SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 4, 1997
----------------
GENTLE DENTAL SERVICE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 333-13529 91-1577891
- ------------------------------- ----------- -------------------
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File No.) Identification No.)
22800 Savi Ranch Parkway, Suite 206, Yorba Linda, CA 92887
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 998-0587
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
No Change
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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Item 2. Acquisition or Disposition of Assets
On November 4, 1997, Gentle Dental Service Corporation (the "Company")
completed the merger of GMS Dental Group, Inc. ("GMS"), a privately held
corporation, with and into the Company, with the Company as the surviving
corporation. The merger is being accounted for as a pooling of interests. Upon
consummation of the merger, the Company issued approximately 4,548,200 shares of
its Common Stock in exchange for all of the outstanding stock of GMS. The
Company also assumed outstanding stock options and warrants of GMS which
converted into employee and consultant options to purchase a total of 110,604
shares of Company Common Stock at an average price of $0.48 per share and
warrants to purchase a total of 248,850 shares of Company Common Stock at an
average price of $6.57 per share.
A total of 297,074 of the shares issued in the merger are subject to
repurchase by the Company under previously existing agreements at an average
price of $0.32 per share if, among other things, the Company's EBITDA (on a
combined basis but excluding CEO salary and related expense) for 1997 does not
exceed $4,723,500. This EBITDA target is not expected to be met and,
accordingly, these shares are expected to be repurchased in early 1998. Another
297,071 of the shares issued in the merger are subject to repurchase by the
Company under the same prior agreements at the same price if, among other
things, the Company's EBITDA (on a combined basis but excluding CEO salary and
related expense) for 1998 does not exceed $12,683,250.
To determine the number of shares issued in the merger, the parties
initially agreed to a 53/47 ratio between the value of the Company's business
and the value of GMS's business based on the relative patient level revenues of
the two companies, assuming the completion of the Company's previously announced
acquisition of Dedicated Dental Systems, Inc. and related dental practices
("DDS"). To determine the final merger ratio, these values were adjusted for the
relative levels of debt, stock options and warrants, and estimated earn-out
obligations of the two companies, as well as for the expected repurchase of
shares in early 1998 as discussed above. Upon consummation of the DDS
acquisition and after repurchase of the shares discussed above, the shares
issued to GMS shareholders in the merger will represent approximately 47.5% of
the outstanding Common Stock.
Prior to the merger, GMS was a dental practice management company providing
management support services to 22 dental offices with approximately 100 dentists
in California, Idaho, and Hawaii. The Company intends to continue the business
of GMS.
Upon consummation of the merger, the board of directors of the Company was
reconstituted to consist of the following directors:
Gerald R. Aaron, DDS Steven R. Bull, DDS
Kenneth D. Hooten Robert Finzi
Paul H. Keckley Michael T. Fiore
Dany Y. Tse, DMD Kathleen D. La Porte
L. Theodore Van Eerden Wayne Posey
Craig W. Wong, DMD Grant Sadler
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Upon consummation of the merger, the executive officers of the Company were
reconstituted to consist of the following:
Dany Y. Tse, DMD Co-Chairman, Founder and President
of Clinical Services Council
Michael T. Fiore Co-Chairman, Chief Executive Officer
and President
L. Theodore Van Eerden Executive Vice President and Chief
Development Officer
Grant Sadler Vice Chairman and Co-Founder
Norman Huffaker Chief Financial Officer
Venture funds affiliated with the Sprout Group received 1,649,563 shares of
Company Common Stock in the merger, which currently represent 21.4% of the
outstanding Common Stock. Directors Robert Finzi and Kathleen D. La Porte are
representatives of the Sprout Group. Mr. Fiore and Mr. Sadler received 333,816
and 395,541 shares of Company Common Stock in the merger, respectively,
currently representing 4.3% and 5.1%, respectively, of the outstanding Common
Stock.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
Audited Consolidated Balance Sheets of GMS as of September 30, 1997
and December 31, 1996, and related audited Consolidated Statements
of Operations, Stockholders' Equity and Cash Flows of GMS for the
nine months ended September 30, 1997 and for the period from October
11, 1996 (inception) through December 31, 1996.
The foregoing financial statements are not included in this report
and will be filed by amendment to this report on or before January
19, 1998.
(b) Pro forma financial information. Pro forma Balance Sheets as of
September 30, 1997 and December 31, 1996 and pro forma Statements of
Operations for the nine months ended September 30, 1997 and for the
year ended December 31, 1996.
The foregoing pro forma financial statements are not included in
this report and will be filed by amendment to this report on or
before January 19, 1998.
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(c) Exhibits.
2.1 Agreement and Plan of Merger, dated as of October 30, 1997,
between the Company and GMS Dental Group, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: November 18, 1997
GENTLE DENTAL SERVICE CORPORATION
By L. THEODORE VAN EERDEN
--------------------------------------
L. Theodore Van Eerden,
Executive Vice President and Chief
Development Officer
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EXHIBIT INDEX
Exhibit Description
- ------- -----------
2.1 Agreement and Plan of Merger, dated as of October 30, 1997, between
the Company and GMS Dental Group, Inc.
The following exhibits and schedules to the Agreement and Plan of
Merger have been omitted and will be provided to the Securities and
Exchange Commission upon request:
Exhibit A Opinion of GMS's Counsel
Exhibit B Employment Agreements
Exhibit C-1 Shareholder Representation Letter
Exhibit C-2 Shareholder Consent
Exhibit D Affiliate Representation Letter
Exhibit E Tax Opinion
Exhibit F Opinion of GDSC's Counsel
Schedule 2.06 GDSC Litigation
Schedule 2.08-2 GDSC Employee Benefits
Schedule 2.08-3 GDSC Employment Agreements
Schedule 2.11 GDSC Changes or Events
Schedule 2.12 GDSC Leases
Schedule 2.13 GDSC Contracts
Schedule 2.23 GDSC Consents
Schedule 3.01 GMS Subsidiaries
Schedule 3.03 GMS Capitalization
Schedule 3.06 GMS Litigation
Schedule 3.08-1 GMS Collective Bargaining Agreements
Schedule 3.08-2 GMS Employee Benefits
Schedule 3.08-3 GMS Employment Agreements
Schedule 3.11 GMS Changes or Events
Schedule 3.12 GMS Leases
Schedule 3.13 GMS Contracts
Schedule 3.18 GMS Certain Interests
Schedule 3.20 GMS Permit Issues
Schedule 3.23 GMS Consents
Schedule 7.09 GMS Affiliates
AGREEMENT AND PLAN OF MERGER
of
GENTLE DENTAL SERVICE CORPORATION
and
GMS DENTAL GROUP, INC.
Dated October 30, 1997
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Page
TABLE OF CONTENTS
ARTICLE I
The Merger................................................................ 1
1.01 The Merger......................................................... 1
1.02 Effect of Merger................................................... 2
1.03 Directors and Officers............................................. 2
1.04 Conversion of GMS Stock and Rights to Acquire GMS Stock............ 3
1.05 Closing............................................................ 6
1.06 Subsequent Actions................................................. 6
ARTICLE II
Representations and Warranties of GDSC.................................... 6
2.01 Corporate Existence................................................ 7
2.02 Authorization...................................................... 7
2.03 Capitalization..................................................... 7
2.04 No Adverse Consequences............................................ 8
2.05 Brokers and Finders................................................ 8
2.06 Litigation......................................................... 8
2.07 Compliance with Laws............................................... 8
2.08 Employment Matters................................................. 9
2.09 Financial Statements...............................................10
2.10 Undisclosed Liabilities............................................11
2.11 Absence of Certain Changes or Events...............................11
2.12 Leases.............................................................11
2.13 Certain Contracts and Arrangements.................................11
2.14 Status of GDSC Leases and GDSC Contracts...........................12
2.15 Title and Condition of Tangible Assets.............................13
2.16 Insurance..........................................................13
2.17 Taxes..............................................................14
2.18 Certain Interests..................................................14
2.19 No Restrictions....................................................14
2.20 Permits and Licenses...............................................15
2.21 Certain Payments...................................................15
2.22 Environmental Conditions...........................................15
2.23 Consents and Approvals.............................................15
2.24 Records............................................................16
2.25 Pooling Matters....................................................16
2.26 Certain Tax Matters................................................16
2.27 Consent Solicitation and Information Statement.....................17
2.28 Reliance...........................................................17
2.29 Accuracy of Representations and Warranties.........................17
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Page
ARTICLE III
Representations and Warranties of GMS.....................................17
3.01 Corporate Existence................................................17
3.02 Authorization......................................................18
3.03 Capitalization.....................................................18
3.04 No Adverse Consequences............................................19
3.05 Brokers and Finders................................................19
3.06 Litigation.........................................................19
3.07 Compliance with Laws...............................................19
3.08 Employment Matters.................................................20
3.09 Financial Statements...............................................21
3.10 Undisclosed Liabilities............................................21
3.11 Absence of Certain Changes or Events...............................22
3.12 Leases.............................................................22
3.13 Certain Contracts and Arrangements.................................22
3.14 Status of GMS Contracts and GMS Leases.............................23
3.15 Title and Condition of Tangible Assets.............................24
3.16 Insurance..........................................................24
3.17 Taxes..............................................................24
3.18 Certain Interests..................................................25
3.19 No Restrictions....................................................25
3.20 Permits and Licenses...............................................25
3.21 Certain Payments...................................................26
3.22 Environmental Conditions...........................................26
3.23 Consents and Approvals.............................................26
3.24 Records............................................................26
3.25 Pooling Matters....................................................26
3.26 Certain Tax Matters................................................26
3.27 Consent Solicitation and Information Statement.....................27
3.28 Reliance...........................................................27
3.29 Accuracy of Representations and Warranties.........................27
ARTICLE IV
Covenants of GDSC.........................................................27
4.01 Access to Properties, Books and Records............................27
4.02 Negative Covenants.................................................28
4.03 Affirmative Covenants..............................................29
ARTICLE V
Covenants of GMS..........................................................30
