U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________ to __________________
Commission file number: 333-13529
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GENTLE DENTAL SERVICE CORPORATION
(Exact name of small business issuer as specified in its charter)
Washington 91-1577891
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22800 Savi Ranch Parkway, Suite 206, Yorba Linda, CA 92887-4610
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number (714) 998-0587
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900 Washington Street, Suite 1100, Vancouver, WA 98660
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (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
As of November 13, 1997, 7,714,469 shares of the issuer's Common Stock were
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes No X
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1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Gentle Dental Service Corporation
<TABLE>
<CAPTION>
Balance Sheets
(In thousands, except share data)
- --------------------------------------------------------------------------------
December 31, September 30,
1996 1997
----------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 229 $ 79
Accounts receivable, net 3,007 2,742
Receivables from affiliates 1,197 1,603
Income taxes receivable 169 134
Supplies 363 476
Prepaid expenses and other current assets 734 520
---------- ----------
Total current assets 5,699 5,554
Property and equipment, net 4,164 4,911
Intangible assets, net 3,225 5,549
Other assets 68 54
---------- ----------
Total assets $ 13,156 $ 16,068
========== ==========
Liabilities, Redeemable Common Stock and
Nonredeemable Shareholders Equity
Current liabilities:
Accounts payable $ 1,256 $ 787
Accrued payroll and payroll related costs 364 785
Other accrued liabilities 806 630
Short-term borrowings 2,097 -
Current portion of long-term debt and capital lease obligations 917 441
---------- ----------
Total current liabilities 5,440 2,643
---------- ----------
Deferred rent 88 112
Deferred income taxes 3 237
Long-term debt, less current portion 1,822 577
Capital lease obligations, less current portion 441 314
---------- ----------
Total liabilities 7,794 3,883
---------- ----------
Commitments and contingent liabilities
Redeemable common stock, no par value, 190,302 and 183,686 shares
issued and outstanding, respectively 2,199 2,123
---------- ----------
Nonredeemable shareholders' equity:
Preferred stock, 30,000,000 shares authorized, no shares issued
and outstanding - -
Common stock, no par value, 50,000,000 shares authorized, 1,351,579
and 2,971,772 shares issued and outstanding, respectively 2,888 9,543
Additional paid-in capital 446 488
Retained earnings (deficit) (171) 31
---------- ----------
Total nonredeemable shareholders' equity 3,163 10,062
---------- ----------
Total liabilities, redeemable common stock and
nonredeemable shareholders' equity $ 13,156 $ 16,068
========== ==========
</TABLE>
2
<PAGE>
Gentle Dental Service Corporation
<TABLE>
<CAPTION>
Statements of Operations
(Unaudited, in thousands, except per share data)
- --------------------------------------------------------------------------------
Nine Months Ended September 30, Three Months Ended September 30,
1996 1997 1996 1997
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Support services revenue $ 7,866 $ 10,269 $ 2,709 $ 3,825
Branch costs 5,234 6,608 1,758 2,357
Operating expenses 3,010 3,130 1,098 1,277
-------------- -------------- ------------- --------------
Operating income (loss) (378) 531 (147) 191
-------------- -------------- ------------- --------------
Nonoperating income (expense):
Interest expense (572) (135) (273) (5)
Other income, net 22 52 (58) 45
-------------- -------------- ------------- --------------
Nonoperating Income (expense) net (550) (83) (331) 40
-------------- -------------- ------------- --------------
Income (loss) before income taxes (928) 448 (478) 231
Provision (benefit) for income taxes (228) 219 (181) 109
-------------- -------------- ------------- --------------
Net income (loss) (700) 229 (297) 122
Accretion of redeemable
common stock (80) (27) (12) (8)
-------------- -------------- ------------- --------------
Net income (loss) attributable to common stock $ (780) $ 202 $ (309) $ 114
============== ============== ============= ==============
Primary earnings (loss) per share $ (0.53) $ 0.07 $ (0.20) $ 0.03
============== ============== ============= ==============
Fully diluted earnings (loss) per share $ (0.53) $ 0.06 $ (0.20) $ 0.03
============== ============== ============= ==============
</TABLE>
3
<PAGE>
Gentle Dental Service Corporation
<TABLE>
<CAPTION>
Statements of Cash Flows
(Unaudited, in thousands)
- --------------------------------------------------------------------------------
Nine Months Ended September 30, Three Months Ended September 30,
1996 1997 1996 1997
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (700) $ 229 $ (297) $ 122
Adjustments to reconcile change in net cash
provided by (used in) operating activities:
Depreciation and amortization 596 699 233 257
Loss on disposal of assets 61 36 61 12
Stock options granted to nonemployees 38 42 13 14
Stock issued for fees and compensation 25 - - -
Deferred income taxes (56) 212 (62) 102
Amortization of warrants 201 - 120 -
Deferred rent 5 24 - (1)
Changes in certain assets and liabilities,
net of acquisitions:
Accounts receivable, net (253) 574 (67) (90)
Receivables from affiliates (416) (493) (477) 61
Income taxes receivable (137) 35 (84) 35
Supplies (50) (113) 7 (41)
Prepaid expenses and other current assets (339) (221) 58 (120)
Other assets 30 13 22 (5)
Accounts payable 415 (469) 46 (132)
Accrued liabilities (54) 131 334 50
------------- ------------ ------------- ------------
Net cash provided by (used in) operating
activities (634) 699 (93) 264
------------- ------------ ------------- ------------
Cash flows from investing activities:
Purchase of property and equipment,
excluding acquisitions (532) (1,199) (136) (278)
Proceeds from sale of property and equipment - 22 - -
Cash paid for acquisitions, including other direct
costs, net of cash acquired (667) (1,483) (4) (510)
------------- ------------ ------------- ------------
Net cash used in investing activities (1,199) (2,660) (140) (788)
------------- ------------ ------------- ------------
Cash flows from financing activities, excluding acquisitions:
Net proceeds (payments) on short-term borrowings 1,048 (2,097) 60 -
Proceeds from issuance of notes payable 465 - 116 -
Payments of notes payable (407) (2,444) (267) (25)
Payments of capital lease obligations (241) (182) (201) (98)
Proceeds from issuance of common stock 1,000 7,500 - -
Proceeds from employee stock purchase plan - 5 - 5
Common stock issuance costs (43) (918) (17) (74)
Proceeds from note receivable 40 - 40 -
Exercise of put rights (90) (103) - -
Exercise of options - 50 - 50
Other 2 - - -
------------- ------------ ------------- ------------
Net cash provided by (used in) financing
activities 1,774 1,811 (269) (142)
------------- ------------ ------------- ------------
Increase (decrease) in cash and cash equivalents (59) (150) (502) (666)
Cash and cash equivalents, beginning of period 689 229 1,132 745
------------- ------------ ------------- ------------
Cash and cash equivalents, end of period $ 630 $ 79 $ 630 $ 79
============= ============ ============= ============
</TABLE>
4
<PAGE>
Gentle Dental Service Corporation
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
Gentle Dental Service Corporation (the "Company"), incorporated on December
14, 1992, is a Washington corporation headquartered as of September 30,
1997 in Vancouver, Washington. As of September 30, 1997, the Company, as
part of a multi-specialty dental care delivery network, provided support
services to dental professional corporations in Washington, Oregon and
California. During the period January 1, 1997 through September 30, 1997
the Company provided management support to four professional corporations
under long-term support services agreements: Gentle Dental of Oregon, P.C.;
Tse, Saiget, Watanabe & McClure, Inc., P.S., a.k.a., Gentle Dental of
Washington, P.C.; Arena Dental Corporation, a California Professional
Corporation; and Dany Tse, P.C. (together, the "PCs"). Under the terms of
the service agreements, the Company, among other things, bills and collects
patient receivables and provides all administrative support services to the
PCs in exchange for support services fees.
On February 13, 1997, the Company completed its initial public offering of
1,500,000 shares of no par value common stock (the "Offering"). The price
per share in the Offering was $5.00, resulting in gross offering proceeds
of $7,500,000. Net of underwriters' discount and total offering expenses
the Company received approximately $6,123,000 in proceeds from the
Offering. The effects of the Offering and related transactions have been
included in the accompanying financial statements as of September 30, 1997.
Concurrent with the receipt of the net proceeds, the Company utilized
$4,426,000 to repay all outstanding principal under the Company's various
bank loan arrangements. No significant gain or loss resulted in connection
with the debt extinguishment.
Basis of presentation
The accompanying unaudited interim financial statements of the Company have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and note disclosures
normally included in annual financial statements have been condensed or
omitted pursuant to those rules and regulations. In the opinion of
management, all adjustments, consisting only of normal, recurring
adjustments considered necessary for a fair presentation, have been
included. Although management believes that the disclosures made are
adequate to insure that the information presented is not misleading, it is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's annual
report for the fiscal year ended December 31, 1996. The results for the
nine months ended September 30, 1997 are not necessarily indicative of the
results of operations for the entire year.
Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform with the presentations as of September 30, 1997. Such
reclassifications had no effect on the Company's previously reported
results of operations or financial position.
5
<PAGE>
Earnings per share
Primary and fully diluted earnings per share are based on the weighted
average number of common and common equivalent shares outstanding during
the periods presented. The computation of fully diluted earnings per share
assumes the exercise of stock warrants and options. The computation of
fully diluted net loss per share was antidilutive in each of the periods
presented during 1996; therefore, the amounts reported for primary and
fully diluted loss are the same. The number of common and common equivalent
shares utilized for the nine and three months ended September 30, 1996 were
1,484,000 and 1,510,000, respectively. The primary weighted average number
of common and common equivalent shares outstanding was 2,951,000 and
3,378,000 for the nine and three months ended September 30, 1997,
respectively. The fully diluted weighted average number of common and
common equivalent shares outstanding was 3,288,000 and 3,587,000 for the
nine and three months ended September 30, 1997, respectively.
New accounting pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share". In accordance with this pronouncement, the
Company will adopt the new standard for periods ending after December 15,
1997. Management does not expect the adoption of this pronouncement to have
a significant effect on reported earnings per share information.
The Emerging Issues Task Force of the Financial Accounting Standards Board
is currently evaluating certain matters relating to the physician practice
management industry, which the Company expects will include a review of the
consolidation of professional corporation revenues and the accounting for
business combinations. The Company is unable to predict the impact, if any,
that this review may have on the Company's acquisition strategy, allocation
of purchase price related to acquisitions, and amortization life assigned
to intangible assets.
6
<PAGE>
Gentle Dental Service Corporation
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
2. Revenues
Revenues consist primarily of support services fees charged to the PCs
based on an agreed-upon percentage of PC revenues under support services
agreements, net of provisions for contractual adjustments and doubtful
accounts. Such fees are recognized when earned.
<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PC dental revenue, net of provisions (In thousands)
for contractual adjustments and
doubtful accounts $ 15,731 $ 19,020 $ 5,418 $ 6,828
Less amounts retained by the PCs (7,865) (9,103) (2,709) (3,266)
Adjustment to allowance for doubtful accounts - 230 - 230
Retail sales - 122 - 33
----------- ----------- ----------- -----------
Support services revenue $ 7,866 $ 10,269 $ 2,709 $ 3,825
=========== =========== =========== ===========
</TABLE>
3. Employee Stock Purchase Plan and Professional Corporation Employee Stock
Purchase Plan
The Company has adopted the Employee Stock Purchase Plan ("ESPP") and the
Professional Corporation Employee Stock Purchase Plan ("PC ESPP") covering
200,000 and 300,000 shares of the Company's common stock, respectively. The
ESPP and the PC ESPP were effective May 1, 1997. All full-time employees of
the Company and the PCs can purchase common stock under these plans through
payroll withholding at a 10% discount to the market price of the stock on
the last day of each calendar quarter.
4. Commitment and Contingencies
On September 21, 1997, the Company entered into a merger agreement pursuant
to which it has agreed to acquire all of the stock of Dedicated Dental
Systems, Inc. ("DDS"), which is based in Bakersfield, California and owns
and operates 11 staff model dental offices pursuant to a Knox-Keene license
from the state of California. At the same time, the Company entered into
three asset purchase agreements to acquire the nonprofessional assets of
four related dental practices in central California. The aggregate purchase
price under these agreements is $22,750,000, consisting of $9,771,000 in
cash, $12,429,000 in shares of Company Common Stock (1,519,103 shares
valued at $8.1818 per share, which was the average closing price of Company
Common Stock for the 30 trading days prior to the execution of the
agreements), and $550,000 in estimated future earnout payments under two of
the asset purchase agreements, all subject to certain adjustments provided
for in the agreements. The acquisition is subject to California Knox-Keene
regulatory approval, among other contingencies, and is expected to close by
year-end or early 1998.
On September 29, 1997, the Company entered into an agreement for the
acquisition of the nonprofessional assets of a dental practice located in
Sacramento, California. The purchase price is $810,000, consisting of
$320,000 in cash and $490,000 in shares of Company Common Stock (43,077
shares valued at $11.375 per share, which was the average closing price of
Company
7
<PAGE>
Common Stock for the 10 trading days prior to the execution of the
agreement). The acquisition is expected to close in November 1997.
5. Subsequent Event
On November 4, 1997, the Company completed its merger with GMS Dental
Group, Inc. ("GMS"), a privately held corporation, with the Company as the
surviving corporation. The merger is being accounted for as a pooling of
interests. Under the terms of the merger agreement, the Company issued
approximately 4,548,200 shares of its Common Stock, representing
approximately 59% of the outstanding stock of the merged company, to the
former shareholders of GMS. A total of 297,074 of the shares issued in the
merger are subject to repurchase by the Company at an average price of
$0.32 per share if certain performance targets for 1997 are not achieved.
These targets are not expected to be met and the shares are anticipated to
be repurchased during 1998.
Upon consummation of the DDS acquisition discussed in note 4 and after the
foregoing repurchase of the shares discussed above, the shares issued to
GMS shareholders will represent approximately 47.5% of the total
outstanding Common Stock. Prior to the merger, GMS was a dental practice
management company based in Yorba Linda, California providing management
support services to 22 dental offices with approximately 100 dentists in
California, Idaho, and Hawaii.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company provides facilities, equipment, staffing, management support and
other ancillary services to the PCs that employ the dental services providers of
the Gentle Dental Network. The Company intends to rapidly expand the Gentle
Dental Network through acquisitions in both its existing markets as well as new
geographic markets. The PCs are exclusively in control of all aspects of the
practice of dentistry and the delivery of dental services.
Company revenues primarily consist of fees received for services provided under
four Support Services Agreements between the Company and the PCs (the "Support
Services Agreements"). The Company's support services revenue ("Support Services
Revenue") is equal to a percentage of the net revenue of the PCs ("Net PC
Revenue"). Net PC Revenue equals the gross billings of the PCs less provisions
for contractual discounts and doubtful accounts.
During the first nine months of 1997, the Company acquired two dental practices
in the Seattle, Washington metropolitan area and one dental practice in the
Sacramento, California metropolitan area.
In connection with the acquisition of dental practices, the Company capitalizes
a portion of the purchase price as intangible assets relating to noncompetition
covenants and the cost of purchasing the right to provide management support
services to the acquired practices under the Support Services Agreements. These
intangible assets are amortized on a straight-line basis over 25 years. The
resulting amortization expense reduces net income, but not cash flow, and the
size of this expense will increase as the Company completes more acquisitions.
Results of Operations
The following table shows the derivation of the Company's revenues from the net
revenues of the PCs for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PC dental revenue, net of provisions (In thousands)
for contractual adjustments and
doubtful accounts $ 15,731 $ 19,020 $ 5,418 $ 6,828
Less amounts retained by the PCs (7,865) (9,103) (2,709) (3,266)
Adjustment to allowance for doubtful accounts - 230 - 230
Retail sales - 122 - 33
----------- ----------- ----------- -----------
Support services revenue $ 7,866 $ 10,269 $ 2,709 $ 3,825
=========== =========== =========== ===========
</TABLE>
9
<PAGE>
Comparison of the Three Months Ended September 30, 1997 to the Three Months
Ended September 30, 1996
Revenue. Net PC Revenue increased 25.9% from $5.4 million for the three months
ended September 30, 1996 to $6.8 million for the three months ended September
30, 1997. Revenues increased 6.3% for branch offices in operation during both
periods. The remaining increase in Net PC Revenue was primarily attributed to
three practice acquisitions during 1997.
Support Services Revenue increased 41.2% from $2.7 million for the three months
ended September 30, 1996 to $3.8 million for the three months ended September
30, 1997. This higher rate of growth compared with the growth of Net PC Revenue
was primarily the result of the increase in the percentage of Net PC Revenue
payable under the Support Services Agreements from 50% to 51% and 50% to 53% for
the Washington and Oregon PCs, respectively. Also, 1.0% of the Support Services
Revenue or 3.0% of the growth was attributable to the introduction of retail
products. In addition, 6.0% of the Support Services Revenue or 20.6% of the
growth was attributed to favorable adjustments to bad debt reserves resulting
from improved receivable collections.
Branch Costs. Branch costs include all staff compensation and related payroll
costs at the dental facilities, other than dentists, hygienists, and dental
assistants, and all dental supplies, facilities, equipment depreciation, and
general branch administrative expense. Branch costs increased 34.1% from $1.8
million for the three months ended September 30, 1996 to $2.4 million for the
three months ended September 30, 1997. Branch costs as a percentage of Net PC
Revenue increased from 32.4% to 34.5% for the three months ended September 30,
1996 and 1997, respectively. Overall, the Company has experi-enced favorable
economies of scale in branch costs. For the three months ended September 30,
1996, such costs were reduced by approximately 3.5% due to an adjustment to
reduce accrued dental supply costs expensed in previous periods.
Operating Expenses. The Company's operating expenses increased 16.3% from $1.1
million for the three months ended September 30, 1996 to $1.3 million for the
three months ended September 30, 1997 as a result of the accrual of executive
bonuses in the 1997 period based on substantial achievement of specific
performance objectives. Operating expenses as a percentage of Net PC Revenue
decreased from 20.3% to 18.7% for the three months ended September 30, 1996 and
1997, respectively. This decrease in operating expenses as a percentage of Net
PC Revenue is consistent with the Company's strategy to increase the growth rate
of revenue at a rate higher than the growth rate in overall operating expenses.
Nonoperating Income (Expense), Net. Nonoperating income (expense) increased from
a net expense of $(331,000) for the three months ended September 30, 1996 to a
net income of $40,000 for the three months ended September 30, 1997. This change
is attributed to an increase in other income of $103,000 and a decrease in
interest expense of $268,000, net of interest income.
Provision (Benefit) for Income Taxes. For the three months ended September 30,
1996 the Company recognized a tax benefit resulting from its taxable loss for
the period. Because the Company has in the past made some practice acquisitions
under a tax-free merger structure, the amortization of intangible assets from
those acquisitions reduces earnings but is not deductible for tax purposes.
Accordingly, for the three months ended September 30, 1997, the effective tax
rate was higher than the applicable statutory tax rate.
10
<PAGE>
Comparison of the Nine Months Ended September 30, 1997 to the Nine Months Ended
September 30, 1996
Revenue. Net PC Revenue increased 20.9% from $15.7 million for the nine months
ended September 30, 1996 to $19.0 million for the nine months ended September
30, 1997. Revenues increased 8.0% for branch offices in operation during both
periods. Additional growth was attributed to three practice acquisitions during
1997.
Support Services Revenue increased 30.5% from $7.9 million for the nine months
ended September 30, 1996 to $10.3 million for the nine months ended September
30, 1997. This higher rate of growth compared with the growth of Net PC Revenue
was also primarily the result of the increase in the percentage of Net PC
Revenue payable under the Support Services Agreements from 50% to 51% and 50% to
53% for the Washington and Oregon PCs, respectively. Also, 1.2% of the Support
Services Revenue or 5.1% of the growth was attributable to the introduction of
retail products. In addition, 2.2% of the Support Services Revenue or 9.6% of
the growth was attributed to favorable adjustments to bad debt reserves
resulting from improved receivable collections.
Branch Costs. Branch costs include all staff compensation and related payroll
costs at the dental facilities, other than dentists, hygienists, and dental
assistants, and all dental supplies, facilities, equipment depreciation, and
general branch administrative expense. Branch costs increased 26.2% from $5.2
million for the nine months ended September 30, 1996 to $6.6 million for the
nine months ended September 30, 1997. Branch costs as a percentage of Net PC
Revenue increased from 33.3% to 34.7% for the nine months ended September 30,
1996 and 1997, respectively. For the nine months ended September 30, 1996, such
costs were reduced by approximately 1.3% due to an adjustment to reduce accrued
dental supply costs expensed in previous periods.
Operating Expenses. The Company's operating expenses increased 4.0% from $3.0
million for the nine months ended September 30, 1996 to $3.1 million for the
nine months ended September 30, 1997. Operating expenses as a percentage of Net
PC Revenue decreased from 19.1% to 16.5% for the nine months ended September 30,
1996 and 1997, respectively. This decrease in operating expenses as a percentage
of Net PC Revenue is consistent with the Company's strategy to increase the
growth rate of revenue at a rate higher than the growth rate in overall
operating expenses.
Nonoperating Expense, Net. Nonoperating expense, net decreased from $550,000 for
the nine months ended September 30, 1996 to $83,000 for the nine months ended
September 30, 1997. This decrease is attributed to an increase in other income
of $30,000 and a decrease in interest expense of $437,000, net of interest
income.
Provision (Benefit) for Income Taxes. For the nine months ended September 30,
1996 the Company recognized a tax benefit resulting from its taxable loss for
the period. Because the Company has in the past made some practice acquisitions
under a tax-free merger structure, the amortization of intangible assets from
those acquisitions reduces earnings but is not deductible for tax purposes.
Accordingly, for the nine months ended September 30, 1997, the effective tax
rate was higher than the applicable statutory tax rate.
11
<PAGE>
Liquidity and Capital Resources
At September 30, 1997, the Company's cash and cash equivalents were $79,000 and
working capital was $2.9 million. Net cash used in operating and investing
activities was $233,000 and $524,000 for the three-month periods ending
September 30, 1996 and 1997, respectively. Net cash used in financing activities
was $269,000 and $142,000 for the three-month periods ending September 30, 1996
and 1997, respectively.
On February 13, 1997, the Company completed its initial public offering of
1,500,000 shares of no par value common stock (the "Offering"). The price per
share in the Offering was $5.00, resulting in gross offering proceeds of
$7,500,000. Net of underwriters' discounts and total offering expenses the
Company received approximately $6,123,000 in proceeds from the Offering. The net
proceeds from the Offering have been used primarily to repay indebtedness and
for acquisitions and working capital.
As discussed in Note 4 of Notes to Unaudited Financial Statements, the Company
has entered into acquisition agreements to acquire DDS and the nonprofessional
assets of four related dental practices, as well as the nonprofessional assets
of a dental practice in Sacramento, California. Cash required to close these
transactions totals approximately $10.1 million. As discussed below, the Company
is currently negotiating for a significant increase in its borrowing capacity
to, among other things, fund the completion of these acquisitions.
As of September 30, 1997, the Company's credit facility with its then principal
bank provided access to up to $1.5 million. No amount was outstanding as of
September 30, 1997. This facility carried an interest rate of prime plus 1.0%
and matured October 31, 1997. Upon the completion of the merger with GMS, the
Company succeeded to the rights and obligations under the GMS $10,000,000 bank
credit facility. This facility carries an interest rate of prime plus up to 1.0%
or LIBOR plus up to 3.25%, at the Company's option. The facility permits
revolving borrowings until October 10, 1998, at which time the facility will
convert to a three-year term loan. At November 4, 1997 (date of merger), $8.2
million in borrowings were outstanding under this facility. The Company is
currently in negotiations for a significant increase in its borrowing capacity
and there can be no assurance as to the credit terms and amount that the Company
will ultimately be able to secure.
The Company believes that its existing cash balance, amounts available under the
expanded credit facility the Company is pursuing and cash from operations will
be sufficient to fund its operations for at least the next 12 months. However,
to execute its long term business strategy, the Company will require substantial
additional funding to acquire new practices and to expand and maintain practices
within the Gentle Dental Network. The Company will seek to obtain needed funds
through additional long-term or short-term borrowing arrangements or through the
public or private issuance of additional debt or equity securities. There can be
no assurance that any such financing will be available to the Company or will be
available on terms acceptable to the Company.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 26, 1996, Donald E. Janoff, D.D.S., a former employee of Gentle Dental
of Oregon, P.C. filed a complaint in the circuit court of the state of Oregon
for the county of Multnomah against Gentle Dental of Oregon, P.C. for breach of
contract. The complaint alleged that Gentle Dental of Oregon, P.C. breached Dr.
Janoff's employment contract by wrongfully terminating the contract and sought
damages of $375,000. On April 25, 1997, the court entered a summary judgement
against Dr. Janoff on all claims. Dr. Janoff has appealed.
Item 2. Changes in Securities and use of Proceeds
The Company filed a Form SR - Report of Sales of Securities and Use of Proceeds
Therefrom dated May 20, 1997 with the Securities and Exchange Commission, with
respect to its February 1997 initial public offering registered on Form SB - 2
(Registration No. 333-13529). The following updates and completes the
information contained in the Form SR with respect to expenses of the offering
and use of proceeds:
<TABLE>
<CAPTION>
Issuance of Registered Securities Amount
----------------
<S> <C>
Gross offering proceeds $ 7,500,000
----------------
Less: expenses incurred in connection with
isuance and distribution of registered securtities:
Underwriting discounts and commissions 525,000
Expenses paid to underwriters 37,500
Other expenses 814,500
----------------
Total expenses 1,377,000
----------------
Net offering proceeds $ 6,123,000
----------------
Use of Net Offering Proceeds
Purchase and installation of machinery and equipment $ 129,500
Construction of plant, building and facilities 141,500
Acquisition of other businessess 1,426,000
Repayment of indebtedness 4,426,000
----------------
Total use of net offering proceeds $ 6,123,000
================
</TABLE>
None of the foregoing amounts were direct or indirect payments to directors,
officers, ten percent shareholders or affiliates of the Company.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
2.1 Merger Agreement, dated as of September 21, 1997, between the
Company, Gentle Dental Merger Corporation, a wholly-owned
subsidiary of the Company, Dedicated Dental Systems, Inc., a
California corporation, Arthur G. Kaiser, D.D.S. and Robert J.
Newman.
2.2 Asset Purchase Agreement, dated as of September 21, 1997, between
the Company, California Dental Practice Management Company, a
California general partnership, Arthur G. Kaiser, D.D.S., Robert
J. Newman and Mark Thomas, D.D.S.
2.3 Asset Purchase Agreement, dated as of September 21, 1997, between
the Company, California Dental Practice Management Company, a
California general partnership, Arthur G. Kaiser, D.D.S., Robert
J. Newman and Clarence Au, D.D.S.
2.4 Asset Purchase Agreement, dated as of September 21, 1997, between
the Company and Arthur G. Kaiser, D.D.S.
10.1 Support Services Agreement, dated as of August 29, 1997, between
the Company and Dany Tse, P.C.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the quarter ended
September 30, 1997.
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GENTLE DENTAL SERVICE CORPORATION
(Registrant)
Date: November 13, 1997 By: L. THEODORE VAN EERDEN
-------------------------------------
L. Theodore Van Eerden
Executive Vice President and
Chief Development Officer
(at September 30, 1997,
Chief Financial Officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit Description
2.1 Merger Agreement, dated as of September 21, 1997, between the Company,
Gentle Dental Merger Corporation, a wholly-owned subsidiary of the
Company, Dedicated Dental Systems, Inc., a California corporation,
Arthur G. Kaiser, D.D.S. and Robert J. Newman.
The following exhibits and schedules to the Merger Agreement have been
omitted and will be provided to the Securities and Exchange Commission
upon request:
Exhibit A New Dental Practice Leases
Exhibit B Opinion of DDS's Counsel
Exhibit C Opinion of GDSC's Counsel
Exhibit D Terms of Employment
Schedule 0.1 Locations
Schedule 5.06 Litigation
Schedule 5.08-1 Collective Bargaining Agreements
Schedule 5.08-2 Employee Benefits
Schedule 5.08-3 Employment Manuals and Policies
Schedule 5.08-4 Directors, Officers and Employees
Schedule 5.09 Financial Statements
Schedule 5.10 Receivables
Schedule 5.11 Prepaid Expenses and Deferred Charges
Schedule 5.12 Tangible Personal Property
Schedule 5.13 Accounts Payable and Accrued Liabilities
Schedule 5.14 Indebtedness
Schedule 5.15 Undisclosed Liabilities
Schedule 5.17 Leases and Real Property
Schedule 5.18 Contracts
Schedule 5.21 Insurance
Schedule 5.28 Consents and Approvals
Schedule 5.30 Bank Accounts
Schedule 5.31 Pending Knox-Keene Approvals
2.2 Asset Purchase Agreement, dated as of September 21, 1997, between the
Company, California Dental Practice Management Company, a California
general partnership, Arthur G. Kaiser, D.D.S., Robert J. Newman and
Mark Thomas, D.D.S.
2.3 The following exhibits and schedules to the Asset Purchase Agreement
have been omitted and will be provided to the Securities and Exchange
Commission upon request:
Exhibit A Assumption Agreement
Exhibit B Assignment and Bill of Sale to GDSC
Exhibit C-1 Assignment to Thomas Professional
Corporation
Exhibit C-2 Assignment to Professional Corporation
Exhibit D Support Services Agreement
Exhibit E Assignable Option Agreement
Exhibit F Employment Agreement
Exhibit G Addendum to Employment Agreement
16
<PAGE>
Exhibit H Articles and Bylaws of Professional
Corporation
Schedule 1.02-2 Excluded Assets
Schedule 1.10 Purchase Price Allocation
Schedule 2.04 Consents
Schedule 4.06 Litigation
Schedule 4.08-2 Employee Benefits
Schedule 4.08-3 Employment Manuals and Policies
Schedule 4.08-4 Compensation
Schedule 4.09 Financial Statements
Schedule 4.10 Receivables
Schedule 4.11 Prepaid Expenses and Other
Schedule 4.12 Tangible Personal Property
Schedule 4.13 Payables
Schedule 4.14 Indebtedness
Schedule 4.15 Other Liabilities
Schedule 4.17 Leases
Schedule 4.18 Contracts
Schedule 4.21 Insurance
Schedule 4.27 Consents and Approvals
2.3 Asset Purchase Agreement, dated as of September 21, 1997, between the
Company, California Dental Practice Management Company, a California
general partnership, Arthur G. Kaiser, D.D.S., Robert J. Newman and
Clarence Au, D.D.S.
The following exhibits and schedules to the Asset Purchase Agreement
have been omitted and will be provided to the Securities and Exchange
Commission upon request:
Exhibit A Assumption Agreement
Exhibit B Assignment and Bill of Sale to GDSC
Exhibit C Assignment to Professional Corporation
Exhibit D Support Services Agreement
Exhibit E Assignable Option Agreement
Exhibit F Employment Agreement
Exhibit G Addendum to Employment Agreement
Exhibit H Articles and Bylaws of Professional
Corporation
Schedule 1.02-2 Excluded Assets
Schedule 1.10 Purchase Price Allocation
Schedule 2.04 Consents
Schedule 4.06 Litigation
Schedule 4.08-2 Employee Benefits
Schedule 4.08-3 Employment Manuals and Policies
Schedule 4.08-4 Compensation
Schedule 4.09 Financial Statements
Schedule 4.10 Receivables
Schedule 4.11 Prepaid Expenses and Other
Schedule 4.12 Tangible Personal Property
Schedule 4.13 Payables
Schedule 4.14 Indebtedness
Schedule 4.15 Other Liabilities
Schedule 4.17 Leases
Schedule 4.18 Contracts
Schedule 4.21 Insurance
17
<PAGE>
Schedule 4.27 Consents and Approvals
2.4 Asset Purchase Agreement, dated as of September 21, 1997, between the
Company and Arthur G. Kaiser, D.D.S.
The following exhibits and schedules to the Asset Purchase Agreement
have been omitted and will be provided to the Securities and Exchange
Commission upon request:
Exhibit A Assumption Agreement
Exhibit B Assignment and Bill of Sale to GDSC
Exhibit C Assignment to Professional Corporation
Exhibit D Support Services Agreement
Exhibit E Assignable Option Agreement
Exhibit F Employment Agreement
Exhibit G Addendum to Employment Agreement
Exhibit H Articles and Bylaws of Professional
Corporation
Schedule 1.02-2 Excluded Assets
Schedule 1.10 Purchase Price Allocation
Schedule 2.04 Consents
Schedule 4.06 Litigation
Schedule 4.08-2 Employee Benefits
Schedule 4.08-3 Employment Manuals and Policies
Schedule 4.08-4 Compensation
Schedule 4.09 Financial Statements
Schedule 4.10 Receivables
Schedule 4.11 Prepaid Expenses and Other
Schedule 4.12 Tangible Personal Property
Schedule 4.13 Payables
Schedule 4.14 Indebtedness
Schedule 4.15 Other Liabilities
Schedule 4.17 Leases
Schedule 4.18 Contracts
Schedule 4.21 Insurance
Schedule 4.27 Consents and Approvals
10.1 Support Services Agreement, dated as of August 29, 1997, between the
Company and Dany Tse, P.C.
27 Financial Data Schedule.
18
MERGER AGREEMENT
among
Gentle Dental Service Corporation,
a Washington corporation,
Gentle Dental Merger Corporation,
a California corporation,
Dedicated Dental Systems, Inc.
a California corporation,
and
The Shareholders of
Dedicated Dental Systems, Inc.
Dated September 21, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I The Merger..................................................... 2
1.01 The Merger............................................ 2
1.02 Effect of Merger...................................... 2
1.03 Conversion of Shares.................................. 2
1.04 Surrender and Cancellation of Certificates............ 4
1.05 Escrow Shares......................................... 4
1.06 Closing............................................... 5
1.07 Subsequent Actions.................................... 5
ARTICLE II Covenant Not to Compete........................................ 5
2.01 Covenant Not to Compete............................... 5
2.02 Remedies.............................................. 6
2.03 Scope of Covenant..................................... 6
ARTICLE III Representations and Warranties of GDSC......................... 6
3.01 Authorization......................................... 6
3.02 Capitalization........................................ 7
3.03 Compliance............................................ 7
3.04 Consents.............................................. 7
3.05 Accuracy of Representations & Warranties.............. 7
3.06 GD Merger............................................. 7
3.07 Employment Matters.................................... 8
3.08 Financial Statements.................................. 9
3.09 Absence of Certain Changes or Events.................. 9
3.10 Title and Condition of Tangible Assets................ 9
3.11 Insurance............................................. 10
3.12 Taxes................................................. 10
3.13 Certain Interests..................................... 11
3.14 No Restrictions....................................... 11
3.15 Permits and Licenses.................................. 11
3.16 Environmental Conditions.............................. 11
3.17 Records............................................... 12
3.18 Reliance.............................................. 12
ARTICLE IV Individual Representations and Warranties of Shareholders...... 12
4.01 Title to the DDS Common Stock......................... 12
4.02 Authority............................................. 12
4.03 Investment Representations............................ 12
4.04 No Plan to Sell....................................... 13
4.05 Tax Advice............................................ 13
4.06 Access to Information................................. 13
4.07 Sophistication........................................ 13
i
<PAGE>
Page
4.08 Accredited Investor................................... 13
ARTICLE V Representations and Warranties of DDS and Shareholders......... 14
5.01 Corporate Existence................................... 14
5.02 Capitalization........................................ 14
5.03 Authority............................................. 14
5.04 No Adverse Consequences............................... 14
5.05 Brokers and Finders; Attorneys........................ 15
5.06 Litigation............................................ 15
5.07 Compliance with Laws.................................. 15
5.08 Employment Matters.................................... 15
5.09 Financial Statements.................................. 17
5.10 Receivables........................................... 17
5.11 Prepaid Expenses and Other............................ 17
5.12 Personal Property..................................... 17
5.13 Payables.............................................. 17
5.14 Indebtedness.......................................... 17
5.15 Undisclosed Liabilities............................... 17
5.16 Absence of Certain Changes or Events.................. 17
5.17 Leases................................................ 18
5.18 Certain Contracts and Arrangements.................... 18
5.19 Status of Contracts and Leases........................ 18
5.20 Title and Condition of Tangible Assets................ 19
5.21 Insurance............................................. 19
5.22 Taxes................................................. 20
5.23 Certain Interests..................................... 20
5.24 No Restrictions....................................... 20
5.25 Permits and Licenses.................................. 21
5.26 Certain Payments...................................... 21
5.27 Environmental Conditions.............................. 21
5.28 Consents and Approvals................................ 21
5.29 Records............................................... 21
5.30 Bank Accounts......................................... 21
5.31 Compliance with the Knox-Keene Act.................... 21
5.32 Reliance.............................................. 22
5.33 Accuracy of Representations and Warranties............ 22
ARTICLE VI Covenants of DDS and Shareholders.............................. 22
6.01 Access to Properties, Books and Records............... 22
6.02 Negative Covenants.................................... 22
6.03 Affirmative Covenants................................. 24
6.04 No Negotiations With Others........................... 25
6.05 401(k) Plan........................................... 25
6.06 Profit Purchase Agreement............................. 25
6.07 Restrictions on Sale of Shares of GDSC Common Stock... 25
ii
<PAGE>
Page
ARTICLE VII Covenants of GDSC.............................................. 26
7.01 Board Seat............................................ 26
7.02 Registration Rights................................... 26
ARTICLE VIII Joint Covenants................................................ 30
8.01 Governmental Consents................................. 30
8.02 Best Efforts; No Inconsistent Action.................. 30
ARTICLE IX Conditions to Obligations of GDSC.............................. 31
9.01 Governmental Approvals................................ 31
9.02 Consents.............................................. 31
9.03 Representations, Warranties and Covenants............. 31
9.04 Adverse Proceedings................................... 31
9.05 No Adverse Change..................................... 31
9.06 New Leases............................................ 32
9.07 Opinion of Counsel.................................... 32
9.08 Closing of the Transactions........................... 32
9.09 Fairness Opinion...................................... 32
9.10 Actions Satisfactory to GDSC's Counsel................ 32
ARTICLE X Conditions to Obligations of DDS and Shareholders.............. 33
10.01 Representations, Warranties and Covenants............. 32
10.02 Adverse Proceedings................................... 33
10.03 Opinion of Counsel.................................... 33
10.04 Actions Satisfactory to DDS's Counsel................. 33
ARTICLE XI Termination... 34
11.01 Right of Parties to Terminate......................... 33
11.02 Effect of Termination................................. 34
ARTICLE XII Survival; Indemnification...................................... 34
12.01 Survival.............................................. 34
12.02 Indemnification by Shareholder........................ 34
12.03 Indemnification by GDSC............................... 35
12.04 Indemnification Procedure............................. 35
12.05 Limitation on Indemnification Obligations............. 36
12.06 Adjustment of Merger Consideration.................... 37
12.07 Rights Not Exclusive.................................. 37
ARTICLE XIII Confidentiality; Press Releases................................ 37
13.01 Confidentiality....................................... 37
iii
<PAGE>
Page
13.02 Press Releases........................................ 38
ARTICLE XIV Other Provisions............................................... 38
14.01 Benefit and Assignment................................ 38
14.02 Entire Agreement...................................... 38
14.03 Fees and Expenses..................................... 38
14.04 Amendment, Waiver, etc................................ 38
14.05 Headings.............................................. 38
14.06 Governing Law......................................... 39
14.07 Notices............................................... 39
14.08 Breach; Equitable Relief.............................. 39
14.09 Attorneys' Fees....................................... 39
14.10 Counterparts.......................................... 40
iv
<PAGE>
INDEX OF DEFINED TERMS
Term Location of Definition
1933 Act........................................... 4.03
401(k) Plan........................................ 6.05
Acquisition Agreements............................. 1.05-2
CCC................................................ 1.02-1
Closing............................................ 1.06
Closing Date....................................... 1.06
Code............................................... 1.01
Contracts.......................................... 5.18
Current Balance Sheet.............................. 5.09-1
Damages............................................ 12.02-1
DDS................................................ Introduction
DDS Common Stock................................... 1.01
Dental Practices................................... Introduction
Dentist-owned Practices............................ 1.05-2
DPM................................................ 1.05-2
Effective Time..................................... 1.01
ERISA.............................................. 3.07-2
ERISA Plans........................................ 5.08-2
Environmental Law.................................. 3.16-2(a)
Escrow Shares...................................... 1.05
Financial Statements............................... 5.09-1
GD Merger.......................................... Introduction
GDSC............................................... Introduction
GDSC Common Stock.................................. 1.01
GDSC Current Balance Sheet......................... 3.08-1
GDSC ERISA Plans................................... 3.07-2
GDSC Financial Statements.......................... 3.08-1
GDSC Material Adverse Change....................... Article III Introduction
GDSC Material Effect............................... Article III Introduction
GDSC Permits....................................... 3.15
GDSC Policies...................................... 3.11
GDSC Returns....................................... 3.12
GDSC's Indemnified Persons......................... 12.02-1
Hazardous Substance................................ 3.16-2(b)
Knox-Keene Act..................................... Introduction
Leases............................................. 5.17
Material Adverse Change............................ Article V Introduction
Material Adverse Effect............................ Article V Introduction
Merger............................................. 1.01
Merger Consideration............................... 1.03-1
Net Current Assets................................. 1.03-2
Permits............................................ 5.25
Plan............................................... Introduction
v
<PAGE>
Policies........................................... 5.21
Real Property...................................... 5.17
Registrable Securities............................. 7.02-1
Related Documents.................................. 12.01
Requesting Shareholders............................ 7.02-2
Returns............................................ 5.22-1
Shareholders....................................... Introduction
Shares............................................. 4.03
Stock Price........................................ 1.03-1
Surviving Corporation.............................. 1.02
Tangible Personal Property......................... 5.12
Taxes.............................................. 3.12-3
Third Party Claims................................. 12.04-1(a)
Wedbush............................................ 5.05
vi
<PAGE>
LIST OF EXHIBITS
Exhibit Item First Reference
A New Dental Practice Leases 9.06
B Opinion of DDS's Counsel 9.07
C Opinion of GDSC's Counsel 10.03
D Terms of Employment 10.04
LIST OF SCHEDULES
Schedule Content
0.1 Locations
5.06 Litigation
5.08-1 Collective Bargaining Agreements
5.08-2 Employee Benefits
5.08-3 Employment Manuals and Policies
5.08-4 Directors, Officers and Employees
5.09 Financial Statements
5.10 Receivables
5.11 Prepaid Expenses and Deferred Charges
5.12 Tangible Personal Property
5.13 Accounts Payable and Accrued Liabilities
5.14 Indebtedness
5.15 Undisclosed Liabilities
5.17 Leases and Real Property
5.18 Contracts
5.21 Insurance
5.28 Consents and Approvals
5.30 Bank Accounts
5.31 Pending Knox-Keene Approvals
vii
<PAGE>
MERGER AGREEMENT
DATED: September 21, 1997
AMONG: GENTLE DENTAL SERVICE CORPORATION,
a Washington corporation
900 Washington Street, Suite 1100
Vancouver, WA 98660
Telecopy No.: (360) 750-8667 "GDSC"
GENTLE DENTAL MERGER CORPORATION,
a California corporation
900 Washington Street, Suite 1100
Vancouver, WA 98660
Telecopy No.: (360) 750-8667 "GD Merger"
DEDICATED DENTAL SYSTEMS, INC.,
a California corporation
3990 Ming Avenue
Bakersfield, CA 93309
Telecopy No.: ________________ "DDS"
AND: Arthur G. Kaiser, DDS
Robert J. Newman
3990 Ming Avenue
Bakersfield, CA 93309
Telecopy No.: ____________________ "Shareholders"
Shareholders are the owners of all of the issued and outstanding capital
stock of DDS. DDS is licensed to operate a specialized health care service plan
(the "Plan") under the Knox-Keene Health Care Service Plan Act of 1975 and the
regulations promulgated thereunder (the "Knox-Keene Act") and operates dental
practices pursuant to that license at the locations listed on Schedule 0.1 (the
"Dental Practices"). GD Merger is a wholly owned subsidiary of GDSC. The parties
desire that GD Merger be merged with and into DDS, with DDS as the surviving
corporation.
In consideration of the mutual promises and covenants contained in this
Agreement, the parties agree as follows:
1
<PAGE>
ARTICLE I
The Merger
1.01 The Merger. Pursuant to the laws of the State of California, and
subject to and in accordance with the terms and conditions of this Agreement, GD
Merger shall be merged with and into DDS, and the outstanding shares of common
stock, no par value of DDS (the "DDS Common Stock") shall be converted into
shares of common stock, no par value, of GDSC ("GDSC Common Stock"), in a
transaction intended to qualify as a tax-free reorganization under Sections
368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986 (the "Code").
DDS and GD Merger shall execute an Agreement of Merger consistent with this
Agreement, to be filed with the Secretary of State of California on the Closing
Date, as defined in Section 1.06, or as soon thereafter as practicable. The
merger of GD Merger with and into DDS (the "Merger") shall take effect (the
"Effective Time") upon the later of the time when the Agreement of Merger is
duly filed with the Secretary of State of the State of California or at such
other time as the parties may agree upon in writing pursuant to applicable law.
1.02 Effect of Merger.
1.02-1 The Surviving Corporation. At the Effective Time, GD Merger
shall be merged with and into DDS in the manner and with the effect provided by
the California Corporations Code (the "CCC"), the separate corporate existence
of GD Merger shall cease and DDS shall be the surviving corporation (the
"Surviving Corporation") subject to the Articles of Incorporation and Bylaws of
DDS. The outstanding shares of DDS Common Stock shall be converted into shares
of GDSC Common Stock, and the outstanding shares of capital stock of GD Merger
shall be converted into shares of capital stock of the Surviving Corporation,
all on the basis, terms and conditions described in Section 1.03.
1.02-2 Directors. At and as of the Effective Time, the directors of
the Surviving Corporation shall be as follows:
Directors
Dany Y. Tse, DMD
Arthur G. Kaiser, DDS
L. Theodore Van Eerden
1.03 Conversion of Shares.
1.03-1 DDS Stock. The total consideration to be issued to the
Shareholders in the Merger (the "Merger Consideration") shall be $2,340,000
(reduced by any outstanding debt of DDS, which consists of any long-term debt
and the current portion thereof as determined consistently with the
classification of such items in DDS's audited financial statements, as of the
Effective Time) and a number of shares of GDSC Common Stock determined by
dividing $11,879,000 by a number (the "Stock Price") equal to the average of the
closing prices of GDSC Common Stock reported by
2
<PAGE>
NASDAQ for the thirty trading days prior to the date of this Agreement (subject
to adjustment as set forth in Section 1.03-2). The Merger Consideration shall be
subject to further adjustment as set forth in Section 12.06. Each of the 100,100
shares of DDS Common Stock outstanding immediately before the Effective Time
will, by virtue of the Merger and without any action on the part of the holder
thereof, cease to exist and be converted into the right to receive an amount
equal to the total cash portion of the Merger Consideration divided by 100,100
and the total number of shares of GDSC Common Stock included in the Merger
Consideration divided by 100,100.
1.03-2 Net Current Asset Adjustment. The number of shares of GDSC
Common Stock included in the Merger Consideration may be subject to adjustment
after Closing as set forth in this Section 1.03-2.
(a) As soon as reasonably possible after Closing, the amount of
the "Net Current Assets" (as defined in Section 1.03-2(c)) shall be determined
as provided in Section 1.03- 2(d). If the amount of Net Current Assets is
$30,000 more or less than $68,400, the number of shares of GDSC Common Stock
included in the Merger Consideration shall be adjusted. If the difference
between Net Current Assets and $68,400 does not exceed $30,000, there shall be
no adjustment.
(b) If the Net Current Assets are greater than $98,400, the
number of shares of GDSC Common Stock included in the Merger Consideration shall
be increased. If the Net Current Assets are less than $38,400, the number of
shares of GDSC Common Stock included in the Merger Consideration shall be
decreased. The amount of the increase or decrease in the number of shares
included in the Merger Consideration shall be determined by calculating the
difference between the Net Current Assets and $68,400 and dividing that
difference by the Stock Price.
(c) "Net Current Assets" means the sum of (a) the amount of
accounts receivable, net of contractual allowances and bad debt reserve, of DDS
as of the Closing Date and (b) any prepaid expenses properly recordable on a
balance sheet for DDS as of the Closing Date reduced by the sum of (x) the
accounts payable of DDS at the Closing Date and (y) the accrued liabilities of
DDS at the Closing Date, specifically including an accrual of payroll and
payroll-related charges up to and including the Closing Date, all as determined
consistently with the accounting conventions applied in determining the amounts
set forth in paragraphs (a) and (b) above.
(d) At or after the Closing Date, and as a condition to the
issuance to Shareholders of certificates for GDSC Common Stock pursuant to
Section 1.04, Sellers shall execute and deliver to GDSC a certificate detailing
the calculation of Net Current Assets and including as schedules thereto lists
of all receivables, prepaid expenses, payables and accrued liabilities as of the
Closing Date included in the calculation. In this certificate Sellers shall
certify the accuracy and completeness of the schedules to the certificate and
the accuracy of the calculation of Net Current Assets.
1.03-3 GD Merger Stock. Each share of Common Stock of GD Merger issued
and outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, cease to exist
and be converted into and become one share of Common Stock of the Surviving
Corporation. After the Effective Time, GDSC, the sole
3
<PAGE>
holder of shares of GD Merger Common Stock outstanding immediately prior to the
Effective Time, shall, upon surrender for cancellation of a certificate
representing such shares to the Surviving Corporation, be entitled to receive in
exchange therefore a certificate representing the shares of Common Stock of the
Surviving Corporation into which such shares of GD Merger Common Stock have been
converted pursuant to this Section 1.03-2. Until so surrendered, the
certificates which prior to the Merger represented shares of GD Merger Common
Stock shall be deemed, for all corporate purposes, including voting entitlement,
to evidence ownership of the shares of the Surviving Corporation Common Stock
into which such shares of GD Merger Common Stock shall have been converted.
1.04 Surrender and Cancellation of Certificates.
1.04-1 Surrender of Certificates. After the Effective Time, each
Shareholder, upon surrender to GDSC or its agent designated for such purpose of
a certificate or certificates representing his shares of DDS Common Stock shall
be entitled to receive the cash portion of the Merger Consideration to which he
is entitled and a certificate representing the number of shares of GDSC Common
Stock to which he is entitled pursuant to the provisions of Section 1.03 less
the number of such shares determined to be Escrow Shares (as defined in Section
1.05). A certificate representing the shares of GDSC Common Stock of each
Shareholder determined to be Escrow Shares shall be held by GDSC pursuant to
Section 1.05.
1.04-2 No Fractional Shares. No certificates or scrip evidencing
fractional shares of GDSC Common Stock shall be issued in the Merger. Any
fractional share shall be rounded to the nearest whole share.
1.04-3 Withholding Rights. GDSC shall be entitled to deduct and
withhold from the Merger Consideration such amounts as GDSC is required to
deduct and withhold with respect to the making of such payment under the Code,
or any provision of state, local or foreign tax law. To the extent that amounts
are so withheld by GDSC, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid by the holder of the shares of DDS Common
Stock in respect of which such deduction and withholding was made by GDSC.
1.05 Escrow Shares.
1.05-1 At the Closing, GDSC shall withhold an aggregate of 375,000
shares from the shares of GDSC Common Stock to be issued in the Merger (the
"Escrow Shares"). The Escrow Shares shall be withheld pro rata according to the
relative ownership interests of the Shareholders in DDS Common Stock. The Escrow
Shares shall be evidenced by certificates issued in the names of Shareholders.
GDSC shall hold the certificates for the Escrow Shares for the benefit of the
respective Shareholders, who shall for all purposes be considered the legal
owner of the Escrow Shares held for their accounts and who shall have all rights
of a shareholder of GDSC, including the right to vote, either directly or
through an authorized agent, and receive current distributions of cash
dividends, if any, with respect to Escrow Shares held for their accounts, other
than the right to transfer Escrow Shares. The Escrow Shares will appear as
issued and outstanding on the balance sheet and stock records of GDSC. GDSC
shall hold and dispose of the Escrow Shares only as provided in this Agreement.
4
<PAGE>
1.05-2 At the election of GDSC, any liability of Shareholders under
Section 12.02 of this Agreement or under the similar section of the Asset
Purchase Agreements dated as of the date hereof (the "Asset Purchase
Agreements") relating to the acquisition by GDSC of certain assets of three
dental practices managed by California Dental Practice Management Company
("DPM"), known as Crosstown Family Dentistry, Wasco Family Dentistry, Ming & H
Family Dentistry, and of Indio Family Dentistry (the "Dentist-owned Practices")
may be satisfied from the Escrow Shares. Once a Shareholder's liability is
established either by agreement or litigation, GDSC shall have the right to
transfer to its own name or cancel whole Escrow Shares having an aggregate value
as nearly equal as possible but in no event greater than the amount of
Shareholders' liability. The value of Escrow Shares for this purpose shall be
the Stock Price. On the first anniversary of the Effective Time, if there are no
claims outstanding by GDSC against DDS or Shareholders under this Agreement or
the Acquisition Agreements, GDSC shall release all Escrow Shares that have not
been transferred to GDSC or canceled, and shall deliver the certificates for
those shares to Shareholders. If a claim is outstanding on the first anniversary
of the Effective Time, GDSC shall promptly release all remaining Escrow Shares
once all outstanding claims have been resolved and paid.
1.06 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Stoel Rives LLP,
Portland, Oregon, effective as of the close of business on the last day of the
month in which all conditions to the Closing are satisfied (other than those
conditions that by their terms are to occur at the Closing) or at another date,
time and place agreed upon in writing by the parties (the "Closing Date").
1.07 Subsequent Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to, or under any of the rights,
properties or assets of DDS or GD Merger acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of DDS or GD Merger, or otherwise, all such deeds, bills of sale,
assignments and assurances, and to take and do, in the name and on behalf of DDS
or GD Merger, or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out the purposes of this Agreement.
ARTICLE II
Covenant Not to Compete
2.01 Covenant Not to Compete. Each Shareholder shall not, from and after
the Closing Date for a period extending until the date two years after the
termination of Shareholder's employment with DDS, DPM, a Dentist-owned Practice
or any other affiliated corporation, directly or indirectly do any of the
following:
2.01-1 Practice dentistry, or otherwise compete with DDS, in Kern
County, California other than in Ridgecrest, California;
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2.01-2 In any way solicit or initiate contact with anyone who is a
patient or customer, or the family member of a patient or customer, of DDS or
any of the Dentist-owned Practices;
2.01-3 Solicit, employ or contract with any employee of DDS or any of
the Dentist-owned Practices; or
2.01-4 Be a partner, shareholder, employee, agent or consultant or
otherwise be associated with any partnership, corporation, proprietorship or
other entity that does any of the things mentioned in this subsection 2.01-1,
2.01-2 or 2.01-3; provided, however, that the ownership by Shareholders of less
than five percent of the equity securities of any publicly-traded corporation
shall not constitute a violation of this subsection 2.01-4.
