
Rollover Holders will agree to vote their shares of the Company in favor of the
Merger.
D. In connection with the transactions contemplated by the Merger,
certain members of management of and certain investors in the Company (the
"Rollover Holders") have entered into Exchange and Subscription Agreements in
the form attached hereto as EXHIBIT B (the "Exchange Agreement") with Recap,
pursuant to which the Rollover Holders will exchange a portion of their Existing
Shares (the "Rollover Shares") of the Company for shares of Recap prior to the
closing of the Merger (the "Recapitalization").
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants contained herein and intending to be
legally bound, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.1. CERTAIN TERMS. For all purposes of this Agreement, except as
otherwise expressly provided:
(a) the terms defined in this Article I have the meanings
assigned to them in this Article I and include the plural as well as the
singular;
(b) all accounting terms not otherwise defined herein have
the meanings assigned under GAAP;
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(c) all references in this Agreement to designated
"Articles," "Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of the body of this Agreement;
(d) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms;
(e) the words "include," "includes" and "including" shall be
deemed in each case to be followed by the words "without limitation";
(f) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision; and
(g) the term "party" or "parties" when used herein refer to
Recap, on the one hand, and the Company, on the other.
1.2. DEFINITIONS. As used in this Agreement and the Exhibits and
Schedules delivered pursuant to this Agreement, the following definitions shall
apply:
(a) "Acquisition Proposal" has the meaning set forth in
Section 7.5 hereof.
(b) "Action" means any action, complaint, petition,
investigation, suit, litigation or other proceeding, whether civil or criminal,
in law or in equity, or before any court, tribunal, arbitrator or Governmental
Entity.
(c) "Affiliate" means, with respect to any person or entity,
any person or entity directly or indirectly controlling, controlled by or under
common control with such person or entity.
(d) "Agreement" means this Agreement, as amended or
supplemented, together with all Exhibits and Schedules attached or incorporated
by reference, in each case as amended or supplemented.
(e) "Approval" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from or made with, or any notice, statement or other
communication required to be filed with or delivered to, any Governmental Entity
or any other Person.
(f) "Assets" of a Person shall mean all of the assets,
properties, businesses and rights of such Person of every kind, nature,
character and description, whether real, personal or mixed, tangible or
intangible, accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether or not
carried on the books and records of such Person, and whether or not owned in the
name of such Person or any Affiliate of such Person and wherever located.
(g) "Balance Sheet" has the meaning set forth in Section
5.12.
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(h) "Business Day" means any day that is not a Saturday,
Sunday or legal holiday in the State of California.
(i) "Certificate" has the meaning set forth in Section 4.1
hereof.
(j) "Certificate of Merger" has the meaning set forth in
Section 2.1(b) hereof.
(k) "Closing" has the meaning set forth in Section 3.1
hereof.
(l) "Closing Date" means the date and time of the Closing.
(m) "Code" means the Internal Revenue Code of 1986, as
amended.
(n) "Common Stock" means the Company's common stock, no par
value.
(o) "Company" means InterDent, Inc., a Delaware corporation
(together with its Subsidiaries from time to time (except as the context may
otherwise require)).
(p) "Company Benefit Plans" has the meaning set forth in
Section 5.14(a).
(q) "Company Board" means, as applicable, the Board of
Directors and/or the Special Committee of the Board of Directors of the Company.
(r) "Company Computer System" has the meaning set forth in
Section 5.16.
(s) "Company Employees" has the meaning set forth in Section
5.14(a).
(t) "Company Pension Plan" has the meaning set forth in
Section 5.14(b).
(u) "Company Performance Shares" has the meaning set forth
in Section 5.3.
(v) "Company Plans" has the meaning set forth in Section
5.14(b).
(w) "Company Proxy Statement" has the meaning set forth in
Section 7.9 hereof.
(x) "Company SEC Reports" means all of the forms,
statements, schedules, reports and other documents filed or required to be filed
by the Company or any Subsidiary with the SEC since December 31, 1996.
(y) "Convertible Notes" means the Company's 7% convertible
subordinated notes issued on May 18, 1998 and June 3, 1998 pursuant to the
Securities Purchase Agreement dated May 12, 1998.
(z) "DGCL" means the Delaware General Corporation Law.
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(aa) "Dissenting Shares" has the meaning set forth in Section
2.4.
(bb) "Earn Out Shares" means the shares of capital stock of
the Company that the Company is obligated to issue to a third party in
connection with or arising from any earn out payments, including but not limited
to those parties and obligations identified on Schedule 5.3.
(cc) "Effective Time" has the meaning set forth in Section
2.1(b) hereof.
(dd) "Encumbrance" means any charge, encumbrance, security
interest, lien, option, equity, adverse claim or restriction, except for any
restrictions on transfer generally arising under any applicable Law.
(ee) "Environmental Law" has the meaning set forth in Section
5.17(b) hereof.
(ff) "ERISA" means the Employee Retirement Income Security
Act of 1934, as amended.
(gg) "ERISA Affiliate" has the meaning set forth in Section
5.14(c) hereof.
(hh) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(ii) "Exchange Agreement" means the exchange and subscription
agreement in the form attached hereto as EXHIBIT B.
(jj) "Exchange Ratio" has the meaning set forth in Section
2.2(h) hereof.
(kk) "Existing Shares" means all of the Company's issued and
outstanding Common Stock, Series A Preferred Stock, Series B Preferred Stock (if
any), Series C Preferred Stock (if any) and Series D Preferred Stock.
(ll) "Expenses" has the meaning set forth in Section 9.3
hereof.
(mm) "Financing" has the meaning set forth in Section 6.5.
(nn) "Financing Letters" has the meaning set forth in Section
6.5.
(oo) "GAAP" means generally accepted accounting principles in
the United States, as in effect from time to time, consistently applied.
(pp) "GEI" has the meaning set forth in the preamble.
(qq) "Governmental Entity" means any government or any
agency, bureau, board, commission, court, department, official, political
subdivision, tribunal or other instrumentality of any government, whether
federal, state or local, domestic or foreign.
(rr) "Hazardous Substance" has the meaning set forth in
Section 5.17(b) hereof.
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(ss) "H-S-R Act" has the meaning set forth in Section 7.6(a)
hereof.
(tt) "Indebtedness" means all obligations for borrowed money
and accounts payable, however evidenced, including principal and interest.
(uu) "Indemnified Party" has the meaning set forth in Section
7.13.
(vv) "Insurance Policies" has the meaning set forth in
Section 5.20.
(ww) "Knox-Keene Act" has the meaning set forth in Section
8.3.14.
(xx) "Law" means any statute, rule, regulation,
administrative requirement, code or ordinance of any Governmental Entity.
(yy) "Leased Real Estate" has the meaning set forth in
Section 5.24(b).
(zz) "Liabilities" means all liabilities, obligations, debts
and expenses whatsoever of the business of the Company, whether matured or
unmatured, liquidated or unliquidated, fixed or contingent.
(aaa) "Material Adverse Effect" means a material adverse
effect on (i) the ability of the subject Person to perform its obligations
under, and consummate the transactions contemplated by this Agreement on a
timely basis or (ii) the condition (financial or otherwise), results of
operations, assets, liabilities, prospects or business of the subject Person and
its Subsidiaries taken as a whole.
(bbb) "Merger" has the meaning set forth in Section 2.1(a) of
this Agreement.
(ccc) "Merger Consideration" means all of the cash paid to the
holders of the Existing Shares and the holders of Convertible Notes, Options and
Warrants pursuant to Article II hereof.
(ddd) "New Financing Letters" has the meaning set forth in
Section 6.5.
(eee) "Notice of Superior Proposal" has the meaning set forth
in Section 7.5(b).
(fff) "Options" means the options to purchase shares of
capital stock of the Company.
(ggg) "Order" means any decree, injunction, judgment, order,
ruling, arbitration award, assessment or writ issued by any Governmental Entity.
(hhh) "Owned Real Estate" has the meaning set forth in Section
5.24(a).
(iii) "Paying Agent" has the meaning set forth in Section
2.3(a) hereof.
(jjj) "Permit" means any license, permit, franchise or
authorization.
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(kkk) "Permitted Acquisitions" has the meaning set forth in
Section 7.1(d) hereof.
(lll) "Permitted Encumbrances" means (i) Encumbrances
disclosed on SCHEDULE 1.2(lll) hereto, (ii) liens for Taxes, assessments,
governmental charges or levies or mechanics' and other statutory liens which are
not material in amount relative to the property affected, and which are not yet
delinquent or can be paid without penalty or are being contested in good faith
and by appropriate proceedings in respect thereof, and (iii) imperfections of
title which are not substantial in amount relative to the property affected and
which do not materially interfere with the present use of the property subject
thereto or affected thereby.
(mmm) "Person" means an association, a corporation, an
individual, a partnership, a limited liability company or limited liability
partnership, a trust or any other entity or organization, including a
Governmental Entity.
(nnn) "Preferred Stock" means the Company's Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D
Preferred Stock.
(ooo) "Preliminary Termination Fee" has the meaning set forth
in Section 9.3.
(ppp) "Recap" means ID Recap, Inc., a Delaware corporation.
(qqq) "Recapitalization" has the meaning set forth in the
recitals.
(rrr) "Representatives" means Persons acting on behalf of
another Person, including such Person's officers, directors, employees,
representatives, agents, independent accountants, investment bankers and
counsel.
(sss) "Rollover Holders" has the meaning set forth in the
recitals.
(ttt) "Rollover Options" means the Options issued under the
Stock Options Plans set forth on SCHEDULE 1.2(ttt), that will continue in the
Surviving Corporation; provided, however, the excess of the aggregate cash
amount that would be paid with respect to the Existing Shares subject to such
Options, if the Options were exercised, over the aggregate exercise price with
respect to such Options shall not exceed $2,330,000.
(uuu) "Rollover Shares" has the meaning set forth in the
recitals.
(vvv) "SEC" means the United States Securities and Exchange
Commission.
(www) "SEC Reports" has the meaning set forth in Section
5.6(a).
(xxx) "Securities Act" means the Securities Act of 1933, as
amended.
(yyy) "Series A Preferred Stock" means the Series A Preferred
Stock, no par value of the Company.
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(zzz) "Series B Preferred Stock" means the Series B Preferred
Stock, no par value of the Company.
(aaaa) "Series C Preferred Stock" means the Series C Preferred
Stock, no par value of the Company.
(bbbb) "Series D Preferred Stock" means the Series D Preferred
Stock, no par value of the Company.
(cccc) "Service" means the Internal Revenue Service or any
successor entity.
(dddd) "Special Committee" means the special committee of the
Board of Directors of the Company established to consider the fairness of the
transaction as contemplated by this Agreement.
(eeee) "Special Meeting" has the meaning set forth in Section
7.10 hereof.
(ffff) "Stock Option Plans" means, collectively, the InterDent,
Inc. 1999 Stock Incentive Plan, the InterDent, Inc. Employee Stock Purchase Plan
of 1999, the InterDent, Inc. Dental Professional Stock Purchase Plan of 1999,
Gentle Dental Service Corporation 1993 Stock Incentive Plan, as amended on June
4, 1998, Dental Care Alliance, Inc. 1997 Executive Incentive Compensation Plan,
Dental Care Alliance, Inc. 1997 Non-Qualified Stock Option Plan, GMS Dental
Group, Inc. 1996 Stock Option Plan and GMS Dental Group, Inc. 1996 Performance
Stock Option Plan.
(gggg) "Subsidiary" of a company means any Person in which such
company has a direct or indirect equity or ownership interest by vote or value
of in excess of 50%. Subsidiaries of the Company shall include, but not be
limited to, Gentle Dental Service Corporation, a Delaware corporation, and
Dental Care Alliance, Inc., a Delaware corporation, for all purposes except
where the context otherwise requires; provided, however, that dental practices
managed (but not owned) by InterDent, Inc. or any of its Subsidiaries shall not
be included within the definition of a "Subsidiary" for purposes of the
Agreement.
(hhhh) "Superior Proposal" has the meaning set forth in
Section 7.5(d) hereof.
(iiii) "Surviving Corporation" has the meaning set forth in
Section 2.1(a) hereof.
(jjjj) "Takeover Statute" has the meaning set forth in Section
7.15 hereof.
(kkkk) "Tax" or "Taxes", as the context may require, include:
(i) any income, alternative or add-on minimum tax, gross income, gross receipts,
franchise, profits, sales, use, ad valorem, business license, withholding,
payroll, employment, excise, stamp, transfer, recording, occupation, premium,
property, value added, custom duty, severance, windfall profit or license tax,
governmental fee, including estimated taxes relating to any of the foregoing, or
other similar tax or other like assessment or charge of similar kind whatsoever
together with any interest and any penalty, addition to tax or additional amount
imposed by
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any Governmental Entity responsible for the imposition of any such Tax; or (ii)
any liability of a Person for the payment of any taxes, interest, penalty,
addition to tax or like additional amount resulting from the application of
Treas. Reg. Section 1.1502-6 or comparable provisions of any Governmental Entity
in respect of a consolidated or combined return.
(llll) "Tax Return" means any return (including any information
return), report, statement, schedule, notice, form, or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Entity in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any Law
relating to any Tax.
(mmmm) "Termination Fee" shall have the meaning set forth in
Section 9.3 hereof.
(nnnn) "Update Statements" has the meaning set forth in Section
7.7 hereof.
(oooo) "Voting Agreement" means the voting agreement in the
form attached hereto as EXHIBIT A.
(pppp) "Warrants" means the warrants to purchase shares of
capital stock of the Company.
(qqqq) "Year 2000 Compliant" has the meaning set forth in
Section 5.16.
ARTICLE II.
THE MERGER
2.1. THE MERGER.
(a) At the Effective Time, Recap shall be merged with and
into the Company in accordance with DGCL and the terms and conditions hereof
(the "Merger"). Upon consummation of the Merger, the separate existence of
Recap shall cease and the Company shall be the surviving corporation (the
"Surviving Corporation").
(b) As soon as practicable after the Closing, the Company
will file a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware in accordance with DGCL and make all
other filings or recordings required by Law in connection with the Merger. The
Merger shall become effective at such time as the Certificate of Merger is filed
with the Secretary of State of the State of Delaware or at such later time as is
specified in the Certificate of Merger (the "Effective Time").
(c) The Merger shall have the effects set forth in Sections
251, 259 and 261 of DGCL.
2.2. MERGER CONSIDERATION AND CANCELLATION OF EXISTING SHARES AND
CONVERTIBLE NOTES. At the Effective Time, pursuant to this Agreement and by
virtue of the Merger and without any action on the part of Recap, the Company,
or the holders of any of the following securities:
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(a) Each share of Common Stock issued and outstanding
immediately prior to the Effective Time (including shares of Common Stock issued
upon exercise of options, warrants and other convertible securities of the
Company, including the Company's convertible securities pursuant to that certain
Securities Purchase Agreement dated May 12, 1998, by and among Gentle Dental
Service Corporation and the Purchasers set forth on SCHEDULE 1 to that
agreement), other than any Dissenting Shares and shares to be cancelled pursuant
to Section 2.2(g), shall be cancelled and shall be converted automatically into
the right to receive an amount equal to $9.50 in cash, without interest, payable
to the holder thereof upon surrender of the certificate formerly representing
such share of Common Stock in the manner provided in Section 2.3;
(b) Each share of Series A Preferred Stock issued and
outstanding immediately prior to the Effective Time, other than any Dissenting
Shares and shares to be cancelled pursuant to Section 2.2(g), shall be cancelled
and shall be converted automatically into the right to receive $1 in cash,
without interest, payable to the holder thereof upon surrender of the
certificate formerly representing such share of Series A Preferred Stock in the
manner provided in Section 2.3;
(c) Each share of Series B Preferred Stock issued and
outstanding immediately prior to the Effective Time (if any such shares are
issued and outstanding), other than any Dissenting Shares and shares to be
cancelled pursuant to Section 2.2(g), shall be cancelled and shall be converted
automatically into the right to receive an amount equal $1,031.49 in cash,
without interest, payable to the holder thereof upon surrender of the
certificate formerly representing such share of Series B Preferred Stock in the
manner provided in Section 2.3, and the right to receive certain Warrants
pursuant to the terms of such Series B Preferred Stock shall be cancelled;
(d) Each share of Series C Preferred Stock issued and
outstanding immediately prior to the Effective Time (if any such shares are
issued and outstanding), other than any Dissenting Shares and shares to be
cancelled pursuant to Section 2.2(g), shall be cancelled and shall be converted
automatically into the right to receive $1 in cash, without interest, payable to
the holder thereof upon surrender of the certificate formerly representing such
share of Series C Preferred Stock in the manner provided in Section 2.3;
(e) Each share of Series D Preferred Stock issued and
outstanding immediately prior to the Effective Time, other than any Dissenting
Shares and shares to be cancelled pursuant to Section 2.2(g), shall be cancelled
and shall be converted automatically into the right to receive an amount equal
to $9.50 in cash, without interest, payable to the holder thereof upon surrender
of the certificate formerly representing such share of Series D Preferred Stock
in the manner provided in Section 2.3, and the right to receive certain Warrants
pursuant to the terms of such Series D Preferred Stock shall be cancelled;
(f) The Company's Convertible Notes issued and outstanding
immediately prior to the Effective Time, other than any Convertible Notes to be
cancelled pursuant to Section 2.2(g), shall be cancelled and shall be converted
automatically into the right to receive prepayment equal to 101% of the
outstanding principal amount (which includes any amounts payable in a change of
control) and any accrued but unpaid interest thereon, and the right to receive a
cash payment equal to $0.29 for each share of Common
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Stock that would be issued following exercise of the Warrants that would be
issued in a redemption of the Convertible Notes, in lieu of the right to receive
such Warrants pursuant to the terms of the Convertible Notes, which right to
receive such Warrant shall be cancelled;
(g) Each Existing Share and/or the Convertible Notes owned
by Recap or held in the treasury of the Company, if any, immediately prior to
the Effective Time shall be cancelled without any conversion thereof and no
payment or distribution shall be made with respect thereto.
