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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File No. 0-20222
PRINCETON DENTAL MANAGEMENT CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 36-3484607
(State of Incorporation) (I.R.S. Employer
Identification No.)
7421 WEST 100TH PLACE, BRIDGEVIEW, ILLINOIS 60455-2442
(Address of principal executive offices, including zip code)
(708) 974-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.0001 PAR VALUE
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No __
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.
[X]
The Registrant's revenues for its most recent fiscal year ended December 31,
1997 were $13,795,792.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 1, 1998 (based upon the average bid and ask prices of
these shares in the over-the-counter market as of March 1, 1998) was
approximately $3,469,640.
As of March 1, 1998 there were 2,040,965 shares of the Registrant's Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Princeton Dental Management Corporation ("Princeton" or the "Company") is
involved in the management of dental practices and laboratories. The market of
general dental practitioners and dental specialists is characterized as highly
fragmented. The Company's goal has been to acquire and consolidate dental
practices and to increase their profitability by centralizing certain
administrative, purchasing, marketing and other functions and implementing
certain revenue enhancement programs. Ultimately, the Company's goal has been to
acquire and consolidate a sufficient number of dental practices to justify the
Company's entry into the dental managed care business and possibly the dental
supply business.
Princeton was incorporated in Delaware in October 1986 and commenced
operations in 1987. Princeton's principal executive offices are located at 7421
West 100th Place, Bridgeview, Illinois 60455-2442.
GENERAL DEVELOPMENT OF BUSINESS.
Princeton was organized in October 1986 for the purposes of acquiring
dental practices on a nationwide basis and to provide various services to those
dental practices, including marketing, practice development, management, and
support services. From the date of incorporation through April 1992, the Company
developed and provided marketing and practice enhancement services for dental
practices and conducted demographic research.
As of March 1, 1998, the Company operated nine dental practices and one
dental laboratory, obtained through the acquisitions and sales (the
"Transactions") described below.
In July 1992, the Company acquired all of the issued and outstanding
shares of common stock of American Dental Health-Battle Creek, P.C. ("Battle
Creek"). Battle Creek operates 3 dental practices in Battle Creek, Taylor and
Ypsilanti, Michigan. The acquisition price, which was a total of approximately
$2,000,000, consisted of $500,000 in cash, $1,000,000 in a promissory note and
$500,000 worth of Company common stock. With respect to the stock, the Company
issued 163,578 shares, which equated to $500,000 in market value of the stock at
the time of acquisition.
In March 1993, the Company acquired substantially all of the assets of
Century Dental Centers I, P.C. ("Century"), a dental practice located in
Springfield, Pennsylvania. The acquisition price, which was a total of $547,000,
consisted of $145,000 in cash, $269,000 in a promissory note and $133,000 worth
of Company common stock. With respect to the stock, the Company issued 26,394
shares, which equated to $133,000 in market value of the stock at the time of
acquisition.
Effective as of May 20, 1997, the Company sold the assets comprising the
Century Dental Center to Valley Forge Dental Associates, P.C. The Century Dental
practice, with 1996 revenues of approximately $965,000, represented
approximately 5.3% of the total revenue of the Company. The Century practice was
sold for $590,000. The sales price included $235,000 in cash where a $42,000
commission was paid, $140,000 in contingency payments, a $30,000 note
receivable, and forgiveness of debt and assumption of other liabilities of
approximately $185,000. (See Exhibit 10.59).
In December 1993 the Company acquired all of the issued and outstanding
common stock of Mason Dental Inc. ("Mason"), a dental laboratory located in
Livonia, Michigan. The acquisition price, which was a total of $3,490,000,
consisted of no cash, $1,629,000 in a promissory note (subsequently adjusted
upwards by $316,406.25 due to a post-closing adjustment based on the value of
the Company's common stock), and $1,861,000 worth of Company common stock. With
respect to the stock, the Company issued 462,500 shares, which equated to
$1,861,000 in market value of the stock at the time of acquisition.
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In July, 1997, the original owners of Mason agreed to convert $150,000
worth of debt owed to them by the Company into 53,381 shares of the Company's
Common Stock. (See Exhibits 10.56 and 10.58).
In February 1994, the Company acquired all of the issued and outstanding
common stock of C.D. Nunnelly, D.D.S. & Associates, Inc., d/b/a Fairfield Dental
Center ("Fairfield"), a dental facility located in Pensacola, Florida. The
acquisition price, which was a total of $1,397,000, consisted of $366,000 in
cash, $541,000 in a promissory note and $490,000 worth of Company common stock.
With respect to the stock, the Company issued 166,667 shares, which equated to
$490,000 in market value of the stock at the time of acquisition.
In January 1997, the Company sold all of the assets of Fairfield back to
Drs. Payne and Barfield, the individuals from whom the Fairfield practice was
originally purchased (See Exhibit 10.52). The sale price, which was a total of
$935,000, consisted of $475,000 in cash and approximately $460,000 in
forgiveness of debt and assumption of other liabilities.
In April 1994, the Company acquired all the issued and outstanding stock
of seven dental practices and one dental laboratory, namely The Dental Team of
Boca Raton, Inc., The Dental Team of Boynton Beach, Inc., The Dental Team of
Coral Springs, Inc., The Dental Team of Deerfield Beach, Inc., The Dental Team
of Delray Beach, Inc., The Dental Team of Pompano Beach, Inc., Palm Beach Dental
Services, Inc. and Pompano Square Dental Lab, Inc. (collectively referred to as
"The Dental Team") located in Palm Beach and Broward counties in Southeast
Florida. The acquisition price, which was a total of $4,611,000, consisted of
$600,000 in cash, $831,000 in promissory notes and $3,180,000 worth of Company
common stock. With respect to the stock, the Company issued 1,247,059 shares,
which equated to $3,180,000 in market value of the stock at the time of
acquisition.
In February 1997, the Company sold all of the assets comprising the Dental
Team of Delray Beach to Dr. Richard Staller, a former director of the Company
and one of the individual dentists from whom the Dental Team was originally
purchased (See Exhibit 10.51). The sale price, which was a total of
approximately $175,000, consisted of approximately $175,000 in forgiveness of
debt and assumption of other liabilities resulting from the acquisition notes
and Dr. Staller's employment and management agreements with the Company. An
additional $25,000 owing pursuant to his management agreement was also forgiven
in connection with this sale.
Effective as of June 1, 1997, the Company sold the assets comprising
the Mason Dental Southeast, Inc. / Renaissance Dental Studio to Mr. Lawrence
Ceraulo, individually and doing business as Certex Dental Studio. The Mason
Dental Southeast, Inc. / Renaissance Dental Studio, with 1996 revenues of
approximately $390,000, represented approximately 2.2% of the total revenue
of the Company. (See Exhibit 10.54). The Mason Dental Southeast, Inc. /
Renaissance Dental Studio was sold for $92,096 in the form of a short-term
note; an additional short-term note payable to purchase supplies in the
amount of $9,847; and a assumption of an existing note payable of $18,372.
NARRATIVE DESCRIPTION OF BUSINESS.
The Company is involved in the management of dental practices and a
laboratory. Dental practices provide routine dental services and, in certain
cases, specialty services such as oral surgery, orthodontics, periodontics, and
endodontics. These services are offered to the general public on either a
fee-for-service basis or through a form of managed care. Dental laboratories
manufacture dental prosthetics (e.g. dentures, bridges, crowns, etc.) as
requested by dental practices.
The Company's practices compete with both existing neighborhood general
practices as well as franchises and dental practices located in shopping
centers, malls, etc.
The Company's operations are not significantly dependent on the source or
availability of any materials. Rather, the Company's viability and revenue
production is dependent upon the ability to attract and employ dental
practitioners and specialists. The Company's acquisition strategy typically
includes maintaining the employment of the dentists and specialists within the
acquired practice groups. The Company feels that there is no shortage of
qualified available dental professionals that would impair its ability to
maintain and expand its business.
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The Company is not dependent upon any single customer or a few major
customers. However, a significant percentage of the Company's revenues are
generated from managed care agreements. Under customary managed care agreements,
providers agree to accept a reduced fee for service or payment on a capitation
(fixed fee) basis or monthly capitation payments with a plan member paying a
co-pay for certain dental procedures. In return for this concession, under the
terms of such agreements, the practice is a preferred or exclusive provider of
services to a certain population of potential patients. The Company recognizes
that, while these managed care contracts can significantly enhance the revenue
of a given practice, the loss of any of these contracts could likewise be
significant.
The Company believes that in certain circumstances, the trade name of the
practice or group of practices acquired may have value within the area it
services. As part of each acquisition, the Company always acquires the
practices' trade names and trademarks. The Company typically will not change the
name of the acquired practices post-acquisition.
The practice of dentistry is subject to regulation under state laws which,
among other things, govern the ownership and control of dental practices,
advertising, fee splitting, referral fees, and other financial arrangements. For
example, some states may require the dentist's name (or possibly a corporate
name of which the practicing dentist is an officer) to be displayed clearly on
an outside sign or on the door of the practice, while other states may require
the billing for professional services to be made by the dentist who rendered the
services with that dentist's name clearly reflected thereon. No regulatory
authority has formally reviewed or approved Princeton's plan of operations and
no such formal review is presently contemplated or, to Princeton's knowledge,
available. No assurances can be given that, if any such review was available or
occurred, the result would be favorable. In addition, there can be no assurance
that such states will not enact more restrictive legislation that could require
Princeton to modify its operations and possibly adversely affect its
profitability prospects.
As of March 1, 1998, Princeton employed approximately 149 individuals on a
full-time basis, including two executive officers, and 41 on a part-time basis
(defined as less than 32 hours per week). Princeton is not a party to any
collective bargaining agreement and believes its employee relationships are
satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive offices were moved in 1995 from Holiday,
Florida to Hoffman Estates, Illinois, and in 1996 from the Hoffman Estates
location to 7421 West 100th Place, Bridgeview, IL 60455-2442. The Company
currently leases approximately 2,646 square feet at the Bridgeview location on a
month to month basis at a rate of approximately $1,555.00 per month (plus common
area maintenance and real estate taxes) from an entity controlled by Frank
Leonard Laport, Chairman and CEO of Princeton (See Exhibit 10.49). The Company
also rents its phone system at the Bridgeview location on a month to month basis
at a rate of approximately $570.00 per month from Mr. Laport (See Exhibit
10.50).
The lease on the former corporate office located at 2739 U.S. Highway 19,
Holiday, Florida 34691, remains Princeton's obligation. Princeton has sublet all
of the space at this location. The net reduction in rent in 1997 due to the
sublease was $114,103. The minimum lease payments under this operating lease,
net of sublease, for the years subsequent to December 31, 1997 are $27,089 in
1998, and $12,313 in 1999.
On July 31, 1992, in connection with the Battle Creek Acquisition,
Princeton was assigned the right, pursuant to license agreements to operate
dental facilities in Meijers Thrifty Acres stores located in Battle Creek,
Taylor, and Ypsilanti, Michigan. The license agreements, which terminated on
December 31, 1997 also obligated Princeton to make license payments with respect
to the facilities. Pursuant to these licenses, Princeton was required to pay a
base license fee of $28,652 and an additional license fee based upon actual
collections received by each facility. In July, 1997 the company entered into a
Termination Agreement with respect to the Meijer leases, which terminated the
leases and obliged the Company to pay a total of $ 80,000 to Meijer over a
period of twelve months. The Termination Agreement also ended the base license
payments and additional license payments based on actual collections. In April
through June of 1997, the Company entered into new lease and management
agreements for new locations in Ypsilanti, Taylor and Battle Creek. The leases
at each of the Michigan locations
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are long-term leases, with initial monthly rents ranging from $2,825.00 to
$3,557.41. At the Battle Creek and Ypsilanti locations, the Company also entered
into management agreements with the lead dentist at each location entitling such
dentist to a percentage of net profits generated by such practice in return for
management services.
On March 31, 1993, in connection with the Century Acquisition, Princeton
was assigned a lease with respect to the facility, which is located in a
shopping center in Springfield, Pennsylvania. The lease, which terminates in
2001 and is subject to renewal, covers approximately 2,820 square feet. For the
year ended December 31, 1997, lease payments on this facility totaled $25,565
including common area maintenance. In connection with the sale of Century,
responsibility for this lease has been transferred to the purchaser.
On December 31, 1993, in connection with the Mason Acquisition, Princeton
assumed the triple net lease for $148,200 per year, payable on a monthly basis
to Stark Enterprises, an entity owned by three individuals who are now
shareholders of Princeton as a result of the merger and one of whom, Gary A.
Lockwood, is President and COO of Princeton. The lease, which terminates at
December 31, 2001 and is subject to renewal, covers approximately 18,000 square
feet.
On February 28, 1994, in connection with the Fairfield acquisition,
Princeton assumed a lease for $102,324 per year, payable on a monthly basis to
Fairfield Dental Building, a partnership owned by two individuals who are now
shareholders of Princeton as a result of the merger. The lease, which was due to
terminate at February 28, 1999, covered approximately 7,000 square feet. In
connection with the sale of Fairfield in 1997, this lease has been terminated.
On April 1, 1994, in connection with the Dental Team acquisition,
Princeton assumed nine facility leases ranging from $7,200 to $68,125 per year,
payable on a monthly basis with expiration dates ranging from April 30, 1998 to
March 1, 2004. The future minimum lease payments under these operating leases
for the years subsequent to December 31, 1997 are $195,587 in 1998, $155,769 in
1999, and $274,867 thereafter. In addition, the Boynton Beach office lease and a
storage facility lease are payable to B & S Properties, a partnership owned by
two individuals who are now shareholders of Princeton as a result of the merger,
which requires monthly payments totaling $3,600 through March 1, 2004. In
connection with the sale of the assets of the Dental Team of Delray Beach, the
lease for the Delray Beach location has been terminated. In connection with the
sale of the Florida dental lab, the purchaser assumed responsibility for that
lease.
In the opinion of management, the Company's facilities are adequately
covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
On October 16, 1996, the Company was sued for $160,000 by Romajo Partners
Limited Partnership, a Partnership controlled by Dr. Seymour Kessler, a former
officer and director of the Company. While the Company is appealing, the Company
received an adverse judgment and was required to pay a $162,627.72 judgement
amount and $17,505.90 in legal fees.
The Company is involved in a number of other legal proceedings related to
malpractice, worker's compensation, general employment, vendor and contract
disputes all in various stages of proceedings. Management believes settlements,
if any, in excess of insurance coverage would be immaterial. There is no other
litigation pending to which Princeton is a party or of which any of its property
is the subject, other than routine litigation incidental to its business and for
which Princeton is insured. Further, there are no proceedings known to be
contemplated by governmental authorities relating to either Princeton or its
properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Effective August 18, 1997, the Company shareholders approved a 5-1
reverse stock split of the Company's Common Stock. All figures have been
restated to reflect such reverse stock split.
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Effective August 18, 1997, the Company shareholders approved a 5-1 reverse
stock split of the Company's Common Stock.
The Company's common stock and warrants are traded in the over-the-counter
market and have been quoted on the NASDAQ System under the symbols PDMC and
PDMCW, respectively, since April 15, 1992.
NASDAQ has recently modified its listing criteria for the NASDAQ Small Cap
Market. The Company does not presently meet such new criteria. The Company can
make absolutely no assurances regarding the final outcome of these modifications
to the listing criteria on the NASDAQ System or the impact which such
modifications could have on the Company's continued listing on the NASDAQ
System.
The following table sets forth the high and low bid quotations for the
Company's common stock and warrants, as reported by the National Association of
Securities Dealers, Inc. for the two most recent fiscal years. Such quotations
reflect inter-dealer quotations, without retail mark-up, markdowns or
commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
FISCAL YEAR ENDED
DECEMBER 31, 1997 HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter $5.00 1.55 .16 .03
Second Quarter 5.30 2.50 .19 .03
Third Quarter 4.06 2.35 .09 .03
Fourth Quarter 3.50 1.78 .13 .03
FISCAL YEAR ENDED
DECEMBER 31, 1996
First Quarter $8.45 4.70 $N/A $N/A
Second Quarter 7.50 3.75 N/A N/A
Third Quarter 4.35 2.80 0.06 0.03
Fourth Quarter 3.75 1.55 0.09 0.03
</TABLE>
As of December 31, 1997, there were 147 and 35 holders of record of the
Company's common stock and warrants, respectively. These numbers include
shareholders and warrant holders of record who may hold stock and warrants for
the benefits of others. The Company does not consider it practical to attempt to
determine the number of individuals who are beneficial owners of its shares and
warrants.
Also, as described in detail in Item 12, the Investor Group (as defined in
Item 12) presently holds various Convertible Debt and Warrants which, if
exercised or converted, would result in the Investor Group owning approximately
85% of the issued and outstanding shares of Common Stock of the Company.
The Company has never paid cash dividends on its common stock and does not
expect to pay such dividends in the foreseeable future. Management currently
intends to retain all available funds for the development of its business and
for use as working capital.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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OVERVIEW
In 1996, the Company continued to incur significant operating losses and
net losses as a result of its overall operations and, in 1996, the Company also
had a one time write down of identifiable goodwill of $3,499,172 to more
properly reflect the value of its practices. During this period the Company made
no significant new acquisitions and incurred significant additional debt,
primarily in the form of convertible debt and preferred stock in connection with
the Financing Arrangement (See Item 12).
In early 1997, the Company sold three of its existing dental practices
and one of its dental labs (Fairfield, Dental Team at Delray Beach, Century and
Mason Dental Lab Southeast) (See Item 1).
During 1997, the Company significantly improved operating results which,
when combined with the waiver of interest pursuant to the Modification Agreement
and the Allonge (See Exhibits 10.55, 10.56 and 10.58) the gain from the sale of
three dental offices and one dental lab, an accompanying reduction of the
depreciation and a reduction of the monthly amortization based on the write down
of goodwill at December 31,1996, resulted in a small net profit for 1997.
RESULTS OF OPERATIONS
Revenue for the year ended December 31, 1997 was $13,795,792 compared with
$18,044,213 for the year ended December 31, 1997, a decrease of $4,248,421. The
change in revenue is due primarily to the sale of three dental practices and one
dental laboratory. Operating expenses decreased $9,244,334 to $13,881,969 for
the year ended December 31, 1997 from $23,126,303 for the year ended December
31, 1997. This decrease is due in large part to the sales of the practices and
dental laboratory and to a one time write down of goodwill during 1996 of
$3,499,172 as well as several cost cutting measures related to compensation,
benefits, and various other practice expenses.
Interest expense decreased $478,606 to $236,391 for the year ended
December 31, 1997 versus $714,997 incurred in the comparable period last year.
The decrease is primarily from the waiver of interest pursuant to the
Modification Agreement and the Allonge. (See Exhibits 10.55, 10.56 and 10.58)
The Company showed a net income of $8,419 for the year period ended
December 31, 1997, as compared to a net loss of $5,749,604 for the year period
ended December 3, 1996. Net income for the year ended December 31, 1997 shows
substantial improvement over the prior year ended December 31, 1996, primarily
as a result of significant improvement in operations, the waiver of interest
pursuant to the Modification Agreement and the Allonge (See Exhibits 10.55,
10.56 and 10.58) the gain from the sale of three dental offices and one dental
lab, an accompanying reduction of the depreciation, and a reduction of the
monthly amortization based on the write down of goodwill at December 31, 1996.
FINANCIAL CONDITION
Changes in the Company's financial condition at December 31, 1997 as
compared with December 31, 1996 resulted primarily from the waiver of interest
pursuant to the Modification Agreement and the Allonge and a general improvement
in operations and the sale of three dental practices and a dental laboratory
during the year ended December 31, 1997. During the year ended December 31,
1997, the Company realized significant proceeds from the sale of Fairfield
Dental, Center Century Dental Center, and Mason Dental Southeast / Renaissance
Dental Studio. The sale of the Dental Team of Delray Beach was exclusively
forgiveness of debt. The Company recognized no cash from the sale of the Delray
Beach practice.
During 1997, the Company arranged payment terms with several of its
suppliers. Those suppliers have once again begun extending standard credit
terms, and orders are generally no longer shipped being on a C.O.D. basis. One
of the Company's largest suppliers has begun shipping supplies and providing
services based on a mutually agreed upon plan that has been put into place to
reduce the outstanding balances.
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The Company is currently in the process of developing revenue enhancement
programs in both the dental practice segment as well as the laboratory segment.
In addition, the Company is also working to improve the operating results of the
various operations by reducing the costs of patient services including the
reduction in payroll. The Company has begun steps to reduce general and
administrative expenses. However, the Company can make no assurances in regards
to the results of these programs.
In addition, during 1997 the Company sold its dental practice in
Pennsylvanian, two of its Florida dental practices and its dental laboratory in
Florida. These sales are consistent with the Company's long-term business plans
and should generally have a positive impact upon operations.
During the first and second quarters of 1996, the Company did not deposit
certain state payroll tax liabilities totaling approximately $53,000. The
Company filed the state payroll tax returns for the first and second quarters of
1996 during the first quarter of 1997. Management is currently negotiating with
the State to abate penalties associated with the late payment. These
negotiations are under review by state authorities.
In the period from 1994 to present, the Company did not make certain
Michigan state tax filings. The Company is in the process of preparing these
filings and estimates its liability at approximately $175,000.
LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY AND CAPITAL LIQUIDITY AND CAPITAL
RESOURCES
As of December 31, 1997, the Company had a working capital deficit of
$3,777,875 and a financial accumulated deficit of $13,722,771. Goodwill and
other intangibles comprise approximately 67% of total assets, leaving tangible
assets of approximately $2,713,643 and negative tangible net worth of
approximately $4,335,384.
During the year ended December 31, 1997, the Company's cash and cash
equivalents decreased $138,591. Cash provided by operations was $42,047,
resulting primarily from the Company's decrease in accounts receivable, which
can be attributed to the sale of the dental practices, accounts payable, and
accrued expenses. These operations were partially offset by depreciation and
amortization of $881,845.
Investing activities provided $645,662 of cash, primarily related to the
sale of the dental practices and laboratory. Cash of $826,300 was used in
financing activities, primarily as a result of the extinguishment of debt.
As disclosed in Item 12, the Company's primary source of outside financing
is from the Investor Group. Given the Company's working capital deficit and
negative tangible net worth, the Company is heavily reliant on the Investor
Group's financing to continue the Company's expansion plans and to a larger
extent, provide working capital to fund the operations. As indicated above, the
Company had reached agreement with the Investor Group as to a temporary waiver
of interest during 1997. That waiver has expired and interest again began
accumulating as of January 1, 1998.
ITEM 7. FINANCIAL STATEMENTS
The Company's audited financial statements for the fiscal years ended
December 31, 1996 and 1997 accompany this report as Item 13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
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ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT
The following persons are the directors and executive officers of the
Company as of the date of this report:
<TABLE>
<CAPTION>
First Became Beneficially Owned Beneficially Owned
Employment Age a Director Number of Shares Percent of Shares
- ---------- --- ---------- ---------------- -----------------
<S> <C> <C> <C> <C>
Frank Leonard Laport 57 8/9/96 98,975(1) 5.0%
George B. Collins 66 8/9/96 0(2) 0.0%
Gary A. Lockwood 51 8/9/96 94,193(3) 4.8%
Dr. Zigmund C. Porter 60 8/15/97 0 0.0%
</TABLE>
1) Does not include full conversion and dilution of Series A Stock and
Convertible Debt and exercise of the default Warrants currently held
by Amsterdam Equities Limited and Mr. Laport, (See Item 12),
Conversion of this Series A Stock and Convertible Debt and exercise
of the default Warrants could result in Amsterdam Equities and Mr.
Laport holding, in the aggregate, approximately 85% of the Class. In
the event of such a conversion and exercise, the 85% of the Class
would be held almost entirely by Amsterdam Equities with Mr. Laport
holding less then 8% of the stock resulting from such conversion and
exercise.
2) Does not include Amsterdam Equities Limited stock for which Mr.
Collins holds a power of attorney.
3) Total shares held by the Island Group.
Dr. Richard S. Sokol was elected as a director in August 1997 and resigned in
September 1997.
Frank Leonard Laport. Mr. Laport, born Chicago, Illinois, March 8, 1941,
admitted to the Bar: 1966, Illinois; 1969, Florida; 1974, Indiana; 1966, U.S.
Tax Court; 1967, U.S. District Court, Northern District of Illinois; 1969, U.S.
District, Southern District of Florida; 1974, U.S. District, Southern District
of Indiana; U.S. Supreme Court. Licensed as Illinois Real Estate Broker on July
1, 1964. Earned the Certified Commercial Investment Member (C.C.I.M.)
Designation of the Realtors National Marketing Institute, an affiliate of the
National Association of Realtors in 1983. Education: Elmhurst College (B.S., in
B.A., 1963); DePaul University, Law School (J.D. 1966).
George B. Collins. Mr. Collins, Born Kansas City, Missouri, April 23, 1931;
admitted to bar, 1953, Arkansas; 1955 Illinois; 1970, U.S. Tax Court; 1972, U.S.
Supreme Court; 1982, U.S. District Court, Northern District of Illinois, Trial
Bar; U.S. Court of Appeals, Second, Seventh and Ninth Circuits. Education:
Arkansas A. & M. College (B.S. 1952); University of Arkansas (L.L.B., 1954).
