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) February 28, 1998
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GENTLE DENTAL SERVICE CORPORATION
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(Exact name of registrant as specified in its charter)
Washington 000-23673 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
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(Address of principal executive offices) (Zip Code)
(714) 998-0587
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(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 February 28, 1998, Gentle Dental Service Corporation (the "Company")
completed the acquisition of substantially all of the assets of Affordable
Dental Care, Inc. ("ADC"), a provider of dental care in western Oregon. The ADC
operations have 19 dentists in 9 offices in the Willamette Valley and
southwestern Oregon. All of ADC's offices are outside of the Portland
metropolitan area, where the Company currently provides dental practice
management services to 13 offices. In addition, the Company has entered into a
definitive agreement to acquire all of the outstanding stock of Managed Dental
Care of Oregon, Inc. ("MDCO"), a dental care organization which has an annually
renewable contract with the state of Oregon to provide care under the Oregon
Health Plan. MDCO in turn contracts with dental care providers, including ADC,
to provide dental care to Oregon Health Plan participants. The acquisition of
MDCO is subject to Oregon State regulatory approval.
The purchase price paid at closing for ADC's assets consisted of
$7,574,600 in cash. The purchase price to be paid at closing for the stock of
MDCO will consist of $950,000 in cash. In addition, the Company has agreed to
make cash earnout payments equal to .66 times the combined EBITDA of the
acquired businesses for the first 12 months following the ADC closing, .67 times
such EBITDA for the second 12 months following the ADC closing, and .67 times
such EBITDA for the third 12 months following the ADC closing. The cash paid at
closing was borrowed under the Company's credit facility with Imperial Bank.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
Audited Combined Balance Sheets of ADC and MDCO as of December
31, 1996 and 1997, and related audited Combined Statements of
Operations, Stockholders' Equity and Cash Flows of ADC and MDCO
for the years ended December 31, 1996 and 1997.
The foregoing financial statements are not included in this
report and will be filed by amendment to this report on or before
May 15, 1998.
(b) Pro forma financial information. Pro forma Balance Sheet as of
December 31, 1997 and pro forma Statement of Operations for the
year ended December 31, 1997.
The foregoing pro forma financial statements are not included in
this report and will be filed by amendment to this report on or
before May 15, 1998.
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(c) Exhibits.
2.1 Asset Purchase Agreement, dated as of February 28, 1998,
between the Company and Affordable Dental Care, Inc.
2.2 Stock Purchase Agreement, dated as of February 28, 1998,
between the Company and the sole shareholder of Managed
Dental Care of Oregon, 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: March 13, 1998
GENTLE DENTAL SERVICE CORPORATION
By NORMAN R. HUFFAKER
--------------------------------------
Norman R. Huffaker,
Chief Financial Officer
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EXHIBIT INDEX
Exhibit Description
- ------- -----------
2.1 Asset Purchase Agreement, dated as of February 28, 1998, between
the Company and Affordable Dental Care, Inc.
The following exhibits and schedules to the Asset Purchase
Agreement have been omitted and will be provided to the Securities
and Exchange Commission upon request:
Exhibit A Assumption Agreement
Exhibit B Assignment and Bill of Sale to GDSC
Exhibit C Assignment to Professional Corporation
Exhibit D Restated MDCO Contract
Exhibit E Agreement Regarding New Offices
Exhibit F Employment Agreement
Exhibit G-1 Lease of Corvallis Dental Office
Exhibit G-2 Lease of Newberg Administrative Office
Exhibit H Opinion of ADC's Counsel
Exhibit I Opinion of GDSC's Counsel
Schedule 1.02-2 Excluded Assets
Schedule 1.10 Purchase Price Allocation
Schedule 3.04 Litigation
Schedule 3.06-2 Employee Benefits
Schedule 3.06-3 Employment Manuals and Policies
Schedule 3.06-4 Compensation
Schedule 3.07 Financial Statements
Schedule 3.08 Receivables
Schedule 3.09 Prepaid Expenses and Other
Schedule 3.10 Tangible Personal Property
Schedule 3.11 Payables
Schedule 3.12 Indebtedness
Schedule 3.13 Other Liabilities
Schedule 3.15 Leases
Schedule 3.16 Contracts
Schedule 3.19 Insurance
Schedule 3.25 Consents and Approvals
2.2 Stock Purchase Agreement, dated as of February 28, 1998, between
the Company and the sole shareholder of Managed Dental Care of
Oregon, Inc.
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The following exhibits and schedules to the Stock Purchase
Agreement have been omitted and will be provided to the Securities
and Exchange Commission upon request:
Exhibit A Opinion of MDCO's Counsel
Exhibit B Opinion of GDSC's Counsel
Schedule 1.06 Purchase Price Allocation
Schedule 3.04 Litigation
Schedule 3.06-2 Employee Benefits
Schedule 3.06-3 Employment Manuals and Policies
Schedule 3.06-4 Compensation
Schedule 3.07 Financial Statements
Schedule 3.08 Receivables
Schedule 3.09 Prepaid Expenses and Other
Schedule 3.10 Tangible Personal Property
Schedule 3.11 Payables
Schedule 3.12 Indebtedness
Schedule 3.13 Other Liabilities
Schedule 3.15 Leases
Schedule 3.16 Contracts
Schedule 3.19 Insurance
Schedule 3.25 Consents and Approvals
ASSET PURCHASE AGREEMENT
between
GENTLE DENTAL SERVICE CORPORATION
and
AFFORDABLE DENTAL CARE, INC.
Dated February 28, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I Purchase and Sale of Assets................................... 1
1.01 Purchase and Sale...................................... 1
1.02 Excluded Assets........................................ 3
1.03 Assumption of Liabilities.............................. 3
1.04 Purchase Price......................................... 3
1.05 Purchase Price Adjustment.............................. 5
1.06 Employees.............................................. 6
1.07 Instruments of Conveyance and Transfer................. 6
1.08 Further Assurances..................................... 6
1.09 Closing................................................ 7
1.10 Allocation of Purchase Price........................... 7
ARTICLE II Representations and Warranties of GDSC........................ 7
2.01 Authorization.......................................... 7
2.02 Compliance............................................. 7
2.03 Consents............................................... 8
2.04 Accuracy of Representations and Warranties............. 8
2.05 Reliance............................................... 8
ARTICLE III Representations and Warranties of ADC and Shareholder......... 8
3.01 Corporate Existence; Authority......................... 8
3.02 No Adverse Consequences................................ 8
3.03 Brokers and Finders.................................... 9
3.04 Litigation............................................. 9
3.05 Compliance with Laws................................... 9
3.06 Employment Matters..................................... 9
3.07 Financial Statements................................... 11
3.08 Receivables............................................ 11
3.09 Prepaid Expenses and Other............................. 11
3.10 Personal Property...................................... 11
3.11 Payables............................................... 11
3.12 Indebtedness........................................... 11
3.13 Other Liabilities...................................... 12
3.14 Absence of Certain Changes or Events................... 12
3.15 Leases................................................. 12
3.16 Certain Contracts and Arrangements..................... 13
3.17 Status of Contracts and Leases......................... 13
3.18 Title and Condition of Tangible Assets................. 14
3.19 Insurance.............................................. 15
3.20 Taxes.................................................. 15
3.21 No Restrictions........................................ 15
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Page
3.22 Permits and Licenses................................... 16
3.23 Certain Payments....................................... 16
3.24 Environmental Conditions............................... 16
3.25 Consents and Approvals................................. 16
3.26 Records................................................ 17
3.27 Reliance............................................... 17
3.28 Accuracy of Representations and Warranties............. 17
3.29 MDCO Members........................................... 17
ARTICLE IV Covenants of ADC and Shareholder.............................. 17
4.01 Access to Properties, Books and Records................ 17
4.02 Negative Covenants..................................... 17
4.03 Affirmative Covenants.................................. 18
4.04 No Negotiations With Others............................ 19
ARTICLE V Joint Covenants............................................... 20
5.01 Governmental Consents.................................. 20
5.02 Best Efforts; No Inconsistent Action................... 20
5.03 Lease Consents......................................... 20
ARTICLE VI Conditions to Obligations of GDSC............................. 20
6.01 Governmental Approvals................................. 20
6.02 Consents............................................... 20
6.03 Representations, Warranties and Covenants.............. 21
6.04 Adverse Proceedings.................................... 21
6.05 No Adverse Change...................................... 21
6.06 MDCO Contract.......................................... 21
6.07 Agreement Regarding New Offices........................ 21
6.08 Employment Agreement................................... 21
6.09 Leases................................................. 21
6.10 Opinion of Counsel..................................... 21
6.11 Corporate Name Change.................................. 21
6.11 Actions Satisfactory to GDSC's Counsel................. 22
ARTICLE VII Conditions to Obligations of ADC.............................. 22
7.01 Representations, Warranties and Covenants.............. 22
7.02 Adverse Proceedings.................................... 22
7.03 Agreement Regarding New Offices........................ 22
7.04 Employment Agreement................................... 22
7.05 Leases................................................. 22
7.06 Opinion of Counsel..................................... 23
7.07 Professional Corporation............................... 23
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Page
7.08 Actions Satisfactory to ADC's Counsel.................. 23
ARTICLE VIII Termination .............................................. 23
8.01 Right of Parties to Terminate.......................... 23
8.02 Effect of Termination.................................. 23
ARTICLE IX Survival; Indemnification..................................... 24
9.01 Survival............................................... 24
9.02 Indemnification by ADC and Shareholder................. 24
9.03 Indemnification by GDSC................................ 24
9.04 Indemnification Procedure.............................. 25
9.05 Right of Offset........................................ 26
9.06 Arbitration of Contested Offset........................ 27
9.07 Limitation............................................. 28
9.08 Rights Not Exclusive................................... 28
ARTICLE X Confidentiality; Press Releases............................... 28
10.01 Confidentiality........................................ 28
10.02 Press Releases......................................... 29
ARTICLE XI Other Provisions.............................................. 29
11.01 Benefit and Assignment................................. 29
11.02 Entire Agreement....................................... 29
11.03 Fees and Expenses...................................... 29
11.04 Amendment, Waiver, etc................................. 30
11.05 Headings............................................... 30
11.06 Governing Law.......................................... 30
11.07 Notices................................................ 30
11.08 Breach; Equitable Relief............................... 30
11.09 Attorneys' Fees........................................ 31
11.10 Counterparts........................................... 31
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<PAGE>
INDEX OF DEFINED TERMS
Term Location of Definition
- ---- ----------------------
1933 Act.............................................. 3.27
ADC................................................... Introduction
Assets................................................ 1.01
Assumed Liabilities................................... 1.04-2
Closing............................................... 1.09
Closing Date.......................................... 1.09
Code.................................................. 3.06-2
Contracts............................................. 1.01-6
Current Balance Sheet................................. 3.07-1
Damages............................................... 9.02-1
Dental Practice....................................... Introduction
EBITDA................................................ 1.04-3
ERISA................................................. 3.06-2
ERISA Plans........................................... 3.06-2
Earnout Payments...................................... 1.04-3
Earnout Period........................................ 1.04-3
Environmental Law..................................... 3.24-2(a)
Financial Statements.................................. 3.07-1
GDSC.................................................. Introduction
GDSC's Indemnified Persons............................ 9.02-1
Hazardous Substance................................... 3.24-2(b)
Leases................................................ 1.01-5
MDCO.................................................. Introduction
MDCO Contract......................................... 1.01-6
Material Adverse Change............................... Article III Introduction
Material Adverse Effect............................... Article III Introduction
Net Current Assets.................................... 1.05-3
Permits............................................... 3.22
Policies.............................................. 3.19
Professional Contracts................................ 1.01-6
Professional Corporation.............................. Introduction
Purchase Price........................................ 1.04
Purchase Price Adjustment............................. 1.05-1
Real Property......................................... 3.15
Related Documents..................................... 9.01
Returns............................................... 3.20-1
Shareholder........................................... Introduction
Shares................................................ 3.27
Tangible Personal Property............................ 3.10
Taxes................................................. 3.20-3
Third Party Claims.................................... 9.04-1(a)
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LIST OF EXHIBITS
Exhibit Item First Reference
- ------- ---- ---------------
A Assumption Agreement 1.04-2
B Assignment and Bill of Sale to GDSC 1.07
C Assignment to Professional Corporation 1.07
D Restated MDCO Contract 6.06
E Agreement Regarding New Offices 6.07
F Employment Agreement 6.08
G-1 Lease of Corvallis Dental Office 6.09
G-2 Lease of Newberg Administrative Office 6.09
H Opinion of ADC's Counsel 6.10
I Opinion of GDSC's Counsel 7.06
LIST OF SCHEDULES
Schedule Content
- -------- -------
1.02-2 Excluded Assets
1.10 Purchase Price Allocation
3.04 Litigation
3.06-2 Employee Benefits
3.06-3 Employment Manuals and Policies
3.06-4 Compensation
3.07 Financial Statements
3.08 Receivables
3.09 Prepaid Expenses and Other
3.10 Tangible Personal Property
3.11 Payables
3.12 Indebtedness
3.13 Other Liabilities
3.15 Leases
3.16 Contracts
3.19 Insurance
3.25 Consents and Approvals
v
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ASSET PURCHASE AGREEMENT
DATED: February 28, 1998
BETWEEN: GENTLE DENTAL SERVICE CORPORATION,
a Washington corporation
900 Washington Street, Suite 1100
Vancouver, WA 98660
Telecopy No.: (360) 750-8667 "GDSC"
AND: AFFORDABLE DENTAL CARE, INC.
an Oregon corporation
215 North Blaine Street
Newberg, OR 97132
Telecopy No.: (503) 537-0300 "ADC"
AND: Gerald M. Bieze, DDS "Shareholder"
Shareholder is the owner of all of the issued and outstanding capital stock
of ADC. ADC provides management services to independent dentists and maintains
dental clinics at the nine practice locations listed on Schedule 3.15 (the
"Business"). ADC desires to sell, and GDSC desires to purchase, substantially
all of the assets associated with the Business on the terms and conditions set
forth in this Agreement. Shareholder is also the owner of all of the issued and
outstanding capital stock of Managed Dental Care of Oregon, Inc., an Oregon
corporation ("MDCO"). Shareholder and GDSC are signing an agreement for the
purchase and sale of all of the stock of MDCO at the same time that they are
signing this Agreement.