2.02 Remedies. Shareholders agree that it would be difficult to measure
damage to GDSC or DDS from any breach of the promises set forth in Section 2.01
of this Agreement, and that money damages would therefore be an inadequate
remedy for any such breach. Accordingly, each Shareholder agrees that if he
breaches any provision of Section 2.01, GDSC shall be entitled, in addition to
all other remedies it may have, to injunctions or other appropriate orders to
restrain any such breach without showing or proving any actual damage sustained
by GDSC or the Surviving Corporation.
2.03 Scope of Covenant. The parties agree that if any of the provisions of
the covenant contained in Section 2.01 are found by a court to be overly broad
or restrictive, then such provision or provisions are to be construed in the
broadest manner which the court finds consistent with applicable law.
ARTICLE III
Representations and Warranties of GDSC
As used in this Agreement, "GDSC Material Adverse Effect" means an adverse
effect on the business, results of operations, financial position, assets or
prospects of GDSC that would be considered material under federal securities
laws; and "GDSC Material Adverse Change" means any change that has resulted,
will result or is likely to result in a GDSC Material Adverse Effect. GDSC
represents and warrants to DDS and Shareholders as follows:
3.01 Authorization. GDSC is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Washington and has all
requisite corporate power and authority to own and operate its properties and to
carry on its business as now conducted. GDSC has taken all corporate action
necessary to authorize its execution, delivery and performance of this
Agreement. GDSC has full corporate power and authority to enter into this
Agreement and carry out the terms hereof. This Agreement has been duly executed
and delivered by GDSC and is binding upon and enforceable against GDSC in
accordance with its terms, except as enforceability may be limited or affected
by applicable bankruptcy, insolvency, reorganization, or other laws of general
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application relating to or affecting creditors' rights generally and except as
enforceability may be limited by rules of law governing specific performance,
injunctive relief or other equitable remedies.
3.02 Capitalization. The authorized capital stock of GDSC consists of
50,000,000 shares of Common Stock, of which 3,144,404 shares are issued and
outstanding; and 30,000,000 shares of Preferred Stock, of which no shares are
issued and outstanding. All issued and outstanding shares of GDSC capital stock
are validly issued, fully paid and non-assessable, and have been issued without
violation of any preemptive rights. There is no subscription, option, warrant,
call, right, agreement or commitment (including any right of conversion or
exchange under any outstanding security or other instrument) relating to the
issuance by GDSC of GDSC capital stock, other than outstanding options under the
GDSC 1993 Stock Incentive Plan, outstanding purchase rights under the GDSC
Employee Stock Purchase Plan and the GDSC Professional Corporation Employee
Stock Purchase Plan, warrants described in GDSC's Registration Statement on Form
SB-2 (Registration No. 333-13529) and outstanding offers and/or agreements to
acquire other dental practices or dental practice management companies in
exchange for Common Stock. The GDSC Common Stock to be issued in the Merger
will, when issued, be duly and validly authorized and issued, fully paid and
non-assessable.
3.03 Compliance. The execution, delivery and performance of this Agreement
by GDSC, the compliance by GDSC with the provisions of this Agreement and the
consummation of the transactions described in this Agreement will not conflict
with or result in the breach of any of the terms or provisions of or constitute
a default under:
3.03-1 the articles of incorporation or bylaws of GDSC;
3.03-2 any note, indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which GDSC is a party or by which GDSC
is bound; or
3.03-3 any statute or any order, rule, regulation or decision of any
court or regulatory authority or governmental body applicable to GDSC.
3.04 Consents. No consent, approval, authorization, order, designation or
declaration of any court or regulatory authority or governmental body, federal
or other, or third person is required to be obtained by GDSC nor is any filing
or registration required to be made therewith by GDSC for the consummation of
the transactions described in this Agreement.
3.05 Accuracy of Representations & Warranties. None of the representations
or warranties of GDSC contain or will contain any untrue statement of any
material fact or omit or misstate a material fact necessary to make the
statements contained in this Agreement not misleading. GDSC does not know of any
fact that has resulted or that, in the reasonable judgment of GDSC will result,
in any material adverse change in GDSC's business, results of operation,
financial condition or prospects that has not been set forth in this Agreement.
3.06 GD Merger. GD Merger is a corporation duly organized and validly
existing under the laws of the State of California. GD Merger does not own any
properties (other than the initial cash subscription for shares) nor has it
commenced any business or operations. GD Merger has an
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authorized capital stock consisting of 100 shares of Common Stock, of which 100
shares were issued and outstanding on the date of this Agreement. All of the
issued and outstanding shares of capital stock of GD Merger are owned by GDSC.
GD Merger has the corporate power and authority and has taken all corporate
action necessary to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Agreement has been duly and validly
authorized by the Board of Directors and sole shareholder of GD Merger, duly and
validly executed and delivered by GD Merger and constitutes the valid and
binding obligation of GD Merger, enforceable in accordance with its terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought.
3.07 Employment Matters.
3.07-1 Labor Matters. GDSC is and has been in compliance with all
applicable laws regarding employment and employment practices, terms and
conditions of employment, wages and hours and is not and has not been engaged in
any unfair labor practice. There is no (1) unfair labor practice complaint
against GDSC pending before the National Labor Relations Board or any other
governmental authority, (2) labor strike, slowdown or work stoppage actually
occurring or, to the best of the knowledge of GDSC, threatened against GDSC, (3)
representation petition respecting GDSC's employees pending before the National
Labor Relations Board, or (4) grievance or any arbitration proceeding pending
arising out of or under collective bargaining agreements applicable to GDSC.
GDSC has not experienced any primary work stoppage or other organized work
stoppage involving its employees in the past two years.
3.07-2 Employee Benefits. The employee pension benefit plans (within
the meaning of Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") established and maintained by GDSC that are subject
to ERISA (the "GDSC ERISA Plans") comply with the applicable requirements of
ERISA. GDSC has received from the Internal Revenue Service a favorable
determination for each of the GDSC ERISA Plans and their related trusts that
each of the GDSC ERISA Plans is qualified under Section 401(a) of the Code and
the related trust is tax-exempt under Section 501(a) of the Code. There has been
no event subsequent to that determination that has adversely affected the tax
qualified status of the GDSC ERISA Plans or the exemption of the related trusts
other than changes in the Code that are not effective as of the Closing Date. No
"accumulated funding deficiency" as defined in Section 302(a)(2) of ERISA or
Section 412(a) of the Code exists, or has existed, with respect to any of the
GDSC ERISA Plans. The present value of all accrued benefits under each of the
GDSC ERISA Plans does not exceed the value of such plan's assets, less all
liabilities other than those attributable to accrued benefits. GDSC has no
"potential withdrawal liability," as defined in Section 4201 of ERISA. None of
the GDSC ERISA Plans, its related trusts or any trustee, investment manager or
administrator thereof has engaged in a nonexempt "prohibited transaction," as
such term is defined in Section 406 of ERISA and Section 4975 of the Code. There
are not and have not been any excess deferrals or excess contributions under any
GDSC ERISA Plan. Each GDSC ERISA Plan is and has been operated and administered
in conformance with the requirements of all applicable laws and regulations,
whether or not the GDSC ERISA Plan documents have been amended to reflect such
requirements.
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3.08 Financial Statements.
3.08-1 GDSC's Annual Report to Shareholders for the year ended
December 31, 1996 contains audited balance sheets of GDSC as of December 31,
1996 and 1995, and the related audited statements of income for the years then
ended, and GDSC's Quarterly Report on Form 10-QSB for the quarter ended June 30,
1997 contains the unaudited balance sheet of GDSC as of June 30, 1997 (the "GDSC
Current Balance Sheet") and the related statement of income for the six months
then ended (all such balance sheets and statements collectively, the "GDSC
Financial Statements").
3.08-2 The GDSC Financial Statements present fairly
(a) the financial position of GDSC as of the dates indicated and
(b) the results of operations for the periods then ended, all in
conformity with generally accepted accounting principles applied on a consistent
basis.
3.09 Absence of Certain Changes or Events. Since the date of the GDSC
Current Balance Sheet, there has not been:
3.09-1 Any GDSC Material Adverse Change or any event, occurrence,
development or state of circumstances or facts which could reasonably be
expected to result in a GDSC Material Adverse Change;
3.09-2 Any damage, destruction or casualty loss, whether insured
against or not, to any of GDSC's assets or properties;
3.09-3 Any increase in the rate or terms of compensation payable or to
become payable by GDSC to its directors, officers or key employees; any increase
in the rate or terms of any bonus, insurance, pension or other employee benefit
plan, payment or arrangement made to, for or with any such directors, officers
or key employees; any special bonus or remuneration paid; or any written
employment contract executed or amended;
3.09-4 Any conduct of business which is outside the ordinary course of
business or not substantially in the manner that GDSC previously conducted its
business;
3.09-5 Any incurrence of any noncontract liability which, either
singly or in the aggregate is material to the business, results of operations,
financial condition or prospects of GDSC;
3.09-6 Any change in the assets, liabilities, licenses, permits or
franchises of GDSC, or in any agreement to which GDSC is a party or is bound,
which has had or reasonably could be expected to have a GDSC Material Adverse
Effect.
3.10 Title and Condition of Tangible Assets.
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3.10-1 GDSC owns all of its tangible personal property except leased
property free and clear of all mortgages, pledges, security interests, claims,
charges or other encumbrances or restrictions of any kind, except
(a) liens related to obligations disclosed in the GDSC Financial
Statements or
(b) liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the GDSC
Current Balance Sheet).
3.10-2 GDSC has good and absolute title to its tangible personal
property except leased property.
3.10-3 All of GDSC's tangible personal property has been maintained
and operated in accordance with manufacturer's specifications and prudent
industry practices, is in a good state of maintenance and repair, ordinary wear
and tear excepted, and is adequate for the conduct of GDSC's business.
3.10-4 To the knowledge of GDSC, there are no developments affecting
any of its real property or tangible personal property pending or threatened
which might materially detract from the value of such property or assets,
materially interfere with any present or intended use of any such property or
assets or materially adversely affect the marketability of such properties or
assets.
3.11 Insurance. All policies of malpractice, liability, fire, worker's
compensation and other forms of insurance insuring GDSC, its officers, directors
or employees, its assets or its operations (the "GDSC Policies") are valid,
enforceable and in full force and effect, all premiums with respect to the GDSC
Policies covering all periods up to and including the date as of which this
representation is being made have been paid and no notice of cancellation or
termination has been received with respect to any GDSC Policy. The GDSC Policies
are sufficient for compliance with all requirements of law and of agreements to
which GDSC is a party and provide insurance for the risks and in the amounts and
types of coverage usually obtained by persons using or holding similar
properties in similar businesses. GDSC has not been refused any insurance
coverage and no insurance coverage has been canceled during the five years
preceding the date of this Agreement.
3.12 Taxes.
3.12-1 Returns. GDSC has filed all federal, state and other returns,
reports and information returns required to be filed by it with respect to Taxes
(as defined below) which relate to the business, results of operations or
financial condition of GDSC (collectively, the "GDSC Returns") and has timely
paid all Taxes shown to be due on the GDSC Returns. All GDSC Returns filed are
complete and accurate in all material respects, and no additional Taxes are owed
by GDSC with respect to the periods covered by the GDSC Returns.
3.12-2 Taxes Paid or Reserved. All deficiencies in Taxes asserted or
assessments made by any taxing authority have been fully paid or finally
settled. The reserves for Taxes reflected in the GDSC Current Balance Sheet are
adequate for payment of Taxes with respect to
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GDSC in respect of all periods ending on or before the date of the GDSC Current
Balance Sheet. All Taxes which GDSC has been required to collect or withhold
have been withheld or collected and, to the extent required, have been paid to
the proper taxing authority.
3.12-3 Definition. "Taxes" means all taxes, charges, fees, levies or
other assessments including, without limitation, income, excise, property,
sales, use and franchise taxes, imposed by the United States or any state,
county, local or foreign government or subdivision or agency thereof, and
including any interest, penalties or additions.
3.13 Certain Interests. No transaction between GDSC and any of its
directors, officers or principal shareholders of a type that would require
disclosure by GDSC under Item 404 of Regulation S-B of the Securities and
Exchange Commission has occurred since February 13, 1997, except for the entry
into a new support services agreement with a professional corporation owned
solely by Dany Y. Tse in connection with a recent dental practice acquisition.
3.14 No Restrictions. No power of attorney or similar authorization given
by GDSC is presently in effect or outstanding. No contract or agreement to which
GDSC is a party or is bound or to which any of its properties or assets is
subject limits the freedom of GDSC to compete in any line of business or with
any person.
3.15 Permits and Licenses. GDSC holds, and at all times has held, all
licenses, permits, franchises, easements and authorizations (collectively, "GDSC
Permits") necessary for the lawful conduct of its business pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all governmental
bodies, agencies and other authorities having jurisdiction over it or any part
of its operations except where the failure to hold any GDSC Permit, singly or in
the aggregate, either alone or with the giving of notice or the passage of time
or both, would not have a GDSC Material Adverse Effect. GDSC is in compliance
with all the terms of each GDSC Permit, and there are no claims of violation by
GDSC of any GDSC Permit.
3.16 Environmental Conditions.
3.16-1 Compliance. GDSC has operated its business and maintained its
assets, including without limitation its real property, in compliance with all
Environmental Laws. All wastes generated in connection with its business are and
have been transported and disposed of off site in compliance with all
Environmental Laws. Except as otherwise required for the normal operation of a
dental practice, no Hazardous Substance is or has been generated, manufactured,
treated, stored, transported, used or otherwise handled on its real property or
in connection with its business.
3.16-2 Definitions. As used in this Agreement,
(a) "Environmental Law" means any federal, state or local
statute, ordinance or regulation pertaining to the protection of human health or
the environment and any applicable orders, judgments, decrees, permits, licenses
or other authorizations or mandates under such statutes, ordinances or
regulations, and
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(b) "Hazardous Substance" means any hazardous, toxic, radioactive
or infectious substance, material or waste as defined, listed or regulated under
any Environmental Law, and includes without limitation petroleum oil and its
fractions.
3.17 Records. The books of account, minute books, stock certificate books
and stock transfer ledgers of GDSC are complete and accurate in all material
respects, and there have been no transactions involving the business of GDSC
which properly should have been set forth therein and which have not been
accurately so set forth.
3.18 Reliance. GDSC recognizes and agrees that, notwithstanding any
investigation by DDS, DDS is relying upon the representations and warranties
made by GDSC in this Agreement.
ARTICLE IV
Individual Representations and Warranties of Shareholders
Each Shareholder represents and warrants to GDSC as follows:
4.01 Title to the DDS Common Stock. The authorized capital stock of DDS
consists of 500,000 shares of DDS Common Stock, of which 100,100 shares are
issued and outstanding. 75,075 shares are held by Dr. Kaiser and 25,025 shares
are held by Mr. Newman. The shares of DDS Common Stock owned by Shareholder are
owned beneficially and of record, free and clear of all pledges, security
interests, liens, charges, encumbrances, equities, claims, options or
limitations, including limitations affecting Shareholder's ability to vote the
shares.
4.02 Authority. Shareholder has full power and authority to enter into this
Agreement and carry out its terms. This Agreement has been duly and validly
executed and delivered by Shareholder and is binding upon and enforceable
against Shareholder in accordance with its terms, except as enforceability may
be limited or affected by applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the rights of
creditors and except as enforceability may be limited by rules of law governing
specific performance, injunctive relief or other equitable remedies.
4.03 Investment Representations. Shareholder is acquiring the shares of
GDSC Common Stock to be issued in the Merger (the "Shares") for investment for
Shareholder's own account, and not with a view to, or for resale in connection
with, any distribution of the Shares. Shareholder is not a party to any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to any such person or any third party with
respect to the Shares. Shareholder acknowledges and understands that the Shares
are being offered and sold without registration under the Securities Act of 1933
(the "1933 Act") or any state securities law based on exemptions provided under
such laws, and that Shareholder's representations contained in this Agreement
are being relied upon by GDSC in connection with those exemptions. Shareholder
further acknowledges and agrees that the Shares are "restricted securities"
under federal securities laws and as such may not be sold or disposed of unless
they are registered under the 1933 Act and all applicable state securities laws
or unless, in the opinion of counsel acceptable to GDSC, exemptions from the
registration
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requirements of the 1933 Act and all applicable state securities laws are
available. In this regard, Shareholder acknowledges that GDSC is under no
obligation to register his Shares except as provided in Section 7.02, that the
Shares will not be eligible for resale in the public market pursuant to Rule 144
under the 1933 Act until one year after the Closing Date except as provided in
Section 7.02, and that Shareholder will bear the economic risk of ownership of
the Shares at least until the Shares become eligible for resale in the public
market. Shareholders consent to having appropriate legends placed on the
certificates representing the Shares relating to this restriction on transfer.
4.04 No Plan to Sell. Shareholder has no current plan or intention to
engage in a sale, exchange or other disposition of a number of shares of GDSC
Common Stock to be received in the Merger that would reduce the Shareholder's
ownership of shares of GDSC Common Stock to a number of shares having a value,
as of the date of the Merger, of less than 50% of the value of the shares of DDS
Common Stock held by Shareholder immediately before the Merger. For purposes of
this representation, shares of DDS Common Stock sold, redeemed, or disposed of
prior to and in contemplation of the Merger will be considered shares of DDS
Common Stock held immediately before the Merger that are exchanged in the Merger
for shares of GDSC Common Stock that are then disposed of pursuant to a plan.
4.05 Tax Advice. Shareholders acknowledge and understand that GDSC does not
represent or warrant that the Merger qualifies as a reorganization under Section
368(a)(1)(A) of the Code.
4.06 Access to Information. Shareholder has received and carefully reviewed
the final Prospectus of GDSC dated February 13, 1997, GDSC's Annual Report to
Shareholders for the year ended December 31, 1996, and GDSC's Quarterly Report
on Form 10-QSB for the quarter ended June 30, 1997. Shareholder believes he has
received all of the information he considers necessary or appropriate for
deciding whether to acquire shares of GDSC Common Stock. Shareholder further
represents that he has had an opportunity to ask questions and receive answers
from GDSC regarding GDSC, its business and financial condition and the terms and
conditions of the Merger.
4.07 Sophistication. Shareholder has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of an investment in the Shares and has the capacity to protect his own
interests in connection with the transaction. Shareholder acknowledges that he
has received legal advice regarding the Agreement and the securities law
restrictions on the Shares from Klein & Martin, and has received tax and other
accounting advice regarding this transaction from Ernst & Young LLP.
4.08 Accredited Investor. Shareholder either (a) has an individual net
worth, or joint net worth with his spouse, of in excess of $1 million, or (b)
had an individual income in excess of $200,000 in each of the two most recent
years or joint income with his spouse in excess of $300,000 in each of those
years and has a reasonable expectation of reaching the same income level in the
current year, and therefore is an "accredited investor" within the meaning of
Rule 501 of Regulation D under the 1933 Act.
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ARTICLE V
Representations and Warranties of DDS and Shareholders
As used in this Agreement, "Material Adverse Effect" means a material
adverse effect on the business, results of operations, financial position,
assets or prospects of DDS, which shall in any event include any adverse effect
on the shareholders' equity, assets, revenue or net income of DDS in excess of
$100,000; and "Material Adverse Change" means any change that has resulted, will
result or is likely to result in a Material Adverse Effect. DDS and
Shareholders, jointly and severally, represent and warrant to GDSC as follows:
5.01 Corporate Existence. DDS is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, and DDS
has all necessary corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as now conducted and as
proposed to be conducted. DDS is duly qualified or licensed to do business as a
foreign corporation and in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of its business or
activities makes such qualification or licensing necessary except in those
jurisdictions where the failure to be so qualified or licensed and in good
standing would not have a Material Adverse Effect. DDS has no subsidiaries and
has no investments in any corporation, partnership, association, joint venture
or other entity.
5.02 Capitalization. The authorized capital stock of DDS consists of
500,000 shares of Common Stock, of which 100,100 shares are issued and
outstanding. All of such issued and outstanding shares are held by Shareholders.
All such shares are validly issued, fully paid and nonassessable. No shares have
been issued in violation of any preemptive or similar rights granted pursuant to
DDS's articles of incorporation or otherwise. Other than this Agreement, there
is no subscription, option, warrant, call, right, agreement or commitment
(including any right of conversion or exchange under any outstanding security or
other instrument) relating to the issuance, sale, delivery or transfer by DDS or
Shareholders of DDS's capital stock. There are no outstanding obligations of DDS
to repurchase, redeem or otherwise acquire any of its outstanding shares of
capital stock.
5.03 Authority. DDS has the full corporate power and corporate authority to
enter into this Agreement and to carry out its terms. DDS has taken all
corporate action necessary to authorize the execution, delivery and performance
of this Agreement. Pursuant to Section 603 of the CCC, each Shareholder hereby
consents to and approves the Merger. This Agreement has been duly and validly
executed and delivered by DDS and is binding upon and enforceable against DDS in
accordance with its terms, except as enforceability may be limited or affected
by applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the rights of creditors and except as
enforceability may be limited by rules of law governing specific performance,
injunctive relief or other equitable remedies.
5.04 No Adverse Consequences. Neither the execution and delivery of this
Agreement by DDS or Shareholders nor the consummation of the transactions
contemplated by this Agreement will result in the creation or imposition of any
lien, charge or encumbrance on any of DDS's assets or properties, violate or
conflict with any provision of DDS's articles of incorporation or bylaws,
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violate any law, judgment, order, injunction, decree, rule, regulation or ruling
of any governmental authority applicable to either DDS or Shareholders, or
either alone or with the giving of notice or the passage of time or both,
conflict with, constitute grounds for termination or acceleration of, result in
the breach of the terms, conditions or provisions of, result in the loss of any
benefit to DDS under or constitute a default under any agreement, instrument,
license or permit to which either DDS or Shareholders are parties or by which
any of them are bound.
5.05 Brokers and Finders; Attorneys. Neither DDS nor Shareholders have
employed any broker, finder or agent or dealt with anyone purporting to act in
such capacity or agreed to pay any brokerage fee, finder's fee or commission
with respect to the transaction contemplated by this Agreement, except that DDS
has employed Wedbush Morgan Securities ("Wedbush") as an investment banker with
respect to the sale or merger of DDS and DPM. Any fees owing to Wedbush are
payable and will be paid by Shareholders and are not a liability of DDS.
5.06 Litigation. Except as set forth on Schedule 5.06, to the best
knowledge of DDS or Shareholders, there is no claim, litigation, proceeding or
investigation of any kind pending or threatened by or against DDS and there is
no basis for any such claim, litigation, proceeding or investigation.
5.07 Compliance with Laws. DDS has at all relevant times conducted its
business in compliance with its articles of incorporation, its bylaws and all
applicable laws and regulations. DDS is not in violation of any applicable laws
or regulations, other than violations which singly or in the aggregate do not,
and, with the passage of time will not, have a Material Adverse Effect. DDS is
not subject to any outstanding order, writ, injunction or decree, and DDS has
not been charged with, or threatened with a charge of, a violation of any
provision of federal, state or local law or regulation.
5.08 Employment Matters.
5.08-1 Labor Matters
(a) Except as set forth on Schedule 5.08-1, DDS is not a party or
otherwise subject to any collective bargaining or other agreement governing the
wages, hours or terms of employment of its employees. DDS is and has been in
compliance with all applicable laws regarding employment and employment
practices, terms and conditions of employment, wages and hours and is not and
has not been engaged in any unfair labor practice.
(b) There is no (1) unfair labor practice complaint against DDS
pending before the National Labor Relations Board or any other governmental
authority, (2) labor strike, slowdown or work stoppage actually occurring or, to
the best of the knowledge of DDS or Shareholders, threatened against DDS, (3)
representation petition respecting DDS's employees pending before the National
Labor Relations Board, or (4) grievance or any arbitration proceeding pending
arising out of or under collective bargaining agreements applicable to DDS.
(c) DDS has not experienced any work stoppage or other organized
work stoppage involving its employees in the past two years.
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5.08-2 Employee Benefits. Schedule 5.08-2 lists all pension,
retirement, profit sharing, deferred compensation, bonus, commission, incentive,
life insurance, health and disability insurance, hospitalization and all other
employee benefit plans or arrangements (including, without limitation, any
contracts or agreements with trustees, insurance companies or others relating to
any such employee benefit plans or arrangements) established or maintained by
DDS, and complete and accurate copies of all those plans or arrangements have
been provided to GDSC. The employee pension benefit plans (within the meaning of
Section 3(2) of ERISA established and maintained by DDS that are subject to
ERISA are listed separately as ERISA Plans on Schedule 5.08-2 (the "ERISA
Plans"). The ERISA Plans comply with the applicable requirements of ERISA. DDS
has received from the Internal Revenue Service a favorable determination for
each of the ERISA Plans and their related trusts that each of the ERISA Plans is
qualified under Section 401(a) of the Code and the related trust is tax-exempt
under Section 501(a) of the Code. There has been no event subsequent to that
determination that has adversely affected the tax qualified status of the ERISA
Plans or the exemption of the related trusts other than changes in the Code that
are not effective as of the Closing Date. No "accumulated funding deficiency" as
defined in Section 302(a)(2) of ERISA or Section 412(a) of the Code exists, or
has existed, with respect to any of the ERISA Plans. The present value of all
accrued benefits under each of the ERISA Plans does not exceed the value of such
plan's assets, less all liabilities other than those attributable to accrued
benefits. DDS has no "potential withdrawal liability," as defined in Section
4201 of ERISA. None of the ERISA Plans, its related trusts or any trustee,
investment manager or administrator thereof has engaged in a nonexempt
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code. There are not and have not been any excess deferrals
or excess contributions under any ERISA Plan. Each ERISA Plan is and has been
operated and administered in conformance with the requirements of all applicable
laws and regulations, whether or not the ERISA Plan documents have been amended
to reflect such requirements. DDS has no obligation of any kind (whether under
the terms of the ERISA Plans or under any understanding with employees) to make
payments under, or to pay contributions to or in respect of, any plan or
arrangement listed on Schedule 5.08-2, or any other plan, agreement or other
arrangement for deferred compensation of employees, whether or not tax
qualified, including, without limitation, a single employer tax qualified plan,
a tax qualified plan of a controlled group of corporations, a multi-employer
pension plan, a nonqualified deferred compensation plan, an individual
employment or compensation agreement or a commitment to provide medical benefits
to retirees.
5.08-3 Employment Agreements. Each of DDS's employees other than
dentists is an "at-will" employee and there are no written employment,
commission or compensation agreements of any kind between DDS and any of those
employees. Schedule 5.08-3 lists all of DDS's employment or supervisory manuals,
employment or supervisory policies, and written information generally provided
to employees (such as applications or notices), and true and complete copies of
those manuals, policies and written information have been provided to GDSC. All
dentists employed by DDS have signed an employment agreement with DDS
substantially in the form provided by DDS to GDSC. DDS does not have any
agreements or understandings with its employees except as reflected in the items
listed in Schedules 5.08-2 and 5.08-3 and the dentist employment agreements.
5.08-4 Compensation. Schedule 5.08-4 contains a complete and accurate
list of all directors, officers and employees of DDS as of September 10, 1997,
specifying their names, hire
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dates, the total amount paid or payable as compensation to each such person, and
the basis of such compensation.
5.09 Financial Statements.
5.09-1 Schedule 5.09 contains the audited balance sheet of DDS as of
December 31, 1996, and the related audited statement of income for the year then
ended and the unaudited balance sheet of DDS as of July 31, 1997 (the "Current
Balance Sheet") and the related unaudited statement of income for the seven
months then ended (all such balance sheets and statements collectively, the
"Financial Statements").
5.09-2 The Financial Statements present fairly
(a) the financial position of DDS as of the dates indicated and
(b) the results of operations for the periods then ended.
5.10 Receivables. Schedule 5.10 lists all receivables of DDS (including
accounts receivable, loans receivable and advances) as of July 31, 1997. Each of
the receivables listed on Schedule 5.10, and each of the receivables that has
arisen since July 31, 1997, has arisen only from bona fide transactions in the
ordinary course of DDS's business and is not subject to any offset or
counterclaim.
5.11 Prepaid Expenses and Other. Schedule 5.11 lists all prepaid expenses
and deferred charges of DDS reflected on the Current Balance Sheet as well as
the items included in the Other Assets line, if any, on the Current Balance
Sheet.
5.12 Personal Property. Schedule 5.12 contains a complete and accurate list
of all the tangible personal property owned or leased by DDS ("Tangible Personal
Property"). With respect to each item of owned Tangible Personal Property,
Schedule 5.12 lists the estimated fair market value as of August 31, 1997.
5.13 Payables. Schedule 5.13 lists all accounts payable and other accrued
liabilities of DDS as of July 31, 1997.
5.14 Indebtedness. Schedule 5.14 lists all indebtedness of DDS and for each
item shows the name of lender, interest rate, term and payments.
5.15 Undisclosed Liabilities. Except as listed on Schedule 5.15, DDS does
not have any liability or obligation (whether absolute, accrued, contingent or
other, and whether due or to become due) which is not accrued, reserved against
or disclosed in the Current Balance Sheet, other than liabilities incurred in
the ordinary course of business consistent with past practice, which
individually or in the aggregate are not material to DDS.
5.16 Absence of Certain Changes or Events. Since the date of the Current
Balance Sheet, there has not been any Material Adverse Change or any event,
occurrence, development or
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state of circumstances or facts which could reasonably be expected to result in
a Material Adverse Change.
5.17 Leases. Schedule 5.17 contains a complete and accurate list of all
real property leases ("Leases") under which DDS is a lessee, a description of
the real property covered thereby ("Real Property"), the term of each Lease and
the monthly payments under the Lease. DDS does not own any real property.
Complete and accurate copies of all Leases have been delivered or made available
to GDSC.
5.18 Certain Contracts and Arrangements. Schedule 5.18, which is organized
by type of agreement, contains a complete and accurate list of all agreements of
the following types ("Contracts") to which DDS is a party or by which it is
bound:
5.18-1 any mortgage, note or other instrument or agreement relating to
the borrowing of money or the incurrence of indebtedness by DDS or DDS's
guaranty of any obligation for the borrowing of money;
5.18-2 contracts, agreements, purchase orders or acknowledgment forms
for the purchase, sale, lease or other disposition of capital assets or more
than $50,000 of other equipment or materials;
5.18-3 contracts or agreements for the performance of services,
excluding employment contracts; provided, however, that (a) only the five
largest managed care contracts need be listed, (b) contracts for the performance
of services by DDS other than managed care contracts need only be listed if the
annual billings under the contract exceed $25,000, and (c) contracts for the
provision of services to DDS need only be listed if the annual payments under
the contract exceed $50,000;
5.18-4 contracts or agreements involving annual billings in excess of
$50,000 for the joint performance of work or services and all other joint
venture agreements;
5.18-5 contracts or agreements with agents, brokers, consignees, sales
representatives or distributors relating to the sale of DDS's services; and
5.18-6 any other contract, instrument, agreement or obligation not
described on any other Schedule to which DDS is a party or by which it is bound
and which contains material unfulfilled obligations of DDS.
Complete and accurate copies of all Contracts have been delivered or made
available to GDSC.
5.19 Status of Contracts and Leases.
5.19-1 Each of the Contracts and Leases listed on Schedules 5.17 and
5.18 is valid, binding and enforceable by DDS in accordance with its terms and
is in full force and effect. There is no existing default or violation by DDS
under any Contract or Lease and no event has occurred which (whether with or
without notice, lapse of time or both) would constitute a default of DDS
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under any Contract or Lease. There is no pending or threatened proceeding which
would interfere with the quiet enjoyment of any Real Property of which DDS is
lessee or sublessee.
5.19-2 All other parties to the Contracts and Leases have consented or
prior to the Closing will have consented (where such consent is necessary) to
the consummation of the transaction contemplated by this Agreement without
requiring modification of DDS's rights or obligations under any Contract or
Lease.
5.19-3 Neither DDS nor Shareholders is aware of any default by any
other party to any Contract or Lease or of any event which (whether with or
without notice, lapse of time or both) would constitute a default by any other
party with respect to obligations of that party under any Contract or Lease,
and, to the knowledge of DDS or Shareholders, there are no facts that exist
indicating that any of the Contracts or Leases may be totally or partially
terminated or suspended by the other parties.
5.19-4 DDS is not a party to, nor is it bound by, any contract or
agreement that DDS or Shareholders can reasonably foresee will result in any
loss that would have a Material Adverse Effect on DDS upon the performance
thereof (including any liability for penalties or damages, whether liquidated,
direct, indirect, incidental or consequential that would have a Material Adverse
Effect), unless such contract or agreement is terminable by DDS on 60 or fewer
days notice at any time without penalty.
5.20 Title and Condition of Tangible Assets.
5.20-1 Except as provided in Schedule 5.12, DDS has good title, or the
right to use, all of the Tangible Personal Property free and clear of all
mortgages, pledges, security interests, claims, charges or other encumbrances or
restrictions of any kind, except
(a) liens disclosed on the Current Balance Sheet,
(b) liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the
Current Balance Sheet), or
(c) the leases of leased property.
5.20-2 All Tangible Personal Property is in a good state of
maintenance and repair, ordinary wear and tear excepted, and is adequate for the
conduct of DDS's business.
5.20-3 To the knowledge of DDS or Shareholders, there are no
developments affecting any of the Real Property or Tangible Personal Property
pending or threatened which might materially detract from the value of such
property or assets, materially interfere with any present or intended use of any
such property or assets or materially adversely affect the marketability of such
properties or assets.
5.21 Insurance. Schedule 5.21 contains a complete and accurate list of all
policies of malpractice, liability, fire, worker's compensation and other forms
of insurance insuring DDS, its
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officers, directors or employees, its assets or its operations (the "Policies").
All the Policies are valid, enforceable and in full force and effect, all
premiums with respect to the Policies covering all periods up to and including
the date as of which this representation is being made have been paid and no
notice of cancellation or termination has been received with respect to any
Policy. The Policies are sufficient for compliance with all requirements of law
and of agreements to which DDS is a party and provide insurance for the risks
and in the amounts and types of coverage usually obtained by persons using or
holding similar properties in similar businesses. There are no unresolved claims
for insurance under any of the Policies. True and complete copies of the
Policies and all endorsements thereto have been delivered to GDSC. DDS has not
been refused any insurance coverage and no insurance coverage has been canceled
during the five years preceding the date of this Agreement.
5.22 Taxes.
5.22-1 Returns. DDS has filed all federal, state and other returns,
reports and information returns required to be filed by it with respect to Taxes
which relate to the business, results of operations or financial condition of
DDS (collectively, the "Returns") and has timely paid all Taxes shown to be due
on the Returns. All Returns filed are complete and accurate in all material
respects, and no additional Taxes are owed by DDS with respect to the periods
covered by the Returns. DDS has provided GDSC with complete and accurate copies
of DDS's Returns for 1995 and 1996.
5.22-2 Taxes Paid or Reserved. All deficiencies in Taxes asserted or
assessments made by any taxing authority have been fully paid or finally
settled. The reserves for Taxes reflected in the Current Balance Sheet are
adequate for payment of Taxes with respect to DDS in respect of all periods
ending on or before the date of the Current Balance Sheet. All Taxes which DDS
has been required to collect or withhold have been withheld or collected and, to
the extent required, have been paid to the proper taxing authority.
5.23 Certain Interests. Except for Real Property leased by DPM to DDS as
set forth on Schedule 5.17, neither Shareholders, DPM nor any officer or
director of DDS (or any entity owned or controlled by one or more of such
parties) (a) has any interest in any property, real or personal, tangible or
intangible, used in or pertaining to DDS's business or located at DDS's
corporate headquarters, or (b) is indebted to DDS and DDS is not indebted to any
Shareholders, director or officer (or any entity owned or controlled by one or
more of such parties) except for amounts due under normal salary arrangements
and for reimbursement of ordinary business expenses. The consummation of the
transaction contemplated by this Agreement will not (either alone or upon the
occurrence of any act or event, or with the lapse of time, or both) result in
any payment (severance or other) becoming due from DDS to any of its
shareholders, officers, directors, or employees (or any entity owned or
controlled by one or more of such parties).
5.24 No Restrictions. No power of attorney or similar authorization given
by DDS is presently in effect or outstanding. No contract or agreement to which
DDS is a party or is bound or to which any of its properties or assets is
subject limits the freedom of DDS to compete in any line of business or with any
person.
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5.25 Permits and Licenses. DDS holds, and at all times has held, all
licenses, permits, franchises, easements and authorizations (collectively,
"Permits") necessary for the lawful conduct of the Dental Practices and the Plan
pursuant to all applicable statutes, laws, ordinances, rules and regulations of
all governmental bodies, agencies and other authorities having jurisdiction over
it or any part of its operations except where the failure to hold any Permit,
singly or in the aggregate, either alone or with the giving of notice or the
passage of time or both, would not have a Material Adverse Effect. DDS and
Shareholders are in compliance with all the terms of each Permit, and there are
no claims of violation by DDS or Shareholders of any Permit.
5.26 Certain Payments. Neither Shareholders nor any other person or entity
has, directly or indirectly, on behalf of or with respect to DDS or its business
or operations made or received any payment that was not legal to make or receive
under federal, state or local laws of the United States or any other country or
territory.
5.27 Environmental Conditions. DDS has operated the Dental Practices and
maintained its assets, including without limitation the Real Property, in
compliance with all Environmental Laws. All wastes generated in connection with
the Dental Practices are and have been transported and disposed of off site in
compliance with all Environmental Laws. Except as otherwise required for the
normal operation of a dental practice, no Hazardous Substance is or has been
generated, manufactured, treated, stored, transported, used or otherwise handled
on the Real Property or in connection with the Dental Practices.
5.28 Consents and Approvals. Except as set forth on Schedule 5.28, no
consent, approval or authorization of any court, regulatory authority,
governmental body, or any other entity or person not a party to this Agreement
is required for the consummation of the transactions described in this Agreement
by DDS or Shareholders. DDS has obtained, or shall have obtained prior to the
Closing, all consents, authorizations or approvals of any third parties required
in connection with the execution, delivery or performance of this Agreement by
DDS or the consummation of the transaction contemplated by this Agreement. DDS
has made, or shall have made prior to the Closing, all registrations or filings
with any governmental authority required for the execution or delivery of this
Agreement or the consummation of the transaction contemplated hereby.
5.29 Records. The books of account, minute books, stock certificate books
and stock transfer ledgers of DDS are complete and accurate in all material
respects, and there have been no transactions involving the business of DDS
which properly should have been set forth therein and which have not been
accurately so set forth. Complete and accurate copies of such books, records and
ledgers have been made available to GDSC.
5.30 Bank Accounts. Schedule 5.30 contains a complete and accurate list of
all the bank accounts which DDS maintains. All cash in such accounts is held in
demand deposits and is not subject to any restriction or limitation as to
withdrawal.
5.31 Compliance with Knox-Keene Act. In connection with the conduct of its
business as a health care service plan licensed under the Knox-Keene Act, DDS
represents and warrants the following with respect to the business and
operations of DDS since January 1, 1994. DDS has
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obtained any and all approvals from the Department of Corporations
("Department") required by the Knox-Keene Act for all benefit plans and products
offered by DDS, including related subscriber agreements, provider agreements and
ancillary service agreements. Except as set forth on Schedule 5.31, (i) DDS has
no outstanding amendments or material modifications that are awaiting approval
by the Department; (ii) DDS has not failed to submit to the Department any
amendment or material modification required to be submitted under the Knox-Keene
Act material to the operation of DDS as a health care service plan; (iii) DDS
currently is not subject to any investigation by the Department or any other
regulatory body; (iv) DDS has not received any surveys from the Department
containing deficiencies that are material to the operation of DDS as a health
care service plan; (v) DDS currently is not subject to any plan of correction
established by the Department involving deficiencies material to the operation
of DDS as a health care service plan and (vi) DDS has not failed to comply with
the tangible net equity ("TNE") requirements of the Knox-Keene Act for more than
two (2) consecutive quarters. DDS represents and warrants that this transaction
will not materially affect DDS' TNE requirements with respect to the current DDS
operations.
5.32 Reliance. DDS and Shareholders recognize and agree that,
notwithstanding any investigation by GDSC, GDSC is relying upon the
representations and warranties made by DDS and Shareholders in this Agreement.
5.33 Accuracy of Representations and Warranties. None of the
representations or warranties of DDS and Shareholders contain or will contain
any untrue statement of any material fact or omit or misstate a material fact
necessary to make the statements contained in this Agreement not misleading. DDS
and Shareholders do not know of any fact that has resulted or that, in the
reasonable judgment of DDS and Shareholders will result, in any material adverse
change in DDS's business, results of operation, financial condition or prospects
that has not been set forth in this Agreement.
ARTICLE VI
Covenants of DDS and Shareholders
6.01 Access to Properties, Books and Records. Prior to the Closing Date,
DDS and Shareholders shall, at GDSC's request, afford or cause to be afforded to
the agents, attorneys, accountants and other authorized representatives of GDSC
reasonable access during normal business hours to all employees, properties,
books and records of DDS and shall permit such persons, at GDSC's expense, to
make copies of such books and records. DDS shall deliver to GDSC monthly
financial statements of DDS promptly after they become available. GDSC shall
treat, and shall cause all of its agents, attorneys, accountants and other
authorized representatives to treat, all information obtained pursuant to this
Section 6.01 as confidential in accordance with Section 13.01 hereof. No
investigation by GDSC or any of its authorized representatives pursuant to this
Section 6.01 shall affect any representation, warranty or closing condition of
any party hereto or GDSC's rights to indemnification pursuant to Section 12.02
hereof.
6.02 Negative Covenants. Except as otherwise permitted by this Agreement or
with the prior written consent of GDSC, prior to the Effective Time, DDS shall
not:
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6.02-1 Incur additional debt for borrowed money without giving GDSC
notice within two business days thereafter;
6.02-2 Incur any obligations under leases for real or personal
property whether or not required to be capitalized under generally accepted
accounting principles, incur or increase any obligation or liability (fixed,
contingent or other, including without limitation liabilities as a guarantor or
otherwise with respect to obligations of others, but excluding debts for
borrowed money) except in the ordinary and usual course of its business and
consistent with past practices, forgive or release any debt or claim, give any
waiver of any right of material value or voluntarily suffer any extraordinary
loss;
6.02-3 Declare, pay or make any dividend or other distribution of
money or property on or with respect to any share of its capital stock;
provided, however, that (a) DDS shall be permitted to sell or distribute to
Shareholders the assets, subject to the liabilities, of the Western Avenue
dental practice, (b) DDS may continue to make distributions of unrestricted cash
to Shareholders consistent with past practices, and (c) immediately prior to the
Closing, DDS shall be permitted to distribute the balance of its unrestricted
cash to Shareholders;
6.02-4 Issue, sell, encumber or give any option or right to purchase
any shares of its capital stock or other securities, or purchase, redeem or
otherwise acquire or commit to acquire, directly or indirectly, any shares of
its capital stock;
6.02-5 Mortgage, pledge, otherwise encumber or subject to lien any of
its assets or properties, tangible or intangible, or commit itself to do any of
the foregoing;
6.02-6 Except in the ordinary and usual course of its business and in
each case for fair consideration, dispose of, or agree to dispose of, any of its
assets or lease or license to others (including officers and directors), or
agree so to lease or license, any of its assets, except as permitted by Section
6.02-3;
6.02-7 Acquire any assets which would be material to its business
other then assets acquired in the ordinary and usual course of its business and
consistent with past practices;
6.02-8 Purchase or otherwise acquire, or agree to purchase or
otherwise acquire, any debt or equity securities of any corporation,
partnership, joint venture, firm or other entity other than equity securities
issued by a money market fund registered as an investment company under the
Investment Company Act of 1940;
6.02-9 Enter into any transaction or contract or make any commitment
to do the same, except in the ordinary and usual course of business and not
requiring the payment in any case of an amount in excess of $100,000 annually;
6.02-10 Increase the wages, salaries, compensation, pension or other
benefits payable, or to become payable by it, to any of its officers, employees
or agents, including without limitation any bonus payments or severance or
termination pay, other than increases in wages and
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salaries required by employment arrangements existing on the date hereof or
otherwise in the ordinary and usual course of its business;
6.02-11 Implement or agree to any implementation of or amendment or
supplement to any employee profit sharing, stock option, stock purchase,
pension, bonus, commission, incentive, retirement, medical reimbursement, life
insurance, deferred compensation or any other employee benefit plan or
arrangement;
6.02-12 Change the accounting methods, policies or practices of DDS;
or
6.02-13 Agree or commit to do any of the foregoing.
6.03 Affirmative Covenants. Except as otherwise permitted by this Agreement
or as reasonably necessary or appropriate for the consummation of the
transactions contemplated by this Agreement or with the prior written consent of
GDSC, prior to the Effective Time, DDS and Shareholders shall:
6.03-1 Operate the Plan and the Dental Practices only in the ordinary
course and consistent with past practices;
6.03-2 Advise GDSC in writing of any litigation or administrative
proceeding that challenges or otherwise materially affects the transactions
contemplated hereby and of any Material Adverse Change or any event, occurrence
or circumstance which is likely to cause a Material Adverse Change;
6.03-3 When the consent of any third party to the transactions
contemplated by this Agreement is required under the terms of any contract or
agreement material to the Plan to which DDS is a party or by which it is bound,
use its best efforts to obtain such consent on terms and conditions not
materially less favorable than those in effect on the date hereof;
6.03-4 Use its best efforts to maintain all of the Tangible Personal
Property in good operating condition, reasonable wear and tear excepted,
consistent with past practices, and take all steps reasonably necessary to
maintain DDS's intangible assets;
6.03-5 Not cancel or change any policy of insurance (including
self-insurance) or fidelity bond or any policy or bond providing substantially
the same coverage;
6.03-6 Maintain, consistent with past practices, all inventories,
spare parts, office supplies and other expendable items;
6.03-7 Use its best efforts to retain all employees;
6.03-8 Maintain its books and records in accordance with past
practices;
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6.03-9 Pay and discharge all taxes, assessments, governmental charges
and levies imposed upon it, its income or profits or upon any property belonging
to it, in all cases prior to the date on which penalties attach thereto;
6.03-10 Comply with all laws, rules and regulations applicable to it
and the Plan; and
6.03-11 Preserve and maintain its separate corporate existence,
rights, privileges and franchises in connection therewith and not amend its
articles of incorporation or bylaws.
6.04 No Negotiations With Others. Except as otherwise permitted by this
Agreement or with the prior written consent of GDSC, DDS and Shareholders shall
refrain, and shall cause DDS's officers, directors and employees and any
investment banker, attorney, accountant or other agent retained by any of them
to refrain, from initiating or soliciting any inquiries or making any proposals
with respect to, or engaging in negotiations concerning, or providing any
confidential information or data to or having any discussions with any person
relating to, any acquisition, business combination or purchase of all or any
significant portion of the assets of, or any equity interest in, DDS. DDS and
Shareholders will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing.
6.05 401(k) Plan. Prior to Closing, DDS shall use its best efforts to take
such steps with respect to the Dedicated Dental Systems, Inc. 401(k) Plan (the
"401(k) Plan"), including a possible termination of the 401(k) Plan, as GDSC may
request. In the event GDSC requests a termination of the 401(k) Plan, the assets
of the 401(k) Plan shall be promptly distributed to the plan beneficiaries
promptly after the Closing. In that case, any and all expenses of the
administration and termination of the 401(k) Plan shall be paid by the 401(k)
Plan or by Shareholders, and GDSC shall not incur any liability, or be required
to take any action, of any kind whatsoever in connection with the administration
or termination of the 401(k) Plan.
6.06 Profit Purchase Agreement. DDS shall negotiate with Ted L. Hutchison,
D.D.S. for the termination of the Profit Purchase Agreement between DDS and Dr.
Hutchison relating to the Town and Country Dental Practice and shall obtain such
termination and be obligated to pay any amounts owing to Dr. Hutchison as a
result of that termination.
6.07 Restrictions on Sale of Shares of GDSC Common Stock.
6.07-1 "Market Stand-Off" Agreement. Each Shareholder agrees that, for
a period commencing with the filing of any registration statement under the 1933
Act relating to the offer and sale of GDSC Common Stock in an underwritten
public offering and ending 180 days following the effective date of such
registration statement, he will not, without the prior consent of the managing
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of GDSC held by him at any time during such period except
GDSC Common Stock included in such registration statement. In order
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to enforce the foregoing covenant, GDSC may impose stop-transfer instructions
with respect to the Shares of Shareholder until the end of such period.
6.07-2 Supplemental Lock-Up. Each Shareholder agrees that until March
31, 1999 he will not directly or indirectly sell, offer to sell, contract to
sell (including, without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of (other than to donees or pledgees
who agree to be similarly bound) any Shares owned by him, except Shares sold
pursuant to the piggyback registration rights provided for in Section 7.02. If
GDSC does not complete a piggyback registration by March 31, 1998, as the remedy
for such failure, there shall be released from the foregoing lock-up provision a
number of Shares that, when sold, yields proceeds of $4,000,000. On March 31,
1999 and on the last day of each month thereafter until released in full,
one-tenth of the number of Shares held by the Shareholder on March 31, 1999,
rounded to the nearest whole share, shall be released from the foregoing lock-up
provision. Each Shareholder further agrees that until all Shares are released
from lock-up, he will provide written notice to GDSC 30 days prior to any
proposed sale by him of Shares. During this 30-day period, GDSC shall have the
right either to purchase such Shares from the notifying Shareholder or to
designate the broker or market maker through which Shareholder will sell such
Shares. Shareholders consent to having appropriate legends placed on the
certificates representing the Shares relating to the lock-up restriction.
ARTICLE VII
Covenants of GDSC
7.01 Board Seat. Effective as of the Closing, Dr. Kaiser will be elected as
a director of GDSC.
7.02 Registration Rights.
7.02-1 Piggyback Rights. Prior to March 31, 1998, GDSC will register
shares of GDSC Common Stock under the 1933 Act and complete an underwritten
public offering of such shares for cash. GDSC may also determine from time to
time thereafter to register shares of GDSC Common Stock under the 1933 Act for
an underwritten offering for its account, except that this Section 7.02 shall
not apply to a registration that is filed after March 31, 2000. Prior to filing
a registration statement for any such offering, GDSC shall give Shareholders
written notice thereof and will include in such registration and underwriting
all the Registrable Securities specified in a written request or requests, made
within 10 days after receipt of such written notice from GDSC by Shareholders,
except as set forth in Section 7.02-2 below. For purposes of this Agreement, the
term "Registrable Securities" means (i) the Shares and (ii) any GDSC Common
Stock issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, the Shares.
Notwithstanding the provisions of this Section 7.02-1, GDSC shall not be
required to effect such underwritten public offering during any period in which
(i) additional material governmental restrictions, not in force and effect on
the date hereof, shall have been imposed upon trading in
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securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange or
in the over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such Exchange or in the over the counter
market by the NASD, or a general banking moratorium shall have been established
by federal, New York or California authorities, or (ii) an outbreak of major
hostilities or other national or international calamity or any substantial
change in political, financial or economic conditions shall have occurred or
shall have accelerated or escalated to such an extent, as, in the reasonable
judgment of the underwriters, to affect materially and adversely the
marketability of the shares.
7.02-2 Underwriting.
(a) The right of Shareholders to registration pursuant to Section
7.02-1 is conditioned upon Shareholders' participation in such underwriting and
the inclusion of Shareholders' Registrable Securities in the underwriting to the
extent provided herein. Shareholders shall (together with GDSC and any other
shareholders distributing their securities through such underwriting) enter into
an underwriting agreement in the form agreed to between GDSC and the underwriter
or underwriters selected for such underwriting by GDSC.
(b) If the total amount of securities, including Registrable
Securities, requested by GDSC shareholders with registration rights ("Requesting
Shareholders") to be included in such underwriting exceeds the amount of
securities to be sold by selling shareholders that the underwriters determine in
their sole discretion is compatible with the success of the underwriting for
GDSC, then GDSC shall be required to include in the registration only that
number of such securities, including Registrable Securities, which the
underwriters determine in their sole discretion will not jeopardize the success
of the underwriting. The securities so included will be apportioned pro rata
among the Requesting Shareholders according to the total amount of securities
entitled to be included in the registration owned by each Requesting Shareholder
or in such other proportion as shall mutually be agreed to by such Requesting
Shareholders.
(c) Notwithstanding the provisions of paragraphs 7.02-2(a) and
(b), the number of Registrable Securities which the Shareholders, jointly, will
be entitled to have included in the underwriting to be completed by March 31,
1998 may not be reduced below that number of Registrable Securities having an
aggregate value of $4,000,000, determined at the public offering price per share
for the offering.
7.02-3 S-3 Registration. No later than March 31, 1998, GDSC shall file
a Registration Statement on Form S-3 to register all Registrable Securities not
registered and sold pursuant to Section 7.02-1 for resale by the Shareholders in
ordinary market transactions. GDSC shall use its best efforts to maintain an
effective registration statement permitting the unrestricted sale of such
remaining Registrable Shares until March 31, 2000.
7.02-4 Expenses of Registration. All expenses incurred in connection
with any registration pursuant to this Section 7 including, without limitation,
all registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel for GDSC and expenses of any special audits incidental
to or required by such registration, shall be borne by GDSC except
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GDSC shall not be required to pay underwriters' fees, discounts or commissions
relating to the Registrable Securities. All expenses of any registered offering
not otherwise borne by GDSC shall be borne pro rata among the Requesting
Shareholders participating in the offering and GDSC.
7.02-5 Registration Procedures. In the case of each registration
effected by GDSC pursuant to this Agreement, GDSC will keep Shareholders advised
in writing as to the initiation of each registration and as to the completion
thereof. Except as otherwise provided in Section 7.02-4, at its expense GDSC
shall:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective.
(b) Furnish to Shareholders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(c) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by Shareholders,
provided that GDSC shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions where GDSC is not already
so qualified or consented.
(d) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in form
satisfactory to the GDSC, with the managing underwriter of such offering. Each
Shareholder participating in such underwriting shall also enter into and perform
his obligations under such an agreement.
7.02-6 Indemnification.
(a) GDSC will indemnify Shareholders with respect to any
registration effected pursuant to this Agreement. If the registration is in
connection with an underwritten offering, GDSC will indemnify Shareholders on
the terms set forth in the applicable underwriting agreement with respect to
indemnification by GDSC of all selling shareholders participating in the
underwriting. If the registration, qualification or compliance is not in
connection with an underwritten offering, GDSC will indemnify Shareholders on
the following terms:
GDSC will indemnify Shareholders against all claims, losses, expenses,
damages and liabilities (or actions in respect thereto) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any such
registration, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading, or any violation or alleged violation by GDSC of the
1933 Act or any state securities law applicable to GDSC or any rule or
regulation promulgated under the 1933 Act, the Securities Exchange Act of 1934,
as amended
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("Exchange Act") or any such state law and relating to action or inaction
required of GDSC in connection with any such registration, and will reimburse
Shareholders within a reasonable amount of time after incurred for any
reasonable legal and any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 7.02-6(a) shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability, or action if such settlement is effected without
the consent of GDSC (which consent shall not be unreasonably withheld); and
provided further, that GDSC will not be liable in any such case to the extent
that any such claim, loss, damage or liability arises out of or is based on any
untrue statement or omission based upon written information furnished to GDSC by
an instrument duly executed by a Shareholder specifically for use therein.