Omicron Delta Kappa. Associate Editor, Arkansas Law Review, 1951-1952. Author:
"Usury," 8 Arkansas Law Review, September 1954. Teaching Associate, Northwestern
University School of Law, 1954-1955. co-author: "Defending White Collar Crimes,"
Practicing Law Institute 1976; "White Collar Crimes; Defense Strategies",
Practicing Law Institute, 1977; "White Collar Crimes:, Practicing Law Institute,
1978; "White Collar Crimes." Practicing Law Institute, 1980. Member: Chicago
(Member, 1955-1978, Vice Chairman, 1967 and Chairman, 1968, Committee on Legal
Education, Member, Committee on Professional Fees, 1966; Vice Chairman, 1973;
1974-1975; Chairman, 1975, Committees on: Environmental Law, 1973; Circuit Court
Operations, 1976. Member 1976-1986, Vice Chairman, 1979-1980; 2981 and chairman
1980-1981, Lawyers Referral Plan Committee), Illinois State, Arkansas and
American Bar Associations.
Gary A. Lockwood. Mr. Lockwood was named Chief Operating Officer of Princeton
Dental Management Corporation in June, 1996. In this capacity, he is responsible
for all of the Company's operating units in Michigan. Previously he served as
Chief Executive Officer of the Company's dental laboratories in Michigan and
Florida. Mr. Lockwood brings to his post more than 20 years of dental management
experience as owner of Michigan-based Mason Dental, Inc. one of the nation's
largest manufacturers of dental prosthetics. Prior to Mason's acquisition by the
Company, he served as President and Director of Diversified Dental Services, a
wholly owned subsidiary of Mason Dental. Mr. Lockwood has held executive
positions and directorships with realty, financial management and banking
organizations. A Michigan native, he is a graduate of Northern Michigan
University with a degree in business administration.
9
<PAGE> 10
Dr. Zigmund C. Porter. Dr. Porter, born Chicago, Illinois, April 20, 1938. Dr.
Porter received his B.S. from the University of Illinois in 1960 and his D.D.S.
from the University of Illinois in 1962. Dr. Porter also received a Certificate
of Periodontics and Oral Medicine from Tufts University School of Dental
Medicine, Boston, in 1962-64. Dr. Porter has been a licensed periodontist for
over 25 years and has held numerous teaching and hospital positions. Including
serving as Professor of Periodontics, University of Illinois, and Director of
Post-Graduate Periodontics from 1964-85, and holding positions at Hinsdale
Hospital, MacNeal Hospital, Illinois Masonic Hospital and the University of
Illinois. Dr. Porter has given numerous lectures and published numerous articles
and texts regarding periodontics and has received a number of citations and
awards for his work in the dental field.
Compliance with Section 16 of the Exchange Act
Section 16 of the Securities and Exchange Act of 1934 requires the
Company's Directors and Executive Officers, and persons who own more than 10% of
the Company's Common Stock, to file with the Securities and Exchange Commission
(the "SEC") and the NASDAQ System, initial reports of ownership and reports of
changes in ownership of Common Stock. In addition these individuals are also
required by SEC regulations to furnish the Company with copies of all Section 16
forms they file. To the Company's knowledge, during the fiscal year ended
December 31, 1997, all Section 16 filing requirements applicable to its
executive officers, directors and greater than 10% beneficial owners were
complied with.
[ TABLE TO FOLLOW ON NEXT PAGE ]
10
<PAGE> 11
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation accrued by the Company for
the last three fiscal years to the Company's Chief Executive Officers and to
those executive officers whose compensation exceeded $100,000 in any of the last
two fiscal years.
SUMMARY
COMPENSATION
TABLE
<TABLE>
<CAPTION>
Other Annual Restricted Options LTIP All Other
Name and Principal Position Year Salary ($) Compensation Stock Awards SARS (#) Payouts (#) Compensation
- --------------------------- ---- ---------- ------------ ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kurt E. Anderson 1997 0 0 0 0 0 0
Former President 1996 0 0 0 0 0 0
(President 1/95 to 10/95) 1995 53,717 0 0 0 0 0
Charles R. Mitchell 1997 0 0 0 0 0 0
Former President 1996 44,000 0 10,000(1) 0 0 0
(President 10/95 to 8/96) 1995 0(1) 0 0(1) 0 0 0
Gary A. Lockwood 1997 119,095(2) 0 0 0 0 0
President and 1996 117,000(2) 0 0 20,000(2) 0 0
Chief Operating Officer 1995 97,000(2) 3,731(2) 0 0 0 0
(President 8/96 to Present)
Frank Leonard Laport, Esq 1997 0(3) 0(3) 0 0 0 0
CEO & Chairman of the Board 1996 0(3) 0(3) 0 0 0 0
1995 0 0 0 0 0 0
</TABLE>
(1) Dr. Mitchell was awarded 10,000 shares of Common Stock in connection
with the execution of his employment contract dated January 1996. Dr.
Mitchell received no direct compensation in the form of salary or
consulting fees directly during 1995. However, Stratum Management Inc., a
company Dr. Mitchell was affiliated with prior to his appointment as
President, had been paid $35,833 per month in the form of consulting fees
during 1995 and $41,000 per month during 1996. In addition, Stratum
received warrants to purchase 120,000 shares (subsequently reduced to
77,600 shares) of Company common stock at an exercise price of $5.00. Dr.
Mitchell's wife and siblings remained shareholders and employees of
Stratum during Dr. Mitchell's tenure with the Company.
(2) Compensation received was primarily for the management of Dental Labs.
G. Lockwood did not receive compensation in an executive officer capacity
during 1995.
(3) Mr. Laport currently serves without direct compensation. However, Mr.
Laport is a member of the Investor Group (See Item 12).
11
<PAGE> 12
COMPENSATION OF OUTSIDE DIRECTORS
Each outside director of the Company receives $1,000 for each meeting
attended, and directors are entitled to be reimbursed for all reasonable
out-of-pocket expenses incurred in connection with their duties as directors.
For the year ended December 31, 1997, outside directors' fees and expenses
amounted to $0.
OPTION GRANTS IN LAST FISCAL YEAR
As of March 1, 1998 options to purchase an aggregate of 140,000 shares of
Common Stock at exercise prices ranging from $20.00 to $4.35 had been granted
and were outstanding under the Company's 1993 Incentive and Non-Statutory Stock
Option Plan. The dates such options were granted range from June 3, 1993 to June
6, 1996.
As of March 21, 1996, as amended on July 17, 1996, the Company issued to
each of John H. Hagan and Dr. Seymour Kessler options to purchase 16,200 shares
each (reduced from options to purchase 25,000 shares each originally granted).
The options were exercisable at a price of $5.95 per share, and expire in March
1999.
In June 1996, the Company issued to Gary A. Lockwood options to purchase
20,000 shares. The options vest over a 3.5 year period. The options were
exercisable at a price of $4.35 per share, and expire in January 2003.
Effective as of January 1996, as amended on July 17, 1996, the Company
issued Warrants to Purchase up to 77,600 shares of Company common stock (reduced
from 120,000 shares originally) to Stratum Management, Inc., a consulting group
affiliated with Dr. Charles R. Mitchell (See Item 12). The Warrants were
exercisable at an exercise price of $5.00. The Warrants expire in 1998.
Effective as of April 1996, the Company issued Warrants to purchase to the
Investor Group for an aggregate of 4,125,000 shares of Company common stock
(subject to anti-dilution provision). The Warrants had an exercise price of
$0.10 per share and, due to the failure by the Company to achieve certain stated
financial goals, were exercisable after January 1, 1997 and are presently
exercisable (See Item 12). Effective as of July, 1997 the exercise price of the
warrants were reduced to $0.01 per share (subject to anti-dilution adjustment)
in connection with a year-long interest waiver by the Investors Group. The
Warrants, if exercised, would convert into common stock of the Company equal to
fifty percent (50.0%) of the Company.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
None
EMPLOYMENT AGREEMENTS
Frank Leonard Laport, Chairman and CEO of the Company, currently serves
without compensation or an employment agreement.
Effective as of June 1, 1996, the Company entered into an Amendment to
Employment Agreement with Gary A. Lockwood, President and COO of the Company,
which provided for (i) an increase in annual salary, effective as of June 1,
1996, from $97,000 to $105,469.71 (with subsequent annual increases based on the
Consumer Price Index) for Mr. Lockwood's operation of the Company's Mason Dental
subsidiaries, and (ii) a salary of $12,000 per annum and options to purchase up
to 50,000 shares of Company stock for Mr. Lockwood's services as President and
COO of the Company (See Exhibit 10.48).
Effective as of January 1, 1996, the Company entered into an Employment
Agreement with Dr. Charles R. Mitchell (See Item 12). The Employment Agreement,
which provided for a per annum salary of $96,000 and the outright grant of
10,000 shares of Company common stock, was terminated in all respects
12
<PAGE> 13
effective August 1, 1996 (See Exhibits 10.37 and 10.46).
ITEM 11. SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership by Certain Beneficial Owners
The following table sets forth the security ownership by certain
beneficial owners for persons owning 5% or more of the Company's Common Stock as
of March 1, 1998.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
---------------- ----------------------- --------
<S> <C> <C>
Amsterdam Equities Limited 252,227 12.4%
Norfolk House
Frederick Street, 2nd Floor
Nassau, N.P., Bahamas
Frank Leonard Laport 98,975 5.0%
7421 W. 100th Place
Bridgeview, IL 60455-2442
Chairman, CEO
- -----------------------------------------------------------------
TOTAL 351,202 17.4%
</TABLE>
The security ownership for Amsterdam Equity Limited and Mr. Laport does
not include full conversion and dilution of Series A Stock and Convertible Debt
and exercise of the default Warrants currently held by Amsterdam Equities
Limited and Mr. Laport, (See Item 12). Conversion of this Series A Stock and
Convertible Debt and exercise of the default Warrants could result in Amsterdam
Equities and Mr. Laport holding, in the aggregate, approximately 85% of the
Class. In the event of such a conversion and exercise, the 85% of the Class
would be held almost entirely by Amsterdam Equities with Mr. Laport holding
less then 8% of the stock resulting from such conversion and exercise.
13
<PAGE> 14
SECURITY OWNERSHIP BY MANAGEMENT
The following table sets forth as of March 1, 1998 the number of shares of
Common Stock of the Company beneficially owned by each named Executive Officer
and Director and by each director and officer as a group. Except as otherwise
indicated all shares are owned directly.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
---------------- ----------------------- --------
<S> <C> <C>
Frank Leonard Laport 98,975(1) 5.0%
7421 W. 100th Place
Bridgeview, IL 60455-2442
Chairman, CEO
Gary A. Lockwood 94,193(2) 4.8%
12752 Stark Road
Livonia, MI 48150
Director, President, COO
George B. Collins 0(3) 0%
One North LaSalle
Chicago, IL 60602
Director
Dr. Zigmund C. Porter 0 0%
3200 N. Lake Shore Drive
Chicago, IL 60657
Director
- --------------------------------------------------------------------
All officers as a group 193,168(1)(2)(3) 9.8%
</TABLE>
1) Does not include full conversion and dilution of Series A Stock and
Convertible Debt and exercise of the default Warrants currently held by
Amsterdam Equities Limited and Mr. Laport, (See Item 12), Conversion of
this Series A Stock and Convertible Debt and exercise of the default
Warrants could result in Amsterdam Equities and Mr. Laport holding, in the
aggregate, of approximately 85% of the Class. In the event of such a
conversion and exercise, the 85% of the Class would be held almost
entirely by Amsterdam Equities with Mr. Laport holding less then 8% of the
stock resulting from such conversion and exercise.
2) Total shares held by the Island Group.
3) Not included in this number are shares of the class held by Amsterdam
Equities Limited, which can under certain circumstances, be voted by
George B. Collins as Amsterdam Equities Limited's Attorney-in-Fact.
14
<PAGE> 15
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FINANCING ARRANGEMENT
1. On April 22, 1996, the Company entered into a financing arrangement
pursuant to which the Company issued Convertible Debt (the Convertible Debt) to
Amsterdam Equities Limited in the amount of $2,483,620 and 3,599.77 shares of
Series A 11.75% Cumulative Convertible Preferred Stock (the Preferred Stock) to
Amsterdam Equities Limited (195 shares), Frank Leonard Laport (1,904.77 shares),
and Beverly Trust Company, as custodian for the Frank Leonard Laport Rollover
Individual Retirement Account No. 75-49990 (1,500 shares) (collectively, the
Investor Group). The Convertible Debt and Preferred Stock replaced indebtedness
of the Company at April 22, 1996, in the amount of $1,976,700 incurred under
that certain letter agreement dated December 7, 1994 (the Letter Agreement) and
that certain Secured Revolving Demand Note dated January 27, 1995 (the Secured
Note). Under the terms of the Convertible Debt and Preferred Stock Agreements
(also referred to herein collectively as the Financing Arrangement) the Investor
Group may lend additional funds, in increments to be determined solely by the
Investor Group. The Convertible Debt and Preferred Stock were initially to bear
interest and have a coupon rate, respectively of 11.75%, plus the payment of any
withholding taxes which might be due and owing with respect to any person which
is a foreign entity. Payments on the Convertible Debt/Preferred Stock were
interest only due in quarterly installments which were to begin in September
1996. The Convertible Debt/Preferred Stock originally had a maturity of seven
years from the date of closing, subject to acceleration in the event of a
default. Subsequent to September 30, 1996 the Company was unable to pay the
interest only requirements of the Convertible Debt and Preferred Stock
Agreements, therefore, effective October 1, 1996 until the accrued interest is
paid, interest began to accrue at the default rate of 21.75%.
Pursuant to that certain Modification Agreement ("Modification Agreement")
entered into between the Investor Group and the Company and dated as of July 1,
1997, the Investor Group agreed, conditioned upon continued listing by the
Company on the Nasdaq SmallCap Market and similar concessions by another
significant Company creditor, to waive all accumulated and ongoing interest
and/or dividends on the Convertible Debt/Preferred Stock for the period from
January 1, 1997 through December 31, 1997.
This waiver on the part of the Investor Group resulted in a total savings
to the Company in excess of $700,000.
In addition to the amounts owed under the Letter Agreement and the Secured
Note, the terms of the Convertible Debt and Preferred Stock Agreements called
for the conversion of 58,333 shares of the Company's Regulation D stock held by
the Investor Group into $350,000 of Convertible Debt and Preferred Stock. The
shares of common stock were being held in treasury at time of redemption.
An additional provision of the Convertible Debt and Preferred Stock
Agreements included the payment of $300,000 as a closing fee and required the
Company to reimburse the legal fees and costs and expenses of the Investor Group
in connection with the negotiation and the closing of the transaction which
totaled $216,897. The closing fees and reimbursement of the costs and expenses
were payable in the form of Convertible Debt and Preferred Stock. In total, the
Company incurred costs of $544,716 in connection with the refinancing which has
been capitalized and will be amortized over a period of seven years or until the
Convertible Debt/Preferred Stock is called.
The terms of the Convertible Debt and Preferred Stock Agreements provided
the Investor Group with certain rights pertaining to the registration of any
common stock to which the Investor Group may convert from Convertible Debt or
Preferred Stock, certain anti-dilution rights, and a right of first refusal on
any future offering of Company securities.
Under the terms of the transaction, the Company also issued a warrant to
purchase 100 shares of Series B Preferred Stock. The Series B Preferred Stock
entitled Amsterdam Equities Limited, after the occurrence of an
15
<PAGE> 16
event of default, to elect a Class B director who would have super-majority
voting powers on the Company's Board of Directors.
The Convertible Debt and Preferred Stock may be converted into the
common stock of the Company, at the sole option of the Investor Group, at
various conversion rates as set forth in the conversion formula contained in the
Convertible Debt and Preferred Stock Agreements. Conversion pursuant to such
conversion formula would result in a conversion price per share of the Company's
common stock below present market levels. If the Investor Group were to convert
all outstanding Convertible Debt and Preferred Stock at the present time, and
exercise the default warrants discussed below, the conversion would result in
the issuance to the Investor Group of a majority interest representing
approximately eighty-five percent (85.0%) of the issued and outstanding shares
of the Company's common stock (assuming full conversion and anti-dilution). In
the event of such a conversion and exercise, the 85% of the Class would be held
almost entirely by Amsterdam Equities with Mr. Laport holding less then 8% of
the stock resulting from such conversion and exercise.
In addition, pursuant to the terms of the Financing Arrangement, the
Company issued to the holders of the Convertible Debt and the Preferred Stock a
series of default warrants to purchase an aggregate number of shares of common
stock equivalent to fifty percent (50.0%) of the issued and outstanding Common
Stock of the Company at an exercise price of $0.50 per share (subject to
anti-dilution adjustment per terms). The Investor Group could exercise the
warrants only upon the occurrence of an event of default under the terms of the
Financing Arrangement or upon the failure by the Company to achieve certain
minimum financial goals of net income of at least one dollar in the fiscal year
ending December 31, 1996, and various net income tests in subsequent years. The
Company has been in ongoing default under the Financing Arrangement and the
stated financial goals have not been met, and, accordingly, these default
warrants have been capable of being exercised by the Investor Group upon payment
of a minimal exercise price since January 1, 1997. The cumulative effect of the
issuance of shares pursuant to the default warrants to the Investor Group and
the conversion of outstanding Convertible Debt/Preferred Stock could result in
ownership by the Investor Group of approximately 85% of the Company's total
issued and outstanding common stock. In the event of such a conversion and
exercise, the 85% of the Class would be held almost entirely by Amsterdam
Equities with Mr. Laport holding less then 8% of the stock resulting from such
conversion and exercise. To date, while the Company could potentially cure these
defaults, the Investor Group has taken no steps to exercise these default
warrants.
Pursuant to the Modification Agreement, and as an absolute pre-condition
to the waiver by the Investor Group of all accumulated and ongoing interest
and/or dividends on the Convertible Debt/Preferred Stock for the period from
January 1, 1997 through December 31, 1997 the Company agreed to reduce the
exercise price of the default warrants from $0.50 per share to $0.01 per share
(subject to anti-dilution adjustment) effective as of July 1, 1997. This
modification effectively reduces the aggregate exercise price of approximately
$412,500 for the default warrants to an aggregate exercise price of
approximately $41,250 (not accounting for any adjustments due to the
anti-dilution provision of the Warrants and due to changes in the total issued
and outstanding shares of the Company's common stock).
2. In August 1996, the Company entered into a Letter Agreement by and
among the Company; Dr. Charles R. Mitchell, a former President of the Company;
Stratum Management, Inc., a former consultant to the Company; John H. Hagan, a
former director of the Company; Dr. Seymour Kessler, a former director of the
Company; and Amsterdam Equities Limited, Frank Leonard Laport, and Beverly Trust
Company, as Custodian of the Frank Leonard Laport Rollover Individual Retirement
Account No. 75-49990, each members of the Investor Group. Under the Letter
Agreement, which became effective on August 9, 1996, the Series B Preferred
Stock previously referred to in the Convertible Debt Agreement executed by the
Company on April 22, 1996 was amended to be immediately effective and Class B
Preferred Stock was immediately issued to Amsterdam.
The Class B Preferred Stock entitled Amsterdam to elect a Director to the
Board of Directors of the Company who would have super majority voting powers.
In effect, the Class B director appointed by Amsterdam shall have the number of
votes on the Board of Directors as the current Board currently holds, plus one
vote. The
16
<PAGE> 17
amendment and activation of the Class B Preferred Stock occurred upon the
satisfaction of the following two conditions: (i) delivery to the Company of a
notice, pursuant to which the Investor Group would convert an aggregate amount
of U.S. $700,000 of currently outstanding Convertible Debt/Preferred Stock into
the Company's Common Stock in accordance with the contractual terms of the
Convertible Debt and Preferred Stock Agreements executed on April 22, 1996 and
(ii) upon the advance to the Company of an additional $200,000.00 pursuant to
the Convertible Debt and the Preferred Stock Agreements executed April 22, 1996.
As of August 9, 1996, the Investor Group had satisfied these two conditions and
the Class B Preferred Stock was issued to Amsterdam.
Frank Leonard Laport, Chairman and CEO of the Company, was elected as the
Series B Director effective as of August 9, 1996. The Series B Director has not
voted on any matters to date or taken any action whatsoever to date.
In connection with the activation of the Class B Preferred Stock, the
provision of additional funding and conversion of debt, Stratum, Hagan and
Kessler agreed to forfeit, on a pro rata basis, an aggregate amount of 60,000
options/warrants to purchase the Company's Common Stock of the Company.
Note 4 - CONVERSION OF DEBT
Pursuant to the Allonge and Fifth Amendment to Acquisition Promissory Note
dated as of July 1, 1997, the Company, Mason Dental Midwest, Inc. and the
Constituent Shareholders of the Delaware corporation formally known as Mason
Dental, Inc., agreed to convert $150,000.00 worth of the outstanding debt held
by the Constituent Shareholders into 53,381 share of the company's common stock
which was previously held as treasury stock.
MISCELLANEOUS
On October 16, 1996, the Company was sued for $160,000 by Romajo Partners
Limited Partnership, a partnership controlled by Dr. Seymour Kessler, a former
officer and director of the Company. While the Company is appealing, the Company
received an adverse judgment and was required to pay a $162,627.72 judgement
amount and $17,505.90 in legal fees.
In December 1996, the Dickerson Investment Group, Inc., a company
affiliated with a shareholder of the Company, loaned the Company $175,000 in
order to meet certain operating expenses. The amount currently owed is
approximately $72,000 (See Exhibit 10.53).
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(Pages are not sequentially numbered)
(a)(1) Financial Statements:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the years ended December 31,
1997 and 1996
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1997 and 1996
Notes to Consolidated Financial Statements
17
<PAGE> 18
(a)(2) Exhibits:
The following documents are filed as exhibits to this Report:
2.1 Agreement and Plan of Reorganization between the Registrant and Dental
Laser Center of the Palm Beaches, Inc., The Dental Team of Boca Raton, Inc., The
Dental Team of Boynton Beach, Inc., The Dental Team of Coral Springs, Inc., The
Dental Team of Deerfield Beach, Inc., The Dental Team of Delray Beach, Inc., The
Dental Team of Pompano Beach, Inc., Palm Beach Dental Service, Inc., PBD Supply,
Inc., and Pompano Square Dental Lab, Inc. (incorporated by reference to Exhibit
2. 1 to the Registrant's Form 1O-KSB for the fiscal year ended December 31, 1993
(Registration Number 33-43298-A) filed with the Commission on April 14, 1994).
2.2 Share Acquisition and Merger Agreement between Registrant and C.D.
Nunnelley, D.D.S. & Associates (incorporated by reference to the Exhibit to the
Company's Form 8-K filed with the Commission on March 15, 1994).
2.3 Agreement and Plan of Reorganization between the Registrant and Mason
Dental, Inc. (incorporated by reference to the Exhibit to the Registrant's
Registration Statement on Form S-4 (Registration No. 33-69406) filed with the
Commission on September 27, 1993).
3.1 Restated Certificate of Incorporation of the Registrant, as restated
through August 19, 1991 (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-18 (Registration No. 33-43298-A)
filed with the Commission on October 10, 1991).
3.2 Amendments to the Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to Amendment No. 3 to the Registrant's
Registration Statement on Form S-18 (Registration No. 33-43298-A) filed with the
Commission on April 10, 1992).
3.3 Bylaws of the Registrant, as amended and restated December 1, 1992
(incorporated by reference to Exhibit 3.2 or the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with the Commission of
February 1, 1993).
4.2 Warrant Agreement between the Registrant and the Warrant Agent
(incorporated by reference to Exhibit 4.4 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with the Commission on
February 1, 1993).
4.3 Letter Amendment to Warrant Agreement between the Registrant and the
Warrant Agent (incorporated by reference to Exhibit 4.5 to the Registrant's
Registration Statement on Form SB-2 (Registration No. 33-57698) filed with the
Commission on February 1, 1993).
9.1 Voting Trust Agreement between the Registrant and Jerry I. Bratman, D.D.S.,
Judith K. Bratman, Theodore M. Strauss, D.D.S., Madelyn Strauss, and Richard J.
Staller, D.D.S. (incorporated by reference to Exhibit 9. 1 to the Registrant's
Form 10-KSB for the fiscal year ended December 31, 1993 (Registration Number
33-43298-A) filed with the Commission on April 14, 1994.)
10.1 Registrant's Stock Option Plan, as amended (incorporated by reference to
the exhibit of the same number to the Registration Statement on Form SB-2
(Registration No. 33-57698) filed with the Commission on February 1, 1993).
10.2 Letter Agreement dated December 7, 1994 between an investment group and the
Registrant (incorporated by reference to Exhibit 10.1 to the Registrant's Form
10-QSB/A (Amendment No. 1) (Registration No. 33-43298-
18
<PAGE> 19
A) filed with the Commission on December 20, 1994).
10.2/A Amendment to Letter Agreement dated April 10, 1995 between an investment
group and the Registrant (incorporated by reference to the Exhibit to the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1994
(Registration Number 33-43298-A) filed with the Commission on April 14, 1995)
10.3 $300,000 Line of Credit Agreement with First American Bank-Northeast
Illinois, as amended (incorporated by reference to Exhibit 10.4 to the
Registrant's Registration Statement on Form S-18 (Registration No. 33-43298-A)
filed with the Commission on October 10, 1991).
10.3/A Modification Agreement and Installment Note dated February 3, 1995
between First of America Bank-Illinois, N.A. and the Registrant (incorporated by
reference to the Exhibit to the Registrant's Form 10-KSB for the fiscal year
ended December 31, 1994 (Registration Number 33-43298-A) filed with the
Commission on April 14, 1995.)
10.4 Secured Revolving Demand Note dated January 27, 1995 between an investment
group and the Registrant (incorporated by reference to the Exhibit to the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1994
(Registration Number 33-43298-A) filed with the Commission on April 14, 1995.)