(h) Each share of capital stock of Recap that is issued and
outstanding immediately prior to the Effective Time shall be converted into one
newly issued, fully paid and nonassessable share of capital stock, with
identical rights, preferences and privileges, of the Surviving Corporation (the
"Exchange Ratio").
(i) If between the date of this Agreement and the Effective
Time the number of outstanding shares of capital stock of the Company shall have
been changed into a different number of shares or a different class, by reason
of any stock dividend, subdivision, reclassification, recapitalization,
split-up, combination, exchange of shares or the like other than pursuant to the
Merger, the amount of the pro rata portion of the Merger Consideration and the
Exchange Ratio shall be correspondingly adjusted; provided, however, the
aggregate amount of the Merger Consideration shall remain unchanged.
2.3. PAYMENT OF CASH FOR EXISTING SHARES; CONVERTIBLE NOTES, OPTIONS
AND WARRANTS.
(a) At the Effective Time, the Surviving Corporation shall
irrevocably deposit or cause to be deposited with a paying agent appointed by
Recap with the Company's prior approval (the "Paying Agent"), as agent for the
holders of Existing Shares, Convertible Notes, Options and Warrants to be
cancelled in accordance with Sections 2.2, 2.5 and 2.6, cash in the aggregate
amount required to pay the Merger Consideration in respect of such securities
outstanding immediately prior to the Effective Time. Pending distribution
pursuant to Section 2.3(b) hereof of the cash deposited with the Paying Agent,
such cash shall be held in trust for the benefit of the holders of Existing
Shares, Convertible Notes, Options and Warrants cancelled in the Merger and such
cash shall not be used for any other purposes. Each holder of a certificate or
certificates representing Existing Shares cancelled and extinguished at the
Effective Time pursuant to Section 2.2 hereof may thereafter surrender such
certificate or certificates to the Paying Agent, as agent for such holder of
Existing Shares, in exchange for payment of the pro rata portion of the Merger
Consideration as set forth in Section 2.2 for a period ending six months after
the Effective Time. Each holder of Convertible Notes cancelled and extinguished
at the Effective Time pursuant to Sections 2.2 hereof may thereafter surrender
and deliver such notes to the Paying Agent, as agent for such holder of
Convertible Notes, in exchange for payment of the pro rata portion of the Merger
Consideration as set forth in Section 2.2 for a period ending six months after
the Effective Time. Each holder of Warrants cancelled and extinguished at the
Effective Time pursuant to Sections 2.2 and 2.6 hereof may thereafter surrender
and deliver such warrants to the Paying Agent, as agent for such holder of
Warrants, in exchange for payment of the pro rata portion of the Merger
Consideration as set forth in Section 2.6 for a
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period ending six months after the Effective Time. Each holder of Options
cancelled and extinguished at the Effective Time pursuant to Section 2.5 hereof
shall be entitled to receive from the Paying Agent its pro rata portion of the
Merger Consideration as set forth in Section 2.5 following the Effective Time.
(b) After surrender to the Paying Agent of any certificate,
note, warrant or other instrument which prior to the Effective Time shall have
represented any Existing Shares, Convertible Notes or Warrants (as applicable),
the Paying Agent shall promptly distribute to the person in whose name such
certificate, note, warrant or other instrument shall have been registered, a
check in the amount into which such Existing Shares, Convertible Notes or
Warrants shall have been converted at the Effective Time pursuant to Sections
2.2 and 2.6 hereof. Until so surrendered and cancelled, each such certificate,
note, warrant or other instrument shall, after the Effective Time, be deemed to
represent only the right to receive its pro rata portion of the Merger
Consideration, and until such surrender and cancellation, no cash shall be paid
to the holder of such outstanding certificate, note, warrant or other instrument
in respect thereof. From and after the Effective Time, the holders of Existing
Shares, Convertible Notes and Warrants outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such Existing
Shares, Convertible Notes or Warrants other than the right to receive the
portion of the Merger Consideration as provided in this Agreement. The
Surviving Corporation shall promptly after the Effective Time cause to be
distributed to such holders appropriate materials to facilitate such surrender.
(c) If payment is to be made to a Person other than the
registered holder of the Existing Shares, Convertible Notes or Warrants
represented by the certificate, note, warrant or other instrument so surrendered
in exchange therefor, it shall be a condition to such payment that the
certificate, note, warrant or other instrument so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the Person
requesting such payment shall pay to the Paying Agent any transfer or other
taxes required as a result of such payment to a Person other than the registered
holder of such Existing Shares, Convertible Notes or Warrants or establish to
the satisfaction of the Paying Agent that such tax has been paid or is not
payable.
(d) After the Effective Time, there shall be no further
transfers on the stock transfer books of the Surviving Corporation of the
Existing Shares that were outstanding immediately prior to the Effective Time.
If, after the Effective Time, certificates representing Existing Shares are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for the cash amount provided for, and in accordance with the procedures set
forth, in this Article II.
(e) If any cash deposited with the Paying Agent for purposes
of payment in exchange for Existing Shares, Convertible Notes, Warrants or
Options remains unclaimed six months after the Effective Time, such cash shall
be returned to the Surviving Corporation, upon demand, and any such holder who
has not converted his Existing Shares, Convertible Notes, Warrant or Options
into the cash amount or otherwise received the cash amount pursuant to this
Agreement prior to that time shall thereafter look only to the Surviving
Corporation for payment of the cash amount. Notwithstanding the foregoing, the
Surviving Corporation shall not be liable to any holder of Existing Shares,
Convertible
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<PAGE>
Notes, Warrants or Options for any amount paid to a public official pursuant
to applicable unclaimed property laws. Any amounts remaining unclaimed by
holders of Existing Shares, Convertible Notes, Warrants or Options, seven (7)
years after the Effective Time (or such earlier date immediately prior to
such time as such amounts would otherwise escheat to or become property of
any Governmental Authority) shall, to the extent permitted by applicable Law,
become the property of the Surviving Corporation free and clear of any claims
or interest of any Person previously entitled thereto.
(f) Any portion of the Merger Consideration made available
to the Paying Agent pursuant to Section 2.4 to pay for Existing Shares for which
dissenter's rights have been perfected shall be returned to the Surviving
Corporation, upon demand.
(g) No dividends or other distributions with respect to
capital stock of the Surviving Corporation with a record date after the
Effective Time shall be paid to the holder of any unsurrendered certificate for
Existing Shares.
(h) In the event that any certificate, note, warrant or
other instrument representing the Existing Shares, Convertible Notes, or
Warrants shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such certificate, note, warrant or
other instrument to be lost, stolen or destroyed and, if required by the
Company, the posting by such holder of a bond in such reasonable amount as the
Company may direct as indemnity against any claim that may be made against it
with respect to such certificate, note, warrant or other instrument, the Paying
Agent will issue in exchange for and in lieu of such lost, stolen or destroyed
Existing Share certificate the cash amount, and unpaid dividends and
distributions on Existing Shares deliverable in respect thereof pursuant to this
Agreement and the Merger.
2.4. DISSENTING SHARES. Notwithstanding Section 2.2, Existing Shares
which are issued and outstanding immediately prior to the Effective Time and
which are held by a holder who has not voted such shares of capital stock of the
Company in favor of the Merger and who has delivered a written demand for relief
as a dissenting stockholder in the manner provided by DGCL and who, as of the
Effective Time, shall not have effectively withdrawn or lost such right to
relief as a dissenting stockholder ("Dissenting Shares") shall not be converted
into a right to receive the pro rata portion of the Merger Consideration. The
holders thereof shall be entitled only to such rights as are granted by Section
262 of DGCL. Each holder of Dissenting Shares who becomes entitled to payment
for such Dissenting Shares pursuant to Section 262 of DGCL shall receive payment
therefor from the Surviving Corporation in accordance with DGCL; PROVIDED,
HOWEVER, that if any such holder of Dissenting Shares (i) shall have failed to
establish his entitlement to relief as a dissenting stockholder as provided in
Section 262 of DGCL, (ii) shall have effectively withdrawn his demand for relief
as a dissenting stockholder with respect to such Dissenting Shares or lost his
right to relief as a dissenting stockholder and payment for his Dissenting
Shares under Section 262 of DGCL or (iii) shall have failed to file a complaint
with the appropriate court seeking relief as to determination of the value of
all Dissenting Shares within the time provided in Section 262 of DGCL, such
holder shall forfeit the right to relief as a dissenting stockholder with
respect to such Dissenting Shares and each such Dissenting Share shall be
converted into the right to receive the appropriate cash amount, without
interest thereon, from the Surviving Corporation as provided in Section 2.2.
The Company shall give Recap
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<PAGE>
prompt notice of any demands received by the Company prior to the Effective Time
for relief as a dissenting stockholder, and Recap shall have the right to
participate in all negotiations and proceedings with respect to such demands.
The Company shall not, except with the prior written consent of Recap, make any
payment with respect to, or settle or offer to settle, any such demands.
2.5. STOCK OPTIONS.
(a) Except as may be otherwise agreed to in writing between
Recap and the holder of any Rollover Options, each Option that has an exercise
price of equal to or greater than the cash amount payable in the Merger per
share of Common Stock shall be cancelled at the Effective Time without any
payment or other consideration therefor.
(b) At the Effective Time, all other Options (other than the
Rollover Options) shall be cancelled and, in lieu thereof, as soon as reasonably
practicable after the Effective Time, each holder of such Options shall receive
a cash payment from the Paying Agent equal to the excess of the aggregate cash
amount that would be paid with respect to the shares of Common Stock subject to
such Options, if the Options were exercised, over the aggregate exercise price
with respect to such Options, as reduced by any required withholding of taxes.
The Rollover Options at the Effective Time shall survive the Closing and the
Surviving Corporation shall assume all the rights, liabilities and obligations
of such Rollover Options in accordance with the respective Stock Option Plan or
any successor or replacement stock option plan of the Surviving Corporation.
(c) Prior to the Effective Time, the Company shall (i) take
all reasonable steps necessary to make any amendments to the terms of such Stock
Option Plans, individual Option agreement or Option that are necessary to give
effect to the transactions contemplated by this Agreement, and (ii) use all
reasonable and necessary efforts to obtain at the earliest practicable date all
written consents (if necessary) from holders of Options to effect the
cancellation of such holder's Options to take effect at the Effective Time.
(d) At or prior to the Effective Time, the Company shall
take all reasonable and necessary action to fully advise the holders of Options
of their respective rights under this Agreement, the Options and the respective
Stock Option Plan, to facilitate the timely exercise of such rights and
obligations to effectuate the provisions of this Section 2.5. From and after
the Effective Time, other than as expressly set forth in this Section 2.5 or any
written agreement between Recap and the holder of the Rollover Options, no
holder of Options shall have any rights in respect of such Options, other than
to receive the pro rata portion of the Merger Consideration for such Options in
the manner described in this Section 2.5. The surrender of any Option or the
receipt of the pro rata portion of the Merger Consideration by such holder of an
Option shall be deemed a release of any and all rights the holder of such Option
had or may have had in respect of such Option.
2.6. WARRANTS.
(a) Each Warrant that has an exercise price of equal to or
greater than the cash amount payable per share of Common Stock shall be
cancelled at the Effective Time without payment or other consideration.
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<PAGE>
(b) Any right to receive a Warrant pursuant to the Series B
Preferred Stock, the Series D Preferred Stock or Convertible Notes shall be
cancelled at the Effective Time.
(c) Immediately prior to the Effective Time, all other
outstanding Warrants (other than any Warrants (or right to receive a Warrant)
that are governed by Sections 2.6 (a) and (b) above), shall be cancelled and, in
lieu thereof, as soon as reasonably practicable as of or after the Effective
Time, the holders of such Warrants shall receive a cash payment from the Paying
Agent equal to the excess of the aggregate cash amount that would be paid with
respect to the Existing Shares subject to such Warrants, if the Warrants were
exercised, over the aggregate exercise price with respect to such Warrants, as
reduced by any required withholding of taxes.
(d) Prior to the Effective Time, the Company shall (i) take
all reasonable steps necessary to cause the Warrants, if any, to be terminated
on or prior to the Effective Time and to otherwise make any amendments to the
terms of such Warrants that are necessary to give effect to the transactions
contemplated by this Agreement, and (ii) use all reasonable and necessary
efforts to obtain at the earliest practicable date all written consents from
holders of Warrants to effect the cancellation of such holder's Warrants to take
effect at the Effective Time.
(e) Notwithstanding any provision in this Section 2.6 to the
contrary, Warrants held by two members of management of the Company that do not
exceed an aggregate value of $155,000 may not be cancelled in the Merger and may
remain outstanding as continuing obligations of the Surviving Corporation.
ARTICLE III.
CLOSING
3.1. CLOSING. The closing of the Merger (the "Closing") shall take
place (i) at the offices of Irell & Manella LLP, 333 South Hope Street, Los
Angeles, California at 9:00 A.M. (Los Angeles time) on the Business Day on which
the parties hereto designate as the closing date following the fulfillment or
waiver of the conditions set forth in Article IX hereof in accordance with this
Agreement or (ii) at such other place and time and/or on such other date as the
Company and Recap may agree.
ARTICLE IV.
CERTIFICATE OF INCORPORATION AND BYLAWS;
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
4.1. THE CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of the Company (the "Certificate") in effect at the Effective Time
shall be amended and restated as of the Effective Time and shall be the
Certificate of Incorporation of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the DGCL.
4.2. THE BYLAWS. The Bylaws of Recap in effect at the Effective Time
shall be the Bylaws of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the DGCL.
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<PAGE>
4.3. OFFICERS AND DIRECTORS. From and after the Effective Time, the
directors of the Surviving Corporation shall be as set forth on SCHEDULE 4.3
attached hereto, and the officers of the Company at the Effective Time, shall be
the officers of the Surviving Corporation, until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Certificate of
Incorporation and Bylaws.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the corresponding sections of the Disclosure
Schedules, the Company hereby represents and warrants to Recap as follows:
5.1. ORGANIZATION, STANDING AND AUTHORITY. Each of the Company and
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective state of incorporation. Each of the
Company and its Subsidiaries is duly qualified to do business and is in good
standing in the states of the United States and any foreign jurisdictions where
its respective ownership or leasing of property or assets or the conduct of its
business requires it to be so qualified, except as set forth on SCHEDULE 5.1.
The Company has made available to Recap a complete and correct copy of the
certificate of incorporation, bylaws or other organizational documents, each as
amended to date, of each of the Company and its Subsidiaries. Each of the
certificates of incorporation, bylaws or other organizational documents so made
available is in full force and effect. The corporate records and minute books
of the Company and its Subsidiaries reflect all material action taken and
authorizations made at meetings of such companies' boards of directors or any
committees thereof and at any stockholders' meetings thereof.
5.2. SUBSIDIARIES.
(a) (i) The Company has provided in SCHEDULE 5.2 a list of
the true, accurate and complete legal names, jurisdiction of incorporation or
organization and foreign qualification of each of the Company and its
Subsidiaries, (ii) no equity securities of any of its Subsidiaries are or may
become required to be issued (other than to it or its wholly-owned Subsidiaries)
by reason of any options, warrants, or otherwise, (iii) except as set forth on
SCHEDULE 5.2, there are no contracts, commitments, understandings or
arrangements by which any of such Subsidiaries is or may be bound to sell or
otherwise transfer any equity securities of any such Subsidiaries (other than to
it or its wholly-owned Subsidiaries), and (iv) except as set forth on
SCHEDULE 5.2, there are no contracts, commitments, understandings, or
arrangements relating to the Subsidiary's rights to vote or to dispose of such
securities.