(b) Each Shareholder will, if Registrable Securities held by or
issuable to such Shareholder are included in the securities as to which a
registration is being effected, indemnify GDSC, each of its directors and
officers, each person who controls GDSC within the meaning of the 1933 Act, and
each other Requesting Shareholder, if any, each of its officers, directors and
partners and each person controlling such Requesting Shareholder, against all
claims, losses, expenses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
GDSC, such Requesting Shareholders, such directors, officers, partners or
persons for any reasonable legal or any other expenses incurred in connection
with investigating, defending or settling any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to GDSC by an instrument duly executed by Shareholder specifically for
use therein; provided, however, that the indemnity agreement contained in this
Section 7.02-6(b) shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability or action if such settlement is effected without
the consent of Shareholder, (which consent shall not be unreasonably withheld);
and provided further, that the total amount for which Shareholder shall be
liable under this Section 7.02-6(b) shall not in any event exceed the aggregate
proceeds received by Shareholder from the sale of Registrable Securities held by
Shareholder in such registration.
(c) Each party entitled to indemnification under this Section
7.02-6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
prejudice to the Indemnifying Party; and provided further, that an Indemnified
Party (together with all other Indemnified Parties which may
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be represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the Indemnifying
Party, if representation of such Indemnified Party by the counsel retained by
the Indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
7.02-7 Information by Shareholder. If Registrable Securities of a
Shareholder are to be included in any registration, that Shareholder shall
promptly furnish to GDSC the information regarding Shareholder and the
distribution proposed by Shareholder that GDSC requests in writing and that is
required in connection with any registration referred to herein.
ARTICLE VIII
Joint Covenants
GDSC, DDS and Shareholders covenant and agree that they will act in
accordance with the following:
8.01 Governmental Consents. Promptly following the execution of this
Agreement, the parties will proceed to prepare and file with the appropriate
governmental authorities any requests for approval or waiver, if any, that are
required from governmental authorities in connection with the transactions
contemplated hereby, and the parties shall diligently and expeditiously
prosecute and cooperate fully in the prosecution of such requests for approval
or waiver and all proceedings necessary to secure such approvals and waivers. In
addition, with respect to any amendments or material modifications that have not
yet been filed and/or approved by the Department as required under the
Knox-Keene Act as listed on Schedule 5.31, DDS will proceed to prepare and file
any amendments or material modifications that have not been filed and to
diligently and expeditiously prosecute all such filings and obtain all approvals
of the Department listed on Schedule 5.31.
8.02 Best Efforts; No Inconsistent Action. Each party will use its best
efforts to effect the transactions contemplated by this Agreement and to fulfill
the conditions to the obligations of the other parties set forth in Article 9 or
10 of this Agreement. No party will take any action inconsis tent with its
obligations under this Agreement or that could hinder or delay the consummation
of the transactions contemplated by this Agreement, except that nothing in this
Section 8.02 shall limit the rights of the parties under Articles 9, 10 and 11.
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ARTICLE IX
Conditions to Obligations of GDSC
The obligations of GDSC under Article 1 are, at its option, subject to
satisfaction, at or prior to the Closing, of each of the following conditions:
9.01 Governmental Approvals. All authorizations, consents and approvals of
all governmental agencies and authorities required to be obtained in order to
permit consummation of the transactions contemplated by this Agreement,
including all approvals listed on Schedule 5.31 and all approvals reasonably
determined by GDSC to be necessary or desirable, shall have been obtained and be
satisfactory in form and content to GDSC.
9.02 Consents. DDS shall have obtained the third-party consents required
under the terms of the Contracts and Leases, and such consents shall not have
required any change to the terms and conditions of the Contracts and Leases
other than changes consented to in writing by GDSC.
9.03 Representations, Warranties and Covenants.
9.03-1 All representations and warranties of DDS and Shareholders made
in this Agreement, or in any certificate delivered pursuant hereto, shall in all
material respects be true and complete on and as of the Closing Date with the
same force and effect as if made on and as of that date.
9.03-2 All of the terms, covenants and conditions to be complied with
and performed by DDS and Shareholders at or prior to the Closing shall in all
material respects have been complied with or performed thereby.
9.03-3 GDSC shall have received a certificate of DDS and Shareholders,
dated as of the Closing Date and executed by the President of DDS and
Shareholders, to the effect that the representations and warranties of DDS and
Shareholders contained in this Agreement are in all material respects true and
complete on and as of the Closing Date as though made on and as of the Closing
Date and that DDS and Shareholders have in all material respects each complied
with or performed all terms, covenants and conditions to be complied with or
performed by such party at or prior to the Closing.
9.04 Adverse Proceedings. No third-party suit, action, or claim or
governmental proceeding shall have been instituted or threatened against, and no
order, decree or judgment of any court, agency or other governmental authority
shall have been rendered against, GDSC, DDS or Shareholders to restrain or
prohibit, or obtain damages in respect of, this Agreement or the transactions
contemplated by this Agreement.
9.05 No Adverse Change. There shall not have been any Material Adverse
Change.
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9.06 New Leases. With respect to the Dental Practices at which the Real
Property is owned by DPM or Shareholders as listed on Exhibit A, DDS and the
Real Property owner shall have executed and delivered a new lease of the Real
Property in a commercially reasonably form including the terms set forth on
Exhibit A.
9.07 Opinion of Counsel. GDSC shall have received an opinion of Klein &
Martin, counsel to DDS and Shareholders, dated the Closing Date, in
substantially the form attached hereto as Exhibit B.
9.08 Closing of the Transactions. The transactions contemplated by the
following agreements (the "Transactions") shall close simultaneously with the
Closing: Asset Purchase Agreement dated September 21, 1997 by and among GDSC,
DPM, the Shareholders and Mark Thomas, D.D.S.; Asset Purchase Agreement dated
September 21, 1997 by and among GDSC, DPM, the Shareholders and Clarence Au,
D.D.S.; Asset Purchase Agreement dated September 21, 1997 by and among GDSC and
Arthur G. Kaiser, D.D.S.
9.09 Fairness Opinion. GDSC shall have received an opinion from an
investment banking firm chosen by GDSC that the Transactions, together with the
transactions contemplated by this Agreement, are fair to GDSC and its
shareholders.
9.10 Actions Satisfactory to GDSC's Counsel. All actions, proceedings,
instruments and documents required to be carried out by this Agreement, or
incidental hereto, and all other relevant legal matters shall be reasonably
satisfactory to counsel for GDSC.
ARTICLE X
Conditions to Obligations of DDS and Shareholders
The obligations of DDS and Shareholders under Article 1 are, at their
option, subject to satisfaction, at or prior to the Closing, of each of the
following conditions:
10.01 Representations, Warranties and Covenants.
10.01-1 All representations and warranties of GDSC made in this
Agreement and in any certificate delivered pursuant hereto shall in all material
respects be true and complete on and as of the Closing Date with the same force
and effect as if made on and as of that date.
10.01-2 All of the terms, covenants and conditions to be complied with
and performed by GDSC on or prior to the Closing shall in all material respects
have been complied with or performed by GDSC.
10.01-3 DDS and Shareholders shall have received a Certificate of
GDSC, dated as of the Closing Date, executed by the President or other
authorized officer of GDSC, to the effect that the representations and
warranties of GDSC contained in this Agreement are in all material respects true
and complete on and as of the Closing Date as though made on and as of the
Closing
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Date and that GDSC has in all material respects complied with or performed all
terms, covenants and conditions to be complied with or performed by it at or
prior to the Closing.
10.02 Adverse Proceedings. No third-party suit, action, or claim or
governmental proceeding shall have been instituted or threatened against, and no
order, decree or judgment of any court, agency or other governmental authority
shall have been rendered against, GDSC, DDS or Shareholders to restrain or
prohibit this Agreement or the transactions contemplated by this Agreement.
10.03 Opinion of Counsel. DDS and Shareholders shall have received an
opinion of Stoel Rives LLP, counsel to GDSC, dated the Closing Date, in
substantially the form attached hereto as Exhibit C.
10.04 Employment Agreements. GDSC or DDS shall have entered into an
employment agreement with each Shareholder effective as of the Closing
containing the terms summarized on Exhibit D.
10.05 Actions Satisfactory to DDS's Counsel. All actions, proceedings,
instruments and documents required to be carried out by this Agreement, or
incidental hereto, and all other relevant legal matters shall be reasonably
satisfactory to counsel for DDS.
ARTICLE XI
Termination
11.01 Right of Parties to Terminate. This Agreement may be terminated:
11.01-1 by GDSC, if any of the authorizations, consents, approvals,
filings or registrations described in Section 9.01 hereof shall have been
denied, not permitted to go into effect or obtained on terms not reasonably
satisfactory to GDSC and all reasonable final appeals shall have been exhausted;
11.01-2 by GDSC, if DDS or Shareholders shall have breached any of
their obligations hereunder in a way that has resulted in a Material Adverse
Effect and the breach has continued without being cured for more than 30 days;
11.01-3 by DDS, if GDSC shall have breached any of its obligations
hereunder in a way that has resulted in a GDSC Material Adverse Effect and the
breach has continued without being cured for more than 30 days; or
11.01-4 by either DDS or GDSC, by written notice to the other party,
if the Closing shall not have occurred on or prior to February 28, 1998;
provided, however, that the right to terminate this Agreement under this Section
11.01-4 shall not be available to any party whose failure to fulfill or perform
any obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date.
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11.02 Effect of Termination. If either GDSC or DDS decides to terminate
this Agreement pursuant to Section 11.01, such party shall promptly give written
notice to the other party to this Agreement of such decision.
ARTICLE XII
Survival; Indemnification
12.01 Survival. All representations, warranties, covenants and agreements
made in this Agreement or in any exhibit, schedule, certificate or agreement
delivered in accordance with this Agreement (collectively, the "Related
Documents") shall survive any investigation by or on behalf of any party, the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby and any termination or expiration of this Agreement, except
that such representations, warranties, covenants and agreements shall expire and
be of no further effect on the last day of the eighteenth full month following
the Closing Date, except as follows:
12.01-1 any claim of which notice has been given pursuant to Section
12.04 prior to the last day of the eighteenth full month following the Closing
Date shall not expire and shall continue until all damages arising from such
claim have been paid in full;
12.01-2 any claim arising from any breach or inaccuracy of any
representation or warranty in Article IV, Section 5.07 or Section 5.31, or from
any failure to perform any covenant in Section 6.07 or Section 7.02, or in the
case of fraud, shall not expire and shall continue without limitation; and
12.01-3 any claim arising from any breach or inaccuracy of any
representation or warranty in Section 5.22 shall expire on the expiration of all
applicable statutes of limitation.
12.02 Indemnification by Shareholders.
12.02-1 Notwithstanding any investigation by GDSC, from and after the
Closing, Shareholders shall indemnify, hold harmless and, to the extent provided
in Section 12.04-1, defend GDSC, its subsidiaries, shareholders, affiliates,
officers, directors, employees, agents, successors and assigns (collectively,
"GDSC's Indemnified Persons") from and against, and reimburse each of GDSC's
Indemnified Persons with respect to, any and all losses, damages, liabilities,
costs and expenses, including interest from the date of such loss to the time of
payment, penalties and reasonable attorneys' fees (collectively, "Damages")
incurred by any of GDSC's Indemnified Persons by reason of or arising out of or
in connection with:
(a) any breach or inaccuracy of any representation or warranty of
DDS or Shareholders made in this Agreement or any Related Document; or
(b) any failure by DDS or Shareholders to perform any covenant
required to be performed by them pursuant to this Agreement or any Related
Document.
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12.02-2 Any liability of Shareholders under this Section 12.02 or
otherwise for the breach or inaccuracy of any representation, warranty, covenant
or agreement made in this Agreement may, at the election of the applicable
Shareholder, be satisfied by delivery of shares of GDSC Common Stock (valued at
the fair market value of such shares at the time the liability of Shareholders
is determined) to the GDSC Indemnified Person.
12.03 Indemnification by GDSC.
12.03-1 Notwithstanding any investigation by Shareholders, from and
after the Closing, GDSC shall indemnify, hold harmless and, to the extent
provided in Section 12.04-1, defend Shareholders from and against, and reimburse
Shareholders with respect to, any and all Damages incurred by Shareholders by
reason of or arising out of or in connection with:
(a) any breach or inaccuracy of any representation or warranty of
GDSC made in this Agreement or any Related Document; or
(b) any failure by GDSC to perform any covenant required to be
performed by it pursuant to this Agreement or any Related Document.
12.04 Indemnification Procedure.
12.04-1 Third Party Claims.
(a) Each indemnified party shall, with reasonable promptness
after obtaining knowledge thereof, provide any indemnifying party against whom a
claim for indemnification is to be made under this Article 12 with written
notice of all third party actions, suits, proceedings, claims, demands or
assessments that may be subject to the indemnification provisions of this
Article 12 (collectively, "Third Party Claims"), including, in reasonable
detail, the basis for the claim, the nature of Damages and a good faith estimate
of the amount of Damages.
(b) Each indemnifying party shall have 15 days after its receipt
of the claim notice to notify the indemnified party in writing whether the
indemnifying party agrees that the claim is subject to this Article 12 and, if
so, whether the indemnifying party elects, jointly with any other indemnifying
party notified under Section 12.04-1(a), to undertake, conduct and control,
through counsel of its or their choosing (subject to the consent of the
indemnified party, such consent not to be withheld unreasonably) and at its or
their sole risk and expense, the good faith settlement or defense of the Third
Party Claim.
(c) If within 15 days after its receipt of the claim notice an
indemnifying party notifies the indemnified party that it elects to undertake
the good faith settlement or defense of the Third Party Claim, the indemnified
party shall cooperate reasonably with the indemnifying party in connection
therewith including, without limitation, by making available to the indemnifying
party all relevant information material to the defense of the Third Party Claim.
The indemnified party shall be entitled to participate in the settlement or
defense of the Third Party Claim through counsel chosen by the indemnified
party, at its expense, and to approve any proposed settlement that would impose
any obligation or duty on the indemnified party, which approval may, in the sole
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discretion of the indemnified party, be withheld. So long as an indemnifying
party is contesting the Third Party Claim in good faith and with reasonable
diligence, the indemnified party shall not pay or settle the Third Party Claim.
Notwithstanding the foregoing, the indemnified party shall have the right to pay
or settle any Third Party Claim at any time, provided that in such event it
waives any right to indemnification therefor by the indemnifying party.
(d) If an indemnifying party does not provide notice that it
elects to undertake the good faith settlement or defense of the Third Party
Claim, or if an indemnifying party fails to contest the Third Party Claim or
undertake or approve settlement, in good faith and with reasonable diligence,
the indemnified party shall thereafter have the right to contest, settle or
compromise the Third Party Claim at its exclusive discretion, at the risk and
expense of the indemnifying party, and the indemnifying party will thereby waive
any claim, defense or argument that the indemnified party's settlement or
defense of such Third Party Claim is in any respect inadequate or unreasonable.
(e) A party's failure to give timely notice will not constitute a
defense, in part or in whole, to any claim for indemnification by such party,
except if, and only to the extent that, such failure results in any material
prejudice to the indemnifying party.
12.04-2 Non-Third Party Claims.
(a) Each indemnified party shall, with reasonable promptness,
deliver to any indemnifying party against whom a claim for indemnification is to
be made under this Article 12 written notice of all claims for indemnification
under this Article 12, other than Third Party Claims, including, in reasonable
detail, the basis for the claim, the nature of Damages and a good faith estimate
of the amount of Damages.
(b) Each indemnifying party shall have 30 days after its receipt
of the claim notice to notify the indemnified party in writing whether the
indemnifying party accepts liability for all or any part of the Damages
described in the claim notice. If the indemnifying party does not so notify the
indemnified party, the indemnifying party shall be deemed to accept liability
for all the Damages described in the claim notice.
(c) A party's failure to give timely notice will not constitute a
defense, in part or in whole, to any claim for indemnification by such party,
except if, and only to the extent that, such failure results in any material
prejudice to the indemnifying party.
12.05 Limitation on Indemnification Obligations. The indemnification
obligations set forth in Sections 12.02 and 12.03 shall not apply unless the
total amount of Damages incurred either by GDSC's Indemnified Persons or by
Shareholders (as the case may be) exceeds $500,000 in the aggregate, as a result
of all matters giving rise to rights to indemnification under those Sections. In
the event that the amount of Damages exceeds that threshold, GDSC's Indemnified
Persons or Shareholders (as the case may be) shall be entitled to
indemnification for the full amount of all Damages for which indemnification is
to be provided under Section 12.02 or 12.03, except that the indemnification
obligations set forth in Sections 12.02 or 12.03 shall not exceed $6,250,000
under either Section.
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12.06 Adjustment of Merger Consideration. Any amounts paid by Shareholders
pursuant to Section 12.02 or by GDSC pursuant to Section 12.03 shall be treated
as adjustments to the Merger Consideration.
12.07 Rights Not Exclusive. An indemnified party's rights to
indemnification under this Article 12 are in addition to, and not in lieu of,
any other rights to which the indemnified party may be entitled at law or in
equity.
ARTICLE XIII
Confidentiality; Press Releases
13.01 Confidentiality.
13.01-1 No information concerning DDS or the Shareholders not
previously disclosed to the public or in the public domain that has been
furnished to or obtained by GDSC under this Agreement or in connection with the
transactions contemplated hereby shall be disclosed to any person other than in
confidence to employees, legal counsel, financial advisers or independent public
accountants of GDSC or used for any purpose other than as contemplated herein.
If the transactions contemplated by this Agreement are not consummated, GDSC
shall hold such information in confidence for a period of two years from the
date of any termination of this Agreement or such longer period as is required
by agreement or law, and all such information that is in writing or embodied on
a diskette, tape or other tangible medium shall be promptly returned to DDS.
13.01-2 No information concerning GDSC or GD Merger not previously
disclosed to the public or in the public domain that has been furnished to or
obtained by DDS or Shareholders under this Agreement or in connection with the
transactions contemplated hereby shall be disclosed to any person other than in
confidence to the employees, legal counsel, financial advisers or independent
public accountants of Shareholders and DDS or used for any purpose other than as
contemplated herein. If the transactions contemplated by this Agreement are not
consummated, DDS and Shareholders shall hold such information in confidence for
a period of two years from the date of any termination of this Agreement or such
longer period as is required by agreement or law, and all such information that
is in writing or embodied on a diskette, tape or other tangible medium shall be
promptly returned to GDSC.
13.01-3 Notwithstanding the foregoing, such obligations of GDSC and of
DDS and Shareholders shall not apply to information
(a) that is, or becomes, publicly available from a source other
than GDSC or DDS or Shareholders, as the case may be;
(b) that was known and can be shown to have been known by GDSC at
the time of its receipt from Shareholders or DDS, or by Shareholders or DDS at
the time of its receipt from GDSC, as the case may be;
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(c) that is received by GDSC from a third party without breach of
this Agreement by GDSC, or is received by DDS or Shareholders from a third party
without breach of this Agreement by DDS or Shareholders, as the case may be;
(d) that is required by law to be disclosed; or
(e) that is disclosed in accordance with the written consent of
GDSC or of Shareholders or DDS, as the case may be.
13.02 Press Releases. No press releases or other public announcements
concerning the transactions contemplated by this Agreement shall be made by
Shareholders or DDS without the prior written consent of GDSC; provided,
however, that nothing herein shall prevent a party from supplying such
information or making statements as required by governmental authority or in
order for a party to satisfy its legal obligations (prompt notice of which shall
in any such case be given to the other party or parties).
ARTICLE XIV
Other Provisions
14.01 Benefit and Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. No party hereto may voluntarily or involuntarily assign such
party's interest under this Agreement without the prior written consent of the
other parties.
14.02 Entire Agreement. This Agreement and the Schedules and Exhibits
referred to herein embody the entire agreement and understanding of the parties
and supersede any and all prior agreements, arrangements and understandings
relating to matters provided for herein.
14.03 Fees and Expenses. GDSC shall be solely responsible for all costs and
expenses incurred by it, and Shareholders shall be solely responsible for all
costs and expenses incurred by DDS and Shareholders, in connection with the
negotiation, preparation and performance of and compliance with the terms of
this Agreement.
14.04 Amendment, Waiver, etc. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the party against
which enforcement of such amendment or waiver is sought. Any waiver of any term
or condition of this Agreement or any breach hereof shall not operate as a
waiver of any other such term, condition or breach, and no failure to enforce
any provision hereof shall operate as a waiver of such provision or of any other
provision hereof.
14.05 Headings. The headings are for convenience only and will not control
or affect the meaning or construction of the provisions of this Agreement.
38
<PAGE>
14.06 Governing Law. The construction and performance of this Agreement
will be governed by the laws of the State of California (except for the choice
of law provisions thereof).
14.07 Notices. Any notice, demand or request required or permitted to be
given under the provisions of this Agreement shall be in writing; shall be
delivered personally, including by means of telecopy, or mailed by registered or
certified mail, postage prepaid and return receipt requested; shall be deemed
given on the date of personal delivery or on the date set forth on the return
receipt; and shall be delivered or mailed to the addresses or telecopy numbers
set forth on the first page of this Agreement or to such other address as any
party may from time to time direct, with copies to:
In the case of GDSC:
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2300
Portland, OR 97204
Telecopy No.: (503) 220-2480
Attention: Edward L. Epstein
In the case of Shareholders:
Klein & Martin
2029 Century Park East, Suite 2550
Los Angeles, CA 90067
Telecopy No.: (310) 201-0108
Attention: Eric A. Klein
14.08 Breach; Equitable Relief. The parties acknowledge that the assets and
rights of the parties described in this Agreement are unique and that money
damages alone for breach of this Agreement would be inadequate. Any party
aggrieved by a breach of the provisions hereof may bring an action at law or
suit in equity to obtain redress, including specific performance, injunctive
relief or any other available equitable remedy. Time and strict performance are
of the essence in this Agreement.
14.09 Attorneys' Fees. If suit or action is filed by any party to enforce
the provisions of this Agreement or otherwise with respect to the subject matter
of this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees as fixed by the trial court and, if any appeal is taken from the
decision of the trial court, reasonable attorneys' fees as fixed by the
appellate court. For purposes of this Agreement, the term "prevailing party"
shall be deemed to include a party that successfully opposes a petition for
review filed with an appellate court.
39
<PAGE>
14.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
GDSC: GENTLE DENTAL SERVICE CORPORATION
By: L.T. VAN EERDEN
--------------------------------------
Title: CFO
-----------------------------------
GD Merger: GENTLE DENTAL MERGER CORPORATION.
By: L.T. VAN EERDEN
--------------------------------------
Title: CFO
-----------------------------------
DDS: DEDICATED DENTAL SYSTEMS, INC.
By: ARTHUR G. KAISER, DDS
--------------------------------------
Title: PRESIDENT
-----------------------------------
SHAREHOLDERS:
ARTHUR G. KAISER
------------------------------------------
Arthur G. Kaiser, DDS
ROBERT J. NEWMAN
------------------------------------------
Robert J. Newman
40
ASSET PURCHASE AGREEMENT
among
Gentle Dental Service Corporation,
a Washington Corporation,
California Dental Practice Management Company,
a California General Partnership,
Arthur G. Kaiser, D.D.S,
Robert J. Newman
and
Mark Thomas, D.D.S.
Dated September 21, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Purchase and Sale of Assets
1.01 Purchase and Sale.................................................2
1.02 Excluded Assets...................................................3
1.03 Assumption of Liabilities.........................................3
1.04 Purchase Price....................................................4
1.05 Purchase Price Adjustment and Issuance of Shares..................5
1.06 Instruments of Conveyance and Transfer............................6
1.07 Further Assurances................................................6
1.08 Closing...........................................................7
1.09 Sales Tax.........................................................7
1.10 Allocation of Purchase Price......................................7
ARTICLE II
Representations and Warranties of GDSC
2.01 Authorization.....................................................7
2.02 Capitalization....................................................7
2.03 Compliance........................................................8
2.04 Consents..........................................................8
2.05 Accuracy of Representations & Warranties..........................8
2.06 Employment Matters................................................8
2.07 Financial Statements..............................................9
2.08 Absence of Certain Changes or Events..............................9
2.09 Title and Condition of Tangible Assets...........................10
2.10 Insurance........................................................10
2.11 Taxes............................................................11
2.12 Certain Interests................................................11
2.13 No Restrictions..................................................11
2.14 Permits and Licenses.............................................11
2.15 Environmental Conditions.........................................12
2.16 Records..........................................................12
2.17 Reliance.........................................................12
ARTICLE III
Individual Representations and Warranties of Thomas
3.01 Investment Representations.......................................12
3.02 Access to Information............................................13
3.03 Sophistication...................................................13
i
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Page
3.04 Accredited Investor..............................................13
ARTICLE IV
Representations and Warranties of the Sellers and the Partners
4.01 Authority of Partners............................................13
4.02 Organization and Authority of DPM................................14
4.03 Authority of Thomas..............................................14
4.04 No Adverse Consequences..........................................14
4.05 Brokers and Finders..............................................14
4.06 Litigation.......................................................14
4.07 Compliance with Laws.............................................15
4.08 Employment Matters...............................................15
4.09 Financial Statements.............................................16
4.10 Receivables......................................................17
4.11 Prepaid Expenses and Other.......................................17
4.12 Personal Property................................................17
4.13 Payables.........................................................17
4.14 Indebtedness.....................................................17
4.15 Other Liabilities................................................17
4.16 Absence of Certain Changes or Events.............................17
4.17 Leases...........................................................17
4.18 Certain Contracts and Arrangements...............................18
4.19 Status of Contracts and Leases...................................18
4.20 Title and Condition of Tangible Assets...........................19
4.21 Insurance........................................................20
4.22 Taxes............................................................20
4.23 No Restrictions..................................................20
4.24 Permits and Licenses.............................................20
4.25 Certain Payments.................................................20
4.26 Environmental Conditions.........................................21
4.27 Consents and Approvals...........................................21
4.28 Records..........................................................21
4.29 Reliance.........................................................21
4.30 Accuracy of Representations and Warranties.......................21
ii
<PAGE>
Page
ARTICLE V
Covenants of Sellers and the Partners
5.01 Access to Properties, Books and Records..........................21
5.02 Negative Covenants...............................................22
5.03 Affirmative Covenants............................................23
5.04 No Negotiations With Others......................................24
5.05 401(k) Plan......................................................24
5.06 Formation of Professional Corporations...........................24
5.07 Employees........................................................24
5.08 Restrictions on Sale of Shares of GDSC Common Stock..............25
ARTICLE VI
Covenants of GDSC
6.01 Registration Rights..............................................26
ARTICLE VII
Joint Covenants
7.01 Governmental Consents............................................29
7.02 Best Efforts; No Inconsistent Action.............................29
ARTICLE VIII
Conditions to Obligations of GDSC
8.01 Governmental Approvals...........................................29
8.02 Consents.........................................................30
8.03 Representations, Warranties and Covenants........................30
8.04 Adverse Proceedings..............................................30
8.05 No Adverse Change................................................30
8.06 Support Services Agreement.......................................30
8.07 Option Agreement.................................................30
8.08 Employment Agreements............................................30
8.09 Closing of the Transactions......................................31
8.10 Fairness Opinion.................................................31
8.11 Professional Corporation.........................................31
8.12 Lease............................................................31
8.13 Actions Satisfactory to GDSC's Counsel...........................31
iii
<PAGE>
Page
ARTICLE IX
Conditions to Obligations of Sellers
9.01 Representations, Warranties and Covenants........................31
9.02 Adverse Proceedings..............................................32
9.03 Actions Satisfactory to Seller's Counsel.........................32
ARTICLE X
Termination
10.01 Right of Parties to Terminate....................................32
10.02 Effect of Termination............................................32
ARTICLE XI
Survival; Indemnification
11.01 Survival.........................................................33
11.02 Indemnification by Sellers and Partners..........................33
11.03 Indemnification by GDSC..........................................34
11.04 Indemnification Procedure........................................34
11.05 Limitation on Indemnification Obligations........................36
11.06 Rights Not Exclusive.............................................36
ARTICLE XII
Confidentiality; Press Releases
12.01 Confidentiality..................................................36
12.02 Press Releases...................................................37
ARTICLE XIII
Other Provisions
13.01 Benefit and Assignment...........................................37
13.02 Entire Agreement.................................................37
13.03 Fees and Expenses................................................37
13.04 Amendment, Waiver, etc...........................................38
13.05 Headings.........................................................38
13.06 Governing Law....................................................38
13.07 Notices..........................................................38
iv
<PAGE>
Page
13.08 Breach; Equitable Relief.........................................38
13.09 Attorneys' Fees..................................................39
13.10 Counterparts.....................................................39
v
<PAGE>
INDEX OF DEFINED TERMS
Term Location of Definition
1933 Act............................................ 3.01
401(k) Plan......................................... 5.05
Assets.............................................. 1.01
Assumed Liabilities................................. 1.04-4
Closing............................................. 1.08
Closing Date........................................ 1.08
Code................................................ 4.08-2
Contracts........................................... 1.01-6
Current Balance Sheet............................... 4.09-1
Damages............................................. 11.02-1
DPM................................................. Introduction
Dental Practice..................................... Introduction
Earnout Payment..................................... 1.04-5
EBITDA.............................................. 1.04-5
ERISA............................................... 2.06-2
ERISA Plans......................................... 4.08-2
Environmental Law................................... 2.15-2
Exchange Act........................................ 6.01-6
Financial Statements................................ 4.09-1
GDSC................................................ Introduction
GDSC Common Stock................................... 1.04-3
GDSC Current Balance Sheet.......................... 2.07
GDSC ERISA Plants................................... 2.06-2
GDSC Financial Statements........................... 2.07
GDSC Material Adverse Effect ....................... Article II Introduction
GDSC Material Adverse Change ....................... Article II Introduction
GDSC Permits........................................ 2.14
GDSC Policies....................................... 2.10
GDSC Returns........................................ 2.11-1
GDSC's Indemnified Persons.......................... 11.02-1
Hazardous Substance................................. 2.15-2
Indemnified Party................................... 6.01-6(c)
Indemnifying Party.................................. 6.01-6(c)
Leases.............................................. 1.01-5
Material Adverse Change............................. Article IV Introduction
Material Adverse Effect............................. Article IV Introduction
Net Current Assets.................................. 1.05-6
Partners............................................ Introduction
Permits............................................. 4.24
Policies............................................ 4.21
Professional Contracts.............................. 1.01-6
Professional Corporation............................ Introduction
Purchase Price...................................... 1.04
Purchase Price Adjustment........................... 1.05-1
vi
<PAGE>
Real Property....................................... 4.17
Registrable Securities.............................. 6.01-1
Related Documents................................... 11.01
Requesting Shareholders............................. 6.01-2(b)
Returns............................................. 4.22-1
Sellers............................................. Introduction
Sellers' Indemnified Persons........................ 11.03-1
Shares.............................................. 3.01
Stock Price......................................... 1.04-3
Tangible Personal Property.......................... 4.12
Taxes............................................... 2.11-3
Third Party Claims.................................. 11.04-1(a)
Thomas.............................................. Introduction
Thomas Professional Corporation..................... Introduction
Transactions........................................ 8.10
vii
<PAGE>
LIST OF EXHIBITS
Exhibit Item First Reference
A Assumption Agreement 1.04-4
B Assignment and Bill of Sale to GDSC 1.06
C-1 Assignment to Thomas Professional Corporation 1.06
C-2 Assignment to Professional Corporation 1.06
D Support Services Agreement 8.06
E Assignable Option Agreement 8.07
F Employment Agreement 8.08
G Addendum to Employment
Agreement 8.08
H Articles and Bylaws of Professional
Corporation 5.06
LIST OF SCHEDULES
Schedule Content
1.02-2 Excluded Assets
1.10 Purchase Price Allocation
2.04 Consents
4.06 Litigation
4.08-2 Employee Benefits
4.08-3 Employment Manuals and Policies
4.08-4 Compensation
4.09 Financial Statements
4.10 Receivables
4.11 Prepaid Expenses and Other
4.12 Tangible Personal Property
4.13 Payables
4.14 Indebtedness
4.15 Other Liabilities
4.17 Leases
4.18 Contracts
4.21 Insurance
4.27 Consents and Approvals
viii
<PAGE>
ASSET PURCHASE AGREEMENT
DATED: September 21, 1997
BETWEEN: GENTLE DENTAL SERVICE CORPORATION,
a Washington corporation
900 Washington Street, Suite 1100
Vancouver, WA 98660
Telecopy No.: (360) 750-8667 "GDSC"
AND: CALIFORNIA DENTAL PRACTICE MANAGEMENT COMPANY
a California general partnership
3990 Ming Avenue
Bakersfield, CA 93309
Telecopy No.: ________________ "DPM"
AND: Arthur G. Kaiser, D.D.S.
Robert J. Newman
3990 Ming Avenue
Bakersfield, CA 93309
Telecopy No.: ________________ "Partners"
AND: Mark Thomas, D.D.S.
Crosstown Family Dentistry
2415 "G" Street
Bakersfield, CA 93301
Telecopy No.: ________________ "Thomas"
Partners are the owners of all of the partnership interests of DPM. DPM
provides management support and other services to dental practices, including
dental practices conducted by Thomas under the names Crosstown Family Dentistry
and Wasco Family Dentistry (the "Dental Practice") at 2415 "G" Street,
Bakersfield, California, 93301 and 1414 7th Street, Wasco, California 93280 (the
"Practice Locations"). DPM and Thomas desire to sell, and GDSC desires to
purchase, substantially all of the assets of the Dental Practice (the "Assets")
on the terms and conditions set forth in this Agreement. After the completion of
the purchase, dental services will be provided to the patients of the Dental
Practice at the Bakersfield Practice Location by Thomas Dental Corporation,
d.b.a. Crosstown Family Dentistry, a Dental Office of Dr. Mark Thomas (the
"Thomas Professional Corporation"), and Thomas will become an employee of the
Thomas Professional Corporation; and dental services will be provided to
patients of the Dental Practice at the Wasco Practice Location by a new
professional corporation (the "Professional Corporation") to be formed as set
forth in this Agreement. DPM and Thomas are collectively referred to as the
"Sellers."
1
<PAGE>
In consideration of the mutual promises and covenants contained in this
Agreement, the parties agree as follows:
ARTICLE I
Purchase and Sale of Assets
1.01 Purchase and Sale. Subject to all the terms and conditions of this
Agreement and for the consideration herein stated, on the "Closing Date," as
that term is defined in Section 1.08, Sellers agree to sell, convey, assign,
transfer and deliver to GDSC (or with respect to certain assets as specified in
Section 1.06, to the Professional Corporation or the Thomas Professional
Corporation), and GDSC agrees to purchase and accept from Sellers, all of the
assets, properties and rights of Sellers (other than the assets specified in
Section 1.02), tangible and intangible, wherever located, that are used or
useful to maintain and operate the Dental Practice, which assets (the "Assets")
shall include without limitation:
1.01-1 All patient lists, charts, files and patient records, and all
other operating data and records relating to the Dental Practice, including
without limitation financial, accounting and credit records, correspondence,
budgets, engineering and facility records and other similar documents and
records;
1.01-2 All other items of tangible personal property of the Sellers
used in connection with or associated with the Dental Practice, including
furniture, fixtures, equipment, supplies, inventory and spare and replacement
items therefor, including without limitation all such items listed on Schedule
4.12 and all such items acquired by the Sellers after the date hereof and on or
before the Closing Date, other than to the extent such items are disposed of by
the Sellers prior to the Closing Date without breach of this Agreement;
1.01-3 All accounts receivable and other receivables associated with
the Dental Practice, including without limitation all receivables listed on
Schedule 4.10 and all receivables acquired after August 31, 1997 and on or
before the Closing Date, other than to the extent such receivables have been
collected by the Sellers prior to the Closing Date;
1.01-4 All prepaid and deferred items relating to the Dental Practice,
including prepaid rent, insurance, taxes and unbilled charges and deposits,
including without limitation all such items listed on Schedule 4.11;
1.01-5 All leases of real or personal property used or useful in the
Dental Practice, including without limitation all leases listed on Schedule 4.17
and all leases entered into after the date hereof and on or before the Closing
Date and expressly assumed by GDSC in writing on the Closing Date as provided in
Section 1.04-4(d), other than to the extent such leases have terminated, expired
or been disposed of by the Sellers prior to the Closing Date without breach of
this Agreement (collectively, the "Leases");
2
<PAGE>
1.01-6 All rights, benefits and interests of the Sellers under the
contracts and agreements for provision of dentistry services including without
limitation contracts with third payors, dentists or other professionals (the
"Professional Contracts") and the other contracts, agreements, commitments,
understandings, purchase orders, documents and instruments listed on Schedule
4.18 hereto and under any contracts, agreements, commitments, understandings,
purchase orders, documents or instruments entered into between the date hereof
and the Closing Date and expressly assumed by GDSC in writing on the Closing
Date as provided in Section 1.04-4(d), other than to the extent such items have
terminated, expired or been disposed of by the Sellers prior to the Closing Date
without breach of this Agreement (collectively, the "Contracts");
1.01-7 All assignable rights to all telephone lines and numbers used
in the conduct of the Dental Practice; and
1.01-8 All right, title and interest in and to all trade names used in
conjunction with the Dental Practice.
1.02 Excluded Assets. The Assets shall not include the following:
1.02-1 Any lease not listed on Schedule 4.17 and any contract,
agreement, commitment, understanding, purchase order, document or instrument not
listed on Schedule 4.18, unless pursuant to Section 1.04-4(d) GDSC expressly
agrees in writing on the Closing Date to assume the obligations under such
lease, contract, agreement, commitment, understanding, purchase order, document
or instrument, in which case the Sellers shall assign their rights and benefits
thereunder to GDSC and the same shall be treated as a "Lease" or "Contract" for
purposes of this Agreement; and
1.02-2 The assets identified on Schedule 1.02-2.
1.03 Assumption of Liabilities. Except for the liabilities and obligations
to be assumed by GDSC pursuant to Section 1.04-4, GDSC will not assume and will
not be liable for any liabilities of the Sellers, known or unknown, contingent
or absolute, accrued or other, and the Assets shall be free of all liabilities,
obligations, liens and encumbrances. Without limiting the generality of the
foregoing and except as otherwise provided above, GDSC will not be responsible
for any of the following:
1.03-1 Liabilities, obligations or debts of the Sellers, whether
fixed, contingent or mixed and whether based on events occurring before or after
the Closing Date, including without limitation those based on tort, contract,
statutory or other claims or involving fines or penalties payable to any
governmental authority;
1.03-2 Liabilities, obligations or debts of the Sellers for any
federal, state or local tax, including without limitation federal income taxes,
state income and excise taxes, state and local real and personal property taxes
and federal, state and local withholding and payroll taxes;
1.03-3 Liabilities or obligations of the Sellers to employees for
salaries, bonuses or health and welfare benefits or with respect to any profit
sharing, stock bonus, pension, retirement,
3
<PAGE>
stock purchase, option, bonus or deferred compensation plan or for any other
benefits or compensation (including without limitation accrued vacation or sick
leave); and
1.03-4 Liabilities or obligations of the Sellers for employee
severance payments or arrangements resulting from termination of the Sellers'
employees.
1.04 Purchase Price. The total purchase price for the Assets (the "Purchase
Price") shall be the following:
1.04-1 $1,398,980.00, payable by check to DPM on the Closing Date.
1.04-2 $810,000.00, payable by check to Thomas on the Closing Date.
1.04-3 A number of shares of common stock of GDSC ("GDSC Common
Stock") determined by dividing $270,000.00 by a number (the "Stock Price") equal
to the average of the closing prices of GDSC Common Stock reported by NASDAQ for
the thirty trading days prior to the date of this Agreement, subject to
adjustment as set forth in Section 1.05, to be issued to Thomas in accordance
with that Section.
1.04-4 The assumption by GDSC on the Closing Date, pursuant to the
terms of an Assumption Agreement in substantially the form attached hereto as
Exhibit A, of the following liabilities of the Sellers (the "Assumed
Liabilities"):
1.04-4(a) the accounts payable and accrued liabilities associated
with the Dental Practice identified on Schedule 4.13 in the amounts associated
with each at the Closing Date;
1.04-4(b) all liabilities of the Sellers of a type identified on
Schedule 4.13 and incurred in the ordinary course of business after August 31,
1997 and on or before the Closing Date (to the extent such liabilities are not
paid or discharged prior to the Closing Date), but specifically excluding any
liabilities for brokers' and attorneys' fees and other expenses of this
transaction and accrued liabilities for taxes based on the income or revenues of
the Dental Practice;
1.04-4(c) all obligations of the Sellers under any of the Leases
or Contracts listed on Schedule 4.17 or Schedule 4.18 hereto; and
1.04-4(d) all obligations of the Sellers under any lease,
contract, agreement, commitment, understanding, purchase order, document or
instrument entered into by the Sellers between the date of this Agreement and
the Closing Date that GDSC, in its sole discretion, elects on the Closing Date
to assume.
1.04-5 An additional payment to be made to Thomas (the "Earnout
Payment") to be made as provided in this Section 1.04-5. The average annual
EBITDA (as defined below) for the 24-month period beginning on the day after the
Closing Date shall be multiplied by .438 to determine the Earnout Payment. The
"EBITDA" shall mean the combined net income of (a) the Professional Corporation,
(b) the Thomas Professional Corporation and (c) GDSC from the provision of
services to the Professional Corporation and the Thomas Professional
Corporation, before any reduction for
4
<PAGE>
interest, income taxes, depreciation or amortization, and excluding any
allocation of GDSC corporate or regional overhead expense, as reflected on a
combined income statement for the Practice Locations prepared in conformity with
generally accepted accounting principles applied in a manner consistent with the
application of such principles to the preparation of GDSC's audited financial
statements. In the event that GDSC exercises its rights under Sections 1.4 or
1.5 of the Assignable Option Agreement described in Section 8.07 of this
Agreement, the "EBITDA" shall mean the net income of the Successor Shareholder
(as defined in the Assignable Option Agreement) from the Dental Practice, before
any reduction for interest, income taxes, depreciation or amortization and
excluding any allocation of corporate or regional overhead expense, as reflected
on income statement for the Practice Locations prepared in conformity with
generally accepted accounting principles applied in a manner consistent with the
application of such principles to the preparation of GDSC's audited financial
statements. The calculation of the Earnout Amount and payment of the Earnout
Payment, if any, shall be completed within 90 days of the completion of the
aforementioned 24- month period.
1.05 Purchase Price Adjustment and Issuance of Shares. The Purchase Price
may be subject to adjustment after Closing as set forth in this Section 1.05.
1.05-1 As soon as reasonably possible after Closing, the amount of the
"Net Current Assets" (as defined in Section 1.05-6) shall be determined as
provided in Section 1.05-7. If the amount of Net Current Assets is $40,000 more
or less than $80,000, the Purchase Price shall be adjusted by the full amount of
the difference (the "Purchase Price Adjustment"). If the difference between Net
Current Assets and $80,000 does not exceed $40,000, there shall be no Purchase
Price Adjustment.
1.05-2 If the Purchase Price is to be adjusted under Section 1.05-1,
51% of the Purchase Price Adjustment shall be allocated to DPM and 49% of the
Purchase Price Adjustment shall be allocated to Thomas.
1.05-3 If the Net Current Assets are greater than $120,000, the
Purchase Price Adjustment allocated to DPM shall be paid to DPM by check within
10 days after Sellers deliver the certificate described in Section 1.05-7. If
the Net Current Assets are less than $40,000, the Purchase Price Adjustment
allocated to DPM shall be paid by DPM to GDSC by check within 10 days after
Sellers deliver the certificate described in Section 1.05-7.
1.05-4 If the Net Current Assets are greater than $120,000, the
Purchase Price Adjustment allocated to Thomas shall be made by increasing the
number of shares of GDSC Common Stock issuable under Section 1.04-3. If the Net
Current Assets are less than $40,000, the Purchase Price Adjustment allocated to
Thomas shall be made by decreasing the number of shares of GDSC Common Stock
issuable under Section 1.04-3. The amount of the increase or decrease in the
number of shares issuable to Thomas shall be determined by dividing the Purchase
Price Adjustment allocated to Thomas by the Stock Price.
1.05-5 Within 10 days after Sellers deliver the Certificate described
in Section 1.05-7, the shares of GDSC Common Stock issuable pursuant to Section
1.04-3, adjusted as set forth in Section 1.05-4, shall be issued to Thomas.
5
<PAGE>
1.05-6 "Net Current Assets" means the sum of (a) accounts receivable
of the Dental Practice, net of contractual allowances and bad debt reserve, as
of the Closing Date and (b) any prepaid expenses properly recordable on a
balance sheet for the Dental Practice as of the Closing Date reduced by the sum
of (x) the accounts payable of the Dental Practice at the Closing Date and (y)
the accrued liabilities of the Dental Practice at the Closing Date, specifically
including an accrual of payroll and payroll-related charges up to and including
the Closing Date, all as determined consistently with the accounting conventions
applied in determining the amounts set forth in paragraphs 1.05-1, 1.05-3 and
1.05-4 above.
1.05-7 At or after the Closing Date, and as a condition to the
issuance to Thomas of certificates for GDSC Common Stock pursuant to Section
1.05-5, Sellers shall execute and deliver to GDSC a certificate detailing the
calculation of Net Current Assets and including as schedules thereto lists of
all receivables, prepaid expenses, payables and accrued liabilities as of the
Closing Date included in the calculation. In this certificate Sellers shall
certify the accuracy and completeness of the schedules to the certificate and
the accuracy of the calculation of Net Current Assets.
1.06 Instruments of Conveyance and Transfer. The sale of the Assets, and
the conveyance, assignment, transfer and delivery of all of the Assets other
than the patient charts, the Professional Contracts and rights to the trade
names "Crosstown Family Dentistry" and "Wasco Family Dentistry," shall be
effected by the Seller's execution and delivery to GDSC, on the Closing Date, of
a bill of sale in substantially the form of the Assignment and Bill of Sale
attached hereto as Exhibit B. The conveyance, assignment, transfer and delivery
of Sellers' patient charts, the Professional Contracts and the rights to the
trade names "Crosstown Family Dentistry" and "Wasco Family Dentistry" shall be
effected by the Sellers' execution and delivery to the Thomas Professional
Corporation and the Professional Corporation, on the Closing Date, of
assignments in substantially the form of the Assignments attached hereto as
Exhibit C-1 and C-2.
1.07 Further Assurances. The Sellers agree that, at any time and from time
to time on and after the Closing Date, they will, upon the request of GDSC and
without further consideration, take all steps reasonably necessary to place GDSC
(or the Professional Corporation or the Thomas Professional Corporation, as the
case may be) in possession and operating control of the Assets and the Sellers
will do, execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all further acts, deeds, assignments, conveyances,
transfers, powers of attorney or assurances as reasonably required to sell,
assign, convey, transfer, grant, assure and confirm to GDSC (or the Professional
Corporation or the Thomas Professional Corporation, as the case may be), or to
aid and assist in the collection of or reducing to possession by GDSC (or the
Professional Corporation or the Thomas Professional Corporation, as the case may
be) of, all of the Assets, or to vest in GDSC (or the Professional Corporation
or the Thomas Professional Corporation, as the case may be) good, valid and
marketable title to the Assets.
1.08 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Stoel Rives LLP,
900 SW Fifth Avenue, Suite 2300, Portland, Oregon, effective as of the close of
business on the last day of the month in which all conditions to Closing are
satisfied (other than those conditions that by their terms are to occur at the
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Closing) or at another date, time and place agreed upon in writing by the
parties (the "Closing Date").
1.09 Sales Tax. The Sellers shall pay, at their sole expense, any sales tax
owing in respect of the purchase of the Assets. The Sellers shall promptly file
all necessary sales tax returns and pay all sales taxes due following the
Closing Date. As soon as practicable following the Closing Date, the Sellers
shall deliver to GDSC receipts from the appropriate taxing authorities showing
that all sales taxes owing have been paid.
1.10 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in accordance with Schedule 1.10, and GDSC and the Sellers
shall be bound by that allocation in reporting the transactions contemplated by
this Agreement to any governmental authority (including without limitation the
Internal Revenue Service).
ARTICLE II
Representations and Warranties of GDSC
As used in this Agreement, "GDSC Material Adverse Effect" means an adverse
effect on the business, results of operations, financial position, assets or
prospects of GDSC that would be considered material under federal securities
laws; and "GDSC Material Adverse Change" means any change that has resulted,
will result or is likely to result in a GDSC Material Adverse Effect. GDSC
represents and warrants to the Sellers as follows:
2.01 Authorization. GDSC is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Washington and has all
requisite corporate power and authority to own and operate its properties and to
carry on its business as now conducted. GDSC has taken all corporate action
necessary to authorize its execution, delivery and performance of this
Agreement. GDSC has full corporate power and authority to enter into this
Agreement and carry out the terms hereof. This Agreement has been duly executed
and delivered by GDSC and is binding upon and enforceable against GDSC in
accordance with its terms, except as enforceability may be limited or affected
by applicable bankruptcy, insolvency, reorganization, or other laws of general
application relating to or affecting creditors' rights generally and except as
enforceability may be limited by rules of law governing specific performance,
injunctive relief or other equitable remedies.
2.02 Capitalization. The authorized capital stock of GDSC consists of
50,000,000 shares of Common Stock, of which 3,144,404 shares are issued and
outstanding; and 30,000,000 shares of Preferred Stock, of which no shares are
issued and outstanding. All issued and outstanding shares of GDSC capital stock
are validly issued, fully paid and nonassessable, and have been issued without
violation of any preemptive rights. There is no subscription, option, warrant,
call, right, agreement or commitment (including any right of conversion or
exchange under any outstanding security or other instrument) relating to the
issuance by GDSC of GDSC capital stock other than outstanding options under the
GDSC 1993 Stock Incentive Plan, outstanding purchase rights under the GDSC
Employee Stock Purchase Plan and the GDSC Professional Corporation Employee
Stock Purchase Plan, warrants described in GDSC's Registration Statement on Form
SB-2 (Registration No.
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333-13529) and outstanding offers and/or agreements to acquire other dental
practices or dental practice management companies in exchange for Common Stock.
The GDSC Common Stock to be issued under this Agreement will, when issued, be
duly and validly authorized and issued, fully paid and nonassessable.
2.03 Compliance. The execution, delivery and performance of this Agreement
by GDSC, the compliance by GDSC with the provisions of this Agreement and the
consummation of the transactions described in this Agreement will not conflict
with or result in the breach of any of the terms or provisions of or constitute
a default under:
2.03-1 the articles of incorporation or bylaws of GDSC;
2.03-2 any note, indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which GDSC is a party or by which GDSC
is bound; or
2.03-3 any statute or any order, rule, regulation or decision of any
court or regulatory authority or governmental body applicable to GDSC.
2.04 Consents. No consent, approval, authorization, order, designation or
declaration of any court or regulatory authority or governmental body, federal
or other, or third person is required to be obtained by GDSC for the
consummation of the transactions described in this Agreement.
2.05 Accuracy of Representations & Warranties. None of the representations
or warranties of GDSC contains or will contain any untrue statement of any
material fact or omits or misstates a material fact necessary to make the
statements contained in this Agreement not misleading. GDSC does not know of any
fact that has resulted or that, in the reasonable judgment of GDSC will result,
in any material adverse change in GDSC's business, results of operation,
financial condition or prospects that has not been set forth in this Agreement.
2.06 Employment Matters.
2.06-1 Labor Matters. GDSC is and has been in compliance with all
applicable laws regarding employment and employment practices, terms and
conditions of employment, wages and hours and is not and has not been engaged in
any unfair labor practice. There is no (1) unfair labor practice complaint
against GDSC pending before the National Labor Relations Board or any other
governmental authority, (2) labor strike, slowdown or work stoppage actually
occurring or, to the best of the knowledge of GDSC, threatened against GDSC, (3)
representation petition respecting GDSC's employees pending before the National
Labor Relations Board, or (4) grievance or any arbitration proceeding pending
arising out of or under collective bargaining agreements applicable to GDSC.
GDSC has not experienced any primary work stoppage or other organized work
stoppage involving its employees in the past two years.
2.06-2 Employee Benefits. The employee pension benefit plans (within
the meaning of Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") established and maintained by GDSC that are subject
to ERISA (the "GDSC ERISA Plans") comply with the applicable requirements of
ERISA. GDSC has received from the Internal Revenue Service
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a favorable determination for each of the GDSC ERISA Plans and their related
trusts that each of the GDSC ERISA Plans is qualified under Section 401(a) of
the Code and the related trust is tax-exempt under Section 501(a) of the Code.
There has been no event subsequent to that determination that has adversely
affected the tax qualified status of the GDSC ERISA Plans or the exemption of
the related trusts other than changes in the Code that are not effective as of
the Closing Date. No "accumulated funding deficiency" as defined in Section
302(a)(2) of ERISA or Section 412(a) of the Code exists, or has existed, with
respect to any of the GDSC ERISA Plans. The present value of all accrued
benefits under each of the GDSC ERISA Plans does not exceed the value of such
plan's assets, less all liabilities other than those attributable to accrued
benefits. GDSC has no "potential withdrawal liability," as defined in Section
4201 of ERISA. None of the GDSC ERISA Plans, its related trusts or any trustee,
investment manager or administrator thereof has engaged in a nonexempt
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code. There are not and have not been any excess deferrals
or excess contributions under any GDSC ERISA Plan. Each GDSC ERISA Plan is and
has been operated and administered in conformance with the requirements of all
applicable laws and regulations, whether or not the GDSC ERISA Plan documents
have been amended to reflect such requirements.
2.07 Financial Statements.
2.07-1 GDSC's Annual Report to Shareholders for the year ended
December 31, 1996 contains audited balance sheets of GDSC as of December 31,
1996 and 1995, and the related audited statements of income for the years then
ended, and GDSC's Quarterly Report on Form 10-QSB for the quarter ended June 30,
1997 contains the unaudited balance sheet of GDSC as of June 30, 1997 (the "GDSC
Current Balance Sheet") and the related statement of income for the six months
then ended (all such balance sheets and statements collectively, the "GDSC
Financial Statements").
2.07-2 The GDSC Financial Statements present fairly
(a) the financial position of GDSC as of the dates indicated and
(b) the results of operations for the periods then ended, all in
conformity with generally accepted accounting principles applied on a consistent
basis.
2.08 Absence of Certain Changes or Events. Since the date of the GDSC
Current Balance Sheet, there has not been:
2.08-1 Any GDSC Material Adverse Change or any event, occurrence,
development or state of circumstances or facts which could reasonably be
expected to result in a GDSC Material Adverse Change;
2.08-2 Any damage, destruction or casualty loss, whether insured
against or not, to any of GDSC's assets or properties;
2.08-3 Any increase in the rate or terms of compensation payable or to
become payable by GDSC to its directors, officers or key employees; any increase
in the rate or terms of
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any bonus, insurance, pension or other employee benefit plan, payment or
arrangement made to, for or with any such directors, officers or key employees;
any special bonus or remuneration paid; or any written employment contract
executed or amended;
2.08-4 Any conduct of business which is outside the ordinary course of
business or not substantially in the manner that GDSC previously conducted its
business;
2.08-5 Any incurrence of any noncontract liability which, either
singly or in the aggregate is material to the business, results of operations,
financial condition or prospects of GDSC;
2.08-6 Any change in the assets, liabilities, licenses, permits or
franchises of GDSC, or in any agreement to which GDSC is a party or is bound,
which has had or reasonably could be expected to have a GDSC Material Adverse
Effect.