10.4/A Allonge and Amendment to Secured Revolving Demand Note dated March 9,
1995 between an investment group and the Registrant (incorporated by reference
to the Exhibit to the Registrant's Form 10-KSB for the fiscal year ended
December 31, 1994 (Registration Number 33-43298-A) filed with the Commission on
April 14, 1995.)
10.5 Share Purchase Agreement between Princeton Management and Glenn C. Lehr,
D.D.S. (incorporated by reference to the Exhibit to Registrant's Form 8-K filed
with the Commission on October 13, 1992).
10.6 Balloon Promissory Note Payable to Glenn C. Lehr, D.D.S. (incorporated by
reference to the Exhibit of the same number to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with the Commission on
February 1, 1993).
10.7 Installment Promissory Note Payable to Glenn C. Lehr, D.D.S (incorporated
by reference to the Exhibit of the same number to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with the Commission on
February 1, 1993).
10.8 Stock Pledge and Escrow Agreement between Princeton Management and Glenn
C. Lehr incorporated by reference to the Exhibit of the same number to the
Registrant's Registration Statement on Form SB-2 (Registration No. 33-57698)
filed with the Commission on February 1, 1993).
10.9 Sublicense Agreement and Consent between Princeton Management and Amdent,
P.C. (Battle Creek, MI) (incorporated by reference to the Exhibit of the same
number to the Registrant's Registration Statement on Form SB-2 (Registration No.
33-57698) filed with the Commission on February 1, 1993).
10.10 Sublicense Agreement and Consent between Princeton Management and Amdent,
P.C. (Taylor, MI) (incorporated by reference to the Exhibit of the same number
to the Registrant's Registration Statement on Form SB-2 (Registration No.
33-57698) filed with the Commission on February 1, 1993).
10.11 Sublicense Agreement an Consent between Princeton Management and Amdent,
P.C. (Ypsilanti, MI) (incorporated by reference to the Exhibit of the same
number to the Registrant's Registration Statement on Form
19
<PAGE> 20
SB-2 (Registration No. 33-57698) filed with the Commission on February 1, 1993).
10.12 Management Agreement between Princeton Dental Management Corporation and
Amdent P.C. (incorporated by reference to the Exhibit of the same number to the
Registrant's Registration Statement on Form SB-2 (Registration No. 33-57698)
filed with the Commission on February 1, 1993).
10.13 Dental Equipment Lease between Princeton Management and Amdent, P.C.
(Ypsilanti, MI) (incorporated by reference to the Exhibit of the same number to
the Registrant's Registration Statement on Form SB-2 (Registration No. 33-57698)
filed with the Commission on February 1, 1993).
10.14 Dental Equipment Lease between Princeton Management and Amdent, P.C.
(Taylor, MI) (incorporated by reference to the Exhibit of the same number to the
Registrant's Registration Statement on Form SB-2 (Registration No. 33-57698)
filed with the Commission on February 1, 1993).
10.15 Dental Equipment Lease between Princeton Management and Amdent, P.C.
(Battle Creek, MI) incorporated by reference to the Exhibit of the same number
to the Registrant's Registration Statement on Form SB-2 (Registration No.
33-57698) filed with the Commission on February 1, 1993).
10.16 Facilities Management Agreement between Princeton Management and Glenn C.
Lehr, D.D.S. incorporated by reference to the Exhibit of the same number to the
Registrant's Registration Statement on Form SB-2 (Registration No. 33-57698)
filed with the Commission on February 1, 1993).
10.17 Management Agreement and Stock Pledge and Escrow Agreement between
Princeton Management, Glenn C. Lehr, D.D.S., and Lebow and Tobin (incorporated
by reference to the Exhibit of the same number to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with the Commission on
February 1, 1993).
10.18 Assignment and Consent Agreement (Ypsilanti, MI) (incorporated by
reference to the Exhibit of the same number to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with the Commission on
February 1, 1993).
10.19 Assignment and Consent Agreement (Taylor, Ml) (incorporated by reference
to the Exhibit of the same number to the Registrants Registration Statement on
Form SB-2 (Registration No. 33-57698) filed with the Commission on February 1,
1993).
10.20 Assignment and Consent Agreement (Battle Creek, Ml) (incorporated by
reference to the Exhibit of the same number to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with the Commission on
February 1, 1993).
10.21 Asset Purchase Agreement between Princeton Management Northeast and
Century Dental Center 1, P.C. (incorporated by reference to the Exhibit to the
Company's Form 8-K, as filed with the Commission on April 15, 1993).
10.22 The Company's 1993 Incentive and Non-Statutory Stock Option Plan
(incorporated by reference to the Exhibit of the same number to the Registrant's
Registration Statement on Form SB-2 (Registration No. 33-57698) filed with the
Commission on June 18, 1993).
10.23 Installment Promissory Note payable to Mason Dental, Inc. shareholders
(incorporated by reference to Exhibit 10.30 to the Registrant's Form 10-KSB for
the fiscal year ended December 31, 1993 (Registration Number
20
<PAGE> 21
33-43298-A) filed with the Commission on April 14, 1994).
10.24 Allonge and Amendment to Acquisition Promissory Note dated April 10, 1995
between Mason Dental, Inc. and the Registrant (incorporated by reference to the
Exhibit to the Registrant's Form 10-KSB for the fiscal year ended December 31,
1994 (Registration Number 33-43298-A) filed with the Commission on April 14,
1995.)
10.25 Shareholder Agreement between the Registrant and Mason Dental, Inc.
Affiliate Shareholders (incorporated by reference to Exhibit 10.31 to the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1993
(Registration Number 33-43298-A) filed with the Commission on April 14, 1994).
10.26 Security Agreement between Princeton Medical Management Southeast, Inc.
and Clement W. Barfield, D.D.S., and Philip A. Payne, D.D.S. (incorporated by
reference to Exhibit 10.32 the Registrant's Form 10-KSB for the fiscal year
ended December 31, 1993 (Registration Number 33-43298-A) filed with the
Commission on April 14, 1994).
10.27 Security Agreement between Princeton Medical Management Southeast, Inc.
and Jerry I. Bratman, D.D.S., Theodore M. Strauss, D.D.S., and Richard J.
Staller, D.D.S. (incorporated by reference to Exhibit 10.33 to the Registrant's
Form 10-KSB for the fiscal year ended December 3l, 1993 (Registration Number
33-43298-A) filed with the Commission on April 14, 1994).
10.28 Installment Promissory Notes payable to The Dental Team Shareholders
(incorporated by reference to Exhibit 10.34 to the Registrant's Form 10-KSB for
the fiscal year ended December 31, 1993 (Registration Number 33-43298-A) filed
with the Commission on April 14, 1994).
10.28/A Binding letter of agreement dated February 6, 1995 between The Dental
Team Shareholders and the Registrant (incorporated by reference to the Exhibit
to the Registrant's Form 10-KSB for the fiscal year ended December 31, 1995
(Registration Number 33-43299-A) filed with the Commission on April 14, 1995).
10.29 Settlement Agreement and Release between A.S. Goldmen & Co., Inc.
Shoenberg & Hieber, Inc. and the Company, dated April 10, 1995 and effective May
12, 1995 (incorporated by reference to Exhibit 10.1 to the Registrant's Form
10-QSB for the quarterly period ended March 31, 1995 (Registration No. 0.20222)
filed with the Commission of May 15, 1995.
10.30 Allonge and Amendment to Secured Revolving Demand Note, dated April 15,
1995, between the Investment Group and the Registrant (incorporated by reference
to Exhibit 10.2 to the Registrant's Form 10-QSB/A for the quarterly period ended
March 31, 1995 (Registration No. 0-20222) filed with the Commission on May 30,
1995).
10.31 Amendment to Letter Agreement, dated May 22, 1995, between the Investor
Group and the Registrant (incorporated by reference to Exhibit 10.3 to the
Registrant's Form 10-QSB/A for the quarterly period ended March 31, 1995
(Registration No. 0-20222) filed with the Commission on May 30, 1995).
10.32 Allonge and Amendment to Secured Revolving Demand Note, dated June 23,
1995, between the Investor Group and the Registrant (incorporated by reference
to Exhibit 10.4 to the Registrant's Form 10-QSB for the quarterly period ended
March 31, 1996 (Registration No. 0-20222) filed with the Commission on June 12,
1996).
10.33 Allonge and Amendment to Secured Revolving Demand Note, dated August 24,
1995, between the Investor Group and the Registrant (incorporated by reference
to Exhibit 10.6 to the Registrant's Form 10-QSB for the quarterly period ended
March 31, 1996 (Registration No. 0-20222) filed with the Commission on
21
<PAGE> 22
June 12, 1996).
10.34 Amendment to Letter Agreement, dated August 24, 1995, between the Investor
Group and the Registrant (incorporated by reference to Exhibit 10.7 to the
Registrant's Form 10-QSB for the quarterly period ended March 31, 1996
(Registration No. 0-20222) filed with the Commission on June 12, 1996).
10.35 Allonge and Amendment to Secured Revolving Demand Note, dated September 8,
1995, between the Investor Group and the Registrant (incorporated by reference
to Exhibit 10.8 to the Registrant's Form 10-QSB for the quarterly period ended
March 31, 1996 (Registration No. 0-20222) filed with the Commission on June 12,
1996).
10.36 Amendment to Letter Agreement, dated September 8, 1995, between the
Investor Group and the Registrant (incorporated by reference to Exhibit 10.9 to
the Registrant's Form 10-QSB for the quarterly period ended March 31, 1996
(Registration No. 0-20222) filed with the Commission on June 12, 1996).
10.37 Employment Agreement by and between the Company and Dr. Charles R.
Mitchell, D.D.S. dated March 1996, with an effective date of January 1, 1996
(incorporated by reference to the exhibit to the Registrant's Form 10-QSB filed
with the Commission on September 23, 1996).
10.38 Consulting Agreement by and between the Company and Stratum Management,
Inc. dated January 1, 1996 (incorporated by reference to the exhibit to the
Registrant's Form 10-QSB filed with the Commission on September 23, 1996).
10.39 Amendment to the Warrant Agreement by and between the Company and Stratum
Management, Inc., dated July 17, 1996 (incorporated by reference to the exhibit
to the Registrant's Form 10-QSB filed with the Commission on September 23,
1996).
10.40 Non-Statutory Stock option agreement by and between the Company and John
H. Hagan, dated March 21, 1996 (incorporated by reference to the exhibit to the
Registrant's Form 10-QSB filed with the Commission on September 23, 1996).
10.41 Amendment to the Non-Statutory Stock Option Agreement by and between the
Company and John H. Hagan dated July 17, 1996 (incorporated by reference to the
exhibit to the Registrant's Form 10-QSB filed with the Commission on September
23, 1996).
10.42 Non-Statutory Stock Option Agreement by and between the Company and Dr.
Seymour Kessler dated March 21, 1996 (incorporated by reference to the exhibit
to the Registrant's Form 10-QSB filed with the Commission on September 23,
1996).
10.43 Amendment to the Non-Statutory Stock Option Agreement dated July 17, 1996,
by and between the Company and Dr. Seymour Kessler (incorporated by reference to
the exhibit to the Registrant's Form 10-QSB filed with the Commission on
September 23, 1996).
10.44 Series A 11.75% Cumulative Convertible Preferred Stock Purchase Agreement
by and between Frank Leonard Laport, Beverly Trust Company, as Custodian of the
Frank Leonard Laport Rollover Individual Retirement Account Number 75-49990, and
Amsterdam Equities Limited, dated April 22, 1996 (incorporated by reference to
the exhibit to the Registrant's Form 10-QSB filed with the Commission on
September 23, 1996).
10.45 Convertible Debt Agreement by and between the Company and Amsterdam
Equities Limited, dated April 22, 1996 (incorporated by reference to the exhibit
to the Registrant's Form 10-QSB filed with the
22
<PAGE> 23
Commission on September 23, 1996).
10.46 Letter of Agreement dated July 15, 1996 and effective August 9, 1996, by
and between the Company, Dr. Charles R. Mitchell, Stratum Management Inc., John
H. Hagan, Dr. Seymour Kessler, Amsterdam Equities Limited, Frank Leonard Laport,
and Beverly Trust Company (incorporated by reference to the exhibit to the
Registrant's Form 10-QSB filed with the Commission on September 23, 1996).
10.47 Settlement Agreement dated as of September 26, 1996, and effective as of
the date of filing, by and between the Gingle Group, the Investor Group and the
Company.
10.48 Amendment to Employment Agreement made as of June 1, 1996 by and among
Gary A. Lockwood, the Company and Mason Dental Midwest, Inc.
10.49 Office Lease dated as of September 13, 1996 between the Company and
EquiVest, Inc., a company owned by Frank Leonard Laport.
10.50 Equipment Lease dated as of September 13, 1996 between the Company and
Frank Leonard Laport.
10.51 Letter Agreement dated February 4, 1996 between Dr. Richard Staller and
the Registrant regarding the sale of the assets of the Dental Team of Delray
Beach.
10.52 Letter Agreement effective as of January 10, 1997 by and among the
Registrant and Drs. Barfield and Payne regarding the sale of the assets of the
Fairfield Dental Center practice.
10.53 Letter Agreement dated as of December 1996 between the Registrant and
Dickerson Investment Group, Inc., an entity affiliated with a shareholder of the
Registrant, regarding the loan of $175,000 to the Registrant.
10.54 Letter Agreement effective as of June 1, 1997 by and among the Registrant
and Mr. Larry Ceraulo d/b/a Certex Dental Studio regarding the sale of the
assets comprising Mason Dental Southeast, Inc. and Renaissance Dental Studio,
(Incorporated by reference to Exhibit 10.54 to the Registrant's Form 10-QSB for
the period ended June 30, 1997).
10.55 Modification Agreement dated as of July 1, 1997 by and among the
Registrant, Amsterdam Equities Limited, Frank Leonard Laport, and Beverly Trust
Company, as Custodian of the Frank Leonard Laport Rollover Individual Retirement
Account No. 75-49990, (Incorporated by reference to Exhibit 10.55 to the
Registrant's Form 10-QSB for the period ended June 30, 1997).
10.56 Allonge and Fourth Amendment to Acquisition Promissory Note dated as of
July 1, 1997, among the Company, Mason Dental Midwest, Inc. and the Constituent
Shareholders of the Delaware corporation formally known as Mason Dental, Inc.
(Incorporated by reference to Exhibit 10.56 to the Registrant's Form 10-QSB for
the period ended June 30, 1997).
10.57 Promissory Note in the initial principal amount of $96,357 executed by
Lawrence Ceraulo, Victor Texidor, and Certex Dental Studio, Inc. in favor of
Mason Dental Southeast and dated as of August 1, 1997, (Incorporated by
reference to Exhibit 10.57 to the Registrant's Form 10-QSB for the period ended
June 30, 1997).
10.58 Allonge & Fifth Amendment to Acquisition Promissory Note dated as of July
1, 1997, among the Company, Mason Dental Midwest, Inc. and the Constituent
Shareholders of the Delaware Corporation formally known as Mason Dental, Inc.
23
<PAGE> 24
10.59 Agreement of purchase and sale dated as of May 1, 1997 between Princeton
Medical Management Northeast, Inc. and Valley Forge Dental Associates, Inc.
21.1 Subsidiaries of the Small Business Issuer (incorporated by reference to
Exhibit 22.1 to the Registrant's Form 10-KSB for the fiscal year ended December
31, 1993 (Registration Number 3343298-A) filed with the Commission on April 14,
1994).
24
<PAGE> 25
(b) REPORTS ON FORM 8-K The Registrant filed the following Form 8-K's during the
period from January 1, 1997 through March 30, 1998:
On January 16, 1997 the Registrant filed with the Securities and
Exchange Commission a current report on Form 8-K regarding the sale of the
assets of the Fairfield Dental Center practice to Drs. Barfield and Payne. The
Fairfield practice, with 1995 revenues of approximately $2,000,000, represented
approximately 11.9% of the total revenue of the Company. The Fairfield practice
was sold for a purchase price of approximately $885,000, of which approximately
$410,000 represented forgiveness of debt. (Also see Item 1)
On February 11, 1997, the Registrant filed with the Securities and
Exchange Commission a current report on Form 8-K regarding the sale of the
assets of the Dental Team of Delray Beach practice to Dr. Richard Staller. The
Delray Beach practice, with 1995 revenues of approximately $859,135, represented
approximately 5.1% of the total revenue of the Company. The Delray Beach
practice was sold for a purchase price of approximately $200,000 in the form of
forgiveness of debt. (Also see Item 1)
On May 23, 1997, the Registrant filed with the Securities and Exchange
Commission a current report on Form 8-K regarding the sale of the assets
comprising the Century Dental Center to Valley Forge Dental Associates, P.C. The
Century Dental practice, with 1996 revenues of approximately $965,000,
represented approximately 5.3% of the total revenue of PDMC. The Century
practice was sold for $585,000. The sales price includes $235,000 in cash,
$140,000 in contingency payments, a $30,000 note receivable, and forgiveness of
debt of approximately $180,000. (Also see Item 1)
On June 6, 1997, the Registrant filed with the Securities and Exchange
Commission a current report on Form 8-K regarding the sale of the assets
comprising the Mason Dental Southeast, Inc / Renaissance Dental Studio to Mr.
Lawrence Ceraulo, individually and doing business as Certex Dental Studio. The
Mason Dental Southeast, Inc. / Renaissance Dental Studio, with 1996 revenues of
approximately $390,000, represented approximately 2.2% of the total revenue of
PDMC. The Mason Dental Southeast, Inc. / Renaissance Dental Studio was sold for
$92,096 in the form of a short-term note; and additional short-term note payable
to purchase supplies in the amount of $9,847; and an assumption of an existing
note payable of $18,372.
On August 28, 1997, the Registrant filed with the Securities and
Exchange Commission a current report on Form 8-K regarding, (i) the approval by
the Registrant of a five-for-one reverse stock split of it's common stock, (ii)
the election of the Board of Directors of the Registrant, and (iii) the
Registrants Balance Sheet and Statement of Operations as of July 31, 1997.
On September 29, 1997, the Registrant filed with the Securities and
Exchange Commission a current report on Form 8-K regarding the resignation of
Dr. Richard S. Sokol from the Registrant's Board of Directors.
25
<PAGE> 26
EXHIBIT 21.1
Subsidiaries of the Registrant
1. Princeton Medical Management Midwest, Inc., a Michigan Corporation.
2. Princeton Medical Management Northeast, Inc., a Florida Corporation.
3. Princeton Medical Management Southeast, Inc., a Florida Corporation.
4. Mason Dental Midwest, Inc., a Michigan Corporation.
5. Mason Dental Southeast, Inc., a Florida Corporation.
6. AmDisCo, Inc, an Illinois Corporation.
26
<PAGE> 27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report of Form 10-KSB for the year ended
December 31, 1997, to be signed on its behalf, by the undersigned thereunto duly
authorized.
DATED: Princeton Dental Management Corporation
By: __________________________
Gary A. Lockwood
President and Director
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report of Form 10-KSB for the year ended
December 31, 1997, to be signed on its behalf, by the undersigned thereunto duly
authorized.
DATED: Princeton Dental Management Corporation
By: __________________________
Frank Leonard Laport
Chairman, CEO, and Director
DATED: Princeton Dental Management Corporation
By: __________________________
Gary A. Lockwood
President, COO and Director
DATED: Princeton Dental Management Corporation
By: __________________________
George B. Collins
Director
DATED: Princeton Dental Management Corporation
By: __________________________
Dr. Zigmund C. Porter
Director
DATED: Princeton Dental Management Corporation
By: __________________________
Barbara M. Kamenczak
Chief Accounting Officer
27
<PAGE> 28
PRINCETON DENTAL
MANAGEMENT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE> 29
[KIRKLAND, RUSS, MURPHY & TAPP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Princeton Dental Management Corporation:
We have audited the accompanying consolidated balance sheets of Princeton Dental
Management Corporation as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Princeton Dental Management Corporation at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Princeton Dental Management Corporation will continue as a going concern.
As discussed in Note 15 to the consolidated financial statements, the Company's
recurring losses from operations and its net working capital deficiency raise
substantial doubt about the entity's ability to continue as a going concern.
Management's operational plans in regard to these matters are also described in
Notes 14 and 15. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of reported asset
amounts or the amounts and classification of liabilities that might result from
the outcome of this uncertainty.
/s/ KIRKLAND, RUSS, MURPHY & TAPP
March 6, 1998
Clearwater, Florida
<PAGE> 30
PRINCETON DENTAL MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 46,644 185,235
Accounts receivable, net of allowances for doubtful
accounts of $189,000 and $297,000, respectively 922,383 1,170,640
Current portion of loans receivable 298,637 9,991
Inventories 107,951 105,193
Other current assets 89,513 95,847
---------- ----------
Total current assets 1,465,128 1,566,906
Property and equipment, net 756,579 1,159,524
Goodwill, net of accumulated amortization of $2,001,616
and $1,948,760, respectively 5,542,358 7,002,192
Loans receivable 50,000 10,820
Other assets, net 441,936 543,512
---------- ----------
$8,256,001 10,282,954
========== ==========
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ---------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Bank debit balances $ 69,849 --
Notes payable 60,591 179,000
Notes payable to shareholders -- 122,948
Current portion of capital lease obligations 18,849 25,883
Current portion of long-term debt 849,184 715,806
Convertible secured debt 2,133,428 2,115,924
Accounts payable 922,994 1,386,134
Accrued salaries and wages 476,178 743,958
Other accrued expenses 711,930 639,495
------------ ------------
Total current liabilities 5,243,003 5,929,148
Long-term debt, excluding current portion 1,787,436 3,267,106
Capital lease obligations, excluding current portion 18,588 38,145
------------ ------------
Total liabilities 7,049,027 9,234,399
------------ ------------
Shareholders' equity:
Series A 11.75% Cumulative Convertible Preferred Stock
par value $1.00 per share; authorized shares-1,000,000;
issued and outstanding - 2,848 at December 31, 1997
and 1996 2,848 2,848
Series B Preferred stock, par value $1.00 per share;
authorized shares - 100; issued and outstanding-100
at December 31, 1997 and 1996 100 100
Common stock, par value $0.0001 per share; authorized
shares - 25,000,000; issued and outstanding-2,024,465
at December 31, 1997 and 1996 202 202
Less: 8,507 and 61,888 shares Common stock held in
treasury, at cost at December 31, 1997 and 1996 (181,771) (331,771)
Additional paid-in capital 15,108,366 15,108,366
Accumulated deficit (13,722,771) (13,731,190)
------------ ------------
Net shareholders' equity 1,206,974 1,048,555
------------ ------------
$ 8,256,001 10,282,954
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 32
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Practice revenue $ 9,604,047 14,109,983
Laboratory revenue 4,191,745 3,934,230
------------ ------------
Total revenue 13,795,792 18,044,213
------------ ------------
Expenses:
Practice compensation and benefits 7,166,391 10,827,174
Other practice expenses 1,895,492 2,745,618
Cost of laboratory revenue and laboratory expenses 3,389,324 3,529,297
General corporate expenses 548,917 1,451,227
Depreciation and amortization 881,845 1,073,815
Impairment of long-lived assets -- 3,499,172
------------ ------------
Total operating expenses 13,881,969 23,126,303
------------ ------------
Operating loss (86,177) (5,082,090)
Gain on sale of practices/lab 282,590 --
Loss on disposal of property and equipment (7,896) (3,598)
Interest expense (236,391) (714,997)
Other income 56,293 51,081
------------ ------------
Income (loss) before provision for income taxes 8,419 (5,749,604)
Provision for income taxes -- --
------------ ------------
Net income (loss) $ 8,419 (5,749,604)
============ ============
Basic net income (loss) per share of common stock $ -- (3.23)
Basic weighted common shares outstanding 2,024,465 1,779,575
============ ============
Diluted net income (loss) per share of common stock $ -- (3.23)
Diluted weighted common shares outstanding 3,019,483 1,779,575
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 33
PRINCETON DENTAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Series A 11.75%
Cumulative Convertible Series B
Preferred stock Preferred stock Common stock
---------------------- -------------------- ------------------------ Treasury
Shares Amount Shares Amount Shares Amount Stock
------ ----------- ------ ----------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 -- $ -- -- $ -- 1,623,974 $ 162 --
Issuance of common stock at $7.05/
share in lieu of cash bonus -- -- -- -- 10,000 1 --
Issuance of Series A Preferred Stock
in connection with refinancing 3,600 3,600 -- -- -- -- --
Issuance of common stock at $1.80/
share upon conversion of Series A
Preferred Stock and Convertible Debt (882) (882) -- -- 390,491 39 --
Issuance of Series A Preferred Stock 130 130 -- -- -- -- --
Issuance of Series B Preferred Stock -- -- 100 100 -- -- --
Conversion of 58,333 shares of
common stock at $5.70/share into
Series A Preferred Stock and
Convertible Debt and 3,555 shares
surrendered, held in treasury -- -- -- -- -- -- (331,771)
Net loss -- -- -- -- -- -- --
----- ----------- --- ------- --------- ----- --------
Balances at December 31, 1996 2,848 2,848 100 100 2,024,465 202 (331,771)
Issuance of common stock of 53,381
shares, held in treasury upon conversion
of convertible debt -- -- -- -- -- -- 150,000
Net income -- -- -- -- -- -- --
----- ----------- --- ------- --------- ----- --------
Balances at December 31, 1997 2,848 $ 2,848 100 $ 100 2,024,465 $ 202 (181,771)
===== =========== === ======= ========= ===== ========
</TABLE>
<TABLE>
<CAPTION>
Additional Net
Paid-in Accumulated Shareholders'
Capital Deficit Equity
---------- ----------- -------------
<S> <C> <C> <C>
Balances at December 31, 1995 14,055,695 (7,981,586) 6,074,271
Issuance of common stock at $7.05/
share in lieu of cash bonus 70,749 -- 70,750
Issuance of Series A Preferred Stock
in connection with refinancing 356,377 -- 359,977
Issuance of common stock at $1.80/
share upon conversion of Series A
Preferred Stock and Convertible Debt 612,675 -- 611,832
Issuance of Series A Preferred Stock 12,870 -- 13,000
Issuance of Series B Preferred Stock -- -- 100
Conversion of 58,333 shares of
common stock at $5.70/share into
Series A Preferred Stock and
Convertible Debt and 3,555 shares
surrendered, held in treasury -- -- (331,771)
Net loss -- (5,749,604) (5,749,604)
---------- ----------- ---------
Balances at December 31, 1996 15,108,366 (13,731,190) 1,048,555
Issuance of common stock of 53,381
shares, held in treasury upon conversion
of convertible debt -- -- 150,000
Net income -- 8,419 8,419
---------- ----------- ---------
Balances at December 31, 1997 15,108,366 (13,722,771) 1,206,974
========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 34
PRINCETON DENTAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 8,419 (5,749,604)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 881,845 1,076,836
Impairment of long-lived assets -- 3,499,172
Loss on disposal of property and equipment 7,896 3,598
Interest expense -- 236,350
Provision for bad debts (108,298) 22,000
Stock redemption price in excess of market -- 18,229
Issuance of stock under incentive Stock Bonus Plan -- 70,750
Gain on sale of practices/lab (282,590) --
Changes in operating assets and liabilities:
Accounts receivable 95,802 (54,171)
Inventories (12,605) 6,361
Other current assets 6,334 23,054
Accounts payable (443,661) 771,452
Accrued expenses (111,095) 301,864
---------- ----------
Net cash provided by operating activities 42,047 225,891
---------- ----------
Investing activities:
Purchase of property and equipment (145,971) (153,299)
Purchases of dental labs -- (5,407)
Proceeds from notes receivable 108,551 1,118
Proceeds from sale of equipment 2,528 --
Other assets 12,093 (38,971)
Proceeds from sale of practices/lab 668,461 --
---------- ----------
Net cash provided by (used in)
investing activities 645,662 (196,559)
---------- ----------
Financing activities:
Proceeds from notes payable -- 179,000
Proceeds from notes payable to shareholders -- --
Proceeds from issuance of Series A preferred stock -- 13,000
Proceeds from issuance of convertible secured debt 17,504 187,000
Proceeds from issuance of Series B preferred stock -- 100
Proceeds from issuance of long-term debt -- 30,089
Principal payments on notes payable (118,409) (18,835)
Principal payments on long-term debt (578,847) (312,834)
Principal payments on note payable to shareholders (122,948) (15,000)
Principal payments on capital lease obligations (23,600) (31,489)
---------- ----------
Net cash provided by (used in)
financing activities (826,300) 31,031
---------- ----------
</TABLE>
<PAGE> 35
PRINCETON DENTAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents $(138,591) 60,363
Cash and cash equivalents at beginning of period 185,235 124,872
--------- ---------
Cash and cash equivalents at end of period $ 46,644 185,235
========= =========
</TABLE>
Supplemental schedule of non-cash financing and investing activities:
During 1996, the President of the Company was issued 10,000 shares of common
stock valued at $70,750.