(b) Except as provided in SCHEDULE 5.2, the Company does not
own beneficially, directly or indirectly, any equity securities or similar
interests of any Person, or any interest in a partnership, limited liability
company, joint venture or other entity or organization, other than its
Subsidiaries.
5.3. COMPANY CAPITAL STOCK. As of October 19, 1999, the authorized
capital stock of the Company consists solely of 50,000,000 shares of Common
Stock, of which
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<PAGE>
21,095,087 are issued and outstanding and 30,000,000 shares of Preferred Stock
of which the following series are authorized, issued and outstanding:
<TABLE>
<CAPTION>
SHARES ISSUED
SERIES SHARES AUTHORIZED AND OUTSTANDING
------ ----------------- ---------------
<S> <C> <C> <C>
A 100 100
B 70,000 -0-
C 100 -0-
D 2,000,000 1,628,663
</TABLE>
As of the date hereof, except for such shares as may be repurchased by the
Company as contemplated by Section 7.18 of this Agreement, no shares of Common
Stock or Preferred Stock were held in treasury by the Company or otherwise
beneficially owned by the Company or its Subsidiaries. The outstanding shares
of Common Stock and Preferred Stock have been duly authorized and validly
issued, are fully paid and nonassessable, subject to no preemptive rights, and
were not issued in violation of any preemptive rights. Except as set forth in
SCHEDULE 5.3, each of the outstanding shares of capital stock of each of the
Company's Subsidiaries have been duly authorized, and validly issued and are
fully paid and non-assessable and not subject to any preemptive right and owned,
either directly or indirectly, by the Company free and clear of all
Encumbrances. Except as set forth in SCHEDULE 5.3, there are no pre-emptive
rights or outstanding subscriptions, options, warrants, rights, convertible
securities or other agreements or commitments of any character relating to the
issued or unissued capital stock or other securities of the Company or any of
its Subsidiaries. Except as disclosed in SCHEDULE 5.3, the Company does not
have shares subject to repurchase in the event certain performance targets have
not been met (the "Company Performance Shares"). SCHEDULE 5.3 also sets forth
the number and type of the equity securities of the Company or its Subsidiaries
that will be issued, in accordance with and subject to any and all earn-out
payment or other obligations of the Company.
5.4. CORPORATE POWER. The Company and its Subsidiaries each has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets. Except as set forth in
SCHEDULE 5.4, subject to receipt of the requisite approval of the Merger by the
holders of its capital stock and the holders of the Convertible Notes entitled
to vote thereon, this Agreement and the transactions contemplated hereby and
thereby have been authorized by all necessary corporate action of the Company
and the Company Board on or prior to the date hereof. This Agreement has been
duly executed and delivered by the Company and is a valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of
general applicability relating to or affecting creditors' rights or by general
equity principles).
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<PAGE>
5.5. CONSENTS AND APPROVALS; NO DEFAULTS.
(a) No consents or approvals of, or filings or registrations
with, any Governmental Entity or with any third party are required to be made or
obtained by the Company or any of its Subsidiaries in connection with the
execution, delivery or performance by the Company of this Agreement or to
consummate the Merger except for (i) filings of applications, registrations,
statements, reports or notices (and expiration of any applicable notice periods)
with the United States Department of Justice, the Federal Trade Commission,
NASD, the SEC and state securities authorities, (ii) the requisite approval of
this Agreement by the holders of the capital stock of the Company and the
holders of the Convertible Notes entitled to vote thereon, (iii) the filing of
the Certificate of Merger with the Delaware Secretary pursuant to the DGCL and
(iv) consents, approvals, filings, or registrations listed on SCHEDULE 5.5(a) or
which would not, individually or in the aggregate, have a Material Adverse
Effect on the Company.
(b) Subject to receipt of the approvals referred to in the
preceding paragraph, and the expiration of related waiting periods, except as
set forth in SCHEDULE 5.5(b), the execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and
compliance with the provisions hereof do not and will not (i) violate, or
conflict with, or result in any breach of the terms, conditions, or provisions
of the respective charter, bylaws or other organizational documents of the
Company and each of its Subsidiaries; (ii) violate, or conflict with, or result
in a breach of any provisions of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or give
rise to a right of termination, cancellation, modification or acceleration of
the performance required by or a loss of a material benefit under, or result in
the creation or imposition of (or the obligation to create or impose) any
Encumbrance (other than Permitted Encumbrances) upon any of the properties or
assets of the Company under, any of the terms, conditions or provisions of any
material agreement, indenture, note, bond, mortgage, deed of trust, undertaking,
permit, lease, franchise, license or other instrument to which the Company is a
party or by which it or any of its properties or assets may be bound or
affected; or (iii) to the knowledge of the Company, violate any Law or Order
applicable to the Company, except for any such violation, conflict, breach,
default, event, right or Encumbrance which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(c) SCHEDULE 5.5(c) contains a list of all Approvals of
Governmental Entities that, to the knowledge of the Company, are required to be
given or obtained by the Company from any and all Governmental Entities in
connection with the consummation of the transactions contemplated by this
Agreement, except where the failure to be given or obtain such Approvals,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
(d) SCHEDULE 5.5(d) contains a list of all non-governmental
Approvals that, to the knowledge of the Company, are required to be given or
obtained by the Company from any and all third parties in connection with the
consummation of the transactions contemplated by this Agreement, except where
the failure to give or obtain such Approvals, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect.
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<PAGE>
5.6. FINANCIAL REPORTS AND REGULATORY DOCUMENTS.
(a) The Company has heretofore delivered or made available
to Recap a complete and correct copy of each registration statement, offering
circular relating to the offering of securities, report, proxy statement,
schedule or information statement prepared by it or any of its Subsidiaries
since December 31, 1996, including, without limitation, (A) any Annual Reports
on Form 10-K, and (B) any Quarterly Reports on Form 10-Q, each in the form
(including exhibits and any amendments thereto) filed with the SEC
(collectively, the "SEC Reports"). As of their respective dates or, if amended,
as of the date of the last such amendment prior to the date of this Agreement,
the Company's SEC Reports did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in the light of the circumstances under
which they were made, not misleading. None of the Subsidiaries is required to
file any forms, reports or other documents with the SEC. Except as set forth on
SCHEDULE 5.6, each of the Company's consolidated balance sheets included in or
incorporated by reference into its SEC Reports (including the related notes and
schedules) fairly presents the consolidated financial position of the Company as
of its date and each of the consolidated statements of income, cash flows and
stockholders' equity included in or incorporated by reference into its SEC
Reports (including any related notes and schedules) fairly presents the
consolidated results of operations, retained earnings and cash flows, as the
case may be, of the Company for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end audit adjustments), in each
case in accordance with GAAP (except, in the case of unaudited statements, as
permitted by applicable instructions or regulations of the SEC relating to the
preparation of quarterly reports on Form 10-Q) consistently applied through the
periods indicated.
(b) Each of the Company and its Subsidiaries has timely
filed all notices, reports, registrations, schedules and statements, together
with any amendments required to be made with respect thereto, that they were
required to file with the United States Department of Justice, the Federal Trade
Commission, NASD, the SEC and state securities authorities and all other
material reports and statements required to be filed by it with any Governmental
Entity, including, without limitation, any report or statement required to be
filed pursuant to the laws of the United States, and has paid all fees and
assessments due and payable in connection therewith, except where the failure to
file or pay such fees or expenses would not, individually or in the aggregate,
be reasonably expected to have a Material Adverse Effect on the Company.
(c) Since June 30, 1999, the Company and its Subsidiaries
have not incurred any material liability other than in the ordinary course of
business consistent with past practice.
(d) Except as disclosed in the Company SEC Reports, in
SCHEDULE 5.6, or as contemplated by this Agreement, since June 30, 1999 to the
date hereof, the Company's business has been conducted in the ordinary course,
and there has not been any:
(i) adverse and material change in the condition
(financial or otherwise), results of operations, assets, liabilities, prospects
or business of the Company;
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<PAGE>
(ii) amendment to the Company's or any of the
Company's Subsidiaries' charter, bylaws or other organizational documents;
(iii) sale, assignment, disposition, transfer,
pledge, mortgage or lease of any material assets primarily used or held for use
in the Company's business;
(iv) incurrence of any Indebtedness, other than
accounts payable arising in the ordinary course of business, consistent with
past practice, and other than under the existing revolving credit facility in
the ordinary course of business;
(v) material reduction in any cash or short-term
investments or their equivalent, other than to meet cash needs arising in the
ordinary course of business, consistent with past practices;
(vi) sale, assignment, disposition, transfer,
pledge, mortgage or lease of any material Owned Real Estate or Leased Real
Estate;
(vii) increase in the compensation or fringe benefits
payable or to become payable to any officers or salaried employees of the
Company, other than routine increases made in the ordinary course of business
and consistent with past practice or as required by law or under any existing
agreements heretofore disclosed to Recap;
(viii) issuance, sale or disposition of any capital
stock or other equity interest in the Company or options, warrants or other
rights to purchase any such capital stock or equity interest or any securities
convertible into or exchangeable for such capital stock or equity interest or
any other change in the issued and outstanding capitalization of the Company;
(ix) any amendment, alteration or modification in
the terms of any currently outstanding options, warrants or other rights to
purchase any capital stock or equity interest in the Company or any securities
convertible into or exchangeable for such capital stock or equity interest,
including without limitation any reduction in the exercise or conversion price
of any such rights or securities, any change to the vesting or acceleration
terms of any such rights or securities, or any change to terms relating to the
grant of any such rights or securities;
(x) declaration or payment of any dividend or other
distribution, or the transfer of any assets, by the Company to any stockholders
of the Company, or any redemption, repurchase or other acquisition by the
Company of its capital stock, except in the ordinary course of business;
(xi) change by the Company in any of its accounting
principles, methods or practices, including any change in its policies with
respect to reserves (whether for bad debts, contingent liabilities or
otherwise), any change in depreciation or amortization policies or rates or any
change in the policies pertaining to the recognition of accounts receivable or
the discharge of accounts payable;
(xii) changes in the business policies (including
advertising, investment, marketing, pricing, purchasing, production, personnel,
sales or budgeting) or
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<PAGE>
organization of the Company, or the Company's relationships with dentists,
hygienists, technicians, employees, suppliers, agents, servicers or customers
that are material to the Company, except for changes that would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect on the Company;
(xiii) closure, shut down or other elimination of any
of the Company's offices, franchises or any other change in the character of its
business, properties or assets, except, for closures, shut downs, or other
eliminations that would not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect on the Company;
(xiv) loan or advance to or other such agreement with
any of its stockholders, officers, directors, employees, agents, consultants or
other Representatives, except in the ordinary course of business, consistent
with past practice;
(xv) damage, destruction or loss with respect to any
of the properties or assets of the Company that would have a Material Adverse
Effect; or
(xvi) agreement to do, cause or suffer any of the
foregoing.
5.7. DISCLOSURE DOCUMENTS. The proxy statement on Schedule 14A in
respect of the Special Meeting of the Company's stockholders to vote upon the
Merger (the "Company Proxy Statement") to be filed with the SEC in connection
with the Merger will not, at the date it is first mailed to stockholders of the
Company or at the time of the Special Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Company Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act. No representation is made by the Company with respect to
statements made in the Company Proxy Statement based on information supplied by
Recap for inclusion therein.
5.8. LITIGATION. Except as set forth in SCHEDULE 5.8, there are no
Actions pending or, to the knowledge of the Company, claims threatened against
the Company, at law or in equity, and there is no investigation or proceeding
pending or, to the knowledge of the Company, threatened before or by any
Governmental Entity nor is there any currently effective Order against the
Company, except for any such Actions, claims, investigations, proceedings or
Orders that would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect. SCHEDULE 5.8 identifies those pending or, to
the knowledge of the Company, threatened claims listed therein which (i) may not
be covered by third party insurance or (ii) with respect to which the insurance
carrier has denied coverage or has advised the Company that it is defending such
claim under reservation of rights or (iii) for which the Company is self-
insured.
5.9. REGULATORY MATTERS.
(a) Except as set forth on SCHEDULE 5.9, neither the Company
nor any of its Subsidiaries or any of their properties is a party to or is
subject to any order, decree, agreement, memorandum of understanding or similar
arrangement with or a commitment
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<PAGE>
letter or similar submission to, or extraordinary supervisory letter from, any
Governmental Entity.
(b) Except as set forth on SCHEDULE 5.9, neither the Company
nor any of its Subsidiaries has been advised by any Governmental Entity that
such Governmental Entity is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter or similar
action.
5.10. COMPLIANCE WITH LAWS.
(a) Except as set forth in SCHEDULE 5.10, the Company and
each of its Subsidiaries: (i) is in material compliance with all applicable
federal, state, local and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders or decrees applicable thereto or to the business of the
Company and its Subsidiaries or to the employees conducting such businesses;
(ii) has all permits, licenses, authorizations, orders and approvals of, and has
made all filings, applications and registrations with, all Governmental Entities
that are required in order to permit them to own or lease their properties and
to conduct their businesses as presently conducted; all such permits, licenses,
certificates of authority, orders and approvals are in full force and effect
and, to the Company's knowledge, no suspension or cancellation of any of them is
threatened; and (iii) has not received any notification or communication from
any Governmental Entity (a) asserting that the Company or any of its
Subsidiaries is not in compliance with any of the statutes, regulations or
ordinances which such Governmental Entity enforces or (b) threatening to revoke
any license, franchise, permit or governmental authorization (nor, to the
Company's knowledge, do any grounds for any of the foregoing exist).
(b) The terms and conditions set forth in the management
agreements between the Company or its Subsidiaries and the dental practices
managed by such entities comply in all material respects with applicable laws,
rules, regulations and other applicable authorities relating to such agreements,
including but not limited to laws, rules, regulations and other applicable
authorities relating to the corporate practice of dentistry, fee-splitting,
kickbacks, referral fees, and patient brokering and those relating to such
practices.
5.11. MATERIAL CONTRACTS; DEFAULTS.
(a) SCHEDULE 5.11 lists (a) all contracts or commitments
that provide for the aggregate payments to or from the Company in excess of Five
Hundred Thousand Dollars ($500,000) per contract per annum which cannot or in
reasonable probability will not be completed within ninety (90) days from the
Closing Date or cannot be terminated within ninety (90) days from the Closing
Date without the payment of a penalty or the equivalent thereof in excess of Two
Hundred Fifty Thousand Dollars ($250,000) or can be terminated by the other
party thereto within ninety (90) days from the Closing Date; (b) all contracts
or commitments affecting ownership of, title to, use of, or any interest in
material real property; (c) all bonuses, incentive compensation, pension, group
insurance, or employee welfare plans of any nature whatsoever that provides for
aggregate payments from the Company in excess of Five Hundred Thousand Dollars
($500,000) per annum; (d) all documents evidencing any Indebtedness in excess of
Two Hundred Fifty Thousand Dollars
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($250,000) to or from the Company; (e) all other contracts or commitments
providing for payments based in any manner upon the sales, fees, services,
purchases or profits in excess of Five Hundred Thousand Dollars ($500,000) per
annum; (f) all contracts or commitments, whether in the ordinary course of
business or not, which involve future payments, earnouts, performance of
services or delivery of goods, equipment or supplies to or by the Company of an
aggregate amount or value in excess of Two Hundred Fifty Thousand Dollars
($250,000); (g) all business acquisition agreements, merger agreements (whether
by sale of assets, consolidation, reorganization or otherwise), management
services agreements, agency, dealership, license or royalty agreements,
nondisclosure agreements, non-compete agreements, partnership, joint-venture
agreements and commission agreements that require continuing or future payments
by the Company in excess of Two Hundred Fifty Thousand Dollars ($250,000)
entered into since January 1, 1999; (h) all agreements between the Company and
any five percent (5%) or greater stockholder, any executive officer, director,
Affiliate or any member of the immediate family of any of the foregoing persons
of the Company; (i) all other material agreements and commitments with respect
to intellectual property; (j) all material contracts to indemnify or share tax
liability or sharing of fees, rebating charges or similar arrangements; and (k)
all other agreements and commitments the absence or termination of which would
have a Material Adverse Effect on the Company; PROVIDED THAT SCHEDULE 5.11 shall
not include any leases for tangible personal property requiring monthly payments
of less than Fifty Thousand Dollars ($50,000) or any contract between a
Subsidiary of the Company and any provider or third party payor regarding
payment for the provisions of professional dental services that are made in the
ordinary course of business. Copies of all of the agreements, contracts and
arrangements referred to in this Section have been heretofore made available to
Recap.