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Page
5.01 Access to Properties, Books and Records............................30
5.02 Negative Covenants.................................................30
5.03 Affirmative Covenants..............................................32
5.04 Shareholder Approval...............................................32
ARTICLE VI
Joint Covenants...........................................................33
6.01 Governmental Consents..............................................33
6.02 Best Efforts; No Inconsistent Action...............................33
6.03 Office Locations...................................................33
6.04 Consent Solicitation and Information Statement.....................33
ARTICLE VII
Conditions to Obligations of GDSC.........................................33
7.01 Governmental Approvals.............................................34
7.02 Consents...........................................................34
7.03 Representations, Warranties and Covenants..........................34
7.04 Adverse Proceedings................................................34
7.05 No Adverse Change..................................................34
7.06 Opinion of Counsel.................................................34
7.07 Employment Agreement...............................................34
7.08 Shareholder Representation Letter..................................35
7.09 Affiliate Representation Letter....................................35
7.10 Tax Opinion........................................................35
7.11 Shareholder Approval...............................................35
7.12 Fairness Opinion. ................................................35
7.13 Termination of Agreements..........................................35
7.14 Dissenters.........................................................35
7.15 Conversion of Preferred Stock......................................36
7.16 Clarification of Repurchase Rights.................................36
7.17 Clarification of Earnout Rights....................................36
7.18 Acquisition Agreements.............................................36
7.19 Pooling Opinion....................................................36
7.20 Imperial Bank Waiver...............................................36
7.21 Actions Satisfactory to GDSC's Counsel.............................36
ARTICLE VIII
Conditions to Obligations of GMS..........................................36
8.01 Governmental Approvals.............................................36
8.02 Consents...........................................................37
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8.03 Representations, Warranties and Covenants..........................37
8.04 Adverse Proceedings................................................37
8.05 No Adverse Change..................................................37
8.06 Opinion of Counsel.................................................37
8.07 Employment Agreements..............................................37
8.08 GDSC Board of Directors and Officers...............................37
8.09 Shareholder Approval...............................................38
8.10 Tax Opinion........................................................38
8.11 Nasdaq Listing.....................................................38
8.12 Actions Satisfactory to GMS's Counsel..............................38
ARTICLE IX
Exclusivity; Termination..................................................38
9.01 Exclusivity........................................................38
9.02 Right of Parties to Terminate......................................39
9.03 Break-Up Fee.......................................................40
9.04 Effect of Termination..............................................40
9.05 Delivery of Schedules..............................................40
ARTICLE X
Confidentiality; Press Releases...........................................40
10.01 Confidentiality....................................................40
10.02 Press Releases.....................................................41
ARTICLE XI
Other Provisions..........................................................41
11.01 Benefit and Assignment.............................................41
11.02 Entire Agreement...................................................41
11.03 Fees and Expenses..................................................42
11.04 Amendment, Waiver, etc.............................................42
11.05 Headings...........................................................42
11.06 Governing Law......................................................42
11.07 Notices............................................................42
11.08 Breach; Equitable Relief...........................................43
11.09 Attorneys' Fees....................................................43
11.10 Counterparts.......................................................43
11.11 Survival...........................................................43
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INDEX OF DEFINED TERMS
Term Location of Definition
- ---- ----------------------
Bakersfield Transaction............................... 2.03
Bona Fide Offer....................................... 9.02(f)
Closing............................................... 1.05
Closing Date.......................................... 1.05
Code.................................................. 1.01
Competing Transaction................................. 9.01-2
GDSC.................................................. Introduction
GDSC Common Stock..................................... 1.01
GDSC Contracts........................................ 2.13
GDSC Current Balance Sheet............................ 2.09
GDSC ERISA Plans...................................... 2.08-2(b)
GDSC Financial Statements............................. 2.09
GDSC Leases........................................... 2.12
GDSC Policies......................................... 2.16
GDSC Professional Corporation......................... 2.01-2
GDSC Real Property.................................... 2.12
GDSC Returns.......................................... 2.17-1
GMS................................................... Introduction
GMS Contracts......................................... 3.13
GMS Current Balance Sheet............................. 3.09
GMS ERISA Plans....................................... 3.08-2(b)
GMS Financial Statements.............................. 3.09
GMS Leases............................................ 3.12
GMS Policies.......................................... 3.16
GMS Professional Corporation.......................... 3.01-2
GMS Real Property..................................... 3.12
GMS Returns........................................... 3.17
GMS Stock............................................. 1.01
Effective Time........................................ 1.01
ERISA................................................. 2.08-2(b)
Environmental Law..................................... 2.22-2(a)
Hazardous Substance................................... 2.22-2(b)
Knowledge ............................................ Article II Introduction
Material Adverse Change............................... Article II Introduction
Material Adverse Effect............................... Article II Introduction
Merger................................................ 1.01
Merger Consideration.................................. 1.04-1
Permits............................................... 2.20
Taxes................................................. 2.17-3
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EXHIBITS
Exhibit Item First Reference
- ------- ---- ---------------
A Opinion of GMS's Counsel 7.06
B Employment Agreements 7.07
C-1 Shareholder Representation Letter 7.08
C-2 Shareholder Consent 7.08
D Affiliate Representation Letter 7.09
E Tax Opinion 7.10
F Opinion of GDSC's Counsel 8.05
SCHEDULES
Schedule Content
- -------- -------
2.06 GDSC Litigation
2.08-2 GDSC Employee Benefits
2.08-3 GDSC Employment Agreements
2.11 GDSC Changes or Events
2.12 GDSC Leases
2.13 GDSC Contracts
2.23 GDSC Consents
3.01 GMS Subsidiaries
3.03 GMS Capitalization
3.06 GMS Litigation
3.08-1 GMS Collective Bargaining Agreements
3.08-2 GMS Employee Benefits
3.08-3 GMS Employment Agreements
3.11 GMS Changes or Events
3.12 GMS Leases
3.13 GMS Contracts
3.18 GMS Certain Interests
3.20 GMS Permit Issues
3.23 GMS Consents
7.09 GMS Affiliates
vi
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AGREEMENT AND PLAN OF MERGER
DATED: October 30, 1997
AMONG: GENTLE DENTAL SERVICE CORPORATION
a Washington corporation
900 Washington Street, Suite 1100
Vancouver, WA 98660
Telecopy No.: (360) 750-8667 "GDSC"
AND: GMS DENTAL GROUP, INC.,
a Delaware corporation
22800 Savi Ranch Parkway, Suite 206 "GMS"
Yorba Linda, CA 92887
Telecopy No.: (714) 998-6056
The Boards of Directors of GDSC and GMS have determined that it is in the
best interests of their respective shareholders for GMS to be merged with and
into GDSC, with GDSC to be the surviving corporation, upon the terms and subject
to the conditions set forth herein. In consideration of the mutual
representations, warranties and covenants contained in this Agreement, the
parties agree as follows:
ARTICLE I
The Merger
1.01 The Merger. Pursuant to the laws of the States of Delaware and
Washington, and subject to and in accordance with the terms and conditions of
this Agreement, GMS shall be merged with and into GDSC, and the outstanding
shares of capital stock of GMS, $.001 par value, (the "GMS Stock") shall be
converted into shares of GDSC Common Stock, without par value (the "GDSC Common
Stock") in a transaction intended to qualify as a tax-free reorganization under
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), and to qualify for pooling of interests accounting treatment. GDSC and
GMS shall execute a Certificate of Merger to be filed with the Secretary of
State of the State of Delaware and Articles of Merger to be filed with the
Secretary of State of the State of Washington, both on the Closing Date, as
defined in Section 1.05 or as soon thereafter as practicable. The merger of GMS
with and into GDSC (the "Merger") shall take effect at the time (the "Effective
Time") when both the Certificate of Merger and the Articles of Merger have been
duly filed, or at such other time as the parties may agree upon in writing
pursuant to applicable law.
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1.02 Effect of Merger. At the Effective Time, GMS shall be merged with and
into GDSC in the manner and with the effect provided by the Delaware General
Corporation Law and the Washington Business Corporation Act, the assets and
liabilities of GMS shall be transferred to GDSC, the separate corporate
existence of GMS shall cease and GDSC shall be the surviving corporation. From
and after the Effective Time, the Articles of Incorporation and Bylaws of GDSC
in effect immediately before the Effective Time shall be the Articles of
Incorporation and Bylaws of the surviving corporation.
1.03 Directors and Officers. At and as of the Effective Time, the directors
of GDSC will be as follows:
Gerald R. Aaron, DDS Steven R. Bull, DDS
Kenneth D. Hooten Robert Finzi
Paul H. Keckley Michael T. Fiore
Dany Y. Tse, DMD Kathleen D. La Porte
L. Theodore Van Eerden Wayne Posey
Craig W. Wong, DMD Grant Sadler
As of the closing of the Bakersfield Transaction, Arthur G. Kaiser, DDS
shall become a director of GDSC. Unless one of the directors named in the first
column above resigns concurrently with the election of Dr. Kaiser as a director,
one additional person designated by a majority of the directors named in the
second column above shall be concurrently elected as a director.
At and as of the Effective Time, the Executive Committee of the Board of
Directors will be as follows:
Robert Finzi
Michael T. Fiore
Kathleen D. La Porte
L. Theodore Van Eerden
Dany Y. Tse, DMD
At and as of the Effective Time, the officers and certain other senior
managers of GDSC will be as follows:
Dany Y. Tse, DMD Co-Chairman, Founder and President of
Clinical Services Council
Michael T. Fiore Co-Chairman, Chief Executive Officer
and President
L. Theodore Van Eerden Executive Vice President and Chief
Development Officer
Grant Sadler Vice Chairman and Co-Founder
Norman Huffaker Chief Financial Officer
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Ken Davis Regional Vice President of Operations
Kevin Webb Regional Vice President of Operations
William Westrate Chief Information Officer
Jerry L. Coleman Vice President of Development
Michael Bourgeault Director of Management Information
Systems
Steven Wolfe Vice President of Human Resources
Rhonda Lusk Regional Director of Human Resources.