In consideration of the mutual promises and covenants contained in this
Agreement, the parties agree as follows:
ARTICLE I
Purchase and Sale of Assets
1.01 Purchase and Sale. Subject to all the terms and conditions of this
Agreement and for the consideration herein stated, on the "Closing Date," as
that term is defined in Section 1.09, ADC agrees to sell, convey, assign,
transfer and deliver to GDSC (or with respect to certain assets as specified in
Section 1.07, to a newly formed professional corporation, the sole shareholder
of which will be a licensed dentist designated by GDSC (the "Professional
Corporation"), and GDSC agrees to purchase and accept from ADC, all of the
assets, properties and rights of ADC (other than
<PAGE>
the assets specified in Section 1.02), tangible and intangible, wherever
located, that are used or useful to maintain and operate the Business, which
assets (the "Assets") shall include without limitation:
1.01-1 All patient lists, charts, files and patient records, and all
other operating data and records relating to the Business, including without
limitation financial, accounting and credit records, correspondence, budgets,
engineering and facility records and other similar documents and records;
1.01-2 All other items of tangible personal property of ADC used in
connection with or associated with the Business, including furniture, fixtures,
equipment, supplies, inventory and spare and replacement items therefor,
including without limitation all such items listed on Schedule 3.10 and all such
items acquired by ADC after the date hereof and on or before the Closing Date,
other than to the extent such items are disposed of by ADC prior to the Closing
Date without breach of this Agreement;
1.01-3 All accounts receivable and other receivables associated with
the Business, including without limitation all receivables listed on Schedule
3.08 and all receivables acquired after December 31, 1997 and on or before the
Closing Date, other than to the extent such receivables have been collected by
ADC prior to the Closing Date;
1.01-4 All prepaid and deferred items relating to the Business,
including prepaid rent, insurance, taxes and unbilled charges and deposits,
including without limitation all such items listed on Schedule 3.09;
1.01-5 All leases of real or personal property to which ADC is a party
as lessee and which relate to the Business, including without limitation all
leases listed on Schedule 3.15 and all leases entered into after the date hereof
and on or before the Closing Date and expressly assumed by GDSC in writing on
the Closing Date as provided in Section 1.04-2(d), other than to the extent such
leases have terminated, expired or been disposed of by ADC prior to the Closing
Date without breach of this Agreement (collectively, the "Leases");
1.01-6 All rights, benefits and interests of ADC under the contracts
and agreements relating to the provision of dentistry services including without
limitation all contracts with third party payors (including ADC's contract with
MDCO (the "MDCO Contract")) and all contracts with dentists and other
professionals (collectively, the "Professional Contracts") and the other
contracts, agreements, commitments, understandings, purchase orders, documents
and instruments listed on Schedule 3.16 hereto and under any contracts,
agreements, commitments, understandings, purchase orders, documents or
instruments entered into between the date hereof and the Closing Date and
expressly assumed by GDSC in writing on the Closing Date as provided in Section
1.04-2(d), other than to the extent such items have terminated, expired or been
disposed of by ADC prior to the Closing Date without breach of this Agreement
(with all such items listed in this Section 1.01-6 referred to collectively as
the "Contracts");
1.01-7 All assignable rights to all telephone lines and numbers used
in the conduct of the Business; and
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1.01-8 All right, title and interest in and to ADC's trade names
associated with the Business, specifically including the names Affordable Dental
Care, Dental Urgent Care and Dental Choice.
1.02 Excluded Assets. The Assets shall not include the following:
1.02-1 Any lease not listed on Schedule 3.15 and any contract,
agreement, commitment, understanding, purchase order, document or instrument not
listed on Schedule 3.16, unless pursuant to Section 1.04-2(d) GDSC expressly
agrees in writing on the Closing Date to assume the obligations under such
lease, contract, agreement, commitment, understanding, purchase order, document
or instrument, in which case ADC shall assign its rights and benefits thereunder
to GDSC and the same shall be treated as a "Lease" or "Contract" for purposes of
this Agreement;
1.02-2 The assets identified on Schedule 1.02-2.
1.03 Assumption of Liabilities. Except for the liabilities and obligations
to be assumed by GDSC pursuant to Section 1.04-2, GDSC will not assume and will
not be liable for any liabilities of ADC, known or unknown, contingent or
absolute, accrued or other, and the Assets shall be free of all liabilities,
obligations, liens and encumbrances. Without limiting the generality of the
foregoing and except as otherwise provided above, GDSC will not be responsible
for any of the following:
1.03-1 Liabilities, obligations or debts of ADC, whether fixed,
contingent or mixed and whether based on events occurring before or after the
Closing, including without limitation those based on tort, contract, statutory
or other claims or involving fines or penalties payable to any governmental
authority;
1.03-2 Liabilities, obligations or debts of ADC for any federal, state
or local tax, including without limitation federal income taxes, state income
and excise taxes, state and local real and personal property taxes and federal,
state and local withholding and payroll taxes;
1.03-3 Liabilities or obligations of ADC to employees for salaries,
bonuses or health and welfare benefits or with respect to any profit sharing,
stock bonus, pension, retirement, stock purchase, option, bonus or deferred
compensation plan or for any other benefits or compensation (including without
limitation accrued vacation or sick leave); and
1.03-4 Liabilities or obligations of ADC for employee severance
payments or arrangements resulting from termination of ADC's employees.
1.04 Purchase Price. The total consideration for the Assets (the "Purchase
Price") shall be the following:
1.04-1 $7,574,600 payable by cashiers check or wire transfer on the
Closing Date.
3
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1.04-2 The assumption by GDSC on the Closing Date, pursuant to the
terms of an Assumption Agreement in substantially the form attached hereto as
Exhibit A, of the following liabilities of ADC (the "Assumed Liabilities"):
1.04-2(a) the accounts payable and accrued liabilities associated
with the Business to the extent and in the amounts identified on Schedule 3.11
(to the extent such liabilities are not paid or discharged prior to the Closing
Date);
1.04-2(b) all liabilities of ADC of a type identified on Schedule
3.11 and incurred in the ordinary course of business after December 31, 1997 and
on or before the Closing Date (to the extent such liabilities are not paid or
discharged prior to the Closing Date), but specifically excluding any
liabilities for brokers' and attorneys' fees and other expenses of this
transaction and accrued liabilities for taxes based on the income or revenues of
the Business;
1.04-2(c) all obligations of ADC under any of the Leases or
Contracts listed on Schedule 3.15 or Schedule 3.16 hereto; and
1.04-2(d) all obligations of ADC under any lease, contract,
agreement, commitment, understanding, purchase order, document or instrument
entered into by ADC between the date of this Agreement and the Closing Date that
GDSC, in its sole discretion, elects on the Closing Date to assume.
1.04-3 Additional payments to be made by check to ADC or its assigns
(the "Earnout Payments") based on the EBITDA (as defined below) for the 36-month
period (the "Earnout Period") beginning on the first day of the first calendar
month following the Closing Date. The first Earnout Payment shall equal .66
multiplied by the EBITDA for the first 12 months of the Earnout Period. The
second Earnout Payment shall equal .67 multiplied by the EBITDA for the second
12 months of the Earnout Period. The third Earnout Payment shall equal .67
multiplied by the EBITDA for the third 12 months of the Earnout Period. The
"EBITDA" shall mean the combined net income of (a) the Professional Corporation,
(b) MDCO and (c) GDSC from the provision of services to the Professional
Corporation, before any reduction for interest, income taxes, depreciation or
amortization, and excluding any allocation of GDSC corporate or regional
overhead expense, but including a Charge For Excess Capital Expenditures (as
defined below), as reflected on a combined income statement prepared in
conformity with generally accepted accounting principles applied in a manner
consistent with the application of such principles to the preparation of GDSC's
audited financial statements; provided, however, that the EBITDA of MDCO shall
be excluded for all periods prior to the closing of the acquisition of MDCO by
GDSC if such closing does not occur by December 31, 1998. The "Charge For Excess
Capital Expenditures" shall be equal to 20% of the total accumulated capital
expenditures after the date of this Agreement incurred by (a) the Professional
Corporation, (b) MDCO and (c) GDSC in connection with services provided to the
Professional Corporation, which in any year exceeds 2.5% of the combined net
revenue of the Professional Corporation and MDCO for such year. The calculation
and payment of each Earnout Payment shall be completed within 60 days of the
completion of the applicable 12-month portion of the Earnout Period.
4
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In the event ADC disputes the calculation of EBITDA for any given
12-month period, ADC shall notify GDSC of each disputed item and the amount
within forty-five (45) days of delivery to ADC of the EBITDA calculation and
payment. If ADC and GDSC cannot resolve the dispute within ten (10) days
thereafter, the amount in dispute ("Disputed Amount") shall be resolved by a
national accounting firm mutually selected by ADC and GDSC ("Independent
Accounting Firm"). The determination of the Independent Accounting Firm shall be
final and binding on the parties. Any expenses relating to the Independent
Accounting Firm shall be allocated between ADC and GDSC so that ADC's share of
such expenses shall bear the same proportion to the total expenses as the total
of the Disputed Amount unsuccessfully contested by ADC (as determined by the
Independent Accounting Firm) bears to the total of the Disputed Amount so
submitted to the Independent Accounting Firm.
During the Earnout Period, the parties understand and agree that: (i)
the businesses of MDCO and the Professional Corporation will be operated in the
same general manner as those businesses were operated prior to the Closing Date,
(ii) GDSC will use its best efforts to provide MDCO Oregon Health Plan members
with access to specialists under contract with Gentle Dental of Oregon, P.C. at
90% of usual and customary fees, (iii) a minimum of two eastside Portland
metropolitan area offices and one westside Portland metropolitan area office of
Gentle Dental of Oregon, P.C. (with a minimum of one dentist at each office)
shall see MDCO Oregon Health Plan members at the rates provided in the MDCO/ODS
Plus fee schedule, provided that no single office shall be required to have more
than 100 of such members as patients of record; (iv) after the closing of GDSC's
purchase of all of the stock of MDCO, MDCO shall be allowed to use the name
"Gentle Dental" on any choice brochure for the Oregon Health Plan, provided that
any use of such name shall be subject to the prior approval of GDSC under which
GDSC may disapprove the form of such use or limit such use to avoid market
confusion, (v) the Professional Corporation shall be allowed to use the name
"Gentle Dental," provided that any use of such name shall be subject to the
prior approval of GDSC under which GDSC may disapprove the form of such use or
limit such use to avoid market confusion between the Professional Corporation's
offices and other Gentle Dental offices, (vi) GDSC will not purchase, conduct or
manage any dental practice in any of Benton, Clatsop, Columbia, Hood River,
Jackson, Josephine, Linn, Marion, Polk, Tillamook or Yamhill Counties without
the consent of Shareholder (which may be withheld for any reason) if 50% or more
of the patients of the practice are Oregon Health Plan members, and (vii) the
Professional Corporation will not cancel its contract as a provider under any
third-party payor plan without the consent of Shareholder.
1.05 Purchase Price Adjustment. The Purchase Price may be subject to
adjustment after Closing as set forth in this Section 1.05.
1.05-1 As soon as reasonably possible after Closing, the amount of the
"Net Current Assets" (as defined in Section 1.05-3) shall be determined as
provided in Section 1.05-4. If the amount of Net Current Assets is $40,000 more
or less than $330,000, the Purchase Price shall be adjusted by the full amount
of the difference (the "Purchase Price Adjustment"). If the difference between
Net Current Assets and $330,000 does not exceed $40,000, there shall be no
Purchase Price Adjustment.
5
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1.05-2 If the Net Current Assets are greater than $370,000, the
Purchase Price Adjustment shall be paid to ADC by check within 10 days after ADC
delivers the certificate described in Section 1.05-4. If the Net Current Assets
are less than $290,000, the Purchase Price Adjustment shall be paid by ADC to
GDSC by check within 10 days after ADC delivers the certificate described in
Section 1.05-4.
1.05-3 "Net Current Assets" means the sum of (a) accounts receivable
of the Business, net of contractual allowances and bad debt reserve, as of the
Closing Date and (b) any prepaid expenses properly recordable on a balance sheet
for the Business as of the Closing Date reduced by the sum of (x) the accounts
payable of the Business at the Closing Date and (y) the accrued liabilities of
the Business at the Closing Date, specifically including an accrual of payroll
and payroll-related charges up to and including the Closing Date, but only to
the extent such payables and liabilities are assumed by GDSC, all as determined
consistently with the accounting conventions applied in determining the amounts
set forth in paragraphs 1.05-1 and 1.05-2 above.
1.05-4 At or after the Closing Date, ADC shall execute and deliver to
GDSC a certificate detailing the calculation of Net Current Assets and including
as schedules thereto lists of all receivables, prepaid expenses, payables and
accrued liabilities as of the Closing Date included in the calculation. In this
certificate ADC shall certify the accuracy and completeness of the schedules to
the certificate and the accuracy of the calculation of Net Current Assets.
1.06 Employees. Effective as of the close of business on the Closing Date,
ADC shall terminate all employees of its Business. GDSC or the Professional
Corporation shall extend immediately to all of ADC's employees an offer of
employment, on substantially the same terms and conditions as were in effect
prior to the Closing, for hire in accordance with GDSC's standard hiring
practices. ADC will notify such employees prior to the Closing that as of such
date they shall cease to be employees and will be offered employment by GDSC or
the Professional Corporation; the form and content of notice shall be subject to
GDSC's prior written approval.
1.07 Instruments of Conveyance and Transfer. The sale of the Assets, and
the conveyance, assignment, transfer and delivery of all of the Assets other
than the patient charts and the Professional Contracts, shall be effected by
ADC's execution and delivery to GDSC, on the Closing Date, of a bill of sale in
substantially the form of the Assignment and Bill of Sale attached hereto as
Exhibit B. The conveyance, assignment, transfer and delivery of ADC's patient
charts and the Professional Contracts shall be effected by ADC's execution and
delivery to the Professional Corporation, on the Closing Date, of an assignment
in substantially the form of the Assignment attached hereto as Exhibit C.
1.08 Further Assurances. ADC and Shareholder agree that, at any time and
from time to time on and after the Closing Date, they will, upon the request of
GDSC and without further consideration, take all steps reasonably necessary to
place GDSC (or the Professional Corporation, as the case may be) in possession
and operating control of the Assets, and will do, execute, acknowledge and
deliver, or will cause to be done, executed, acknowledged and delivered, all
further acts, deeds, assignments, conveyances, transfers, powers of attorney or
assurances as reasonably required to sell, assign, convey, transfer, grant,
assure and confirm to GDSC (or the Professional Corporation, as the case may
be), or to aid and assist in the collection of or reducing to possession
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by GDSC (or the Professional Corporation, as the case may be) of, all of the
Assets, or to vest (or the Professional Corporation, as the case may be) in GDSC
good, valid and marketable title to the Assets.
1.09 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Stoel Rives LLP,
900 SW Fifth Avenue, Suite 2300, Portland, Oregon, at 2:00 p.m., Pacific time,
on February 28, 1998 or at another date, time and place agreed upon in writing
by the parties (the "Closing Date").
1.10 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in accordance with Schedule 1.10, and GDSC and ADC shall be
bound by that allocation in reporting the transactions contemplated by this
Agreement to any governmental authority (including without limitation the
Internal Revenue Service). Because the parties could not fix the value of the
intangibles associated with the Business being purchased by GDSC, the parties
have agreed to establish the earn-out provided in Section 1.04-3 as additional
consideration for those assets.
ARTICLE II
Representations and Warranties of GDSC
GDSC represents and warrants to ADC and Shareholder as follows:
2.01 Authorization. GDSC is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Washington and has all
requisite corporate power and authority to own and operate its properties and to
carry on its business as now conducted. GDSC has taken all corporate action
necessary to authorize its execution, delivery and performance of this
Agreement. GDSC has full corporate power and authority to enter into this
Agreement and carry out the terms hereof. This Agreement has been duly executed
and delivered by GDSC and is binding upon and enforceable against GDSC in
accordance with its terms, except as enforceability may be limited or affected
by applicable bankruptcy, insolvency, reorganization, or other laws of general
application relating to or affecting creditors' rights generally and except as
enforceability may be limited by rules of law governing specific performance,
injunctive relief or other equitable remedies.
2.02 Compliance. The execution, delivery and performance of this Agreement
by GDSC, the compliance by GDSC with the provisions of this Agreement and the
consummation of the transactions described in this Agreement will not conflict
with or result in the breach of any of the terms or provisions of or constitute
a default under:
2.02-1 the articles of incorporation or bylaws of GDSC;
2.02-2 any note, indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which GDSC is a party or by which GDSC
is bound; or
2.02-3 any statute or any order, rule, regulation or decision of any
court or regulatory authority or governmental body applicable to GDSC.
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2.03 Consents. Except for the consent of GDSC's principal bank, no consent,
approval, authorization, order, designation or declaration of any court or
regulatory authority or governmental body, federal or other, or third person is
required to be obtained by GDSC for the consummation of the transactions
described in this Agreement.
2.04 Accuracy of Representations & Warranties. None of the representations
or warranties of GDSC contains or will contain any untrue statement of any
material fact or omits or misstates a material fact necessary to make the
statements contained in this Agreement not misleading. GDSC does not know of any
fact that has resulted or that, in the reasonable judgment of GDSC will result,
in any material adverse change in GDSC's business, results of operation,
financial condition or prospects that has not been set forth in this Agreement.