During 1996, $128,543 of debt, $12,816 of accrued interest, $150,000 of common
stock, and closing costs of $68,617 were converted into Series A Cumulative
Preferred stock.
During 1996, accrued interest of $223,534 and closing costs and fees of $448,279
were capitalized to the principal balance of the convertible debt.
During 1996, 58,333 shares of Regulation D common stock ($5.70/share) were
converted into $150,000 and $200,000 of Series A Preferred Stock and Convertible
Debt, respectively.
During 1996, $88,168 of Series A Cumulative Preferred stock and $611,832 of
convertible debt were converted into 390,491 shares of common stock.
During 1997 and 1996, the Company incurred $12,734 and $61,404, respectively of
capital lease obligations.
During 1997, the Company converted $150,000 of outstanding debt into 53,381
shares of common stock, previously held as treasury stock.
Interest paid was approximately $179,000 and $320,000 for the years ended
December 31, 1997 and 1996, respectively.
See accompanying notes to consolidated financial statements.
<PAGE> 36
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
On October 22, 1986, the Company was organized as Princeton Dental
Management Corporation, a Delaware corporation. The Company had limited
activity up through its first issuances of common stock in June 1987.
The Company owns and manages dental practices and labs in Florida and
Michigan.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material
intercompany transactions have been eliminated.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
an original maturity of three months or less to be cash
equivalents.
(c) Accounts Receivable
Accounts receivable are comprised primarily of receivables from
dental patients and insurance carriers. Credit is extended based on
an evaluation of the customer's financial condition, and generally
collateral is not required.
(d) Inventories
Inventories, consisting principally of dental prosthetics, are
stated at the lower of cost, determined by the first-in, first-out
method, or market.
(e) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is recorded using the
straight-line method over estimated useful lives of five to nine
years. Property and equipment held under capital leases and
leasehold improvements are amortized straight-line over the shorter
of the lease term or the estimated useful life of the asset.
(continued)
<PAGE> 37
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(f) Goodwill
Goodwill represents excess of purchase price over the fair value of
net assets acquired, net of any liabilities assumed, from dental
practices and other operations acquired by the Company.
Amortization of goodwill totaled approximately $473,000 and
$654,000 for the years ended December 31, 1997 and 1996,
respectively.
(g) Revenue Recognition
The Company recognizes revenue in the month the related service is
provided. Operating revenues include amounts estimated by
management to be receivable from Medicaid and other third-party
programs under provisions of reimbursement terms in effect.
Differences between estimated payments and final payments are
reflected as charges or credits to operating revenues when the
payment is received.
(h) Income Taxes
The Company uses the liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect as the differences
reverse.
(i) Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(j) Concentrations of Credit Risk
Cash balances are maintained in financial institutions.
Occasionally, deposits exceed amounts insured by the Federal
Deposit Insurance Corporation.
(continued)
<PAGE> 38
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(k) Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of
In March 1995, the Financial Accounting Standards Board issued the
Statement of Financial Accounting Standards 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of (SFAS 121). SFAS 121 requires that long-lived assets
and certain identifiable intangibles held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected future cash flows
(undiscounted and without interest) is less than the carrying
amount of the asset, an impairment loss is recognized. Measurement
of that loss would be based on the fair value of the asset. SFAS
121 also generally requires long-lived assets and certain
identifiable intangibles to be disposed of to be reported at the
lower of the carrying amount or the fair value less cost to sell.
SFAS 121 was effective for the Company's 1996 fiscal year end.
During 1996, based upon the estimated fair value of certain
practices, the Company wrote down identifiable goodwill of
approximately $3,499,000.
(l) Fair Value of Financial Instruments
At December 31, 1997 and 1996, the carrying value of all financial
instruments approximated their fair values.
(m) Reclassifications
The accompanying consolidated financial statements contain certain
reclassifications of previously reported information. The
reclassifications have been made to more appropriately reflect the
operating results of the Company.
(n) Reverse Stock Split
The Board of Directors authorized a one-for-five reverse stock
split effective August 18, 1997. All share and per share data have
been retroactively restated to give effect to this reverse stock
split.
(o) Net Income (Loss) Per Share of Common Stock
In the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS
128). Under SFAS 128, basic net income (loss) per share of common
stock is computed by dividing income available to common
stockholders by the weighted average number of common shares
actually outstanding during the period. Diluted net income (loss)
per share of common stock presents income attributable to common
shares actually outstanding plus dilutive potential common shares
outstanding during the period. See Note 10 for the computation of
basic and diluted net income (loss) per common stock as required by
SFAS No. 128.
(continued)
<PAGE> 39
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) LOANS RECEIVABLE
The majority of loans receivable have resulted from the sale of various
practices/lab during 1997 (Note 12).
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Dental equipment $ 817,826 1,037,094
Laboratory and delivery equipment 266,951 291,928
Office furniture and equipment 247,142 207,206
Computer equipment and software 306,361 339,786
Leasehold improvements 236,591 334,261
----------- -----------
1,874,871 2,210,275
Less accumulated depreciation
and amortization (1,118,292) (1,050,751)
----------- -----------
$ 756,579 1,159,524
=========== ===========
</TABLE>
Depreciation and amortization related to property and equipment totaled
approximately $320,000 and $372,000, respectively for the years ended
December 31, 1997 and 1996, including amounts classified within cost of
laboratory revenue.
(4) NOTES PAYABLE TO SHAREHOLDERS
At December 31, 1996, notes payable to shareholders consist of a 13.25%
demand note payable of $82,500 and demand notes totaling $40,448 to a
shareholder's (who is also a former director) partnership. These notes
have terms similar to the Letter Agreement (Note 14). While it was
originally contemplated that these notes would be considered advances
under the Financing Arrangements (Note 14), the partnership subsequently
filed a lawsuit demanding repayment of these notes payable totaling
$122,948 plus accrued interest During 1997, the Company repaid all
amounts outstanding, including all accrued interest.
(continued)
<PAGE> 40
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) NOTES PAYABLE
Notes payable as of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Demand note payable to Dickerson Investment Group,
Inc. bearing interest at 1% over the prime rate (9.5%
at December 31, 1997). $60,591 179,000
------- -------
Total notes payable $60,591 179,000
======= =======
</TABLE>
The Dickerson Investment Group, Inc. is controlled by a former owner of
Mason.
(6) LONG-TERM DEBT
Long-term debt as of December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Note payable to shareholders, issued in connection with the acquisition
of Mason. Payments may be contractually restricted based on Mason's
average monthly cash flow before intercompany transactions as defined in
the purchase agreement. If restricted, principal and interest payments
may be made in common stock of the Company. Beginning January, 1997, the
Company began making monthly installments of $21,610 with interest at 8%
through March 2006, secured by stock of Mason. Effective July, 1997,
interest was waived through June, 1998. The monthly principal
installments approximate $10,300 during this period. This waiver reduced
the effective interest rate over the remaining life of the loan. During
1997, $150,000 of this note was converted to common stock, previously
held in treasury. $ 1,416,572 1,787,536
Note payable to shareholder in monthly installments of $12,133,
including interest at 8% through January 1, 1998, with remaining
principal due January 1, 1998, secured by stock of American Dental
Health - Battle Creek, P.C. 430,300 537,132
</TABLE>
(continued)
<PAGE> 41
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Promissory notes payable to shareholder and shareholder
affiliate bearing interest at 8% per annum, payable in equal
monthly installments of $3,215 through April 1, 1998, with a
balloon payment of the unpaid principal balance payable with
the 60th payment. Repaid in 1997. $ - 189,460
Notes payable to individual investors, unsecured, bearing interest at
rates ranging from 8% to 10%, requiring various quarterly installments
ranging from $320 to $1,280, including interest, through October 1997.
Balance of $20,000, payable in equal quarterly installments of $5,000,
including interest at 12% through December 1998. 20,000 34,324
Notes payable to seller of laboratory assets of Mason in monthly
installments of $5,000 including interest at 9% ($25,000 payable
October, 1998) through September, 1999. Balloon payment
of approximately $30,000 due October, 1999. 140,867 218,500
Note payable to shareholders in monthly installments of
$6,541 including interest at 8% through February 15, 2004,
secured by all assets transferred in connection with the acquisition
of CDN and by the stock of Fairfield Dental Center, P.A. Repaid
in 1997. - 426,440
Note payable to shareholders in monthly installments of $12,102
including interest at 7.48% through June 30, 2002, secured by all assets
transferred in connection with the acquisition of The Dental Team and
the stock of The Florida Dental Team P.A. 539,703 655,719
Unsecured note payable to shareholder, interest only due
monthly at 12%. Upon demand of the shareholder, the note will
be paid in 36 equal monthly installments of $2,325 including
interest at 12%. Incurred in connection with the acquisition
of The Dental Team. 70,000 70,000
</TABLE>
(continued)
<PAGE> 42
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Notes payable to various sellers of dental laboratory assets
bearing interest at rates ranging from 7% to 8%, payable
in monthly installments totaling $269, including interest
through April, 1998. $ 1,062 24,226
Unsecured notes payable to certain shareholders of the Company,
bearing interest at 10%. Payable in monthly installments totaling
$3,510 through October 1997. Repaid in 1997. -- 13,321
Notes payable to financial institutions, secured by delivery
equipment, bearing interest ranging from 7.9% to 11.75%,
payable in monthly installments totaling $1,109, including
interest through February, 1999; $706 through June, 1999
and $304 through November, 1999. $ 18,116 26,254
----------- -----------
2,636,620 3,982,912
Current portion of long-term debt (849,184) (715,806)
----------- -----------
Long-term debt, excluding current portion $ 1,787,436 3,267,106
=========== ===========
</TABLE>
Substantially all long-term debt is secured by the assets of the
Company, its subsidiaries, life insurance policies or various other
assets.
Scheduled maturities of long-term debt for the years subsequent to
December 31, 1997 are as follows: 1998 - $849,184; 1999 - $339,960; 2000
- $277,281; 2001, $277,999; 2002 - $221,309 and thereafter - $670,887.
(7) CAPITAL LEASE OBLIGATIONS
The Company is obligated under various lease agreements for certain
office equipment. These leases are noncancelable and require monthly
payments through April 2000. Following is a schedule of future minimum
lease payments under capital leases:
<TABLE>
<S> <C>
Year Ended December 31,
1998 $ 22,235
1999 19,033
2000 656
--------
Total minimum lease payments 41,924
Less amount representing interest (4,487)
Present value of net minimum lease payments 37,437
Less current portion of capital lease obligations (18,849)
--------
Capital lease obligations, excluding current portion $ 18,588
========
</TABLE>
<PAGE> 43
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortization of assets recorded under capital leases is included
with depreciation expense.
(8) SHAREHOLDERS' EQUITY
(a) Preferred Stock
The Company has authorized 1,000,000 shares of $1.00 par value
Series A 11.75% Cumulative Preferred Stock and 100 shares of $1.00
par value Series B Preferred Stock. Series of the Preferred Stock
may be created and issued from time to time, with such
designations, preferences, conversion rights (including voting
rights), qualifications, limitations or restrictions thereof as
shall be stated and expressed in the resolution or resolutions
providing for the creation and issuance of such series of Preferred
Stock.
(b) Stock Options and Warrants
During 1993, the Company's Board of Directors adopted an Incentive
and Non-Statutory Stock Option Plan (the 1993 Option Plan). Options
under the 1993 Option Plan are either "incentive stock options"
(ISOs), which are intended to qualify under Section 422A of the
Internal Revenue Code of 1986, as amended, or "nonstatutory stock
options" (NSOs), which are not intended to qualify. The exercise
price of ISOs granted must be at least 100% of the fair market
value of the common stock on the grant date, except that the
exercise price of options granted to shareholders possessing more
than 10% of the voting power of the Company's voting stock must be
at least 110% of such fair market value.
The price of NSOs shall be specified by the Board at the time the
option is granted, and may be less than the fair market value of
the underlying shares of common stock on the date such NSO is
granted, but may not be less than the par value of the underlying
shares of common stock. Each stock option granted under the 1993
Option Plan expires on the date specified in the option agreement,
which date shall not be later than the tenth anniversary of the
date on which the option was granted (fifth anniversary in the case
of a greater-than-10% shareholder). The Board of Directors approved
67,900 shares to be reserved for issuance pursuant to the 1993
Option Plan. The 1993 Option Plan will terminate in June 2003, or
on such earlier date as the Board of Directors may determine.
During 1996, the Company issued ISO's to two directors to purchase
an aggregate of 50,000 shares of the Company's common stock at
$5.95 per share, vesting in equal installments over three years
commencing one year from the date of grant and expiring in March
1999. Subsequent to the initial grant and pursuant to an agreement
with the directors, the ISO grant was reduced to 32,400 shares of
the Company's common stock (Note 13).
(continued)
<PAGE> 44
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1996, the Company issued a warrant to Stratum Management, Inc.
and certain consultants to purchase 120,000 shares of the Company's
common stock at $5.00 per share. The warrant expires December 31, 1998.
Subsequent to issuance and pursuant to an agreement with Stratum
Management, Inc. and certain consultants, the warrant was reduced to
77,600 shares of the Company's common stock (Note 14).
During 1996, the Company issued ISO's to an employee to purchase 20,000
shares of the Company's common stock at $4.35 per share vesting in
varying installments over three and one-half years and expiring in
January 2003.
On September 27, 1996, the Board of Directors declared an extension
period of twelve months for the expiration date of the warrants issued
pursuant to the Company's initial public offering on April 15, 1992.
Further extensions beyond October 12, 1998 of the expiration date of
these warrants may hereafter be determined by the Board of Directors up
to a total of an additional twelve months or such additional time in
such increments as the Board of Directors may determine in accordance
with the terms of the related Warrant Agreement.
The Company has adopted the disclosure - only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (SFAS 123). Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation and other cost
for the Company's stock option plan for employees or directors or issued
warrants been determined based on the fair value at the grant date or
issuance for awards in 1996, consistent with the provisions of SFAS 123,
the impact on net loss would have been immaterial.
Information regarding the employee option plan for 1997 and 1996 is as
follows:
Summary of the Status of the Company's Stock Options and Warrants
<TABLE>
<CAPTION>
1997 1996
-------------------------- ----------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at the beginning of
the year 140,000 $ 5.90 12,000 $ 14.90
Granted (exercise price equals
market) -- -- 130,000 5.15
Exercised -- -- -- --
Forfeited -- -- (2,000) 10.00
------- ---------- ------- ----------
Outstanding at year end 140,000 $ 5.90 140,000 5.90
======= ========== ======= ==========
Options and warrants exercisable
at year end 104,400 85,600
======= =======
Weighted average fair value of
options granted and warrants
issued during the year N/A $ .80
</TABLE>
<PAGE> 45
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Company Stock Options and Warrants Prices
<TABLE>
<CAPTION>
OPTIONS AND WARRANTS OUTSTANDING OPTIONS AND WARRANTS EXERCISABLE
--------------------------------------------------------------- --------------------------------
Weighted average
Range of Number remaining Number
exercise Outstanding contractual Weighted average exercisable Exercise
price 12/31/97 life (years) exercise price 12/31/97 price
-------- ----------- ---------------- ---------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 20.00 4,000 5.0 $ 20.00 4,000 $ 20.00
13.15 6,000 1.3 13.15 6,000 13.15
5.95 32,400 1.3 5.95 10,800 5.95
5.00 77,600 1.0 5.00 77,600 5.00
4.35 20,000 5.0 4.35 6,000 4.35
--------- ------- --- --------- ------- ---------
$ (4.35)
20.00 140,000 1.7 $ 5.90 104,400 $ 6.10
========= ======= === ========= ======= =========
</TABLE>
Additionally, certain default warrants are outstanding under the terms
of the Financing Agreement (Note 14) which can be exercised only upon
certain events of default, as defined.
(9) INCOME TAXES
The Company had no income tax expense in 1997 and 1996. The Company
utilized tax net operating loss (NOL) carryforwards to offset taxable
income in 1997.
As of December 31, 1997, the Company has approximately $6,500,000 in tax
net operating loss (NOL) carryforwards available to offset future
taxable income through 2012.
For financial statement reporting purposes, a valuation allowance of
approximately $2,627,000 and $2,712,000 has been recognized to offset
net deferred tax assets in 1997 and 1996, respectively. This valuation
allowance (decreased) increased approximately $(85,000) and $800,000
during 1997 and 1996, respectively. The utilization of NOL carryforwards
may be delayed because of ownership changes resulting from the Company's
initial public offering and other issuances of stock. The maximum amount
of loss carryforwards allowed to be utilized each year is determined by
multiplying the value of the Company at the time of the change in
ownership by the federal long-term tax-exempt rate.
(continued)
<PAGE> 46
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
and liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,533,000 2,555,000
Allowance for doubtful accounts 74,000 104,000
Intangibles -- 66,000
Other 20,000 17,000
----------- -----------
Total deferred tax assets 2,627,000 2,742,000
----------- -----------
Valuation allowance for deferred tax assets (2,627,000) (2,712,000)
----------- -----------
Net deferred tax assets -- 30,000
----------- -----------
Deferred tax liabilities:
Fixed assets -- 30,000
Intangibles -- --
----------- -----------
Total deferred tax liabilities -- 30,000
----------- -----------
Net deferred taxes $ -- --
=========== ===========
</TABLE>
(10) NET INCOME (LOSS) PER SHARE OF COMMON STOCK
The following table represents the computation of basic and diluted
net income (loss) per share of common stock as required by SFAS No.
128.
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Net income (loss) $ 8,419 (5,749,604)
Preferred dividends -- --
---------- ----------
Net income applicable to common
share owners $ 8,419 (5,749,604)
========== ==========
Basic weighted common shares outstanding 2,024,465 1,779,575
---------- ----------
Net income (loss) per common share $ -- (3.23)
========== ==========
</TABLE>
<PAGE> 47
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Effect of dilutive securities:
Warrants 995,018 --
Dilutive weighted common shares
outstanding 3,019,483 1,779,575
---------- ---------
Dilutive net income (loss) per common
share $ -- (3.23)
========== =========
</TABLE>
Certain options, convertible debt and convertible preferred stock were
not included in computing dilutive net income (loss) per share of common
stock because their effects were anti-dilutive.
(11) COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
The Company leases office facilities and equipment under various
operating leases. Rent expense under operating leases was
approximately $690,000 and $947,000 for the years ended December
31, 1997 and 1996, respectively.
The Company entered into operating leases for its corporate office
and its telephone system, on a month to month basis, from its
Chairman and Chief Executive Officer in September 1996. Monthly
rent expense under these leases are $1,555 and $570, respectively.
The future minimum lease payments under these operating leases for
the years subsequent to December 31, 1997 are as follows: 1998;
$744,000, 1999; $616,000, 2000; $473,000, 2001; $475,000, 2002;
$271,000 and thereafter $85,000.
(b) Consulting and Employment Agreements
During 1995, the Company entered into an agreement with Stratum
Management, Inc. and certain individual consultants (collectively,
the "Consultants") for consulting services effective June 20, 1995
and continuing through 2006, terminable by either party at any
time. Effective January 1, 1996, the Consultants received $42,000
per month and a warrant to purchase 120,000 shares (subsequently
reduced to 77,600 shares) of common stock at $5.00 per share.
During 1996, the Company entered into an agreement with Dr. Charles
R. Mitchell, who was appointed as President of the Company during
1995. The agreement provided for an annual salary of $96,000,
issuance of 10,000 shares of the Company's common stock and certain
fringe benefits. The agreement had a three year term but could be
terminated by either party upon certain conditions.
<PAGE> 48
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In September 1996, in connection with the issuance of the Class B
Preferred stock, the aforementioned Consulting and Employment
agreements were terminated. In addition, the Consultants warrant to
purchase common stock was reduced from 120,000 to 77,600 shares
(Note 14).
During 1996, the Company amended two employment agreements to
increase annual compensation to approximately $107,000 per
employee. In addition, one employee receives an additional $12,000
annually for reimbursement of certain expenses and was granted
incentive stock options (Note 8). The agreements provide for annual
compensation increases and expire in May 2001 although either the
employee or the Company may terminate the agreement upon ninety
days written notice.
(c) Medical Malpractice Claims
The Company is insured with respect to medical malpractice risks up
to $1,000,000 per claim with a $3,000,000 annual aggregate claims
limit.
(12) BUSINESS ACQUISITIONS/SALES
During 1996, the Company acquired the assets of two dental laboratories
for approximately $5,000 in cash and promissory notes of approximately
$28,000. The excess purchase price over the fair value of the assets
acquired approximated $5,407.
During 1997, the Company sold three dental practices and a laboratory
for approximately $668,000 in cash, $436,000 in notes receivable (Note
2) and the buyers' assumption of certain debt and other liabilities of
$674,000. The Company recognized a gain on sale of these practices/lab
of approximately $283,000. Combined sales of these entities for their
last complete fiscal year (1996) was approximately $4,000,000.
(13) LITIGATION
The Company is involved in a number of legal proceedings related to
malpractice, worker's compensation, general employment and contract
disputes all in various stages of proceedings, most of which will be
covered by insurance. Management believes settlements, if any, in excess
of insurance coverage would be immaterial.
During September 1996, the Company and certain investors prevailed in a
lawsuit against two former officers and shareholders of the Company. As
a result, the former officers and shareholders surrendered 3,555 shares
of common stock to the Company. These surrendered shares are being held
in treasury.