1.04 Conversion of GMS Stock and Rights to Acquire GMS Stock. The manner
and basis of converting the GMS Stock and outstanding rights to acquire GMS
Stock into GDSC Common Stock and rights to acquire GDSC Common Stock are as
follows:
1.04-1 GMS Stock. Each share of GMS Stock outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and become a number
of shares of GDSC Common Stock determined pursuant to this Section 1.04-1.
(a) As conditions to the Merger, the following actions shall take
effect in the following order immediately prior to the Effective Time:
(i) Pursuant to the consent of the holders of at least a
majority of the outstanding shares of Series A Preferred Stock of GMS ("GMS
Series A Preferred Stock") and Series B-1 Preferred Stock of GMS ("GMS Series
B-1 Preferred Stock") (counted together as a single class), each outstanding
share of GMS Series A Preferred Stock and GMS Series B-1 Preferred Stock shall
be converted into one share of Common Stock of GMS ("GMS Common Stock").
(ii) Pursuant to resolutions adopted by the Board of
Directors of GMS and the consent of all holders of GMS Series B-1 Preferred
Stock, all accrued and unpaid cumulative dividends on the GMS Series B-1
Preferred Stock shall be paid in shares of GMS Common Stock. To determine the
number of shares of GMS Common Stock to be issued to a holder of GMS Series B-1
Preferred Stock in payment of such accrued and unpaid cumulative dividends, the
amount of accrued and unpaid cumulative dividends owed to such holder through
the Effective Time shall be divided by the product of .45 multiplied by the GDSC
Common Stock Value. For purposes of this Agreement, the "GDSC Common Stock
Value" means the average of the daily closing prices of the GDSC Common Stock on
the Nasdaq Small Cap Market during the 30- calendar day period ending three
calendar days prior to the Closing Date, multiplied by .95.
(iii) Pursuant to subsection 4(b)(ii) of Article IV.B. of
the Restated Certificate of Incorporation of GMS, each outstanding share of
Series C Preferred
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Stock of GMS ("GMS Series C Preferred Stock") shall be converted into a number
of shares of GMS Common Stock determined as follows:
(A) The "Total Purchase Price" shall be determined by
multiplying 4,542,326 by the GDSC Common Stock Value.
(B) The "Pre-C Fully Diluted Common Stock" shall equal
the number of outstanding shares of GMS Common Stock (including the shares
issued under subparagraphs (i) and (ii) above) assuming (x) the conversion into
or exchange for GMS Common Stock of all, if any, remaining securities of GMS
that are convertible into or exchangeable for GMS Common Stock other than shares
of GMS Series C Preferred Stock, and (y) the exercise of all outstanding
options, warrants or other rights to acquire GMS Common Stock or securities
which are exercisable for or convertible into GMS Common Stock, whether or not
then exercisable.
(C) The "Fully Diluted Series C Shares" shall equal the
sum of the number of outstanding shares of GMS Series C Preferred Stock and the
maximum number of shares of GMS Series C Preferred Stock issuable under all
outstanding contingent or other rights to receive such stock. For this purpose,
the maximum number of shares of GMS Series C Preferred Stock issuable pursuant
to the merger of GMS and Premier Dental Care, an Idaho corporation, shall be 180
shares at closing and 180 shares pursuant to contingent rights.
(D) The "Assumed Series C Conversion Shares" shall be
determined by dividing the Total Purchase Price by the Pre-C Fully Diluted
Common Stock, and then dividing the resulting quotient into the product of
$1,000 multiplied by the Fully Diluted Series C Shares.
(E) The "Qualified Sale Price" shall be determined by
dividing the Total Purchase Price by the sum of the Pre-C Fully Diluted Common
Stock and the Assumed Series C Conversion Shares.
(F) The number of shares of GMS Common Stock issuable
upon conversion of each outstanding share of GMS Series C Preferred Stock shall
equal $1,000 divided by 75% of the Qualified Sale Price, with the number of
shares of GMS Common Stock issuable to each holder of GMS Series C Preferred
Stock being rounded to the nearest whole share.
(b) After the occurrence of the events referred to in
subparagraph (a) above, the only outstanding shares of GMS Stock shall be shares
of GMS Common Stock and each such outstanding share of GMS Common Stock shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into and become a number of shares of GDSC Common Stock
determined by multiplying the number of shares of GMS Common Stock by the
Conversion Ratio. For purposes of this
4
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Agreement, the "Conversion Ratio" equals 4,251,089 divided by the difference
determined by subtracting 667,450 from the number of shares of GMS Common Stock
outstanding at the Effective Time. For this purpose, GMS Common Stock
outstanding at the Effective Time shall include shares of GMS Common Stock
issuable upon conversion of the shares of GMS Series C Preferred Stock to be
issued at the closing of the merger of GMS and Premier Dental Care, an Idaho
corporation, whether or not that closing shall have occurred prior to the
Effective Time.
(c) No fractional shares of GDSC Common Stock shall be issued in
the Merger. Any fractional share otherwise issuable shall be rounded to nearest
whole share.
1.04-2 GMS Options and Warrants. Each option or warrant to purchase
shares of GMS Common Stock outstanding at the Effective Time shall, by virtue of
the Merger and without any action on the part of the holder thereof, be assumed
by GDSC and shall be converted at the Effective Time into and become an option
to purchase the number of shares of GDSC Common Stock determined by multiplying
the number of shares of GMS Common Stock subject to such option or warrant
immediately prior to the Effective Time (whether or not such option or warrant
shall then have been exercisable) by the Conversion Ratio, and then rounding to
the nearest whole number. The exercise price per share of such options and
warrants shall be adjusted to the number determined by dividing the per share
exercise price of such option or warrant as in effect immediately prior to the
Effective Time by the Conversion Ratio. The term, exercisability, vesting
schedule, status as an "Incentive Stock Option" under Section 422 of the Code,
if applicable, and all other terms and conditions of the options or warrants
will to the extent permitted by law and otherwise reasonably practicable be
unchanged; each option which is an Incentive Stock Option shall be adjusted in
accordance with the requirements of Section 424(a) of the Code so as not to
constitute a modification, renewal or extension of the option within the meaning
of Section 424(h) of the Code.
1.04-3 GDSC Common Stock. Each share of GDSC Common Stock outstanding
prior to the Merger shall remain outstanding without change subsequent to the
Merger and each option or warrant to acquire shares of GDSC Common Stock
outstanding prior to the Merger shall remain outstanding without change
subsequent to the Merger.
1.04-4 Stock Splits, Etc. If, between the date of this Agreement and
the Effective Time, the outstanding shares of GDSC Common Stock shall have been
changed into a different number of shares or a different class by reason of any
reclassification, combination, recapitalization, stock split, stock dividend,
subdivision, exchange of shares, or other extraordinary transaction, the number
of shares of GDSC Common Stock to be issued by virtue of the Merger shall be
appropriately adjusted.
1.04-5 Surrender of Certificates. After the Effective Time, each
shareholder of GMS shall, upon surrender to GDSC of a certificate or
certificates
5
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representing his shares of GMS Stock, receive in exchange therefor a certificate
or certificates representing the number of shares of GDSC Common Stock into
which the GMS Stock shall have been converted pursuant to the provisions of
Section 1.04-1. Until so surrendered, each certificate which prior to the Merger
represented shares of GMS Stock shall be deemed, for all purposes, to evidence
ownership of the number of shares of GDSC Common Stock into which the shares of
GMS Stock shall have been converted.
1.05 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Stoel Rives LLP,
Portland, Oregon, at 10:00 a.m., Pacific time, on October 31, 1997 or, if later,
at 10:00 a.m., Pacific time, on the date that is 10 business days after the date
that 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").
1.06 Subsequent Actions. If, at any time after the Effective Time, GDSC
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 GDSC its right, title or interest
in, to, or under any of the rights, properties or assets of GMS acquired or to
be acquired by GDSC as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, the officers and directors of GDSC shall
be authorized to execute and deliver, in the name and on behalf of GMS, or
otherwise, all such deeds, bills of sale, assignments and assurances, and to
take and do, in the name and on behalf of GMS, 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 GDSC or otherwise to carry out the purposes of this Agreement.
ARTICLE II
Representations and Warranties of GDSC
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 a party, which shall in any event include any adverse
effect on the shareholders' equity, assets, revenue or net income of that party
in excess of $250,000; and "Material Adverse Change" means any change that has
resulted, will result or is reasonably likely to result in a Material Adverse
Effect. As used in this Agreement, "knowledge" means the actual or constructive
knowledge of the executive officers and directors of GDSC or GMS (as the context
requires). A person is deemed to have constructive knowledge for purposes of
this definition of "knowledge" only if he or she would have actual knowledge by
reason of conducting reasonable investigation or making reasonable inquiry
within the scope of his or her employment or duties.
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GDSC represents and warrants to GMS as follows:
2.01 Corporate Existence.
2.01-1 GDSC is a corporation duly organized, validly existing and in
good standing under the laws of the State of Washington, and GDSC 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. GDSC 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. Other than Dedicated Dental Systems, Inc. which
will become a subsidiary of GDSC upon consummation of the Bakersfield
Transaction, GDSC has no subsidiaries and has no investments in any corporation,
partnership, association, joint venture or other entity.
2.01-2 To GDSC's knowledge, each professional corporation with which
GDSC has entered into a support services or management agreement (each, a "GDSC
Professional Corporation") is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation, and 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.
2.02 Authorization. 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.
2.03 Capitalization. The authorized capital stock of GDSC consists of
50,000,000 shares of Common Stock, of which 3,166,306 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 558,750 shares subject to
outstanding options under the GDSC 1993 Stock Incentive Plan, shares subject to
outstanding purchase rights under the GDSC Employee Stock Purchase Plan and
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the GDSC Professional Corporation Employee Stock Purchase Plan, 369,333 shares
subject to outstanding 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 up to 1,562,180 shares of Common Stock, subject to net current
assets adjustments, including shares issuable pursuant to an asset acquisition
and merger transaction among GDSC and dental practices and a dental health plan
headquartered in Bakersfield, California (the "Bakersfield Transaction"). There
are no outstanding obligations of GDSC to repurchase or otherwise acquire any of
its outstanding shares of Common Stock, except as described in GDSC's
Registration Statement on Form SB-2 (Registration No. 333-13529). 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.
