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) July 31, 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
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(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File No.) Identification No.)
222 North Sepulveda Boulevard, Suite 740, El Segundo, California 90245
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(Address of principal executive offices) (Zip Code)
(310) 765-2400
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(Registrant's telephone number, including area code)
No Change
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(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 July 31, 1998, Gentle Dental Service Corporation (the "Company")
completed the acquisition of all of the stock of Dedicated Dental Systems, Inc.
("Dedicated Dental"), a Bakersfield, California company which owns and operates
11 staff model dental offices pursuant to a license issued by the California
Department of Corporations under the California Knox- Keene Health Care Service
Plan Act of 1975. The stock was purchased from Arthur G. Kaiser, D.D.S., and
Robert J. Newman. The Company also completed the acquisition of the
nonprofessional assets of related dental practices operating at four locations
in southern California. Specifically, the Company acquired pursuant to the terms
of an asset purchase agreement the non-professional assets of California Dental
Practice Management Company and Mark Thomas, D.D.S., relating to two dental
practices operating in Bakersfield and Wasco, California, respectively. Pursuant
to the terms of a second asset purchase agreement, the Company acquired the
non-professional assets of California Dental Practice Management Company and
Clarence Au, D.D.S., relating to another dental practice operating in
Bakersfield. Lastly, pursuant to the terms of a third asset purchase agreement,
the Company acquired from Arthur G. Kaiser, D.D.S., the non-professional assets
of a dental practice operating in Indio, California.
The aggregate purchase price paid at closing on July 31, 1998 consisted of
$16,431,000 in cash and 705,101 shares of Company Common Stock valued at
$5,769,000. In addition, the Company has agreed to make cash earnout payments in
connection with the acquisition of the stock of Dedicated Dental if certain
EBITDA targets are exceeded for Dedicated Dental and the related dental
practices in the first two years following the closing, with an additional cash
earnout payment potentially payable for the third year following the closing,
unless the sum of the earnout payments already paid exceeds $2.7 million. The
Company has also agreed to make cash earnout payments as set forth in two of the
asset purchase agreements based on the EBITDA of the applicable related dental
practices for the first two years following the closing. Of the total amount of
cash paid at closing, $7,291,000 was obtained from the Company's existing cash
balances, and $9,140,000 was borrowed under the Company's existing credit
facility with Imperial Bank.
Pursuant to the agreement with Dedicated Dental, Arthur G. Kaiser became a
director of the Company effective as of the completion of the acquisition.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
Audited Balance Sheets of Dedicated Dental as of December 31, 1996 and
1997, and related audited Statements of Income and Retained Earnings and
Cash Flows of Dedicated Dental for the years ended December 31, 1996 and
1997.
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Unaudited Balance Sheets of Dedicated Dental as of June 30, 1998, and
related unaudited Statements of Income and Retained Earnings and Cash Flows
of Dedicated Dental for the six-month periods ended June 30, 1997 and 1998.
Audited Combined Balance Sheets of California Dental Practice Management
Company and Related Dental Offices as of December 31, 1996 and 1997, and
related audited Combined Statements of Operations, Changes in Capital and
Cash Flows of California Dental Practice Management Company and Related
Dental Offices for the years ended December 31, 1996 and 1997.
Unaudited Combined Balance Sheets of California Dental Practice Management
Company and Related Dental Offices as of March 31, 1998, and related
unaudited Combined Statements of Operations, Changes in Capital and Cash
Flows of California Dental Practice Management Company and Related Dental
Offices for the six-month periods ended June 30, 1997 and 1998.
The foregoing financial statements are not included in this report and will
be filed by amendment to this report on or before October 14, 1998.
(b) Pro forma financial information. Pro forma Balance Sheet as of June 30,
1998 and pro forma Statements of Operations for the year ended December 31,
1997 and the six-month period ended June 30, 1998.
The foregoing pro forma financial statements are not included in this
report and will be filed by amendment to this report on or before October
14, 1998.
(c) Exhibits.
2.1 Merger Agreement, dated as of September 21, 1997, between the Company,
Gentle Dental Merger Corporation, a wholly-owned subsidiary of the
Company, Dedicated Dental Systems, Inc., a California corporation,
Arthur G. Kaiser, D.D.S., and Robert J. Newman, incorporated by
reference to the Company's Report on Form 10-QSB, Accession No.