2.05 Reliance. GDSC recognizes and agrees that, notwithstanding any
investigation by ADC, ADC is relying upon the representations and warranties
made by GDSC in this Agreement.
ARTICLE III
Representations and Warranties of ADC and Shareholder
As used in this Agreement, "Material Adverse Effect" means a material
adverse effect on the business, results of operations, financial position,
assets or prospects of the Business, which shall in any event include any
adverse effect on the assets, revenue or net income of ADC in excess of $50,000;
and "Material Adverse Change" means any change that has resulted, will result or
is likely to result in a Material Adverse Effect. ADC and Shareholder represent
and warrant to GDSC as follows:
3.01 Corporate Existence; Authority. ADC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Oregon, and
ADC 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. Shareholder owns all of the issued and outstanding
stock of ADC. ADC has full power and authority to enter into this Agreement and
to carry out its terms. ADC 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 ADC and
Shareholder and is binding upon and enforceable against ADC and Shareholder in
accordance with its terms, except as enforceability may be limited or affected
by applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the rights of creditors and except as
enforceability may be limited by rules of law governing specific performance,
injunctive relief or other equitable remedies.
3.02 No Adverse Consequences. Neither the execution and delivery of this
Agreement by ADC or Shareholder nor the consummation of the transactions
contemplated by this Agreement will
3.02-1 result in the creation or imposition of any lien, charge or
encumbrance on any of ADC's assets or properties,
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3.02-2 violate or conflict with any provision of ADC's articles of
incorporation or bylaws;
3.02-3 violate any law, judgment, order, injunction, decree, rule,
regulation or ruling of any governmental authority applicable to ADC or
Shareholder; or
3.02-4 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 ADC under or constitute a default under any
agreement, instrument, license or permit to which ADC or Shareholder is a party
or by which either of them is bound.
3.03 Brokers and Finders. Neither ADC nor Shareholder has employed any
broker, finder or agent or dealt with anyone purporting to act in such capacity
or agreed to pay any brokerage fee, finder's fee or commission with respect to
the transaction contemplated by this Agreement, except that ADC has employed
Torwest Capital. Any fees owing to Torwest Capital are payable and will be paid
by ADC or Shareholder and are not a liability of GDSC.
3.04 Litigation. Except as set forth on Schedule 3.04, there is no claim,
litigation, proceeding or investigation of any kind pending or threatened by or
against ADC and, to the best knowledge of ADC, there is no basis for any such
claim, litigation, proceeding or investigation.
3.05 Compliance with Laws. ADC has at all relevant times conducted its
business in compliance with its articles of incorporation and bylaws and all
applicable laws and regulations. ADC is not in violation of any applicable laws
or regulations, other than violations which singly or in the aggregate do not,
and, with the passage of time will not, have a Material Adverse Effect. ADC is
not subject to any outstanding order, writ, injunction or decree, and ADC has
not been charged with, or threatened with a charge of, a violation of any
provision of federal, state or local law or regulation.
3.06 Employment Matters.
3.06-1 Labor Matters
(a) ADC is not a party or otherwise subject to any collective
bargaining or other agreement governing the wages, hours or terms of employment
of his employees. ADC 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 ADC
pending before the National Labor Relations Board or any other governmental
authority, (2) labor strike, slowdown or work stoppage actually occurring or, to
the best of the knowledge of ADC, threatened against him, (3) representation
petition respecting ADC'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 ADC.
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(c) ADC has not experienced any primary work stoppage or other
organized work stoppage involving its employees in the past two years.
3.06-2 Employee Benefits. Schedule 3.06-2 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
ADC, and complete and accurate copies of all those plans or arrangements have
been provided to GDSC. The employee pension benefit plans (within the meaning of
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") established and maintained by ADC that are subject to ERISA are listed
separately as ERISA Plans on Schedule 3.06-2 (the "ERISA Plans"). The ERISA
Plans comply with the applicable requirements of ERISA. ADC has received from
the Internal Revenue Service a favorable determination for each of the ERISA
Plans and their related trusts that each of the ERISA Plans is qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") and
the related trust is tax-exempt under Section 501(a) of the Code. There has been
no event subsequent to that determination that has adversely affected the tax
qualified status of the ERISA Plans or the exemption of the related trusts other
than changes in the Code that are not effective as of the Closing Date. No
"accumulated funding deficiency" as defined in Section 302(a)(2) of ERISA or
Section 412(a) of the Code exists, or has existed, with respect to any of the
ERISA Plans. The present value of all accrued benefits under each of the ERISA
Plans does not exceed the value of such plan's assets, less all liabilities
other than those attributable to accrued benefits. ADC has no "potential
withdrawal liability," as defined in Section 4201 of ERISA. None of the ERISA
Plans, its related trusts or any trustee, investment manager or administrator
thereof has engaged in a nonexempt "prohibited transaction," as such term is
defined in Section 406 of ERISA and Section 4975 of the Code. There are not and
have not been any excess deferrals or excess contributions under any ERISA Plan.
Each ERISA Plan is and has been operated and administered in conformance with
the requirements of all applicable laws and regulations, whether or not the
ERISA Plan documents have been amended to reflect such requirements. ADC has no
obligation of any kind (whether under the terms of the ERISA Plans or under any
understanding with employees) to make payments under, or to pay contributions to
or in respect of, any plan or arrangement listed on Schedule 3.06-2, 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.
3.06-3 Employment Agreements. Each of ADC's employees is an "at-will"
employee and there are no written employment, commission or compensation
agreements of any kind between ADC and any of ADC's employees. Schedule 3.06-3
lists all of ADC's employment or supervisory manuals, employment or supervisory
policies, and written information generally provided to employees (such as
applications or notices), and true and complete copies of those manuals,
policies and written information have been provided to GDSC. ADC does not have
any agreements or understandings with ADC's employees except as reflected in the
items listed in Schedules 3.06-2 and 3.06-3.
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3.06-4 Compensation. Schedule 3.06-4 contains a complete and accurate
list of all employees or independent contractors of the Business as of February
28, 1998, specifying their names, annual base compensation of each such person,
and accrued benefits for such persons as of February 28, 1998.
3.07 Financial Statements.
3.07-1 Schedule 3.07 contains the balance sheets of the Business as of
December 31, 1997 (the "Current Balance Sheet") and December 31, 1996 and the
related statements of income for the years then ended (such balance sheets and
statements collectively, the "Financial Statements").
3.07-2 The Financial Statements present fairly
(a) the financial position of the Business as of the dates
indicated and
(b) the results of operations for the periods then ended.
3.08 Receivables. Schedule 3.08 lists all accounts receivables of the
Business as of December 31, 1997. Each of the receivables listed on Schedule
3.08, and each of the receivables that has arisen since December 31, 1997, has
arisen only from bona fide transactions in the ordinary course of business and
is not subject to any offset or counterclaim.
3.09 Prepaid Expenses and Other. Schedule 3.09 lists all prepaid expenses
and deferred charges of the Business as of December 31, 1997.
3.10 Personal Property. Section 1.01-1 and Schedule 3.10 together contain a
complete and accurate list of all the tangible personal property owned or leased
by ADC and used in the Business, other than excluded assets listed in Schedule
1.02-2 ("Tangible Personal Property"). With respect to each item of owned
Tangible Personal Property, Schedule 3.10 lists the original cost as of December
31, 1997.
3.11 Payables. Schedule 3.11 lists all accounts payable and other accrued
liabilities of the Business as of December 31, 1997, other than payables for
brokers' and attorneys' fees and other expenses of this transaction, and accrued
liabilities for taxes based on income or revenues of the Business.
3.12 Indebtedness. Schedule 3.12 lists all indebtedness of ADC as of
December 31, 1997 incurred in connection with the business, operations or assets
of the Business or the repayment of which is secured by the assets of the
Business.
3.13 Other Liabilities. Except as listed on Schedule 3.13, ADC does not
have any liability or obligation (whether absolute, accrued, contingent or
other, and whether due or to become due), other than liabilities incurred in the
ordinary course of business consistent with past practice, which individually or
in the aggregate are not material to the Business.
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3.14 Absence of Certain Changes or Events. Since December 31, 1997, there
has not been with respect to the Business:
3.14-1 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;
3.14-2 Any damage, destruction or casualty loss, whether insured
against or not, to any assets or properties associated with the Business;
3.14-3 Any increase in the rate or terms of compensation payable or to
become payable by ADC to its 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 key employees; any special bonus or
remuneration paid; or any written employment contract executed or amended;
3.14-4 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 ADC, except agreements, commitments or
transactions in the ordinary course of business and consistent with past
practices or as expressly contemplated in this Agreement;
3.14-5 Any conduct of business which is outside the ordinary course of
business or not substantially in the manner that ADC previously conducted the
Business;
3.14-6 Any purchase or other acquisition of property, any sale, lease
or other disposition of property, or any expenditure, except in the ordinary
course of business;
3.14-7 Any incurrence of any noncontract liability which, either
singly or in the aggregate is material to the business, results of operations,
financial condition or prospects of the Business;
3.14-8 Any encumbrance or consent to encumbrance of any property or
assets of ADC except in the ordinary course of business; or
3.14-9 Any change in the assets, liabilities, licenses, permits or
franchises of ADC, or in any agreement to which ADC is a party or is bound,
which has had or reasonably could be expected to have a Material Adverse Effect.
3.15 Leases. Schedule 3.15 contains a complete and accurate list of all
Leases of real property used or useful in the business of ADC, a description of
the real property covered thereby ("Real Property"), the term of each Lease and
the monthly payments under the Lease. Complete and accurate copies of all Leases
have been delivered to GDSC.
3.16 Certain Contracts and Arrangements. Schedule 3.16, which is organized
by type of agreement, contains a complete and accurate list of all of the
following types of Contracts to
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which ADC is a party or by which ADC is bound and which relate to or are
associated with the Business:
3.16-1 any mortgage, note or other instrument or agreement relating to
the borrowing of money or the incurrence of indebtedness by ADC or ADC's
guaranty of any obligation for the borrowing of money;
3.16-2 contracts, agreements, purchase orders or acknowledgment forms
for the purchase, sale, lease or other disposition of capital assets or more
than $20,000 of other equipment or materials;
3.16-3 contracts or agreements for provision of dentistry services by
the Business or to the Business by independent contractor dentists, which
agreements are identified as the Professional Contracts on Schedule 3.16;
3.16-4 contracts or agreements for the performance of services
relating to or concerning the Business other than the Professional Contracts,
excluding employment contracts; provided, however, that only contracts exceeding
$20,000 in annual billings or payments by the Business must be listed;
3.16-5 contracts or agreements involving annual billings in excess of
$20,000 for the joint performance of work or services and all other joint
venture agreements;
3.16-6 contracts or agreements with agents, brokers, consignees, sales
representatives or distributors relating to the sale of ADC's services; and
3.16-7 any other contract, instrument, agreement or obligation not
described on any other Schedule to which ADC is a party or by which ADC is bound
and which contains material unfulfilled obligations of ADC.
Complete and accurate copies of all Contracts have been delivered to GDSC.
3.17 Status of Contracts and Leases.
3.17-1 Each of the Contracts and Leases listed on Schedules 3.15 and
3.16 is valid, binding and enforceable by ADC in accordance with its terms and
is in full force and effect, 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. There is no existing default or
violation by ADC under any Contract or Lease and no event has occurred which
(whether with or without notice, lapse of time or both) would constitute a
default of ADC under any Contract or Lease. There is no pending or threatened
proceeding which would interfere with the quiet enjoyment of any Real Property
of which ADC is lessee or sublessee which is used in the Business.
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3.17-2 Except as otherwise contemplated by Section 5.03, all other
parties to the Contracts and Leases have consented or prior to the Closing will
have consented (where such consent is necessary) to the consummation of the
transaction contemplated by this Agreement without requiring modification of
ADC's rights or obligations under any Contract or Lease.
3.17-3 ADC is not aware of any default by any other party to any
Contract or Lease or of any event which (whether with or without notice, lapse
of time or both) would constitute a default by any other party with respect to
obligations of that party under any Contract or Lease, and, to the actual
knowledge of ADC, there are no facts that exist indicating that any of the
Contracts or Leases may be totally or partially terminated or suspended by the
other parties.
3.17-4 ADC is not a party to, nor is it bound by, any contract or
agreement that ADC can reasonably foresee will result in any material loss to
the Business upon the performance thereof (including any material liability for
penalties or damages, whether liquidated, direct, indirect, incidental or
consequential), unless such contract or agreement is terminable by ADC on 60 or
fewer days notice at any time without penalty.
3.18 Title and Condition of Tangible Assets.
3.18-1 ADC owns all of the Tangible Personal Property except the
leased property free and clear of all mortgages, pledges, security interests,
claims, charges or other encumbrances or restrictions of any kind, except
(a) liens disclosed on the Current Balance Sheet or
(b) liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the
Current Balance Sheet).
3.18-2 ADC has good and absolute title to the Tangible Personal
Property except the leased property.
3.18-3 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 ADC's business.
3.18-4 There are no developments affecting any of the Real Property or
Tangible Personal Property pending or, to the actual knowledge of ADC,
threatened which might materially detract from the value of such property or
assets, materially interfere with any present or intended use of any such
property or assets or materially adversely affect the marketability of such
properties or assets.
3.18-5 At the Closing, GDSC will acquire good title to all the Assets,
free and clear of all mortgages, pledges, security interests, claims, charges or
other encumbrances or restrictions of any kind.
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3.19 Insurance. Schedule 3.19 contains a complete and accurate list of all
policies of malpractice, liability, fire, worker's compensation and other forms
of insurance insuring ADC and its employees and the assets or operations of the
Business (the "Policies"). All the Policies are valid, enforceable and in full
force and effect, all premiums with respect to the Policies covering all periods
up to and including the date as of which this representation is being made have
been paid and no notice of cancellation or termination has been received with
respect to any Policy. The Policies are sufficient for compliance with all
requirements of law and of agreements to which ADC is a party and provide
insurance for the risks and in the amounts and types of coverage usually
obtained by persons using or holding similar properties in similar businesses.
There are no unresolved claims for insurance payment under any of the Policies.
True and complete copies of the Policies and all endorsements thereto have been
delivered to GDSC. ADC has not been refused any insurance coverage and no
insurance coverage has been canceled during the five years preceding the date of
this Agreement.
3.20 Taxes.
3.20-1 Returns. ADC has filed all federal, state and other returns,
reports and information returns required to be filed by it with respect to Taxes
which relate to the business, results of operations or financial condition of
the Business (collectively, the "Returns") and has timely paid all Taxes shown
to be due on the Returns. All Returns filed are complete and accurate in all
material respects, and no additional Taxes are owed by ADC with respect to the
periods covered by the Returns. ADC has provided GDSC with complete and accurate
copies of ADC's Returns for 1995 and 1996.
3.20-2 Taxes Paid or Reserved. All deficiencies in Taxes asserted or
assessments made by any taxing authority have been fully paid or finally
settled. All Taxes which ADC 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. With respect to ADC's determination that no material liability
exposure exists from the classification of the dentists with whom ADC has
contracted as independent contractors and not employees, ADC makes no
representation or warranty to GDSC that such determination will continue to be
appropriate following the Closing.
3.20-3 Definition. "Taxes" means all taxes, charges, fees, levies or
other assessments including, without limitation, income, payroll, withholding,
excise, property, sales, use and franchise taxes, imposed by the United States
or any state, county, local or foreign government or subdivision or agency
thereof, and including any interest, penalties or additions.
3.21 No Restrictions. No contract or agreement to which ADC is a party or
is bound or to which any of its properties or assets is subject limits the
freedom of ADC to compete in any line of business or with any person.