(continued)
<PAGE> 49
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) FINANCING AGREEMENT
On April 22, 1996, the Company entered into a financing agreement
pursuant to which the Company issued Convertible Secured Debt
(Convertible Debt) of $2,483,620 and 3,599.77 shares of Series A 11.75%
Cumulative Convertible Preferred Stock (Preferred Stock) to Amsterdam
Equities Limited, Frank Leonard Laport and Beverly Trust Company, as
custodian for the Frank Leonard Laport Rollover Individual Retirement
Account No. 75-49990 (Investor Group). The Convertible Debt and
Preferred Stock replaced indebtedness of the Company at April 22, 1996,
in the amount of $1,976,700 incurred under a letter agreement dated
December 7, 1994 (Letter Agreement) and that certain Secured Revolving
Demand Note dated January 27, 1995 (the Secured Note). Under the terms
of the Convertible Debt and Preferred Stock Agreements (also referred to
herein collectively as the Financing Arrangements) the Investor Group
may lend additional funds, in increments to be determined solely by the
Investor Group. The funds may be used by the Company subject to the
approval of the Investor Group, to fund certain acquisitions. The
Convertible Debt and Preferred Stock were initially to bear interest and
have a coupon rate, respectively of 11.75%, plus the payment of any
withholding taxes which may be due and owing with respect to any person
which is a foreign entity. Payments on the Convertible Debt/Preferred
Stock were interest only due in quarterly installments which were to
begin in September 1996. Interest accrued of $57,136 under the Financing
Arrangements at June 30, 1996 was added to the principal balance at that
date. The Convertible Debt/Preferred Stock originally had a maturity of
seven years from the date of closing, subject to acceleration in the
event of a default. Subsequent to September 30, 1996, the Company was
unable to pay the interest only requirements of the Financing
Arrangements, therefore effective October 1, 1996 until the accrued
interest is paid, interest began to accrue at the default rate of
21.75%. The accrued interest on the Convertible Debt totaled $193,600 at
December 31, 1997 and 1996.
In addition to the amount owed under the Letter Agreement and the
Secured Note, the terms of the Financing Arrangements called for the
conversion of 58,333 shares of Regulation D stock held by the Investor
Group into $350,000 of Convertible Debt and Preferred Stock. The shares
of common stock redeemed are being held in treasury.
An additional provision of the Financing Arrangements included the
payment of $300,000 as a closing fee and required the Company to
reimburse the legal fees and out-of-pocket costs and expenses of the
Investor Group in connection with the negotiation and the closing of the
transaction totaling $216,897. The closing fees and reimbursement of the
costs and expenses were paid in the form of Convertible Debt and
Preferred Stock.
The terms of the Financing Arrangements provided the Investor Group with
certain rights pertaining to the registration of any common stock to
which the Investor Group may convert from Convertible Debt or Preferred
Stock, certain anti-dilution rights, and a right of first refusal on any
future offering of the Company's securities.
(continued)
<PAGE> 50
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the terms of the transaction, the Company issued a warrant to
purchase 100 shares of Series B Preferred Stock. The Series B Preferred
Stock entitles Amsterdam Equities Limited (Amsterdam), after the
occurrence of an event of default, to elect a Class B director who would
have super-majority voting powers on the Company's Board of Directors.
The Convertible Debt and Preferred Stock may be converted into common
stock of the Company, at the sole option of the Investor Group, at
various conversion rates as set forth in the conversion formula
contained in the Financing Arrangements. Conversion pursuant to such
conversion formula would result in a conversion price per share of the
Company's common stock significantly below present market levels.
In addition, pursuant to the terms of the Financing Arrangements, the
Company issued to the holders of the Convertible Debt and the Preferred
Stock warrants to purchase shares of common stock at an exercise price
of $.50 per share (subsequently reduced to $.05 per share, subject to
adjustment, under the terms of the Modification Agreement). The Investor
Group may exercise the warrants only upon the occurrence of an event of
default under the terms of certain minimum financial goals, as defined
in the Financing Arrangements. As of December 31, 1997, the Company was
in default under the Financing Agreement and the stated financial goals
were not met, and, accordingly, the default warrants are exercisable by
the Investor Group upon payment of the exercise price. Should the
Company cure the default and meet the minimum financial goals, the
default warrants would not be exercisable. The cumulative effect of the
issuance of shares pursuant to the default warrant and conversion of all
Convertible Debt and Preferred Stock could result in ownership by the
Investor Group of approximately 85% of the Company's total issued and
outstanding common stock. To date, the Investor Group has taken no steps
to exercise these default warrants.
In August 1996, the Company entered into a Letter Agreement by and among
the Company, Dr. Charles R. Mitchell, a former President of the Company;
the former Consultants to the Company, certain directors of the Company
and the Investor Group. Under the Letter Agreement, the Series B
Preferred Stock was amended to be immediately effective and Class B
Preferred Stock was issued to Amsterdam. The Class B Preferred Stock
entitled Amsterdam to elect a Director to the Board of Directors of the
Company who would have super majority voting powers. In effect, the
Class B director appointed by Amsterdam shall have the number of votes
on the Board of Directors as the current Board currently holds, plus one
vote. The amendment and activation of the Class B Preferred Stock
occurred upon the satisfaction of the following two conditions: (i)
delivery to the Company of a notice, pursuant to which the Investor
Group would convert an aggregate amount of $700,000 of currently
outstanding Convertible Debt and Preferred Stock into the Company's
Common Stock in accordance with the contractual terms of the Financing
Arrangements and (ii) upon the advance to the Company of an additional
$200,000 pursuant to the Financing Arrangements.
(continued)
<PAGE> 51
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the issuance of the Class B Preferred Stock, the
provision of additional funding and conversion of debt, the Consultants
and certain directors of the Company agreed to forfeit, on a pro rata
basis, an aggregate amount of 60,000 options and warrants to purchase
the Company's Common Stock.
Pursuant to a Modification Agreement (Modified Agreement) entered into
between the Investor Group and the Company dated July 1, 1997, the
Investor Group agreed, conditioned upon continued listing by the Company
on the Nasdaq SmallCap Market and similar concessions by another
significant Company creditor, to waive all accumulated and ongoing
interest and/or dividends on the Convertible Debt/Preferred Stock for
the period from January 1, 1997 through December 31, 1997.
The Convertible Debt is secured by substantially all assets of the
Company and requires the Company to comply with certain financial and
non-financial debt covenants.
At December 31, 1997, the Company was in violation of certain debt
covenants. As such, the Company has classified the Convertible Debt as a
current liability. To date, the Investor Group has not made formal claim
under the debt covenant violation.
(15) GOING CONCERN
As shown in the accompanying consolidated financial statements, the
Company has incurred minimal profit and recurring losses from operations
resulting in cash flow problems. Additionally, the Company is in default
with regards to the Convertible Debt. To date, the Investor Group has
not demanded payment. These factors raise doubt about the Company's
ability to continue as a going concern.
Management has instituted a cost reduction program, has sold
economically inefficient practices and is emphasizing operational
efficiencies. In addition, the Financing Arrangements (Note 14), could,
at the discretion of the Investor Group, provide adequate funds for
working capital, debt refinancing and future acquisitions. Additional
funding from the Investor Group, however, cannot be assured.
(16) SUBSEQUENT EVENT
During fiscal year 1997, the Company failed to meet certain financial
covenants related to the Financing Arrangements which has resulted in
the ability of the Investor Group to exercise warrants to purchase
approximately 1,000,000 shares of common stock at approximately $.05 per
share effective January 1, 1998 (Note 14). To date, the Investor Group
has not formally indicated an intent to exercise these warrants.
<PAGE> 1
EXHIBIT 10.58
ALLONGE AND FIFTH AMENDMENT TO ACQUISITION
PROMISSORY NOTE
This Allonge and Fifth Amendment to Acquisition Promissory Note
("Amendment") is made effective as of the 25th day of August, 1997 between
Princeton Dental Management Corporation, a Delaware corporation ("PDMC"), Mason
Dental Midwest, Inc. ("Mason") (PDMC and Mason are hereinafter collectively
referred to as the "Maker"), and the Constituent Shareholders of the Delaware
corporation formerly known as Mason Dental, Inc. (the Constituent Shareholders
are collectively referred to as the "Holder").
RECITALS
A. Maker has previously executed in favor of Holder that certain
Acquisition Promissory Note dated December 31, 1993 in the initial principal
amount of $1,350,000.00, as subsequently amended ("Acquisition Promissory
Note").
B. Maker and Holder desire to further amend the Acquisition Promissory
Note to reflect certain agreements reached by Maker and Holder.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Unless otherwise defined herein, all capitalized terms used
herein which are defined in the Acquisition Promissory Note shall have the
meanings assigned to them in the Acquisition Promissory Note.
2. Effective immediately, the presently outstanding principal
amount of the Acquisition Promissory Note is reduced by One Hundred and Fifty
Thousand United States Dollars (US $150,000.00). In full and final consideration
for such reduction and forgiveness of debt, PDMC agrees to proceed to
immediately issue 53,381 shares of PDMC Common Stock (the "Stock") to the
Constituent Shareholders. The Stock shall not be registered under the Securities
Act of 1933 or any state securities laws, and shall be restricted stock issued
pursuant to an applicable exemption from registration. The Stock shall be an
aggregate of 53,381 shares, but shall otherwise be issued to such individuals
and in such amounts as shall be set forth in a written direction provided to
PDMC and executed on behalf of the Constituent Shareholders with due
authorization.
3. The existing Section 20 of the Acquisition Promissory Note
is amended and restated in its entirety as follows:
<PAGE> 2
"20. Principal-Only Payments/Waiver of Interest.
Notwithstanding anything contained in this Note to the contrary, the Maker shall
be required to make payments of principal only for the period from July 1, 1997
through June 30, 1998 (the "Waiver Period"). Interest payments shall be waived
during the Waiver Period and interest shall not accrue during the Waiver Period.
Provided, however, that the parties acknowledge that this Amendment is being
entered into, in part, in consideration of a waiver, subject to certain terms
and conditions, of accrued and ongoing interest by Amsterdam Equities Limited
and Frank Leonard Laport (and certain entities related to Mr. Laport) for the
period from January 1, 1997 through December 31, 1997 ("Group Interest Waiver"),
and, in the event that the Group Interest Waiver fails to occur, than, in such
event, the Holder may, upon thirty (30) days written notice to the Maker,
declare this Amendment terminated effective as of the effective date of such
notice."
Except as specifically amended by this Amendment, the Acquisition
Promissory Note shall remain in full force and effect.
This Amendment may be executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Allonge and Fifth
Amendment to Acquisition Promissory Note as of the date first written above.
PRINCETON DENTAL MANAGEMENT CORPORATION
By:___________________________________
Frank Leonard Laport, CEO
MASON DENTAL MIDWEST, INC.
By:___________________________________
Gary Lockwood, President
CONSTITUENT SHAREHOLDERS
By: ______________________
Their: Authorized Representative
<PAGE> 3
STATE OF MICHIGAN)
COUNTY OF _____ )
I, ________________________, a Notary Public in and for the County and
State aforesaid, DO HEREBY CERTIFY that Gary Lockwood, personally known to me to
be the President of Mason Dental Midwest, Inc., appeared before me this day in
person and acknowledged that as such officer he signed and delivered such
instrument as his free and voluntary act and with due authorization, and as the
free and voluntary act of the Company, for the uses and purposes therein set
forth.
Given under my hand and seal this ___ day of August, 1997.
________________________
NOTARY PUBLIC
My Commission expires __________.
STATE OF ILLINOIS)
COUNTY OF COOK )
I, ______________________, a Notary Public in and for the County and
State aforesaid, DO HEREBY CERTIFY that Frank Leonard Laport, personally known
to me to be the Chairman of the Board and CEO of Princeton Dental Management
Corporation, appeared before me this day in person and acknowledged that he
signed and delivered such instrument as his free and voluntary act and with due
authorization, and as the free and voluntary act of the Company, for the uses
and purposes therein set forth.
Given under my hand and seal this ___ day of August, 1997.
________________________
NOTARY PUBLIC
My Commission expires __________.
<PAGE> 4
STATE OF MICHIGAN)
COUNTY OF _____ )
I, ________________________, a Notary Public in and for the County and
State aforesaid, DO HEREBY CERTIFY that _____________, personally known to me to
be one of the Constituent Shareholders, appeared before me this day in person
and acknowledged that as such officer he signed and delivered such instrument as
his free and voluntary act and with due authorization, and as the free and
voluntary act and with due authorization of a majority in interest of the
Constituent Shareholders, for the uses and purposes therein set forth.
Given under my hand and seal this ___ day of August, 1997.
________________________
NOTARY PUBLIC
My Commission expires __________.
<PAGE> 1
================================================================================
AGREEMENT OF PURCHASE AND SALE
By and Between
PRINCETON MEDICAL MANAGEMENT NORTHEAST, INC.
and
VALLEY FORGE DENTAL ASSOCIATES, INC.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
Recitals............................................... 1
I Purchase and Sale of the Assets........................ 1
II Representations, Warranties, Covenants
and Agreements of the Seller......................... 5
III Representations, Warranties, Covenants
and Agreements of the Purchaser...................... 19
IV Additional Covenants of the Seller and
the Purchaser........................................ 20
V Closing................................................ 23
VI Conditions to the Seller's Obligation to
Close................................................ 23
VII Conditions to the Purchaser's
Obligation to Close.................................. 25
VIII Indemnification........................................ 27
IX Brokers and Finders.................................... 30
X Transfer of Name....................................... 30
XI Miscellaneous.......................................... 30
Signatures............................................. 34
SCHEDULES
I. EXCLUDED ASSETS
II. ASSUMED LIABILITIES
III. CONTINGENT PAYMENTS
IV. ALLOCATION OF PURCHASE PRICE
EXHIBITS
A. FORM OF PROMISSORY NOTE
B. CERTAIN CONSENTS, LINES, CONTRACTS, PERMITS AND
OTHER MATTERS
C. FINANCIAL STATEMENTS
D. CERTAIN EMPLOYEES OF THE BUSINESS
E. EMPLOYEE BENEFIT PLANS
F. INTELLECTUAL PROPERTY RIGHTS
G. BANK ACCOUNTS
H-1. FORM OF EMPLOYMENT AGREEMENT - JONATHAN NASH,
D.D.S.
H-2. FORM OF MODIFICATION AGREEMENT
I. FORM OF ASSIGNMENT OF LEASE
<PAGE> 3
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the terms of the transaction, the Company issued a warrant to
purchase 100 shares of Series B Preferred Stock. The Series B Preferred
Stock entitles Amsterdam Equities Limited (Amsterdam), after the
occurrence of an event of default, to elect a Class B director who would
have super-majority voting powers on the Company's Board of Directors.
The Convertible Debt and Preferred Stock may be converted into common
stock of the Company, at the sole option of the Investor Group, at
various conversion rates as set forth in the conversion formula
contained in the Financing Arrangements. Conversion pursuant to such
conversion formula would result in a conversion price per share of the
Company's common stock significantly below present market levels.
In addition, pursuant to the terms of the Financing Arrangements, the
Company issued to the holders of the Convertible Debt and the Preferred
Stock warrants to purchase shares of common stock at an exercise price
of $.50 per share (subsequently reduced to $.05 per share, subject to
adjustment, under the terms of the Modification Agreement). The Investor
Group may exercise the warrants only upon the occurrence of an event of
default under the terms of certain minimum financial goals, as defined
in the Financing Arrangements. As of December 31, 1997, the Company was
in default under the Financing Agreement and the stated financial goals
were not met, and, accordingly, the default warrants are exercisable by
the Investor Group upon payment of the exercise price. Should the
Company cure the default and meet the minimum financial goals, the
default warrants would not be exercisable. The cumulative effect of the
issuance of shares pursuant to the default warrant and conversion of all
Convertible Debt and Preferred Stock could result in ownership by the
Investor Group of approximately 85% of the Company's total issued and
outstanding common stock. To date, the Investor Group has taken no steps
to exercise these default warrants.
In August 1996, the Company entered into a Letter Agreement by and among
the Company, Dr. Charles R. Mitchell, a former President of the Company;
the former Consultants to the Company, certain directors of the Company
and the Investor Group. Under the Letter Agreement, the Series B
Preferred Stock was amended to be immediately effective and Class B
Preferred Stock was issued to Amsterdam. The Class B Preferred Stock
entitled Amsterdam to elect a Director to the Board of Directors of the
Company who would have super majority voting powers. In effect, the
Class B director appointed by Amsterdam shall have the number of votes
on the Board of Directors as the current Board currently holds, plus one
vote. The amendment and activation of the Class B Preferred Stock
occurred upon the satisfaction of the following two conditions: (i)
delivery to the Company of a notice, pursuant to which the Investor
Group would convert an aggregate amount of $700,000 of currently
outstanding Convertible Debt and Preferred Stock into the Company's
Common Stock in accordance with the contractual terms of the Financing
Arrangements and (ii) upon the advance to the Company of an additional
$200,000 pursuant to the Financing Arrangements.
(continued)
<PAGE> 4
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the issuance of the Class B Preferred Stock, the
provision of additional funding and conversion of debt, the Consultants
and certain directors of the Company agreed to forfeit, on a pro rata
basis, an aggregate amount of 60,000 options and warrants to purchase
the Company's Common Stock.
Pursuant to a Modification Agreement (Modified Agreement) entered into
between the Investor Group and the Company dated July 1, 1997, the
Investor Group agreed, conditioned upon continued listing by the Company
on the Nasdaq SmallCap Market and similar concessions by another
significant Company creditor, to waive all accumulated and ongoing
interest and/or dividends on the Convertible Debt/Preferred Stock for
the period from January 1, 1997 through December 31, 1997.
The Convertible Debt is secured by substantially all assets of the
Company and requires the Company to comply with certain financial and
non-financial debt covenants.
At December 31, 1997, the Company was in violation of certain debt
covenants. As such, the Company has classified the Convertible Debt as a
current liability. To date, the Investor Group has not made formal claim
under the debt covenant violation.
(15) GOING CONCERN
As shown in the accompanying consolidated financial statements, the
Company has incurred minimal profit and recurring losses from operations
resulting in cash flow problems. Additionally, the Company is in default
with regards to the Convertible Debt. To date, the Investor Group has
not demanded payment. These factors raise doubt about the Company's
ability to continue as a going concern.
Management has instituted a cost reduction program, has sold
economically inefficient practices and is emphasizing operational
efficiencies. In addition, the Financing Arrangements (Note 14), could,
at the discretion of the Investor Group, provide adequate funds for
working capital, debt refinancing and future acquisitions. Additional
funding from the Investor Group, however, cannot be assured.
(16) SUBSEQUENT EVENT
During fiscal year 1997, the Company failed to meet certain financial
covenants related to the Financing Arrangements which has resulted in
the ability of the Investor Group to exercise warrants to purchase
approximately 1,000,000 shares of common stock at approximately $.05 per
share effective January 1, 1998 (Note 14). To date, the Investor Group
has not formally indicated an intent to exercise these warrants.
<PAGE> 5
EXHIBIT 10.58
ALLONGE AND FIFTH AMENDMENT TO ACQUISITION
PROMISSORY NOTE
This Allonge and Fifth Amendment to Acquisition Promissory Note
("Amendment") is made effective as of the 25th day of August, 1997 between
Princeton Dental Management Corporation, a Delaware corporation ("PDMC"), Mason
Dental Midwest, Inc. ("Mason") (PDMC and Mason are hereinafter collectively
referred to as the "Maker"), and the Constituent Shareholders of the Delaware
corporation formerly known as Mason Dental, Inc. (the Constituent Shareholders
are collectively referred to as the "Holder").
RECITALS
A. Maker has previously executed in favor of Holder that certain
Acquisition Promissory Note dated December 31, 1993 in the initial principal
amount of $1,350,000.00, as subsequently amended ("Acquisition Promissory
Note").
B. Maker and Holder desire to further amend the Acquisition Promissory
Note to reflect certain agreements reached by Maker and Holder.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Unless otherwise defined herein, all capitalized terms used
herein which are defined in the Acquisition Promissory Note shall have the
meanings assigned to them in the Acquisition Promissory Note.
2. Effective immediately, the presently outstanding principal
amount of the Acquisition Promissory Note is reduced by One Hundred and Fifty
Thousand United States Dollars (US $150,000.00). In full and final consideration
for such reduction and forgiveness of debt, PDMC agrees to proceed to
immediately issue 53,381 shares of PDMC Common Stock (the "Stock") to the
Constituent Shareholders. The Stock shall not be registered under the Securities
Act of 1933 or any state securities laws, and shall be restricted stock issued
pursuant to an applicable exemption from registration. The Stock shall be an
aggregate of 53,381 shares, but shall otherwise be issued to such individuals
and in such amounts as shall be set forth in a written direction provided to
PDMC and executed on behalf of the Constituent Shareholders with due
authorization.
3. The existing Section 20 of the Acquisition Promissory Note
is amended and restated in its entirety as follows:
<PAGE> 6
"20. Principal-Only Payments/Waiver of Interest.
Notwithstanding anything contained in this Note to the contrary, the Maker shall
be required to make payments of principal only for the period from July 1, 1997
through June 30, 1998 (the "Waiver Period"). Interest payments shall be waived
during the Waiver Period and interest shall not accrue during the Waiver Period.
Provided, however, that the parties acknowledge that this Amendment is being
entered into, in part, in consideration of a waiver, subject to certain terms
and conditions, of accrued and ongoing interest by Amsterdam Equities Limited
and Frank Leonard Laport (and certain entities related to Mr. Laport) for the
period from January 1, 1997 through December 31, 1997 ("Group Interest Waiver"),
and, in the event that the Group Interest Waiver fails to occur, than, in such
event, the Holder may, upon thirty (30) days written notice to the Maker,
declare this Amendment terminated effective as of the effective date of such
notice."
Except as specifically amended by this Amendment, the Acquisition
Promissory Note shall remain in full force and effect.
This Amendment may be executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Allonge and Fifth
Amendment to Acquisition Promissory Note as of the date first written above.
PRINCETON DENTAL MANAGEMENT CORPORATION
By:___________________________________
Frank Leonard Laport, CEO
MASON DENTAL MIDWEST, INC.
By:___________________________________
Gary Lockwood, President
CONSTITUENT SHAREHOLDERS
By: ______________________
Their: Authorized Representative
<PAGE> 7
STATE OF MICHIGAN)
COUNTY OF _____ )
I, ________________________, a Notary Public in and for the County and
State aforesaid, DO HEREBY CERTIFY that Gary Lockwood, personally known to me to
be the President of Mason Dental Midwest, Inc., appeared before me this day in
person and acknowledged that as such officer he signed and delivered such
instrument as his free and voluntary act and with due authorization, and as the
free and voluntary act of the Company, for the uses and purposes therein set
forth.
Given under my hand and seal this ___ day of August, 1997.
________________________
NOTARY PUBLIC
My Commission expires __________.
STATE OF ILLINOIS)
COUNTY OF COOK )
I, ______________________, a Notary Public in and for the County and
State aforesaid, DO HEREBY CERTIFY that Frank Leonard Laport, personally known
to me to be the Chairman of the Board and CEO of Princeton Dental Management
Corporation, appeared before me this day in person and acknowledged that he
signed and delivered such instrument as his free and voluntary act and with due
authorization, and as the free and voluntary act of the Company, for the uses
and purposes therein set forth.
Given under my hand and seal this ___ day of August, 1997.
________________________
NOTARY PUBLIC
My Commission expires __________.
<PAGE> 8
STATE OF MICHIGAN)
COUNTY OF _____ )
I, ________________________, a Notary Public in and for the County and
State aforesaid, DO HEREBY CERTIFY that _____________, personally known to me to
be one of the Constituent Shareholders, appeared before me this day in person
and acknowledged that as such officer he signed and delivered such instrument as
his free and voluntary act and with due authorization, and as the free and
voluntary act and with due authorization of a majority in interest of the
Constituent Shareholders, for the uses and purposes therein set forth.
Given under my hand and seal this ___ day of August, 1997.
________________________
NOTARY PUBLIC
My Commission expires __________.
<PAGE> 9
EXHIBIT 10.59
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT made as of the 1st day of May, 1997 by and between
Princeton Medical Management Northeast, Inc., a Florida corporation (the
"Seller"), and Valley Forge Dental Associates, Inc., a Delaware corporation (the
"Purchaser").
W I T N E S S E T H:
WHEREAS, the Seller, together with Century Dental Center, P.C., a
Pennsylvania professional corporation ("Century Dental"), is engaged in the
business of operating and managing a dental practice under the name "Century
Dental Center" which provides dental services and related activities at one (1)
facility in the city of Springfield in the Commonwealth of Pennsylvania (such
activities being hereinafter referred to as the "Business"); and
WHEREAS, the Purchaser (or its designee) desires to acquire from the
Seller certain assets of the Seller described in Section I(C)(i) hereof (the
"Assets") and to assume certain liabilities and contractual obligations of the
Seller as described in Section I(C)(ii) hereof (the "Assumed Liabilities"), and
the Seller desires to sell or assign the Assets and to assign the Assumed
Liabilities to the Purchaser (or its designee), on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, and intending to be legally
bound, the parties hereto hereby agree as follows:
SECTION I
PURCHASE AND SALE OF THE ASSETS
A. Purchase and Sale of the Assets. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained, at the Closing (as
hereinafter defined):
(i) The Seller agrees to sell, assign and convey to the
Purchaser (or its designee), and the Purchaser (or its designee) agrees to
purchase, acquire and accept from the Seller, the Assets.
<PAGE> 10
2
(ii) The Seller agrees to assign to the Purchaser (or its
designee) and the Purchaser (or its designee) agrees to accept and assume from
the Seller, the Assumed Liabilities. The Purchaser (and its designee) shall not
assume and shall have no responsibility with respect to, and shall be
indemnified by the Seller against any and all liabilities or obligations of the
Seller, other than the Assumed Liabilities.