97-000656.
2.2 Asset Purchase Agreement, dated as of September 21, 1997, between the
Company, California Dental Practice Management Company, a California
general partnership, Arthur G. Kaiser, D.D.S., Robert J. Newman and
Mark Thomas, D.D.S., incorporated by reference to the Company's Report
on Form 10-QSB, Accession No. 97-000656.
2.3 Asset Purchase Agreement, dated as of September 21, 1997, between the
Company, California Dental Practice Management Company, a California
general partnership, Arthur G. Kaiser, D.D.S., Robert J. Newman and
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Clarence Au, D.D.S., incorporated by reference to the Company's Report
on Form 10-QSB, Accession No. 97-000656.
2.4 Asset Purchase Agreement, dated as of September 21, 1997, between the
Company and Arthur G. Kaiser, D.D.S., incorporated by reference to the
Company's Report on Form 10-QSB, Accession No. 97-000656.
2.5 Amendment dated February 28, 1998, to that certain Merger Agreement,
dated September 21, 1997, between and among the Company, Gentle Dental
Merger Corporation, a California corporation, Dedicated Dental
Systems, Inc., a California corporation, Arthur G. Kaiser and Robert
J. Newman, incorporated by reference to Company's Report on Form 10-
KSB, Accession No. 98-000274.
2.6 Amendment dated February 28, 1998, to that certain Asset Purchase
Agreement, dated September 21, 1997, between and among the Company,
California Dental Practice Management Company, a California general
partnership, Arthur G. Kaiser, D.D.S., Robert J. Newman and Mark
Thomas, D.D.S., incorporated by reference to the Company's Report on
Form 10-KSB, Accession No. 98-000274.
2.7 Amendment dated February 28, 1998, to that certain Asset Purchase
Agreement, dated September 21, 1997, between the Company, California
Dental Practice Management Company, a California general partnership,
Arthur G. Kaiser, D.D.S., Robert J. Newman and Clarence Au, D.D.S.,
incorporated by reference to the Company's report on Form 10-KSB,
Accession No. 98-000274.
2.8 Amendment dated February 28, 1998, to that certain Asset Purchase
Agreement, dated September 21, 1997, by and between the Company and
Arthur G. Kaiser, D.D.S., incorporated by reference to the Company's
report on Form 10-KSB, Accession No. 98-000274.
2.9 Second Amendment dated July 31, 1998, to that certain Merger
Agreement, dated September 21, 1997, by and between the Company,
Gentle Dental Merger Corporation, a California corporation, Dedicated
Dental Systems, Inc., a California corporation, Arthur G. Kaiser,
D.D.S., and Robert J. Newman.
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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: August 12, 1998
GENTLE DENTAL SERVICE CORPORATION
By NORMAN R. HUFFAKER
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Norman R. Huffaker,
Chief Financial Officer
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EXHIBIT INDEX
Exhibit Description
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2.1 Merger Agreement, dated as of September 21, 1997, between the Company,
Gentle Dental Merger Corporation, a wholly-owned subsidiary of the
Company, Dedicated Dental Systems, Inc., a California corporation,
Arthur G. Kaiser, D.D.S., and Robert J. Newman, incorporated by
reference to Company's Report on Form 10-QSB, Accession No. 97-000656.