2.09 Title and Condition of Tangible Assets.
2.09-1 GDSC owns all of its tangible personal property except leased
property free and clear of all mortgages, pledges, security interests, claims,
charges or other encumbrances or restrictions of any kind, except
(a) liens related to obligations disclosed in the GDSC Financial
Statements or
(b) liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the GDSC
Current Balance Sheet).
2.09-2 GDSC has good and absolute title to its tangible personal
property except leased property.
2.09-3 All of GDSC's tangible personal property has been maintained
and operated in accordance with manufacturer's specifications and prudent
industry practices, is in a good state of maintenance and repair, ordinary wear
and tear excepted, and is adequate for the conduct of GDSC's business.
2.09-4 To the knowledge of GDSC, there are no developments affecting
any of its real property or tangible personal property pending or threatened
which might materially detract from the value of such property or assets,
materially interfere with any present or intended use of any such property or
assets or materially adversely affect the marketability of such properties or
assets.
2.10 Insurance. All policies of malpractice, liability, fire, worker's
compensation and other forms of insurance insuring GDSC, its officers, directors
or employees, its assets or its operations (the "GDSC Policies") are valid,
enforceable and in full force and effect, all premiums with respect to the GDSC
Policies covering all periods up to and including the date as of which this
representation is being made have been paid and no notice of cancellation or
termination has been received with respect to any GDSC Policy. The GDSC Policies
are sufficient for compliance with all requirements of law and of agreements to
which GDSC is a party and provide insurance for the
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risks and in the amounts and types of coverage usually obtained by persons using
or holding similar properties in similar businesses. GDSC has not been refused
any insurance coverage and no insurance coverage has been canceled during the
five years preceding the date of this Agreement.
2.11 Taxes.
2.11-1 Returns. GDSC has filed all federal, state and other returns,
reports and information returns required to be filed by it with respect to Taxes
(as defined below) which relate to the business, results of operations or
financial condition of GDSC (collectively, the "GDSC Returns") and has timely
paid all Taxes shown to be due on the GDSC Returns. All GDSC Returns filed are
complete and accurate in all material respects, and no additional Taxes are owed
by GDSC with respect to the periods covered by the GDSC Returns.
2.11-2 Taxes Paid or Reserved. All deficiencies in Taxes asserted or
assessments made by any taxing authority have been fully paid or finally
settled. The reserves for Taxes reflected in the GDSC Current Balance Sheet are
adequate for payment of Taxes with respect to GDSC in respect of all periods
ending on or before the date of the GDSC Current Balance Sheet. All Taxes which
GDSC has been required to collect or withhold have been withheld or collected
and, to the extent required, have been paid to the proper taxing authority.
2.11-3 Definition. "Taxes" means all taxes, charges, fees, levies or
other assessments including, without limitation, income, excise, property,
sales, use and franchise taxes, imposed by the United States or any state,
county, local or foreign government or subdivision or agency thereof, and
including any interest, penalties or additions.
2.12 Certain Interests. No transaction between GDSC and any of its
directors, officers or principal shareholders of a type that would require
disclosure by GDSC under Item 404 of Regulation S-B of the Securities and
Exchange Commission has occurred since February 13, 1997, except for the entry
into a new support services agreement with a professional corporation owned
solely by Dany Y. Tse in connection with a recent dental practice acquisition.
2.13 No Restrictions. No power of attorney or similar authorization given
by GDSC is presently in effect or outstanding. No contract or agreement to which
GDSC is a party or is bound or to which any of its properties or assets is
subject limits the freedom of GDSC to compete in any line of business or with
any person.
2.14 Permits and Licenses. GDSC holds, and at all times has held, all
licenses, permits, franchises, easements and authorizations (collectively, "GDSC
Permits") necessary for the lawful conduct of its business pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all governmental
bodies, agencies and other authorities having jurisdiction over it or any part
of its operations except where the failure to hold any GDSC Permit, singly or in
the aggregate, either alone or with the giving of notice or the passage of time
or both, would not have a GDSC Material Adverse Effect. GDSC is in compliance
with all the terms of each GDSC Permit, and there are no claims of violation by
GDSC of any GDSC Permit.
2.15 Environmental Conditions.
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2.15-1 Compliance. GDSC has operated its business and maintained its
assets, including without limitation its real property, in compliance with all
Environmental Laws. All wastes generated in connection with its business are and
have been transported and disposed of off site in compliance with all
Environmental Laws. Except as otherwise required for the normal operation of a
dental practice, no Hazardous Substance is or has been generated, manufactured,
treated, stored, transported, used or otherwise handled on its real property or
in connection with its business.
2.15-2 Definitions. As used in this Agreement,
(a) "Environmental Law" means any federal, state or local
statute, ordinance or regulation pertaining to the protection of human health or
the environment and any applicable orders, judgments, decrees, permits, licenses
or other authorizations or mandates under such statutes, ordinances or
regulations, and
(b) "Hazardous Substance" means any hazardous, toxic, radioactive
or infectious substance, material or waste as defined, listed or regulated under
any Environmental Law, and includes without limitation petroleum oil and its
fractions.
2.16 Records. The books of account, minute books, stock certificate books
and stock transfer ledgers of GDSC are complete and accurate in all material
respects, and there have been no transactions involving the business of GDSC
which properly should have been set forth therein and which have not been
accurately so set forth.
2.17 Reliance. GDSC recognizes and agrees that, notwithstanding any
investigation by DDS, DDS is relying upon the representations and warranties
made by GDSC in this Agreement.
ARTICLE III
Individual Representations and Warranties of Thomas
Thomas represents and warrants to GDSC as follows:
3.01 Investment Representations. Thomas is acquiring beneficial ownership
of the shares of GDSC Common Stock issuable under this Agreement (the "Shares")
for investment for Thomas's own account, and not with a view to, or for resale
in connection with, any distribution of the Shares. Thomas is not a party to any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to any such person or any third party with
respect to the Shares. Thomas acknowledges and understands that the Shares are
being offered and sold without registration under the Securities Act of 1933
(the "1933 Act") or any state securities law based on exemptions provided under
such laws, and that Thomas's representations contained in this Agreement are
being relied upon by GDSC in connection with those exemptions. Thomas further
acknowledges and agrees that the Shares are restricted securities under federal
securities laws and as such may not be sold or disposed of unless they are
registered under the 1933 Act and all applicable state securities laws or
unless, in the opinion of counsel acceptable to GDSC, exemptions from the
registration requirements of the 1933 Act and all applicable state securities
laws are available. In this regard,
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Thomas acknowledges that GDSC is under no obligation to register Thomas's Shares
except as provided in Section 6.01, that the Shares will not be eligible for
resale in the public market pursuant to Rule 144 under the 1933 Act until one
year after the Closing Date except as provided in Section 6.01, and that Thomas
will bear the economic risk of ownership of the Shares at least until the Shares
become eligible for resale in the public market. Thomas consents to having
appropriate legends placed on the certificates representing the Shares relating
to this restriction on transfer.
3.02 Access to Information. Thomas has received and carefully reviewed the
final Prospectus dated February 13, 1997, GDSC's Annual Report to Shareholders
for the year ended December 31, 1996, and GDSC's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1997. Thomas believes he has received all of the
information he considers necessary or appropriate for deciding whether to
acquire shares of GDSC Common Stock. Thomas further represents that he has had
an opportunity to ask questions and receive answers from GDSC regarding GDSC,
its business and financial condition, and the terms and conditions of the
Agreement.
3.03 Sophistication. Thomas has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and risks of an
investment in the Shares and has the capacity to protect his own interests in
connection with the transaction.
3.04 Accredited Investor. Thomas either (a) has an individual net worth, or
joint net worth with his spouse, of in excess of $1 million, or (b) had an
individual income in excess of $200,000 in each of the two most recent years or
joint income with his spouse in excess of $300,000 in each of those years and
has a reasonable expectation of reaching the same income level in the current
year, and therefore is an "accredited investor" within the meaning of Rule 501
of Regulation D under the 1933 Act.
ARTICLE IV
Representations and Warranties of the Sellers and the Partners
As used in this Agreement, "Material Adverse Effect" means a material
adverse effect on the business, results of operations, financial position,
assets or prospects of the Dental Practice, which shall in any event include any
adverse effect on the assets, revenue or net income of the Dental Practice in
excess of $20,000; and "Material Adverse Change" means any change that has
resulted, will result or is likely to result in a Material Adverse Effect. The
Sellers and the Partners represent and warrant to GDSC as follows:
4.01 Authority of Partners. The Partners have full power and authority to
enter into this Agreement and carry out its terms. This Agreement has been duly
and validly executed and delivered by the Partners and is binding upon and
enforceable against each Partner in accordance with its terms, except as
enforceability may be limited or affected by applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
rights of creditors and except as enforceability may be limited by rules of law
governing specific performance, injunctive relief or other equitable remedies.
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4.02 Organization and Authority of DPM. DPM is a partnership duly organized
and validly existing under the laws of California and has the power to own and
lease its properties and carry on its business as now being conducted. The
Partners hold all of the partnership interests of DPM and no person has any
right to become a partner of DPM or to acquire any interest in DPM. DPM has full
power and authority to enter into this Agreement and to carry out its terms.
This Agreement has been duly and validly executed and delivered by DPM and is
binding upon and enforceable against DPM in accordance with its terms, except as
enforceability may be limited or affected by applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
rights of creditors and except as enforceability may be limited by rules of law
governing specific performance, injunctive relief or other equitable remedies.
4.03 Authority of Thomas. Thomas has the power to own and lease his
properties and carry on his business as now being conducted. Thomas and DPM
together hold all of the ownership interests in the Dental Practice and no other
person has a right to acquire any interest in the Dental Practice. Thomas has
full power and authority to enter into this Agreement and to carry out its
terms. This Agreement has been duly and validly executed and delivered by Thomas
and is binding upon and enforceable against Thomas in accordance with its terms,
except as enforceability may be limited or affected by applicable bankruptcy,
insolvency, reorganization or other laws of general application relating to or
affecting the rights of creditors and except as enforceability may be limited by
rules of law governing specific performance, injunctive relief or other
equitable remedies.
4.04 No Adverse Consequences. Neither the execution and delivery of this
Agreement by DPM, any Partner or Thomas nor the consummation of the transactions
contemplated by this Agreement will result in the creation or imposition of any
lien, charge or encumbrance on any of DPM's or Thomas's assets or properties,
violate or conflict with any provision of DPM's organizational documents,
violate any law, judgment, order, injunction, decree, rule, regulation or ruling
of any governmental authority applicable to DPM or Thomas, or either alone or
with the giving of notice or the passage of time or both, conflict with,
constitute grounds for termination or acceleration of, result in the breach of
the terms, conditions or provisions of, result in the loss of any benefit to DPM
or Thomas under or constitute a default under any agreement, instrument, license
or permit to which DPM or Thomas is a party or by which DPM or Thomas is bound.
4.05 Brokers and Finders. Neither DPM nor Thomas has employed any broker,
finder or agent or dealt with anyone purporting to act in such capacity or
agreed to pay any brokerage fee, finder's fee or commission with respect to the
transaction contemplated by this Agreement, except that DPM has employed Wedbush
Morgan Securities. Any fees owing to Wedbush Morgan Securities shall be paid by
DPM and are not a liability of GDSC.
4.06 Litigation. Except as set forth on Schedule 4.06, to the best
knowledge of DPM, Partners and Thomas, there is no claim, litigation, proceeding
or investigation of any kind pending or threatened by or against DPM or Thomas
and there is no basis for any such claim, litigation, proceeding or
investigation.
4.07 Compliance with Laws. DPM and Thomas have at all relevant times
conducted their business in compliance with all applicable laws and regulations.
Neither DPM nor Thomas is in violation of any applicable laws or regulations,
other than violations which singly or in the aggregate
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do not, and, with the passage of time will not, have a Material Adverse Effect.
In connection with the Dental Practice, neither DPM nor Thomas is subject to any
outstanding order, writ, injunction or decree, and neither DPM nor Thomas have
been charged with, or threatened with a charge of, a violation of any provision
of federal, state or local law or regulation.
4.08 Employment Matters.
4.08-1 Labor Matters.
(a) Except as set forth on Schedule 4.08-1, neither DPM nor
Thomas is a party or otherwise subject to any collective bargaining or other
agreement governing the wages, hours or terms of employment of the employees
working in the Dental Practice ("Dental Practice Employees"). DPM and Thomas are
and have been in compliance with all applicable laws regarding employment and
employment practices, terms and conditions of employment, wages and hours and
are not and have not been engaged in any unfair labor practice.
(b) There is no (1) unfair labor practice complaint against DPM
or Thomas pending before the National Labor Relations Board or any other
governmental authority, (2) labor strike, slowdown or work stoppage actually
occurring or, to the best of the knowledge of DPM or Thomas or any Partner,
threatened against DPM or Thomas, (3) representation petition respecting DPM's
or Thomas's employees pending before the National Labor Relations Board, or (4)
grievance or any arbitration proceeding pending arising out of or under
collective bargaining agreements applicable to DPM or Thomas.
(c) Neither DPM nor Thomas have experienced any work stoppage or
other organized work stoppage involving their employees in the past two years.
4.08-2 Employee Benefits. Schedule 4.08-2 lists all pension,
retirement, profit sharing, deferred compensation, bonus, commission, incentive,
life insurance, health and disability insurance, hospitalization and all other
employee benefit plans or arrangements (including, without limitation, any
contracts or agreements with trustees, insurance companies or others relating to
any such employee benefit plans or arrangements) established or maintained by
DPM or Thomas under which Dental Practice Employees have or may have any past or
present rights or benefits, and complete and accurate copies of all those plans
or arrangements have been provided to GDSC. The employee pension benefit plans
(within the meaning of Section 3(2) of ERISA established and maintained by DPM
or Thomas that are subject to ERISA are listed separately as ERISA Plans on
Schedule 4.08-2 (the "ERISA Plans"). The ERISA Plans comply with the applicable
requirements of ERISA. The Sellers have received from the Internal Revenue
Service a favorable determination for each of the ERISA Plans and their related
trusts that each of the ERISA Plans is qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code") and the related trust is
tax-exempt under Section 501(a) of the Code. There has been no event subsequent
to that determination that has adversely affected the tax qualified status of
the ERISA Plans or the exemption of the related trusts other than changes in the
Code that are not effective as of the Closing Date. No "accumulated funding
deficiency" as defined in Section 302(a)(2) of ERISA or Section 412(a) of the
Code exists, or has existed, with respect to any of the ERISA Plans. The present
value of all accrued benefits under each of the ERISA Plans does not exceed the
value of such plan's assets, less
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all liabilities other than those attributable to accrued benefits. Neither DPM
nor Thomas has any "potential withdrawal liability," as defined in Section 4201
of ERISA. None of the ERISA Plans, its related trusts or any trustee, investment
manager or administrator thereof has engaged in a nonexempt "prohibited
transaction," as such term is defined in Section 406 of ERISA and Section 4975
of the Code. There are not and have not been any excess deferrals or excess
contributions under any ERISA Plan. Each ERISA Plan is and has been operated and
administered in conformance with the requirements of all applicable laws and
regulations, whether or not the ERISA Plan documents have been amended to
reflect such requirements. Sellers have no obligation of any kind (whether under
the terms of the ERISA Plans or under any understanding with employees) to make
payments under, or to pay contributions to or in respect of, any plan or
arrangement listed on Schedule 4.08-2, or any other plan, agreement or other
arrangement for deferred compensation of employees, whether or not tax
qualified, including, without limitation, a single employer tax qualified plan,
a tax qualified plan of a controlled group of corporations, a multi-employer
pension plan, a nonqualified deferred compensation plan, an individual
employment or compensation agreement or a commitment to provide medical benefits
to retirees.
4.08-3 Employment Agreements. Each of the Dental Practice Employees is
an "at-will" employee and, except as listed on Schedule 4.08-3, there are no
written employment, commission or compensation agreements of any kind between
DPM or Thomas and any Dental Practice Employee. Schedule 4.08-3 lists all of
Sellers' employment or supervisory manuals, employment or supervisory policies,
and written information generally provided to Dental Practice Employees (such as
applications or notices), and true and complete copies of those manuals,
policies and written information have been provided to GDSC. Neither DPM nor
Thomas has any agreements or understandings with the Dental Practice Employees
except as reflected in the items listed in Schedules 4.08-2 and 4.08-3.
4.08-4 Compensation. Schedule 4.08-4 contains a complete and accurate
list of all Dental Practice Employees providing services at or for the Dental
Practice as of September 10, 1997, specifying their names, hire dates, the total
amount paid or payable as compensation to each such person, and the basis of
such compensation.
4.09 Financial Statements.
4.09-1 Schedule 4.09 contains the unaudited balance sheet of the
Dental Practice as of December 31, 1996 and the related unaudited statement of
income for the year then ended and the unaudited balance sheet of the Dental
Practice as of July 31, 1997 (the "Current Balance Sheet") and the related
unaudited statement of income for the seven months then ended (all such balance
sheets and statements collectively, the "Financial Statements"). The Financial
Statements fairly reflect all revenues, assets, liabilities and expenses
received or incurred in connection with the Dental Practice.
4.09-2 The Financial Statements present fairly
(a) the financial position of the Dental Practice as of the dates
indicated and
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(b) the results of operations for the periods then ended.
4.10 Receivables. Schedule 4.10 lists all receivables of the Dental
Practice (including accounts receivable, loans receivable and advances whether
payable to DPM or Thomas) as of July 31, 1997. Each of the receivables listed on
Schedule 4.10, and each of the receivables that has arisen since July 31, 1997,
has arisen only from bona fide transactions in the ordinary course of Sellers'
business and is not subject to any offset or counterclaim.
4.11 Prepaid Expenses and Other. Schedule 4.11 lists all prepaid expenses
and deferred charges of the Dental Practice reflected on the Current Balance
Sheet as well as the items included in the Other Assets line, if any, on the
Current Balance Sheet.
4.12 Personal Property. Section 1.01-1 and Schedule 4.12 together contain a
complete and accurate list of all the tangible personal property used or useful
in the Dental Practice, other than excluded assets listed in Schedule 1.02-2
("Tangible Personal Property"). With respect to each item of owned Tangible
Personal Property, Schedule 4.12 lists the estimated fair market value as of
August 31, 1997.
4.13 Payables. Schedule 4.13 lists all accounts payable and other accrued
liabilities of the Dental Practice (in whatever name held or accounted for) as
of July 31, 1997, other than payables for brokers' and attorneys' fees and other
expenses of this transaction.
4.14 Indebtedness. Schedule 4.14 lists all indebtedness incurred by,
attributable to or secured by any assets of the Dental Practice and for each
item shows the name of lender, interest rate, term, payments, seniority and
security.
4.15 Other Liabilities. Except as listed on Schedule 4.15, neither Thomas
nor DPM has, with respect to the Dental Practice, any liability or obligation
(whether absolute, accrued, contingent or other, and whether due or to become
due) which is not accrued, reserved against or disclosed in the Current Balance
Sheet, other than liabilities incurred in the ordinary course of business
consistent with past practice, which individually or in the aggregate are not
material to the Dental Practice.
4.16 Absence of Certain Changes or Events. Since the date of the Current
Balance Sheet, there has not been any Material Adverse Change or any event,
occurrence, development or state of circumstances or facts which could
reasonably be expected to result in a Material Adverse Change.
4.17 Leases. Schedule 4.17 contains a complete and accurate list of all
Leases of real property used or useful in the Dental Practice, a description of
the real property covered thereby ("Real Property"), the term of each Lease and
the monthly payments under the Lease. Complete and accurate copies of all Leases
have been delivered to GDSC.
4.18 Certain Contracts and Arrangements. Schedule 4.18, which is organized
by type of agreement, contains a complete and accurate list of all Contracts of
the following types to which DPM or Thomas is a party or by which DPM or Thomas
is bound and which relate to or are associated with the Dental Practice:
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4.18-1 any mortgage, note or other instrument or agreement relating to
the borrowing of money or the incurrence of indebtedness by DPM or Thomas or
DPM's or Thomas's guaranty of any obligation for the borrowing of money;
4.18-2 contracts, agreements, purchase orders or acknowledgment forms
for the purchase, sale, lease or other disposition of capital assets or more
than $20,000 of other equipment or materials;
4.18-3 contracts or agreements for provision of dentistry services by
the Dental Practice, which agreements are identified as the Professional
Contracts on Schedule 4.18;
4.18-4 contracts or agreements for the performance of services
relating to or concerning the Dental Practice other than the Professional
Contracts, excluding employment contracts; provided, however, that only
contracts exceeding $20,000 in annual billings or payments by the Dental
Practice must be listed;
4.18-5 contracts or agreements involving annual billings in excess of
$20,000 for the joint performance of work or services and all other joint
venture agreements relating to or concerning the Dental Practice;
4.18-6 contracts or agreements with agents, brokers, consignees, sales
representatives or distributors relating to the sale of services of the Dental
Practice; and
4.18-7 any other contract, instrument, agreement or obligation not
described on any other Schedule to which DPM or Thomas is a party or by which
DPM or Thomas is bound and which contains material unfulfilled obligations
relating to or concerning the Dental Practice.
Complete and accurate copies of all Contracts have been delivered to GDSC.
4.19 Status of Contracts and Leases.
4.19-1 Each of the Contracts and Leases listed on Schedules 4.17 and
4.18 is valid, binding and enforceable by Sellers in accordance with its terms
and is in full force and effect. There is no existing default or violation by
Sellers under any Contract or Lease and no event has occurred which (whether
with or without notice, lapse of time or both) would constitute a default of
Sellers under any Contract or Lease. There is no pending or threatened
proceeding which would interfere with the quiet enjoyment of any Real Property
of which Thomas or DPM is lessee or sublessee which is used in the Dental
Practice.
4.19-2 All other parties to the Contracts and Leases have consented or
prior to the Closing will have consented (where such consent is necessary) to
the consummation of the transaction contemplated by this Agreement without
requiring modification of Sellers' rights or obligations under any Contract or
Lease.
4.19-3 Neither Sellers nor any Partner is aware of any default by any
other party to any Contract or Lease or of any event which (whether with or
without notice, lapse of time or both)
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would constitute a default by any other party with respect to obligations of
that party under any Contract or Lease, and, to the knowledge of Sellers and the
Partners, there are no facts that exist indicating that any of the Contracts or
Leases may be totally or partially terminated or suspended by the other parties.
4.19-4 Neither DPM nor Thomas is a party to, nor bound by, any
contract or agreement relating to or concerning the Dental Practice that Sellers
or any Partner can reasonably foresee will result in any loss that would have a
Material Adverse Effect on Sellers upon the performance thereof (including any
liability for penalties or damages, whether liquidated, direct, indirect,
incidental or consequential that would have a Material Adverse Effect), unless
such contract or agreement is terminable by DPM or Thomas on 60 or fewer days
notice at any time without penalty.
4.20 Title and Condition of Tangible Assets.
4.20-1 Sellers have good title, or the right to use, all of the
Tangible Personal Property free and clear of all mortgages, pledges, security
interests, claims, charges or other encumbrances or restrictions of any kind,
except
(a) liens disclosed on the Current Balance Sheet,
(b) security interests or liens securing payment of Assumed
Liabilities,
(c) liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the
Current Balance Sheet) or
(d) the leases of leased property.
4.20-2 All Tangible Personal Property is in a good state of
maintenance and repair, ordinary wear and tear excepted, and is adequate for the
conduct of the Dental Practice.
4.20-3 To the knowledge of Sellers or the Partners, there are no
developments affecting any of the Real Property or Tangible Personal Property
pending or threatened which might materially detract from the value of such
property or assets, materially interfere with any present or intended use of any
such property or assets or materially adversely affect the marketability of such
properties or assets.
4.20-4 At the Closing, GDSC will acquire good title to all the Assets,
free and clear of all mortgages, pledges, security interests, claims, charges or
other encumbrances or restrictions of any kind, except for security interests or
liens securing payment of Assumed Liabilities.
4.21 Insurance. Schedule 4.21 contains a complete and accurate list of all
policies of malpractice, liability, fire, worker's compensation and other forms
of insurance insuring the Dental Practice or its employees and its assets or
operations (the "Policies"). All the Policies are valid, enforceable and in full
force and effect, all premiums with respect to the Policies covering all periods
up to and including the date as of which this representation is being made have
been paid and no
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notice of cancellation or termination has been received with respect to any
Policy. The Policies are sufficient for compliance with all requirements of law
and of agreements to which DPM or Thomas is a party and provide insurance for
the risks and in the amounts and types of coverage usually obtained by persons
using or holding similar properties in similar businesses. There are no
unresolved claims for insurance under any of the Policies. True and complete
copies of the Policies and all endorsements thereto have been delivered to GDSC.
In connection with the Dental Practice, neither DPM nor Thomas has been refused
any insurance coverage and no insurance coverage has been canceled during the
five years preceding the date of this Agreement.
4.22 Taxes.
4.22-1 Returns. DPM and Thomas have filed all federal, state and other
returns, reports and information returns required to be filed by them with
respect to Taxes which relate to the business, results of operations or
financial condition of the Dental Practice (collectively, the "Returns") and has
timely paid all Taxes shown to be due on the Returns. All Returns filed are
complete and accurate in all material respects, and no additional Taxes are owed
by DPM or Thomas with respect to the periods covered by the Returns. DPM has
provided GDSC with complete and accurate copies of its Returns for 1995 and
1996.
4.22-2 Taxes Paid or Reserved. All deficiencies in Taxes asserted or
assessments made by any taxing authority have been fully paid or finally
settled. All Taxes which DPM or Thomas has been required to collect or withhold
have been withheld or collected and, to the extent required, have been paid to
the proper taxing authority.
4.23 No Restrictions. No contract or agreement to which DPM or Thomas is a
party or is bound or to which any of its properties or assets is subject limits
the freedom of DPM or Thomas to compete in any line of business or with any
person.
4.24 Permits and Licenses. Thomas holds and at all times has held, all
licenses, permits, franchises, easements and authorizations (collectively,
"Permits") necessary for the lawful conduct of the Dental Practice pursuant to
all applicable statutes, laws, ordinances, rules and regulations of all
governmental bodies, agencies and other authorities having jurisdiction over it
or any part of its operations, except where the failure to hold any Permit,
singly or in the aggregate, either alone or with the giving of notice or the
passage of time or both, would not have a Material Adverse Effect. Thomas is in
compliance with all the terms of each Permit, and there are no claims of
violation of any Permit.
4.25 Certain Payments. Neither DPM nor Thomas nor any other person or
entity has, directly or indirectly, on behalf of or with respect to the Dental
Practice or its operations made or received any payment that was not legal to
make or receive under federal, state or local laws of the United States or any
other country or territory.
4.26 Environmental Conditions. Sellers have operated the Dental Practice
and maintained the Assets, including without limitation the Real Property, in
compliance with all Environmental Laws. All wastes generated in connection with
the Dental Practice are and have been transported and disposed of off site in
compliance with all Environmental Laws. Except as otherwise required
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for the normal operation of a dental practice, no Hazardous Substance is or has
been generated, manufactured, treated, stored, transported, used or otherwise
handled on the Real Property or in connection with the Dental Practice.
4.27 Consents and Approvals. Except as set forth on Schedule 4.27, no
consent, approval or authorization of any court, regulatory authority,
governmental body, or any other entity or person not a party to this Agreement
is required for the consummation of the transactions described in this Agreement
by Sellers or the Partners. Sellers have obtained, or shall have obtained prior
to the Closing, all consents, authorizations or approvals of any third parties
required in connection with the execution, delivery or performance of this
Agreement by Sellers or the Partners. Sellers have made, or shall have made
prior to the Closing, all registrations or filings with any governmental
authority required on their part for the execution or delivery of this Agreement
or the consummation of the transactions contemplated hereby.
4.28 Records. The books of account of the Dental Practice are complete and
accurate in all material respects, and there have been no transactions involving
the business of the Dental Practice which properly should have been set forth
therein and which have not been accurately so set forth. Complete and accurate
copies of such books have been made available to GDSC.
4.29 Reliance. Sellers and the Partners recognize and agree that,
notwithstanding any investigation by GDSC, GDSC is relying upon the
representations and warranties made by Sellers and the Partners in this
Agreement.
4.30 Accuracy of Representations and Warranties. None of the
representations or warranties of Sellers and the Partners contains or will
contain any untrue statement of any material fact or omits or misstates a
material fact necessary to make the statements contained in this Agreement not
misleading. Sellers and the Partners do not know of any fact that has resulted
or that, in the reasonable judgment of Sellers or the Partners will result, in
any material adverse change in the business, results of operation, financial
condition or prospects of the Dental Practice that has not been set forth in
this Agreement.
ARTICLE V
Covenants of Sellers and the Partners
5.01 Access to Properties, Books and Records. Prior to the Closing Date,
Sellers shall, at GDSC's request, afford or cause to be afforded to the agents,
attorneys, accountants and other authorized representatives of GDSC reasonable
access during normal business hours to all employees, properties, books and
records of Sellers with respect to the Dental Practice and shall permit such
persons, at GDSC's expense, to make copies of such books and records. Sellers
shall deliver to GDSC monthly financial statements of the Dental Practice
promptly after they become available. GDSC shall treat, and shall cause all of
its agents, attorneys, accountants and other authorized representatives to
treat, all information obtained pursuant to this Section 5.01 as confidential in
accordance with Section 12.01 hereof. No investigation by GDSC or any of its
authorized representatives pursuant to this Section 5.01 shall affect any
representation, warranty or
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closing condition of any party hereto or GDSC's rights to indemnification
pursuant to Section 11.02 hereof.
5.02 Negative Covenants. Except as otherwise permitted by this Agreement or
with the prior written consent of GDSC, prior to the Closing, Sellers shall not:
5.02-1 Incur additional debt for borrowed money without giving GDSC
notice within two business days thereafter;
5.02-2 Incur any obligations under leases for real or personal
property whether or not required to be capitalized under generally accepted
accounting principles, incur or increase any obligation or liability (fixed,
contingent or other, including without limitation liabilities as a guarantor or
otherwise with respect to obligations of others, but excluding debts for
borrowed money) except in the ordinary and usual course of business and
consistent with past practices, forgive or release any debt or claim, give any
waiver of any right of material value or voluntarily suffer any extraordinary
loss;
5.02-3 Declare, pay or make any distribution of money or property to
the Partners or Thomas other than ordinary distributions consistent with past
practices;
5.02-4 Issue, sell, or give any option or right to purchase any
interest in the Dental Practice, or purchase, redeem or otherwise acquire or
commit to acquire, directly or indirectly, any interest in the Dental Practice:
5.02-5 Mortgage, pledge, otherwise encumber or subject to lien any of
the Dental Practice's assets or properties, tangible or intangible, or commit
itself to do any of the foregoing;
5.02-6 Except in the ordinary and usual course of its business and in
each case for fair consideration, dispose of, or agree to dispose of, any of the
Dental Practice's assets or lease or license to others, or agree so to lease or
license, any of the Dental Practice's assets;
5.02-7 Acquire any assets which would be material to the Dental
Practice other than assets acquired in the ordinary and usual course of business
and consistent with past practices;
5.02-8 Enter into any transaction or contract or make any commitment
to do the same, except in the ordinary and usual course of business and not
requiring the payment in any case of an amount in excess of $100,000 annually;
5.02-9 Increase the wages, salaries, compensation, pension or other
benefits payable, or to become payable by it, to any Dental Practice Employees
or agents, including without limitation any bonus payments or severance or
termination pay, other than increases in wages and salaries required by
employment arrangements existing on the date hereof or otherwise in the ordinary
and usual course of its business;
5.02-10 Implement or agree to any implementation of or amendment or
supplement to any employee profit sharing, pension, bonus, commission,
incentive, retirement, medical
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reimbursement, life insurance, deferred compensation or any other employee
benefit plan or arrangement for or affecting Dental Practice Employees;
5.02-11 Change the accounting methods, policies or practices of
Sellers; or
5.02-12 Agree or commit to do any of the foregoing.
5.03 Affirmative Covenants. Except as otherwise permitted by this Agreement
or as reasonably necessary or appropriate for the consummation of the
transactions contemplated by this Agreement or with the prior written consent of
GDSC, prior to the Closing Date, Sellers shall:
5.03-1 Operate the Dental Practice, including collecting receivables
and paying payables, only in the ordinary course and consistent with past
practices;
5.03-2 Advise GDSC in writing of any litigation or administrative
proceeding that challenges or otherwise materially affects the transactions
contemplated hereby and of any Material Adverse Change or any event, occurrence
or circumstance which is likely to cause a Material Adverse Change;
5.03-3 When the consent of any third party to the transactions
contemplated by this Agreement is required under the terms of any contract or
agreement material to the Dental Practice to which DPM or Thomas is a party or
by which DPM or Thomas is bound, use their best efforts to obtain such consent
on terms and conditions not materially less favorable than those in effect on
the date hereof;
5.03-4 Use their best efforts to maintain all of the Tangible Personal
Property in good operating condition, reasonable wear and tear excepted,
consistent with past practices, and take all steps reasonably necessary to
maintain its intangible assets;
5.03-5 Not cancel or change any policy of insurance (including
self-insurance) or fidelity bond or any policy or bond providing substantially
the same coverage;
5.03-6 Maintain, consistent with past practices, all inventories,
spare parts, office supplies and other expendable items used or useful in the
Dental Practice;
5.03-7 Use their best efforts to retain all Dental Practice Employees;
5.03-8 Maintain their books and records in accordance with past
practices; and
5.03-9 Pay and discharge all taxes, assessments, governmental charges
and levies imposed upon them, their income or profits or upon any property
belonging to them, in all cases prior to the date on which penalties attach
thereto.
5.03-10 Comply with all laws, rules and regulations applicable to them
and the Dental Practice.
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5.04 No Negotiations With Others. Except as otherwise permitted by this
Agreement or with the prior written consent of GDSC, Sellers and the Partners
shall refrain, and shall cause their employees and any investment banker,
attorney, accountant or other agent retained by them to refrain, from initiating
or soliciting any inquiries or making any proposals with respect to, or engaging
in negotiations concerning, or providing any confidential information or data to
or having any discussions with any person relating to, any acquisition, business
combination or purchase of all or any significant portion of the assets of,
Sellers. Sellers and the Partners will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing.
5.05 401(k) Plan. Prior to Closing, Sellers shall use their best efforts to
take such steps with respect to the Crosstown Family Dentistry and Wasco Family
Dentistry 401(k) Plan (the "401(k) Plan"), including a possible termination of
the 401(k) Plan, as GDSC may request. In the event GDSC requests a termination
of the 401(k) Plan, the assets of the 401(k) Plan shall be promptly distributed
to the plan beneficiaries. In that case, any and all expenses of the
administration and termination of the 401(k) Plan shall be paid by the 401(k)
Plan or by the Partners, and GDSC shall not incur any liability, or be required
to take any action, of any kind whatsoever in connection with the administration
or termination of the 401(k) Plan.
5.06 Formation of Professional Corporations. Prior to the Closing, Thomas
shall form the Thomas Professional Corporation pursuant to articles of
incorporation and bylaws substantially in the form attached as Exhibit H and
shall cause the Thomas Professional Corporation to apply for and obtain a
Certificate of Registration and approval for use of the Thomas Professional
Corporation's fictitious name, from the California Board of Dental Examiners.
Prior to the Closing, Sellers shall cause the Professional Corporation to be
formed pursuant to articles of incorporation and bylaws substantially in the
form attached hereto as Exhibit H and shall cause the Professional Corporation
to apply for and obtain a Certificate of Registration and approval for use of
the Professional Corporation's fictitious name from the California Board of
Dental Examiners. The sole shareholder of the Professional Corporation shall be
a dentist holding an unrestricted license to practice dentistry in California
who works full time at the Wasco Practice Location and who is approved by GDSC.
5.07 Employees. Effective as of the close of business on the Closing Date,
Sellers shall terminate all employees of the Dental Practice. Except as
expressly assumed by GDSC under this Agreement, Sellers shall be responsible for
and shall pay and discharge all obligations to such employees arising out of or
in connection with their employment prior to Closing.
5.08 Restrictions on Sale of Shares of GDSC Common Stock.
5.08-1 "Market Stand-Off" Agreement. Thomas agrees that, for a period
commencing with the filing of any registration statement under the 1933 Act
relating to the offer and sale of GDSC Common Stock in an underwritten public
offering and ending 180 days following the effective date of such registration
statement, he will not, without the prior consent of the managing underwriter,
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of GDSC held by him at any time during such period
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except GDSC Common Stock included in such registration statement. In order to
enforce the foregoing covenant, GDSC may impose stop-transfer instructions with
respect to the Shares of Thomas until the end of such period.
5.08-2 Supplemental Lock-Up. Thomas agrees that until March 31, 1999
he will not directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees or pledgees who agree to
be similarly bound) any Shares owned by him, except Shares sold pursuant to the
piggyback registration provided for in Section 6.01. On March 31, 1999 and on
the last day of each month thereafter until released in full, one-tenth of the
number of Shares held by Thomas on March 31, 1999, rounded to the nearest whole
share, shall be released from the foregoing lock-up provision. Thomas further
agrees that until all Shares are released from lock-up, he will provide written
notice to GDSC 30 days prior to any proposed sale by him of Shares. During this
30-day period, GDSC shall have the right either to purchase such Shares from
Thomas or to designate the broker or market maker through which Thomas will sell
such Shares. Thomas consents to having appropriate legends placed on the
certificates representing the Shares relating to the lock-up restriction.
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ARTICLE VI
Covenants of GDSC
6.01 Registration Rights.
6.01-1 Piggyback Rights. Prior to March 31, 1998, GDSC will register
shares of GDSC Common Stock under the 1933 Act and complete an underwritten
public offering of such shares for cash. GDSC may also determine from time to
time thereafter to register shares of GDSC Common Stock under the 1933 Act for
an underwritten offering for its account, except that this Section 6.01 shall
not apply to a registration that is filed after March 31, 2000. Prior to filing
a registration statement for such offering, GDSC shall give Thomas written
notice thereof and will include in such registration and underwriting all the
Registrable Securities specified in a written request or requests, made within
10 days after receipt of such written notice from GDSC by Thomas, except as set
forth in Section 6.01-2 below. For purposes of this Agreement, the term
"Registrable Securities" means (i) the Shares and (ii) any GDSC Common Stock
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, the Shares.
Notwithstanding the provisions of this Section 6.01-1, GDSC shall not be
required to effect such underwritten public offering during any period in which
(i) additional material governmental restrictions, not in force and effect on
the date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been suspended
on either such Exchange or in the over the counter market by the NASD, or a
general banking moratorium shall have been established by federal, New York or
California authorities, or (ii) an outbreak of major hostilities or other
national or international calamity or any substantial change in political,
financial or economic conditions shall have occurred or shall have accelerated
or escalated to such an extent, as, in the reasonable judgment of the
underwriters, to affect materially and adversely the marketability of the
shares.
6.01-2 Underwriting.
(a) The right of Thomas to registration pursuant to Section
6.01-1 is conditioned upon Thomas's participation in such underwriting and the
inclusion of Thomas's Registrable Securities in the underwriting to the extent
provided herein. Thomas shall (together with GDSC and any other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in the form agreed to between GDSC and the underwriter or
underwriters selected for such underwriting by GDSC.
(b) If the total amount of securities, including Registrable
Securities, requested by GDSC shareholders with registration rights ("Requesting
Shareholders") to be included in such underwriting exceeds the amount of
securities to be sold by selling shareholders that the underwriters determine in
their sole discretion is compatible with the success of the underwriting for
GDSC, then GDSC shall be required to include in the registration only that
number of such
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securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the underwriting.
Subject to the priority right of the Partners to have certain of their shares of
GDSC Common Stock included in the underwriting, the securities so included will
be apportioned pro rata among the Requesting Shareholders according to the total
amount of securities entitled to be included in the registration owned by each
Requesting Shareholder or in such other proportion as shall mutually be agreed
to by such Requesting Shareholders.
6.01-3 S-3 Registration. No later than March 31, 1998, GDSC shall file
a Registration Statement on Form S-3 to register all Registrable Securities not
registered and sold pursuant to Section 6.01-1 for resale by Thomas in ordinary
market transactions. GDSC shall use its best efforts to maintain an effective
registration statement permitting the unrestricted sale of such remaining
Registrable Shares until March 31, 2000.
6.01-4 Expenses of Registration. All expenses incurred in connection
with any registration pursuant to this Section 6 including, without limitation,
all registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel for GDSC and expenses of any special audits incidental
to or required by such registration, shall be borne by GDSC except GDSC shall
not be required to pay underwriters' fees, discounts or commissions relating to
the Registrable Securities. All expenses of any registered offering not
otherwise borne by GDSC shall be borne pro rata among the Requesting
Shareholders participating in the offering and GDSC.
6.01-5 Registration Procedures. In the case of each registration
effected by GDSC pursuant to this Agreement, GDSC will keep Thomas advised in
writing as to the initiation of each registration and as to the completion
thereof. Except as otherwise provided in Section 6.01-4, at its expense GDSC
shall:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective.
(b) Furnish to Thomas such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as he may reasonably request in order to
facilitate the disposition of Registrable Securities owned by him.
(c) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by Thomas, provided
that GDSC shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions where GDSC is not already so
qualified or consented.
(d) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in form
satisfactory to GDSC, with the managing underwriter of such offering. Thomas
shall also enter into and perform his obligations under such an agreement.
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6.01-6 Indemnification.
(a) GDSC will indemnify Thomas with respect to any registration
effected pursuant to this Agreement. If the registration is in connection with
an underwritten offering, GDSC will indemnify Thomas on the terms set forth in
the applicable underwriting agreement with respect to indemnification by GDSC of
all selling shareholders participating in the underwriting. If the registration,
qualification or compliance is not in connection with an underwritten offering,
GDSC will indemnify Thomas on the following terms:
GDSC will indemnify Thomas against all claims, losses, expenses, damages
and liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading, or any violation or alleged violation by GDSC of the
1933 Act or any state securities law applicable to GDSC or any rule or
regulation promulgated under the 1933 Act, the Securities Exchange Act of 1934,
as amended ("Exchange Act") or any such state law and relating to action or
inaction required of GDSC in connection with any such registration, and will
reimburse Thomas within a reasonable amount of time after incurred for any
reasonable legal and any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 6.01-6(a) shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability, or action if such settlement is effected without
the consent of GDSC (which consent shall not be unreasonably withheld); and
provided further, that GDSC will not be liable in any such case to the extent
that any such claim, loss, damage or liability arises out of or is based on any
untrue statement or omission based upon written information furnished to GDSC by
an instrument duly executed by Thomas specifically for use therein.
(b) Thomas will, if Registrable Securities held by or issuable to
Thomas are included in the securities as to which a registration is being
effected, indemnify GDSC, each of its directors and officers, each person who
controls GDSC within the meaning of the 1933 Act, and each other Requesting
Shareholder, if any, each of its officers, directors and partners and each
person controlling such Requesting Shareholder, against all claims, losses,
expenses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse GDSC, such Requesting Shareholders,
such directors, officers, partners or persons for any reasonable legal or any
other expenses incurred in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to GDSC by an instrument duly
executed by Thomas specifically for use therein; provided, however, that the
indemnity agreement contained in this Section 6.01-6(b) shall not apply to
amounts paid in settlement of any such claim, loss, damage,
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liability or action if such settlement is effected without the consent of
Thomas, (which consent shall not be unreasonably withheld); and provided
further, that the total amount for which Thomas shall be liable under this
Section 6.01-6(b) shall not in any event exceed the aggregate proceeds received
by Thomas from the sale of Registrable Securities held by Thomas in such
registration.
(c) Each party entitled to indemnification under this Section
6.01-6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
prejudice to the Indemnifying Party; and provided further, that an Indemnified
Party (together with all other Indemnified Parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
6.01-7 Information by Thomas. If Registrable Securities of Thomas are
to be included in any registration, Thomas shall promptly furnish to GDSC the
information regarding Thomas and the distribution proposed by Thomas that GDSC
requests in writing and that is required in connection with any registration
referred to herein.
ARTICLE VII
Joint Covenants
GDSC, Sellers and the Partners covenant and agree that they will act in
accordance with the following:
7.01 Governmental Consents. Promptly following the execution of this
Agreement, the parties will proceed to prepare and file with the appropriate
governmental authorities any requests for approval or waiver, if any, that are
required from governmental authorities in connection with the transactions
contemplated hereby, and the parties shall diligently and expeditiously
prosecute and cooperate fully in the prosecution of such requests for approval
or waiver and all proceedings necessary to secure such approvals and waivers.
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7.02 Best Efforts; No Inconsistent Action. Each party will use its best
efforts to effect the transactions contemplated by this Agreement and to fulfill
the conditions to the obligations of the other parties set forth in Article 8 or
9 of this Agreement. No party will take any action inconsistent with its
obligations under this Agreement or that could hinder or delay the consummation
of the transactions contemplated by this Agreement, except that nothing in this
Section 7.02 shall limit the rights of the parties under Articles 8, 9 and 10.
ARTICLE VIII
Conditions to Obligations of GDSC
The obligations of GDSC under Article 1 are, at its option, subject to
satisfaction, at or prior to the Closing, of each of the following conditions:
8.01 Governmental Approvals. All authorizations, consents and approvals of
all governmental agencies and authorities required to be obtained in order to
permit consummation of the transactions contemplated by this Agreement and the
operation of the Dental Practice by the Professional Corporation and the Thomas
Professional Corporation shall have been obtained and be satisfactory in form
and content to GDSC.
8.02 Consents. Sellers shall have obtained the third-party consents
required under the terms of the Contracts and Leases, and such consents shall
not have required any change to the terms and conditions of the Contracts and
Leases other than changes consented to in writing by GDSC.
8.03 Representations, Warranties and Covenants.
8.03-1 All representations and warranties of Sellers and the Partners
made in this Agreement, or in any certificate delivered pursuant hereto, shall
in all material respects be true and complete on and as of the Closing Date with
the same force and effect as if made on and as of that date.
8.03-2 All of the terms, covenants and conditions to be complied with
and performed by Sellers and the Partners at or prior to the Closing shall in
all material respects have been complied with or performed thereby.
8.03-3 GDSC shall have received a certificate of Sellers and the
Partners, dated as of the Closing Date, to the effect that the representations
and warranties of Sellers and the Partners contained in this Agreement are in
all material respects true and complete on and as of the Closing Date as though
made on and as of the Closing Date and that Sellers have in all material
respects complied with or performed all terms, covenants and conditions to be
complied with or performed by them at or prior to the Closing.
8.04 Adverse Proceedings. No third-party suit, action or claim or
governmental proceeding shall have been instituted or threatened against, and no
order, decree or judgment of any court, agency or other governmental authority
shall have been rendered against, GDSC, Sellers or
30
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any Partner to restrain or prohibit, or obtain damages in respect of, this
Agreement or the transactions contemplated by this Agreement.
8.05 No Adverse Change. There shall not have been any Material Adverse
Change.
8.06 Support Services Agreement. The Professional Corporation and the
Thomas Professional Corporation shall have executed and delivered a Support
Services Agreement with GDSC in the form attached hereto as Exhibit D.
8.07 Option Agreement. Thomas, as sole shareholder of the Thomas
Professional Corporation, shall have executed and delivered an Option Agreement
relating to the stock of the Thomas Professional Corporation in the form
attached as Exhibit E. The sole shareholder of the Professional Corporation
shall have executed and delivered an Option Agreement relating to the stock of
the Professional Corporation in substantially the form attached hereto as
Exhibit E.
8.08 Employment Agreements. Each dentist employed in the Dental Practice
shall have executed and delivered an Employment Agreement with the Professional
Corporation or the Thomas Professional Corporation in the form attached hereto
as Exhibit F and an Addendum to such Employment Agreement in the form attached
hereto as Exhibit G.
8.09 Closing of the Transactions. The transactions contemplated by the
following agreements (the "Transactions") shall close simultaneously with the
Closing: Asset Purchase Agreement dated September 21, 1997 by and among GDSC,
DPM, the Partners and Clarence Au, D.D.S.; Asset Purchase Agreement dated
September 21, 1997 by and among GDSC and Arthur G. Kaiser, D.D.S.; Merger
Agreement dated September 21, 1997 by and among GDSC, Gentle Dental Merger
Corp., Dedicated Dental Systems, Inc. ("DDS") and the Shareholders of DDS.
8.10 Fairness Opinion. GDSC shall have received an opinion from an
investment banking firm chosen by GDSC that the Transactions, together with the
transactions contemplated by this Agreement, are fair to GDSC and its
shareholders.
8.11 Professional Corporation. The Professional Corporation and the Thomas
Professional Corporation shall have been duly incorporated and organized, and
shall each have obtained a Certificate of Registration and fictitious name
permit from the California Board of Dental Examiners.
8.12 Lease. With respect to the Crosstown Practice Location, DPM and GDSC
shall have executed and delivered a lease of the Real Property in a commercially
reasonable form, including the following terms: monthly rent of $3,150; initial
term of five years; three five-year renewal options with rent increases tied to
the consumer price index.
8.13 Actions Satisfactory to GDSC's Counsel. All actions, proceedings,
instruments and documents required to be carried out by this Agreement, or
incidental hereto, and all other relevant legal matters shall be reasonably
satisfactory to counsel for GDSC.
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ARTICLE IX
Conditions to Obligations of Sellers
The obligations of Sellers under Article 1 are, at its option, subject to
satisfaction, at or prior to the Closing, of each of the following conditions:
9.01 Representations, Warranties and Covenants.
9.01-1 All representations and warranties of GDSC made in this
Agreement and in any certificate delivered pursuant hereto shall in all material
respects be true and complete on and as of the Closing Date with the same force
and effect as if made on and as of that date.
9.01-2 All of the terms, covenants and conditions to be complied with
and performed by GDSC on or prior to the Closing shall in all material respects
have been complied with or performed by GDSC.
9.01-3 Sellers shall have received a Certificate of GDSC, dated as of
the Closing Date, executed by the President or other authorized officer of GDSC,
to the effect that the representations and warranties of GDSC contained in this
Agreement are in all material respects true and complete on and as of the
Closing Date as though made on and as of the Closing Date and that GDSC has in
all material respects complied with or performed all terms, covenants and
conditions to be complied with or performed by it at or prior to the Closing.
9.02 Adverse Proceedings. No third-party suit, action or claim or
governmental proceeding shall have been instituted or threatened against, and no
order, decree or judgment of any court, agency or other governmental authority
shall have been rendered against, GDSC, Sellers or any Partner to restrain or
prohibit this Agreement or the transactions contemplated by this Agreement.
9.03 Actions Satisfactory to Seller's Counsel. All actions, proceedings,
instruments and documents required to be carried out by this Agreement, or
incidental hereto, and all other relevant legal matters shall be reasonably
satisfactory to counsel for Sellers.
ARTICLE X
Termination
10.01 Right of Parties to Terminate. This Agreement may be terminated:
10.01-1 by GDSC, if any of the authorizations, consents, approvals,
filings or registrations described in Section 8.01 hereof shall have been
denied, not permitted to go into effect or obtained on terms not reasonably
satisfactory to GDSC and all reasonable final appeals shall have been exhausted;
32
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10.01-2 by GDSC, if Sellers or the Partners shall have breached any of
their obligations hereunder in a way that has resulted in a Material Adverse
Effect and the breach has continued without being cured for more than thirty
(30) days;
10.01-3 by Sellers, if GDSC shall have breached any of its obligations
hereunder in a way that has resulted in a GDSC Material Adverse Effect and the
breach has continued without being cured for more than thirty (30) days; or
10.01-4 by either Sellers or GDSC, by written notice to the other
party, if the Closing shall not have occurred on or prior to February 28, 1998;
provided, however, that the right to terminate this Agreement under this Section
10.01-4 shall not be available to any party whose failure to fulfill or perform
any obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date.
10.02 Effect of Termination. If either GDSC or Sellers decide to terminate
this Agreement pursuant to Section 10.01, such party shall promptly give written
notice to the other party to this Agreement of such decision.
ARTICLE XI
Survival; Indemnification
11.01 Survival. All representations, warranties, covenants and agreements
made in this Agreement or in any schedule, certificate or assignment delivered
in accordance with this Agreement (collectively, the "Related Documents") shall
survive any investigation by or on behalf of any party, the execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby and any termination or expiration of this Agreement, except that such
representations, warranties, covenants and agreements shall expire and be of no
further effect on the last day of the eighteenth (18th) full month following the
Closing Date, except as follows:
11.01-1 any claim of which notice has been given pursuant to Section
11.04 prior to the last day of the eighteenth (18th) full month following the
Closing Date shall not expire and shall continue until all damages arising from
such claim have been paid in full;
11.01-2 any claim arising from any breach or inaccuracy of any
representation or warranty in Article III, Section 4.02, 4.03 or Section 4.07,
from any failure to perform any covenant in Section 5.08 or Section 6.01, or in
the case of fraud, shall not expire and shall continue without limitation; and
11.01-3 any claim arising from any breach or inaccuracy of any
representation or warranty in Section 4.22 shall expire on the expiration of all
applicable statutes of limitation.
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11.02 Indemnification by Sellers and Partners.
11.02-1 Notwithstanding any investigation by GDSC, from and after the
Closing, Sellers and Partners shall, jointly and severally, indemnify, hold
harmless and, to the extent provided in Section 11.04-1, defend GDSC, its
subsidiaries, shareholders, affiliates, officers, directors, employees, agents,
successors and assigns (collectively, "GDSC's Indemnified Persons") from and
against, and reimburse each of GDSC's Indemnified Persons with respect to, any
and all losses, damages, liabilities, costs and expenses, including interest
from the date of such loss to the time of payment, penalties and reasonable
attorneys' fees (collectively, "Damages") incurred by any of GDSC's Indemnified
Persons by reason of or arising out of or in connection with:
(a) any breach or inaccuracy of any representation or warranty of
Sellers or any Partner made in this Agreement or any Related Document;
(b) any failure by Sellers or any Partner to perform any covenant
required to be performed by them pursuant to this Agreement or any Related
Document; or
(c) any liability or obligation of Sellers arising out of or in
connection with the ownership, use, condition, maintenance or operation of the
Dental Practice or the Assets on or prior to the Closing, in either case not
expressly assumed by GDSC in accordance with the terms of this Agreement, and
specifically including any liability to pay cash to a terminated employee on
account of accrued vacation time.