2.04 No Adverse Consequences. Neither the execution and delivery of this
Agreement by GDSC nor the consummation of the transactions contemplated by this
Agreement will
2.04-1 result in the creation or imposition of any lien, charge or
encumbrance on any of GDSC's assets or properties,
2.04-2 violate or conflict with any provision of GDSC's articles of
incorporation or bylaws,
2.04-3 violate any law, judgment, order, injunction, decree, rule,
regulation or ruling of any governmental authority applicable to GDSC, or
2.04-4 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 GDSC under or constitute a default under any
agreement, instrument, license or permit to which either GDSC is a party or by
which it is bound, except for such termination, acceleration, breach, loss or
default that would not have a Material Adverse Effect.
2.05 Brokers and Finders. GDSC 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.
2.06 Litigation. Except as set forth on Schedule 2.06, there is no claim,
litigation, proceeding, dispute, or investigation of any kind pending or, to the
knowledge of GDSC, threatened by or against GDSC.
2.07 Compliance with Laws. GDSC and, to GDSC's knowledge, the GDSC
Professional Corporations have at all relevant times conducted their businesses
in compliance with their respective articles of incorporation, bylaws and all
applicable laws
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and regulations. Neither GDSC nor, to GDSC's knowledge, any GDSC Professional
Corporation 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. Neither GDSC nor, to GDSC's
knowledge, any GDSC Professional Corporation is subject to any outstanding
order, writ, injunction or decree, or has been charged with, or threatened with
a charge of, a violation of any provision of federal, state or local law or
regulation.
2.08 Employment Matters.
2.08-1 Labor Matters
(a) GDSC is not a party or otherwise subject to any collective
bargaining agreement governing the wages, hours or terms of employment of its
employees. 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.
(b) 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 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.
(c) GDSC has not experienced any primary work stoppage or other
organized work stoppage involving its employees in the past two years.
2.08-2 Employee Benefits.
(a) Schedule 2.08-2 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 GDSC, and
complete and accurate copies of all those plans or arrangements have been
provided to GMS. Schedule 2.08-2 includes an estimate of amounts to be paid to
GDSC employees for 1997 pursuant to GDSC employee bonus plans.
(b) 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 are
listed separately as ERISA Plans on Schedule 2.08-2 (the "GDSC ERISA Plans").
The GDSC ERISA Plans
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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 401(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 512(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 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.
(c) GDSC has no obligation of any kind (whether under the terms
of the GDSC 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 2.08-2, 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.
2.08-3 Employment Agreements. Each of GDSC's employees is an "at-will"
employee and there are no written employment, commission or compensation
agreements of any kind between GDSC and any of its employees other than as
listed on Schedule 2.08-3. Copies of all of GDSC's employment or supervisory
manuals, employment or supervisory policies, and written information generally
provided to employees (such as applications or notices) have been provided to
GMS. GDSC does not have any agreements or understandings with its employees
except as reflected in the items listed in Schedules 2.08-2 and 2.08-3.
2.09 Financial Statements. GDSC has provided audited balance sheets as of
December 31, 1995 and 1996, and the related audited statements of income for the
years then ended and the unaudited balance sheet of GDSC as of September 30,
1997 (the "GDSC Current Balance Sheet") and the related statement of income for
the nine months then ended (all such balance sheets and statements collectively,
the "GDSC Financial
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Statements"). The GDSC Financial Statements present fairly the financial
position of GDSC as of the dates indicated and the results of operations for the
periods then ended, all in conformity with generally accepted accounting
principles applied on a consistent basis.
2.10 Undisclosed Liabilities. GDSC 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 GDSC
Current Balance Sheet, other than liabilities incurred in the ordinary course of
business consistent with past practice, which individually or in the aggregate
would not have a Material Adverse Effect on GDSC.
2.11 Absence of Certain Changes or Events. Since the date of the GDSC
Current Balance Sheet, except as set forth on Schedule 2.11, there has not been:
2.11-1 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;
2.11-2 Any increase in the rate or terms of compensation payable or to
become payable by GDSC to any of 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;
2.11-3 Any entry into any agreement, commitment or transaction
(including, without limitation, any borrowing, capital expenditure or capital
financing or any amendment, modification or termination of any existing
agreement, commitment or transaction) by GDSC, except agreements, commitments or
transactions in the ordinary course of business and consistent with past
practices, agreements involving less than $100,000 or as expressly contemplated
in this Agreement; or
2.11-4 Any conduct of business which is outside the ordinary course of
business.
2.12 Leases. Schedule 2.12 contains a complete and accurate list of all
real property leases ("GDSC Leases") under which GDSC is a lessee, a description
of the real property covered thereby ("GDSC Real Property"), the term of each
GDSC Lease and the monthly payments under the GDSC Lease (including triple net
charges and other assessments). GDSC does not own any real property. Complete
and accurate copies of all GDSC Leases have been delivered or made available to
GMS.
2.13 Certain Contracts and Arrangements. Schedule 2.13, which is organized
by type of agreement, contains a complete and accurate list of all agreements of
the following types ("GDSC Contracts") to which GDSC is a party or by which it
is bound:
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2.13-1 contracts or agreements for the issuance or repurchase of GDSC
Common Stock and any agreements with shareholders;
2.13-2 any mortgage, note or other instrument or agreement relating to
the borrowing of money or the incurrence of indebtedness by GDSC or GDSC's
guaranty of any obligation for the borrowing of money;
2.13-3 contracts, agreements, purchase orders or acknowledgment forms
for the purchase, sale, lease or other acquisition or disposition of more than
$100,000 of equipment, materials or capital assets;
2.13-4 contracts or agreements for the performance of services by
GDSC;
2.13-5 contracts or agreements for the provision of services to GDSC
for annual payments in excess of $100,000, excluding employment contracts;
2.13-6 contracts or agreements for the joint performance of work or
services and all other joint venture agreements;
2.13-7 contracts or agreements with agents, brokers, consignees, sales
representatives or distributors relating to the sale of GDSC's services; and
2.13-8 any other contract, instrument, agreement or obligation not
described on any other Schedule to which GDSC is a party or by which it is bound
and which contains unfulfilled obligations of GDSC with a value of $100,000 or
more.
Complete and accurate copies of all GDSC Contracts have been delivered or made
available to GMS.
2.14 Status of GDSC Leases and GDSC Contracts.
2.14-1 Each of the GDSC Leases and GDSC Contracts listed on Schedules
2.12 and 2.13 is valid, binding and enforceable by GDSC in accordance with its
terms and is in full force and effect. There is no existing default or violation
by GDSC under any GDSC Contract or GDSC Lease and no event has occurred which
(whether with or without notice, lapse of time or both) would constitute a
default of GDSC under any GDSC Contract or GDSC Lease. There is no pending or,
to GDSC's knowledge, threatened proceeding which would interfere with the quiet
enjoyment of any GDSC Real Property.
2.14-2 GDSC is not aware of any default by any other party to any GDSC
Contract or GDSC 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 GDSC Contract or GDSC Lease, and,
to its knowledge, there are no
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facts that exist indicating that any of the GDSC Contracts or GDSC Leases may be
totally or partially terminated or suspended by the other parties.
2.14-3 GDSC is not a party to, nor is it bound by, any contract or
agreement that it can reasonably foresee will result in any loss that would have
a Material Adverse Effect on GDSC 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).
2.15 Title and Condition of Tangible Assets.
2.15-1 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 for liens
disclosed on the GDSC Current Balance Sheet or 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).
2.15-2 All 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.
2.15-3 There are no developments affecting any of the GDSC Real
Property or GDSC's tangible personal property pending or, to its knowledge,
threatened which might detract from the value of such property or assets,
interfere with any present or intended use of any such property or assets or
adversely affect the marketability of such properties or assets in a manner that
GDSC could reasonably foresee would have a Material Adverse Effect.
2.16 Insurance. GDSC maintains policies of malpractice, liability, fire,
worker's compensation, director's and officer's and other forms of insurance
insuring GDSC, its officers, directors or employees, its assets or its
operations (the "GDSC Policies") which 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.
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2.17 Taxes.
2.17-1 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. GDSC has not waived any
statute of limitations in respect to Taxes or sought or received any extension
of time within which to file any return or report. All GDSC Returns filed are
complete and accurate in all respects, except where the lack of completeness or
accuracy would not have a Material Adverse Effect, and no additional Taxes are
owed by GDSC with respect to the periods covered by the GDSC Returns.
2.17-2 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.
2.17-3 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.
2.18 Certain Interests. No shareholder of GDSC nor any officer or director
of GDSC (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 GDSC's business, or (b) is indebted to GDSC. GDSC is not
indebted to any of its shareholders, directors or officers (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 GDSC
to any of its shareholders, officers, directors, or employees (or any entity
owned or controlled by one or more of such parties).
2.19 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.
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2.20 Permits and Licenses. GDSC and, to GDSC's knowledge, the GDSC
Professional Corporations hold, and at all times have held, all licenses,
permits, franchises, easements and authorizations (collectively, "Permits")
necessary for the lawful conduct of their respective businesses pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all governmental
bodies, agencies and other authorities having jurisdiction over them or any part
of their 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. GDSC and, to GDSC's
knowledge, the GDSC Professional Corporations are in compliance with all the
terms of each Permit, and there are no claims of violation by GDSC or any GDSC
Professional Corporation of any Permit.
2.21 Certain Payments. No person or entity has, directly or indirectly, on
behalf of or with respect to GDSC 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.
2.22 Environmental Conditions.
2.22-1 Compliance. GDSC has operated its business and maintained its
assets, including without limitation its real property, in compliance with all
applicable Environmental Laws. All wastes generated in connection with its
business are and have been transported and disposed of off site in compliance
with all applicable 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.
2.22-2 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.
2.23 Consents and Approvals. Except as set forth on Schedule 2.23, 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 GDSC.
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2.24 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. Complete and accurate copies of such books, records and
ledgers have been made available to GMS.