The following exhibits and schedules to the Merger Agreement have been
omitted and will be provided to the Securities and Exchange Commission
upon request:
Exhibit A New Dental Practice Leases
Exhibit B Opinion of DDS's Counsel
Exhibit C Opinion of GDSC's Counsel
Exhibit D Terms of Employment
Schedule 0.1 Locations
Schedule 5.06 Litigation
Schedule 5.08-1 Collective Bargaining Agreements
Schedule 5.08-2 Employee Benefits
Schedule 5.08-3 Employment Manuals and Policies
Schedule 5.08-4 Directors, Officers and Employees
Schedule 5.09 Financial Statements
Schedule 5.10 Receivables
Schedule 5.11 Prepaid Expenses and Deferred Charges
Schedule 5.12 Tangible Personal Property
Schedule 5.13 Accounts Payable and Accrued Liabilities
Schedule 5.14 Indebtedness
Schedule 5.15 Undisclosed Liabilities
Schedule 5.17 Leases and Real Property
Schedule 5.18 Contracts
Schedule 5.21 Insurance
Schedule 5.28 Consents and Approvals
Schedule 5.30 Bank Accounts
Schedule 5.31 Pending Knox-Keene Approvals
2.2 Asset Purchase Agreement, dated as of September 21, 1997, between the
Company, California Dental Practice Management Company, a California
general partnership, Arthur G. Kaiser, D.D.S., Robert J. Newman and
Mark Thomas, D.D.S., incorporated by reference to the Company's Report
on Form 10-QSB, Accession No. 97-000656.
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The following exhibits and schedules to the Asset Purchase Agreement
have been omitted and will be provided to the Securities and Exchange
Commission upon request:
Exhibit A Assumption Agreement
Exhibit B Assignment and Bill of Sale to GDSC
Exhibit C-1 Assignment to Thomas Professional Corporation
Exhibit C-2 Assignment to Professional Corporation
Exhibit D Support Services Agreement
Exhibit E Assignable Option Agreement
Exhibit F Employment Agreement
Exhibit G Addendum to Employment Agreement
Exhibit H Articles and Bylaws of Professional Corporation
Schedule 1.02-2 Excluded Assets
Schedule 1.10 Purchase Price Allocation
Schedule 2.04 Consents
Schedule 4.06 Litigation
Schedule 4.08-2 Employee Benefits
Schedule 4.08-3 Employment Manuals and Policies
Schedule 4.08-4 Compensation
Schedule 4.09 Financial Statements
Schedule 4.10 Receivables
Schedule 4.11 Prepaid Expenses and Other
Schedule 4.12 Tangible Personal Property
Schedule 4.13 Payables
Schedule 4.14 Indebtedness
Schedule 4.15 Other Liabilities
Schedule 4.17 Leases
Schedule 4.18 Contracts
Schedule 4.21 Insurance
Schedule 4.27 Consents and Approvals
2.3 Asset Purchase Agreement, dated as of September 21, 1997, between the
Company, California Dental Practice Management Company, a California
general partnership, Arthur G. Kaiser, D.D.S., Robert J. Newman and
Clarence Au, D.D.S., incorporated by reference to the Company's Report
on Form 10-QSB, Accession No. 97-000656.
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
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Exhibit C Assignment to Professional Corporation
Exhibit D Support Services Agreement
Exhibit E Assignable Option Agreement
Exhibit F Employment Agreement
Exhibit G Addendum to Employment Agreement
Exhibit H Articles and Bylaws of Professional Corporation
Schedule 1.02-2 Excluded Assets
Schedule 1.10 Purchase Price Allocation
Schedule 2.04 Consents
Schedule 4.06 Litigation
Schedule 4.08-2 Employee Benefits
Schedule 4.08-3 Employment Manuals and Policies
Schedule 4.08-4 Compensation
Schedule 4.09 Financial Statements
Schedule 4.10 Receivables
Schedule 4.11 Prepaid Expenses and Other
Schedule 4.12 Tangible Personal Property
Schedule 4.13 Payables
Schedule 4.14 Indebtedness
Schedule 4.15 Other Liabilities
Schedule 4.17 Leases
Schedule 4.18 Contracts
Schedule 4.21 Insurance
Schedule 4.27 Consents and Approvals
2.4 Asset Purchase Agreement, dated as of September 21, 1997, between the
Company and Arthur G. Kaiser, D.D.S., incorporated by reference to the
Company's Report on Form 10-QSB, Accession No. 97-000656.