11.02-2 Any liability of Sellers or Partners under this Section 11.02
or otherwise for the breach or inaccuracy of any representation, warranty,
covenant or agreement made in this Agreement may, at the election of the
applicable Seller or Partner, be satisfied by delivery of shares of GDSC Common
Stock (valued at the fair market value of such shares at the time the liability
of Sellers or Partners is determined) to the GDSC Indemnified Person.
11.03 Indemnification by GDSC.
11.03-1 Notwithstanding any investigation by Sellers, from and after
the Closing, GDSC shall indemnify, hold harmless and, to the extent provided in
Section 11.04-1, defend Sellers, the Professional Corporation, and their
respective partners, affiliates, officers, employees, agents, successors and
assigns (collectively, "Seller's Indemnified Persons") from and against, and
reimburse each of Seller's Indemnified Persons with respect to, any and all
Damages incurred by any of Seller's Indemnified Persons by reason of or arising
out of or in connection with:
(a) any breach or inaccuracy of any representation or warranty of
GDSC made in this Agreement or any Related Document;
(b) any failure by GDSC to perform any covenant required to be
performed by it pursuant to this Agreement or any Related Document;
(c) any liability or obligation of Sellers to any third party
expressly assumed by GDSC in accordance with the terms of this Agreement; or
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(d) any liability or obligation of GDSC arising out of or in
connection with the ownership, use, condition, maintenance or operation of the
Dental Practice or the Assets after the Closing.
11.04 Indemnification Procedure.
11.04-1 Third Party Claims.
(a) Each indemnified party shall, with reasonable promptness
after obtaining knowledge thereof, provide any indemnifying party against whom a
claim for indemnification is to be made under this Article 11 with written
notice of all third party actions, suits, proceedings, claims, demands or
assessments that may be subject to the indemnification provisions of this
Article 11 (collectively, "Third Party Claims"), including, in reasonable
detail, the basis for the claim, the nature of Damages and a good faith estimate
of the amount of Damages.
(b) Each indemnifying party shall have 15 days after its receipt
of the claim notice to notify the indemnified party in writing whether the
indemnifying party agrees that the claim is subject to this Article 11 and, if
so, whether the indemnifying party elects, jointly with any other indemnifying
party notified under Section 11.04-1(a), to undertake, conduct and control,
through counsel of its or their choosing (subject to the consent of the
indemnified party, such consent not to be withheld unreasonably) and at its or
their sole risk and expense, the good faith settlement or defense of the Third
Party Claim.
(c) If within 15 days after its receipt of the claim notice an
indemnifying party notifies the indemnified party that it elects to undertake
the good faith settlement or defense of the Third Party Claim, the indemnified
party shall cooperate reasonably with the indemnifying party in connection
therewith including, without limitation, by making available to the indemnifying
party all relevant information material to the defense of the Third Party Claim.
The indemnified party shall be entitled to participate in the settlement or
defense of the Third Party Claim through counsel chosen by the indemnified
party, at its expense, and to approve any proposed settlement that would impose
any obligation or duty on the indemnified party, which approval may, in the sole
discretion of the indemnified party, be withheld. So long as an indemnifying
party is contesting the Third Party Claim in good faith and with reasonable
diligence, the indemnified party shall not pay or settle the Third Party Claim.
Notwithstanding the foregoing, the indemnified party shall have the right to pay
or settle any Third Party Claim at any time, provided that in such event it
waives any right to indemnification therefor by the indemnifying party.
(d) If an indemnifying party does not provide notice that it
elects to undertake the good faith settlement or defense of the Third Party
Claim, or if an indemnifying party fails to contest the Third Party Claim or
undertake or approve settlement, in good faith and with reasonable diligence,
the indemnified party shall thereafter have the right to contest, settle or
compromise the Third Party Claim at its exclusive discretion, at the risk and
expense of the indemnifying party, and the indemnifying party will thereby waive
any claim, defense or argument that the indemnified party's settlement or
defense of such Third Party Claim is in any respect inadequate or unreasonable.
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(e) A party's failure to give timely notice will not constitute a
defense, in part or in whole, to any claim for indemnification by such party,
except if, and only to the extent that, such failure results in any material
prejudice to the indemnifying party.
11.04-2 Non-Third Party Claims.
(a) Each indemnified party shall, with reasonable promptness,
deliver to any indemnifying party against whom a claim for indemnification is to
be made under this Article 11 written notice of all claims for indemnification
under this Article 11, other than Third Party Claims, including, in reasonable
detail, the basis for the claim, the nature of Damages and a good faith estimate
of the amount of Damages.
(b) Each indemnifying party shall have 30 days after its receipt
of the claim notice to notify the indemnified party in writing whether the
indemnifying party accepts liability for all or any part of the Damages
described in the claim notice. If the indemnifying party does not so notify the
indemnified party, the indemnifying party shall be deemed to accept liability
for all the Damages described in the claim notice.
(c) A party's failure to give timely notice will not constitute a
defense, in part or in whole, to any claim for indemnification by such party,
except if, and only to the extent that, such failure results in any material
prejudice to the indemnifying party.
11.05 Limitation on Indemnification Obligations. The indemnification
obligations set forth in Sections 11.02 and 11.03 shall not apply unless the
total amount of Damages incurred either by GDSC's Indemnified Persons or by
Sellers (as the case may be) exceeds $200,000 in the aggregate, as a result of
all matters giving rise to rights to indemnification under those Sections. In
the event that the amount of Damages exceeds that threshold, GDSC's Indemnified
Persons or Sellers (as the case may be) shall be entitled to indemnification for
the full amount of all Damages for which indemnification is to be provided under
Section 11.02 or 11.03, except that the indemnification obligations set forth in
Section 11.02 or 11.03 shall not exceed $1,250,000 under either section.
11.06 Rights Not Exclusive. An indemnified party's rights to
indemnification under this Article 11 are in addition to, and not in lieu of,
any other rights to which the indemnified party may be entitled at law or in
equity.
ARTICLE XII
Confidentiality; Press Releases
12.01 Confidentiality.
12.01-1 No information concerning Sellers not previously disclosed to
the public or in the public domain that has been furnished to or obtained by
GDSC under this Agreement or in connection with the transactions contemplated
hereby shall be disclosed to any person other than in confidence to employees,
legal counsel, financial advisers or independent public accountants of
36
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GDSC or used for any purpose other than as contemplated herein. If the
transactions contemplated by this Agreement are not consummated, GDSC shall hold
such information in confidence for a period of four years from the date of any
termination of this Agreement or such longer period as is required by agreement
or law, and all such information that is in writing or embodied on a diskette,
tape or other tangible medium shall be promptly returned to Sellers.
12.01-2 No information concerning GDSC not previously disclosed to the
public or in the public domain that has been furnished to or obtained by Sellers
or the Partners under this Agreement or in connection with the transactions
contemplated hereby shall be disclosed to any person other than in confidence to
the employees, legal counsel, financial advisers or independent public
accountants of Sellers or the Partners or used for any purpose other than as
contemplated herein. If the transactions contemplated by this Agreement are not
consummated, Sellers and the Partners shall hold such information in confidence
for a period of four years from the date of any termination of this Agreement or
such longer period as is required by agreement or law, and all such information
that is in writing or embodied on a diskette, tape or other tangible medium
shall be promptly returned to GDSC.
12.01-3 Notwithstanding the foregoing, such obligations of GDSC and of
Sellers shall not apply to information
(a) that is, or becomes, publicly available from a source other
than GDSC or Sellers, as the case may be;
(b) that was known and can be shown to have been known by GDSC at
the time of its receipt from Sellers, or by Sellers at the time of its receipt
from GDSC, as the case may be;
(c) that is received by GDSC from a third party without breach of
this Agreement by GDSC, or is received by Sellers from a third party without
breach of this Agreement by Sellers, as the case may be;
(d) that is required by law to be disclosed; or
(e) that is disclosed in accordance with the written consent of
GDSC or of Sellers, as the case may be.
12.02 Press Releases. No press releases or other public announcements
concerning the transactions contemplated by this Agreement shall be made by
Sellers or Partners without the prior written consent of GDSC; provided,
however, that nothing herein shall prevent a party from supplying such
information or making statements as required by governmental authority or in
order for a party to satisfy its legal obligations (prompt notice of which shall
in any such case be given to the other party or parties).
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ARTICLE XIII
Other Provisions
13.01 Benefit and Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. No party hereto may voluntarily or involuntarily assign such
party's interest under this Agreement without the prior written consent of the
other parties.
13.02 Entire Agreement. This Agreement and the Schedules and Exhibits
referred to herein embody the entire agreement and understanding of the parties
and supersede any and all prior agreements, arrangements and understandings
relating to matters provided for herein.
13.03 Fees and Expenses. GDSC shall be solely responsible for all costs and
expenses incurred by it, and Sellers shall be solely responsible for all costs
and expenses incurred by them, in connection with the negotiation, preparation
and performance of and compliance with the terms of this Agreement.
13.04 Amendment, Waiver, etc. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the party against
which enforcement of such amendment or waiver is sought. Any waiver of any term
or condition of this Agreement or any breach hereof shall not operate as a
waiver of any other such term, condition or breach, and no failure to enforce
any provision hereof shall operate as a waiver of such provision or of any other
provision hereof.
13.05 Headings. The headings are for convenience only and will not control
or affect the meaning or construction of the provisions of this Agreement.
13.06 Governing Law. The construction and performance of this Agreement
will be governed by the laws of the State of California (except for the choice
of law provisions thereof).
13.07 Notices. Any notice, demand or request required or permitted to be
given under the provisions of this Agreement shall be in writing; shall be
delivered personally, including by means of telecopy, or mailed by registered or
certified mail, postage prepaid and return receipt requested; shall be deemed
given on the date of personal delivery or on the date set forth on the return
receipt; and shall be delivered or mailed to the addresses or telecopy numbers
set forth on the first page of this Agreement or to such other address as any
party may from time to time direct, with copies to:
In the case of GDSC:
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2300
Portland, OR 97204
Telecopy No.: (503) 220-2480
Attention: Edward L. Epstein
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In the case of Sellers:
Klein & Martin
2029 Century Park East
Suite 2550
Los Angeles, CA 90067
Telecopy No.: (310) 201-0108
Attention: Eric A. Klein
13.08 Breach; Equitable Relief. The parties acknowledge that the Dental
Practice and rights of the parties described in this Agreement are unique and
that money damages alone for breach of this Agreement would be inadequate. Any
party aggrieved by a breach of the provisions hereof may bring an action at law
or suit in equity to obtain redress, including specific performance, injunctive
relief or any other available equitable remedy. Time and strict performance are
of the essence in this Agreement.
13.09 Attorneys' Fees. If suit or action is filed by any party to enforce
the provisions of this Agreement or otherwise with respect to the subject matter
of this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees as fixed by the trial court and, if any appeal is taken from the
decision of the trial court, reasonable attorneys' fees as fixed by the
appellate court. For purposes of this Agreement, the term "prevailing party"
shall be deemed to include a party that successfully opposes a petition for
review filed with an appellate court.
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13.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
GDSC: GENTLE DENTAL SERVICE CORPORATION
By: L.T. VAN EERDEN
--------------------------------------
Title: CFO
-----------------------------------
DPM: CALIFORNIA DENTAL PRACTICE
MANAGEMENT COMPANY
By: ARTHUR G. KAISER, DDS
--------------------------------------
Title: PARTNER
-----------------------------------
The Partners:
ARTHUR G. KAISER
------------------------------------------
Arthur G. Kaiser, D.D.S.
ROBERT J. NEWMAN
------------------------------------------
Robert J. Newman
Thomas: MARK THOMAS
------------------------------------------
Mark Thomas, D.D.S.
40
ASSET PURCHASE AGREEMENT
among
Gentle Dental Service Corporation,
a Washington Corporation,
California Dental Practice Management Company,
a California General Partnership,
Arthur G. Kaiser, D.D.S,
Robert J. Newman
and
Clarence Au, D.D.S.
Dated September 21, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Purchase and Sale of Assets....................................................2
1.01 Purchase and Sale..................................................2
1.02 Excluded Assets....................................................3
1.03 Assumption of Liabilities..........................................3
1.04 Purchase Price.....................................................4
1.05 Purchase Price Adjustment and Issuance of Shares...................5
1.06 Instruments of Conveyance and Transfer.............................6
1.07 Further Assurances.................................................6
1.08 Closing............................................................6
1.09 Sales Tax..........................................................6
1.10 Allocation of Purchase Price.......................................7
ARTICLE II
Representations and Warranties of GDSC.........................................7
2.01 Authorization......................................................7
2.02 Capitalization.....................................................7
2.03 Compliance.........................................................8
2.04 Consents...........................................................8
2.05 Accuracy of Representations & Warranties...........................8
2.06 Employment Matters.................................................8
2.07 Financial Statements...............................................9
2.08 Absence of Certain Changes or Events...............................9
2.09 Title and Condition of Tangible Assets............................10
2.10 Insurance.........................................................10
2.11 Taxes.............................................................11
2.12 Certain Interests.................................................11
2.13 No Restrictions...................................................11
2.14 Permits and Licenses..............................................11
2.15 Environmental Conditions..........................................11
2.16 Records...........................................................12
2.17 Reliance..........................................................12
ARTICLE III
Individual Representations and Warranties of Au...............................12
3.01 Investment Representations........................................12
3.02 Access to Information.............................................13
3.03 Sophistication....................................................13
3.04 Accredited Investor...............................................13
i
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Page
ARTICLE IV
Representations and Warranties of the Sellers and the Partners................13
4.01 Authority of Partners.............................................13
4.02 Organization and Authority of DPM.................................13
4.03 Authority of Au...................................................14
4.04 No Adverse Consequences...........................................14
4.05 Brokers and Finders...............................................14
4.06 Litigation........................................................14
4.07 Compliance with Laws..............................................14
4.08 Employment Matters................................................15
4.09 Financial Statements..............................................16
4.10 Receivables.......................................................17
4.11 Prepaid Expenses and Other........................................17
4.12 Personal Property.................................................17
4.13 Payables..........................................................17
4.14 Indebtedness......................................................17
4.15 Other Liabilities.................................................17
4.16 Absence of Certain Changes or Events..............................17
4.17 Leases............................................................17
4.18 Certain Contracts and Arrangements................................17
4.19 Status of Contracts and Leases....................................18
4.20 Title and Condition of Tangible Assets............................19
4.21 Insurance.........................................................19
4.22 Taxes.............................................................20
4.23 No Restrictions...................................................20
4.24 Permits and Licenses..............................................20
4.25 Certain Payments..................................................20
4.26 Environmental Conditions..........................................20
4.27 Consents and Approvals............................................21
4.28 Records...........................................................21
4.29 Reliance..........................................................21
4.30 Accuracy of Representations and Warranties........................21
ARTICLE V
Covenants of Sellers and the Partners.........................................21
5.01 Access to Properties, Books and Records...........................21
5.02 Negative Covenants................................................22
5.03 Affirmative Covenants.............................................23
5.04 No Negotiations With Others.......................................24
5.05 401(k) Plan.......................................................24
5.06 Formation of Professional Corporation.............................24
5.07 Employees.........................................................24
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Page
5.08 Restrictions on Sale of Shares of GDSC Common Stock...............24
ARTICLE VI
Covenants of GDSC.............................................................25
6.01 Registration Rights...............................................25
ARTICLE VII
Joint Covenants...............................................................29
7.01 Governmental Consents.............................................29
7.02 Best Efforts; No Inconsistent Action..............................29
ARTICLE VIII
Conditions to Obligations of GDSC.............................................29
8.01 Governmental Approvals............................................29
8.02 Consents..........................................................29
8.03 Representations, Warranties and Covenants.........................29
8.04 Adverse Proceedings...............................................30
8.05 No Adverse Change.................................................30
8.06 Support Services Agreement........................................30
8.07 Option Agreement..................................................30
8.08 Employment Agreements.............................................30
8.09 Closing of the Transactions.......................................30
8.10 Fairness Opinion..................................................30
8.11 Professional Corporation..........................................30
8.12 Actions Satisfactory to GDSC's Counsel............................31
ARTICLE IX
Conditions to Obligations of Sellers..........................................31
9.01 Representations, Warranties and Covenants.........................31
9.02 Adverse Proceedings...............................................31
9.03 Actions Satisfactory to Seller's Counsel..........................31
ARTICLE X
Termination...................................................................31
10.01 Right of Parties to Terminate...............................31
10.02 Effect of Termination.......................................32
ARTICLE XI
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Page
Survival; Indemnification.....................................................32
11.01 Survival....................................................32
11.02 Indemnification by Sellers and Partners.....................33
11.03 Indemnification by GDSC.....................................33
11.04 Indemnification Procedure...................................34
11.05 Limitation on Indemnification Obligations...................35
11.06 Rights Not Exclusive........................................35
ARTICLE XII
Confidentiality; Press Releases...............................................36
12.01 Confidentiality.............................................36
12.02 Press Releases..............................................37
ARTICLE XIII
Other Provisions..............................................................37
13.01 Benefit and Assignment......................................37
13.02 Entire Agreement............................................37
13.03 Fees and Expenses...........................................37
13.04 Amendment, Waiver, etc......................................37
13.05 Headings....................................................37
13.06 Governing Law...............................................37
13.07 Notices.....................................................37
13.08 Breach; Equitable Relief....................................38
13.09 Attorneys' Fees.............................................38
13.10 Counterparts................................................39
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INDEX OF DEFINED TERMS
Term Location of Definition
1933 Act............................................. 3.01
401(k) Plan.......................................... 5.05
Assets............................................... 1.01
Assumed Liabilities.................................. 1.04-4
Au ................................................ Introduction
Closing.............................................. 1.08
Closing Date......................................... 1.08
Code................................................. 4.08-2
Contracts............................................ 1.01-6
Current Balance Sheet................................ 4.09-1
Damages.............................................. 11.02-1
DPM.................................................. Introduction
Dental Practice...................................... Introduction
Earnout Payment...................................... 1.04-5
EBITDA............................................... 1.04-5
ERISA................................................ 2.06-2
ERISA Plans.......................................... 4.08-2
Environmental Law.................................... 2.15-2
Exchange Act......................................... 6.01-6
Financial Statements................................. 4.09-1
GDSC................................................. Introduction
GDSC Common Stock.................................... 1.04-3
GDSC Current Balance Sheet........................... 2.07
GDSC ERISA Plans..................................... 2.06-2
GDSC Financial Statements............................ 2.07
GDSC Material Adverse Effect ........................ Article II Introduction
GDSC Material Adverse Change ........................ Article II Introduction
GDSC Permits......................................... 2.14
GDSC Policies........................................ 2.10
GDSC Returns......................................... 2.11-1
GDSC's Indemnified Persons........................... 11.02-1
Hazardous Substance.................................. 2.15-2
Indemnified Party.................................... 6.01-6(c)
Indemnifying Party................................... 6.01-6(c)
Leases............................................... 1.01-5
Material Adverse Change.............................. Article IV Introduction
Material Adverse Effect.............................. Article IV Introduction
Net Current Assets................................... 1.05-6
Partners............................................. Introduction
Permits.............................................. 4.24
Policies............................................. 4.21
Professional Contracts............................... 1.01-6
Professional Corporation............................. Introduction
Purchase Price....................................... 1.04
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Purchase Price Adjustment............................ 1.05-1
Real Property........................................ 4.17
Registrable Securities............................... 6.01-1
Related Documents.................................... 11.01
Requesting Shareholders.............................. 6.01-2(b)
Returns.............................................. 4.22-1
Sellers.............................................. Introduction
Sellers' Indemnified Persons......................... 11.03-1
Shares............................................... 3.01
Stock Price.......................................... 1.04-3
Tangible Personal Property........................... 4.12
Taxes................................................ 2.11-3
Third Party Claims................................... 11.04-1(a)
Transactions......................................... 8.10
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LIST OF EXHIBITS
Exhibit Item First Reference
A Assumption Agreement 1.04-4
B Assignment and Bill of Sale to GDSC 1.06
C Assignment to Professional Corporation 1.06
D Support Services Agreement 8.06
E Assignable Option Agreement 8.07
F Employment Agreement 8.08
G Addendum to Employment
Agreement 8.08
H Articles and Bylaws of Professional
Corporation 5.06
LIST OF SCHEDULES
Schedule Content
1.02-2 Excluded Assets
1.10 Purchase Price Allocation
2.04 Consents
4.06 Litigation
4.08-2 Employee Benefits
4.08-3 Employment Manuals and Policies
4.08-4 Compensation
4.09 Financial Statements
4.10 Receivables
4.11 Prepaid Expenses and Other
4.12 Tangible Personal Property
4.13 Payables
4.14 Indebtedness
4.15 Other Liabilities
4.17 Leases
4.18 Contracts
4.21 Insurance
4.27 Consents and Approvals
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ASSET PURCHASE AGREEMENT
DATED: September 21, 1997
BETWEEN: GENTLE DENTAL SERVICE CORPORATION,
a Washington corporation
900 Washington Street, Suite 1100
Vancouver, WA 98660
Telecopy No.: (360) 750-8667 "GDSC"
AND: CALIFORNIA DENTAL PRACTICE MANAGEMENT COMPANY
a California general partnership
3990 Ming Avenue
Bakersfield, CA 93309
Telecopy No.: ________________ "DPM"
AND: Arthur G. Kaiser, D.D.S.
Robert J. Newman
3990 Ming Avenue
Bakersfield, CA 93309
Telecopy No.: ________________ "Partners"
AND: Clarence Au, D.D.S.
Ming & H Family Dentistry
1621 South "H" Street
Bakersfield, CA 93304
Telecopy No.: ________________ "Au"
Partners are the owners of all of the partnership interests of DPM. DPM
provides management support and other services to dental practices, including a
dental practice conducted by Au under the name Ming & H Family Dentistry (the
"Dental Practice") at 1621 South "H" Street, Bakersfield, California, 93304 (the
"Practice Location"). DPM and Au desire to sell, and GDSC desires to purchase,
substantially all of the assets of the Dental Practice (the "Assets") on the
terms and conditions set forth in this Agreement. After the completion of the
purchase, dental services will be provided to the patients of the Dental
Practice by Au Dental Corporation, d.b.a. Ming & H Family Dentistry, a Dental
Office of Dr. Clarence Au (the "Professional Corporation"), and Au will become
an employee of the Professional Corporation. DPM and Au are collectively
referred to as the "Sellers."
In consideration of the mutual promises and covenants contained in this
Agreement, the parties agree as follows:
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ARTICLE I
Purchase and Sale of Assets
1.01 Purchase and Sale. Subject to all the terms and conditions of this
Agreement and for the consideration herein stated, on the "Closing Date," as
that term is defined in Section 1.08, Sellers agree to sell, convey, assign,
transfer and deliver to GDSC (or with respect to certain assets as specified in
Section 1.06, to the Professional Corporation), and GDSC agrees to purchase and
accept from Sellers, all of the assets, properties and rights of Sellers (other
than the assets specified in Section 1.02), tangible and intangible, wherever
located, that are used or useful to maintain and operate the Dental Practice,
which assets (the "Assets") shall include without limitation:
1.01-1 All patient lists, charts, files and patient records, and all
other operating data and records relating to the Dental Practice, including
without limitation financial, accounting and credit records, correspondence,
budgets, engineering and facility records and other similar documents and
records;
1.01-2 All other items of tangible personal property of the Sellers
used in connection with or associated with the Dental Practice, including
furniture, fixtures, equipment, supplies, inventory and spare and replacement
items therefor, including without limitation all such items listed on Schedule
4.12 and all such items acquired by the Sellers after the date hereof and on or
before the Closing Date, other than to the extent such items are disposed of by
the Sellers prior to the Closing Date without breach of this Agreement;
1.01-3 All accounts receivable and other receivables associated with
the Dental Practice, including without limitation all receivables listed on
Schedule 4.10 and all receivables acquired after August 31, 1997 and on or
before the Closing Date, other than to the extent such receivables have been
collected by the Sellers prior to the Closing Date;
1.01-4 All prepaid and deferred items relating to the Dental Practice,
including prepaid rent, insurance, taxes and unbilled charges and deposits,
including without limitation all such items listed on Schedule 4.11;
1.01-5 All leases of real or personal property used or useful in the
Dental Practice, including without limitation all leases listed on Schedule 4.17
and all leases entered into after the date hereof and on or before the Closing
Date and expressly assumed by GDSC in writing on the Closing Date as provided in
Section 1.04-4(d), other than to the extent such leases have terminated, expired
or been disposed of by the Sellers prior to the Closing Date without breach of
this Agreement (collectively, the "Leases");
1.01-6 All rights, benefits and interests of the Sellers under the
contracts and agreements for provision of dentistry services including without
limitation contracts with third payors, dentists or other professionals (the
"Professional Contracts") and the other contracts, agreements, commitments,
understandings, purchase orders, documents and instruments listed on Schedule
4.18 hereto and under any contracts, agreements, commitments, understandings,
purchase orders, documents or instruments entered into between the date hereof
and the Closing Date and
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expressly assumed by GDSC in writing on the Closing Date as provided in Section
1.04-4(d), other than to the extent such items have terminated, expired or been
disposed of by the Sellers prior to the Closing Date without breach of this
Agreement (collectively, the "Contracts");
1.01-7 All assignable rights to all telephone lines and numbers used
in the conduct of the Dental Practice; and
1.01-8 All right, title and interest in and to all trade names used in
conjunction with the Dental Practice.
1.02 Excluded Assets. The Assets shall not include the following:
1.02-1 Any lease not listed on Schedule 4.17 and any contract,
agreement, commitment, understanding, purchase order, document or instrument not
listed on Schedule 4.18, unless pursuant to Section 1.04-4(d) GDSC expressly
agrees in writing on the Closing Date to assume the obligations under such
lease, contract, agreement, commitment, understanding, purchase order, document
or instrument, in which case the Sellers shall assign their rights and benefits
thereunder to GDSC and the same shall be treated as a "Lease" or "Contract" for
purposes of this Agreement; and
1.02-2 The assets identified on Schedule 1.02-2.
1.03 Assumption of Liabilities. Except for the liabilities and obligations
to be assumed by GDSC pursuant to Section 1.04-4, GDSC will not assume and will
not be liable for any liabilities of the Sellers, known or unknown, contingent
or absolute, accrued or other, and the Assets shall be free of all liabilities,
obligations, liens and encumbrances. Without limiting the generality of the
foregoing and except as otherwise provided above, GDSC will not be responsible
for any of the following:
1.03-1 Liabilities, obligations or debts of the Sellers, whether
fixed, contingent or mixed and whether based on events occurring before or after
the Closing Date, including without limitation those based on tort, contract,
statutory or other claims or involving fines or penalties payable to any
governmental authority;
1.03-2 Liabilities, obligations or debts of the Sellers for any
federal, state or local tax, including without limitation federal income taxes,
state income and excise taxes, state and local real and personal property taxes
and federal, state and local withholding and payroll taxes;
1.03-3 Liabilities or obligations of the Sellers to employees for
salaries, bonuses or health and welfare benefits or with respect to any profit
sharing, stock bonus, pension, retirement, stock purchase, option, bonus or
deferred compensation plan or for any other benefits or compensation (including
without limitation accrued vacation or sick leave); and
1.03-4 Liabilities or obligations of the Sellers for employee
severance payments or arrangements resulting from termination of the Sellers'
employees.
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1.04 Purchase Price. The total purchase price for the Assets (the "Purchase
Price") shall be the following:
1.04-1 $1,457,143, payable by check to DPM on the Closing Date.
1.04-2 $840,000, payable by check to Au on the Closing Date.
1.04-3 A number of shares of common stock of GDSC ("GDSC Common
Stock") determined by dividing $280,000 by a number (the "Stock Price") equal to
the average of the closing prices of GDSC Common Stock reported by NASDAQ for
the thirty trading days prior to the date of this Agreement, subject to
adjustment as set forth in Section 1.05, to be issued to Au in accordance with
that Section.
1.04-4 The assumption by GDSC on the Closing Date, pursuant to the
terms of an Assumption Agreement in substantially the form attached hereto as
Exhibit A, of the following liabilities of the Sellers (the "Assumed
Liabilities"):
1.04-4(a) the accounts payable and accrued liabilities associated
with the Dental Practice identified on Schedule 4.13 in the amounts associated
with each at to the Closing Date;
1.04-4(b) all liabilities of the Sellers of a type identified on
Schedule 4.13 and incurred in the ordinary course of business after August 31,
1997 and on or before the Closing Date (to the extent such liabilities are not
paid or discharged prior to the Closing Date), but specifically excluding any
liabilities for brokers' and attorneys' fees and other expenses of this
transaction and accrued liabilities for taxes based on the income or revenues of
the Dental Practice;
1.04-4(c) all obligations of the Sellers under any of the Leases
or Contracts listed on Schedule 4.17 or Schedule 4.18 hereto; and
1.04-4(d) all obligations of the Sellers under any lease,
contract, agreement, commitment, understanding, purchase order, document or
instrument entered into by the Sellers between the date of this Agreement and
the Closing Date that GDSC, in its sole discretion, elects on the Closing Date
to assume.
1.04-5 An additional payment to be made to Au (the "Earnout Payment")
to be made as provided in this Section 1.04-5. The average annual EBITDA (as
defined below) for the 24- month period beginning on the day after the Closing
Date shall be multiplied by .384 to determine the Earnout Payment. The "EBITDA"
shall mean the combined net income of (a) the Professional Corporation and (b)
GDSC from the provision of services to the Professional Corporation, before any
reduction for interest, income taxes, depreciation or amortization, and
excluding any allocation of GDSC corporate or regional overhead expense, as
reflected on a combined income statement for the Practice Location prepared in
conformity with generally accepted accounting principles applied in a manner
consistent with the application of such principles to the preparation of GDSC's
audited financial statements. In the event that GDSC exercises its rights under
Sections 1.4 or 1.5 of the Assignable Option Agreement described in Section 8.07
of this Agreement, the "EBITDA" shall
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mean the net income of the Successor Shareholder (as defined in the Assignable
Option Agreement) from the Dental Practice, before any reduction for interest,
income taxes, depreciation or amortization and excluding any allocation of
corporate or regional overhead expense, as reflected on income statement for the
Practice Location prepared in conformity with generally accepted accounting
principles applied in a manner consistent with the application of such
principles to the preparation of GDSC's audited financial statements. The
calculation of the Earnout Amount and payment of the Earnout Payment, if any,
shall be completed within 90 days of the completion of the aforementioned
24-month period.
1.05 Purchase Price Adjustment and Issuance of Shares. The Purchase Price
may be subject to adjustment after Closing as set forth in this Section 1.05.
1.05-1 As soon as reasonably possible after Closing, the amount of the
"Net Current Assets" (as defined in Section 1.05-6) shall be determined as
provided in Section 1.05-7. If the amount of Net Current Assets is $20,000 more
or less than $44,000, the Purchase Price shall be adjusted by the full amount of
the difference (the "Purchase Price Adjustment"). If the difference between Net
Current Assets and $44,000 does not exceed $20,000, there shall be no Purchase
Price Adjustment.
1.05-2 If the Purchase Price is to be adjusted under Section 1.05-1,
51% of the Purchase Price Adjustment shall be allocated to DPM and 49% of the
Purchase Price Adjustment shall be allocated to Au.
1.05-3 If the Net Current Assets are greater than $64,000, the
Purchase Price Adjustment allocated to DPM shall be paid to DPM by check within
10 days after Sellers deliver the certificate described in Section 1.05-7. If
the Net Current Assets are less than $24,000, the Purchase Price Adjustment
allocated to DPM shall be paid by DPM to GDSC by check within 10 days after
Sellers deliver the certificate described in Section 1.05-7.
1.05-4 If the Net Current Assets are greater than $64,000, the
Purchase Price Adjustment allocated to Au shall be made by increasing the number
of shares of GDSC Common Stock issuable under Section 1.04-3. If the Net Current
Assets are less than $24,000, the Purchase Price Adjustment allocated to Au
shall be made by decreasing the number of shares of GDSC Common Stock issuable
under Section 1.04-3. The amount of the increase or decrease in the number of
shares issuable to Au shall be determined by dividing the Purchase Price
Adjustment allocated to Au by the Stock Price.
1.05-5 Within 10 days after Sellers deliver the Certificate described
in Section 1.05-7, the shares of GDSC Common Stock issuable pursuant to Section
1.04-3, adjusted as set forth in Section 1.05-4, shall be issued to Au.
1.05-6 "Net Current Assets" means the sum of (a) accounts receivable
of the Dental Practice, net of contractual allowances and bad debt reserve, as
of the Closing Date and (b) any prepaid expenses properly recordable on a
balance sheet for the Dental Practice as of the Closing Date reduced by the sum
of (x) the accounts payable of the Dental Practice at the Closing Date and (y)
the accrued liabilities of the Dental Practice at the Closing Date, specifically
including an accrual
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of payroll and payroll-related charges up to and including the Closing Date, all
as determined consistently with the accounting conventions applied in
determining the amounts set forth in paragraphs 1.05-1, 1.05-3 and 1.05-4 above.
1.05-7 At or after the Closing Date, and as a condition to the
issuance to Au of certificates for GDSC Common Stock pursuant to Section 1.05-5,
Sellers shall execute and deliver to GDSC a certificate detailing the
calculation of Net Current Assets and including as schedules thereto lists of
all receivables, prepaid expenses, payables and accrued liabilities as of the
Closing Date included in the calculation. In this certificate Sellers shall
certify the accuracy and completeness of the schedules to the certificate and
the accuracy of the calculation of Net Current Assets.
1.06 Instruments of Conveyance and Transfer. The sale of the Assets, and
the conveyance, assignment, transfer and delivery of all of the Assets other
than the patient charts, the Professional Contracts and rights to the trade name
"Ming & H Family Dentistry," shall be effected by the Seller's execution and
delivery to GDSC, on the Closing Date, of a bill of sale in substantially the
form of the Assignment and Bill of Sale attached hereto as Exhibit B. The
conveyance, assignment, transfer and delivery of Sellers' patient charts, the
Professional Contracts and the rights to the trade name "Ming & H Family
Dentistry" shall be effected by the Sellers' execution and delivery to the
Professional Corporation, on the Closing Date, of an assignment in substantially
the form of the Assignment attached hereto as Exhibit C.
1.07 Further Assurances. The Sellers agree that, at any time and from time
to time on and after the Closing Date, they will, upon the request of GDSC and
without further consideration, take all steps reasonably necessary to place GDSC
(or the Professional Corporation, as the case may be) in possession and
operating control of the Assets and the Sellers will do, execute, acknowledge
and deliver, or will cause to be done, executed, acknowledged and delivered, all
further acts, deeds, assignments, conveyances, transfers, powers of attorney or
assurances as reasonably required to sell, assign, convey, transfer, grant,
assure and confirm to GDSC (or the Professional Corporation, as the case may
be), or to aid and assist in the collection of or reducing to possession by GDSC
(or the Professional Corporation, as the case may be) of, all of the Assets, or
to vest in GDSC (or the Professional Corporation, as the case may be) good,
valid and marketable title to the Assets.
1.08 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Stoel Rives LLP,
900 SW Fifth Avenue, Suite 2300, Portland, Oregon, effective as of the close of
business on the last day of the month in which all conditions to Closing are
satisfied (other than those conditions that by their terms are to occur at the
Closing) or at another date, time and place agreed upon in writing by the
parties (the "Closing Date").
1.09 Sales Tax. The Sellers shall pay, at their sole expense, any sales tax
owing in respect of the purchase of the Assets. The Sellers shall promptly file
all necessary sales tax returns and pay all sales taxes due following the
Closing Date. As soon as practicable following the Closing Date, the Sellers
shall deliver to GDSC receipts from the appropriate taxing authorities showing
that all sales taxes owing have been paid.
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1.10 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in accordance with Schedule 1.10, and GDSC and the Sellers
shall be bound by that allocation in reporting the transactions contemplated by
this Agreement to any governmental authority (including without limitation the
Internal Revenue Service).
ARTICLE II
Representations and Warranties of GDSC
As used in this Agreement, "GDSC Material Adverse Effect" means an adverse
effect on the business, results of operations, financial position, assets or
prospects of GDSC that would be considered material under federal securities
laws; and "GDSC Material Adverse Change" means any change that has resulted,
will result or is likely to result in a GDSC Material Adverse Effect. GDSC
represents and warrants to the Sellers as follows:
2.01 Authorization. GDSC is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Washington and has all
requisite corporate power and authority to own and operate its properties and to
carry on its business as now conducted. GDSC has taken all corporate action
necessary to authorize its execution, delivery and performance of this
Agreement. GDSC has full corporate power and authority to enter into this
Agreement and carry out the terms hereof. This Agreement has been duly executed
and delivered by GDSC and is binding upon and enforceable against GDSC in
accordance with its terms, except as enforceability may be limited or affected
by applicable bankruptcy, insolvency, reorganization, or other laws of general
application relating to or affecting creditors' rights generally and except as
enforceability may be limited by rules of law governing specific performance,
injunctive relief or other equitable remedies.
2.02 Capitalization. The authorized capital stock of GDSC consists of
50,000,000 shares of Common Stock, of which 3,144,404 shares are issued and
outstanding; and 30,000,000 shares of Preferred Stock, of which no shares are
issued and outstanding. All issued and outstanding shares of GDSC capital stock
are validly issued, fully paid and nonassessable, and have been issued without
violation of any preemptive rights. There is no subscription, option, warrant,
call, right, agreement or commitment (including any right of conversion or
exchange under any outstanding security or other instrument) relating to the
issuance by GDSC of GDSC capital stock other than outstanding options under the
GDSC 1993 Stock Incentive Plan, outstanding purchase rights under the GDSC
Employee Stock Purchase Plan and the GDSC Professional Corporation Employee
Stock Purchase Plan, warrants described in GDSC's Registration Statement on Form
SB-2 (Registration No. 333-13529) and outstanding offers and/or agreements to
acquire other dental practices or dental practice management companies in
exchange for Common Stock. The GDSC Common Stock to be issued under this
Agreement will, when issued, be duly and validly authorized and issued, fully
paid and nonassessable.
2.03 Compliance. The execution, delivery and performance of this Agreement
by GDSC, the compliance by GDSC with the provisions of this Agreement and the
consummation of the transactions described in this Agreement will not conflict
with or result in the breach of any of the terms or provisions of or constitute
a default under:
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2.03-1 the articles of incorporation or bylaws of GDSC;
2.03-2 any note, indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which GDSC is a party or by
which GDSC is bound; or
2.03-3 any statute or any order, rule, regulation or decision of
any court or regulatory authority or governmental body applicable to GDSC.
2.04 Consents. No consent, approval, authorization, order, designation or
declaration of any court or regulatory authority or governmental body, federal
or other, or third person is required to be obtained by GDSC for the
consummation of the transactions described in this Agreement.
2.05 Accuracy of Representations & Warranties. None of the representations
or warranties of GDSC contains or will contain any untrue statement of any
material fact or omits or misstates a material fact necessary to make the
statements contained in this Agreement not misleading. GDSC does not know of any
fact that has resulted or that, in the reasonable judgment of GDSC will result,
in any material adverse change in GDSC's business, results of operation,
financial condition or prospects that has not been set forth in this Agreement.
2.06 Employment Matters.
2.06-1 Labor Matters. GDSC is and has been in compliance with all
applicable laws regarding employment and employment practices, terms and
conditions of employment, wages and hours and is not and has not been engaged in
any unfair labor practice. There is no (1) unfair labor practice complaint
against GDSC pending before the National Labor Relations Board or any other
governmental authority, (2) labor strike, slowdown or work stoppage actually
occurring or, to the best of the knowledge of GDSC, threatened against GDSC, (3)
representation petition respecting GDSC's employees pending before the National
Labor Relations Board, or (4) grievance or any arbitration proceeding pending
arising out of or under collective bargaining agreements applicable to GDSC.
GDSC has not experienced any primary work stoppage or other organized work
stoppage involving its employees in the past two years.
2.06-2 Employee Benefits. The employee pension benefit plans (within
the meaning of Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") established and maintained by GDSC that are subject
to ERISA (the "GDSC ERISA Plans") comply with the applicable requirements of
ERISA. GDSC has received from the Internal Revenue Service a favorable
determination for each of the GDSC ERISA Plans and their related trusts that
each of the GDSC ERISA Plans is qualified under Section 401(a) of the Code and
the related trust is tax-exempt under Section 501(a) of the Code. There has been
no event subsequent to that determination that has adversely affected the tax
qualified status of the GDSC ERISA Plans or the exemption of the related trusts
other than changes in the Code that are not effective as of the Closing Date. No
"accumulated funding deficiency" as defined in Section 302(a)(2) of ERISA or
Section 412(a) of the Code exists, or has existed, with respect to any of the
GDSC ERISA Plans. The present value of all accrued benefits under each of the
GDSC ERISA Plans does not exceed the value of such plan's assets, less all
liabilities other than those attributable to accrued benefits. GDSC has no
"potential withdrawal liability," as defined in Section 4201 of ERISA. None of
the GDSC ERISA Plans, its
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related trusts or any trustee, investment manager or administrator thereof has
engaged in a nonexempt "prohibited transaction," as such term is defined in
Section 406 of ERISA and Section 4975 of the Code. There are not and have not
been any excess deferrals or excess contributions under any GDSC ERISA Plan.
Each GDSC ERISA Plan is and has been operated and administered in conformance
with the requirements of all applicable laws and regulations, whether or not the
GDSC ERISA Plan documents have been amended to reflect such requirements.
2.07 Financial Statements.
2.07-1 GDSC's Annual Report to Shareholders for the year ended
December 31, 1996 contains audited balance sheets of GDSC as of December 31,
1996 and 1995, and the related audited statements of income for the years then
ended, and GDSC's Quarterly Report on Form 10-QSB for the quarter ended June 30,
1997 contains the unaudited balance sheet of GDSC as of June 30, 1997 (the "GDSC
Current Balance Sheet") and the related statement of income for the six months
then ended (all such balance sheets and statements collectively, the "GDSC
Financial Statements").
2.07-2 The GDSC Financial Statements present fairly
(a) the financial position of GDSC as of the dates indicated and
(b) the results of operations for the periods then ended, all in
conformity with generally accepted accounting principles applied on a consistent
basis.
2.08 Absence of Certain Changes or Events. Since the date of the GDSC
Current Balance Sheet, there has not been:
2.08-1 Any GDSC Material Adverse Change or any event, occurrence,
development or state of circumstances or facts which could reasonably be
expected to result in a GDSC Material Adverse Change;
2.08-2 Any damage, destruction or casualty loss, whether insured
against or not, to any of GDSC's assets or properties;
2.08-3 Any increase in the rate or terms of compensation payable or to
become payable by GDSC to its directors, officers or key employees; any increase
in the rate or terms of any bonus, insurance, pension or other employee benefit
plan, payment or arrangement made to, for or with any such directors, officers
or key employees; any special bonus or remuneration paid; or any written
employment contract executed or amended;
2.08-4 Any conduct of business which is outside the ordinary course of
business or not substantially in the manner that GDSC previously conducted its
business;
2.08-5 Any incurrence of any noncontract liability which, either
singly or in the aggregate is material to the business, results of operations,
financial condition or prospects of GDSC;
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2.08-6 Any change in the assets, liabilities, licenses, permits or
franchises of GDSC, or in any agreement to which GDSC is a party or is bound,
which has had or reasonably could be expected to have a GDSC Material Adverse
Effect.
2.09 Title and Condition of Tangible Assets.
2.09-1 GDSC owns all of its tangible personal property except leased
property free and clear of all mortgages, pledges, security interests, claims,
charges or other encumbrances or restrictions of any kind, except
(a) liens related to obligations disclosed in the GDSC Financial
Statements or
(b) liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the GDSC
Current Balance Sheet).
2.09-2 GDSC has good and absolute title to its tangible personal
property except leased property.
2.09-3 All of GDSC's tangible personal property has been maintained
and operated in accordance with manufacturer's specifications and prudent
industry practices, is in a good state of maintenance and repair, ordinary wear
and tear excepted, and is adequate for the conduct of GDSC's business.
2.09-4 To the knowledge of GDSC, there are no developments affecting
any of its real property or tangible personal property pending or threatened
which might materially detract from the value of such property or assets,
materially interfere with any present or intended use of any such property or
assets or materially adversely affect the marketability of such properties or
assets.
2.10 Insurance. All policies of malpractice, liability, fire, worker's
compensation and other forms of insurance insuring GDSC, its officers, directors
or employees, its assets or its operations (the "GDSC Policies") are valid,
enforceable and in full force and effect, all premiums with respect to the GDSC
Policies covering all periods up to and including the date as of which this
representation is being made have been paid and no notice of cancellation or
termination has been received with respect to any GDSC Policy. The GDSC Policies
are sufficient for compliance with all requirements of law and of agreements to
which GDSC is a party and provide insurance for the risks and in the amounts and
types of coverage usually obtained by persons using or holding similar
properties in similar businesses. GDSC has not been refused any insurance
coverage and no insurance coverage has been canceled during the five years
preceding the date of this Agreement.
2.11 Taxes.
2.11-1 Returns. GDSC has filed all federal, state and other returns,
reports and information returns required to be filed by it with respect to Taxes
(as defined below) which relate to the business, results of operations or
financial condition of GDSC (collectively, the "GDSC Returns") and has timely
paid all Taxes shown to be due on the GDSC Returns. All GDSC Returns
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filed are complete and accurate in all material respects, and no additional
Taxes are owed by GDSC with respect to the periods covered by the GDSC Returns.
2.11-2 Taxes Paid or Reserved. All deficiencies in Taxes asserted or
assessments made by any taxing authority have been fully paid or finally
settled. The reserves for Taxes reflected in the GDSC Current Balance Sheet are
adequate for payment of Taxes with respect to GDSC in respect of all periods
ending on or before the date of the GDSC Current Balance Sheet. All Taxes which
GDSC has been required to collect or withhold have been withheld or collected
and, to the extent required, have been paid to the proper taxing authority.
2.11-3 Definition. "Taxes" means all taxes, charges, fees, levies or
other assessments including, without limitation, income, excise, property,
sales, use and franchise taxes, imposed by the United States or any state,
county, local or foreign government or subdivision or agency thereof, and
including any interest, penalties or additions.
2.12 Certain Interests. No transaction between GDSC and any of its
directors, officers or principal shareholders of a type that would require
disclosure by GDSC under Item 404 of Regulation S-B of the Securities and
Exchange Commission has occurred since February 13, 1997, except for the entry
into a new support services agreement with a professional corporation owned
solely by Dany Y. Tse in connection with a recent dental practice acquisition.
2.13 No Restrictions. No power of attorney or similar authorization given
by GDSC is presently in effect or outstanding. No contract or agreement to which
GDSC is a party or is bound or to which any of its properties or assets is
subject limits the freedom of GDSC to compete in any line of business or with
any person.
2.14 Permits and Licenses. GDSC holds, and at all times has held, all
licenses, permits, franchises, easements and authorizations (collectively, "GDSC
Permits") necessary for the lawful conduct of its business pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all governmental
bodies, agencies and other authorities having jurisdiction over it or any part
of its operations except where the failure to hold any GDSC Permit, singly or in
the aggregate, either alone or with the giving of notice or the passage of time
or both, would not have a GDSC Material Adverse Effect. GDSC is in compliance
with all the terms of each GDSC Permit, and there are no claims of violation by
GDSC of any GDSC Permit.
2.15 Environmental Conditions.
2.15-1 Compliance. GDSC has operated its business and maintained its
assets, including without limitation its real property, in compliance with all
Environmental Laws. All wastes generated in connection with its business are and
have been transported and disposed of off site in compliance with all
Environmental Laws. Except as otherwise required for the normal operation of a
dental practice, no Hazardous Substance is or has been generated, manufactured,
treated, stored, transported, used or otherwise handled on its real property or
in connection with its business.
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2.15-2 Definitions. As used in this Agreement,
(a) "Environmental Law" means any federal, state or local
statute, ordinance or regulation pertaining to the protection of human health or
the environment and any applicable orders, judgments, decrees, permits, licenses
or other authorizations or mandates under such statutes, ordinances or
regulations, and
(b) "Hazardous Substance" means any hazardous, toxic, radioactive
or infectious substance, material or waste as defined, listed or regulated under
any Environmental Law, and includes without limitation petroleum oil and its
fractions.
2.16 Records. The books of account, minute books, stock certificate books
and stock transfer ledgers of GDSC are complete and accurate in all material
respects, and there have been no transactions involving the business of GDSC
which properly should have been set forth therein and which have not been
accurately so set forth.
2.17 Reliance. GDSC recognizes and agrees that, notwithstanding any
investigation by DDS, DDS is relying upon the representations and warranties
made by GDSC in this Agreement.
ARTICLE III
Individual Representations and Warranties of Au
Au represents and warrants to GDSC as follows:
3.01 Investment Representations. Au is acquiring beneficial ownership of
the shares of GDSC Common Stock issuable under this Agreement (the "Shares") for
investment for Au's own account, and not with a view to, or for resale in
connection with, any distribution of the Shares. Au is not a party to any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to any such person or any third party with
respect to the Shares. Au acknowledges and understands that the Shares are being
offered and sold without registration under the Securities Act of 1933 (the
"1933 Act") or any state securities law based on exemptions provided under such
laws, and that Au's representations contained in this Agreement are being relied
upon by GDSC in connection with those exemptions. Au further acknowledges and
agrees that the Shares are restricted securities under federal securities laws
and as such may not be sold or disposed of unless they are registered under the
1933 Act and all applicable state securities laws or unless, in the opinion of
counsel acceptable to GDSC, exemptions from the registration requirements of the
1933 Act and all applicable state securities laws are available. In this regard,
Au acknowledges that GDSC is under no obligation to register Au's Shares except
as provided in Section 6.01, that the Shares will not be eligible for resale in
the public market pursuant to Rule 144 under the 1933 Act until one year after
the Closing Date except as provided in Section 6.01, and that Au will bear the
economic risk of ownership of the Shares at least until the Shares become
eligible for resale in the public market. Au consents to having appropriate
legends placed on the certificates representing the Shares relating to this
restriction on transfer.
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3.02 Access to Information. Au has received and carefully reviewed the
final Prospectus dated February 13, 1997, GDSC's Annual Report to Shareholders
for the year ended December 31, 1996, and GDSC's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1997. Au believes he has received all of the
information he considers necessary or appropriate for deciding whether to
acquire shares of GDSC Common Stock. Au further represents that he has had an
opportunity to ask questions and receive answers from GDSC regarding GDSC, its
business and financial condition, and the terms and conditions of the Agreement.
3.03 Sophistication. Au has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of an
investment in the Shares and has the capacity to protect his own interests in
connection with the transaction.
3.04 Accredited Investor. Au either (a) has an individual net worth, or
joint net worth with his spouse, of in excess of $1 million, or (b) had an
individual income in excess of $200,000 in each of the two most recent years or
joint income with his spouse in excess of $300,000 in each of those years and
has a reasonable expectation of reaching the same income level in the current
year, and therefore is an "accredited investor" within the meaning of Rule 501
of Regulation D under the 1933 Act.
ARTICLE IV
Representations and Warranties of the Sellers and the Partners
As used in this Agreement, "Material Adverse Effect" means a material
adverse effect on the business, results of operations, financial position,
assets or prospects of the Dental Practice, which shall in any event include any
adverse effect on the assets, revenue or net income of the Dental Practice in
excess of $20,000; and "Material Adverse Change" means any change that has
resulted, will result or is likely to result in a Material Adverse Effect. The
Sellers and the Partners represent and warrant to GDSC as follows:
4.01 Authority of Partners. The Partners have full power and authority to
enter into this Agreement and carry out its terms. This Agreement has been duly
and validly executed and delivered by the Partners and is binding upon and
enforceable against each Partner in accordance with its terms, except as
enforceability may be limited or affected by applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
rights of creditors and except as enforceability may be limited by rules of law
governing specific performance, injunctive relief or other equitable remedies.
4.02 Organization and Authority of DPM. DPM is a partnership duly organized
and validly existing under the laws of California and has the power to own and
lease its properties and carry on its business as now being conducted. The
Partners hold all of the partnership interests of DPM and no person has any
right to become a partner of DPM or to acquire any interest in DPM. DPM has full
power and authority to enter into this Agreement and to carry out its terms.
This Agreement has been duly and validly executed and delivered by DPM and is
binding upon and enforceable against DPM in accordance with its terms, except as
enforceability may be limited or
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affected by applicable bankruptcy, insolvency, reorganization or other laws of
general application relating to or affecting the rights of creditors and except
as enforceability may be limited by rules of law governing specific performance,
injunctive relief or other equitable remedies.
4.03 Authority of Au. Au has the power to own and lease his properties and
carry on his business as now being conducted. Au and DPM together hold all of
the ownership interests in the Dental Practice and no other person has a right
to acquire any interest in the Dental Practice. Au has full power and authority
to enter into this Agreement and to carry out its terms. This Agreement has been
duly and validly executed and delivered by Au and is binding upon and
enforceable against Au in accordance with its terms, except as enforceability
may be limited or affected by applicable bankruptcy, insolvency, reorganization
or other laws of general application relating to or affecting the rights of
creditors and except as enforceability may be limited by rules of law governing
specific performance, injunctive relief or other equitable remedies.
4.04 No Adverse Consequences. Neither the execution and delivery of this
Agreement by DPM, any Partner or Au nor the consummation of the transactions
contemplated by this Agreement will result in the creation or imposition of any
lien, charge or encumbrance on any of DPM's or Au's assets or properties,
violate or conflict with any provision of DPM's organizational documents,
violate any law, judgment, order, injunction, decree, rule, regulation or ruling
of any governmental authority applicable to DPM or Au, or either alone or with
the giving of notice or the passage of time or both, conflict with, constitute
grounds for termination or acceleration of, result in the breach of the terms,
conditions or provisions of, result in the loss of any benefit to DPM or Au
under or constitute a default under any agreement, instrument, license or permit
to which DPM or Au is a party or by which DPM or Au is bound.
4.05 Brokers and Finders. Neither DPM nor Au has employed any broker,
finder or agent or dealt with anyone purporting to act in such capacity or
agreed to pay any brokerage fee, finder's fee or commission with respect to the
transaction contemplated by this Agreement, except that DPM has employed Wedbush
Morgan Securities. Any fees owing to Wedbush Morgan Securities shall be paid by
DPM and are not a liability of GDSC.
4.06 Litigation. Except as set forth on Schedule 4.06, to the best
knowledge of DPM, Partners and Au, there is no claim, litigation, proceeding or
investigation of any kind pending or threatened by or against DPM or Au and
there is no basis for any such claim, litigation, proceeding or investigation.
4.07 Compliance with Laws. DPM and Au have at all relevant times conducted
their business in compliance with all applicable laws and regulations. Neither
DPM nor Au is in violation of any applicable laws or regulations, other than
violations which singly or in the aggregate do not, and, with the passage of
time will not, have a Material Adverse Effect. In connection with the Dental
Practice, neither DPM nor Au is subject to any outstanding order, writ,
injunction or decree, and neither DPM nor Au have been charged with, or
threatened with a charge of, a violation of any provision of federal, state or
local law or regulation.
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4.08 Employment Matters.
4.08-1 Labor Matters.