B.Purchase Price. The purchase price (the "Purchase Price")
for the Assets is (i) $355,109.38 and (ii) the contingent payments, if earned
(the "Contingent Payments"), provided for in Section I(D) hereof. The Purchase
Price payable at the Closing shall be made by (a) delivery to the Seller of
$234,585.87 in immediately available funds by means of a wire transfer to an
account designated by the Seller, (b) at the direction of the Seller, delivery
to First Republic Bank ("First Republic") of $61,655.25 in immediately available
funds by means of a wire transfer to an account designated by First Republic,
(c) at the direction of the Seller, delivery to Jonathan D. Nash, D.D.S., P.C.
f/k/a Century Dental Center I, P.C. ("Century") of $29,434.13 in immediately
available funds by means of a wire transfer to an account designated by Century
and (d) delivery of an 8% promissory note of the Purchaser in the principal
amount of $29,434.13 in the form of Exhibit A attached hereto.
C. Assets; Assumed Liabilities.
(i) The Assets shall consist of all assets, business,
contract rights, patient records, financial books and financial records, other
books and records and good will, of every kind and nature, real, personal, and
mixed, tangible and intangible, wherever located, of the Seller used in or in
any way related to the Business as conducted by the Seller, including, but not
limited to, inventory and supplies, prepaid expenses, deposits, tradenames,
trademarks, patents, copyrights, inventions, books and records, patient files,
and all other agreements and arrangements necessary for the uninterrupted and
continuing operation of the Business, except for the assets listed in Schedule I
hereto (the "Excluded Assets").
(ii) The Assumed Liabilities shall consist of and shall be
limited solely to the obligations and liabilities of the Seller incurred in
connection with the Business listed in Schedule II hereto. The Purchaser (and
its designee) shall not assume, shall have no responsibility with respect to,
and shall be indemnified, by the Seller against any liabilities or obligations
of the Seller or the
<PAGE> 11
3
Business, except for the Assumed Liabilities set forth in Schedule II hereto.
The Seller shall remain liable for, and shall pay when due, any and all
obligations and liabilities of the Seller and the Business other than the
Assumed Liabilities.
(iii) It is specifically understood and agreed that the
Assumed Liabilities shall not include (a) liabilities of the Seller or the
Business for expenses incurred or accrued, at any time, in connection with the
transactions contemplated by this Agreement or in any other connection not in
the ordinary course of business, (b) liabilities of the Seller or the Business
for federal, state and municipal income, sales, franchise and other taxes,
including any interest, penalties and assessments thereon, and (c) liabilities
of the Seller or the Business arising out of or relating to any governmental or
private payor claims, returns, invoices, cost reports, late filings or billing
practices which relate to any period prior to the date of Closing. Neither the
Purchaser nor any designee of the Purchaser assuming the Assumed Liabilities
shall assume any liabilities of the Seller or the Business in connection with
any understanding or agreement, whether written or oral, with respect to any
retirement plan, including, but not limited to, any profit sharing, 401(k) or
defined benefit plan (as defined in Section 414(j) of the Internal Revenue Code
of 1986, as amended (the "Code").
D. Contingent Payments. Each of the Seller and the Purchaser
acknowledges and agrees that since the Business has a short operating history,
the full value of the Business on the date of the Closing is difficult to
ascertain with any degree of certainty on the date of Closing. Accordingly, the
parties to this Agreement agree that it is appropriate to provide for the
Contingent Payments set forth in this Section I(D) to reflect more accurately
the full value of the Business on the date of Closing. Subject to the conditions
set forth herein and in Schedule III hereto, within thirty (30) days after May
31, 1997 and, May 31, 1998, the Purchaser shall deliver to the Seller, the
Contingent Payments, if any, payable with respect to the twelve-month periods
ending May 31, 1997 and May 31, 1998, respectively. The amount of the Contingent
Payments payable to the Seller with respect to each such twelve-month period
(each, a "Contingent Period") (i) shall be based upon the achievement by the
Contingent Payment Business (as hereinafter defined) of targeted "net operating
revenues" (as hereinafter defined) during such Contingent Period and (ii) shall
be determined in accordance with the provisions hereof and Schedule III hereto.
Each of the Contingent Payments, if earned, shall be made by delivery to
<PAGE> 12
4
the Seller of bank checks payable to the order of the Seller in such amounts of
cash as is determined in accordance with Schedule III hereto.
E. Computation of Net Operating Revenues. The Purchaser shall,
within thirty (30) days after the end of each Contingent Period, compute the
amount of the net operating revenues of the Contingent Payment Business for such
Contingent Period. The amount so computed shall be the net operating revenues
for purposes of determining whether or not Contingent Payments shall be due and
payable. Notwithstanding the determination of net operating revenues for any
applicable period by the Purchaser, the Seller shall receive the information
upon which such determination was made, and shall, in the event of a dispute as
to the amount or method of calculation of such net operating revenues have the
right to review all work papers relating to the determination of net operating
revenues. For purposes of this Agreement, (i) "net operating revenues" of the
Contingent Payment Business shall mean gross charges billed for all services
provided by the Contingent Payment Business, including capitation revenues
pursuant to prepaid dental plans (or, in the event that all or substantially all
of the assets and business of the Contingent Payment Business, shall have been
transferred to another entity or entities, the allocable portion of the gross
charges of such other entity or entities attributable to the Contingent Payment
Business) during the applicable Contingent Period less any necessary adjustments
to reflect patient refunds and amounts which are determined to be uncollectible
at the time of billing (contractual allowances) or in the future (billing
errors) as determined in accordance with generally accepted accounting
principles consistent with the Purchaser's accounting practices.
For purposes of Sections I(D) and I(E) hereof and Schedule III
hereto, the term "Contingent Payment Business" shall mean the operations,
services and activities of the Business as operated by the Purchaser (or its
designee) combined with the operations of any related professional corporation
managed by the Purchaser (or its designee) as such operations relate to the
Business.
F. Allocation. The Purchase Price (including the Assumed
Liabilities) shall be allocated as set forth in Schedule IV hereto. The parties
hereto agree that the allocation of the Purchase Price is intended to comply
with the allocation method required by Section 1060 of the Code. The parties
shall cooperate to comply with all substantive and procedural requirements of
Section 1060 of the Code and any regulations thereunder, and the allocation
shall be
<PAGE> 13
5
adjusted if, and to the extent, necessary to comply with the requirements of
Section 1060 of the Code. Neither the Purchaser nor the Seller will take or
permit any affiliated person to take, for federal, state or local income tax
purposes, any position inconsistent with the allocation set forth in Schedule IV
hereto, or, if applicable, such adjusted allocation. Each of the Purchaser and
the Seller agrees that each of them shall attach to its tax returns for the tax
year in which the Closing shall occur an information statement on Form 8594,
which shall be completed in accordance with allocations set forth in Schedule IV
hereto.
G. Assignment. The parties hereto agree that the Purchaser may
designate one or more direct or indirect wholly owned subsidiaries of the
Purchaser to acquire the Assets and to assume the Assumed Liabilities; provided,
however, that the Purchaser's payment obligations hereunder shall not be
affected by any such designations by the Purchaser.
SECTION II
REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS OF THE SELLER
The Seller hereby represents and warrants to, and covenants
and agrees with, the Purchaser, as of the date hereof and as of the date of the
Closing, that:
A. Organization and Qualification. The Seller is duly
organized, validly existing and in good standing under the laws of the State of
Florida, is duly qualified to do business in the Commonwealth of Pennsylvania,
and has full corporate power and authority to own its properties and to conduct
the Business. The Seller has full power, authority and legal right and all
necessary approvals, permits, licenses and authorizations to own its properties
and to conduct the Business and to enter into and consummate the transactions
contemplated under this Agreement, except for such approvals, permits, licenses
and authorizations, the absence of which would not have a material adverse
effect on the business, financial condition, operations or prospects of the
Business taken as a whole (a "Material Adverse Effect"). The copies of the
certificate of incorporation and by-laws of the Seller which have been delivered
to the Purchaser are complete and correct.
B. Authority. The execution and delivery of this Agreement by
the Seller, the performance by the Seller of its covenants and agreements
hereunder and the
<PAGE> 14
6
consummation by the Seller of the transactions contemplated hereby have been
duly authorized by all necessary corporate action. This Agreement constitutes a
valid and legally binding obligation of the Seller, enforceable against the
Seller in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally or by general principles of equity.
C. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the certificate of incorporation or by-laws of the
Seller or any statute, ordinance, regulation, order, judgment or decree of any
court or governmental agency or board, or conflicts with or will result in any
breach of any of the terms of or constitute a default under or result in the
termination of or the creation of any lien pursuant to the terms of any contract
or agreement to which the Seller is a party or by which the Seller or any of the
Assets is bound, except where such violation, conflict, breach, default,
termination, or lien creation would not have a Material Adverse Effect. No
consents, approvals or authorizations of, or filings with, any governmental
authority or any other person or entity are required in connection with the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby and the operation of the Business by the Purchaser (or its
designee) subsequent to the Closing, except for required consents, if any, to
assignment of contracts, leases and other agreements as set forth in Exhibit B.
D. Financial Statements; No Undisclosed Liabilities. The
Seller has delivered to the Purchaser the balance sheets of the Business as of
December 31, 1995 and December 31, 1994, and the income statements for the
six-month period ended March 31, 1997, the nine-month period ended September 30,
1996, and the twelve-month period ended December 31, 1995 and December 31, 1994,
which financial statements (collectively, the "Financial Statements") were
internally prepared. The Financial Statements are true and correct in all
material respects and have been prepared in accordance with generally accepted
accounting principles applied consistently throughout the periods involved. The
Financial Statements fully and fairly present the financial condition of the
Business as at the dates thereof and the results of the operations of the
Business for the periods indicated. Except to the extent set forth in or
provided for in the Financial Statements or as identified in Exhibit B, and
except for current liabilities incurred in
<PAGE> 15
7
the ordinary course of business consistent with past practices (and not
materially different in type or amount), the Seller, with respect to the
Business, has no liabilities or obligations of any nature, whether accrued,
absolute, contingent or otherwise, whether due or to become due, whether
properly reflected under generally accepted accounting principles as a liability
or a charge or reserve against an asset or equity account, and whether the
amount thereof is readily ascertainable or not. The Seller is not aware of any
material omissions in the Financial Statements. A true and correct copy of the
Financial Statements is attached hereto as Exhibit C.
E. Absence of Certain Changes. Except as set forth in Exhibit
B, subsequent to March 31, 1997, there has not been any (i) adverse or
prospective adverse change in the condition of the Business, financial or
otherwise, or in the results of the operations of the Seller, in connection with
the Business which has or could reasonably be expected to result in a Material
Adverse Effect; (ii) damage or destruction (whether or not insured) affecting
the properties or business operations of the Seller, in connection with the
Business, or the Assets; (iii) labor dispute or, to the best of the knowledge of
the Seller, threatened labor dispute involving any of the employees of the
Business, or any resignations, or to the best of the knowledge of the Seller,
threatened resignations of dentists, orthodontists, or other professional
employees, or notice that dentists, orthodontists, or other professional
employees intend to take leaves of absence, with or without pay; (iv) actual or,
to the best of the knowledge of the Seller, threatened disputes pertaining to
the Business with any major accounts or referral sources of the Business, or
actual or, to the best of the knowledge of the Seller, threatened loss of
business from any of the major accounts or referral sources of the Business,
except where such disputes or losses would not have a Material Adverse Effect;
(v) changes in the methods or procedures for billing or collection of customer
accounts or recording of customer accounts receivable or reserves for doubtful
accounts with respect to the Business; or (vi) other event or condition, known
to the Seller or which in the exercise of reasonable diligence should be known
to the Seller, not disclosed in this Agreement pertaining to and adversely
affecting the Assets or the Business.
F. No Dividends, Loans, Etc. Except as set forth in Exhibit B,
subsequent to March 31, 1997, the Seller has not, except in the normal course of
business, paid or discharged any outstanding indebtedness. Subsequent to March
31, 1997, the Seller, in connection with the Business,
<PAGE> 16
8
has paid all normal and recurring installments (i) of bank indebtedness, (ii)
under leases and contractual obligations and (iii) of other amounts due and
payable to any persons. Subsequent to March 31, 1997, the Seller has not, in the
conduct of the Business, incurred any bank indebtedness, entered into any
leases, loan agreements or contracts, obligations or arrangements for the
payment of money or property to any person, or permitted any liens or
encumbrances to attach to any of its assets.
G. Real Property Owned or Leased. A list and brief description
of all real property owned by or leased to or by the Seller in connection with
the Business or in which the Sellers in the conduct of the Business, has any
interest is set forth in Exhibit B. All such leased real property is held
subject to written leases or other agreements (a description of which, including
the expiration date of all leases, is set forth in Exhibit B) which are valid
and effective in accordance with their respective terms, and there are no
existing defaults or events of default, or events which with notice or lapse of
time or both would constitute defaults, thereunder on the part of the Seller in
the conduct of the Business, except for such defaults, if any, which would not
have a Material Adverse Effect. The Seller has no knowledge of any default or
claimed or purported or alleged default or state of facts which with notice or
lapse of time or both would constitute a default on the part of any other party
in the performance of any obligation to be performed or paid by such other party
under any lease referred to in Exhibit B, except where the failure to have good
and valid title would not have a Material Adverse Effect. The Seller has not
received any written or oral notice to the effect that any lease will not be
renewed at the termination of the term thereof or that any such lease will be
renewed only at a substantially higher rent.
<PAGE> 17
9
H. Title to Assets; Condition of Property. The Seller has good
and valid title to the Assets owned by it (in the case of owned real property
and the improvements thereon, good and marketable title in fee simple)
including, without limitation, the properties and assets reflected in the
Financial Statements (except for assets leased under leases set forth in Exhibit
B, inventory and other assets sold or retired and accounts receivable collected
upon, since March 31, 1997 in the ordinary course of business consistent with
past practices), free and clear of all liens, charges, encumbrances, security
interests or claims whatsoever, except as set forth in Exhibit B. The Seller has
the right, power and authority to sell and transfer the Assets owned by it to
the Purchaser (or its designee), and upon such transfer the Purchaser (or its
designee) will acquire good and marketable title to the Assets, free and clear
of all liens, charges, encumbrances, security interests or claims whatsoever,
except as set forth in Exhibit B. The properties and assets of the Seller
include all properties and assets used in the operations of the Business as
currently conducted. All such properties and assets of the Seller are in good
condition and repair, consistent with their respective ages, and have been
maintained and serviced in accordance with the normal practices of the Seller.
None of such properties or assets is subject to any liens, charges, encumbrances
or security interests, except as set forth in Exhibit B. None of such properties
or assets (including the Assets) (or uses to which they are put) fails to
conform with any applicable agreement, law, ordinance or regulation in a manner
which could reasonably be expected to have a Material Adverse Effect or is
likely to be material to the operation of the Business.
I. Taxes. The Seller has filed or caused to be filed on a
timely basis, all federal, state, local, foreign and other tax returns, reports
and declarations (collectively, "Tax Returns") required to be filed by the
Seller in connection with the Business except for those Tax Returns required to
be filed for the taxable year ending December 31, 1996 for which the Seller has
timely filed an extension request. All Tax Returns filed by the Seller on behalf
of the Business are true, complete and correct in all material respects. The
Seller has paid all income, estimated, excise, franchise, gross receipts,
capital stock, profits, stamp, occupation, sales, use, transfer, value added,
property (whether real, personal or mixed), employment, unemployment,
disability, withholding, social security, workers' compensation and other taxes,
and interest, penalties, fines, costs and assessments
<PAGE> 18
10
(collectively, "Taxes"), due and payable with respect to the periods covered by
such Tax Returns (whether or not reflected thereon). There are no tax liens on
any of the properties or assets, real, personal or mixed, tangible or
intangible, of the Seller in connection with the Business. Since March 31, 1997,
the Seller in connection with the Business has not incurred any tax liability
other than in the ordinary course of business. Except as set forth in Exhibit B,
no Tax Return of the Seller in connection with the Business has ever been
audited. No deficiency in Taxes for any period has been asserted by any taxing
authority which remains unpaid at the date hereof (the results of any settlement
being set forth on Exhibit B hereto), no written inquiries or notices have been
received by the Seller in connection with the Business from any taxing authority
with respect to possible claims for Taxes and the Seller knows of no reason to
believe that such an inquiry or notice is pending or threatened, and there is no
basis for any additional claims or assessments for Taxes. The Seller in
connection with the Business has not agreed to the extension of the statute of
limitations with respect to any Tax Return or tax period. The Seller has
delivered to the Purchaser copies of the federal and state income or franchise
or other type of Tax Returns filed by the Seller in connection with the Business
for the past three years and for all other past periods as to which the
appropriate statute of limitations has not lapsed.
J. Permits; Compliance with Applicable Law.
(i) General. The Seller is not in default under any, and has
complied with all, statutes, including the Americans with Disabilities Act,
ordinances, regulations, orders, judgments and decrees of any court or
governmental entity or agency, relating to the Business or the Assets as to
which a default or failure to comply might have a Material Adverse Effect on the
Business or the Assets. The Seller has no knowledge of any basis for assertion
of any violation of the foregoing or for any claim for compensation or damages
or otherwise arising out of any violation of the foregoing. The Seller has not
received any notification of any asserted present or past failure to comply with
any of the foregoing which has not been satisfactorily responded to in the time
period required thereunder.
(ii) Permits. Set forth in Exhibit B is a complete and
accurate list of all permits, licenses, approvals, franchises and authorizations
issued by governmental entities or other regulatory authorities, federal, state
or local (collectively the "Permits"), held
<PAGE> 19
11
by the Seller in connection with the Business. The Permits set forth in Exhibit
B are all the Permits required for the conduct of the Business. All the Permits
set forth in Exhibit B are in full force and effect, and the Seller has not
engaged in any activity which would cause or permit revocation or suspension of
any such Permit, and no action or proceeding looking to or contemplating the
revocation or suspension of any such Permit is pending or, to the best of the
knowledge of the Seller, threatened. There are no existing defaults or events of
default or events or state of facts which with notice or lapse of time or both
would constitute a material default by the Seller under any such Permit. The
Seller has no knowledge of any default or claimed or purported or alleged
default or state of facts which with notice or lapse of time or both would
constitute a default on the part of any party in the performance of any
obligation to be performed or paid by any party under any Permit set forth in
Exhibit B. Except as set forth in Exhibit B, the consummation of the
transactions contemplated hereby will in no way affect the continuation,
validity or effectiveness of the Permits set forth in Exhibit B or require the
consent of any person.
(iii) Environmental. (a) To the best of the knowledge of the
Seller, the Seller in connection with the Business, has duly complied with, and
the real estate owned by it or subject to the leases listed in Exhibit B and the
improvements thereon, and all other real estate leased by the Seller in
connection with the Business, and the improvements thereon (all such owned or
leased real estate hereinafter referred to collectively as the "Premises") are
in compliance with, the provisions of all federal, state and local
environmental, health and safety laws, codes and ordinances and all rules and
regulations promulgated thereunder, except where the failure to so comply would
not have a Material Adverse Effect.
(b) To the best of the knowledge of the Seller, the
Seller in connection with the Business has been issued, and will maintain until
the date of the Closing, all required federal, state and local permits,
licenses, certificates and approvals relating to (i) air emissions, (ii)
discharges to surface water or ground water, (iii) noise emissions, (iv) solid
or liquid waste disposal, (v) the use, generation, storage, transportation or
disposal of toxic or hazardous substances or wastes (intended hereby and
hereafter to include any and all such materials listed in any federal, state or
local law, code or ordinance and all rules and regulations promulgated
thereunder, as hazardous or potentially hazardous), or (vi) other environmental,
health and safety matters.
<PAGE> 20
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(c) The Seller has not received any notice of, and
knows of no facts which might constitute violations of, any federal, state or
local environmental, health or safety laws, codes or ordinances, and any rules
or regulations promulgated thereunder, which relate to the use, ownership or
occupancy of any of the Premises owned, leased or occupied by the Seller in
connection with the Business. The Seller is not in violation of any
rights-of-way or restrictions affecting any of the Premises or any rights
appurtenant thereto.
(iv) Medicare, Medicaid and CHAMPUS. The Business has had no
net revenues from the Medicare, Medicaid and CHAMPUS programs during the
calendar years 1994, 1995, 1996, and the first four (4) months of 1997.
K. Licenses. The Seller does not produce or distribute any
product nor does it perform any service under a proprietary license granted by
another entity and it has not licensed its rights in any current or planned
products, designs or services to any other entities. The Seller has the right to
use all computer software, including all property rights constituting part of
that computer software, used in connection with the Business (the "Computer
Software"). A list of all written licenses pertaining to the Computer Software
is set forth in Exhibit B (the "Licenses"). The Seller does not have any
knowledge that any of the Licenses may not be valid or enforceable by the Seller
or that the use of the Computer Software or any of the Licenses may infringe
upon or conflict with the rights of any third party. The Seller has not granted
any licenses to use the Computer Software or any sub-licenses with respect to
any of the Licenses.
L. Inventories. The inventories and equipment of the Seller in
connection with the Business are in all material respects merchantable and fully
usable in the ordinary course of business.
M. Contractual and Other Obligations. Set forth in Exhibit B
is a list and brief description of all (i) contracts, agreements, licenses,
leases, arrangements (written or oral) and other documents to which the Seller
in connection with the Business is a party or by which the Seller in connection
with the Business is bound (including, in the case of loan agreements, a
description of the amounts of any outstanding borrowings thereunder and the
collateral, if any, for such borrowings); (ii) obligations and liabilities of
the Seller in connection with the Business pursuant to uncompleted orders for
the purchase of
<PAGE> 21
13
materials, supplies, equipment and services for the requirements of the Business
with respect to which the remaining obligation of the Seller in connection with
the Business is in excess of $7,500; and (iii) material contingent obligations
and liabilities of the Seller in connection with the Business (all of the
foregoing being hereinafter referred to as the "Contracts.") The Seller is not
in material default in the performance of any covenant or condition under any
Contract and no claim of such a default has been made and, to the best of the
knowledge of the Seller, no event has occurred which with the giving of notice
or the lapse of time would constitute a default under any covenant or condition
under any Contract, except where such default would not have a Material Adverse
Effect. The Seller is not a party to any Contract which would terminate or be
adversely affected by the consummation of the transactions contemplated by this
Agreement. The Seller in connection with the Business is not a party to any
Contract expected to be performed at a loss. Originals or true, correct and
complete copies of all written Contracts have been provided to the Purchaser.
N. Compensation. Set forth in Exhibit D attached hereto is a
list of all written or oral agreements between the Business and each person
employed by or independently contracting with the Business with regard to
compensation, whether individually or collectively, and set forth in Exhibit D
is a list of all employees or independent contractors of the Business entitled
to receive annual compensation in excess of $35,000 and their respective
positions, job categories and salaries. The transactions contemplated by this
Agreement will not result in any liability for severance pay to any employee or
independent contractor of the Business. The Business has not informed any
employee or independent contractor providing services to the Business that such
person will receive any increase in compensation or benefits or any ownership
interest in the Business.
<PAGE> 22
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O. Employee Benefit Plans. Except as set forth in Exhibit E
attached hereto, neither the Seller nor its parent corporation (the "Parent")
maintains or sponsors, nor are they required to make contributions to, any
pension, profit-sharing, savings, bonus, incentive or deferred compensation,
severance pay, medical, life insurance, welfare or other employee benefit plan.
All pension, profit-sharing, savings, bonus, incentive or deferred compensation,
severance pay, medical, life insurance, welfare or other employee benefit plans
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended (hereinafter referred to as "ERISA"), in which the
employees of the Business participate (such plans and related trusts, insurance
and annuity contracts, funding media and related agreements and arrangements
being hereinafter referred to as the "Benefit Plans") comply with all
requirements of the Department of Labor (the "DOL") and the Internal Revenue
Service, and with all other applicable law, and neither the Seller nor the
Parent has taken or failed to take any action with respect to the Benefit Plans
which might create any liability on the part of the Seller or the Purchaser.
Each "fiduciary" (within the meaning of Section 3(21)(A) of ERISA) as to each
Benefit Plan has complied in all respects with the requirements of ERISA and all
other applicable laws in respect of each such Benefit Plan. The Seller has
furnished to the Purchaser copies or accurate summaries of all Benefit Plans and
all financial statements, actuarial reports and annual reports and returns filed
with the Internal Revenue Service with respect to such Benefit Plans for a
period of three years prior to the date hereof. Such financial statements,
actuarial reports and annual reports and returns are true and correct in all
respects, and none of the actuarial assumptions underlying such documents have
changed since the respective dates thereof. In addition:
(i) Each Benefit Plan intended to qualify under Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service as to its qualification under Section 401(a) of the
Code;
(ii) Neither the Seller nor the Parent maintains, sponsors
or contributes to (nor are required to contribute to) and has never withdrawn
from, maintained, sponsored or contributed to (nor has ever been required to
contribute to) a "defined benefit plan" (within the meaning of Section 3(35) of
ERISA), or a "multiemployer plan" (within the meaning of Section 3(37) of
ERISA);
<PAGE> 23
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(iii) Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated herein will result in the
withdrawal (partially or totally within the meaning of ERISA) from any Benefit
Plan, or in any withdrawal or other liability of any nature to the Seller, the
Parent or the Purchaser under any Benefit Plan;
(iv) No "prohibited transaction" (within the meaning of
Section 406 of ERISA or Section 4975(c) of the Code) has occurred with respect
to any Benefit Plan;
(v) No provision of any Benefit Plan or of any agreement,
and no act or omission of the Seller or the Parent in any way limits, impairs,
modifies or otherwise affects the right of the Seller or the Parent to amend any
Benefit Plan, subject to the requirements of applicable law;
(vi) There are no contributions which are or hereafter will
be required to have been made to trusts on behalf of the employees of the
Business in connection with any Benefit Plan that would constitute a "defined
contribution plan" (within the meaning of Section 3(34) of ERISA);
(vii) Other than claims in the ordinary course for benefits
with respect to the Benefit Plans, there are no actions, suits or claims
(including claims for income Taxes, interest, penalties, fines or excise Taxes
with respect thereto) pending with respect to any Benefit Plan, or any
circumstances which might give rise to any such action, suit or claim (including
claims for income Taxes, interest, penalties, fines or excise Taxes with respect
thereto);
(viii) All reports, returns and similar documents with
respect to the Benefit Plans required to be filed with any governmental agency
have been so filed; and
(ix) Neither the Seller nor the Parent has any obligation to
provide health or other welfare benefits to former, retired or terminated
employees, except as specifically required under Section 4980B of the Code or
Section 601 of ERISA. The Seller and the Parent has complied with the notice and
continuation requirements of Section 4980B of the Code and Section 601 of ERISA
and the regulations thereunder.