(b) Except as set forth in SCHEDULE 5.11, (i) the Company is
not, and to the knowledge of the Company no other party is, in violation of any
contract listed on said SCHEDULE 5.11 or in default with respect thereto, except
for such violation or default that would not, individually or in the aggregate,
be reasonably expected to have a Material Adverse Effect on the Company; (ii)
each contract listed on said Disclosure Schedule is a valid, binding and
enforceable obligation of the Company and, to the knowledge of the Company, the
other parties thereto and is in full force and effect, except where the failure
to be valid, binding, enforceable and in full force and effect would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company, and (iii) none of the contracts listed on such
SCHEDULE 5.11 contains provisions that upon a change in control of the Company
would have a Material Adverse Effect on the Company.
5.12. NO BROKERS. No action has been taken by the Company that would
give rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the transactions
contemplated by this Agreement.
5.13. ABSENCE OF UNDISCLOSED LIABILITIES. Except as accrued on the
balance sheet of the Company and/or its Subsidiaries at December 31, 1998
included in Form 10-K (the "Balance Sheet") or set forth in the notes thereto,
and except as set forth in SCHEDULE 5.13, the Company and its Subsidiaries do
not have any liability (whether absolute, accrued, contingent, or otherwise,
matured or unmatured, and whether due or to become due), which liability is
required (or would be required had such liabilities existed at December 31,
1998) to be reflected on the Balance Sheet or the notes thereto in accordance
with GAAP, except
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for liabilities and obligations incurred since December 31, 1998 in the ordinary
course of business and consistent with past practice which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company.
5.14. EMPLOYEE BENEFIT PLANS.
(a) All benefit and compensation plans, contracts, policies
or arrangements covering current employees or former employees of the Company
and its Subsidiaries (collectively, the "Company Employees") and current or
former directors of the Company, including, but not limited to, "employee
benefit plans" within the meaning of Section 3(3) of ERISA, and deferred
compensation, stock option, stock purchase, stock appreciation rights, stock
based, incentive and bonus plans (collectively, the "Company Benefit Plans"),
are disclosed in SCHEDULE 5.14. True and complete copies of all the Company
Benefit Plans, including, but not limited to, any trust instruments and
insurance contracts forming a part of any the Company Benefit Plans, and all
amendments thereto have been provided or made available to the other parties
hereto.
(b) Except as set forth in SCHEDULE 5.14, all employee
benefit plans, other than "multiemployer plans" within the meaning of Section
3(37) of ERISA, covering the Company Employees (the "Company Plans"), have been
administered in all material respects in compliance with their terms and with
all applicable laws, to the extent subject to ERISA, including without
limitation, ERISA and the Code. The Company is not a party to any "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA (the "Company
Pension Plan") and which is a defined benefit plan as defined in Section 3(35)
of ERISA. With respect to the employee benefit plan intended to qualify under
Section 401 of the Code, the Internal Revenue Service has issued a favorable
determination letter, a true and correct copy of which has been provided to
Recap, that such plan is, and each such plan in fact is, qualified and exempt
from federal income taxes. Except as set forth in SCHEDULE 5.14, there is no
pending or, to the knowledge of the Company, threatened litigation relating to
any Company Plan. Except as set forth in SCHEDULE 5.14, there are no audits,
inquiries, reviews, proceedings, claims or demands pending with any governmental
or regulatory agency. Neither the Company nor any of its Subsidiaries has
engaged in a transaction with respect to any Company Plan that, assuming the
taxable period of such transaction expired as of the date hereof, could subject
the Company or any of its Subsidiaries to a material tax or penalty imposed by
either Section 4975 of the Code or Section 502(i) of ERISA.
(c) No material liability under Subtitle C or D of Title IV
of ERISA has been or is expected to be incurred by the Company or any of its
Subsidiaries with respect to any ongoing, frozen or terminated "single-employer
plan", within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity which is
considered one employer with the Company under Section 4001 of ERISA or Section
414 of the Code (an "ERISA Affiliate"). Neither the Company, any of its
Subsidiaries nor an Affiliate has contributed to a "multiemployer plan", within
the meaning of Section 3(37) of ERISA. No notice of a "reportable event",
within the meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been waived, has been required to be filed for any the
Company Pension Plan or by any ERISA Affiliate within the 12-month period ending
on the date hereof or will be required to be filed in connection with the
transactions contemplated by this Agreement.
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(d) All contributions required to be made under the terms of
any the Company Plan have been timely made or have been reflected on the
consolidated financial statements of the Company referred to in Section 5.6.
Neither any the Company Pension Plan nor any single-employer plan of an ERISA
Affiliate has an "accumulated funding deficiency" (whether or not waived) within
the meaning of Section 412 of the Code or Section 302 of ERISA, and no ERISA
Affiliate has an outstanding funding waiver. Neither the Company nor any of its
Subsidiaries has provided, or is required to provide, security to any Company
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Code.
(e) Under each Company Pension Plan which is a single-
employer plan, as of the last day of the most recent plan year ended prior to
the date hereof, the actuarially determined present value of all "benefit
liabilities", within the meaning of Section 4001(a)(16) of ERISA (as determined
on the basis of the actuarial assumptions contained in the Company Plan's most
recent actuarial valuation), did not exceed then current value of the assets of
such Company Plan, and there has been no material change in the financial
condition of such Company Plan since the last day of the most recent plan year.
(f) Neither the Company nor any of its Subsidiaries has any
material obligations for retiree health and life benefits under any Company
Benefit Plan. The Company or its Subsidiaries may amend or terminate any such
Company Benefit Plan at any time without incurring any material liability
thereunder.
(g) Except as contemplated by this Agreement, the
consummation of the transactions contemplated by this Agreement will not
(i) entitle any employees of the Company or any of its Subsidiaries to severance
pay, (ii) accelerate the time of payment or vesting or trigger any payment of
compensation or benefits under, increase the amount payable or trigger any other
material obligation pursuant to, any of the Company Benefit Plans or
(iii) result in any breach or violation of, or a default under, any of the
Company Benefit Plans. Without limiting the foregoing, as a result of the
consummation of the transactions contemplated by this Agreement, neither the
Company nor any of its Subsidiaries will be obligated to make a payment to an
individual that would be a "parachute payment" to a "disqualified individual" as
those terms are defined in Section 280G of the Code, without regard to whether
such payment is reasonable compensation for personal services performed or to be
performed in the future. Except as set forth on SCHEDULE 5.14, there is no
contract, agreement, plan or arrangement covering any employee or former
employee of the Company or any of its affiliates that would obligate the Company
to make any payments that will not be fully deductible by virtue of Section
162(m) of the Code.
5.15. LABOR AND EMPLOYMENT MATTERS.
(a) Except as set forth on SCHEDULE 5.15, neither the
Company nor any of its Subsidiaries is a party to or is bound by any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization, nor is the Company or any of its Subsidiaries the
subject of a proceeding asserting that it or any such Subsidiary has committed
an unfair labor practice (within the meaning of the National Labor Relations
Act) or seeking to compel the Company or any such Subsidiary to bargain with any
labor organization as to wages or conditions of employment, nor is there any
strike or
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other labor dispute involving it or any of its Subsidiaries pending or, to the
Company's knowledge, threatened, nor is the Company aware of any activity
involving its or any of its Subsidiaries' employees seeking to certify a
collective bargaining unit or engaging in other organizational activity.
(b) SCHEDULE 5.15 is an accurate list of each employment
contract of the Company which provides for aggregate annual payments of more
than $200,000 for personal services or employment which is not terminable on 30
days (or less) notice by the Company without penalty or obligation to make
payments related to such termination. Except in accordance with the contracts,
agreements, plans or programs identified in SCHEDULE 5.15, no individual will
accrue or receive material additional benefits, service or accelerated rights to
payment of benefits as a result of the transactions contemplated by this
Agreement (either alone or combined with any other event or transaction).
(c) The Company is in compliance in all material respects
with all applicable Laws relating to the employment of labor, including those
related to wages, hours, occupational safety and health, plant closings and mass
layoffs, collective bargaining and the payment and withholding of taxes and
other sums as required by appropriate Governmental Entities, and there has been
withheld and paid to the appropriate Governmental Entities, or there is being
held for payment not yet due to such Governmental Entities, all amounts required
to be withheld from the employees of the Company, and the Company is not liable
for any arrears of wages, taxes, penalties or other sums for failure to comply
with any of the foregoing except for such failures which would not, individually
or in the aggregate, be expected to have a Material Adverse Effect on the
Company.
(d) As of the date hereof, and except as set forth in
SCHEDULE 5.15, there is no (i) unfair labor practice complaint against the
Company pending before the National Labor Relations Board or any other federal,
state, local or foreign agency; (ii) pending labor strike, work stoppage, work
slow down or lockout affecting the Company; (iii) pending material grievance or
unfair dismissal proceeding relating to the Company; (iv) material claim by
employees of the Company alleging discrimination under any federal, state or
local law or constitution, including claims of discrimination or retaliation
based on race, color, creed, age, sex, sexual orientation, national origin,
religion or disability; (v) other material claims affecting the Company relating
to employment, including those based on statute, contract or tort; (vi) pending
representation question or union organizing activities respecting a significant
number of the employees of the Company; or (vii) to the knowledge of the
Company, threat, investigation, charge or complaint with regard to any of the
foregoing relating to the Company.
5.16. YEAR 2000 COMPLIANCE. Except as set forth on SCHEDULE 5.16,
(i) the computer software and related hardware of the Company and its
Subsidiaries (the "Company Computer System") used for the storage and processing
of data are, or will be prior to the year 2000, Year 2000 Compliant; (ii) to the
actual knowledge of the Company, all of the suppliers, customers and third party
providers of the Company are, or will be prior to the year 2000, Year 2000
Compliant; and (iii) the Company is taking or has taken all commercially
reasonable and appropriate action to address and remedy any deficiencies in the
Company Computer System which would keep it from becoming Year 2000 Compliant.
As used herein, "Year 2000 Compliant" shall mean the ability of the Company
Computer
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System, to provide the following functions, without human intervention,
individually and in combination with other products or systems: (i) consistently
handle, record, store, process and present dates and date-related information
before, during and after January 1, 2000, including but not limited to accepting
date input, performing calculations on dates or portion of dates, and providing
date output; (ii) function accurately in accordance with the published
specifications and without undue interruption, before, during, and after January
1, 2000 (including leap year computations) without any adverse change in
operation associated with the advent of the year 2000; (iii) respond to
two-digit or four-digit dates and date-related input in a way that resolves any
ambiguity as to the year 2000 in a disclosed, defined and predetermined manner,
and store and provide output of dates and date-related information in ways that
are unambiguous as to the year 2000; and (iv) suitably interact with other
software and related hardware in a way which does not compromise its year 2000
compliance capability.
5.17. ENVIRONMENTAL MATTERS.
(a) Except as set forth on SCHEDULE 5.17, the Company and
each of its Subsidiaries has complied at all times in all material respects with
applicable Environmental Laws; (i) no real property (including buildings or
other structures) currently or formerly owned, leased or operated by the Company
or any of its Subsidiaries has been contaminated with, or has had any release
of, any Hazardous Substance that the Company would reasonably be expected to be
liable for any potential material investigation, clean-up, claims or material
liability from such real property; (ii) neither the Company nor any of its
Subsidiaries is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (iii) neither the Company nor any of
its Subsidiaries has received any notice, demand letter, claim or request for
information alleging any material violation of, or material liability under, any
Environmental Law; (iv) neither the Company nor any of its Subsidiaries is
subject to any order, decree, injunction or other agreement with any
Governmental Entity or any third party relating to any Environmental Law; (v) to
the best of the Company's knowledge, there are no circumstances or conditions
(including the presence of asbestos, underground storage tanks, lead products,
polychlorinated biphenyls, prior manufacturing operations, dry-cleaning, or
automotive services) involving any currently or formerly owned or operated
property of the Company or any of its Subsidiaries, that could reasonably be
expected to result in any material claims, liability or investigations against
the Company or any of its Subsidiaries or result in any material restrictions on
the ownership, use, or transfer of any property pursuant to any Environmental
Law; and (vi) the Company has delivered to Recap copies of all environmental
reports, studies, sampling data, correspondence, filings and other environmental
information in its possession or reasonably available to it relating to the
Company, any Subsidiary of the Company and any currently or formerly owned,
leased or operated property.
(b) As used herein, the term "Environmental Law" means any
federal, state or local law, regulation, order, decree, permit, authorization,
opinion, common law or agency requirement relating to: (i) the protection or
restoration of the environment, health, safety, or natural resources, (ii) the
handling, use, presence, disposal, release or threatened release of any
Hazardous Substance or (iii) noise, odor, wetlands, indoor air, pollution,
contamination or any injury or threat of injury to persons or property in
connection with any Hazardous Substance and the term "Hazardous Substance" means
any substance in any
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concentration that is: (i) listed, classified or regulated pursuant to any
Environmental Law; (ii) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (iii) any other substance which is or may be
the subject of regulatory action by any Governmental Entity in connection with
any Environmental Law.
5.18. TAX MATTERS.
(a) (i) All Tax Returns that are required to be filed
(taking into account any extensions of time within which to file) by or with
respect to the Company and its Subsidiaries have been duly filed, (ii) all Taxes
due have been paid in full, (iii) all deficiencies asserted or assessments made
as a result of such examinations have been paid in full, (iv) no issues that
have been raised by the relevant taxing authority in connection with the
examination of any of the Tax Returns referred to in clause (i) are currently
pending, and (v) no waivers of statutes of limitation have been given by or
requested with respect to any Taxes of the Company or its Subsidiaries. The
Company has made available to Recap true and correct copies of the United States
federal income Tax Returns filed by the Company and its Subsidiaries for each of
the three most recent fiscal years ended on or before December 31, 1998.
Neither the Company nor any of its Subsidiaries has any liability with respect
to income, franchise or similar Taxes that accrued on or before the end of the
most recent period covered by the Company SEC Reports filed prior to the date
hereof in excess of the amounts accrued with respect thereto that are reflected
in the financial statements included in the Company SEC Reports filed on or
prior to the date hereof. Except as set forth on SCHEDULE 5.18, neither the
Company nor any of its Subsidiaries is a party to any Tax allocation or sharing
agreement, is or has been a member of an affiliated group filing consolidated or
combined Tax returns (other than a group the common parent of which is or was
the Company) or otherwise has any liability for the Taxes of any person (other
than the Company and its Subsidiaries).
(b) Except as set forth on SCHEDULE 5.18, no Tax is required
to be withheld pursuant to Section 1445 of the Code as a result of the transfer
contemplated by this Agreement.
5.19. BOOKS AND RECORDS. The books and records of the Company and its
Subsidiaries have been fully, properly and accurately maintained in all material
respects, and there are no material inaccuracies or discrepancies of any kind
contained or reflected therein, and they fairly present the financial position
of the Company and its Subsidiaries.
5.20. INSURANCE. SCHEDULE 5.20 lists all of the insurance policies,
binders, or bonds maintained by the Company or its Subsidiaries ("Insurance
Policies"). The Company and its Subsidiaries are insured with reputable
insurers against such risks and in such amounts as the management of the Company
reasonably has determined to be prudent for its business, operations, properties
and assets. All the Insurance Policies are in full force and effect; the
Company and its Subsidiaries are not in material default thereunder; and all
claims thereunder have been filed in due and timely fashion. No material claim
by the Company on or in respect of an insurance policy or bond has ever been
declined or refused by the relevant insurer or insurers. Between the date
hereof and the Closing Date, the Company will maintain the levels of insurance
coverage in effect on the date hereof and will submit all
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claims existing prior to the Closing Date to its insurance carrier on or before
the Closing Date.
5.21. ASSETS.
(a) Except as indicated in SCHEDULE 5.21, the Company holds
title to or a leasehold, consignment or license in each item of material
tangible personal property owned by or in the possession of the Company. Except
as indicated in SCHEDULE 5.21 or on the Balance Sheet or the notes thereto:
(i) each item of tangible personal property listed
in the fixed asset ledger of the Company as being owned is owned by the Company,
and will at the Closing be owned by the Company, free and clear of all
Encumbrances except for Permitted Encumbrances; and
(ii) the Company is not in default with respect to
any term or condition of any lease of personal property, nor has any event
occurred which through the passage of time or the giving of notice, or both,
would result in such a default, in each case except as would not individually or
in the aggregate reasonably be expected to have a Material Adverse Effect; and
(iii) except for such items of equipment as are
undergoing repair or refurbishment or are being held for replacement, in each
case in the ordinary course of business and consistent with past practice, and
except to the extent that no material liability will be incurred in restoring
equipment to reasonable operating condition, all of the equipment (including
tools, operating and office supplies, and computer hardware and softwares) owned
or leased or otherwise used by the Company are in reasonable operating condition
and, subject to normal maintenance, are available for use.