(a) Except as set forth on Schedule 4.08-1, neither DPM nor Au is
a party or otherwise subject to any collective bargaining or other agreement
governing the wages, hours or terms of employment of the employees working in
the Dental Practice ("Dental Practice Employees"). DPM and Au are and have been
in compliance with all applicable laws regarding employment and employment
practices, terms and conditions of employment, wages and hours and are not and
have not been engaged in any unfair labor practice.
(b) There is no (1) unfair labor practice complaint against DPM
or Au pending before the National Labor Relations Board or any other
governmental authority, (2) labor strike, slowdown or work stoppage actually
occurring or, to the best of the knowledge of DPM or Au or any Partner,
threatened against DPM or Au, (3) representation petition respecting DPM's or
Au's employees pending before the National Labor Relations Board, or (4)
grievance or any arbitration proceeding pending arising out of or under
collective bargaining agreements applicable to DPM or Au.
(c) Neither DPM nor Au have experienced any work stoppage or
other organized work stoppage involving their employees in the past two years.
4.08-2 Employee Benefits. Schedule 4.08-2 lists all pension,
retirement, profit sharing, deferred compensation, bonus, commission, incentive,
life insurance, health and disability insurance, hospitalization and all other
employee benefit plans or arrangements (including, without limitation, any
contracts or agreements with trustees, insurance companies or others relating to
any such employee benefit plans or arrangements) established or maintained by
DPM or Au under which Dental Practice Employees have or may have any past or
present rights or benefits, and complete and accurate copies of all those plans
or arrangements have been provided to GDSC. The employee pension benefit plans
(within the meaning of Section 3(2) of ERISA established and maintained by DPM
or Au that are subject to ERISA are listed separately as ERISA Plans on Schedule
4.08-2 (the "ERISA Plans"). The ERISA Plans comply with the applicable
requirements of ERISA. The Sellers have received from the Internal Revenue
Service a favorable determination for each of the ERISA Plans and their related
trusts that each of the ERISA Plans is qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code") and the related trust is
tax-exempt under Section 501(a) of the Code. There has been no event subsequent
to that determination that has adversely affected the tax qualified status of
the ERISA Plans or the exemption of the related trusts other than changes in the
Code that are not effective as of the Closing Date. No "accumulated funding
deficiency" as defined in Section 302(a)(2) of ERISA or Section 412(a) of the
Code exists, or has existed, with respect to any of the ERISA Plans. The present
value of all accrued benefits under each of the ERISA Plans does not exceed the
value of such plan's assets, less all liabilities other than those attributable
to accrued benefits. Neither DPM nor Au has any "potential withdrawal
liability," as defined in Section 4201 of ERISA. None of the ERISA Plans, its
related trusts or any trustee, investment manager or administrator thereof has
engaged in a nonexempt "prohibited transaction," as such term is defined in
Section 406 of ERISA and Section 4975 of the Code. There are not and have not
been any excess deferrals or excess contributions under any ERISA Plan. Each
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ERISA Plan is and has been operated and administered in conformance with the
requirements of all applicable laws and regulations, whether or not the ERISA
Plan documents have been amended to reflect such requirements. Sellers have no
obligation of any kind (whether under the terms of the ERISA Plans or under any
understanding with employees) to make payments under, or to pay contributions to
or in respect of, any plan or arrangement listed on Schedule 4.08-2, or any
other plan, agreement or other arrangement for deferred compensation of
employees, whether or not tax qualified, including, without limitation, a single
employer tax qualified plan, a tax qualified plan of a controlled group of
corporations, a multi-employer pension plan, a nonqualified deferred
compensation plan, an individual employment or compensation agreement or a
commitment to provide medical benefits to retirees.
4.08-3 Employment Agreements. Each of the Dental Practice Employees is
an "at-will" employee and, except as listed on Schedule 4.08-3, there are no
written employment, commission or compensation agreements of any kind between
DPM or Au and any Dental Practice Employee. Schedule 4.08-3 lists all of
Sellers' employment or supervisory manuals, employment or supervisory policies,
and written information generally provided to Dental Practice Employees (such as
applications or notices), and true and complete copies of those manuals,
policies and written information have been provided to GDSC. Neither DPM nor Au
has any agreements or understandings with the Dental Practice Employees except
as reflected in the items listed in Schedules 4.08-2 and 4.08-3.
4.08-4 Compensation. Schedule 4.08-4 contains a complete and accurate
list of all Dental Practice Employees providing services at or for the Dental
Practice as of September 10, 1997, specifying their names, hire dates, the total
amount paid or payable as compensation to each such person, and the basis of
such compensation.
4.09 Financial Statements.
4.09-1 Schedule 4.09 contains the unaudited balance sheet of the
Dental Practice as of December 31, 1996 and the related unaudited statement of
income for the year then ended and the unaudited balance sheet of the Dental
Practice as of July 31, 1997 (the "Current Balance Sheet") and the related
unaudited statement of income for the seven months then ended (all such balance
sheets and statements collectively, the "Financial Statements"). The Financial
Statements fairly reflect all revenues, assets, liabilities and expenses
received or incurred in connection with the Dental Practice.
4.09-2 The Financial Statements present fairly
(a) the financial position of the Dental Practice as of the dates
indicated and
(b) the results of operations for the periods then ended.
4.10 Receivables. Schedule 4.10 lists all receivables of the Dental
Practice (including accounts receivable, loans receivable and advances whether
payable to DPM or Au) as of July 31, 1997. Each of the receivables listed on
Schedule 4.10, and each of the receivables that has arisen
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since July 31, 1997, has arisen only from bona fide transactions in the ordinary
course of Sellers' business and is not subject to any offset or counterclaim.
4.11 Prepaid Expenses and Other. Schedule 4.11 lists all prepaid expenses
and deferred charges of the Dental Practice reflected on the Current Balance
Sheet as well as the items included in the Other Assets line, if any, on the
Current Balance Sheet.
4.12 Personal Property. Section 1.01-1 and Schedule 4.12 together contain a
complete and accurate list of all the tangible personal property used or useful
in the Dental Practice, other than excluded assets listed in Schedule 1.02-2
("Tangible Personal Property"). With respect to each item of owned Tangible
Personal Property, Schedule 4.12 lists the estimated fair market value as of
August 31, 1997.
4.13 Payables. Schedule 4.13 lists all accounts payable and other accrued
liabilities of the Dental Practice (in whatever name held or accounted for) as
of July 31, 1997, other than payables for brokers' and attorneys' fees and other
expenses of this transaction.
4.14 Indebtedness. Schedule 4.14 lists all indebtedness incurred by,
attributable to or secured by any assets of the Dental Practice and for each
item shows the name of lender, interest rate, term, payments, seniority and
security.
4.15 Other Liabilities. Except as listed on Schedule 4.15, neither Au nor
DPM has, with respect to the Dental Practice, any liability or obligation
(whether absolute, accrued, contingent or other, and whether due or to become
due) which is not accrued, reserved against or disclosed in the Current Balance
Sheet, other than liabilities incurred in the ordinary course of business
consistent with past practice, which individually or in the aggregate are not
material to the Dental Practice.
4.16 Absence of Certain Changes or Events. Since the date of the Current
Balance Sheet, there has not been any Material Adverse Change or any event,
occurrence, development or state of circumstances or facts which could
reasonably be expected to result in a Material Adverse Change.
4.17 Leases. Schedule 4.17 contains a complete and accurate list of all
Leases of real property used or useful in the Dental Practice, a description of
the real property covered thereby ("Real Property"), the term of each Lease and
the monthly payments under the Lease. Complete and accurate copies of all Leases
have been delivered to GDSC.
4.18 Certain Contracts and Arrangements. Schedule 4.18, which is organized
by type of agreement, contains a complete and accurate list of all Contracts of
the following types to which DPM or Au is a party or by which DPM or Au is bound
and which relate to or are associated with the Dental Practice:
4.18-1 any mortgage, note or other instrument or agreement relating to
the borrowing of money or the incurrence of indebtedness by DPM or Au or DPM's
or Au's guaranty of any obligation for the borrowing of money;
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4.18-2 contracts, agreements, purchase orders or acknowledgment forms
for the purchase, sale, lease or other disposition of capital assets or more
than $20,000 of other equipment or materials;
4.18-3 contracts or agreements for provision of dentistry services by
the Dental Practice, which agreements are identified as the Professional
Contracts on Schedule 4.18;
4.18-4 contracts or agreements for the performance of services
relating to or concerning the Dental Practice other than the Professional
Contracts, excluding employment contracts; provided, however, that only
contracts exceeding $20,000 in annual billings or payments by the Dental
Practice must be listed;
4.18-5 contracts or agreements involving annual billings in excess of
$20,000 for the joint performance of work or services and all other joint
venture agreements relating to or concerning the Dental Practice;
4.18-6 contracts or agreements with agents, brokers, consignees, sales
representatives or distributors relating to the sale of services of the Dental
Practice; and
4.18-7 any other contract, instrument, agreement or obligation not
described on any other Schedule to which DPM or Au is a party or by which DPM or
Au is bound and which contains material unfulfilled obligations relating to or
concerning the Dental Practice.
Complete and accurate copies of all Contracts have been delivered to GDSC.
4.19 Status of Contracts and Leases.
4.19-1 Each of the Contracts and Leases listed on Schedules 4.17 and
4.18 is valid, binding and enforceable by Sellers in accordance with its terms
and is in full force and effect. There is no existing default or violation by
Sellers under any Contract or Lease and no event has occurred which (whether
with or without notice, lapse of time or both) would constitute a default of
Sellers under any Contract or Lease. There is no pending or threatened
proceeding which would interfere with the quiet enjoyment of any Real Property
of which Au or DPM is lessee or sublessee which is used in the Dental Practice.
4.19-2 All other parties to the Contracts and Leases have consented or
prior to the Closing will have consented (where such consent is necessary) to
the consummation of the transaction contemplated by this Agreement without
requiring modification of Sellers' rights or obligations under any Contract or
Lease.
4.19-3 Neither Sellers nor any Partner is aware of any default by any
other party to any Contract or Lease or of any event which (whether with or
without notice, lapse of time or both) would constitute a default by any other
party with respect to obligations of that party under any Contract or Lease,
and, to the knowledge of Sellers and the Partners, there are no facts that exist
indicating that any of the Contracts or Leases may be totally or partially
terminated or suspended by the other parties.
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4.19-4 Neither DPM nor Au is a party to, nor bound by, any contract or
agreement relating to or concerning the Dental Practice that Sellers or any
Partner can reasonably foresee will result in any loss that would have a
Material Adverse Effect on Sellers upon the performance thereof (including any
liability for penalties or damages, whether liquidated, direct, indirect,
incidental or consequential that would have a Material Adverse Effect), unless
such contract or agreement is terminable by DPM or Au on 60 or fewer days notice
at any time without penalty.
4.20 Title and Condition of Tangible Assets.
4.20-1 Sellers have good title, or the right to use, all of the
Tangible Personal Property free and clear of all mortgages, pledges, security
interests, claims, charges or other encumbrances or restrictions of any kind,
except
(a) liens disclosed on the Current Balance Sheet,
(b) security interests or liens securing payment of Assumed
Liabilities,
(c) liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the
Current Balance Sheet) or
(d) the leases of leased property.
4.20-2 All Tangible Personal Property is in a good state of
maintenance and repair, ordinary wear and tear excepted, and is adequate for the
conduct of the Dental Practice.
4.20-3 To the knowledge of Sellers or the Partners, there are no
developments affecting any of the Real Property or Tangible Personal Property
pending or threatened which might materially detract from the value of such
property or assets, materially interfere with any present or intended use of any
such property or assets or materially adversely affect the marketability of such
properties or assets.
4.20-4 At the Closing, GDSC will acquire good title to all the Assets,
free and clear of all mortgages, pledges, security interests, claims, charges or
other encumbrances or restrictions of any kind, except for security interests or
liens securing payment of Assumed Liabilities.
4.21 Insurance. Schedule 4.21 contains a complete and accurate list of all
policies of malpractice, liability, fire, worker's compensation and other forms
of insurance insuring the Dental Practice or its employees and its assets or
operations (the "Policies"). All the Policies are valid, enforceable and in full
force and effect, all premiums with respect to the Policies covering all periods
up to and including the date as of which this representation is being made have
been paid and no notice of cancellation or termination has been received with
respect to any Policy. The Policies are sufficient for compliance with all
requirements of law and of agreements to which DPM or Au is a party and provide
insurance for the risks and in the amounts and types of coverage usually
obtained by persons using or holding similar properties in similar businesses.
There are no unresolved claims for insurance under any of the Policies. True and
complete copies of the Policies and all endorsements thereto have been delivered
to GDSC. In connection with the Dental Practice, neither
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DPM nor Au has been refused any insurance coverage and no insurance coverage has
been canceled during the five years preceding the date of this Agreement.
4.22 Taxes.
4.22-1 Returns. DPM and Au have filed all federal, state and other
returns, reports and information returns required to be filed by them with
respect to Taxes which relate to the business, results of operations or
financial condition of the Dental Practice (collectively, the "Returns") and has
timely paid all Taxes shown to be due on the Returns. All Returns filed are
complete and accurate in all material respects, and no additional Taxes are owed
by DPM or Au with respect to the periods covered by the Returns. DPM has
provided GDSC with complete and accurate copies of its Returns for 1995 and
1996.
4.22-2 Taxes Paid or Reserved. All deficiencies in Taxes asserted or
assessments made by any taxing authority have been fully paid or finally
settled. All Taxes which DPM or Au has been required to collect or withhold have
been withheld or collected and, to the extent required, have been paid to the
proper taxing authority.
4.23 No Restrictions. No contract or agreement to which DPM or Au is a
party or is bound or to which any of its properties or assets is subject limits
the freedom of DPM or Au to compete in any line of business or with any person.
4.24 Permits and Licenses. Au holds and at all times has held, all
licenses, permits, franchises, easements and authorizations (collectively,
"Permits") necessary for the lawful conduct of the Dental Practice pursuant to
all applicable statutes, laws, ordinances, rules and regulations of all
governmental bodies, agencies and other authorities having jurisdiction over it
or any part of its operations, except where the failure to hold any Permit,
singly or in the aggregate, either alone or with the giving of notice or the
passage of time or both, would not have a Material Adverse Effect. Au is in
compliance with all the terms of each Permit, and there are no claims of
violation of any Permit.
4.25 Certain Payments. Neither DPM nor Au nor any other person or entity
has, directly or indirectly, on behalf of or with respect to the Dental Practice
or its operations made or received any payment that was not legal to make or
receive under federal, state or local laws of the United States or any other
country or territory.
4.26 Environmental Conditions. Sellers have operated the Dental Practice
and maintained the Assets, including without limitation the Real Property, in
compliance with all Environmental Laws. All wastes generated in connection with
the Dental Practice are and have been transported and disposed of off site in
compliance with all Environmental Laws. Except as otherwise required for the
normal operation of a dental practice, no Hazardous Substance is or has been
generated, manufactured, treated, stored, transported, used or otherwise handled
on the Real Property or in connection with the Dental Practice.
4.27 Consents and Approvals. Except as set forth on Schedule 4.27, no
consent, approval or authorization of any court, regulatory authority,
governmental body, or any other entity
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or person not a party to this Agreement is required for the consummation of the
transactions described in this Agreement by Sellers or the Partners. Sellers
have obtained, or shall have obtained prior to the Closing, all consents,
authorizations or approvals of any third parties required in connection with the
execution, delivery or performance of this Agreement by Sellers or the Partners.
Sellers have made, or shall have made prior to the Closing, all registrations or
filings with any governmental authority required on their part for the execution
or delivery of this Agreement or the consummation of the transactions
contemplated hereby.
4.28 Records. The books of account of the Dental Practice are complete and
accurate in all material respects, and there have been no transactions involving
the business of the Dental Practice which properly should have been set forth
therein and which have not been accurately so set forth. Complete and accurate
copies of such books have been made available to GDSC.
4.29 Reliance. Sellers and the Partners recognize and agree that,
notwithstanding any investigation by GDSC, GDSC is relying upon the
representations and warranties made by Sellers and the Partners in this
Agreement.
4.30 Accuracy of Representations and Warranties. None of the
representations or warranties of Sellers and the Partners contains or will
contain any untrue statement of any material fact or omits or misstates a
material fact necessary to make the statements contained in this Agreement not
misleading. Sellers and the Partners do not know of any fact that has resulted
or that, in the reasonable judgment of Sellers or the Partners will result, in
any material adverse change in the business, results of operation, financial
condition or prospects of the Dental Practice that has not been set forth in
this Agreement.
ARTICLE V
Covenants of Sellers and the Partners
5.01 Access to Properties, Books and Records. Prior to the Closing Date,
Sellers shall, at GDSC's request, afford or cause to be afforded to the agents,
attorneys, accountants and other authorized representatives of GDSC reasonable
access during normal business hours to all employees, properties, books and
records of Sellers with respect to the Dental Practice and shall permit such
persons, at GDSC's expense, to make copies of such books and records. Sellers
shall deliver to GDSC monthly financial statements of the Dental Practice
promptly after they become available. GDSC shall treat, and shall cause all of
its agents, attorneys, accountants and other authorized representatives to
treat, all information obtained pursuant to this Section 5.01 as confidential in
accordance with Section 12.01 hereof. No investigation by GDSC or any of its
authorized representatives pursuant to this Section 5.01 shall affect any
representation, warranty or closing condition of any party hereto or GDSC's
rights to indemnification pursuant to Section 11.02 hereof.
5.02 Negative Covenants. Except as otherwise permitted by this Agreement or
with the prior written consent of GDSC, prior to the Closing, Sellers shall not:
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5.02-1 Incur additional debt for borrowed money without giving GDSC
notice within two business days thereafter;
5.02-2 Incur any obligations under leases for real or personal
property whether or not required to be capitalized under generally accepted
accounting principles, incur or increase any obligation or liability (fixed,
contingent or other, including without limitation liabilities as a guarantor or
otherwise with respect to obligations of others, but excluding debts for
borrowed money) except in the ordinary and usual course of business and
consistent with past practices, forgive or release any debt or claim, give any
waiver of any right of material value or voluntarily suffer any extraordinary
loss;
5.02-3 Declare, pay or make any distribution of money or property to
the Partners or Au other than ordinary distributions consistent with past
practices;
5.02-4 Issue, sell, or give any option or right to purchase any
interest in the Dental Practice, or purchase, redeem or otherwise acquire or
commit to acquire, directly or indirectly, any interest in the Dental Practice:
5.02-5 Mortgage, pledge, otherwise encumber or subject to lien any of
the Dental Practice's assets or properties, tangible or intangible, or commit
itself to do any of the foregoing;
5.02-6 Except in the ordinary and usual course of its business and in
each case for fair consideration, dispose of, or agree to dispose of, any of the
Dental Practice's assets or lease or license to others, or agree so to lease or
license, any of the Dental Practice's assets;
5.02-7 Acquire any assets which would be material to the Dental
Practice other than assets acquired in the ordinary and usual course of business
and consistent with past practices;
5.02-8 Enter into any transaction or contract or make any commitment
to do the same, except in the ordinary and usual course of business and not
requiring the payment in any case of an amount in excess of $100,000 annually;
5.02-9 Increase the wages, salaries, compensation, pension or other
benefits payable, or to become payable by it, to any Dental Practice Employees
or agents, including without limitation any bonus payments or severance or
termination pay, other than increases in wages and salaries required by
employment arrangements existing on the date hereof or otherwise in the ordinary
and usual course of its business;
5.02-10 Implement or agree to any implementation of or amendment or
supplement to any employee profit sharing, pension, bonus, commission,
incentive, retirement, medical reimbursement, life insurance, deferred
compensation or any other employee benefit plan or arrangement for or affecting
Dental Practice Employees;
5.02-11 Change the accounting methods, policies or practices of
Sellers; or
5.02-12 Agree or commit to do any of the foregoing.
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5.03 Affirmative Covenants. Except as otherwise permitted by this Agreement
or as reasonably necessary or appropriate for the consummation of the
transactions contemplated by this Agreement or with the prior written consent of
GDSC, prior to the Closing Date, Sellers shall:
5.03-1 Operate the Dental Practice, including collecting receivables
and paying payables, only in the ordinary course and consistent with past
practices;
5.03-2 Advise GDSC in writing of any litigation or administrative
proceeding that challenges or otherwise materially affects the transactions
contemplated hereby and of any Material Adverse Change or any event, occurrence
or circumstance which is likely to cause a Material Adverse Change;
5.03-3 When the consent of any third party to the transactions
contemplated by this Agreement is required under the terms of any contract or
agreement material to the Dental Practice to which DPM or Au is a party or by
which DPM or Au is bound, use their best efforts to obtain such consent on terms
and conditions not materially less favorable than those in effect on the date
hereof;
5.03-4 Use their best efforts to maintain all of the Tangible Personal
Property in good operating condition, reasonable wear and tear excepted,
consistent with past practices, and take all steps reasonably necessary to
maintain its intangible assets;
5.03-5 Not cancel or change any policy of insurance (including
self-insurance) or fidelity bond or any policy or bond providing substantially
the same coverage;
5.03-6 Maintain, consistent with past practices, all inventories,
spare parts, office supplies and other expendable items used or useful in the
Dental Practice;
5.03-7 Use their best efforts to retain all Dental Practice Employees;
5.03-8 Maintain their books and records in accordance with past
practices; and
5.03-9 Pay and discharge all taxes, assessments, governmental charges
and levies imposed upon them, their income or profits or upon any property
belonging to them, in all cases prior to the date on which penalties attach
thereto.
5.03-10 Comply with all laws, rules and regulations applicable to them
and the Dental Practice.
5.04 No Negotiations With Others. Except as otherwise permitted by this
Agreement or with the prior written consent of GDSC, Sellers and the Partners
shall refrain, and shall cause their employees and any investment banker,
attorney, accountant or other agent retained by them to refrain, from initiating
or soliciting any inquiries or making any proposals with respect to, or engaging
in negotiations concerning, or providing any confidential information or data to
or having any discussions with any person relating to, any acquisition, business
combination or purchase of all or any significant portion of the assets of,
Sellers. Sellers and the Partners will immediately cease
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and cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing.
5.05 401(k) Plan. Prior to Closing, Sellers shall use their best efforts to
take such steps with respect to the Ming & H Family Dentistry 401(k) Plan (the
"401(k) Plan"), including a possible termination of the 401(k) Plan, as GDSC may
request. In the event that GDSC requests a termination of the 401(k) Plan, the
assets of the 401(k) Plan shall be promptly distributed to the plan
beneficiaries. In that case, any and all expenses of the administration and
termination of the 401(k) Plan shall be paid by the 401(k) Plan or by the
Partners, and GDSC shall not incur any liability, or be required to take any
action, of any kind whatsoever in connection with the administration or
termination of the 401(k) Plan.
5.06 Formation of Professional Corporation. Prior to the Closing, Au shall
form the Professional Corporation pursuant to articles of incorporation and
bylaws in the form attached as Exhibit H and shall cause the Professional
Corporation to apply for and obtain a Certificate of Registration and approval
for use of the Professional Corporation's fictitious name, from the California
Board of Dental Examiners.
5.07 Employees. Effective as of the close of business on the Closing Date,
Sellers shall terminate all employees of the Dental Practice. Except as
expressly assumed by GDSC under this Agreement, Sellers shall be responsible for
and shall pay and discharge all obligations to such employees arising out of or
in connection with their employment prior to Closing.
5.08 Restrictions on Sale of Shares of GDSC Common Stock.
5.08-1 "Market Stand-Off" Agreement. Au agrees that, for a period
commencing with the filing of any registration statement under the 1933 Act
relating to the offer and sale of GDSC Common Stock in an underwritten public
offering and ending 180 days following the effective date of such registration
statement, he will not, without the prior consent of the managing underwriter,
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of GDSC held by him at any time during such period except GDSC Common
Stock included in such registration statement. In order to enforce the foregoing
covenant, GDSC may impose stop-transfer instructions with respect to the Shares
of Au until the end of such period.
5.08-2 Supplemental Lock-Up. Au agrees that until March 31, 1999 he
will not directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees or pledgees who agree to
be similarly bound) any Shares owned by him, except Shares sold pursuant to the
piggyback registration provided for in Section 6.01. On March 31, 1999 and on
the last day of each month thereafter until released in full, one-tenth of the
number of Shares held by Au on March 31, 1999, rounded to the nearest whole
share, shall be released from the foregoing lock-up provision. Au further agrees
that until all Shares are released from lock-up, he will provide written notice
to GDSC 30 days prior to any proposed sale by him of Shares. During this 30-day
period, GDSC shall have the right either to purchase such Shares from Au or to
designate the broker or market maker
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through which Au will sell such Shares. Au consents to having appropriate
legends placed on the certificates representing the Shares relating to the
lock-up restriction.
ARTICLE VI
Covenants of GDSC
6.01 Registration Rights.
6.01-1 Piggyback Rights. Prior to March 31, 1998, GDSC will register
shares of GDSC Common Stock under the 1933 Act and complete an underwritten
public offering of such shares for cash. GDSC may also determine from time to
time thereafter to register shares of GDSC Common Stock under the 1933 Act for
an underwritten offering for its account, except that this Section 6.01 shall
not apply to a registration that is filed after March 31, 2000. Prior to filing
a registration statement for such offering, GDSC shall give Au written notice
thereof and will include in such registration and underwriting all the
Registrable Securities specified in a written request or requests, made within
10 days after receipt of such written notice from GDSC by Au, except as set
forth in Section 6.01-2 below. For purposes of this Agreement, the term
"Registrable Securities" means (i) the Shares and (ii) any GDSC Common Stock
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, the Shares.
Notwithstanding the provisions of this Section 6.01-1, GDSC shall not be
required to effect such underwritten public offering during any period in which
(i) additional material governmental restrictions, not in force and effect on
the date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been suspended
on either such Exchange or in the over the counter market by the NASD, or a
general banking moratorium shall have been established by federal, New York or
California authorities, or (ii) an outbreak of major hostilities or other
national or international calamity or any substantial change in political,
financial or economic conditions shall have occurred or shall have accelerated
or escalated to such an extent, as, in the reasonable judgment of the
underwriters, to affect materially and adversely the marketability of the
shares.
6.01-2 Underwriting.
(a) The right of Au to registration pursuant to Section 6.01-1 is
conditioned upon Au's participation in such underwriting and the inclusion of
Au's Registrable Securities in the underwriting to the extent provided herein.
Au shall (together with GDSC and any other shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
the form agreed to between GDSC and the underwriter or underwriters selected for
such underwriting by GDSC.
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(b) If the total amount of securities, including Registrable
Securities, requested by GDSC shareholders with registration rights ("Requesting
Shareholders") to be included in such underwriting exceeds the amount of
securities to be sold by selling shareholders that the underwriters determine in
their sole discretion is compatible with the success of the underwriting for
GDSC, then GDSC shall be required to include in the registration only that
number of such securities, including Registrable Securities, which the
underwriters determine in their sole discretion will not jeopardize the success
of the underwriting. Subject to the priority right of the Partners to have
certain of their shares of GDSC Common Stock included in the underwriting, the
securities so included will be apportioned pro rata among the Requesting
Shareholders according to the total amount of securities entitled to be included
in the registration owned by each Requesting Shareholder or in such other
proportion as shall mutually be agreed to by such Requesting Shareholders.
6.01-3 S-3 Registration. No later than March 31, 1998, GDSC shall file
a Registration Statement on Form S-3 to register all Registrable Securities not
registered and sold pursuant to Section 6.01-1 for resale by Au in ordinary
market transactions. GDSC shall use its best efforts to maintain an effective
registration statement permitting the unrestricted sale of such remaining
Registrable Shares until March 31, 2000.
6.01-4 Expenses of Registration. All expenses incurred in connection
with any registration pursuant to this Section 6 including, without limitation,
all registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel for GDSC and expenses of any special audits incidental
to or required by such registration, shall be borne by GDSC except GDSC shall
not be required to pay underwriters' fees, discounts or commissions relating to
the Registrable Securities. All expenses of any registered offering not
otherwise borne by GDSC shall be borne pro rata among the Requesting
Shareholders participating in the offering and GDSC.
6.01-5 Registration Procedures. In the case of each registration
effected by GDSC pursuant to this Agreement, GDSC will keep Au advised in
writing as to the initiation of each registration and as to the completion
thereof. Except as otherwise provided in Section 6.01-4, at its expense GDSC
shall:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective.
(b) Furnish to Au such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as he may reasonably request in order to
facilitate the disposition of Registrable Securities owned by him.
(c) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by Au, provided that
GDSC shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions where GDSC is not already so qualified or
consented.
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(d) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in form
satisfactory to GDSC, with the managing underwriter of such offering. Au shall
also enter into and perform his obligations under such an agreement.
6.01-6 Indemnification.
(a) GDSC will indemnify Au with respect to any registration
effected pursuant to this Agreement. If the registration is in connection with
an underwritten offering, GDSC will indemnify Au on the terms set forth in the
applicable underwriting agreement with respect to indemnification by GDSC of all
selling shareholders participating in the underwriting. If the registration,
qualification or compliance is not in connection with an underwritten offering,
GDSC will indemnify Au on the following terms:
GDSC will indemnify Au against all claims, losses, expenses, damages and
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading, or any violation or alleged violation by GDSC of the
1933 Act or any state securities law applicable to GDSC or any rule or
regulation promulgated under the 1933 Act, the Securities Exchange Act of 1934,
as amended ("Exchange Act") or any such state law and relating to action or
inaction required of GDSC in connection with any such registration, and will
reimburse Au within a reasonable amount of time after incurred for any
reasonable legal and any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 6.01-6(a) shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability, or action if such settlement is effected without
the consent of GDSC (which consent shall not be unreasonably withheld); and
provided further, that GDSC will not be liable in any such case to the extent
that any such claim, loss, damage or liability arises out of or is based on any
untrue statement or omission based upon written information furnished to GDSC by
an instrument duly executed by Au specifically for use therein.
(b) Au will, if Registrable Securities held by or issuable to Au
are included in the securities as to which a registration is being effected,
indemnify GDSC, each of its directors and officers, each person who controls
GDSC within the meaning of the 1933 Act, and each other Requesting Shareholder,
if any, each of its officers, directors and partners and each person controlling
such Requesting Shareholder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse GDSC, such Requesting Shareholders, such
directors, officers, partners or persons for any reasonable legal or any other
expenses incurred in connection with investigating, defending or settling any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made
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in such registration statement, prospectus, offering circular or other document
in reliance upon and in conformity with written information furnished to GDSC by
an instrument duly executed by Au specifically for use therein; provided,
however, that the indemnity agreement contained in this Section 6.01-6(b) shall
not apply to amounts paid in settlement of any such claim, loss, damage,
liability or action if such settlement is effected without the consent of Au,
(which consent shall not be unreasonably withheld); and provided further, that
the total amount for which Au shall be liable under this Section 6.01-6(b) shall
not in any event exceed the aggregate proceeds received by Au from the sale of
Registrable Securities held by Au in such registration.
(c) Each party entitled to indemnification under this Section
6.01-6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
prejudice to the Indemnifying Party; and provided further, that an Indemnified
Party (together with all other Indemnified Parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
6.01-7 Information by Au. If Registrable Securities of Au are to be
included in any registration, Au shall promptly furnish to GDSC the information
regarding Au and the distribution proposed by Au that GDSC requests in writing
and that is required in connection with any registration referred to herein.
ARTICLE VII
Joint Covenants
GDSC, Sellers and the Partners covenant and agree that they will act in
accordance with the following:
7.01 Governmental Consents. Promptly following the execution of this
Agreement, the parties will proceed to prepare and file with the appropriate
governmental authorities any requests for approval or waiver, if any, that are
required from governmental authorities in connection with
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the transactions contemplated hereby, and the parties shall diligently and
expeditiously prosecute and cooperate fully in the prosecution of such requests
for approval or waiver and all proceedings necessary to secure such approvals
and waivers.
7.02 Best Efforts; No Inconsistent Action. Each party will use its best
efforts to effect the transactions contemplated by this Agreement and to fulfill
the conditions to the obligations of the other parties set forth in Article 8 or
9 of this Agreement. No party will take any action inconsistent with its
obligations under this Agreement or that could hinder or delay the consummation
of the transactions contemplated by this Agreement, except that nothing in this
Section 7.02 shall limit the rights of the parties under Articles 8, 9 and 10.
ARTICLE VIII
Conditions to Obligations of GDSC
The obligations of GDSC under Article 1 are, at its option, subject to
satisfaction, at or prior to the Closing, of each of the following conditions:
8.01 Governmental Approvals. All authorizations, consents and approvals of
all governmental agencies and authorities required to be obtained in order to
permit consummation of the transactions contemplated by this Agreement and the
operation of the Dental Practice by the Professional Corporation shall have been
obtained and be satisfactory in form and content to GDSC.
8.02 Consents. Sellers shall have obtained the third-party consents
required under the terms of the Contracts and Leases, and such consents shall
not have required any change to the terms and conditions of the Contracts and
Leases other than changes consented to in writing by GDSC.
8.03 Representations, Warranties and Covenants.
8.03-1 All representations and warranties of Sellers and the Partners
made in this Agreement, or in any certificate delivered pursuant hereto, shall
in all material respects be true and complete on and as of the Closing Date with
the same force and effect as if made on and as of that date.
8.03-2 All of the terms, covenants and conditions to be complied with
and performed by Sellers and the Partners at or prior to the Closing shall in
all material respects have been complied with or performed thereby.
8.03-3 GDSC shall have received a certificate of Sellers and the
Partners, dated as of the Closing Date, to the effect that the representations
and warranties of Sellers and the Partners contained in this Agreement are in
all material respects true and complete on and as of the Closing Date as though
made on and as of the Closing Date and that Sellers have in all material
respects complied with or performed all terms, covenants and conditions to be
complied with or performed by them at or prior to the Closing.
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8.04 Adverse Proceedings. No third-party suit, action or claim or
governmental proceeding shall have been instituted or threatened against, and no
order, decree or judgment of any court, agency or other governmental authority
shall have been rendered against, GDSC, Sellers or any Partner to restrain or
prohibit, or obtain damages in respect of, this Agreement or the transactions
contemplated by this Agreement.
8.05 No Adverse Change. There shall not have been any Material Adverse
Change.
8.06 Support Services Agreement. The Professional Corporation shall have
executed and delivered a Support Services Agreement with GDSC in the form
attached hereto as Exhibit D.
8.07 Option Agreement. Au, as sole shareholder of the Professional
Corporation, shall have executed and delivered an Option Agreement relating to
the stock of the Professional Corporation in the form attached as Exhibit E.
8.08 Employment Agreements. Each dentist employed in the Dental Practice
shall have executed and delivered an Employment Agreement with the Professional
Corporation in the form attached hereto as Exhibit F and an Addendum to such
Employment Agreement in the form attached hereto as Exhibit G.
8.09 Closing of the Transactions. The transactions contemplated by the
following agreements (the "Transactions") shall close simultaneously with the
Closing: Asset Purchase Agreement dated September 21, 1997 by and among GDSC,
DPM, the Partners and Mark Thomas, D.D.S.; Asset Purchase Agreement dated
September 21, 1997 by and among GDSC and Arthur G. Kaiser, D.D.S.; Merger
Agreement dated September 21, 1997 by and among GDSC, Gentle Dental Merger
Corp., Dedicated Dental Systems, Inc. ("DDS") and the Shareholders of DDS.
8.10 Fairness Opinion. GDSC shall have received an opinion from an
investment banking firm chosen by GDSC that the Transactions, together with the
transactions contemplated by this Agreement, are fair to GDSC and its
shareholders.
8.11 Professional Corporation. The Professional Corporation shall have been
duly incorporated and organized, and shall have obtained a Certificate of
Registration and fictitious name permit from the California Board of Dental
Examiners.
8.12 Actions Satisfactory to GDSC's Counsel. All actions, proceedings,
instruments and documents required to be carried out by this Agreement, or
incidental hereto, and all other relevant legal matters shall be reasonably
satisfactory to counsel for GDSC.
ARTICLE IX
Conditions to Obligations of Sellers
The obligations of Sellers under Article 1 are, at its option, subject to
satisfaction, at or prior to the Closing, of each of the following conditions:
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9.01 Representations, Warranties and Covenants.
9.01-1 All representations and warranties of GDSC made in this
Agreement and in any certificate delivered pursuant hereto shall in all material
respects be true and complete on and as of the Closing Date with the same force
and effect as if made on and as of that date.
9.01-2 All of the terms, covenants and conditions to be complied with
and performed by GDSC on or prior to the Closing shall in all material respects
have been complied with or performed by GDSC.
9.01-3 Sellers shall have received a Certificate of GDSC, dated as of
the Closing Date, executed by the President or other authorized officer of GDSC,
to the effect that the representations and warranties of GDSC contained in this
Agreement are in all material respects true and complete on and as of the
Closing Date as though made on and as of the Closing Date and that GDSC has in
all material respects complied with or performed all terms, covenants and
conditions to be complied with or performed by it at or prior to the Closing.
9.02 Adverse Proceedings. No third-party suit, action or claim or
governmental proceeding shall have been instituted or threatened against, and no
order, decree or judgment of any court, agency or other governmental authority
shall have been rendered against, GDSC, Sellers or any Partner to restrain or
prohibit this Agreement or the transactions contemplated by this Agreement.
9.03 Actions Satisfactory to Seller's Counsel. All actions, proceedings,
instruments and documents required to be carried out by this Agreement, or
incidental hereto, and all other relevant legal matters shall be reasonably
satisfactory to counsel for Sellers.
ARTICLE X
Termination
10.01 Right of Parties to Terminate. This Agreement may be terminated:
10.01-1 by GDSC, if any of the authorizations, consents, approvals,
filings or registrations described in Section 8.01 hereof shall have been
denied, not permitted to go into effect or obtained on terms not reasonably
satisfactory to GDSC and all reasonable final appeals shall have been exhausted;
10.01-2 by GDSC, if Sellers or the Partners shall have breached any of
their obligations hereunder in a way that has resulted in a Material Adverse
Effect and the breach has continued without being cured for more than thirty
(30) days;
10.01-3 by Sellers, if GDSC shall have breached any of its obligations
hereunder in a way that has resulted in a GDSC Material Adverse Effect and the
breach has continued without being cured for more than thirty (30) days; or
31
<PAGE>
10.01-4 by either Sellers or GDSC, by written notice to the other
party, if the Closing shall not have occurred on or prior to February 28, 1998;
provided, however, that the right to terminate this Agreement under this Section
10.01-4 shall not be available to any party whose failure to fulfill or perform
any obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date.
10.02 Effect of Termination. If either GDSC or Sellers decide to terminate
this Agreement pursuant to Section 10.01, such party shall promptly give written
notice to the other party to this Agreement of such decision.
ARTICLE XI
Survival; Indemnification
11.01 Survival. All representations, warranties, covenants and agreements
made in this Agreement or in any schedule, certificate or assignment delivered
in accordance with this Agreement (collectively, the "Related Documents") shall
survive any investigation by or on behalf of any party, the execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby and any termination or expiration of this Agreement, except that such
representations, warranties, covenants and agreements shall expire and be of no
further effect on the last day of the eighteenth (18th) full month following the
Closing Date, except as follows:
11.01-1 any claim of which notice has been given pursuant to Section
11.04 prior to the last day of the eighteenth (18th) full month following the
Closing Date shall not expire and shall continue until all damages arising from
such claim have been paid in full;
11.01-2 any claim arising from any breach or inaccuracy of any
representation or warranty in Article III, Section 4.02, 4.03 or Section 4.07,
from any failure to perform any covenant in Section 5.08 or Section 6.01, or in
the case of fraud, shall not expire and shall continue without limitation; and
11.01-3 any claim arising from any breach or inaccuracy of any
representation or warranty in Section 4.22 shall expire on the expiration of all
applicable statutes of limitation.
11.02 Indemnification by Sellers and Partners.
11.02-1 Notwithstanding any investigation by GDSC, from and after the
Closing, Sellers and Partners shall, jointly and severally, indemnify, hold
harmless and, to the extent provided in Section 11.04-1, defend GDSC, its
subsidiaries, shareholders, affiliates, officers, directors, employees, agents,
successors and assigns (collectively, "GDSC's Indemnified Persons") from and
against, and reimburse each of GDSC's Indemnified Persons with respect to, any
and all losses, damages, liabilities, costs and expenses, including interest
from the date of such loss to the time of payment, penalties and reasonable
attorneys' fees (collectively, "Damages") incurred by any of GDSC's Indemnified
Persons by reason of or arising out of or in connection with:
32
<PAGE>
(a) any breach or inaccuracy of any representation or warranty of
Sellers or any Partner made in this Agreement or any Related Document;
(b) any failure by Sellers or any Partner to perform any covenant
required to be performed by them pursuant to this Agreement or any Related
Document; or
(c) any liability or obligation of Sellers arising out of or in
connection with the ownership, use, condition, maintenance or operation of the
Dental Practice or the Assets on or prior to the Closing, in either case not
expressly assumed by GDSC in accordance with the terms of this Agreement, and
specifically including any liability to pay cash to a terminated employee on
account of accrued vacation time.
11.02-2 Any liability of Sellers or Partners under this Section 11.02
or otherwise for the breach or inaccuracy of any representation, warranty,
covenant or agreement made in this Agreement may, at the election of the
applicable Seller or Partner, be satisfied by delivery of shares of GDSC Common
Stock (valued at the fair market value of such shares at the time the liability
of Sellers or Partners is determined) to the GDSC Indemnified Person.
11.03 Indemnification by GDSC.
11.03-1 Notwithstanding any investigation by Sellers, from and after
the Closing, GDSC shall indemnify, hold harmless and, to the extent provided in
Section 11.04-1, defend Sellers, the Professional Corporation, and their
respective partners, affiliates, officers, employees, agents, successors and
assigns (collectively, "Seller's Indemnified Persons") from and against, and
reimburse each of Seller's Indemnified Persons with respect to, any and all
Damages incurred by any of Seller's Indemnified Persons by reason of or arising
out of or in connection with:
(a) any breach or inaccuracy of any representation or warranty of
GDSC made in this Agreement or any Related Document;
(b) any failure by GDSC to perform any covenant required to be
performed by it pursuant to this Agreement or any Related Document;
(c) any liability or obligation of Sellers to any third party
expressly assumed by GDSC in accordance with the terms of this Agreement; or
(d) any liability or obligation of GDSC arising out of or in
connection with the ownership, use, condition, maintenance or operation of the
Dental Practice or the Assets after the Closing.
11.04 Indemnification Procedure.
11.04-1 Third Party Claims.
(a) Each indemnified party shall, with reasonable promptness
after obtaining knowledge thereof, provide any indemnifying party against whom a
claim for
33
<PAGE>
indemnification is to be made under this Article 11 with written notice of all
third party actions, suits, proceedings, claims, demands or assessments that may
be subject to the indemnification provisions of this Article 11 (collectively,
"Third Party Claims"), including, in reasonable detail, the basis for the claim,
the nature of Damages and a good faith estimate of the amount of Damages.
(b) Each indemnifying party shall have 15 days after its receipt
of the claim notice to notify the indemnified party in writing whether the
indemnifying party agrees that the claim is subject to this Article 11 and, if
so, whether the indemnifying party elects, jointly with any other indemnifying
party notified under Section 11.04-1(a), to undertake, conduct and control,
through counsel of its or their choosing (subject to the consent of the
indemnified party, such consent not to be withheld unreasonably) and at its or
their sole risk and expense, the good faith settlement or defense of the Third
Party Claim.
(c) If within 15 days after its receipt of the claim notice an
indemnifying party notifies the indemnified party that it elects to undertake
the good faith settlement or defense of the Third Party Claim, the indemnified
party shall cooperate reasonably with the indemnifying party in connection
therewith including, without limitation, by making available to the indemnifying
party all relevant information material to the defense of the Third Party Claim.
The indemnified party shall be entitled to participate in the settlement or
defense of the Third Party Claim through counsel chosen by the indemnified
party, at its expense, and to approve any proposed settlement that would impose
any obligation or duty on the indemnified party, which approval may, in the sole
discretion of the indemnified party, be withheld. So long as an indemnifying
party is contesting the Third Party Claim in good faith and with reasonable
diligence, the indemnified party shall not pay or settle the Third Party Claim.
Notwithstanding the foregoing, the indemnified party shall have the right to pay
or settle any Third Party Claim at any time, provided that in such event it
waives any right to indemnification therefor by the indemnifying party.
(d) If an indemnifying party does not provide notice that it
elects to undertake the good faith settlement or defense of the Third Party
Claim, or if an indemnifying party fails to contest the Third Party Claim or
undertake or approve settlement, in good faith and with reasonable diligence,
the indemnified party shall thereafter have the right to contest, settle or
compromise the Third Party Claim at its exclusive discretion, at the risk and
expense of the indemnifying party, and the indemnifying party will thereby waive
any claim, defense or argument that the indemnified party's settlement or
defense of such Third Party Claim is in any respect inadequate or unreasonable.
(e) A party's failure to give timely notice will not constitute a
defense, in part or in whole, to any claim for indemnification by such party,
except if, and only to the extent that, such failure results in any material
prejudice to the indemnifying party.
11.04-2 Non-Third Party Claims.
(a) Each indemnified party shall, with reasonable promptness,
deliver to any indemnifying party against whom a claim for indemnification is to
be made under this Article 11 written notice of all claims for indemnification
under this Article 11, other than Third Party Claims,
34
<PAGE>
including, in reasonable detail, the basis for the claim, the nature of Damages
and a good faith estimate of the amount of Damages.
(b) Each indemnifying party shall have 30 days after its receipt
of the claim notice to notify the indemnified party in writing whether the
indemnifying party accepts liability for all or any part of the Damages
described in the claim notice. If the indemnifying party does not so notify the
indemnified party, the indemnifying party shall be deemed to accept liability
for all the Damages described in the claim notice.
(c) A party's failure to give timely notice will not constitute a
defense, in part or in whole, to any claim for indemnification by such party,
except if, and only to the extent that, such failure results in any material
prejudice to the indemnifying party.
11.05 Limitation on Indemnification Obligations. The indemnification
obligations set forth in Sections 11.02 and 11.03 shall not apply unless the
total amount of Damages incurred either by GDSC's Indemnified Persons or by
Sellers (as the case may be) exceeds $100,000 in the aggregate, as a result of
all matters giving rise to rights to indemnification under those Sections. In
the event that the amount of Damages exceeds that threshold, GDSC's Indemnified
Persons or Sellers (as the case may be) shall be entitled to indemnification for
the full amount of all Damages for which indemnification is to be provided under
Section 11.02 or 11.03, except that the indemnification obligations set forth in
Section 11.02 or 11.03 shall not exceed $1,250,000 under either section.
11.06 Rights Not Exclusive. An indemnified party's rights to
indemnification under this Article 11 are in addition to, and not in lieu of,
any other rights to which the indemnified party may be entitled at law or in
equity.
ARTICLE XII
Confidentiality; Press Releases
12.01 Confidentiality.
12.01-1 No information concerning Sellers not previously disclosed to
the public or in the public domain that has been furnished to or obtained by
GDSC under this Agreement or in connection with the transactions contemplated
hereby shall be disclosed to any person other than in confidence to employees,
legal counsel, financial advisers or independent public accountants of GDSC or
used for any purpose other than as contemplated herein. If the transactions
contemplated by this Agreement are not consummated, GDSC shall hold such
information in confidence for a period of four years from the date of any
termination of this Agreement or such longer period as is required by agreement
or law, and all such information that is in writing or embodied on a diskette,
tape or other tangible medium shall be promptly returned to Sellers.
12.01-2 No information concerning GDSC not previously disclosed to the
public or in the public domain that has been furnished to or obtained by Sellers
or the Partners under this Agreement or in connection with the transactions
contemplated hereby shall be disclosed to any
35
<PAGE>
person other than in confidence to the employees, legal counsel, financial
advisers or independent public accountants of Sellers or the Partners or used
for any purpose other than as contemplated herein. If the transactions
contemplated by this Agreement are not consummated, Sellers and the Partners
shall hold such information in confidence for a period of four years from the
date of any termination of this Agreement or such longer period as is required
by agreement or law, and all such information that is in writing or embodied on
a diskette, tape or other tangible medium shall be promptly returned to GDSC.
12.01-3 Notwithstanding the foregoing, such obligations of GDSC and of
Sellers shall not apply to information
(a) that is, or becomes, publicly available from a source other
than GDSC or Sellers, as the case may be;
(b) that was known and can be shown to have been known by GDSC at
the time of its receipt from Sellers, or by Sellers at the time of its receipt
from GDSC, as the case may be;
(c) that is received by GDSC from a third party without breach of
this Agreement by GDSC, or is received by Sellers from a third party without
breach of this Agreement by Sellers, as the case may be;
(d) that is required by law to be disclosed; or
(e) that is disclosed in accordance with the written consent of
GDSC or of Sellers, as the case may be.
12.02 Press Releases. No press releases or other public announcements
concerning the transactions contemplated by this Agreement shall be made by
Sellers or Partners without the prior written consent of GDSC; provided,
however, that nothing herein shall prevent a party from supplying such
information or making statements as required by governmental authority or in
order for a party to satisfy its legal obligations (prompt notice of which shall
in any such case be given to the other party or parties).
ARTICLE XIII
Other Provisions
13.01 Benefit and Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. No party hereto may voluntarily or involuntarily assign such
party's interest under this Agreement without the prior written consent of the
other parties.
36
<PAGE>
13.02 Entire Agreement. This Agreement and the Schedules and Exhibits
referred to herein embody the entire agreement and understanding of the parties
and supersede any and all prior agreements, arrangements and understandings
relating to matters provided for herein.
13.03 Fees and Expenses. GDSC shall be solely responsible for all costs and
expenses incurred by it, and Sellers shall be solely responsible for all costs
and expenses incurred by them, in connection with the negotiation, preparation
and performance of and compliance with the terms of this Agreement.
13.04 Amendment, Waiver, etc. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the party against
which enforcement of such amendment or waiver is sought. Any waiver of any term
or condition of this Agreement or any breach hereof shall not operate as a
waiver of any other such term, condition or breach, and no failure to enforce
any provision hereof shall operate as a waiver of such provision or of any other
provision hereof.
13.05 Headings. The headings are for convenience only and will not control
or affect the meaning or construction of the provisions of this Agreement.
13.06 Governing Law. The construction and performance of this Agreement
will be governed by the laws of the State of California (except for the choice
of law provisions thereof).
13.07 Notices. Any notice, demand or request required or permitted to be
given under the provisions of this Agreement shall be in writing; shall be
delivered personally, including by means of telecopy, or mailed by registered or
certified mail, postage prepaid and return receipt requested; shall be deemed
given on the date of personal delivery or on the date set forth on the return
receipt; and shall be delivered or mailed to the addresses or telecopy numbers
set forth on the first page of this Agreement or to such other address as any
party may from time to time direct, with copies to:
In the case of GDSC:
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2300
Portland, OR 97204
Telecopy No.: (503) 220-2480
Attention: Edward L. Epstein
37
<PAGE>
In the case of Sellers:
Klein & Martin
2029 Century Park East
Suite 2550
Los Angeles, CA 90067
Telecopy No.: (310) 201-0108
Attention: Eric A. Klein
13.08 Breach; Equitable Relief. The parties acknowledge that the Dental
Practice and rights of the parties described in this Agreement are unique and
that money damages alone for breach of this Agreement would be inadequate. Any
party aggrieved by a breach of the provisions hereof may bring an action at law
or suit in equity to obtain redress, including specific performance, injunctive
relief or any other available equitable remedy. Time and strict performance are
of the essence in this Agreement.
13.09 Attorneys' Fees. If suit or action is filed by any party to enforce
the provisions of this Agreement or otherwise with respect to the subject matter
of this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees as fixed by the trial court and, if any appeal is taken from the
decision of the trial court, reasonable attorneys' fees as fixed by the
appellate court. For purposes of this Agreement, the term "prevailing party"
shall be deemed to include a party that successfully opposes a petition for
review filed with an appellate court.
38
<PAGE>
13.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
GDSC: GENTLE DENTAL SERVICE CORPORATION
By: L.T. VAN EERDEN
--------------------------------------
Title: CFO
-----------------------------------
DPM: CALIFORNIA DENTAL PRACTICE
MANAGEMENT COMPANY
By: ARTHUR G. KAISER, DDS
--------------------------------------
Title: PARTNER
-----------------------------------
The Partners:
ARTHUR G. KAISER
------------------------------------------
Arthur G. Kaiser, D.D.S.
ROBERT J. NEWMAN
------------------------------------------
Robert J. Newman
Au: CLARENCE AU
------------------------------------------
Clarence Au, D.D.S.