The Seller agrees that it will or cause the Parent
<PAGE> 24
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to, as of the Closing, fully vest all employees of the Business who become
employees of the Purchaser as a result of the transactions contemplated herein
in their account balances under the Plan.
P. Labor Relations. There have been no violations of any
federal, state or local statutes, laws, ordinances, rules, regulations, orders
or directives with respect to the employment of individuals by, or the
employment practices or work conditions of the Business, or with respect to the
terms and conditions of employment, wages and hours, which violations would
have, either individually or in the aggregate, a Material Adverse Effect. The
Business is not engaged in any unfair labor practice or other unlawful
employment practice and there are no charges of unfair labor practices or other
employee-related complaints pending or, to the best of the knowledge of the
Seller, threatened against the Business or before the National Labor Relations
Board, the Equal Employment Opportunity Commission, the Occupational Safety and
Health Review Commission, the Department of Labor or any other federal, state,
local or other governmental authority. There is no strike, picketing, slowdown
or work stoppage or organizational attempt pending or, to the best of the
knowledge of the Seller, threatened against or involving the Business. No issue
with respect to union representation is pending or, to the best of the knowledge
of the Seller, threatened with respect to the employees of the Business. No
union or collective bargaining unit or other labor organization has ever been
certified or recognized by Business as the representative of any of the
employees of the Business.
Q. Increases in Compensation or Benefits. Except as set forth
in Exhibit D, subsequent to March 31, 1997, there have been no increases in the
compensation payable or to become payable to any of the employees involved in
the Business and there have been no payments or provisions for any awards,
bonuses, stock options, loans, profit sharing, pension, retirement or welfare
plans or similar or other disbursements or arrangements for or on behalf of such
employees (or related parties thereof), in each case, other than pursuant to
currently existing plans or arrangements, if any, set forth in Exhibit E;
provided, however, that in no event was any such increase in compensation or any
such payment or provision made with respect to any employees earning in excess
of $20,000 per annum. All commissions heretofore earned and all bonuses
heretofore granted to employees involved in the Business have been paid in full
to such employees. The vacation policy of the Business is set forth in Exhibit
E. Except as
<PAGE> 25
17
set forth in Exhibit D, no employee involved in the Business is entitled to
vacation time in excess of three weeks during the current calendar year and no
employee involved in the Business has any accrued vacation or sick time with
respect to any prior period.
R. Insurance. The Seller maintains insurance policies covering
all of its assets and properties and the various occurrences which may arise in
connection with the operation of the Business. Such policies are in full force
and effect and all premiums due thereon prior to or on the date of the Closing
have been paid in full. The Seller has complied in all respects with all the
provisions of such policies. A complete list of the insurance policies
maintained by the Seller with regard to the Business is set forth in Exhibit B.
There are no notices of any pending or, to the best of the knowledge of the
Seller, threatened termination or premium increases with respect to any of such
policies. The Seller has not had any material casualty loss or occurrence which
may give rise to any claim of any kind not covered by insurance and the Seller
is not aware of any occurrence which may give rise to any claim of any kind not
covered by insurance. To the best of the knowledge of the Seller, no third party
has filed any claim against the Seller for personal injury or property damage of
a kind for which liability insurance is generally available which is not fully
insured, subject only to the standard deductible. All claims against or
involving the Business covered by insurance have been reported to the insurance
carrier on a timely basis.
S. Conduct of Business. The Seller is not restricted from
conducting the Business in any location by agreement or court decree.
T. Allowances. The Seller has no obligation to make allowances
to any of its customers or patients, except allowances which are consistent with
its past practices.
U. Patents, Trademarks, etc. Set forth in Exhibit F attached
hereto is a list and brief description of all of the patents, registered and
common law trademarks, service marks, tradenames, copyrights, licenses and other
similar rights of the Seller in connection with the Business and applications
for each of the foregoing. The Seller owns all right, title and interest in and
to all such proprietary rights. To the best of the knowledge of the Seller, the
proprietary rights listed are all such rights necessary to the conduct of the
Business as currently conducted by the Seller; no adverse claims have been made
and no dispute has arisen with respect to any of the said proprietary rights;
<PAGE> 26
18
and the operations of the Business and the use by the Seller of such proprietary
rights do not involve infringement or claimed infringement of any patent,
trademark, service mark, tradename, copyright, license or similar right.
V. Power of Attorney. The Seller in connection with the
Business has not granted any power of attorney (revocable or irrevocable) to any
person, firm or corporation for any purpose whatsoever.
W. Use of Names. All names under which the Business is
currently conducted are listed in Exhibit F. Except for Century Dental Center I,
P.C. and Century Dental Center II, P.C., there are no other persons or
businesses conducting businesses similar to those of the Seller in the
Commonwealth of Pennsylvania having the right to use or using any of the names
set forth in Exhibit F or any variants of such names; and no other person or
business has ever attempted to restrain the Seller from using such names or any
variants thereof.
X. Accounts Payable, Indebtedness, Etc. The accounts and notes
payable and accrued expenses reflected in the Financial Statements, and the
accounts and notes payable and accrued expenses incurred by the Seller in
connection with the Business subsequent to the date of the Financial Statements,
are in all respects valid claims that arose in the ordinary course of business.
Since March 31, 1997, the accounts and notes payable, accrued expenses and debt
of the Seller in connection with the Business have been paid in a manner
consistent with past practice.
Y. No Foreign Person. The Seller is not a foreign person
within the meaning of Section 1445(b)(2) of the Code.
Z. Licensure, etc. Each individual employed or contracted with
by the Seller in connection with the Business to provide professional services
is licensed to provide such services and is otherwise in compliance with all
federal, state and local laws, rules and regulations relating to such
professional licensure. Each individual now or formerly employed or contracted
with by the Seller in connection with the Business to provide professional
services was duly licensed to provide such services during all periods prior to
the Closing when such employee or independent contractor provided such services
on behalf of the Seller. The Seller in connection with the Business is in
compliance with all relevant state laws and precedents relating to the corporate
practice of the learned or licensed professions, and there are no material
claims,
<PAGE> 27
19
disputes, actions, suits, proceedings or investigations currently pending, or,
to the best of the knowledge of the Seller, threatened or filed or commenced
against or affecting the Business or any such licensed professional providing
services to the Seller on the date of the Closing relating to such laws and
precedents, and no such material claim, dispute, action, suit, proceeding or
investigation has been filed or commenced during the five-year period preceding
the date of this Agreement, and the Seller is not aware of any basis for such a
valid claim. To the best of the knowledge of the Seller, the acquisition of the
Assets by the Purchaser (or its designee) as contemplated by this Agreement will
not affect the ability of the Purchaser to operate the Business as heretofore
operated in compliance with all applicable laws provided that the Purchaser
complies with all applicable laws regarding the corporate practice of dentistry.
AA. Books and Records. The books and records of the Business
are in all material respects complete and correct, have been maintained in
accordance with good business practices and accurately reflect the basis for the
financial position and results of operations of the Business set forth in the
Financial Statements. All of such books and records, including true and complete
copies of all material written Contracts, have been made available for
inspection by the Purchaser and its representatives.
BB. Litigation; Disputes. Except as set forth in Exhibit B,
there are no claims, disputes, actions, suits, investigations or proceedings
pending or, to the best of the knowledge of the Seller, threatened against or
affecting the Business or the Assets. Except as set forth in Exhibit B, no such
claim, dispute, action, suit, proceeding or investigation has been pending or,
to the best of the knowledge of the Seller, threatened during the five-year
period preceding the date of this Agreement. There is no basis for any such
claim, dispute, action, suit, investigation or proceeding. The Seller has no
knowledge of any default under any such action, suit or proceeding. The Seller
in the conduct of the Business is not in default in respect of any judgment,
order, writ, injunction or decree of any court or of any federal, state,
municipal or other government department, commission, bureau, agency or
instrumentality or any arbitrator.
CC. Location of Seller and Assets. Set forth in Exhibit B is
each location (specifying state, county and city) where the Seller in connection
with the Business, (i) has a place of business, (ii) owns or leases real
property and (iii) owns or leases any other property, including
<PAGE> 28
20
inventory, equipment and furniture.
DD. Bank Accounts. Set forth in Exhibit G attached hereto is a
list of all bank accounts maintained in the name of the Seller in connection
with the Business, and a brief description of the persons having power to sign
with respect to each such account.
EE. Disclosure. No representation or warranty made under any
Section hereof and none of the information furnished by the Seller set forth
herein, in the exhibits hereto or in any document delivered by the Seller to the
Purchaser, or any authorized representative of the Purchaser, pursuant to this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.
SECTION III
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE PURCHASER
The Purchaser hereby represents and warrants to, and covenants
and agrees with, the Seller, as of the date hereof and as of the date of the
Closing, that:
A. Organization and Qualification. The Purchaser is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to purchase the Assets.
B. Authority. The execution and delivery of this Agreement by
the Purchaser, the performance by the Purchaser of its covenants and agreements
hereunder and the consummation by the Purchaser of the transactions contemplated
hereby have been duly authorized by all necessary corporate action. This
Agreement constitutes a valid and legally binding obligation of the Purchaser,
enforceable against it in accordance with its terms.
<PAGE> 29
21
C. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the certificate of incorporation or by-laws of the
Purchaser or any statute, ordinance, regulation, order, judgment or decree of
any court or governmental agency or board, or conflicts with or will result in
any breach of any of the terms of or constitute a default under or result in the
termination of or the creation of any lien pursuant to the terms of any contract
or agreement to which the Purchaser is a party or by which the Purchaser or any
of its assets is bound.
SECTION IV
ADDITIONAL COVENANTS OF THE
SELLER AND THE PURCHASER
A. Correspondence, Etc. The Seller covenants and agrees that,
subsequent to the Closing, it will deliver to the Purchaser, promptly after the
receipt thereof, all inquiries, correspondence and other materials received by
it from any person or entity relating to the Business.
B. Books and Records. Each of the Purchaser and the Seller
covenants and agrees that, subsequent to the Closing, it shall give the other
party reasonable access to the historical financial books and records and
patient files of the Business (subject to applicable laws regarding
confidentiality of such patient files), to the extent such books and records and
files are not included in the Assets, for a period of five years from the date
of the Closing. Each of the Purchaser and the Seller shall retain all such books
and records and files in substantially their condition at the time of the
Closing. None of such books and records and files shall be destroyed without the
prior written approval of the other party or without first offering such books
and records and files to the other party.
C. Discharge of Obligations. The Seller covenants and agrees,
subsequent to the Closing, to pay promptly and to otherwise fulfill and
discharge all obligations and liabilities of the Seller in connection with the
Business which are not Assumed Liabilities hereunder when due and payable and
otherwise prior to the time at which any of such obligations or liabilities
could in any way result in or give rise to a claim against the Assets, the
Business or the Purchaser, result in the imposition of any lien, charge or
encumbrance on any of the Assets, or adversely affect the Purchaser's title to
or use of any of
<PAGE> 30
22
the Assets including, without limitation, any and all sales, use, transfer,
corporate, payroll and/or business and mercantile taxes, penalties and interest
owned to the Commonwealth of Pennsylvania and/or Marple Township, and processing
fees required by that certain Real Property Lease (the "Lease") listed under
"Real Property" in Exhibit B hereto for the facility located at 400 South State
Road, Springfield, Pennsylvania, (the "Facility") in connection with the
Assignment of Lease to be entered into between the Purchaser and the Seller on
the date of the Closing for the Facility (the "Assignment of Lease").
D. Delivery of Funds. Subsequent to the Closing, the Seller
shall deliver on a daily basis any funds and any checks except for those checks
which relate to pre-closing receivables (as hereinafter defined), notes, drafts
and other instruments for the payment of money, duly endorsed to the Purchaser,
received by the Seller comprising payment of any amounts due from customers of
the Business or others for services rendered by the Business, including pursuant
to any provider agreements constituting part of the Assets.
E. Collection of Accounts Receivable. The Purchaser covenants
and agrees to act as collection agent on behalf of the Seller with respect to
the accounts receivable of the Business which were outstanding on the date of
the Closing (the "pre-closing receivables") and the Purchaser further covenants
and agrees to use its reasonable best efforts to collect such pre-closing
receivables for a reasonable period of time not to exceed one (1) year from the
date hereof or such shorter time upon the mutual agreement of the Seller and the
Purchaser.
The Seller covenants and agrees to pay to the Purchaser a fee
equal to ten percent (10%) of the pre-closing receivables collected by the
Purchaser to compensate the Purchaser for the services rendered with respect to
the collection of the pre-closing receivables by the Purchaser.
F. Post-Closing Third Party Consents. In the event that any
third party consents which the Seller is required to obtain (including consent
to the Assignment of Lease) are not obtained prior to Closing and the Closing
nonetheless occurs, the Seller hereby covenants to use such party's best efforts
to obtain such consents within 30 days following the Closing.
<PAGE> 31
23
G. Pass Through of Rights and Obligations. In the event that
the Seller is unable to obtain the necessary consents set forth in Exhibit B
hereto prior to the Closing and the Closing nevertheless occurs, the Seller
agrees that until such time as such consents are obtained or in the event the
Seller is unable to obtain such consents, the Seller shall pass through to the
Purchaser the benefits and the obligations arising under the agreements listed
under "Real Property", "Contracts" and "Provider Source Contracts" in Exhibit B
hereto as if such agreements were assigned to the Purchaser (or its designee)
pursuant to this Agreement. The Purchaser agrees that such pass through of
rights and obligations shall satisfy all obligations of the Seller to obtain the
necessary consents set forth in Exhibit B.
H. Assignment of Lease. The Purchaser covenants and agrees
that within ten (10) business days of receiving written notice from Marple XYZ
Associates (the "Landlord") that the Landlord consents to the Assignment of
Lease, the Purchaser shall pay to the Seller (i) $7,542 in immediately available
funds, which amount shall represent the security deposit under the Lease, less
fifteen percent (15%), and (ii) the Purchaser's pro rata share (from the date of
the Closing) of the rental payment under the Lease for the month of May, 1997.
In the event that the Landlord's consent is not granted on or before May 31,
1997, the Purchaser may elect to pay to the Seller the rental payment for the
month of June, and, in such event, the Seller covenants and agrees to timely pay
to the Landlord the monthly rental payment for the month of June. In the event
that the Landlord does not consent to the Assignment of Lease, each of the
Purchaser and the Seller covenants and agrees that the Purchaser (or its
designee) and the Seller shall enter into a sublease for the Facility.
SECTION V
CLOSING
A. Time and Place of Closing. The closing of the purchase and
sale of the Assets as set forth herein (the "Closing") shall be held on May 20,
1997 at such location or in such manner as is mutually agreed upon by the
parties.
B. Delivery of Assets. Delivery of the Assets shall be made by
the Seller to the Purchaser (or its designee) at the Closing by delivering such
deeds, bills of sale, assignments and other instruments of conveyance and
<PAGE> 32
24
transfer, and such powers of attorney, as shall be effective to vest in the
Purchaser (or its designee) title to or other interest in, and the right to full
custody and control of, the Assets, free and clear of all liens, charges,
encumbrances and security interests whatsoever.
C. Tax Matters. All transfer, documentary, stamp,
registration, value added, sales, use and other such taxes and fees (including
any penalties and interest) incurred in connection with this Agreement shall be
borne and paid by the Seller when due, and the Seller will, at its own expense,
file all necessary tax returns and other documentation with respect to all such
taxes and fees.
D. Assumption of Liabilities. At the Closing, the Purchaser
(or its designee) shall deliver to the Seller such instruments as shall be
sufficient to effect the assumption by the Purchaser (or its designee) of the
Assumed Liabilities.
E. Contracts and Books. At the Closing, the Seller shall make
available to the Purchaser the Contracts and the books and records of the
Business constituting a part of the Assets.
F. Additional Steps. At the Closing, the Seller shall take all
steps required to put the Purchaser (or its designee) in actual possession and
control of the Assets.
SECTION VI
CONDITIONS TO THE SELLER'S OBLIGATIONS TO CLOSE
The obligations of the Seller to sell the Assets and otherwise
consummate the transactions contemplated by this Agreement at the Closing are
subject to the following conditions precedent, any or all of which may be waived
by the Seller in its sole discretion, and each of which the Purchaser hereby
agrees to use its best efforts to satisfy at or prior to the Closing:
A. No Litigation. No action, suit or proceeding against the
Seller or the Purchaser relating to the consummation of any of the transactions
contemplated by this Agreement or any governmental action seeking to delay or
enjoin any such transactions shall be pending or threatened.
<PAGE> 33
25
B. Representations and Warranties. The representations and
warranties made by the Purchaser herein shall be correct as of the date of the
Closing in all respects with the same force and effect as though such
representations and warranties had been made as of the date of the Closing, and
on the date of the Closing, the Purchaser shall deliver to the Seller a
certificate dated the date of the Closing to such effect. All the terms,
covenants and conditions of this Agreement to be complied with and performed by
the Purchaser on or before the date of the Closing shall have been duly complied
with and performed in all respects, and, on the date of the Closing, the
Purchaser shall deliver to the Seller a certificate dated the date of the
Closing to such effect.
C. Other Certificates. The Seller shall have received such
additional certificates, instruments and other documents, in form and substance
satisfactory to it and its counsel, as it shall have reasonably requested in
connection with the transactions contemplated hereby.
D. Employment Agreement and Modification Agreement. The
Purchaser (or its designee) and Jonathan Nash ("Nash") shall have entered into
an employment agreement in the form of Exhibit H attached hereto (the
"Employment Agreement") and a consent to assignment and modification agreement
in the form of Exhibit H-2 attached hereto (the "Modification Agreement").
E. Assumption of Liabilities. The Seller shall have received
evidence, in form and substance satisfactory to it and its counsel, of the
assumption of the Assumed Liabilities listed in Schedule II hereto.
SECTION VII
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
The obligation of the Purchaser to purchase the Assets and
otherwise consummate the transactions contemplated by this Agreement at the
Closing is subject to the following conditions precedent, any or all of which
may be waived by the Purchaser in its sole discretion, and each of which the
Seller hereby agree to use its best efforts to satisfy at or prior to the
Closing:
A. Opinion of Counsel. The Purchaser shall have received an
opinion of Brooks & Cahill, Attorneys at Law, counsel for the Seller, delivered
to the Purchaser pursuant
<PAGE> 34
26
to the instructions of the Seller, dated the date of the Closing, in form and
substance satisfactory to the Purchaser and its counsel, Messrs. Haythe &
Curley, to the effect that:
(i) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida,
and is duly qualified to do business in the Commonwealth of
Pennsylvania. The Seller has full corporate power and authority to own
its properties and to conduct the businesses in which it is now
engaged.
(ii) This Agreement has been duly authorized, executed and
delivered by the Seller and constitutes the valid and legally binding
obligation of the Seller, enforceable against the Seller in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, or other similar laws affecting creditors'
rights generally or by general principles of equity.
(iii) Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, violates
any provision of the articles of incorporation or by-laws of the
Seller. To the knowledge of such counsel, based solely upon a
representation from the Seller, neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated
thereby, violates any statute, ordinance, regulation, order, judgment
or decree of any court or governmental agency or conflicts with or
will result in any breach of any of the terms of or constitute a
default under or result in the termination of or the creation of any
lien pursuant to the terms of any contract or agreement (related to
the Business) to which the Seller is a party or by which the Seller or
the Assets (as such term is defined in the Agreement) is bound.
(iv) The deeds, bills of sale, assignments and other
instruments of transfer of ownership delivered by the Seller have been
duly executed and delivered and are valid and binding in accordance
with their terms. To the knowledge of such counsel, based solely upon
a representation of the Seller, the deeds, bills of sale, assignments
and other instruments of transfer of ownership delivered by the Seller
are sufficient to convey to the Purchaser (or its designee) all the
right, title and interest of the Seller in and to the Assets, free and
clear of any liens, charges, security
<PAGE> 35
27
interest or claims whatsoever except for those liens set forth in
Exhibit B.
(v) To the knowledge of such counsel, based solely upon
representation of the Seller there are no claims, disputes, actions,
suits or proceedings pending or threatened against the Seller with
regard to the Business or the Assets.
B. No Litigation. No action, suit or proceeding against the
Seller or the Purchaser relating to the consummation of any of the transactions
contemplated by this Agreement nor any governmental action seeking to delay or
enjoin any such transactions shall be pending or threatened.
C. Representations and Warranties. The representations and
warranties made by the Seller herein shall be correct as of the date of the
Closing in all respects with the same force and effect as though such
representations and warranties had been made as of the date of the Closing, and
on the date of the Closing, the Seller shall deliver to the Purchaser a
certificate dated the date of the Closing to such effect. All the terms,
covenants and conditions of this Agreement to be complied with and performed by
the Seller on or before the date of the Closing shall have been duly complied
with and performed in all respects, and on the date of the Closing, the Seller
shall deliver to the Purchaser a certificate dated the date of the Closing to
such effect.
D. Other Certificates. The Purchaser shall have received such
other certificates, instruments and other documents, in form and substance
satisfactory to the Purchaser and counsel for the Purchaser, as it shall have
reasonably requested in connection with the transactions contemplated hereby.
E. Sale of All the Assets. All of the Assets of the Business,
with the exception of the Excluded Assets, shall be sold to the Purchaser (or
its designee) at the Closing.
F. Third Party Consents. The Purchaser shall have received all
necessary consents of third parties under the contracts, agreements, leases and
other instruments of the Business, which consents shall not provide for the
acceleration of any liabilities or any other detriment to the Purchaser or the
Business.
G. Malpractice Insurance. The Seller shall present evidence
satisfactory to the Purchaser that each
<PAGE> 36
28
professional employed by the Business shall have malpractice insurance in such
amounts as are necessary and customary for such professionals.
H. Employment Agreement and Modification Agreement. The
Purchaser (or its designee) and Nash shall have entered into the Employment
Agreement and Modification Agreement.
I. Governmental Licenses and Permits. The Purchaser (and its
designee) have obtained all required authorizations, permits and licenses
required for it to operate the Business.
J. Assignment of Lease. The Purchaser (or its designee) and
the Seller shall have entered into the Assignment of Lease.
<PAGE> 37
29
SECTION VIII
INDEMNIFICATION
A. Indemnification by the Seller. The Seller shall indemnify
and hold harmless the Purchaser from and against all losses, claims, taxes,
assessments, demands, damages, liabilities, obligations, costs and/or expenses
(hereinafter referred to collectively as the "Purchaser's Damages"), including,
without limitation, Purchaser's Counsel Expenses (as hereinafter defined),
sustained or incurred by the Purchaser (or its designee) in any action, claim or
proceeding (i) between the Purchaser and the Seller or (ii) between the
Purchaser and any third party or (iii) otherwise (a) arising out of or relating
to the breach of any of the obligations, covenants or provisions of, or the
inaccuracy of any of the representations or warranties made by the Seller herein
or (b) arising out of or relating to any liabilities or obligations of the
Seller which are not Assumed Liabilities including, without limitation, any and
all sales, use, transfer, corporate, payroll, and/or business and mercantile
taxes, penalties, and interest, owed to the Commonwealth of Pennsylvania and/or
Marple Township, and any and all fees incurred in connection with the Assignment
of Lease. For purposes hereof, "Purchaser's Counsel Expenses" shall mean
reasonable fees and disbursements of counsel howsoever sustained or incurred by
the Purchaser (or its designee), including, without limitation, in any action or
proceeding between the Purchaser and any third party. In addition to the right
of the Purchaser to indemnification hereunder, the Purchaser shall have the
right from time to time to set off the amount of any of the Purchaser's Damages
that the Purchaser is entitled to indemnification thereof against any Contingent
Payments. In the event that the Purchaser exercises its right under this Section
VIII(A) to set off the amount of any of the Purchaser's Damages against any
Contingent Payment and the Seller disputes the validity of the Purchaser's
Damages, the Purchaser agrees to place such disputed amount in an escrow account
to be held by Haythe & Curley until the dispute is resolved pursuant to the
terms of this Section VIII(A) and Section XI(F) hereof. Any amounts set off by
the Purchaser which are later awarded to the Seller in accordance with Section
XI(F) hereof shall accrue interest at a rate of 8% per annum from the time of
any such set off and shall include reasonable fees and disbursements of counsel
incurred by the Seller.