(b) All accounts receivable, unbilled invoices and other
receivables of the Company due or recorded in the records and books of account
of the Company as being due to the Company (less the amount of any provision or
reserve therefor made in the records and books of account of the Company) (i)
arose in the ordinary course of business, and (ii) are reasonably expected to be
collectible.
(c) Except as set forth in SCHEDULE 5.21, the values at
which inventories of the Company are carried on the balance sheet as of
December 31, 1998 referred to in Section 5.6 reflect the inventory valuation
policy of the Company consistent with its past practice and in accordance with
GAAP.
5.22. STATEMENTS TRUE AND CORRECT. None of the information (including
this Agreement) supplied or to be supplied by the Company or any of its
Subsidiaries to any Governmental Entity in connection with the transactions
contemplated hereby will, at the respective time such documents are supplied, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or omit to state any
material fact necessary to correct any statement in any earlier communication to
any Governmental Entity. All documents that the Company or any Subsidiary
thereof is responsible for filing with any Governmental Entity in connection
with the transactions
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contemplated hereby will comply as to form in all material respects with the
provisions of applicable law. Except as disclosed in this Agreement (including
any Exhibit or Schedule) and such other documents and certificates, there is no
fact known to the Company which constitutes a Material Adverse Effect on the
Company.
5.23. REGULATORY APPROVALS. Except as set forth on SCHEDULE 5.23
hereto, neither the Company nor any of its Subsidiaries has taken any action or
has any knowledge of any fact or circumstance that is reasonably likely to
materially impede or delay receipt of any consents of a Governmental Entity or
result in the imposition of a condition or restriction.
5.24. REAL PROPERTY AND LEASEHOLDS.
(a) SCHEDULE 5.24 lists and identifies all material parcels
of real property currently owned in fee by the Company (the "Owned Real
Estate"). The Company holds marketable and legal title to each of the real
properties constituting Owned Real Estate, free and clear of all Encumbrances,
except for Permitted Encumbrances.
(b) SCHEDULE 5.24 lists and identifies all material parcels
of real property leased or subleased to the Company (collectively, the "Leased
Real Estate"). Except as set forth on SCHEDULE 5.24, to the knowledge of the
Company, the Company holds valid and subsisting leasehold interests to each of
the leaseholds constituting Leased Real Estate, free and clear of all
Encumbrances, except for Permitted Encumbrances.
(c) With respect to each lease, master lease or sublease of
any real estate described in SCHEDULE 5.24, except as set forth in SCHEDULE 5.24
and to the knowledge of the Company, the Company is not and no other party
thereto is, in default with respect to any material term or condition thereof,
nor has any event occurred that through the passage of time or the giving of
notice, or both, would constitute a material default thereunder, except in each
such case for such defaults as would not reasonably be expected to result in any
adverse consequence that, individually or in the aggregate, would have a
Material Adverse Effect on the Company.
(d) Except as set forth on SCHEDULE 5.24 and to the
knowledge of the Company, all the real property leases relating to the Leased
Real Estate are in full force and effect (including those that have expired
original terms and are continuing on a month-to-month or similar basis) and the
Company is entitled to all the rights of a tenant thereunder, taking into
account the consummation of the transactions contemplated by this Agreement.
Except as set forth on SCHEDULE 5.24, no Action against the Company is pending
or, to the knowledge of the Company, threatened in connection with any such real
property leases, except for any Action (not involving the failure to pay rent)
that is not, individually or in the aggregate, reasonably expected to have a
Material Adverse Effect.
5.25. COMPANY ACTION. The Company Board or Special Committee has
adopted resolutions recommending that this Agreement and the Merger be approved
by its stockholders and note holders (as applicable) and directing that this
Agreement and the Merger be submitted for consideration by its stockholders at
the Special Meeting.
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5.26. TAKEOVER STATUTES. Except for Section 203 of the DGCL, no
Takeover Statute applicable to the Company is applicable to the Merger, the
Recapitalization or the other transactions contemplated hereby.
5.27. EARN OUT PAYMENTS. SCHEDULE 5.27 sets forth a summary of the
material terms of any and all earn out payment obligations of the Company,
including but not limited to the payment of cash, the issuance of equity and
incurring of Indebtedness by the Company. Such summary shall contain the
identity of the party due such earn out payment, the amount of the payment, the
transaction related to such earn out and the earn out performance thresholds.
5.28. OPINION. The Special Committee has engaged Deutsche Bank
Securities Inc. and has received the opinion of Deutsche Bank Securities Inc. to
the effect that, as of the date of this Agreement, the cash consideration to be
received in the Merger by the holders of the shares of Common Stock (other than
the Rollover Holders) is fair to such holders from a financial point of view.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF RECAP
Recap hereby represents and warrants to the Company as follows:
6.1. ORGANIZATION AND GOOD STANDING; AUTHORITY. Recap is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and authority and has taken
all corporate action necessary in order to execute and deliver this Agreement
and consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Recap and is a valid and legally binding
obligation of it, enforceable against Recap in accordance with its terms (except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles).
6.2. ABSENCE OF CONFLICT. Subject to the receipt of the approvals set
forth in SCHEDULE 6.2, the execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and
compliance with the provisions hereof do not and will not (i) violate, or
conflict with, or result in a breach of the terms, conditions, or provisions of
the charter or bylaws of Recap; (ii) violate, or conflict with, or result in a
breach of any provisions of, or constitute a default (or an event that, with the
notice or lapse of time or both, would constitute a default) under, or give rise
to a right of termination, cancellation, modification or acceleration of the
performance required by or a loss of a material benefit under, or result in the
creation or imposition of (or the obligation to create or impose) any
Encumbrance upon any of the properties or assets of Recap under any of the
terms, conditions or provisions of any material agreement, indenture, note,
bond, mortgage, deed of trust, undertaking, permit, lease, franchise, license or
other instrument to which Recap is a party or by which it or any of its
properties or assets may be bound or affected; or (iii) to the knowledge of
Recap, violate any Law or Order applicable to Recap, except for any such
violation, conflict, breach, default, event, right or Encumbrance which would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
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6.3. APPROVALS. SCHEDULE 6.3 contains a list of all Approvals of
Governmental Entities which, to the knowledge of Recap, are required to be given
or obtained by Recap from any and all Governmental Entities in connection with
the consummation of the transactions contemplated by this Agreement, except
where the failure to be given or obtain such Approvals, individually or in the
aggregate, would not reasonable be expected to have a Material Adverse Effect.
6.4. BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been conducted by Recap in such manner as
not to give rise to, and the consummation of the transactions contemplated
hereby will not give rise to, any valid claim against the Company or any of its
directors, officers, stockholders or affiliates for a brokerage commission,
finder's fee or other like payment to any person or entity.
6.5. FINANCING. Recap will have at the Closing sufficient cash
through a combination of committed capital from its investors (including,
without limitation, equity cash contributions by GEI in the amounts contemplated
by the Financing Letters (as defined below)) and financing from financial
institutions, subject to the fulfillment of the conditions precedent to
borrowings set forth in the Financing Letters, to enable it to pay the full
Merger Consideration as provided herein, to make all other necessary payments by
it in connection with the Merger (including the repayment of certain outstanding
indebtedness of the Surviving Corporation, including the current senior credit
facility of the Company and the Convertible Notes) and to pay all of the related
fees and expenses (the "Financing"). The Company shall use all reasonable
efforts to cooperate with and assist Recap in obtaining the Financing. The
parties acknowledge that financing letters from the following Persons have been
delivered to the Board of Directors of the Company: (i) Deutsche Bank
Securities Inc. and (ii) Donaldson, Lufkin & Jenrette Securities Corporation
(collectively, the "Financing Letters"). Notwithstanding anything in this
Section 6.5 to the contrary, the Financing Letters delivered to the Board of
Directors of the Company on or before the date of this Agreement may be
superseded at the option of Recap after the date hereof but prior to the
Effective Time by letters (the "New Financing Letters") delivered to the Board
of Directors of the Company, which New Financing Letters shall be substantially
similar to the Financing Letters, provided that the terms of the New Financing
Letters shall not have any adverse effect upon the ability to consummate, or
expand upon the conditions precedent to, the Financing as set forth in the
Financing Letters. In such event, the term "Financing Letters" as used herein
shall be deemed to refer to the New Financing Letters.
6.6. STATEMENTS TRUE AND CORRECT. None of the information supplied or
to be supplied by Recap or any of its Affiliates to the Company or any of its
Affiliates in connection with any filing or communication with any Governmental
Entity in connection with the transactions contemplated hereby will, at the
respective time such documents are supplied, be false or misleading with respect
to any material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication to or filing with any Governmental
Entity. All documents that Recap or any of its Affiliates is responsible for
filing with any Governmental Entity in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable law.
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ARTICLE VII.
COVENANTS
7.1. CONDUCT OF BUSINESS PENDING CLOSING. Except for actions
contemplated by subparagraphs below, the Company agrees that on and after the
date hereof and prior to the Closing Date, except as otherwise consented to by
Recap in writing (which consent shall not be unreasonably withheld), as set
forth in SCHEDULE 7.1, or as otherwise contemplated by this Agreement:
(a) The Company shall conduct its business in the ordinary
course in all material respects;
(b) The Company shall (i) discharge accounts payable and
other current liabilities and obligations of the Company in accordance with past
practice, and (ii) discharge on a timely basis in accordance with past practice
any and all liabilities as and to the extent such liabilities or any portion
thereof become due prior to the Closing; PROVIDED, HOWEVER, that the Company
shall not prepay, redeem or repurchase any Indebtedness or other obligations
that are not due and payable prior to the Closing other than as contemplated by
this Agreement or pursuant to its existing revolving credit facility in the
ordinary course of business;
(c) The Company shall use commercially reasonable efforts to
preserve the business organization of the Company intact, to preserve the
goodwill of suppliers, customers, employees and others with whom business
relationships exist and maintain all Permits, licenses and franchises;
(d) Other than in connection with acquisitions in the
ordinary course of business, not to exceed $15,000,000 individually or
$40,000,000 in the aggregate in total consideration (including but not limited
to cash paid, seller notes, Indebtedness assumed or other such consideration
including earn out obligations) (the "Permitted Acquisitions") following
adequate notice to Recap, the Company shall not borrow any money, incur any
Indebtedness or guarantee any Indebtedness or obligation of any Person, other
than accounts payable arising in the ordinary course of business, consistent
with past practice, and other than pursuant to its existing revolving credit
facility in the ordinary course of business;
(e) The Company shall not issue, sell or dispose of any
capital stock or other equity interest in the Company or options, warrants or
other rights to purchase any such capital stock or equity interest or any
securities convertible into or exchangeable for such capital stock or equity
interests or otherwise make or effect any change in the issued and outstanding
capitalization of the Company;
(f) Except as otherwise contemplated pursuant to this
Agreement, the Company shall not cause or permit any amendment, alteration or
modification in the terms of any currently outstanding options, warrants or
other rights to purchase any capital stock or equity interest in the Company or
any securities convertible into or exchangeable for such capital stock or equity
interest, including without limitation any reduction in the exercise or
conversion price of any such rights or securities, any change to the vesting or
acceleration
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terms of any such rights or securities, or any change to terms relating to the
grant of any such rights or securities;
(g) Except as set forth on SCHEDULE 7.1(g), the Company
shall not declare or pay any dividend or make any other distribution, or
transfer any assets, to any stockholders of the Company, or redeem, repurchase
or otherwise reacquire any of its capital stock, except in the ordinary course
of business;
(h) Other than Permitted Acquisitions or agreements to
manage dental practices on the standard form agreements of the Company in
accordance with past practice, following adequate notice to Recap, the Company
shall not enter into any contracts or agreements (written or oral) that provide
for aggregate payments by any party in excess of $500,000 per contract per
annum, and that are not terminable upon 90 days (or less) notice by the Company
without penalty or obligation to make payments related to such termination and,
to the extent the Company is a party to any such contract or agreement as of the
date hereof, the Company shall not amend or waive any material rights under any
such contract;
(i) Other than Permitted Acquisitions following adequate
notice to Recap, the Company shall not purchase, lease or otherwise acquire all
or any substantial part of the properties or assets of, or otherwise acquire,
merge or consolidate with, any Person (or division thereof);
(j) The Company shall not sell, lease, transfer, assign or
otherwise dispose of any material properties or assets, except for sales in
connection with any transaction to which the Company is contractually obligated
prior to the date hereof described on SCHEDULE 7.1(j) or as consistent with
past business practice;
(k) Except as set forth on SCHEDULE 7.1(k), the Company
shall not sell, lease, transfer, assign or otherwise dispose of any material
Owned Real Estate or Leased Real Estate, and the Company shall not permit any
lease or sublease of Leased Real Estate to terminate or expire, in each case
except as otherwise provided in this Agreement or as consistent with past
business practice;
(l) Except as may be required by law or under any existing
agreements heretofore disclosed to Recap, the Company shall not increase the
compensation or fringe benefits payable or to become payable by the Company to
any of the officers or salaried employees of the Company, other than routine or
customary increases made in the ordinary course of business and consistent with
past practice;
(m) Except as set forth on SCHEDULE 7.1(m), the Company
shall not close, shut down or otherwise eliminate any of its offices or make any
other material change in the character of its business, properties or assets
other than in the ordinary course of business consistent with past practice
except for closures, shut downs, eliminations or changes that would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect on the Company;
(n) Except as disclosed on SCHEDULE 7.1(n) hereof, the
Company shall not change its accounting principles, methods or practices,
including any change in its policies with respect to reserves (whether for bad
debts, contingent liabilities or otherwise), any
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change in depreciation or amortization policies or rates or any change in the
policies pertaining to the recognition of accounts receivable or the discharge
of accounts payable or accounting for inventories other than in the ordinary
course of business and/or would have a detrimental impact on the financial
condition of the Company;
(o) Other than in the ordinary course or as otherwise
contemplated by this Agreement as part of the transactions to be consummated
pursuant to this Agreement, the Company shall not make any representation or
proposal to, or engage in substantive discussions with, any of the holders (or
their representatives) of any Indebtedness, or to or with any party which has
issued a letter of credit that benefits the Company, without prior consultation
with and approval of Recap (which shall not be unreasonably withheld);
(p) The Company shall (i) use commercially reasonable
efforts to maintain its existing Permits and Approvals, and (ii) be in
compliance with applicable Law, except for failures to comply that would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect on the Company;
(q) The Company shall use commercially reasonable efforts to
maintain in full force and effect all policies of insurance now in effect and
give all notices and present all claims under all such policies in a timely
fashion;
(r) The Company shall not enter into any agreement or take
or commit to take any action that would, if taken on or before the Closing,
result in a breach of any of the foregoing covenants contained in this Section
7.1 or of any representation or warranty of the Company contained in this
Agreement;
(s) The Company shall not take any action, enter into any
agreement, alter any policy or commit to any of the foregoing if such action,
agreement or policy would delay or hinder the consummation of the
Recapitalization or the Merger, or would result in or trigger push-down
accounting treatment of the Merger and the transactions contemplated herein;
(t) The Company shall not settle or resolve any single
litigation, arbitration or other adjudication matter, if such settlement or
resolution would result in a payment in excess of $750,000 without the prior
written consent of Recap which consent shall not be unreasonably withheld; and
(u) The Company may not make any single capital expenditures
other than capital expenditures in the ordinary course of business consistent
with past practice in amounts not exceeding $500,000.
7.2. ACCESS. The Company shall permit Recap and its Representatives
to have reasonable access during normal business hours, upon reasonable notice
and in such manner as will not unreasonably interfere with the conduct of the
Company's business, to all of the directors, officers, employees, agents and
Representatives of the Company and all properties, books, records, operating
instructions, procedures and Tax Returns of the Company and all other
information with respect to the Company, its business and operations and its
assets and properties as Recap or its Representatives may from time to time
reasonably request, and to make copies of such books, records and other
documents.
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7.3. PERMITS AND APPROVALS. The Company and Recap shall use
commercially reasonable efforts to obtain all Permits and Approvals reasonably
necessary for the consummation of the transactions contemplated hereby and to
permit the Company, following the Closing, to continue to conduct its business
in substantially the manner it is being conducted as of the date hereof, except
as would not otherwise, individually or in the aggregate, be reasonably expected
to have a Material Adverse Effect on the Company. The Company shall use
commercially reasonable efforts to obtain all authorizations from any Person as
may be required for it to consummate the transactions contemplated hereby in
accordance with the terms of this Agreement, and if the Company, despite such
efforts, is unable to obtain any such authorizations, the Company shall take, or
cause to be taken, all other reasonable actions necessary, proper or advisable
in order for it to fulfill its obligations hereunder and to carry out the
intentions of the parties expressed herein.