2.25 Pooling Matters. GDSC has not, based on consultation with its
independent accountants, taken or agreed to take any action that would prevent
the ability of the parties to account for the business combination to be
effected by the Merger as a pooling of interests.
2.26 Certain Tax Matters.
2.26-1 Reacquisition of Stock. GDSC has no plan or intention to
reacquire any of its stock issued in the Merger.
2.26-2 Disposition of Assets. GDSC has no plan or intention to sell or
otherwise dispose of any of the assets of GMS acquired in the Merger, except for
dispositions made in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code.
2.26-3 Continuation of Business or Use of Assets. Following the
Merger, GDSC will continue the historic business of GMS or use a significant
portion of GMS's historic business assets in a business.
2.26-4 Expenses. GDSC will pay its expenses incurred in connection
with the Merger.
2.26-5 Intercorporate Indebtedness. There is no intercorporate
indebtedness existing between GMS and GDSC that was issued, acquired, or will be
settled at a discount.
2.26-6 Not Investment Company. GDSC is not an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
2.26-7 Compensation Issues. None of the compensation received by any
shareholder-employees of GMS will be separate consideration for, or allocable
to, any of their shares of GMS Stock; none of the shares of GDSC Common Stock
received by any shareholder-employees will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length for
similar services.
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2.27 Consent Solicitation and Information Statement. Without making any
representations with respect to any information to be supplied by GMS, the
Consent Solicitation and Information Statement to be delivered by GMS to the GMS
shareholders in connection with their consideration of this Agreement and the
Merger will not contain any untrue statement of a material fact concerning GDSC
or the Merger, and will not omit to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
2.28 Reliance. GDSC recognizes and agrees that, notwithstanding any
investigation by GMS, GMS is relying upon the representations and warranties
made by GDSC in this Agreement.
2.29 Accuracy of Representations and 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 its reasonable judgment 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.
ARTICLE III
Representations and Warranties of GMS
GMS represents and warrants to GDSC as follows:
3.01 Corporate Existence.
3.01-1 GMS is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and GMS 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. GMS 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. Except as set forth on Schedule 3.01, GMS has no
subsidiaries and has no investments in any corporation, partnership,
association, joint venture or other entity.
3.01-2 To GMS's knowledge, each professional corporation with which
GMS has entered into a support services or management agreement (each, a "GMS
Professional Corporation") is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation, and has all
necessary corporate power
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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.
3.02 Authorization. GMS has the full corporate power and corporate
authority to enter into this Agreement and to carry out its terms. Except for
shareholder approval, GMS has taken all corporate action necessary to authorize
the execution, delivery and performance of this Agreement. This Agreement has
been duly and validly executed and delivered by GMS and is binding upon and
enforceable against GMS 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.
3.03 Capitalization. The authorized capital stock of GMS consists of the
following: 15,500,000 shares of Common Stock, $0.001 par value, of which
2,614,901 are issued and outstanding and 10,500,000 shares of Preferred Stock,
$0.001 par value, of which the following series are authorized and outstanding:
Series of Preferred
Stock Shares Authorized Shares Outstanding
------------------- ----------------- ------------------
Series A 395,000 395,000
Series B-1 6,287,142 6,287,142
Series B-2 3,118,571 none
Series C 5,000 2,753
All of the issued and outstanding shares of Preferred Stock of GMS are
convertible into Common Stock of GMS. All shares of capital stock of GMS issued
and outstanding are validly issued, fully paid and nonassessable. No shares have
been issued in violation of any preemptive or similar rights granted pursuant to
GMS's certificate of incorporation or otherwise. Other than this Agreement and
except as set forth on Schedule 3.03, 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 GMS of GMS's capital stock, other than
(i) 1,250,000 shares reserved for issuance pursuant to the GMS 1996 Stock Option
Plan, of which 176,000 shares are subject to outstanding options, (ii) 642,600
shares reserved for issuance pursuant to the GMS 1996 Performance Stock Option
Plan, of which 72,500 shares are subject to outstanding options, and (iii)
484,103 shares subject to outstanding warrants to purchase Common Stock of GMS.
Except as set forth on Schedule 3.03, there are no outstanding obligations of
GMS to repurchase, redeem or otherwise acquire any of its outstanding shares of
capital stock.
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3.04 No Adverse Consequences. Neither the execution and delivery of this
Agreement by GMS nor the consummation of the transactions contemplated by this
Agreement will
3.04-1 result in the creation or imposition of any lien, charge or
encumbrance on any of GMS's assets or properties,
3.04-2 violate or conflict with any provision of GMS's certificate of
incorporation or bylaws,
3.04-3 violate any law, judgment, order, injunction, decree, rule,
regulation or ruling of any governmental authority applicable to GMS, or
3.04-4 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 GMS under or constitute a default under any
agreement, instrument, license or permit to which GMS is a party or by which it
is bound, except for such termination, acceleration, breach, loss or default
that would not have a Material Adverse Effect.
3.05 Brokers and Finders. GMS 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.
3.06 Litigation. Except as set forth on Schedule 3.06, there is no claim,
litigation, proceeding, dispute or investigation of any kind pending or, to the
knowledge of GMS, threatened by or against GMS.
3.07 Compliance with Laws. GMS and, to GMS's knowledge, the GMS
Professional Corporations have at all relevant times conducted their businesses
in compliance with their respective certificates or articles of incorporation,
bylaws and all applicable laws and regulations. Except as set forth on Schedule
3.20, neither GMS nor, to GMS's knowledge, any GMS Professional Corporation 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. Neither GMS nor, to GMS's knowledge, any GMS
Professional Corporation is subject to any outstanding order, writ, injunction
or decree, or has 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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3.08 Employment Matters.
3.08-1 Labor Matters
(a) Except as set forth on Schedule 3.08-1, GMS is not a party or
otherwise subject to any collective bargaining agreement governing the wages,
hours or terms of employment of its employees. GMS 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 GMS
pending before the National Labor Relations Board or any other governmental
authority, (2) labor strike, slowdown or work stoppage actually occurring or, to
the knowledge of GMS, threatened against GMS, (3) representation petition
respecting GMS'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 GMS.
(c) GMS has not experienced any primary work stoppage or other
organized work stoppage involving its employees in the past two years.
3.08-2 Employee Benefits.
(a) Schedule 3.08-2 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 GMS, and
complete and accurate copies of all those plans or arrangements have been
provided to GDSC. Schedule 3.08-2 includes an estimate of amounts to be paid to
GMS employees for 1997 pursuant to GMS employee bonus plans.
(b) The employee pension benefit plans (within the meaning of
Section 3(2) of ERISA established and maintained by GMS that are subject to
ERISA are listed separately as GMS ERISA Plans on Schedule 3.08-2 (the "GMS
ERISA Plans"). The GMS ERISA Plans comply with the applicable requirements of
ERISA. GMS has received from the Internal Revenue Service a favorable
determination for each of the GMS ERISA Plans and their related trusts that each
of the GMS ERISA Plans is qualified under Section 401(a) of the Code and the
related trust is tax-exempt under Section 401(a) of the Code. There has been no
event subsequent to that determination that has adversely affected the tax
qualified status of the GMS 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 512(a) of the
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Code exists, or has existed, with respect to any of the GMS ERISA Plans. The
present value of all accrued benefits under each of the GMS ERISA Plans does not
exceed the value of such plan's assets, less all liabilities other than those
attributable to accrued benefits. GMS has no "potential withdrawal liability,"
as defined in Section 4201 of ERISA. None of the GMS 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 GMS ERISA Plan. Each GMS
ERISA Plan is and has been operated and administered in conformance with the
requirements of all applicable laws and regulations, whether or not the GMS
ERISA Plan documents have been amended to reflect such requirements.
(c) GMS has no obligation of any kind (whether under the terms of
the GMS 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 3.08-2, 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.
3.08-3 Employment Agreements. Each of GMS's employees is an "at-will"
employee and there are no written employment, commission or compensation
agreements of any kind between GMS and any of its employees other than as listed
on Schedule 3.08-3. Copies of all of GMS's employment or supervisory manuals,
employment or supervisory policies, and written information generally provided
to employees (such as applications or notices) have been provided to GDSC. GMS
does not have any agreements or understandings with its employees except as
reflected in the items listed in Schedules 3.08-2 and 3.08-3.
3.09 Financial Statements. GMS has provided an audited balance sheet as of
December 31, 1996, and the related audited statement of income for the period
then ended and the unaudited balance sheet of GMS as of August 31, 1997 (the
"GMS Current Balance Sheet") and the related statement of income for the eight
months then ended (all such balance sheets and statements collectively, the "GMS
Financial Statements"). The GMS Financial Statements present fairly the
financial position of GMS as of the dates indicated and the results of
operations for the periods then ended, all in conformity with generally accepted
accounting principles applied on a consistent basis.
3.10 Undisclosed Liabilities. GMS 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 GMS Current
Balance Sheet, other than
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liabilities incurred in the ordinary course of business consistent with past
practice, which individually or in the aggregate would not have a Material
Adverse Effect on GMS.
3.11 Absence of Certain Changes or Events. Since the date of the GMS
Current Balance Sheet, except as set forth on Schedule 3.11, there has not been:
3.11-1 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;
3.11-2 Any increase in the rate or terms of compensation payable or to
become payable by GMS to any of 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;
3.11-3 Any entry into any agreement, commitment or transaction
(including, without limitation, any borrowing, capital expenditure or capital
financing or any amendment, modification or termination of any existing
agreement, commitment or transaction) by GMS, except agreements, commitments or
transactions in the ordinary course of business and consistent with past
practices, agreements involving less than $100,000 or as expressly contemplated
in this Agreement; or
3.11-4 Any conduct of business which is outside the ordinary course of
business.
3.12 Leases. Schedule 3.12 contains a complete and accurate list of all
real property leases ("GMS Leases") under which GMS is a lessee, a description
of the real property covered thereby ("GMS Real Property"), the term of each GMS
Lease and the monthly payments under the GMS Lease (including triple net charges
and other assessments). Except as set forth on Schedule 3.12, GMS does not own
any real property. Complete and accurate copies of all GMS Leases have been
delivered or made available to GDSC.