39
ASSET PURCHASE AGREEMENT
between
Gentle Dental Service Corporation,
a Washington Corporation,
and
Arthur G. Kaiser, D.D.S,
Dated September 21, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Purchase and Sale of Assets
1.01 Purchase and Sale.......................................................1
1.02 Excluded Assets.........................................................3
1.03 Assumption of Liabilities...............................................3
1.04 Purchase Price..........................................................3
1.05 Purchase Price Adjustment...............................................4
1.06 Instruments of Conveyance and Transfer..................................5
1.07 Further Assurances......................................................5
1.08 Closing.................................................................5
1.09 Sales Tax...............................................................5
1.10 Allocation of Purchase Price............................................5
ARTICLE II
Representations and Warranties of GDSC
2.01 Authorization...........................................................6
2.02 Capitalization..........................................................6
2.03 Compliance..............................................................6
2.04 Consents................................................................6
2.05 Accuracy of Representations & Warranties................................7
2.06 Employment Matters......................................................7
2.07 Financial Statements....................................................7
2.08 Absence of Certain Changes or Events....................................8
2.09 Title and Condition of Tangible Assets..................................8
2.10 Insurance...............................................................9
2.11 Taxes...................................................................9
2.12 Certain Interests......................................................10
2.13 No Restrictions........................................................10
2.14 Permits and Licenses...................................................10
2.15 Environmental Conditions...............................................10
2.16 Records................................................................11
2.17 Reliance...............................................................11
ARTICLE III
[Intentionally Omitted]
ARTICLE IV
Representations and Warranties of Kaiser
i
<PAGE>
Page
4.01 [Intentionally Omitted]................................................11
4.02 [Intentionally Omitted]................................................11
4.03 Authority of Kaiser....................................................11
4.04 No Adverse Consequences................................................11
4.05 Brokers and Finders....................................................12
4.06 Litigation.............................................................12
4.07 Compliance with Laws...................................................12
4.08 Employment Matters.....................................................12
4.09 Financial Statements...................................................14
4.10 Receivables............................................................14
4.11 Prepaid Expenses and Other.............................................14
4.12 Personal Property......................................................14
4.13 Payables...............................................................14
4.14 Indebtedness...........................................................14
4.15 Other Liabilities......................................................14
4.16 Absence of Certain Changes or Events...................................15
4.17 Leases.................................................................15
4.18 Certain Contracts and Arrangements.....................................16
4.19 Status of Contracts and Leases.........................................16
4.20 Title and Condition of Tangible Assets.................................17
4.21 Insurance..............................................................17
4.22 Taxes..................................................................18
4.23 No Restrictions........................................................18
4.24 Permits and Licenses...................................................18
4.25 Certain Payments.......................................................18
4.26 Environmental Conditions...............................................19
4.27 Consents and Approvals.................................................19
4.28 Records................................................................19
4.29 Reliance...............................................................19
4.30 Accuracy of Representations and Warranties.............................19
ARTICLE V
Covenants of Seller
5.01 Access to Properties, Books and Records................................19
5.02 Negative Covenants.....................................................20
5.03 Affirmative Covenants..................................................21
5.04 No Negotiations With Others............................................21
5.05 [Intentionally Omitted]................................................21
5.06 Formation of Professional Corporation..................................21
5.07 Employees..............................................................21
ii
<PAGE>
Page
ARTICLE VI
[Intentionally Omitted]
ARTICLE VII
Joint Covenants
7.01 Governmental Consents..................................................22
7.02 Best Efforts; No Inconsistent Action...................................22
ARTICLE VIII
Conditions to Obligations of GDSC
8.01 Governmental Approvals.................................................22
8.02 Consents...............................................................23
8.03 Representations, Warranties and Covenants..............................23
8.04 Adverse Proceedings....................................................24
8.05 No Adverse Change......................................................24
8.06 Support Services Agreement.............................................24
8.07 Option Agreement.......................................................24
8.08 Employment Agreements..................................................24
8.09 Closing of the Transactions............................................24
8.10 Fairness Opinion.......................................................24
8.11 Professional Corporation...............................................24
8.12 Actions Satisfactory to GDSC's Counsel.................................25
ARTICLE IX
Conditions to Obligations of Seller
9.01 Representations, Warranties and Covenants..............................24
9.02 Adverse Proceedings....................................................24
9.03 Actions Satisfactory to Seller's Counsel...............................24
iii
<PAGE>
Page
ARTICLE X
Termination
10.01 Right of Parties to Terminate..........................................24
10.02 Effect of Termination..................................................25
ARTICLE XI
Survival; Indemnification
11.01 Survival...............................................................25
11.02 Indemnification by Seller..............................................26
11.03 Indemnification by GDSC................................................26
11.04 Indemnification Procedure..............................................27
11.05 Limitation on Indemnification Obligations..............................28
11.06 Rights Not Exclusive...................................................28
ARTICLE XII
Confidentiality; Press Releases
12.01 Confidentiality........................................................29
12.02 Press Releases.........................................................30
ARTICLE XIII
Other Provisions
13.01 Benefit and Assignment.................................................30
13.02 Entire Agreement.......................................................30
13.03 Fees and Expenses......................................................30
13.04 Amendment, Waiver, etc.................................................30
13.05 Headings...............................................................30
13.06 Governing Law..........................................................30
13.07 Notices................................................................30
13.08 Breach; Equitable Relief...............................................31
13.09 Attorneys' Fees........................................................31
13.10 Counterparts...........................................................32
iv
<PAGE>
INDEX OF DEFINED TERMS
Term Location of Definition
- ---- ----------------------
401(k) Plan............................................ 5.05
Assets................................................. 1.01
Assumed Liabilities.................................... 1.04-2
Closing................................................ 1.08
Closing Date........................................... 1.08
Code................................................... 4.08-2
Contracts.............................................. 1.01-6
Current Balance Sheet.................................. 4.09-1
Damages................................................ 11.02-1
Dental Practice........................................ Introduction
ERISA.................................................. 2.06-2
ERISA Plans............................................ 4.08-2
Environmental Law...................................... 2.15-2
Financial Statements................................... 4.09-1
GDSC................................................... Introduction
GDSC Material Adverse Effect .......................... Article II Introduction
GDSC Material Adverse Change .......................... Article II Introduction
GDSC's Indemnified Persons............................. 11.02-1
Hazardous Substance.................................... 2.15-2
Kaiser................................................. Introduction
Leases................................................. 1.01-5
Material Adverse Change................................ Article IV Introduction
Material Adverse Effect................................ Article IV Introduction
Net Current Assets..................................... 1.05-3
Permits................................................ 4.24
Policies............................................... 4.21
Professional Contracts................................. 1.01-6
Professional Corporation............................... Introduction
Purchase Price......................................... 1.04
Purchase Price Adjustment.............................. 1.05-1
Real Property.......................................... 4.17
Related Documents...................................... 11.01
Returns................................................ 4.22-1
Seller................................................. Introduction
Seller's Indemnified Persons........................... 11.03-1
Tangible Personal Property............................. 4.12
Taxes.................................................. 2.11-3
Third Party Claims..................................... 11.04-1(a)
Transactions........................................... 8.10
v
<PAGE>
LIST OF EXHIBITS
Exhibit Item First Reference
- ------- ---- ---------------
A Assumption Agreement 1.04-2
B Assignment and Bill of Sale to GDSC 1.06
C Assignment to Professional Corporation 1.06
D Support Services Agreement 8.06
E Assignable Option Agreement 8.07
F Employment Agreement 8.08
G Addendum to Employment
Agreement 8.08
H Articles and Bylaws of Professional
Corporation 5.06
LIST OF SCHEDULES
Schedule Content
- -------- -------
1.02-2 Excluded Assets
1.10 Purchase Price Allocation
2.04 Consents
4.06 Litigation
4.08-2 Employee Benefits
4.08-3 Employment Manuals and Policies
4.08-4 Compensation
4.09 Financial Statements
4.10 Receivables
4.11 Prepaid Expenses and Other
4.12 Tangible Personal Property
4.13 Payables
4.14 Indebtedness
4.15 Other Liabilities
4.17 Leases
4.18 Contracts
4.21 Insurance
4.27 Consents and Approvals
vi
<PAGE>
ASSET PURCHASE AGREEMENT
DATED: September 21, 1997
BETWEEN: GENTLE DENTAL SERVICE CORPORATION,
a Washington corporation
900 Washington Street, Suite 1100
Vancouver, WA 98660
Telecopy No.: (360) 750-8667 "GDSC"
AND: Arthur G. Kaiser, D.D.S.
3990 Ming Avenue
Bakersfield, CA 93309
Telecopy No.: ________________ "Kaiser"
Kaiser is the sole owner of a dental practice conducted by Kaiser under the
name Indio Family Dentistry (the "Dental Practice") at 81557 Dr. Carreon Blvd.,
Suite D-3, Indio, California 92201 (the "Practice Location"). Kaiser desires to
sell, and GDSC desires to purchase, substantially all of the assets of the
Dental Practice (the "Assets") on the terms and conditions set forth in this
Agreement. After the completion of the purchase, dental services will be
provided to the patients of the Dental Practice by a new professional
corporation (the "Professional Corporation") to be established as set forth in
this Agreement. Kaiser is referred to as "Seller" or "Kaiser" in this Agreement.
In consideration of the mutual promises and covenants contained in this
Agreement, the parties agree as follows:
ARTICLE I
Purchase and Sale of Assets
1.01 Purchase and Sale. Subject to all the terms and conditions of this
Agreement and for the consideration herein stated, on the "Closing Date," as
that term is defined in Section 1.08, Seller agrees to sell, convey, assign,
transfer and deliver to GDSC (or with respect to certain assets as specified in
Section 1.06, to the Professional Corporation), and GDSC agrees to purchase and
accept from Seller, all of the assets, properties and rights of Seller (other
than the assets specified in Section 1.02), tangible and intangible, wherever
located, that are used or useful to maintain and operate the Dental Practice,
which assets (the "Assets") shall include without limitation:
1.01-1 All patient lists, charts, files and patient records, and all
other operating data and records relating to the Dental Practice, including
without limitation financial, accounting and
1
<PAGE>
credit records, correspondence, budgets, engineering and facility records and
other similar documents and records;
1.01-2 All other items of tangible personal property of the Seller
used in connection with or associated with the Dental Practice, including
furniture, fixtures, equipment, supplies, inventory and spare and replacement
items therefor, including without limitation all such items listed on Schedule
4.12 and all such items acquired by the Seller after the date hereof and on or
before the Closing Date, other than to the extent such items are disposed of by
the Seller prior to the Closing Date without breach of this Agreement;
1.01-3 All accounts receivable and other receivables associated with
the Dental Practice, including without limitation all receivables listed on
Schedule 4.10 and all receivables acquired after August 31, 1997 and on or
before the Closing Date, other than to the extent such receivables have been
collected by the Seller prior to the Closing Date;
1.01-4 All prepaid and deferred items relating to the Dental Practice,
including prepaid rent, insurance, taxes and unbilled charges and deposits,
including without limitation all such items listed on Schedule 4.11;
1.01-5 All leases of real or personal property used or useful in the
Dental Practice, including without limitation all leases listed on Schedule 4.17
and all leases entered into after the date hereof and on or before the Closing
Date and expressly assumed by GDSC in writing on the Closing Date as provided in
Section 1.04-2(d), other than to the extent such leases have terminated, expired
or been disposed of by the Seller prior to the Closing Date without breach of
this Agreement (collectively, the "Leases");
1.01-6 All rights, benefits and interests of the Seller under the
contracts and agreements for provision of dentistry services including without
limitation contracts with third payors, dentists or other professionals (the
"Professional Contracts") and the other contracts, agreements, commitments,
understandings, purchase orders, documents and instruments listed on Schedule
4.18 hereto and under any contracts, agreements, commitments, understandings,
purchase orders, documents or instruments entered into between the date hereof
and the Closing Date and expressly assumed by GDSC in writing on the Closing
Date as provided in Section 1.04-2(d), other than to the extent such items have
terminated, expired or been disposed of by the Seller prior to the Closing Date
without breach of this Agreement (collectively, the "Contracts");
1.01-7 All assignable rights to all telephone lines and numbers used
in the conduct of the Dental Practice; and
1.01-8 All right, title and interest in and to all trade names used in
conjunction with the Dental Practice.
1.02 Excluded Assets. The Assets shall not include the following:
1.02-1 Any lease not listed on Schedule 4.17 and any contract,
agreement, commitment, understanding, purchase order, document or instrument not
listed on Schedule 4.18,
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unless pursuant to Section 1.04-2(d) GDSC expressly agrees in writing on the
Closing Date to assume the obligations under such lease, contract, agreement,
commitment, understanding, purchase order, document or instrument, in which case
the Seller shall assign their rights and benefits thereunder to GDSC and the
same shall be treated as a "Lease" or "Contract" for purposes of this Agreement;
and
1.02-2 The assets identified on Schedule 1.02-2.
1.03 Assumption of Liabilities. Except for the liabilities and obligations
to be assumed by GDSC pursuant to Section 1.04-2, GDSC will not assume and will
not be liable for any liabilities of the Seller, known or unknown, contingent or
absolute, accrued or other, and the Assets shall be free of all liabilities,
obligations, liens and encumbrances. Without limiting the generality of the
foregoing and except as otherwise provided above, GDSC will not be responsible
for any of the following:
1.03-1 Liabilities, obligations or debts of the Seller, whether fixed,
contingent or mixed and whether based on events occurring before or after the
Closing Date, including without limitation those based on tort, contract,
statutory or other claims or involving fines or penalties payable to any
governmental authority;
1.03-2 Liabilities, obligations or debts of the Seller for any
federal, state or local tax, including without limitation federal income taxes,
state income and excise taxes, state and local real and personal property taxes
and federal, state and local withholding and payroll taxes;
1.03-3 Liabilities or obligations of the Seller to employees for
salaries, bonuses or health and welfare benefits or with respect to any profit
sharing, stock bonus, pension, retirement, stock purchase, option, bonus or
deferred compensation plan or for any other benefits or compensation (including
without limitation accrued vacation or sick leave); and
1.03-4 Liabilities or obligations of the Seller for employee severance
payments or arrangements resulting from termination of the Seller's employees.
1.04 Purchase Price. The total purchase price for the Assets (the "Purchase
Price") shall be the following:
1.04-1 $2,924,878.00, payable by check to Kaiser on the Closing Date.
1.04-2 The assumption by GDSC on the Closing Date, pursuant to the
terms of an Assumption Agreement in substantially the form attached hereto as
Exhibit A, of the following liabilities of the Seller (the "Assumed
Liabilities"):
1.04-2(a) the accounts payable and accrued liabilities associated
with the Dental Practice identified on Schedule 4.13 in the amounts associated
with each at the Closing Date;
1.04-2(b) all liabilities of the Seller of a type identified on
Schedule 4.13 and incurred in the ordinary course of business after August 31,
1997 and on or before the Closing
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Date (to the extent such liabilities are not paid or discharged prior to the
Closing Date), but specifically excluding any liabilities for brokers' and
attorneys' fees and other expenses of this transaction and accrued liabilities
for taxes based on the income or revenues of the Dental Practice;
1.04-2(c) all obligations of the Seller under any of the Leases
or Contracts listed on Schedule 4.17 or Schedule 4.18 hereto; and
1.04-2(d) all obligations of the Seller under any lease,
contract, agreement, commitment, understanding, purchase order, document or
instrument entered into by the Seller between the date of this Agreement and the
Closing Date that GDSC, in its sole discretion, elects on the Closing Date to
assume.
1.05 Purchase Price Adjustment. The Purchase Price may be subject to
adjustment after Closing as set forth in this Section 1.05.
1.05-1 As soon as reasonably possible after Closing, the amount of the
"Net Current Assets" (as defined in Section 1.05-3) shall be determined as
provided in Section 1.05-4. If the amount of Net Current Assets is $20,000 more
or less than $14,000, the Purchase Price shall be adjusted by the full amount of
the difference (the "Purchase Price Adjustment"). If the difference between Net
Current Assets and $14,000 does not exceed $20,000, there shall be no Purchase
Price Adjustment.
1.05-2 If the Net Current Assets are greater than $34,000, the
Purchase Price Adjustment shall be paid to Kaiser by check within 10 days after
Kaiser delivers the certificate described in Section 1.05-4. If the Net Current
Assets are less than $(6,000), the Purchase Price Adjustment shall be paid by
Kaiser to GDSC by check within 10 days after Kaiser delivers the certificate
described in Section 1.05-4.
1.05-3 "Net Current Assets" means the sum of (a) accounts receivable
of the Dental Practice, net of contractual allowances and bad debt reserve, as
of the Closing Date and (b) any prepaid expenses properly recordable on a
balance sheet for the Dental Practice as of the Closing Date reduced by the sum
of (x) the accounts payable of the Dental Practice at the Closing Date and (y)
the accrued liabilities of the Dental Practice at the Closing Date, specifically
including an accrual of payroll and payroll-related charges up to and including
the Closing Date, all as determined consistently with the accounting conventions
applied in determining the amounts set forth in paragraphs 1.05-1 and 1.05-2
above.
1.05-4 At or after the Closing Date, Kaiser shall execute and deliver
to GDSC a certificate detailing the calculation of Net Current Assets and
including as schedules thereto lists of all receivables, prepaid expenses,
payables and accrued liabilities as of the Closing Date included in the
calculation. In this certificate Kaiser shall certify the accuracy and
completeness of the schedules to the certificate and the accuracy of the
calculation of Net Current Assets.
1.06 Instruments of Conveyance and Transfer. The sale of the Assets, and
the conveyance, assignment, transfer and delivery of all of the Assets other
than the patient charts, the Professional Contracts and rights to the trade name
"Indio Family Dentistry," shall be effected by
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the Seller's execution and delivery to GDSC, on the Closing Date, of a bill of
sale in substantially the form of the Assignment and Bill of Sale attached
hereto as Exhibit B. The conveyance, assignment, transfer and delivery of
Seller's patient charts, the Professional Contracts and the rights to the trade
name "Indio Family Dentistry" shall be effected by the Seller's execution and
delivery to the Professional Corporation, on the Closing Date, of an assignment
in substantially the form of the Assignment attached hereto as Exhibit C.
1.07 Further Assurances. The Seller agrees that, at any time and from time
to time on and after the Closing Date, he will, upon the request of GDSC and
without further consideration, take all steps reasonably necessary to place GDSC
(or the Professional Corporation, as the case may be) in possession and
operating control of the Assets and the Seller will do, execute, acknowledge and
deliver, or will cause to be done, executed, acknowledged and delivered, all
further acts, deeds, assignments, conveyances, transfers, powers of attorney or
assurances as reasonably required to sell, assign, convey, transfer, grant,
assure and confirm to GDSC (or the Professional Corporation, as the case may
be), or to aid and assist in the collection of or reducing to possession by GDSC
(or the Professional Corporation, as the case may be) of, all of the Assets, or
to vest in GDSC (or the Professional Corporation, as the case may be) good,
valid and marketable title to the Assets.
1.08 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Stoel Rives LLP,
900 SW Fifth Avenue, Suite 2300, Portland, Oregon, effective as of the close of
business on the last day of the month in which all conditions to Closing are
satisfied (other than those conditions that by their terms are to occur at the
Closing) or at another date, time and place agreed upon in writing by the
parties (the "Closing Date").
1.09 Sales Tax. The Seller shall pay, at his sole expense, any sales tax
owing in respect of the purchase of the Assets. The Seller shall promptly file
all necessary sales tax returns and pay all sales taxes due following the
Closing Date. As soon as practicable following the Closing Date, the Seller
shall deliver to GDSC receipts from the appropriate taxing authorities showing
that all sales taxes owing have been paid.
1.10 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in accordance with Schedule 1.10, and GDSC and the Seller shall
be bound by that allocation in reporting the transactions contemplated by this
Agreement to any governmental authority (including without limitation the
Internal Revenue Service).
ARTICLE II
Representations and Warranties of GDSC
As used in this Agreement, "GDSC Material Adverse Effect" means an adverse
effect on the business, results of operations, financial position, assets or
prospects of GDSC that would be considered material under federal securities
laws; and "GDSC Material Adverse Change" means any change that has resulted,
will result or is likely to result in a GDSC Material Adverse Effect. GDSC
represents and warrants to the Seller as follows:
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2.01 Authorization. GDSC is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Washington and has all
requisite corporate power and authority to own and operate its properties and to
carry on its business as now conducted. GDSC has taken all corporate action
necessary to authorize its execution, delivery and performance of this
Agreement. GDSC has full corporate power and authority to enter into this
Agreement and carry out the terms hereof. This Agreement has been duly executed
and delivered by GDSC and is binding upon and enforceable against GDSC in
accordance with its terms, except as enforceability may be limited or affected
by applicable bankruptcy, insolvency, reorganization, or other laws of general
application relating to or affecting creditors' rights generally and except as
enforceability may be limited by rules of law governing specific performance,
injunctive relief or other equitable remedies.
2.02 Capitalization. The authorized capital stock of GDSC consists of
50,000,000 shares of Common Stock, of which 3,144,404 shares are issued and
outstanding; and 30,000,000 shares of Preferred Stock, of which no shares are
issued and outstanding. All issued and outstanding shares of GDSC capital stock
are validly issued, fully paid and nonassessable, and have been issued without
violation of any preemptive rights. There is no subscription, option, warrant,
call, right, agreement or commitment (including any right of conversion or
exchange under any outstanding security or other instrument) relating to the
issuance by GDSC of GDSC capital stock other than outstanding options under the
GDSC 1993 Stock Incentive Plan, outstanding purchase rights under the GDSC
Employee Stock Purchase Plan and the GDSC Professional Corporation Employee
Stock Purchase Plan, warrants described in GDSC's Registration Statement on Form
SB-2 (Registration No. 333-13529) and outstanding offers and/or agreements to
acquire other dental practices or dental practice management companies in
exchange for Common Stock. The GDSC Common Stock to be issued under this
Agreement will, when issued, be duly and validly authorized and issued, fully
paid and nonassessable.
2.03 Compliance. The execution, delivery and performance of this Agreement
by GDSC, the compliance by GDSC with the provisions of this Agreement and the
consummation of the transactions described in this Agreement will not conflict
with or result in the breach of any of the terms or provisions of or constitute
a default under:
2.03-1 the articles of incorporation or bylaws of GDSC;
2.03-2 any note, indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which GDSC is a party or by which GDSC
is bound; or
2.03-3 any statute or any order, rule, regulation or decision of any
court or regulatory authority or governmental body applicable to GDSC.
2.04 Consents. No consent, approval, authorization, order, designation or
declaration of any court or regulatory authority or governmental body, federal
or other, or third person is required to be obtained by GDSC for the
consummation of the transactions described in this Agreement.
2.05 Accuracy of Representations & Warranties. None of the representations
or warranties of GDSC contains or will contain any untrue statement of any
material fact or omits or misstates a material fact necessary to make the
statements contained in this Agreement not
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misleading. GDSC does not know of any fact that has resulted or that, in the
reasonable judgment of GDSC will result, in any material adverse change in
GDSC's business, results of operation, financial condition or prospects that has
not been set forth in this Agreement.
2.06 Employment Matters.
2.06-1 Labor Matters. GDSC is and has been in compliance with all
applicable laws regarding employment and employment practices, terms and
conditions of employment, wages and hours and is not and has not been engaged in
any unfair labor practice. There is no (1) unfair labor practice complaint
against GDSC pending before the National Labor Relations Board or any other
governmental authority, (2) labor strike, slowdown or work stoppage actually
occurring or, to the best of the knowledge of GDSC, threatened against GDSC, (3)
representation petition respecting GDSC's employees pending before the National
Labor Relations Board, or (4) grievance or any arbitration proceeding pending
arising out of or under collective bargaining agreements applicable to GDSC.
GDSC has not experienced any primary work stoppage or other organized work
stoppage involving its employees in the past two years.
2.06-2 Employee Benefits. The employee pension benefit plans (within
the meaning of Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") established and maintained by GDSC that are subject
to ERISA (the "GDSC ERISA Plans") comply with the applicable requirements of
ERISA. GDSC has received from the Internal Revenue Service a favorable
determination for each of the GDSC ERISA Plans and their related trusts that
each of the GDSC ERISA Plans is qualified under Section 401(a) of the Code and
the related trust is tax-exempt under Section 501(a) of the Code. There has been
no event subsequent to that determination that has adversely affected the tax
qualified status of the GDSC ERISA Plans or the exemption of the related trusts
other than changes in the Code that are not effective as of the Closing Date. No
"accumulated funding deficiency" as defined in Section 302(a)(2) of ERISA or
Section 412(a) of the Code exists, or has existed, with respect to any of the
GDSC ERISA Plans. The present value of all accrued benefits under each of the
GDSC ERISA Plans does not exceed the value of such plan's assets, less all
liabilities other than those attributable to accrued benefits. GDSC has no
"potential withdrawal liability," as defined in Section 4201 of ERISA. None of
the GDSC ERISA Plans, its related trusts or any trustee, investment manager or
administrator thereof has engaged in a nonexempt "prohibited transaction," as
such term is defined in Section 406 of ERISA and Section 4975 of the Code. There
are not and have not been any excess deferrals or excess contributions under any
GDSC ERISA Plan. Each GDSC ERISA Plan is and has been operated and administered
in conformance with the requirements of all applicable laws and regulations,
whether or not the GDSC ERISA Plan documents have been amended to reflect such
requirements.
2.07 Financial Statements.
2.07-1 GDSC's Annual Report to Shareholders for the year ended
December 31, 1996 contains audited balance sheets of GDSC as of December 31,
1996 and 1995, and the related audited statements of income for the years then
ended, and GDSC's Quarterly Report on Form 10-QSB for the quarter ended June 30,
1997 contains the unaudited balance sheet of GDSC as of June 30, 1997 (the "GDSC
Current Balance Sheet") and the related statement of income for the six
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months then ended (all such balance sheets and statements collectively, the
"GDSC Financial Statements").
2.07-2 The GDSC Financial Statements present fairly
(a) the financial position of GDSC as of the dates indicated and
(b) the results of operations for the periods then ended, all in
conformity with generally accepted accounting principles applied on a consistent
basis.
2.08 Absence of Certain Changes or Events. Since the date of the GDSC
Current Balance Sheet, there has not been:
2.08-1 Any GDSC Material Adverse Change or any event, occurrence,
development or state of circumstances or facts which could reasonably be
expected to result in a GDSC Material Adverse Change;
2.08-2 Any damage, destruction or casualty loss, whether insured
against or not, to any of GDSC's assets or properties;
2.08-3 Any increase in the rate or terms of compensation payable or to
become payable by GDSC to its directors, officers or key employees; any increase
in the rate or terms of any bonus, insurance, pension or other employee benefit
plan, payment or arrangement made to, for or with any such directors, officers
or key employees; any special bonus or remuneration paid; or any written
employment contract executed or amended;
2.08-4 Any conduct of business which is outside the ordinary course of
business or not substantially in the manner that GDSC previously conducted its
business;
2.08-5 Any incurrence of any noncontract liability which, either
singly or in the aggregate is material to the business, results of operations,
financial condition or prospects of GDSC;
2.08-6 Any change in the assets, liabilities, licenses, permits or
franchises of GDSC, or in any agreement to which GDSC is a party or is bound,
which has had or reasonably could be expected to have a GDSC Material Adverse
Effect.
2.09 Title and Condition of Tangible Assets.
2.09-1 GDSC owns all of its tangible personal property except leased
property free and clear of all mortgages, pledges, security interests, claims,
charges or other encumbrances or restrictions of any kind, except
(a) liens related to obligations disclosed in the GDSC Financial
Statements or
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(b) liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the GDSC
Current Balance Sheet).
2.09-2 GDSC has good and absolute title to its tangible personal
property except leased property.
2.09-3 All of GDSC's tangible personal property has been maintained
and operated in accordance with manufacturer's specifications and prudent
industry practices, is in a good state of maintenance and repair, ordinary wear
and tear excepted, and is adequate for the conduct of GDSC's business.
2.09-4 To the knowledge of GDSC, there are no developments affecting
any of its real property or tangible personal property pending or threatened
which might materially detract from the value of such property or assets,
materially interfere with any present or intended use of any such property or
assets or materially adversely affect the marketability of such properties or
assets.
2.10 Insurance. All policies of malpractice, liability, fire, worker's
compensation and other forms of insurance insuring GDSC, its officers, directors
or employees, its assets or its operations (the "GDSC Policies") are valid,
enforceable and in full force and effect, all premiums with respect to the GDSC
Policies covering all periods up to and including the date as of which this
representation is being made have been paid and no notice of cancellation or
termination has been received with respect to any GDSC Policy. The GDSC Policies
are sufficient for compliance with all requirements of law and of agreements to
which GDSC is a party and provide insurance for the risks and in the amounts and
types of coverage usually obtained by persons using or holding similar
properties in similar businesses. GDSC has not been refused any insurance
coverage and no insurance coverage has been canceled during the five years
preceding the date of this Agreement.
2.11 Taxes.
2.11-1 Returns. GDSC has filed all federal, state and other returns,
reports and information returns required to be filed by it with respect to Taxes
(as defined below) which relate to the business, results of operations or
financial condition of GDSC (collectively, the "GDSC Returns") and has timely
paid all Taxes shown to be due on the GDSC Returns. All GDSC Returns filed are
complete and accurate in all material respects, and no additional Taxes are owed
by GDSC with respect to the periods covered by the GDSC Returns.
2.11-2 Taxes Paid or Reserved. All deficiencies in Taxes asserted or
assessments made by any taxing authority have been fully paid or finally
settled. The reserves for Taxes reflected in the GDSC Current Balance Sheet are
adequate for payment of Taxes with respect to GDSC in respect of all periods
ending on or before the date of the GDSC Current Balance Sheet. All Taxes which
GDSC has been required to collect or withhold have been withheld or collected
and, to the extent required, have been paid to the proper taxing authority.
2.11-3 Definition. "Taxes" means all taxes, charges, fees, levies or
other assessments including, without limitation, income, excise, property,
sales, use and franchise taxes,
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imposed by the United States or any state, county, local or foreign government
or subdivision or agency thereof, and including any interest, penalties or
additions.
2.12 Certain Interests. No transaction between GDSC and any of its
directors, officers or principal shareholders of a type that would require
disclosure by GDSC under Item 404 of Regulation S-B of the Securities and
Exchange Commission has occurred since February 13, 1997, except for the entry
into a new support services agreement with a professional corporation owned
solely by Dany Y. Tse in connection with a recent dental practice acquisition.
2.13 No Restrictions. No power of attorney or similar authorization given
by GDSC is presently in effect or outstanding. No contract or agreement to which
GDSC is a party or is bound or to which any of its properties or assets is
subject limits the freedom of GDSC to compete in any line of business or with
any person.
2.14 Permits and Licenses. GDSC holds, and at all times has held, all
licenses, permits, franchises, easements and authorizations (collectively, "GDSC
Permits") necessary for the lawful conduct of its business pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all governmental
bodies, agencies and other authorities having jurisdiction over it or any part
of its operations except where the failure to hold any GDSC Permit, singly or in
the aggregate, either alone or with the giving of notice or the passage of time
or both, would not have a GDSC Material Adverse Effect. GDSC is in compliance
with all the terms of each GDSC Permit, and there are no claims of violation by
GDSC of any GDSC Permit.
2.15 Environmental Conditions.
2.15-1 Compliance. GDSC has operated its business and maintained its
assets, including without limitation its real property, in compliance with all
Environmental Laws. All wastes generated in connection with its business are and
have been transported and disposed of off site in compliance with all
Environmental Laws. Except as otherwise required for the normal operation of a
dental practice, no Hazardous Substance is or has been generated, manufactured,
treated, stored, transported, used or otherwise handled on its real property or
in connection with its business.
2.15-2 Definitions. As used in this Agreement,
(a) "Environmental Law" means any federal, state or local
statute, ordinance or regulation pertaining to the protection of human health or
the environment and any applicable orders, judgments, decrees, permits, licenses
or other authorizations or mandates under such statutes, ordinances or
regulations, and
(b) "Hazardous Substance" means any hazardous, toxic, radioactive
or infectious substance, material or waste as defined, listed or regulated under
any Environmental Law, and includes without limitation petroleum oil and its
fractions.
2.16 Records. The books of account, minute books, stock certificate books
and stock transfer ledgers of GDSC are complete and accurate in all material
respects, and there have been no
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transactions involving the business of GDSC which properly should have been set
forth therein and which have not been accurately so set forth.
2.17 Reliance. GDSC recognizes and agrees that, notwithstanding any
investigation by DDS, DDS is relying upon the representations and warranties
made by GDSC in this Agreement.
ARTICLE III
[Intentionally Omitted]
ARTICLE IV
Representations and Warranties of Kaiser
As used in this Agreement, "Material Adverse Effect" means a material
adverse effect on the business, results of operations, financial position,
assets or prospects of the Dental Practice, which shall in any event include any
adverse effect on the assets, revenue or net income of the Dental Practice in
excess of $20,000; and "Material Adverse Change" means any change that has
resulted, will result or is likely to result in a Material Adverse Effect.
Kaiser represents and warrants to GDSC as follows:
4.01 [Intentionally Omitted].
4.02 [Intentionally Omitted].
4.03 Authority of Kaiser. Kaiser has the power to own and lease his
properties and carry on his business as now being conducted. Kaiser is the sole
owner of the Dental Practice and no other person has a right to acquire any
interest in the Dental Practice. Kaiser has full power and authority to enter
into this Agreement and to carry out its terms. This Agreement has been duly and
validly executed and delivered by Kaiser and is binding upon and enforceable
against Kaiser in accordance with its terms, except as enforceability may be
limited or affected by applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the rights of
creditors and except as enforceability may be limited by rules of law governing
specific performance, injunctive relief or other equitable remedies.
4.04 No Adverse Consequences. Neither the execution and delivery of this
Agreement by Kaiser nor the consummation of the transactions contemplated by
this Agreement will result in the creation or imposition of any lien, charge or
encumbrance on any of Kaiser's assets or properties, violate any law, judgment,
order, injunction, decree, rule, regulation or ruling of any governmental
authority applicable to Kaiser, or either alone or with the giving of notice or
the passage of time or both, conflict with, constitute grounds for termination
or acceleration of, result in the breach of the terms, conditions or provisions
of, result in the loss of any benefit to Kaiser under or constitute a default
under any agreement, instrument, license or permit to which Kaiser is a party or
by which Kaiser is bound.
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4.05 Brokers and Finders. Kaiser has not employed any broker, finder or
agent or dealt with anyone purporting to act in such capacity or agreed to pay
any brokerage fee, finder's fee or commission with respect to the transaction
contemplated by this Agreement, except that Kaiser has employed Wedbush Morgan
Securities. Any fees owing to Wedbush Morgan Securities shall be paid by Kaiser
and are not a liability of GDSC.
4.06 Litigation. Except as set forth on Schedule 4.06, to the best
knowledge of Kaiser, there is no claim, litigation, proceeding or investigation
of any kind pending or threatened by or against Kaiser and there is no basis for
any such claim, litigation, proceeding or investigation.
4.07 Compliance with Laws. Kaiser has at all relevant times conducted his
business in compliance with all applicable laws and regulations. Kaiser is not
in violation of any applicable laws or regulations, other than violations which
singly or in the aggregate do not, and, with the passage of time will not, have
a Material Adverse Effect. In connection with the Dental Practice, Kaiser is not
subject to any outstanding order, writ, injunction or decree, and Kaiser has not
been charged with, or threatened with a charge of, a violation of any provision
of federal, state or local law or regulation.
4.08 Employment Matters.
4.08-1 Labor Matters.
(a) Except as set forth on Schedule 4.08-1, Kaiser is not a party
or otherwise subject to any collective bargaining or other agreement governing
the wages, hours or terms of employment of the employees working in the Dental
Practice ("Dental Practice Employees"). Kaiser is and has been in compliance
with all applicable laws regarding employment and employment practices, terms
and conditions of employment, wages and hours and are not and have not been
engaged in any unfair labor practice.
(b) There is no (1) unfair labor practice complaint against
Kaiser pending before the National Labor Relations Board or any other
governmental authority, (2) labor strike, slowdown or work stoppage actually
occurring or, to the best of the knowledge of Kaiser, threatened against Kaiser,
(3) representation petition respecting Kaiser's employees pending before the
National Labor Relations Board, or (4) grievance or any arbitration proceeding
pending arising out of or under collective bargaining agreements applicable to
Kaiser.
(c) Kaiser has not experienced any work stoppage or other
organized work stoppage involving his employees in the past two years.
4.08-2 Employee Benefits. Schedule 4.08-2 lists all pension,
retirement, profit sharing, deferred compensation, bonus, commission, incentive,
life insurance, health and disability insurance, hospitalization and all other
employee benefit plans or arrangements (including, without limitation, any
contracts or agreements with trustees, insurance companies or others relating to
any such employee benefit plans or arrangements) established or maintained by
Kaiser under which Dental Practice Employees have or may have any past or
present rights or benefits, and complete and accurate copies of all those plans
or arrangements have been provided to GDSC. The employee
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pension benefit plans (within the meaning of Section 3(2) of ERISA established
and maintained by Kaiser that are subject to ERISA are listed separately as
ERISA Plans on Schedule 4.08-2 (the "ERISA Plans"). The ERISA Plans comply with
the applicable requirements of ERISA. The Seller has received from the Internal
Revenue Service a favorable determination for each of the ERISA Plans and their
related trusts that each of the ERISA Plans is qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code") and the related trust
is tax-exempt under Section 501(a) of the Code. There has been no event
subsequent to that determination that has adversely affected the tax qualified
status of the ERISA Plans or the exemption of the related trusts other than
changes in the Code that are not effective as of the Closing Date. No
"accumulated funding deficiency" as defined in Section 302(a)(2) of ERISA or
Section 412(a) of the Code exists, or has existed, with respect to any of the
ERISA Plans. The present value of all accrued benefits under each of the ERISA
Plans does not exceed the value of such plan's assets, less all liabilities
other than those attributable to accrued benefits. Kaiser does not have any
"potential withdrawal liability," as defined in Section 4201 of ERISA. None of
the ERISA Plans, its related trusts or any trustee, investment manager or
administrator thereof has engaged in a nonexempt "prohibited transaction," as
such term is defined in Section 406 of ERISA and Section 4975 of the Code. There
are not and have not been any excess deferrals or excess contributions under any
ERISA Plan. Each ERISA Plan is and has been operated and administered in
conformance with the requirements of all applicable laws and regulations,
whether or not the ERISA Plan documents have been amended to reflect such
requirements. Seller has no obligation of any kind (whether under the terms of
the ERISA Plans or under any understanding with employees) to make payments
under, or to pay contributions to or in respect of, any plan or arrangement
listed on Schedule 4.08-2, or any other plan, agreement or other arrangement for
deferred compensation of employees, whether or not tax qualified, including,
without limitation, a single employer tax qualified plan, a tax qualified plan
of a controlled group of corporations, a multi-employer pension plan, a
nonqualified deferred compensation plan, an individual employment or
compensation agreement or a commitment to provide medical benefits to retirees.
4.08-3 Employment Agreements. Each of the Dental Practice Employees is
an "at-will" employee and, except as listed on Schedule 4.08-3, there are no
written employment, commission or compensation agreements of any kind between
Kaiser and any Dental Practice Employee. Schedule 4.08-3 lists all of Seller's
employment or supervisory manuals, employment or supervisory policies, and
written information generally provided to Dental Practice Employees (such as
applications or notices), and true and complete copies of those manuals,
policies and written information have been provided to GDSC. Kaiser has no
agreements or understandings with the Dental Practice Employees except as
reflected in the items listed in Schedules 4.08-2 and 4.08-3.
4.08-4 Compensation. Schedule 4.08-4 contains a complete and accurate
list of all Dental Practice Employees providing services at or for the Dental
Practice as of September 10, 1997, specifying their names, hire dates, the total
amount paid or payable as compensation to each such person, and the basis of
such compensation.
4.09 Financial Statements.
4.09-1 Schedule 4.09 contains the unaudited balance sheet of the
Dental Practice as of December 31, 1996 and the related unaudited statement of
income for the year then ended and
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the unaudited balance sheet of the Dental Practice as of July 31, 1997 (the
"Current Balance Sheet") and the related unaudited statement of income for the
seven months then ended (all such balance sheets and statements collectively,
the "Financial Statements"). The Financial Statements fairly reflect all
revenues, assets, liabilities and expenses received or incurred in connection
with the Dental Practice.
4.09-2 The Financial Statements present fairly
(a) the financial position of the Dental Practice as of the dates
indicated and
(b) the results of operations for the periods then ended.
4.10 Receivables. Schedule 4.10 lists all receivables of the Dental
Practice (including accounts receivable, loans receivable and advances payable
to Kaiser) as of July 31, 1997. Each of the receivables listed on Schedule 4.10,
and each of the receivables that has arisen since July 31, 1997, has arisen only
from bona fide transactions in the ordinary course of Seller's business and is
not subject to any offset or counterclaim.
4.11 Prepaid Expenses and Other. Schedule 4.11 lists all prepaid expenses
and deferred charges of the Dental Practice reflected on the Current Balance
Sheet as well as the items included in the Other Assets line, if any, on the
Current Balance Sheet.
4.12 Personal Property. Section 1.01-1 and Schedule 4.12 together contain a
complete and accurate list of all the tangible personal property used or useful
in the Dental Practice, other than excluded assets listed in Schedule 1.02-2
("Tangible Personal Property"). With respect to each item of owned Tangible
Personal Property, Schedule 4.12 lists the estimated fair market value as of
August 31, 1997.
4.13 Payables. Schedule 4.13 lists all accounts payable and other accrued
liabilities of the Dental Practice (in whatever name held or accounted for) as
of July 31, 1997, other than payables for brokers' and attorneys' fees and other
expenses of this transaction.
4.14 Indebtedness. Schedule 4.14 lists all indebtedness incurred by,
attributable to or secured by any assets of the Dental Practice and for each
item shows the name of lender, interest rate, term, payments, seniority and
security.
4.15 Other Liabilities. Except as listed on Schedule 4.15, Kaiser does not
have, with respect to the Dental Practice, any liability or obligation (whether
absolute, accrued, contingent or other, and whether due or to become due) which
is not accrued, reserved against or disclosed in the Current Balance Sheet,
other than liabilities incurred in the ordinary course of business consistent
with past practice, which individually or in the aggregate are not material to
the Dental Practice.
4.16 Absence of Certain Changes or Events. Since the date of the Current
Balance Sheet, there has not been any Material Adverse Change or any event,
occurrence, development or
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state of circumstances or facts which could reasonably be expected to result in
a Material Adverse Change.
4.17 Leases. Schedule 4.17 contains a complete and accurate list of all
Leases of real property used or useful in the Dental Practice, a description of
the real property covered thereby ("Real Property"), the term of each Lease and
the monthly payments under the Lease. Complete and accurate copies of all Leases
have been delivered to GDSC.
4.18 Certain Contracts and Arrangements. Schedule 4.18, which is organized
by type of agreement, contains a complete and accurate list of all Contracts of
the following types to which Kaiser is a party or by which Kaiser is bound and
which relate to or are associated with the Dental Practice:
4.18-1 any mortgage, note or other instrument or agreement relating to
the borrowing of money or the incurrence of indebtedness by Kaiser or Kaiser's
guaranty of any obligation for the borrowing of money;
4.18-2 contracts, agreements, purchase orders or acknowledgment forms
for the purchase, sale, lease or other disposition of capital assets or more
than $20,000 of other equipment or materials;
4.18-3 contracts or agreements for provision of dentistry services by
the Dental Practice, which agreements are identified as the Professional
Contracts on Schedule 4.18;
4.18-4 contracts or agreements for the performance of services
relating to or concerning the Dental Practice other than the Professional
Contracts, excluding employment contracts; provided, however, that only
contracts exceeding $20,000 in annual billings or payments by the Dental
Practice must be listed;
4.18-5 contracts or agreements involving annual billings in excess of
$20,000 for the joint performance of work or services and all other joint
venture agreements relating to or concerning the Dental Practice;
4.18-6 contracts or agreements with agents, brokers, consignees, sales
representatives or distributors relating to the sale of services of the Dental
Practice; and
4.18-7 any other contract, instrument, agreement or obligation not
described on any other Schedule to which Kaiser is a party or by which Kaiser is
bound and which contains material unfulfilled obligations relating to or
concerning the Dental Practice.
Complete and accurate copies of all Contracts have been delivered to GDSC.
4.19 Status of Contracts and Leases.
4.19-1 Each of the Contracts and Leases listed on Schedules 4.17 and
4.18 is valid, binding and enforceable by Seller in accordance with its terms
and is in full force and effect. There
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is no existing default or violation by Seller under any Contract or Lease and no
event has occurred which (whether with or without notice, lapse of time or both)
would constitute a default of Seller under any Contract or Lease. There is no
pending or threatened proceeding which would interfere with the quiet enjoyment
of any Real Property of which Kaiser is lessee or sublessee which is used in the
Dental Practice.
4.19-2 All other parties to the Contracts and Leases have consented or
prior to the Closing will have consented (where such consent is necessary) to
the consummation of the transaction contemplated by this Agreement without
requiring modification of Seller's rights or obligations under any Contract or
Lease.
4.19-3 Kaiser is not aware of any default by any other party to any
Contract or Lease or of any event which (whether with or without notice, lapse
of time or both) would constitute a default by any other party with respect to
obligations of that party under any Contract or Lease, and, to the knowledge of
Seller, there are no facts that exist indicating that any of the Contracts or
Leases may be totally or partially terminated or suspended by the other parties.
4.19-4 Kaiser is not a party to, nor bound by, any contract or
agreement relating to or concerning the Dental Practice that Seller can
reasonably foresee will result in any loss that would have a Material Adverse
Effect on Seller upon the performance thereof (including any liability for
penalties or damages, whether liquidated, direct, indirect, incidental or
consequential that would have a Material Adverse Effect), unless such contract
or agreement is terminable by Kaiser on 60 or fewer days notice at any time
without penalty.
4.20 Title and Condition of Tangible Assets.
4.20-1 Seller has good title, or the right to use, all of the Tangible
Personal Property free and clear of all mortgages, pledges, security interests,
claims, charges or other encumbrances or restrictions of any kind, except
(a) liens disclosed on the Current Balance Sheet,
(b) security interests or liens securing payment of Assumed
Liabilities,
(c) liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the
Current Balance Sheet) or
(d) the leases of leased property.
4.20-2 All Tangible Personal Property is in a good state of
maintenance and repair, ordinary wear and tear excepted, and is adequate for the
conduct of the Dental Practice.
4.20-3 To the knowledge of Seller, there are no developments affecting
any of the Real Property or Tangible Personal Property pending or threatened
which might materially detract from the value of such property or assets,
materially interfere with any present or intended use of
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any such property or assets or materially adversely affect the marketability of
such properties or assets.
4.20-4 At the Closing, GDSC will acquire good title to all the Assets,
free and clear of all mortgages, pledges, security interests, claims, charges or
other encumbrances or restrictions of any kind, except for security interests or
liens securing payment of Assumed Liabilities.
4.21 Insurance. Schedule 4.21 contains a complete and accurate list of all
policies of malpractice, liability, fire, worker's compensation and other forms
of insurance insuring the Dental Practice or its employees and its assets or
operations (the "Policies"). All the Policies are valid, enforceable and in full
force and effect, all premiums with respect to the Policies covering all periods
up to and including the date as of which this representation is being made have
been paid and no notice of cancellation or termination has been received with
respect to any Policy. The Policies are sufficient for compliance with all
requirements of law and of agreements to which Kaiser is a party and provide
insurance for the risks and in the amounts and types of coverage usually
obtained by persons using or holding similar properties in similar businesses.
There are no unresolved claims for insurance under any of the Policies. True and
complete copies of the Policies and all endorsements thereto have been delivered
to GDSC. In connection with the Dental Practice, Kaiser has not been refused any
insurance coverage and no insurance coverage has been canceled during the five
years preceding the date of this Agreement.
4.22 Taxes.
4.22-1 Returns. Kaiser has filed all federal, state and other returns,
reports and information returns required to be filed by them with respect to
Taxes which relate to the business, results of operations or financial condition
of the Dental Practice (collectively, the "Returns") and has timely paid all
Taxes shown to be due on the Returns. All Returns filed are complete and
accurate in all material respects, and no additional Taxes are owed by Kaiser
with respect to the periods covered by the Returns. Kaiser has provided GDSC
with complete and accurate copies of its Returns for 1995 and 1996.
4.22-2 Taxes Paid or Reserved. All deficiencies in Taxes asserted or
assessments made by any taxing authority have been fully paid or finally
settled. All Taxes which Kaiser has been required to collect or withhold have
been withheld or collected and, to the extent required, have been paid to the
proper taxing authority.
4.23 No Restrictions. No contract or agreement to which Kaiser is a party
or is bound or to which any of its properties or assets is subject limits the
freedom of Kaiser to compete in any line of business or with any person.
4.24 Permits and Licenses. Kaiser holds and at all times has held, all
licenses, permits, franchises, easements and authorizations (collectively,
"Permits") necessary for the lawful conduct of the Dental Practice pursuant to
all applicable statutes, laws, ordinances, rules and regulations of all
governmental bodies, agencies and other authorities having jurisdiction over it
or any part of its operations, except where the failure to hold any Permit,
singly or in the aggregate, either alone or with the giving of notice or the
passage of time or both, would not have a Material Adverse Effect.
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Kaiser is in compliance with all the terms of each Permit, and there are no
claims of violation of any Permit.
4.25 Certain Payments. Neither Kaiser nor any other person or entity has,
directly or indirectly, on behalf of or with respect to the Dental Practice or
its operations made or received any payment that was not legal to make or
receive under federal, state or local laws of the United States or any other
country or territory.
4.26 Environmental Conditions. Seller has operated the Dental Practice and
maintained the Assets, including without limitation the Real Property, in
compliance with all Environmental Laws. All wastes generated in connection with
the Dental Practice are and have been transported and disposed of off site in
compliance with all Environmental Laws. Except as otherwise required for the
normal operation of a dental practice, no Hazardous Substance is or has been
generated, manufactured, treated, stored, transported, used or otherwise handled
on the Real Property or in connection with the Dental Practice.
4.27 Consents and Approvals. Except as set forth on Schedule 4.27, no
consent, approval or authorization of any court, regulatory authority,
governmental body, or any other entity or person not a party to this Agreement
is required for the consummation of the transactions described in this Agreement
by Seller. Seller has obtained, or shall have obtained prior to the Closing, all
consents, authorizations or approvals of any third parties required in
connection with the execution, delivery or performance of this Agreement by
Seller. Seller has made, or shall have made prior to the Closing, all
registrations or filings with any governmental authority required on his part
for the execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby.
4.28 Records. The books of account of the Dental Practice are complete and
accurate in all material respects, and there have been no transactions involving
the business of the Dental Practice which properly should have been set forth
therein and which have not been accurately so set forth. Complete and accurate
copies of such books have been made available to GDSC.
4.29 Reliance. Kaiser recognizes and agrees that, notwithstanding any
investigation by GDSC, GDSC is relying upon the representations and warranties
made by Seller in this Agreement.
4.30 Accuracy of Representations and Warranties. None of the
representations or warranties of Seller contains or will contain any untrue
statement of any material fact or omits or misstates a material fact necessary
to make the statements contained in this Agreement not misleading. Seller does
not know of any fact that has resulted or that, in the reasonable judgment of
Seller will result, in any material adverse change in the business, results of
operation, financial condition or prospects of the Dental Practice that has not
been set forth in this Agreement.
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ARTICLE V
Covenants of Seller
5.01 Access to Properties, Books and Records. Prior to the Closing Date,
Seller shall, at GDSC's request, afford or cause to be afforded to the agents,
attorneys, accountants and other authorized representatives of GDSC reasonable
access during normal business hours to all employees, properties, books and
records of Seller with respect to the Dental Practice and shall permit such
persons, at GDSC's expense, to make copies of such books and records. Seller
shall deliver to GDSC monthly financial statements of the Dental Practice
promptly after they become available. GDSC shall treat, and shall cause all of
its agents, attorneys, accountants and other authorized representatives to
treat, all information obtained pursuant to this Section 5.01 as confidential in
accordance with Section 12.01 hereof. No investigation by GDSC or any of its
authorized representatives pursuant to this Section 5.01 shall affect any
representation, warranty or closing condition of any party hereto or GDSC's
rights to indemnification pursuant to Section 11.02 hereof.
5.02 Negative Covenants. Except as otherwise permitted by this Agreement or
with the prior written consent of GDSC, prior to the Closing, Seller shall not:
5.02-1 Incur additional debt for borrowed money without giving GDSC
notice within two business days thereafter;
5.02-2 Incur any obligations under leases for real or personal
property whether or not required to be capitalized under generally accepted
accounting principles, incur or increase any obligation or liability (fixed,
contingent or other, including without limitation liabilities as a guarantor or
otherwise with respect to obligations of others, but excluding debts for
borrowed money) except in the ordinary and usual course of business and
consistent with past practices, forgive or release any debt or claim, give any
waiver of any right of material value or voluntarily suffer any extraordinary
loss;
5.02-3 Declare, pay or make any distribution of money or property to
Kaiser other than ordinary distributions consistent with past practices;
5.02-4 Issue, sell, or give any option or right to purchase any
interest in the Dental Practice, or purchase, redeem or otherwise acquire or
commit to acquire, directly or indirectly, any interest in the Dental Practice:
5.02-5 Mortgage, pledge, otherwise encumber or subject to lien any of
the Dental Practice's assets or properties, tangible or intangible, or commit
itself to do any of the foregoing;
5.02-6 Except in the ordinary and usual course of its business and in
each case for fair consideration, dispose of, or agree to dispose of, any of the
Dental Practice's assets or lease or license to others, or agree so to lease or
license, any of the Dental Practice's assets;
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5.02-7 Acquire any assets which would be material to the Dental
Practice other than assets acquired in the ordinary and usual course of business
and consistent with past practices;
5.02-8 Enter into any transaction or contract or make any commitment
to do the same, except in the ordinary and usual course of business and not
requiring the payment in any case of an amount in excess of $100,000 annually;
5.02-9 Increase the wages, salaries, compensation, pension or other
benefits payable, or to become payable by it, to any Dental Practice Employees
or agents, including without limitation any bonus payments or severance or
termination pay, other than increases in wages and salaries required by
employment arrangements existing on the date hereof or otherwise in the ordinary
and usual course of its business;
5.02-10 Implement or agree to any implementation of or amendment or
supplement to any employee profit sharing, pension, bonus, commission,
incentive, retirement, medical reimbursement, life insurance, deferred
compensation or any other employee benefit plan or arrangement for or affecting
Dental Practice Employees;
5.02-11 Change the accounting methods, policies or practices of
Seller; or
5.02-12 Agree or commit to do any of the foregoing.
5.03 Affirmative Covenants. Except as otherwise permitted by this Agreement
or as reasonably necessary or appropriate for the consummation of the
transactions contemplated by this Agreement or with the prior written consent of
GDSC, prior to the Closing Date, Seller shall:
5.03-1 Operate the Dental Practice, including collecting receivables
and paying payables, only in the ordinary course and consistent with past
practices;
5.03-2 Advise GDSC in writing of any litigation or administrative
proceeding that challenges or otherwise materially affects the transactions
contemplated hereby and of any Material Adverse Change or any event, occurrence
or circumstance which is likely to cause a Material Adverse Change;
5.03-3 When the consent of any third party to the transactions
contemplated by this Agreement is required under the terms of any contract or
agreement material to the Dental Practice to which Kaiser is a party or by which
Kaiser is bound, use his best efforts to obtain such consent on terms and
conditions not materially less favorable than those in effect on the date
hereof;
5.03-4 Use his best efforts to maintain all of the Tangible Personal
Property in good operating condition, reasonable wear and tear excepted,
consistent with past practices, and take all steps reasonably necessary to
maintain its intangible assets;
5.03-5 Not cancel or change any policy of insurance (including
self-insurance) or fidelity bond or any policy or bond providing substantially
the same coverage;
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5.03-6 Maintain, consistent with past practices, all inventories,
spare parts, office supplies and other expendable items used or useful in the
Dental Practice;
5.03-7 Use his best efforts to retain all Dental Practice Employees;
5.03-8 Maintain his books and records in accordance with past
practices; and
5.03-9 Pay and discharge all taxes, assessments, governmental charges
and levies imposed upon him, his income or profits or upon any property
belonging to him, in all cases prior to the date on which penalties attach
thereto.
5.03-10 Comply with all laws, rules and regulations applicable to him
and the Dental Practice.
5.04 No Negotiations With Others. Except as otherwise permitted by this
Agreement or with the prior written consent of GDSC, Seller shall refrain, and
shall cause his employees and any investment banker, attorney, accountant or
other agent retained by him to refrain, from initiating or soliciting any
inquiries or making any proposals with respect to, or engaging in negotiations
concerning, or providing any confidential information or data to or having any
discussions with any person relating to, any acquisition, business combination
or purchase of all or any significant portion of the assets of, Seller. Seller
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing.
5.05 [Intentionally Omitted].
5.06 Formation of Professional Corporation. Prior to the Closing, Kaiser
shall cause the Professional Corporation to be formed pursuant to articles of
incorporation and bylaws in the form attached as Exhibit H and shall cause the
Professional Corporation to apply for and obtain a Certificate of Registration
and approval for use of the Professional Corporation's fictitious name, from the
California Board of Dental Examiners. The sole shareholder of the Professional
Corporation shall be a dentist holding a valid and unrestricted license to
practice dentistry in the State of California, who shall also be a full-time
employee at the Practice Location.