7.4. LITIGATION. Until the Closing, each of the Company and Recap
shall promptly notify the other of any action, suit, proceeding, claim or
investigation which is threatened or commenced that materially relates to or
materially affects the Company, its business, its properties or assets, this
Agreement or the transactions contemplated hereby.
7.5. ACQUISITION PROPOSALS.
(a) The Company agrees that neither it nor any of its
officers and directors shall, and the Company shall direct and use its best
efforts to cause its employees and Representatives (including, without
limitation, any investment banker, attorney or accountant) not to, initiate,
solicit or encourage, directly or indirectly, any inquiries, discussions,
negotiations or the making of any proposal or offer (including, without
limitation, any proposal or offer to stockholders of the Company) with respect
to a merger, consolidation or similar transaction, other than pursuant to this
Agreement, involving, or any purchase of all or any significant portion of the
properties and assets or any equity securities of, the Company (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal") or
engage in any negotiations concerning, or provide any confidential information
or data to, or have any discussions with, any Person relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal. The Company will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing and shall make all
reasonable efforts to enforce any confidentiality agreements to which it is a
party. The Company will take the necessary steps to inform the appropriate
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 7.5. The Company will notify Recap
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with the Company, including setting forth
the material terms of the proposal and the identity of the party making such
proposal, and Company shall promptly notify Recap of the status and any material
developments concerning the same, including furnishing copies of any such
written inquiries or proposals.
(b) Except as set forth in this Section 7.5(b), the Company
Board shall not withdraw its recommendation of the transactions contemplated
hereby or approve or recommend, or cause the Company to enter into any agreement
with respect to any
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Acquisition Proposal. If the Company Board, by a majority disinterested vote
determines in its good faith judgment after consultation with and based, among
other things, upon the advice of legal counsel, that it is required to do so in
order to comply with its fiduciary duties, the Company Board may withdraw its
recommendation of the transactions contemplated hereby or approve or recommend a
Superior Proposal (as defined in subsection (d) below), but in each case only if
the following conditions are met:
(i) the Company Board after providing written notice to
Recap (a "Notice of Superior Proposal") advising
Recap that the Company Board has received a Superior
Proposal, and specifies the material terms and
conditions of such Superior Proposal and identifies
the person making such Superior Proposal; and
(ii) if Recap does not, within five (5) business days of
Recap's receipt of the Notice of Superior Proposal,
make an offer that the Company Board by a majority
disinterested vote determines in its good faith
judgment (after consultation with a financial
adviser of nationally recognized reputation) to be
at least as favorable to the Company's stockholders
as such Superior Proposal; provided, however, that
the Company shall not be entitled to enter into any
agreement with respect to a Superior Proposal unless
and until this Agreement is terminated by its terms
pursuant to Section 9.1 and the Company has paid all
amounts due to Recap pursuant to Section 9.3.
Any disclosure that the Company Board may be compelled to make with
respect to the receipt of an Acquisition Proposal or otherwise in order to
comply with its fiduciary duties or Rule 14d-9 or 14e-2 will not constitute a
violation of this Agreement, provided that such disclosure states that no action
will be taken by the Company Board in violation of this Section 7.5(b).
(c) Should the Company, within 30 days following the public
announcement of this Agreement, receive an unsolicited Acquisition Proposal and
provided that the Company shall not have otherwise violated the provisions of
Section 7.5(a) hereof with respect to such unsolicited Acquisition Proposal, the
Company may for a period not to exceed 30 days from the date that the Company
received such unsolicited Acquisition Proposal, notwithstanding the provisions
of Section 7.5(a), provide confidential information or data to and have
discussions with the Person making such unsolicited Acquisition Proposal
(subject to the execution and delivery of customary confidentiality agreements),
if the Company Board by a majority disinterested vote determines in its good
faith judgment after consultation with and based, among other things, upon the
advice of legal counsel, that it is required to do so in order to comply with
its fiduciary duties.
(d) For purposes of this Agreement, a "Superior Proposal"
means any bona fide Acquisition Proposal the terms of which contain a
consideration higher than the cash consideration to be paid to the holders of
the Common Stock of the Company in the
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Merger by Recap and that the Company Board by a majority vote determines in
its good faith judgment (after consultation with a financial advisor of
nationally recognized reputation) to be more favorable to the Company's
stockholders than the Merger.
7.6. H-S-R NOTIFICATION.
(a) FILINGS. As soon as reasonably practicable after the
execution of this Agreement, each of the Company and Recap shall file, or cause
to be filed, with the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "H-S-R Act"), the notification and
documentary material required in connection with the transactions contemplated
hereby.
(b) COOPERATION. Recap and the Company shall promptly file
any additional information requested as soon as reasonably practicable after
receipt of a request for additional information. Recap and the Company shall
use their commercially reasonable efforts to obtain early termination of the
applicable waiting period under the H-S-R Act. The parties hereto will
coordinate and cooperate with one another in exchanging such information and
providing such reasonable assistance as may be requested in connection with such
filings.
(c) OTHER ACTIONS. The Company agrees that, in order to
comply with the H-S-R Act in connection with the transactions contemplated
hereby, Recap shall be entitled, in its sole discretion, to acquiesce to any
divestitures, operating restrictions or other constraints imposed or required by
any Governmental Entity, provided that such divestitures, operating restrictions
or other constraints shall not have any material effect on the terms of the
Merger.
7.7. FINANCIAL STATEMENT DELIVERIES. As soon as is reasonably
practicable and in no event later than thirty (30) days from the last day of
each fiscal month, each fiscal quarter and each fiscal year between the date of
this Agreement and the Closing Date, the Company shall prepare and provide to
Recap monthly, quarterly or yearly historical financial statements, as
applicable (the "Update Financial Statements") for the Company, utilizing the
same format and methodology used in preparing the financial statements that are
provided internally to management. As soon as reasonably practicable between
the date of this Agreement and the Closing Date, the Company shall deliver
drafts of any Form 10-Q or Form 10-K, including any revisions or amendments
thereto, prepared or filed by the Company.
7.8. COVENANT TO SATISFY CONDITIONS. Each of the Company and Recap
will use reasonable best efforts to ensure that the conditions set forth in
Article 8 hereof are satisfied, insofar as such matters are within the control
of such party. Each such party shall promptly consult with the other with
respect to, and provide to the other any legally permitted information and
copies of all filings made by such party with any Governmental Entity or any
other information supplied by such party to a Governmental Entity (other than
confidential personnel information) in connection with this Agreement and the
transactions contemplated hereby. Recap and the Company further covenant and
agree, with respect to any pending or threatened Action, preliminary or
permanent injunction or other Order,
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decree or ruling or statute, rule, regulation or executive order that would
adversely affect the ability of the parties hereto to consummate the
transactions contemplated hereby, to use reasonable best efforts to prevent or
lift the entry, enactment or promulgation thereof, as the case may be. Upon the
request of Recap, the Company agrees that it shall use reasonable best efforts
to secure waivers and/or consents from such third parties as may be necessary or
desirable in Recap's reasonable judgment in order to consummate the transactions
contemplated hereby.
7.9. PROXY STATEMENT. As soon as reasonably practicable after the
date hereof, the Company shall prepare the Company Proxy Statement, file such
proxy statement and such other reports, schedules or other information
(including without limitation Schedule 13E-3 under the Exchange Act) as may be
required with the SEC, respond to comments of the staff of the SEC, if any, file
the definitive proxy statement as soon as practicable, and promptly thereafter
mail such proxy statement to all holders of record (as of the applicable record
date) of Existing Shares. The Company and Recap shall cooperate reasonably with
each other in the preparation of the proxy statement and such other materials.
Recap shall provide the Company and any of its Affiliates with any information
for inclusion in the Company Proxy Statement or any other filings required to be
made by the Company or any of its Affiliates with any Governmental Entity in
connection with the transactions contemplated by this Agreement which may be
required under applicable law and which is reasonably requested by the Company
or any of its Affiliates. The Company agrees that Recap shall be given
reasonable opportunity to review and comment on the proxy statement and such
other materials and to approve the proxy statement and such other materials
prior to its filing (which approval will not be unreasonably withheld) and
thereafter to participate in discussions concerning the comments of the SEC
staff and to approve all responses thereto (which approval will not be
unreasonably withheld). The Company shall promptly notify Recap of the receipt
of the comments of the SEC and of any request from the SEC for amendments or
supplements to the Company Proxy Statement or for additional information, and
will promptly supply Recap with copies of all correspondence between the Company
or its representatives, on the one hand, and the SEC or members of its staff, on
the other hand, with respect to the Company Proxy Statement or the Merger. If
at any time prior to the Special Meeting any event should occur which is
required by applicable law to be set forth in an amendment of, or a supplement
to, the Company Proxy Statement, the Company will promptly inform Recap. In
such case, the Company, with the cooperation of Recap, will, upon earning of
such event, promptly prepare and mail such amendment or supplement; provided,
that prior to such mailing, the Company shall consult with Recap with respect to
such amendment or supplement and shall afford Recap reasonable opportunity to
comment thereon. The Company will notify Recap at least 24 hours prior to the
mailing of the Company Proxy Statement, or any amendment or supplement thereto,
to the stockholders of the Company.
7.10. STOCKHOLDERS' MEETING. The Company shall take all action
necessary, in accordance with applicable law and its certificate of
incorporation and bylaws, to convene a Special Meeting of the holders of the
Existing Shares (the "Special Meeting") as promptly as practicable, but in no
event more than 45 days after a definitive proxy statement has been filed with
the SEC (unless Recap requests or consents to an extension of such 45 day
period), for the purpose of approving the Merger. The Company Board shall
recommend at such Special Meeting that the Merger be approved by its
stockholders. Notwithstanding the
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foregoing, if, as a result of actions taken in compliance with Section 7.5
hereof and subject to the provisions of Article 9 hereof, the Company receives a
formal unsolicited Acquisition Proposal concerning a transaction in which all
the holders of Existing Shares will receive the consideration in a Superior
Proposal, the Company Board may withdraw or modify such recommendation prior to
the Special Meeting; PROVIDED, HOWEVER, that the Company shall have consulted
with its legal counsel and conclude in its good faith that the Company Board is
legally required to do so in the discharge of its fiduciary duties; and PROVIDED
FURTHER, that the Company shall give Recap five (5) Business Days' prior notice
of such withdrawal or modification, specifying the material terms of such
unsolicited Acquisition Proposal.
7.11. FINANCING. Each of the Company and Recap agrees to use its
commercially reasonable efforts to obtain all of the financing necessary in
connection with the consummation of the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, the Company
acknowledges receipt of the "Financing Letters" referred to in Section 6.5
hereof and undertakes to use its commercially reasonable efforts to fulfill, or
cause to be fulfilled, the obligations of "Borrower" thereunder. Each of the
Company and Recap shall use their respective best commercial efforts to (i)
commence the process to obtain the financing as contemplated in this Section
7.11 (including marketing of debt instruments) promptly following approval of
the Merger and this Agreement by the requisite vote of the holders of capital
stock and Convertible Notes of the Company (provided that Recap shall not
required to commence any marketing of debt instruments prior to January 15,
2000), and (ii) obtain such financing by the earlier to occur of eight (8) weeks
from the date the Merger and this Agreement are approved by the requisite vote
of the holders of capital stock and Convertible Notes of the Company or April
30, 2000.
7.12. DISCLOSURE PRIOR TO CLOSING. In the event that, at any time
prior to the Closing, the Company or Recap becomes aware of any matter that, if
existing or known as of the date of this Agreement, would have been required to
be set forth or described in the Schedules hereto or would otherwise have
rendered any representation or warranty false, such party shall promptly provide
written notice of such matters to the other party. However, no such notice
provided under this Section 7.12 shall be deemed to cure any breach of any
representation or warranty made in this Agreement whether for purposes of
determining whether or not the conditions set forth in Article 8 hereof have
been satisfied or otherwise. In addition, the Company shall promptly provide
written notice of any events occurring after the date hereof that individually
or in the aggregate have had or are reasonably expected to have a Material
Adverse Effect on the Company.
7.13. DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION. The
Surviving Corporation will indemnify each person who is now, or has been at any
time prior to the date hereof, a director or officer of the Company or its
successors and assigns (individually an "Indemnified Party" and collectively the
"Indemnified Parties"), to the fullest extent required or permitted under the
certificate of incorporation or Bylaws of the Company, or any agreement with the
Company in each case as in effect immediately prior to the execution of this
Agreement, with respect to any claim, liability, loss, damage, judgment, fine,
penalty, amount paid in settlement or compromise, cost or expense, including
reasonable fees and expenses of legal counsel (whenever asserted or claimed),
based in hole or in part on, or arising in whole or in part out of, any matter,
state of affairs or occurrence existing or occurring at or prior to the
Effective Time whether commenced,
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asserted or claimed before or after the Effective Time, including, without
limitation, liability arising under the Securities Act, the Exchange Act, or
state law. The Surviving Corporation will maintain in effect for not less than
six years after the Effective Time the current policies of directors' and
officers' liability insurance maintained by the Company on the date hereof
(provided that Recap may substitute therefor policies having at least the same
coverage, with a comparably rated issuer and containing terms and conditions
which are no less advantageous to the persons currently covered by such policies
as insured) with respect to matters existing or occurring at or prior to the
Effective Time; PROVIDED, HOWEVER, that if the aggregate annual premiums for
such insurance during such period exceed 200% of the per annum rate of the
aggregate premium currently paid by the Company for such insurance on the date
of this Agreement, then the Surviving Corporation will provide the maximum
coverage that will then be available at an annual premium equal to 200% of such
rate. The rights under this Section 7.13 are in addition to rights that an
Indemnified Party may have under the certificate of incorporation, Bylaws or
other similar organizational documents of the Company or any Subsidiary or under
the DGCL. The rights under this Section 7.13 are contingent upon the occurrence
of, and will survive consummation of, the Merger and are expressly intended to
benefit each Indemnified Party.
7.14. OPTIONS, WARRANTS AND CONVERTIBLE NOTES. The Company shall use
its reasonable best efforts to obtain the rollover, the exercise or the
cancellation of the Options and Rollover Options as set forth in Section 2.5.
The Surviving Corporation shall assume the Rollover Options pursuant to
Section 2.5 and in accordance with the respective Stock Option Plan, and the
exercise price and number of shares underlying each such option shall be
adjusted equitably to reflect the effect of the Merger. The Company shall use
its reasonable best efforts to obtain the cancellation and surrender of the
Warrants as set forth in Section 2.6, and the receipt of any approvals or
consents from the holder thereof to this Agreement and the transactions
contemplated hereby. The Company shall use its reasonable best efforts to
obtain the cancellation and surrender of the Convertible Notes as set forth in
Section 2.2, and the receipt of any approvals or consents from the holders
thereof to this Agreement and the transactions contemplated hereby.
7.15. ANTITAKEOVER STATUTES. If any Takeover Statute (as defined
below) is or may become applicable to the transactions contemplated hereby, the
Company Board will grant such approvals and take such actions as are necessary
so that the transactions contemplated hereby and thereby may be consummated as
promptly as practicable on the terms contemplated hereby and thereby and
otherwise act to eliminate the effects of any Takeover Statute on any of the
transactions contemplated hereby or thereby. For purposes of this Agreement, a
"Takeover Statute" means a "fair price", "moratorium", "control share
acquisition" or other similar antitakeover statute or regulation enacted under
state or federal laws in the United States, including without limitation Section
203 of the DGCL.
7.16. REGULATORY APPLICATIONS.
(a) Each of the Company and Recap and their respective
Subsidiaries shall cooperate and use their respective reasonable best efforts to
prepare all documentation, to effect all filings and to obtain all permits,
consents, approvals and authorizations of all third parties and Governmental
Entities necessary to consummate the transactions contemplated by this
Agreement. Each of the Company and Recap shall have the right to
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review in advance, and to the extent practicable each will consult with the
other, in each case subject to applicable laws relating to the exchange of
information, with respect to all material written information submitted to any
third party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto agrees to act reasonably and as promptly as practicable. Each
party hereto agrees that it will consult with the other party hereto with
respect to the obtaining of all material permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other party appraised of the status of material matters
relating to completion of the transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other
party with all information concerning itself, its Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with any filing, notice or application made by or on
behalf of such other party or any of its Subsidiaries to any third party or
Governmental Entity.
7.17. NOTICES OF CERTAIN EVENTS. Each of the parties hereto shall
promptly notify the other party of:
(a) the receipt by such party of any notice or other
communication from any Person alleging that the consent of such Person is or may
be required in connection with the transactions contemplated by this Agreement.