3.13 Certain Contracts and Arrangements. Schedule 3.13, which is organized
by type of agreement, contains a complete and accurate list of all agreements of
the following types ("GMS Contracts") to which GMS is a party or by which it is
bound:
3.13-1 contracts or agreements for the issuance or repurchase of GMS
Stock and any agreements with shareholders;
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3.13-2 any mortgage, note or other instrument or agreement relating to
the borrowing of money or the incurrence of indebtedness by GMS or GMS's
guaranty of any obligation for the borrowing of money;
3.13-3 contracts, agreements, purchase orders or acknowledgment forms
for the purchase, sale, lease or other acquisition or disposition of more than
$100,000 of equipment, materials or capital assets;
3.13-4 contracts or agreements for the performance of services by GMS;
3.13-5 contracts or agreements for the provision of services to GMS
for annual payments in excess of $100,000, excluding employment contracts;
3.13-6 contracts or agreements for the joint performance of work or
services and all other joint venture agreements;
3.13-7 contracts or agreements with agents, brokers, consignees, sales
representatives or distributors relating to the sale of GMS's services; and
3.13-8 any other contract, instrument, agreement or obligation not
described on any other Schedule to which GMS is a party or by which it is bound
and which contains unfulfilled obligations of GMS with a value of $100,000 or
more.
Complete and accurate copies of all GMS Contracts have been delivered or made
available to GDSC.
3.14 Status of GMS Contracts and GMS Leases.
3.14-1 Each of the GMS Contracts and GMS Leases listed on Schedules
3.13 and 3.14 is valid, binding and enforceable by GMS in accordance with its
terms and is in full force and effect. There is no existing default or violation
by GMS under any GMS Contract or GMS Lease and no event has occurred which
(whether with or without notice, lapse of time or both) would constitute a
default of GMS under any GMS Contract or GMS Lease. There is no pending or, to
GMS's knowledge, threatened proceeding which would interfere with the quiet
enjoyment of any GMS Real Property.
3.14-2 GMS is not aware of any default by any other party to any GMS
Contract or GMS 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 GMS Contract or GMS Lease, and,
to its knowledge, there are no facts that exist indicating that any of the GMS
Contracts or GMS Leases may be totally or partially terminated or suspended by
the other parties.
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3.14-3 GMS is not a party to, nor is it bound by, any contract or
agreement that it can reasonably foresee will result in any loss that would have
a Material Adverse Effect on GMS 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).
3.15 Title and Condition of Tangible Assets.
3.15-1 GMS 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 for liens
disclosed on the GMS Current Balance Sheet or liens for taxes not yet due or
being contested in good faith (and for which adequate accruals or reserves have
been established on the GMS Current Balance Sheet).
3.15-2 All 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 GMS's business.
3.15-3 There are no developments affecting any of the GMS Real
Property or GMS's tangible personal property pending or, to its knowledge,
threatened which might detract from the value of such property or assets,
interfere with any present or intended use of any such property or assets or
adversely affect the marketability of such properties or assets in a manner that
GMS could reasonably foresee would have a Material Adverse Effect.
3.16 Insurance. GMS maintains policies of malpractice, liability, fire,
worker's compensation, director's and officer's and other forms of insurance
insuring GMS, its officers, directors or employees, its assets or its operations
(the "GMS Policies") which are valid, enforceable and in full force and effect.
All premiums with respect to the GMS 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 GMS Policy. The GMS Policies are sufficient for compliance with all
requirements of law and of agreements to which GMS 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.
GMS has not been refused any insurance coverage and no insurance coverage has
been canceled during the five years preceding the date of this Agreement.
3.17 Taxes.
3.17-1 Returns. GMS 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
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business, results of operations or financial condition of GMS (collectively, the
"GMS Returns") and has timely paid all Taxes shown to be due on the GMS Returns.
GMS has not waived any statute of limitations in respect of Taxes or sought or
received any extension of time within which to file any return or report. All
GMS Returns filed are complete and accurate in all respects, except where the
lack of completeness or accuracy would not have a Material Adverse Effect, and
no additional Taxes are owed by GMS with respect to the periods covered by the
GMS Returns.
3.17-2 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 GMS Current Balance Sheet are
adequate for payment of Taxes with respect to GMS in respect of all periods
ending on or before the date of the GMS Current Balance Sheet. All Taxes which
GMS 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.
3.18 Certain Interests. Except as set forth on Schedule 3.18, no
shareholder of GMS nor any officer or director of GMS (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 GMS's
business, or (b) is indebted to GMS. GMS is not indebted to any of its
shareholders, directors or officers (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. Except as set forth on
Schedule 3.18, 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 GMS to any of its shareholders, officers, directors, or
employees (or any entity owned or controlled by one or more of such parties).
3.19 No Restrictions. No power of attorney or similar authorization given
by GMS is presently in effect or outstanding. No contract or agreement to which
GMS is a party or is bound or to which any of its properties or assets is
subject limits the freedom of GMS to compete in any line of business or with any
person.
3.20 Permits and Licenses. Except as set forth on Schedule 3.20, GMS and,
to GMS's knowledge, the GMS Professional Corporations hold, and at all times
have held, all Permits necessary for the lawful conduct of their respective
businesses pursuant to all applicable statutes, laws, ordinances, rules and
regulations of all governmental bodies, agencies and other authorities having
jurisdiction over them or any part of their 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. GMS and, to GMS's knowledge, the GMS Professional Corporations are in
compliance with all the terms of each Permit, and there are no claims of
violation by GMS or any GMS Professional Corporation of any Permit.
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3.21 Certain Payments. No person or entity has, directly or indirectly, on
behalf of or with respect to GMS 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.
3.22 Environmental Conditions. GMS has operated its business and maintained
its assets, including without limitation its real property, in compliance with
all applicable Environmental Laws. All wastes generated in connection with its
business are and have been transported and disposed of off site in compliance
with all applicable 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.
3.23 Consents and Approvals. Except as set forth on Schedule 3.23, 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 GMS.
3.24 Records. The books of account, minute books, stock certificate books
and stock transfer ledgers of GMS are complete and accurate in all material
respects, and there have been no transactions involving the business of GMS
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.
3.25 Pooling Matters. GMS has not, based on consultation with its
independent accountants, taken or agreed to take any action that would prevent
the ability of the parties to account for the business combination to be
effected by the Merger as a pooling of interests.
3.26 Certain Tax Matters.
3.26-1 Liabilities Incurred in Ordinary Course. The liabilities of GMS
to be assumed by GDSC and the liabilities to which the transferred assets of GMS
are subject were incurred by GMS in the ordinary course of its business.
3.26-2 Expenses. GMS and the shareholders of GMS will pay their
respective expenses, if any, incurred in connection with the Merger.
3.26-3 Intercorporate Indebtedness. There is no intercorporate
indebtedness existing between GMS and GDSC that was issued, acquired, or will be
settled at a discount.
3.26-4 Not Investment Company. GMS is not an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
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3.26-5 Not Subject to Title 11 Case. GMS is not under the jurisdiction
of a court in a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
3.26-6 Value of Assets. The fair market value of the assets of GMS
transferred to GDSC will equal or exceed the sum of the liabilities assumed by
GDSC plus the amount of liabilities, if any, to which the transferred assets are
subject.
3.26-7 Compensation Issues. None of the compensation received by any
shareholder-employees of GMS will be separate consideration for, or allocable
to, any of their shares of GMS Stock; none of the shares of GDSC Common Stock
received by any shareholder-employees will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length for
similar services.
3.27 Consent Solicitation and Information Statement. Without making any
representations with respect to any information to be supplied by GDSC, the
Consent Solicitation and Information Statement to be delivered by GMS to the GMS
shareholders in connection with their consideration of this Agreement and the
Merger will not contain any untrue statement of a material fact concerning GDSC
or the Merger, and will not omit to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
3.28 Reliance. GMS recognizes and agrees that, notwithstanding any
investigation by GDSC, GDSC is relying upon the representations and warranties
made by GMS in this Agreement.
3.29 Accuracy of Representations and Warranties. None of the
representations or warranties of GMS 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. GMS does not
know of any fact that has resulted or that, in its reasonable judgment will
result, in any material adverse change in GMS's business, results of operation,
financial condition or prospects that has not been set forth in this Agreement.
ARTICLE IV
Covenants of GDSC
4.01 Access to Properties, Books and Records. Prior to the Closing Date,
GDSC shall, at GMS' request, afford or cause to be afforded to the agents,
attorneys, accountants and other authorized representatives of GMS reasonable
access during normal business hours to all employees, properties, books and
records of GDSC and shall permit such persons, at GMS' expense, to make copies
of such books and records. GDSC shall
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deliver to GMS monthly financial statements of GDSC promptly after they become
available. GMS shall treat, and shall cause all of its agents, attorneys,
accountants and other authorized representatives to treat, all information
obtained pursuant to this Section as confidential in accordance with Section
10.01 hereof. No investigation by GMS or any of its authorized representatives
pursuant to this Section shall affect any representation, warranty or closing
condition of any party hereto.
4.02 Negative Covenants. Except as otherwise permitted by this Agreement or
with the prior written consent of GMS, prior to the Effective Time, GDSC shall
not take any of the following actions, except in connection with the Bakersfield
Transaction and any other dental practice acquisitions disclosed in schedules to
this Agreement:
(a) Incur more than $100,000 of additional debt for borrowed money
(including without limitation 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) except in the ordinary and
usual course of its business and consistent with past practices, forgive or
release any debt or claim, grant a waiver of any right or voluntarily suffer any
loss, each with a value of $100,000 or more;
(b) Declare, pay or make any dividend or other distribution of money
or property on or with respect to any share of its capital stock;
(c) 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;
(d) 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;
(e) 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;
(f) Acquire any assets with a value of $100,000 or more, other then
assets acquired in the ordinary and usual course of its business and consistent
with past practices;
(g) 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;
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(h) 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;
(i) 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 salaries required by
employment arrangements existing on the date hereof or otherwise in the ordinary
and usual course of its business;
(j) Implement or agree to any implementation of or amendment of a
substantive provision of 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;
(k) Change the accounting methods, policies or practices of GDSC;
(l) Hire any new executive officers;
(m) Agree or commit to do any of the foregoing.