3.22 Permits and Licenses. ADC and Shareholder hold and at all times have
held, all licenses, permits, franchises, easements and authorizations
(collectively, "Permits") necessary for the lawful conduct of the Business
pursuant to all applicable statutes, laws, ordinances, rules and regulations of
all governmental bodies, agencies and other authorities having jurisdiction over
it or any part of its operations, except where the failure to hold any Permit,
singly or in the aggregate,
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either alone or with the giving of notice or the passage of time or both, would
not have a Material Adverse Effect. ADC and Shareholder are in compliance with
all the terms of each Permit, and there are no claims of violation by ADC or
Shareholder of any Permit.
3.23 Certain Payments. Neither ADC nor any other person or entity has,
directly or indirectly, on behalf of or with respect to the Business or its
operations made or received any payment that was not legal to make or receive
under federal, state or local laws of the United States or any other country or
territory.
3.24 Environmental Conditions.
3.24-1 Compliance. ADC has operated the Business and maintained the
Assets, including without limitation the Real Property, in compliance with all
Environmental Laws. All wastes generated in connection with ADC's business are
and have been transported and disposed of off site in compliance with all
Environmental Laws. Except as otherwise required for the normal operation of a
dental practice, no Hazardous Substance is or has been generated, manufactured,
treated, stored, transported, used or otherwise handled on the Real Property or
in connection with the Business.
3.24-2 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.
3.25 Consents and Approvals. Except as set forth on Schedule 3.25, 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 ADC or Shareholder. ADC and Shareholder have obtained, or shall have obtained
prior to the Closing, all consents, authorizations or approvals of any third
parties required in connection with the execution, delivery or performance of
this Agreement by ADC or Shareholder or the consummation of the transaction
contemplated by this Agreement. ADC has made all registrations or filings with
any governmental authority required for the execution or delivery of this
Agreement or the consummation of the transaction contemplated hereby.
3.26 Records. The books of account of ADC are complete and accurate in all
material respects, and there have been no transactions involving the business of
ADC which properly should have been set forth therein and which have not been
accurately so set forth. Complete and accurate copies of such books have been
made available to GDSC.
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3.27 Reliance. ADC and Shareholder recognize and agree that,
notwithstanding any investigation by GDSC, GDSC is relying upon the
representations and warranties made by ADC and Shareholder in this Agreement.
3.28 Accuracy of Representations and Warranties. None of the
representations or warranties of ADC and Shareholder contains or will contain
any untrue statement of any material fact or omits or misstates a material fact
necessary to make the statements contained in this Agreement not misleading. ADC
and Shareholder do not know of any fact that has resulted or that, in the
reasonable judgment of ADC or Shareholder will result, in any material change in
ADC's business, results of operation, financial condition or prospects that has
not been set forth in this Agreement.
3.29 MDCO Members. As of February 1, 1998, there were no more than 850 MDCO
Oregon Health Plan members residing at addresses with zip codes in Multnomah,
Clackamas and Washington Counties, combined.
ARTICLE IV
Covenants of ADC and Shareholder
4.01 Access to Properties, Books and Records. Prior to the Closing Date,
ADC 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 ADC and shall permit such persons, at GDSC's expense, to make copies
of such books and records. ADC shall deliver to GDSC monthly financial
statements of the Business 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 4.01 as confidential in accordance with Section 10.01 hereof. No
investigation by GDSC or any of its authorized representatives pursuant to this
Section 4.01 shall affect any representation, warranty or closing condition of
any party hereto or GDSC's rights to indemnification pursuant to Section 9.02
hereof.
4.02 Negative Covenants. Except as otherwise permitted by this Agreement or
with the prior written consent of GDSC, prior to the Closing Date, ADC shall
not:
4.02-1 Incur 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
business and consistent with past practices, forgive or release any debt or
claim, give any waiver of any right of material value or voluntarily suffer any
extraordinary loss;
4.02-2 Make any payment to discharge or satisfy any lien or
encumbrance or pay any obligation or liability (fixed or contingent) other than
(a) current liabilities (including the current
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portion of any long-term liabilities) included in the Financial Statements and
(b) current liabilities incurred or maturing since the date of the Current
Balance Sheet in the ordinary course of business;
4.02-3 Issue, sell, 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.
4.02-4 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;
4.02-5 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, or agree so to lease or license, any of
its assets;
4.02-6 Acquire any assets which would be material to the Business
other than assets acquired in the ordinary and usual course of business and
consistent with past practices;
4.02-7 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 $50,000 annually;
4.02-8 Increase the wages, salaries, compensation, pension or other
benefits payable, or to become payable by it, to any of its 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;
4.02-9 Implement or agree to any implementation of or amendment or
supplement to any employee profit sharing, pension, bonus, commission,
incentive, retirement, medical reimbursement, life insurance, deferred
compensation or any other employee benefit plan or arrangement;
4.02-10 Change the accounting methods, policies or practices of the
Business; or
4.02-11 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 GDSC, prior to the Closing Date, ADC shall:
4.03-1 Operate the Business as presently operated and only in the
ordinary course and consistent with past practices;
4.03-2 Advise GDSC in writing of any litigation or administrative
proceeding that challenges or otherwise materially affects the transactions
contemplated hereby and of any Material Adverse Change or any event, occurrence
or circumstance which is likely to cause a Material Adverse Change;
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4.03-3 When the consent of any third party to the transactions
contemplated by this Agreement is required under the terms of any contract or
agreement material to the Business to which ADC is a party or by which ADC is
bound, use its best efforts to obtain such consent on terms and conditions not
materially less favorable than those in effect on the date hereof;
4.03-4 Use its best efforts to maintain all of the Tangible Personal
Property in good operating condition, reasonable wear and tear excepted,
consistent with past practices, and take all steps reasonably necessary to
maintain its intangible assets;
4.03-5 Not cancel or change any policy of insurance (including
self-insurance) or fidelity bond or any policy or bond providing substantially
the same coverage;
4.03-6 Maintain, consistent with past practices, all inventories,
spare parts, office supplies and other expendable items;
4.03-7 Use its best efforts to retain all employees;
4.03-8 Maintain its books and records in accordance with past
practices;
4.03-9 Pay and discharge all taxes, assessments, governmental charges
and levies imposed upon him, its income or profits or upon any property
belonging to him, in all cases prior to the date on which penalties attach
thereto; and
4.03-10 Comply with all laws, rules and regulations applicable to him
and the Business.
4.04 No Negotiations With Others. Except as otherwise permitted by this
Agreement or with the prior written consent of GDSC, ADC and Shareholder shall
refrain, and shall cause ADC's employees and any investment banker, attorney,
accountant or other agent retained by either of them to refrain, from initiating
or soliciting any inquiries or making any proposals with respect to, or engaging
in negotiations concerning, or providing any confidential information or data to
or having any discussions with any person relating to, any acquisition, business
combination or purchase of all or any significant portion of the assets of, the
Business or any equity interest in ADC. ADC and Shareholder will immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing.
ARTICLE V
Joint Covenants
GDSC, ADC and Shareholder covenant and agree that they will act in
accordance with the following:
5.01 Governmental Consents. Promptly following the execution of this
Agreement, the parties will proceed to prepare and file with the appropriate
governmental authorities any requests
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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.
5.02 Best Efforts; No Inconsistent Action. Each party will use its best
efforts to effect the transactions contemplated by this Agreement and to fulfill
the conditions to the obligations of the other parties set forth in Article 6 or
7 of this Agreement. No party will take any action inconsistent with its
obligations under this Agreement or that could hinder or delay the consummation
of the transactions contemplated by this Agreement, except that nothing in this
Section 5.02 shall limit the rights of the parties under Articles 6, 7 and 8.
5.03 Lease Consents. The parties acknowledge and agree that ADC has not
obtained and will not obtain by Closing consents of landlords under the Leases
(except for the Newberg and Corvallis Leases with Red Fern, LLC). The parties
agree to diligently and expeditiously seek and obtain such consents after
Closing.
ARTICLE VI
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:
6.01 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.
6.02 Consents. Except as otherwise provided in Section 5.03, ADC shall have
obtained the third-party consents required under the terms of the Contracts and
Leases, and such consents shall not have required any change to the terms and
conditions of the Contracts and Leases other than changes consented to in
writing by GDSC.
6.03 Representations, Warranties and Covenants.
6.03-1 All representations and warranties of ADC and Shareholder 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.
6.03-2 All of the terms, covenants and conditions to be complied with
and performed by ADC and Shareholder at or prior to the Closing shall in all
material respects have been complied with or performed thereby.
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6.03-3 GDSC shall have received a certificate of Shareholder, dated as
of the Closing Date, to the effect that the representations and warranties of
ADC and Shareholder 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 ADC and Shareholder have in all material respects complied
with or performed all terms, covenants and conditions to be complied with or
performed by him at or prior to the Closing.
6.04 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, ADC or Shareholder to restrain or prohibit, or obtain
damages in respect of, this Agreement or the transactions contemplated by this
Agreement.
6.05 No Adverse Change. There shall not have been any Material Adverse
Change.
6.06 MDCO Contract. Shareholder shall have caused MDCO and ADC to execute
and deliver a restated MDCO Contract in the form attached hereto as Exhibit D.
6.07 Agreement Regarding New Offices. Shareholder and ADC shall have
executed and delivered an Agreement Regarding New Offices with GDSC in the form
attached hereto as Exhibit E.
6.08 Employment Agreement. Shareholder shall have executed and delivered an
Employment Agreement with GDSC in the form attached hereto as Exhibit F.
6.09 Leases. Shareholder shall have executed and delivered leases of the
Real Property owned by Shareholder in the forms attached hereto as Exhibits G-1
and G-2.
6.10 Opinion of Counsel. GDSC shall have received an opinion of Tonkon Torp
LLP, counsel to ADC and Shareholder, dated the Closing Date, in substantially
the form attached hereto as Exhibit H.
6.11 Corporate Name Change. ADC shall have taken all corporate action
necessary to change its name to a name that does not include the word
affordable, and shall have delivered to GDSC for filing with the Oregon
Secretary of State Articles of Amendment to effect such name change.
6.12 Actions Satisfactory to GDSC's Counsel. All actions, proceedings,
instruments and documents required to be carried out by this Agreement, or
incidental hereto, and all other relevant legal matters shall be reasonably
satisfactory to counsel for GDSC.
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ARTICLE VII
Conditions to Obligations of ADC
The obligations of ADC under Article 1 are, at its option, subject to
satisfaction, at or prior to the Closing, of each of the following conditions:
7.01 Representations, Warranties and Covenants.
7.01-1 All representations and warranties of GDSC made in this
Agreement and in any certificate delivered pursuant hereto shall in all material
respects be true and complete on and as of the Closing Date with the same force
and effect as if made on and as of that date.
7.01-2 All of the terms, covenants and conditions to be complied with
and performed by GDSC on or prior to the Closing shall in all material respects
have been complied with or performed by GDSC.
7.01-3 ADC shall have received a Certificate of GDSC, dated as of the
Closing Date, executed by the President or other authorized officer of GDSC, to
the effect that the representations and warranties of GDSC contained in this
Agreement are in all material respects true and complete on and as of the
Closing Date as though made on and as of the Closing Date and that GDSC has in
all material respects complied with or performed all terms, covenants and
conditions to be complied with or performed by it at or prior to the Closing.
7.02 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, ADC or Shareholder to restrain or prohibit this
Agreement or the transactions contemplated by this Agreement.
7.03 Agreement Regarding New Offices. GDSC shall have executed and
delivered an Agreement Regarding New Offices with Shareholder and ADC in the
form attached hereto as Exhibit E.
7.04 Employment Agreement. GDSC shall have executed and delivered an
Employment Agreement with Shareholder in the form attached hereto as Exhibit F.
7.05 Leases. GDSC shall have executed and delivered leases of the Real
Property owned by Shareholder in the forms attached hereto as Exhibits G-1 and
G-2.
7.06 Opinion of Counsel. ADC shall have received an opinion of Stoel Rives
LLP, counsel to GDSC, dated the Closing Date, in substantially the form attached
hereto as Exhibit I.
7.07 Professional Corporation. GDSC shall have caused the Professional
Corporation to be incorporated and organized and shall have entered into a
management agreement with the Professional Corporation.
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7.08 Actions Satisfactory to ADC'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 ADC.
ARTICLE VIII
Termination
8.01 Right of Parties to Terminate. This Agreement may be terminated:
8.01-1 by GDSC, if any of the authorizations, consents, approvals,
filings or registrations described in Section 6.01 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;
8.01-2 by GDSC, if ADC or Shareholder shall have breached any of their
obligations hereunder in any material respect;
8.01-3 by ADC, if GDSC shall have breached any of its obligations
hereunder in any material respect; or
8.01-4 by either ADC or GDSC, by written notice to the other party, if
the Closing shall not have occurred on or prior to December 31, 1998; provided,
however, that the right to terminate this Agreement under this Section 8.01-4
shall not be available to any party whose failure to fulfill or perform any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date.
8.02 Effect of Termination. If either GDSC or ADC decides to terminate this
Agreement pursuant to Section 8.01, 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 8.01, the parties hereto shall be released from
all liabilities and obligations arising under this Agreement (other than those
described in Article 10 hereof) with respect to the matters contemplated by this
Agreement, other than for damages arising from a breach of this Agreement.
ARTICLE IX
Survival; Indemnification
9.01 Survival. All representations, warranties, covenants and agreements
made in this Agreement or in any schedule, certificate or assignment delivered
in accordance with this Agreement (collectively, the "Related Documents") shall
survive any investigation by or on behalf of any party, the execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby and any termination or expiration of this Agreement for a period of three
years and two months following the Closing and after such period shall be
terminated and extinguished, except
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insofar as the damaged party shall have asserted in writing a claim setting
forth with reasonable specificity the facts and circumstances relating thereto
prior to the expiration of such period in which event the party liable shall
remain liable with respect to such claim.
9.02 Indemnification by ADC and Shareholder.
9.02-1 Notwithstanding any investigation by GDSC, from and after the
Closing, ADC and Shareholder shall indemnify, hold harmless and, to the extent
provided in Section 9.04-1, defend GDSC, its subsidiaries, shareholders,
affiliates, officers, directors, employees, agents, successors and assigns
(collectively, including GDSC, "GDSC's Indemnified Persons") from and against,
and reimburse each of GDSC's Indemnified Persons with respect to, any and all
losses, damages, liabilities, costs and expenses, including interest from the
date of such loss to the time of payment, penalties and reasonable attorneys'
fees (collectively, "Damages") incurred by any of GDSC's Indemnified Persons by
reason of or arising out of or in connection with:
(a) any breach or inaccuracy of any representation or warranty of
ADC or Shareholder made in this Agreement or any Related Document;
(b) any failure by ADC or Shareholder to perform any covenant
required to be performed by them pursuant to this Agreement or any Related
Document; or
(c) any liability or obligation of ADC or Shareholder arising out
of or in connection with the ownership, use, condition, maintenance or operation
of the Business or the Assets by ADC on or prior to the Closing, in either case
not expressly assumed by GDSC in accordance with the terms of this Agreement.
9.02-2 This indemnification extends to any Damages suffered by any of
GDSC's Indemnified Persons, whether or not a claim is made against any of GDSC's
Indemnified Persons by any third party.
9.03 Indemnification by GDSC.
9.03-1 Notwithstanding any investigation by ADC or Shareholder, from
and after the Closing, GDSC shall indemnify, hold harmless and, to the extent
provided in Section 9.04-1, defend ADC and Shareholder from and against, and
reimburse ADC and Shareholder with respect to, any and all Damages incurred by
ADC or Shareholder by reason of or arising out of or in connection with:
(a) any breach or inaccuracy of any representation or warranty of
GDSC made in this Agreement or any Related Document;
(b) any failure by GDSC to perform any covenant required to be
performed by it pursuant to this Agreement or any Related Document;
(c) any liability or obligation of ADC to any third party
expressly assumed by GDSC in accordance with the terms of this Agreement; or
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(d) any liability or obligation of GDSC or Professional
Corporation arising out of or in connection with the ownership, use, condition,
maintenance or operation of the Business or the Assets by GDSC or Professional
Corporation after the Closing.