The following exhibits to the Asset Purchase Agreement have been
omitted and will be provided to the Securities and Exchange Commission
upon request:
Exhibit A Assumption Agreement
Exhibit B Assignment and Bill of Sale to GDSC
Exhibit C Assignment to Professional Corporation
Exhibit D Support Services Agreement
Exhibit E Assignable Option Agreement
Exhibit F Employment Agreement
Exhibit G Addendum to Employment Agreement
Exhibit H Articles and Bylaws of Professional Corporation
Schedule 1.02-2 Excluded Assets
Schedule 1.10 Purchase Price Allocation
Schedule 2.04 Consents
Schedule 4.06 Litigation
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Schedule 4.08-2 Employee Benefits
Schedule 4.08-3 Employment Manuals and Policies
Schedule 4.08-4 Compensation
Schedule 4.09 Financial Statements
Schedule 4.10 Receivables
Schedule 4.11 Prepaid Expenses and Other
Schedule 4.12 Tangible Personal Property
Schedule 4.13 Payables
Schedule 4.14 Indebtedness
Schedule 4.15 Other Liabilities
Schedule 4.17 Leases
Schedule 4.18 Contracts
Schedule 4.21 Insurance
Schedule 4.27 Consents and Approvals
2.5 Amendment dated February 28, 1998, to that certain Merger Agreement,
dated September 21, 1997, between and among the Company, Gentle Dental
Merger Corporation, a California corporation, Dedicated Dental
Systems, Inc., a California corporation, Arthur G. Kaiser and Robert
J. Newman, incorporated by reference to Company's Report on Form
10-KSB, Accession No. 98-000274.
The following exhibit to the Amendment has been omitted and will be
provided to the Securities and Exchange Commission upon request:
Schedule 1.07 Allocation of Purchase Price
2.6 Amendment dated February 28, 1998, to that certain Asset Purchase
Agreement, dated September 21, 1997, between and among the Company,
California Dental Practice Management Company, a California general
partnership, Arthur G. Kaiser, D.D.S., Robert J. Newman and Mark
Thomas, D.D.S., incorporated by reference to the Company's Report on
Form 10-KSB, Accession No. 98-000274.
The following exhibits to the Amendment have been omitted and will be
provided to the Securities and Exchange Commission upon request:
Exhibit D Support Services Agreement
Exhibit E Assignable Option Agreement
Exhibit F Employment Agreement
2.7 Amendment dated February 28, 1998, to that certain Asset Purchase
Agreement, dated September 21, 1997, between the Company, California
Dental Practice Management Company, a California general partnership,
Arthur G. Kaiser, D.D.S., Robert J. Newman and Clarence Au, D.D.S.,
incorporated by reference to the Company's report on Form 10-KSB,
Accession No. 98-000274.
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The following exhibits to the Amendment have been omitted and will be
provided to the Securities and Exchange Commission upon request:
Exhibit D Support Services Agreement
Exhibit E Assignable Option Agreement
Exhibit F Employment Agreement
2.8 Amendment dated February 28, 1998, to that certain Asset Purchase
Agreement, dated September 21, 1997, by and between the Company and
Arthur G. Kaiser, D.D.S., incorporated by reference to the Company's
report on Form 10-KSB, Accession No. 98-000274.
The following exhibits to the Amendment have been omitted and will be
provided to the Securities and Exchange Commission upon request:
Exhibit D Support Services Agreement
Exhibit E Assignable Option Agreement
Exhibit F Employment Agreement
Exhibit G Addendum to Employment Agreement
2.9 Second Amendment dated July 31, 1998, to that certain Merger
Agreement, dated September 21, 1997, by and between the Company,
Gentle Dental Merger Corporation, a California corporation, Dedicated
Dental Systems, Inc., a California corporation, Arthur G. Kaiser,
D.D.S., and Robert J. Newman.
SECOND AMENDMENT TO MERGER AGREEMENT
This Second Amendment to Merger Agreement ("Amendment") is made and entered
into this 31st day of July, 1998, by and between Gentle Dental Service
Corporation, a Washington corporation ("GDSC"), Gentle Dental Merger
Corporation, a California corporation ("GD Merger"), Dedicated Dental Systems,
Inc., a California corporation ("DDS"), Arthur G. Kaiser, D.D.S, and Robert J.
Newman.
RECITALS
The parties listed above are parties to that certain Merger Agreement dated
September 21, 1997 ("Agreement") as amended by Amendment to Merger Agreement
dated February 28, 1998 (collectively the "Agreement") pursuant to which GDSC
agreed to acquire all of the outstanding stock of DDS through a taxable stock
purchase. The parties mutually desire to make certain amendments to the
Agreement as set forth in this Second Amendment. Capitalized terms used in this
Second Amendment and not otherwise defined shall have the meanings ascribed to
such terms in the Agreement.