(b) the receipt by such party of any notice or other
communication from any Governmental Authority in connection with the
transactions contemplated by this Agreement; and
(c) any actions, suits, claims, investigations or
proceedings commenced or, to the best of such party's knowledge threatened
against, or affecting such party which, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to this
Agreement or which relate to the consummation of the transactions contemplated
by this Agreement.
7.18. REDEMPTION OR CANCELLATION OF SECURITIES. The Company agrees to
redeem and/or cancel the securities set forth on SCHEDULE 7.18, in accordance
with the provisions of this Agreement and in order to consummate the Merger.
7.19. DELIVERY OF OPINION OF FINANCIAL ADVISOR. The Company agrees to
deliver to Recap a true and complete copy of the written opinion of Deutsche
Bank Securities Inc., promptly following the execution and delivery of this
Agreement.
ARTICLE VIII.
CONDITIONS OF MERGER
8.1. GENERAL CONDITIONS. The obligations of the parties to effect the
Closing shall be subject to the following conditions unless waived in writing by
both parties:
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8.1.1. NO LAW OR ORDERS. No Law or Order shall have been
enacted, entered, issued or promulgated by any Governmental Entity (and be in
effect) which prohibits or materially restricts the consummation of the
transactions contemplated hereby.
8.1.2. H-S-R. Any applicable waiting period under the H-S-R
Act shall have expired or have been terminated with respect to the transactions
contemplated hereby.
8.1.3. LEGAL PROCEEDINGS. No Governmental Entity shall have
notified either party to this Agreement that it intends to commence proceedings
to restrain or prohibit the transactions contemplated hereby or force
rescission, unless such Governmental Entity shall have withdrawn such notice and
abandoned any such proceedings prior to the time which otherwise would have been
the Closing Date.
8.1.4. STOCKHOLDER APPROVAL. The Merger and the other
transactions contemplated hereby shall have been approved by the requisite vote
of the holders of the outstanding capital stock of the Company entitled to vote
thereon.
8.1.5. REGULATORY APPROVAL. All regulatory approvals or
waivers required to consummate the transactions contemplated hereby shall have
been obtained and shall remain in full force and effect and all statutory
waiting periods in respect thereof shall have expired and no such approvals or
waivers shall contain any conditions, restrictions or requirements which Recap's
Board reasonably determines would (i) following the Effective Time, have a
Material Adverse Effect on the Surviving Corporation taken as a whole or
(ii) reduce the benefits of the transactions contemplated hereby to such a
degree that Recap would not have entered into this Agreement had such
conditions, restrictions or requirements been known at the date hereof.
8.1.6. THIRD PARTY CONSENTS. The Company shall have received
all requisite consents to the transactions contemplated by the Merger and/or
waivers to certain redemption or conversion rights, or conversion price or
redemption price adjustments or change in control rights or acceleration rights,
reasonably satisfactory to the Company and Recap, and of the Purchasers (as that
term is defined in the Securities Purchase Agreement) pursuant to the
Subordinated Notes and the Securities Purchase Agreement signed in connection
therewith.
8.1.7. CONVERTIBLE NOTE HOLDERS APPROVAL. The Merger and the
other transactions contemplated hereby shall have been approved by the requisite
vote or consent of the holders of the Convertible Notes entitled to vote or
consent thereon.
8.2. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to close the transactions contemplated by this
Agreement shall be subject to the satisfaction on or prior to the Closing Date
of each of the following conditions precedent, any of which may be waived by the
Company:
8.2.1. ACCURACY OF RECAP'S REPRESENTATIONS AND PERFORMANCE OF
OBLIGATIONS.
(a) All representations and warranties made by Recap in this
Agreement, any Schedule or any agreement, certificate or instrument to be
executed by Recap pursuant
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hereto shall be true and correct in all respects on the date when made and on
and as of the Closing Date (unless the representations and warranties address
matters as of a particular date, in which case they shall remain true and
correct in all respects as of such date) with the same effect as if made on and
as of the Closing Date (without regard to any amendment or supplement of any
such Schedule, agreement or instrument after the date hereof), except where such
failures, in each case or in the aggregate, have not had and are not reasonably
expected to have a Material Adverse Effect on Recap, PROVIDED THAT, whenever any
such representation or warranty is conditioned by reference to materiality or a
Material Adverse Effect, for the purposes of this Section 8.2.1(a), such
representation or warranty shall be treated as if such representation or
warranty did not contain any limitation as to materiality or Material Adverse
Effect as stated therein.
(b) Recap shall have performed or complied in all material
respects with all covenants and conditions contained in this Agreement, any
Schedule or any agreement, certificate or instrument to be executed by Recap
pursuant hereto required to be performed or complied with by Recap either at or
prior to the Closing.
8.2.2. RECAP DELIVERIES. Recap shall have delivered, or shall
have caused to be delivered, to the Company at or prior to the Closing the
following:
(a) a certified copy of the resolutions duly adopted by the
board of directors of Recap authorizing this Agreement and the transactions
contemplated hereby and thereby;
(b) such other documents, instruments or certificates as
shall be reasonably requested by the Company or its counsel; and
(c) a certificate of the president or any vice president and
secretary or any assistant secretary of Recap certifying to the matters set
forth in Section 8.2.1(a) and (b) above.
8.3. CONDITIONS PRECEDENT TO OBLIGATIONS OF RECAP. The obligations of
Recap to close the transactions contemplated by this Agreement shall be subject
to the satisfaction on or prior to the Closing Date of each of the following
conditions precedent, any of which may be waived by Recap:
8.3.1. ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
PERFORMANCE OF OBLIGATIONS.
(a) All representations and warranties made by the Company
in this Agreement, any Schedule or any agreement, certificate or instrument to
be executed by the Company pursuant hereto shall be true and correct in all
respects on the date when made and on and as of the Closing Date (unless the
representations and warranties address matters as of a particular date, in which
case they shall remain true and correct in all respects as of such date) with
the same effect as if made on and as of the Closing Date (without regard to any
amendment or supplement of any such Schedule, agreement or instrument after the
date hereof), except where such failures, in each case or in the aggregate, have
not had and are not reasonably expected to have a Material Adverse Effect on the
Company, PROVIDED THAT, whenever any such representation or warranty is
conditioned by reference to materiality or a
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Material Adverse Effect, for the purposes of this Section 8.3.1(a), such
representation or warranty shall be treated as if such representation or
warranty did not contain any limitation as to materiality or Material Adverse
Effect as stated therein.
(b) Except for any action requested or required to be taken
by the Company pursuant to Section 7.6(c) hereof, the Company shall have
performed or complied in all material respects with all covenants and conditions
contained in this Agreement, any Schedule or any agreement, certificate or
instrument to be executed by the Company pursuant hereto required to be
performed or complied with by the Company either at or prior to the Closing.
8.3.2. PERMITS AND APPROVALS. The Company shall have made or
obtained, on terms reasonably satisfactory to Recap, all Permits and Approvals
required from any Governmental Entity or any third party in order to consummate
the transactions contemplated hereby and permit the Surviving Corporation to
continue the Company's business in substantially the manner as it is being
conducted as of the date hereof, except where the failure to obtain such Permits
or Approvals, individually or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect.
8.3.3. COMPANY ADVERSE CHANGES. There shall not have occurred
after the date hereof any events which individually or in the aggregate have had
or are reasonably expected to have a Material Adverse Effect on the Company.
8.3.4. DELIVERIES. The Company shall have delivered, or shall
have caused to be delivered, to Recap at or prior to the Closing the following:
(a) to the extent requested by Recap, resignations of the
directors of the Company and each of the Company's Subsidiaries effective as of
the Closing;
(b) certified copies of the resolutions duly adopted by the
Company Board and by the holders of the Existing Shares, authorizing this
Agreement and the transactions contemplated hereby;
(c) a certificate of the chief executive officer, president
or any vice president and secretary or any assistant secretary of the Company
certifying to the matters set forth in Section 8.3.1(a) and (b) above;
(d) the corporate seal, minute books and stock transfer
books of the Company; and
(e) such other documents, instruments or certificates as
shall be reasonably requested by Recap or its counsel.
8.3.5. FINANCING. Recap shall have made or obtained all
financing (i) necessary in connection with the consummation of the transactions
contemplated by this Agreement and the "Financing Letters" referred to in
Section 6.5 and (ii) which is reasonably necessary to continue after the Closing
the business of the Surviving Corporation in substantially the manner it is
currently being conducted or is planned to be conducted.
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8.3.6. RECAPITALIZATION. The Recapitalization shall have been
consummated.
8.3.7. ACCOUNTING PRINCIPLES. Except as set forth on
SCHEDULE 8.3.7, from the fiscal year ended December 31, 1998 and prior to the
Effective Time, the Company shall not have altered, modified or amended, and the
Company shall not have been required in the future to make any alteration,
modification or amendment (which in Recap's reasonable belief would have a
Material Adverse Effect on the Company) of, any of its material accounting
principles, methods or practices (that are limited and directed to the Company
specifically and not applicable generally to all companies), whether or not
required or requested to make such alteration, modification or amendment by any
Governmental Entity, by the Company's independent auditors or otherwise.
8.3.8. PUSH-DOWN ACCOUNTING. There shall not have occurred any
material change in accounting rules (including but not limited to GAAP), or in
the applicable federal and state securities Laws, or any action by the Company
or its Subsidiaries, which results in or triggers push-down accounting treatment
for the Merger.
8.3.9. DISSENTING SHARES. The aggregate number of Dissenting
Shares shall not equal 15% or more of the shares of the Company outstanding as
of the record date for the Special Meeting.
8.3.10. SHARE EXCHANGE AND SUBSCRIPTION. Subject to the
terms and conditions of the Exchange Agreement, the Rollover Holders and Recap
shall have consummated a transfer and exchange of the Rollover Shares held by
the Rollover Holders with Recap, in exchange for newly issued shares of capital
stock of Recap to the Rollover Holders, prior to the Effective Time.
8.3.11. MANAGEMENT SERVICES AGREEMENT. The Company (and/or the
Subsidiaries) and Leonard Green & Partners, L.P. (and/or its Affiliates) shall
have executed and delivered the management services agreement prior to the
Closing.
8.3.12. STOCKHOLDERS AGREEMENT. Each of the respective parties
to the stockholders agreement shall have executed and delivered such agreement
prior to the Closing.
8.3.13. DUE DILIGENCE OF DENTISTS AND DENTAL PROFESSIONALS. For
a period of thirty (30) days from the date of this Agreement, Recap shall be
entitled to meet with and perform due diligence on certain dentists, other
dental professionals and certain dental practices affiliated with the Company,
identified and selected by Recap at its discretion after reasonable notice to
and consultation with the Company. The discoveries by Recap from such due
diligence shall not reasonably be expected to have a Material Adverse Effect on
the Company.
8.3.14. KNOX-KEENE OPINION. The Company shall deliver an
opinion letter from Foley Lardner or other law firm of national standing with
expertise in the area of California health plan regulation to the effect that
the Agreement and the transactions contemplated hereby shall not require prior
approval from the California Department of Corporations pursuant to the
California Knox-Keene Health Care Service Plan Act of 1975, as amended, and the
regulations issued thereunder (the "Knox-Keene Act"), by virtue of the
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licensure of the Company's Subsidiary, Dedicated Dental Systems, Inc. as a
specialized health care service plan under the Knox-Keene Act and other than any
issues arising from the notice and prior approval from the California Department
of Corporations pursuant to the Knox-Keene Act, the Agreement and the
transactions contemplated hereby would not otherwise violate the Knox-Keene Act.
8.3.15. EMPLOYMENT AGREEMENTS. Each of Michael Fiore and Steven
Matzkin shall have executed and delivered an employment agreement substantially
in the form attached hereto as Exhibit C prior to the Closing.
8.3.16. CANCELLATION OF OPTIONS, WARRANTS AND CONVERTIBLE NOTES.
The Company shall have obtained the rollover, the exercise or the cancellation
of the Options and Rollover Options as set forth in Section 2.5 and received any
necessary agreements, approvals or consents from the holders thereof. The
Company shall have obtained the cancellation and surrender of the outstanding
Warrants as set forth in Section 2.6 (except for Warrants held by two members of
management of the Company not to exceed an aggregate value of $155,000 which may
not be cancelled and may remain outstanding) and received any necessary
approvals or consents from the holders thereof. The Company shall have obtained
the cancellation and surrender of the Convertible Notes as set forth in Section
2.2(f).
8.3.17. AGREEMENTS WITH POTENTIAL RECIPIENTS OF EARN OUT SHARES.
The Company shall have entered into an agreement with each potential recipient
of Earn Out Shares, including but not limited to those recipients set forth on
Schedule 5.3, to the effect that such recipient agrees to accept cash in lieu of
any Earn Out Shares to be issued to such recipient in the event that the earn
out obligation is incurred by the Company.
8.3.18. RESIGNATION OF DIRECTORS. All of the directors of the
Company, other than those persons set forth on SCHEDULE 4.3, shall have resigned
from the Board of Directors effective as of the Closing Date.
ARTICLE IX.
TERMINATION
9.1. TERMINATION. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Effective Time, whether
before or after stockholder approval of the Merger:
(a) MUTUAL CONSENT. By mutual written consent of the
parties hereto;
(b) BY RECAP. By Recap, if (i) any of the conditions set
forth in Section 8.1 or 8.3 shall have become incapable of fulfillment, (ii) the
Company Board or any committee thereof fails to recommend or withdraws or
modifies, or resolves to withdraw or modify, its recommendation of the Merger,
whether or not in compliance with Section 7.10 hereof, or (iii) the Company, the
Company Board or any Representative of the Company shall take any other actions
that would be proscribed by Section 7.5 hereof but for the exceptions therein
set forth in Section 7.5(b) allowing certain actions to be taken based on
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the fiduciary obligations of the Company Board or in order to comply with
applicable securities law requirements;
(c) BY THE COMPANY. By the Company, if (i) the Company
Board has approved a Superior Proposal in accordance with the terms of Section
7.5 or (ii) any of the conditions set forth in Section 8.1 or 8.2 shall have
become incapable of fulfillment;
(d) FAILURE OF CONDITIONS. By Recap or the Company, if the
transactions contemplated hereby are not consummated on or before April 30, 2000
and if the failure to consummate such transactions on or before such date did
not result from the breach of any representation, warranty or agreement herein
of the party seeking such termination;
(e) BREACH OF COVENANT. By Recap or the Company, if the
other party shall be in material breach of any of its covenants contained in
this Agreement and such breach either is incapable of cure or is not cured
within 15 days after notice from the party wishing to terminate; PROVIDED THAT
the party seeking such termination shall not also then be in material breach of
this Agreement; PROVIDED FURTHER that any breach of the provisions of Section
7.5 hereof shall entitle Recap to an immediate right of termination without any
notice or cure requirement.
(f) BREACH OF REPRESENTATIONS AND WARRANTIES. By Recap or
the Company, if the other party shall be in breach of any of its representations
or warranties contained in this Agreement, which breach, individually or
together with all other breaches, is reasonably expected to have a Material
Adverse Effect on the Company or Recap, as applicable, and such breach either is
incapable of cure or is not cured within 15 days after notice from the party
wishing to terminate, PROVIDED, that the party seeking such termination shall
not also then be in material breach of this Agreement.
9.2. MANNER AND EFFECT OF TERMINATION. Termination shall be effected
by the giving of written notice to that effect by the party seeking termination.
If this Agreement is validly terminated and the transactions contemplated hereby
are not consummated, this Agreement shall become null and void and of no further
force and effect and no party shall be obligated to the others hereunder;
PROVIDED, HOWEVER, that termination shall not affect (i) the rights and remedies
available to a party as a result of the breach by the other party hereunder
(provided that, the provisions of Section 9.3 shall constitute the exclusive
legal remedy of Recap with respect to breach by the Company described therein),
(ii) the provisions of Sections 5.12 and 6.4 hereof, or (iii) the obligations of
the Company pursuant to Section 9.3 below.