<PAGE> 38
30
B. Indemnification by the Purchaser. The Purchaser shall
indemnify and hold harmless the Seller from and against any and all losses,
claims, assessments, demands, damages, liabilities, obligations, costs and/or
expenses (hereinafter referred to collectively as the "Seller's Damages"; the
Seller's Damages and the Purchaser's Damages are sometimes referred to herein as
the "Damages"), including, without limitation, Seller's Counsel Expenses (as
hereinafter defined) sustained or incurred by the Seller in any action or
proceeding between (i) the Seller and the Purchaser or (ii) the Seller and any
third party or (iii) otherwise (a) by reason of the breach of any of the
obligations, covenants or provisions of, or the inaccuracy of any of the
representations or warranties made by, the Purchaser herein, or (b) arising out
of or relating to any liabilities or obligations which are Assumed Liabilities.
For purposes hereof, "Seller's Counsel Expenses" shall mean reasonable fees and
disbursements of counsel howsoever sustained or incurred by the Seller,
including, without limitation, in any action or proceeding between the Seller
and the Purchaser or in any action or proceeding between the Seller and a third
party.
C. Procedure for Indemnification. In the event that any party
hereto shall incur (or anticipates that it may incur in the case of third party
claims) any Damages in respect of which indemnity may be sought by such party
pursuant to this Section VIII, the party indemnified hereunder (the
"Indemnitee") shall notify the party or parties providing indemnification (the
"Indemnitor") promptly; in the case of third party claims, such notice shall in
any event be given within thirty (30) days of the filing or assertion of any
claim against the Indemnitee stating the nature and basis of such claim;
provided, however, that any delay or failure to notify any Indemnitor of any
claim shall not relieve it from any liability except to the extent that the
Indemnitor demonstrates that the defense of such action is materially prejudiced
by such delay or failure to notify. In the case of third party claims, the
Indemnitor shall, within ten (10) days of receipt of notice of such claim,
notify the Indemnitee of its intention to assume the defense of such claim at
its own expense. If the Indemnitor shall not assume the defense of any such
claim or litigation resulting therefrom, the Indemnitee may defend against any
such claim or litigation in such manner as it may deem appropriate and the
Indemnitee may settle such claim or litigation on such terms as it may deem
appropriate. In the event that a dispute arises concerning the obligation of the
Indemnitor to assume the defense of a claim, or a dispute arises concerning a
claim hereunder which does not involve a third party claim, or in
<PAGE> 39
31
the event that there is any other dispute relating to indemnification, the
parties shall submit any such dispute to arbitration pursuant to Section XI(F)
hereof; provided, however, that the parties agree to negotiate in good faith for
a period of at least sixty (60) days prior to initiating arbitration to resolve
any dispute. If it shall be finally determined that the Indemnitor failed to
assume the defense of any claim for which the Indemnitor is liable to the
Indemnitee for Damages, then the expense of defending the claim shall be borne
by the Indemnitor. Payment of the Damages shall be made within ten (10) days of
a final determination of a claim.
A final determination of a claim shall be (i) a judgment of
any court determining the validity of a disputed claim, if no appeal is pending
from such judgment or if the time to appeal therefrom has elapsed, (ii) an award
of any arbitration determining the validity of such disputed claim, it there is
not pending any motion to set aside such award or if the time within which to
move to set such award aside has elapsed, (iii) a written termination of the
dispute with respect to such claim signed by all of the parties thereto or their
attorneys, (iv) a written acknowledgement of the Indemnitor that he or it no
longer disputes the validity of such claim, or (v) such other evidence of final
determination of a claim as shall be acceptable to the parties.
SECTION IX
BROKERS AND FINDERS
A. The Seller's Obligations. The Purchaser shall not have any
obligation to pay any fee or other compensation to any person, firm or
corporation dealt with by the Seller in connection with this Agreement and the
transactions contemplated hereby and the Seller hereby agrees to indemnify and
save the Purchaser (or its designee) harmless from any liability, damage, cost
or expense arising from any claim for any such fee or other compensation.
<PAGE> 40
32
B. The Purchaser's Obligations. The Seller shall not have any
obligation to pay any fee or other compensation to any person, firm or
corporation dealt with by the Purchaser in connection with this Agreement and
the transactions contemplated hereby and the Purchaser agrees to indemnify and
save the Seller harmless from any liability, damage, cost or expense arising
from any claim for any such fee or other compensation.
SECTION X
TRANSFER OF NAME
At the Closing, the Seller shall deliver to the Purchaser a
written consent duly executed by the Seller evidencing its consent to the use by
the Purchaser and any subsidiaries, affiliated companies or assigns of the
Purchaser of the name "Century Dental" and all variants thereof.
SECTION XI
MISCELLANEOUS
A. Notices. All notices, requests or instructions hereunder
shall be in writing and delivered personally, sent by telecopy or sent by
registered or certified mail, postage prepaid, as follows:
(1) If to the Seller:
c/o Princeton Dental Management Corp.
7421 West 100 Place
Bridgeview, Illinois 60455
Attention: Chief Financial Officer
Telecopy No.: (708) 430-8031
Telephone No.: (708) 974-4000
with a copy to:
Brooks & Cahill, Attorneys at Law
208 S. LaSalle #1855
Chicago, Illinois 60604
Attention: Kevin Cahill, Esq.
Telecopy No.: (312) 641-6116
Telephone No.: (312) 641-6105
<PAGE> 41
33
(3) If to the Purchaser:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Joseph Frank
Telecopy No.: (610) 992-3392
Telephone No.: (610) 992-3319
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Robert A. Ouimette, Esq.
Telecopy No.: (212) 682-0200
Telephone No.: (212) 880-6000
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and five business days after the date of
mailing, if mailed.
B. Survival of Representations. Each representation, warranty,
covenant and agreement of the parties hereto herein contained shall survive the
Closing, notwithstanding any investigation at any time made by or on behalf of
any party hereto, for a period of two (2) years from the date of the Closing;
except (a) for covenants and agreements to be performed subsequent to the
Closing and (b) that nothing in the foregoing shall be deemed to diminish any
Indemnitor's indemnification obligations to an Indemnitee respecting (i) claims
for Damages made prior to the date which is two (2) years after the date of the
Closing or (ii) claims for Damages based on breaches of Sections II(I) or II(J)
and common law fraud, which shall survive for the duration of the applicable
statutes of limitations periods governing third party claims made with respect
to such liabilities.
C. Entire Agreement. This Agreement and the documents referred
to herein contain the entire agreement among the parties hereto with respect to
the transactions contemplated hereby, and no modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.
D. Further Assurances. Each of the parties hereto shall use
such party's best efforts to take such
<PAGE> 42
34
actions as may be necessary or reasonably requested by the other parties hereto
to carry out and consummate the transactions contemplated by this Agreement.
E. Expenses. Each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the transactions
contemplated hereby.
F. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach hereof, shall, be settled by
arbitration in accordance with the rules of the American Arbitration Association
then in effect and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitration shall be held
in Chicago, Illinois.
G. Regulatory Matters. The Seller agrees that if as a result
of a regulatory change or for any other reason, the Purchaser shall determine
that it is necessary or desirable to restructure the manner in which the
Business is conducted or the manner in which services are provided, the Seller
shall, upon 30 days' prior written notice of the Purchaser, assist the Purchaser
to take promptly all necessary steps (as set forth in such notice) to carry out
such restructuring. The expenses related to such restructuring shall be borne by
the Purchaser.
H. Invalidity. Should any provision of this Agreement be held
by a court or arbitration panel of competent jurisdiction to be enforceable only
if modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by such court or arbitration panel shall
be binding upon and enforceable against each of them. In any event, should one
or more of the provisions of this Agreement be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect
<PAGE> 43
35
any other provisions hereof, and if such provision or provisions are not
modified as provided above, this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been set forth herein.
I. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the Seller and
the Purchaser, respectively.
J. Governing Law. The validity of this Agreement and of any of
its terms or provisions, as well as the rights and duties of the parties under
this Agreement, shall be construed pursuant to and in accordance with the laws
of the Commonwealth of Pennsylvania.
K. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
* * *
<PAGE> 44
36
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first above written.
PRINCETON MEDICAL MANAGEMENT
NORTHEAST, INC.
By____________________________
Name:
Title:
<PAGE> 45
37
VALLEY FORGE DENTAL
ASSOCIATES, INC.
By____________________________
Name:
Title:
<PAGE> 46
Schedule I
EXCLUDED ASSETS
1. Accounts Receivable of the Business outstanding on or prior to the date
of Closing.
2. Cash.
<PAGE> 47
Schedule II
LIABILITIES TO BE ASSUMED
1. Acquisition Promissory Note dated March 31, 1993 payable to Cendent
Associates Limited Partnership in the current outstanding amount of
$91,089.38.
2. Real Property Lease dated November 7, 1991, between Marple XYZ
Associates and Century Dental Centers I, P.C., as amended by Letter
Agreement dated March 24, 1993, by and among Marple XYZ Associates,
Century Dental Center I, P.C. and Princeton Medical Management
Northeast, Inc. and as assigned to Princeton Medical Management
Northeast, Inc. on March 31, 1993.
3. Independent Contractor Agreement originally dated March 31, 1993, and
as amended July 1, 1993 and December 2, 1994 and as extended on
December 7, 1995 and as amended May 19, 1997 by and between Princeton
Medical Management Northeast, Inc., Century Dental Center I, P.C. and
Jonathan Nash, D.D.S.
4. Independent Contractor Agreement by and between Dr. Edward B. Basner
and Century Dental Center, P.C.
5. Independent Contractor Agreement by and between Richard P. Kaufman,
D.M.D. and Century Dental Center, P.C.
6. Provider Source Contracts listed in Exhibit B, number 11.
<PAGE> 48
Schedule III
CONTINGENT PAYMENTS
The Target 100% net operating revenues and Contingent Payments
are as follows:
<TABLE>
<S> <C>
(1) Contingent Period Ending May 31, 1997:
Target 100% net operating
revenues $500,000
Target 100% Contingent Payments $ 90,000
(2) Contingent Period Ending May 31, 1998:
Target 100% net operating
revenues $550,000
Target 100% Contingent Payments $ 50,000
</TABLE>
The aggregate amount of the Contingent Payments payable to the
Seller shall be determined by multiplying the Target 100% Contingent Payments
for the applicable Contingent Period by the Contingent Multiplier (as
hereinafter defined) for such Contingent Period.
The "Contingent Multiplier" shall be equal to the lesser of
(i) 100%, and (ii) a fraction, expressed as a percentage, the numerator of which
shall be the net operating revenues of the Company for the applicable Contingent
Period calculated in accordance with Sections I(D) and (E) and the denominator
of which shall be the "Target 100% net operating revenues" set forth above for
such Contingent Period.
Notwithstanding anything else in this Agreement to the
contrary, the Purchaser shall have no obligation to make the Contingent Payments
provided for in Section I(D) with respect to any Contingent Period if the net
operating revenues of the Company are less than 90% of the Contingent Target
100% therefor for any such Contingent Period. The maximum Contingent Payments
for any Contingent Period shall be 100% of the Target 100% Contingent Payments
for such Contingent Period.
<PAGE> 49
Schedule IV
ALLOCATION OF PURCHASE PRICE
The Purchase Price shall be allocated to the Assets in accordance with
the following:
1. to fixed assets at their fair market value;
2. to accounts receivable at their net collectible value;
3. to cash in an amount equal to the aggregate amount thereof;
and
4. remainder to goodwill.
<PAGE> 50
EXHIBIT B
CERTAIN CONSENTS, LIENS,
CONTRACTS, PERMITS AND OTHER MATTERS
1. Required Consents.
All Contracts or Leases marked with an asterisk in Sections (2) and (5)
require a prior written consent for assignment.
2. Real Property.
(a) Owned:
(b) Leased:
(1) Lessor: Marple XYZ Associates
Lessee: Century Dental Centers I,
P.C., assigned to Princeton
Medical Management Northeast,
Inc. by Letter Agreement dated
March 24, 1993
Date: November 7, 1991, as amended
March 24, 1993
Term: 10 Years plus options
Premises: 400 South State Road,
Springfield, PA
Square Feet: 2820
Rental
(Annual):
<TABLE>
<CAPTION>
Year Base Operating Total
---- ---- --------- -----
<S> <C> <C> <C>
1992 $59,246 $4,005 $63,431
1993-1994 $54,990 $4,005 $58,995
1995-1997 $62,040 $4,005 $66,045
1998-2001 $64,155 TBD TBD
</TABLE>
Assignment: Not assignable without prior written
consent of lessor, which may not be
unreasonably withheld or delayed. Sale
of 51% of the value of the assets of
lessee is deemed an assignment.
Options are not assignable. Request
for approval of assignment requires
$500 processing fee except first
request does not.
<PAGE> 51
2
3. Liens.
<TABLE>
<CAPTION>
==================================================================================================================
Debtor Secured Collateral Date filed No./Jurisdiction
Party
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Century Dental Centers I, First Executive Bank Blanket lien on assets Date filed: 1/6/92
P.C. File No.: 92-51
Jurisdiction: Delaware
County, PA
Continuation
filed: 8/16/96
File No.: 96-202001
- ------------------------------------------------------------------------------------------------------------------
Century Dental Centers, First Executive Bank Oral Scan Computer Date filed: 6/16/92
P.C. Imaging System File No.: 92-1465
Continuation
filed: 8/16/96
File No.: 96-202002
- ------------------------------------------------------------------------------------------------------------------
Jonathan David Nash United States All property and rights Federal Tax Liens
Century Dental Centers
(1) Lien No.: 403521
Lien Date: 12/18/92
Amount: $100,723.84
(2) Lien No.: 403522
Lien Date: 12/18/92
Amount: $5,622.63
(3) Lien No.: 404354
Lien Date: 7/22/93
Amount: $5,819.48
(4) Lien No.: 404817
Lien Date: 1/11/94
Amount: $42,675.48
(5) Lien No.: 404818
Lien Date: 1/11/94
Amount: $84,362.65
- ------------------------------------------------------------------------------------------------------------------
Princeton Medical Century Dental Center I, Blanket lien on assets Date filed: 4/6/93
Management Northeast, P.C. File No.: 93-708
Inc. Cendent Associates Jurisdiction: Delaware
Limited Partnership County, PA
- ------------------------------------------------------------------------------------------------------------------
Princeton Medical Century Dental Center I, Blanket lien on assets Date filed: 4/6/93
Management Northeast, P.C. File No.: 21811616
Inc. Jurisdiction: State of Delaware
==================================================================================================================
</TABLE>
<PAGE> 52
3
4. Litigation.
(a) Dr. Jonathan D. Nash d/b/a Century Dental
Centers I & II v. United States
Case No.: 93-CV-5877
Filed: 11/5/93, E.D.P.A.
Status: Judgment in favor of United States in
the amount of $250,000 entered
7/11/96
(b) Century Dental Centers Inc. v. Bell Telephone
PA
Case No.: 91-018028
Filed: 11/27/91, Delaware Common Pleas
Court, PA
Status: Award of arbitrators entered in favor of
Bell Telephone in the amount of
$7,000 on counterclaim. Order to
satisfy award filed 5/7/93.
(c) Century Dental Centers v. Kirstin Horan
Case No.: 95-050061
Filed: 1/9/95, Delaware Common Pleas
Court, PA
Status: Release executed by Kirstin Horan on
June 20, 1996
5. Contracts.
(a) Independent Contractor Agreement by and between Dr. Edward
B. Basner and Century Dental Centers for an open-ended
term with 180 days written notice required for
termination.
(b) Independent Contractor Agreement by and between Century
Dental Centers, P.C. and Richard P. Kaufman, D.M.D.
effective August 2, 1995 for one year term; automatically
renewed for successive one year periods, unless terminated
upon 30 days written notice.
(c) Independent Contractor Agreement originally dated March
31, 1993, and as amended July 1, 1993 and December 2, 1994
and as extended on December 7, 1995 and May 15, 1997 by
and between Princeton Medical Management Northeast, Inc.,
Century Dental Center I, P.C. and Jonathan Nash, D.D.S.
Not assignable by
<PAGE> 53
4
Century without Princeton's prior written approval.
Princeton may assign its interest to a purchaser of the
dental practice without Century's prior written consent.
(d) Security Agreement and Collateral Assignment of Lease
dated as of March 31, 1993 by and between Princeton
Medical Management Northeast, Century Dental Centers I,
P.C. and Cendent Associates Limited Partnership
(e) Guaranty dated as of March 31, 1993 by and between
Princeton Dental Management Corporation and Century Dental
Centers I, P.C., Cendent Associates Limited Partnership,
and Jonathan Nash
(f) Revolving Sales Agreement dated December 29, 1995 by and
between Norwest Financial CDC and Century Dental Center
6. Loans.
7. Insurance.
<TABLE>
<CAPTION>
Insured Carrier Coverage Policy No.
- ------- ------- -------- ----------
<S> <C> <C> <C>
Century Dental Centers State Workmen's Insurance Workers' 03611065
Fund Compensation
Princeton Medical St. Paul Fire & Marine Professional FK06402164/
Management Northeast Insurance Company Office/ FK06401861
Commercial
General
Liability
</TABLE>
8. Vehicles.
9. Promissory Notes
(a) Note payable to Century Dental Centers I, P.C.
<PAGE> 54
5
(b) Note payable to Cendent Associates Limited Partnership
10. Computer Software Matters
11. Provider Source Contracts
1. Between Insurance Dentists of America and Jonathan Nash, and between
IDOA and Barry Gillespie, approved November 22, 1994. Either party has
right to terminate for any reason upon 60 days written notice to the
other. Either party may terminate for cause upon 15 days prior written
notice. Agreement may not be assigned by Dentist without prior written
consent of IDOA.
2. Between The Guardian and Jonathan Nash, approved November 23, 1994,
and between The Guardian and Barry Gillespie, approved January 5,
1995. One year term from the date contract was signed. Renewed
automatically for subsequent 12 month periods unless terminated by
either party. Either party may terminate for cause if violation of the
Agreement is not remedied within 30 days. Either party may terminate
without cause by giving written notice to the other party at least 30
days prior to date of termination. Dentist may not assign without the
prior written consent of The Guardian.
3. Between Prudential Dental Network and Century Dental Center (Edward
Basner and Barry Gillespie as participating providers) effective
January 3, 1994. May be terminated without cause by either party by
giving 30 days written notice.
4. United Concordia Site Application completed by Jonathan Nash and
Provider Credential Applications completed by Barry Gillespie, Edward
Basner, Richard Kaufman.
5. Primary Dentist Agreement between U.S. Healthcare, Dental Plan, Inc.
("Dental Plan") and Richard Kaufman. May be terminated by
<PAGE> 55
6
either party by written notice given at least 90 days in advance of
such termination. May not be assigned without the written consent of
Dental Plan.
6. Specialist Dental Agreement between U.S. Healthcare Dental Plans, Inc.
("Dental Plans") and Dr. Gillespie effective July 26, 1994. Continues
in effect unless terminated by either party upon 90 days written
notice. May not be assigned without the written consent of Dental
Plans.
7. Primary Dentist Agreement plus addendum between Health Maintenance
Organization of Pennsylvania, Inc. ("HMO") and Dr. Edward B. Basner.
May be terminated by either party by written notice given at least 90
days in advance of such termination. May not be assigned without the
written consent of HMO.
8. Primary Dentist Agreement between U.S. Healthcare, Dental Plan, Inc.
("Dental Plan") and Dr. Edward B. Basner. May be terminated by either
party by written notice given at least 90 days in advance of such
termination. May not be assigned without the written consent of Dental
Plan.
9. Primary Dentist Agreement plus Addendum between Health Maintenance
Organization of Pennsylvania, Inc. ("HMO") and Dr. Jonathan Nash. May
be terminated by either party by written notice given at least 90 days
in advance of such termination. May not be assigned without the
written consent of HMO.
10. Primary Dentist Agreement between U.S. Healthcare, Dental Plan, Inc.
("Dental Plan") and Dr. Jonathan Nash. May be terminated by either
party by written notice given at least 90 days in advance of such
termination. May not be assigned without the written consent of Dental
Plan.
<PAGE> 56
7
11. Primary Dentist Agreement plus addendum between Health Maintenance
Organization of Pennsylvania, Inc. and Dr. Richard Kaufman. May be
terminated by either party by written notice given at least 90 days in
advance of such termination. May not be assigned without the written
consent of HMO.
12. Independent Dentist Listing Agreement dated December 2, 1994 between
Dental Directory Services, Inc. ("DDS") and Jonathan Nash. May be
terminated by either party upon not less than 60 days prior written
notice. May not be assigned without prior written consent of DDS.
13. Independent Dentist Listing Agreement dated December 2, 1994 between
Dental Directory Services, Inc. ("DDS") and Barry Gillespie. May be
terminated by either party upon not less than 60 days prior written
notice. May not be assigned without prior written consent of DDS.
14. Independent Dentist Listing Agreement dated December 2, 1994 between
Dental Directory Services, Inc. ("DDS") and Edward B. Basner. May be
terminated by either party upon not less than 60 days prior written
notice. May not be assigned without prior written consent of DDS.
15. Provider Agreement between Countrywide Dental Program and Jonathan
Nash. In effect for 1 year and then automatically renewed subject to
cancellation by either party without cause upon 60 days written
notice. May not be assigned without prior written consent.
16. Dental Care Agreement dated October 12, 1995 between the Carpenters'
Benefit Fund Dental Plan and Edward B. Basner. Withdrawal from the
Agreement must be made in writing within 30 days notice.
17. Dental Care Agreement dated October 12, 1995 between the Carpenters'
Benefit Fund Dental Plan and Jonathan Nash. Withdrawal from the
Agreement must be made in writing within 30 days notice of
termination.
18. Dental Care Agreement dated September 13, 1994
<PAGE> 57
8
between Dr. David G. Parker, Dr. Joel Clyman, Dr. Jonathan Nash, and
Dr. Edward Basner and the Carpenters Health and Welfare Fund.
Withdrawal from the Agreement must be made in writing within 30 days
notice of termination.
19. Agreement and Amendment dated September 6, 1994 between Blue Cross and
Blue Shield of New Jersey, Inc. and Dr. Edward Basner. May be
cancelled by giving 30 days notice.
20. Agreement and Amendment dated September 6, 1994 between Blue Cross and
Blue Shield of New Jersey, Inc. and Jonathan Nash. May be cancelled by
giving 30 days notice.
21. Agreement and Amendment dated September 6, 1994 between Blue Cross and
Blue Shield of New Jersey, Inc. and Barry Gillespie.
12. Business Locations.
(a) 400 South State Road
Springfield, PA
<PAGE> 58
EXHIBIT C
FINANCIAL STATEMENTS
See attached.
<PAGE> 59
EXHIBIT D
CERTAIN EMPLOYEES OF THE BUSINESS
1. Employees and Independent Contractors of the Business earning in excess of
$35,000 per year:
<TABLE>
<CAPTION>
Annual Salary/
Employee Name Employee Type Date of Hire Compensation
<S> <C> <C> <C>
Jonathan Nash, D.D.S. Dentist 6/96 30% of collections
plus $18,000
Quality Control
Services plus 20%
of quarterly
operating profits
up to $30,000 and
25% of quarterly
operating profits
greater than
$30,000*
Richard P. Kaufman, D.M.D. Dentist 8/9/95 20% of Net
Production
Edward B. Basner, D.D.S. Dentist 7/18/89 20% of Gross
Production or
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
Annual Salary/
Employee Name Employee Type Date of Hire Compensation
<S> <C> <C> <C>
$25/hour which ever
is greater
Dr. James Robbins Oral Surgeon 40% of Net
Production
Dr. Ed Gillespie Periodontist 4/1/93 60% of TMJ
production
50% of periodontal
net production
</TABLE>
*Bonus is disputed by the Seller
2. Increases in compensation since March 31, 1997:
See attached.
3. Agreements between the Business and employees.
None.
4. Employees entitled to more than three weeks vacation during the current
calendar year:
See attached.
5. Bonuses granted to employees which have not yet been paid in full:
None.
6. Terminated Employees:
None.
<PAGE> 61
EXHIBIT E
EMPLOYEE BENEFIT PLANS
1. Princeton Dental Management Corporation 401(K) Plan (Plan #001) (effective
7/1/94)
2. Princeton Dental Management Corporation Employee Benefit Plan (Group Health
Plan)
<PAGE> 62
EXHIBIT F
INTELLECTUAL PROPERTY RIGHTS
1. The name "Century Dental".
<PAGE> 63
EXHIBIT G
BANK ACCOUNTS
<TABLE>
<CAPTION>
Persons with
Bank Account No. Type of Account Signature Authority
---- ----------- --------------- -------------------
<S> <C> <C> <C>
PNC Bank 86-1017-9833 Business Checking Jonathan Nash, D.D.S.,
Beverly Militello and
Ray Hlavacs
Mellon Bank NA 2-136-844 Business Checking
First of America 43-3006234-2 Business Checking Jonathan Nash, D.D.S.,
Patricia Scharff
and Ray Hlavacs
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 46,644
<SECURITIES> 0
<RECEIVABLES> 1,460,020
<ALLOWANCES> 189,000
<INVENTORY> 107,951
<CURRENT-ASSETS> 1,465,128
<PP&E> 1,874,872
<DEPRECIATION> 1,118,293
<TOTAL-ASSETS> 8,256,001
<CURRENT-LIABILITIES> 5,243,003
<BONDS> 1,806,024
2,948
0
<COMMON> 202
<OTHER-SE> 1,203,824
<TOTAL-LIABILITY-AND-EQUITY> 8,256,001
<SALES> 0
<TOTAL-REVENUES> 13,795,792
<CGS> 0
<TOTAL-COSTS> 13,881,969
<OTHER-EXPENSES> 7,896
<LOSS-PROVISION> (108,000)
<INTEREST-EXPENSE> 236,391
<INCOME-PRETAX> 8,419
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,419
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