9.03-2 This indemnification extends to any Damages suffered by ADC or
Shareholder whether or not a claim is made against ADC or Shareholder by any
third party.
9.04 Indemnification Procedure.
9.04-1 Third Party Claims.
(a) Each indemnified party shall, with reasonable promptness
after obtaining knowledge thereof, provide any indemnifying party against whom a
claim for indemnification is to be made under this Article 9 with written notice
of all third party actions, suits, proceedings, claims, demands or assessments
that may be subject to the indemnification provisions of this Article 9
(collectively, "Third Party Claims"), including, in reasonable detail, the basis
for the claim, the nature of Damages and a good faith estimate of the amount of
Damages.
(b) Each indemnifying party shall have 15 days after its receipt
of the claim notice to notify the indemnified party in writing whether the
indemnifying party agrees that the claim is subject to this Article 9 and, if
so, whether the indemnifying party elects, jointly with any other indemnifying
party notified under Section 9.04-1(a), to undertake, conduct and control,
through counsel of its or their choosing (subject to the consent of the
indemnified party, such consent not to be withheld unreasonably) and at its or
their sole risk and expense, the good faith settlement or defense of the Third
Party Claim.
(c) If within 15 days after its receipt of the claim notice an
indemnifying party notifies the indemnified party that it elects to undertake
the good faith settlement or defense of the Third Party Claim, the indemnified
party shall cooperate reasonably with the indemnifying party in connection
therewith including, without limitation, by making available to the indemnifying
party all relevant information material to the defense of the Third Party Claim.
The indemnified party shall be entitled to participate in the settlement or
defense of the Third Party Claim through counsel chosen by the indemnified
party, at its expense, and to approve any proposed settlement that would impose
any obligation or duty on the indemnified party, which approval may, in the sole
discretion of the indemnified party, be withheld. So long as an indemnifying
party is contesting the Third Party Claim in good faith and with reasonable
diligence, the indemnified party shall not pay or settle the Third Party Claim.
Notwithstanding the foregoing, the indemnified party shall have the right to pay
or settle any Third Party Claim at any time, provided that in such event it
waives any right to indemnification therefor by the indemnifying party.
(d) If an indemnifying party does not provide notice that it
elects to undertake the good faith settlement or defense of the Third Party
Claim, or if an indemnifying party fails to contest the Third Party Claim or
undertake or approve settlement, in good faith and with reasonable diligence,
the indemnified party shall thereafter have the right to contest, settle or
compromise the Third Party Claim in good faith at its exclusive discretion, at
the risk and expense of the indemnifying party, and the indemnifying party will
thereby waive any claim, defense or
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argument that the indemnified party's settlement or defense of such Third Party
Claim is in any respect inadequate or unreasonable.
(e) A party's failure to give timely notice will not constitute a
defense, in part or in whole, to any claim for indemnification by such party,
except if, and only to the extent that, such failure results in any material
prejudice to the indemnifying party.
9.04-2 Non-Third Party Claims.
(a) Each indemnified party shall, with reasonable promptness,
deliver to any indemnifying party against whom a claim for indemnification is to
be made under this Article 9 written notice of all claims for indemnification
under this Article 9, other than Third Party Claims, including, in reasonable
detail, the basis for the claim, the nature of Damages and a good faith estimate
of the amount of Damages.
(b) Each indemnifying party shall have 30 days after its receipt
of the claim notice to notify the indemnified party in writing whether the
indemnifying party accepts liability for all or any part of the Damages
described in the claim notice. If the indemnifying party does not so notify the
indemnified party, the indemnifying party shall be deemed to accept liability
for all the Damages described in the claim notice.
(c) A party's failure to give timely notice will not constitute a
defense, in part or in whole, to any claim for indemnification by such party,
except if, and only to the extent that, such failure results in any material
prejudice to the indemnifying party.
9.05 Right of Offset. At the election of GDSC, any liability of ADC or
Shareholder under Section 9.02 of this Agreement or under Section 9.02 of that
certain Stock Purchase Agreement between GDSC and Shareholder dated February 28,
1998 (the "MDCO Agreement") which has been established by agreement, litigation
or in accordance with the procedure set forth in Section 9.04 of this Agreement
or the MDCO Agreement may be satisfied by offsetting such liability against any
Earnout Payment then due or that subsequently becomes due, provided, however
that if ADC or Shareholder gives notice to GDSC within 30 days after ADC or
Shareholder receives a notice of claim under Section 9.04-1(a) or 9.04-2(a) of
this Agreement or the MDCO Agreement that ADC or Shareholder contests its
liability for such claim, GDSC may not exercise its right of offset until the
procedure described in Section 9.06 has been completed.
9.06 Arbitration of Contested Offset.
9.06-1 Arbitration of Disputes Over Offset. If ADC or Shareholder
gives notice contesting its liability for all or any part of a claim in
accordance with Section 9.05, then such dispute shall be settled by mandatory
binding arbitration in Portland, Oregon in accordance with the provisions of
this Section 9.06 and the Commercial Arbitration Rules of the American
Arbitration Association then in effect (the "AAA Rules"), unless GDSC and ADC or
Shareholder settle such dispute in a written settlement agreement executed by
GDSC and ADC or Shareholder. The provisions of this Section 9.06 shall prevail
and govern in the event of any conflict between such provisions and the AAA
Rules.
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9.06-2 Arbitrator. Unless otherwise mutually agreed by GDSC and ADC,
the arbitration will be heard and decided by a single arbitrator who shall be
selected as provided in Section 9.06-3.
9.06-3 Selection of Arbitrator. GDSC and ADC will have the authority
to select the arbitrator from a list of arbitrators who are attorneys-at-law who
practice business law and have significant experience with respect to the
representation of health care companies; provided that the arbitrator cannot
have represented GDSC, ADC or Shareholder in any previous matter. If GDSC and
ADC cannot agree on the selection of the arbitrator from the above list of
arbitrators, then the arbitrator shall be chosen by the American Arbitration
Association.
9.06-4 Time for Arbitration Decision: Effect. The arbitrator shall
decide each dispute to be arbitrated pursuant hereto within ninety (90) days
after the selection of arbitrator. The arbitrator's decision shall relate solely
to whether GDSC is entitled to indemnification in connection with the claim (or
a portion thereof) pursuant to the applicable terms of this Agreement or the
MDCO Agreement. The final decision of the arbitrator shall specify the amount
(if any) that GDSC is entitled to offset against the Earnout Payments in
connection with the claim, shall be furnished to GDSC, ADC, and Shareholder in
writing, shall constitute a conclusive determination of all issues in question,
binding upon GDSC, ADC, and Shareholder and shall not be contested by any of
them. Upon the conclusion of any arbitration proceedings hereunder, the
arbitrator will render findings of fact and conclusions of law and a written
opinion setting forth the basis and reasons for any decision reached and will
deliver such documents to GDSC, ADC and Shareholder, along with a signed copy of
the award. The arbitrator chosen in accordance with these provisions will not
have the power to alter, amend or otherwise affect the terms of this Section
9.06 or the provisions of this Agreement or the MDCO Agreement. Judgment upon
the award rendered by the arbitrator may be entered in any court having
competent jurisdiction over the subject matter thereof.
9.06-5 Right to Counsel. GDSC (on behalf of itself and any Indemnified
Person(s)) and ADC or Shareholder shall each have the right to employ its or his
own legal counsel to represent such person in any disputes arising under this
Agreement.
9.06-6 Compensation of Arbitrator. The arbitrator will be compensated
for his or her services at a rate to be determined by the parties or by the
American Arbitration Association, but based upon reasonable hourly or daily
consulting rates for the arbitrator in the event the parties are not able to
agree upon his or her rate of compensation. GDSC, on the one hand, and ADC or
Shareholder, on the other hand, will each pay 50% of the initial compensation to
be paid to the arbitrator in any such arbitration and 50% of the costs of
transcripts and other normal and regular expenses of the arbitration proceedings
(collectively, the "Arbitration Expenses").
9.07 Limitations. Anything to the contrary notwithstanding, an indemnified
party shall not be indemnified and held harmless in respect of any Damages which
are covered by insurance owned by the indemnified party to the extent that any
loss is reduced by such insurance. The right of GDSC's Indemnified Persons to
seek indemnification from ADC and/or Shareholder under this Agreement or the
MDCO Agreement shall terminate the sooner of (a) 38 months after the Closing
Date or (b) at such time as the total Damages paid by ADC and/or Shareholder
(whether or not paid by offset of amounts owed to ADC or Shareholder) reach a
total of $3,500,000.00.
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9.08 Rights Not Exclusive. An indemnified party's rights to indemnification
under this Article 9 shall be the exclusive remedy for recovery of monetary
damages in the event of any breach of any representation, warranty or covenant
under this Agreement, but such rights are in addition to, and not in lieu of,
any other rights to which the indemnified party may be entitled in equity.
ARTICLE X
Confidentiality; Press Releases
10.01 Confidentiality.
10.01-1 No information concerning ADC not previously disclosed to the
public or in the public domain that has been furnished to or obtained by GDSC
under this Agreement or in connection with the transactions contemplated hereby
shall be disclosed to any person other than in confidence to employees, legal
counsel, financial advisers or independent public accountants of GDSC or used
for any purpose other than as contemplated herein. If the transactions
contemplated by this Agreement are not consummated, GDSC shall hold such
information in confidence for a period of two years from the date of any
termination of this Agreement, and all such information that is in writing or
embodied on a diskette, tape or other tangible medium shall be promptly returned
to ADC.
10.01-2 No information concerning GDSC not previously disclosed to the
public or in the public domain that has been furnished to or obtained by ADC or
Shareholder under this Agreement or in connection with the transactions
contemplated hereby shall be disclosed to any person other than in confidence to
the employees, legal counsel, financial advisers or independent public
accountants of ADC or used for any purpose other than as contemplated herein. If
the transactions contemplated by this Agreement are not consummated, ADC and
Shareholder shall hold such information in confidence for a period of three
years from the date of any termination of this Agreement, and all such
information that is in writing or embodied on a diskette, tape or other tangible
medium shall be promptly returned to GDSC.
10.01-3 Notwithstanding the foregoing, such obligations of GDSC and of
ADC shall not apply to information
(a) that is, or becomes, publicly available from a source other
than GDSC or ADC, as the case may be;
(b) that was known and can be shown to have been known by GDSC at
the time of its receipt from ADC, or by ADC at the time of its receipt from
GDSC, as the case may be;
(c) that is received by GDSC from a third party without breach of
this Agreement by GDSC, or is received by ADC from a third party without breach
of this Agreement by ADC, as the case may be;
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(d) that is required by law to be disclosed; or
(e) that is disclosed in accordance with the written consent of
GDSC or of ADC, as the case may be.
10.02 Press Releases. No press releases or other public announcements
concerning the transactions contemplated by this Agreement shall be made by ADC
without the prior written consent of GDSC; provided, however, that nothing
herein shall prevent a party from supplying such information or making
statements as required by governmental authority or in order for a party to
satisfy its legal obligations (prompt notice of which shall in any such case be
given to the other party or parties).
ARTICLE 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; except ADC may assign its right to receive Earnout Payments to
Shareholder who, in turn, may assign such rights to a trust principally for his
benefit or the benefit of his family.
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.
11.03 Fees and Expenses. GDSC shall be solely responsible for all costs and
expenses incurred by it, and ADC shall be solely responsible for all costs and
expenses incurred by ADC, in connection with the negotiation, preparation and
performance of and compliance with the terms of this Agreement.
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 Oregon (except for the choice of
law provisions thereof).
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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 ADC or Shareholder:
Tonkon Torp LLP
1600 Pioneer Tower
888 SW Fifth Avenue
Portland, OR 97204
Telecopy No.: (503) 972-3754
Attention: Brendan R. McDonnell
11.08 Breach; Equitable Relief. The parties acknowledge that the Business
and rights of the parties described in this Agreement are unique and that money
damages alone for breach of this Agreement would be inadequate. Any party
aggrieved by a breach of the provisions hereof may bring an action at law or
suit in equity to obtain redress, including specific performance, injunctive
relief or any other available equitable remedy. Time and strict performance are
of the essence in this Agreement.
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.
30
<PAGE>
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.
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: Executive Vice President
----------------------------------
ADC: AFFORDABLE DENTAL CARE, INC.
By: GERALD M. BIEZE, DDS
-------------------------------------
Gerald M. Bieze, DDS, President
Shareholder: GERALD M. BIEZE, DDS
-----------------------------------------
Gerald M. Bieze, DDS
31
STOCK PURCHASE AGREEMENT
between
GENTLE DENTAL SERVICE CORPORATION
and the sole shareholder of
MANAGED DENTAL CARE OF OREGON, INC.