9.3. CERTAIN PAYMENTS UPON TERMINATION.
(a) In the event that: (i) either party terminates this
Agreement under Section 9.1(b)(i), 9.1(c)(ii) or 9.1(d) due to the failure of
the condition specified in Section 8.1.7 to be satisfied; (ii) the Company
terminates this Agreement under Section 9.1(c)(i); (iii) Recap terminates this
Agreement under Section 9.1(b)(ii); or (iv) Recap terminates this Agreement
under Section 9.1(e) based on the violation or breach by the Company of the
covenants set forth in Sections 7.5, 7.9, or 7.10 hereof, the Company shall pay
to Recap a termination fee in the amount of $7,500,000 (the "Termination Fee"),
plus all Expenses. In
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the event that this Agreement is terminated by either party under Section
9.1(b)(i), 9.1(c)(ii) or 9.1(d) due to a failure of the condition specified in
Section 8.1.4 and the Termination Fee is not then otherwise payable pursuant to
the preceding sentence, the Company shall pay Recap a preliminary termination
fee in the amount of $1,000,000 (the "Preliminary Termination Fee"), plus all
Expenses; provided, however, that if the Company enters into an Acquisition
Proposal within twelve months from the date of the termination of this Agreement
under such circumstance, the Company shall pay to Recap an additional
$6,500,000. In the event that Recap terminates this Agreement under Section
9.1(b)(iii) the Company shall pay Recap for all Expenses; and if the Termination
Fee is not otherwise payable, the Company shall pay Recap the Termination Fee if
the Company enters into an Acquisition Proposal within twelve months from the
date of the termination of this Agreement.
(b) In the event this Agreement is terminated under Section
9.1 and neither the Termination Fee nor the Preliminary Termination Fee is
payable under Section 9.3(a), the Company shall pay, or reimburse Recap, upon
submission of one or more statements thereof, accompanied by reasonable
supporting documentation, for all Expenses incurred in connection with or
related to this Agreement, the Merger and the consummation of all transactions
contemplated by this Agreement, unless: (i) Recap fails in any material
respect to perform any of its material obligations under this Agreement and has
not cured such non-performance within 20 days after Recap has received written
notice from the Company specifying the nature of such non-performance; (ii)
Recap has materially breached any of the material representations or warranties
made by it in Article VI, and such breach is not cured (if the same is
susceptible of being cured) within 20 days after Recap has received written
notice from the Company specifying the nature of such breach; or (iii) the
financing necessary to consummate the transactions contemplated by this
Agreement is not obtained, except for the failure to obtain such financing as a
result of a breach of the Company's representations and warranties made in
Article V, the failure of the Company to perform any of its material obligations
under this Agreement, or the occurrence of any event, individually or in the
aggregate, that would reasonably expected to have a Material Adverse Effect on
the Company.
(c) For purposes of this Section 9.3, "Expenses" shall mean
(A) all fees and expenses (including those of counsel, accountants and other
advisors, but not including any fees and expenses in connection with financings)
not to exceed $1,500,000 and (B) all fees and expenses in connection with
financings (that have been approved in advance by the Company), incurred by any
of Recap and its affiliates in connection with the transactions contemplated by
this Agreement; PROVIDED, HOWEVER, any fees and expenses set forth in the
Financing Letters shall be deemed approved by the Company. All payments
required to be made hereunder shall be made by wire transfer of immediately
available funds within two (2) Business Days of the event giving rise to the
payment of such Expenses. The Company acknowledges that the agreements
contained in this Section 9.3 are an integral part of the transactions
contemplated by this Agreement and that, without said agreements, Recap would
not enter into this Agreement; accordingly, if the Company fails promptly to pay
the Termination Fee and Expenses due pursuant to this Section 9.3, and, in order
to obtain such payment, Recap commences a suit which results in a judgment
against the Company for the fees and expenses set forth herein, the Company will
pay to Recap Recap's reasonable expenses (including attorneys' fees and
expenses) in connection with such suit, together
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with interest on the amounts due hereunder at the legal rate determined by the
court rendering such judgment.
ARTICLE X.
OTHER AGREEMENTS
10.1. CONFIDENTIALITY. The Company agrees that from the date hereof
until the Closing Date or earlier termination of this Agreement it will not, and
will use reasonable best efforts to ensure that none of its directors, officers,
Representatives, agents or employees will, without the prior written consent of
Recap, submit or disclose to or file with any other Person, or use, any
confidential or non-public information relating to the Company or Recap, except
for such disclosure as may be required by Law or applicable accounting
regulations. Recap agrees that from the date hereof until the Closing Date or
earlier termination of this Agreement it will not, and will use reasonable best
efforts to ensure that none of its directors, officers, Representatives, agents
or employees will, without the prior written consent of the Company, submit or
disclose to or file with any other Person, or use, any confidential or
non-public information relating to the Company, except for such disclosure as
may be required by Law or applicable accounting regulations. Without limiting
the generality of the foregoing, Recap and the Company agree and acknowledge
that, until the Closing, they will continue to be bound by the Confidentiality
Agreement dated August 10, 1999 between the Company and Leonard Green &
Partners, L.P.
ARTICLE XI.
MISCELLANEOUS
11.1. EXPENSES. Except as otherwise specifically provided for herein
(including without limitation under Article IX hereof), each of the Company, on
the one hand, and Recap, on the other, shall pay all of its costs and expenses
(including attorneys', accountants' and investment bankers' fees) incurred in
connection with this Agreement and the transactions contemplated hereby.
11.2. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given upon receipt if delivered personally or sent by facsimile
transmission (receipt of which is confirmed) or by courier service promising
overnight delivery (with delivery confirmed the next day) or three (3) Business
Days after sent by registered or certified mail (postage prepaid, return receipt
requested). Notices shall be addressed as follows:
To The Company: InterDent, Inc.
222 North Sepulveda Boulevard
Suite 740
El Segundo, California 90245-4340
Attention: Michael T. Fiore
Facsimile: (310) 765-2459
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With a copy to: McDermott, Will & Emery
18101 Von Karman Avenue
Suite 1100
Irvine, California 92612
Attention: Richard J. Babcock, Esq.
Facsimile: (949) 851-9348
To Recap: ID Recap, Inc.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
Attention: John Baumer
Facsimile: (310) 954-0404
With a copy to: Irell & Manella LLP
333 South Hope Street, 33rd Floor
Los Angeles, California 90071
Attention: Edmund M. Kaufman, Esq.
Facsimile: (213) 229-0515
Either party may from time to time change its address for the purpose of notices
by a similar notice specifying the new address but no such change shall be
effective as against any Person until such Person shall have actually received
it.
11.3. ENTIRE AGREEMENT. This Agreement contains the final and entire
agreement between the parties with respect to the transactions contemplated
hereby and supersedes all written or verbal representations, warranties,
commitments and other understandings prior to the date hereof, other than the
Confidentiality Agreement, dated August 10,1999. No reference shall be made to
any draft of this Agreement for purposes of interpretation or resolution of
ambiguity or otherwise. All Exhibits annexed hereto, and all Schedules referred
to herein, are hereby incorporated in and made a part of this Agreement as if
set forth in full herein.
11.4. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
11.5. SEVERABILITY. If any provision hereof shall be held to be
unenforceable or invalid by any court of competent jurisdiction or as a result
of future legislative action, such holding or action shall be strictly construed
and shall not alter the enforceability, validity or effect of any other
provision hereof.
11.6. ASSIGNABILITY. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by, the parties hereto and their respective
successors and permitted assigns; PROVIDED, HOWEVER, that neither this Agreement
nor any right or obligation hereunder may be assigned by either party without
the prior written consent of the other to be given in the other party's sole
discretion.
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11.7. CAPTIONS. The descriptive headings herein are inserted for
convenience only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
11.8. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
11.9. SPECIFIC PERFORMANCE. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof (without requirement to post bond), in addition to any and all other
remedies at law or in equity.
11.10. AMENDMENT AND WAIVER. This Agreement may be amended, modified or
supplemented at any time, whether before or after stockholder approval only by
an instrument in writing signed by all parties hereto; PROVIDED, HOWEVER, this
Agreement may not be amended, modified or supplemented following approval of the
Merger by the holders of the Company's outstanding capital stock entitled to
vote thereon without the further approval of such stockholders if such
amendment, modification or supplement would adversely affect such stockholders.
No waiver by any party of any of the provisions hereof shall be effective unless
set forth in writing and executed by the party so waiving. Any waiver or
failure to insist upon strict compliance with any obligation, covenant,
agreement, provision, term or condition shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure to comply.
11.11. FURTHER ASSURANCES. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all commercially reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable, whether under applicable laws
and regulations or otherwise, to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement.
11.12. PUBLICITY. Except as hereinafter provided, the Company and Recap
shall not, and each of them shall use commercially reasonable efforts to cause
their respective directors, officers, employees, Representatives and agents not
to, discuss publicly or make any public statement with respect to this Agreement
or the transactions contemplated hereby without the other party's approval.
Before making any such public announcements, the parties hereto shall use good
faith efforts to agree upon the text of a joint announcement to be made by the
parties hereto or use good faith efforts to obtain the other party's approval of
the text of any public announcement to be made solely on behalf of such party.
If the parties hereto are unable to agree on or approve such a public statement
or announcement and legal counsel for a party is of the opinion that such
statement or announcement is required by law or the rules of any stock exchange
on which the parties' securities are traded, then such party may make or issue
the legally required statement or announcement.
11.13. FORCE MAJEURE. Anything to the contrary in this Agreement
notwithstanding, no party hereto shall be liable to the other parties hereto for
any loss, injury, delay, damages
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<PAGE>
or other casualty suffered or incurred by such other party hereto due to
strikes, riots, storms, fires, explosions, acts of God, war, governmental
action, or any other cause similar thereto which is beyond the reasonable
control of such parties, and any failure or delay by any party hereto in
performance of any of its obligations under this Agreement due to one or more of
the foregoing causes shall not be considered as a breach of this Agreement. In
the event that performance of any of the material obligations under this
Agreement shall be suspended due to one or more of the foregoing causes and such
suspension shall have a material adverse impact on consummation of the
transactions as contemplated in this Agreement or on the operations or financial
conditions or prospects of the Company, then the aggrieved party which shall be
materially and adversely affected thereby may terminate this Agreement.
11.14. ATTORNEY'S FEES. In any suit or proceeding arising out of this
Agreement or to interpret or enforce any provision of this Agreement, the
prevailing party shall be entitled to all reasonable out-of-pocket expenses and
reasonable attorneys' fees incurred by such party in connection with such suit
or proceeding.
11.15. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None
of the representations, warranties, covenants and agreements in this Agreement
or in any instrument delivered pursuant to this Agreement shall survive the
Effective Time, except for the agreements contained in Article II, and Sections
5.12, 6.4 and 7.13 hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
INTERDENT, INC.
a Delaware corporation
By:
----------------------------------
Name: Michael T. Fiore
Title: Chief Executive Officer
ID RECAP, INC.,
a Delaware corporation
By:
----------------------------------
Name: John Danhakl
Title: President
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<PAGE>
Exhibits
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Exhibit A Voting Agreement
Exhibit B Recapitalization Agreement
Exhibit C Employment Agreement
Schedules
---------
Schedule 1.2(lll) Permitted Encumbrances
Schedule 1.2(ttt) Rollover Options
Schedule 4.3 Directors
Schedule 5.1 Organization, Standing and Authority
Schedule 5.2 Company, Subsidiaries and Equity
Schedule 5.3 Company Capital Stock
Schedule 5.4 Corporate Power
Schedule 5.5(a) Consent and Approvals; No Defaults
Schedule 5.5(b) Conflicts
Schedule 5.5(c) Governmental Approvals
Schedule 5.5(d) Non-Governmental Approvals
Schedule 5.6 Financial Reports and Regulatory Documents; Changes
Schedule 5.8 Litigation
Schedule 5.9 Regulatory Matters
Schedule 5.10 Compliance with Laws
Schedule 5.11 Material Contracts; Defaults
Schedule 5.13 Undisclosed Liabilities
Schedule 5.14 Employee Benefit Plans
Schedule 5.15 Labor and Employment Matters
Schedule 5.16 Year 2000 Compliance
Schedule 5.17 Environmental Matters
Schedule 5.18 Tax Matters
Schedule 5.20 Insurance
Schedule 5.21 Assets
Schedule 5.23 Regulatory Approvals
Schedule 5.24 Real Property and Leaseholds
Schedule 5.27 Earn out Payments
Schedule 6.2 Conflicts
Schedule 6.3 Approvals
Schedule 7.1 Conduct of Business Pending Closing
Schedule 7.18 Redemption or Cancellation of Securities
Schedule 8.3.7 Accounting Principles
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<PAGE>
[LOGO]
Contacts:
InterDent, Inc.
Michael Fiore
Co-Chairman and CEO
(310)765-2400
www.interdent.com
Lippert/Heilshorn & Associates
Lillian Armstrong ([email protected])
(415) 433-3777
John Heilshorn ([email protected])
(212) 838-3777
John Danhakl
Partner
Leonard Green & Partners, LP.
(310) 954-0444
INTERDENT, INC. ANNOUNCES MERGER AGREEMENT WITH
LEONARD GREEN & PARTNERS, L.P. AND RECAPITALIZATION
INTERDENT STOCKHOLDERS TO RECEIVE $9.50 PER SHARE IN CASH
EL SEGUNDO, California, October 22, 1999 -- InterDent, Inc. (NASDAQ NM: DENT)
today announced the signing of a definitive merger agreement between the
Company and a group consisting of an affiliate of Leonard Green & Partners,
L.P. and certain members of management including Michael Fiore, InterDent's
Co-Chairman and Chief Executive Officer and Steven Matzkin, D.D.S., the
Company's Co-Chairman, President and Chief Dental Officer. Additionally,
the Sprout Group and Chase Capital Partners, existing investors in the
Company, have indicated that they intend to join the group leading the
recapitalization. Under the terms of the agreement, the Company's
stockholders will receive $9.50 per share in cash.
Michael Fiore, Steven Matzkin, certain other members of management, the
Sprout Group, and Chase Capital Partners will retain a portion of their
stockholdings in the surviving corporation, although a substantial amount of
their shares will be acquired in the transaction along with, and at the same
price as, all other outstanding shares. The transaction is valued at
approximately $325 million.
The merger agreement was unanimously approved by the Board of Directors
following the unanimous recommendation of a special committee consisting of
non-management and disinterested directors. Deutsche Banc Alex. Brown is
acting as financial advisor to the special committee and has delivered to the
Board of Directors and the special committee of the Board of Directors an
opinion that, from a financial point of view, the cash consideration to be
received by the holders of the Company's common stock is fair.
<PAGE>
Mr. Fiore stated, "We believe that this course of action is the best
alternative for our stockholders, partner dentists, employees and patients."
Dr. Matzkin added that, "We are pleased with the decision of the Board to
proceed with this transaction."
John Danhakl, Partner with Leonard Green & Partners, L.P., said, "We
look forward to our partnership with InterDent and its management team.
Leonard Green & Partners is committed to providing the capital necessary to
maintain InterDent's industry leadership and the highest level of service to
its dental professionals and their patients."
Completion of the transaction is subject to customary conditions
including stockholder approval and receipt of regulatory approvals, and
completion of debt financing required for the transaction. Stockholder
approval will be solicited by means of a proxy statement, which will be
mailed to stockholders upon the completion of the required Securities and
Exchange Commission filing and review process. The Company currently
anticipates completing the transaction in the first calendar quarter of 2000.
Leonard Green & Partners, L.P. is a private Los Angeles-based merchant
banking firm specializing in organizing, structuring and sponsoring
management buy-outs, going private transactions and recapitalizations of
established public and private companies. Morgan Stanley Dean Witter advised
Leonard Green & Partners in this transaction.
Leonard Green & Partners, L.P. has significant investments in Liberty
Group Publishing, Inc., a chain of 284 community newspapers; Twinlab
Corporation, a leading manufacturer and marketer of vitamins and nutritional
supplements; Leslie's Poolmart, Inc., the nation's leading retailer of pool
supplies; and Gart Sports Company, the nation's second largest sporting goods
retailer. Leonard Green & Partners, L.P. is the largest private equity firm
in Southern California managing in excess of $1.7 billion of private equity
capital.
InterDent is the largest provider of dental management services in the
US. The Company provides dental management services to 204 locations in
California, Oregon, Washington, Idaho, Nevada, Hawaii, Florida, Georgia,
Michigan, Pennsylvania and Indiana. Presently, InterDent has over $250
million in annualized net patient revenues under management. The Company is
continuing to expand by building a fully integrated support
<PAGE>
environment utilizing advanced information technologies to enable dental
professionals to provide patients with high quality, comprehensive,
convenient and cost effective care.
This press release contains forward-looking statements that are made
pursuant to the safe harbor provisions of The Private Securities Litigation
Reform Act of 1995. The forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from the
forward-looking statements. Those risks and uncertainties include
InterDent's ability to complete the proposed merger and recapitalization,
InterDent's ability to close and absorb future acquisitions, the economic
climate in the Company's service areas, the ability of the Company to
effectively implement its Internet strategy or its planned fully integrated
support environment, potential changes in government regulation and in the
dental insurance industry, actions by competitors, and other factors
disclosed in the Company's filings with the Securities and Exchange
Commission. The forward-looking statements should be considered in light of
these risks and uncertainties.
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