5.07 Employees. Effective as of the close of business on the Closing Date,
Seller shall terminate all employees of the Dental Practice. Except as expressly
assumed by GDSC under this Agreement, Seller shall be responsible for and shall
pay and discharge all obligations to such employees arising out of or in
connection with their employment prior to Closing.
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ARTICLE VI
[Intentionally Omitted]
ARTICLE VII
Joint Covenants
GDSC and Kaiser covenant and agree that they will act in accordance with
the following:
7.01 Governmental Consents. Promptly following the execution of this
Agreement, the parties will proceed to prepare and file with the appropriate
governmental authorities any requests for approval or waiver, if any, that are
required from governmental authorities in connection with the transactions
contemplated hereby, and the parties shall diligently and expeditiously
prosecute and cooperate fully in the prosecution of such requests for approval
or waiver and all proceedings necessary to secure such approvals and waivers.
7.02 Best Efforts; No Inconsistent Action. Each party will use its best
efforts to effect the transactions contemplated by this Agreement and to fulfill
the conditions to the obligations of the other parties set forth in Article 8 or
9 of this Agreement. No party will take any action inconsistent with its
obligations under this Agreement or that could hinder or delay the consummation
of the transactions contemplated by this Agreement, except that nothing in this
Section 7.02 shall limit the rights of the parties under Articles 8, 9 and 10.
ARTICLE VIII
Conditions to Obligations of GDSC
The obligations of GDSC under Article 1 are, at its option, subject to
satisfaction, at or prior to the Closing, of each of the following conditions:
8.01 Governmental Approvals. All authorizations, consents and approvals of
all governmental agencies and authorities required to be obtained in order to
permit consummation of the transactions contemplated by this Agreement and the
operation of the Dental Practice by the Professional Corporation shall have been
obtained and be satisfactory in form and content to GDSC.
8.02 Consents. Seller shall have obtained the third-party consents required
under the terms of the Contracts and Leases, and such consents shall not have
required any change to the terms and conditions of the Contracts and Leases
other than changes consented to in writing by GDSC.
8.03 Representations, Warranties and Covenants.
8.03-1 All representations and warranties of Seller made in this
Agreement, or in any certificate delivered pursuant hereto, shall in all
material respects be true and complete on and as of the Closing Date with the
same force and effect as if made on and as of that date.
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8.03-2 All of the terms, covenants and conditions to be complied with
and performed by Seller at or prior to the Closing shall in all material
respects have been complied with or performed thereby.
8.03-3 GDSC shall have received a certificate of Seller, dated as of
the Closing Date, to the effect that the representations and warranties of
Seller contained in this Agreement are in all material respects true and
complete on and as of the Closing Date as though made on and as of the Closing
Date and that Seller has in all material respects complied with or performed all
terms, covenants and conditions to be complied with or performed by him at or
prior to the Closing.
8.04 Adverse Proceedings. No third-party suit, action or claim or
governmental proceeding shall have been instituted or threatened against, and no
order, decree or judgment of any court, agency or other governmental authority
shall have been rendered against, GDSC or Seller to restrain or prohibit, or
obtain damages in respect of, this Agreement or the transactions contemplated by
this Agreement.
8.05 No Adverse Change. There shall not have been any Material Adverse
Change.
8.06 Support Services Agreement. The Professional Corporation shall have
executed and delivered a Support Services Agreement with GDSC in the form
attached hereto as Exhibit D.
8.07 Option Agreement. The sole shareholder of the Professional Corporation
shall have executed and delivered an Option Agreement relating to the stock of
the Professional Corporation in the form attached as Exhibit E.
8.08 Employment Agreements. Each dentist employed in the Dental Practice
shall have executed and delivered an Employment Agreement with the Professional
Corporation in the form attached hereto as Exhibit F and an Addendum to such
Employment Agreement in the form attached hereto as Exhibit G.
8.09 Closing of the Transactions. The transactions contemplated by the
following agreements (the "Transactions") shall close simultaneously with the
Closing: Asset Purchase Agreement dated September 21, 1997 by and among GDSC,
DPM, the Partners and Mark Thomas, D.D.S.; Asset Purchase Agreement dated
September 21, 1997 by and among GDSC, DPM, the Partners and Clarence Au, D.D.S.;
Merger Agreement dated September 21, 1997 by and among GDSC, Gentle Dental
Merger Corp., Dedicated Dental Systems, Inc. ("DDS") and the Shareholders of
DDS.
8.10 Fairness Opinion. GDSC shall have received an opinion from an
investment banking firm chosen by GDSC that the Transactions, together with the
transactions contemplated by this Agreement, are fair to GDSC and its
shareholders.
8.11 Professional Corporation. The Professional Corporation shall have been
duly incorporated and organized, and shall have obtained a Certificate of
Registration and fictitious name permit from the California Board of Dental
Examiners.
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8.12 Actions Satisfactory to GDSC's Counsel. All actions, proceedings,
instruments and documents required to be carried out by this Agreement, or
incidental hereto, and all other relevant legal matters shall be reasonably
satisfactory to counsel for GDSC.
ARTICLE IX
Conditions to Obligations of Seller
The obligations of Seller under Article 1 are, at its option, subject to
satisfaction, at or prior to the Closing, of each of the following conditions:
9.01 Representations, Warranties and Covenants.
9.01-1 All representations and warranties of GDSC made in this
Agreement and in any certificate delivered pursuant hereto shall in all material
respects be true and complete on and as of the Closing Date with the same force
and effect as if made on and as of that date.
9.01-2 All of the terms, covenants and conditions to be complied with
and performed by GDSC on or prior to the Closing shall in all material respects
have been complied with or performed by GDSC.
9.01-3 Seller shall have received a Certificate of GDSC, dated as of
the Closing Date, executed by the President or other authorized officer of GDSC,
to the effect that the representations and warranties of GDSC contained in this
Agreement are in all material respects true and complete on and as of the
Closing Date as though made on and as of the Closing Date and that GDSC has in
all material respects complied with or performed all terms, covenants and
conditions to be complied with or performed by it at or prior to the Closing.
9.02 Adverse Proceedings. No third-party suit, action or claim or
governmental proceeding shall have been instituted or threatened against, and no
order, decree or judgment of any court, agency or other governmental authority
shall have been rendered against, GDSC or Seller to restrain or prohibit this
Agreement or the transactions contemplated by this Agreement.
9.03 Actions Satisfactory to Seller's Counsel. All actions, proceedings,
instruments and documents required to be carried out by this Agreement, or
incidental hereto, and all other relevant legal matters shall be reasonably
satisfactory to counsel for Seller.
ARTICLE X
Termination
10.01 Right of Parties to Terminate. This Agreement may be terminated:
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10.01-1 by GDSC, if any of the authorizations, consents, approvals,
filings or registrations described in Section 8.01 hereof shall have been
denied, not permitted to go into effect or obtained on terms not reasonably
satisfactory to GDSC and all reasonable final appeals shall have been exhausted;
10.01-2 by GDSC, if Seller shall have breached any of his obligations
hereunder in a way that has resulted in a Material Adverse Effect and the breach
has continued without being cured for more than thirty (30) days;
10.01-3 by Seller, if GDSC shall have breached any of its obligations
hereunder in a way that has resulted in a GDSC Material Adverse Effect and the
breach has continued without being cured for more than thirty (30) days; or
10.01-4 by either Seller or GDSC, by written notice to the other
party, if the Closing shall not have occurred on or prior to February 28, 1998;
provided, however, that the right to terminate this Agreement under this Section
10.01-4 shall not be available to any party whose failure to fulfill or perform
any obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date.
10.02 Effect of Termination. If either GDSC or Seller decides to terminate
this Agreement pursuant to Section 10.01, such party shall promptly give written
notice to the other party to this Agreement of such decision.
ARTICLE XI
Survival; Indemnification
11.01 Survival. All representations, warranties, covenants and agreements
made in this Agreement or in any schedule, certificate or assignment delivered
in accordance with this Agreement (collectively, the "Related Documents") shall
survive any investigation by or on behalf of any party, the execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby and any termination or expiration of this Agreement, except that such
representations, warranties, covenants and agreements shall expire and be of no
further effect on the last day of the eighteenth (18th) full month following the
Closing Date, except as follows:
11.01-1 any claim of which notice has been given pursuant to Section
11.04 prior to the last day of the eighteenth (18th) full month following the
Closing Date shall not expire and shall continue until all damages arising from
such claim have been paid in full;
11.01-2 any claim arising from any breach or inaccuracy of any
representation or warranty in Section 4.03 or Section 4.07, or in the case of
fraud, shall not expire and shall continue without limitation; and
11.01-3 any claim arising from any breach or inaccuracy of any
representation or warranty in Section 4.22 shall expire on the expiration of all
applicable statutes of limitation.
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11.02 Indemnification by Seller.
11.02-1 Notwithstanding any investigation by GDSC, from and after the
Closing, Seller shall indemnify, hold harmless and, to the extent provided in
Section 11.04-1, defend GDSC, its subsidiaries, shareholders, affiliates,
officers, directors, employees, agents, successors and assigns (collectively,
"GDSC's Indemnified Persons") from and against, and reimburse each of GDSC's
Indemnified Persons with respect to, any and all losses, damages, liabilities,
costs and expenses, including interest from the date of such loss to the time of
payment, penalties and reasonable attorneys' fees (collectively, "Damages")
incurred by any of GDSC's Indemnified Persons by reason of or arising out of or
in connection with:
(a) any breach or inaccuracy of any representation or warranty of
Seller made in this Agreement or any Related Document;
(b) any failure by Seller to perform any covenant required to be
performed by them pursuant to this Agreement or any Related Document; or
(c) any liability or obligation of Seller arising out of or in
connection with the ownership, use, condition, maintenance or operation of the
Dental Practice or the Assets on or prior to the Closing, in either case not
expressly assumed by GDSC in accordance with the terms of this Agreement, and
specifically including any liability to pay cash to a terminated employee on
account of accrued vacation time.
11.02-2 Any liability of Seller under this Section 11.02 or otherwise
for the breach or inaccuracy of any representation, warranty, covenant or
agreement made in this Agreement may, at the election of Seller, be satisfied by
delivery of shares of GDSC Common Stock (valued at the fair market value of such
shares at the time the liability of Seller is determined) to the GDSC
Indemnified Person.
11.03 Indemnification by GDSC.
11.03-1 Notwithstanding any investigation by Seller, from and after
the Closing, GDSC shall indemnify, hold harmless and, to the extent provided in
Section 11.04-1, defend Seller, the Professional Corporation, and their
respective partners, affiliates, officers, employees, agents, successors and
assigns (collectively, "Seller's Indemnified Persons") from and against, and
reimburse each of Seller's Indemnified Persons with respect to, any and all
Damages incurred by any of Seller's Indemnified Persons by reason of or arising
out of or in connection with:
(a) any breach or inaccuracy of any representation or warranty of
GDSC made in this Agreement or any Related Document;
(b) any failure by GDSC to perform any covenant required to be
performed by it pursuant to this Agreement or any Related Document;
(c) any liability or obligation of Seller to any third party
expressly assumed by GDSC in accordance with the terms of this Agreement; or
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(d) any liability or obligation of GDSC arising out of or in
connection with the ownership, use, condition, maintenance or operation of the
Dental Practice or the Assets after the Closing.
11.04 Indemnification Procedure.
11.04-1 Third Party Claims.
(a) Each indemnified party shall, with reasonable promptness
after obtaining knowledge thereof, provide any indemnifying party against whom a
claim for indemnification is to be made under this Article 11 with written
notice of all third party actions, suits, proceedings, claims, demands or
assessments that may be subject to the indemnification provisions of this
Article 11 (collectively, "Third Party Claims"), including, in reasonable
detail, the basis for the claim, the nature of Damages and a good faith estimate
of the amount of Damages.
(b) Each indemnifying party shall have 15 days after its receipt
of the claim notice to notify the indemnified party in writing whether the
indemnifying party agrees that the claim is subject to this Article 11 and, if
so, whether the indemnifying party elects, jointly with any other indemnifying
party notified under Section 11.04-1(a), to undertake, conduct and control,
through counsel of its or their choosing (subject to the consent of the
indemnified party, such consent not to be withheld unreasonably) and at its or
their sole risk and expense, the good faith settlement or defense of the Third
Party Claim.
(c) If within 15 days after its receipt of the claim notice an
indemnifying party notifies the indemnified party that it elects to undertake
the good faith settlement or defense of the Third Party Claim, the indemnified
party shall cooperate reasonably with the indemnifying party in connection
therewith including, without limitation, by making available to the indemnifying
party all relevant information material to the defense of the Third Party Claim.
The indemnified party shall be entitled to participate in the settlement or
defense of the Third Party Claim through counsel chosen by the indemnified
party, at its expense, and to approve any proposed settlement that would impose
any obligation or duty on the indemnified party, which approval may, in the sole
discretion of the indemnified party, be withheld. So long as an indemnifying
party is contesting the Third Party Claim in good faith and with reasonable
diligence, the indemnified party shall not pay or settle the Third Party Claim.
Notwithstanding the foregoing, the indemnified party shall have the right to pay
or settle any Third Party Claim at any time, provided that in such event it
waives any right to indemnification therefor by the indemnifying party.
(d) If an indemnifying party does not provide notice that it
elects to undertake the good faith settlement or defense of the Third Party
Claim, or if an indemnifying party fails to contest the Third Party Claim or
undertake or approve settlement, in good faith and with reasonable diligence,
the indemnified party shall thereafter have the right to contest, settle or
compromise the Third Party Claim at its exclusive discretion, at the risk and
expense of the indemnifying party, and the indemnifying party will thereby waive
any claim, defense or argument that the indemnified party's settlement or
defense of such Third Party Claim is in any respect inadequate or unreasonable.
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(e) A party's failure to give timely notice will not constitute a
defense, in part or in whole, to any claim for indemnification by such party,
except if, and only to the extent that, such failure results in any material
prejudice to the indemnifying party.
11.04-2 Non-Third Party Claims.
(a) Each indemnified party shall, with reasonable promptness,
deliver to any indemnifying party against whom a claim for indemnification is to
be made under this Article 11 written notice of all claims for indemnification
under this Article 11, other than Third Party Claims, including, in reasonable
detail, the basis for the claim, the nature of Damages and a good faith estimate
of the amount of Damages.
(b) Each indemnifying party shall have 30 days after its receipt
of the claim notice to notify the indemnified party in writing whether the
indemnifying party accepts liability for all or any part of the Damages
described in the claim notice. If the indemnifying party does not so notify the
indemnified party, the indemnifying party shall be deemed to accept liability
for all the Damages described in the claim notice.
(c) A party's failure to give timely notice will not constitute a
defense, in part or in whole, to any claim for indemnification by such party,
except if, and only to the extent that, such failure results in any material
prejudice to the indemnifying party.
11.05 Limitation on Indemnification Obligations. The indemnification
obligations set forth in Sections 11.02 and 11.03 shall not apply unless the
total amount of Damages incurred either by GDSC's Indemnified Persons or by
Seller (as the case may be) exceeds $100,000 in the aggregate, as a result of
all matters giving rise to rights to indemnification under those Sections. In
the event that the amount of Damages exceeds that threshold, GDSC's Indemnified
Persons or Seller (as the case may be) shall be entitled to indemnification for
the full amount of all Damages for which indemnification is to be provided under
Section 11.02 or 11.03, except that the indemnification obligations set forth in
Section 11.02 or 11.03 shall not exceed $1,250,000 under either section.
11.06 Rights Not Exclusive. An indemnified party's rights to
indemnification under this Article 11 are in addition to, and not in lieu of,
any other rights to which the indemnified party may be entitled at law or in
equity.
ARTICLE XII
Confidentiality; Press Releases
12.01 Confidentiality.
12.01-1 No information concerning Seller not previously disclosed to
the public or in the public domain that has been furnished to or obtained by
GDSC under this Agreement or in connection with the transactions contemplated
hereby shall be disclosed to any person other than in confidence to employees,
legal counsel, financial advisers or independent public accountants of
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GDSC or used for any purpose other than as contemplated herein. If the
transactions contemplated by this Agreement are not consummated, GDSC shall hold
such information in confidence for a period of four years from the date of any
termination of this Agreement or such longer period as is required by agreement
or law, and all such information that is in writing or embodied on a diskette,
tape or other tangible medium shall be promptly returned to Seller.
12.01-2 No information concerning GDSC not previously disclosed to the
public or in the public domain that has been furnished to or obtained by Seller
under this Agreement or in connection with the transactions contemplated hereby
shall be disclosed to any person other than in confidence to the employees,
legal counsel, financial advisers or independent public accountants of Seller or
used for any purpose other than as contemplated herein. If the transactions
contemplated by this Agreement are not consummated, Seller shall hold such
information in confidence for a period of four years from the date of any
termination of this Agreement or such longer period as is required by agreement
or law, and all such information that is in writing or embodied on a diskette,
tape or other tangible medium shall be promptly returned to GDSC.
12.01-3 Notwithstanding the foregoing, such obligations of GDSC and of
Seller shall not apply to information
(a) that is, or becomes, publicly available from a source other
than GDSC or Seller, as the case may be;
(b) that was known and can be shown to have been known by GDSC at
the time of its receipt from Seller, or by Seller at the time of its receipt
from GDSC, as the case may be;
(c) that is received by GDSC from a third party without breach of
this Agreement by GDSC, or is received by Seller from a third party without
breach of this Agreement by Seller, as the case may be;
(d) that is required by law to be disclosed; or
(e) that is disclosed in accordance with the written consent of
GDSC or of Seller, as the case may be.
12.02 Press Releases. No press releases or other public announcements
concerning the transactions contemplated by this Agreement shall be made by
Seller without the prior written consent of GDSC; provided, however, that
nothing herein shall prevent a party from supplying such information or making
statements as required by governmental authority or in order for a party to
satisfy its legal obligations (prompt notice of which shall in any such case be
given to the other party or parties).
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ARTICLE XIII
Other Provisions
13.01 Benefit and Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. No party hereto may voluntarily or involuntarily assign such
party's interest under this Agreement without the prior written consent of the
other parties.
13.02 Entire Agreement. This Agreement and the Schedules and Exhibits
referred to herein embody the entire agreement and understanding of the parties
and supersede any and all prior agreements, arrangements and understandings
relating to matters provided for herein.
13.03 Fees and Expenses. GDSC shall be solely responsible for all costs and
expenses incurred by it, and Seller shall be solely responsible for all costs
and expenses incurred by them, in connection with the negotiation, preparation
and performance of and compliance with the terms of this Agreement.
13.04 Amendment, Waiver, etc. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the party against
which enforcement of such amendment or waiver is sought. Any waiver of any term
or condition of this Agreement or any breach hereof shall not operate as a
waiver of any other such term, condition or breach, and no failure to enforce
any provision hereof shall operate as a waiver of such provision or of any other
provision hereof.
13.05 Headings. The headings are for convenience only and will not control
or affect the meaning or construction of the provisions of this Agreement.
13.06 Governing Law. The construction and performance of this Agreement
will be governed by the laws of the State of California (except for the choice
of law provisions thereof).
13.07 Notices. Any notice, demand or request required or permitted to be
given under the provisions of this Agreement shall be in writing; shall be
delivered personally, including by means of telecopy, or mailed by registered or
certified mail, postage prepaid and return receipt requested; shall be deemed
given on the date of personal delivery or on the date set forth on the return
receipt; and shall be delivered or mailed to the addresses or telecopy numbers
set forth on the first page of this Agreement or to such other address as any
party may from time to time direct, with copies to:
In the case of GDSC:
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2300
Portland, OR 97204
Telecopy No.: (503) 220-2480
Attention: Edward L. Epstein
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In the case of Seller:
Klein & Martin
2029 Century Park East
Suite 2550
Los Angeles, CA 90067
Telecopy No.: (310) 201-0108
Attention: Eric A. Klein
13.08 Breach; Equitable Relief. The parties acknowledge that the Dental
Practice and rights of the parties described in this Agreement are unique and
that money damages alone for breach of this Agreement would be inadequate. Any
party aggrieved by a breach of the provisions hereof may bring an action at law
or suit in equity to obtain redress, including specific performance, injunctive
relief or any other available equitable remedy. Time and strict performance are
of the essence in this Agreement.
13.09 Attorneys' Fees. If suit or action is filed by any party to enforce
the provisions of this Agreement or otherwise with respect to the subject matter
of this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees as fixed by the trial court and, if any appeal is taken from the
decision of the trial court, reasonable attorneys' fees as fixed by the
appellate court. For purposes of this Agreement, the term "prevailing party"
shall be deemed to include a party that successfully opposes a petition for
review filed with an appellate court.
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13.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
GDSC: GENTLE DENTAL SERVICE CORPORATION
By: L.T. VAN EERDEN
-------------------------------------
Title: CFO
----------------------------------
Seller:
ARTHUR G. KAISER
-----------------------------------------
Arthur G. Kaiser, D.D.S.
32
Support Services Agreement
between
Gentle Dental Service Corporation
and
Dany Tse, P.C.
Date: August 29, 1997
<PAGE>
TABLE OF CONTENTS
Section Page
1. Facilities 3
2. Furniture, Fixtures and Equipment 4
3. Use of Trade Names and Trademarks 4
4. Administrative Services 5
5. Duties of Group 9
6. Relationship of Parties 10
7. Confidential Information and Trade Secrets 11
8. Working Capital 12
9. GDSC's Compensation 13
10. Definitions 13
11. Miscellaneous Authority and Duties of the Parties 14
12. Term and Termination 14
13. Indemnification 16
14. Assignment 16
15. Governing Law 16
16. Waiver 16
17. Amendment 16
18. Entire Agreement 16
19. Notice 17
20. Arbitration 17
21. Miscellaneous Provisions 18
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<PAGE>
SUPPORT SERVICES AGREEMENT
This Agreement is effective as of August 29, 1997 (the "Effective Date") by and
between Gentle Dental Service Corporation, a Washington corporation ("GDSC"),
and Dany Tse, P.C., a Washington professional services corporation, ("Group"),
and is made with reference to the following facts:
A. Group is a Washington professional service corporation able to practice
dentistry in and pursuant to the laws of the State of Washington.
B. Group delivers dental services to enrolled members of health care plans
and to the public at large. Group's dental services are performed by employed
dentists, and by independent dentists under contract with Group.
C. Group employs dentists, hygienists, nurses and dental assistants only.
Group does not employ and is not desirous of employing administrative and
management staff or any other personnel. Group desires to confine its operations
to the delivery of dental care services free from concern over administrative
matters. Group therefore desires to contract with GDSC to provide business
support services which will enable Group to concentrate on the development and
management of the professional aspects of its dental practice.
D. Group wishes to lease or utilize certain offices and facilities,
equipment, furnishings and supplies which are owned or leased by GDSC and which
are necessary for Group to operate dental clinics.
E. GDSC has special expertise and experience in the operation and marketing
of dental clinics of the type intended to be operated by Group. GDSC has
developed and will continue to develop expertise in the non-dental aspects of
dental facilities where professional dental care has been and will be provided
at low cost because of efficiencies of scale and administrative expertise.
F. Group wishes to engage GDSC to provide Group with certain personnel and
all necessary and appropriate services relating to the development, marketing,
operations, and administration of all non-dental facets of Group's dental
clinics.
NOW, THEREFORE, Group hereby exclusively engages GDSC, and GDSC agrees with
Group, to provide Group the following described facilities, equipment, and
services so as to enable Group to deliver to its patients efficient and
cost-effective dental care, in accordance with the following terms and
conditions:
1. Facilities.
During the term of this Agreement, and all renewals and extensions hereof, GDSC
shall lease to Group, for Group's use, suitable facilities (hereafter referred
to individually as a "Clinic" and
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collectively as the "Clinics") for Group to perform its dental care services.
The Clinics will be provided in those locations designated by Group and shall
include those tenant improvements that are reasonably required by Group. GDSC
shall bear all development costs, acquisition costs, or lease costs associated
with the provision of these facilities and shall assume the economic risk for,
and shall otherwise be fully liable under, all leases or property development
agreements. Title to, or rights of tenancy to, the Clinics shall remain in GDSC,
and upon termination of this Agreement, Group shall immediately surrender the
Clinics to GDSC. Group shall comply with all reasonable requirements concerning
use of Clinics as may be established by GDSC from time to time. Without limiting
the generality of the foregoing, Group shall not take or fail to take any action
that would cause a breach or default under the terms of any lease between GDSC
and any third party with respect to any Clinic.
2. Furniture, Fixtures and Equipment.
During the term of this Agreement, and all renewals and extensions hereof, GDSC
shall lease to Group, at each Clinic at which Group performs its dental care
services, the dental equipment, office equipment, furniture, fixtures,
furnishings and leasehold improvements reasonably necessary for Group to perform
its dental care services.
The use by Group of such furniture, fixtures, furnishings, and equipment shall
be subject to the following conditions:
a. Title to all such furniture fixtures, furnishings, and equipment
shall remain in GDSC and upon termination of this Agreement,
Group shall immediately return and surrender all such furniture,
fixtures, furnishings, and equipment to GDSC in as good condition
as when received, normal wear and tear excepted. Group expressly
agrees to execute any appropriate UCC-1 Financing Statement and
UCC-1 Fixture Filings, if so requested in writing by GDSC.
b. GDSC shall be fully and entirely responsible for all repairs and
maintenance of all such furniture, fixtures, furnishings, and
equipment; provided, however, that Group agrees that it will use
its best efforts to prevent damage, excessive wear, and breakdown
of all such furniture, fixtures, furnishings, and equipment and
shall advise GDSC of any and all needed repairs and equipment
failures.
3. Use of Trade Names and Trademarks.
During the term of this Agreement, Group shall have a non-exclusive license to
use the name "Gentle Dental," together with such insignia, logos, slogans and
other trademarks as GDSC may develop in association with such name. Group shall
comply with all guidelines and restrictions concerning use of such name and
trademarks as GDSC may reasonably impose from time to time. Ownership of such
name and trademarks and the sole right to license the use of such name and
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all related trademarks shall remain in GDSC. In the event of termination of this
Agreement, Group shall cease all use of such name and all associated trademarks
unless GDSC otherwise agrees in writing.
4. Administrative Services.
During the term of this Agreement, and all renewals and extensions hereof, Group
hereby engages GDSC as the exclusive provider of all non-dental functions and
non-dentist services relating to the operation of the Clinics; and GDSC agrees
to furnish to Group all of the non-dental functions and services that may be
reasonably needed by Group in connection with the operation of the Clinics. Such
non-dental services and functions shall include the following:
a. Bookkeeping and Accounts.
GDSC shall provide all bookkeeping and accounting services reasonably
necessary or appropriate to support the Clinics, including, without
limitation, maintenance, custody and supervision of all of business
records, papers, documents, ledgers, journals and reports (the "Books and
Records"), the preparation, distribution and recording of all remittances
by Group for accounts payable or payroll, and the preparation, distribution
and recording of all bills and statements for professional services
rendered by Group, including the billing and completion of reports and
forms required by insurance companies, governmental agencies or other
third-party payors (such records, papers, documents, ledgers, journals and
reports shall not be deemed to include patient records and other records,
reports and documents which relate to patient treatment by Group's
dentists). The Books and Records at all times shall be materially correct
and complete and contain correct and timely entries made with respect to
transactions entered into pursuant hereto in accordance with generally
accepted accounting principles ("GAAP") as in effect at such time.
It is understood, however, that all such business records, papers and
documents are the sole property of Group, shall be available for inspection
by Group at all times, and shall be delivered to Group upon termination of
this Agreement. Group shall provide GDSC with a complete copy of all such
documents, records, and papers at Group's expense upon termination of this
Agreement.
b. Contract Administration.
GDSC shall provide Group with administrative services reasonably necessary
to enable Group to perform on a timely basis all non-dental aspects of
prepaid dental care contracts and other dental care contracts of Group.
Such services shall include the preparation and analysis of reports to
enable Group to provide dentist staffing and supervision at the Clinics for
the rendering of efficient and appropriate dental care to patients.
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<PAGE>
c. Non-dentist Personnel.
GDSC shall employ and provide such support personnel to Group as may be
reasonably necessary to enable Group to perform its dental services at the
Clinics subject to the following:
i. GDSC shall provide all personnel at the Clinics excluding
dentists, dental assistants, nurses and dental hygienists.
This shall include, but is not limited to, the provision of
all receptionists, secretaries, clerks, purchasing and
marketing personnel, janitorial and maintenance personnel,
and nondentist supervisory personnel as may be deemed
reasonably necessary by GDSC for the proper and efficient
operation of the Clinics;
ii. GDSC shall be responsible for hiring and firing all such
support personnel, and shall determine compensation for all
such personnel, including the determination of the salaries,
fringe benefits, bonuses, health and disability insurance,
workers' compensation insurance, and any other benefits that
each such employee shall receive; and
iii. GDSC shall manage and supervise all licensed support
personnel employed on behalf of Group at the Clinics,
including, but not limited to all nurses, dental assistants,
and dental hygienists, regarding those aspects of their
employment that do not involve performance under the scope
of their licensure; provided, however that Group shall
manage and supervise all activities of such licensed support
personnel performed under the scope of their licensure.
Group shall be solely responsible for management and
supervision of dentists.
Provision of dental services during extended hours of operation, generally
including at least 60 hours per week during which Clinics are open to the
public, is a central feature of Group's operations and competitive
strategy. GDSC agrees to provide staffing as reasonably required to permit
operation of the Clinics during extended hours of operation.
d. Supplies.
GDSC shall acquire and supply to Group all dental and other supplies of
every kind, name or nature, which may reasonably be required by Group for
the operation of the Clinics, provided that Group shall be responsible for
ordering, receiving and handling all pharmaceuticals and related supplies
for which state or federal certification, registration or licensure is
required.
6
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e. Security and Maintenance.
GDSC shall provide to Group all services and personnel reasonably necessary
to provide Group with proper security, maintenance, and cleanliness of the
Clinics and the furniture, fixtures, equipment, and leasehold improvements
located thereat. Additionally, GDSC shall furnish to or obtain for Group
all laundry, linens, uniforms, printing, stationery, forms, telephone
service, postage, duplication services, and any and all other supplies and
services of a similar nature which are reasonably necessary in connection
with the day-to-day operation of the Clinics.
f. Dentist Recruiting.
GDSC shall assist Group in recruiting and screening prospective dentists
and licensed support personnel as employees or contractors for Group. Group
shall be solely responsible for hiring, supervision, training, evaluation
and termination of dentists. Group shall be responsible for hiring and
termination of licensed support personnel and for all supervision, training
and evaluation of such personnel with respect to all activities performed
under the scope of their licensure.
g. Insurance.
GDSC shall use all reasonable efforts to obtain for Group and maintain in
full force and effect during the term of this Agreement, and all extensions
and renewals thereof, comprehensive commercial liability and property
insurance which GDSC reasonably determines to be appropriate to protect
against loss in the nature of fire, other catastrophe, theft, business
interruption, public liability, and non-dental negligence, with minimum
coverage limits of $1,000,000 per occurrence. GDSC shall assist Group in
obtaining dental malpractice insurance for Group and its dentist employees.
h. Billing and Collection
In order to relieve Group of the administrative burden of handling the
billing and collection of sums due for the delivery of dental services,
GDSC shall be responsible, on behalf of and for Group and any contract
dentists or independent dentists or other organizations practicing
dentistry for or on behalf of Group, on their respective billheads as their
agent, for billing and collecting the charges with respect to all dental
and other services provided at the Clinics. Group agrees that it will keep
and provide to GDSC all documents, opinions, diagnosis, recommendations,
and other evidence and records necessary for the purpose of supporting the
fees charged for all dental and other services from time to time.
It is expressly understood that the extent to which GDSC will endeavor to
collect such charges, the methods of collecting, the settling of disputes
with respect to charges and the writing off of charges that may be or
appear to be uncollectible shall at all times be within
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<PAGE>
the sole discretion of GDSC (but subject to all applicable governmental
regulations and the terms and conditions of applicable provider agreements)
and that GDSC does not guarantee the extent to which any charges billed
will be collected.
Group or its duly authorized agent shall have the right at all reasonable
times and upon the giving of reasonable notice to examine, inspect and copy
the records of GDSC pertaining to such fees, charges, billings, and
collections. At Group's request, GDSC will re-assign to Group, for
collection by Group, any accounts which GDSC has determined to be
uncollectible.
i. Bank Accounts and Disbursements.
During the term of this Agreement, GDSC is hereby expressly authorized to,
and shall, disburse from one or more bank accounts of Group sums for the
payment of Group's expenses as described in Section 5, GDSC's compensation
as described in section 9, and all other costs, expenses and disbursements
which are required or authorized by this Agreement. For administrative
convenience, GDSC shall maintain said bank accounts.
j. Market Research.
GDSC shall conduct market research with respect to rates, charges,
competitive conditions, competition and business opportunities for GDSC and
Group. GDSC shall compile such information and provide marketing reports
and analyses to Group. All such marketing services shall be conducted in
accordance with the laws, rules, regulations and guidelines of all
applicable governmental and quasi-governmental agencies.
k. Contract Negotiations.
GDSC shall negotiate on Group's behalf contracts with health plans,
preferred provider organizations, other group plans, independent provider
associations, employers, hospitals, dentists and others for Group's
services at the Clinics, for admission of Group's patients for
hospitalization, and for the provision of dental care services for Group's
patients by other dentists with specialties not available at Group. Group
shall have final approval and authority with respect to such contracts, and
Group shall have the sole and absolute right not to enter into any such
contracts.
l. Management and Planning Reports.
GDSC shall supply Group on a regular, periodic basis such internal reports
as may be necessary or appropriate for the parties to assist each other in
evaluating the non-dental aspects of the performance and productivity of
their respective employees and contractors as well as in evaluating the
efficiency and effectiveness of the rendition of their respective
management and other nonprofessional services. GDSC shall provide Group
with data and reports for Group's exclusive use in conducting Group's
dental practice, evaluating the
8
<PAGE>
performance of Group's dentists and for other purposes related to
maintaining and improving patient care quality and improving the efficiency
of Group's dentists.
5. Duties of Group
a. Conduct of Dental Practice.
Group shall be solely and exclusively in control of all aspects of the
practice of dentistry and the delivery of dental services at the Clinics.
The rendition of all dental professional services, including, but not
limited to, diagnosis, treatment, surgery, therapy and the prescription of
medicine and drugs, and the supervision of preparation of dental reports
shall be the responsibility of Group. Group shall have the sole right and
authority to hire, employ, train, supervise, terminate, and compensate all
of its dentist-contractors and dentist-employees, dental assistants, and
dental hygienists.
GDSC shall have no authority whatsoever with respect to such activities,
and shall have no authority with respect to the establishment of fees or
charges for the rendition of such services.
b. Staffing of Clinics
Group agrees to assign a dentist to act as Clinical Director at each
Clinic. Group will assure that each Clinic is adequately staffed during
operating hours, including extended hours of operation, with such dental
personnel as may be necessary to efficiently carry out the practice of
dentistry at each Clinic.
c. Professional Personnel.
Group shall ensure that dentists and other licensed personnel employed or
contracted by Group are properly licensed and trained. Group shall be
responsible for monitoring quality of care, responding to any patient
complaints concerning dental services and undertaking appropriate quality
improvement activities. Group shall arrange for continuing education for
licensed personnel in accordance with all legal requirements and good
professional practice.
d. Wages, etc.
Group shall be solely responsible for payment of all wages, salaries,
bonuses and benefits of its employed licensed personnel, including all
payroll taxes, vacation and sick pay, insurance and pension or profit
sharing contributions.
Group shall be solely responsible for payment of all amounts due to
contracted licensed personnel under service contracts with Group. GDSC
shall provide payroll processing and accounts payable services as provided
in this Agreement.
9
<PAGE>
e. Professional Expenses.
Group shall pay all professional dues and license fees, continuing
education costs and similar costs incurred by Group's employees. Group
shall pay the cost of all professional liability insurance maintained
pursuant to paragraph 5.f.
f. Professional Liability Insurance.
Group shall continuously maintain throughout the term of this Agreement
professional liability (malpractice) insurance for all licensed personnel
of Group in amounts not less than $1,000,000 per incident and $3,000,000
annual limit for each dentist and dental hygienist employed by Group. Group
shall purchase extended reporting endorsements ("tail coverage") for
personnel leaving employment with Group, or on change in insurance
policies, if such coverage is available at reasonable rates. Group shall
require all contracted dentists and dental hygienists to maintain similar
coverages. The minimum amounts of insurance required by this Agreement
shall be increased as necessary to reflect current standards for dental
malpractice coverage.
6. Relationship of Parties.
The President of Group, or another licensed dentist designated by Group, shall
act as Group's liaison to GDSC. Group shall delegate to such person all
authority to make decisions on behalf of Group concerning day-to-day operations.
The person so designated shall consult with GDSC on operational matters as
requested. If approval by directors or shareholders of Group is required or
requested for any action recommended or referred for approval by GDSC, Group
shall take all reasonable steps to promptly refer the matter for decision to
Group's directors or shareholders, as appropriate.
Group designates GDSC's President, or his representative, as Group's
Attorney-In-Fact, with full right and authority, but in each instance at Group's
express direction, to execute contracts on behalf of Group, including, but not
limited to health plan agreements and employment agreements. As
Attorney-In-Fact, GDSC's President shall have the right to authorize
expenditures on behalf of Group for all activities related to its business.
Notwithstanding the above, this Agreement is a business support services
agreement only. GDSC shall have no control over Group, and Group shall retain
the sole and exclusive authority over all aspects of its dental practice
including, but not limited to, the authority to approve the locations of
Clinics, the types of improvements, furnishings, equipment and supplies to be
utilized, the manner of practice of dentistry or related ancillary services,
marketing approaches or advertisements, choice of dental personnel, treatment
decisions, assignment of patients to professionals, the content of dental
evaluation reports, fees charged, programs and services engaged in, and any
aspects of dental practice not listed that are the sole prerogative of a duly
licensed dentist under applicable state law.
10
<PAGE>
In the performance of this Agreement, it is mutually understood and agreed that
all dentists, dental hygienists and dental assistants practicing at any of the
Clinics are at all times acting and performing as employees of Group or as
contractors with Group ("Group's Personnel") and not as employees or agents of
GDSC. GDSC shall neither have nor exercise any control or direction over the
methods by which Group or Group's Personnel shall practice dentistry.
Group and Group's Personnel shall have no claim under this Agreement or
otherwise against GDSC for workers' compensation, unemployment compensation,
sick leave, vacation pay, retirement benefits, Social Security benefits, or any
other employee benefits, all of which shall be the sole responsibility of Group.
Since the Group's Personnel are not employees of GDSC, GDSC shall not withhold
on behalf of Group's Personnel pursuant to this Agreement any sums for income
tax, unemployment insurance, Social Security, or otherwise pursuant to any law
or requirement of any governmental agency, and all such withholding, if any is
required, shall be the sole responsibility of Group. Group shall indemnify and
hold harmless GDSC from any and all loss or liability arising with respect to
any of the foregoing benefits or withholding requirements.
Group shall require all dentists in its employ to execute non-competition
agreements in a form satisfactory to GDSC that prohibit such dentists from
providing dental services within five miles of a location at which they provided
dental services for Group for a period of two years after termination of
employment with Group. Group shall take all reasonable steps to enforce such
agreements in the event of any breach thereof.
All patient records, reports and information obtained, generated or encountered
relating to Clinics shall at all times be the property of Group and so long as
in the possession, use or control of either party, shall be kept in the
strictest confidence by both parties. GDSC shall instruct all of its personnel
to keep confidential any such information, as well as any financial,
statistical, personnel, and patient information obtained or encountered relating
to Group or to Group's operations.
Group shall not solicit, employ or contract with any employee of GDSC or any
entity or person that employs or contracts with any employee of GDSC, for a
period of two years after any such employee ceases to be employed by GDSC.
Should Group breach this specific provision, Group acknowledges that the damages
to GDSC would be difficult to ascertain, and shall as reasonable compensation
and liquidated damages promptly pay GDSC the sum of $40,000.
7. Confidential Information and Trade Secrets.
Group recognizes that due to the nature of this Agreement, Group will have
access to information of a proprietary nature owned by GDSC including, but not
limited to, any and all computer programs, and any and all operating manuals or
similar materials which constitute the non-dental systems, policies, procedures,
and methods of doing business developed for the operation of facilities managed
by GDSC. Consequently, Group acknowledges and agrees that GDSC has a proprietary
interest in all such information and that all such information constitutes
confidential
11
<PAGE>
and proprietary information and trade secrets of GDSC. Group hereby waives any
and all right, title and interest in and to such trade secrets and confidential
information and agrees to return all copies of such trade secrets and
confidential information related thereto to GDSC, at Group's expense, upon the
termination of this Agreement.
Group further acknowledges and agrees that GDSC is entitled to prevent its
competitors from obtaining and utilizing its trade secrets and confidential
information. Therefore, Group agrees to hold GDSC's trade secrets and
confidential information in strictest confidence and not to disclose them or
allow them to be disclosed, directly or indirectly, to any person or entity
other than those persons or entities who are employed by or affiliated with GDSC
or Group, without the prior written consent of GDSC. Group shall not, either
during the term of this Agreement, or at any time after the expiration or sooner
termination of this Agreement, disclose to anyone other than persons or entities
who are employed by or affiliated with GDSC or Group any confidential or
proprietary information or trade secret information obtained by Group from GDSC,
except as otherwise required by law. Group agrees to require each independent
contractor and employee of the Group, and any such persons or entities to whom
such information is disclosed for the purpose of performance of GDSC's or
Group's obligations under this Agreement, to execute a "Confidentiality
Agreement" regarding such information in such form as from time-to-time may be
approved by Group and GDSC.
Group acknowledges and agrees that a breach of this Paragraph 7 will result in
irreparable harm to GDSC which cannot be reasonably or adequately compensated in
damages, and therefore GDSC shall be entitled to injunctive and/or equitable
relief to prevent a breach and to secure enforcement thereof, in addition to any
other relief or award to which GDSC may be entitled.
8. Working Capital.
a. Assignment of Accounts Receivable to GDSC.
Group hereby assigns, without recourse, to GDSC all of Group's accounts
receivable and other rights and interests in all sums which Group receives
or becomes entitled to receive for the performance of dental services by
Group's Dentists, for other services performed by employees of Group, and
for charges by Group for supplies and other items for which Group is
entitled to charge as reflected in invoices issued by Group with respect to
the Clinics; provided, however, that no assignment shall be made of any
sums or rights to payment the assignment of which is prohibited by law.
b. Remittance to Group.
Periodically, as required to meet Group's financial obligations, and after
deduction of amounts which are retained by GDSC as compensation, cash equal
to all remaining Net Revenues shall be remitted to Group. Group shall be
responsible for paying the expenses described in section 5 above from funds
of Group.
12
<PAGE>
9. GDSC's Compensation.
For its services hereunder, including lease of all facilities, furniture,
fixtures and equipment at the Clinics, provision of all employees of GDSC who
perform services at or for the Clinics, and provision of insurance, supplies and
management services contemplated hereunder, Group shall pay GDSC the following
service fee:
during the remainder of 1997, 53% of Net Revenues
during 1998, 54% of Net Revenues
during 1999, 55% of Net Revenues
during 2000 and for the remainder of the term of this Agreement and any
renewal term, 56% of Net Revenues.
The service fee can be adjusted by mutual agreement from time to time. Payment
shall be made by deduction of the amount due from amounts remitted to Group as
provided in paragraph 8.b. above. Monthly payments shall be made based on
unaudited Net Revenues year-to-date; final adjustment of the fee shall be made
based on audited Net Revenue for the calendar year.
For 1997, the service fee payable to GDSC under this Agreement is allocated to
the following services:
10.5% of Net Revenues Rents and utilities
32% of Net Revenues Support staff and administrative services
10.5% of Net Revenues Supplies
Increases in GDSC's service fee in 1998 and following shall be allocated
proportionately to each of the three service categories. In 2000 and following,
the allocations will be:
11% of Net Revenues Rents and utilities
34% of Net Revenues Support staff and administrative services
11% of Net Revenues Supplies
10. Definitions.
Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given in accordance with
generally accepted accounting principles ("GAAP"), and all financial
computations hereunder shall be computed unless otherwise specifically provided
herein, in accordance with GAAP as consistently applied and using the same
method of valuation as used in the preparation of GDSC's financial statements.
"Gross Revenues" means all billings by Group for services rendered during the
term of this Agreement, billed at Group's standard rates. For purposes of
capitated service contracts, "Gross Revenues" means the amount of revenue
received under the service contract for services rendered during the term of
this Agreement.
13
<PAGE>
"Net Revenues" means all Gross Revenues net of allowances for contractual
discounts and bad debt. Bad debt allowances shall be determined in accordance
with GAAP. Contractual discount allowances shall be based on reasonable
estimates as determined by GDSC.
11. Miscellaneous Authority and Duties of the Parties.
GDSC is hereby exclusively authorized by Group to perform all services required
of GDSC pursuant to the terms of this Agreement as GDSC deems reasonable and
appropriate in order to meet the day-to-day requirements of Group. GDSC may
subcontract with other persons or entities to perform any part or all of the
services required of GDSC hereunder.
Each of the parties agrees to cooperate fully with the other in connection with
the performance of their respective obligations under this Agreement, and both
parties agree to employ their best efforts to resolve any dispute that may arise
under or in connection with this Agreement. Subject to GDSC maintaining the
confidentiality of patient records and Group's confidential information, Group
shall provide to GDSC full and complete access to Group's premises, and to
Group's charts, Books and Records, in order that GDSC can perform its functions
hereunder.
During the term of this Agreement, at Group's direction GDSC shall add
facilities or clinics for the practice of dentistry by Group, and Group shall
staff those facilities with dental personnel and shall deliver dental services
therein. GDSC shall exclusively provide the services contemplated by this
Agreement in those facilities. Group shall not open or otherwise participate in
the operation of any dental clinics or otherwise expand its operations other
than through the exclusive relationship with GDSC as described in this
Agreement.
Notwithstanding any other provisions contained herein, GDSC shall not be liable
to Group, and shall not be deemed to be in default hereunder, for the failure to
perform or provide any of the supplies, services, personnel, or other obligation
to be performed or provided by GDSC pursuant to this Agreement if such failure
is a result of a labor dispute, act of God, or any other event which is beyond
the reasonable control of GDSC.
12. Term and Termination.
a. Unless sooner terminated in accordance with the provisions of
this Agreement, this Agreement shall remain in effect for an
initial term of forty (40) years after the Effective Date.
Following the initial term, this agreement shall be automatically
renewed for successive ten (10) year renewal terms unless more
than 180 days prior to the end of the initial term or any renewal
term either party gives notice of termination.
b. This Agreement may be terminated by any of the following:
i. In the event of a material breach of this Agreement by
either party, the other party shall have the right to cancel
this Agreement by
14
<PAGE>
service of written notice upon the defaulting party (the
"Default Notice"). In the event such breach is not cured
within thirty (30) days after service of the Default Notice,
this Agreement shall immediately terminate at the election
of the non-defaulting party upon the giving of a written
notice of termination to the defaulting party no later than
sixty (60) days after the giving of the Default Notice,
unless such breach cannot be cured within thirty (30) days
and the defaulting party gives timely notice to the other
party to such effect and promptly undertakes appropriate
steps to effect such cure and pursues such action to
conclusion.
ii. GDSC may terminate this Agreement upon one (1) day's notice
in the event of the dissolution or liquidation of the Group.
iii. Upon institution of any voluntary or involuntary bankruptcy,
reorganization, insolvency or receivership proceedings, or
any assignment for the benefit of creditors, the other party
may immediately terminate this Agreement on written notice
to the party involved in such proceedings.
c. Upon any termination of this Agreement, it is understood and
agreed that the right of Group to occupy the Clinics and to the
use and possession of the furniture, fixtures, furnishings,
equipment and leasehold improvements shall terminate, and Group
shall immediately vacate and surrender possession to GDSC of the
Clinics, furniture, fixtures, furnishings, equipment and
leasehold improvements as well as all other materials and
supplies then located in or upon the premises of such Clinics.
The various rights and remedies herein provided shall be cumulative and in
addition to any other rights and remedies the parties may be entitled to pursue
under the law. The exercise of one or more of such rights or remedies shall not
impair the rights of either party to exercise any other right or remedy at law
or in equity.
Termination of the Agreement shall not release or discharge either party from
any obligation, debt or liability which shall have previously accrued and remain
to be performed upon the date of termination.
13. Indemnification.
Each party shall indemnify, hold harmless, and defend the other party from any
and all liability, loss, claims, lawsuits, damages, injury, costs or expenses
(including reasonable attorneys' fees incurred at trial, on appeal or on review)
arising out of or incident to acts or omissions by such indemnifying party, its
employees, contractors and subcontractors provided, however, neither
15
<PAGE>
party shall be liable to the other party hereunder for any claim covered by
insurance, except to the extent the liability of such party exceeds the amount
of such insurance coverage.
14. Assignment.
This Agreement, and the rights and obligations created hereunder, shall not be
assignable by Group, either voluntarily or by operation of the law, without the
express prior written consent of GDSC. Any assignment without such consent shall
be null and void. Group shall not sublet any Clinic or any part thereof, and
Group shall not sublease any of the furniture, furnishings, leasehold
improvements or equipment referred to in this Agreement without the express
prior written agreement of GDSC. Subject to the foregoing, this Agreement shall
be binding upon and inure to the benefit of the parties, their heirs, executors
and assigns.
15. Governing Law.
This Agreement shall be governed by and construed under the laws of the State of
Washington.
16. Waiver.
The waiver of any covenant, condition or duty hereunder by either party shall
not prevent that party from later insisting upon full performance of the same.
17. Amendment.
No amendment to the terms of this Agreement shall be binding on either party
unless in writing and executed by the duly authorized representatives of each
party.
18. Entire Agreement.
This Agreement constitutes the entire agreement between the parties in
connection with the subject matter hereof and supersedes all prior agreements,
whether written or oral, and whether explicit or implicit, which have been
entered into before the execution hereof. Should any litigation or arbitration
arise between the parties, neither party shall (and each party hereby waives the
right to) introduce any parol evidence which would tend to contradict or impeach
any of the express written terms, conditions, and covenants of this Agreement.
19. Notice.
Any notice or other communication required or which may be given hereunder shall
be in writing and shall be delivered personally, telegraphed, telexed or sent by
facsimile, or sent by certified, registered or express mail, postage prepaid,
and shall be deemed given when so delivered personally, telegraphed or telexed
or sent by facsimile, or if mailed, two days after the day of mailing, as
follows:
16
<PAGE>
(i) If to GDSC to:
Gentle Dental Service Corporation
900 Washington Street, Suite 1100
Vancouver, WA 98660
Attention: President
With a copy to:
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2300
Portland, OR 97204-1268
Attention: Edward L. Epstein, Esq.
(ii) If to Group:
Dany Tse, P.C.
900 Washington Street, Suite 1100
Vancouver, WA 98660
Attention: President
20. Arbitration.
Any disagreement which the parties are unable to resolve by mutual agreement
shall be submitted to private arbitration in accordance with the rules of the
American Arbitration Association ("AAA"), except as modified by this Agreement.
The arbitration shall be conducted by a single, neutral arbitrator appointed in
accordance with AAA procedures. Unless the parties agree otherwise, the
arbitration proceedings and venue for the filing of exceptions, if any, shall be
Clark County, Washington. Discovery of documents shall be permitted to the full
extent permitted by the Federal Rules of Civil Procedure ("FRCP"). Other types
of discovery available under the FRCP shall be permitted as the arbitrator shall
find to be appropriate. The parties shall share equally the costs of the
arbitrator and all other costs of arbitration, except that each party shall be
solely responsible for its own attorneys' fees and expenses. Exceptions to the
decision of the arbitrator can be filed in accordance with RCW 7.04.160; in
addition to the grounds recognized in that statute, an exception may be filed
based on mistake of law. Judgment on the arbitration award can be filed in any
court with jurisdiction.
Arbitration under this Agreement shall be governed by the Federal Arbitration
Act, and by Washington law to the extent not inconsistent with the Federal
Arbitration Act.
To the greatest extent consistent with law and disclosure requirements
applicable to either party, and except as required in a judicial proceeding
contemplated by this section 20, the parties shall
17
<PAGE>
keep all matters relating to any arbitration confidential, including the
existence and subject of the arbitration.
21. Miscellaneous Provisions.
a. Changes In Law.
In the event that any state or federal laws or regulations now in effect or
enacted or promulgated after the execution of this Agreement are
interpreted by judicial decision, regulatory agency or legal counsel in
such a manner as to indicate that the structure of this Agreement may be in
violation of such laws or regulations, the parties shall negotiate in good
faith and shall seek agreement on modifications or amendments to this
Agreement that appropriately address the possible violation of law or
regulation while preserving the intent of this Agreement as nearly as
possible. If the parties are unable to reach agreement within a reasonable
time, the parties shall proceed as set forth in section 20.
b. Partial Invalidity.
If any one or more of the terms, provisions, promises, covenants, or
conditions of this Agreement or the application thereof to any person or
circumstance shall be adjudged to any extent invalid, unenforceable, void
or voidable for any reasons whatsoever by a court of competent
jurisdiction, each and all of the remaining terms, provisions, promises,
covenants and conditions of this Agreement or their application to other
persons or circumstances shall not be affected thereby and shall be valid
and enforceable to the fullest extent permitted by law.
c. Heading, Titles.
The headings appearing herein are for convenience and reference only and
shall not be deemed to govern, limit, modify or in any manner affect the
scope, meaning or intent of the provisions of this Agreement.
d. Binding Effect.
Subject to the provisions contained herein, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors.
e. Covenants and Conditions.
Each covenant hereof is a condition, and each condition hereof is as well a
covenant by the parties bound thereby unless waived in writing by the
parties hereto.
18
<PAGE>
f. Approval and Consent.
Whenever in this Agreement an approval or consent is required by one of the
parties, the same shall not be unreasonably withheld.
g. Attorneys' Fees.
In the event suit or action is brought to enforce any of the terms of this
Agreement, the prevailing party shall be entitled to recover fees and
expenses incurred in such action or proceeding, including reasonable
attorneys' fees, incurred at trial, on appeal or on review.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the Effective Date.
Gentle Dental Service Corporation Dany Tse, P.C.
L. THEODORE VAN EERDEN DANY Y. TSE
- ---------------------------------- ----------------------------------
L. Theodore Van Eerden Dany Y. Tse
Chief Financial Officer President
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GENTLE
DENTAL SERVICE CORPORATION'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 79
<SECURITIES> 0
<RECEIVABLES> 2,742
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,554
<PP&E> 4,911
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,068
<CURRENT-LIABILITIES> 2,643
<BONDS> 0
2,123
0
<COMMON> 9,543
<OTHER-SE> 519
<TOTAL-LIABILITY-AND-EQUITY> 16,068
<SALES> 10,269
<TOTAL-REVENUES> 10,269
<CGS> 0
<TOTAL-COSTS> 9,738
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135
<INCOME-PRETAX> 448
<INCOME-TAX> 219
<INCOME-CONTINUING> 229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
</TABLE>