4.03 Affirmative Covenants. Except as otherwise permitted by this Agreement
or with the prior written consent of GMS, prior to the Effective Time, GDSC
shall:
(a) Operate the business of GDSC as presently operated and only in the
ordinary course and consistent with past practices;
(b) Advise GMS 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;
(c) When the consent of any third party to the transactions
contemplated by this Agreement is required under the terms of any contract or
agreement listed on Schedule 2.13, use its best efforts to obtain such consent
on terms and conditions not less favorable than those in effect on the date
hereof;
(d) Use its best efforts to maintain all of its tangible personal
property in good operating condition, reasonable wear and tear excepted,
consistent with past practices, and take all steps reasonably necessary to
maintain GDSC's intangible assets;
(e) 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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(f) Use its best efforts to retain all employees;
(g) Maintain its books and records in accordance with past practices;
(h) 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;
(i) Comply with all laws, rules and regulations applicable to it; and
(j) Preserve and maintain its separate corporate existence, rights,
privileges and franchises in connection therewith and not amend its articles of
incorporation or bylaws.
ARTICLE V
Covenants of GMS
5.01 Access to Properties, Books and Records. Prior to the Closing Date,
GMS 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 GMS and shall permit such persons, at GDSC's expense, to make copies
of such books and records. GMS shall deliver to GDSC monthly financial
statements of GMS 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 as
confidential in accordance with Section 10.01 hereof. No investigation by GDSC
or any of its authorized representatives pursuant to this Section shall affect
any representation, warranty or closing condition of any party hereto.
5.02 Negative Covenants. Except as otherwise permitted by this Agreement or
with the prior written consent of GDSC, prior to the Effective Time, GMS shall
not take any of the following actions, except in connection with dental practice
acquisitions disclosed in schedules to this Agreement:
(a) Incur more than $100,000 of additional debt for borrowed money
(including without limitation 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) except in the ordinary and
usual course of its business and consistent with past practices, forgive or
release any debt or claim, grant a waiver of any right or voluntarily suffer any
loss, each with a value of $100,000 or more;
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(b) Declare, pay or make any dividend or other distribution of money
or property on or with respect to any share of its capital stock;
(c) 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;
(d) 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;
(e) 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;
(f) Acquire any assets with a value of $100,000 or more, other then
assets acquired in the ordinary and usual course of its business and consistent
with past practices;
(g) 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;
(h) 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;
(i) 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 salaries required by
employment arrangements existing on the date hereof or otherwise in the ordinary
and usual course of its business;
(j) Implement or agree to any implementation of or amendment of a
substantive provision of 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;
(k) Change the accounting methods, policies or practices of GMS;
(l) Hire any new executive officers; or
(m) 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 with the prior written consent of GDSC, prior to the Effective Time, GMS
shall:
(a) Operate the business of GMS as presently operated and only in the
ordinary course and consistent with past practices;
(b) 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;
(c) When the consent of any third party to the transactions
contemplated by this Agreement is required under the terms of any contract or
agreement listed on Schedule 3.13, use its best efforts to obtain such consent
on terms and conditions not less favorable than those in effect on the date
hereof;
(d) Use its best efforts to maintain all of its tangible personal
property in good operating condition, reasonable wear and tear excepted,
consistent with past practices, and take all steps reasonably necessary to
maintain GMS's intangible assets;
(e) Not cancel or change any policy of insurance (including
self-insurance) or fidelity bond or any policy or bond providing substantially
the same coverage;
(f) Use its best efforts to retain all employees;
(g) Maintain its books and records in accordance with past practices;
(h) 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;
(i) Comply with all laws, rules and regulations applicable to it;
(j) Preserve and maintain its separate corporate existence, rights,
privileges and franchises in connection therewith and not amend its articles of
incorporation or bylaws.
5.04 Shareholder Approval. GMS shall take all actions necessary under
applicable law to obtain the required approval of this Agreement, the Merger and
the transactions contemplated hereby of its shareholders (at a meeting or by
written consent, as applicable) as soon as reasonably feasible, subject to
applicable law, after the execution hereof. In connection therewith, GMS shall
recommend to its shareholders approval of the Merger, this Agreement and, to the
extent required, the transactions contemplated hereby.
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ARTICLE VI
Joint Covenants
GDSC and GMS covenant and agree that they will act in accordance with the
following:
6.01 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.
6.02 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 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
shall limit the rights of the parties under Articles 9 and 10.
6.03 Office Locations. Upon consummation of the Merger, the main
corporate office of GDSC will be located at GMS's current corporate office in
southern California which shall be moved as soon as reasonably practicable to a
location in reasonable proximity to the Los Angeles International Airport. The
current corporate office of GDSC will continue to be maintained in Vancouver,
Washington as a second corporate office, which will be the primary location for
the corporate functions of clinical affairs, corporate development and
management information systems.
6.04 Consent Solicitation and Information Statement. In connection
with obtaining the approval of GMS shareholders as required by Section 7.11,
GDSC and GMS shall prepare and deliver to all GMS shareholders a Consent
Solicitation and Information Statement in such form as the parties reasonably
determine will comply with applicable disclosure requirements.
ARTICLE VII
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:
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7.01 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 shall
have been obtained and be satisfactory in form and content to GDSC.
7.02 Consents. GMS shall have obtained the third-party consents required
under the terms of the GMS Contracts and GMS Leases, and such consents shall not
have required any change to the terms and conditions of the GMS Contracts and
GMS Leases other than changes consented to in writing by GDSC or that in the
aggregate would not have a Material Adverse Effect on GMS.
7.03 Representations, Warranties and Covenants.
7.03-1 All representations and warranties of GMS 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.
7.03-2 All of the terms, covenants and conditions to be complied with
and performed by GMS at or prior to the Closing shall in all material respects
have been complied with or performed thereby.
7.03-3 GDSC shall have received a certificate of GMS, dated as of the
Closing Date and executed by the President of GMS, to the effect that the
representations and warranties of GMS 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 GMS has in all material respects each
complied with or performed all terms, covenants and conditions to be complied
with or performed by it at or prior to the Closing.
7.04 Adverse Proceedings. No suit, action, 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 GMS to restrain or prohibit, or obtain damages in
respect of, this Agreement or the transactions contemplated by this Agreement.
7.05 No Adverse Change. There shall not have been any Material Adverse
Change affecting GMS.
7.06 Opinion of Counsel. GDSC shall have received an opinion of McDermott
Will and Emery, counsel to GMS, dated the Closing Date, in substantially the
form attached hereto as Exhibit A.
7.07 Employment Agreement. Michael Fiore shall have executed and delivered
an Employment Agreement with GDSC in the form attached hereto as Exhibit B-4.
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7.08 Shareholder Representation Letter. Each shareholder of GMS shall have
executed a shareholder representation letter in the form attached as Exhibit C-1
(the "Representation Letter") and a shareholder consent in the form attached as
Exhibit C-2 (the "Shareholder Consent"), provided however, that this condition
shall also be satisfied if each of the following are met: (1) each affiliate of
GMS identified on Schedule 7.09 executes a Representation Letter and a
Shareholder Consent, (2) all GMS shareholders who do not execute a
Representation Letter and a Shareholder Consent hold, in the aggregate, shares
of GMS Stock that will be converted into no more than 3% of the GDSC Common
Stock to be issued pursuant to Section 1.04-1 without giving effect to any
exercise of appraisal rights, (3) with respect to any GMS shareholder who does
not execute a Representation Letter and a Shareholder Consent, GMS shall have
provided information to GDSC demonstrating to GDSC's reasonable satisfaction
that such shareholder is an accredited investor as defined in Rule 501 of
Regulation D under the 1933 Act and (4) all shareholders who are parties to the
agreements specified in Section 7.13 shall have executed a Representation Letter
and a Shareholder Consent.
7.09 Affiliate Representation Letter. Each affiliate of GMS identified on
Schedule 7.09 shall have executed an affiliate representation letter in the form
attached as Exhibit D.
7.10 Tax Opinion. GDSC and GMS shall have received a tax opinion from Stoel
Rives LLP, dated the Closing Date, in substantially the form attached as Exhibit
E.
7.11 Shareholder Approval. The Merger shall have been approved by the
shareholders of GMS in the manner required by the Delaware General Corporation
Act and the certificate of incorporation and bylaws of GMS.
7.12 Fairness Opinion. GDSC shall have received an opinion from EVEREN
Securities, Inc. that the terms of the Merger are fair to the shareholders of
GDSC from a financial point of view.
7.13 Termination of Agreements. The Investor Rights Agreement dated October
11, 1996 between GMS and certain of its investors, as amended by Amendment No. 1
dated April 1, 1997, the Co-Sale and First Refusal Agreement dated October 11,
1996 between GMS and certain of its investors, the letter agreement dated
October 10, 1996 regarding management rights between GMS and Accel V L.P., and
the engagement letter agreement between GMS and Dean Witter Reynolds Inc. dated
November 29, 1995, as amended on August 19, 1996 and October 10, 1996, shall
have been terminated.
7.14 Dissenters. Holders of GMS Stock that would be converted into no more
than 3% of the GDSC Common Stock to issued pursuant to Section 1.04-1 (assuming
no exercise of appraisal rights) shall have exercised or be eligible to exercise
appraisal rights under the Delaware General Corporation Law.
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7.15 Conversion of Preferred Stock. All outstanding shares of Preferred
Stock of GMS shall have been converted into Common Stock of GMS as provided for
in Section 1.04-1.
7.16 Clarification of Repurchase Rights. Grant M. Sadler, Kenneth J. Davis,
Michael T. Fiore and Norman Huffaker shall each have executed and delivered a
Clarification of Repurchase Rights Agreement with GMS in a form satisfactory to
GDSC.
7.17 Clarification of Earnout Rights. Earl R. Burrell, Warren Francis and
Victor G. Romley shall each have executed and delivered a Clarification of
Earnout Rights Agreement with GMS in a form satisfactory to GDSC.