Dated February 28, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I Purchase and Sale of MDCO Shares............................... 1
1.01 Purchase and Sale; Tax Election......................... 1
1.02 Purchase Price.......................................... 2
1.03 Instruments of Transfer................................. 2
1.04 Further Assurances...................................... 2
1.05 Closing................................................. 2
1.06 Allocation of Purchase Price............................ 2
ARTICLE II Representations and Warranties of GDSC......................... 2
2.01 Authorization........................................... 2
2.02 Compliance.............................................. 2
2.03 Consents................................................ 3
2.04 Accuracy of Representations and Warranties.............. 3
2.05 Reliance................................................ 3
ARTICLE III Representations and Warranties of MDCO and Shareholder......... 3
3.01 Corporate Existence; Authority.......................... 3
3.02 No Adverse Consequences................................. 4
3.03 Brokers and Finders..................................... 4
3.04 Litigation.............................................. 4
3.05 Compliance with Laws.................................... 4
3.06 Employment Matters...................................... 5
3.07 Financial Statements.................................... 6
3.08 Receivables............................................. 6
3.09 Prepaid Expenses and Other.............................. 6
3.10 Personal Property....................................... 7
3.11 Payables................................................ 7
3.12 Indebtedness............................................ 7
3.13 Other Liabilities....................................... 7
3.14 Absence of Certain Changes or Events.................... 7
3.15 Leases.................................................. 8
3.16 Certain Contracts and Arrangements...................... 8
3.17 Status of Contracts and Leases.......................... 9
3.18 Title and Condition of Tangible Assets.................. 9
3.19 Insurance............................................... 10
3.20 Taxes................................................... 10
3.21 No Restrictions......................................... 11
3.22 Permits and Licenses.................................... 11
i
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Page
3.23 Certain Payments........................................ 11
3.24 Environmental Conditions................................ 11
3.25 Consents and Approvals.................................. 11
3.26 Records................................................. 12
3.27 Reliance................................................ 12
3.28 Accuracy of Representations and Warranties.............. 12
ARTICLE IV Covenants of MDCO and Shareholder.............................. 12
4.01 Access to Properties, Books and Records................. 12
4.02 Negative Covenants...................................... 12
4.03 Affirmative Covenants................................... 14
4.04 No Negotiations With Others............................. 14
ARTICLE V Joint Covenants................................................ 15
5.01 Governmental Consents................................... 15
5.02 Best Efforts; No Inconsistent Action.................... 15
ARTICLE VI Conditions to Obligations of GDSC.............................. 15
6.01 Governmental Approvals.................................. 15
6.02 Consents................................................ 15
6.03 Representations, Warranties and Covenants............... 16
6.04 Adverse Proceedings..................................... 16
6.05 No Adverse Change....................................... 16
6.06 Opinion of Counsel...................................... 16
6.07 ADC Agreement Closing................................... 16
6.08 Lease 16
6.09 Actions Satisfactory to GDSC's Counsel.................. 16
ARTICLE VII Conditions to Obligations of MDCO.............................. 17
7.01 Representations, Warranties and Covenants............... 17
7.02 Adverse Proceedings..................................... 17
7.03 Opinion of Counsel...................................... 17
7.04 ADC Agreement Closing................................... 17
7.05 Lease................................................... 17
7.06 Actions Satisfactory to ADC's Counsel................... 17
ii
<PAGE>
Page
ARTICLE VIII Termination ............................................... 18
8.01 Right of Parties to Terminate........................... 18
8.02 Effect of Termination................................... 18
ARTICLE IX Survival; Indemnification...................................... 18
9.01 Survival................................................ 18
9.02 Indemnification by MDCO and Shareholder................. 19
9.03 Indemnification by GDSC................................. 19
9.04 Indemnification Procedure............................... 19
9.05 Right of Offset......................................... 21
9.06 Limitations............................................. 21
9.07 Rights Not Exclusive.................................... 21
ARTICLE X Confidentiality; Press Releases................................ 21
10.01 Confidentiality......................................... 21
10.02 Press Releases.......................................... 22
ARTICLE XI Other Provisions............................................... 22
11.01 Benefit and Assignment.................................. 22
11.02 Entire Agreement........................................ 23
11.03 Fees and Expenses....................................... 23
11.04 Amendment, Waiver, etc.................................. 23
11.05 Headings................................................ 23
11.06 Governing Law........................................... 23
11.07 Notices................................................. 23
11.08 Breach; Equitable Relief................................ 24
11.09 Attorneys' Fees......................................... 24
11.10 Counterparts............................................ 25
iii
<PAGE>
INDEX OF DEFINED TERMS
Term Location of Definition
- ---- ----------------------
ADC................................................... Introduction
ADC Agreement......................................... Introduction
Closing............................................... 1.05
Closing Date.......................................... 1.05
Code.................................................. 1.01
Contracts............................................. 3.16
Current Balance Sheet................................. 3.07-1
Damages............................................... 9.02-1
ERISA................................................. 3.06-2
ERISA Plans........................................... 3.06-2
Environmental Law..................................... 3.24-2(a)
Financial Statements.................................. 3.07-1
GDSC.................................................. Introduction
GDSC's Indemnified Persons............................ 9.02-1
Hazardous Substance................................... 3.24-2(b)
Leases................................................ 3.15
MDCO.................................................. Introduction
MDCO Shares........................................... Introduction
Material Adverse Change............................... Article III Introduction
Material Adverse Effect............................... Article III Introduction
Permits............................................... 3.22
Policies.............................................. 3.19
Purchase Price........................................ 1.02
Real Property......................................... 3.15
Related Documents..................................... 9.01
Returns............................................... 3.20-1
Shareholder........................................... Introduction
Tangible Personal Property............................ 3.10
Taxes................................................. 3.20-3
Third Party Claims.................................... 9.04-1(a)
iv
<PAGE>
LIST OF EXHIBITS
Exhibit Item First Reference
- ------- ---- ---------------
A Opinion of MDCO's Counsel 6.06
B Opinion of GDSC's Counsel 7.03
LIST OF SCHEDULES
Schedule Content
- -------- -------
1.06 Purchase Price Allocation
3.04 Litigation
3.06-2 Employee Benefits
3.06-3 Employment Manuals and Policies
3.06-4 Compensation
3.07 Financial Statements
3.08 Receivables
3.09 Prepaid Expenses and Other
3.10 Tangible Personal Property
3.11 Payables
3.12 Indebtedness
3.13 Other Liabilities
3.15 Leases
3.16 Contracts
3.19 Insurance
3.25 Consents and Approvals
v
<PAGE>
STOCK PURCHASE AGREEMENT
DATED: February 28, 1998
BETWEEN: GENTLE DENTAL SERVICE CORPORATION,
a Washington corporation
900 Washington Street, Suite 1100
Vancouver, WA 98660
Telecopy No.: (360) 750-8667 "GDSC"
AND: MANAGED DENTAL CARE OF OREGON, INC.
an Oregon corporation
215 North Blaine Street
Newberg, OR 97132
Telecopy No.: (503) 537-0300 "MDCO"
AND: Gerald M. Bieze, DDS "Shareholder"
Shareholder is the owner of all of the issued and outstanding capital stock
of MDCO. Shareholder desires to sell, and GDSC desires to purchase, all of the
shares of capital stock of MDCO outstanding on the Closing Date (the "MDCO
Shares") on the terms and conditions set forth in this Agreement, thereby
causing MDCO to become a wholly-owned subsidiary of GDSC. Shareholder is also
the owner of all of the issued and outstanding capital stock of Affordable
Dental Care, Inc., an Oregon corporation ("ADC"). Shareholder and GDSC are
signing an agreement for the purchase and sale of substantially all of the
assets of ADC (the "ADC Agreement") at the same time that they are signing this
Agreement.
In consideration of the mutual promises and covenants contained in this
Agreement, the parties agree as follows:
ARTICLE I
Purchase and Sale of MDCO Shares
1.01 Purchase and Sale; Tax Election. Subject to all the terms and
conditions of this Agreement and for the consideration herein stated, on the
"Closing Date," as that term is defined in Section 1.05, Shareholder agrees to
sell, convey, assign, transfer and deliver the MDCO Shares to GDSC, and GDSC
agrees to purchase and accept the MDCO Shares from Shareholder. In connection
with purchase and sale of the MDCO Shares, Shareholder shall join with GDSC in
timely filing an election under Section 338(h)(10) of the Internal Revenue Code
of 1986, as amended (the
<PAGE>
"Code"), in accordance with Treas Reg ss.1.338(h)(10)-1 to have the transaction
taxed as an asset purchase, and shall take all other similar actions required to
give effect to the election for state and local tax purposes to the greatest
extent allowed by law.
1.02 Purchase Price. The total purchase price for the MDCO Shares (the
"Purchase Price") shall be $950,000, payable by cashiers check or wire transfer
on the Closing Date.
1.03 Instruments of Transfer. On the Closing Date, Shareholder shall
deliver to GDSC certificates for all of the MDCO Shares, duly endorsed for
transfer.
1.04 Further Assurances. Shareholder agrees that, at any time and from time
to time on and after the Closing Date, he will, upon the request of GDSC and
without further consideration, take all steps reasonably necessary to place GDSC
in possession and operating control of the business of MDCO and the assets and
properties of MDCO.
1.05 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Stoel Rives LLP,
900 SW Fifth Avenue, Suite 2300, Portland, Oregon, effective as of the close of
business on the last day of the month in which all conditions to 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 Allocation of Purchase Price. The Purchase Price shall be allocated
among the assets of MDCO in accordance with Schedule 1.06, and GDSC and MDCO
shall be bound by that allocation in reporting the transactions contemplated by
this Agreement to any governmental authority (including without limitation the
Internal Revenue Service).
ARTICLE II
Representations and Warranties of GDSC
GDSC represents and warrants to MDCO and Shareholder as follows:
2.01 Authorization. GDSC is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Washington and has all
requisite corporate power and authority to own and operate its properties and to
carry on its business as now conducted. GDSC has taken all corporate action
necessary to authorize its execution, delivery and performance of this
Agreement. GDSC has full corporate power and authority to enter into this
Agreement and carry out the terms hereof. This Agreement has been duly executed
and delivered by GDSC and is binding upon and enforceable against GDSC in
accordance with its terms, except as enforceability may be limited or affected
by applicable bankruptcy, insolvency, reorganization, or other laws of general
application relating to or affecting creditors' rights generally and except as
enforceability may be limited by rules of law governing specific performance,
injunctive relief or other equitable remedies.
2
<PAGE>
2.02 Compliance. The execution, delivery and performance of this Agreement
by GDSC, the compliance by GDSC with the provisions of this Agreement and the
consummation of the transactions described in this Agreement will not conflict
with or result in the breach of any of the terms or provisions of or constitute
a default under:
2.02-1 the articles of incorporation or bylaws of GDSC;
2.02-2 any note, indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which GDSC is a party or by which GDSC
is bound; or
2.02-3 any statute or any order, rule, regulation or decision of any
court or regulatory authority or governmental body applicable to GDSC.
2.03 Consents. Except for the consent of GDSC's principal bank, no consent,
approval, authorization, order, designation or declaration of any court or
regulatory authority or governmental body, federal or other, or third person is
required to be obtained by GDSC for the consummation of the transactions
described in this Agreement.
2.04 Accuracy of Representations & Warranties. None of the representations
or warranties of GDSC contains or will contain any untrue statement of any
material fact or omits or misstates a material fact necessary to make the
statements contained in this Agreement not misleading. GDSC does not know of any
fact that has resulted or that, in the reasonable judgment of GDSC will result,
in any material adverse change in GDSC's business, results of operation,
financial condition or prospects that has not been set forth in this Agreement.
2.05 Reliance. GDSC recognizes and agrees that, notwithstanding any
investigation by Shareholder, Shareholder is relying upon the representations
and warranties made by GDSC in this Agreement.
ARTICLE III
Representations and Warranties of MDCO and Shareholder
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 MDCO, which shall in any event include any adverse effect
on the assets, revenue or net income of MDCO in excess of $50,000; and "Material
Adverse Change" means any change that has resulted, will result or is likely to
result in a Material Adverse Effect. MDCO and Shareholder represent and warrant
to GDSC as follows:
3.01 Corporate Existence; Authority. MDCO is a corporation duly organized,
validly existing and in good standing under the laws of the State of Oregon, and
MDCO 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. Shareholder owns all of the issued and outstanding
stock of MDCO, consisting of 100 shares of common stock. Neither MDCO nor
3
<PAGE>
Shareholder is party to any 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 of any of MDCO's capital stock. MDCO has no subsidiaries
and has no investments in any corporation, partnership, association, joint
venture or other entity. MDCO has full power and authority to enter into this
Agreement and to carry out its terms. MDCO 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
MDCO and Shareholder and is binding upon and enforceable against MDCO and
Shareholder in accordance with its terms, except as enforceability may be
limited or affected by applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the rights of
creditors and except as enforceability may be limited by rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.02 No Adverse Consequences. Neither the execution and delivery of this
Agreement by MDCO or Shareholder nor the consummation of the transactions
contemplated by this Agreement will
3.02-1 result in the creation or imposition of any lien, charge or
encumbrance on any of MDCO's assets or properties,
3.02-2 violate or conflict with any provision of MDCO's articles of
incorporation or bylaws;
3.02-3 violate any law, judgment, order, injunction, decree, rule,
regulation or ruling of any governmental authority applicable to MDCO or
Shareholder; or
3.02-4 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 MDCO under or constitute a default under any
agreement, instrument, license or permit to which MDCO or Shareholder is a party
or by which either of them is bound.
3.03 Brokers and Finders. Neither MDCO nor Shareholder has employed any
broker, finder or agent or dealt with anyone purporting to act in such capacity
or agreed to pay any brokerage fee, finder's fee or commission with respect to
the transaction contemplated by this Agreement, except that MDCO has employed
Torwest Capital. Any fees owing to Torwest Capital are payable and will be paid
by Shareholder and are not a liability of MDCO or GDSC.
3.04 Litigation. Except as set forth on Schedule 3.04, there is no claim,
litigation, proceeding or investigation of any kind pending or threatened by or
against MDCO and, to the best knowledge of MDCO and Shareholder, there is no
basis for any such claim, litigation, proceeding or investigation.
3.05 Compliance with Laws. MDCO has at all relevant times conducted its
business in compliance with its articles of incorporation and bylaws and all
applicable laws and regulations. MDCO is not in violation of any applicable laws
or regulations, other than violations which singly
4
<PAGE>
or in the aggregate do not, and, with the passage of time will not, have a
Material Adverse Effect. MDCO is not subject to any outstanding order, writ,
injunction or decree, and MDCO has not been charged with, or threatened with a
charge of, a violation of any provision of federal, state or local law or
regulation.
3.06 Employment Matters.
3.06-1 Labor Matters
(a) MDCO is not a party or otherwise subject to any collective
bargaining or other agreement governing the wages, hours or terms of employment
of his employees. MDCO 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 MDCO
pending before the National Labor Relations Board or any other governmental
authority, (2) labor strike, slowdown or work stoppage actually occurring or, to
the best of the knowledge of MDCO, threatened against him, (3) representation
petition respecting MDCO'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 MDCO.
(c) MDCO has not experienced any primary work stoppage or other
organized work stoppage involving its employees in the past two years.
3.06-2 Employee Benefits. Schedule 3.06-2 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
MDCO, and complete and accurate copies of all those plans or arrangements have
been provided to GDSC. The employee pension benefit plans (within the meaning of
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") established and maintained by MDCO that are subject to ERISA are
listed separately as ERISA Plans on Schedule 3.06-2 (the "ERISA Plans"). The
ERISA Plans comply with the applicable requirements of ERISA. MDCO has received
from the Internal Revenue Service a favorable determination for each of the
ERISA Plans and their related trusts that each of the ERISA Plans is qualified
under Section 401(a) of the Code and the related trust is tax-exempt under
Section 501(a) of the Code. There has been no event subsequent to that
determination that has adversely affected the tax qualified status of the ERISA
Plans or the exemption of the related trusts other than changes in the Code that
are not effective as of the Closing Date. No "accumulated funding deficiency" as
defined in Section 302(a)(2) of ERISA or Section 412(a) of the Code exists, or
has existed, with respect to any of the ERISA Plans. The present value of all
accrued benefits under each of the ERISA Plans does not exceed the value of such
plan's assets, less all liabilities other than those attributable to accrued
benefits. MDCO has no "potential withdrawal liability," as defined in Section
4201 of ERISA. None of the ERISA Plans, its related trusts or any trustee,
investment manager or administrator thereof has engaged in a nonexempt
"prohibited
5
<PAGE>
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. MDCO has no obligation of any kind (whether under the
terms of the ERISA Plans or under any understanding with employees) to make
payments under, or to pay contributions to or in respect of, any plan or
arrangement listed on Schedule 3.06-2, 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.
3.06-3 Employment Agreements. Each of MDCO's employees is an "at-will"
employee and there are no written employment, commission or compensation
agreements of any kind between MDCO and any of MDCO's employees. Schedule 3.06-3
lists all of MDCO's employment or supervisory manuals, employment or supervisory
policies, and written information generally provided to employees (such as
applications or notices), and true and complete copies of those manuals,
policies and written information have been provided to GDSC. MDCO does not have
any agreements or understandings with MDCO's employees except as reflected in
the items listed in Schedules 3.06-2 and 3.06-3.
3.06-4 Compensation. Schedule 3.06-4 contains a complete and accurate
list of all employees or independent contractors of MDCO as of February 28,
1998, specifying their names, annual base compensation of each such person, and
accrued benefits for such persons as of February 28, 1998.
3.07 Financial Statements.
3.07-1 Schedule 3.07 contains the balance sheets of MDCO as of
December 31, 1997 (the "Current Balance Sheet") and December 31, 1996 and the
related statements of income for the years then ended (such balance sheets and
statements collectively, the "Financial Statements").
3.07-2 The Financial Statements present fairly
(a) the financial position of MDCO as of the dates indicated and
(b) the results of operations for the periods then ended.
3.08 Receivables. Schedule 3.08 lists all accounts receivable of MDCO as of
December 31, 1997. Each of the receivables listed on Schedule 3.08, and each of
the receivables that has arisen since December 31, 1997, has arisen only from
bona fide transactions in the ordinary course of business and is not subject to
any offset or counterclaim.
3.09 Prepaid Expenses and Other. Schedule 3.09 lists all prepaid expenses
and deferred charges of MDCO as of December 31, 1997.