In consideration of the mutual covenants contained herein and in the
Agreement, the parties agree as follows:
1. The definition of "EBITDA" in Section 1.02-3 is amended to read as
follows:
"EBITDA" means the combined net income before any reduction for interest,
income taxes, depreciation or amortization of:
(a) DDS,
(b) the Professional Corporations (as defined in the Acquisition
Agreements, which term is itself defined in Section 1.03-2 below), and
(c) GDSC from the provision of services to the Professional Corporations,
excluding any allocation of GDSC corporate or regional overhead expense,
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, and excludes all revenues and expenses attributable to any dental
office other than the 15 dental offices that are either presently owned by DDS
or subject to the Acquisition Agreements. The parties understand and agree that
during the Earnout Period the business of DDS, including but not limited to the
businesses of the dental offices owned by DDS as of the Closing Date, as well as
the businesses of the four dental offices subject to the Acquisition Agreements,
will be operated in the same general manner as those businesses were operated
prior to the Closing Date.
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2. Section 12.02-1 is amended to read as follows:
12.02-1 Notwithstanding any investigation by GDSC, from and after the
Closing, Shareholders shall indemnify, hold harmless and, to the extent provided
in Section 12.04-1, defend GDSC, its subsidiaries, shareholders, affiliates,
officers, directors, employees, agents, successors and assigns (collectively,
"GDSC's Indemnified Persons") from and against, and reimburse each of GDSC's
Indemnified Persons with respect to, any and all losses, damages, liabilities,
costs and expenses, including interest from the date of such loss to the time of
payment, penalties and reasonable attorneys' fees (collectively, "Damages")
incurred by any of GDSC's Indemnified Persons by reason of or arising out of or
in connection with:
(a) any breach or inaccuracy of any representation or warranty of DDS
or Shareholders made in this Agreement or any Related Document;
(b) any failure by DDS or Shareholders to perform any covenant
required to be performed by them pursuant to this Agreement or any Related
Document; or
(c) any Damages arising out of claims made by Tarlochan Singh, D.D.S.
or claims made with respect to taxes owed by or on account of Dr. Singh, to the
extent such Damages exceed the amount paid by insurance of DDS or amounts
recovered by DDS from Dr. Singh.
3. Section 12.05 is amended to read as follows:
12.05 Limitation on Indemnification Obligations. The indemnification
obligations set forth in Section 12.02 and 12.03 shall not apply unless the
total amount of Damages incurred either by GDSC's Indemnified Persons or by
Shareholders (as the case may be) exceeds $500,000 in the aggregate, as a result
of all matters giving rise to rights to indemnification under those Sections;
provided that the preceding provision shall not apply to Damages described in
Section 12.02-1(c), with respect to which GDSC shall be indemnified in full. In
the event that the amount of Damages exceeds $500,000 in the aggregate, GDSC's
Indemnified Persons or Shareholders (as the case may be) shall be entitled to
indemnification for the full amount of all Damages for which indemnification is
to be provided under Section 12.02 or 12.03, except that the indemnification
obligations set forth in Sections 12.02 or 12.03 shall not exceed $6,250,000
under either Section.
4. Except as expressly provided in this Second Amendment, the Agreement is
not otherwise modified and remains in full force and effect.
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IN WITNESS WHEREOF, the parties have executed this Second Amendment as of
the date first written above.
GDSC: GENTLE DENTAL SERVICE CORPORATION
By: L. T. VAN EERDEN
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Title: Executive Vice President
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GD Merger: GENTLE DENTAL MERGER CORPORATION.
By: L. T. VAN EERDEN
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Title: Executive Vice President
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DDS: DEDICATED DENTAL SYSTEMS, INC.
By: ARTHUR G. KAISER, D.D.S.
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Title: PRESIDENT
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The Shareholders: ARTHUR G. KAISER, D.D.S.
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Arthur G. Kaiser, D.D.S.
ROBERT J. NEWMAN
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Robert J. Newman
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