7.18 Acquisition Agreements. GMS shall have entered into definitive
agreements for the merger of Premier Dental Care, an Idaho corporation, with and
into GMS and the purchase of substantially all of the assets of the dental
practice conducted by Charles Murillo, D.D.S., dba Community Dental Group, in
each case with economic terms substantially in conformance with those contained
in the last drafts of such agreements provided to GDSC.
7.19 Pooling Opinion. GDSC shall have received an opinion from KPMG Peat
Marwick LLP that the Merger may be accounted for as pooling of interests.
7.20 Imperial Bank Waiver. Imperial Bank shall have executed and delivered
a waiver of any rights it may have to receive additional warrants to acquire GMS
Stock in a form satisfactory to GDSC.
7.21 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 VIII
Conditions to Obligations of GMS
The obligations of GMS 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 shall
have been obtained and be satisfactory in form and content to GMS.
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8.02 Consents. GDSC shall have obtained the third-party consents required
under the terms of the GDSC Contracts and GDSC Leases, and such consents shall
not have required any change to the terms and conditions of the GDSC Contracts
and GDSC Leases other than changes consented to in writing by GMS or that in the
aggregate would not have a Material Adverse Effect on GDSC.
8.03 Representations, Warranties and Covenants.
8.03-1 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.
8.03-2 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.
8.03-3 GMS shall have received a Certificate of GDSC, dated as of the
Closing Date and 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.
8.04 Adverse Proceedings. No suit, action, 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 GMS 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 affecting GDSC.
8.06 Opinion of Counsel. GMS shall have received an opinion of Stoel Rives
LLP, counsel to GDSC, dated the Closing Date, in substantially the form attached
hereto as Exhibit F.
8.07 Employment Agreements. GDSC and each of Dany Tse, Theodore Van Eerden
and William Westrate shall have executed employment agreements in the forms
attached hereto as Exhibits B-1, B-2 and B-3.
8.08 GDSC Board of Directors and Officers. GDSC will have taken such
actions, including obtaining resignations of current GDSC directors who are not
intended to
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continue as directors, so that as of the Effective Time, GDSC's Board of
Directors will be composed of the persons listed in Section 1.03 of this
Agreement and the officer and other senior management positions at GDSC listed
in Section 1.03 shall be held by the persons specified.
8.09 Shareholder Approval. The Merger shall have been approved by the
shareholders of GMS in the manner required by the Delaware General Corporation
Act and the certificate of incorporation and bylaws of GMS.
8.10 Tax Opinion. GDSC and GMS shall have received a tax opinion from Stoel
Rives LLP, dated the Closing Date, in substantially the form attached as Exhibit
E.
8.11 Nasdaq Listing. GDSC shall have filed a Notification Form for Listing
of Additional Shares with payment of the applicable filing fee for inclusion on
the Nasdaq Small Cap Market of the shares of GDSC Common Stock to be issued in
the Merger.
8.12 Actions Satisfactory to GMS'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 GMS.
ARTICLE IX
Exclusivity; Termination
9.01 Exclusivity.
9.01-1 Except as provided in Section 9.02(f), each of GMS and GDSC
shall not, and each shall use its respective best efforts to cause its agents,
attorneys and securityholders to not, except as expressly contemplated herein,
directly or indirectly, without the other party's prior written consent,
initiate, solicit, entertain, encourage any proposal or offers from or hold
discussions with any corporation, partnership, person or other entity (other
than the other party) concerning a Competing Transaction (as defined below).
Each party will promptly notify the other by telephone and thereafter confirm in
writing, if any such discussions or negotiations are sought to be initiated
with, or any such proposal or possible proposal is received by such party. In
the event one party receives an unsolicited offer relating to a Competing
Transaction, such party shall promptly inform the person making such unsolicited
offer of the existence of this Agreement and, subject to Section 9.02(f), shall
reject such offer.
9.01-2 The term "Competing Transaction" shall mean any of the
following involving either GMS or GDSC, as the case may be (other than the
Merger): (i) any merger, consolidation, share exchange, business combination or
similar transactions involving such party, or (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other
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disposition of 15% or more of the assets of such party and its subsidiaries,
taken as a whole, in a single transaction or series of transactions. The term
"Competing Transaction" shall not include (x) the Bakersfield Transaction, or
(y) any one or more transactions which, in the aggregate, do not contemplate the
issuance of greater than 10% of the outstanding shares of GMS common stock or
GDSC Common Stock (assuming issuance of approximately 1.5 million shares of GDSC
Common Stock proposed to be issued pursuant to the Bakersfield Transaction).
9.02 Right of Parties to Terminate. This Agreement may be terminated:
(a) by GDSC, if any of the authorizations, consents, approvals,
filings or registrations described in Section 7.01 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;
(b) by GMS, 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
GMS and all reasonable final appeals shall have been exhausted;
(c) by GDSC, if GMS shall have breached any of its obligations
hereunder in any material respect;
(d) by GMS, if GDSC shall have breached any of its obligations
hereunder in any material respect;
(e) by either GMS 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 shall not
be available to any party whose failure to fulfill or perform any obligation
under this Agreement has substantially or materially contributed to the cause
of, or resulted in, the failure of the Closing to occur on or before such date;
or
(f) by either GMS or GDSC in the event that: (i) GMS or GDSC receives
an unsolicited written offer from a third party relating to a Competing
Transaction (which offer may or may not be subject to confirmatory due
diligence) and (ii) such party shall have notified the other party in writing of
all terms and conditions of such offer, then thereafter such party shall be
entitled to negotiate and provide information to such third party. In addition,
in the event that such offer, including the financing thereof, has been
determined by the Board of Directors of such party based upon the written
opinion of its outside financial advisors to be on terms financially superior
for its shareholders than the Merger (a "Bona Fide Offer"), such party may
terminate this Agreement and accept such Bona Fide Offer; provided, however,
that prior to the termination of this Agreement and the acceptance of such Bona
Fide Offer, such party shall have given the other party 48
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hours written notice of such Bona Fide Offer and of its intention to accept such
offer and terminate this Agreement. It is the intent of the parties hereto, that
in the event that any party receives a Bona Fide Offer, the other party shall
have the opportunity to consider such offer and participate, at its option, in
making a counter proposal.
9.03 Break-Up Fee. In the event that a party breaches Section 9.01 or
terminates this Agreement pursuant to Section 9.02(f) and the other party has
indicated its willingness to proceed with the proposed Merger and is not in
breach of any term or provision of this Agreement, such breaching or terminating
party will pay to the other party in cash a break-up fee of $300,000 within 30
days after such breach or termination.
9.04 Effect of Termination. If either GDSC or GMS decides to terminate this
Agreement pursuant to Section 9.02, such party shall promptly give written
notice to the other party to this Agreement of such decision. In the event of a
termination pursuant to Section 9.02, the parties hereto shall be released from
all liabilities and obligations arising under this Agreement (other than those
described in Section 9.03, if applicable, and Article 10 hereof) with respect to
the matters contemplated by this Agreement.
9.05 Delivery of Schedules. The parties acknowledge that at the time of
signing of this Agreement the Schedules were not attached and had not been
provided by each party to the other party. Each party agrees to provide all
Schedules required by this Agreement to the other party no later than October
30, 1997. Each party shall then have until October 31, 1997 either to accept the
Schedules of the other party or to terminate this Agreement if, in its sole
discretion, it is not satisfied with the Schedules of the other party. If each
party accepts the Schedules of the other party, the Schedules shall be attached
to this Agreement and considered part of this Agreement as of the date hereof.
ARTICLE X
Confidentiality; Press Releases
10.01 Confidentiality.
10.01-1 No information concerning GDSC or GMS not previously disclosed
to the public or in the public domain that has been furnished to or obtained by
the other party 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 the party to whom the information has been provided or used for any purpose
other than as contemplated herein. If the transactions contemplated by this
Agreement are not consummated, each party shall hold such information in
confidence for a period of two years from the date of any termination of this
Agreement and shall not use the information for any purpose. All such
information
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that is in writing or embodied on a diskette, tape or other tangible medium
shall be promptly returned to the other party.
10.01-2 Notwithstanding the foregoing, such obligations of GDSC and
GMS shall not apply to information:
(a) that is, or becomes, publicly available from a source other than
the other party;
(b) that was known and can be shown to have been known by a party at
the time of its receipt from the other party;
(c) that is received from a third party without breach of this
Agreement and without knowledge that such third party is subject to a
confidentiality agreement with respect to that information;
(d) that is required by law to be disclosed; or
(e) that is disclosed in accordance with the written consent of the
other party.
10.02 Press Releases. No press releases or other public announcements
concerning the transactions contemplated by this Agreement shall be made by
either party without the prior written consent of the other party, which
consent, in either case, shall not be unreasonably withheld; 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 XI
Other Provisions
11.01 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.
11.02 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.
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11.03 Fees and Expenses. GDSC shall be solely responsible for all costs and
expenses incurred by it, and GMS shall be solely responsible for all costs and
expenses incurred by it, in connection with the negotiation, preparation and
performance of and compliance with the terms of this Agreement and the Schedules
and Exhibits referred to herein.
11.04 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.
11.05 Headings. The headings are for convenience only and will not control
or affect the meaning or construction of the provisions of this Agreement.
11.06 Governing Law. The construction and performance of this Agreement
will be governed by the laws of the State of Washington (except for the choice
of law provisions thereof).
11.07 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 GMS:
McDermott Will & Emery
1301 Dove Street, Suite 500
Newport Beach, CA 92660
Telecopy No.: (714) 815-9348
Attention: Richard Babcock
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11.08 Breach; Equitable Relief. The parties acknowledge that the 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.
11.09 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.
11.10 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.
11.11 Survival. The representations and warranties made in this Agreement
or in any exhibit, schedule, certificate or agreement delivered pursuant to this
Agreement shall not survive after the Effective Time.
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
----------------------------------
GMS: GMS DENTAL GROUP, INC.
By: MICHAEL THOMAS FIORE
-------------------------------------
Title: CEO and President
----------------------------------
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