6
<PAGE>
3.10 Personal Property. Schedule 3.10 contains a complete and accurate list
of all the tangible personal property owned or leased by MDCO ("Tangible
Personal Property"). With respect to each item of owned Tangible Personal
Property, Schedule 3.10 lists the original cost as of December 31, 1997.
3.11 Payables. Schedule 3.11 lists all accounts payable and other accrued
liabilities of MDCO as of December 31, 1997, other than payables for brokers'
and attorneys' fees and other expenses of this transaction, and accrued
liabilities for taxes based on income or revenues of MDCO.
3.12 Indebtedness. Schedule 3.12 lists all indebtedness of MDCO as of
December 31, 1997 incurred in connection with the business, operations or assets
of MDCO or the repayment of which is secured by the assets of MDCO.
3.13 Other Liabilities. Except as listed on Schedule 3.13, MDCO does not
have any liability or obligation (whether absolute, accrued, contingent or
other, and whether due or to become due), other than liabilities incurred in the
ordinary course of business consistent with past practice, which individually or
in the aggregate are not material to the business of MDCO.
3.14 Absence of Certain Changes or Events. Since December 31, 1997, there
has not been:
3.14-1 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;
3.14-2 Any damage, destruction or casualty loss, whether insured
against or not, to any assets or properties of MDCO;
3.14-3 Any increase in the rate or terms of compensation payable or to
become payable by MDCO to its 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 key employees; any special bonus or
remuneration paid; or any written employment contract executed or amended;
3.14-4 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 MDCO, except agreements, commitments or
transactions in the ordinary course of business and consistent with past
practices or as expressly contemplated in this Agreement;
3.14-5 Any conduct of business which is outside the ordinary course of
business or not substantially in the manner that MDCO previously conducted its
business;
3.14-6 Any purchase or other acquisition of property, any sale, lease
or other disposition of property, or any expenditure, except in the ordinary
course of business;
7
<PAGE>
3.14-7 Any incurrence of any noncontract liability which, either
singly or in the aggregate is material to the business, results of operations,
financial condition or prospects of MDCO;
3.14-8 Any encumbrance or consent to encumbrance of any property or
assets of MDCO except in the ordinary course of business;
3.14-9 Any declaration or payment of any dividend or other
distribution of money or property on or with respect to any shares of MDCO's
capital stock; or
3.14-10 Any change in the assets, liabilities, licenses, permits or
franchises of MDCO, or in any agreement to which MDCO is a party or is bound,
which has had or reasonably could be expected to have a Material Adverse Effect.
3.15 Leases. Schedule 3.15 contains a complete and accurate list of all
real property leases under which MDCO is lessee ("Leases"), a description of the
real property covered thereby ("Real Property"), the term of each Lease and the
monthly payments under the Lease. Complete and accurate copies of all Leases
have been delivered to GDSC.
3.16 Certain Contracts and Arrangements. Schedule 3.16, which is organized
by type of agreement, contains a complete and accurate list of all agreements of
the following types ("Contracts") to which MDCO is a party or by which MDCO is
bound:
3.16-1 any mortgage, note or other instrument or agreement relating to
the borrowing of money or the incurrence of indebtedness by MDCO or MDCO's
guaranty of any obligation for the borrowing of money;
3.16-2 contracts, agreements, purchase orders or acknowledgment forms
for the purchase, sale, lease or other disposition of capital assets or more
than $20,000 of other equipment or materials;
3.16-3 contracts or agreements for provision or receipt of dentistry
services;
3.16-4 contracts or agreements for the performance or receipt of other
services, excluding employment contracts; provided, however, that only contracts
exceeding $20,000 in annual billings or payments by MDCO must be listed;
3.16-5 contracts or agreements involving annual billings in excess of
$20,000 for the joint performance of work or services and all other joint
venture agreements;
3.16-6 contracts or agreements with agents, brokers, consignees, sales
representatives or distributors relating to the sale of MDCO's services; and
3.16-7 any other contract, instrument, agreement or obligation not
described on any other Schedule to which MDCO is a party or by which MDCO is
bound and which contains material unfulfilled obligations of MDCO.
8
<PAGE>
Complete and accurate copies of all Contracts have been delivered to GDSC.
3.17 Status of Contracts and Leases.
3.17-1 Each of the Contracts and Leases listed on Schedules 3.15 and
3.16 is valid, binding and enforceable by MDCO in accordance with its terms and
is in full force and effect, 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. There is no existing default or
violation by MDCO under any Contract or Lease and no event has occurred which
(whether with or without notice, lapse of time or both) would constitute a
default of MDCO under any Contract or Lease. There is no pending or threatened
proceeding which would interfere with the quiet enjoyment of any Real Property
of which MDCO is lessee or sublessee.
3.17-2 All other parties to the Contracts and Leases have consented or
prior to the Closing will have consented (where such consent is necessary) to
the consummation of the transaction contemplated by this Agreement without
requiring modification of MDCO's rights or obligations under any Contract or
Lease.
3.17-3 MDCO is not aware of any default by any other party to any
Contract or Lease or of any event which (whether with or without notice, lapse
of time or both) would constitute a default by any other party with respect to
obligations of that party under any Contract or Lease, and, to the actual
knowledge of MDCO, there are no facts that exist indicating that any of the
Contracts or Leases may be totally or partially terminated or suspended by the
other parties.
3.17-4 MDCO is not a party to, nor is it bound by, any contract or
agreement that MDCO can reasonably foresee will result in any material loss to
MDCO upon the performance thereof (including any material liability for
penalties or damages, whether liquidated, direct, indirect, incidental or
consequential), unless such contract or agreement is terminable by MDCO on 60 or
fewer days notice at any time without penalty.
3.18 Title and Condition of Tangible Assets.
3.18-1 MDCO owns all of the Tangible Personal Property except the
leased property free and clear of all mortgages, pledges, security interests,
claims, charges or other encumbrances or restrictions of any kind, except
(a) liens disclosed on the Current Balance Sheet or
(b) liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the
Current Balance Sheet).
3.18-2 MDCO has good and absolute title to the Tangible Personal
Property except the leased property.
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3.18-3 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 MDCO's business.
3.18-4 There are no developments affecting any of the Real Property or
Tangible Personal Property pending or, to the actual knowledge of MDCO,
threatened which might materially detract from the value of such property or
assets, materially interfere with any present or intended use of any such
property or assets or materially adversely affect the marketability of such
properties or assets.
3.19 Insurance. Schedule 3.19 contains a complete and accurate list of all
policies of malpractice, liability, fire, worker's compensation and other forms
of insurance insuring MDCO and its employees, assets or operations (the
"Policies"). All the Policies are valid, enforceable and in full force and
effect, all premiums with respect to the Policies covering all periods up to and
including the date as of which this representation is being made have been paid
and no notice of cancellation or termination has been received with respect to
any Policy. The Policies are sufficient for compliance with all requirements of
law and of agreements to which MDCO is a party and provide insurance for the
risks and in the amounts and types of coverage usually obtained by persons using
or holding similar properties in similar businesses. There are no unresolved
claims for insurance payment under any of the Policies. True and complete copies
of the Policies and all endorsements thereto have been delivered to GDSC. MDCO
has not been refused any insurance coverage and no insurance coverage has been
cancelled during the five years preceding the date of this Agreement.
3.20 Taxes.
3.20-1 Returns. MDCO 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 its business, results of operations or financial condition
(collectively, the "Returns") and has timely paid all Taxes shown to be due on
the Returns. All Returns filed are complete and accurate in all material
respects, and no additional Taxes are owed by MDCO with respect to the periods
covered by the Returns. MDCO has provided GDSC with complete and accurate copies
of MDCO's Returns for 1995 and 1996.
3.20-2 Taxes Paid or Reserved. All deficiencies in Taxes asserted or
assessments made by any taxing authority have been fully paid or finally
settled. All Taxes which MDCO 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.
3.20-3 Definition. "Taxes" means all taxes, charges, fees, levies or
other assessments including, without limitation, income, payroll, withholding,
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.
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3.20-4 S Corporation Status. MDCO is, and at all times since
incorporation has been, an S corporation as defined in Section 1361(a)(1) of the
Code.
3.21 No Restrictions. No contract or agreement to which MDCO is a party or
is bound or to which any of its properties or assets is subject limits the
freedom of MDCO to compete in any line of business or with any person.
3.22 Permits and Licenses. MDCO and Shareholder hold and at all times have
held, all licenses, permits, franchises, easements and authorizations
(collectively, "Permits") necessary for the lawful conduct of its business
pursuant to all applicable statutes, laws, ordinances, rules and regulations of
all governmental bodies, agencies and other authorities having jurisdiction over
it or any part of its operations, except where the failure to hold any 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. MDCO and
Shareholder are in compliance with all the terms of each Permit, and there are
no claims of violation by MDCO or Shareholder of any Permit.
3.23 Certain Payments. Neither MDCO nor any other person or entity has,
directly or indirectly, on behalf of or with respect to MDCO or its operations
made or received any payment that was not legal to make or receive under
federal, state or local laws of the United States or any other country or
territory.
3.24 Environmental Conditions.
3.24-1 Compliance. MDCO has operated its business and maintained its
assets, including without limitation the Real Property, in compliance with all
Environmental Laws. All wastes generated in connection with MDCO's business are
and have been transported and disposed of off site in compliance with all
Environmental Laws. No Hazardous Substance is or has been generated,
manufactured, treated, stored, transported, used or otherwise handled on the
Real Property or in connection with MDCO's business.
3.24-2 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.
3.25 Consents and Approvals. Except as set forth on Schedule 3.25, 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 MDCO or Shareholder. MDCO and Shareholder have obtained, or shall have
obtained prior to the Closing, all consents, authorizations or approvals of any
third parties
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required in connection with the execution, delivery or performance of this
Agreement by MDCO or Shareholder or the consummation of the transaction
contemplated by this Agreement. MDCO has made all registrations or filings with
any governmental authority required for the execution or delivery of this
Agreement or the consummation of the transaction contemplated hereby.
3.26 Records. The books of account of MDCO are complete and accurate in all
material respects, and there have been no transactions involving the business of
MDCO which properly should have been set forth therein and which have not been
accurately so set forth. Complete and accurate copies of such books have been
made available to GDSC.
3.27 Reliance. MDCO and Shareholder recognize and agree that,
notwithstanding any investigation by GDSC, GDSC is relying upon the
representations and warranties made by MDCO and Shareholder in this Agreement.
3.28 Accuracy of Representations and Warranties. None of the
representations or warranties of MDCO and Shareholder contains or will contain
any untrue statement of any material fact or omits or misstates a material fact
necessary to make the statements contained in this Agreement not misleading.
MDCO and Shareholder do not know of any fact that has resulted or that, in the
reasonable judgment of MDCO or Shareholder will result, in any material change
in MDCO's business, results of operation, financial condition or prospects that
has not been set forth in this Agreement.
ARTICLE IV
Covenants of MDCO and Shareholder
4.01 Access to Properties, Books and Records. Prior to the Closing Date,
MDCO 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 MDCO and shall permit such persons, at GDSC's expense, to make copies
of such books and records. MDCO shall deliver to GDSC its monthly financial
statements 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 4.01
as confidential in accordance with Section 10.01 hereof. No investigation by
GDSC or any of its authorized representatives pursuant to this Section 4.01
shall affect any representation, warranty or closing condition of any party
hereto or GDSC's rights to indemnification pursuant to Section 9.02 hereof.
4.02 Negative Covenants. Except as otherwise permitted by this Agreement or
with the prior written consent of GDSC, prior to the Closing Date, MDCO shall
not:
4.02-1 Incur 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
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to obligations of others) except in the ordinary and usual course of business
and consistent with past practices, forgive or release any debt or claim, give
any waiver of any right of material value or voluntarily suffer any
extraordinary loss;
4.02-2 Declare, pay or make any dividend or other distribution of
money or property on or with respect to any share of its capital stock, except
that (a) MDCO may distribute to Shareholder cash in an amount that equals the
excess of MDCO's unrestricted cash as of the date of this Agreement over $25,000
and (b) MDCO may distribute to Shareholder to cover income taxes 47% of MDCO's
taxable income less any tax credits available to MDCO for the period from the
date of this Agreement to the Closing Date;
4.02-3 Issue, sell, 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.
4.02-4 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;
4.02-5 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, or agree so to lease or license, any of
its assets;
4.02-6 Acquire any assets which would be material to its business
other than assets acquired in the ordinary and usual course of business and
consistent with past practices;
4.02-7 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;
4.02-8 Enter into any transaction or contract or make any commitment
to do the same, except in the ordinary and usual course of business and not
requiring the payment in any case of an amount in excess of $50,000 annually,
and except for any renewal of MDCO's contract with the Oregon Health Plan and
for a subcontract with GMB, Inc. in a form approved by GDSC;
4.02-9 Increase the wages, salaries, compensation, pension or other
benefits payable, or to become payable by it, to any of its 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;
4.02-10 Implement or agree to any implementation of or amendment or
supplement to any employee profit sharing, pension, bonus, commission,
incentive, retirement, medical reimbursement, life insurance, deferred
compensation or any other employee benefit plan or arrangement;
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4.02-11 Change its accounting methods, policies or practices; or
4.02-12 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 GDSC, prior to the Closing Date, MDCO
shall:
4.03-1 Operate its business as presently operated and only in the
ordinary course and consistent with past practices;
4.03-2 Advise GDSC in writing of any litigation or administrative
proceeding that challenges or otherwise materially affects the transactions
contemplated hereby and of any Material Adverse Change or any event, occurrence
or circumstance which is likely to cause a Material Adverse Change;
4.03-3 When the consent of any third party to the transactions
contemplated by this Agreement is required under the terms of any contract or
agreement material to MDCO's business to which MDCO is a party or by which MDCO
is bound, use its best efforts to obtain such consent on terms and conditions
not materially less favorable than those in effect on the date hereof;
4.03-4 Use its best efforts to maintain all of the Tangible Personal
Property in good operating condition, reasonable wear and tear excepted,
consistent with past practices, and take all steps reasonably necessary to
maintain its intangible assets;
4.03-5 Not cancel or change any policy of insurance (including
self-insurance) or fidelity bond or any policy or bond providing substantially
the same coverage;
4.03-6 Maintain, consistent with past practices, all inventories,
spare parts, office supplies and other expendable items;
4.03-7 Use its best efforts to retain all key employees;
4.03-8 Maintain its books and records in accordance with past
practices;
4.03-9 Pay and discharge all taxes, assessments, governmental charges
and levies imposed upon it, its income or profits or upon any property belonging
to it, in all cases prior to the date on which penalties attach thereto;
4.03-10 Pay and discharge in full all indebtedness listed on Schedule
3.12 and all obligations under any capital leases; and
4.03-11 Comply with all laws, rules and regulations applicable to it
and its business.
4.04 No Negotiations With Others. Except as otherwise permitted by this
Agreement or with the prior written consent of GDSC, MDCO and Shareholder shall
refrain, and shall cause MDCO's employees and any investment banker, attorney,
accountant or other agent retained by
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either of them to refrain, from initiating or soliciting any inquiries or making
any proposals with respect to, or engaging in negotiations concerning, or
providing any confidential information or data to or having any discussions with
any person relating to, any acquisition, business combination or purchase of all
or any significant portion of the assets of, or any equity interest in, MDCO.
MDCO
and Shareholder will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing.
ARTICLE V
Joint Covenants
GDSC, MDCO and Shareholder covenant and agree that they will act in
accordance with the following:
5.01 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.
5.02 Best Efforts; No Inconsistent Action. Each party will use its best
efforts to effect the transactions contemplated by this Agreement and to fulfill
the conditions to the obligations of the other parties set forth in Article 6 or
7 of this Agreement. No party will take any action inconsistent with its
obligations under this Agreement or that could hinder or delay the consummation
of the transactions contemplated by this Agreement, except that nothing in this
Section 5.02 shall limit the rights of the parties under Articles 6, 7 and 8.
ARTICLE VI
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:
6.01 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.
6.02 Consents. MDCO shall have obtained the third-party consents required
under the terms of the Contracts and Leases, and such consents shall not have
required any change to the terms and conditions of the Contracts and Leases
other than changes consented to in writing by GDSC.
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6.03 Representations, Warranties and Covenants.
6.03-1 All representations and warranties of MDCO and Shareholder 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.
6.03-2 All of the terms, covenants and conditions to be complied with
and performed by MDCO and Shareholder at or prior to the Closing shall in all
material respects have been complied with or performed thereby.
6.03-3 GDSC shall have received a certificate of Shareholder, dated as
of the Closing Date, to the effect that the representations and warranties of
MDCO and Shareholder 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 MDCO and Shareholder have in all material respects
complied with or performed all terms, covenants and conditions to be complied
with or performed by it or him at or prior to the Closing.
6.04 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, MDCO or Shareholder to restrain or prohibit, or obtain
damages in respect of, this Agreement or the transactions contemplated by this
Agreement.
6.05 No Adverse Change. There shall not have been any Material Adverse
Change.
6.06 Opinion of Counsel. GDSC shall have received an opinion of Tonkon Torp
LLP, counsel to MDCO and Shareholder, dated the Closing Date, in substantially
the form attached hereto as Exhibit A.
6.07 ADC Agreement Closing. The closing of the ADC Agreement shall have
occurred.
6.08 Lease. Shareholder shall have executed and delivered a lease of the
balance of Shareholder's Newberg property in substantially the form attached as
Exhibit G-2 to the ADC Agreement.
6.09 Actions Satisfactory to GDSC's Counsel. All actions, proceedings,
instruments and documents required to be carried out by this Agreement, or
incidental hereto, and all other relevant legal matters shall be reasonably
satisfactory to counsel for GDSC.
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ARTICLE VII
Conditions to Obligations of Shareholder
The obligations of Shareholder under Article 1 are, at his option, subject
to satisfaction, at or prior to the Closing, of each of the following
conditions:
7.01 Representations, Warranties and Covenants.
7.01-1 All representations and warranties of GDSC made in this
Agreement and in any certificate delivered pursuant hereto shall in all material
respects be true and complete on and as of the Closing Date with the same force
and effect as if made on and as of that date.
7.01-2 All of the terms, covenants and conditions to be complied with
and performed by GDSC on or prior to the Closing shall in all material respects
have been complied with or performed by GDSC.
7.01-3 Shareholder shall have received a Certificate of GDSC, dated as
of the Closing Date, executed by the President or other authorized officer of
GDSC, to the effect that the representations and warranties of GDSC contained in
this Agreement are in all material respects true and complete on and as of the
Closing Date as though made on and as of the Closing Date and that GDSC has in
all material respects complied with or performed all terms, covenants and
conditions to be complied with or performed by it at or prior to the Closing.
7.02 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, MDCO or Shareholder to restrain or prohibit this
Agreement or the transactions contemplated by this Agreement.
7.03 Opinion of Counsel. Shareholder shall have received an opinion of
Stoel Rives LLP, counsel to GDSC, dated the Closing Date, in substantially the
form attached hereto as Exhibit B.
7.04 ADC Agreement Closing. The closing of the ADC Agreement shall have
occurred.
7.05 Lease. GDSC shall have executed and delivered a lease of the balance
of Shareholder's Newberg property in substantially the form attached as Exhibit
G-2 to the ADC Agreement.
7.06 Actions Satisfactory to MDCO'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 MDCO.
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ARTICLE VIII
Termination
8.01 Right of Parties to Terminate. This Agreement may be terminated:
8.01-1 by GDSC, if any of the authorizations, consents, approvals,
filings or registrations described in Section 6.01 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;
8.01-2 by GDSC, if MDCO or Shareholder shall have breached any of
their obligations hereunder in any material respect;
8.01-3 by MDCO, if GDSC shall have breached any of its obligations
hereunder in any material respect; or
8.01-4 by either MDCO or GDSC, by written notice to the other party,
if the Closing shall not have occurred on or prior to December 31, 1999;
provided, however, that the right to terminate this Agreement under this Section
8.01-4 shall not be available to any party whose failure to fulfill or perform
any obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date.
8.02 Effect of Termination. If either GDSC or MDCO decides to terminate
this Agreement pursuant to Section 8.01, 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 8.01, the parties hereto shall be released from
all liabilities and obligations arising under this Agreement (other than those
described in Article 10 hereof) with respect to the matters contemplated by this
Agreement, other than for damages arising from a breach of this Agreement.
ARTICLE IX
Survival; Indemnification
9.01 Survival. All representations, warranties, covenants and agreements
made in this Agreement or in any schedule, certificate or assignment delivered
in accordance with this Agreement (collectively, the "Related Documents") shall
survive any investigation by or on behalf of any party, the execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby and any termination or expiration of this Agreement for a period of three
years and two months following the Closing Date and after such period shall be
terminated and extinguished, except insofar as the damaged party shall have
asserted in writing a claim setting forth with reasonable specificity facts and
circumstances relating thereto prior to the expiration of such period in which
event the party liable shall remain liable with respect to such claim.
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9.02 Indemnification by Shareholder.
9.02-1 Notwithstanding any investigation by GDSC, from and after the
Closing, Shareholder shall indemnify, hold harmless and, to the extent provided
in Section 9.04-1, defend GDSC, its subsidiaries, shareholders, affiliates,
officers, directors, employees, agents, successors and assigns (collectively,
including GDSC, "GDSC's Indemnified Persons") from and against, and reimburse
each of GDSC's Indemnified Persons with respect to, any and all losses, damages,
liabilities, costs and expenses, including interest from the date of such loss
to the time of payment, penalties and reasonable attorneys' fees (collectively,
"Damages") incurred by any of GDSC's Indemnified Persons by reason of or arising
out of or in connection with:
(a) any breach or inaccuracy of any representation or warranty of
MDCO or Shareholder made in this Agreement or any Related Document; or
(b) any failure by MDCO or Shareholder to perform any covenant
required to be performed by them pursuant to this Agreement or any Related
Document.
9.02-2 This indemnification extends to any Damages suffered by any of
GDSC's Indemnified Persons, whether or not a claim is made against any of GDSC's
Indemnified Persons by any third party.
9.03 Indemnification by GDSC.
9.03-1 Notwithstanding any investigation by Shareholder, from and
after the Closing, GDSC shall indemnify, hold harmless and, to the extent
provided in Section 9.04-1, defend Shareholder from and against, and reimburse
Shareholder with respect to, any and all Damages incurred by Shareholder by
reason of or arising out of or in connection with:
(a) any breach or inaccuracy of any representation or warranty of
GDSC made in this Agreement or any Related Document; or
(b) any failure by GDSC to perform any covenant required to be
performed by it pursuant to this Agreement or any Related Document.
9.03-2 This indemnification extends to any Damages suffered by
Shareholder whether or not a claim is made against Shareholder by any third
party.
9.04 Indemnification Procedure.
9.04-1 Third Party Claims.
(a) Each indemnified party shall, with reasonable promptness
after obtaining knowledge thereof, provide any indemnifying party against whom a
claim for indemnification is to be made under this Article 9 with written notice
of all third party actions, suits, proceedings, claims, demands or assessments
that may be subject to the indemnification provisions
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of this Article 9 (collectively, "Third Party Claims"), including, in reasonable
detail, the basis for the claim, the nature of Damages and a good faith estimate
of the amount of Damages.
(b) Each indemnifying party shall have 15 days after its receipt
of the claim notice to notify the indemnified party in writing whether the
indemnifying party agrees that the claim is subject to this Article 9 and, if
so, whether the indemnifying party elects, jointly with any other indemnifying
party notified under Section 9.04-1(a), to undertake, conduct and control,
through counsel of its or their choosing (subject to the consent of the
indemnified party, such consent not to be withheld unreasonably) and at its or
their sole risk and expense, the good faith settlement or defense of the Third
Party Claim.
(c) If within 15 days after its receipt of the claim notice an
indemnifying party notifies the indemnified party that it elects to undertake
the good faith settlement or defense of the Third Party Claim, the indemnified
party shall cooperate reasonably with the indemnifying party in connection
therewith including, without limitation, by making available to the indemnifying
party all relevant information material to the defense of the Third Party Claim.
The indemnified party shall be entitled to participate in the settlement or
defense of the Third Party Claim through counsel chosen by the indemnified
party, at its expense, and to approve any proposed settlement that would impose
any obligation or duty on the indemnified party, which approval may, in the sole
discretion of the indemnified party, be withheld. So long as an indemnifying
party is contesting the Third Party Claim in good faith and with reasonable
diligence, the indemnified party shall not pay or settle the Third Party Claim.
Notwithstanding the foregoing, the indemnified party shall have the right to pay
or settle any Third Party Claim at any time, provided that in such event it
waives any right to indemnification therefor by the indemnifying party.
(d) If an indemnifying party does not provide notice that it
elects to undertake the good faith settlement or defense of the Third Party
Claim, or if an indemnifying party fails to contest the Third Party Claim or
undertake or approve settlement, in good faith and with reasonable diligence,
the indemnified party shall thereafter have the right to contest, settle or
compromise the Third Party Claim in good faith at its exclusive discretion, at
the risk and expense of the indemnifying party, and the indemnifying party will
thereby waive any claim, defense or argument that the indemnified party's
settlement or defense of such Third Party Claim is in any respect inadequate or
unreasonable.
(e) A party's failure to give timely notice will not constitute a
defense, in part or in whole, to any claim for indemnification by such party,
except if, and only to the extent that, such failure results in any material
prejudice to the indemnifying party.
9.04-2 Non-Third Party Claims.
(a) Each indemnified party shall, with reasonable promptness,
deliver to any indemnifying party against whom a claim for indemnification is to
be made under this Article 9 written notice of all claims for indemnification
under this Article 9, other than Third Party Claims, including, in reasonable
detail, the basis for the claim, the nature of Damages and a good faith estimate
of the amount of Damages.
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(b) Each indemnifying party shall have 30 days after its receipt
of the claim notice to notify the indemnified party in writing whether the
indemnifying party accepts liability for all or any part of the Damages
described in the claim notice. If the indemnifying party does not so notify the
indemnified party, the indemnifying party shall be deemed to accept liability
for all the Damages described in the claim notice.
(c) A party's failure to give timely notice will not constitute a
defense, in part or in whole, to any claim for indemnification by such party,
except if, and only to the extent that, such failure results in any material
prejudice to the indemnifying party.
9.05 Right of Offset. At the election of GDSC, any liability of Shareholder
under Section 9.02 which has been established by agreement, litigation or in
accordance with the procedure set forth in Section 9.04 may be satisfied by
offsetting such liability against any Earnout Payment (as defined in the ADC
Agreement) payable under the ADC Agreement that is then due or that subsequently
becomes due; provided, however, that if Shareholder gives notice to GDSC within
30 days after Shareholder receives a notice of claim under Section 9.04-1(a) or
9.04-2(a) of this Agreement that Shareholder contests its liability for such
claim, GDSC may not exercise its right of offset until the procedure described
in Section 9.06 of the ADC Agreement has been completed.
9.06 Limitations. Anything to the contrary notwithstanding, an indemnified
party shall not be indemnified and held harmless in respect of any Damages which
are covered by insurance owned by the indemnified party to the extent that any
loss is reduced by such insurance. The right of the GDSC Indemnified Persons to
seek indemnification from ADC and/or Shareholder under this Agreement or the ADC
Agreement shall terminate the sooner of (a) 38 months from Closing or (b) at
such time as the total Damages paid by ADC and/or Shareholder (whether or not
paid by offset of amounts owed to ADC or Shareholder) reach a total of
$3,500,000.00.
9.07 Rights Not Exclusive. An indemnified party's rights to indemnification
under this Article 9 shall be the exclusive remedy for recovery of monetary
damages in the event of any breach of any representation, warranty or covenant
under this Agreement, but such rights are in addition to, and not in lieu of,
any other rights to which the indemnified party may be entitled in equity.
ARTICLE X
Confidentiality; Press Releases
10.01 Confidentiality.
10.01-1 No information concerning MDCO not previously disclosed to the
public or in the public domain that has been furnished to or obtained by GDSC
under this Agreement or in connection with the transactions contemplated hereby
shall be disclosed to any person other than in confidence to employees, legal
counsel, financial advisers or independent public accountants of GDSC or used
for any purpose other than as contemplated herein. If the transactions
contemplated by this Agreement are not consummated, GDSC shall hold such
information in confidence for a period of two years from the date of any
termination of this Agreement, and all such information that
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is in writing or embodied on a diskette, tape or other tangible medium shall be
promptly returned to MDCO.
10.01-2 No information concerning GDSC not previously disclosed to the
public or in the public domain that has been furnished to or obtained by MDCO or
Shareholder under this Agreement or in connection with the transactions
contemplated hereby shall be disclosed to any person other than in confidence to
the employees, legal counsel, financial advisers or independent public
accountants of MDCO or used for any purpose other than as contemplated herein.
If the transactions contemplated by this Agreement are not consummated, MDCO and
Shareholder shall hold such information in confidence for a period of three
years from the date of any termination of this Agreement, and all such
information that is in writing or embodied on a diskette, tape or other tangible
medium shall be promptly returned to GDSC.
10.01-3 Notwithstanding the foregoing, such obligations of GDSC and of
MDCO shall not apply to information
(a) that is, or becomes, publicly available from a source other
than GDSC or MDCO, as the case may be;
(b) that was known and can be shown to have been known by GDSC at
the time of its receipt from MDCO, or by MDCO at the time of its receipt from
GDSC, as the case may be;
(c) that is received by GDSC from a third party without breach of
this Agreement by GDSC, or is received by MDCO from a third party without breach
of this Agreement by MDCO, as the case may be;
(d) that is required by law to be disclosed; or
(e) that is disclosed in accordance with the written consent of
GDSC or of MDCO, as the case may be.
10.02 Press Releases. No press releases or other public announcements
concerning the transactions contemplated by this Agreement shall be made by MDCO
without the prior written consent of GDSC; provided, however, that nothing
herein shall prevent a party from supplying such information or making
statements as required by governmental authority or in order for a party to
satisfy its legal obligations (prompt notice of which shall in any such case be
given to the other party or parties).
ARTICLE 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
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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.
11.03 Fees and Expenses. GDSC shall be solely responsible for all costs and
expenses incurred by it, and Shareholder shall be solely responsible for all
costs and expenses incurred by Shareholder or MDCO, in connection with the
negotiation, preparation and performance of and compliance with the terms of
this Agreement.
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 Oregon (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
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In the case of MDCO or Shareholder:
Tonkon Torp LLP
1600 Pioneer Tower
888 SW Fifth Avenue
Portland, OR 97204
Telecopy No.: (503) 972-3754
Attention: Brendan R. McDonnell
11.08 Breach; Equitable Relief. The parties acknowledge that the business
of MDCO and rights of the parties described in this Agreement are unique and
that money damages alone for breach of this Agreement would be inadequate. Any
party aggrieved by a breach of the provisions hereof may bring an action at law
or suit in equity to obtain redress, including specific performance, injunctive
relief or any other available equitable remedy. Time and strict performance are
of the essence in this Agreement.
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.
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: Executive Vice President
----------------------------------
MDCO: MANAGED DENTAL CARE OF OREGON, INC.
By: GERALD M. BIEZE, DDS
-------------------------------------
Gerald M. Bieze, DDS, President
Shareholder: GERALD M. BIEZE, DDS
-----------------------------------------
Gerald M. Bieze, DDS
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